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09 October 2019

Marketing and sales in terms of Theory of Constraints

Marketing and sales are an important component of any business. How to customize these functions taking into account the basic principles of Theory of Constraints, says Julia Plieva, CEO of Apple Consulting Ò.

If we consider these functions through the prism of Theory of Constraints, we can see that in most companies marketing works for the end consumer, without generating anything for partners (distributors, retail chains, etc.). The main marketing tool there is price and various benefits for customers based on discount offers. And few people understand that price-sensitive customers are the most disloyal. They are instantly ready to "run across" to your competitor, who will offer a slightly lower price or an interesting promotion.

Value benchmark

The logic of marketing according to TOC is based on the ability to create the value of your product or service for the consumer. The more problems, particularly painful ones, they will eliminate, the more valuable your proposal will be for the client.

For example, most of the leaders of bakery plants were convinced that the profitability of their business could not exceed 0-2%, since the volume of consumption of their products in the region was limited. Therefore, it is impossible to sell more. And the state margin on social types of bread, regulated at one time, did not allow increasing the price.

If you look at it from the angle of consumer values, it becomes clear that they prefer a fresh product. By default, manufacturers delivered their products to stores in the morning, because they believed that it was at this time that they were most bought. Accordingly, all production processes were set up so that the bread was baked in the afternoon, its first batches began to arrive at the warehouse at 5-18 p.m., the first machines with it left at 3:00 in the morning - and the bread was not the first to get to the shelves freshness. They did not want to buy it.

Some bold bakeries, introducing TOC, began to deliver their products twice a day, as a deeper analysis revealed that there were two sales peaks - morning and evening. And enterprises have reconfigured business processes accordingly. Already in the first weeks, sales growth amounted to 30% with a twofold decrease in returns.

The task of marketing was to convey to the market the story that the manufacturer always offers fresh bread. And the price in this case fades into the background.

More about values

How to understand what is value for the client and what “pains" he wants to get rid of? First of all, you should realize that any product / offer has two perceptions of value: through the prism of the manufacturer, supplier and through the prism of the consumer. For the former, it is based on efforts, investments, and the costs of creating and promoting products. To this is added the desired level of earnings and formed the "only fair price" at which the product should be sold.

The consumer, on the other hand, evaluates the goods taking into account the benefits that he can get and the “pains” that the offer eliminates. This is what forms its “assessment” of the fair price of a product or service. Since clients have different “pains” and “needs,” their value proposition is different. Consequently, there is no “single fair price” for any given product. This understanding forms the awareness that the market is heterogeneous. It consists of different consumer segments with different perceptions of the value of the same product.

Often, companies are faced with the fact that for the client the value of the product is lower than for themselves. Therefore, the main task of marketing is to continuously increase it in the eyes and consciousness of the buyer.

The search for "pain"

Finding the key to the consumer’s heart is not easy, as the “pains” have become chronic. Customers are accustomed to them and do not even hope that someone will be able to "cure" them.

For example, everyone is accustomed to the fact that furniture is usually made to order, because there is an opinion that all buyers have different sizes of housing. The furniture manufacturing process itself is quite painstaking and stressful: you need to invite the craftsmen to take measurements, go to the salon to choose a design and place an order. Then wait 20-40 days until the furniture is ready and it will be brought and mounted.

IKEA, for example, decided to get rid of this "pain" is very simple. The company knows that a huge number of people live in the same type of apartments. Therefore, they created furniture designers with variability of sizes, colors and designs. You can buy them directly in the store and assemble them yourself at home. And it only takes one day.

Therefore, to be successful, you need to identify one of the key “pains” of the market and eliminate it better and faster than competitors do.