Business Book Review

Saturday, November 04, 2006

Thinking Inside The Box - by Kirk Cheyfitz - UNIFYING THE WHOLE BUSINESS

The primary rule of The Marketing Box is that, without a sale at the end of the rainbow, all is lost. So every business had better be selling all the time, or else.
Marketing, for many, has become for many a synonym for advertising. However, nothing could be further from the truth. Marketing, in fact, encompasses all management, and has no end point. It is the single discipline that embraces and unites virtually every aspect of business activity. Marketing guides production by defining what products will be produced. It governs distribution by determining the most effective ways to price goods and services, and then placing them in front of customer prospects, and delivering them. Marketing defines exactly who the target consumer is and what will be communicated to each prospect and customer to attract their attention, achieve a sale, maintain their loyalty, and create future sales from the same customers.

To accomplish the marketing function, companies must meet customers’ needs and expectations in ways that create and maintain trust. Trust is, and has always been, the basis of commerce. Trust is important when things go well. The crisis that is created when things go wrong can still produce a loyal customer if there is a basis of trust, and if the response to the problem is fast, relevant, and satisfying.

Marketing is not simply a department or something provided by an ad agency, it is, rather, the process of putting the customer at the center of the business. Management sage Peter Drucker has written that business’s only purpose is “to create a customer,” and that marketing and innovation are the two basic functions of business. Marketing, for Drucker, is a central dimension of the entire business. It is the whole business seen from the point of view of its final result, that is, from the customer’s point of view.

Corporate history is littered with examples of companies that failed to see new products from customers’ point of view, among the best known of which are Ford’s Edsel automobile of the late 1950s and the more recent “New Coke” of the mid-1980s. Conversely, often good products and services fail for lack of appropriate distribution and promotion. The only way to improve the odds for the launch of a new product, or to improve the performance of an existing product, is, according to Cheyfitz, to reach inside the lives of prospects and customers to increase the opportunities for a sale and to make sure there is a strategy in place to take advantage of every selling opportunity. Selling is always the end result of marketing.

Communicating with the right people in the right words—personally and directly addressing the consumers most likely to buy the product or service promoted—is the final fundamental of marketing. Technology, particularly interactive technology, provides marketing with an important tool. Contacts with prospects or customers can be documented and retained, thus increasing companies’ knowledge of the people they are communicating with. Stan Rapp, the founder and CEO of MRM Partners Worldwide, has said that in marketing the straight-line progression is from mass to individualized marketing. Marketing can, today, as a result of technology, consider the lives, the wants, the needs of individual consumers, not as huge, undifferentiated groups, not even as well-defined niches, but as individuals. Thus, technology-enabled marketing returns the business world to the kind of personal interaction that was once the norm.

To create market power, as well as to improve efficiency, provide diversification, and extend a company’s core business to new geographic markets, most companies find that they can grow faster and more efficiently, and with less risk and less uncertainty, by buying companies rather than by starting companies. Many successful entrepreneurs began their business ventures with the acquisition of an existing company, not with a start-up. Starting a business means having no operating history to work from. Buying a business, on the other hand, means acquiring something that is already working (with assets, an established stream of revenue, a share of the market, a list of customers, distribution and sales channels, and experienced managers and workers). Because established businesses have assets and cash flow, banks will, generally, lend money at reasonable rates for acquisitions. Using borrowed money to finance an acquisition reduces the need for equity investment, so it increases returns on equity. Great wealth has been created and consolidated through smart acquisitions. Although no formula works all the time, growing by acquisition, done right, works for everyone from huge conglomerates to small, family-oriented entrepreneurs.

The primary question, then, is not whether to acquire, but, why, when, and how to acquire so that the odds in favor of making the merger work, are as high as possible. The author outlines five timeless rules for successful mergers. First, begin with a good reason for buying; ask, “Why am I doing this?” Second, shop around. Look at everything. Get a feel for what’s available, what the prices should be like, how good management operates in the industry, and how competitors stack up against one another. Third, understand what the sellers want from the deal. This creates a competitive advantage if a bidding war breaks out. Fourth, take due diligence seriously and make certain that operations people are involved to help answer critical questions about day-to-day management. Finally, remember that closing the deal is not the end—it’s the beginning. Once the deal is completed, the real work begins: running the acquired company.

Like many business tactics, mergers and acquisitions go in and out of favor with analysts and academics. Studies indicate that mergers come in waves, clustered by industry, indicating that a sizable portion of deals in any given decade are driven by changes in the circumstances of an entire industry. The biggest driver of mergers in the 1990s was not technology or the Internet, but deregulation of the telecommunications, broadcasting, and banking industries.


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