Acquiring, Retaining and Growing Customers

Anyone who speaks to me about marketing will know my pet peeves.  Chief amongst them is organisations who conflate the term marketing with sales.  You often see the term ‘marketing representative’ used instead of salesman.  House builders have marketing suites on their developments, not sales offices.  But sales is not marketing.

I also see plenty of businesses who have a ‘Sales and Marketing’ department.  I hate this description it smacks of a silo mentality and that a firms marketing activities are subservient to its sales team.  It also usually means that to the organisation’s senior managers, marketing is predominantly a promotional activity.  But promotion is only one element of the marketing mix.

In my view, these definitions of marketing are wholly incorrect.  Properly defined, marketing is a critical strategic activity that should sit closely to an organisation’s senior management; not a distant silo subservient to the organisation’s sales team.

That said, sales and marketing are linked activities.  There is no point in a corporation developing a customer focused strategy, if it isn’t enacted by its sales representatives.

Marketing guru, Peter Drucker once said, “the only profit centre is the customer”.

For too long, the focus of sales teams was therefore growing the customer base.  More customers meant more profit and greater market share.

However, in today’s highly competitive markets, the focus has moved.  Bob Weyland said:

“The paradigm has shifted.  Products come and go.  The unit of value is the customer relationship”.

So today, particularly in B2B markets, the focus is about growing and deepening the relationship with your existing customers.

Studies have shown that the cost of obtaining a new customer is five times that of keeping existing customers happy.  The longer you keep a customer, the more you can earn from them.  It can take many years for a new customer to buy at the same level as existing customers.

The focus on existing customers means not taking them for granted.  Every so often you have to do something special for them.  You need to encourage their feedback and react to that feedback.

However, there will always be a process of erosion.  Whatever you do you will lose customers.  For example, the fashion retailer Top Shop targets consumers under the age of 30.  So what happens when that target market ages?  How many sixty year olds will buy clothes from Top Shop?  Like products, customers will have a lifespan.

So as well as retaining existing customers, you will always need to obtain new customers.  And of course you have to turn new prospects into repeat buyers.

In today’s markets, customers have extensive choice.  There is an abundance of suppliers and brands.  So you have to do more than locate prospects.  In addition to locating prospects, you need to sell to them and you need to turn them into repeat buyers.

Generating customer leads is a three-step process.

Firstly you need to define the target market.  That means a structured process of segmentation, targeting and positioning.

My brother runs a small landscape gardening business.  I asked him who his target customers were.  His reply: “Everyone and anyone”.  This is clearly an unrealistic approach. For a start, his business doesn’t have the resources, financial or otherwise, to promote his services to all.  He needed to identify customer groups which were worth obtaining; customer groups which would offer the best returns and who were the best match for his skills.

The targeting and positioning process means that you need to deepen your knowledge of the target market;  you need to know what it wants; what it buys; where it buys; when it buys and HOW it buys.

Secondly, you need to solicit leads through communication tools, the promotion bit of the marketing mix.  Traditionally, this has meant advertising, personal selling, direct mail and events such as trade shows.  Today it may also mean product registrations, event sponsorship, using celebrity advocates.

Remember the internet and social media is a promotional channel, like television or radio when it comes to soliciting leads.

Thirdly, you need to qualify the leads you gather.  Not all leads are worthwhile.  For example, there is little purpose in my brother collecting leads five hundred miles from his base as the cost of travelling to do the job will erode any profit margin.

Some prospects may express an interest in purchasing your goods but will have no intention of actually doing so.  They may lack the means.  I would love to own a vintage Fender guitar, but the cost, and my level of ability on the guitar make that prospect a dream rather than a reality.  Ferrari recently produced a high-end sports car model where to be able to buy the car, you had to prove that you had the ability and expertise to buy it.  You never got to keep the car at your home.  It was kept by Ferrari who would ensure it was safe for you to drive.  Clearly, many motor racing fans would love to drive that Ferrari but would lack the expertise needed to drive it.

It really matters that you identify the BEST leads.  You need to distinguish between hot, warm and cool leads.  Hot prospects are those most able and willing to buy; those most able to buy.

Hot leads need to be prioritised.  It is not worth wasting the time and resources selling to those only partially interested in buying.

A useful selling technique is to use SPIN questions:

  1.  Situation Questions – e.g. how many employees do you have?
  2. Problem Questions  – what problems and difficulties is the customer experiencing? What are they dissatisfied with?
  3. Implication Questions – How do the problems affect the customer?
  4. Need pay-off Questions – What is the value or usefulness of your proposed solutions? e.g. What if I told you that I could reduce the cost of the implication by 80%?

You aren’t selling products or services but solutions and capabilities.

So how do you calculate if a customer is worth getting?  One method is to analyse the customer acquisition cost against prospective customer lifetime profit.

For example:

  1.  Cost of sales representative = £100,000 per annum (this is the total cost not just their salary)
  2. Average number of calls per annum by the sales representative = £200
  3. Average cost per sale = £2000

This is an underestimate of the cost of customer acquisition as it ignores work on advertising, promotions and administration.

  1. Annual revenue from customer = £10,000
  2. Average number of years of loyalty = 2 years
  3. Profit margin = 10%
  4. Customer lifetime profit = £2000

This may appear to be a breakeven situation but the prospective customer lifetime profit is an over-estimate as profit margins will vary between customers.

So in this example the company is actually paying to acquire the customer.  The cost of acquiring the customer exceeds their worth to the company.

Once you have obtained a new customer, your next task is to keep them.  You have to develop a customer and move them through development stages.  This is often referred to as the ‘customer ladder’.  Customers move from prospects, to first-time customer, to client, to advocate, to member, to partner, to part owner.

To make a first time buyer a client, they must be satisfied; not dissatisfied or ambivalent.  It is therefore crucial to develop a customer satisfaction index and to listen to your customers.  You need to estimate the cost of losing customers.  Do you need to improve your customer services.  remember social media makes it very easy for dissatisfied customers to tell others.  You need to resolve customer complaints quickly.  You need to accept responsibility to win back goodwill.  Remember ‘the customer is king’.

Once a first time buyer becomes a repeat customer, you need to identify key accounts.  You need to classify customers by ‘depth of repeat’.  You need data on frequency, recency and monetary value of a customer’s purchases.

Remember retained customers are better targets for cross-selling and up-selling.  They reduce the cost of service through familiarity with your products and systems.  Highly satisfied repeat customers become advocates and create word of mouth.  Long-term customers are also less price sensitive.

Advocates represent the statements “the best advertisement is a satisfied customer” and “Satisfied customers become apostles”.

In some markets it is possible for satisfied customers to become members e.g. a golf club will often accept ‘pay and play’ customers but to survive in the long-term it will need a robust membership.  Car manufacturers operate owner’s clubs which offer special benefits and privileges.  Rock bands and TV shows develop fan clubs.  If customers switch away from these clubs, they lose the membership benefits.

In B2B markets, often the aim is to develop a partnership with a customer.  Software firms get customers to help develop and amend their products.  They use beta testing where trusted customers get to use prototype programmes, to identify bugs and to suggest improvements. Aerospace manufacturers will work closely with engine manufacturers.  The finished aircraft will be an effective joint-venture.

In a part-ownership model, the customer is a critical stakeholder.  This is the model used by building societies, cooperatives, community owned pubs, credit unions and buying clubs.  Customers have a direct say in the organisations policies and procedures.

So, if you want you business to be a success in today’s highly competitive business environment, it is not enough to garner new customers, you need to keep customers and develop them not just in terms of profit growth but in terms of an ever closer relationship.

 

 

The New Consumer and the Implications for Marketing Strategy

The 1990s saw the rise of a new type of consumer which represents a significant social change and which reflects a more confident but more cynical consumer.  This change isn’t just represented in the way consumers buy goods and services; it is increasingly evident in culture and politics.  There is a real possibility that the election of Donald Trump and the vote for Brexit are a direct result of this shift in consumer behaviour.

For much of the 20th century, consumers were often viewed as conformist, differential children.  This status was a direct result of the hardship of events from the 1920s to the 1950s.  During that period, consumers faced the hardship of the depression that resulted from the Wall Street Crash; they experienced the rationing, shortages and hardship of World War Two; and in Europe they faced the significant costs of rebuilding the damage caused by the war.   Austerity was the norm and that drove conformity.

In the UK, there was rationing until the mid-1950s and successive governments nationalised what they saw as key industries.  Nationalisation clearly saved some industries from oblivion but it often resulted in a lack of consumer choice and terrible service standards. UK consumers had no choice but to accept what those nationalised industries gave them.

For example, in the UK, up until the mid-1970s, if you wanted a telephone, you could only get one from the nationalised Post Office and you had little choice of design or colour.

Prior to 1950, there was no such thing as the teenager.  Prior to that date, when you left school you went straight from being a child to being an adult.  You wore the same style of clothes as your parents, you listened to the same radio programmes and your choice of music was classical or jazz.

Compare that world to now.  Consumers have a vast variety of goods and services from which to choose and switching is easy.

During the austerity of the middle part of the 20th century, social views were one of conformity.  People talk about the greyness of 1950s Britain.  Everything seemed drab and ordinary.  Your life was effectively planned.  You lived with your parents until you got married.  Society expected 2.4 children, a Morris Minor and a three-piece suit.

If you listen to political interviews of that time, it is astounding how differential journalists were of those in authority.  Searching questions were rare and if asked, would be treated as contemptuous; as if the interviewer was attacking the politicians honour.  It was a cultural norm that elected officials and government ministers were your ‘betters’.

For a minority, the Swinging Sixties represented a casting off of this social and cultural straightjacket. However, for the majority of UK residents, those outside London’s cultural fulcrum, the greyness of the 1950s remained until well into the 1970s.

L.P. Hartley summarised it nicely in his 1953 novel, The Go Between:

“The past is another country, they do things differently there”.

In the 1990s, the UK shifted from a state where austerity was the norm to an environment of affluence.  Whatever your political views it is clear that Britain was a wealthier place after the Thatcher premiership.  Consumers expectations changed. They moved from a position of conformity to one of individualism.  They expect choice and extremely high levels of customer service.

During the austerity between the 1930s and the 1950s, consumption was about survival.  Consumers purchased what they needed to survive. Today, they buy what they need and what represents their personality.  The mindset of consumers has shifted up Maslow’s hierarchy of needs towards self-actualisation.

There is another side to the move towards individualism, consumers are becoming increasingly cynical.  They are less trustful of authority and less trustful of advertising.

This is clearly shown in our attitude to both journalists and politicians  It is why the likes of Nigel Farage and Donald trump aim to present themselves as anti-authority and not part of an elite.

Of course, take one look at the credentials of many of these politicians, and they couldn’t be more establishment.  Farage was privately educated at Dulwich College, he is the son of a city trader and is a former merchant banker.  Trump inherited his billions from his father; he went to select schools.  Since childhood Trump has lived a life of luxury, private jets, limousines and gold-plated lifts.   Both these individuals have nothing in common with the ‘man in the street’.

Like Trump’s election, Brexit is a symptom of the increased cynicism.  I guarantee that the vast majority of those who voted to leave the EU had not a clue of about what the EU did, how it operated or its structures; what they wanted was to express their cynicism of politics in general and to give the government a kicking.

So old style consumers were constrained by income, limited choice and the availability of goods.  The new consumer is cash rich, has almost unlimited choice.  Compared to the last century, consumers now face a significant increase on calls on their time.  They are time short so need answers quickly and efficiently delivered.

Increasingly, social tribes are breaking down.  For example, in the 1950s you supported your local football team.  If you lived in Manchester, you supported United of City.  In the early 1960s, if you were under 23, you were a mod or a rocker.  Now Manchester United have fans located all over the world and there is a proliferation of musical and cultural genres.  Where once you were part of an individual cultural tribe, it is now the norm for an individual to be a member of many tribes and to act in a number of social roles.  It is now almost expected for someone to be a wife, mother, manager, co-worker, charity campaigner, councillor, simultaneously.

The increased expectations of consumers means that businesses need to understand consumers better.  They need to directly attend to those consumers needs.  If they do not, they are doomed to failure.

Increasingly consumers are using their purchasing power to regain some control over their lives and to alleviate their frustrations resulting from hectic modern lives.  Most see their life as more uncertain than that of their parents.  Their buying habits have become a prescription against such frustration.  Uncertainty has also weaponised nostalgia, a critical element in Brexit.  Consumers have greater vulnerability; they feel anything can happen at any time.

It is also notable that consumers increasingly use purchases to ‘cheer themselves up’.  This is particularly notable amongst the group described as ‘Millennials’.

It is also noticeable that consumers expectations of service levels are outstripping product satisfaction.  Clear evidence of a focus on the experience of purchases not simply a focus on product features.

So what are the lessons for marketing strategy:

  1.  You need to reconnect with your customers.  Do not fall back on traditional demographic categories such as age, ethnicity and income.  Marks and Spencer has struggled over recent years trying to match its products to the new image consumers see themselves as having.  Discounters such as Aldi and Lidl saw a big rise in ‘middle class’ customers.
  2. You need to become better at directing messages to an increasingly cynical consumer audience who have immediate access to communication technology.  Consumers can now express their satisfaction, or dissatisfaction, instantly; and too a mass audience.  It is noted that highly critical reviews can be far more influential than formal advertising campaigns.  Consumers are becoming smarter.
  3. There is now a focus on creating ‘street buzz’.  Increasingly companies are getting better at selecting and using selected opinion formers rather than developing advertising hype.  For example, Ugg, the sheepskin boots manufacturer, don’t do much in the way of traditional advertising, they rely on consumer advocacy, appropriate brand advocates and ‘superfans’.  To develop buzz, Ugg employ bloggers and vloggers, who don’t just promote the brands footwear but talk about other associated issues such as music, art and fashion.  Through the spread of social media and the internet, there is an increased focus on viral marketing.

This law of increasing individuality has resulted in greater competitive intensity.  Markets are becoming more competitive.  As a response, there is an over-riding need to individualise products and to tailor services (the product surround) to consumer’s needs.

This is the development of ‘micro-segmentation’; the impact of which on many businesses is increased price transparency and a focus on ensuring that consumers feel empowered.  Businesses now face pressures to cut costs and maintain profit margins whilst not raising prices.  A common result is product downsizing.

Businesses also need ‘complicated simplicity’.  Yes that is an oxymoron.  As a single consumer can belong to a wide range of ‘tribes’, you cannot typecast.  You cannot put consumers in boxes of generic description.  Increasingly businesses created individual customer profiles and design products with those profiles in mind.

Much of the success of Amazon has been the tailoring of offers to individual consumers.  Yes, Amazon used new technology to disrupt the bookselling market but now they use increasingly sophisticated algorithms to tailor their product offers.  they are continually improving this process.

The rise of the new consumer has huge implications for marketing strategy.  You need to supercharge your marketing agility to meet consumers demands and to meet their increased expectations.

Is Distribution Part of Your Marketing Strategy?

When I see many organisations defining their marketing activity, I find that their definition is often limited to two areas, Promotion; and the incorrect definition of marketing as sales.

As I have discussed in previous blog entries, marketing strategy involves a far wider mix of subject matter.  The extended marketing mix has seven elements which affect all aspects of your business; Product, Price, Promotion, Place, People, Process and Physical Evidence.

When you consider distribution, you are dealing with the fourth of those elements, Place.  If you are a retailer place would include the location of your shop premises.  But the vast majority of businesses are not retailers.  For them Place has a different definition.  For non-retail businesses Place refers to distribution and supply networks.  It is the relationships you develop with suppliers, logistics firms, wholesalers and retail chains such as supermarkets and department stores.

Often achieving commercial success isn’t only about the relationship you have with consumers; the end users of your products and services; but about how frictionless and efficient are your distribution channels.  That is why such channels are often called ‘marketing channels’.

Good distribution channels and strategies can contribute strongly to developing strong links with your customers and help build your competitive advantage.  Distribution channels are an important part of your value delivery network.

To build strong distribution channels you need to build strong relationships with key suppliers and resellers.  This extends marketing functionality beyond your customer base.

Marketing channels include your upstream and downstream partners, your suppliers, your logistics contractor, your wholesalers and your retailers.  Your downstream partners are the vital link between your firm and your consumers.

The term supply chain is limited.  It implies that raw materials, production inputs and factory capacity should be the starting point for marketing activity.  Many businesses decided to use the term demand chain instead.  It was felt that demand chain was a better fit to the serve and respond view of markets.  It emphasised the process of identifying consumer needs and the response of producing a chain of resources and activities which produce customer value.

However, today the term demand chain is also seen as limiting.  It limits marketing channels to a step-by-step linear model of purchase, produce and consume.  The term now used to define distribution channels is Value Delivery Network: a network of suppliers, distributors and ultimately customers who partner to improve performance of the entire system in delivering sustainable customer value.

Few manufacturers sell goods directly to the end consumer. Although direct sales are more common in industrial markets and increasingly thanks to the internet.  In the majority of markets, manufacturers need to develop strong and reliable channels as the effectiveness of their distribution activity will affect every other aspect of their marketing mix.  Pay too little attention to your distribution channel and your distribution partners and you can cripple your business.

Your distribution network will be affected by retailers.  You will have different distribution arrangements and expectations if you work with discount retailers compare to working with luxury retailers.  These differences will affect the price of your products.

Innovative distribution can create strong competitive advantage.  Why do you think Amazon is investing in drone technology and truck manufacturers are looking at self-driving and convoy vehicles?

Creating strong distribution channels takes long-term commitment.  It is far easier to adapt your product range or to change your promotional strategy than to build strong distribution channels.  Building reliable channels cannot be done overnight.  Channels have to be built not only with regard to current practices but with one eye on the future.

So how do strong marketing and distribution channels add value?

  1.  Information:  Your distributors and resellers are critical to the gathering and distribution of marketing information.  They are the direct contact between your firm and your consumers, your competitors and other market actors.  Their knowledge of market forces are critical to business planning and exchange.
  2. Promotion: Your distribution partners are often a crucial messenger for developing and spreading persuasive communications about your products and offers
  3. Contact:  Your distribution network are a good way to find and communicate with prospective buyers.
  4. Matching:  Distributors can help to develop your products to meet customer expectations through activities such as packing and product bundling.  They may be involved in the assembly of your products e.g. most cycle shops need to  part assemble and test a bicycle before it can be ridden by the customer.
  5. Negotiation:  Often members of your distribution channel are given the ability to negotiate with customers on issues such as price and timescales for delivery.  They allow ownership and possession of products to be transferred.  Remember, in law, a price indication is an invitation to treat, not a contractual offer.
  6. Physical Distribution:  Obviously, your distributors are responsible for the physical movement of goods and components.
  7. Financing:  Often your distribution partners are crucial in acquiring and raising funds to cover the cost of the channel.
  8. Risk-Taking:  Often the risk of carrying out the distribution network is, in full or in part, transferred to the distribution partner from the business core e.g. in franchise models.  Often critical decisions need to be made as to who carries out certain distribution channel activities.  It is a question of who carries out that work, not that the work needs to be done.  The shifting of tasks from a manufacturer to intermediaries can lower costs and increase profitability.  Channel intermediaries may have more technical expertise than a manufacturer.  Distribution channel partners may increase your productivity and efficiency trough their knowledge and resources.

The following factors must be taken into consideration when selecting distribution channels:

  1.  Market Factors:  Your buyers may expect your products to be sold in a particular way.  A failure to meet buyer expectations through the way you organise distribution will have serious consequences for your business.  Often consumers need product information such as technical specifications and installation advice.  Often the provision of this information is the responsibility of channel intermediaries.
  2. Geographic Location:  Are you remote from your customers.  Do you need to employ territory agents to sell and distribute your products in distant locations?
  3. Producer Factors:  Do you lack the resources to carry out all channel functions?  Do you have the finances, skills and other resources?  Do you make a wide range of products that means distribution activity can be brought in-house?  Or do you make a single product and therefore rely on others as direct distribution is cost ineffective?  How much control do you want or need over your distribution channel?  Levi’s jeans are a good example.  Levi’s has very tight control over the distribution and reselling of their clothing.  they even control how their products are displayed on the shop floor and the type of retailer they want to sell their products.  The retailer is part of Levi’s brand image.  As a result, Levi’s fought a long legal battle with Tesco over the supermarket chain’s purchase of ‘parallel import’ clothing for sale in its supermarket.  If you make hazardous or bulky products you may have no option but to develop direct distribution to end users.  Retailers may not want to stock your products as they are difficult to display.
  4. Competitive Factors:  You may operate in a market sector where your competitors own or control the major distribution channels, through vertical integration or market power.  Often you may have to disrupt the distribution channels through the use of alternative technology.  Much of the disruptor activity is driven by new distribution technologies.  We live in the age of the digital download and soon 3-D printers will be common domestic appliances.  My father recently needed a small plastic plumbing part for a DIY repair.  He bought it over the internet.  In a few years time he will purchase the computer code for the component and print the part himself.

Distribution channels are a critical part of your marketing strategy and planning.  They should be a central part of your SMART marketing objectives.

 

Developing Customer Retention Strategies

Most senior managers in a business talk of developing customer or brand loyalty.  The principle is that the longer you keep a customer, the more you earn from them.   To survive in the long-term, you need to develop high lifetime value.

However, loyalty is fickle.  Successive academic studies have shown that even the most loyal of customers will switch to a competitor if the believe there is better value on offer.

In this blog we have also discussed that there is no longer a product which is purely defined by the definition goods.  All products have a service element and often the opportunity to differentiate goods from those of competitors and to add distinctive value.

This makes it odd that in some sectors little is done to retain customers and customer service is, quite frankly appalling.  For example how many of us have been stuck on the telephone line for what seems like an age to a bank or utility firms call centre with no ‘call back’ option.

Then there are industries where customer retention seems to be an alien concept and customer lifetime value appears to be the last thought of company directors.  The car insurance industry is one such sector.  The aim appears to be to get consumers to switch every year by only offering discount to new customers.

In business to business markets, where there are often fewer customers, higher purchase costs and complicated contracts, there is often a constant battle to adapt and improve service capabilities and product functionality.  In such markets, customer retention is the key to business growth and survival.

Senior managers shouldn’t confuse customer or brand loyalty with customer retention.  You don’t develop brand loyalty strategies, you develop customer retention strategies.

So how do you develop customer retention:

  1.  Target Customers:  Not all customers are worth building a relationship with over the longer-term.  Some customers are habitual brand switchers.  Some will not generate significant lifetime value; they will not provide sufficient income or their service demands incur excessive costs.  Some customers; disruptive ‘zombies’; may actually disrupt service provision and affect a firm’s relationship with other more profitable customers.  This is a classic marketing segmentation and targeting approach.  You should aim to retain, high value, frequent use, loyalty-prone customer groups who recognise your product as having high service values and utility.  You need to identify those customers  in that group who are most likely to defect to competitors and ask whether they are worth retaining.  You then need to build a value-added strategy to meet those customers demands.  For loyalty-prone customers, it is important to maintain communication bonds.  It is worth remembering the Pareto principle that 80% of turnover comes from 20% of your customer base.
  2. Bonding:  You need various levels of strategy to bond customers and service providers together.  You need to select the  level of strategy most appropriate for the bond with each customer:
    1. Level One:  You bond through financial incentives.  You provide discounts for bulk purchase or you provide a loyalty scheme for repeat purchase.  However, such financial incentives are easily copied by competitors.
    2. Level Two:  You develop more than just price incentives; you build sustainable competitive advantages through the creation of social as well as financial bonds.  Customer service encounters are often also social encounters.  To build social bonds, you require frequent communication.  You need to provide community of service through and entertainment activities.  for some customers you need to make them feel that they are being treated as an individual.  For example, Harley Davidson runs events for their owner’s club; Las Vegas casinos offer ‘High Rollers’ the use of luxury suites and special tables.
    3. Level Three:  You need to develop financial, social and structural bonds.  The relationship should feel more like a partnership than that of a supplier and a customer.  This often involves the creation of bonds which tie the customer to your company.  For example some logistics firms provide customers with packing equipment which only works with the logistics firm’s systems..  Such structural bonds often create formidable barriers against customer switching and new competitors entering the market.
  3. Internal Marketing:  To build high quality service delivery, you need high quality performance from employees.  Recruitment and employee selection is often key to bonding as is employee retention. Retained employees often develop expert knowledge about your products and services.  You need to provide high quality staff training.  You need effective communication channels with your staff and they need to be appropriately motivated.  Staff need to have technical competence but they also must be able to relate to customers.  All your staff, from your receptionist to your engineers, are part-time marketers.
  4. Promise Fulfilment:  You must make credible realistic promises, keep those promises and give your staff the knowledge and equipment to deliver upon them.  this is the keystone of maintaining customer relationships.  They are the cues to match customer expectations and to avoid customer disappointment, dissatisfaction and defection to competitors.  The mantra should be ‘under-promise; over-deliver’.  First impressions count so your first contact with customers is critical. For example, Marriot Hotels have a ‘first ten minutes strategy’ to ensure the relationship with hotel guests gets off on the right foot.
  5. Building Trust:  Customer retention relies on building trust.  Services are intangible.  To ensure retention you need to keep in touch with customers and modify services to respect their views.  This means providing guarantees which inspire confidence and which reduce perceived purchase risk.  Your policies need to be considered fair by consumers.  Staff must recognise required high levels of conduct with consumers.
  6. Service Recovery:  Solving problems can restore customer trust.  Ideally, potential problems should be eliminated before they actually happen; but that isn’t always possible.  If incidents occur, systems should be capable of modification so those incidents cannot be repeated.  This means having a quality assurance system capable of adaptation such as Kaizen or Six Sigma.  Systems should be tracked to identify service failures. Customers should be encouraged to report problems.  Monitor complaints and their resolution.  Follow up on service provision.  Most importantly, train and empower your staff to deal with problems and complaints before they escalate.  Successful resolution of a complaint can actually increase a customer’s positivity about a service provider.  This is called the recovery paradox.  But if the complaint recurs, the increased positivity can dissolve into dissatisfaction and recrimination.  Service recovery can encourage organisational learning and service staff should be motivated to report problems.  Effective service recovery systems can increase customer retention.

Customer Service – Why it Matters

I have spent the vast majority of my career working in the field of consumer protection and trading standards.  As a result I have dealt with literally thousands of consumer complaints relating to poor customer service.

Marketing is about developing a customer-focused organisation.  Therefore developing strong customer service capabilities is crucial to commercial success.

Customer service is critical to the development of successful strategic marketing processes.  The development of strong customer service policies and procedures are critical to the development of a strong brand image.

We live in a world where the core of a product offering is becoming increasingly commoditised.  If you are seeking to add value to your core products and you wish to differentiate your products from those of your competitors, product halo elements such as the development of differentiated and strong service elements is a prominent option.

Previously in this blog I have discussed the work of Treacy and Wiersema.  In particular, the three potential strategies for excellence, Product focus, Managerial Excellence and Customer Intimacy.  Managerial excellence is an inward looking strategy and developing excellence in product focus can be expensive and risky.  Therefore for many firms, particularly SMEs, the development of customer intimacy through the development of excellent customer service provision is critical to success and growth.  Developing excellence in customer service is critical to the creation of customer intimacy.

In his book, Marketing Plans, Professor Malcolm Macdonald describes the service profits chain; how the development of strong customer service strategies can be central to the growth of a firm’s profitability:

  1.  Employee Satisfaction:  Satisfied employees provide better service quality. If you have satisfied employees, you have less staff turnover.  This means your staff are better trained and more knowledgeable about your products and services.  Satisfied employees are more productive.  Satisfied employees have a greater commitment to the company and they present themselves better.
  2. Improved Service Quality:  Satisfied employees provide better quality service which leads to greater customer loyalty.
  3. Service Quality:  If you have satisfied employees you have better service quality.  Customers exhibit greater satisfaction with your brand.  They buy more.  They buy more often.  They are retained for longer.  The exhibit greater loyalty.
  4. Customer Retention:  Increased customer loyalty leads to greater customer retention.  This creates an opportunity to increase profitability.  Loyal customers are less likely to switch to your competitors simply because of a change in price.  They are willing to spend more as they have familiarity with your products and processes.  Loyal customers cost less to serve.  They can offer opportunities to lower marketing costs through lower promotional budgets than those required to gain new customers.  The longer a customer stays with your firm, the greater their lifetime value.  Customer retention also creates greater shareholder value through improved revenues and reduction in risk.
  5. Positive Feedback Loop:  Satisfied customers treat staff better.  They develop a positive relationship with your employees and with your brand.  There is a positive correlation between customer satisfaction and employee satisfaction.

I see a parallel between the positive feedback loop of the service profit chain and the feedback loop of the balanced scorecard developed by Kaplan and Norton. The theory of the balanced scorecard is that improved organisational learning leads to better internal processes; better internal processes leads to better customer service; better customer service leads to improved financial performance and in turn, better financial performance means that you can invest more in improving your organisational learning and development.

Macdonald outlines five dimensions of service quality:

  1. Tangibility:  This is closely linked to the physical evidence elements of your marketing mix.  Good service quality is linked to the physical equipment used by customers and to the appearance of your staff.
  2. Reliability:  Quality service provision must be performed dependably and accurately.  It must be accurately repeated.
  3. Responsiveness:  You must show willingness to help your customers and you must serve their service needs promptly.
  4. Assurance:  Your staff must be knowledgeable and courteous.  They must have the ability to inspire confidence amongst your customers.
  5. Empathy:  Your employees must care about customers concerns and offer them individual attention.  They must show that customers concerns are important to them.

These five dimensions of service quality are critical if you are following the principles of SERVQUAL.

Today, it is often said that consumers, in particular the incorrectly defined market segment ‘millennials’, buy experiences not goods or services.  Consumers now want products which are engaging, robust, compelling and memorable.  Customer experience goes beyond the development of service.  To develop quality experiences, you need to go beyond exceptional service quality.  You need to recognise:

  1.  Usage Processes:  This is how customers access  and use your goods and services. Usage processes influence how your customers think about your firm.  Their concept of product value develops through their use of your goods and services not at the factory gate.
  2. Peer to Peer Interactions:  The interactions between your customers are important.  They are an important part of developing robust experiences.
  3. Relationships:  Too many satisfaction/service quality services erroneously focus on individual customer transactions and encounters.  they do not examine longer term relationships over time and across multiple transactions.
  4. Brand Image/Communication:  People don’t own an iPhone or a BMW because of their functionality.  They own them because those products make a statement about the owner.
  5. Emotions:  Customers are not entirely rational.  Emotions have a big effect on their relationship with a firm and their rating of the experience you offer.

When developing a marketing plan, you need to be cognisant of customer service needs and concerns in each of the above areas.

The difference between strategy and tactics

I repeatedly here colleagues talking about a strategy when they mean a tactic.  For example, digital marketers often talk about a ‘social media strategy’.  As a strategic marketer, I feel such comments should properly be referred to as a social media tactic.  So what is the difference between strategy and tactics.

There is often much confusion between non-marketing managers as to what constitutes a strategy and what constitutes a tactic.  The terms strategy and tactic often seem to be interchangeable.

Strategy should be viewed as the pursuit of long-term goals, tactics are for the shorter-term.  Strategy has a broad focus and is key to determining your competitive position and in defining your market. Long-term projects such as new product development may be viewed as strategic activity.

Strategy is the development of effective responses to the changing business environment through market analysis, market segmentation and the positioning of your business in the marketplace.

A strategy will apply across all or the majority of the elements of your marketing mix.  This is why I feel it is wrong to talk of  ‘social media strategy’ as that activity has a narrow focus on one element of your communications mix not the far wider marketing mix.

Tactical marketing is for the short-term and has narrow focus.  Often it is the day-to-day activities of marketing your products and services. Tactical marketing often deals with individual components of your marketing mix such as promotion, sales or pricing.  Often tactics will deal with specific elements within a particular marketing mix element e.g. promotion may involve email, social media, traditional advertising or direct marketing.

Often strategic problems will be new and unpredictable whilst tactical problems will be repetitive and well structured.  Strategy often depends on analysis of data external to your business whilst tactics rely on data generated internally.  For example, your strategy may rely of financial data from external bodies like the Bank of England whilst your tactics may rely on internally generated sales or productivity figures.

Strategic Marketing is a concentration on an organisations long-term aims and objectives whilst considering and maintaining market advantage.

To give a military analogy, the allied invasion of France during World War Two was part of a wider strategy of stretching German military resources over several fronts therefore making it impossible for the Germans to properly defend its borders.  Within that strategy there were numerous tactics such as extensive bombing campaigns, commando raids, sabotage by special forces and partisans behind German lines on transport and communication infrastructure, the use of double agents to spread misinformation, assassinations and even prisoner of war camp escapes.

In the peninsular war, the Duke of Wellington knew that Napoleon’s army relied for supplies by raiding the country they invaded, so he had a defensive strategy which stretched the French supply lines.  To weaken those lines he used a burnt earth policy denying the French sustenance and would use irregular forces to raid French supply convoys denying the French supplies of food and ammunition.

Bowman created his ‘strategy clock’ which correlates with Michael Porter’s generic marketing strategies; Differentiation, Cost Focus and Niche.

The clock identifies eight strategic options, some of which are of use, some of which are recipes for disaster:

  1.  Low Price/Low Added Value: This equates to Kotler’s less for less strategy, a common practice amongst ‘pile it high, sell it cheap’ discounters.
  2. Low Price: This equates to Porter’s cost leadership strategy.  This strategy can lead to damaging price wars.
  3. Hybrid:  This is a low-cost approach combined with appropriate market segmentation.  This is a good value at a low cost strategy. It smacks of a dual strategic approach which Porter states leads to a marketing ‘No man’s land’.
  4. Differentiation:  This strategy can be split into two categories.  The first is differentiation without an added price premium.  This category can help grow market share.  The second category is differentiation with a specified price premium i.e. the added value perceived by consumers justifies the price premium.
  5. Focused Differentiation:  This is where there is perceived added value amongst a tightly defined market segment which warrants a premium price.  For example, a cruise ship operator who focuses on wealthy customers over the age of 55.
  6. Increased Price/Standard:  This is a common strategy in B2B markets where there is a requirement to continually raise the bar in terms of product usability and levels of service.  It can be an appropriate strategy where higher margins can be generated by transcending the offer and standards of competitors or where competitors are losing market share.
  7. Increased Price/Low value:  This is often a disastrous strategy.  it is only really applicable when there is an absence of competition such as in a monopoly situation or where there are significant entry barriers.
  8. Low Value/Standard Price:  This is also a suicidal strategy in terms of marketing.  it inevitably leads to loss of market share.  it is only suitable when you are managing your exit from a declining market e.g. Harvesting a dog product before it is withdrawn.

Both strategic and tactical planning matter.  Strategic planning, adapting your organisation to a changing environment is critical.  Successful organisations are continually adapting to their changing environment to survive and remain successful over the long-term.

Strategic marketing facilitates that process.  A strategic marketing plan provides a systematic framework for market analysis and a well-defined methodology to pursue strategic goals.

Successful plans are not simply concerned with process.  They are valuable in communicating goals, motivating staff and developing staff ownership of those goals.

The following are key reasons to plan:

  1.  Adapting to Change: Management can focus on strategy whilst staff focus on day-to-day tactics.
  2. Resource Allocation: Planning allows for the appropriate allocation of scarce resources to meet opportunities and to counter threats.  No plan can succeed if it doesn’t have appropriate resources.
  3. Strategic Windows of Opportunity:  Disrupting markets through the application of new technology, the creation of new market segments, developing new distribution channels, redefining markets as demand changes, dealing with legislative change and environmental shocks.
  4. Consistency:  Strategic plans provide a common base to work from across organisational functions and inform the decision-making process.  Strategic plans help improve communication between organisational functions.
  5. Integration:  Strategic plans help integrate the marketing mix across an organisation.  They can help generate synergies across marketing mix elements.
  6. Communication and Motivation:  Strategic plans communicate strategic intent.
  7. Control:  To control activities they must be based on a pre-determined plan.  Such plans must include meaningful targets which can be measured.

 

The difference between culture and process in an organisation

I have twice been through the process of local government reorganisation.  Once when four district councils were consumed by a county council and once where a large regional council was split into four smaller unitary councils.  One of these reorganisations was completed with few difficulties (issues did occur but they were properly dealt with).  The other was a disaster zone of competing egos and managerial empire building.

So what was the difference between these two events.  On e major factor was how the reorganisation treated organisational culture.  The reorganisation which was completed relatively smoothly recognised that there were significant cultural differences between the merged councils.  It worked to create a new culture which was comfortable to all stakeholders.  In the less successful reorganisation, managers tried to force a new culture into existence without taking into account the differences between stakeholder groups.

In the less successful reorganisation, management saw organisational culture as their property, not belonging to everyone in the organisation and thus there was significant reluctance to accept managements plans.  They also confused culture with process.

So what is the difference between culture and process and why is organisational culture important to business planning and marketing.

Kluckhorn (Yes, I know!) defined culture as:

Patterned ways of thinking, feeling and reacting, acquired and transmitted through symbols, consisting of the distinctive achievements of human groups, including the embodiment of artefacts; the essential core culture consists of traditional (historically derived and selected) ideas and their especially attached values.

Yup, that’s a pretty long way of saying “the way we do things round here.

Importantly culture is not and cannot be imposed by management.  This is an important consideration for marketing and business strategy.

When attending to organisational culture, it is important to recognise that:

  1.  the culture of an organisation is like an iceberg; most of it lurks beneath the surface invisible to management.  That invisible part sits waiting to cause a collision.  As everyone in an organisation is part of its culture, it is almost impossible to get a complete picture of it and it can be difficult to describe.
  2. Culture is self-protecting and it will resist attempts to change it.  For example it takes around three months for a new employee to be ‘encultured’ – to become part of and to display the behaviours associated with the culture.  Similarly, it takes around three months for new managers to be listened to.
  3. The culture of an organisation is not always what stakeholders say it is.  There is often a significant gaps between how managers describe an organisations culture and how the staff view that culture. Ford UK in the 1970s is a prime example where different view of organisational culture caused significant industrial strife.
  4. Culture is best described as ‘the way we do things round here’.  It is an expression of the attitudes and behaviours of staff, not management.
  5. Culture is desperately important because it affects every aspect of how customers engage with an organisation and how service is delivered.  Your organisational culture cannot endanger trust with your target customer groups.  If staff dealing with customers do not feel trusted with the culture, it can severely harm that relationship.  Staff feelings and internal relationships between organisational stakeholders always get through to the customer.
  6. You need to behave internally how you expect staff to behave externally.  For example, if you are offering a low-cost solution to customers, your management and staff cannot behave like it is a high margin business where money grows on trees.  I have referred to Carillion several times in this blog.  The attitude of that company’s board in relation to their remuneration and bonuses, whilst they forced contractors to wait months for payment, is one of the major failings of Carillion’s collapse.

So what should culture actually be?  What culture is right for an organisation?

An organisational culture should:

  1.  fit with what the customer wants.
  2. There should be a correlation between what management want and the way in which they behave.
  3. The culture should fit with what staff want and must correlate with what they believe is ‘the way things are done around here’.

Culture can be far worse than a ‘negative influence’ when it is no influence at all.  If management ignore culture, it ends up with small disparate cultural groups across an organisation which are inconsistent with each other and which are a disaster for the customer.

At best, the wrong culture will stop an organisation being excellent; at worst, it will stop the organisation.

If management cannot replace a culture, they can at least influence it.  The tool management can use is process.  Culture belongs to staff, process belongs to management.

Process is the organise part of organisation.  However, too many organisations view process through the prism of efficiency not effectiveness.  Their concern is with doing things right as opposed to doing the right things.

Too often process is built around functionality and this risks the development of an effective, joined-up, organisation.  This can lead to silo mentalities developing across an organisation.

Some organisations develop group strategies to breakdown how each function fits within the organisation’s structure.  However, such group strategies often risk an organisation’s focus being internal and it not providing the outputs customers desire.

Process can be defined as:

A series of activities or steps to achieve a particular end – AskOxford.com

A series of actions that you take in order to achieve a result – Cambridge Dictionary

A particular course of action intended to achieve a result or results – Anon.

What this means for most organisations is that there will be a functional structure and customers will be passed from one functionality to another e.g. Promotion to sales to manufacture to fulfilment to after sales service.

Each of these functions may contain several tasks and the process may move back and forth through various functions.

Process is the glue which holds these different functionalities together.  If you are trying to create a ‘joined-up’ organisation, it is important that the staff of each function understands the role and responsibilities of other functions.  The failed local government reorganisation mentioned above, tried to amalgamate members of different functionalities into new groups without the development of a common understanding of each group members role.

Do all your staff understand the role they play in fulfilling the customers desired benefits to the appropriate standard?

Process is also the way in which the strategy and the Customer Value Proposition are reflected in what the people of the organisation do.

Process defines tasks, how those tasks are carried out, why they are carried out, what the task delivers and how tasks contributes to the end delivery of customer benefit.