Theory of Constraints Mafia Offers: Dealing with a Market Constraint EXCERPT

Here is an excerpt from of Chapter 22 Mafia Offer:  Dealing with a Market Constraint of the Theory of Constraints Handbook. 

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Introduction: What Is a Mafia Offer?


A Mafia Offer sounds like something out of a movie, not something that could seriously help you make more money in your business by increasing and controlling your sales.

Dr. Goldratt first introduced the concept of a Mafia Offer in his book It’s Not Luck (Goldratt, 1994, 133). Later, he defined a Mafia Offer as “an offer they can’t refuse” (Goldratt, 2008, 67). But in writing, he more frequently refers to it as an unrefusable offer (URO; Goldratt, 1999, 120) and more recently he (and Goldratt Consulting) emphasizes the need to establish, capitalize, and sustain a decisive competitive edge (Herman and Goldratt, 2008).

For this chapter, I will use the term Mafia Offer and have defined it as follows: An offer so good that your customers can’t refuse it and your competition can’t or won’t offer the same. In addition, I will refer to the operational improvements required for a Mafia Offer as the decisive competitive edge, operational advantage, or competitive advantage.

A Mafia Offer is simply the offer you make to your market—your prospects and customers—to make them desire your products or services and something that your competition cannot quickly match. And, of course, the offer you make is a combination of your products, services, and how you deliver them. Moreover, for your offer—the solution you’re selling—to be unrefusable, you are most likely offering something of equal or greater value than the price you are charging.

Many people confuse a Mafia Offer with a unique selling proposition (USP), customer value proposition (CVP), or a sustainable competitive advantage (SCA).

At first blush, it would seem that a Mafia Offer is similar to these other terms; however, when most people are talking about these alternatives they are actually quite different from what TOC experts mean by a Mafia Offer.

USPs, CVPs, and SCAs take what you already do and state it succinctly and with more specificity aimed at one or a few of their customers’ problems or gaps in current market offerings. These alternatives can be Mafia Offers, but most of the time they are not. Furthermore, an SCA is, in my view, an operational or technological (although these are not typically sustainable) advantage and not an offer per se.

Most companies offer solutions that solve their customers’ various problems or symptoms.  With a Mafia Offer, we are addressing our customers’ core problem as it relates to doing business with our industry.

A Mafia Offer typically requires that you do something different (make operational improvements to establish a decisive competitive edge) to address your prospect’s core problem. These operational improvements allow you to actually deliver something unrefusable to your customers and something that your competition can’t or won’t do because they are not willing to or don’t know how to make the same improvements. In other words, you have to establish an operational advantage.

In this way, a Mafia Offer is a sustainable market offer built on this advantage. Mafia Offers are not a positioning or a tag line and “can only be created by satisfying a significant need of the market to the extent that no other significant competitor can” (Herman and Goldratt, 2008).  A Mafia Offer is where we start if you have a market constraint.
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Spend just two hours reading this chapter and if you don’t get at least one good idea for your business, contact me and I will give you a refund!

—Dr. Lisa

That’s a Mafia Offer and it’s real. The purpose of this chapter is to introduce you to the Mafia Offer—the Theory of Constraints (TOC) marketing solution. The chapter progresses from the discovery of what a Mafia Offer is, to the guidelines for creating an offer, to how to present an offer, and ends with how the reader can create their own Mafia Offer.

The best way to read this chapter is in order. Each section builds on the subsequent sections, so that when you reach the summary you will have a very good understanding of what we in TOC call the “Mafia Offer.”

Click here to get the BEST price for Chapter 22 on Mafia Offers! (this is for the DIGITAL version of Chapter 22, there is not a printed version of just Chapter 22).  Amazon offers this as a Kindle version but you DON'T need a Kindle to purchase and read it.  They offer Kindle readers for the PC, Mac, Iphone, Ipad, Blackberry and Android.

 

The PDF version is ONLY available here:  Mafia Offers:  Dealing With a Market Constraint

Copyright 2010 Science of Business

A Process Of On-Going Improvement (POOGI) - Part 22

We are continuing our series based on The Goal by Eliyahu M Goldratt and the Theory of Constraints.

You will possess a sustainable competitive advantage when you have value-creating products, processes, and services for your customers that cannot be duplicated or imitated by your competitors.

Having a competitive advantage, even a sustainable one, does not necessarily mean that you or your customers and prospects are aware of it. So, there is a need to create an Offer or positioning in the market that clearly states your competitive advantage. We call this an un-refusable market offer or a “Mafia Offer” (this term was originally coined by Dr. Goldratt). A Mafia Offer is an offer so good that (1) your customers can’t refuse it and (2) your competition can’t or won’t match it.

A Mafia Offer is NOT a list of strengths, a cliché, subjective, or offered by competition. In addition, it is sold differently. When you have a Mafia Offer, you are making a business proposal. A business proposal promises substantial improvements for your prospect, and it is appropriate to present at the highest levels of your prospects organization. A Mafia Offer addresses a significant need of your prospect in a way that your competition can’t or won’t.

Developing a Mafia Offer is not trivial, but having one improves closing rates from less than 5% to as much as 80%. Typically, additional sales people aren’t required, but sales funnel management is.

If you are interested in more information about developing a Mafia Offer, and the significant increase in sales and profits it can bring, we recommend you read “It’s Not Luck” by Dr. Goldratt. This book is the sequel to The Goal. It also is an easy to read novel that provides a story for the development of three Mafia Offers. Also, check out our website http://www.mafiaoffers.com/ to hear an example, find out how you can develop a Mafia Offer for your company, and learn about our Mafia Offer Boot Camp.

Next time, we will address managing the sales funnel once you have that compelling Offer.

...to be continued.

Here's to maximizing YOUR profits!
Dr Lisa Lang
(c)Copyright 2008, Dr Lisa, Inc. All rights reserved.

NEXT Group Mafia Offer Boot Camp: September 24, 25, 26 2008 in Denver. More information at http://www.mafiaoffers.com/. There are also PRIVATE and On-line Mafia Offer Boot Camps. The July boot camp SOLD OUT and there is no group boot camp in August. Don't miss September!

NEXT Maximizing Profitability Event (no charge): September 23, 2008 in Denver from 1:00 to 5:00 pm at the Science of Business Training Center. More information at http://www.viable-vision.com/

FREE Marketing & Sales Constraint Assessment Webinar July 28 from 2 to 3 pm Denver time. To register, just drop me an email with which date works best for you. We have expanded our seat limitation to 50 for each Webinar. Seats are filled on a first come first served basis and both sessions are already more than half filled.

A Process Of On-Going Improvement (POOGI) - Part 21

We are continuing our series based on The Goal by Eliyahu M Goldratt and the Theory of Constraints.

When asked about what is unique and different about their company, most people reply with some of the following typical answers:

• We provide great customer service
• Our quality is outstanding
• We innovate and/or help our customers to innovate
• We have great employees
• We deliver results
• We have a very knowledgeable staff
• We are responsive to our customer’s needs
• We have a great reputation
• Our customers trust us

Don’t your competitors say the same thing? All good companies have these qualities or they wouldn’t be in business for long. We call this the “blah, blah, blah” answer because that’s what is sounds like to your customers and prospects.

Your Mafia Offer is a sustainable competitive advantage that differentiates you from your competitors. It separates you from everyone else. It is usually the reason you are in business. It answers the question “Why should I buy from you?” or “How are you better that my current supplier?”

...to be continued.

Here's to maximizing YOUR profits!
Dr Lisa Lang
(c)Copyright 2008, Dr Lisa, Inc. All rights reserved.

NEXT Group Mafia Offer Boot Camp: September 24, 25, 26 2008 in Denver. More information at www.MafiaOffers.com. There are also PRIVATE and On-line Mafia Offer Boot Camps. The July boot camp SOLD OUT and there is no group boot camp in August. Don't miss September!

NEXT Maximizing Profitability Event (no charge): September 23, 2008 in Denver from 1:00 to 5:00 pm at the Science of Business Training Center. More information at www.Viable-Vision.com

FREE Marketing & Sales Constraint Assessment Webinar July 21 from 2 to 3 pm Denver time or July 28 from 2 to 3 pm Denver time. To register, just drop me an email with which date works best for you. We have expanded our seat limitation to 50 for each Webinar. Seats are filled on a first come first served basis and both sessions are already more than half filled.

Mafia Offer Boot Camp Preview Video

Our Mafia Offer Boot Camp is based on Goldratt's Theory of Constraints. Mafia Offers or Unrefuseable Offers were first introduced in It's Not Luck. This is a video preview of the one and only Mafia Offer Boot Camp. Enjoy.

A Mafia Offer is the key to exploiting a market constraint or sales constraint. It could also be called an unrefuseable offer, an irristible offer, a market offer, a touchstone, a competitive advantage, a value proposition, or a unique selling proposition.

However, when most people are talking about a touchstone, a competitive advantage, a value proposition, or a unique selling proposition (USP) these are actually quite different from a Mafia Offer. They basically take what you already do and state it succinctly and with more specificity. A Mafia Offer typically requires that you do something different to actually deliver something unrefuseable to your customers and something that your competition can't or won't do because they are not willing to or don't know how to make the change.

In this way, a Mafia Offer is a longer lasting competitive advanatage instead of just a positioning.

Here's to maximizing YOUR profits!

Dr Lisa Lang

P.S. The next Group Mafia Offer Boot Camp is in Denver March 25, 26, 27 in Denver.

(c)Copyright 2008, Dr Lisa, Inc. All rights reserved.

Free Theory of Constraints Consulting

We recently updated OUR mafia offer to include free consulting for up to 3 months after you participate in a Mafia Offer Boot Camp. Recently someone asked me, why? I thought that the reasons would be obvious, but that's why assumptions can be dangerous.

We offer free consulting for 2 main reasons:

1) We want you to get maximum value from your boot camp. During the 3 days we calculate the bottom-line impact we project with the newly developed offer. But, if you have a great boot camp and develop a true mafia offer, if you don't implement it --> still no bottom-line results. So we schedule weekly calls to make sure that you and your team focus. We hold you accountable, answer questions, help overcome obstacles, and provide any additional examples you might need. For example, most companies create a Frequently Asked Questions document after the event and we have many examples we can share.

2) Many of the Mafia Offer Boot Camp attendees need and/or want help in implementing their offer after the event. (The exception is typically service companies that require few or simple operational changes.) As you probably already know, we offer a 100% results based option where you only pay us if your PROFITS increase. If your profits don't increase we don't get paid. This means we need to be sure that you will take our advice and implement. We can't do it for you, so we need to be sure that YOU will drive your implementation. If you are getting results during the free consulting stage, then we give you our 100% results based consulting option. If however, during each call we just talk about why you haven't accomplished anything, then we may not offer you the 100% results based option.

So, yes we are nice people, but we also want you to be raving about the boot camp because you got HUGE bottom-line results and we want to get to know you better before we go forward with a results based consulting contract.

Here's you maximizing YOUR profits!
"Dr Lisa" Lang

Competitive Advantage Quick Test

It turns out that mafia offers are possible for the majority of companies. The reason that most companies don’t know that they have one or know what it is, is because they just don’t know how to develop them. If you read Dr Goldratt’s book It’s Not Luck, you read about how we use cause and effect logic (the TOC Thinking Processes) about your customers, your industry, and about your company to create the offer. You also know that it’s not easy to do.

During my years in the consulting business I have asked many owners one question – if I am one of your best prospects, what would you say to convince me to do business with you? What are your competitive advantages or your edge over the competition?

Write down your answers and tune in tomorrow.

Mafia Offer Development Guidelines

To develop a mafia offer you need to consider 3 things.

–Your capabilities (or what they could be) compared to the competition.
–How your industries supplies product/services.
–The impact your industry’s capabilities and how you supply has on your customers.

As you consider these 3 areas and begin to understand what might be a mafia offer to your customers you must NOT consider that you can’t currently offer certain things. This will stop you before you start.

You may have different offers for your various products/services. To decide which one to develop a mafia offer for first, you can start with the one with the highest T/CU. (See the work book and audio CD Maximizing Profitabilty which covers Throughput Accounting, Goldratt's Theory of Constraints)

Once you have an idea for a mafia offer, then you can come up with all the reasons it won’t work, and see if you can overcome every single one of them. What assumptions do you have about why you can’t do something different?

Mafia offers were orginally discussed in Eliyahu Goldratt's book It's Not Luck.

Maximizing Profits and Increasing Sales with a Mafia Offer

The best way to increase your profits is to do it in a way that is totally under your control. It should NOT depend on customers taking a price increase, or on vendors to reducing prices, or on the economy.

You can increase your profits by uncovering capacity (or utilizing excess capacity) and then selling it. The new sales dollars minus the raw materials will drop to your bottom-line.

There are many tools that can help you to uncover the capacity (Goldratt’s Theory of Constraints, Lean, Six Sigma) and many manufacturers already have plenty of excess capacity. So the challenge lies in selling it.

In the accompanying interview I gave an example of how a company, in what is considered a commodity business, developed a mafia offer – a competitive advantage or unrefusable market offer that their competitors can’t or won’t copy.

All of our consulting projects start with a 3 day Mafia Offer Boot Camp. Then if you want our help in getting your operations in shape and in implementing your mafia offer – we only get paid if your PROFITS increase. 100% of our payment is dependent on your profits increasing. In addition, we will also provide a no charge analysis so that you know if the investment in the boot camp is worth it for you. That’s our Mafia Offer to you!

Here is the link to the podcast interview: http://www.podcasternews.com/programs/87/better-process-podcast/3574/?A=1

Below is a written summary of the interview which included 3 questions.

1) Focusing on industry as a whole (i.e. your customers) what are some of the largest challenges that small and midsize manufacturing firms are facing today?

A reoccurring theme is the ability to increase sales AND have a proportional increase in profits. We see manufacturers that successfully increase sales, but then increase profits very little or not at all.
Then there are the manufacturers who remember their best year of profits but have never hit that level again and despite all their efforts can’t seem to get their profits to the desired level. They’ve been in business for 20 years and have tried everything.

So I would summarize it as – manufacturers are challenged to meet their profit goals year after year.

2) What are some of the solutions to these issues?

To have a substantial impact on profits you have to do 2 things:
1) increase your capacity with little or no investment and
2) sell the newly exposed capacity
If you can uncover capacity or if you currently have excess capacity and you sell it, the sales dollars minus your raw material costs drop directly to the bottom-line.

This leads to profit increases without having to depend on other traditional approaches that prove difficult – price increases, raw material decreases, or operating expense reductions.

3) How is your company positioned to address some of these issues?

We use Theory of Constraints tools like many manufacturers have read about in the best sell book , The Goal, along with Lean and Six Sigma to achieve substantial capacity gains in operations. The minimum capacity increase we achieve is typically 50%. These tools have been around a long time and there are 1000s of success stories. However, if we can’t sell any of this newly uncovered capacity we have had no bottom-line effect.

So now, let’s talk about how to turn that capacity into profits by selling it.

We help clients create what we call a “mafia offer”. We don’t break knee caps or anything, a mafia offer is an offer that is so good that your customers can’t refuse it and your competition can’t or won’t offer the same thing.

Mafia Offers are developed by analyzing 3 things. 1st what are (or could be) your internal capabilities compared to your competition. 2nd How does your industry, you and your competitors sell what you sell. And 3rd Understanding how your clients are impacted by your current capabilities and how you sell.

Mafia Offers are specific to a company. So while an example would not apply to you, it is a good way to illustrate what a mafia offer is.

I have a client that sells custom printed labels. These labels are found everywhere on just about every product and are considered by many to be a commodity. Their quoted lead-times were 2 to 3 weeks and their due date performance was about 80%. We started with the operations and were able to get lead-times down to 2 days and due date performance to 99%+. Sales remained stable. This was significant since their competition was at a 2 week lead-time and around a 90% due date performance.

Next, we looked at how the printing industry sold labels. They used a price quantity curve. The more labels you order the less you pay per label. If you only want one label, the price is very high.

Then, we looked at how their specific customers purchased and used the labels because an offer is only a mafia offer if it is un-refusable to your specific customers. In this case, their customers were regional size food and beverage manufacturers. One customer was a coffee roaster who roasted many different varieties of coffee and sold them in several sizes so they need about 100 different labels.

Now when they looked at the price quantity curve they decided to order what was equivalent to 6 months of labels. To decide how to spread the quantity across the 100 labels they had to forecast what they would sell. But because their forecasts were always wrong, they ended up with too many of some labels while stocking out of the labels for the fast moving coffee. We know that this was happening because they would call frantic to get more of what they just stocked out of.

We also found that their marketing departments felt limited because they could only make changes every 6 months, after they worked through the inventory.

So we make the following offer:
Mister customer, don’t give me orders. Your orders are based on your best guess of what you might need. Instead tell us everyday what you used. We will guarantee on the one hand that you will not need to hold more than 2 weeks of inventory so you have more marketing flexibility and less risk for obsolescence and at the same time we will also guarantee that you will never run out. If we ever stock you out, we will pay you $500 per day per SKU.

That’s a mafia offer – best of all worlds for your customer and you will not pay a penalty because it only takes you 2 days to replenish. The competition can not offer the same thing because they can not consistently deliver in less than 2 weeks and they could not risk paying the penalty.

What interesting is that we find mafia offers for over 80% of the companies we work with. So my questions for the listeners are:

How much capacity could you uncover or do you currently have? And What’s your mafia offer?

You can find out more about mafia offers by going to http://www.mafiaoffers.com/

Welcome

Welcome to Dr Lisa's Max Profit Zone! We will discuss subjects related to maximizing profitability including Cash Flow, Cash Velocity, Mafia Offers (a Decisive Competitive Advantage), Drum Buffer Rope, Critical Chain, Demand Pull (or Goldratt's Distribuiton Solution), Throughput Accounting, and Goldratt's Theory of Constraints. If you have a question would like to see answered on this blog, please send it to DrLisa@ScienceofBusiness.com