Product positioning in the market

What does it mean to implement a product positioning strategy in the market? Why can it be extremely useful in growing your Company’s Business?

If we try to sell our products to the whole market, we waste our communication energy.
Not only that. If we have a very rich product catalog, we only risk wasting time and money.
For more clarity. If I were to ask you:

Whom does your Product/Service target?
If your answer is, “To everyone indiscriminately throughout the country.“
Here is a typical case of NON-FOCALIZATION or rather de-focusing.

It is impossible to sell everything to everyone. You run the risk of selling little to a few people.
Don’t worry, as I told you, you are in the right place.

Unlike 20 years ago, the Web has made the Consumer more independent, who can research online, compare: technical features of Products, Prices, Promotions, after-sales service etc.

The decision-making phase no longer takes place in the store, but occurs within the home, or at the beach via a smartphone.

Therefore, it is crucial to show that we are competent and prepared. We must always remember that price is only one of the decision-making factors.

Practical example of company positioning in the market

For several years, I was the Marketing and Communications Manager of a strategic company operating in the electrical equipment industry.

I am intimately familiar with the whole Chain.

From Production to Distribution throughout the country.

This sector is gradually becoming more and more concentrated in the hands of large Distribution chains.

If you are a small distributor owner, unfortunately, the competition is impossible to sustain.

Big Players have volumes 10 or 20 times higher than yours.

This means a greater ability to negotiate with suppliers.

So if, in order to maintain your Market share, you want to do promotions and discounts, you have already lost at the start.
THEY can afford to be more competitive than you.

The strategy of positioning marketing enables the improvement and consolidation of a company’s Business, reducing costs and improving margins.

So what is the way to secure a future for your Company?

Focus on a target market.

For example, you could become an Electrical Material Distributor for a specific segment, one where you are already most present, competent and, if possible, providing the best profitability:

“Rossi & Bianchi. Specializing in the Distribution of Electrical Materials for Restaurants.”
If you are looking for a specific Product for your Restaurant you will find it only with us, because we serve only Restaurants, we have experience, know how, an always stocked warehouse and we know exactly what your needs are.

Here, this is the right approach.

One sector means:

• Limited Number of Products in Stock
• Good rotation of Products
• Increased purchasing power vis-à-vis suppliers
• Verticalized expertise to respond to every need, query and request of Clients
• Recognizability in the Target Market
• Fewer Competitors. The others are generalists, you are the Specialist
• Reduced investment
• Clear and effective communication.

The company’s market positioning strategy

Through focus we decide:

• How the company should be positioned in the marketplace
• What products or services to sell
• What is our target audience

The Pareto Principle. The 80/20 rule

As you see, we relied on Vilfredo Federico Damaso Pareto, a distinguished Italian engineer, economist and sociologist, to explain the benefits of focus. He who gave birth to the Pareto Principle.

Definition from Wikipedia

The Pareto Principle is a statistical-empirical result found in many complex systems with a cause-effect structure. The principle states that about 20 percent of causes cause 80 percent of effects.

To see the effectiveness of the 80/20 rule applied to business, let’s take a practical example.

Applying the Pareto Principle to Business we can say that 80% of a Company’s Business is generated by 20% of the products or services created.

So if the company under consideration, produces, for example, 100 different types of grass cutters, the bulk of the revenue is generated by 20 models.

The other 80 grass-cutting models generate only 20 percent of sales.

One very important thing to point out: If 80 percent of our products and/or services generate only 20 percent of revenue these, in essence, go to heavily affect the marginality of our business.

Production costs remain essentially unchanged but the numbers of parts sold, or services provided, are extremely low. Basically we are burning cash and profits.

It is definitely a rule of thumb, but confirmed many times.

It is generated from a variety of situations, so it may not necessarily apply to all markets, products, services, and Brands.

Example of product positioning in the market: Apple

Let us now analyze a Leading Company, which needs no introduction: Apple.

We see how Apple’s product range is extremely narrow.

It has grown slowly over time. Each time they launched a new product, they actually created a new market segment and immediately became the Leaders.

Just think of these 3 products:

• iPods: previously used portable CDs or, for the nostalgic, cassette players;
• iPhone: remember the old cell phones?
• iPad: was there anything else before?

In all these cases, it immediately gained dominance because it was the first and immediately became the benchmark, becoming the market leader.

Not only that. Through these new Products, they generated a strong Community, which identified with the Brand.

We can say that Apple consistently and profitably applies Business Focus.

Over the past few years, I have addressed this issue with entrepreneurs several times. Generally the first response is: if I have more products, I have more sales opportunities.

Unfortunately, this is not the case.

How to build product positioning in the market

We can identify 3 main steps.

a. Where can we make a difference?

First of all, we need to analyze what kind of products and services are produced by our company.

Those that generate higher margins. Where technical support, service and customer care in general work at the top.

It is critical to identify those products for can also provide good scalability. That is, we can quickly increase the copies without negatively impacting our business model.

b. What does the market look like?

In order to design the correct Focusing strategy, it is essential to carry out aCompetitor Analysis.

Online analysis allows us to understand:

• Where do our Competitors stand in the market?
• What is their sales and business model?
• How is their online presence both on the web and social?
• What characteristics do their products have? What are their strengths and weaknesses?
• Where and how can we gain a competitive advantage?
• What searches do users make online to find products similar to ours?
• What keywords do they use?

c. Prepare the right positioning strategy

As we said earlier, targeting is a positioning strategy.
It allows us to intercept our possible customers and be recognized as experts in that market.

It is critical to identify a Market niche and a specific Target in that market to which to address.

To achieve this goal is critical:

• Clearly identify our potential consumer
• Understanding his real needs
• Understand which Competitor Companies are present and their market shares
• With what products and/or services they are positioned and how: relative to the Market and relative to our Company
• What Marketing & Communication strategies should I implement to clearly communicate to my potential consumer
• How to stand out from the competition
• How to become a Leader in that Market niche

Product positioning in the market maximizes profits and minimizes investment

Whenever I meet with an Entrepreneur, I always submit the same question, “Where do you want to be in 5, 10 and 20 years?”

In this historical period, the responses are of the most disparate kind, on average communicating extreme distrust.
In order to look forward to a serene future, the key element we need to analyze is definitely the Gross Operating Margin (EBITDA), even before turnover.

Let us now find out why the GOP is extremely important in Business Focus.

If a company is healthy, Gross Operating Margin must be at least constant, preferably growing by a few percentage points, each year.

So what are the steps I need to take, to achieve this extremely important goal?

Let’s return to the 80/20 rule. I report step by step the activities that should be done to do an initial check of your business.

What I report below has nothing to do with Administrative and/or Accounting audits.

Product positioning analysis in the market

What really generates the Business of my Company?

Let’s get some help from a simple Excel consisting of a few columns. The Goal? To have a system that accurately extrapolates that information:

• Take your Product or Service Catalog and make a grouping by family.
• Check the turnover for each product or service family
• Take the list of costs and group them by Product family and by individual Product/Service. Certainly the operation is more complex. There are fixed and variable costs. Generic costs, costs directly related to the realization of each individual product and/or service. Do not be discouraged.
• Now you can check the gross operating margin for each individual Product and Family of Products and/or Services.

I know perfectly well that what I have reported to you above is elementary and obvious.

What, however, is not obvious is the attachment that, often times, the Entrepreneur has for a given category of Products and/or Services, or for a single product.

There are many reasons for this:

• Is the first product we created
• That Product was invented by my Father
• I know we have low margins but I consider it strategic for our Company… etc.

Now what we have realized is simply an actualized photograph.
Certainly in the past such values were different. But how will they be in the future?
Not only that.

Maintaining a large catalog of Products and/or Services is a cost!

What is the entrepreneurial effort I have to make, to produce, manage, maintain a large catalog of Products and/or Services?

An analysis, such as the one above must be done, if possible, directly by the entrepreneur. It cannot be delegated to third parties.

Data collection yes, but analysis no.

The analysis may determine the need for a company, to drastically change its Business Plan.

Investments, Marketing strategy. Therefore, it is crucial for the entrepreneur to understand, comprehend, analyze and decide how to intervene in his or her Company, thus applying Business Focus.

But back to our analysis.

I would not be surprised if, data in hand, it actually turns out that only 20 percent or max 30 percent of Products and Services are the ones that determine the full marginality of your company.

Most likely these High Value Products and Services, are part of a particular niche or segmentation of the Market. The remaining 70 to 80 percent are spread over other niches.

Focusing leads us to choose a market segment, possibly the one that generates the most profit to the Company, and activate a market positioning strategy that allows us to fully dominate it.

I have addressed this topic with dozens of Entrepreneurs, in various meetings, events or seminars.

The fear remains the same.

Having a lot of products does NOT mean selling a lot

If you are also thinking , “If I have a catalog full of Products, I can always please the Customer, otherwise how can I sell?“

You need to know that a big catalog means big costs. Focusing means progressively reducing costs and improving margins. It also allows us to increase sales.

Not convinced? Before closing this article I want to tell you one last example.

Example of Market Positioning of a Small Business Food Industry

A few years ago I supervised a small company in the food business. Good turnover and good margins. Specialized in supplying sliced meats to large retailers and restaurants regionally.

Rightly, the imperative for an Entrepreneur is steady year-on-year growth, possibly double-digit growth.

And there the temptation soon presented itself.

“What does Cremonesi say if we introduce cheeses into the Product range?”

I advised against pursuing this route. Even if his Customer (B2B) is still the same and even if we are still talking about a Product in the food sector, the risk remains too high.

If I am known as a slicing expert , the one who has ” the best Product at the best price” . How do I guarantee the same knowledge, professionalism, quality and price for a different Product?

Not only that. I am forced to expand the Product range , enlarge the warehouse, use different cold rooms, train my sales network. With what guarantee?

Product positioning in the market: paying attention to competitors

And where do we put the risk competitors ?

If I am a specialist in a given field, it is difficult for a generalist to come to war with me. He can’t be competitive and doesn’t have the same Product and Market preparation and culture as I do.

So if we start from this principle and turn the situation around what can we generate?

That by introducing a new range of Products, I am going to alert one of my Competitors, which happens to be much larger than us.

Until now it had not bothered us because our Product accounted for a small percentage of turnover for him.

But if we go to graze in his garden here he…. let’s say … gets pissed off.

Since they are much larger than us, with excellent cash flow and significantly more widespread business structure than ours, they may decide to wage war against us.

Let us also consider the fact that if he has a large volume of business, he can afford to sell, below cost, for a period of time, our own Product.

What do you think can happen? Simple. That it brings us to our knees.

My advice has been to become even more of a specialist in charcuterie. Focus in a niche. Acquire new Customers. Arrived at saturation of the local Market, start expanding your sales network like wildfire.

Product positioning in the market: what choice did the entrepreneur make?

Since the introduction of cheeses had brought, in the short term, an increase in sales, he decided to include other product categories as well: Beer, Wines, etc.

Do you know what happened? That in the short term the Company grew by double digits, but in the medium and long term it lost Customers and contracted margins drastically.

Don’t look at short-term growth. It is always dangerous. It triggers so many factors, such as the scalability of the Business. Look at the medium and long term.

My advice remains the same: Focus in a niche. If you decide to apply this strategy, you will have the opportunity to progressively improve your company’s performance. Improve Gross Operating Marginality and Net Profits.

Perhaps with this article I have convinced you, that being focused, means drastically reducing Business risks while maximizing Profit.
Dear Entrepreneur, if you have any questions or need to explore this topic further, please do not hesitate to contact me.

Donato Cremonesi
Ceo & Founder
Factory Communication

We report some links related to the focus strategy:

• The Power of a Brand. The Importance of Focusing the Business.
• Amazon Pharmacy: do you know your Competitors?
• Description of menu dishes: you have to give value to your Product