Acquiring, Retaining and Growing Customers

Anyone who speaks to me about marketing will know my pet peeves.  Chief amongst them is organisations who conflate the term marketing with sales.  You often see the term ‘marketing representative’ used instead of salesman.  House builders have marketing suites on their developments, not sales offices.  But sales is not marketing.

I also see plenty of businesses who have a ‘Sales and Marketing’ department.  I hate this description it smacks of a silo mentality and that a firms marketing activities are subservient to its sales team.  It also usually means that to the organisation’s senior managers, marketing is predominantly a promotional activity.  But promotion is only one element of the marketing mix.

In my view, these definitions of marketing are wholly incorrect.  Properly defined, marketing is a critical strategic activity that should sit closely to an organisation’s senior management; not a distant silo subservient to the organisation’s sales team.

That said, sales and marketing are linked activities.  There is no point in a corporation developing a customer focused strategy, if it isn’t enacted by its sales representatives.

Marketing guru, Peter Drucker once said, “the only profit centre is the customer”.

For too long, the focus of sales teams was therefore growing the customer base.  More customers meant more profit and greater market share.

However, in today’s highly competitive markets, the focus has moved.  Bob Weyland said:

“The paradigm has shifted.  Products come and go.  The unit of value is the customer relationship”.

So today, particularly in B2B markets, the focus is about growing and deepening the relationship with your existing customers.

Studies have shown that the cost of obtaining a new customer is five times that of keeping existing customers happy.  The longer you keep a customer, the more you can earn from them.  It can take many years for a new customer to buy at the same level as existing customers.

The focus on existing customers means not taking them for granted.  Every so often you have to do something special for them.  You need to encourage their feedback and react to that feedback.

However, there will always be a process of erosion.  Whatever you do you will lose customers.  For example, the fashion retailer Top Shop targets consumers under the age of 30.  So what happens when that target market ages?  How many sixty year olds will buy clothes from Top Shop?  Like products, customers will have a lifespan.

So as well as retaining existing customers, you will always need to obtain new customers.  And of course you have to turn new prospects into repeat buyers.

In today’s markets, customers have extensive choice.  There is an abundance of suppliers and brands.  So you have to do more than locate prospects.  In addition to locating prospects, you need to sell to them and you need to turn them into repeat buyers.

Generating customer leads is a three-step process.

Firstly you need to define the target market.  That means a structured process of segmentation, targeting and positioning.

My brother runs a small landscape gardening business.  I asked him who his target customers were.  His reply: “Everyone and anyone”.  This is clearly an unrealistic approach. For a start, his business doesn’t have the resources, financial or otherwise, to promote his services to all.  He needed to identify customer groups which were worth obtaining; customer groups which would offer the best returns and who were the best match for his skills.

The targeting and positioning process means that you need to deepen your knowledge of the target market;  you need to know what it wants; what it buys; where it buys; when it buys and HOW it buys.

Secondly, you need to solicit leads through communication tools, the promotion bit of the marketing mix.  Traditionally, this has meant advertising, personal selling, direct mail and events such as trade shows.  Today it may also mean product registrations, event sponsorship, using celebrity advocates.

Remember the internet and social media is a promotional channel, like television or radio when it comes to soliciting leads.

Thirdly, you need to qualify the leads you gather.  Not all leads are worthwhile.  For example, there is little purpose in my brother collecting leads five hundred miles from his base as the cost of travelling to do the job will erode any profit margin.

Some prospects may express an interest in purchasing your goods but will have no intention of actually doing so.  They may lack the means.  I would love to own a vintage Fender guitar, but the cost, and my level of ability on the guitar make that prospect a dream rather than a reality.  Ferrari recently produced a high-end sports car model where to be able to buy the car, you had to prove that you had the ability and expertise to buy it.  You never got to keep the car at your home.  It was kept by Ferrari who would ensure it was safe for you to drive.  Clearly, many motor racing fans would love to drive that Ferrari but would lack the expertise needed to drive it.

It really matters that you identify the BEST leads.  You need to distinguish between hot, warm and cool leads.  Hot prospects are those most able and willing to buy; those most able to buy.

Hot leads need to be prioritised.  It is not worth wasting the time and resources selling to those only partially interested in buying.

A useful selling technique is to use SPIN questions:

  1.  Situation Questions – e.g. how many employees do you have?
  2. Problem Questions  – what problems and difficulties is the customer experiencing? What are they dissatisfied with?
  3. Implication Questions – How do the problems affect the customer?
  4. Need pay-off Questions – What is the value or usefulness of your proposed solutions? e.g. What if I told you that I could reduce the cost of the implication by 80%?

You aren’t selling products or services but solutions and capabilities.

So how do you calculate if a customer is worth getting?  One method is to analyse the customer acquisition cost against prospective customer lifetime profit.

For example:

  1.  Cost of sales representative = £100,000 per annum (this is the total cost not just their salary)
  2. Average number of calls per annum by the sales representative = £200
  3. Average cost per sale = £2000

This is an underestimate of the cost of customer acquisition as it ignores work on advertising, promotions and administration.

  1. Annual revenue from customer = £10,000
  2. Average number of years of loyalty = 2 years
  3. Profit margin = 10%
  4. Customer lifetime profit = £2000

This may appear to be a breakeven situation but the prospective customer lifetime profit is an over-estimate as profit margins will vary between customers.

So in this example the company is actually paying to acquire the customer.  The cost of acquiring the customer exceeds their worth to the company.

Once you have obtained a new customer, your next task is to keep them.  You have to develop a customer and move them through development stages.  This is often referred to as the ‘customer ladder’.  Customers move from prospects, to first-time customer, to client, to advocate, to member, to partner, to part owner.

To make a first time buyer a client, they must be satisfied; not dissatisfied or ambivalent.  It is therefore crucial to develop a customer satisfaction index and to listen to your customers.  You need to estimate the cost of losing customers.  Do you need to improve your customer services.  remember social media makes it very easy for dissatisfied customers to tell others.  You need to resolve customer complaints quickly.  You need to accept responsibility to win back goodwill.  Remember ‘the customer is king’.

Once a first time buyer becomes a repeat customer, you need to identify key accounts.  You need to classify customers by ‘depth of repeat’.  You need data on frequency, recency and monetary value of a customer’s purchases.

Remember retained customers are better targets for cross-selling and up-selling.  They reduce the cost of service through familiarity with your products and systems.  Highly satisfied repeat customers become advocates and create word of mouth.  Long-term customers are also less price sensitive.

Advocates represent the statements “the best advertisement is a satisfied customer” and “Satisfied customers become apostles”.

In some markets it is possible for satisfied customers to become members e.g. a golf club will often accept ‘pay and play’ customers but to survive in the long-term it will need a robust membership.  Car manufacturers operate owner’s clubs which offer special benefits and privileges.  Rock bands and TV shows develop fan clubs.  If customers switch away from these clubs, they lose the membership benefits.

In B2B markets, often the aim is to develop a partnership with a customer.  Software firms get customers to help develop and amend their products.  They use beta testing where trusted customers get to use prototype programmes, to identify bugs and to suggest improvements. Aerospace manufacturers will work closely with engine manufacturers.  The finished aircraft will be an effective joint-venture.

In a part-ownership model, the customer is a critical stakeholder.  This is the model used by building societies, cooperatives, community owned pubs, credit unions and buying clubs.  Customers have a direct say in the organisations policies and procedures.

So, if you want you business to be a success in today’s highly competitive business environment, it is not enough to garner new customers, you need to keep customers and develop them not just in terms of profit growth but in terms of an ever closer relationship.

 

 

The New Consumer and the Implications for Marketing Strategy

The 1990s saw the rise of a new type of consumer which represents a significant social change and which reflects a more confident but more cynical consumer.  This change isn’t just represented in the way consumers buy goods and services; it is increasingly evident in culture and politics.  There is a real possibility that the election of Donald Trump and the vote for Brexit are a direct result of this shift in consumer behaviour.

For much of the 20th century, consumers were often viewed as conformist, differential children.  This status was a direct result of the hardship of events from the 1920s to the 1950s.  During that period, consumers faced the hardship of the depression that resulted from the Wall Street Crash; they experienced the rationing, shortages and hardship of World War Two; and in Europe they faced the significant costs of rebuilding the damage caused by the war.   Austerity was the norm and that drove conformity.

In the UK, there was rationing until the mid-1950s and successive governments nationalised what they saw as key industries.  Nationalisation clearly saved some industries from oblivion but it often resulted in a lack of consumer choice and terrible service standards. UK consumers had no choice but to accept what those nationalised industries gave them.

For example, in the UK, up until the mid-1970s, if you wanted a telephone, you could only get one from the nationalised Post Office and you had little choice of design or colour.

Prior to 1950, there was no such thing as the teenager.  Prior to that date, when you left school you went straight from being a child to being an adult.  You wore the same style of clothes as your parents, you listened to the same radio programmes and your choice of music was classical or jazz.

Compare that world to now.  Consumers have a vast variety of goods and services from which to choose and switching is easy.

During the austerity of the middle part of the 20th century, social views were one of conformity.  People talk about the greyness of 1950s Britain.  Everything seemed drab and ordinary.  Your life was effectively planned.  You lived with your parents until you got married.  Society expected 2.4 children, a Morris Minor and a three-piece suit.

If you listen to political interviews of that time, it is astounding how differential journalists were of those in authority.  Searching questions were rare and if asked, would be treated as contemptuous; as if the interviewer was attacking the politicians honour.  It was a cultural norm that elected officials and government ministers were your ‘betters’.

For a minority, the Swinging Sixties represented a casting off of this social and cultural straightjacket. However, for the majority of UK residents, those outside London’s cultural fulcrum, the greyness of the 1950s remained until well into the 1970s.

L.P. Hartley summarised it nicely in his 1953 novel, The Go Between:

“The past is another country, they do things differently there”.

In the 1990s, the UK shifted from a state where austerity was the norm to an environment of affluence.  Whatever your political views it is clear that Britain was a wealthier place after the Thatcher premiership.  Consumers expectations changed. They moved from a position of conformity to one of individualism.  They expect choice and extremely high levels of customer service.

During the austerity between the 1930s and the 1950s, consumption was about survival.  Consumers purchased what they needed to survive. Today, they buy what they need and what represents their personality.  The mindset of consumers has shifted up Maslow’s hierarchy of needs towards self-actualisation.

There is another side to the move towards individualism, consumers are becoming increasingly cynical.  They are less trustful of authority and less trustful of advertising.

This is clearly shown in our attitude to both journalists and politicians  It is why the likes of Nigel Farage and Donald trump aim to present themselves as anti-authority and not part of an elite.

Of course, take one look at the credentials of many of these politicians, and they couldn’t be more establishment.  Farage was privately educated at Dulwich College, he is the son of a city trader and is a former merchant banker.  Trump inherited his billions from his father; he went to select schools.  Since childhood Trump has lived a life of luxury, private jets, limousines and gold-plated lifts.   Both these individuals have nothing in common with the ‘man in the street’.

Like Trump’s election, Brexit is a symptom of the increased cynicism.  I guarantee that the vast majority of those who voted to leave the EU had not a clue of about what the EU did, how it operated or its structures; what they wanted was to express their cynicism of politics in general and to give the government a kicking.

So old style consumers were constrained by income, limited choice and the availability of goods.  The new consumer is cash rich, has almost unlimited choice.  Compared to the last century, consumers now face a significant increase on calls on their time.  They are time short so need answers quickly and efficiently delivered.

Increasingly, social tribes are breaking down.  For example, in the 1950s you supported your local football team.  If you lived in Manchester, you supported United of City.  In the early 1960s, if you were under 23, you were a mod or a rocker.  Now Manchester United have fans located all over the world and there is a proliferation of musical and cultural genres.  Where once you were part of an individual cultural tribe, it is now the norm for an individual to be a member of many tribes and to act in a number of social roles.  It is now almost expected for someone to be a wife, mother, manager, co-worker, charity campaigner, councillor, simultaneously.

The increased expectations of consumers means that businesses need to understand consumers better.  They need to directly attend to those consumers needs.  If they do not, they are doomed to failure.

Increasingly consumers are using their purchasing power to regain some control over their lives and to alleviate their frustrations resulting from hectic modern lives.  Most see their life as more uncertain than that of their parents.  Their buying habits have become a prescription against such frustration.  Uncertainty has also weaponised nostalgia, a critical element in Brexit.  Consumers have greater vulnerability; they feel anything can happen at any time.

It is also notable that consumers increasingly use purchases to ‘cheer themselves up’.  This is particularly notable amongst the group described as ‘Millennials’.

It is also noticeable that consumers expectations of service levels are outstripping product satisfaction.  Clear evidence of a focus on the experience of purchases not simply a focus on product features.

So what are the lessons for marketing strategy:

  1.  You need to reconnect with your customers.  Do not fall back on traditional demographic categories such as age, ethnicity and income.  Marks and Spencer has struggled over recent years trying to match its products to the new image consumers see themselves as having.  Discounters such as Aldi and Lidl saw a big rise in ‘middle class’ customers.
  2. You need to become better at directing messages to an increasingly cynical consumer audience who have immediate access to communication technology.  Consumers can now express their satisfaction, or dissatisfaction, instantly; and too a mass audience.  It is noted that highly critical reviews can be far more influential than formal advertising campaigns.  Consumers are becoming smarter.
  3. There is now a focus on creating ‘street buzz’.  Increasingly companies are getting better at selecting and using selected opinion formers rather than developing advertising hype.  For example, Ugg, the sheepskin boots manufacturer, don’t do much in the way of traditional advertising, they rely on consumer advocacy, appropriate brand advocates and ‘superfans’.  To develop buzz, Ugg employ bloggers and vloggers, who don’t just promote the brands footwear but talk about other associated issues such as music, art and fashion.  Through the spread of social media and the internet, there is an increased focus on viral marketing.

This law of increasing individuality has resulted in greater competitive intensity.  Markets are becoming more competitive.  As a response, there is an over-riding need to individualise products and to tailor services (the product surround) to consumer’s needs.

This is the development of ‘micro-segmentation’; the impact of which on many businesses is increased price transparency and a focus on ensuring that consumers feel empowered.  Businesses now face pressures to cut costs and maintain profit margins whilst not raising prices.  A common result is product downsizing.

Businesses also need ‘complicated simplicity’.  Yes that is an oxymoron.  As a single consumer can belong to a wide range of ‘tribes’, you cannot typecast.  You cannot put consumers in boxes of generic description.  Increasingly businesses created individual customer profiles and design products with those profiles in mind.

Much of the success of Amazon has been the tailoring of offers to individual consumers.  Yes, Amazon used new technology to disrupt the bookselling market but now they use increasingly sophisticated algorithms to tailor their product offers.  they are continually improving this process.

The rise of the new consumer has huge implications for marketing strategy.  You need to supercharge your marketing agility to meet consumers demands and to meet their increased expectations.

Developing Customer Retention Strategies

Most senior managers in a business talk of developing customer or brand loyalty.  The principle is that the longer you keep a customer, the more you earn from them.   To survive in the long-term, you need to develop high lifetime value.

However, loyalty is fickle.  Successive academic studies have shown that even the most loyal of customers will switch to a competitor if the believe there is better value on offer.

In this blog we have also discussed that there is no longer a product which is purely defined by the definition goods.  All products have a service element and often the opportunity to differentiate goods from those of competitors and to add distinctive value.

This makes it odd that in some sectors little is done to retain customers and customer service is, quite frankly appalling.  For example how many of us have been stuck on the telephone line for what seems like an age to a bank or utility firms call centre with no ‘call back’ option.

Then there are industries where customer retention seems to be an alien concept and customer lifetime value appears to be the last thought of company directors.  The car insurance industry is one such sector.  The aim appears to be to get consumers to switch every year by only offering discount to new customers.

In business to business markets, where there are often fewer customers, higher purchase costs and complicated contracts, there is often a constant battle to adapt and improve service capabilities and product functionality.  In such markets, customer retention is the key to business growth and survival.

Senior managers shouldn’t confuse customer or brand loyalty with customer retention.  You don’t develop brand loyalty strategies, you develop customer retention strategies.

So how do you develop customer retention:

  1.  Target Customers:  Not all customers are worth building a relationship with over the longer-term.  Some customers are habitual brand switchers.  Some will not generate significant lifetime value; they will not provide sufficient income or their service demands incur excessive costs.  Some customers; disruptive ‘zombies’; may actually disrupt service provision and affect a firm’s relationship with other more profitable customers.  This is a classic marketing segmentation and targeting approach.  You should aim to retain, high value, frequent use, loyalty-prone customer groups who recognise your product as having high service values and utility.  You need to identify those customers  in that group who are most likely to defect to competitors and ask whether they are worth retaining.  You then need to build a value-added strategy to meet those customers demands.  For loyalty-prone customers, it is important to maintain communication bonds.  It is worth remembering the Pareto principle that 80% of turnover comes from 20% of your customer base.
  2. Bonding:  You need various levels of strategy to bond customers and service providers together.  You need to select the  level of strategy most appropriate for the bond with each customer:
    1. Level One:  You bond through financial incentives.  You provide discounts for bulk purchase or you provide a loyalty scheme for repeat purchase.  However, such financial incentives are easily copied by competitors.
    2. Level Two:  You develop more than just price incentives; you build sustainable competitive advantages through the creation of social as well as financial bonds.  Customer service encounters are often also social encounters.  To build social bonds, you require frequent communication.  You need to provide community of service through and entertainment activities.  for some customers you need to make them feel that they are being treated as an individual.  For example, Harley Davidson runs events for their owner’s club; Las Vegas casinos offer ‘High Rollers’ the use of luxury suites and special tables.
    3. Level Three:  You need to develop financial, social and structural bonds.  The relationship should feel more like a partnership than that of a supplier and a customer.  This often involves the creation of bonds which tie the customer to your company.  For example some logistics firms provide customers with packing equipment which only works with the logistics firm’s systems..  Such structural bonds often create formidable barriers against customer switching and new competitors entering the market.
  3. Internal Marketing:  To build high quality service delivery, you need high quality performance from employees.  Recruitment and employee selection is often key to bonding as is employee retention. Retained employees often develop expert knowledge about your products and services.  You need to provide high quality staff training.  You need effective communication channels with your staff and they need to be appropriately motivated.  Staff need to have technical competence but they also must be able to relate to customers.  All your staff, from your receptionist to your engineers, are part-time marketers.
  4. Promise Fulfilment:  You must make credible realistic promises, keep those promises and give your staff the knowledge and equipment to deliver upon them.  this is the keystone of maintaining customer relationships.  They are the cues to match customer expectations and to avoid customer disappointment, dissatisfaction and defection to competitors.  The mantra should be ‘under-promise; over-deliver’.  First impressions count so your first contact with customers is critical. For example, Marriot Hotels have a ‘first ten minutes strategy’ to ensure the relationship with hotel guests gets off on the right foot.
  5. Building Trust:  Customer retention relies on building trust.  Services are intangible.  To ensure retention you need to keep in touch with customers and modify services to respect their views.  This means providing guarantees which inspire confidence and which reduce perceived purchase risk.  Your policies need to be considered fair by consumers.  Staff must recognise required high levels of conduct with consumers.
  6. Service Recovery:  Solving problems can restore customer trust.  Ideally, potential problems should be eliminated before they actually happen; but that isn’t always possible.  If incidents occur, systems should be capable of modification so those incidents cannot be repeated.  This means having a quality assurance system capable of adaptation such as Kaizen or Six Sigma.  Systems should be tracked to identify service failures. Customers should be encouraged to report problems.  Monitor complaints and their resolution.  Follow up on service provision.  Most importantly, train and empower your staff to deal with problems and complaints before they escalate.  Successful resolution of a complaint can actually increase a customer’s positivity about a service provider.  This is called the recovery paradox.  But if the complaint recurs, the increased positivity can dissolve into dissatisfaction and recrimination.  Service recovery can encourage organisational learning and service staff should be motivated to report problems.  Effective service recovery systems can increase customer retention.

Customer Service – Why it Matters

I have spent the vast majority of my career working in the field of consumer protection and trading standards.  As a result I have dealt with literally thousands of consumer complaints relating to poor customer service.

Marketing is about developing a customer-focused organisation.  Therefore developing strong customer service capabilities is crucial to commercial success.

Customer service is critical to the development of successful strategic marketing processes.  The development of strong customer service policies and procedures are critical to the development of a strong brand image.

We live in a world where the core of a product offering is becoming increasingly commoditised.  If you are seeking to add value to your core products and you wish to differentiate your products from those of your competitors, product halo elements such as the development of differentiated and strong service elements is a prominent option.

Previously in this blog I have discussed the work of Treacy and Wiersema.  In particular, the three potential strategies for excellence, Product focus, Managerial Excellence and Customer Intimacy.  Managerial excellence is an inward looking strategy and developing excellence in product focus can be expensive and risky.  Therefore for many firms, particularly SMEs, the development of customer intimacy through the development of excellent customer service provision is critical to success and growth.  Developing excellence in customer service is critical to the creation of customer intimacy.

In his book, Marketing Plans, Professor Malcolm Macdonald describes the service profits chain; how the development of strong customer service strategies can be central to the growth of a firm’s profitability:

  1.  Employee Satisfaction:  Satisfied employees provide better service quality. If you have satisfied employees, you have less staff turnover.  This means your staff are better trained and more knowledgeable about your products and services.  Satisfied employees are more productive.  Satisfied employees have a greater commitment to the company and they present themselves better.
  2. Improved Service Quality:  Satisfied employees provide better quality service which leads to greater customer loyalty.
  3. Service Quality:  If you have satisfied employees you have better service quality.  Customers exhibit greater satisfaction with your brand.  They buy more.  They buy more often.  They are retained for longer.  The exhibit greater loyalty.
  4. Customer Retention:  Increased customer loyalty leads to greater customer retention.  This creates an opportunity to increase profitability.  Loyal customers are less likely to switch to your competitors simply because of a change in price.  They are willing to spend more as they have familiarity with your products and processes.  Loyal customers cost less to serve.  They can offer opportunities to lower marketing costs through lower promotional budgets than those required to gain new customers.  The longer a customer stays with your firm, the greater their lifetime value.  Customer retention also creates greater shareholder value through improved revenues and reduction in risk.
  5. Positive Feedback Loop:  Satisfied customers treat staff better.  They develop a positive relationship with your employees and with your brand.  There is a positive correlation between customer satisfaction and employee satisfaction.

I see a parallel between the positive feedback loop of the service profit chain and the feedback loop of the balanced scorecard developed by Kaplan and Norton. The theory of the balanced scorecard is that improved organisational learning leads to better internal processes; better internal processes leads to better customer service; better customer service leads to improved financial performance and in turn, better financial performance means that you can invest more in improving your organisational learning and development.

Macdonald outlines five dimensions of service quality:

  1. Tangibility:  This is closely linked to the physical evidence elements of your marketing mix.  Good service quality is linked to the physical equipment used by customers and to the appearance of your staff.
  2. Reliability:  Quality service provision must be performed dependably and accurately.  It must be accurately repeated.
  3. Responsiveness:  You must show willingness to help your customers and you must serve their service needs promptly.
  4. Assurance:  Your staff must be knowledgeable and courteous.  They must have the ability to inspire confidence amongst your customers.
  5. Empathy:  Your employees must care about customers concerns and offer them individual attention.  They must show that customers concerns are important to them.

These five dimensions of service quality are critical if you are following the principles of SERVQUAL.

Today, it is often said that consumers, in particular the incorrectly defined market segment ‘millennials’, buy experiences not goods or services.  Consumers now want products which are engaging, robust, compelling and memorable.  Customer experience goes beyond the development of service.  To develop quality experiences, you need to go beyond exceptional service quality.  You need to recognise:

  1.  Usage Processes:  This is how customers access  and use your goods and services. Usage processes influence how your customers think about your firm.  Their concept of product value develops through their use of your goods and services not at the factory gate.
  2. Peer to Peer Interactions:  The interactions between your customers are important.  They are an important part of developing robust experiences.
  3. Relationships:  Too many satisfaction/service quality services erroneously focus on individual customer transactions and encounters.  they do not examine longer term relationships over time and across multiple transactions.
  4. Brand Image/Communication:  People don’t own an iPhone or a BMW because of their functionality.  They own them because those products make a statement about the owner.
  5. Emotions:  Customers are not entirely rational.  Emotions have a big effect on their relationship with a firm and their rating of the experience you offer.

When developing a marketing plan, you need to be cognisant of customer service needs and concerns in each of the above areas.

Making your brand authentic

Traditionally, when the word authenticity was mentioned by senior executives, it was defined by the term ‘the genuine article’.  It was a reference to official goods as opposed to counterfeits.  Authority was conferred on a product through the enforcement of intellectual property and the use of legal force in terms of both criminal and civil sanctions. Thus authenticity was conferred on products by their manufacturer.

Today, authenticity is conferred through the perception of consumers.  To develop an authentic brand story, you must buy in to the perceptions of your target consumers and fit within their concept of the truth.

What recent political campaigns have shown is that something doesn’t need to be true or factual to confer authenticity.  Leave won the EU referendum campaign through the widespread dissemination of lies and myth.  They plastered a bus with a false and misleading statements about “£350 million a week for the NHS”.  This was a lie as the UK only ever paid a fraction of that sum to the EU as its membership fee.  Donald Trump continues to send out false and misleading messages.  For example, this week he tweeted about a large rise in the crime rate in Germany.  In truth crime in Germany has fallen to its lowest level in over a decade.

Obviously there are laws to prevent the dissemination of false or misleading statements about products (e.g. the Consumer Protection from Unfair Trading Regulations 2008) and there are far less robust controls in politics.  However the Trump and leave campaigns won because their messages fitted best with the perception of the truth amongst the target audience.  Common sense and facts did not matter, the misleading messages fitted with the target audiences beliefs.  Both Trump and Leave cynically targeted the less well-educated and the politically dispossessed with fairy stories and the creation of a false Utopia.  In the long run the lies told by Trump and Leave will be exposed and the effects of a policy based on lies will be felt.  But politicians aren’t trying to maintain a product over decades.  Their concern is for the immediate campaign, not the campaigns of ten years time.  They are quite happy to deliver a prospectus which contains false authenticity because by the time the effects are felt, the ‘product they sell will be gone.

That is not an appropriate strategy if you are trying to develop brand authenticity in the long-term.

However, as with politics, something doesn’t need to be true to be authentic.

Charles Morgan, of the Morgan Motor Company, which makes ‘classic British sports cars’ said:

“Rather than a brand, I think it’s an attempt to interest the cult and to keep the cult going.  we like telling stories people can tell in the pub and that makes them feel part of the family.  And so the brand is made up around a series of myths; some of which are true, some of which are owned – The one about the wooden chassis in France, we have tried and tried to get rid of that, but it still persists; and I think eventually we’re going to have to say, “Okay, yeah, yeah, it’s true”.

Of course, parts of a Morgan car are constructed from wood, but the chassis is not and never has been.  The wooden chassis myth is part of the subjective nature of brand authenticity.  The fact Morgan talks of myths, truthful and owned, is part of the firm’s creation of an alluring mystique which is authentic in the minds of its target customer group.

So why does brand authenticity matter:7

  1. Consumer brand choice is an extension of their desired self.  They use brands to achieve self-actualisation (the peak of Maslow’s Hierarchy of Needs.  Consumers use brands to confirm a preferred identity but they also go further and use brands to connect with a preferred community.  A brand is a connection to those who think alike.
  2. Authenticity can increase brand equity.  Brands considered authentic are often viewed more favourably by consumers and therefore are seen to have greater worth.  Authenticity can lead to greater loyalty, more word of mouth communication, helps to create brand communities, makes consumers more tolerant of failures and often acts as a defence in tougher times.  In market research, if consumers see a brand as authentic, it is an indicator of purchasing intention.
  3. Authentic brands are often long-lasting.  Their product life cycle is long or cyclical.  Brands seen as authentic can persist for decades.  The UK has two of the oldest brands in the world, Lyon’s Golden Syrup and Bass beer.  Both these brands have persisted for nearly two centuries.

Developing authenticity provides an ongoing point of difference.  It can also provide excitement and élan.

For example, Lexus cars are seen by consumers as technically excellent but boring.  Alfa Romeo cars have a record of inconsistent performance (particularly electrical faults) but they are seen as having soul.

Here are five strategies for building brand authenticity:

  1.  Become part of the community:  Assimilate the psyche of nations and sub-cultures.  What is Australia without Vegemite? What is France without Champagne?  What is London without the red double-decker bus?  What is Scotland without Tartan?  Being part of the community makes it difficult for new market entrants to gain a foothold.  If you are part of the community, buying your product is an act of identity, not just loyalty.
  2. Challenge conventions:  It is often authentic to go against conventions; although admittedly that sounds counter-intuitive.  For example, nineteenth century Britain the accepted culture was one of modernisation and technological advance.  William Morris, patron of the arts and crafts movement went against the zeitgeist.  Through Liberty he chose to champion artisan skills and a culture of craft.  He espoused a simpler age based on nature, tradition and emotion.  Liberty still exist to this day.  Punk arose in the late 1970’s as a reaction to the convention’s of progressive rock.  Where many saw the future of popular music as complex and taking influence from classical music, Punk looked to the simpler three chord structures previously seen in fifties rock and roll.  these simpler structures were seen as more authentic than prog.  Dyson are all about challenging convention.  Dyson’s technology is seen as authentic because it challenges vacuum cleaner designs which hadn’t changed in decades.  It is authentic to target the rebellious spirit in all of us.
  3. Stick to your roots:  Authentic brands are stubborn.  It is often a convention in marketing that to sustain a brand over time, you need to adapt to changing environmental, societal and technological factors.  However brands recognised as authentic often ignore societal change and stick to their roots.  In fact there could be a consumer backlash if they do not.  For example, Irn Bru recently changed its recipe.  It reduced the sugar content as a result of a tax introduced by the government on sugary soft drinks. Barr’s faced a backlash from its customers in Scotland who were unhappy at the recipe change.  In contrast, Coca Cola accepted the new tax and raised prices rather than lower the sugar content.  Perhaps Coke was ‘once bitten, twice shy’ following the failure of the New Recipe Coke in the late 1980’s.  Brand history is critical to authenticity.  Heritage, sincerity and love of production are central to consumers’ perception of authenticity.
  4. Love of craft:  Are your people passionate about your products and services?  Do senior managers spend time on the shop floor?  Consumer’s see authenticity when a firm shows true love of their craft.  Morgan cars are one such example.  It has retained the craft of hand-built coach work when other car manufacturers have factories filled with robots.  The firm is family owned and its managers own and drive its products.  Currently there is a group of Star Wars fans who want to remake The Last Jedi ‘properly’.  They feel the latest film in the series didn’t fit with the values of the ‘Star Wars’ brand and with its established conventions.  Brands run and staffed by enthusiasts are seen as authentic.
  5. Business Amateurism:  Authentic brands are often run by people who the general public see as amateurs.  A fine example is Ben and Jerry’s Ice Cream.  In the minds of many consumers, Ben and Jerry are two hippies who decided to sell ice cream.  They are not seen as hard-nosed businessmen.  The impression is that such firms reject market research and use gut feeling.  Of course, this is nonsense but the brand is seen as authentic as it has developed the myth of the amateur.  Amateurs have redeeming features.  They do it for love rather than remuneration.  They think differently (often through a lack of training).  Amateurs are often unconcerned about fame, paying bills or meeting targets.  They are viewed as grounded, humble and playful.

Authenticity is shown, not described.  Overt claims of being authentic are often seen as hype.  Such claims may make genuine brand claims seem fake.

For cultural immersion, small details and one-off experiences can count as much as extensive research programmes.  It is appropriate to immerse yourself in the market culture.  I have just watched Darkest Hour, the film-based on the early days of Churchill’s premiership during World War 2.  The critical scene is where Churchill takes a short journey on the London underground and ask the opinions of the commuters in the tube car.  This is what he bases his policy on, not the statistics produced by his civil servants.  Ugg, the sheepskin boot manufacturer takes a great interest in the views of its ‘brand fans’.  Ugg invites these fans to have work experience in the company where their individual views can be examined. Ugg fans directly impact decision-making.

Employing a brand historian can help develop authenticity.  A brand’s past can inform its future.  authenticity can be built through a company’s history and the colourful characters associated with a brand.  How many firms advertise themselves through the quirks of their creator?  For example, Huntley and Palmer biscuits sponsored Captain Scott’s expedition to the south pole.  Despite the expedition being a disaster, it is seen by many British consumers as an expression of British bulldog spirit and bravery against adversity.  Huntley and Palmer’s exploit  their history to develop brand authenticity.

Authentic brands are not afraid of letting their consumers in on their processes.  It is often critical to firms to get their consumers’ views on new technological innovations, new recipes and new products.  For example many software manufactures use beta testing.  They get trusted consumers to use prototype software and to identify bugs and potential improvements.  Showing you trust your consumers with your ‘in development’ products builds the impression of partnership, shared values and thus authenticity.

Authenticity can be developed through the exploitation of lucky breaks.  Ugg boots started life as a specialist product for male surfers.  they were designed to keep surfers feet warm when they got out of the cold ocean.  The brand got a lucky break when young female consumers saw the boots as comfortable and fashionable.  Dyson took advantage of a market where product design was assumed to be unchanging.  He was also lucky in that the market leader, Hoover, was in financial difficulty following the Sinclair C5 debacle and a disastrous free flights offer.  Dyson took advantage with new technological designs and fashionable design.

Creating and developing brand authenticity is a challenge.  It is critical to develop open-ended and rich stories rather than technical position statements.  It is important to espouse enduring values, emphasise love of craft and to develop a powerful organisational memory.

Establishing Goals; Setting Objectives and Targets

Few organisations have a single objective.  They have a range of objectives which compete for the attention of managers and stakeholders.  These include profitability, sales growth, retention of market share and risk containment.

These objectives are influenced by a range of cultural factors:

  • Environmental factors –
    • Societal values
    • Pressure groups
    • Government policy
    • Legislation
  • Organisational culture –
    • History and age
    • Leadership and management style
    • Structure and systems
  • Nature of business –
    • Market situation
    • Nature of products
    • Technology
  • Expectations of stakeholders
    • Shareholders
    • staff
    • customers
    • suppliers
    • distributors

Stakeholders cannot influence an organisation’s strategies without the existence of an influencing mechanism; they must hold some power over the organisation.  Power can be exerted on an organisation in a number of ways.  It could be shareholders voting down the pay awards of senior management; consumers boycotting your products; retailers refusing to stock your goods, etc.  Different markets have different power dynamics.  For example in the market for milk, the supermarkets and dairy processors hold the power to determine the price of milk.  In the oil market, OPEC states virtually control the price by managing extraction.

Organisational objectives have traditionally been afforded a central role in influencing strategy.  This often leads to rigid strategies incapable of amendment.  The expectations and influence of stakeholders, both internal and external need to be taken into account when setting goals and objectives.  Also ensure that strategies are open to adaptation and amendment during development to take account of stakeholder concerns.

Objectives should be set under a range of headings and then each category should be managed.  Objective management needs predetermined planning and control processes.

Every management textbook will tell you that objectives should be SMART (Specific, Measurable, Achievable, Realistic and Time-bound).  Other guidelines also need to be adhered to:

  1. There should be a hierarchy of objectives.  You should weight your objectives from the most important to the least important.
  2. Objectives should be quantitative.  You must satisfy the measurable part of SMART.  An objective shouldn’t be to increase market share, it should be to increase market share by a pre-determined percentile.
  3. You shouldn’t be guilty of wishful thinking.  The realism in your objectives should come from careful analysis and research.  Analysis should be carried out according to pre-determined and documented processes.
  4. You need to be consistent in your objective setting.  It is impossible to offer the highest level of quality in the market and simultaneously maximise profits.  Quality costs.

It goes without saying that your marketing objectives should be derived from and should reflect your corporate objectives.

Organisations have primary and secondary objectives.  For many years it was perceived wisdom amongst economists that profit maximisation was the sole primary objective of a commercial enterprise.  However, management science has now evolved to recognise that professional managers pursue a far wider range of goals.

It is also recognised that many objectives defined as secondary have a direct influence on an organisation’s primary objectives and to ensure the achievement of your primary objective, you must first achieve your secondary objectives.  In certain circumstances, secondary objectives may shift to become primary objectives.  For example, in times of economic downturn, organisational survival or retention o market position may overtake the profit maximisation objectives.

Drucker (1955) suggested eight areas in which organisational objectives need to be developed and maintained:

  1.  Market standing
  2. Innovation
  3. Productivity
  4. Financial and physical resource
  5. Market performance and development
  6. Worker performance and attitude
  7. Profitability
  8. Public responsibility

In recent years, public responsibility has become more important.  In the 1980s, the concept of the triple bottom line was developed.  This is often referred to as the alternative 3 ‘P’s’; People, Planet, Profit.

This approach to organisational goal categorisation was popularised by firm such as Bodyshop and its late creator, Anita Roddick.  The triple bottom line places environmental quality and social equity on an equal footing as profit maximisation.  Bodyshop’s mission statement includes the corporate view on social justice and human rights as an integral part of its business practice.

The theory of the triple bottom line argues that highlighting social issues and taking responsibility for the effect your business objectives will have on them will increasingly be the strategy of choice to enable sustainable competitive advantage

Assessing Marketing & Business Risk

In the last week, other than the royal wedding, the news in the UK has been dominated by three stories; the parliamentary committee report into the collapse of Carillion; Stagecoach and Virgin losing the east coast rail franchise which has been taken back into public ownership; and the report into building control regulation following the Grenfell tower fire.

What links these three stories are businesses who acted recklessly or who did not properly assess the risks to their strategies.

Two of these stories, Carillion and Grenfell clearly involve criminal recklessness which should result in prosecutions and censure of senior board members.  The east coast rail story is a clear case where the bidding firm overestimated potential earnings and underestimated costs.  The result was that Stagecoach/Virgin overbid for the franchise and could not meet expected levels of turnover.  In the words of Chris Grayling, the lamentable transport minister (who causes chaos in whichever department he leads), “they got their sums wrong”.

The assessment of risk is central to the development of marketing and business strategies.

So where do you start?  After all there are a multitude of potential risks in such strategies.  And we can all repeat Murphy’s Law: That anything which can go wrong, will go wrong.  Such a multitude of potential risks means that appropriate assessment of them may seem impossible.

In the book Marketing Due Diligence, McDonald et al. argue that there are three common points in all business and marketing plans:

  1.  The market is this big.
  2. We’re going to take a share of that market
  3. That share will produce this much profit.

These points lead to three risks:

  1. The market isn’t as big as forecast
  2. The planned strategy doesn’t provide the expected share of the market
  3. The target market share doesn’t provide the expected level of profit

These three points therefore capture all the variables that can go wrong in a strategic marketing plan.

Assessing these risks is fundamental to marketing due diligence. It is not a case of counting all the risks with a plan.  It is accurately assessing the potential of these generic risks in your plan.

McDonald breaks each of the three generic risks; market risk, market share risk and profit risk into five sub-categories.

Market risk is that the market is not as big as the forecasts suggest.  When looking for competitive advantage through a gap in the market, it is always worth asking yourself not whether there is a gap in the market but: Is there a market in the gap.

Market risk arises from assumptions in a marketing plan.  All plans are based on assumptions and if they are not adequately tested the can be found to be erroneous and ill-founded.  For example, many Brexit-supporting politicians quote the work of Professor Patrick Minford on the UK economy as gospel.  However, the vast majority of economists (over 90%) see Professor Minford’s Liverpool model as making huge incorrect assumptions and ignoring advancements in economic science since the model was developed in the 1970s.

The five sub-components of market risk are:

  1.  Product category risk:  The product category is smaller than planned.  This risk is higher if you are producing a new novel product or service.  This risk was at the centre of the Dot.com bubble where share values of new internet businesses rocketed with little or no evidence that the market for novel internet products was large enough to provide expected dividends.
  2. Market existence risk:  This is where a segment is smaller than expected.  This risk is stronger in new market segments and lower in established segments.  I do a presentation based on an airline catering firm who produce high-end restaurant quality food for private jets.  The clear outcome of the presentation is that the owner of the business over-estimated the size of his target segment.
  3. Sales volume risk:  This is where sales volumes are lower than planned.  This risk is lower if you use market research to estimate sales volume potential.
  4. Forecast risk:  The market grows less quickly than forecast.  This often because of the incorrect reading of trend data.
  5. Pricing risk:  Your pricing strategy is wrong and reduces the size of your market.

Assessing market risk requires careful questioning of both written and unwritten business plans.  You need a market risk assessment to moderate market size assertions.

A strong strategy will lead to strong market share.  Weak strategies won’t.  So you must objectively assess what makes a strong strategy compared to a weak strategy.  One example of a weak strategy is one which is ‘one size fits all’ rather than one which offers the customer bespoke products meeting their segment or personal needs.

However, you must not define market segments too tightly or too loosely.  For example many in the press will offer Millennial as a segment; yet the Millennial generation is roughly a third of the UK population.  Equally, if you are only aiming the target one-legged Welsh farmers, then it is unlikely that you will meet your market share expectations.

A ‘one size fits all’ strategy only really operates in quasi-monopolistic situations.

The five sub-categories of market share risk are:

  1.  Target market risk:  Your strategy works for only part of your targeted market segments.  This risk is higher if you use homogenous target market segments e.g. ‘millennials’, as opposed to homogenous needs.
  2. Proposition risk:  The proposition you develop for customers fails to appeal to some of your target market.  This risk is lower if segment specific propositions are delivered.
  3. SWOT risks:  SWOT stands for Strengths, Weaknesses, Opportunities, Threats.  This risk occurs if you do not leverage your strengths, you do not take up opportunities, you do not protect against threats or if you do not remove weaknesses from your business.  Each of the four SWOT categories must be rigorously assessed and leveraged.
  4. Uniqueness risks:  This is where you compete with others in your market head on rather than leveraging difference.  It is higher if you offer identical products nad services to those of your competitors.
  5. Future risk:  This is where you do not properly account for changes in customer needs or market expectations.  A prime example is Kodak who continued to produce 35mm film for cameras when most consumers were going digital.  The Kodak situation was worsened by the fact that the digital sensor for cameras was invented by Kodak.

Profit risk arises by not properly assessing competitors’ response to your strategy.  So how do you assess what your competitors will do?

Again there are five sub-components to profit risk:

  1.  Profit pool risk:  This is where the total amount of profit available in a market is less than forecast.  Therefore your competitor’s actions have a direct bearing on your profits because they do not react as you expected.  This risk is higher if the overall profit pool is static or shrinking e.g. in mature and declining markets.
  2. Profit sources risk:  This risk is higher if your plan is to take your growth in profits by seizing customers from your competitors.  It is lower if you are seeking to leverage growth from new customer segments.
  3. Competitor impact risk:  Profits are less than planned because of the impact of your strategy on an individual competitor.  if there is a single dominant competitor in your market, e.g. Amazon in the case of digital retail, and your strategy affects their survival, you may face stiffer competition, harder reaction and therefore lower profits than you planned.
  4. Internal gross margin risk:  This is where profit margins are lower than planned due to a rise in the cost of making your product or service.  This is one area where Carillion went wrong.  The company’s directors operated on very slim margins and had a policy of gaining contracts by undercutting their competitors’ bids.  When projects began to be delayed and the costs of raw materials rose, those profit margins disappeared.  Similarly, Stagecoach found that by over-bidding to run the east coast rail line, they weren’t able to make their expected margins.
  5. Other costs risks: This is where other costs associated with production, such as the costs of marketing or delivery is higher than expected.  These higher costs impact on expected profit margins.

In summary, the risk of not delivering the promised margins is high if your market is small and shrinking, your market contains one dominant competitor and you are over-optimistic in your assumptions about costs.