Pick a Card, Any Card. Pick a Vertical, Any Vertical
(From the October 2004 issue of the Marketing Sense e-newsletter)
CASE STUDY: Tomlan Corp., a fictional company, was an early stage company sitting on $40 million of newly raised capital. The company had designed an Internet catalogue for reselling telecommunication services to fill a new and unique niche. Tomlan’s management and board believed wholeheartedly that the core market was small-to-medium businesses and pitched and built the entire company to serve these customers. Tomlan lined up several large strategic partners who shared a belief that the small business market was a lucrative new niche. Not knowing how to penetrate the market, they decided to ride on Tomlan’s efforts, giving Tomlan management a new wave of confidence in their strategy. But the partners provided no capital and no research. Instead, they took warrants in the company for allowing Tomlan the privilege of offering the larger firm’s services.
At the urging of one board member, Tomlan brought in Maggie Phelps, a highly regarded CMO who had worked for another company in which the board member had invested, to bring their marketplace to the SMB world. The launch date was set in stone: 45 days after her first date of hire.
Maggie’s first question — how big is the SMB market – was answered gleefully. “Millions of companies!” Her second question – where are they – was equally positive to mangement. “Main Street, malls, everywhere! That’s why this is a marketing person’s dream.” Maggie then asked, “How does the market segment?” Again, she sensed unabashed joy in the response as the CFO talked about large, lucrative segments defined by revenue sizes. “What kind of companies are these?” “Barbershops, muffler stores, restaurants. You name it,” came the reply.
Then she lowered the boom? “How do you segment these markets so you can define competitors and displacement, how do you determine common needs, pricing threshholds and service requirements, and how do you affordably reach these companies?” This time she got blank stares. “That’s why we hired you,” said Ned Mondia, the CEO.
Maggie stared back at him and started to sketch out a game plan in her mind. Forty-five days to define a highly fragmented market that, in reality, was probably 25 market segments. Failure would be a disaster for the company and her own, as yet, unblemished record. Success meant she could write her own ticket for the rest of her career. Where would she start?
FRED’S RESPONSE: Pick a card, any card. Pick a vertical, any vertical. And pick it quickly because the times they are a wasting.
Maggie faces a great marketing challenge and one that all marketers would love to tackle. Other members of the management team have become enamored with the service and blindly think that everyone wants it. Whenever someone says that barbershops are a hot market for your technology, run away as fast as you can. Still, Maggie needs to take charge immediately and put some stakes in the ground. The good thing is that she probably has a number of ready-to-market-to verticals that she can tap into quickly.
Her challenge involves what I call the sweaty, smelly, dirty side of marketing. It’s easy to sit in a room with creative, smart people and brainstorm brilliant, fun, clever ideas to do to get attention for your company or product. Billboards, direct mail, infomercials, blimps, stadiums, movie product placement and trade publication advertisements for example. The real challenge comes in figuring out true addressable market size, segment product requirements, and customer willingness to purchase. This process requires creativity, research, analysis, and testing.
A lot of times, tech companies will have a good idea, build a product or service, and then use very general industry market share numbers to create a benchmark of where they expect to be. Many of us have heard an exec say, “If we get our ten percent share of this $1 billion market, we’re in good shape.” Or something such as that. Reality is that there’s a huge gap between the statement and execution.
Maggie, and hopefully her team, can get down to action. While there are a number of places to start, best place is to figure out which verticals make the most sense based on what they are currently offering. In the future, of course, as the service has more of a history, verticals can expand. But the reality is that for most tech product and service offerings, there are only a few verticals that are true possibilities. Even some of the largest and most successful tech companies in the world, with the exception of Microsoft, IBM, and a few others, have only truly penetrated a relatively small number of markets. Go to any large company site and group the companies written about in the case study section. You’ll see a surprisingly short number of verticals covered.
Maggie needs to quickly figure out a few of the potential verticals. She can start by mapping out some of the potential segments already considered by the rest of the management team. Perhaps there is some history or some unique domain expertise in certain verticals that would ensure a quicker access to the customers. While barbershops probably will not represent a profitable threshold, perhaps a dozen of the other segments considered will.
Maggie will need to bring her team together to ascertain which customer segments have a proclivity to buying not only what her company is offering but also from a company such as hers. Some customer groups only buy from the number one or two companies in the industry thus precluding start-ups from buying consideration. Other customers will not take risks on new companies and will only consider purchasing once the market has been established and other customers have been first movers.
All of the markets Maggie’s team considers will need to be completely defined and assessed before decisions are made to move ahead. Some of the factors will include:
•Location (which verticals are concentrated in places they want to sell?)
•Technological status (how advanced is the vertical from a technology perspective. Is it progressive and automated?)
•Buying habits (what is the procurement process, how long does it take, and who makes decisions through the process. Also, factors such as the market’s willingness to purchase from small vendors?)
•Risk aversion (is the market known for investing in technology and related services before they become mainstream?)
•Ability to spend (does the vertical have money to spend on this offering?)
Since there are so many factors to figure out, Maggie should pick no more than six (6) to get started with and perhaps fewer. Forty-five days is not much time, especially considering she needs to bring her team together, get them up to speed and assign research tasks.
Once some of the data is gathered and analyzed, some verticals will fall out. For the ones that make the cut, the markets must be positioned to figure out which are most attractive from a size, risk, growth opportunity, and ease of entry perspective. She also needs to truly figure out how tough the competition is and where it is weakest.
Ease of entry is a particularly important factor. If the market is very complex and regulated perhaps, she will need to determine how easy it is to address these challenges. For example, government markets require knowledge of contracting, procurement, and regulations. Healthcare and pharmaceutical markets may require regulatory understanding. Certain manufacturing verticals may have their own rules and regulations based on scores of history with little modernization.
Once all of this work is done, Maggie and team will now be ready for the fun and easy part of marketing – determining the marketing communications program.