What do you do when you know who your target market is, but it is difficult, if not impossible, to reach? Further, what do you do when what you have to offer is not on your target market's radar screen?
Last year, we worked with a large business intelligence software company that wanted to reach CEOs and senior executives in companies with revenues exceeding $500 million. It had a new product in an undefined category that was not well known by targeted manufacturing companies. Initially, without established customers, there was no documented record to illustrate how the product would benefit new customers. Traditional marketing (advertising, PR, trade shows, direct mail, the Internet) wasn't enough to get the attention of fully engaged executives.
We talked with luminaries and potential customers in the target market in order to discover the important issues and how best to reach the top executives. We learned that the potential customers were not getting the information to make the right decisions for managing growth with their current enterprise resource planning (ERP) and data warehousing systems. A former CEO from Digital Electronics Corporation explained the problems, "We lack the ability to link the different pictures. You have to be aware of the variables that could inhibit your revenues. Often, these factors are not captured in the reports." Everyone interviewed believed that they could increase revenue with better information. Eighty-six percent of the executives interviewed said the concept of managing growth is very critical to their businesses.
Because of our findings, we created a new product category called revenue optimization. The foundation for the category is a methodology that uses analytic information to identify opportunities for growth developed by Janet Dang, CEO of greenowl, Inc., based on more than 20 years of experience working with Fortune 500 companies. Companies have focused primarily on ERP and optimizing the production and manufacturing of their products. In other words, they have focused on optimizing the supply chain. Revenue optimization enables companies to grow profitably by managing the top-line, demand-generating activities as efficiently as they manage their budgets (bottom-line costs). According to Albert Viscio, a partner with Accenture, "Revenue optimization opens a new horizon that takes us beyond the limitations of expense control."
Revenue optimization relates to suppliers, vendors and customers as shown in Figure 1.
Figure 1: Revenue Optimization
To achieve greater profitability, you can only cut costs to a certain degree before you experience diminishing returns. Revenue optimization is the other half of the equation. Growth and its source must be managed as well. According to Tyler Hokama, metrics manager for Hewlett Packard, "The value proposition is simple: Without understanding the impact of how to optimize a business under new and potentially changing conditions, a business (or, in fact, an industry) may not survive." Growth can come from many areas: selecting the right customers to target, configuring the product correctly, pricing the product for the proper market, selecting the appropriate channels of distribution, managing conversions and retention, acquiring the right companies, etc.
Garrett van Ryzin, associate professor at Columbia University Graduate School of Business, puts revenue generation in perspective, "The 'professionalization' of revenue optimization is an important challenge for us. If you look around, there are hundreds of companies, consultants and academics involved in some form of revenue optimization. However, they rarely know of each other and most don't know what goes on outside their own company or industry. That's a shame, because it limits the exchange of ideas and practices. As a result, both collectively and individually, we are not as effective as we could be."
Our research confirmed the opportunity to create a new category; however, we were still left with the challenge of how to market to these busy, hard-to-reach executives. We evaluated many organizations such as Financial Executives Institute, The Conference Board, American Management Association and Supply Chain Forum. At the time, none of the associations were covering revenue optimization. The only way to build the market ecosystem and gain credibility for this new paradigm was to start an association.
Dang said, "The concept of revenue optimization was so new that most executives had not heard of it. Education and awareness were the primary barriers to adoption. We believed that establishing a forum for the exchange of information was the best way to move forward effectively." We held a meeting with the people we had talked to previously who were interested in building the category. We involved them in starting an association, the Revenue Optimization Council, dedicated to this category.
With the association and the efforts of our founding partners, the category was created in less than nine months. Following are several of the companies that have announced their commitment to revenue optimization:
- Accenture (formerly Andersen Consulting) has created their revenue optimization practice.
Brio Technology, Inc. offers a revenue process optimization application.
- Columbia University has started the Revenue Process Optimization School of Excellence.
- development systems international has created a revenue optimization model that links previously disparate business integration efforts.
greenowl, Inc. helps companies establish effective revenue optimization practices to engineer profitable growth.
- Manugistics announced they are offering solutions relating to enterprise revenue optimization.
- PROS (Pricing and Revenue Optimization Systems) provides a complete suite of science- based revenue optimization products.
- Solution Dynamics offers revenue optimization consulting and education services.
The association is crucial to creating the category. It allows companies to work together in a neutral environment to further the interests of the group. Nelson Fraiman, director of Columbia Business School's W. Edward Deming Center said, "Columbia Business School looks forward to advancing the study and implementation of this critical business methodology with the industry leaders who are participating in the Revenue Optimization Council."
The council can also serve to facilitate adoption of this new technology. "With the advent of the Revenue Optimization Council, we look forward to establishing replicable methodologies that will reward every type of industry," says Viscio.
Creating a new category is not the answer for every customer-adoption challenge. Creating a new category is more costly than working within an established one. A company can gain revenue more quickly when the category is established, with the opportunity to take over market share even if it is a new entrant, as we have seen many times.
Other challenges include:
- Finding partners who are visionary and influential.
- Funding the vision and continuing to support it prior to initial revenue generation.
- Making the category meaningful to the partners and the target audience.
- Agreeing on a common category definition. (The partners who are building the category with you will have their own interests and direction.)
- Keeping your partners engaged.
These challenges can more easily be overcome with the right approach, and the approach is crucial to success. Viscio said, "This wouldn't have happened without Qualitative Marketing's approach." Companies usually create a new category based on the wrong assumptions, which then make the challenges insurmountable.
Misperception #1: The most common misperception is: The new category is the market. This makes the potential customers elusive and unreachable. To be effective, companies need to distinguish between the market and the product. The category needs to be meaningful to the target customers. It needs to address the issues strategic to their businesses in terms meaningful to them.
Misperception #2: "If you build it, they will come." Building a category is based on building solid relationships with the right partners. Partners are needed on the supply side and the demand side. It is crucial to build the market ecosystem of partners that are needed to establish a new category, or it won't happen.
Misperception #3: Other companies are the primary competition. When a technology is new, the biggest roadblocks to adoption are people's reluctance to change and lack of understanding about how this new technology can help them not other technology companies. When creating a new category, competitors can serve as allies and share the cost. There is usually room for more than one player in a category.
Misperception #4: Many people believe the window of opportunity is short, i.e., six to 18 months. With product life cycles of six months or less, this is understandable. However, the product is different than the category. Most non-Japanese based corporations are short- term oriented. They focus on quarterly sales in a one-year window. With shortened production cycles, three-year business planning processes are viewed as too long. While products need to be upgraded regularly, it takes years to establish a new category. If the money is not allocated for the long term, it would be a mistake to attempt to create a new category. While it has taken less than a year to identify the partners and create the revenue optimization category, it will take several years before the category is established in mainstream corporations.
The keys to successful category development are the relationships developed over the long term. Those that build the market ecosystem of partners are those that win. Microsoft, IBM and other category leaders all have numerous partners and will continue to dominate because of these partnerships.
I would like to acknowledge some of those who have been instrumental in creating the revenue optimization category: Janet Dang, Yorgen Edholm, Tom Osborne, Sarah Booth, Andy Boyd, Norman Carter, Hugh Dunleavy, Bob Ertl, Mike Finley, Nelson Fraiman, Guillermo Gallego, Greg Goodwin, Aliza Heching, Tyler Hokama, Larry Keller, Floyd Kvamme, Bob Phillips, Robert Ross, Arynne Simon, Mark Sirower, Stan Stahl, Garrett van Ryzin, Albert Viscio, Jannell Wei and Kent Yamada.
I hope you have enjoyed reading my monthly column as much as I have enjoyed writing it. I have enjoyed hearing from you and receiving your feedback, as well. I am taking a sabbatical to write a book about how associations can work with the technology industry, to be published by the American Society of Association Executives, Inc., and won't be writing my column during this time. I can still be reached via e-mail at email@example.com.
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