The Theory of Constraints Marketing Solution

Also known as the Mafia Offer or Unrefusable Offer

The most common physical constraints exposed with the Theory of Constraints approach are capacity constraints, market constraints, and material constraints.

Capacity constraints are our bread-and-butter; they are what made the Theory of Constraints famous. Synchronous Manufacturing deals routinely with these.
It’s almost boring.

Material constraints are less common, and while we do have some techniques to deal with these, Rod and I have never needed them.

But Market constraints – a lack of sales, or a margin-squeeze that erodes profits even if sales grow – are the constraints that companies often have the most difficulty in breaking.

Throwing money at the problem through advertising rarely improves the situation.

Simply increasing sales activity often makes no real difference … and in fact many companies find it isn’t as easy even to increase the activity level, let alone get some sales out of it. We have a solution for both problems, incidentally – for increasing activities in a meaningful way AND getting a higher conversion rate from sales activities

“Promotions” can be a profit-killer. Across-the-board price cuts can be disastrous.

What other options are there?

The TOC solution to this problem is extremely powerful, but has been among the most neglected TOC applications in the past 15 years.

In essence, the Theory of Constraints approach is to elevate a customer’s or a prospect’s perceived value of your product or service in order to win new business.

Or you can use the TOC solution to elevate customer’s or a prospect’s perceived value of your product or service to the point where they pay you more for your product than they previously paid you, and they pay you more for your product than they pay your competitors.

This approach has become known as the “Mafia Offer,” or more conservatively the “Unrefusable Offer.” For obvious reasons … you offer a deal that is so good the customer cannot say no!

Yet the deal is one that substantially improves your own bottom line … at the same time as it improves the customer’s bottom line.

Also, we need to be clear on one thing … the Mafia Offer NEVER comes down to reducing prices.

Let’s take a few minutes to understand HOW this approach works.

The technique starts with the recognition that a whole bunch of every company’s symptoms have a common, deep-rooted cause; what we call a core problem. This is ALWAYS true, incidentally, and the Theory of Constraints has a set of Thinking Processed that are designed explicitly to find this core problem.

Now, this gives us the possibility of tremendous leverage. Anything that “relieves” that core problem is inevitably going to have an impact on a lot of different symptoms.

The heart of the Mafia Offer technique is that the Theory of Constraints helps a manufacturer to identify a customer’s or prospect’s or even a market’s deep-rooted core problem, and to construct an unorthodox market offer around their products and services that relieves the symptoms of that core problem.

When you do it right, the offer provides the customer with such tremendous value that they can’t say “no.”

For example … perhaps the customer of a manufacturer is carrying (in their opinion) far too much inventory, including a stock of the manufacturer’s products. And perhaps also, the customer occasionally has problems of availability – they need something that is out-of-stock. You can see their dilemma. They don’t believe they can carry less … it’sll worsen the stock-out problem. But neither can they carry more in an effort to improve product availability … that would increase their inventory, of course.

But what if there was a solution that reduced their inventory by 50% (or more) AND guaranteed them – with voluntary dollar penalties! – 100% availability. Think of the benefits; less inventory, less handling, less obsolescence, less floor or shelf space, less damage, improved cash flow, less to finance … and, fewer disruptions to production, fewer expediting calles, fewer instances of paying a premium for emergency response, etc. That’s leverage!

Is that a Mafia Offer? Hmmmm perhaps, in some marketplaces. It’s missing a magic ingredient, in others. But it’s certainly along the right lines.

Is there such a solution? Certainly.

Now, there are two paths to get to a company’s Mafia Offer.

One is based on the reality that about 50% of manufacturers (that’s our opinion … others say it’s a higher percentage) have a “natural” Mafia Offer that falls into one of several patterns we’re familiar with.. It just needs to be shaped to a client’s reality, and this can be done pretty quickly.

But the other path is to perform an analysis of your customer’s business to find the core problem and to construct a solution based around your products and services – and this can take a certain amount of management time.
The path to a custom solution is not trivial – but the potential rewards dwarf the investment of time and money in constructing the solution.

Be aware: the Theory of Constraints process should not be confused with the superficial approach of asking customers what they want, then attempting to supply it.

There’s nothing wrong with surveying customers or markets, if done wisely; the data can be useful. But what we’re talking about here is a long way removed from that.

All too often, the outcome of the trend towards surveys and responses is an investment of time and money on new products or product “improvements” that seem justifiable at face value (the customer wants them) but ultimately makes no real difference to overall sales volumes, or to the contribution to total profits of a product or product line. The manufacturer simply ends up making and selling the same volume of a different thing at roughly the same price, and the only consequence of any note is that sales were depressed for a time while the stock of the old product was used-up or sold-off at firesale prices.

What we’re doing is different, and aimed at significantly increasing volume, or selling price, or both.

The Theory of Constraints approach of analyzing a customer’s core problems, then constructing an offer that relieves the pain or creates bottom-line opportunities for the customer tells you the EXACT leverage point that will create more sales &/or higher selling prices.

And even the prospect often doesn’t know what this is!

You end up understanding your prospect’s business with you far better than the prospect does.

A TOC Unrefusable Offer has to have one more characteristic; that competitors will not immediately move to duplicate it.

In practical terms, when you make a highly attractive Mafia Offer to a prospect you have to expect that they’ll pick up the phone, call their current supplier and ask if they’ll match it.

The ideal response, the way you know it’s a true Mafia Offer is when that supplier responds not with a “I don’t think so,” but with an emphatic “Hell No!”

To achieve this, the Market Offer has to rely on plant performance levels that can only be recorded following a major paradigm shift internally. It is far more difficult for a competitor to match deep-rooted policy and procedure changes than to match changes in product form, function, or price.

Even better is where the several different policies reflect entirely different paradigm shifts.

It’s extremely different for a competitor to match even a single paradigm shift; if you simultaneously introduce new shifts to (for example) production, distribution, and marketing, it’s almost impossible for a competitor to match you.

And not just in the short term … but often for years to come.
It takes competitors time to recognize, understand, and adapt to a very different way of thinking and working, by which time the Theory of Constraints organization has a second and even a third “Mafia” offer tucked away in their hip pocket, waiting to be brought out when the competition gets too close.

Now; constructing an Unrefusable Offer is one thing; but selling it to a customer is another, and you cannot sell a Mafia Offer in a conventional manner.

There is a specific technique that capitalizes on the Unrefusable Offer; check the TOC Sales solution.

Or, Return home: Fast, massive performance improvements