Customer Service is Driving Modern Marketing

In previous posts I have discussed the work of Treacy and Wiersema and their three areas of marketing focus, management efficiency, product and customer focus. The model suggests that a business prioritises one of these three areas and achieves excellence in it. As long as the other two areas match industry average standards, the consumers will ignore them and focus on where the business achieves excellence.

In recent years, particularly in mature economies, a customer focus has become the primary marketing strategy of many businesses. The reasons for this are complex.

In many mature economies, a far greater element of GDP is reliant on services rather than manufacturing.

Some academics argue goods sectors are becoming commoditised. I don’t agree with this assessment. In fact the opposite is true.  Many manufacturers, through the use of mass personalisation, Just in Time supply chains and high tech production facilites, have enabled consumers to have almost limitless choice in the goods they buy. If a consumer can choose almost bespoke products from any manufacturer, those manufacturing businesses have to find other areas of differentiation. This has led to greater emphasis on the product halo and improved customer service. Increasingly consumers are aware of the levels of service offered by all businesses whether they are a manufacturer or a service provider.

Customer service is now an important point of differentiation for businesses who are keen to exploit the logic of the service/profit chain.

  1. Satisfied employees provide better service quality.  Satisfaction amongst employees improves employee retention.  They stay in your business and gain better knowledge of your products and systems. Satisfied employees present themselves better and are more productive.  They are more committed to the goals and values of a firm.
  2. The improved levels of service provided by satisfied employees is noticed by customers. Customers feed on employee satisfaction and you retain customers longer.
  3. Retained customers exhibit loyalty and they buy more.
  4. Loyal customers improve profitability.  They cost less to serve than new customers. They need lower marketing budgets. The costs of retaining loyal customers are lower than the costs of new customer acquisition. Loyal customers are more likely to recommend your firm to others. Retained customers reduce costs, reduce risk and improve revenues.
  5. A positive feedback loop develops.  Satisfied customers treat your staff better.  Employee and customer satisfaction levels reinforce each other. Both measures of satisfaction improve.

This chain mirrors the balanced scorecard approach where improved organisational learning impacts internal process measures, which then impact customer satisfaction measures, which in turn improves financial measures.

There are five key aspects to improved customer service:

  1.  Empathy – a caring individualised level of service.
  2. Tangibility – good standards of equipment and facilities, High standards of personal appearance amongst staff.
  3. Reliability – Staff are dependable and service provision is accurate.
  4. Responsiveness – Staff show willingness to help. Service is prompt.
  5. Assurance – Staff have the ability to inspire trust and confidence amongst consumers.

These are the five pillars of SERVQUAL. You should look to optimise these aspects and measure them through both staff and consumer satisfaction surveys.

Increasingly businesses are looking to move beyond traditional customer service and develop deeper relationships with consumers. This has led to the development of relationship marketing strategies and the development of key account profiles.

Increasingly service provision is through the careful development of customer experiences.

  1.  The process of using a company’s products is seen as part of an overall customer experience and as impacting how a customer thinks about an organisation.
  2. Peer to peer interactions are important to the overall customer experience.  A holistic experience is required where the interactions between individual customers are important.
  3. Relationships are developed across multiple transactions. In business to business markets, the aim is for clients to see your business not as a supplier but as a partner or colleague
  4. Your brand image is developed in the minds of consumers to such a level that it forms part of who they are.  It becomes a statement of how consumers express their personalities and identities.
  5. Customer purchases are not seen as purely rational.  Buying your products becomes an emotional experience.

The development of relationship marketing, the importance of consumer expectations for customer service and the need to create customer experiences should all play an important part in the development of you marketing plan.


Don’t get caught in the commodity trap

A few days ago I read a recruitment advertisement for a local small business.  The advertisement could be summarised as follows:

Joe Smith Ltd requires a marketing person to support our sales team. The person should be able to think of tactics which will help our sales team increase revenues. The successful candidate should be a marketing graduate and have experience of graphic design software. Touch typist essential.

This type of advertisement infuriates. It takes an extremely old fashioned view of the marketing profession. It also indicates a firm that may be falling into the commodity trap.

The first issue I have with this type of vacancy is that it treats marketing as a function of the sales team. It sees marketing as an exercise in gimmickry and as an exercise in solely promotion.

As we have regularly discussed in this blog, this definition of marketing gets things the wrong way round. Marketing is no a function of sales; your sales force is a function of your marketing planning.  A sales force is one aspect of an extended marketing mix (covering, in part, people, promotion, process and physical evidence).

Rather than your sales force driving the activities of your marketing team, your marketing team; the strategies the develop and the plans they put in place; drives the activities of sales representatives.

This is a firm which is not using marketing strategically.  Marketing is clearly seen as a short-term function moving from one unrelated activity to another; rather than as a strategic function which brings together different activities into a cohesive whole.

But that isn’t all that is wrong with this advert and it points to a management attitude that the firm is trading in commodities.

So what is a commodity?

The Oxford English Dictionary defines commodity as a raw material or an agricultural product.  This definition doesn’t really help much.

the Oxford Dictionary of Marketing doesn’t define the qword commodity but it does define commoditization:

The process of becoming a commodity categorised by higher volumes, less differentiation, wider availability and usually lower prices.

Some of the signs of commoditisation can be inferred from the recruitment advertisement:

  • Sales over marketing
  • Turnover over profit margins
  •  A marketing mix reduced to one P – Price
  • New customers over customer retention
  • Increasing revenues over reducing costs through value chain analysis
  • A ‘perfect competition approach: Every competitor in the market offers identical products and services and the only point of differentiation is price.

Some academics see commoditisation as an increasing phenomenon as the rate of technological change increases.  This is especially the case with Professor Patrick Minford, the Brexit-supporting academic whose economic modelling of the UK economy assumes price as the sole determinant of consumer choice.

But the commoditisation of markets is not a foregone conclusion.  Firms have control over their position in a market.  they can choose where to compete in a market and they can target the most appropriate segments in a market.

If your competitors reduce their prices, that does not mean you have to reduce your prices; and you have the ability to weaponize other aspects of the marketing mix to compensate for the discrepancy between your price and that of your competitors.

Continued price reduction is not an immutable law and customers do not buy on price alone.  You are not serving the best interests of your organisation by letting your profit margins slide.

Lemmings are not the brightest animals. If a market collapses on your watch and you collapse your prices to match that market, you are at fault.

It is your job as a manager not to wait on the commodity slide. there will be more winners in a market containing distinctive brands than in an unbranded commodity market. be a brand, not bland.

We know, through the work of academics like Professor Malcolm Macdonald that only ten percent of the customers in any market will have price as their primary buying criteria.

Let’s take a closer look at price.

We know that in developed markets, like the United Kingdom, 90% of customers would prefer to purchase on the basis of non-price criteria and 10% will buy solely on the basis of price.  That 10% don’t care about non-price attributes and are not engaged with a brand

We also know that in undeveloped markets, a given proportion of consumers would like to opportunity to purchase on the basis of non-price criteria. However, in undeveloped markets you will still get the same 10% of consumers who are price-only purchasers.

Often it is assumed that purchasers in undeveloped markets are influenced only by price because no research or analysis has taken place to discover appropriate non-price criteria.  This latent need isn’t addressed because of bad marketing practice.

The only winner in a commodity market will be the last business able to sustain a profit margin whilst being the lowest cost producer.

As a small to medium-sized enterprise, can you sustain the pressures of being the lowest cost producer? Do you have economies of scale to allow this?  Do you have a plan which can eradicate all your competitors from the market? Do you want to invest your reducing levels of profit to maintain this position?

Some products could be considered as commodities but there is no such thing as commodity markets.  Whatever business you are in, you have the full marketing mix at your disposal which includes product halo elements like customer service and delivery efficiency.  Use the full mix to maximise your market position, not just price.

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.

Building a Brand Community

I am often accused of misunderstanding the role of social media in the modern marketing world.  I refute this allegation.

It is clear that social media is an important promotional tool in the armoury of marketing professionals but I am realistic about it’s attributes.  I have seen presentation after presentation over recent years claiming all kinds of miracles that will happen if marketers prioritise social media.  In particular, any claims that the use of social media alone will massively increase sales and profits must be taken with a strong pinch of salt.

In marketing you need a mix of push and pull marketing.  Social media alone is all pull with no push. So the use of social media should be focused on those attributes where it strengthens your position and not for reasons where it either weakens your position or ineffective.

Research has shown that social media is a poor method for increasing sales.  It strengths lie elsewhere.

Social media is good for micro-targeting (as long as you have good access to demographic data and strong algorithms).  It’s a good signposting tool to direct consumers to websites and other portals. It is good for developing ‘electronic word of mouth’ and it can be used as a customer retention tool.

However, used in isolation, social media will not drive sales and it will not build a brand or brand community.

Social media should be treated as just one communication channel amongst many. Putting all your eggs in the social media basket is unlikely to maximise your communications effectiveness.

In particular, social media on its own will not build and sustain a brand.

In The Definitive Book of Branding, comments from brand managers the following quotes are given about the creation and impact of brand communities upon marketing:

“Community is becoming the marketing plan”

“Community is the customer experience”

“Community will be one of the top business drivers”

But are these statements simply an expression of the latest fad amongst marketing and brand managers?

Building a brand community requires subtle strategies and tactics. Expecting social media alone to create that community is a distinctly unsubtle approach.

Building a brand community requires a strong understanding of the most appropriate communication channels and their respective strengths and weaknesses.

Building a brand community demands that brand managers loosen their control over both imaging and messaging.

The most important aspect of a brand community is developing consumer loyalty. Take these ‘brand fan’ comments about Apple:

“The mother company”

The (Apple) brand is not based around the machine but by a certain way of thinking”

It is clear that Apple have been successful in deriving emotional commitment from its loyal customers.  Such commitment is hard won and hard to shake. However, it takes time to build and as a result requires commitment to a long-term strategy.

Emotional commitment drives customer retention far better and for longer than transactional loyalty.

Transactional loyalty comes through tools like loyalty rewards and points, exclusive offers to existing customer groups, etc.  Creating transactional loyalty can cause real problems in assessing returns on investment.

Transactional loyalty will NEVER be as sticky as emotional loyalty and therefore it will never create as strong a brand community as emotional commitment. If you are solely relying on transactional loyalty, you will not retain customers if they perceive a better offer elsewhere.

The create loyalty through emotion means creating a shared identity between the buyer and the brand. You need to make your brand a part of the consumer’s identity and the consumer becomes part of the brand identity.  You are creating a shared identity between the buyer and the brand.

Harley Davison has a clear understanding of both its brand and its customer base.  It has created such a shared identity to such a level that the Harley Davison Owners’ Club has over one million members.

To create a brand community you must create lots of bonds between the user and the brand.  You also need to create bonds between brand users.

Many new brands are trying to create communities from the outset e.g. AirBnB.

AirBnB is a place where what is inspiring in every person, in every home, in every country on the planet, can be shared”

AirBnB created a community by building its own community forum rather than relying on social media. It has focused on building it’s own community linkages to:

  • Build brand advocacy
  • Build word of mouth communication between brand users
  • Making the customer the brand promoter.

Customer advocacy is often described as the best marketing that exists but it is not easy to create. In building loyalty it is better to have 100 people who love your brand than one million who kind of like it.

To build a brand community, you need to create experiences that make customers love the brand.

You need customer feedback and co-creation (allowing consumers to mould the brand) and both these activities require a rapid and tight feedback loop.

Community building necessitates improved customer experience through allowing community members to swap practical tips and to get emotional support from one another. You get consumers to improve each others experience and thereby creating trust in the brand.  You need a community to be sticky, you need to create ‘social glue’.

The following is a recipe for ‘social glue’:

  1.  Does the product/brand satisfy a real need? Through the brand do consumers have more fun, get more done, get support?
  2. Does the community have a  clear and anticipated purpose?
  3. Is it clear who belongs to the community and who doesn’t?
  4. Do community members feel that they belong?
  5. Is there interaction between members?
  6. Do links between members exist beyond the original reason for joining the community
  7. Is there common purpose between members of the community?
  8. Do members feel responsible for each other and the community?
  9. Are roles, responsibilities and jobs carried out by members of the community?
  10. Is the community self-policing? Does the community eject disruptive members by itself?
  11. Does the community create its own guidelines, rules, norms and behaviours?

Communities are sticky through their people and how they interact with each other.  Community is a contact sport. Interaction leads to bonding; bonding leads to mutual responsibility; mutual responsibility leads to mutual support; which in turn creates social glue.  You need to build a community commitment curve and ramp people up it.

Social media tools are useful for building communities BUT a community is more than social. The terms social media and community are not interchangeable.  Social media forges engagement but real community only comes through building your own platform.

Brand communities:

  • Have members
  • Offer a range of commitment actions (a commitment curve)
  • Members materially contribute to the community
  • Members have mutual responsibility
  • There is rich ‘two-plus’ engagement
  • Members inter-relate
  • There are horizontal relationships between members
  • Are of the members, by the members and for the members
  • Demand slow, steady sticky growth

Social Media:

  • Has fans and followers
  • Has low commitment actions
  • Has updates
  • has likes/comments
  • Relies on broadcast communication
  • Relies on conversations
  • Has vertical integration with a brand
  • Can have rapid growth but there is no set formula for developing social media virality.

So if you invest in building a community, how do you measure your return on that investment:

  1. Through revenue growth from increased loyalty and community advocacy (‘super fans’)
  2. Through cost savings.  For example, if you contact Microsoft customer services you are asked whether a solution can be found from within their community before being put through to customer service staff.
  3. Through innovation and co-creation of the brand e.g. Ugg gets fans to assist in the design of footwear and community members can get work experience at the brand.

To build a brand community you need to identify and communicate things which are shared. You need to know what unites community members.  You need to create a brand manifesto.

Then you need to enable customers to interact, interact and interact.

The best approach is to build your own platform.  Second best is to use existing platforms such as Facebook groups or white label tools such as Jive.  And, of course, you could always look to see if communities already exist and have developed without your input.

Segmentation is critical to your business

If you have ever watched the television programme Dragon’s Den, which has just begun a new series on BBC2, you will see may businesses fail to get and investment from one of the dragons.  Only a minority of the entrepreneurs are successful and many are told, “There is no market for your product”.

The problem is that many of the investors enter the room thinking they can create a market for their product or that they can create new market segments.

These businesses have a problem as the dragons are well aware that markets ‘;just are’. They already exist as an entity and cannot simply be created, however good the entrepreneur thinks their idea is, if there isn’t a pre-existing market for it, it will fail.

Of course, there are exceptions to this position particularly with new technologies, but even then new technologies are usually new answers to old questions.  They represent a technological shift in a market which already exists.

Markets also have a life of their own. You cannot invent a market and you cannot create market segments out of thin air. Busineses do not create market segments, markets segment themselves. Markets and market segments are made up of living, breathing people.  Those people have presumptions, assumptions and emotions and it is very dangerous for you to project you assumptions about market behaviour on a pre-existing market segment.

It is very dangerous to create grand theories as to how a market will segment.  It is also dangerous to prepare ‘ideal’ segmentation bases.  Segments shift and morph they are not set in stone.

Markets do not reform themselves to match your pre-conceptions. it is a real mistake to build concrete boxes and tr try and fill them with the population of a market.

I am reminded of the episode of Some Mother’s Do ‘Ave Them where Frank Spencer faces an RAF intelligence test. Spencer had to fit shaped wooden blocks into a chart on a wall within a set time period. Rather than selecting the right shape for the right hole, Spencer tries hammering any shape into any hole.  The result is disaster.  The shaped wooden blocks are jammed in the chart and when Spencer tries to remove them he pulls the chart from the wall taking bricks and plaster with it.  Spencer’s attempt to force the blocks (pre-existing segments) into his choice of holes (his concrete boxes) is equivalent to total business failure.

Rather than trying to create a market and develop new segments, you need to analayse the existing marketplace and adapt your offer to meet pre-existing segments.

To do this, you must:

  1.  Decide exactly what business you are in.
  2. Do appropriate qualitative research as to the issues affecting market segments and the market as a whole.
  3.  Do appropriate quantitative market research, measured using cluster analysis as to market demographics, consumer attitudes, and product usage (who owns what, who uses what)
  4.  Find common needs so as to define segments.
  5.  Define segments in terms of demographics and usage
  6.  Populate segments in terms of demographics
  7.  Prioritise those segments which are a best fit for your business
  8. Test segments before launch

When considering entering a market segment, You must ask:

  • Is the proposed segment identifiable?
  • Do target customers recognise the segment?
  • Do you have the resources to reach the segment?
  • Is the segment viable over the longer-term?
  • Do distributers and retailers recognise the segment?
  • Is your offer distinctive within the segment
  • Does your offer attract a price premium? If not, is it worth entering the market?
  • Does your offer attract higher than average profit margins? (this is the asset test as to whether a market segment is worth entering).

When marketing to different segments you need to prioritise segments on two factors; the attractiveness of the market segment to your business; and the skills are resources within your business that can be used to deliver customer needs.

This is where tools like the GE Matrix and the Shell Directional Policy Framework become incredibly useful.

In presenting products to market you have three options:

  1. Undifferentiated marketing: where the same offer is made to all market segments
  2. Focused marketing: where you specialise you offer to meet the wants and needs of a single market segment.
  3. Differentiation; Where you develop different marketing mixes (different offers) for different market segments.

In the modern economy, if you aren’t talking in terms of segments, you aren’t talking of markets. For the modern economy segmentation is difficult but necessary.  In may ways, the mass market is dead.

Think of the music industry.  In the early 1960s, you had a few mass markets, Popular Music, Classical Music, Jazz, and Folk Music.  Fans were pigeon-holed into these broad categories. Over time, these mass markets have splintered into a multitude of different sub-genres.  Take rock, you now have classic rock, indie rock, grunge, prog, metal, etc.  Each of these sub-genres have segments.  Heavy metal has thrash, death metal, Nu-metal and even prog-metal.  No one in the music industry talks in terms of pop fans or jazz fans anymore.  (this is also because the music consumer is likely to have access to and listens to many different forms of music).

But you also have to beware not to micro-segment.  Gibson guitars got into real financial trouble last year and part of the reason was the production of a massive number of different products trying to cope with micro-specialist markets.  They did this without putting in place the mass customisation processes common amongst manufacturing businesses.  The result was a confused product offer and huge manufacturing costs which directly impacted profit margins.

Gibson was a prime example that business is a profits game, not a revenues game.

Another important aspect of successful segmentation is to choose segments which are easier to defend. You are defending your ability to maximise profits.

What is certainly true, is that if you don’t have an accurate picture of what your target segments are, you won’t win the game.

So market segmentation is a key tool in the battle to gain customers.

Ask yourself:

  • Do you know the current state of segmentation within your business?
  • What are the key target segments for your business that make up your target market?
  • Do you know what segmentation does for your business?
  • Are your chosen segments durable?
  • Have you prioritised certain segments?
  •  Are there appropriate targets you need to target?
  • Do you want to target multiple segments and how are you going to do that?



The Life Cycle and Arthur D. Little

Every business owner should be aware of the product life cycle. They should be aware of the standard model of the PLC and where each of their products exist in their life cycle. they should also know if products in their mix have the ability to deviate from the standard model.

In the standard model of the product life cycle, there are four stages:

  1.  Introduction:  It takes time for a new product to be accepted by consumers. When a product is first introduced sales may be slow and the costs of promotion and distribution may be high. It is highly likely that new products will be loss-making.  The role of marketing is to increase sales and build the market. Price skimming or penetration strategies predominate.
  2.  Growth:  Sales rise. The rise in sales may be rapid; which may cause issues with having sufficient manufacturing capacity to meet demand. This is currently an issue with Elon Musk’s Tesla model 3.  Marketing’s focus shifts to brand building and creating offers which result in customer retention and brand loyalty. The business looks to new customer acquisition and expanding its base.
  3. Maturity:  This is the longest stage of the product life cycle.  Sales plateau. Profits may fall as efforts are made to defending and maintaining your market position. Products are innovated and reformulated.
  4. Decline:  At this stage sales fall.  It could be that a product is no longer seen as fashionable. New products in the market may be seen as a better option. Advances in technology may make existing products obsolete. Marketing activity on products at this stage may be minimal. Products may be abandoned, replaced or harvested for cash.

Of course not all products follow the standard model of the product life cycle. Some products become staples. Others may have cyclical or seasonal appeal. Often new uses can be found for old products. Lucozade was a brand of soft drink for invalids but it was reformulated and is now sold as a sports energy drink. Listerine began life as a household detergent but is now sold as mouth wash. Lyle’s Golden Syrup has been sold under the same branding for over 200 years.

The product life cycle is a critical analytical tool for product portfolio and product mix management.

It isn’t just individual products that have a life cycle. Brands have a lifespan and so do industries.

In 1973, Arthur D. Little created his Strategic Condition Matrix.  This measured industry maturity and a companies position in its chosen market.

Little defined four stages of industry maturity:

  1. Embryonic
  2. Growth
  3. Mature
  4.  Ageing.

Note that these stages mirror those of the product life cycle.

Little also defined five categories of competitive position:

  1.  Dominant:  It is rare for a company to find itself in this position.  It often relies on having a monopoly or having protected technological leadership.  A firm in a dominant industry position can exert significant influence on the behaviour of others in the industry and therefore has a vast range of strategic options.
  2.  Strong:   A firm is not as dominant but still has a significant level of strategic choice. A firm can act without its market position being unduly threatened by competitors.
  3.  Favourable:  The industry is fragmented but there is a clear market leader. Firms can exploit particular strengths through the use of appropriate strategies.
  4. Tenable:  Firms are vulnerable to increased competition in the market. Few options exist for a firm to strengthen its position.  Profitability is driven through specialisation.
  5. Weak:  Firms struggle to compete and possibly have unsatisfactory performance.  If you cannot improve your situation, you will be forced out of the market.  This position may be the home of inefficient firms and small traders who fight every day to make ends meet.

Other academics have added a further category of competitive position, Non-viable, where withdrawal from the industry sector is the only strategic option.

For each combination of competitive position and industry life stage, Little suggests the following strategy options:

  1.  Dominant Market Position: 
    1. Embryonic: Here the aim is to grow fast and to build barriers to market entry by potential competitors. Firms should act with offensive strategies in mind.
    2. Growth:  Again you look to grow fast through cost leadership.  You balance strategies between defence and attack.
    3.  Mature:  The aim is to defend your existing market position.  Cost minimisation is increasingly important. You attack weaker competitors.
    4.  Ageing: You again defend your market position and focus on profitable sectors. You consider abandoning unprofitable parts of the market.
  2.  Strong Market Position:
    1. Embryonic:   Grow fast and differentiate you offer from those of competitors.
    2. Growth:   Lower costs and differentiate your offer. Attack smaller and weaker firms
    3.  Mature:  Lower your cost base, differentiate or focus your offer.  Note these are Porter’s generic marketing strategies.
    4.  Ageing:  Harvest the market for cash.
  3.   Favourable Market Position:  
    1.  Embryonic:  You grow fast through differentiation
    2.  Growth:  Lower your cost base, differentiate your offer, attack smaller and weaker firms.
    3.  Mature:  Focus on particular market sectors and differentiate your offer. Hit smaller and weaker firms hard.  Create barriers to entry.
    4.  Ageing:  Harvest the market for cash
  4.  Tenable:
    1.  Embryonic:  Look to grow the industry and focus on profitable sectors
    2.  Growth:  This position is that of a problem child in the BCG matrix. You have the choice of holding onto your existing market position, you can look to a profitable niche or you can aim to grow the market. You may want to harvest the market for cash.
    3.  Mature:  You either hold on to your existing position in the market of you withdraw from the industry
    4.  Ageing: A managed withdrawal from the market is required.
  5.  Weak:
    1.  Embryonic:  Search for a profitable niche and attempt to catch others in the market.
    2.  Growth: Find a profitable niche or withdraw from the market
    3.  Mature:  A managed withdrawal from the market
    4.  Ageing:  Withdraw from the industry

Most western economies, USA, Europe, etc. are mature.  As a result, for many small firms, the most profitable strategy is one of niche marketing.

What is Business About?

What is the aim of your business?

I would hazard a guess that the response to that question will be dominated by the growth of turnover and profits. That the primary goal will be a financial metric.

This is very much the culture in the United Kingdom.  Company boards are dominated by finance executives with backgrounds in banking and accountancy.  When business journalists report on annual reports, when press releases are drafted, the headline is often about profit growth or an explanation as to why losses were incurred.

However, such a reliance on financial statistics can be misleading and it can mask the true health of a business.  Carillion, the failed construction and public procurement firm posted profits year after year.  When the firm collapsed, it was found that those profits were being generated by dodgy accounting practices, using subcontractors as a line of credit and by bullying subcontractors to accept payments far below the actual value of the contract.  Carillion may have been profitable but its strategy of growth by always being the cheapest option backfired spectacularly.  Contracts were drawn up in such a way that even the shortest delay in the completion of the work made contracts unviable.

Marketers view business differently and although we respect the need for financial prudence and the need for income generation, we also look to other metrics to define the health of a business.

Theodore Levitt, the long-time Professor of Marketing at Harvard University, said:

“The purpose of a business is to create and keep a customer”.

To many business leaders, that sentence ends at the word create: little or no attention is paid to the ‘keep a customer’ bit.

It is true that for a business to survive in the long-term it needs a constant stream of new customers but the business shouldn’t focus solely on new customer acquisition. Supporting and serving your existing customer base is as important.

The United Kingdom is a mature market.  That means that for most businesses to gain new customers, the primary strategy is to take those new customers from your competitors. Market share is gained at the expense of your competitors.

Of course there are exemptions to this rule, particularly if you are dealing with new technology but most major market sectors, from automobiles to food, there will be an existing option available and your task is to take business from that option.

In his book, The Loyalty Effect, Frederick Reichfield looked at the results obtained when businesses lost fewer customers each year.

The book attracted a lot of interest amongst business leaders, until many of them discovered how difficult and costly customer retention can be.  Many of these business leaders thought they could achieve the customer retention targets promoted by Levitt by tweaking existing tactics.  They failed to recognise that increasing customer retention was a strategic issue which involved major changes in the way their companies operated.

Many of these businesses thought they could improve customer retention levels by automating their customer relationship management.  They thought the focus was on reducing the cost of customer retention. They were wrong. Costs were reduced, the return on investment improved, but retention levels remained static.

However, businesses which treated customer retention as a strategic, not a tactical issue, and who gave customer retention priority, showed some startling results.

Where businesses set a target to increase customer retention by 5%:

  •  Credit card businesses increased profits by 120%
  •  Credit insurance, the lowest benefitting sector, showed a profit increase of 20%
  •  Other sectors examined showed a profit increase, on average, of 40%

This clearly showed that in a mature, sophisticated market, customer retention is critical to the generation of increased profits possibly more important than new customer acquisition.

As stated in previous blog entries, customers are fickle.  They will only stay loyal to a business as long as a better offer is unavailable (or what they perceive to be a better offer).  Customers will only stay with a business as long as they believe they are getting better value from that business than from its competitors.  They must get their needs and wants satisfied in a way which answers the question; What’s in it for me?”

For example, when FairTrade promoted their offer as: Protecting the Environment; Trader Rights; and Animal Welfare: returns fell.  But when the promoted their brand as: Healthier Food; Quality Food; and Child Friendly: results improved and the brand improved its customer retention.

So what are the steps involved in developing customer retention:

  1. Constantly add customer value. Products and services cannot be static in a dynamic market.  There needs to be new reasons for customers to buy your product over that of your competitors. that is why washing powders and toothpastes are constantly being reformulated.
  2. You need to know what your customer base wants.  Too many businesses assume they know what customers want and do not ask them.
  3. Satisfy customer needs and wants.  Give customers what they actually need and want not what you think they need or want.
  4. Make sure that customer get more of what they need and want from your businees than from your competitor’s offer.
  5. Make sure customers Know that they will get more of what they need and want from your business than from those of your competitors.

And beware customer value migration.  Consumer needs and wants will drift over time.  Things that were highly valued five years ago, and seen as factors which differentiated your product from that of your competitors, may now be seen as generic and of lower worth.