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?

 

 

Strategies to Grow a Brand

Last week I discussed the strategic options for market leaders and I pointed out that in most first world countries, most markets for goods and services are mature.  This means that options were restricted to three main choices:

  1. Growth through increased usage by existing customers
  2. Growth through taking competitors’ market share
  3. Growth through finding new uses for existing products

Here are some examples of brands being built through these strategies and associated tactics.

The first example is Bailey’s Irish Cream liqueur where the brand was built through building volume of use per capita.  This strategy involves shifting usage of the product from low volumes to higher volumes.

Bailey’s was a mature brand and it had developed a restrictive image.  It was seen as a drinks for special occasions, particularly Christmas and New Year. Bailey’s was a drink for little old ladies and due to it’s sweet taste it was served in small measures.

For Bailey’s to improve its market position and to have long-term survival, this image had to change as did the way in which Bailey’s was used.

An extensive marketing campaign making massive changes to Bailey’s marketing mix was instigated. Advertising promoted the liqueur to young women.  They were encouraged to consume Bailey’s over ice in large glasses. New Bailey’s glassware was sent to pubs and nightclubs. Consumer packs containing the larger glass were distributed to retailers. Bailey’s was promoted as a drink for any occasion, not just Christmas, a beverage for a night out on the town.  Bailey’s took the opportunity to sponsor Sex and the City, at the time the most popular television programme amongst women in the 18 to 35 age demographic.  the drink was reimagined as one for those who are outgoing and as one of fellowship.

This new image significantly increased usage and sales of Bailey’s amongst target segments.

There are three levels of growing usage per capita which were leveraged in the Bailey’s campaign.

  1. Abandoning Cost-Plus Pricing: Prices are set based on the price point of the most popular product in a geographical area.
  2. Gaining Local Monopolies: This does not mean gaining more than 35% of the market (the traditional definition of a monopoly situation).  Local monopolies are created by flooding the marketplaces with opportunities to purchase and consume the product.  Everywhere the target consumer goes or congregates, they should have an opportunity to purchase.
  3. Adapting Prices to the Buying Situation: So the prices for Bailey’s in a night club will be more than in a pub or bar. The price of Bailey’s in a retail situation will be lower than at a venue.

Specific marketing plans need to be created for each purchase opportunity.  For Bailey’s this could mean different marketing mixes for supermarkets, bars, restaurants, vending machines and hotel mini-bars, off licences and general stores.

Coca Cola, the long time market leader in the soft drinks market has continually developed and amended such segmental strategies for decades.

In addition Coke has two critical alliances to grow sales; with Macdonald’s and with Bacardi.

The McDonald’s alliance targets young consumers and looks to continually refresh Coca Cola’s customer base.  It aims to build the habit of consuming Coke amongst teenagers who will hopefully continue to consume the cola for the rest of their lives.

The alliance with Bacardi, which includes pre-mixed bottles of rum and coke, targets adult drinkers and the use of the cola as a mixer. Bacardi Rum is the world’s most consumed spirit drink.

The second way to grow a brand  in a mature market is to address barriers to consumption.

Surprisingly Coca Cola were slow to address the issues consumer’s had with their product, in particular health concerns and concerns that the soft drink contained too much sugar.  Sugar free soft drinks like Tab and even Coke’s main rival Diet Pepsi, were established in the market long before Diet Coke arrived.

However, Coke has used its market position to launch a series of healthy option to break down consumer’s reluctance to buy the drink.  They now produce a range of low sugar and sugar free options such as Coke Life (with added vitamins), Caffeine Free Coke, Diet Coke, Coke Zero (No sugar) and Caffeine Free Diet Coke.

However both these strategies only go so far.  The easiest and most cost effective option is to get your existing customers to consume more of your product.

There are two ways to increase existing consumers consumption. To get them to use more of the product and to get them to use the product more often.  You want to turn consumers who only buy a small amount of your product into customers who are medium consumers and medium consumers into heavy consumers.  You want to turn occasional customers into regular customers and regular customers into ‘dominant customers who will only purchase your brand)

Every marketer should be aware of the Pareto Principle (80% of your returns come from 20% of your activities). Similarly the heavy use/dominant customer group represents 10% of brand buyers and 50% of brand volume.  To grow this heavy/dominant group you need to use behavioural segmentation to target particular consumers.

You need to ask consumers why they are reluctant to buy your product and address their specific barriers to consumption. You need to build a marketing mix based on specific product improvements and higher experiential benefits.  It is very rare to find that consumers reluctance to purchase a product is simply to do with the product’s image.

You also need to ask why consumers prefer other brands.

The third way to grow a brand in a mature market is growth through addressing new uses and situations.

You have to ask:

  1. Your brand is for what?
  2. Your brand is for whom?
  3. Your Brand why?
  4. The brand against whom?

Consumers want solutions to particular problems. They want a five millimetre hole, not a five millimetre drill bit. Can your product solve multiple problems e.g. Listerine began life as a household detergent now it’s sold as mouth wash.

A Porsche 911 isn’t the car for the school run or going to the supermarket but the Porsche Cayenne 4×4 can be used for those purposes and provide sport’s car performance. Car firms often enter into joint venture to allow brands to meet new uses.  For example, Aston Martin have a joint venture with Toyota to produce a small, fuel efficient city car.

Growth can also be obtained through getting existing consumers to ‘trade up’.  This is why, when you go to a Volkswagen dealership you are bombarded with a multitude of options for your car. Brompton Bicycles go one further and allow consumers the opportunity to effectively design their folding bike from a dizzying array of product options. You can produce gift packs or extend your brand to related uses e.g. the Christmas box of fragrances which contain aftershave, deodorant, shaving balm, shampoo, shower gel, etc.

Special editions of products can also help consumers ‘trade up’.  Fender guitars produce special edition models of their guitars which are produced in small numbered batches. For example, the alternative reality series where each month a short run of guitars is produced with novel body shapes, different neck woods, different switching options and pick up configurations.

Most whisky distillers give consumers to trade up to 10, 15, 20 and 25 year old maturations, they produce cask strength whiskies and age their brand in different casks e.g. bourbon or sherry casks.

Growth can be developed through line extension.  Think of the number of formats and sizes in which Coca Cola is sold.  Coke’s largest sales are not in bottles or cans, single items or in multipacks, it is the sale of syrup to bars and caterers for mixing with carbonated water at the point of sale.

You can provide incremental variance (e.g. Volkswagen’s huge choice of engine options)

You can multiply the physical forms of your product, so Ariel washing detergent comes as a powder, a liquid, in tablet form and as a gel sachet.  You can provide different versions of your brand for different purposes; so Dettol produces an all purpose cleaner but also specific product options for bathrooms and kitchens.

Line extensions represent 85% of new products placed on the market.

However, when creating line extensions you should beware hyper-segmentation.  New line extensions must have mass appeal.

To manage line extensions well you need to:

  • Improve cost accounting to minimise additional costs in the value chain
  • Prioritise resources to high margin extensions
  • Your sales force should be able to describe the reason for the each extension in a few words
  • You withdraw products as consumers move over to line extensions (you will likely need to encourage such withdrawal).

Finally, you can grow a brand through innovation.  Colgate toothpaste is regularly reformulated with new innovative options such as sensitivity relief, whitening and gum health solutions)

Colgate is an example of incremental innovation so a premium product moves to being the standard product over time as innovations are introduced.

Some firms are seen as innovation champions and they are aware of the benefits and impact of an innovation from its inception.  these innovation champions know they can leverage higher price points than their competitors confident in the knowledge that the innovation provides real customer benefits.  Innovation champions also work to gain more prominent shelf positions, such as eye-level and aisle ends.  They will be willing to pay supermarkets for these locations.  Innovation champions will also clearly advertise innovation benefits including prominent display of innovations on packaging.

Strategies for Market Leaders

In this blog, I have already covered strategies for businesses targeting a specific market niche. I thought it would be worthwhile looking through the other end of the telescope and examining likely strategic choices for market leaders.

So what is an appropriate definition of a market leader? Is it all to do with scale?

Well, many market leading firms are big companies, but that situation is not always the determinant of a market leader.

A better definition of a market leader is typically the firm with the largest market share.  Through its pricing; advertising intensity and share of voice; and its rate of new product introduction, a leader dominates the marketplace. The market leader becomes the benchmark for the industry.

So it is perfectly possible for a small or medium-sized firm to be a market leader.  As one wise owl once said, “There is no such thig as a small business; only businesses which haven’t got big yet”.

Market leadership is not determined by a company’s size.  This is particularly true in fields such as cutting edge new technologies.

Market leadership is a measure of an organisation’s ability to determine the nature and bases of competition within a particular market.

Market leadership is also a question of definition. Bot Aston Martin and Fiat make motor vehicles; but is Aston Martin in the same market as Fiat. The latter makes mass market family cars. The former makes luxury sports cars. Are those the same market?

So what are the primary strategies for a market leader?

They are:

  1. How best to expand the total market
  2. How best to defend the existing market share
  3. How best to increase market share.

Market leaders will generally gain most by expanding their market. For example, in the 1960s and 1970s Honda looked to expand the market for motorcycles to consumers not normally associated with bikes such as women and commuters.

Another way to expand the market is to find new uses for existing products. A fine example is Goretex; a product normally associated with waterproof clothing but now being applied to Elixir guitar strings to make them last longer and remain ‘bright’.

To increase market size you can try to increase usage of products. Hence bottles of shampoo suggest two applications rather than one and chocolate biscuits are sold in packs of five or six; meaning the average family needs to buy two packets rather than one.

Predominantly being a market leader is a defensive position. Leaders are the target for others to attack. To remain in the lead you must repel those attacks and stop market share leakage.

That means the creation of fighter brands to stop competitors undercutting your primary product range. It means horizontal and vertical integration to deny competitors resources.

The large coffee shop chains have been accused of pushing out independent competitors by opening multiple stores in the same area.  Who would buy from an independent where there are three stores of a well-known brand within walking distance of each other?

Think of the cereal or washing detergent aisles in supermarkets.  You will find multiple product options from market leaders which denies market followers shelf space and eye-level product locations.

Market leaders need to set the pace of the market e.g. through product innovation and new product launches.

Being a market leader costs.  It is rare for a market leader to be the most profitable firm in the market (although turnover may be higher than that of competitors).  Profit margins are often lower because of additional spending needed to fund defensive strategies.

So market leaders will try to minimise profit margin losses through efficiency and cost minimisation programmes. This could mean just in time stock control and distribution channel efficiency.

To expand market share several possible strategies are possible.

A market leader can expand its share through the heavy rotation of advertising to increase share of voice.  A leader can improve and expand its distribution channels or introduce price incentives to increase sales.  Mergers, takeovers and exclusive distribution deals can also be used to expand market share.

Market leaders need proactive strategies; they cannot be passive in the market.  Over the longer-term, the most important factors affecting a market leaders performance will be the quality of its products or services relative to those offered by competitors.

A leader’s market share and its profitability is strongly related to:

  1. Return on investment matching market share increases
  2. Above average rates of investor turnover (i.e. there is a thriving market in the organisation’s shares); and,
  3. There is a lower ratio of marketing expenses to sales revenue i.e. there are marketing economies of scale.

Market leaders often experience high investment activity which is a drag on profitability. This commitment to project investment intensity means it is harder to sustain growth of the firm.

Often the analysis of market leaders product portfolio shows profits are generated through ‘cash dogs’ and ‘wildcat’ products not from cash cows (where cash generated need to be reinvested to support new product innovations).

Being a market leader should be the aim of all businesses.  In the game of commerce, that is the goal. However, some firms can be happy being in a ‘strong second position’. Being a strong second means profits can be generated but the costs associated with market leadership can be avoided.