Why Marketers Shouldn't Ignore "Out-of-Market" Prospects

If you've ever visited California wine country, you may have fantasized about owning a vineyard. Acres of trellised grapevines laid out in neat rows create an idyllic landscape, like the one shown in the above photograph.

Of course, the reality is that operating a vineyard is hard work. And some of that work must be done long before the vineyard owner receives a payoff.

For example, it typically takes three years for newly-planted grapevines to produce a useable harvest. During those three years, the vineyard owner must install a trellis system to support the vines as they grow, and young vines must be regularly pruned and "trained" to grow correctly. They must also be judiciously watered, occasionally fertilized and constantly protected from harmful insects. And all of this work must be done before the vines produce the first dollar of revenue for the vineyard owner.

Some of you may be wondering what this brief foray into grape horticulture and vineyard management has to do with B2B marketing. Quite a bit actually, particularly for B2B marketing leaders who need to develop marketing strategies and programs that will produce sustained short-term and long-term revenue growth.

To generate maximum revenue growth over an extended period of time, marketing leaders must design programs that will maximize performance in the present, while simultaneously investing in programs that will lay the foundation for success in the future.

The Challenge of Out-of-Market Prospects

So what does this mean in practice? The starting point is a broad definition of the market. As I wrote in a recent post, identifying all potential growth opportunities is far less likely to occur when marketing and other business leaders fail to take an expansive view of their market.

In B2B, a company's "market" should be defined to include all organizations located in the company's service area that could derive substantial benefits and earn an attractive ROI by purchasing and using the company's product or service. When the market is defined in this way - that is, by customer "fit" - it will include almost all of the prospective customers the company can potentially earn revenue from.

At any given point in time, however, most of the organizations comprising a company's market are not considering the purchase of a solution like the one the company offers. Many veteran marketing and sales professionals call this circumstance the "95-5" rule, meaning that at any point in time, 95% of the company's potential customers are "out-of-market," while only 5% are actively "in-market."*

Based on our definition of the market, out-of-market organizations are a good fit for the company's product or service, but these prospects are not ready to begin a buying process. And it's unlikely that typical demand generation programs will persuade them to change their position. 

However, many potential customers that are out-of-market in the present are likely to be in-market at some point in the future. So, out-of-market prospects are like those young grapevines in a vineyard. They aren't productive today, but if handled properly, they can be productive in the future.

The issue for marketing leaders is what marketing programs, if any, should be used with out-of-market prospects. There are currently two major schools of thought regarding this issue.

In This Corner . . .

Some marketing practitioners, agencies and consultants argue that marketers should use intent data and predictive analytics to determine when an organization is likely to be in-market, and then focus marketing efforts on those prospects. Not surprisingly, this approach has been loudly advocated by firms that sell intent data and/or predictive analytics technologies.

Most proponents of this approach don't explicitly say that marketers should ignore out-of-market prospects, but some come pretty close. Consider, for example, this blog post passage from a firm operating in the intent data/predictive analytics space:

"To avoid wasting time and money pursuing prospects that either already just bought the product from your competitor or are not serious about buying yet, your team should focus on the right people, targeting them at the right time by leveraging intent data, which will help you understand total active demand. Instead of a broad market of generic buyer personas, it enables you to find specific accounts that are active in your market."

And In This Corner . . .

Other marketing practitioners, agencies and consultants contend that companies should reach out to all organizations that are a good fit for the company's product or service regardless of whether those prospects are currently in-market. The proponents of this approach typically stress the importance of brand building to long-term revenue growth.

My Take

I'm not aware of any rigorous research study that compares the effectiveness of these two approaches. The analysis performed by Les Binet and Peter Field in 2019 comes close, but Binet and Field expressly acknowledged that their findings should be viewed as tentative.**

Despite the limited amount of direct evidence, I contend that it would be risky for most B2B companies to ignore prospects that don't make the in-market cut. Such an approach is dangerous because it fails to account for an important aspect of how business buyers make purchase decisions.

The conventional view is that a B2B buying process begins when a company's leaders or managers recognize a need or a problem and decide to do something about it. These "buyers" then gather information about the need or problem, evaluate possible solutions and may or may not decide to buy a product or service to address the need or problem. So the traditional view of B2B buying is that information gathering, learning and evaluation all occur after an intentional buying process is underway.

But business decision makers rarely begin a buying process with a clean slate. Every day, they are forming impressions of companies, brands and products from touch points like ads, content resources, news reports and conversations with business colleagues and friends. 

When something triggers an intentional buying process, these accumulated impressions exert significant influence on the purchase decision. For example, a 2020 study by The B2B Institute and GWI found that millennial business buyers, ". . . spend the most time on research, explore the widest range of vendors, and yet are the most likely to ultimately pick one that they already know."

If marketers focus their efforts solely on in-market prospects, they'll be abandoning the opportunity to influence the perceptions and preferences of many future potential buyers and likely missing out on future growth opportunities. Such an approach would be like a vineyard owner failing to properly nurture the young grapevines that will drive the vineyard's future revenues.

* The percentages in the 95-5 rule are not meant to be taken literally. The actual percentages of out-of-market vs. in-market prospects will vary from industry to industry and company to company. What makes the rule valid in a general sense is that companies almost always have far more out-of-market prospects than in-market prospects.

** It would be very hard to design and conduct a study of this issue that is scientifically sound because of the difficulty of controlling for all the variables that could affect the research outcomes and because the study would need to be conducted over an extended period of time.

Image courtesy of Aaron Logan via Flickr (CC). 

What CEO's Really Think of CMO's

A recent survey by the Boathouse Group, a marketing agency/consulting firm based in Boston, should serve as a wake-up call for B2B marketing leaders. The 2021 CMO Study was based on a survey of 150 Fortune 3000 CEO's from 13 industries. Survey respondents represented companies with annual revenue ranging from $250 million to more than $1 billion. The survey was in the field May 26 - June 8, 2021.

The researchers had two objectives for this survey. They wanted to capture the perspectives of CEO's on the role and importance of the CMO position, and they wanted to explore other CEO perceptions that might help explain the short average tenure of chief marketing officers. The survey report noted that average CMO tenure (in 2020) was at the lowest point in the past decade.*

Like other research I've recently discussed, the Boathouse survey found that driving revenue growth has become the top marketing priority in the eyes of many CEO's. A significant plurality of the survey respondents (47%) said the most critical role of the CMO is to "grow the business." Developing the brand came in a distant second at 29%.

The Boathouse survey contains both good news and bad news for CMO's. First, the good news.

The Good News

The CEO's surveyed by Boathouse expressed several positive sentiments regarding CMO's. An overwhelming majority (86%) said CMO's have the power and credibility to influence key decisions made by C-level executives. Sixty-three percent of the survey respondents described CMO's as "performance-minded," and 58% said CMO's understand the business and shareholder goals of the company.

Now For the Bad News

Unfortunately, the Boathouse survey also revealed that many CEO's have several negative perceptions of CMO's - or at least the CMO's they've worked with.

For example, only 34% of the surveyed CEO's said they have great confidence in CMO's. And 80% of the survey respondents said the short-term tenure of CMO's was a sign of CMO failure. When survey participants were asked why CMO's are failing, 38% of the respondents said it was because CMO's have the wrong skill set for the changing marketing environment, and 21% said it was because CMO's have difficulty measuring the business results of marketing programs.

These results are similar to the findings of a 2021 survey of senior management executives conducted by the CMO Council. In that survey, only 17% of the respondents said they were extremely confident in marketing's ability to lead a growth recovery in 2021, and another 52% said they were just moderately confident.

The Boathouse survey also contained some fairly depressing findings about the level of trust CEO's have in CMO's, with only 32% of the surveyed CEO's saying they trust CMO's. Some of the CEO perceptions described in the survey report are visceral. For example:

• 56% of the respondents said CMO's are committed to themselves, but only 44% said they are committed to the CEO/board.
• Only 56% of the respondents said the CMO supports the long-term vision of the CEO, and only 10% said the CMO puts the CEO's needs before their own.

Lastly, when Boathouse asked survey participants to identify the most trusted and the most valuable member of their leadership team, CMO's didn't fare very well. The following table shows how the surveyed CEO's responded to these two questions.

My Take

Some of the findings in the Boathouse survey seem to be very contradictory. For example, the surveyed CEO's said CMO's have the credibility to influence key C-suite decisions, but only about a third of the respondents said they trust CMO's. It's as if the survey respondents were answering some questions based on what they believe CMO's should be or could be, while answering others based on what they think most CMO's actually are.

*The survey report contains a somewhat confusing chart that depicts average and median CMO tenure from 2011 through 2020. The chart appears to be based on data from the 2021 edition of the CMO Tenure Study by Spencer Stuart. You can review the Spencer Stuart data here.

Top Image Source:  Boathouse Group Inc.

The Right Way to Start Marketing Planning for 2022

The fourth quarter is almost here, and that means many marketing leaders will soon begin planning for 2022. While COVID-19 is still with us, it appears we now have the tools to deal with the pandemic without resorting to policies that would substantially disrupt the economy. Therefore, the business climate is far different today than it was just a year ago.

Despite the more benign business environment, developing an effective marketing plan for 2022 will still be challenging, so it's essential for marketing leaders to employ a sound planning process. Fortunately, a proven technique from military planning can be adapted to help marketing leaders get their planning process started on the right foot.

What Marketers Can Learn from Military Planning

For years, US military commanders at all levels have used a process called METT-TC as an integral part of their planning process. METT-TC is a mnemonic that is designed to help commanders remember and prioritize what to analyze when planning an operation.

METT-TC stands for mission, enemy, terrain, troops available, time and civil considerations. Collectively, these six factors define the environment in which any military operation will be conducted, and commanders must thoroughly analyze each of these factors in order to develop sound operational plans.

In reality, all military operations are METT-TC dependent. The initial plan for an operation must take the METT-TC factors into consideration, and if any of the factors changes significantly as an operation unfolds, commanders must adjust their plans to fit the new circumstances.

Planning a military operation and developing a marketing plan obviously differ in a host of ways, but they have at least one important thing in common. Both will be executed in an environment composed of identifiable factors that will greatly influence success or failure. Therefore, both military commanders and marketing leaders must understand these critical environmental factors and account for them in their plans.

The MEC-R Process

When I work with marketers to develop a marketing plan, I begin with an analysis of four environmental factors. I've created a mnemonic for these factors that serves much the same purpose as METT-TC. My mnemonic is MEC-R, which stands for mission, economic/legal environment, competitive landscape and resources available.

Mission - The mission component of the MEC-R analysis is a clear and concise statement of the task marketing is charged to perform. The mission is usually expressed as an objective or objectives that marketing is expected to achieve.

In most cases, the mission should be distilled down to one primary objective and perhaps one to three secondary objectives. The primary objective will usually relate to revenue growth, while the secondary objectives might relate to things like the number of new customers acquired, reduction of customer churn or improving customer satisfaction. Obviously, marketing's mission must be aligned with, and supportive of, the company's overall business strategy.

Economic/Legal Environment - This MEC-R component involves an analysis of several macroeconomic indicators as well as industry-level economic data. At the macro level, most marketers should include an analysis of the following economic factors using currently available forecasts for the target planning period:

• Real GDP growth
• Unemployment rate
• Inflation
• Consumer income and spending
• Business investment

At the industry level, marketers should focus on economic factors that will or may impact demand for their company's products or services. For example, most B2B marketers should include an analysis of the projected growth rates of major customer segments.

This part of the MEC-R process should also include an analysis of any new or pending laws or regulations that will or may affect demand for the company's products or services and any that will or may affect the marketing methods or tactics the company can use, e.g. data privacy laws or regulations.

Competitive Landscape - This step in the MEC-R process focuses on the competitive attributes of the market in which the company operates. It would include an in-depth analysis of the characteristics, needs and buying behaviors of existing and potential customers, as well as an analysis of existing and potential competitors. During this step, marketers should also evaluate the impact of substitute products or services.

Resources Available - The final component of the MEC-R process is an analysis of the resources that marketers have at their disposal to accomplish their stated mission. "Resources" include people (number, knowledge, skills, etc.), technological capabilities and financial resources. In effect, marketing leaders need to assess what "troops" they have available to accomplish their mission. The plan they ultimately formulate must be "doable" with these resources, or they must identify any resource gaps that will need to be filled.

MEC-R Is the Starting Point

It's important to understand that the MEC-R analysis is only the starting point of the planning process. Marketing leaders will need to address many other issues in order to develop effective marketing plans for 2022. But performing a thorough MEC-R analysis will provide a sound foundation for the rest of the planning process.

Image courtesy of DENAN Production via Flickr (CC).

Marketing Leaders Should Always Be Looking "Beyond the Core"

A growing number of marketing leaders now believe that driving business growth is the raison d'etre of the marketing function. Recent research shows that the pressures on marketers to deliver on revenue growth have become intense.

A 2021 global survey of marketing leaders by the CMO Council found that marketers are now responsible for 44% of company revenue on average, up from just over 10% in the early 2000's. In this study, nine out of ten of the survey respondents said they are expected to grow revenue this year, and 63% said they and their marketing teams are under very high or extreme pressure to deliver on revenue targets.

Unfortunately, recent research also indicates that most marketers have not moved beyond marketing communication tactics in their efforts to drive growth. 

In the February 2020 edition of The CMO Survey, for example, more than eight out of ten of the survey respondents said marketing plays the leading role in their organization in marketing communication activities such as brand building, digital marketing, advertising and social media. But fewer than four out of ten of the respondents reported that marketing leads many other activities - such as market selection and market entry strategies - that have a major impact on revenue growth.

The Need for Market Expertise

Marketing communications are obviously a critical aspect of marketing's job, but marketing communications alone aren't sufficient to maximize revenue growth. To identify and effectively exploit all available growth opportunities, marketing leaders also need to develop a deep level of market expertise. 

Market expertise can be defined as a thorough understanding of the economic and competitive characteristics of the entire market in which a company operates, including those segments of the market the company isn't currently targeting. Therefore, market expertise requires a deep understanding of the attributes, needs and buying behaviors of all the potential buyers in the market, including existing customers, targeted prospects and other non-customers.

Developing market expertise is always important, but it becomes critical when a company needs to identify and tap into new or previously unrecognized growth opportunities in order to achieve its revenue growth objectives. The reality is, identifying new growth opportunities is far less likely to occur when marketing and other business leaders fail to take an expansive view of their market.

A Lesson from Jack Welch

An anecdote about Jack Welch illustrates this point. When Welch became CEO of General Electric in 1981, one of his first strategic objectives was that every GE business unit would become the #1 or #2 player in its market. Welch's strategic mantra became, "#1, #2, fix, close or sell."

For several years, this strategy worked well, but over time, it began to have unintended consequences. In the 1990's, some younger GE executives started to question Welch's strategy, saying it was costing the company substantial growth. They argued that some business unit leaders were defining their markets narrowly so that they could justifiably claim the #1 or #2 position. Because of the narrow market definition, growth opportunities were being missed.

In response to these concerns, Welch refined his strategy and started requiring all business unit leaders to redefine their markets so that they had no more than a 10% market share. This forced business unit leaders to identify potential revenue growth opportunities that had previously been unrecognized or ignored.

Always Be Looking Beyond the Core

Understandably, marketers spend most of their time and energy creating and developing programs that are designed to increase revenue from their core market(s) - current customer types, current products/product configurations, current geographies, etc.

Some companies have a vibrant core market that provides plenty of growth opportunities, but many companies operate in markets where growth is harder to come by. In addition, most markets evolve from a "growth stage" to a "mature stage," so even if a company's core market is producing healthy growth today, that can easily change.

When the revenue growth produced by a company's core market(s) slows, company leaders will likely start to think about some kind of business expansion. Expansions that take a company "beyond the core" are strategic business moves that require thorough evaluation.

In my view, marketing should take the lead in evaluating market expansion opportunities. Marketing leaders have (or should have) the skills needed to analyze the growth potential and risks presented by new markets or market segments. In fact, I contend that marketing leaders should always be evaluating potential expansion moves so that they are always ready to provide other senior company leaders a range of strategic options for increasing growth.

Image courtesy of Grand Teton via Flickr (Public Domain).