Marketplace Realities Is There a Limit to How High You Can Climb?

Last week a client achieved 42 percent of his market potential. Never before had I seen a business break the 40 percent barrier. It was kind of like seeing someone run a four-minute mile. I knew it was possible in theory, but I never thought I'd actually see it.

Ben had come to Austin for his annual marketing retreat. After the usual pleasantries, he said, “Traffic is flat, sales are flat, and I'm not happy.”

“Ben, you've done everything that can be done. You've trained your staff, created a tantalizing compensation structure for them, advertised relentlessly, added every conceivable product line that might increase your attractiveness to your customer, refined your purchasing methods so that your prices are visibly better, built a fabulous new store for the comfort of your customers, and through it all, not one of your competitors has awakened.”

“Are you saying that 3 and a half million is all that can be done in my town?” he bristled.

Looking him calmly in the eyes, I carefully enunciated a single word: “Evidently.”

Business owners, I tell Ben's story to give you a glimpse of the Realities of the Marketplace:

1. Impact Quotient. How powerful is your message compared to your competitors'? This is the Impact Quotient of your message, whether it's delivered through mass media, face-to-face by your salespeople, or word-of-mouth by your customers to their friends. Advertising is more effective when you have something to say.

2. Market Size/Ad Budget Ratio. How big is your town relative to your ad budget? The more populated the trade area, the more expensive it is to advertise. How able are you?

3. Competitive Environment. How good are you at what you do? More importantly, how good are your competitors and how many of them are there? Each of them is going to retain some customers regardless of what you do.

4. Market Potential. What is the potential of your trade area? The total dollars spent in your product category is a not a number you're likely to change. The question is, what percentage of that total will be yours?

Do you know your category's market potential in your trade area? Can you name the degree of your market penetration?

Until a business achieves 4 to 6 percent of their market potential, they usually lack the financial steam to sustain a serious move on the marketplace. But when they've accumulated sufficient cash and courage, the ride to 25 percent is wooly and wonderful. Growing from 25 to 33 percent is much harder than the jump from 5 to 25. And creeping from 33 to 40 happens only when you're blessed with very weak competitors.

Ben's total trade area contains 125,000 people. Statistically, they'll spend 67 dollars per person/per year in his product category. This gives Ben a market potential of 8,375,000 dollars. Growing from half a million to 2.1 million was fun and easy. Growing from 2.1 to 3.5 required Ben to stretch his comfort zone far beyond what most business owners would have been willing to consider. No stone has been left unturned in the 7 years we've been working together.

“Ben, the way I see it, you've got four choices:

1. Fire us and hire an ad firm that will tell you what you want to hear.

2. Start a new business in an unrelated category in your town.

3. Launch your existing category in another town.

4. Shut up and be happy with what you've accomplished.”

I knew that Ben would never do number 4. I figured he'd go for number 2, or possibly even number 1. To my surprise, he immediately picked number 3. “Roy,” he said, “You may not remember it, but you told me three years ago when I built the new store that I needed to be thinking about what I was going to do next. You said building that store was the final thing I might do to improve volume in my town. It looks like you were right.”

We spent the rest of that day evaluating towns for an excited Ben to visit in 4 different states. He's on the road picking one now, and then we'll start climbing again.

Business can be fun when you work with people of courage.

Do you?

This week we've spoken about marketplace realities. Next week I'll tell you about a reality of a different sort.

Roy H. Williams