Tag: marketing strategy

Why you may need to reposition your product

There may be times in a product or brand’s life cycle that it needs to be repositioned in the mind of consumers. A famous example is Listerine which was first sold as a general household detergent and which is now sold as a mouthwash against tooth decay and gum disease.

The most difficult thing with repositioning a brand is removing the existing brand image and expectations from the minds of target consumers. The longer a product or brand has been around, the harder it is to reposition.

Skoda cars is another example of good repositioning. For years, when Skoda models were produced under the Communist Czechoslovakian government behind the ‘Iron Curtain’, the cars were seen as cheap, poorly built, inefficient and unfashionable. When the Warsaw pact fell apart and Czechoslovakia became part of the EU Skoda was purchased by Volkswagen Audi. The Skoda brand was repositioned as a fighter brand; a cheaper version of a standard Volkswagen. today, with models like the Yeti, Skoda is a mid-market car brand showing good build quality and good value for money.

There are four reasons why you may need to reposition a product or brand:

  1. A competitor produces a product which is positioned in direct competition to your product and is therefore taking market share from your brand. The need to reposition may be strong if said competitor is larger and better resourced than your organisation. A larger competitor may be able to quickly take control of your market niche.
  2. You may need to reposition as consumer preferences change. In the UK food preferences have changed as our diet has become more international. In the 1950’s you could only buy Olive Oil at pharmacies where it was used to clear ear wax. Then, following the boom in Mediterranean package holidays exposed British travellers to the food of Italy, Spain and Greece. Olive Oil is now a staple in the UK diet and our consumption of animal fats like dripping and lard has reduced. Animal fat producers have had to repurpose their brands to meet the consumer preference for vegetable oils and fats.
  3. There may be new customer preferences. For many years Lucozade was marketed as a health drink for invalids. Advertising often included a glass bottle of Lucozade in it’s plastic wrapper on a hospital bedside cabinet. Today, given the expansion of fitness brands, Lucozade has been reformulated as an isotonic energy drink for athletes.
  4. A mistake was made with the original positioning. Ready Brek is an example where the product was repositioned because the original marketing strategy failed. Ready Brek was first marketed as instant porridge. It was rejected by those who liked porridge for breakfast. They saw the product as fake, they didn’t like the taste. Some rejected Ready Brek as it was ‘too easy to make’. Ready Brek was repositioned as ‘central heating for kids’ a warming breakfast for kids during the winter months.

Repositioning is risky. Changing consumer perceptions may alienate existing consumers and the new target customers may not accept the new definition of the product or brand. New positions may end up lees attractive than the former position. Continually trying to shift consumer’s perceptions of a brand, non-stop repositioning, may only cause confusion.

There are three sub-divisions of repositioning:

  1. Repositioning for Existing Customers: This is possibly the safest form of repositioning. You reposition the product with existing customers by offering new ways of using the product. This is why many larder staples come with recipes printed on the pack. This is a good way from shifting a product from being a standard item in the cupboard to one which is keeping up with new ideas.
  2. Repositioning for New Customers: Try to develop a new image for your brand amongst people who do not normally use it. Ugg sheepskin boots began by being marketed to male surfers to keep their feet warm when they had come out of the water. Now they are retailed as a female fashion item.
  3. Repositioning for New Uses: Often consumers will find new uses for a product. Astute businesses will spot these new uses and use them to promote their products. Powdered Gelatine was a food additive, but now it is also used as a way for women to strengthen their finger nails. Super glue was first created as a way of sealing wounds on the frontline during combat. That is why it is so good at sticking your fingers together. Today, it is marketed as a strong general purpose glue for repairing household goods.

All repositioning carries a degree of risk. If a product is selling reasonably in its existing market, it may be better to leave its position alone. A better option may to be to create a new product or brand to meet new customer perceptions. However, if your product is losing ground to your competitors, repositioning may be the best option.

Anyone who was around in the late 1980’s will remember the disaster of ‘new recipe’ Coca Cola. The recipe change was an attempt to reposition the Coca Cola brand in response to increased competition, particularly the success of Diet Pepsi. The repositioning strategy was an utter failure and caused Coca cola significant reputational damage.

Bases of Segmentation

I recall speaking to a businessman about his marketing goals. I asked him who he intended to sell his services to. He responded, ‘Everyone and anyone’.

I then asked who he intended to market his product to. At first he was puzzled. Surely that question had already been answered: He would market to those who he was intending to sell to, everyone and anyone.

I narrowed the question. Who would the businessman target to receive marketing messages. The word target puzzled the businessman. Surely he would target marketing messages at ‘Everyone and anyone.

So I had to explain the concept of market segmentation and targeting.

Marketing to everyone is expensive in terms of both cash and effort. By marketing to all, you could be reducing your margins and make you marketing messages inefficient. You may have to develop high share of voice, big advertising budgets and bland messaging.

Most businesses do not restrict who they will sell their goods to. If you have the money to buy the goods or the service, they will trade with you. there are exceptions. For example, for some models of Ferrari, you will have to show you have the skill to drive the vehicle as well as having the requisite pot of cash. Occasionally a firm may refuse to sell a product to a particular individual if they feel such a sale will actually harm their brand image (but such occasions are incredibly rare.).

Businesses who follow a diversified marketing strategy will still segment the market and create distinct offers for different segments. the car industry is an example of this Ford create cars from budget city cars through to executive saloons, SUVs, off-road vehicles, sports cars, etc.

Businesses who target a market niche need to segment the market so as to identify the boundaries of their market.

Businesses who are following a cost focus strategy need to segment the market to identify groups of consumers who will be attracted by a budget offer.

Since the concept of market segmentation was created, the methods and techniques used to achieve distinct segments have evolved.

  1. Geographic and Geodemographic: This is possibly the earliest form of market segmentation. You divide your market into different geographic areas and develop marketing materials specifically for those areas. For example, I once dealt with a parallel imports case in relation to branded jeans. The jeans’ manufacturer had complained that the retailer had no right to import the jeans as, they were marketed differently and were manufactured differently. The imported jeans were made to a lower standards and of different materials to suit the price cap of the intended market, Eastern Europe, not the standards expected in the UK. A geodemographic model of segmentation takes a distinct geographic area and then segments that area by different lifestyles. ACORN is a good system of lifestyle types for the United Kingdom and includes groupings such as Affluent Greys and Striving Families.
  2. Demographic Segmentation: Such segmentation splits a market by terms of age and family lifecycle. Currently the UK has an ageing population. We have more older people. So using marketing messages which attract that ageing demographic can be a route to marketing success. Think of the Werther’s Originals adverts and adverts which rely on ‘the good old days’ nostalgia. Also, think of fashion brands and sports clothing which tend to be marketed to under 25 year olds. The family life cycle is analysis of how a family changes over time. There is also the psychological life cycle that recognises that life stages don’t happen to everyone at the same time. We don’t all learn to drive at 17. We don’t all get married at 21. We don’t all retire at 65. Income is also a major demographic factor. Everyone is aware of the A, B, C1, C2, D, E categories used by government which split the population through occupation and income bracket. However, the A, B, C1, categories are now seen as a blunt tool and somewhat out of date. Gender is also a major demographic for segmentation. Think how successful marketing campaigns for male cosmetics have been.
  3. Behavioural Segmentation: this is segmenting a market by identifying how different groups of consumers behave. In the UK a famous example is Professor Malcolm MacDonald’s seven farmer model. Professor McDonald identified seven types of farmer when fertiliser was to be purchased. He found one group of farmers who will always buy the cheapest fertiliser; another group who would buy based on the yield expectations of the fertiliser; a third who would buy based on the science behind the fertiliser; a fourth who would buy only if they felt they had achieved a discount; etc. Behavioural segmentation recognises that people are not sheep tied to their herd. Income and demographics are one aspect of our lives, our beliefs and actions will differ and only be partially affected by the demographic group in which we conform. That is not to say we do not belong to tribes; we do. The football team we support puts us in a tribe. The music we like puts us in a tribe. The clothes we wear, the sports we play, the events we attend, put us in tribes. The important thing to realise is that we can all be members of several tribes simultaneously.
  4. Psychographic and Lifestyle Segmentation: This is complex segmentation techniques based on three factors: Tradition-directed behaviour (easily predictable e.g. My Mum bought Brand X washing powder, so I buy Brand X washing powder); Other directedness (e.g. peer pressure e.g. Jimmy says Reebok trainers aren’t cool so I want Nike trainers); Inner Directedness (I don’t care that others don’t like smooth jazz, I do, so I’ll put Norah Jones on my iPod). Psychographic and lifestyle segmentation is common amongst fashion brands and in the car industry. Firms in these sectors create ideal customer profiles which list a range of lifestyle options.

In business you need to be focused, productive and efficient. So whatever your generic marketing strategy you need to make the best of scarce resources and achieve the most return for the least effort. therefore segmenting a market and targeting the most profitable consumers within that market is critical.

A word or two about value

I want to tell you about a guitar. The instrument in question is a 1969 Fender Stratocaster in black with a white pick guard. It was the standard model and was purchased in Manny’s Music in New York. It was purchased because an airline had mislaid a band’s instruments and the guitarist needed a new ‘axe’ to complete the US leg of the band’s world tour.

Over the next two decades the guitar suffered massively through its use and the guitarist’s numerous alterations to it. The white pickguard was replaced for a black one. The tuners wore out and were replaced. the guitarist shortened the tremolo arm with a hacksaw. The pickups and potentiometers were replaced on numerous occasions. Several necks were bolted on to the body as frets wore out or as the guitarist searched for different tones. the guitar’s owner decided to try a Kahler tremolo system, an alteration which required a large chunk of the body being chiselled away. Eventually the guitar was retired having, its owner thought, seen its working life through.

However, after a few years, the guitarist decided to restore his old guitar. The hole for the Kahler bridge was filled with a new piece of wood and a standard Fender bridge installed. New pickups were installed and the rest of the guitar cleaned and repaired.

The guitar saw a few more outings on tour and on a couple of new records. Then, to support charities, the musician decided to sell his black Stratocaster. That musician was Dave Gilmour of Pink Floyd. The black Stratocaster was the instrument used on Dark Side of the Moon, Meddle, Wish You Were Here and all the bands classic albums.

In the charity auction held at a major London auction house, the ‘Black Strat’ sold for $3,975,000. At the time the highest price ever paid for a guitar at auction. A price only beaten when Kurt Cobain’s Fender Jaguar was sold a few years later. That’s not a bad price for a guitar where, it is thought, the only two remaining original parts are the pickup selector switch and the bridge plate.

For comparison, if you want to by a 1969 Fender Stratocaster, not formerly owned by one of the World’s greatest rock guitarists, you’d pay between $5,000 and $8,000. If you want to buy the new equivalent of a standard American Strat, you’d pay $1,300.

So how did the buyer of Gilmour’s guitar decide its value and the limit of his bids?

Today, particularly in mature markets, it is argued that customers are a rare commodity. Customers therefore have strategic value. You need to win customers and once you have won them you need to keep them. You don’t just consider the exchange of products and services, you need to consider the value which is created by that exchange.

So how do customers calculate value?

Accountants (and some economists) would only consider the economic value, the value in use, of goods and services. This isn’t just the cost of purchase but other costs such as switching costs, maintenance and repair, cost of disposal, etc. Through showing lower cost in usage, it is therefore possible to justify a higher initial purchase price.

However, if we were to consider just the cost in usage of Dave Gilmour’s black Stratocaster, no one would pay such a vast sum. We’d either buy a 1969 Stratocaster for $5,000 or we would pay $1,300 for a brand new Pro model.

However, the buyer of the Black Stratocaster wasn’t just concerned with its economic value, they were concerned with its perceived value. Perceived value is the qualitative element of a product or brand. Whilst products may function in a similar manner, the customer may perceive one to be superior to the other. For example, Ford and Vauxhall have for years tried to gain a foothold in the executive car sector. They have had little success in disrupting the market share of brands like BMW and Mercedes. Simply, the buyers of BMW’s and Mercedes cars perceive those brands as having higher value than cars from Ford or Vauxhall.

So the purchaser of the black Strat wasn’t buying a functioning electric guitar. The guitar may never be played again. It will sit in a glass case attached to the wall of a millionaire’s mansion. Even more likely, it will sit in a highly secure bank vault where it will receive occasional visits from its proud owner.

Value is about more than price and exchange is about more than goods and services. Value is the solution to a formula expressing the differences between a customer’s perceived benefits resulting from their purchase and their perceived sacrifices from the transaction and future ownership of the goods or services.

So the customer who purchased the Black Strat perceived that he would gain greater benefits from purchasing the guitar in terms of owning a piece of history, the guitar that created lasting art, like Rembrandt’s easel or Da Vinci’s brush, than he would sacrifice in paying the huge cost of the guitar or the security needed to retain it.

The purchase of the black Stratocaster satisfied the higher Maslow’s hierarchy needs of its new owner. The guitar is now an expression of that individual’s self actualisation in terms of bragging rights, self image. It is an expression of their wealth and self image. It is also an expression of their generous nature as the profits from the sale of the guitar go to charity. In that respect it is worth far more than, in the words of Richard Thompson, “A block of wood with some wires on it”.

Integrated Marketing Communications and Strategic Focus

The Oxford Dictionary of Marketing defines Integrated Marketing as:

An approach that influences transactions between an organisation and its existing or potential customers, clients and other consumers connecting all marketing channels. Integrated marketing is more of a marketing management approach than a different type of marketing. The focus of integrated marketing is to ensure that all communications, the brand’s positioning, propositions, reputation development, brand personality and brand messages are delivered coherently and with impact across every channel. This means a holistic approach to marketing communication including PR and internal marketing. This is necessary because of the fragmentation and globalisation of media channels. It may also mean a move away from mass advertising to a more targeted approach where a similar message would repeat across channels.

To achieve integrated marketing communications you need strategic focus. That means:

  1. Measuring the effectiveness of marketing communications;
  2. The growth and increased visibility of the corporate identity, status and reputation;
  3. Corporate governance and ethical behaviour.

A strategic role of the brand is required given the need to add value and differentiate your organisation in the market. You need to understand how your entire organisation communicates not just the role of the marketing department. You need to know the impact that such communication will have. Communications must be managed at all levels of an organisation and you must commit to that management function. Communication is everyone in the organisation’s concern: It isn’t a matter solely for the marketing department. You need professional communicators across your organisation not just tucked away in a management silo.

Communications can be seen at three levels:

  1. Strategic External Integrated Marketing Communications: Top level communications promoting the organisational vision and values, corporate objectives and Corporate Strategies. Strategic communications to build reputation, image and brand.
  2. Internal Marketing Communications: Communication across your organisation involving all business functions including HR, Finance, Productions, R & D, etc. Internal behaviours aligned to organisational goals.
  3. Tactical External Integrated Marketing Communications: Communications to ‘push your products through the supply chain and to increase customer demand (‘pull’ communications). Communications intended to promote goods and services provided by your organisation.

A major issue with integrated communications is that people are different. We all have different views and we perceive the world differently. Particularly in service industries these differences matter. So you need to ensure a consistency of customer experience.

What really matters is communication consistency not difference. If fact difference could be an asset. However, if your communications and customer experience of them is inconsistent you have a big problem. If a single customer can experience good, bad or indifferent communication experiences with your organisation, you may lose not just one customer but many. your customers and prospective customers talk to each other; particularly in these days of social media. Word of mouth means one customer’s perceived bad experience can be used to persuade many other potential customers to avoid your business.

Marketing Services

Marketing services requires a different set of tools than when you market goods. This is because services are different to goods.

When Philip Kotler first defined the marketing mix, he named four criteria; Product, Price, Promotion and Place. Today we talk of the extended marketing mix adding People, Physical Evidence and Process to the mix. These are the service elements of a marketing plan. We apply the extended mix to goods because these days, very few goods are sold without additional services. You do not buy a car, you buy a car with finance, a servicing package, roadside assistance, wi-fi connectivity, a warranty and a host of other additional services.

So what makes services different from goods when delivering them to customers:

  1. Service Intangibility: Services cannot be seen, or touched, or tasted or smelled. You cannot handle a service before you purchase it. So before you sell a service to your customers you need to transmit signals which declare service quality only then can consumers define service quality.
  2. Service Inseparability: Services cannot be stored. You cannot have a warehouse filled with spare services. Customers don’t just buy a service; they play a part in its delivery. Services need provider-customer interaction. Both the customer and the provider are affected by the service outcome.
  3. Service Variability: Even the best actor has a bad performance. Services rely on people. People vary. Their mood varies. A hotel receptionist can be bright and breezy one day and in a bad mood the next. If you staff’s mood can vary, so can your service quality.
  4. Service Perishability: As stated, you cannot store services. Once a service has started, you can’t add more customers to that service. When a jumbo Jet has taken off, you cannot put more passengers on that plane. When a restaurant sitting has finished, you can’t fill those empty tables. That is why most service firms aim for 100% capacity. that is why package travel firms and budget airlines operate flexible pricing strategies.

So what strategies are suitable for the marketing of services?

The aim of service marketing strategies is to leverage the service profit chain:

  1. Develop internal service quality through training and improving service standards
  2. Create employee satisfaction. Satisfied employees leads to satisfied customers
  3. Develop greater service value
  4. Encourage increased customer satisfaction and loyalty.
  5. Leading to better levels of turnover, profit and growth.

This profit chain is an extension of the Kaplan and Norton Balanced Scorecard which has already been discussed in this blog.

There are three main aspects to services marketing:

  • Internal Marketing: You need to orientate your staff to your organisational vision and values. You need to support service providers through your admin and support staff. You need a charismatic leadership group. You need to develop a customer centred organisation.
  • Interactive Marketing: You need to develop the provider-customer interface. That means dialogue not monologue. It means involving your target customers with your organisation. This means forums, social media groups, customer events. Your customers need to be involved in the setting of your service standards. Customers need to help define your service quality. Your loyal customers should matter. They should see your organisation as having a ‘passion to serve’.
  • External Marketing: You need good external marketing as you would if your business was supplying goods.

It is often difficult to differentiate services in the market place. How do you differentiate a boiler service, or a haircut, or a restaurant meal, from the offer of your competitors?

But to stand out in the marketplace, you need to differentiate your offer, how it is delivered and your corporate image.

By providing innovative service features, you can differentiate yourself from the competition. For example, the Japanese restaurant chain, introduced sushi conveyor belts into the UK, a new way of delivering food to UK diners. Others have tried to install self-service beer taps (and faced issues with UK licensing laws). Cinemas introduced ‘bonkettes’ and leather arm chairs. One of my favourite cinemas re-introduced the intermission and bar service at your seat. Tyre fitters and vehicle valets began mobile services where they come to your home or place of work to di car maintenance. Services can be differentiated through the physical evidence of your brand e.g. logos, brand statements, etc.

It is important when delivering services that you aim for consistent service quality. Service standards and their communication are critical. You should aim for consistently higher standards than your direct competitors. Your target customers must drive your service quality. So customer feedback and retention statistics are crucial measures of service standards. You should strive for zero defects. A service standard of 98% sounds good, but if Royal Mail operated at such a target, that would be millions of misdirected parcels and letters annually. One of the most reliable services in the world is the Mumbai tiffin tin lunch service, where Indian office workers have a homemade lunch delivered in a stacked series of tins. If the tiffin service can use the Indian railway system and porters with little or no modern technology; and achieve staggering levels of service quality; so can you.

It is also important to have good service recovery processes. On the odd occasion something goes wrong, you need to be able to reinvigorate the customers trust in your brand. You need more than an apology. You need to explain what has gone wrong and how you intend to put things right. You need to offer suitable compensation including gifts and discounts off future purchases.

You need to continually improve service productivity. This means staff training, recruitment processes and your technology needs to continually improve. Marginal gains are important. Often small changes in service efficiency leads to big increases in productivity and customer retention.

But don’t push productivity so hard it harms service quality. The more you rush staff, the more work you pile on their plate, the more likely service standards will slip. It is amazing how often efficiency drives and cost-cutting backfires. Rather than improving productivity you harm service provision and your brand promise.

the aim of productivity changes should be to create customer value and so, once again, tools like value chain analysis are useful.

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.

The Customer Value Ladder

It is obvious that a business’s customer base is its source of income.  Customers spend money with businesses: You hope!

But your customer base in more than a supplier of cash.  Your customers are your primary source of marketing data.  Marketing and business are knowledge-based activities. If you know your customer base, its attributes and opinions, you can predict its movement and they ways it may change.  You can identify what your customers see as best value and develop your organisation to deliver that value.

Customers have both financial and information value. To capture those customers in the first place, you also need knowledge.

Previously in this blog, I have discussed the concept of the customer value ladder.  A similar concept is the ‘ladder of advocacy’.

There are five ‘rungs’ on these ladders:

  1. Prospect
  2. Customer
  3. Supporter
  4. Advocate
  5. Partner

At each stage up the ladder we have different expectations as to the actions of customers.  At the lower levels it could just be purchase or re-purchase.  On higher rungs it could be partnership sharing and referring your business to others.  Obviously if you expect different actions by consumers as they move up the ladder, you will need to employ different tactics and use different promotional techniques and channels.

It is also worth considering that it isn’t only the customer who is moving up the ladder; so are the people they are talking to about your company.

Cross and Smith (1997) advocate that you bond with your customer in different ways as they move up the ladder:

  1. Prospect: Develop Awareness bonding to move them to;
  2. Customer: Where you concentrate on identity bonding to move them to;
  3. Supporter: Where bonding focuses on relationship development so that the customer becomes an;
  4. Advocate: Where bonding concentrates on creating a community. As the community becomes closer, customers become:
  5. Partners: Where you develop partnership bonding

Developing customer relationships is a two-way process.  Simply pumping out emails, newsletters or social media posts is not building a relationship.

On the first rung of the ladder you create a bond through brand and product awareness.  You need to invest in obtaining ‘share of mind’. Once you have obtained a share of mind you need to work to keep it.  You need to work to build on the target customers needs and wants.  This is often best achieved through traditional promotional techniques and channels, e.g. advertising or visits by representatives.  You also need to adapt your marketing mix to meet those customer expectations.

On the second rung of the ladder, you need to build the relationship with your customer group beyond awareness.  You need to attract ‘share of heart’. A bond developed out of shared values and aspirations.  You develop this bond through ’cause marketing’.  this could be through charity support, environmental standards and issue sponsorship.

Berry (1995) defines four types of relationship you can have with a customer:

  1. Legal:  You have a contractual relationship with your customers and that contract provides legal obligations.  You have statutory responsibilities towards your customers such as their sale of goods rights, product safety standards and responsibilities with regard to product description. You have data protection responsibilities towards your customers.
  2. Fiscal:  You have mutual financial relationships with your customers.  You may offer credit or deferred payment.  Credit terms can be a method of financial bonding.
  3. Social:  Businesses have social links with their customer base.  Football clubs offer stadium tours and opportunities to ‘press the flesh’ with current and former players. Venues offer patron-only previews of concerts.  Shops give valued customers ‘pre-launch’ opportunities to view new products. Restaurants offer ‘soft opening’ opportunities to regular diners to test new menus and at new restaurant locations.
  4. Organisational:  In business to business markets there are often organisational relationships between customers and suppliers.  These often develop into ‘partnerships’.

On rung three of the ladder values begin to be exchanged and deep knowledge of customers begins to be developed.  The relationship itself has value at this point.  Customers at this point are now getting something out of their relationship with your firm. This is the beginnings of building a community.  This is where owners’ clubs, social media groups and internet forums begin to have value.  You need to encourage feedback and information exchange.  Loyalty programmes can develop relationships at this point.  Bear in mind that, like many coffee outlets, a loyalty programme has little benefit if you offer membership to everyone!  You cannot ignore customer feedback and keep customers on this rung.

The value to your brand is:

  1.  Having knowledge of your target segment and the wider environment
  2. Your developed ‘share of heart’ and,
  3. The ability of customers on this rung to support those on lower rungs of the ladder

On rung four of the ladder you need to bond through creating social relationships with customers.  Here is the true and proper use of social media in marketing.  But you need to go further.  You need to offer opportunities for your customer base to meet not only your organisation but each other.  This is where customer conventions and fan events are useful.  You can develop product owner’s clubs and offer members discounts on things like servicing and accessories.  Community members need the opportunity to bond

Rung five is the development of partnerships.  This is a further development of developing a community.  An example is Ugg the sheepskin bootmaker who offer ‘brand fans’ opportunities to work for the brand and to help design their footwear.  As a result the customer develops very deep loyalty for your brand.  In business to business markets things go even further where suppliers offer onsite maintenance and service and locate employees in the premises of their customers.  Suppliers may get involved in their customers product design e.g. Rolls Royce helping to design the planes where their engines are to be located.  Suppliers may take over the running of a customers stock control processes and develop systems to help their customers produce products e.g. Just In Time supply software.  Partnership requires mutual respect and the integration of value chains.

At each stage of the value ladder you need to collect different data, use different marketing techniques and promotional tools.  It takes marketing skill to move your customers up the value ladder and to keep them on its higher rungs.

Survival in a Hostile Environment

In most sectors, the UK is a mature market.  What this means is that businesses sell products and services that have existed over time.  For example, the automobile has been around since the late 19th century; home computers since the early 1980s and mobile phones since the mid-1980s.

What this means is that it is rare for a wholly new product to emerge and for a new market category to exist.  ‘New’ products tend to be improvements of previous technology. For example, an electric car is still a car; it satisfies the same function as a vehicle with an internal combustion engine; it has four wheels and you drive it on the public highway.

So in mature markets, growth tends to be slow (and may be beginning to decline).  Consumers buy a replacement product. Consumers may have developed brand loyalty and have a long term relationship with a particular market player.

As growth is slow, rather than attracting new customers, businesses are focused on taking market share from each other.  In mature markets there are established market leaders who have a focus on retaining that market share and market challengers who are trying to take that market share from them.

In mature markets there are often inflationary pressures at play.  Companies may see increased foreign competition and they compete to obtain the same raw materials.  For example, only this week Elon Musk pleaded for more nickel to be mined as he was struggling to obtain enough of the metal for his car batteries.

Also, in mature markets, firms experience major regulatory upheaval.  his could be new ecological standards or, in the car industry, fuel consumption tests.

Businesses in mature markets can be hit by cultural change.  For example, it is likely that the current pandemic will result not only in temporary cultural changes such as the wearing of face masks, but other effects over the longer term e.g. companies moving staff onto home working contracts reducing the need for office accommodation.

As stated above, the United Kingdom is a mature market.  Therefore it currently faces a hostile environment on three fronts; Direct competition from other market players; an oncoming recession; and massive regulatory turmoil created by Brexit.

You may think operating in such a hostile environment is a lost cause: but it is possible to succeed in a hostile environment.  To succeed your business strategy must have the following factors:

  1.  You must make purposeful moves towards market leadership.  However failure to achieve that leadership position, or an inability to maintain market leadership can lead to major problems.  The UK high street restaurant sector is an example.  Several firms in this sector have failed in recent years after aggressive expansion strategies failed and fixed costs like rent have led to big debts e.g. Pizza Express, Frankie and Benny’s, Café Rouge, Carluccio’s, etc.
  2. If your market position is deteriorating, diversification may not be the best approach.  Look to your market core.
  3. If the whole industry appears to be in trouble, the hostile environment may be the perfect opportunity to grab your competitors market share through acquisition.
  4. You may be able to target specialist sectors.

In a hostile environment, successful strategies have the following common characteristics:

  1. The successful firm achieves a lowest delivered cost position relative to their competition but within acceptable quality and pricing policies.  They aim to look for sales volume not large profit margins; or,
  2. They achieve the highest product/service/quality differentiated position relative to their competitors.  They must maintain an acceptable delivered cost structure and a profit margin which is sufficient to allow reinvestment in their diversification.

Those following the lowest delivered cost often grow slowly as they hold down price increases and keep operating margins down to gain volume, fixed cost reductions and improved asset turnover.

Those following a differentiation strategy tend to grow faster through having higher prices and operating margins which cover increased promotion, research and other costs.

In making purposeful moves towards market leadership means moving to and maintaining a winning position; either lowest cost in market or superior price justified through differentiation

Such strategies require careful strategic analysis.  Simply relying on growth/share matrices such as that of the Boston Consulting Group can be a naïve policy as these models often assume that mature markets should be milked for cash.

Also beware relying on experience curves as these lead to a view that high market share, low cost, vertical integration is the sole route to market success.

Instead, analysis should consider:

  1.  Aggressive restructuring towards your core business rather than diversifying into other sectors.  For example, James Dyson has abandoned his electric car project and this week announced 900 job losses across his business as part of a restructuring.
  2. Reinvest towards an average cost, highly differentiated position.
  3. Do not think that cost-leadership can only be achieved through high market share and accumulated experience.  A focus on modern automated processes may mean cost-leadership can be achieved without high market share.  Again, Brexit may make this difficult for UK manufacturers as it impacts just in time delivery chains.
  4. Vertical integration is not necessary to exploit cost leadership.  Integration should be selective and targeted on value added factors.

In a hostile environment, failure to achieve market leadership can lead to problems such as below average products through lack of differentiation and increased external pressures on your business.

If there is one lesson to succeeding in a hostile environment it is that your core business needs to be cherished and you should not be distracted by searching for new markets.

Sources of Marketing Opportunity

Over the past couple of days I have been looking at replacing my rather elderly car.  it has got to the stage where the cost of annual servicing exceeds the cars value.  One of the cars I have looked at is a successor model to a car I owned thirty years ago.  the new car has a bigger fuel injected engine that that old car.  In fact in the model range, it is a significantly superior model version when compared to the old car.

Yet the new modern car offers a far lower nought to sixty time, a lower top speed and only marginally better fuel consumption.

I was astonished.  Surely after thirty years, improvements in these categories would have been made.  Yet it seems that, in terms of performance, things have gone backwards.

That got me thinking.  How was this new model of car a superior marketing offer than its predecessor? How does it provide marketing opportunity?

Philip Kotler, in his breakthrough book Kotler on Marketing describes three sources of marketing opportunity:

  1.  Supply something that is in short supply
  2. Supply a product in a new or superior way
  3. Supply a new product or service (including an IMPROVED product or service)

When goods are services are in short supply buyers should be queuing up to buy them. So in the middle of a pandemic, things like face masks and surgical gloves will be in short supply.  This situation requires the least amount of marketing talent.  the opportunity is obvious to all.  The product is price inelastic so suppliers can charge high prices.  However, such shortages tend to be short-lived; so the market opportunity does not last.

When supplying an existing product you need to examine how you can IMPROVE that product. It doesn’t seem that the manufacturer of the car described above has properly considered what is an improvement.

There are three ways to identify product improvements:

  1. Use the Product Detection Method
  2. Use the ‘Ideal’ method
  3. Use the ‘Chain’ method

The problem detection method assumes consumers are accepting the current versions of goods but that they are not fully satisfied with those versions e.g. I like my new car but it uses too much fuel or I like my new car but I wish it had better acceleration.  Such statements create marketing opportunities.  problem detection is the primary method for product improvement but it is less helpful in terms of new product innovation.

The ‘ideal’ method involves asking consumers what they see as the ideal version of a product.  However consumers creating an ideal product wish list can create contradictions.  When using the ideal method, you may be faced with overcoming these contradictions.  For example, Consumers may like the taste of high alcohol but want them to be lower calories.  However consumers also reject low calorie beers as they have too low an alcohol content and a bad taste.  You can make a low alcohol beer tastier but only by increasing its alcohol content and you can only lower a high alcohol beer’s ABV by reducing its taste.

The consumption chain method examines the steps consumers take to acquire, use and dispose of products.  Are consumers satisfied with the way they consume products and can those steps of consumption be improved.  This could be through changes to the product itself or changes to the ancillary services which surround a product.

By analysing the customer activity cycle around your goods you can inform product improvements.  You also look beyond purchase value and look at your long-term relationship with those consumers (lifetime value).

When supplying a new product or service, you may not be able to rely on customer opinion,  They will not be aware of their need for the product until it appears on the market.  No one foresaw the home computer market. In the 1960’s it was expected that every major city might have a computer.  When desktops arrived they were tools for businessmen and engineers, not a domestic product.  When Apple produced the iPad, people forecast disaster as they saw no market for tablet computers.

Again, there are three models for assessing new product ideas:

  1. First use your company organisation to derive promising opportunities.  This is your sales force listening to customers and investing in blue sky research and development.  This can be a high risk approach
  2. The second method is to create the role of an Ideas Manager.  This is a senior role in an organisation who is tasked with managing product improvement and new product development.  They should lead a multi-disciplinary team with members from across your organisation including engineers, operations managers, marketers and finance.  It is this team who follow a formal process of idea assessment.  This can be new product proposals or improvements suggested by staff through systems like Kaizen and Total Quality Management.  The Ideas Manager should champion the concept of an Ideas Organisation and should take ownership of the decisions of the ideas committee.
  3. The Strategic Breakthrough Model:  This involves even more improvement thinking targeted at breaking through market growth pinch points and blockages.  this could involve finding new customer groups and new market segments.  It could mean geographic expansion of your firm or new sales strategies.  It could be new pricing strategies or financing solutions, e.g. most cars are now bought via leasing agreements as opposed to the old method of hire purchase. It could also mean adding new product features or developing completely new products.

Competitive strategy in Emerging Markets

As the BBC rapidly runs out of content to show due to the pandemic shutdown, it has been showing repeats of Dragon’s Den. One common feature of that programme is entrepreneurs trying to launch a new product or solution in an existing market.  All too often, these pitches end with the Dragon’s rejecting the invitation to invest in the product with the refrain of ‘I’m out’ or ‘there isn’t a market for your product’.

Trying to launch a new solution to an old problem is probably the hardest thing to do in business.  Why invent a new product to dig a hole when solutions like spades and mattocks already exist.  The new product needs to be better than the existing solution. In fact it probably needs to be better over a range of criteria; ergonomics, price, availability, value for money, durability, etc.

That doesn’t mean there aren’t new markets and a space in the world for new product solutions.  New markets emerge all the time.  In the 1960’s no one foresaw the home computer; when apple launched the iPad, they were derided for launching a product no one wanted or needed.

So what is an emerging market?

Generally, emerging markets are defined as newly-formed or re-formed industries driven by technological innovation, shifts in cost relationships, the emergence of new consumer needs or other changes in the economy or society.

A factor of emerging markets is that there tends to be few ‘rules of the game’. How the market is expected operate hasn’t been established.

There are common structural factors which characterise emerging industries.  these relate to the absence of established bases of competition and the initial small size of the industry.

  1.  Technological uncertainty:  What is the best technical configuration of the new product category.  For example which is better, a lithium battery car or one powered by a hydrogen fuel cell.
  2. Strategic Uncertainty:  There appears to be ‘no right’ strategy.  Different market players approach the market in different ways e.g. positioning, supply chains, distribution, customer service, etc. Products are configured differently or different production technologies.  For example, the common layout of the pedals in a car took many years to become established.  Different models of car used to have different layouts of accelerator, brake and clutch. Strategy can also be uncertain due to a lack of information about prospective consumer groups and the actions of competitors.
  3. High Initial Costs but Steep Cost Reductions:  New products in emerging markets tend to begin with small production volumes.  There is a lack of experience in producing the new product so manufacture takes longer and there can be increased wastage.  However, the production learning curve can lessen rapidly and as workers become more experienced in its production. Firms develop better, more efficient processes and procedures.  Productivity can rise rapidly as sales increase.
  4. Prevalence of Embryonic Companies and Spin-offs: New technologies see a lot of new market entrants.
  5. Consumers tend to be first time buyers:  Marketing is focused on product take up or getting consumers to switch to your new offer.
  6. Planning for a short-time horizon:  the pressure in the market may be to meet rising demand for the new technology.  market players suffer production bottlenecks and a lack of production capacity.  The focus in the business is on the now: firefighting current problems; not looking to the long-term future.  For Example, when Tesla launched its 3 model electric car, it lacked the production capacity to meet demand and customers faced long delays in obtaining their vehicle.
  7. Subsidy:  There may be government subsidy of new market entrants particularly in areas of societal concern.  For example, the UK government subsidised the insulating of people’s homes and the installation of solar panels.  Currently the UK government is subsidising the search for a Covid-19 vaccine.  The UK government is also interested in creating ‘gigacities’ large battery farms to store electricity generated through wind and solar.  But beware, subsidy can skew a market and make the market dependent on political decisions.

Emerging markets can experience early mobility barriers.  New markets often rely on proprietary technology and manufacturers may have significant control over supply and distribution channels.  They may hoard access to raw materials e.g. the UK is looking to build factories to produce the batteries for gigacities but lithium, the metal used in the batteries is extremely rare and difficult to obtain.  there may be a lack of skilled labour to produce the new technology and the market may lack cost advantages of experienced workers.  This lack of cost advantages can be made more significant through the newness of the technology needed to produce the product and through competitive uncertainties.  Likely there will be significant risk in the sector and thus the opportunity cost of capital can be high.

The nature of entry barriers in emerging markets is a key factor.  Often success in these markets is less from the need to command massive resources and more from the ability to bear risk.

So what are your strategy options in an emerging market:

  1.  You act to shape the industry structure:  You get to set the rules of the game through your product configuration, your pricing strategy and your marketing approach.
  2. There are externalities in industry development:  there is a balance to achieve between industry advocacy and the self interest as to your market position.  You may have to ensure that industry players are, in some way, interdependent on each other. this can be through setting industry standards, setting up trade bodies and establishing industry codes of practice.  The big supermarket chains are all members of the British retail Consortium which sets standards as to product quality and supply.  Those firms that do not comply with these industry standards can be forced to disappear if they refuse to accept industry norms.
  3. You can change the role of suppliers and channels:  you may be able to shift the orientation of suppliers and distributors by getting them to accept your procedures and standards.

You have to make big decisions when entering an emerging market.  Do you pioneer in the market or do you act as a market follower. Being fist in can be a benefit but it can also be risky.  Sega were first in to the computer game console market but suffered as Microsoft and Sony undercut their pricing structure. This is also an example of existing firms seeing your emerging market as an opportunity and using their existing scale and resources to drive you out.

Pioneering in an emerging market can be high risk.

Entry into a market is appropriate when:

  • The image and reputation of your firm is important to the buyer e.g. Nike entering the golf club market
  • Early entry is to initiate the learning process i.e. get ahead of the learning and experience curves. Experience is difficult to imitate.
  • Customer loyalty offers great benefits and those benefits lie with the first on the market.
  • Absolute cost advantages can accrue through securing the purchase of raw materials.

The following tactical moves:

  • Commit to the suppliers of raw materials – become their favoured customer
  • Finance ahead of actual need.
  • Entry to the market MUST be as a result of careful strategic analysis.