1. Copyright K. B. Wong & Associates Inc
Copyright K.B.Wong & Associates Inc., January 2005 This presentation is provided for the personal records of participants in the (name of session). Any reproduction or distrbution, in whole or in part, requires the expressed written consent of Kenneth B. Wong & Associates Inc

2. Marketing to the Power of One
by: Ken Wong
Queen’s School of Business

3. “Good Business” is the answer to…
How you can SURVIVE and THRIVE…
… in a world filled with MARGIN-SUCKING MAGGOTS

4. Who Are the Margin Sucking Maggots?
Senior – when we fail to focus on the real Management drivers of profitability

5. The Four Routes To Higher Profits
Price
Cost
Minus
Unit
Margins
Volumes
Times
Net
Income
Assets
Managed
Divided By
Market
Share
Size
Times
Return On
Investment

6. Profitability Myth 1 The Role of Marketing and Sales is to build VOLUME

7. A Comparison of Profit Levers
A 1% change in...
Creates a change in operating profit of ...
11.1%
Price
7.8%
Variable Cost
3.3%
Volume
(Average economics of 2,463 businesses in Compustat)
KW-210

8. MARGIN: Marketing’s New Emphasis Means…
We start seeing PRICE as an OBJECTIVE and not solely as a tool for building volume
The same processes used to generate premium prices can be used to apply marketing as an instrument of policy - as a tool of cost abatement as opposed to being a cost center

9. How Marketing Changes When Price/Cost Abatement is An Objective
WHICH PRODUCT IS CHEAPEST?
A: $1.01
B: $1.00
C: $0.999,999,999,999,999,999,999,999,999,999,999,999,999
WHICH PRODUCT HAS THE BEST QUALITY?
A: “Wonderful Quality”
B: “Great Quality”
C: “Smokin’ Good Quality”

10. Profitability Myth 2 All Volume Is Equally “Good”

11. Marketing Can’t Rectify Bad Strategic Choices
Have and Have and Plan to Do Not Have
Will Not Intend to Drop to and Would
Drop Keep Cut Cost Not Add
Segment I - Insurance Minimizers
Life Insurance
Accidental Death
Prescription Drugs
Long-Term Disability
Second Opinion of Surgery
Separate Coverage for Accidents
Segment II - Basic Buyers
Segment III - Premium Buyers
Denotes segment average
Segment Size Revenue per Customer * Claims Problems * Company Share
Insurance Minimizers 30% %
Basic Buyers 34% %
Premium Buyers 36% %
* Indexes for customer revenue and claims problems set equal to 100 for insurance minimizers
KW-245

12. The Profitability of a Transaction Focus
Profit contributed by:
Profit
Base profit
Cost of new customer
Time
Source: Bain & Company (Frederick Reicheld)
KW-153

13. The Value of Customer Loyalty
Profit contributed by:
Price premium
Referrals
Profit
Lower costs
Increased volume 2 3 4 5 6 7
Base profit
Cost of new customer 1
Year
Source: Bain & Company (Frederick Reicheld)

14. Profit Impact of a 1 Percent Increase in Customer Loyalty
Volume
3.3%
Cost
7.8%
Price
11.1% 7 9 15 16 17 19
Software
Industrial distribution
Credit cards
Auto service
Auto/Home insurance
Publishing
Bank branch deposits
Advertising agency 4 8 12 16 20
Percentage Increase in Profits per Customer
Source: Bain & Company (Frederick Reicheld)

15. MARGIN: Marketing’s New Emphasis Means…
While we may want (or have) to serve everyone, not all customers are created equal in terms of the benefits of successful penetration.
Even where all customers must be served, not all customers need to be – nor want to be – treated in the same way.

16. Who Are the Margin Sucking Maggots?
Senior – when we fail to focus on the real Management drivers of profitability
Customers – who want the highest quality at the lowest cost

17. Three Great Customer Myths That Destroy Margins
All customers are created equal
All customers should be treated the same
All customers want more service

18. Are We “Really” Customer Focused?
How to Improve the Retail Experience (Sample Advice)
Personalize the experience
Help the customer find their way
Explain product differences
Show them you care
Show them why they “get what they pay for” (i.e. up sell)
EDI, E-tailing, etc. etc.

19. Match Your Plans to the Customer You Want
LOW PRICE SENSITIVITY
HIGH PRICE SENSITIVITY
PRICE BUYER
Buys lowest cost product with
minimum acceptable quality
HIGH
VALUE FROM
DIFFERENTIATION
LOW

20. Winning the Price (Compliance) Buyer
Buying Motive: Minimum Acceptable Quality at Lowest Price/ Compliance
Key Success Factor: Low Cost Producer/ Operational Efficiency
Key Indicator: Cost
Typical “On Strategy” Ideas:
Rationalize quality to “good enough” levels (e.g. generics)
Promotions that “prove” you have “good enough quality”
Identifies “low value services” and lets the buyer do it
Increase Standardization/Minimize Assortment
Automate services: people aren’t scalable
Minimize marketing costs by selling on price
Maximize distribution coverage

21. Match Your Plans to the Customer You Want
LOW PRICE SENSITIVITY
HIGH PRICE SENSITIVITY
HIGH
VALUE FROM
DIFFERENTIATION
LOW
CONVENIENCE BUYER
Buys what’s available

22. Winning the Convenience Buyer
Buying Motive: Product Availability
Key Success Factor: Wide Market Coverage
Key Performance Indicator: Distribution Intensity Capacity
Typical “On Strategy” Ideas:
Builds “Point-of-Need” Availability
Reduces shopping and transaction time

23. Match Your Plans to the Customer You Want
LOW PRICE SENSITIVITY
HIGH PRICE SENSITIVITY
HIGH
VALUE FROM
DIFFERENTIATION
LOW
RELATIONSHIP BUYER
Buys best brand within reasonable price range

24. Winning the Relationship Buyer
Buying Motive: Best Product/Service
Key Success Factor: Differentiation/ Product Leadership
Key Indicators: Price Realization Product Quality
Typical “On Strategy” Ideas:
Helps identify clients with “tough problems”
Offers Exclusivity
Maximizes Personalization and Frequency of Contact
Increases Product Features
Enhances Ancillary Services
Broadens Assortment (“Share of Wallet”)
esp ComplimentarY products that provide Integrated Solutions
Advances in handling complex logistical arrangements
Anything encourages referral business
Tangible Justification for Premium Pricing

25. Match Your Plans to the Customer You Want
LOW PRICE SENSITIVITY
HIGH PRICE SENSITIVITY
VALUE BUYER
Buys best ratio of price-to-quality
HIGH
VALUE FROM
DIFFERENTIATION
LOW

26. To Sell on Value, Know Your Costs… … and the Value They Create
Total Costs
Add “Good” Costs
Reduce “Bad” Costs
Increase
“Value”
Reduce “Waste”
Higher Prices
and Sales
Lower
Costs
Higher Profits

27. Winning the Value-based Buyer
Buying Motive: Best Deal or Price-to-Quality
Key Success Factor: Niche/ Customer Intimacy/Focus
Key Indicators: Market Penetration Loyalty (Lift and Retention)
Typical “On Strategy” Ideas:
SEGMENTATION AND CUSTOMER VALUATION:
Devices to assist in profiling and valuating different customers
DIFFERENTIATED OFFERINGS (Positioning):
Devices that enable us to discriminate the communication, distribution, pricing and product/service configuration delivered to different accounts

28. SOME QUESTIONS TO PONDER
Have you identified and targeted your “ideal” customer?
Who spends the most?
Who costs the least to sell and service?
What is the ideal “customer experience”?
Do they want “more” service OR a “different kind” of service?
IF you sell to more than one type of account…
How do you change to accommodate their different needs?
Are you “charging” for things the buyer doesn’t want or need?
Where are the greatest potential for “share of wallet” gains?

29. Why It Matters : Three Numbers to Remember
Are you leaving money on the table?
Spending too much?
Chasing the wrong accounts? 11
- 7
- 3

30. The EXECUTION of the MARGIN-SUCKING MAGGOTS
FOCUS ON “EXECUTION”
The EXECUTION of the MARGIN-SUCKING MAGGOTS

31. Ken Wong c/o Queen’s School of Business Kingston Ontario K7L 3N6 tel: fax: