Tag: culture

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.

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.

 

Organisational Buying Characteristics

The other night at a business networking event, I met a new business owner who was struggling to define the market she wanted to enter.  The business owner had just started a cleaning company and was unsure whether to concentrate on domestic cleaning (of customer’s homes) or commercial cleaning (Shops, offices, etc.).  She was also considering marketing her services to estate and letting agents.

As a new business, I advised her of Porter’s generic marketing strategies; cost focus, diversification and niche marketing.  As a new start business, I advised her to, at least initially, to concentrate on one market niche.  The reason for this advice was that small businesses often lack the resources to offer distinct offers to different market segments and that cost focus could restrict the earning potential needed to offset set up costs.

I also advised her that there was a big difference between marketing your services to consumers and marketing to organisations.

Organisational buying is the purchase of products and services to meet the needs of manufacturers, resellers, government and other types of organisation.

There are three types of organisational market:

  1.  Industrial Markets:  Companies that purchase goods and services to make other goods and services.  For example, most car manufacturers buy components from other suppliers.  A major employer in my town is a plastic mouldings firm who supplies dashboards and other plastic components to a wide range of car manufacturers.
  2. Reseller Markets:  Members of these markets buy goods and services which they sell on to others.  For example, supermarkets buy milk from farmers which they sell on to consumers.
  3. Government Markets:   Councils, government departments and other agencies buy goods and services to help them with their activities.  Increasingly governmental services are provided by private sector outsourcing firms such as Capita and Serco.

If you are considering selling your goods and services into an organisational market, a business to business marketing environment, you need a strong understanding of the buying behaviour of organisations.

The implications of making bad buying decisions in an organisational market have greater significance than in consumer markets.  Professional buyers tend to be more cautious and they will often follow pre-determined systems and procedures when deciding whether or not to buy.

Organisational buyers do not purchase on impulse; consumers do.

So if you want to sell your products to an organisation, you need to have a good understanding of the buying culture and processes of that organisation.

When I worked in a local authority, I regularly got cold called by salesmen trying to sell the council goods and services.  I worked in consumer protection.  The Council’s central purchasing unit were in a neighbouring office.  The council’s buyers operated a tendering process and a policy of best value purchasing was in place which meant that two quotes had to be received for every contract (other than in exceptional circumstances.  The council did not respond to cold calls or telemarketing.

A decision by an organisation to buy goods is likely to be made buy a group not an individual.  There may be many stakeholders in the organisational buying decision:

  • Initiators – those individuals in the organisation who start the buying decision.
  • Deciders –  those in the organisation who decide to start the buying process: usually in a management role.
  • Influencers – professionals such as accountants or engineers who place constraints on the buying process and help to determine the purchasing criteria.
  • Buyers – Certified professionals who carry out the buying and negotiation process.
  • Gatekeepers – those control access to decision-makers.  The PA of a company CEO is often a master gatekeeper.

These stakeholders often make up a formal decision-making unit or buying centre.  You will likely need to be aware of the group dynamics of a buying centre to successfully obtain a contract.

Organisational buying will often exhibit the following characteristics:

  1. Nature and Size of Customer:   The number of customers in an organisational market tends to be small.  In the Airliner industry, there are only two major players; Boeing and Airbus.  The Pareto Principle often applies.  Eighty percent of a suppliers income may come from only twenty percent of its customer base (hence key account management).  Often, long-term relationships exist between buyers and suppliers.  Supply is often direct from the manufacturer to the customer.  There are few middle men in the organisational buying process.
  2. Complexity of Buying:   Organisational buying tends to involve large sums of money.  Many people in both the buying and selling organisations may be involved in the purchasing process. Often the people buying the product will not be the end-user of the product.  Often there is multi-level selling involving sales teams rather than individual salesmen.
  3. Economic and Technical Choice Criteria:   These exist in organisational buying and purchasing decisions are far less likely to be made on the basis of emotions.  There are formal buying procedures and tender documents.
  4. Risk:  Often the contract is agreed before the product or service is made.  Products tend not to be off the shelf.  This was a major issue in the collapse of Carillion where contract delays eat into expected margins.
  5.  Buying to Specific Requirements:  Product specifications are drawn up by buyers and potential suppliers compete to meet those specifications.  You therefore may have to design a product or service for an individual customer rather than for a demographic group.
  6. Reciprocal Buying:  Customers in organisational markets may exert significant power and be in a more advantageous position than suppliers.  With such power they are able to demand significant concessions from suppliers.  This may include reciprocal buying where a supplier is expected to buy some of the customers goods in exchange for the contract.  For example, a supplier to a major motor vehicle manufacturer may be expected to buy and use that customers vehicles for deliveries.
  7. Derived  Demand:  Demand for industrial goods is often derived from the demand for consumer goods.  Consumers buy yoghurt, Muller buy milk and equipment to make yoghurt.  A small rise in the demand by consumers for products may result in a massive rise in the demand for manufacturing equipment as production lines reach maximum capacity.  This is known as the accelerator principle.  Elon Musk has seen significant rise in demand for his Model 3 electric car.  Musk doesn’t have the production capacity to meet the rise in demand and this has led to significant delivery delays.  As a result Tesla has had to significantly increase production capacity including building new production lines.  However, this expansion in capacity has involved Musk incurring significant costs and increased his firm’s losses.
  8. Negotiations:  Negotiation is important in organisational buying as the purchasing process is often complex.  A supplier’s price is likely seen as the starting point for negotiation rather than the final price to be paid by the buying organisation.
  9. Frequency of Purchase:  If a manufacturing company is buying new production line equipment, they may only do so infrequently.  They may also expect a supplier to provide extensive maintenance services many years after the initial purchase of equipment.  Just in Time supply chains mean that buyers may purchase large amounts of raw materials but expect them to be delivered in small quantities on tight deadlines.

The following may be concerns and complications in the organisational buying process:

  • The supplier may struggle to supply products of the desired quality and there may be issues with availability.
  • Suppliers may be beaten down on price and there may be extensive costs during the life-cycle of a contract.
  • Suppliers may struggle to provide continuity of supply – particularly with JIT resourcing.
  • Perceived risks – these can be functional; that the supplied product will not operate as intended; or they can be psychological e.g. a buyer may not trust the supplier to provide goods of adequate quality based on prior experiences.
  • Office politics may be in operation within a buying centre.  Managers within an organisation at be competing for advancement or to gain power for their department within the organisation.  These power games may be played out within the buying decision.
  • Individual members of a buying centre will have individual likes and dislikes.  One buying centre member may like a particular salesman whilst another member of the group may hate that salesman.  A graphic designer may like a particular brand of software whilst his manager may prefer the software of a competitor.  I know a few photographers.  Some of those photographers will only use Nikon cameras and lenses whilst others will only use Canon products.

The implications of marketing to organisations are extensive.  You may have to take great care and pay significant attention to the needs of different buying centre members if you are to succeed in obtaining contracts.

In-house or Outsource?

In the last blog entry, I discussed some of the aspects of the collapse of Carillion, the UK-based civil engineering and outsourcing firm.  Carillion’s collapse has led to a wider conversation about when outsourcing is appropriate and whether outsourcing firms are more effective and efficient than public authorities providing services in-house.

Using outsourcing firms to provide public services began in the early 1990s.  Successive governments have increased the amount of public services delivered by private firms year on year.  In his 2016 budget, George Osborne introduced tax advantages for local authorities who transferred services to the private sector.

The growth of public service outsourcing has moved private sector provision from back office functions such as ITC provision to front-line service delivery.  If you need an assessment for disability benefits, it isn’t provided by DWP staff but by ATOS, a private sector firm.   My refuse is collected by a French firm Veolia, road maintenance is carried out by a private sector firm, my local sports centre is run by Serco, not the local council.  Carillion was running prisons and providing school catering.

The question isn’t whether the private sector should be involved in the provision of public services but at what level that involvement should be.  There are also serious questions as to where the power and control lies in an outsourcing arrangement.  Are elected councillors determining the decision-making and service standards of an outsourced service or are these decisions based on the commercial needs of the outsourcing firms shareholders?

My local council’s contract with Veolia for refuse collection is a case in point.  Somehow, the Council signed a 29 year contract with Veolia which basically allowed Veolia to annually increase the cost of service provision.  Worse, the contract included a clause in relation to the building of a waste incinerator.  Something no one in my town wanted.  The contract term stated that if the council refused planning permission for the incinerator, it would become liable for all of Veolia’s legal costs in a potential planning appeal.  The council refused permission for the incinerator and was left liable for a multi-million pound bill.

The big argument for outsourcing is that the private sector is more efficient than the public sector.  By outsourcing, that private sector efficiency can be infused into the public sector.

As someone who spent over twenty years working in the public sector in a job which inspected the private sector, that argument looks weak.  A recent report about ATOS’s performance in delivering PIP (Personal Independence Payments) shows a catalogue of errors, delays and poor decision-making.

Local authorities of all political persuasions have been bringing outsourced services back in-house citing poor service delivery and increasing costs.  For example, Liverpool Council brought street cleansing back in-house after the chosen outsourcing firm failed to meet required service standards.

In my twenty years in local government, I have seen the good and bad of outsourcing.  I worked at one council which outsourced its ITC provision in a highly successful manner which brought in better equipment and servicing.  I have also seen outsourced contracts which delivered poor quality services and unacceptable costs.  In my experience, the use of the private sector is no more efficient or cost-effective than providing in-house services.

Possibly the worst example of outsourcing I have come across was a small local authority who outsourced their trading standards provision.  To this day, I cannot work out how the councillors thought they would save money or improve service provision with the deal.  All the existing trading standards staff were seconded to the outsourcing firm as it had no experience of working in the profession.  They all had TUPE equivalent rights which meant their pay and conditions could not be altered.  The Chief Inspector then had to be transferred back to the council as, by law, that role has to be a direct employee of the local authority.  This was outsourcing delivered by dogma rather than common sense.

I have spoken to other local councillors who have expressed the wish of ‘commercialising’ trading standards.  I then ask them how?

Trading standards main income generation stream, metrological verification, was removed twenty years ago when the government allowed manufacturers and installation firms to self-verify metrological equipment as fit for use in trade.  Local authorities were left with the legal duty to inspect equipment to ensure it was properly installed and calibrated but with no ability to offset the inspection cost.

In some circumstances, under the Primary Authority scheme, local authorities can charge for the provision of business advice.  However, for charges to apply, the business seeking guidance must operate across local authority boundaries.  In any case, authorities can only charge to cover costs.  There can be no profit motive.

In his book, Marketing in the Public Sector, Philip Kotler asks, “What do citizens want from public services?”

He argues that they want two things:

  1.  Performance of services that are critical to the public interest (such as policing and the military); and,
  2. Performance of necessary services that cannot be appropriately handled by the private or non-profit sectors i.e. some form of welfare state.

He points to the views of many on the political right that public services are often inefficient and wasteful.

Kotler argues that public servants need to improve not only real performance issues but the perception of their services amongst the general public.  He argues that to do this public services need to learn from the processes prevalent in the public sector including those of the professional marketer.

Throughout my career, I have seen this process in action.  I have worked in local authority departments which have ISO9000 series quality assurance systems.  I have seen total quality management being applied.  Increasingly local authorities have flat management structures.  Some have tried non-hierarchical matrix structures.  Performance appraisal and metrics are now the norm and lean production is used.

I agree with Kotler that the differences between the public and private sector are often overstated and these differences are often a convenient excuse to avoid the application of private sector style management processes and procedures.

I am also aware that there are often statutory and moral reasons that certain private sector processes may be inappropriate for public service use.

It must be remembered that many public services are statutory.  They must be provided.  Unlike a business, a public sector body cannot move out of a sector simply because it is unprofitable.  For example, John Menzies, once Scotland’s biggest chain of newsagents saw that the sale of newspapers and stationery was increasingly unpopular.  Menzies sold their shops to WH Smith and instead concentrated on the distribution of computer peripherals.  A local authority cannot decide to stop the provision of social work services or its library service just because there is no money in it.  Social services must be delivered by law.

I suspect the reason why so many public service outsourcing contracts go wrong is the attempt by management to force a new culture on to staff.  This builds resentment and argument.

It is a good idea to remember that the culture of an organisation belongs to everyone in that organisation and to try to force cultural change without the agreement of all stakeholders can be a disaster.

Whereas culture belongs to all stakeholders, procedure belongs to management.  It is much better to adopt culture through the proper application of procedures that to force a sharp change in the organisational culture by diktat.

Perhaps the outsourcing of public services has taken a step too far.  Certainly, the debate on where outsourcing sits in the provision of public services has a new impetus in light of the Carillion collapse.

My personal view is that public services can learn from private sector management processes but that the private sector can also learn from the vocational pride of many public servants.