Deadly Sins: Don’t Overlook the Obvious

By Neil Mahoney

Just about every business, be it product or service, has two or three market areas and segments that account for most of that industry’s sales—in dollars, units, or otherwise. This phenomenon is so well established and universal that it’s been given a name: “Pareto’s Curve.” It’s named after an Italian mathematician who many years ago discovered that 20 percent of the population had 80 percent of the wealth.

In Marketing it’s very important to remember that Pareto’s Curve is not a rule, but a rule of thumb. It’s also sometimes called the “20- 80 rule” or a hockey stick, because the curve runs oh-so-slightly upward for about 80 percent of the distance along the X-axis, then bends sharply upward for the remaining 20 percent of the distance. Using Pareto’s Curve you can identify the really important segments of any market—the ones that account for the lion’s share of the business.

Very few markets or market segments follow Pareto’s Curve exactly, but it’s used by professionals to depict big market opportunities they know exist—or most likely exist. From these, market planners formulate strategies and programs by identifying likely prospects and prioritizing their wants and needs in order to develop strong, persuasive sales messages—as well as determining the most effective, efficient ways to reach and serve them.

What’s more, you often can identify related segments that you can sidestep into to launch a product or increase sales at greatly reduced effort or expense. Here’s one good example:

The Market-Segment Sidestep: Finding the sweet spots for hand tools and hardware

A manufacturer of precision measuring equipment, which included hand tools such as micrometers and calipers that are used in manufacturing, decided to enter the large and complex hardware market. It was evident:

1. It would take several years and much money to establish adequate brand awareness and preference among the millions of prospects.
2. It would require hiring, training, and funding a second sales force to build adequate market coverage among the thousands of retail outlets that serve all those prospects in just the U.S. alone.

By studying the market more closely, they decided market segmentation might hold the key to success—both in the long and short term. In the retail hand-tool market, there are three major segments:

• Light Do-It-Yourselfers: This segment makes up about 70 percent of all the people in the U.S. who buy hand tools, but they account for only 20 percent of the sales. These are the ones who keep a pair of pliers and a screwdriver in the kitchen drawer, for example. They’re very expensive to market to because of their vast number, their low-value purchases, and the many and varied retail outlets they buy from.

• Moderate and Serious Do-It-Yourselfers: This segment accounts for almost 25 percent of the purchasers and about 25 to 30 percent of all dollar sales. Serious DIYers like to emulate the pros and often buy the brands the pros use. Both moderate and serious DIYers like to shop at the big-box home improvement chains. While this makes establishing market coverage easier, to get these chains to carry your products you have to demonstrate brand acceptance or uniqueness or give large discounts before they’ll take on your brand.

• Professional Contractors: This segment accounts for less than 5 percent of all users, but more than half of all dollar sales. They demand top quality and ruggedness because they’re very hard on tools. They push them to their limit to get the job done as fast as possible—time is money. They also buy most of their tools and materials from contractor supply houses.

Conclusion: Pros are the key to the company’s side-step strategy.

Because the company already served the manufacturing pros in the industrial sector, it not only had a good reputation for top quality and durability, it also had solid distribution among contractor supply houses. Good market research and market segmentation helped assure its success by sidestepping into the contractor pro market segment.

Executing the Market-Segment Sidestep

To identify your best opportunities for executing the sidestep you need good market research—guessing won’t do it. There are two types of market research:

• Primary research is research you conduct yourself—either through interviews with customers and prospects or “focus groups” made up of knowledgeable customers and prospects. When doing this research, it’s important that the participants represent a true cross-section of your market, and that the questions they are asked will elicit their true beliefs. (If you ask what people thinkabout something, you’ll get a different answer than if you ask how they feelabout something.)
• Secondary research is data that already exists—but you want to be sure the research accurately reflects yourmarkets—and that it was done well. Much research that purports to size markets is based largely on published price sheets. Today, especially, price sheets seldom reflect actual pricing.

Despite the terminology, you usually do secondary research first and primary research second. When analyzing your situation and opportunities, it’s essential that you look at each and every major market segment—not just the general market category, or just those segments the company presently serves. Consider ALL the segments you might be able to effectively serve. Sidestepping into related segments or markets often can be done fairly easily and inexpensively.

The case history about hand tools and contractor supply houses is just one example. For companies that are successfully serving the residential market, sidestepping into the commercial buildings market is often fairly easy and profitable. While it’s often overlooked, the commercial buildings market is huge—about 87 billion square feet as of the year 2000. What’s more, 65 percent of it is very similar to the residential market as to user wants and needs. Examples of businesses that can thrive in this market are: interior decorators, plumbers, and electricians—plus firms that provide paints, carpeting, etc.

Stay tuned for the next installment of “The 11 Most Deadly Sins in Sales & Marketing” in January.

Neil Mahoney is the founder of Mahoney/Marketing and has 30 years of experience at all levels of sales and marketing, including stints at General Electric, ITC Inc., Bausch & Lomb, and ABC Broadcasting. Visit www.mahoneymarketing.com for more information.