One of the secrets of successful marketing is developing your organisation so that it has fewer, smarter people to deliver more value to customers faster.
However, things are not that simple in complex, mature, competitive markets. All players in such markets are after the same thing and they are all fighting for the same set of customers.
Some economists will place price as the primary or sole factor in customer value. this is the perfect competition model. It may be acceptable in simplified economic modelling but it bears no relation as to what happens in real life.
Consumers do not just buy products. If a product solution was the only factor in consumer purchases, all goods would have the same features and price would be the sole factor in consumer decision making.
The only markets where price is such an over-riding concern are bulk commodity markets, such as steel or oil. Certainly consumer product markets are rarely decided on price alone.
Consumers form brand preferences. They value things like customer service. Their self-image projected by the use of brands is important to them. They like to develop brand loyalty.
These brand preferences drive customer expectation. For example, consumers expect BMW cars to be superbly engineered; They expect Marks and Spencer’s clothes to be well made and good value; They expect McDonald’s burgers to be of a consistent quality and consistency.
When these customer expectations do not match the delivered product, then customers are dis-satisfied and seek alternatives.
More and more, as technology drives product conformity, brands are using halo services to differentiate their products from those of competitors. Brands today represent more than physical products. Increasingly brands look to expand beyond their traditional product categories. Caterpillar isn’t just a maker of earth moving equipment, they are a clothing brand.
Brands are not only product; they are services, values, promises made by the seller. They are an amalgamation of aspects which leads to the creation of a ‘personality’.
Smart marketers do not look to sell products: They sell benefits packages. They don’t sell purchase value, they sell usage value. So if, for example, you are in the seed business, you don’t prioritise the cost of a bag of grain, you sell the likely value of the yield from that pack of grain.
Porter state that there are three ways to deliver more value to customers and to beat your competitors:
- Charge a lower price than that of your competitors
- Help customers reduce other costs
- Add benefits which make your brand more attractive than that of your competitors
To win through price leadership means having an aggressive pricing strategy. You must become the low cost option (again not just purchase price but usage price). Such a strategy requires organisational scale, market experience, inexpensive locations (outsourcing), superior cost control and supply chain bargaining power.
Often price leadership means offering fewer options in the market. Lower prices are often driven by not offering free delivery or making the customer do more of the work. For example, if you forget to print your boarding card at home, they will apply a significant surcharge to print it at the airport. Ikea make you assemble their furniture.
Such a low cost strategy means relying on tight profit margins and selling in bulk. It is difficult to sustain such a position over the longer term.
Many firms operating in business to business markets focus on lowering their customers other costs. this could be through having longer service schedules, energy efficient machinery, easier repairs. They market by showing customers that the cost of usage over time is lower than that of competitors products. Others offer to share the customers risk by selling on consignment, having low minimum order quantities or issuing exceptional guarantees e.g. no win no fee litigation.
Some firms go further by actively helping their customers lower costs. Such companies want to be considered a business partner not just a supplier. they offer customers training and support. They may locate staff in customers premises to offer functions like on-site maintenance. They offer services such as computer software and automated re-stocking.
Inventory cost can be lowered through matching customers Just In Time stock control procedures or through providing inventory outsourcing.
Through helping to reduce customers processing costs many firms become the preferred option in a market. This could be through improving yields; reducing waste and reworking; reducing customer’s labour costs, reducing accidents and lowering energy costs.
Many firms analyse their production chain using customer value analysis. Offering to lower costs away from that value chain, such as reducing administration costs or the costs of legal compliance can be a profitable marketing opportunity.
Some firms are successful in markets through offering value added. This could be through a ‘more for more’ strategy where additional features and functions are added for a slightly increased price. The trick is to bundle features and services which customers value but which come at a relatively low cost.
This could be the offering of product customisation, increased convenience, faster services such as delivery time, adding free coaching or training, offering consultancy services, issuing extraordinary guarantees and member benefit programmes (e.g. executive lounges at airports).