Customers

In the nineteenth century, retail entrepreneurs such as Henry Gordon Selfridge popularised the mantra, ‘The customer is always right’.

As a trading standards professional with over twenty years experience in dealing with consumer complaints this is a statement I can categorically state is not true.  Customers are often badly in the wrong.

I prefer a variation of the mantra which states, ‘The customer is king’.  This amendment puts the customer in their true position.  Customers are the most important stakeholder in any business.

In business, the customer is the name of the game.  They are the source of your income and profits.  They are the reason that your business exists and survives.

To survive in business, you need to know what your customers want and who they are.  But customer needs change, as do their expectations and habits.  Market segments are in a constant state of flux.

To thrive and succeed in business you need to know more than what your customers want.  You need to internalise customers needs and wants and you need to commoditise them.

What you must not do is:

  • assume you know better about what customers want than they do.
  • think you know what they ‘ought to want’.
  • hope that customers will want what you have decided to make.
  • fail to care what consumers want because you have sales targets and you’ll be able to find someone to offload products to.

So you need to know exactly what customers want.  Except that is an impossible task. Often customers don’t know what they really want. This is a position clearly exposed by the current Brexit debate where supporters of the UK leaving the EU have vacillated between various different definitions of Brexit from a fictitious ‘world trade deal’ under WTO rules, to a ‘Canada Plus Plus Plus’ super-duper trade deal, to having the rights of EU membership without the costs.  Ask three Brexiteers as to their chosen Brexit ‘product’ and you will get three different answers.

However, even if it is impossible to know exactly what consumers want, you can reduce risk of customer indecision by carrying out market research.  You ask customers what they want, you don’t guess.  Again Brexit is a case in point. If a market researcher surveyed consumers over two variants of a product and the result of that survey was 52%/48%, the research would likely be treated as inconclusive and in need of repetition.

Market research is not marketing research.  Market research is examining the composition of markets, customer needs and wants, etc.  Marketing research is the examination of a firm’s marketing activities and its ability to access markets.

Market research is not easy and you’d be amazed what some senior managers in business have said about it:

  • “We’ve never done it”
  • “Qualitative research is too touchy-feely”
  • “How do you find out what customers themselves do not know”
  • “This organisation works on numbers; not loose concepts of ideas”
  • “The market research agencies we use don’t do that type of stuff”
  • “Sorry, the finance people won’t buy it”
  • “”Product managers hold the research budget and they have sales targets”
  • “Spending money on that hits our profit centre”.

Market research done properly informs management decision-making.  It is not a substitute for creative or professional decision-making.  Again there is a parallel with Brexit.  Many members of parliament say they personally oppose Brexit but that, because the majority in their constituency was to leave, they must obey the instruction of that majority. But such an attitude is not the role of MPs.  Members of Parliament are representatives, not delegates.  Their role is not to obey instructions, it is to use their own good judgement and to make decisions on the basis of the facts placed before them.  That role, to paraphrase Burke, is based on three duties; first, to do what is good for the country; second, to do what is good for constituents and third, party organisation: In that order and where the first duty predominates over the other two.

Similarly management decision-makers have a duty to do what is good for those who hold shares in the business.  That duty may conflict with the results of market research.

Like scientific and pseudo-scientific methodologies, market research has limits of error and when making decisions these limits of error must be carefully explained.

Market research is not an end in itself.  It is simply a method of reducing risk.

So who are your customers?

Customer knowledge is the biggest asset your organisation has.  Like any asset, you need to know it, maintain it and maximise the returns from it.  To do this you need to develop a robust Marketing Information System which can be used to;

  • analyse data for trends and changes
  • gives understanding behind the reasons for changes in customer behaviour
  • and which supports the marketing skills of your organisation and which allows you to do something about the changes in consumer behaviour you have identified.
  • Identifies what consumers buy from you and from your competitors.

It must be remembered that customers do not buy product features; they buy benefits or solutions to their problems.

Remember:

  1.  A product is what a product does;
  2. Customers just need to get things done;
  3. They need products to do those things;
  4. People don’t want a washing powder, they want clean clothes.

So don’t just measure sales data, measure the needs and problems of consumers which leads to those sales and which motivate purchases.  Does your firm measure more than basic sales data?

What benefits do customers seek?

Good marketing is not doing what you are good at but doing what your customers want you to do.

To meet that challenge, you need to find out:

  • What your customers wants and needs are.  The problems they need to solve and the jobs they need to do.  You need to find out where consumers ‘hurt’
  • What your customers need and want from you.  What they believe you can do for them, what they believe you are capable of offering; compared to what you actually can offer; and what they believe you are incapable of delivering.
  • What will your customers need in three months time, a year’s time and in five years’ time.

These are deceptively easy questions which are incredibly difficult to answer.  However, you need to know the answers to those questions in order to know:

  1. Where to put the money for maximum return
  2. Which customers do you want to invest time and money in.
  3. What products and services you need to develop.
  4. What products do you need to divest from or put on hold.

The really pertinent questions you need to ask consumers are:

  • What will the purchase and use of our products do for them and how will it affect a consumer’s status amongst their peers?
  • What will other people think of the consumer by their use of your products and services?
  • What will the consumer enjoy about their use of the product or service; or the result of such use?
  • Will consumers enjoy the relationship created with the producer through their purchase of the product? And will they want to maintain that relationship through repeat purchases?

 

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.

Blue or Red Ocean

An important element in the management of a brand is innovation.  Successful brands are constantly innovating; developing new products and services, developing how those goods and services are delivered and developing new promotional channels.

As products move through their life cycle, they are continually innovated, packaging is redesigned, new features and functionality are added.  Take Listerine: It is currently sold as a mouthwash for bad breath but it started life as a household cleaning detergent.  Take Canon cameras: they launch a new model every six to twelve months and each time there is product adaption such as GPS, internet connectivity and ever higher pixel counts on the cameras sensor.

When looking for new products there are three possibilities:

  1.  An existing product class to meet an existing consumer need.
  2.  A new product class to meet an existing consumer need
  3. A new product class to meet a new consumer need (possibly a need the consumer is yet to realise they have).

An example is Apple.  When Apple launch a new iPhone, it is launching an existing product class to meet an existing product need, the mobile phone.  When it launched the iPod, it was launching a new product class, the digital music player for an existing consumer need, a portable music device.  Apple’s original product, the desk top computer was a new product class, the home computer, for a new consumer need, having a computer in the home instead of in the office or laboratory.

When computers were developed after the World War Two, they were seen as tools for science and mass computation.  In the mid-1970s following the invention of the silicon microchip, computers could be put on a desk but no one considered them a product for the home, they were business tools for accountancy and word processing.  It was innovators such as Sir Clive Sinclair and Steve Jobs who saw the possibility of a computer for the home and with the ZX 80, Sinclair was the first to put his to into that, Blue Ocean.

A word which is in common parlance currently is ‘Disruptor’.  Many business leaders, such as Sir Richard Branson, have disruptor programmes.  Disruptors sit neatly in the second of the three categories.  They are individuals who aim to create new product or service classes to meet disrupt existing market expectations.  These are businesses looking to do things differently and to present a radical marketing mix.  This is was is often termed as Blue Ocean Marketing.

In recent years, many researchers have focused on Blue Ocean Marketing and they have highlighted prominent successes such as Ryan Air, Amazon and Ocado.  Another example of blue ocean marketing is the estate agency business where companies such as Sarah Beeney and HouseSimple are breaking down the value expectations of the traditional estate agency market.

It is generally accepted that markets grow by the reduction of unit prices.  The home computer market is one such example where the cost of a PC has fallen dramatically in real terms.  Unit price falls and sales volumes increase.

However, when a market becomes mature the goal is not to increase sales volumes through expansive growth but to obtain the market share of your competitors.  Often it is not a case of increasing sales volumes but increasing sales value.

No one considers brushing their teeth six times a day.  Most people stick to brushing twice a day, or three times at most.  Our usage of toothpaste doesn’t change so we are unlikely to buy more toothpaste.  However, we may be persuaded to change to a different brand or to buy a more expensive version of toothpaste because it promises to whiten our teeth, kill bacteria or cure bad breath.

Businesses in mature markets aim not to sell more but to get consumers to pay more.  It is not an accident that Dyson vacuum cleaners are amongst the most expensive on the market.

To allow premium pricing, many brands aim to find value innovations, a more for more strategy.  This involves building an unprecedented bundle of marketing mix attributes.

Blue Ocean disruptors often aim to break this model.  They suppress certain value innovations and promote themselves on a single value attribute.

Take as an example Premier Inns.  They broke the accepted rules of the hotel.  They realised that there were huge numbers of consumers who didn’t use hotels.  Hotels were for the wealthy or paid for by your employer.  Students, OAPs and Other demographic groups tended to use B&Bs or to stay with friends rather than the premium prices of hotel chains.

So Premier Inns and the likes of Travelodge removed some of the value innovations of traditional hotels.  There is no room service.  Room decor is basic.  There is no mini bar of satellite TV service.  Breakfast is either from a vending machine or it is a self-service buffet.  These companies offer a value innovation of a hotel bed at a discount price but to enable that price they removed many of the traditional attributes of a hotel stay.

A critical element in blue ocean marketing is ‘identifying your oilfield’; the bundle off value attributes which are not offered by other providers.  Often this can be through identifying an area of market growth not utilised by others.  This can even be areas which others in the market see as unprofitable.

Blue ocean marketing is often a high risk strategy.  For every blue ocean success, there are thousands of failures.  Take Bic as an example.  Bic was an early blue ocean pioneer.  It applied blue ocean strategies to the pen market.  Until Bic invented the disposable ballpoint pen, writing implements were seen as premium products.  People would buy expensive fountain pens which would last a lifetime.

Bic then applied the disposable pen model to the cigarette lighter market.  Again smokers would buy a refillable lighter which would last many years.  Bic soon became the market leader in the lighter market.  Bic applied blue ocean marketing principles again, taking on the likes of Gillette in the razor market.  Again success.

However, Bic then tried to enter the mobile phone market competing with the likes of Ericsson and Nokia.  Bic produced a phone which was able of making calls but which didn’t have the accessories offered by their competitors such as games, internet access and a camera.  The Bic mobile phone was an utter disaster.

Other blue ocean firms, such as the Easy group, best known for the value airline EasyJet, have also had mixed fortunes in applying blue ocean strategies outside their original markets.

Blue Ocean innovations are risky.  The television programme Dragon’s Den is replete with failed blue ocean pitches.  Only a small minority of blue ocean innovations succeed.  So is it worth considering only blue ocean marketing?  Is it always advisable to ditch traditional incremental product innovation and to offer a radical alternative offer.  Is the concept of making a superior product to your competitors dead and is  modern marketing solely the strategy off meeting consumer needs in a different way?

Traditionally product innovation was all about creating a superior offer.  However, some marketing academics dismiss this approach as ‘Red Ocean’.  A blood filled sea of cutthroat competition where sharks fight to consume a shoal of tuna.

These academics argue that market disruption is the concept of our times.  To succeed you must think in a  radically different way and blue ocean marketing is the methodology.  To succeed you must think differently and offer distinct value propositions.  You must look at existing market beliefs and challenge them.  You must suppress some traditional product or service attributes and enhance those which promote difference.

However, these studies often concentrate solely on blue ocean success stories ignoring the many failures such as the Bic mobile phone.

There are also lessons to be learnt from Blue ocean failures:

  1.  Value innovations are not the only way to create new brands
  2. Value innovation – suppressing an attribute seen as necessary by existing market players – is no guarantee of success if there is insufficient demand for that innovation.
  3. Value innovation can lead to no innovation at all.

Some of the most successful products and brands in today’s market rely on traditional ‘red ocean’ innovation.  The iPhone is one such example.  It’s success is through the constant innovation of an existing product by adding better or additional functionality.

So if you are considering a new product or entering a mature market, do not only think of blue ocean innovation or a radical marketing mix.  Sometimes the answer is just to provide a superior product to your competitors.

 

 

Do You Know Who Your Customers Are?

My brother runs a landscape gardening firm. I was talking to him about his customer base and asked him who his target customers were.  He responded that his customer base was “anyone and everyone”.

This response took me aback.  I was astonished that, for a business that relied significantly on word of mouth for its survival, my brother’s firm had so little knowledge of  the differing customer groups in the market.

My brother’s company may well trade with the market as a whole but it was clear that some of its customers would be of more value to the firm than others.

It is also true that the needs and expectations of consumers vary.  Rather than having a single promotional offer, my brother’s firm should be adapting its marketing mix so that it aligned with the expectations of different customer groups.

I explained the to my brother using the example of a large breakfast cereal manufacturer.  This was a firm, unlike my brother’s which could truly describe itself as trading with “everyone and anyone” but they do not offer a single product to market or promote all their products in the same way.  They sell low-fat cereals to those wishing to lose weight and advertise them through health and women’s magazines.  They advertise chocolate covered cereals using cartoon characters and on television when children are watching.  They produce basic cereals at a low price and distribute them through discount stores. In short, they split their market into different segments and adjust their marketing mix to meet the expectations of those segments.

In his book Market Segmentation, Professor Malcolm Macdonald uses the example of farmers buying chemical fertiliser.  He identifies seven different market segments in the agricultural fertiliser customer base.  Here are three of his market segments.

Firstly there are those farmers who are price sensitive.  These farmers will always look for the cheapest option.  Professor Macdonald estimates that this group makes up about 7% of the market.

Another group is the technological farmer.  This group of farmer are interested in using technology to ensure that the best yields are achieved.  These farmers will use satellite technology to identify the soil types on their farm and will use GPS to ensure that the correct mix of nutrients are applied in different areas of a field.

A third group is the farmer who wants to ensure that his farm is the best looking and smartest around.  In fact, our family knows such a farmer.  His farmyard is spotless, his farm equipment gleams and his field boundaries are neatly trimmed.  Woe betide any weed which dare grow in his fields.  This type of farmer will buy agrichemicals which promise the best crop appearance not price or yield.

A firm operating in the agrichemical market may not get anywhere trying to push a product to the latter two segments on the basis of price alone.  Equally, they may get nowhere trying to sell expensive fertiliser to the first group of farmers and telling them that it will make their fields look nice.

Market segmentation and adjusting your marketing mix to match your key customer’s needs is a crucial skill in developing a successful business.  Philmus Consulting Ltd can help your firm to carry out this process and ensure that your promotional activity meets the differing needs and wants of your consumers.