Achieving market differenciation through long market access channels

8/8/2019 Achieving market differenciation through long market access channels

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2Long Chain Marketing

the effectiveness of their efforts, to the very first steps of the chain. But in our experience , looking beyond

your customers to understand your true markets is a must – and it is worth the effort.

The construction industry example is self-explanatory. Even beyond the chain of buy and sell market

transactions, it is governed – as any other industry – by standards, regulations and norms. It also includes

participants with strong influence powers : architects, structural and other engineers, consultants, quantity

surveyors. These are also integral part of the chain, even if they never buy or sell any products.. Who in this

whole system, is “the customer”? To whom should I ask their market needs and demands ?

To make things even more complex, construction supply chains have little in common from country to country,

the construction industry being mostly national. Within each country, construction supply chains differ

significantly by building type : large landmark buildings, industrial buildings, office buildings, collective and

individual housing – each of these is a world in itself. Lastly, supply chains are not the same across building

functions : foundations, structure, roofing, walls, façades, doors and windows, partitions, HVAC, sanitary.. all

these come from different channels.

Purchasing decision-making in such a context, results from of a very complex set of processes.

In some cases, the process is simple : to buy steel roof tiles in small quantity, a small builder might go to the

next general construction materials store, himself shelving products from the major national suppliers. In other

cases, it is extremely complex : between the early sketches of an airport to the actual purchase of specially

processed beams, there are years of work and dozens of different decision points.

Seen from the materials suppliers point of view, this poses a daunting marketing challenge. One attitude

consists in closing your eyes to all this complexity, and sell to your direct customers without much further soul-

searching. This undoubtedly is the best approach to reduce the costs of a commercial organization, and for this

reason quite a tempting one. Hopefully, closing the eyes strongly enough will even divert attention from the

untapped business potential out there. But certainly it is not the best approach to develop value for the

company, and reap the most from market potential.

We believe there is a lot to gain in exploring the value potential in long supply chains, rather than giving up at

the mere sight of their complexities.

SOME COMMON ISSUES

Here are some of the pitfalls of selling to Long Chains. These and surely others – those specific to your own

situation – pose formidable challenges to marketing and sales organizations.

Misunderstanding downstream market needs

Direct customers act as a screen between market needs and the upstream suppliers. Provided they

themselves know the downstream supply chains – which is not at all a given, it is neither natural nor

comfortable for them to share this knowledge with their supplier: information is still perceived by

many as a source of power, sometimes with good reasons.

Poor knowledge of downstream needs results in mis-targeted, inward-driven or inexistent innovation,

and in uncompetitive product / price / service positioning.

Unchecked competitive forces and trends

Your true competition may be quite different than what comes up from sales calls. Back to steel,

somebody else’s products may be competing with yours at the distribution level, but a few steps down

your true competition is another material – plastic water pipes, wood frame houses, concrete

structure. Or perhaps an entirely different way of offering the same function : e.g. “natural-fire” fire

safety analysis, instead of structural fire protection paints.




Without a good understanding of your own market access chains and of what is going on at each step,

how could you anticipate market movements, let alone react or prevent them.

Missed value opportunities

Long Chains add value at each step. Your product might constitute a high percentage of your customercosts, leaving reduced space for price negotiation. Offering SOMETHING OF VALUE TO YOUR

CUSTOMER’S CUSTOMER will bring new oxygen to the negotiation table. Of course, dealing with

such opportunities requires a strong and confident spirit of cooperation with your own customers. You

should be prepared to really offer and share value with them.

Weak differentiation

Upstream producers sometimes misperceive the differentiating quality of their offerings. For example,

construction-grade steel is quite a basic product for modern plants, but secondary services and

attributes such as response to short-notice volume requests, technical user support, structural

engineering software, etc. can make a big difference – provided the producer is conscious of the need.

Technically-oriented producers often overlook such service differentiation factors. Conversely, efforts

from the factory to chase the last percentage point in some category of defects might not be valued by

the market.

Complexity cliff

In the steel construction materials case described above, analysis of the major market channels

resulted in 50 opportunity areas, each with a different chain, a specific set of participants, etc. Which

marketing service can possibly deal with 50 market segments in parallel?

LESSONS FROM EXPERIENCE

Dealing with Long Chains requires specific approaches, adapted to each supplier and market conditions. The

key is to start and tenaciously sustain a collective process of learning and channel-building. This process will

lead to better knowledge of your markets, a better focus of development and marketing efforts, an enlarged

horizon of value creation opportunities, and finally open up opportunities for establishing market leadership

positions.

We listed below a sample of generic lessons, learned from our experience in dealing with long market access

chains. Of course your own situation might offer other lessons.

SEGMENT YOUR MARKET UPSIDE DOWN TO UNDERSTAND WHY YOUR PRODUCT IS

BOUGHT

Upstream producers have a natural tendency to segment their markets by product families, or

perhaps by distribution channels. When researching long chains, forget it – at least for a start. Look at

your markets from the eyes of the final user, and segment it according to final use. Sometimes the

distance is too long : most owners of an apartment flat, for example, really have no clue about which

rebars hold their building together (except if they live in an earthquake-stricken city and have seen

buildings with poor reinforcement tumble down). In this case, move up in the chain. Perhaps the

builder ? Or the structural engineer ? Start with the first step in the value chain, starting from final use,

which perceives the functional value (the benefits) of your product; and continue upstream.

Proceeding this way you will uncover the real functioning of things, and why and how your product is

bought.




You may discover unexpected factors : reduce the number of stock items, allow mounting with the

traditional set of tools of the trade, be self-explanatory to illiterate workers, respect the rules of work

allocation between trades, be easily insurable… a whole host of factors might play an important role in

the chain, that have nothing to do with the product’s main functionality.

FORM AND EMPOWER SECTOR TEAMS

Early in the process, form multi-functional sector teams who will explore your market access channels

and formulate the core of your marketing strategies. Representatives from factories, research &

development, technical support, logistics can all contribute.

A common difficulty here, perhaps surprisingly, is to involve the sales organization itself. Salespeople

live in a world of reality, of pressure on time and money; they fight for results. Long Chain marketing

meetings will appear to them as a waste of time and perhaps also, as a threat to the balance of their

established relationships with their customers.

If your sales organization hesitates, insist. Do involve them from the start. If you don’t, they’ll come

back later with questions, inertia, new obstacles;

Sector teams should not have formal authority beyond organizing their own work : in the end, the

responsibilities of the commercial line organization should be respected. But their members should

have relevant influence in their own field. Sector teams produce knowledge, cooperation, action

proposals, innovation ideas; it’s up to the operational organization to act. To ensure coordination,

they should report regularly at a proper level – e.g. Marketing Committee for work progress and BU

(Business Unit) executive committee for major recommendations and strategy proposals.

Of course, as for any cross-functional team, proper teamwork training and coaching should be offered.

Long Chain Marketing specifics also justify a short team briefing on interview skills and marketanalysis.

A side benefit of such an internally-driven organization is its collective learning, team-building and

recognition effects. It happens that although a sector team does not generate any significant new

actionable proposal, participants find it so useful that they turn it into some form of permanent

“market team” afterwards, in order to keep the momentum going. In complex organizations, ensuring

dialogue between functions is a rare and valuable occasion.

The temptation to use outside consultants to research markets is universal. They are neutral, they are

supposed to know many things, they can focus on our questions. Well, it can work. I have been both a

market consultant and a marketing executive at different stages of my career. Remember : if you and

your people don’t understand your complex market access channels, who else on earth would have

any reason to know more? If you can, hire real experts. But the best broad-base consultants will

merely ask your people, and put this in good form. Why not, but then let’s use them as members of a

team and give proper recognition to all.




DISCOVER THY CHAINS

Now is the time to send your newlyformed sector teams out in the field

for some real work. The objective

here is to describe and understand

the various steps of the chain.

The whole process gains maximum

power when members of the sector

team conduct field interviews

themselves, with minimal support

from outside consultants (which is

also good for budgets..). Knowledge

should primarily grow within the

company, not within the

consultant’s brains... Sending your

own people do the market

interviews, however, undoubtedly

takes a little more time.

The research is to be conducted

sector-by sector (remember, sectors

are end-use segments), preferably

upside down (users first). It shouldproduce types of participants in the

supply chain, names of the major

players, volume estimates, and key

drivers of the purchasing process1.

Supplier teams are generally well-

received and well-perceived by

clients. However, do not ever visit

your customer’s customer without a

clear agreement, and share all

findings openly in this case. The

same holds for your own customers

and sales force.

Lastly, don’t forget the powerful

influences that may reside outside

your scope. What is chinese

competition doing? Are there new

environmental regulations in preparation ? etc.. Understanding the chain includes understanding what

is influencing the chain, its dynamic trends.

1Following a systematic framework covering e.g. function, performance attributes, logistics, service, price of

ownership, …

Example : Safety road barriers for motorways

The chain is simple :

. customers buy flat steel from steel service centers, and

process it into road barriers

. motorway companies buy, mount, maintain and replace

the barriers themselves or through subcontracting

. drivers pay motorway toll fees, and unfortunately some of

them crash onto the barriers.

Market research and creativity exercises identified several

opportunities, but stumbled upon the price/cost

constraints. Ground was being lost against concrete

solution and low-grade steel imports. However new,higher-safety European Standards were being prepared.

Steel is an excellent shock energy absorber. However the

supply chain was too dispersed to exploit this advantage-

strong research resources were required. The steel maker

established a crash modeling competence center, selling its

services to safety barrier makers. In parallel, research was

conducted to reduce thickness and weight, thus reopening

a price flexibility windows (less kg of steel per meter of

motorway) and creating product differentiation.

It took a few years to re-establish steel as a high-

performance solution, displace lower-grade steels, reverse

the concrete substitution trend, and start improving driver

safety in Europe.




Factoring in internal politics and the time pressures on everybody, a thorough research work on a

reasonably complex segment may take 6 to 12 calendar months. In this period however, parallel work

should start on value-creation opportunities.

IDENTIFY VALUE CREATION OPPORTUNITIES

In this phase, creativity should be stimulated to identify value creation opportunities at each stage of

the market access chain. The knowledge gained in the research phase is a guide and reference base

against which ideas can be created, typically in creativity workshops, and prioritized.

Value-creation should be understood in a broad sense. Anything that helps your products solve

somebody’s problems should be included. Opportunities may appear under the form of new

information / communication offered; new services; optimized products, packaging, technical support;

new environmental / recycling performance features; etc..

Value Creation Opportunities need not be readily feasible / available in the supplier organization.

Indeed, third-party players might well be included in the picture at later stages.

The rules of creative processes apply here. Favor quantity in idea-generation, to obtain quality in the

end; apply thorough idea evaluation mechanisms to prioritize and allocate investment. It is here

hypothesized that a sound market product launch process is established within your company; a

whole other subject..

CAN THE VALUE BE CAPTURED ?

Nobody would appreciate investing its time and money, see their idea succeed on the market, but

finally see the benefits going to competitors. This can however happen, whenever value creation

opportunities do not lend themselves well to IP (Industrial Property) protection.

Technical and Commercial barriers should also be envisaged. In the steel safety barrier case described

above, copying grade and thickness optimization would technically take some time. Closecoordination between sales and marketing is a must – sales teams should be kept well-informed and

put in a position to exploit marketing action quickly.

ESTABLISH KEY DOWNSTREAM PARTNERSHIPS

This is the key to success, the “magic” and equally risky element in the Long Chain marketing

framework. Since no upstream producer can possibly master and control all steps and members in its

market access chains, it is often led to delegate this role to a set of carefully empowered partners.

Indeed, they – your downstream customers – are infinitely better placed and competent than you are

yourself, to act within the scope of their specific position in the chain.

“Partnership” is a big word, sometimes a hollow phrase for “I want your money”. Commerce is no

idealistic adventure. In this context, partnership is a joint investment into a commonly perceived

business opportunity. We could produce here complex matrices about the choice of ideal partners. In

real business life, partners should first and foremost be willing and able to walk this part of the walk

together, and feel confident with one another – that’s about it.

Money will be involved. Potential partners may attempt to take advantage of you, e.g. obtain better

prices in exchange for lipservice support to your new idea. Our advice here is to clearly disconnect

price discussions from partnership discussions. If you need to subsidize your customer, don’t do it

through prices : it would distort market realities and lead both of you onto erroneous paths. If the

business model is not viable, let’s discover it as soon as possible. Concretely, market development partnerships may involve financing conferences, exhibitions,

communication material, advertising; conducting joint research; support financing of new equipment;




etc. You will end up helping them to sell their products to your mutual benefit. One advice though,

never provide 100% of the efforts. If your partner does not make any investment, you can be sure he

does not believe in the idea.

Partnership often takes the form of contracts at some point. But often, the first moves and

commitments will happen on the basis of trust, intuition, and the courage of taking some risk.

FINAL WORD

In this short paper we have tried to share some of the lessons gained from our experience , mostly in several

sectors of the steel industry.

While our experience shows that Long Chain marketing can bring fruitful business benefits through specific

projects and optimization actions, there is also a hidden treasure in it.

Gathering multi-functional teams, researching the ultimate destiny of our products, promoting creativity and

innovation : this whole process is an extraordinary opportunity for learning, individually and as anorganization. It is an excellent way of sharing information, strategies and a sense of common purpose among

the teams.

Contact :

Pascal Ponty

[email protected]

Tél. (+33) (0)670 900 781

www.nextmove.fr

mailto:[email protected]



Achieving market differenciation through long market access channels

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