Q and A Archives

Peruse a rich archive of questions and answers that ran from 1999 to 2017
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December When negotiating with a customer, what should I do when their expectation for settlement of an issue is quite different from mine?
A: The answer lies in your planning for the negotiation. You need to set a range for settlement of the issue - what you would like at one end of the range and what you would be willing to accept at the other end. Then do the same thing for your best estimate of the customer's range.

If there is no overlap of the two ranges, you will not settle on this issue and both of you will leave with bad feelings for the other. You have 3 choices:

1. Lower their expectations through persuasion or the creation of fear in their mind; 2. Lower your expectations; or 3. Decide the negotiation won't work and walk away from it.

November In a technical industry how do you best communicate new/updated product requirements internally?
A: Those requirements are usually communicated via a vehicle most commonly known as a Market Requirements Document (MRD). It is important to note that this document represents the needs of the market as surfaced through research of market trends and directions as well in-depth probing and discussions with numerous key accounts within the target market. It is important to note the MRD is NOT a primarily a technical specification for engineering -- it is a precursor to that document.

The MRD identifies not only the application needs of the market, but such information as potential sales volumes, competitors, pricing, margins, the roll-out plan/milestone dates, and value propositions. It is the control document for the product and acts as a check and balance to ensure that all the pieces fit together properly. It is active throughout the life of the product and no changes (engineering or otherwise) should take place without being properly updated and approved in the MRD. It makes your product development MARKET DRIVEN, as it should be.

October Should the product price for a particular customer ultimately be determined by sales or product marketing/management?
A: Under most circumstances it should be determined by product marketing/management which is where the responsibility for product profitability and success should be. This does not mean that customer specific issues relative to pricing should be ignored; just that product marketing/management should have ultimate approval.
September What is product marketing/management's primary responsibility in regard to interfacing with the internal technology and engineering organizations?
A: It is to make them aware of market forces. It is easy enough for an engineer to make assumptions about market forces or ask sales for that information. If that happens, you run a high risk. For example, you manage the response to specials. The last thing you want are sales people penetrating your engineering organization and changing their priorities. You are responsible for those priorities. As with customer service, relaying the product improvement information back to your company for a timely response is the real key to keep the product viable in the marketplace as long as possible.
August Corruption when making sales in many foreign countries in common and against the U.S. Foreign Corrupt Practices Act. Is an American company relieved of liability if a non-employee, representing your company, uses a bribe, etc. to conclude the sale?
A: An "intermediary", or third party who assists the company in some aspect of its foreign business does not remove the American company's liability. The government assumes you have conducted reasonable due diligence background investigations on your intermediaries and have determined they are not involved in corruption. You could still be found guilty.
July In a complex technical sale is it advisable to react to a request for SPECIALS?
A: Nearly all orders today that involve complex equipment, specialized materials, or comprehensive services are not commodities. Some components have so many variables that there never seems to be a standard order and, to be competitive, you have to adapt.

Designers of those products and services, however, are getting better at designing modules. They start by developing a base system and then, anytime you add an option, they develop it and add it to the availability list. Now it has become "standard" and should the need arise, it is already in place. The more successful suppliers are striving to become more flexible, to react to a customer's specific needs in a positive way.

The sales organization can significantly help by being sure that the customer's request reflects a "real" need. Does the customer ask for a function because he is not clear in his own mind about what he really needs? Is there a way to solve his application problem with existing options? A significant amount of dialogue and a strong relationship will be necessary to get the appropriate information.

One of the things that the customer has to be made to understand is when you ask for something that is non-standard, you are going to pay a lot for it. When you price non-standard options, price them as high as you can because in 90% of the cases, your organization will underestimate the true cost. Even if you have a good estimator, he is going to miss something if you haven't designed it before. You have to do it once, design it right, and deliver it.

June Our segment of the industry has become commoditized and aggressive (PICOS) supply chain management year-over-year price reductions are taking away most of our margins. What do I do?
A: The solution is offering new, measurable values relative to your customer's needs. This will provide you with differentiation and the leverage to refuse to accept year-over-year price reduction demands. The new values are found by probing your customer base, identifying unserved needs where you currently have or could develop the capabilities to serve those needs. In almost every case, those needs, albeit not obvious, are present.
May Why should you not let the customer dictate the specifications for your proposal?
A: A key factor in developing the proposal is the handling of specifications. This is something the product marketer should take responsibility for. If you let the customer do it, you are exposing your company to many potential problems. Customers have a tendency to ask for much tighter specifications than they need and sometimes they will list specifications that are just unnecessary. This is an area where you should exercise control. Include the minimum specifications that will meet your customer's needs. For example, include the product name, the size, the power requirements and the production capacity. Along with that, give your customer a guarantee. Be prepared to guarantee that your product will do what you have claimed it would or you will fix it or take it back. Above all, resist the temptation to give your customer more data than they need.
April How can you differentiate yourself when your product and competitive products are truly commodities?
A: Product features, function and specifications aren't the only way to differentiate your company and products. All of the other things you do and provide in relationship to serving your customers are the means of highlighting your valuable differentiation. This could include product availability, distribution time, technical support, guarantee against obsolescence, etc. The possibilities are endless. Find out what you customers value and find unique ways to satisfy those needs. Then promote this differentiation and capitalize on premium pricing of your supposed commodity.
March What is a good definition of a Value Proposiiton?
A: A Value Proposition is a key (general, but succinct), statement of differentiated and timely value or worth of a product, support package, or combination which meets a need or provides a problem solution for an individual customer or group of customers. A Value Proposition consists of a benefit or package of benefits from which a customer is persuaded that he/she derives greater value than a competitor offers.

While a Value Proposition must be specific to the customer being addressed, it may sometimes be generalized to apply to a group of customers with the same, or similar, set of challenges.

February When trying to determine the appropriate price for a product, why would you NOT use standard manufacturing costs provided by Accounting in your calculations?
A: Those standard cost or averages are fine for creating financial statements but are not appropriate for determining true incremental costs for producing your product. For example, you may have a less than full shift and the addition of your product's production will not entail new equipment or building, just more man hours. The overhead of the equipment, building, etc. will not increase and standard costs include them. What you want to consider is the actual incremental cost of the product.
January What does Customerization Market Segmentation mean?
A: Known as Interactive Segmentation, Micromarketing, Atomization and many other names by different authors, it basically means that the market is broken down to one-to-one marketing, or the finest level of detail -- the individual customer. This can be a stand alone segmentation approach or used in conjunction with other types of market segmentation.

Its application is most appropriate for very expensive individual product units where there are a limited number of potential customers. This is the highest level of precision target marketing in the first part of the twenty-first century. It is costly to implement. It has a lot of data gathering and reporting needs, as well as significant investment in account sales teams. It also runs the risk of over-involvement in continuous data analysis and difficulties in implementation and progress measurement. The payoffs can be great however.