Tag: marketing mix

The Power of Packaging

This time last year I bought a new guitar.

When I bought my my first instrument buying a guitar by distance means was a big no-no. You bought an instrument from a music shop. You walked in to what often appeared to be a imposing environment: and yes, someone was always thumping out Smoke on the Water in the background! (n.b. many music retailers now ban anyone who starts the infamous riff).

By actually going to a music retailer, you handled the instrument, you played a few notes and you could be assured that the instrument was properly set up.

In those days, mail order guitars, and mail order was the only distance selling route, were seen as poor quality, badly constructed and lacking a set up process which made them difficult to play.

The growth of internet shopping means that the most successful music retailers have a big internet presence. In the UK probably the biggest exponent of this is Andertons, who have grown from a single music shop in Guilford to being the most prominent instrument retailer in the UK on the web.

Manufacturers have recognised that a large proportion of their sales will be through distance selling, so manufacturing standards have risen and instruments arrive properly set up (and even in tune!).

However, I think many retailers and manufacturers in the musical instrument sector are missing a trick when it comes to the marketing of their products. Guitars arrive in plain brown cardboard boxes. They are not leveraging the communications power of their packaging.

What is the role of a products packaging?

Well obviously, packaging holds the goods, it stops them being spilt. It protects goods and stops them from being broken. It can be a barrier to stop goods from spoiling. It can allow for efficient transportation of goods. It can act to prevent theft and is why many small goods such as camera memory cards come in oversize packaging.

But packaging also has a communications role. It can convey information e.g. assembly instructions, safety information and certification marks.

But communication goes beyond simply advising purchasers that goods are safe and how they are to be used. Packaging can be an opportunity to upsell and to advertise acessories.

After all, most guitar manufacturers also make and sell strings, plectrums, amplifiers, effects pedals, T-shirts, lesson packages, tuners, straps, baseball hats, etc, etc, etc…

Packaging has a promotional role. It attracts consumer interest on the supermarket shelf. Why else would packs of breakfast cereal be covered in cartoon characters like Tony the Tiger?

Packaging conveys brand messages and allows consumers to make brand choices. Packaging is an important source of marketing messages particularly with fast-moving consumer goods.

Packaging is particularly important where consumers are making low involvement purchase decisions. It can provide promotional cues. this can be the colour of the packaging e.g. Cadbury purple. It can be an identifiable brand character e.g. Mickey Mouse. It can be logos, fonts, tag lines and colours. Packaging has the power to attract consumers and to hold their attention.

Take as an example a can of Coca Cola. The brand name is in a particular font. The can is a particular colour of red. The can is marked with an identifiable swoosh design. Coca Cola even trademark their distinctive bottle shape. All are distinct brand identifiers and provide strong points of differentiation from those of competitors.

There are cultural aspects of the communication role of packaging. Colour often implies a particular class of product. Dark coloured packaging is often viewed as expensive or classy. Red packaging acts as an appetite stimulant. White packaging implies purity and cleanliness. Blue packaging implies freshness. Green packaging implies environmental concerns.

But colours also have cultural implications. In China, red is the colour of luck and happiness. In Germany, products for infants are often in brightly coloured packaging whilst in the UK it is far more common to see infant products in pastel shades.

Pictures can have cultural implications. In Europe we put a picture of a baby on infant formula and baby foods. In Africa, the practice is to put an image of the contents of the pack on the label. So sales of infant formula did not go well in Africa when a baby is shown on the label.

The shape of packaging can give communications cues. Look at the perfume and fragrances market where perfume bottles come in fancy shapes e.g. high heeled shoes, a fist, a woman’s torso in a corset etc, etc. The packaging of these products becomes an attractive ornament on a dressing table or the bathroom shelf. The packaging of the fragrance becomes a product in its own right.

Attractive packaging get re-used. Fancy biscuit tins have been used for marketing since the days of the Victorians. Who hasn’t got an old jam jar or Lyon’s golden syrup tin repurposed to hold coins, nails, paper clips, pens or other bric-a-brac. Every time you go to put something in the tin you get a reminder of the brand message.

The size of packaging can operate on the basis of Gestalt Theory, i.e. the whole is greater than the sum of its parts. So you can buy ‘sharing’ bags of sweets and crisps. The message being that our product helps with social coherence. Value packs offer diversity and can influence product desirability. Big containers also take up more shelf space leaving less room for competitors products

Packaging directly affects a products market position. So if you buy a ‘value’ guitar it will be packed in folded cardboard whereas a premium guitar will have a travel case and come with ‘case candy’ owner’s certificates, a cleaning cloth, booklets about the guitar and brand, and even memory cards with photos of your guitar being made.

Cheap goods are sold in cheap packaging whereas expensive goods have glossy and robust packaging. toys and Easter eggs often have packaging that can be used as part of the toy or which includes activities like puzzles and games.

Increasingly, re-useable packaging is increasingly offered by manufacturers of household goods.

Packaging sometimes has to harmonise with the in-store appearance e.g. supermarket own brand labels or Apple electronics.

So your packaging is not just a container for your goods. It offers instructions. It contains regulatory information and compliance marks and it is a promotional tool.

If your packaging is passive, you need extensive and widespread promotional activity.

If your packaging is active it provides its own advertising and promotion. Active packaging works in a synergistic approach to marketing communication.

Communications Strategies and the Communications Mix

Fill (2002) outlined four strategic approaches to the marketing communications mix; the Promotion element of the marketing mix.  These are:

  1. Positioning
  2. Audience
  3. Platform
  4. Configuration

A positioning strategy uses market analysis and segmentation to create communications strategies focused on the achievement of SMART marketing goals.  This approach aims to target finite resources efficiently and direct communication effort to the most valuable markets.  This approach has three parts; segmentation of the market; selection of target segments and positioning within markets.

To successfully achieve a positioning communications strategy, you need choose the market segments most attractive to your firm; matching your organisational goals so that you maximise returns.  A positioning strategy should position your products and your brand to meet the perceptions and expectations of target audience.  You therefore need to know your consumers needs.

You must also recognise that everyone has four states of identity:

  1. The Worry Self
  2. The Actual Self
  3. The Idealised Self; and
  4. The Fantasy Self

So which of these identities do you want to target.  Insurance firms target the worry self; Firms selling family hatchbacks target the actual self. Firms selling designer clothes target the idealised self; luxury brands often target the fantasy self.

A positioning strategy is key for developing brands. You develop a brand position which shows what the brand does, what the brand means and how the brand gives value.

FMCG (fast-moving consumer goods and other highly competitive, low margin sectors often favour a positioning strategy.

Positioning is an audience focused, not a product focused activity.  It is focused on brand meaning, brand values and differentiating your brand from that of your competitors.

Audience based strategies focus on the different ways items are purchased and the supply chain.  For example, the audience for consumer goods tends to be individuals whereas the audience for industrial goods tends to be buying groups which contain influencers. the decision to purchase a new piece of machinery will be made by a group within an organisation but that group will contain ‘influencers’ who initiate and advise on the purchase e.g. the Production Manager.

So your communications strategy will alter depending on the audience your message is intended for.  Your audience could be the end users of your product such as consumers, it may be your suppliers and retailers or it could be other stakeholders in your business such as shareholders and financiers.

This means there are three audience-focused communications strategies:

  1. Push strategies intended to target supply channel members.
  2. Pull strategies which target end users.
  3. Profile strategies aimed at third-party stakeholders.

Push and pull strategies work in relation to how product is drawn through the distribution chain.  You use push communications, such as sales representatives and trade press advertising to push your production onto the shelves of retailers and wholesalers (this can include using communications to attain prime locations in stores such as eye-level shelves.  Pull strategies , such as television advertising, target the generation of demand in the end users of your production i.e. you target consumers who then demand that retailers stock your goods.

Profile advertising is similar to a positioning strategy as you use communications to secure your identity in the minds of third parties.  This could be using PR and your corporate website to attract investors.

An audience strategy is about using the right communications tools to lock your products and brands in the minds of the intended audience.

All too often I see firms, particularly SMEs focusing much of their communications budget on social media advertising.  Some of this, like YouTube advertising is Pull advertising no different to traditional TV and Cinema advertising.  However, much of social media communication is push or profile communication.  It’s intention is to build a brand identity and develop customer retention.  It is a pretty poor way to lock your brand identity into the needs of consumers or to attract new customers.

You cannot operate solely on a pull strategy or a push strategy.  You need a bit of both.  You need to communicate with end users to generate demand and you need to communicate with intermediaries to ensure that that demand can be satisfied.

A platform strategic approach aims to express a brand promise through brand values and differentiated claims.  But to do so it must be consistent and be anchored in corporate principles.  It involves the development of a brand theme which is made up of consistent promises.

There are three platform types:

  1. Creative – Messaging consistent big ideas across different communications channels.
  2. Brand Concept – Which are routed in the brand identity but use different creative ideas (Guinness advertising is a brand concept strategy)
  3. Participation Platforms – using interactive channels such as social media to engage in dialogue with end users.  the aim is to integrate the brand into people’s lifestyles.

The final strategic approach is a configuration strategy which focuses on the way communications are structured.  This strategy is based on the form and format of communications e.g.

  • The frequency of contact between parties
  • The direction of communications either vertically down distribution channels or horizontally across a market.
  • The modality of the communication – how it is to be transmitted e.g. print, digital, TV, Radio, person to person, etc. Whether communication is formal or informal; regulated or spontanious.
  • The content of the communication is it a direct advertisement or is it indirect communication such as PR and social media chat? Does the message directly focus on a subject or is it a ‘nudge’ to alter behaviour.
  • The exchange relationship – Is the communication aimed at creating a long-term collaborative relationship or is it an ad-hoc, one off contact?
  • The climate within which the communication is sent e.g. the level of trust between parties, compatibility between parties, etc.
  • The power dynamic: Who holds the power in the relationship, you or your customer?

None of the above strategies are mutually exclusive and you will find many organisations using a combination of all four strategy types in their communications mix.

The Changing Scope of Brand Management

In recent years, with the rise of social media and the recognition that many western markets are mature, we have seen a shift from traditional transactional marketing to relationship marketing.

The focus has shifted from continually increasing sales to new customers to customer retention strategies. This is recognised by the maxim;  The longer you keep a customer, the more you earn from them.

This shift has required marketers to develop new working methods, new marketing tools and to think differently.

The transactional focus required marketers to develop knowledge of why consumers purchase and the choice criteria behind it.  This leads to marketing plans developing mixes wholly reliant on the sacred four ‘P’s of Kotler’s original marketing mix.

However, today most products require a service element and a marketing mix based on the seven ‘P’s (Product, Price, Place, Promotion, People, Process, Physical Evidence).

The shift to relationship marketing has also meant the marketing profession developing new buzzwords:

  • Instead of financial capital marketers speak of Customer Capital.
  • They no longer speak of conquering consumers but in retaining them
  •  They no longer talk of predicting consumer choice and instead focus on classifying the relationships consumers have with a brand and the relationships between individual consumers.
  •  They look to a relationship between consumer and brand beyond achieving a sale. they talk of long-term customer engagement.

As discussed in last week’s blog entry, the best form of loyalty is not based on transactional criteria such as loyalty cards.  It is the creation of internalised loyalty and thus brand commitment.

Brand managers and marketers look to deepen the relationship between the customer and the brand through the creation of emotional connections.

The aim is to move from the emotional high of a purchase to the satisfaction of ownership to the experiential delight of product use and ownership. So products need to deliver the pre-purchase expectations of consumers and deliver an experience which is rewarding.

Many retailers now look to developing more that an opportunity to purchase when a consumer walks through the doors of a store, they should expect a rewarding experience.  Philip Kotler talks of the creation of ‘atmospherics’ which provide consumers with fantasies, feelings and fun.

Bonds need to be created through aspirational values with which the consumer identifies. this means that all brands have to be, in some way, aspirational.  Aspiration goes beyond materialism or hedonism. Aspiration should not simply be short-term highs but long-term satisfaction.  This aspiration should be represented by your businesses vision and mission. Long-term aspiration should be central to your organisational values.

Marketing tactics can be categorized as follows:

  1. Short-term transactional relationship and functional satisfaction:  Product quality, product advantage, trial promotions.
  2. Short-term transactional relationship and experiential enchantment: Advertising, in-store animations, built-in experience products, storetainment, street marketing.
  3. Short-term transactional relationship and aspirational fulfilment:  Image advertising, co-branding, sponsorship.
  4. Re-purchase and functional satisfaction:  Post-purchase promises
  5. Re-purchase and experiential enchantment:  Collectables and systematic additions tied to events
  6. Re-purchase and aspirational fulfilment:  Fanzines, websites, virtual commuities, ehtical growth.
  7. Long-term commitment and functional satisfaction:  Loyalty cards and programmes
  8. Long-term commitment and experiential enchantment:  One to one recognition and service, product co-creation.
  9. Long-term commitment and aspirational fulfilment:  Inter-community groups, disruptive innovations.

So if you are running a business and looking to survive over the longer term it is no longer enough to focus on the acquisition of new customers or sales growth.  You should aim not just to acquire new customers, you should look to continually improve the experiences of existing customers.

The latest advertising from the insurance firm Aviva is a good example. Rather than offering price discounts to new customers whilst existing customers pay more, the price for all customers is the same. And the insurer’s focus has shifted to providing a high level of customer service to both groups.

Making the most of your offer

the products and services you offer are key to the survival and growth of your business.  But if your product mix is static, its effectiveness will weaken.

As stated previously in this blog, your customers have needs that they want satisfied; they have jobs that they want completed.  Customers want solutions, not products.  They want a four millimetre diameter hole, not a four millimetre drill bit.  Their focus is on the solution that will get the job done, not the product needed to provide that solution.

Over time, it is likely that consumers will move from one product to another if it is shown that the new product option offers a better solution to the consumer’s need than the existing product.  Consumers will switch to another product if they perceive it offers a better way to get the job done – cleaner, faster, safer, more environmental – and less costly!

No product, service or organisation is indispensable if a better offer exists elsewhere.

Take the example of the mangle.  A mangle used to be an indispensable, but exceedingly dangerous, tool for doing the laundry.  no household would be without access to a mangle on wash day.  When the first washing machines appeared in the late 19th century they were fitted with a mangle to squeeze excess water from the wash. Often these mangles were electrically powered.

But no one uses a mangle today.  Modern washing machines with high speed spin cycles use centrifugal force to remove water from the laundry.  Modern machines are safer; you aren’t going to crush your hand in a modern machine (a common injury with mangles); they are less time consuming and use less effort on the part of the consumer; and because they use a lot less water, they are more environmental.

So consumers have switched away from mangles to remove water from their weekly wash; there is no longer a market for mangles in the United Kingdom.

However, in many businesses there is a problem.  Product portfolio management is seen as a tactical, not a strategic activity.  Small drops in sales levels are often dealt with at a local or regional level, not a strategic responsibility of senior management.  The solution isn’t to alter the product mix but to offer additional incentives to salesmen and agents.  Little or no thought is given as to whether the drop in sales is a result of an incorrect product strategy.

Often products are placed in organisational silos.  Issues with product management are contained within those silos and no one looks to see if the overall product strategy is at fault.

Reviewing the management of your product portfolio is more than examining sales figures.  You need to:

  •  Review customer needs
  •  Review product or service attributes
  •  Are needs changing over time?
  •  Review your customer value proposition
  •  Examine your wider business model
  •  Assess existing and potential risks
  •  Manage the product life cycle
  •  Examine distribution and supply chains; are you using the most appropriate use to market?
  •  Are you using the right tactics to implement your marketing strategy?

The starting point for considering your product mix strategy is the consideration of value.  There are two forms of value;

  1. Organisational Value: The flow of cash and the reputation gained through the sale of your goods and services
  2. Customer Value: The benifits of your products and the solutions they offer.

Successful businesses are those who gain more value from consumers than is spent delivering products and services.

Customers get value from seeing a job well done or a need satisfied.  A firm will be profitable if the customer value it generates exceeds the costs of delivering a satisfying solution to the customer.

And remember, best value does not necessarily mean cheapest price.  It is a measure of overall utility. Customers will trade off different perceived values from a range of product offers. This is often a primary source of marketing differentiation.

Remember value equals benefits of the product or service minus the effort needed to obtain those benefits, minus the risk involved in the product choice, minus the price charged for the product or service.

Reducing the price is only one way of maximising customer value. Alternatively, you can increase the benefits of usage; you can reduce the effort needed to access the benefits of your offer; you can reduce the risk inherent in a consumer choosing your product.

And it isn’t just your target customer who needs a value proposition.

Prospective customers need a value proposition to compare your products with others in the market.  Your salesforce needs a value proposition to present to customers.  Your distributors and retailers need a value proposition to ensure appropriate prominence for your products; and your internal stakeholders and shareholders need a value proposition to assess your organisation’s market value.

Teacy and Wiersema see three potential areas for a value proposition to be developed; management efficiency, product leadership and customer intimacy.

You customer value proposition must relate to all the stakeholders in your organisation and it must integrate the needs of those stakeholders as well as those of customers.  Stakeholders need to be informed of where they sit in the customer value process as well as how different stakeholder groups relate to each other.  You must state clearly how the organisation and its stakeholders create customer value in a unique and differentiated way from that of your competitors.

So:

  •  The roles of organisational stakeholders must be aligned to the process of delivering the customer value proposition
  •  The aim should be to open doors and close sales
  •  You should look to increase revenues by having a clear market position
  •  Aligning stakeholders roles should speed time to market
  •  Aligning the roles of stakeholders should reduce costs and wastage
  •  Alignment or stakeholders to the customer value proposition should improve operational efficiency and increase market share
  •  Align to the customer value proposition to improve customer retention

As the product mix cannot be static, product innovation is a necessary element.  Innovate or die.  Change should be business as usual.  Remember, not everything new will sell; failure is part of the new product development process.  You cannot be responsible for the unpredictability of consumers.

When assessing your product mix, it can be useful to reassess the business you are in.  For example, is Harley Davidson a motorcycle manufacturer or a lifestyle brand?  They don’t just produce bikes, they make clothing, luggage, and license fragrances.

Can you reassess your product mix through segmenting your market in a different way?  Do you segment based on consumer income or psychographic measures?

Do you track the value customers see in your products? Is that value declining? If so what changes can you make to reinvigorate that value?  Are product attributes once seen as optional extras now seen as necessities?  For example, few cars today are sold without a satellite navigation system or passenger airbags.

It can be important to work with your target customers in the development of your offer.  They may provide useful insight into which innovations offer sustainable value.

Management of your product mix is a strategic, not a tactical task.  It is important that development of your offer is considered across your organisation and that it is not solely the responsibility of your sales or marketing team.

 

Using Portfolio Matrices to Plan for the Future

In previous blog entries, I have discussed the Boston Consulting Group Growth/Share matrix as a tool for product portfolio management.  However, this matrices is seen by many business academics as flawed.  Some academics have tried to amend the BCG model and even the BCG have attempted to mitigate the matrix’s defects through other tools, in particular their Growth/Gain matrix.

Given the difficulty in developing a model of portfolio management, several large multinational firms employed academics to build portfolio management tools.  Two of the tools developed are the General Electric Multifactor Portfolio Matrix and the Shell Directional Policy Matrix.

The General Electric Matrix compares the attractiveness of a particular market or market segment with your business’s competitive position in that market.  The matrix does not rely solely on market growth.  A number of market attractiveness measures are used including:

  1. Market Size
  2. Market Growth Rate
  3. Beatable Rivals
  4. Market Entry Barriers
  5. Social, Political and Legal Factors

Similarly competitive strength is not based solely on market share.  Again a number of criteria can be selected including:

  1. Market Share
  2. Business Reputation
  3. Distribution Capability
  4. Market Knowledge
  5. Service Quality
  6. Innovation Capability; and,
  7. Cost advantages.

When using the GE matrix, management decide which criteria are to be used.  Each factor is weighted.  The weighting of all factors combined cannot exceed ten.  Each factor is then given a relative importance out of ten.  By multiplying the weighting with the importance factor, a score for each factor is calculated. These scores are added to give a market attractiveness and competitive position score for each product line.

These scores are then plotted on a 3×3 matrix.  From this matrix, five strategic zones are defined:

  • Zone One: In this zone both market attractiveness and competitive position is strong.  The aim for products in this zone is to build and manage sales for market share growth.  This equates to star products in the BCG matrix.
  • Zone Two: In this zone, your competitive position is strong but the market is not particularly attractive.  The proposed strategy is that you manage the product for consistent profits whilst maintaining market share.  This zone equates to BCG matrix cash cows.
  • Zone Three: Here the market is highly attractive but your competitive strength is relatively weak.  It is a zone where the strategic product policy can be determined by the relative strength of your competitors.  If your competitors are weak or passive, your strategy would be to build the products position in the market. If you face strong competition, the aim would be to retain the existing market position of your product.  If your commitment to the market is low, your aim would be to harvest the product for cash.
  • Zone Four:  Here both competitive position and market attractiveness are weak.  This position is similar to a ‘cash dog’. This could be a product in a declining market or a dog product which is difficult to divest (e.g. a required accessory).  This is a product to be harvested for cash
  • Zone Five:  Here both competitive position and market attractiveness are extremely weak.  The aim should be to divest the product. To run down production or to sell it to another party.

There have been a number of criticisms of the GE matrix.  It is a richer tool in terms of content and it is therefore more flexible. However, it is much harder to use than the BCG matrix and it can be affected by managerial bias, power games and empire building.  Decisions on the use of the matrix and resulting strategies need to be made above the level of strategic business units.

The Shell Directional Policy (created by research financed by Shell Oil) does something a bit different to the GE matrix and the BCG matrix in that it looks to the future rather than relying on existing product portfolios.

The Shell Matrix compares the attractiveness of a market or segment with the potential for profitability in that market.  Again multiple weighted factors are used to give products scores. Again a three by three matrix is produced which delivers eight strategic positions:

  1. Leader: Here a firm has strong competitive capabilities and strong profitability prospects.  this is your core market where you have a leadership position.
  2. Growth Leader:  Here prospects for profitability are average but you have strong competitive capabilities. Here you look to improve the prospects of profitability using tools such as value chain analysis.
  3. Try Harder:  Here prospects for profitability are strong but your competitive capabilities are only average.  the aim is to improve those competitive capabilities through training and recruitment.
  4. Double or Quit:  Here prospects of profitability are strong but your competitive capabilities are weak.  So the decision is whether it is worth investing in improving those capabilities.
  5. Custodial Growth:   Here both profitability and competitive capabilities are average.  This and Double or Quit are similar to the Question Mark products of the BCG matrix.
  6. Phased Withdrawal:  Here profitability is average but your competitive capabilities are weak. The aim is a managed withdrawal from the market or segment.
  7. Cash Generation: Here you have strong competitive capabilities but the prospects for high profit margins are weak.  This equates to the BCG matrix cash cow.
  8. Disinvest: Here both competitive capabilities and profitability prospects are weak.  This is a dog product ripe for disinvestment.

Both the Shell Matrix and GE matrix require significant levels of information gathering and analysis. However, if your in business, shouldn’t you be doing this anyway?

All portfolio management matrices have strengths and weaknesses.  When using these tools you must be aware of those strengths and weaknesses.  perhaps the best option is to use these matrix tools in combination.

These are tools to help strategic decision-making: They are not the source of mandatory instruction.

So use these tools, in full awareness of their attributes to give a rounded and comprehensive view of your product portfolio.

How Your Products Influence Your Marketing Strategy

The Oxford Dictionary of Marketing describes the following major categories of consumer product:

  1. Convenience Products: Consumers buy these products with little thought or analysis. An example would be ready meals in a supermarket.  Brand loyalty and personal preference play a large part in a consumers buying decision.  These are items consumers buy regularly.
  2. Staple Products:  These are items consumers would describe as the basics, bread, milk potatoes, petrol, flour, etc.
  3. Impulse Products:  Consumers buy these products without any thought or planning.  They are purchased because of their attractiveness or their availability.  To market impulse products, you need to tempt the prospective purchaser.  This is why confectionery is placed next to the till and why prominent positions in supermarkets; aisle-ends and eye-level shelves; are so important to producers of impulse products.
  4. Emergency products: These are purchased for immediate need.  So an airport retailer will sell locks for suitcases and air sickness pills. These are the candles you buy in case of a power cut or the painkillers you buy when you have a headache.
  5. Shopping Products:  These are goods consumers spend time looking for.  The purchasing experience is a part of the enjoyment of the product.  Consumers will spend time comparing and contrasting the various options available.  There are two types of shopping product:
    1. Homogenous Goods:  These are undifferentiated in terms of quality but differentiated in relation to price.  Consumers will spend time making price comparisons before their decision to purchase.
    2. heterogenous Goods: Both price and quality vary.  Consumers will balance price and quality constantly.  When marketing these products it is important that customers are given plenty of options and sufficient information to make a decision.
  6. Speciality Products:  These products are purchased with deep and intensive search. A great deal of detail and knowledge is involved in their purchase.  Detailed comparisons between products are made. Consumers will likely want to trial the product before they purchase.  For example, motor retailers providing test drives.  Purchasing these products is often complex and time-consuming.  the perception of quality by consumers is often a critical determinant for purchase.  You need to match the needs and expectations of  potential purchases.
  7. Grudge Products:  Buyers have little interest in the product but know that at some point they will have to buy it.  Often these are products where there is no choice but to buy.  For example, in the UK it is the law that you buy car insurance.  Other products like life insurance and funerals are grudge products.  Daytime TV, often targeted at the retired, is full of advertisements for grudge products, funeral plans, mobility aids, and over-50’s life cover.

Your product management strategy will depend on whether you are a pioneer in the market or a follower.  It will also depend on the stage the product is in its life cycle.  The order in which products enter the market is important. Pioneer brands often have greater market share than later entrants into the sector. However, the costs of maintaining a pioneer product or brand are often higher than follower products.

Pioneer products have advantages on both the supply and demand sides.  On the supply side, pioneer brands can be the first to obtain raw materials; there are better experience effects, cost advantages and the ability to preempt supply and distribution channels.  On the demand side pioneer brands often have better recognition and familiarity.  Pioneer brands often set consumer perceptions of a product or product category.  They get to set the norms for a product.  They set consumer expectations.  Pioneer products get to market as being first.  They can shift the market by developing new products which cannibalize the first and which deter others from entering the market.  These products are often the source of brand extensions which reduce the available shelf space for competitors (although care is needed to avoid the extensions reducing the share and prominence of the originating product.

There are dangers in being first. Competitors can leapfrog your product through the application of technology. Market norms can be disrupted.  John Logie Baird may have invented television but he died a pauper.  Marconi’s electronic TV system, the more technological solution, was selected over Baird’s problematic physical system.  Pioneer products involve heavy research and development spending and as they set the standard for the sale of a product, there may be inflexibility.

There are four classic Price/Promotion strategies for products.  The choice of these strategies will likely depend on the type of product you have:

  • Rapid Skimming:  Where there is high promotional spend but the price of goods is also high.   This is the strategy for luxury goods which may be shopping goods or speciality goods.  It is the strategy for designer training shoes and high-end mobile phones.
  • Slow Skimming:  This is where there is a high price but low promotional spend.  Often when a high level of promotional activity is seen as conflicting with the product image.  This is a strategy for exclusive products such as Rolls Royce cars.  it is a strategy where word of mouth is seen as being a major element in product sales.  Products using a slow skimming strategy are sometimes vulnerable to new market entrants.
  • Rapid Penetration Strategy:  Where there is a low price but high promotional spend.  This is the strategy for fast-moving consumer goods and convenience products.  The aim is to gain market share rapidly and then to hold onto it.  It is the strategy of low-cost airlines and budget hotels.  It is the strategy of budget supermarkets like Aldi and Lidl.
  • Slow Penetration Strategy:  This is the strategy when prices are low and so is promotional spend.  It is the strategy of supermarket own brand products and discount chains like Poundland and Bargain Books.  It is the strategy of commodity products, staple products and some grudge products. You need a low costs base to allow the low product cost.  Often promotion is little more than the actual effort of selling.

When developing a marketing plan, you need to know what type of product you are selling; what the customer expectations of the product are, and what perceptions you want consumers to draw from your products.  Can your product be sold at a high price which generates high profit margins.

As products move through their life cycle, they often move to a high/high or a low/ low position. The majority of consumer products will be seen as necessities or luxuries.  You also need to keep products relevant as consumers needs and expectations change. If your products demand a slow skimming strategy, you will likely need to create fighter and flank brands to protect market share of your core product from attacks by competitors.

 

Do you have an Integrated Communications Strategy?

A couple of weeks ago, I watched a BBC4 documentary on the history of the electric guitar and effects pedals in rock music.  Included in the programme was a short interview with Uli Jon Roth, the former lead guitarist with the German heavy rock band, Scorpions.

Two of Roth’s comments in the interview stood out.  The first was that he felt restricted with the five note pentatonic scale often used in rock music.  He wanted to use the seven note chromatic scale more often seen in classical music. He wanted to spread licks over two or more octaves rather than one.

Secondly Roth commented that he saw musical notes as colours. he experiences aural synaesthesia.

Roth is known as the ‘King of Shred’.  The man who created a monster that would dominate rock music in the 1980s; shredding.  Roth, like Baron Frankenstein despaired of his creation.  He feels that guitar solos became an exercise in technical proficiency and fitting as many notes in a stave as possible.  Rock music began to forget melody and metre.

So what has an interview with a Euro-rock guitarist got to do with Marketing Strategy?

Let’s take the second point.  Roth’s synaesthesia is a clear indication that people process information in different ways and they react differently to communication triggers.  Some people prefer and will react to visual stimuli, others to aural stimuli.  Some people prioritise touch, others prefer smell.  So if you are limiting your communications triggers to one of the ‘five’ senses, your message may not be getting through to those consumers who prioritise the other senses.  Much of the internet is a visual medium; like this blog; therefore when designing marketing communications, consider the other senses, use sound, smell and touch to get your message into media.

Well, Roth has a point about limiting your options.  Why limit your marketing and communications activities to a few expected promotional channels when there is a wider palette of channels available?

I see lots of tweets on social media praising the use of digital promotional channels as a panacea; a magic pill to all your promotional needs; it is nothing of the sort.

I regularly get criticised that I don’t understand how digital marketing works.  Well I do.  I just believe that digital is one channel amongst many and by restricting yourself to that channel you are ignoring communications options which may provide better return on investment to your business.

Clearly it would be unwise to totally ignore digital marketing channels and social media in your promotional mix.  However, these channels must be used with a strategic purpose which matches the expectations of your target market.  Clearly, if you are selling high street fashion to teenagers, you will need to have digital as a prominent part of your promotional mix.  However, what if you are selling mobility scooters to pensioners? Wouldn’t more traditional promotional channels make more sense?

Digital channels are not a cheap option.  To get equivalent returns to that of traditional media, you may have to spend more on digital.  Before choosing communication channels you need to carefully examine costs and press providers to the level of return on the potential investment.

For SMEs operating locally, it may well be the case that traditional communications channels are a more effective way to get your message across.

Marketing academics are still not convinced of social media as a sales promotion channel.  However, they do see it as useful for customer retention and developing ‘electronic word of mouth’.  It is also good for developing advocacy.

When it comes to digital, you also have to remember Zipf’s law; P(x)≈1/x.  You can optimise your position on search engines to your heart’s content but if you’re not within the top four links on a page your chances of picking up significant numbers of clicks are dramatically reduced.  Firms like Amazon can put huge resources into securing the top links on a search engine page, irrespective of the alterations ISPs make to search engine algorithms to compete head on against those resources may a highly inefficient use of promotional budgets.

So when developing a promotional mix do not put all your eggs into one basket. Don’t do what is ‘expected’ in your chosen segment; do something different to your competitors.

Marketing as a science is a fairly young discipline.  Academic rigour only began to be applied to it in the 1950s.  It is a developing field where theory and models are continually evolving.

For many years the presumption was that different promotional channels had to be dealt with by separate professional consultants.  You went to a direct marketing agency for printed matter, you went to an advertising agency for TV and radio advertising (in fact there were/are specific agencies for radio advertising).  If you wanted press attention, you used a PR agency and exhibitions were often the remit of your sales department.

In the 1980s, academics began to promote integrated marketing communications.  This was the delivery of a single consistent group of messages across media channels.  Prior to IMC, different communications media were used to deliver different parts of the promotional mnemonic DRIP.  Advertising was used differentiate your products from those of competitors; sales promotion was used to persuade customers to purchase.  PR was used to remind customers of your existence and print media was used to inform customers of your products attributes.

Under IMC, a single message was used to deliver all the aspects of DRIP.

IMC was seen as having significant drivers:

  • it increased the efficiency of promotional activities
  • it increased the accountability of marketing managers
  • it promoted the need for ‘cross-border’ marketing and changing communications structures
  • It coordinated brand development and the creation of competitive advantage
  • it allowed for more efficient use of management time
  • It provided direction and a sense of purpose for employees
  • It anticipated greater levels of audience communication literacy
  • It foresaw media and audience fragmentation
  • It allowed for stakeholders increasing needs for diversity of information
  • it reduced message clutter and allowed for media cost inflation
  • It accounted for competitor activity and low levels of brand diversification
  • It allowed for the creation of relationship marketing as opposed to transactional marketing
  • It allowed for network development, collaborative marketing and the creation of alliances
  • It allowed for technological advances and new communication channels e.g. social media.
  • It aimed to increase message effectiveness through consistency and the enforcement of core messages
  • It allowed for the development of more effective consumer triggers and recall of both messages and the brand identity
  • It aimed to develop consistent and less confusing brand images
  • It developed a need to build brand reputations and to provide clear identity cues.

IMC sounds wonderful doesn’t it.  Most importantly it was seen as a way to create a customer-centred promotional strategy.

IMC was seen as having the following advantages:

  • Efficient use of promotional budgets
  • A synergy to communications
  • Competitive advantage through clear positioning
  • Coordinated brand development
  • Employee participation and motivation
  • It allows for the review of communications activities
  • fewer agencies were needed to support a brand.

However, there were some downsides to the creation of integrated marketing communications strategies:

  1. It was a strategy that promoted centralisation of activities and the development of bureaucracy.
  2. It promoted the uniformity of a single message (difficult if your aim to target two or more distinct market segments)
  3. It leads to ‘Mediocrity’ as all communications activities are in the hands of a single agency.

So like Uli Jon Roth’s approach to the rock solo, IMC became a bit of a monster.  Some marketing academics felt that it lost the ‘melody and metre’ of promotional activities.

Today, most marketing academics promote a nuanced form of IMC.  Yes messages should be used to promote all aspects of DRIP and promotion is a role for all the stakeholders in an organisation, not just the advertising department.

Today it is advocated that promotional strategies is the creation of a promotional mix using tools which best fit the expectations of your target customers.

 

Finding and Communicating a Market Position

To develop a strategic marketing plan, there are a number of stages.

  • You need to analyse the environment in which you will operate.  This is the wider macro-environment of politics, economics, societal trends, technology, environmental concerns and legal concerns.  It is also the micro-environment represented by Porter’s five forces model of organisational stakeholders – competitors, suppliers, staff, stakeholders and new entrants.
  • You need to analyse the internal operations of an organisation, its skills, resources and capabilities.
  • Once you have analysed the environment, you need to analyse the market.  You need to examine where market gaps exist and you need to confirm that those market gaps can offer sustainable competitive advantage.
  • You then need to analyse the consumer base of the market.  Who buys the products in the market?  What is their spending power?  What are their expectations and perceptions of the market?  How will their needs be satisfied?
  • Only once you have carried out all this analysis can you develop you’re preferred market position.
  • Once you have decided on a market position and you design a marketing mix aimed at meeting the consumer need whilst fitting the competitively advantageous market gap.  And remember, the mix is two-pronged; it has to be able to compete against other market players; but it must also defend your place in the market.

Crucial to the development of a marketing mix and its associated communications strategy is the development of a positioning statement which fits your chosen integrated marketing objectives.

A positioning statement must be clear and concise.  It should clearly state what your brand stands for and differentiate your offer from that of competitors.

There are two approaches to a positioning statement:

  1. A functional statement which clearly shows brand benefits, e.g. Gorilla Glue is the strongest adhesive on the market
  2. An expressive statement – which shows the ego, social and hedonistic satisfactions of a brand, e.g. Smirnoff vodka being the spirit of choice for party people.

In managing positions, you need to:

  • Determine the positions of your competitors: using tools such as perceptual mapping
  • Examine the position of a focus brand in a market (the market leader or the brand with the greatest share of voice; the brand which consumers will use to evaluate your offer).
  • Confirm that your desired market position is feasible.  Can you defend it, do you have the resources to achieve it and will it offer sufficient returns in the long-term?
  • Develop your positioning strategy
  • Implement your marketing mix and communications programme to achieve the desired market position
  • Continue to monitor consumer perceptions so as to evolve with the market.

There are three broad approaches to developing a position based on the market, the customer profile and the appeal of the brand.

From these three basic approaches a range of strategies can be developed.  Often there is a need to develop a hybrid approach using one or more of these strategies.  Examples are:

  1. Product Features:  This is a commonly adopted approach.  Examples include Dyson promoting vacuum cleaners on the basis of improved suction or the Halifax promoting the ease of making small payments with their debit card.
  2. Price/Quality:  Again a commonly used approach.  Examples include Aldi advertising how much you can buy in their stores compared to buying branded goods at other supermarket chains (for no apparent loss of quality).  Price itself can be a good indicator of quality.  Sainsbury’s used to advertise using the slogan ‘Good Food Costs Less’; Stella Artois Lager is ‘Reassuringly Expensive’.  An Audi car costs more than the equivalent Volkswagen despite both brands sharing hundreds of components.
  3. Use: Informing consumers as to how a product should be used. For example, Readybrek was ‘Central Heating For Kids’, a nutritious hot breakfast for winter mornings.  Kellogg’s are currently trying to reposition Corn flakes as not a breakfast cereal but a snack food which can be eaten at any time of day.  Belvita is doing the opposite and trying to make biscuits a breakfast food.  After Eight chocolates are the wafer thin mint to finish off a dinner party. Wash and Go is the shampoo that is quick and easy to use and suitable for people with busy lifestyles.
  4. Product Class Dissociation:  This position is often taken in markets which appear humdrum or boring.  It is often used where competitors have taken all available positions.  You disassociate yourself from your competitors.  So if you produce margarine, you compare your product to butter, not other margarines, e.g. I Can’t Believe it’s Not Butter.  You compare your brand to a higher quality offer.
  5. User:  You position yourself by clearly defining target users.  So Sheila’s Wheels was car insurance specifically for women drivers.  Often celebrity endorsements are used as a shortcut to defining the user.  Hence the proliferation of fragrances which use the names of pop stars.  Sports endorsements often try to link brands to users.  Nick Faldo used Mizuno golf clubs, Tiger Woods links to Nike, Justin Rose uses TaylorMade, etc.
  6. Competitor:  You position yourself against your main competitor.  Pepsi uses its ‘taste challenge’ to directly place itself against Coca Cola (and does so without naming Coke).  Avis Car Rental ‘Tries Harder’ i.e. is better than Enterprise.  Qualcast advertised their lawn mowers as ‘A lot less bovver than a hover”; a direct comparison to Flymo.
  7. Benefit: You position your brand by proclaiming a benefit.  So Sensodyne toothpaste reduces or eliminates sensitivity from hot and cold foods. Voltarol gel relieves pain and allows you to be active.
  8. Heritage or Cultural Symbol:  Some brands use coats of arms to indicate heritage (although this can be a risky tactic as UK heraldry bodies regularly prosecute for the misuse of heraldic symbols).  Bass beer’s red triangle is the oldest registered trademark in the world.  Lyle’s Golden Syrup and ‘From Great Strength Comes Forth Sweetness’ is a similarly long-lived brand.  Many businesses state ‘Established since’ in advertising.  Kronenberg 1664  lager uses the date in the brand name to indicate longevity. These dates and symbols infer permanence and depth of experience.

Whatever position you choose, it must be supported and expressed across your communications and across your marketing mix.  You must be consistent.

If you promote a high quality position, your product and service quality must be better than your competitors.  Land Rover markets a position as a tough off-road access all areas vehicle, yet they also have a reputation for mechanical faults. Land Rover’s position has often differed from the experience of consumers. A troubling situation.

If you are promoting a position of exclusivity, that will directly affect your communications mix.  You will be less likely to use sales promotion and advertising will be in carefully chosen publications.  Your messages will infer affluence, particularly visually.  A family car will be shown being driven down a local high street; A luxury car will be shown motoring in the Cote D’Azur and arriving at an exclusive restaurant or nightclub overlooking a marina of luxury yachts.

Dimensions of your position must be relevant and important to the target audience of your communications.  Image cues must be believable and considered credible.

Market Positions must developed over the long-term if they are to prove effective; but they must also be flexible enough so as to cope with changes in the market environment and consumer expectations.

Often it is necessary to reposition a brand within a market.  Technology means that consumer tastes are changing rapidly as is their behaviour.  Market positions therefore must evolve at an equivalent pace.  technology also allows new substitute offers to proliferate.

Market positions are frequently being challenged in the minds of consumers.  If your position has strong foundations and it is continually reinforced; if your position can be communicated by clear, simple messages, there may be little need to change your original market position.  otherwise, situations will arise where you will need to reposition.  This may be as a result of market opportunities and developments such as takeovers and mergers.  Buyer preferences change.  This may make an existing position untenable.  Repositioning will therefore be necessary.

Repositioning is difficult, and risky, but it can be successful.  often consumers have entrenched positions as to brands.

To reposition successfully, the old market position needs to be suppressed so that consumers no longer relate to it.  Consumers also need to learn the new position.

These two processes can be complimentary as by weakening the old position you can reinforce the new position.

 

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.

 

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.