Distribution & Opportunity Cost
Carlton Hoyt
Everything has an opportunity cost. For those not familiar with the concept of opportunity cost, it basically means the cost of not making a given decision (see a more detailed explanation on Investopedia). While a simple concept, the frequency with which it is ignored is often a huge inhibitor on small companies. Small companies, which may lack professional, well-rounded business personnel, often fail to see the costs of inaction. Allow me to lead with an example of one area which is frequently plagued by opportunity cost: distribution.
I was working with a small company who developed products for life science researchers and sold through international distributors where the company had established relationships with distributors, but sold directly to countries where local distribution was not present. This setup created many inefficiencies. Additionally, the company did not actively or effectively market to an international audience, which caused very low sales volume in countries without a distributor present. Distribution was lacking in 6 of the largest 10 economies, and there were entire continents with no distributor present. This was largely due to their approach to the establishment of a distribution network. The company had been waiting for distributors to approach them – a slow and inefficient approach with a high opportunity cost – rather than actively seek out distributors. This policy had the additional side effect of removing any screening process for distributors since the company was effectively not actively choosing who it was working with and the quality of the marketing effort by some of the distributors was very poor, leading to sub-par sales. In other words, their opportunity cost for not creating a well developed distribution network was high – there were a lot of sales that they could have been getting had their distribution network been more complete, however they were not doing so. I had estimated this opportunity cost at about 100% of the company’s then-current revenues – a huge sum for any company.
Taking advantage of international distribution opportunities is a relatively low-cost way of achieving sales. International distributors will often create or translate marketing materials, perform outside and inside sales, and perform other valuable functions, and the process of selecting and signing a distribution partner may take as little as a few hours of work for a well-connected and experienced professional. When considering the massive increase in market access and resulting increase in sales, the few hours or even a few dozen hours of work to find and secure a distribution partner seems a very small cost. It is not quite that simple, however. There are many considerations to selecting a distribution partner and the approach must be carefully considered.
Considerations in Selecting Distribution Partners
The first thing to do when expanding your distribution network is prioritize. Ask yourself: Where is my company experiencing the largest opportunity costs? What countries or regions present the largest revenue opportunities? While just going down the list of countries by GDP can be used as a reasonable general guideline for where the most opportunity lies, it’s a far from perfect method. Some countries, such as Switzerland and Singapore, have far larger life science markets than would be indicated by looking at their GDP relative to to other countries. Others, such as Russia, have relatively small life science markets. There are other more specialized considerations as well. Brazil, for example, has a huge agricultural research market but relatively small pharma research market, so products that are useful in agricultural research may find a large market here while other products may not.
Secondly, make sure you find a distribution partner who’s capabilities and expertise meets your needs. Start off by ensuring that the potential distributor’s focus matches your product offering. For example, if you have a primarily imaging-focused offering, you will likely be best with a distributor that has a strong portfolio of imaging products (unless it presents too much competition within the portfolio) since the company will have a strong competency in this area. If you sell equipment, you’ll be better off with a distributor that sells equipment, etc. Also, be sensitive to how the potential distributors sell products. What is their balance between inside and outside sales and does this balance fit with how your products are best sold? You’ll also likely have to choose between large distributors with many reps, a sizable marketing department, and very complete coverage, or small distributors who will have a smaller product portfolio and therefore will likely be able to give more attention to your products. Many factors weigh into this decision, such as the nature of the products, the competitive landscape, branding, the culture of the distributor, the distributor’s product portfolio, and many others too numerous to discuss in depth.
[td_titled_box title=”Food for Thought”]Do you have business partners or friends in other companies who do not compete with your company but serve a similar market? They may be able to offer great recommendations for distributors and even introduce you to the right person. Don’t be afraid to ask![/td_titled_box]
Of course this is just a brief overview and there are many other considerations not discussed here. Feel free to call or e-mail us if you would like to discuss other issues or potential concerns.
How to approach a distribution partner
Before you even consider approaching a distribution partner, perfect your pitch. You need to be able to convey some introductory information about your company, some info on your product portfolio, why your products are of high value to researchers (and differentiated from competing products), and a least a teaser of what the distributor stands to benefit by working with you. All of this needs to be conveyed with enough brevity that the person on the other end will actually read it / listen to it and also be compelling enough to lead them through the pitch and not lose interest in your company or products. That’s not always easy to do. Also, always remember to point back to your website or other easily accessible information about your company and products, and keep in mind your target audience and be sensitive to cultural considerations in the wording and feel of your message.
Next is your approach. Once you select the company you want to work with you can often find the name and contact info of an appropriate individual to contact online. If you end up with a non-personal e-mail address (an “info@…” or “sales@…”, etc.) don’t have high expectations of receiving a reply, especially when dealing with larger companies. I generally recommend e-mailing or physical mailing your pitch so the target has time to read and process the information contained in your pitch and look at your products. If you don’t hear back in a reasonable amount of time, then it is more appropriate to call so long as there is no language barrier. Remember that Google Translate can be a great tool when dealing with just about anyone internationally and in most cases works very well, even if it requires occasional tweaking of your message to translate properly and restricts you to written communication.
Think about and act on the issues raised above and you’ll be on the right track to growing your distribution network, improving your market access, and increasing revenues and profits. Don’t forget that your distribution networks don’t just require establishment, but require some degree of maintenance as well. Relationship management is very important and you may even want to occasionally replace an underperforming distributor. Not having a complete and effective distribution network, however, imposes a large opportunity cost and can inhibit the growth of any small life science company. A little business development can go a long way…
We’ll be posting more about this and related topics in time, so be sure to subscribe to our blog, check back occasionally, and / or follow us on twitter!
The Power of Remarketing
Carlton Hoyt
It’s the season where all retailers start to think about how to spike their sales as much as possible, and while there is a lot of marketing information and tactics which are generally inapplicable to companies selling products to the life science research market, there are certainly some things to be gleaned from the marketing fervor of the holidays as well. One that struck me was highlighted in an article posted today on the website of the E-Commerce Times. Before I say anything else PLEASE remember that this article is written with the target audience of retailers who are marketing to the average consumer making personal purchases – this is not who we are, not who we sell to, and a lot of the advise in there is not good for our purposes. What is good for our purposes, however, is the general idea of remarketing and how it can empower your marketing campaigns.
What is remarketing?
Remarketing is displaying targeted advertising messages to prospective customers who have already shown interest in whatever it is that you’re selling by viewing or responding to initial marketing efforts. For example, if you have a customer on your website who looks at product X, that indicates the customer is interested in X, so sending that particular individual a marketing message focused on product X would have a far higher conversion than either sending an unfocused marketing message to that customer or sending a marketing message to people who have not previously expressed interest in the product. A remarketing effort does not have to center on your website, however, but could be based around an e-mail campaign, online advertising, or even a well thought out print marketing campaign. In other words, remarketing is a fairly flexible tool that provides a far higher return on investment than traditional marketing, although it still requires that some form traditional marketing precede it.
Don’t just take my word for it, though – according to a study from comScore, remarketing yielded over 1046% more online searches for a product and 726% more website visitation within 4 weeks of exposure to remarketing, as compared to not utilizing remarketing. While they didn’t provide data on how the massively increased search and views figures relate to conversion, we can see from these figures that that the customer who has been remarketed to expresses far more interest in the product or brand than the customer which has not been remarketed to, and this increased level of interest is certain to lead to a dramatically improved conversion.
How are you utilizing remarketing? Is remarketing part of your marketing strategy? If not, how will you fit in this highly effective form of advertising?
One last thing while I have your attention – BioBM is offering 10% off all consulting and outsourcing contracts quoted before the end of 2010! Contact us now to take advantage of this one-time offer!
Improve Your Online Presence
Douglas E. Rogers
I don’t think anyone will dispute the power and influence of the internet. According to data from the International Telecommunications Union (a United Nations agency), internet penetration in the developed world will exceed 70% this year. Scientists are even more heavily influenced by the internet. We rely on it as a vast and trusted source of readily accessible data, a gateway to the tools and databases we use on a regular basis, a necessary communication tool, and a platform for collaboration across countries and continents. Fueled by fast, extensive business and university networks, internet penetration among life scientists is virtually 100%.
Just as individual consumers are turning more and more to the internet for both information and to make purchases, so are scientists. Researchers, geared towards finding their own information and encouraged by the ready availability of online information, look to the internet for information on products and services prior to purchase, and ever more are using use e-commerce for fast and efficient purchases. Because of this, it is imperative that life science companies leverage the internet to maximize their exposure, ensure that they manage their online brand image, present compelling online marketing, effectively capture online leads and convert these into sales, and utilize e-commerce where possible to reduce the barriers to purchase and increase sales efficiency.
How Important is A Website?
Online, your website is who you are. The quality of your website will be perceived to reflect the quality of your company and, by association, your products. Customers expect that the same kind of companies who create and maintain high-quality, well-performing products will put the same effort into creating and maintaining high-quality and well-performing websites. An outdated look or feel, errors, poor navigation, and a large list of other website faux pas will hurt your image and reputation. Unless you have an extremely strong reputation among your target market, you can assume that every new prospective customer who is interested in your product will look at your website for information before purchasing, and it is likely that your website will be the first place they look … unless they search for it and someone else comes up higher in the search results. Even with a strong reputation, many will still look to your website for more information. While a beautiful, well-structured website alone will not be enough to sell your products (you still need the proper content) a poor website can dramatically hurt your sales.
Refining Your Marketing Message / Having the Right Content
Your online marketing message is arguably the most important one that you will present. It is, in effect, constant; your online brand and marketing are always there for anyone to view. Again, it is very likely that almost all of your customers will view information for your products or services online at some point before purchase. You therefore need to have the appropriate mix of technical information and compelling marketing messages to encourage scientists to either buy the product at that time or inquire for more information immediately.
Search Engine Optimization (SEO) / Search Engine Marketing (SEM)
It will not do you any good if your company has an excellent website that no one can find, and how you get found is through search. ComScore’s global search report has indicated that Google alone gets 1.5 million searches per minute, or well over one billion per day! Having insight into how search engines serve search results to these hundreds of millions of people is crucial to ensure that scientists looking for products or services online find yours and not those of your competitors. Search engine optimization is a tricky thing – search engines guard their algorithms and make only vague public statements as to how they work, so having someone with expert knowledge manage your SEO is crucial. For example, there is a sweet spot between a site having too few keywords, which will result in sub-optimal rankings, and too many keywords, which search engines will penalize you for. Experts have spent years figuring out the optimal “keyword density” along with many other SEO considerations and know what works and what doesn’t. Even with expert help, organically improving your search engine ranking takes time. To get around this, and get you to the critically important first page of search results today, you can make use of search engine marketing. Remember: 90% of searchers never go past the first page of search results, and 99% will not go past the third page, so being on the first page is of extreme importance. A properly managed SEM campaign can economically get you to that critically important first page page of the search results regardless of SEO, and even with good SEO it has been shown that a well-run SEM campaign will still result in an average 20% more hits. Another benefit of SEM: since most SEM campaigns are pay-per-click, you know that most of the people clicking are in your target market. After all, people most often click on links that are of genuine interest to them. Also, search engine marketing prices their advertising by the keyword, and a lot of life science keywords are niche markets, and therefore are less saturated which leads to lower costs and a higher return on your advertising dollars.
E-Commerce
According to a study by Forrester Research, sales via electronic commerce will increase by an estimated 60% from 2009 to 2014 in the United States. In Europe, the estimated increase over the same time period is 68%. A burgeoning societal tendency to make purchases online compounded by extremely high internet usage among scientists and the ease of finding products and information online, ever more researchers are turning to the internet for laboratory purchases wherever possible. Particularly for lower-cost items which do not require purchase orders or budgeted line-items (usually $2500 maximum for universities and research institutes and around $5000 for pharmaceutical or biotech companies), a well-implemented e-commerce backend to your website can make it easier for customers to buy your products, help you process orders more efficiently, and even integrate with customer relationship management and / or accounting software to automatically capture customer and order information. The most important factor, however, is the ease and speed of ordering for customers. At all times, you want to ensure that it is as easy as possible for customers to order your products.
These are only some of the considerations that a company should think about when analyzing their online presence. I did not touch on Social Media Marketing (SMM), forms of online advertising other than SEM, online brand presentation, and many other factors (a quick tangent since I’ve brought up social media marketing; if you think the most popular site on the internet is Google, you are wrong). However, the above points are perhaps some of the most important for a small life science company to consider when establishing, updating, and / or maintaining an online presence. We’ll be tackling each in more detail, including social media and the other topics we didn’t cover at all here, so be sure to follow us on twitter or add our blog to your RSS feed if you’d like to stay up to date with the latest posts.
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Prepare for the holidays!
Carlton Hoyt
November is already underway and if your company sells products or services to academic researchers then you should already be preparing to double down on your marketing efforts and start reaching out to potential new customers now. Many professors and graduate students will be extremely busy in early and mid December with their class responsibilities and will not want to pay attention to anything extraneous (including marketing materials), however important purchasing decisions, particularly larger purchasing decisions, for many university labs are made in early January – after the bustle of finals and the holidays but before classes start up again. Use this to your advantage.
If there is a target market that you want to enter, be sure to start marketing to them ASAP. Again, you do not want to wait until December to reach new customers. They will need to see your marketing message a few times (preferably via different avenues) before you will have enough brand or product recognition for most prospective customers to trust you and your product. You will probably want to have multiple “touches” between now and January to both establish yourself in their minds, get across your full marketing message, and present a compelling call-to-action. There is still enough time to touch
a new prospect four times without being overbearing, but you’ll need to start now.
Also, don’t forget that the holidays are a great excuse to have a special, a sale, or some other call-to-action. While these specials are rarely enough to drive a buy decision on their own (since scientists are very analytical and generally weigh need vs. cost and make a fairly objective decision on those metrics), they can still be attention grabbing and push people into making purchasing decisions now – and those purchasing decisions will be made with your product in mind.
Your small company should be formulating a short-term marketing plan on how to approach academics and increase sales from universities between the semesters. If you sell to universities and you do not have a marketing plan for the next two months, you will likely miss out on a key opportunity to take advantage of purchasing habits and fail to realize a lot of potential sales.
Change is Permanent
Carlton Hoyt
I was speaking with someone the other day about the general state of things (not just the industry or the economy but everything, really) when I remembered and used a phrase that was uttered to me some time ago – “change is permanent”. I didn’t mean it in a way that when something changes it is changed permanently, but rather that change in itself is permanent; change is continually happening. While I can’t remember who initially gave that phrase to me, I’m glad he or she did because I use it often and like to come back to it on occasion to step back and make sure that I am changing to adjust to the change happening around me.
It is an undeniably true statement – the state of anything is rarely constant, and even if it is there are things changing around it that will ultimately change it objectively and / or subjectively. Before we get too philosophical on the topic let me ask a simple question: when was the last time you took a minute to assess how change is happening around your organization? For example, how is your industry or sector changing? How are your customers changing? How are you ensuring a competitive strategic positioning in the future when you account for that change? While these are undeniably important questions, they are questions that we very often either neglect to address or do not address seriously. It’s very easy to get caught up in your own company’s day-to-day operations or in your own tasks and not address the future because it’s not a pressing need at this exact moment, but if you do you’ll get left behind by change; you won’t evolve.
Change is even more of a constant in such a rapidly evolving field as the life sciences. How are you directing your own evolution to prepare for future change? How are you managing change and ensuring that detecting and responding to change is built into your organization? If you haven’t recently, step back and think about the questions that I have raised. Try to do so when you’re away from your desk and have a clear head and can mentally zoom out from your insider perspective a bit. If you have a hard time coming up with answers or you know the answers and they aren’t good, then it may be time to figure out how to empower the evolution of your organization to address the future while you still have time.
Leveraging a Weak Dollar
Carlton Hoyt
[one_half]Small or start-up businesses are rarely sitting on stockpiles of cash reserves. Quite the opposite, cash is usually a bit tight, so if you are running a small life science company you probably want to take every opportunity you can to improve your cash position. What you may not have thought of is leveraging the weak US dollar to generate short-term revenues and grow your cash-on-hand.
The US Dollar Index, which tracks the dollar’s value against a basket of nine other currencies, is down over 11 points from its 52-week high of 88.71 in June. Put simply, that means that if your goods are priced in US dollars, they will be a lot cheaper to customers and distributors in other countries who use currencies that have comparatively appreciated. For example, the dollar is down about 15% vs. from it’s highs against the euro and the Japanese yen, and is down about 10% from the highs against the Brazilian Real and the British pound. Your dollar-denominated products are now 15% cheaper to customers in the Eurozone than they were just four months ago! That’s a substantial discount, and one that you can flaunt to your customers and distributors in these areas and others whose currencies have similarly appreciated against the dollar.
How do you take advantage of this? Simple! Send marketing messages specifically targeting customers in a particular region and bring up the favorable exchange rate. Call your distributors and encourage them to buy now since restocking on your products is now cheaper. Don’t drag your feet, either, since the dollar may begin to re-appreciate in the near future. If you are in need of short-term revenues or an improved cash position, highlight your newly cheap products to your international customers and distributors now![/one_half]
Don’t Get Left Behind
Carlton Hoyt
Taking a pragmatic view on the state of the economy, it’s fairly easy to see that the road to recovery will very likely be a long one. Governments are in huge amounts of debt, and the “great recession” has been especially hard on small businesses, yet we see the stock markets going back up; the Dow is almost to 11,100 as I write this. Why do things feel so bad but look so good for big businesses? A lot of it isn’t due to revenue growth – global demand is still anemic. A lot of it is due to cost cutting to improve bottom lines which have left many large companies with very positive balance sheets. Now, having likely seen the worst of the recession and being in a strong financial position, large companies are starting to reinvest in anticipation of future demand growth.
How does this effect you?
Well, if you are a small or start-up company, chances are you’re still hurting. You probably couldn’t easily cut personnel and costs as the large companies have. You also may not have the stockpile of cash to resume hiring in preparation for renewed demand or may not want to hire because of uncertainties about future revenues. Therein lies a problem. How will your company compete when the large companies are getting a head-start?
The answer: by not letting them. Easier said than done? Maybe not.
For a start-up or small company, even hiring one person can be a huge investment and a very significant increase in overhead, yet you will need the additional capabilities to ramp up your marketing, business development, and other efforts to position yourself for increasing future demand. This can be done by “virtually” increasing your human resources and capabilities through strategic outsourcing. By partnering with a skilled service provider, you can execute projects faster and / or sooner, prevent schedule overruns, and effectively increase your available competencies. It also often allows you to increase or decrease your effective workforce size at will.