“Doing the right thing is more important than doing it well” (Peter Drucker)
Obviously,doing the right thing, as suggested by our friend Peter, is the prerequisite of effectiveness: in the above photo we see a combination of both concepts: the unforgettable and unforgotten Ronaldo (the “true” one!), also called “the phenomenon”, does the right thing getting rid of three defenders and scoring, at the same time!
But you must be very curious to know the follow-up of Gianni’s story, introduced in the previous post.
I will therefore focus my attention on the right thing to do in Gianni’s case, i.e., keeping an eye on market share, even if we cannot know the extent to which he will be able to score in terms of sales: we can only imagine that, without knowing anything about his market position, he would just waste lots of resources and time trying to figure out where to go and what to do.
A more accurate approach
If you agree that the context within which we can estimate our ability to compete (in practice, our share) is the market we can reach, either directly or indirectly over a given time frame, i.e. the so-called pertinent market, let’s see how we can estimate its size and shape.
We saw the (sort of) home-made and “rough” approach in the previous post, starting from the number of marriages in Italy (I remind you that Gianni sells high-end wedding dresses) and gradually cutting off slices of market with a number of “knives” or estimates:
- ratio between dresses and marriages
- relative weight of the high-end segment
- ratio between outlets treating the product on a national level and outlets contacted by Gianni’s salesforce.
The conclusion was an overall estimate of about 20,000 dresses per year, but we observed that the level of accuracy of this assumption (result of three successive estimates) was leaving much to be desired.
Why then, instead of starting from the top (the “theoretical” market), down to the “actual” market (that, however, is certainly larger than the market Gianni is able to access) through the filter of the “available” market, shouldn’t we start from the bottom, i.e., the potential clients Gianni can actually get in touch with, and specifically measure this market, that is the only truly “pertinent” entity for estimating his market share?
By the way, if you don’t remember the distinction among “theoretical, “available” or “actual”, you should refer to the bible (Philip Kotler), since our book on strategic marketing, which complemented his taxonomy of levels of market potentials with the concept of “pertinency”, is unfortunately in Italian and out of print.
The following objection is not even pertinent as those challenged in the previous post, but there is always a balls-breaker (my neologism) ready to blather:
“… but Gianni’s clients are retailers, not the final users!”
- true, but, as frequently reminded by my grand-mother, we can’t have, at the same time, a full barrel and a drunk wife!
- beyond the fact that, given this rather atypical industry and the total absence of “repeat purchase” or replacement of the goods (also in case of multiple marriages of the same lady, the repeated use of the same ”wedding dress” would be unlikely), estimating the “pertinent” market size at the retailers’ level is the only reasonable approach for a small or medium-size company that operates in durable or non-durable goods industries
- better to estimate a proxy variable of the actual one (directly related to the latter) and, if possible, complement the information collection I will be talking about later with specific market research activities, rather than avoid any estimate or throw money in the toilet with Nielsen-type subscriptions (that, in any case, wouldn’t necessarily cover the pertinent end-user market of the interested SMEs)
But let’s go on: which are the numbers Gianni already knows very well without spending (almost) a penny? We just complement what I had already told you:
- does he know the number of his active clients? Redundant question, it is sufficient to ask his accountant: about a hundred
- does he know how much he sells per year? See above: 3,000 dresses
- does he know the number of clients he can (or should be able to) get in touch with, thanks to his salesforce? Gianni has about two and a half sales people (he is the “half”, who is also President, CEO, designer, clerk, etc. etc.), and each salesman or saleswoman is apparently able to visit and manage, in this industry and in a more or less stable way, about a hundred of potential and current clients, that is 250 in total for Gianni.
Another objection of the above balls-breaker:
“… can you imagine a sales agent, who certainly represents multiple firms, taking the trouble of telling Gianni which clients he is visiting, and keeping track of it?”
Here this guy could have fooled me, but only if I hadn’t had (although a century ago!) the experience of managing this kind of agents and, especially, if I hadn’t seen with my own eyes, more recently, marketing information systems very well fed by any type of salesforce, including this kind of agents!
For now, and also for later, take me at my word: it’s an issue that deserves another article.
In conclusion (for now)
In practice, at this point Gianni is perfectly able to “see” the shape and size of his slice of cake, including the assessment of his “coverage” of the pertinent market (40%), but he cannot yet see the overall shape and size of the same cake, in order to estimate also his “penetration” and, therefore, his market share:
… and which is, in your view, the only missing information for reasonably estimating these metrics?
Evidently, Gianni needs to estimate the average potential of all the clients he is able to reach: assuming, for example, a potential of 60 units (dresses) per year, his average penetration would be 50% and, therefore, his market share would be 20%, even larger than that estimated with the home-made method. Don’t you think it would be worth to keep an eye on it?
… but I already know what our balls-breaker is going to maintain. Needless to say, the above objection applies, even more so, in this case:
- in order to estimate that potential, sales agents must make the effort of assessing, one by one, the potential of each individual client contacted, within the market segment of interest for the company
- although this could be relatively feasible for the current clients (provided that the salesforce is made of professionals who entertain good relationships with clients), it would certainly be more difficult with potential clients
- last, but not least, sales agents would need to keep track of these assessment, communicating them to the company in a systematic and permanent way, for example via ad hoc software tools …
By the way, this is the third of a series of 8 post that, in my intention and in those of my friends and colleagues Alfonso Pace and Virgilio Gay (they wrote on the same subjects, and you can find their versions, in Italian, at https://medium.com/marketing-mindset) should have – and still should – anticipate the new edition of the now elderly text, currently out of print, reminded in this photo.