On Management

Dec. 21, 2004
Who Sells? Who Buys? What? Where?

Every business starts by choosing a technology, a product, or a service to sell and a market to sell it to. At least, that's the way it's supposed to work. The amazing thing that often happens is that budding businesses, as well as a lot of long-established ones, skip right over several important steps. Identifying the market and the competition in detail seems such an obvious requirement, yet nearly every company I encounter fails in this crucial task. In an economy that is growing at only 3% a year, a surprising number of companies build their business plans on the assumption of internal growth of three to four times that rate. Where do they expect to get all that new business? Aside from acquisitions, there are only three sources:

  • From gaining market share -- taking business away from competitors.
  • From entering new market segments -- either in new locations or by finding new applications for the product or service.
  • From expanding the market -- adapting a product, service, or technology to serve entirely new purposes or to offer new capabilities not available with older technology.
Most companies focus on the first option because it is inherently the most visible and quantifiable. Whenever I begin a strategic consulting assignment, I ask the client to complete an exercise that I call "Who Sells? Who Buys? What? Where?" You might want to try it. The concept is very simple: Take a spreadsheet and create a matrix. On one side, list the competitors in the chosen market segment. You can do this by product, geography, distribution, or other criteria. Across the top, list the major customers by name -- either for that segment or for the total market if that's your target. At the intersections in the matrix, fill in the dollar value of sales by each competitor to each customer. Most executives struggle mightily with this. They may be able to fill in their own information, but even that stumps a few people.Then at the bottom and sides of the matrix, fill in any "known" segment and industry totals. These might come from trade association data, public company statements, or market research surveys. At this point I should mention a very important row and column in the matrix. Just before the "total" row and column, add an "other" column. This is where you plug in a number to make the row or column add up to the total. Some of these "other" numbers will be positive -- which means you cannot identify all of the market participants and their sales. Others will be negative -- which means you have overestimated some of the competitors' sales. Either way, the exercise is both revealing and thought-provoking. Then tactical planning can begin. How hard will it be to lure some of that volume away from a competitor? How is the competitor likely to react? Will he come after large concentrations of your business? Where? Using this simple tool can reveal major issues and opportunities. It also can help to focus sales, marketing, and product strategies and tactics. Most of all, it will hone the company's sensitivity to the need for competitive information. Once a group has completed this exercise -- and is required to update the "Who Sells? Who Buys? What? Where?" matrix -- it will never be the same again. It always will be on the lookout for new information to improve the original estimates. Simply having this information array will not win new business for you. That requires strategy and tactics, marketing and selling, product enhancement, and more. But it will show you where you might gain new sales and what kind of resistance you might encounter. Most of all, it will provide valid targets. As baseball great Satchel Paige once said, "If you don't know where you are going, how will you know if you end up someplace else?" John Mariotti, a former manufacturing CEO, is the author ofSmart Things to Know About Brands(1999, Capstone Ltd.). His e-mail address is [email protected].

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