How to Ensure That Your Products
Will Produce Sufficient Sales

In a rapidly changing world, it is important for owner-managers of small plants to keep their sales efforts on target. Products, in addition to appealing to customers, must be distributed through channels that make it easy for customers to buy.

This guide discusses means by which owner-managers can examine their products and their channels of distribution for weaknesses and strengths. The purpose is to correct the former and exploit the latter.

Keeping a small plant's sales "on target" involves watching trends, anticipating changes, and acting at the right time. The action may be making changes in products, in channels of distribution, or in both.

A case in point is provided by poultry processors in one section of the country. They had to change their product to dried and frozen eggs when the broiler industry shifted to another section of the Nation. They sell their "new" products directly to bakeries, schools, hospitals, and other institutions. Their former distributors were meat wholesalers and retail grocery stores.

Keeping products and services beamed at customers and prospects is a combination of looking backward and forward. Examination of present and past records and practices is needed to determine weaknesses and strengths in marketing. Looking ahead and planning for the necessary changes help to
correct weaknesses and exploit strengths.

Examining Records

Some small companies fail to reach their target market because their owner-managers do not look for weaknesses in their products. Or if they look, they do not look soon enough. A product becomes "weak" when it is no longer suited to its market or when consumers' preferences change.

For example, a brewery owner watched the trend for packaged beer for home consumption grow, while he continued to make keg beer for taverns. When he finally tried to sell packaged beer, many stores refused to take on that line. They were already stocking several established brands. Moreover, that
firm's salespeople lacked experience in getting good shelf space, in checking packaged stock, and in setting up displays for packaged goods in retail stores.

Product situations should be examined periodically to determine how well they are holding up. Your examination should start with your sales records.

They should be kept by product (or product line) and by territory. Sales expenses should also be recorded in the same manner.

Even when your total sales are ahead of last year's, it can be dangerous to assume that your products don't have weaknesses. The sales of one or more of them may be falling off. A product may be in the declining stage of the product life cycle. That cycle provides a convenient way of thinking about
your products in a market where products come and go.

In checking each product, sales records should help you to answer questions such as:

Is the percent increase in sales of this product declining? (For example, an increase last year of 5 percent against an increase of 10 percent, the year before last.) What is causing this decline? If sales are remaining the same cheap motor insurance trade car insurance, is this a good sign in a growing economy?

Are present territories saturated? Should present territories be expanded before you find new ones?

Did the percent of selling expense (including advertising) for this product increase? If so, why?

If sales, profits, or prices have slipped, why? Is competition now putting out a new product that is causing the decline?

Product Life Cycle

Many products go through a life cycle. The typical product life cycle has four stages.

Stage 1 is a testing or introductory, period. In it, the new product has low consumer awareness, low consumer acceptance, and small sales.

Stage 2 is a growth period. In it, sales gains are rapid.

In Stage 3, the product has reached maturity. Unit sales are stable.

In Stage 4, the product is on the decline. Sales fall off.

Not all products go through a complete life cycle. Many never get beyond Stage 1. They fail to be accepted by customers in this testing period.

In addition, the length of each stage varies according to the nature of the product. Because of rapid advances in technology, the length of each stage for electronic products, for example, is growing shorter. Companies using new technologies tend to introduce an increasing number of new products.

In dealing with product life cycles, part of the skill is in determining the peak of Stage 3--the maturity period--and being prepared to replace mature products before they enter Stage 4--the period of declining sales.

Correcting Weaknesses

How you correct a product's weakness depends on what is causing its sales to slip. For example, if a competitor's product is eating into your market, you should compare your product critically with your competitor's. Examples of questions to ask are:

Is your product of as good quality as your competitor's product?

Is it as easy to use? As attractive?

Is it readily identified by consumers?

Is the competing product priced lower? Or higher? (Higher price sometimes means higher quality and produces higher sales.) How is it promoted? How is it distributed?

You may not always be able to answer these questions yourself, especially those requiring answers from consumers. Market tests may be needed.

One manufacturer of replacement parts made such a comparison when he discovered that sales were declining and those of a competitors were apparently rising. What he found was that the competitors had added certain new items. To bring his product line "on target," he dropped several slow-moving items and added faster-moving items such as those offered by the competitors.

He also learned that his retailers and wholesalers were pushing his competitors' items because they carried an attractive gross margin. He had to follow suit and meet the competition.

Segmented Markets. Sometimes, the solution for an ailing product lies in segmented markets. Suppose, for example, that you have a standardized "mature" product. For years it has brought in--and continues to bring in--substantial sales. But many companies make your product and, to meet
competition, you have to fight constantly to cut the product's
manufacturing costs.

Often you may think "If only I could take this product back to the years when only a few companies made it and I sold it easily and at a good price." Of course, you can't turn time back, but perhaps you can turn to a different kind of market with a modification of your old standard product. You can look for an opportunity to aim a more specialized product at a
segment of the general market.

Food processors provide an example. Some still turn out staple canned or packaged goods. But many others have changed successfully to specialized products. Some make baby food. Others sell geriatric food for senior citizens. Still others push gourmet foods for the epicures. And many others specialize in preparations such as premixed or frozen foods.

Both opportunity and costs, in segmenting your market, have to be kept in mind, however. The change would involve expense. Also, since you would restrict the size of your market, you would need to expect a better price, a longer lasting market, or some other advantage to compensate you.

One hosiery maker increased sales by disregarding fashion trends, making warm heavy-denier hose for older women--neglected customers as far as other hosiery manufacturers were concerned.

Whether segmented markets offer a solution for you depends, of course, on your situation. The point is to keep the possibility in mind.

Substitute Markets. Established products can sometimes drift "off target" when a substitute product, with more appeal to consumers, appears on the market. When this occurs, the sales as well as the profits of established products decline. The appeal of the substitute product may be in price and convenience--for example, ballpoint pens, which are inexpensive and disposable. Or it may be ease of use--for example, decals and press-on paper finishes which are easier to apply than decorative paint.

The small manufacturer, in some cases, can overcome an established product's weakness by adopting the substitute. However, some owner-managers hesitate to use this remedy. Some are sentimental about their old products.

Others are apprehensive about the potential problems and risks in introducing new products. The longer the hesitation, the more likelihood of entering the market after the profit potential of the substitute product has been passed. Although small companies often can't afford to be first in the market, the point is to get there while the new product still has steam--growth and profit.

Not always is it necessary to use a substitute when sales of an established product decline. You sometimes can find a new application for a declining product. The manufacturers of butyl rubber provide an example. The demand for their product dropped considerably when producers of automobile tires
introduced tubeless tires. To offset the loss of sales which was due to the elimination of inner tubes, the butyl rubber people looked for new uses for their product. They found new applications for it in automobile manufacturing--for example, hoses and oil resistant insulation.

Examining Channels

A small manufacturer should also check marketing channels for weaknesses. 

Your channels of distribution may be getting your products to the ultimate consumer. Or they may be "off target."

Consumer and industrial goods are channeled to their ultimate consumers either directly or indirectly although some use a combination of both ways.

When a manufacturer uses the direct method, the sale to the user is made by your sales people, by mail solicitation, by employing house-to-house sales people, or by operating (direct retail) outlets. When a manufacturer uses the indirect method, the sale is made through a wholesaler and/or jobber,
and independent agent, a retailer, or any combination of them.

In a changing world, distribution channels can lose their effectiveness.

Consumer buying habits may change; new competition may develop; company objectives may be altered. As a result, what were once considered the most effective channels of distribution can become totally inadequate.

Therefore, they should be checked periodically even though facts about channel effectiveness are difficult to obtain.

Means to an End. Look at your channels of distribution as a means to an end--a way to get your products to the user. When you go to the heart of the situation, the questions to answer are:

Who buys my products?

Where do they buy them?

How do they buy them? (in single lots, by the dozen)

When do they buy them? (weekly, monthly)

Are my ultimate product users satisfied in buying through present channels?

You can get such information from an analysis of your orders. Warranty cards returned by purchasers provide another way to determine where and when they bought the product. If you use distributors, they can provide information. Other sources outside of your company such as trade associations, trade journals, and Census and other Government publications,
can provide you with helpful information: customer preferences, income data, and so on. These can all help keep you to be informed about your consumers.

In addition, a small manufacturer should keep up in a general way with the many factors that affect distribution. Some of them are business trends, income and consumption trends.

Examples of Changes

In applying information about your customers and prospective customers to your channels of distribution, look for changes. For example, does your information indicate changes in customer's purchasing patterns, changes in customers' locations, changes in the practices of resellers, or changes in
your competitors' methods?

Changes in customer purchasing. Often a manufacturer has to make major adjustments in channels of distribution because customers have changed their buying habits. The growth of convenience foods, such as prepared potatoes, frozen orange juice, and baking mixes, is an example of this type
of change. As a result of this development, instead of going directly to the retail store, potatoes, oranges, and flour are channeled through food processors before they reach the retailer. Similarly, changes in customer purchasing can cause changes in the type of retail outlets used. For example, many of the old-line hardware-store items are now sold in drug
stores and supermarkets, and garden furniture and supplies have become a staple in hardware stores. Such selling is often called "scrambled merchandising."

Changes in customer locations. People are on the move all the time. And so are the markets for products. One manufacturer of electrical appliances formerly needed only farm equipment distributors to market his product. However, he found that the urban migration made it necessary for him to recruit a substantial number of dealers in the cities.

Even customers in the cities may change their locations. Many of the large cities are bracketed with shopping centers that get the suburban customers who formerly purchased their needs in downtown stores.

Changes in location of customers are not confined to consumer markets. New firms that may be customers are being created all the time and old firms are constantly adding new locations. One industrial equipment manufacturer had to expand channels of distribution because of such changes in customer locations. Originally sales people sold only to customers in the northeast.
On learning that there were potential customers in the far west, the owner decided to get that business by using a manufacturer's representative--a new type of channel.

Resellers' changes. Your sales can rise or fall when your
resellers--wholesalers and jobbers--change their practices. For example, suppose they decide to reduce inventories of your products and to rely on you to help them by filling orders promptly. Do you comply? Or do you look for new channels?

You also need to know when resellers cut back or make other changes in service, technical help, and the sales efforts that they devote to your product.

Competitors' changes. Is your competition changing its channels--adding different types of outlets or shifting to new resellers? 

What, if anything, is competition doing to make its products more attractive to resell? For example, competitors may be assuming more of the inventory function for resellers, or more of the service function (such as setting up company service centers, offering technical help directly to buyers). Or they may
be offering attractive gross margins to their resellers, or extended credit terms.

You may need to change your distribution policies as your competitors change theirs. On the other hand, what is best for them may not be best for you. Be sure that the competitors you observe are similar in size to what you want your plant to be.

Your company's changes. Because a small manufacturer is closely involved in the company's day-to-day operations, you may overlook internal changes that can affect your channels of distribution. For example, you may use your established channels without considering their suitability to a new product
you are introducing. An industrial chemical company provides an example of this kind of problem. It tried to distribute a new line of farm and home fertilizers with the same channels that it used to distribute its industrial chemicals. When the expected sales volume did not materialize, the company re-channeled the new product so it would reach small retail consumers.

Changes in a company's financial resources and its management "know-how" may also cause changes in distribution. One food processor who had distributed products through franchised restaurants increased sales substantially by buying out marginal franchises and opening new establishments with franchise earnings as the firm acquired "know-how in restaurant management."

A desire for closer company control of the selling or service functions may produce changes in channels of distribution. For example, a manufacturer of outboard motors distributed through marine hardware and sporting goods wholesalers. These middlemen were interested in sales rather than service. The manufacturer wanted to get closer to the consumer and strengthen the market position by opening retail outlets which would offer top-notch service to customers.

Improving Channels

Sometimes the sales yield from an existing channel of distribution can be increased by working more closely with resellers. Some owner-managers don't realize that they have to earn their resellers' cooperation. They expect jobbers and wholesalers to "run with" a "no-name" product that needs much
selling.

Providing resellers with selling tools, such as counter cards and displays, can help them to promote your products. Dependable items that need little or no service are easier to move from reseller to customer than items that need periodic servicing. In addition, gross margins should be in line with
the job you expect your resellers to do.

One company gets better cooperation from distributors by offering them technical aid and by helping them with inventory control. Another company finds that competitors are suggesting higher list prices. To compete for the resellers' attention, this owner-manager had to adjust prices and
resellers, margins.

Seeking New Channels

In some situations, the only way to keep your sales "on target" is by seeking and using a new channel of distribution. For example, a publisher, who added paperbacks to the firm's line, could not get mass distribution from bookstores--the established channel for hardcover books. The firm had to use new channels--magazine wholesalers who could provide mass
distribution at newsstands, drug stores, and supermarkets. In this example, the publisher had to answer questions, such as: Where do customers buy paperback books? How do I get my paperbacks to those retail outlets?

One producer of inexpensive throw-away pens needed broader distribution. By changing to distribution through tobacco wholesalers, the pen got into many of the smallest stores and obtained about 70 percent coverage of the possible outlets.

However, problems can arise in setting up new channels. Old established relationships may have to be broken. Or moving into new channels may interfere with relationships already existing there.

Sometimes a manufacturer may set up his or her own organization to overcome such problems. Such action can be costly. For example, one company in trying to by-pass the distribution specialists found it didn't have the necessary know-how to sell directly to retail outlets. The owner learned
this fact only after dropping the firm's distributors. Several years later, it had to find new distributors.

As market changes persist, they sometimes force a company to change a long-standing policy on channels. For example, a long standing policy of an ethical drug company was to refuse to sell to discount houses. "To keep in step with changes in marketing" the company decided to sell to any retailer of drugs who had a licensed pharmacist.

Looking Ahead

In keeping your sales "on target," it is vital to look ahead. Planning that involves product or channel changes requires considerable lead time. How much lead time depends on your situation.

However, you should keep in mind that new technology has shortened the life expectancy of many products. Of today's products, 60 percent came on the market as "new" products within the last 10 years. The rate of change is apt to be faster in the future with an even shorter life span for some products. Part of the skill in keeping your product's sales high is timing--knowing when to make changes and being prepared to make them.