How to Define Our Market…Maybe A Mathematician And An Economist Can Teach Us ©

[The following was taken from a series of articles I wrote for a Real Estate & Resort Development magazine.]

“Clouds are not spheres, mountains are not cones, coastlines are not circles,

and bark is not smooth, nor does lightning travel in a straight line.”

—Mandelbrot, in his introduction to The Fractal Geometry of Nature

And, it should be said: Markets are not uniform. They may appear so from 100,000 feet, however, under closer scrutiny, say 10,000 or 1,000 feet they exhibit complex differences not discernible from afar. The Russian mathematician Mandelbrot, applied to Marketing suggests: Every problem offers opportunity if you look at it under sufficient magnification.

These differences are the marketer’s mother’s milk. They allow that even in a down market, there are opportunities. The tide may no longer be coming in to “raise all boats”, but some boats will sail just fine. You can bet those boats will be soundly made, maintained and well commanded.

Let’s take a hypothetical situation – you are in a good tourist destination, repeat visitors every year, a percentage of which buy some form of leisure/vacation ownership (timeshare, fractional, club membership, condo or villa). Suddenly, market visitation is down 25% and ownership sales have fallen off about the same amount.

Let’s assume you have 3 – 4 major competitors, and roughly speaking no one has a decisive edge over the other in terms of product offering. Everyone appears to be hurting equally; sales are down, it’s taking longer to sell, and dealing (throwing in value-enhancing “extras”) is the norm.

You’ve increased your advertising budget, you’re pushing the sales force, you’re sending out e-bursts to your database announcing specials, you’ve launched every arrow in your quiver, but you’re still barely keeping your chin above water. And, the guy in the corner office, or your investors, are looking at you like you’re soured milk. What do you do?

Well, if you have invested in the infrastructure to build your knowledge base you would have the insights needed to guide and empower your thinking. I know from experience that most developers have only rudimentary data, contact databases that are incomplete and out-of-date, and industry data (too general and since available to all, does not give a competitive edge). You may also have proprietary “stand-alone” research or reporting. I say “stand-alone” in that the data are not integrated into a system for a more complete and accurate picture. The data may apply in context, but that does not tell you how to apply it when all in-puts are taken in account.

Nevertheless, you have to make do with what is on hand or otherwise available. It’s too late to build infrastructure for today’s solution. But is it too early to prepare for tomorrow’s problem? (No matter how often I preach this message, and how many nod their heads in agreement, few will pay heed.) So, on with addressing our current problem…

Think of yourself as a skilled detective, a sleuth with an acute sense to discern clues that lead to market opportunities. If you look at the market with a magnifying glass you will see definition. The definition might be in product type, e.g. overall unit sales are down 25% but villas are doing better than condos, or maybe shared-ownership is not being hit as hard as whole-ownership. There might also be material differences in price point, types of amenities, quality of service, structure of purchase, etc., that indicate a solution. In some cases, increasingly so in my opinion, the differences may be in the lifestyle experience being offered. We are going through a period of upheaval. It should not be surprising that this upheaval will bring change in lifestyles. It will not happen overnight, but you want to be aware and ready to adapt.

Then too, you need to get a feel for who the buyers are, and where they come from. I don’t mean their country of origin; I mean their postal code or, better yet, the country club they belong to. Everyone will know the country of origin. That information is next to useless. Everyone will also have an idea of originating city. “Great, I know 20% of my customers fly-in from LAX Airport, now what?” Even assuming that means 100% live in the L.A. area, it’s too big a target. (Of course, if you happen to have a cooperative airline, you may be able to access their database, but good luck on that.)

Covering even parts of a city would cost a fortune. If, on the other hand, you see that 5 buyers came from postal code 90024 you will want to find out why. Is it the convenience of access to your destination? Or has it something to do with connectivity among buyers? Buyers that are related by neighborhood or through social contacts, clubs, industries, kids schools, etc. are to the marketer what the presence of kimberlite is to the diamond-hunter. They tell you that if you dig here you have a better chance to strike it rich.

Don’t ignore the Sales Director, Ops Manager, or “close-in” customers; they are all “informed” to some degree. This is not the place to list every possible avenue to narrowing the market. If you understand the detective analogy you will find over time that your nose improves.

The goal of all this inquiry is to establish benchmarks, informed assumptions, as a basis for planning. Without an objective intelligence-gathering system, these benchmarks will be a bit shaky, but you have to start somewhere. Keep in mind, the only way to learn is to start from a base, however shaky, and measure performance of your plan against this base. This opens up a whole separate subject called Accountability, which we will treat in another article. But, keep in mind, if you do not have benchmarks, you cannot evaluate. If you cannot evaluate, you will not learn!

OK, so now about this Italian economist, and what he can teach us about marketing. His name is Vilfredo Pareto and in the early 1900’s he postulated that 80% of the effects derive from 20% of the causes. Now lots of you have heard about the 80/20 rule, but I wonder how many of you have really thought about it? Think about it now. It suggests that 20% of your customers account for 80% of your business. While this ratio may vary some between products and businesses, I can assure you that generally it applies to our industry as well as many others.

Now ask yourself: “If 20% of my customers account for 80% of my business, why would I even think about the 80% that account for only 20% of my business?” If I can be successful with the 20% of customers I win, while if I’m not successful among these 20% I cannot possibly win! There is no better lesson in marketing than that. Thank you Vilfredo.

NB: The Pareto Principle, The 80/20 Rule, The Law of the Vital Few are inter-changeable. Before I discovered Pareto, I referred to this concept as the “Get Home Market”. If I could identify, focus on and win over the “Get Home Market” I’d score and win. Let me give you an experience that demonstrates this point.

In the 90’s, I consulted with Intrawest Resorts. It was the largest mountain resort company in North America, and was expanding into other type resorts as well. They were looking at buying Stratton Mountain ski area and asked me to help. My client was the Real Estate & Development division. After the sale, I was interested in handling Stratton’s advertising account. The R/E guys introduced me to the Operations GM; he ran the ski area and had that responsibility. He was a good ops manager, but didn’t know much about marketing. His plan, recommended by the agency that won the account, one of Boston’s largest marketing / advertising agencies, was to buy a couple of 4-color ads in SKI Magazine, and put the balance of the budget into outdoor billboards covering all the highways leading from Boston, Connecticut and New York to Vermont. This was foolishness, and I said so, because 1) that’s what every ski area in Vermont and neighboring New Hampshire was doing. I have a rule: If everyone is crowding through a particular door, find a new door. 2) Stratton was in southern Vermont, which made it the second easiest major ski area to get to from the New York Metro Area, while this advantage disappeared for Boston and most of Connecticut, which anyone looking carefully at a highway map should have noticed. 3) Stratton was first choice for up-scale families from the New York Metro Area.

With the “Get Home Market” in mind, I had recommended Stratton should focus all efforts on about 25 up-scale neighborhoods and towns in and around New York City. I estimated that 80% of total sales would come from these or similarly connected towns & neighborhoods. Win these (with them would come those connected) and Stratton would win the game, while not doing well in this defined market would jeopardize Stratton’s success. (NB: a single buyer of a ski area second home spends hundreds of thousands, and then goes on to account for thousands each year in season tickets, guest tickets, meals, food, ski equipment rentals and sales, and on and on over a life time, then there are the buyer’s friends who visit and later purchase their own condo or home multiplying the effect.)

A few years later, under new management, Stratton got around to following the right strategy. Sometime after I joined Intrawest on staff. On a visit to Stratton with the EVP Marketing, I inquired as to the total dollar volume of sales from the areas I had identified. The EVP was aware of my recommendation years earlier. He replied that I was off in my prediction; then smiled and said the number was closer to 85%. “Hey, we’re happy to sell others day-tickets, but not at the inconvenience of our best customers, who account for thousands of dollars every season.”

Stratton, originally thought of and marketed as a regional ski area that would draw its customers from anywhere within 5-6 hours driving distance (8 states with some of America’s largest cities) had, as I thought it would, with the help of Messrs. Mandelbrot and Pareto, become the favorite weekend ski area for wealthy families from a highly concentrated geographic and socially-connected market.

It’s all about the Vital Few…do everything you can to identify and focus on this group, because only with their help can you win. Without them you cannot!

In later articles we’ll talk about the next steps – engaging the Vital Few, winning them over, and ultimately converting them into missionaries.

If you want to discuss any aspect of this article, please let this publication and/or me know. I can be reached at len@lensilverfine.com. Thank you.

___

Len Silverfine has over 40 years of professional and academic experience. His company, The Big Idea Co.™, works closely with developers in No. America, Europe, Asia & Australia to direct and supervise marketing and sales. Len is an avid proponent of “Core-Centric Marketing©” for increased effectiveness and efficiency, and has developed the Intelligence Suite© to support marketing efforts and provide performance accountability.

Len’s early training began with Procter & Gamble, General Foods and Revlon. Len went on to develop an acclaimed marketing course for McGill University (Montreal) and the Univ. of Vermont. In 1978 he formed The Big Idea Co.™, which has created award-winning communications campaigns and world’s record events for Revlon, Swissotels, Wilson Sporting Goods, Princess Hotels, CBS TV and other major clients (www.lensilverfine.com).

In 1991 Len began consulting for Intrawest Resorts, helping them acquire and develop new properties. Len joined Intrawest as V.P. Marketing & Sales in 2000 to launch Storied Places Private Residence Club. He designed Intrawest’s Resort OnCall, its highly successful customer loyalty program that established record highs for customer satisfaction and referrals, as well as Playground’s Asset Tracking Model, which measurably improved Sales accountability.

Currently, Len directs marketing for SAIP TURISMO one of Portugal’s largest developers. He is also active with AUSTRALIAN RESORT PROJECTS PTY, northern Queensland. He consults with other developers in Mexico and Portugal, and continues to direct the development of INTELLIGENCE SUITE©. Len frequently speaks and serves on panels at industry conferences, conducts workshops, and contributes articles on strategic marketing. Email: len@lensilverfine.com.

This entry was posted in Uncategorized. Bookmark the permalink.

Comments are closed.