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Thursday, January 11, 2007

Market test results

Day two of the market test for the construction leads service has concluded and the answer is, unequivacobly, this idea is a bomb.

For those reading this blog who are not subscribers to the Construction Marketing Advice Newsletter, here is relevant posting:

By Mark Buckshon
Today, we are in the midst of a market test that is producing surprising results. After six months of planning and research, I asked two qualified salespeople to see if they could find clients for a new construction information and leads service.
After a good day on the job, they haven’t received one order.
Obviously, we aren’t going to pull the plug just yet – but the disappointing early results contrast with another test we conducted in late November. Then, I asked two new and unproven sales representatives to sell Christmas greeting ads in a local homebuilder’s newsletter. After just a day on the job, and with little knowledge of the market, the two representatives sold $6,000.00 in ads.
What is happening here? Why are people reluctant to spend $49.00 per month or $489.00 per year for a high quality leads service when they will spend $500 or more for a one-shot Seasons’ Greeting ad that, I assume, will be forgotten among the crowd of similar ads?
I think the answer to this question may lead to an important understanding and solution for readers interested in construction marketing. Value is defined by relationships; and healthy relationships are more durable than transitory jobs, and more meaningful than conventional bidding opportunities or, for that matter, conventional marketing including advertising and direct sales efforts.
We had no trouble selling ads in the association newsletter because its members get along well, and connect with their motto: “Be a member, do business with a member”. No one of course should expect instant gratification in joining this kind of association, but after time and with reasonable effort, members find the relationships lead to tips and guidance, and contracts, and real work. So when the members are asked to show their support with a greetings ad, they say “sure”.
The leads service, on the other hand, might be useful, especially to start-ups or to businesses without close existing relationships; but the more successful businesses – the ones with the spare cash spend a few hundred dollars on a Christmas Greeting ads – already have relationships and connections, and are not necessarily looking for new business in the conventional way.
(I'm sure the leads service will be of interest to some of the most successful businesses who purchased the Christmas ads -- after all, the proposed new service also provides useful market intelligence and insights, and these elements are of real value to any business. Nevertheless, our challenge remains to to find at least 200 subscribers anywhere in Canada, and perhaps the U.S. if licensing arrangements can be confirmed, for the service that can easily be customized to meet the needs of local markets and market segments.)
There is another lesson to be learned from this experience – the importance (and limitation) of market research and testing. If we proceed with the new data/leads service, we will incur several thousand dollars of deferred start-up costs, and if I blindly believed this service could work, without testing, our business could be caught in a bottomless pit of expense, with limited or no return.
So we devised a simple and elegant test. We want to hire a new salesperson, and after short listing candidates, found someone who looked like he might be suitable. But if we gave just the new salesperson this assignment, we might unfairly judge him to be incapable if he failed, when the problem related to the product or market. So we contracted with a second sales representative, someone we know well, who is familiar with the industry and has achieved significant success in the past.
Both representatives used different techniques (we didn’t dictate the best approach, but were available to provide industry and market-specific guidance to the new representative). Alas, neither of them sold a thing in their first day on the job. They have a little more time to prove there may be some interest in the new service, of course, but remember two sales representatives sold $6,000 in ads for the Homebuilders’ Christmas publication in the same amount of time.
Now it is quite possible that our problem here is not the product or market but the way we are selling it. Telemarketing is traditionally a fast and effective approach to market testing, but I’m sure none of us like very much to be bothered by in-bound calls. Maybe this product needs to be sold through referral or other forms of advertising.
. . .

Neither of the two salespeople, who tried to contact upwards of 500 qualified business owners, could receive even one commitment or tentative order for the service.

I consider the test to have been a success, nevertheless. My 'control' contract sales representataive did his work flawlessly, starting off by emailing complete prototype samples and ordering information to the target list, before calling anyone. He also reduced his agreed-on hourly fee substantially by requesting payment for only a few hours work -- or $90 in total.

The other person, our new salesperson candidate, did okay as well, but after he left on his first day, we reevaluated his references and saw some serious issues. I straightforwardly told him at the end of the day that of course we would pay him for his work, but would not be calling him back.

So where do we go with a project that resulted in hours of planning effort, and had been a significant structure of our planned business expansion. I really don't know yet. But I'm surely glad that I didn't pour more money into this thing.

1 comment:

Anonymous said...

With respect to the "leads service" I would guess that the value would derive from something that was sold as a more comprehensive "lead service" than already exists in the informal network of information that flows among the trades and contractors. The valuable leads for a General Contractor are those that aren't widely known.If a GC can discover a future project and start working with the owner/designer BEFORE the general populace hears about the project, then they have an enormous advantage. Even if the project is ultimately put out to competitive bid, a contractor who has been working with the developer/designers has the ability to assemble a "tight bid" and doesn't have to allow for as many contingencies as other bidders.

The service that you are selling should evidence some sort of research that most contractors do not have time for; which is determining which projects are still a "twinkle in a developer's eye" as opposed to being tendered. That research would, at a minimum, include which projects have made their site plan/re-zoning/development plan applications with the city - projects which will spend 27 months in the sphincter of the city planning quagmire but will represent the active projects in the coming years. Assuming that the information provided in a "lead service" will come from contractors and trades is probably not likely to happen. Why would a contractor or trade announce an opportunity for which they hope to have the inside track? In the private development segment, it is remarkable how many projects proceed without serious competitive bids. By the time even sub-trades hear about projects, there are usually one or two trades in each segment who have already worked on pricing the project and are hard to beat if the GC goes through the ritual of calling for bids.