A how-to guide in developing marketing strategies which targets current customers as well as potential customers.
According to Reaves, it’s not enough to describe your customers as “satisfied” or “dissatisfied.” He identifies six customer “types” and where they fit into the customer hierarchy. These include:
- “Endorsers” — (5 percent of customer base) Endorsers are customers who tell other people about your company. Typically, the new customer comes in as an endorser, which you should capitalize on.
- “Buyers” — (15 percent) A buyer will continue to buy from you, often exclusively, but no longer aggressively endorses your company. Maybe an invoice was incorrect or a shipment was incomplete. If one negative incident moves your customer from endorser to buyer, it may take 15 positive incidents to get him or her back as an endorser.
- “Satisfied mutes” — (30 percent) These customers don’t talk to you and you don’t talk to them. If you ask one of them how the business is doing and they answer, “Fine,” that’s all you know.
- “Dissatisfied mutes” — (30 percent) This customer has migrated from the ranks of satisfied mutes, but you don’t know it. That’s because no one is talking to anyone else. At this stage, it will take 60 positive incidents to make this person an “endorser” again.
- “Grumblers” — (15 percent) You know these customers: no matter what happens, you can’t do anything right for them. They’ve experienced too many negative incidents. In essence, they have become “martyrs.”
- “Complainers” – (5 percent) Though small in numbers, this type of customer can be deadly. They make a point of telling everyone how badly your company has treated them. They are not your friends.
“For every dollar spent retaining an account, it takes six dollars to close a new one,” Reeves notes. “No wonder it’s more profitable to retain customers. If you resolve problems to their satisfaction, they’ll continue to buy from you 75 percent of the time. If you resolve the problem immediately, that figure rises to 96 percent.”
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How to Keep Customers for Life By TEC Associate Rob Engelman
The more value a business offers its customers, the stronger the relationship and bond customers have with that business. Along with strong relationships comes customer loyalty (as well as dramatic shifts in sales and profitability). So how do you cultivate loyalty with your many different customers?
Using a results-driven strategy Customers are not all alike Stages of customer behavior Sales and marketing strategies Target customers based on data and information Using a results-driven strategy
I use a strategic approach called Customer Lifecycle Management (CLM) that identifies and segments customers based on their behaviors, attitudes and experiences with a company. When implemented successfully, this results-driven strategy also helps companies reduce wasted marketing expense and uncover “hidden” revenue.
Identifying and managing the needs of each customer segment is critical in determining the amount and types of communications spent for each group. For example, new customers typically need to be welcomed and educated about the range of products and services an organization has to offer, whereas current customers (who have bought products and/or services in the past) benefit more from cross-sell messages. Similarly, a portion of customers who are at risk of switching allegiances to a competitor might be well served with some sort of retention intervention, while others who remain devoted to an organization, regardless of competitive forces, should be rewarded with a loyalty message.
Customers are not all alike. Treating all customers in the same manner, without regard to the customer lifecycle, is a sure-fire way to limit potential revenue and profitability. As an example, look at two customers at a health club:
Customer A is very active at the club. She typically uses the facilities five times a week, often buys supplies and apparel in the pro shop, and has referred four people to the club in the past six months. Customer B, on the other hand, has not been seen since the day he joined the club nine months ago.
Membership renewal fees for both Customer A and B are due in three months. If the club uses the same marketing strategy to encourage Customers A and B to renew their memberships, it will probably spend more money than is necessary for Customer A, while not communicating enough benefit to Customer B, eventually losing this customer anyway.
Either way, utilizing the same marketing approach will cause a decrease in potential sales and profitability. Thus, a more segmented and targeted approach to sales and marketing is needed.
Stages of Customer Behavior
The first step is identifying and defining the five stages within the customer lifecycle: Prospects are non-customers who fit the profile of a target customer. They range in their level of interest and involvement from “never been contacted” to “about ready to buy.” First-time buyers have purchased something from your company before. Still, they’re in a trial stage, and need to have a good experience in order to maintain a steady relationship with your organization.
Limited buyers have made repeated purchases, but they don’t always buy from your company. This reluctance can be traced to issues of trust, being unaware of the full line of products/services offered, and/or not internalizing their own needs as regular customers.
Full buyers are customers who buy only from you. They might spend $100 or $1 milion, yet their buying patterns are consistent and predictable. Full buyers look to you for advice and guidance, and most importantly, they speak highly of your company to their friends and associates.
At risk customers have become dissatisfied with or lost faith in the products or services you offer. As such, they have the potential of defecting, and moving their business elsewhere. Some at risk customers show themselves in an open manner (by a large decrease in spending) while others are more passive and covert in their approach. Then, all of a sudden, they’re gone.
Understanding these five customer stages is essential to developing effective marketing and communication strategies to better manage your customer relationships.
Sales and marketing strategies
Each of these five customer segments has its own unique set of experiences, expectations, needs and desires from an organization. In order to fully maximize the revenue and profit potential each segment holds, different sales and marketing strategies should be applied to each of the five customer types.
Acquisition strategies encompass sales and marketing ideas designed to acquire new customers. The goal behind acquisition efforts is encouraging prospects to try a product/service and become first-time buyers.
Activation strategies move first-time buyers to limited buyers. The core objectives include welcoming new customers, educating them to what you have to offer, and persuading them to purchase as many times as possible in order to create a consistent buying pattern.
Up-sell/cross-sell strategies move customers from limited buyers to full buyers. At this point, you can encourage customers to try new product lines and/or provide incentives to reach higher spending levels. The more hooks there are into a given customer, the stronger his or her relationship becomes with your organization.
Loyalty strategies recognize, reward, and say thank you to your most valuable (not necessarily “highest-spending”) customers. Customers with marquee names and those who refer business to you can also be most valuable, even if they don’t spend the most money.
Retention strategies cover sales and marketing efforts that reinforce the customer value proposition when it has been lost. Key warning indicators — declining sales volume, customer complaints — often signal dissatisfaction and predict the likelihood of attrition. Armed with this information, you can handle problems early, “save” your customers, and put them back onto the “perfect-world” path.
Target Customers Based on Data and Information
There are many situations where this approach can be appropriate and successful. Here are three general scenarios:
- Do your customers make repeat purchases and have the option to choose from multiple products/services? The catalog, retail and travel industries are all good examples where this approach can be implemented effectively. Purchase information is collected and used to customize and send communications that add value to the customers’ experiences.
- Companies with large upfront acquisition costs such as credit cards, magazine subscriptions and medical supplies are also good candidates to implement a customer lifecycle program. Since these organizations spend so much money acquiring customers, they need to build long-term relationships in order to achieve customer profitability.
- How effectively do you obtain and retain information about your customers’ purchasing behaviors? If data collection is possible, and you have the ability to communicate with customers via traditional direct marketing methods (mail, e-mail, catalog, etc.), then planning a lifecycle approach is appropriate as well. When you build your acquisitions strategy with an eye towards retention, you acquire more targeted customers and actually spend less money trying to acquire or retain customers. By following the concept of Customer Lifecycle Management, you’ll develop and implement activation, up-sell/cross-sell and loyalty programs that focus on building solid relationships with your customers — thus uncovering many hidden sources of incremental revenue.
The Four “P’s” of Marketing: The Marketing Mix
Product: What Sets You Apart
Price: The Strategy
Promotion: Spreading the Word
Place: Channels of Distribution
The role of marketing is to carefully examine customers’ needs and wants, then design a product or service that satisfies those needs, offer it at a fair price, make it available through various channels of distribution and create promotions or communications to establish interest. This process is referred to as the “4 P’s”:
Product: Anything relating to the product (color, size, shape, etc.), as well as what the customer perceives as the product
Price: Identifying the cost to the user and determining a pricing strategy
Promotion: Using an array of communications tools (advertising, sales promotions, public relations, etc.) to reach customers and prospects
Place: The channel of physical distribution (the product’s actual movement through a means of distribution) and sales (how the product is sold, whether through wholesalers, retailers, direct mail, etc.)
These four elements represent the marketing mix, according to TEC experts Mitch Goozé and Jack Harms. Being successful means learning to manipulate the marketing mix in a proactive manner, rather than merely reacting to what your competitors do. Winning organizations understand the need to constantly change and move. Other organizations just react.
Product: What Sets You Apart
You may have a specialty product (something that’s highly unique) or a commodity product (virtually indistinguishable from what competitors offer); each category requires different marketing strategies, but the focus should always be on the product’s benefits, not on its features.
It’s easy to describe your product’s features, but sometimes its benefits are more intangible. The most forceful benefits are those that offer customers emotional or financial rewards. It’s not fresher breath that mouthwash has to offer — it’s what the fresher breath brings you (popularity, better job offers, etc.).
All kinds of possible “emotional rewards” exist, but the fundamental value lies in making the customer feel better in some way. Products that bring financial rewards translate into the customer saving money, making money, or gaining time and convenience.
“The job of marketing is to design intangibles into the product and use them to make the product unique,” Goozé says. “In addition to the tangible things you sell, customers buy the intangible. For example, the more service-oriented your business is, the more the customer is buying. It’s crucially important, therefore, that your salespeople communicate the value of such intangibles to the customer.”
According to Harms, “product” isn’t just the physical entity of what you deliver; it includes all the advantages bundled up with the product. “In the vast majority of cases, the physical entity is the least important part of the bundle,” he says. “That’s because it’s the most easily compared element. Customers can usually find a substitute for the product, which in turn leads to ‘shopping’ and price objections.”
Harms cautions that the needs of retail customers differ from those of business-to-business (B2B) customers. “Business customers are buying products and services to improve the profitability of their business,” he notes. “Retail consumers buy things to enhance their lifestyles. It’s precisely when B2B companies start trying to solve ‘retail’ needs, i.e., reducing the buyer’s pain or providing them with peace of mind, that they lose the ability to truly differentiate themselves.”
The TEC experts suggest asking these basic questions:
Does our marketing approach sufficiently differentiate the product from the customer’s point of view? Boasting, for example, that your product offers “better quality” or “leading technology” isn’t enough to distinguish itself in the customer’s eyes.
- Can we defend our product’s distinguishing characteristic against our competitors? And for how long?
- Can we set ourselves apart by how we distribute the product? If you’re currently distributing your product through more outlets than your competition, you’re delivering a genuine benefit to your customers.
- How can we make our customer service efforts different than our competitors’? If you offer free customer service in an industry where everyone else charges for service, you’re a big step ahead.
It’s the additional “stuff” that gets bundled around the physical product that adds value and enables your company to differentiate itself from the others.
Price: The Strategy
Obviously, your pricing strategy has a great effect on how well your product does in the marketplace. But basing your marketing approach primarily on the element of price can undermine your entire business, warn the TEC experts.
In general, companies operating within the same industry in a specific locale use a similar cost structure. When one competitor cuts prices, others usually follow. The result is that any advantage gained by the first competitor is quickly lost.
Any long-term strategy based on reduced prices entails very real risks. Lower-than-average margins can damage a company’s ability to invest in advertising, attract and retain employees, carry on new research and development, or hold on to adequate cash reserves. It can eventually drive a company out of business.
“Remember that, despite any profits from additional sales, service and support costs remain the same,” Goozé says. “Unless you find a way to reduce the cost structure itself, pursuing higher market share with lower prices often ends up in a reduction of total profit.”
Not only that, but lowering price on one product may threaten to cannibalize your company’s other, higher-priced products. “You’re still offering customers the same benefits as before, but without the profit margin to support them.”
Before defending yourself against a competitor’s pricing strategy, Goozé suggests addressing these questions:
- Are we a low-cost leader in our industry? Your company’s standing will determine whether you can dictate prices that undercut weaker competitors, or whether your own policies are shaped by high costs of overhead, labor and raw materials.
- Is our competitor’s price reduction permanent or a one-time sales gimmick to dump inventory? Before making any rash counter-move, assess whether your competitor has a genuine cost advantage or is betting on an all-or-nothing strategy.
- What other options do we have besides lowering prices? “Lower prices don’t necessarily equate with higher volume,” Goozé says. “Your customers may value other qualities connected with the product beyond its cost — things like greater selection, better service, superior reliability, etc. Some alternatives to price reductions include incorporating other value-added benefits, such as faster delivery, extended warranty or a free trial period.
Still other alternatives range from boosting your advertising efforts and introducing a new and/or improved product line to revamping your cost structure to accommodate price cuts in the industry.
Harms contends that the fundamental responsibility of a company’s marketing department is making it possible for the business to raise prices. “If marketing people are doing their jobs correctly, they’ll be adding value to the company’s product/services. The company will know how much of such value has been added through the customer’s willingness to pay a premium price. If the customer doesn’t pay a premium price, it doesn’t matter how much they say your offerings are better. They’re ‘shouting with their wallets’ that they really think you’re a commodity.”
Promotion: Spreading the Word
Promotion refers to all the tools available to communicate to your customers and prospects. The primary channels include: Advertising: In this “non-personal” promotional activity — print ads, billboards, radio and television commercials — the seller has no direct contact with customers. Public relations: Any endeavor to generate a positive image or message for your product is considered public relations. Tools include press kits, press releases and PSAs (public service announcements), and maintaining contact with reporters in print and electronic media.
- Sales promotions: Commonly used sales promotions include in-store demonstrations and displays; contests and price incentives (buy one, get one free), sponsorship of special events, trade shows, coupons and free samples. Direct marketing: This type of advertising aims directly at targeted customers, with a mechanism for them to take action — inviting them to order a product, clip a coupon, call an 800 number or visit a store location. Most frequently used forms of direct marketing include letters, catalogues and coupon mailers.
- E-mail: E-mail marketing is an increasingly effective means for promoting your product. Says Harms: “E-mail ads are a great supplement to traditional direct marketing methods because they are, in essence, free; they can be changed quickly; and they’re not confined in shape or length.”
- Personal selling: This describes activities where there is face-to-face contact between buyer and seller. Each of these promotional activities can be tailored for a specific product or service, but, as with other marketing efforts, a promotional mix is often most effective. CEOs greatly increase their odds of reaching the targeted audience by delivering a message in a variety of ways. Harms adds: “Useful results come when you efficiently combine various elements of the promotional mix and develop an integrated program of marketing communication.”
Place: Channels of Distribution
You can have the best product on the market at the most reasonable price with the best PR and advertising money can buy — but if customers can’t find your product, you may as well close up shop. To succeed, your organization must be able to manage your product’s physical distribution (getting from design and development to the sales outlet) and the sales channel (who sells the product, including distributors, wholesalers, retailers, sales force, etc.).
Goozé suggests asking these questions:
- How many products does our company generate during an average sales cycle? Can that number be increased if necessary?
- What is our company’s inventory capacity? Do we use sales forecasts to determine what our inventory levels should be?
- How often do we replenish our inventory? How does this compare with standards in our industry?
- What seasonal changes or fluctuations in sales cycles affect demand for our product? Are we equipped to meet these changes in demand?
“The product is never just the thing you’re selling,” Harms concludes. “It’s the bundle of that thing and all the other ‘stuff’ your customers buy. Price, promotion and place all follow from your customers’ perceived value of the product. Stay focused on that and you’ll ensure that consumers don’t regard your product as just another commodity.”
Only the Crème de la Crème
Although the Founding Fathers would disagree, not everyone is created equal – at least not in business anyways. Don’t take every client who walks through the door. Choosing the right clients can enhance the speed and quality of your ultimate success. When looking at potential clients, ask yourself these questions:
Do they have realistic expectations of your product and service? Is there good chemistry? Is the work challenging? Do they pay on time? Do they have additional needs? Do they have referrals for future work?
Netflix: There are three types of customers at Netflix. One group likes the convenience of free home delivery, the movie buffs want access to the widest selection of, say, French New Wave or Bollywood films, and the bargain hunters want to watch 10 or more movies for 18 bucks a month. We need to keep all the audiences happy because the more someone uses Netflix, the more likely they are to stay with us.
How do you perform the market and competitive studies that are necessary to equip your team with the information it needs to make good decisions? So you have finally held your first strategic planning meeting: Congratulations! You have now set the stage for the many potential benefits of disciplined analysis and decision-making. Expectations from your management team are high. Whether you are a first time strategic planner or you are a veteran of many cycles of the process, you realize that you need good information if you are going to make good decisions. Then comes the biggest challenge: How do we perform the market and competitive studies that are necessary to equip the team with the information it needs to make good decisions?
Few of us in management have ever had the task (not to mention the job description) of a market research specialist. In spite of the ever-increasing access we have to information today, it is still a daunting challenge for the uninitiated to find the sources and quickly distill the information required for good planning. In this article, we will identify the easiest and most direct ways to get your research off the ground. You’ ve Got to Pay to Play (Well, Probably)
A recent visit to the Management Library at the University of Rochester put me in touch with Suzanne Bell, a management data librarian. She assured me that when it comes to market and competitive research, the amount of available information is truly staggering, but (like a tried-and-true formula for an old joke), there’ s some good news and some bad news.
The good news is that many useful sources of information are available on the Internet. This is good news if you enjoy the prospect of conducting this effort from the comfort of your office chair. For many of us, just the thought of “doing research” is enough to ruin several workdays merely anticipating the sub-optimally productive time we might spend in the unfamiliar aisles of our nearest local business library.
The bad news is that many of the best sources, like the best things in life, are not free. For the most part, the most complete sources of information on the web are available through subscription services. Almost all of the sites will provide basic information teasers for free, but to get the good stuff, one has to either sign up for a year’ s worth of usage or pay on a per use basis.
The favorites in this category are among a list of prominent, long-standing information providers: Dow Jones Interactive, Hoover’ s Online, Lexis/Nexis, FISonline, Value Line, Investext and S& P’ s Industry Surveys. It is no big surprise to discoverthat most of the information from these services concerns public companies and their markets.
It may be well within your company’ s resources to join one or several of these services. Subscription rates typically run a few thousand dollars per service per year. Fees for single use depend on the level of detail that you seek. For example, on Dun & Bradstreet’ s CommerceInc Research Center, the price for a single report for a small private company ranged from $25 for a simple “Business Background Report” on up to $105 for a “Comprehensive Report”. Industry and product category reports from services like FISonline and S& P Industry Surveys can run from a few hundred dollars on up to several thousand. For some companies, this would not be too much to pay if it provided them with a few critical pieces of information about an important direct competitor or market opportunity. The price tag becomes high, however, if you take this approach for a dozen competitors and a handful of market segment analysis.
If all of this is beyond your budget, do not despair: Contact your nearest university’ s business library and inquire about their policies concerning use of their subscriptions to these fee-based databases. If you are lucky, they will allow a limited amount of use of their subscriptions through a community membership arrangement. Armed with a list of your major competitors and market segments, a volunteer from your firm could gather a significant amount of information in a single afternoon for free!
For competitor analysis, the first logical step is to go right to the source: the company’ s home page. It is safe to say that, today, most companies have established their own Internet presence. To find them, try the online Yellow Pages or use any number of Web Directories (Google and Northern Light are good options). If all else fails, try guessing the address using the format www.companyname.com. Even the most basic Web site usually contains information about the company’ s location, business background and most exciting new product or service offerings.
Beyond this, of course, one may find all sorts of other interesting data (e.g., descriptions of their various office or plant locations with the products and/or services offered there, sales revenue, number of employees, product specifications, pricing, etc.). Of course, one must keep in mind that the information provided there is primarily for marketing purposes. Claims that the company makes on its own behalf concerning product superiority or outstanding customer service should be measured against indicators from other, more objective sources.
To ask and answer those questions well, entrepreneurs need to be willing to be told they’re wrong. Often people have not taken the time needed to know their customers cold. It’s not surprising that the entrepreneurs who are most successful are those who visit as many potential customers as possible with two critical, if conflicting, outcomes in mind.
First, they try to sell the prospect the notion that they are right and the prospect should become a customer. Second, they listen to the prospect to learn why they are wrong and why the prospect shouldn’t be a customer.
The successful entrepreneur is listening from the very beginning, in order to change and adapt more quickly to real market needs. Entrepreneurs who spend a lot of time trying to understand why they don’t have it right are very likely to be selling a lot more of their product, a year later, than those who only try to prove they are right and insist that the customer is wrong.
Good Research Doesn’t Have to Be Expensive
Market research is often lacking in entrepreneurial endeavors because it can seem difficult and expensive. The trick to avoiding the trap is to apply dogged determination to the task. That means subjecting yourself to sometimes harsh market feedback. Though it may be unpleasant, it’s the only way, short of getting lucky, to actually succeed.
Some entrepreneurs in emerging markets rely on secondary market research because it’s an easy solution — but don’t do it! If you are starting a new business in a previously untapped market, there is no substitute for primary research. All the secondary market research statistics in the world won’t get you funded, but hard data from real prospects just might.
I’ve found over the years that even entrepreneurs without much of a budget can successfully perform quality research if they are creative, resourceful, and brave. Entrepreneurs on a budget may feel unable to apply formal market research techniques, but a simple four-step process can be effective:
- Determine how to perform the research (one-on-one interviews, focus groups, surveys).
- Develop the research instrument (interview questions, survey questionnaire, hands-on tasks).
- Identify and recruit participants.
- Understand what will be done with the results of the research.
The type of business you’re in will dictate the most appropriate approach. If your product is for a highly targeted market, and direct sales calls will be your method of selling, start by identifying the type of person you expect to sell to and engage in a mock sales call to understand what such people find interesting. If your product is aimed at a mass market, it may be more beneficial to recruit small numbers of people for focus groups until you have a feel for the market, and then validate it further using a survey.
Research Enables Decision Making
Market research is a prelude to selling. It teaches you a great deal about what you will need to know to develop your offering for the market and whether your offering is even worth developing. A positive and aggressive attitude toward market research enables entrepreneurs to make that most critical of decisions: Should I spend the next several years of my life on this business?
If you have decided to become an entrepreneur, then also decide to become a market researcher. Ultimately, the two are inseparable.
Let the Customer Define the Value
A company recently asked us to help them better understand how their target market is likely to respond to a new computer software product under development. But, when we talked about the timing of this work, they indicated that they wanted to “get past some technical hurdles, first,” and then they could think about the market research.
Since they were calling us for the first and only market research work on this proposed new product, we advised them that they were doing it in the wrong sequence. Numerous studies and many experts have repeatedly concluded that the most common cause of new product development failure is market research that is “too little, too late.”
Good market research very early in the development process is actually an insurance policy against spending a lot of money on a product or product features for which customers won’t pay.
In the case described above, what if there is not a sufficient market for the new software even if the “technical hurdles” are overcome? Wouldn’t it be better to know that before resources are expended to solve those technical problems? Or, on the positive side, what if the features causing the technical problems aren’t highly valued by prospective customers? Perhaps those hurdles don’t have to exist at all! There is simply no good reason to fail to listen to the marketplace for guidance in developing a new product before those significant development costs are incurred. The rule that prudent and savvy managers follow regarding market research is, “If the result of our decision will impact the customer, then we should ask the customer for input into our decision — before we make it.” Here are a few examples of how that rule applies:
At its essence, business strategic planning consists of defining an offering for a specified, target market. Like so many other business decisions, the objective of this effort is to generate ideas for which customers will pay a profitable price. That being the case, it’s hard to imagine how a management team could effectively make those kinds of decisions without the benefit of good market research.
The starting place for effective strategic planning is to hypothesize how customers perceive value in the realm of the proposed business unit. You should ask:
- How do customers perceive the problem the offering is intended to solve?
- How serious do they believe the problem is?
- What benefits of the proposed offering would be of most importance to them?
- How do they solve the problem today?
- What costs do they incur now to solve the problem?
These are all questions that can be answered by good market research, and all questions that are fundamental to making the important strategy decisions connected with “What business do we want to be in?”
Contrary to what we might hope, customers are not all the same. They come in many shapes and sizes, and their needs and wants are varied as well. The strategy for coping with the broad array of customer desires, according to Vistage experts Mitch Goozé and Jack Harms, is known as “segmentation.”
Segmenting aims to break down the specific traits of the people who purchase your company’s product. If the product has multiple benefits, different parts of the marketplace will value those benefits. Once you fully understand what those benefits are, it’s easier to identify the right customers.
In general, companies start out with an undifferentiated strategy — blanketing the entire market with one product and hoping everyone will buy it. Gradually they develop a differentiated strategy, targeting different parts of the marketplace. More sales are generated by differentiated strategy than by a blanket approach. “Some segmentation can be generic,” Harms notes, citing “large,” “medium” and “small” customer bases as examples. “A smart business focuses its attention on specific customer segments, rather than on the big picture. Once they get that down, they can always try to expand into other markets.”
A careful analysis of the individuals who purchase your products will most likely indicate groups of customers who share common desires, needs and buying practices. If you deliver what they want and need in a way that’s better than your competitors, you’re already on the right track.
“Make your marketing mix as simple as possible,” Goozé advises. “There are groups of customers out there that all need the same thing from you and want to buy it in the same way. Are you getting it right? Does everyone in your company fully understand this?”
The next step is determining if your customers have other needs that you can satisfy. See where you can add products or services to your line that don’t dramatically increase costs. Pinpoint what additional services you can sell them and still stay within your cost structure. You already have a relationship going with these people. Build on it and profit on it.
Finding the Right Niche
What’s the best way to break down the large customer base you’re serving? The Vistage experts advise these categories:
- Demographic: Grouping customers by age, income level, gender, etc.
- Geographic: Grouping customers by regions
- Psychographic: Grouping customers into cultural groups, social sets, etc.
- Decision makers: Grouping customers based on who decides to purchase your product
- Distribution: Grouping customers based on where they go to purchase your product
Says Goozé: “Most companies first make a product, then ask themselves, ‘Who do I sell it to?’ Their focus is on the product, rather than on what the customer wants to buy. Look closely at the needs the customer is trying to satisfy when he or she buys your product. This helps to isolate customer groups and then make educated decisions on which segments offer the most attractive opportunities.” Remember, every customer interaction represents a chance to gather valuable customer information.
The act of purchasing your product should always yield helpful data. The Vistage experts advise CEOs to “get creative.” Include frequent-buyer programs, warranty and registration cards, contests and consumer surveys to your information-gathering arsenal. It’s surprising how much there is to learn about the people who buy your products.
The decision of which segments to choose is perhaps one of the most difficult challenges for a firm. The reason? Firms often identify a greater number of attractive segments that they are capable of pursuing, given their limited resources. It is tempting to enter all segments (see the tutorial on segment coverage), especially those that are growing and represent potentially great profits. In marketing, while we recognize these possibly profitable segments, we take into consideration all parts of the analysis to make sure the firm doesn’t enter into segments which ultimately requires resources the firm doesn’t possess (in particular, with respect to satisfying customer needs and not being overwhelmed by the resources of competitors).
While there are many ways to think about which segments to enter, a simple but powerful way is to draw on the analysis in the previous tutorials. This can be represented as follows:
In essence, for each segment you examine your customer analysis. Look at the perceptual map and what the customer in the segment wants. Do customers perceive your product (or could they, if you don’t currently have a product) as better on on the benefits they care about? Can the competition match by offering benefits that customers will perceive as better?
Look at your competitor analysis. Are you better than the competition? Are they improving or neglecting abilities to offer benefits that customers in the segment care about? If you played out a game with the competitors, who would win?
Think carefully about your company analysis. Don’t focus only on your competencies, but focus as well on you weaknesses. If you choose to compete in this segment, do you have weaknesses that need to be improved, and can you improve them? Think broadly about this, including the culture of the firm. Is the culture consistent with entering this segment (this improves the possibility of resources being devoted to this segment).
In addition, there are a number of other factors that make a segment attractive that must be considered when making this decision. These might include the following: Segment Size: The sales potential of the segments, in terms of number of units of your product that can be sold, might be important in making segments attractive. This might be because a firm requires a large potential customer base to take advantage of cost reductions through volume sales.
Segment Profitability: How profitable the segments are, in terms of how much money can be quickly made, might be important in making segments attractive. Perhaps this is because a company requires cash in the near term. Note that profitability (in this case short term profitability) is not a necessary condition for entering a segment.
Segment Sales Growth Rate: The growth rate might be important in making segments attractive. Perhaps this is because a firm requires high-growth areas to ensure future profitability.
Low Bargaining Power of Customers: Segments might be attractive because customers do not have power to bargain over such things as price and service. This might be attractive to a firm that is not good at providing service and can not reduce costs.
Seasonality and Cyclicality: Segments might be attractive because the production schedules and/or allocation of resources give a firm great freedom in responding to seasonal or cyclical conditions.
The key point to remember when making this decision is that all parts of the analysis are relevant. Don’t just focus on the company’s competencies. While important, this doesn’t indicate anything about what customers care about. But just focus on what customer care about since this doesn’t inform you about competitive reactions.
Finally, now is also a good time to ask the what-if questions that challenge the assumptions you needed to make in your analysis. Does entering this segment rely on a key assumption you needed to make in your analysis. If so, then the decision to enter the segment is probably not robust.
If the analysis indicates entering a segment, you are ready to position your product. If it indicates otherwise, then you’ll need to think hard about the obvious challenges you will definitely meet when entering this segment…be prepared to lose.
Requirements for effective segmentation- there numerous ways to segment a market, but not all are effective. To be useful, the segment must be:
Market targeting– evaluation of various segments and selection of best alternatives.
- Segment size and potential growth
- Segment structural attractiveness.
- Company objectives and resources.
Segment your customers: All customers are not created equal so you can’t give them all the same level of attention. Sales knows this and has already segmented customers for its purposes. But a sales model won’t work for you. Just because a customer represents high revenue doesn’t make them a “top tier” reference.
So figure out which criteria are important from a referencing perspective and segment your customers into three to four tiers, then define the following for each: typical customer profile, primary customer activities, rules of engagement and program value to customers.
At its essence, strategy (the “how”) is a way to accomplish an objective (the “what”). In terms of a marketing strategy, if the objective of marketing is to select, serve and satisfy customers in a profitable manner, then a marketing strategy is the way a company accomplishes those objectives, which may include segmentation studies, competitive analysis, and the tactical 4 Ps (Promotion, Place, Product, Price).
The Demise of the 4 P’s Has Been Greatly Exaggerated, by Paul A. Barsch June 7, 2005
A recent book by a popular CRM expert declared the era of the 4 Ps effectively over. The author argues that product, promotion, price and place are no longer key to providing sustainable differentiation.
In addition, he says, the use of this marketing mix merely keeps the enterprise at par with the competition.
And while the author makes many compelling points, the key question remains: has the oligarchy been dethroned and is the reign of the 4 Ps over?
Simply stated, No; or, to paraphrase Mark Twain, rumors of their demise have been greatly exaggerated!
The global economy has changed the game for all players. Competition has emerged from low-cost-labor Asia/Pacific countries and contract manufacturers. Outsourcing has spanned the globe-from Ireland to Russia to India. Powerful global brands like Samsung, Nokia and Lenovo are emerging and taking dominant form.
Consumers, once satisfied to take whatever products and services the market produced, are now more savvy, information-driven and have more choices than ever. Many companies and industries under threat from these forces yearn for simpler times.
Yet some companies are not only surviving in global economy, they’re thriving. Some are regional players and others span worldwide empires.
A common denominator for these companies is that they leverage the power of the marketing mix (4 Ps) to achieve new heights, capture new markets and grow revenues at astronomical rates.
Some are mastering one aspect of the marketing mix, some are attempting to be dominant in all of them. But one thing is certain-differentiation can still be squeezed from the 4 Ps.
While the global economy has made rapid time-to-market an imperative, especially since low-cost producers are quick to copy good ideas, there’s still competitive advantages to be found in innovative products. The consumer is looking for products that capture the imagination, or sometimes just plain work better than alternatives. One of the last bastions of differentiation might be product design.
Todd Moses, founder of the Paper Pro stapler, would probably agree. In a recent Business 2.0 story, Moses was looking for a better stapler-one that could staple through 19 pages without jamming. Seeing nothing on the market that could fit his needs, Moses designed a stapler with a compact recoil spring that could staple 20 pages with seven pounds of force. (Typical staplers took 30 pounds.) Now that over one million Paper Pro staplers have been sold, it’s clear that the innovative product wins in the marketplace.
In another example, Apple computer has emerged from a has-been to one of the hottest product companies in the past 10 years. One need look no further than the iPod for a dominant product.
According to NPD Group, the iPod has 92.7% market share in the MP3 player market. Incredibly, the closest competitor struggles with a mere 3% of the market. With a simple-to-use operating system that is truly intuitive, and small ear-bud headphones that could be considered the best on the market, the iPod is far and away not only the market leader but also the market favorite.
Apple doesn’t win because it has a product that no one can copy. Indeed, Dell’s DJ, Creative’s RIO and other MP3 players are arguably very similar in features. Industry watchers also see a challenge to the iPod’s dominance with cellular phones that play MP3 files.
While competitive devices swarm into the marketplace, Apple will keep winning in the marketplace because the iPod captures our imagination. It brings the universality of music into a compact device that’s so easy to use-the owner’s manual can be thrown in the trash. This year alone, according to the Apple Insider, Apple is challenging its retailers to move over 100,000 iPods a week!
Two simple examples, the Paper Pro Stapler and the red-hot iPod, prove that Product can still win in the marketplace.
Love him or hate him, there’s probably no one on the planet better at promotion than Donald Trump. Whether it’s blatant and shameless self-promotion, or promotion for his hotels, casinos or golf courses, Trump has mastered the art of public relations, branding and personal selling.
If you ever visit New York City, you can’t get away from Trump. As you tour the city you’ll run into Trump Tower, Trump Park Avenue and Trump World Tower, just to name a few.
Every Trump property has his name prominently displayed-branded, if you will-on the front of every building. Taxi cabs across NYC show the face of Trump and his NBC television show, “The Apprentice.” Even if you don’t tour NYC, Trump’s empire is ubiquitous. There’s now Trump Ice bottled water, Trump tailored suits and five books on how to think like Trump and become a billionaire. And it’s impossible to forget: two words that have been etched into our collective psyche from “The Apprentice”-“You’re fired.”
Trump critics keep wondering when the populace will tire of his endless self-promotion. Perhaps in the near future the Trump brand will reach the point of saturation, but it’s not there yet. Anything with the Trump name sells. In Florida, the Trump Tower Tampa condominium highrise had 70% of its units sold a month before the sales office even opened. And Trump golf courses on the East Coast still command $300,000 membership fees and annual dues of $15,000.
Trump succeeds in the art of promotion for a few reasons. The first reason is the sheer force and personality of Donald Trump. He is absolutely shameless in his self-promotion. Everything is “the biggest”, or “(h)uge”-with a New York emphasis on the “u.”
Is every Trump property the biggest or the best? Certainly not-look no further than his struggling three casinos.
Yet Trump, during every press conference, every interview and every taping of “The Apprentice” keeps reminding us that he works with “only the best” and that “quality” and the name “Trump” are synonymous. Reminded enough times, pretty soon we begin to believe it.
The second reason that Trump is a master of promotion is that he realizes every moment and every interaction is an opportunity for promotion. During job interviews, Trump reminds candidates that they would be working for the best company in the world. During meetings with vendors he reminds them that to work with Donald Trump means instant cachet. Customers pay a premium to acquire a Trump condominium or golf membership. Employees, vendors and customers all want to work with Trump.
Even if it’s widely held that Trump is a little bit over the top with his promotional abilities, it doesn’t matter. He’s a billionaire. Businesses small and large can learn from him.
Pricing decisions are rarely easy, and in fact are most often complex. In the airline industry, for example, dynamic pricing software changes prices based on seat availability and flight demand. Hotel chains often adjust their pricing in real time based on levels of occupancy. And in consumer industries, retailers often hope for an across-the-board margin, say 20% across the store-but competitive forces often adjust pricing by the aisle and item.
One company, Planalytics, even helps retailers like The Home Depot and J.C. Penney manage risk and forecast demand for their products based on weather patterns. The more data (past sales, seasonality, weather patterns, etc.) made available to pricing decision makers, the more pricing can be adjusted in near real time to maximize revenues.
Pricing can take on a new dimension when seeking new market opportunities. Let’s turn again to Apple Computer: Marketing professionals at Apple saw that the price point of $299 for an iPod, or $249 for the iPod mini, was reasonable for most consumers. Market research, however, showed that a whole new segment of buyers would jump on board at $99 for an Apple MP3 player. Hence, the Apple iPod
Shuffle was born.
Small, sleek and hip, the Shuffle is a flash player that gives users the ability to hear music files in order of download or in a random format. Walt Mossberg of the Wall Street Journal notesthat the Shuffle is “a good product that will enlarge the iPod’s appeal, especially with kids, people on low budgets, or people who work out. I imagine some existing iPod owners will also buy Shuffles as sort of add-on players. And the iPod juggernaut will roll on.”
In the marketing mix, “price” does not necessarily mean “cheapest.” There are plenty of enterprises across the globe selling products and services at premium prices. One of the most outrageous examples is Juicy Couture jeans. A recent BusinessWeek article titled “To Live and Thrive in LA” pointed out that the founders of Juicy Couture are getting $178 for a ripped pair of jeans and $395 for a hooded sweatshirt lined with rabbit fur.
In this age of commoditization and cost reduction, companies are feverishly trying to figure out how to lower their costs and in many instances are turning to the outsourcing of labor, production and even design. And while those might be good strategies to stay competitive on cost, pricing strategies should not be overlooked. Companies should be asking their customers more than just “at what price will you buy my product/service?” Instead, the better question is “what product/service would you want to buy from me-and at what price?”
While many enterprises have long looked at product, pricing and promotion as ways to expand revenues, one of the strongest strategies in the marketing mix is place. There are many companies that have mastered the art of distribution, although few of them have achieved competitive advantage.
Dell Computer, with its direct to consumer model and high-powered Internet sales strategy, is commonly cited as one of the best examples of dominating a channel. Another company bent on expanding its brand, ubiquity and availability is Starbucks. A recent Wall Street Journal article titled “Cautiously, Starbucks Puts Lobbying on Corporate Menu” says that Starbucks “boasts 9,100 stores, up from 676 a decade ago… and opens an average of four stores and hires 200 employees each day.” There’s a Starbucks in just about every city, often two or three. And many grocery stores are either selling Starbucks coffee by the bag or have a coffee kiosk at the front entrance.
Not stopping at coffee, Starbucks has entered the music business, offering private-label CDs in its stores. And aiming to get its product in the hands of as many consumers as possible, Starbucks also recently struck a deal with Jim Beam to market coffee liqueur. Starbucks is after nothing short of market and channel dominance. All told, according the article, Starbucks plans to open a total of 30,000 coffee houses, from the 6,500 today.
Smaller companies are also learning how to squeeze competitive advantage out of “place.” A Business 2.0 article estimates that Curves, a gym for women only, has surpassed 8,000 locations through the power of franchising. McDonald’s took nearly 25 years to open 6,000 outlets, so 8,000 Curves properties in 10 years is phenomenal. Curves, like Starbucks, has found that market dominance can be found through expanding (profitably) faster than the competition.
In the marketing mix, “place” is much broader than simply mastering channel sales. It’s also optimizing the supply chain. An effective supply chain can be the difference between a barely profitable company and one that dominates. Getting the right product to the right place at the right time (and at the right price) ultimately increases customer satisfaction and prevents money from being left on the table.
Placement is still a winning strategy. Going forward, those companies who have mastered distribution channels and can supply those channels with a high performance supply chain will enjoy the upper hand in the battle with competitors.
Mastery of the 4 Ps
Some of the enterprises profiled in this article have mastered one of the 4 Ps; others, such as Apple, are enjoying advantage in two or more aspects of the marketing mix. Success does not come easily, however. The strategy, while plain and simple, is difficult to execute. The winning strategy, and mastery of the 4 Ps, requires for an enterprise to know the customer.
Curves, Starbucks, Apple and even Donald Trump know their customer. Customers need and want the self-esteem that Curves gives them, the exclusivity of the Trump brand, the quality of a cup of Starbucks and the innovation that Apple delivers. Products and services must tug on our heartstrings, cater to our emotions, fulfill our desires.
Connecting to customers needs to be more than lip service. It needs to be more than an investment in CRM software. Customer connectedness is a pervasive attitude across the enterprise that is genuine, real and consistent.
It’s not enough to have the lowest price, the most outlets, the fanciest product or the best promotional strategies. Mastery of the 4 Ps requires deep customer intimacy. Mastery involves asking which of the 4 Ps is most important to the customer and then assessing what can be delivered-profitably. For Starbucks customers, low prices are not the issue. After all, a latte can cost $3 or more.
Customers care about quick service, convenient locations and a quality product. Recently, when Starbucks raised prices 10 cents across the board, coffee drinkers didn’t blink and sales are stronger than ever.
The 4 Ps aren’t dead-not even close. Differentiation can still be squeezed from the marketing mix. To win in the marketplace, an intense and intimate knowledge of the customer is required in a way that no competitor can match. That understanding must then be applied in a relentless focus on the elements identified by the customer as most important.
Talk to customers, engage customers, live and breathe them. Then use the marketing mix to satisfy them. The seldom-used path of competitive advantage beckons. Walk it.
With knowledge in these five areas, the marketing plan should come together easily. The following checklist will help round out the marketing plan and ensure its completeness.
The marketing plan should address these questions:
- Who is being served? Who are the right sets of customers?
- What are their needs and priorities? What is a meaningful value proposition and brand promise?
- How can quality product/service be provided cost effectively?
- Are outside conditions right for the company’s product/service?
- What is the most convenient way to bring the product/service to the market?
- How can the product/service be best delivered to fulfill the brand promise?
- What are the best ways to inform the market about the products/services?
- How will the company measure if the market is satisfied?
- What can the company do to make things even better?
- How can the company become the customer’s first choice?
To be effective, a marketing plan identifies options, prioritizes resources and selects the best opportunities. It serves as the foundation for the activities that create and nurture a promise of value to the customer.
Properly created, the marketing plan is a living document; it is anchored to the overall business goals and focuses on customer value, growth and profitability.
Information about Products and Services
* Comparison of existing products in the market (e.g. price, features, costs, distribution) * Likely customer acceptance (or rejection) of new products * Technologies that may threaten existing products * New product development * Use and effectiveness of distribution channels
The benefits of creating customer segments include:
* Matching your customers needs * Increasing your sales and decrease your marketing expenses * Allowing better opportunities for growth * Retaining more customers * Focusing your communications * Gaining more market share
Five Serious Considerations (and a Checklist) for Your Next Marketing Plan by Laura Patterson November 30, 2004
Most businesspeople intuitively know that the key to successful marketing is having a marketing plan-a blueprint for action. However, many companies operate without one, focusing instead on the issues of the moment without committing to a long-term strategy.
A marketing plan does not need to be complex, but it does require several elements to be effective. The plan should include market research to understand the customer, defensible positioning to own a space in the customers’ mind, strategies and tactics to meet the company’s marketing goals, and metrics to track progress toward those goals.
Most importantly, a marketing plan must be aligned with the company’s business plan.
“Don’t even think of waging a battle or producing marketing materials without a plan,” advises Jay Conrad Levinson, president of Guerilla Marketing, International. Most businesspeople understand that such a road map enables the organization to achieve business outcomes-often related to increased market share, improved customer lifetime value, and enhanced profitability.
There are a multitude of reasons for creating a marketing plan: to provide strategic direction, create a dialogue with senior management, communicate priorities, obtain buy-in from other parts of the organization and request resources.
An effective plan can positively impact the bottom line. Research shows that companies with a marketing plan experience a 24-30% improvement in sales over those without.
A marketing plan must be relevant and actionable. It should gather and distill the learning of the organization into one document that charts a course of action. A well-constructed marketing plan answers the following questions:
- What economic and business environment are you experiencing?
- What opportunities and problems/challenges are you facing?
- What business objectives do you expect to achieve?
- What exactly do you sell?
- Who specifically are your customers/targets?
- Why should these people buy your products or services rather than your competitors’?
- How will you communicate your product or service to your customers/targets?
- Who will do what, when?
- How are you going to measure and report your progress?
Every company should address and include five areas when developing their plan:
1. Market Research
If marketers are to accomplish the task of creating and keeping customers, they must conduct research to understand their markets and the shifts in the marketplace. Through research and evaluation of their products or services, companies learn what customers value most and what barriers exist to marketing their offerings.
This knowledge guides decision-making and can reduce the number of projects to be undertaken and increase the usefulness of those that are.
Market research provides the input necessary to analyze your company’s situation. It provides the rationale for the decisions being recommended in the plan. Market research should examine the macro environment, market size, internal trends, competitive situation, market requirements, product/service purchasing attributes and supplier-evaluation criteria.
As you conduct research and analyze the market, you should consider a number of questions, include these:
- What market are you trying to serve? How big is your market?
- Are there segments in your market?
- What are the overall trends and developments in your industry?
- What is the rate of market growth or shrinkage over time?
- Are there any differences in market growth by time of year?
- How big are you competitors? What companies have what portions of the market?
- What products or services do your competitors offer? How do they differ from yours?
- How does competitors’ pricing compare with yours?
- What marketing strategies and tactics does the competition use, and to what degree of success?
- What are the competitors’ strengths and weaknesses? How will you defend and exploit each of these?
- What are the key factors for success in the market you are trying to serve?
It is important to view market research as an investment, not an expense. Even on a small budget, companies can search on the Internet and in libraries, purchase reports and conduct focus groups and electronic surveys.
It is also crucial to conduct research regularly and periodically, as markets change very rapidly in today’s dynamic environment.
A defensible market position and clear value proposition form the foundation for the creation of a marketing plan. Marketing initiatives within the plan should be anchored to the company’s positioning to create a consistent dialogue with the customer. Using market research, companies can better understand what their customers value about the company and its offerings. This information can guide the positioning of the company, locating a defensible position in the market and owning that space in the mind of the customer.
They must also make sure that the company’s pricing and offerings are aligned with the value perceived with the customer.
Good positioning occurs within a competitive framework, which is often a result of a complete analysis of strengths, weaknesses, opportunities and threats, also known as SWOT.
SWOT may have its own section in a plan, but the SWOT analysis serves as a good foundation for positioning. Its purpose is to assess your organization’s capabilities and that of your competitors’ within the context of four questions:
- What internal strengths do your organization or product/service have-compared with your competitions’-that will improve sales?
- What internal weaknesses do your organization or products/services have-compared with competitions’-that will hinder sales?
- What external opportunities are available to your organization or product/service that will improve sales?
- What external threats, over which your organization may have no control, are confronting your organization or product/service that you may have to react to?
3. Strategies and Tactics
Moving a prospective client from a stage of awareness to one of consideration takes a sound marketing strategy designed to drive demand and influence purchasing behavior. According to famed business strategist Michael Porter, a strategy “creates a company’s position, making trade-offs and forging fit among activities.” Marketing strategies are often formed around selling existing products in existing markets, extending existing products to new markets, or introducing new products to new markets.
Strategies often include the expected results; they also provide the “how” and the direction for the course of action. Strategies describe the broad direction that the organization will take to achieve the stated objectives. Strategies define how the organization will compete in the market, reach target customers, position the product/service and motivate customers to buy.
With clear strategies in place, a logical set of tactical operations and actions follow. It is from these tactics that the timelines, resources and budget for the marketing plan are derived.
Tactics are the specific actions you use to implement the strategies. The tactics section of a plan defines exactly what you plan to do, why and how the action will improve the organization, who will be responsible for each action, how long each action will take, when it will be done, and what the cost will be for each action.
Providing a means to assess progress, metrics are an essential part of any marketing plan. By constantly measuring actual performance against the metrics, companies can determine whether they are meeting the objectives of the plan and whether an adjustment is required.
The objectives of a marketing plan are typically stated around one of three strategic metrics: market share, lifetime value and brand equity-the three areas of marketing responsibility. Choose metrics and the appropriate key performance indicators that you have a method of measuring.
Like market research, metrics must be taken periodically to remain effective as markets change. Metrics tend to reveal more information when taken regularly over a long period of time, showing which initiatives are most successful and efficient. This can rally support for the plan, as metrics demonstrate accountability and provide evidence for undertaking certain marketing projects.
5. Business Plan Alignment
Most importantly, the marketing plan must be in synch with the company’s business plan. Marketing goals must be prioritized in line with the company’s business goals. Marketing strategies should be based on how the company can best provide value. Demand-generation tactics must be aligned with the sales pipeline and the goals of the sales organization. Some people create their marketing plan in a vacuum and are surprised when they find little support and success in their plan.