Ask senior managers of many family businesses about their firm's marketing, and they are likely to tell you about their hustling, aggressive sales force. Or they may try to convince you that marketing planning is something that large corporations do but is not necessary for small or medium-sized businesses. Or they may complain about wasteful expenditures on advertising.
As family businesses undergo the well-known transition from a single owner-manager to professional management, they have to change the way they identify and respond to customer needs. Instead of relying on the founder's intuitive vision, they must adopt the generic tools of market analysis and planning. Instead of focusing all their efforts on pushing products out the door, they have to analyze marketing trends in order to understand changing customer needs and desires. Otherwise, they may wake up one day and find they are still pushing their products out the door but no one is buying them.
That is exactly what happened recently to builders of swimming pools in Southern California, many of them family owned, that were suddenly left high and dry by a combination of disasters. As a result of the prolonged drought in the area, swimming-pool construction was frowned upon, and public funding for municipal pools plummeted. The deepening recession further eroded demand for what is a costly luxury. One family company saw its revenues fall from $30 million to $10 million in a single year.
While some contractors have continued to push pools and to sit around their offices waiting for the phone to ring, others have tried to expand their concept of the business and to think more creatively about marketing. Instead of defining the business around a product — swimming pools — some have begun to think of themselves as being in the business of "water architecture." They have sought out architects and have offered to work with them on installing decorative fountains and waterfalls. Others have gone back to previous customers and added a hot tub to a previously built pool, or expanded their services to include pool maintenance or landscaping. Still others have started direct-mail campaigns to high-income neighborhoods (guided by zip codes) to get people thinking about building a pool.
FOUR MISTAKEN BELIEFS ABOUT MARKETING
In these recessionary times, companies have to be more market-oriented. Yet while many family firms talk about good marketing, their true orientation is quite different from that of the best market-driven companies. In my experience, four lingering beliefs prevent family companies from adopting and maintaining a systematic marketing orientation, which makes them vulnerable to the shifting currents of demand.
Owners of family businesses often believe that their success is the best evidence of their marketing prowess. The problem with that attitude is that as markets change, the founder's vision may no longer assure success.
By the same token, successors to the business often believe that they must demonstrate the same kind of intuitive genius that led the founder to create the business. Though they frequently enter the business via sales, some successors make little effort to learn what it takes to do effective marketing. They may never get around to setting up a formal mechanism for marketing planning.
Unfortunately, marketing vision is not always promoted in the gene pool. Family successors spend most of their time either trying to carry on the business in the mold established by the founder, or by imposing their own ideas for internal change. Meanwhile, the company may be caught off-guard as shifts develop in the marketplace.
At best, many family business owners believe that marketing is selling, period. At worst, they feel that marketing simply means cultivating personal relationships with customers on the golf course.
A family company may have a marketing manager or even a marketing department, but the role assigned to both is largely pushing the firm's products or services. The company may use advertising, while grumbling about whether it is really effective. The sales force may hold planning meetings that are really cheerleading sessions to exhort them to greater effort. And much emphasis is placed on what one expert calls the "lunch-golf-dinner" model of marketing.
No one would deny that personal relationships are important in business, and marketing does indeed emphasize the selling function. But the best marketing firms understand these activities to be part of a much larger strategy that is aimed at sensing and satisfying customer needs.
This belief is an outgrowth of the wrong-headed notions that marketing is selling and is based on cultivating personal relationships. Some family firms may organize a few focus groups to assess what their customers like or dislike. But many rely on what they feel is an instinctive knowledge of their customers rather than a well-developed research base.
In contrast, market-driven firms conduct systematic, ongoing research into the needs of their customers and the broader market. They know with much greater precision the desires of their potential customer base — and in their planning they constantly look for new trends and niches that they can serve.
As family businesses grow, the owner-manager may appoint someone to be the marketing manager. The CEO assumes that this person will do at least a competent marketing job. There are two problems with this.
First, in a privately held firm, the marketing manager can, consciously or not, begin to feel that the CEO is the customer. Rather than seeking ways to satisfy the ultimate consumer's needs and wants, the manager attempts to satisfy what he perceives to be the CEO's needs and desires.
Second, while it makes good sense to delegate some specific marketing functions, firms that are truly marketing-driven take Tom Peters' advice: Everyone does marketing. This means that the CEO has to take the lead in establishing a culture that is focused on good marketing. In such a culture, marketing is not just one business function. The satisfaction of customer needs becomes the starting point for all the firm's activities, for decisions on product, price, promotion, and distribution.
FOCUSING ON THE MESSY DEMAND SIDE
The two hemispheres of business activity are the "supply side" and the "demand side." The supply side consists of all the internal activities and outputs that generate revenue for the firm. The demand side consists of all the uncontrollable forces that shape the magnitude and nature of sales results.
Business people make supply-side decisions based on their understanding of demand-side forces. In family businesses, however, their understanding is often shaped by the founder's vision. In addition, they are naturally more comfortable on the supply side: holding meetings, dictating correspondence, dealing with subordinates, and making decisions at the office or plant.
The demand side, in contrast, is an inherently threatening place. Consumers rarely tell you exactly what they are thinking, because they don't want you to know or because they don't know themselves. Competitors are even more furtive and unpredictable. New technologies, new government regulations, and a host of other uncontrollable forces can often disrupt a company's plans.
If business owners allow it to, the supply side will consume most of their time and energy. Many of them complain that running the day-to-day business and fighting fires leaves little or no time to engage in systematic planning. Perhaps because of this very stress these owners sometimes prefer to spend their time on activities which are under their relative control — the production of the goods and services that have always produced their revenue — rather than on trying to understand the messy world outside.
GETTING IT RIGHT: A CASE EXAMPLE
One medium-sized family company in the landscaping business illustrates what it takes to switch to a total market orientation. Based in the Midwest, the second-generation company provides a range of services, from designing landscapes and building structures for corporate campuses to planned communities and grounds maintenance for commercial clients and high-end residences. Competition in the industry is fierce, ranging from small "mow-and-grow" contractors with a few employees and a pickup truck to larger firms that do comprehensive landscape architecture, tree care, and snow plowing.
In the 1980s, as its customers opened offices in other cities, the company began to grow beyond the Midwest. The founder's three children were dispatched to manage the firm's new operations around the country. At first this new business was generated by clients who requested that the landscape company follow them to their new locations. But soon the children began to do what can best be described as "opportunistic marketing." They contacted large organizations in their markets, seeking to displace landscaping contractors or to convince those organizations to outsource their grounds maintenance.
The results were reasonably good. But in planning meetings back at headquarters, issues began to emerge: Were the branch offices achieving maximum market penetration? Were some business activities more profitable than the ones the company was already engaged in? What should be the proper mix of revenues from grounds maintenance versus revenues from other services that the firm offered? Should some new services, such as pool cleaning, be offered? These issues were so complex and daunting that discussions of them were usually deferred in favor of deliberations on such internal matters as employee relations and benefit plans.
When the recession began late in the 1980s, the family decided it could establish a competitive edge by introducing a quality management program. Like IBM did earlier in the decade, the family believed that it could keep its customers and entice new ones by improving the quality of services. The family enrolled in a program on total quality management. However, although it was useful, the program only reinforced the company's tendency to concentrate on supply-side activities and ignore the need for more expansive analysis of the demand side.
As in the case of IBM, that strategy of improving quality helped for a while, until customers, looking to cut costs in hard times, began to exert pressure on price. These customers were unimpressed by arguments that cutbacks in landscaping would detract from the all-important first impression that visitors get when approaching their premises. Faced with declining demand for its services and lower revenues, the family landscaping firm was forced to rethink its whole business. It decided to focus on customers' needs as the starting point.
The first step, as prescribed in management textbooks, was to define just what business the family was really in and to establish a vision for the future. The process was useful because it forced the family owners to confront issues and make choices about the kinds of services they wanted to offer and the markets they wished to serve.
The next step was to formulate specific objectives for the coming year. In many companies, these objectives are simply financial growth goals. The landscaping company set objectives that were based on a marketing point of view: For example, it established numbers of potential new customers in different market segments that would be contacted within a given time frame, and then set targets for the amount of additional business that they would have to get from existing customers. In the process, the family went through a blunt evaluation of the company's strengths and weaknesses compared with key competitors, and they listed key trends in various markets that were likely to have an impact on their business in the next year.
Finally, the family team turned its attention to the internal, supply-side support needed to accomplish these objectives. Some new kinds of people would have to be hired to establish contacts and make sales calls in these various markets. The business would have to advertise in selected trade journals. And, in order to offer customers both indoor and outdoor services, the company would seek strategic alliances with firms that performed inside building maintenance.
The process of working out the plan took about a year and wasn't easy. Members of the management team occasionally drifted into discussion of marginal, supply-side issues or of markets that were outside their chosen segments. They had to constantly remind themselves to stay focused on the needs and wants of the customer groups they had selected and to link all supply-side activities to their demand-side decisions. For example, they evaluated different landscaping services from the point of view of how well they served the needs of retirement communities and universities.
Despite the recession the results have been very good. The firm has identified new business opportunities and, equally important, it is now focusing its efforts on these demand-side, market segments. At the same time, family members feel they are working smarter, not just harder. They are not just reacting to short-term conditions and transitory events but are following a long-range plan.
GETTING STARTED: STEPS TO BECOMING A MARKET-DRIVEN ORGANIZATION
The first step is to ask yourself what business you are really in. Most small companies answer the question by listing the products they make or the services they offer-for example, "We're in the landscaping business."
That definition distinguishes the company from, say, a sausage maker, but it is too general to be illuminating. Are they talking about residential or commercial landscaping? Do they mean planning and developing landscapes or just grounds maintenance? Is the business going after cost-conscious customers or customers who are more interested in quality?
The definition of the business should reflect supply-side competencies as well as demand-side realities. If other companies have greater experience and acknowledged skills at designing and creating residential landscapes, it may be best to leave that segment to the competitors.
The process of defining the business means picking and choosing among market segments. It is not enough, for example, to define the market as "all the businesses in my geographic area." Market-driven companies select and rank-order the kinds of customers they wish to serve. These customers usually represent market niches that the company believes it can dominate.
In some cases a business may choose to serve many market segments with diverse products and services. Consider Federal Express, which provides a variety of services, from overnight domestic deliveries of documents to two-day, international deliveries of large packages. You can bet that Federal Express has selected key customers for each of these services, and also has plans in place to target other specific segments that need fast, reliable deliveries, such as advertising agencies and financial service firms.
The outcome of this "business-definition exercise" should be a clear vision of the products and services that the business wishes to offer, and an equally clear vision of the markets and businesses that it most wishes to serve.
The second step is to come up with a marketing plan. When I ask many family companies whether they have such a plan for next year, most of them tell me that they do. When they show it to me, however, the "plan" turns out to be little more than a series of financial projections — simple extrapolations of how much more business they expect to do next year compared with this year.
These are not plans at all. They are merely hopes built on guesswork rather than systematically projected numbers. Marketing plans don't have to be thick volumes of facts and figures; those kinds of plans usually get put on a shelf and are never read. The primary criterion for a good marketing plan is whether it is used on a regular basis for making decisions.
A MARKETING PLAN SIMPLY ANSWERS THREE QUESTIONS:
This is stock-taking. Beyond knowing what a firm's sales volumes are, managers should be able to articulate the company’s position in various market segments and to provide quantitative information on those positions (costs, sales, growth trends, and so on). To analyze these segments properly, managers should understand how the company stacks up against competitors in each of them. Supply-side information is also required: What is the state of the company's plants compared with those of its competitors? How does product quality compare? To provide the most useful basis for planning, the information should be organized by market segment.
To answer this question, managers must first create goals, which are broad statements of desired ends, then set objectives, which are desired near-term results that can be measured. Some business decisions will be designed to achieve near-term results, others will be aimed at accomplishing more distant payoffs. For example, one goal of the landscape company might be "to dominate landscape maintenance services in planned communities of over 300 acres in 10 states." The objective to support that goal might be "to increase sales in this segment by 10 percent in the next 12 months."
The business may set other kinds of goals as well. For example, as a basis for future planning, management may state its intentions to investigate specific new markets or product opportunities.
Management actions will be geared to achieving both short-term and long-term results. For example, to reach new customers in planned communities with over 300 acres, the company may have to hire a new type of sales manager to identify and make contact with companies in this market segment. To achieve longer-range objectives, the company may want to initiate a study of the market potential for all of its services in states where it is not currently operating. Businesses will remain successful as long as they satisfy customer needs and do so in a way that is profitable and is better than that of the competition. But in today's intensely competitive environment, success requires more than hard work, intensive activity, and a casual, seat-of-the-pants approach to marketing. Family businesses delude themselves when they believe that they are different from large public companies and do not have to use the tools of modern marketing analysis and planning. The result is complacency, and a reactive posture rather than a proactive one.
Firms that do not institutionalize planning may have a myopic view of the marketplace that leads to decline and, ultimately, extinction. Low production costs, average quality, and a sound balance sheet no longer assure a company of success. Companies that define their business in terms of customer needs — and gear all their operations to satisfying that need better than their competitors — will be winners in the 1990s.
Scott Ward is professor of marketing at the Wharton School of the University of Pennsylvania. He is the author of several books on marketing, including the best-selling Cases in Marketing.
LEARNING THE MARKETING MINDSET
Firms that want to become more marketing-minded can get started by reading the following:
Available from the Harvard Business School, Publishing Division, Soldiers Field, Boston, Mass. 02163 (617-495-8117):
Available from The Conference Board Inc., 845 Third Ave., New York, N.Y. 10022 (212-759-0900):