The Most Common Marketing Mistake: Advertising = Marketing

Aaron Stannard — Wed, 28 May 2008 11:00:00 GMT

Four Steps to Understanding Your Market

Advertising and promoting are important marketing tactics but they are not nearly as crucial as the process of understanding your market.

Marketing is like hunting - advertising is a lot like firing your gun at your target, but just "firing your gun" doesn't do you any good if you don't know where the game is. Understanding your market is how you determine where the game is.

When you sell a product or service it is critical to understand:

What problem does your product solve?
How does your product compare with the competition?
Who will buy it and why?
How will you reach them?

The answers to these questions determine whether your product can succeed and if it can, how best to generate sales. For any start up business or new product introduction you can save yourself a lot of wasted time and money by answering these questions before you develop or bring the product to market.

When I think about launching a new business project (my background is in web-based software development) I answer these questions to determine if my end product will be marketable enough to justify the production costs.

Here are the four steps that I take to answer these questions:

1. Break Down Your Unique Selling Proposition

Your unique sales proposition defines the perceived value that your company and your product will add to a customer's life should he or she choose to purchase it. In order to properly define the value that your product adds to your customer's life, you need to determine what problem your product solves for the customer; I make this determination using a Selling Proposition Chart.

A selling proposition chart is a simple step diagram that asks four questions:

Who do you want to sell to?
What do they need?
What are the problems with current solutions for filling this need?
What is your solution?

Let me show you a quick example - I'll be writing a full post on this soon so I don't want to go into too much detail, but here's a peek at the selling proposition chart for SmartDraw - graphics software.

The market for SmartDraw is Microsoft Office^TM users.
The need it meets is for creating business graphics like flowcharts and organization charts.
The pain it relieves is that graphics software is too difficult for most people to use because it relies on their ability to draw.
The solution is to automate the creation of business graphics so that no drawing is required.

SmartDraw 2008 Users: If you want access to the Selling Proposition Chart templates you will need to download the latest content pack for SmartDraw (1.9 meg.)

2. Determine How to Position Your Product Against the Competition

The selling proposition chart helped me determine what problem my product solves and it also helps get me started comparing my product to the competition. However it doesn't go far enough - I need to not only compare my product against the competition, but I need to determine how to position and differentiate my product from the competition.

I use a Positioning Matrix to figure out where my business lies compared to the other competitors in my market.

A positioning matrix has two perpendicular axes and hence four quadrants. The idea is to choose each axis so that your product exists on its own in one quadrant. This defines your unique position in the market. The axes also have to be relevant to customers.

I'll use SmartDraw again as an example:

The pain (from your selling proposition chart) that your product removes starts to answer the questions about how you compare with the competition. The "pain" is usually a drawback of the competition that your product eliminates.

3. Refine Your Target Market

SmartDraw's target market, per the ongoing example, is "Microsoft Office^TM Users." When you think about it, an "Office User" can be any one out of millions of people - in order to build a foundation for a realistic marketing strategy I'm going to need to refine SmartDraw's target market to something a bit more specific.

For this exercise, "target market refinement," I am going to use a Market Focus Diagram.

A market focus diagram is a Venn diagram consisting of overlapping circles that represent market segments that may overlap. In my SmartDraw example below I show a large circle for the whole Office market and smaller circles for those segments that are managers and people who make presentations. Both of these segments have a real need for business graphics. The overlap of the two represents the users with the biggest need.

4. Plan Your Sales Campaign

Notice that I didn't say "advertising campaign." Before you start thinking about advertising campaigns or promoting campaigns you have to consider how your customer will go from hearing about your product to actually purchasing it, and roughly how many of them might end up purchasing it. A typical sales process goes through four stages:

lead generation;
qualification;
proposition; and
closing the sale.

A true sale campaign takes more than four steps (there might be many steps for a single stage,) but ultimately you still need to determine how you're going to transition a potential sale from "lead generation" to "closing the sale." Not only do you have to determine the sales path, but you're also going to have to determine how many of your potential leads make it from one step of the sales campaign to the next.

You have to determine how many leads will realistically convert to customers - only then can you start performing realistic cost justification analysis for future marketing campaigns.

Thus I use a Sales Funnel. In the example below I use "direct mail" as my starting point for lead generation:

Each step should be quantified: What percentage of names on a list result in an inquiry? How many inquiries lead to a proposal? How many proposals lead to a sale? How much revenue is generated from each mailing?

Describing sales as a process makes it easier to identify ways to improve it. If too few inquiries are coming in (at opening of the sales funnel) then the first steps involving the mail piece design and list selection are at fault. If too few proposals lead to a sale (further down the funnel), perhaps pricing is a problem.

Once you learn the average number of leads that result in a proposal and the number of proposals that result in a sale, you can forecast sales much more accurately by looking at the number of potential customers in each step of the funnel.

Those are the four steps that I take to understand my target market, and I will be publishing more posts and screencasts on these four tools in the upcoming month.

SmartDraw 2008 Users: If you want access to the Sales Funnel Chart templates you will need to download the latest content pack for SmartDraw (1.9 meg.)

Download a free trial of SmartDraw.

Working Smarter : Positioning

The Most Common Marketing Mistake: Advertising = Marketing

Four Steps to Understanding Your Market