Marketing 101 - The Essentials of Marketing
In
articles and forums around the web, there is an obvious, common
misconception of exactly what 'Marketing' actually is. Often people use
the word marketing as though it were just another word for advertising.
Some seem to think that Marketing is just another word for Promotion.
Neither is true. Marketing is a far broader topic that holds promotion
as a sub-function of marketing, and advertising as a sub-function of
promotion.
Whatever your current understanding of marketing, from
none to major, this essential primer should provide some interesting
reading and should ensure that you have a good grasp of what marketing
is, and how to use marketing to massively improve your business.
This
won't be a quick post, so make yourself a drink, get comfortable, and
prepare for a darned good read that may even change your business life.
So What Is Marketing?
In
the broadest sense, marketing incorporates everything about
understanding markets (both yours and the ones you have not yet made
yours), bringing your product/service to a market, and even developing
new markets.
To get to the real essence of marketing, as I've
mentioned once or twice before, marketing is about producing what you
can sell, rather than just selling what you can produce.
Marketing is basically the strategic part of business.
Marketing incorporates or impacts heavily upon all of the following activities:
Business Development
Product Development
Market Development
Market Research
Competitor Analysis
Pricing Strategy
Public Relations
Customer Service
Promotions
Brand Development
Company/Corporate Identity
So,
now that you see how big and broad marketing truly is, I've probably
just scared the heck out of you. Well, sip that drink and we'll start
on how to get a handle on it.
Start at the beginning
The
foundation of all good marketing is to know your market. That means
your customers. The well marketed business is completely customer
focused. They identify what the customer wants or needs, and then
supply it at a price the customer is prepared to pay.
The
customer is always right. That is the classic saying which has fallen
from favour in recent years. However it is true. The customer is
always right, provided that they are the right customer.
Henry
Ford supplied his model T Ford in any colour that customers wanted -
providing it was black. That was important. By having just one colour,
the single production line worked, and so the cost of the final car was
a fraction of what other cars cost. He was selling cheap cars, not
colourful cars. The right customer was the one who wanted a cheap car,
and was prepared to accept the fact that it would be black. They could
always pay for their own respray.
Placing
the customer foremost does not always mean having excellent customer
service. It means knowing what the customer's priorities are, and
making them your own. With that said, providing value, the values that
the customer values most, is where the whole secret lies.
To paraphrase Henry Ford: "Whoever focuses on how much they can give for a dollar, rather than how little, is bound to succeed".
Knowing your customers
The
tricky part to this is that you really need to know who your customers
are and what they want even before you can make them your customers.
Bigger businesses literally do this by carrying out extensive market
research to find the best balance of the 4 P's of marketing before they
go any further.
I'll come back to the 4 P's in a moment if you
are not already familiar with them. First however, I want to discuss
ways that the small business, even the Sole-Owner business, can do
market research. In fact, you probably did some of this yourselves.
You ask people you know. "What do you think of this...?", "Would you
pay $50 for a service that...", etc.
Do what market research you
can, and if that means carrying your own clipboard in the streets, or
means trying to find people in your target market to interview, then so
be it. Every scrap you glean will stand you in good stead later on.
It
is the data you get from knowing your customers, combined with the data
from studying your competition in the market, that helps you to find a
good mixture of the 4 P's
The Four P's of Marketing
The four P's of marketing are:
Product
Price
Place
Promotion
Product
is what you are selling. Not just the physical product or the actual
service, but all the customer benefits and values that the product
represents. It is usually not important to have the best possible
product. Cutting edge and feature packed products cost more. The key
is to have the most valuable product in its price range.
Price
is the amount that the customer must pay. This is the acid test of
whether the features you added to the product were really valuable, or
whether you might have been better to cut a few low-value features out
and so be able to offer a lower price.
Place
is sometimes thought unimportant to online business. However, many
deals still go best with a handshake. Services can only be
cost-effectively provided within a fixed travel-radius. Shipping costs
matter. Place is still a vital concern. With the internet, all online
shops are on the super-highway and equidistant to any customer, and yet
people still look for local and regional suppliers. Financial and legal
issues are still mostly set by place too. Where will you place your
distribution centers? Would better placement of your business let you
ship faster or more cost-efficiently?
Promotion
is the P that everyone knows Marketing is about. Of course, we are not
only talking about advertising in promotions, but also sponsorships,
public relations, special offers, viral marketing, and so much more.
Every
business, and every product or service, will need its own special blend
of those four elements. The cheaper the product and the better your
place, the lower the price you can offer. The more attractive a product
is for the price, the further people will travel or the longer they'll
wait, and the less promotion the product will need.
The 4 P's of
marketing all inter-relate to create an overall mix that you can
control, and in doing so, can find the optimum blend for your customers
and market conditions.
Let's illustrate this with something you'll all know - a computer.
I
am going to create a great computer to sell. Using marketing for
strategic business, I know I need to research my customers' values, and
look at what my competition are supplying.
I find a gap in the
market in two respects - first I see that almost all computer 'packages'
are far too low on memory by default. Second, most computers are still
pretty ugly, though great improvements have been made. I'm locating
this business in the city, so I know there are plenty of people and
businesses that can buy my machines, and that delivery costs will be
cheaper because of that.
Okay, so offering at least 1Gb of memory
in every PC is my first product development decision. (You do know
that Windows XP won't run at full speed if you have less than 1Gb of
memory, right?). Now, that means my machines are either going to be
more expensive than my competitors, or I am going to have to cut out
some other feature that offers less value.
I could go for a
cheaper Graphics card for example, and so develop the computer for the
no-nonsense user who wants reliability and performance for serious work,
and isn't going to be playing many if any games.
Or I could save
some on the processor, and offer a slower but more stable machine that
my competitors. The thing is not to just guess, but to know what
features customers assign the most value to. In actual fact, this is
why most computers you buy in the shops are given inadequate memory -
people value other things more highly, and have suffered all the
increased likelihood of windows crashing and freezing up for all these
years because they were more concerned with a big graphics card and
surround-sound speakers, than in supplying Windows with the memory it
actually needs (1Gb, remember).
Okay, I decide on a mix of
components, some brand name, others generic, and create a PC that will
be valued pretty well by customers. I find that I can offer really
beautiful cases and matching keyboards in unusual colours (because my
brother is a real artist with an airbrush) so I add that too. I now
have a unique product that is as valuable as I can get it while not
being far above the price of what else is available. I've done the
market research to confirm that people will pay that little bit more for
the truly beautiful colours and individual look that our custom cases
and keyboards offer.
Now I put the price on it. I'd been
considering price all along the design process as you noticed, but now
is when I decide whether I can cut my margins a little to sell more, or
whether I increase my margins so that I'm covered if my brother decides
that painting all those cases is hard work and he wants more money.
What
I'm actually doing here is betting my business on my belief that the
value of the product to my customers is greater than the price tag I'm
putting on it. I have now got the mix of product, price and place
sorted and now need to add enough promotion to make it work.
A
lot of that promotion may include educating my customers so that they
realise how important it is for a PC to have enough memory. I can run
an education campaign to help them learn that the vast majority of
crashes on Windows are due to memory handling errors, and that by having
1Gb of memory, they will be a full 90% less likely to suffer a crash
than a user with 256Mb of memory - (All pretty accurate, btw).
The
rest of the promotion is to have some advertising that shows of the
attractive cases and beautiful colours, inspiring some of the desire
that I know the artistic work by my brother will arouse. I go for a
couple of big posters at the railway station, some flyers on the high
street where my shop is, and place some posters in the windows of some
cafes where I know lots of office workers buy their lunch.
I
spend quite a bit on some stunning pictures to use in the posters and on
my website of course, and pay for some user testing (I know a guy at
Site-Report.com) to ensure that the 'extra reliability' I am branding on
is going to be supported and reflected by my website. I definitely
don't want any unforeseen irony of an unreliable website.
There's the basis of my Promotion in place. I'll also use SEO and SEM too, because they offer unbeatable value.
In
fact, I decide to sort out shipping for orders from outside the city
and oversees. That way I don't have to be so careful to exclude
non-local surfers and shoppers. The shipping costs will push up the
price massively for those orders of course, but though I'll have a lower
conversion rate on shipped orders, I'll have a wider customer base to
compensate. I still have superb value on the local business, so my
thought for Place is going to pay off.
If the product really does
appeal massively to customers, I may find that ongoing promotion isn't
needed as the viral marketing effect of customer telling lead takes
over. Of course, I may decide that means I'm under-charging, and raise
my prices, so that I need to spend a little more on promotion, but not
as much more as the higher margins are giving me.
Now that, dear friends, is the essential beginnings of marketing.
There's
a lot more to say, but I'm all typed out for now, and there are others
who can contribute more and different perspectives and information to
this explanation of marketing and how to use it. I'll gladly hand over
to them.
Edited by Black_Knight, 12 December 2005 - 09:33 PM.
Posted
07 May 2004 - 08:02 AM
To my mind this is the most important thread in all the Forums. It
is the make-or-break of any business. Get it right and all that
passion and energy that you have will be focused in the best possible
way on achieving your growth goals (that's growing better, rather than
necessarily growing bigger). Get it wrong and you may find that your
business is only operating at 30% efficiency. This may be enough to
allow you to survive, but you may not have as much fun as you should.
Unfortunately 30% efficiency may not be sufficient to ensure survival in
so many markets.
I would also say what an excellent start Ammon has written to kick off this thread. I couldn't have written it better.
I agree 100% with the key points he has raised.
Given
that, I thought some "mind-conditioning" points might be worth making.
This marketing subject is much more complicated than you probably
realize. I want to cover three points.
1. What is Marketing?
2. The Marketing Function?
3. So you think you're customer-centric, do you?There
are more detailed aspects of marketing that will be covered as this
thread grows, and I hope a great number of people will wish to
contribute. However these points I raise stem from that "helicopter
vision" of the subject that I believe is essential before you get into
the nitty-gritty.
1. What is Marketing?I
turned to my trusty Fourth Edition of The Concise Oxford Dictionary
published in 1956 to check the definition. It doesn't include the word!
Yes folks, this subject is relatively new.
Like any computer-savvy individual, I therefore did a Google search for
define:marketing. There are all sorts of very different definitions. I give just two below to illustrate the range.
The
process of planning and executing the conception, pricing, promotion,
and distribution of goods, services, and ideas to create exchanges that
satisfy individual and organization objectives.
www.ncn-ltd.co.uk/sellingtaster/misc/glossary.htmthe
commercial processes involved in promoting and selling and distributing
a product or service; "most companies have a manager in charge of
marketing"
www.cogsci.princeton.edu/cgi-bin/webwnIn
fact there are very different meanings that different people hold. So
don't assume anyone else understands what you are talking about when you
use the word 'marketing'. This can best be illustrated by looking at
how the word is used in organizations.
2. The Marketing Function?If
you look at the evolution of companies, originally it was all very
simple. The cobbler mended shoes and stuck a sign outside his door in
the village. People noticed his 'advertising' and popped in with their
hole-y shoes. By word-of-mouth others became aware of his fine service
(?viral marketing) and his business grew. He was able to hire a helper
and even have time to mend his own children's shoes.
He was a
stickler for high quality and people were coming from surrounding
villages to have their shoes repaired by the best. His little store was
becoming too cramped and he was making a fairly good cash stream. He
felt that his business was fairly recession-proof since people always
wanted their shoes repaired in good times or bad. So he felt confident
in building a second cobbler's shop in the next major village and hiring
cobblers to work there.
He realized that his time was best
spent thinking about sales since he was good at that and hiring cobblers
to do the work in his two stores. You can guess how it went, business
continued to grow and he progressively built more stores in more
villages. He even opened up some stores in the county town. He knew he
had a formula for success and decided that he would have to spend more
time managing and looking for more opportunities. So he hired a sales
manager.
This was happening before 1950 so of course he didn't
have the dilemma as to whether he should have called this lady a sales
manager or a marketing manager. The word wasn't yet invented.
The
essential minimal functions in a company prior to 1950 would be defined
as production, sales and accounting. The boss looks after human
relations. You make the stuff and then you sell it.
I am not
sure how the word, marketing, was first used in organizations. It was
probably seen as an additional parallel function, as per the definitions
above, which would support the direct selling function. So it might
cover advertising and promotions for example. At one point in my
career, I had the title Vice-President, Sales and Marketing. I covered
both functions. Marketing is still used in many organizations in this
sense. It's just a parallel function to the Selling function.
Others
have realized a fundamental truth. Your business is really defined by
what your customers want to buy from you rather than the competition.
Your marketing strategy is the key chapter in your total business
strategy. They use the word, Marketing, in a much bigger sense than
just a support to sales. This is my view. In this view, the three
fundamental functions in a company are production, marketing and
finance/accounting.
Marketing has as part of it, the sales
function. But more importantly, it now includes Internet marketing.
This is another big topic that may not get addressed in this thread.
However the fact of the Internet has changed the whole role of direct
selling.
3. So you think you're customer-centric, do you?This
is perhaps the most important of the three points I want to make. I
believe that no person ever sees the world in exactly the same world as
any other person. I developed this point in one of my early newsletters
Six Important Words.
I
believe it's very tough to try to get into someone else's shoes and see
things as they do. I encourage you to take the points that Ammon
discussed and try to see them from the customer's point of view rather
than you, the business owner. You can read more on this way of looking
at things in an article I wrote, "
Winning Marketing Plans are Client-Centric.
I
believe Marketing is the most important function for your business
success. So take the time to do it well. Your rewards will justify
your efforts. You'll be glad you did.
Ready To Fly Member
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11 posts
Posted
07 May 2004 - 06:09 PM
Barry - really interesting reading. The link to "Winning Marketing
Plans are Client-Centric" isn't working - could you post the correct
link as I'm interested in reading this? Thanks.
Maddy
Posted
07 May 2004 - 06:12 PM
Sorry, I normally check every link in a Preview, but that snuck
through. I made an error in the post code. It's corrected now.
Thanks, Maddy, for pointing that out.
Posted
08 May 2004 - 01:01 AM
Excellent thread, guys. Being a marketing bod myself, I'll dive in and add my piece.
Product DifferentiationAs
Ammon illustrates, marketing has become a fundamental aspect of product
and service design. It simply cannot be bolted on as an afterthought.
It must shape the product or service.
But even that isn't enough.
Why?
Because
the world is full of stuff. Stuff is not hard to come by. Stuff isn't
rare. There is way too much stuff. And there are way too many people
advertising their identical stuff. It's pretty hard to have and maintain
a unique selling point in an established, information rich marketplace.
In order to stand out, you don't just need to be a bit different. You need to be
radically different.
A lot of people have their favourite books they recommend, and one I'd recommend to those new to marketing is "
The Purple Cow"
by Seth Godin. In this book, Seth talks a lot about how marketing is
changing beyond the P's, and how the unique selling point needs to be
pushed harder than ever before in order to generate attention. While the
subject matter can be found elsewhere, the book is a quick, easy read
for those who want to learn the essentials of product differentiation.
And it's purple
"Are you making very good stuff? How fast can you stop?"Very good doesn't cut it.
The
world is full of "very good", therefore very good is invisible. "Very
good" has become the baseline standard. This is why new, me-too articles
on meta tags, no matter how great in terms of quality, will remain
invisible. Why? They are not remarkable, no matter how well they are
written. Remarkable isn't necessarily about quality, it means worthy of
being remarked upon or noticed. It is about product differentation.
This
forum is full of very good threads, but the remarkable threads, the
genuinely different threads, stand out a mile. And people will talk
about them. They will link to them. They will link to this one, not
simply because it contains very good information, but because it is
talking about something relevant that hasn't been talked about much in
the context of webmaster forums. And that differention, in itself, is
effective marketing.
Don't strive to be very good. Strive to be remarkable.
Posted
08 May 2004 - 05:33 AM
Thanks, Peter and Barry, for helping to spread this vital
information. Anyone who hasn't bookmarked this discussion thread yet
should do so now, because there's a lot of valuable information still to
come.
And with that reminder made, lets get on with providing it.
Knowing Your CustomersOkay,
we've mentioned already that the first, golden rule of marketing is to
be customer focused. The fact is, that the better you know your
customers, the better you can anticipate their needs, the better you can
serve their needs, and the better you'll be able to sell them what they
want and make them delighted about it. So in this post, let's look at
how to get to know your customers.
The
more you can learn about your customers, both existing and potential,
the better. Watch them, find out all you can about what they want and
what they value. Talk to them and ask them questions. Make friends and
allies of your customers. Show them that you both have the same goal
of making them happier at heart.
Collecting Customer InformationNow
we have certainly all learned that we are supposed to collect
information about our customers. However, many businesses are not
nearly as clear on what kind of information they should collect, how
best to collect it, or how to use it once they have collected it.
The
kind of information you most definitely want is the kind that you can
use to build up customer profiles (sort of a 'stereotype' of typical
customers) and of course, the ability to identify customer segments so
that you can tailor your products and services for particular key groups
and types of your customers.
How to collect the information
isn't too hard either. In-house you'll probably have plenty of data in
invoices, shipping info, and perhaps a mailing list. Regulatory bodies
often hold plenty of data about companies and finances which can be
great for profiling your B2B customers. Customer feedback is a staple
everyone knows about, but those who freely give feedback may not be
representative of the broad customer base. Customer Interaction, which
is basically market research (either professional or your own) can
therefore be very useful.
I have known businesses to offer $50 to
people they selected as being representative of their target customer
type to come in and be interviewed and get a lot of priceless info that
way. You could offer free trials of a product or service on the basis
that customers taking the offer would provide detailed feedback and a
brief telephone interview. The options are limitless. Recognizing the
imperative need to gather information from your customers, using any
option you can make work effectively for you, (and comfortably for
customers) is the thing.
Customer ProfilingFor
a basic customer profile, you want to know what age group your
customers are in, and the male/female split. You want to know where
they live, and how far they are prepared to travel or have things
shipped. Do they make one-off purchases or have an ongoing relationship
with suppliers? How much do they earn and what proportion of that are
they spending each month/year?
For business to business
customers, you'll be looking to profile the company size, the industry,
location, turnover, and spending. Just these few basic type of
questions allow you to build a basic customer profile. This can
immediately pay dividends.
For an example, I quote an ecommerce
venture that was selling lingerie online. Through profiling, they
discovered that a very significant segment of their customers were
actually transvestites, using the relative anonymity of the web to avoid
embarrassment or prejudice. Another major segment was men buying
lingerie for their lovers. Through their profiling, they discovered
that women were actually a minority of their actual customers and were
able to make important and immediate changes to their marketing to take
into account this better understanding of who their customers really
were, and in doing so, serve them better.
Some companies make
complete dossiers of their customer profiles, to effectively create a
full persona for the typical customer groups, right down to imaginary
names, professions, families, and commitments, etc. The forum thread "
MSN knows their customers, and so can you" provides a good example and some further resources on customer profiling.
Remember
to also gather some of the important data that directly relates to
sales and customer value too. What is the average transaction size, and
does this vary by customer profile? How often do your customers make a
purchase from you, and again, does this vary by customer profile?
Which payment methods are used? Through these questions, you can find
which customers are the most profitable to you, and which are the least
profitable.
Customer Lifetime ValueIt
is always preferable to develop an ongoing relationship with repeat
customers rather than depend on costly promotions to attract fresh
custom. You should calculate your Customer Lifetime Value to highlight
just how important this factor is.
To calculate your Customer
Lifetime Value, take the average transaction size that you deal with.
Multiply this by the number of purchases an average customer makes from
you each year to calculate the average annual sales volume of each
customer you have.
e.g. I determine that
an average transaction is $50, and that an average customer buys from
me just once each year, so the average annual sales volume per customer
is (50 x 1) $50.How many years does your average customer
keep buying from you? Multiply the annual sales volume per customer by
that number of years to calculate their direct lifetime value.
I
have determined from looking at billing details that my average
customer keeps buying from my company for around 3 years, so their
direct lifetime value is 3 yrs multiplied by $50/yr = $150How
many additional customers are referred to you each year by your average
customer? Multiply that number by the number of years that your
average customer keeps buying from you.
I've
ascertained that an average customer refers 2 new customers to me each
year, so in the 3 years that they are customers, they refer (2 x 3) 6
additional customers.Finally multiply the direct lifetime
value of the customer by the number of total referrals that your
average customer brings, and add the direct lifetime value to the
result. This is the total customer lifetime value.
Since
an average customer has a direct lifetime value of $150, the 6
referrals bring ($150 x 6) $600 and then adding the customer's own
lifetime value of $150 means an average customer is worth a total of
$750 (and more when you consider that the six referrals they brought may
each in turn bring six more).Take a look at those
figures and calculate how much more you would make if you could
encourage a customer to make just one extra referral each year, and also
to remain a customer for just one extra year. It makes a big
difference doesn't it?
3 referrals a year
for 4 years mean a total of 12 referrals, with each having a direct
lifetime value of (4yrs x $50) $200, so the total lifetime value of the
average customer would be (12 x $200 + $200) $2,600If
that doesn't show you why gaining customer loyalty and building ongoing
customer relationships is so incredibly important, then you are probably
not cut out for business. Customer relationships are absolutely vital
to any business.
Industry Reporter
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Members
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163 posts
Posted
08 May 2004 - 01:11 PM
Ammon and Barry,
This is fundamental stuff for all of us and I applaud your effort.
(It is useful to read again, just to refresh and for those starting out to point in the right direction.)
To often, people make a decision to start a business online and get caught up in the "hype and hoopla."
The reality is starting a business online is no different from starting a bricks and mortar business. Business is business.
Yes the Internet offers some tremendous opportunities and can act as the
great democratizer, but if folks don't have an understanding of the
basics ... you will quickly become another statistic.
Hey, it is also a great promo tool for the forum.
Cheers, John.
So, I look forward to the next installment.
Kind regards,
John
John Glube
Toronto, Canada
Gravity Master Member
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Members
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134 posts
Posted
10 May 2004 - 04:22 PM
Hi Guys,
This is a great post – thanks.
In addition to all the excellent posts, I'd like to make my humble addition regarding the theme of customer differentiation, that is, using your customer base to gain a sustainable competitive advantage.
I hope I communicate my thoughts with clarity…
A strong theme in this thread is the customer
and it is evident that this must be the cornerstone of all marketing.
The onus being for your company to deliver value to its customers.
For me delivering value can only be achieved by:
1. Understand who your customers are.
2. Learn about them
3. Provide relevant value to them – not what you think value is, but rather what your customers 'tell' you is valuable to them
Hopefully, you should see where I am going… to do the above, you need to enter into a qualitative relationship with your customers, and herein another issue lies:
Given that all this relationship malarkey costs resources, it is imperative that one focuses on acquiring and maintaining only quality customers
i.e. those that offer sufficient ‘paybacks’ to make such an exercise
worthwhile. This is a somewhat difficult concept for those whom are
hell bent on simply maximising the number of customers. Please note I
am not saying that you shouldn’t maximise your customers, what I am
saying is: maximise the right type of customer.
Ammon
did a great job of explaining the need to profile customers. During
this process, in time, you should also be able to ascertain whether your
customers are:
1. Transaction buyers: customers only interested in price.
2. Relationship buyers: customers looking for some form of relationship.
It
is clear that the first type have no loyalty; they are driven by price
and will go to the ‘best deal’. Why waste precious resources on them?
The
second group, on the other hand, in addition to wanting
reliable/quality products and services also seek something extra: people
who recognise then, remember them, do favours for them and build a
relationship with them. Such customers know that they can possibly save
money by shopping around, but would rather not waste their time. This
is the type of customer you want to build relationships with and tap
into their ‘lifetime value’.
So how do you build relationships? Easy, as echoed throughout this entire thread, provide relevant value... you get what you give. Enter into that learning relationship
whereby with every interaction, you learn more about your customer
allowing the relationship to become smarter over time – you will begin
to ‘naturally know’ what the customer wants and this will engender loyalty.
In
this vain, the technology is a facilitator – use it! Don’t, however,
fall into the trap of using technology for the sake of it, make sure you
know what the focus is!
By building a quality base of loyal customers, you can then begin to create customer differentiation i.e. your competitive advantage is
your customer base and your impermeable relationship with them. All
other things may be replicated (products; services) by your competitors,
but the quality of your relationship can’t; this will act as a
protective factor. Over time this will deepen so why would the customer
go to a competitor? Think of all the time he needs to spend to get to a
level where you guys are at.
Example: I go to the same coffee
shop. Why? They know just how I like my drinks (semi skimmed, no cream
etc!). I don’t need to explain to them, they do it. Now I can go to
other shops and even get my mocha cheaper, but I would then have to
spend time undergoing this process whereby they learn how I like my
drinks etc… I don’t have time to watch over the server’s shoulder!.. the
current company does it just fine. Similarly by building that
relationship with me (through good service, willingness to accommodate
me etc) I want to give them my business, because they are cool – I have
an affiliation with them.
OK speaking of coffee I think I need
some. The main message of my post is the need to focus on building a
quality base of customers. Allocate your resources into identifying,
acquiring, retaining and growing your valuable customers. On the Net
there is this tendency for wanting to be ‘all things to all people’ which often results in ‘being nothing to no-one’.
Equally
important is the need for quality relationships that you grow over time
with your customers. The more you learn and understand about them, the
more you can serve their needs which equate to loyalty and increased
‘customer share’.
Peace
Amjid
Posted
12 May 2004 - 08:41 AM
Good points, Amjid, and thanks for making them. Those are great
points you raise about some customers being more valuable than others.
Of course, what I want to talk about now, is ways of promoting less
valuable customers into more valuable ones.
We're talking Loyalty and reward programs.
But
first, lets take a step back and look at all the different levels of
customer involvement we have, in ascending order of value:
Untouched - The customer we haven't reached and who hasn't heard about us.
Unmoved - This customer has heard of us, our marketing has reached them, but they are not ready to buy from us.
Prospect
- This customer is considering buying, maybe from us, or maybe from a
competitor. We're in the running, but haven't closed the sale.
Customer - This customer has made a one-off purchase from us.
Client - This is a happy customer who has returned to buy from us again, and is now a regular client.
Advocate - This customer not only buys from us himself, but also recommends us to others he knows.
Now,
the key thing is that every customer begins at the first level of that
list and starts moving to higher values. You can make that clear by
reading the list to yourself again, and this time, add the words "so
far" to each line.
You have control over whether customers move
up or down in value, because it will largely be based upon how you
compare to your competitors, and how you relate to your clients.
So,
lets look at loyalty and rewards programs, which can be invaluable
tools for helping move customers in the direction you want on that value
list.
Now, the reason we need to reward loyalty is simple. It
is because customers need a good solid reason to be loyal. They'll be
loyal to you because it helps them, not because it helps you.
The
basic loyalty system has been proven to work for many businesses. You
give customers a card that records their transactions with you, and when
they reach a set level, they become eligable for special bonuses,
special treatment or gifts.
One of the cool benefits of these
systems are that you don't have to work out complex ways of working out
repeat custom anymore, because now your customers are volunteering that
information. It makes it easy as pie to gather the data to spot buying
patterns and all sorts of useful data for improving your products and
services. Loyal customers are also much more likely to fill in
questionnaires and offer you more details about themselves.
Offering
discounts off of future purchases is always a winner and is the
simplest form of loyalty program. A discount off of their next purchase
from you makes your company even more attractive when they next need to
buy. It is not an expense, because the money you'd have spent on
advertising to them, maybe paying for their click in search, all that is
avoided now. The discount voucher probably works out cheaper, and
certainly offers a much higher conversion rate.
That doesn't mean
you can ever stop attracting new customers, of course. Any customer
base has an attrition rate, where customers move, change jobs, change
needs, or even die. A static customer base is always a shrinking
customer base. You must always attract customers at least as fast as
you lose them, and preferably faster, allowing you to grow.
You
can use the loyalty and rewards program again to help you here. Simply
offer incentives and rewards for customers who send you leads and
referrals. Offer a small incentive like a small gift, a discount
voucher, or entry into some prize draw to any customer who gives you a
lead. Offer a higher reward/incentive bonus if the lead they refer
actually becomes a customer, and they'll do their best to send you the
best leads they can.
In summary, learn that list of customers by
value, and think through the things that make a customer move up, or
down, the value list. Look at ways to incentivize them moving to a
higher value, and examine the reasons that customer may move in the
wrong direction, and seek to make that happen less.
Incidentally,
quite a bit of research has shown that customers who make a complaint,
but have it resolved quickly and pleasantly, often become more loyal
advocates than customers who never made a complaint at all.
I'd recommend the recent discussion thread "
A little service goes a long way" as an excellent reference for further information about dealing with customer complaints.
Posted
12 May 2004 - 04:27 PM
There is another important one to add to that list of customer states. Can you guess it?
Well it's the lost customer:
in other words, someone who used to buy from you and no longer does so.
These are really important people. Perhaps it was just some small thing
you did wrong and by approaching them again, you can find what it was
and by being sorry and making some kind of recompense you can win them
back.
In a sense it's only from the lost customers that you hear
the truth about your product or service. There's a high-faluting term
for something that affects actual customers. It's called 'cognitive dissonance'.
People don't like to express negative things about products they are
buying and using. They like to say things that confirm what wise and
prudent shoppers they are. This doesn't apply to the lost customers.
If you approach them in the right way looking for help on what you can
do better, then they will tell you.
At the extreme right of the scale, Ammon mentioned the Advocates. I've also heard the term 'Missionaries'
used. These are the highly satisfied customers who go around
encouraging all their friends to buy from that fine company. It's just
great to have such customers.
However there may be a group at
completely the other end of the spectrum. They are the lost customers,
who are very dissatisfied. Sometimes these are labelled "Activists" or "Revolutionaries". Unfortunately since bad news travels ten times as fast as good news, they tend to influence many more people than the Missionaries. Some of them may be completely impossible to deal with.
However
a good proportion may be willing to listen. Again they may help you
understand some real truths about your company and your products and
services. If you work hard enough, you may be able to turn them around.
Surprisingly such people are sometimes a little like Paul on the road
to Damascus, for those who know their Bible. From being the strongest
Revolutionaries, they suddenly switch to become the strongest
Missionaries.
A final footnote is that Lost Customers were
persuaded to buy from you once. It may be easier to bring them back into
the fold, than to persuade some of those Untouched or Unmoved folk to
become Prospects.
Posted
28 November 2005 - 11:57 PM
In your opening post, Ammon, you talk about pricing strategies.
I'd like to explore this topic a bit further.
There will always be companies that strive to be the cheapest, which
would seem to be a good strategy on the surface. No doubt, their
thinking is that they'll have reduced margin, but will more than make up
for it with volume. Do you think this lowest price strategy work
against companies by creating a 'perception' of inferior quality?
Posted
29 November 2005 - 01:11 AM
Good question, Garrick.
Yes, there is always that element of
doubt when we shop around. The idea that if one company can really
sell the same thing for x amount, why aren't all the companies
price-matching? We naturally smell cheaper or inferior quality. We
sense a catch.
There's truth to that too. How can one company
successfully undercut all the competitors? Well, it does happen.
Cheaper labour can be one way. Bulk-buying discounts can be another.
And where those things happen, and the price difference is explained
(factory stores, warehouse discounts, large chains) the public are
reassured and are more than happy to buy the cheaper goods, assured that
it is not the quality that has cheapened, but the supply chain.
However,
one of the truly key points to get across is that the cheapest deal is
not always the most valuable deal, or even the most cost-efficient
purchase. People are always willing to pay more
(money) to get more
(value).
Save money by going to collect, or pay the extra to have it delivered?
Pay more to take it home now, or save money by ordering it and having
to wait for delivery?
You have to know what market is willing to
pay what price and for what. It is a balancing act, like so many things
are. All things being equal, most people would rather pay less for the
same goods and service of course. But then if you are selling the same
goods and service, you've already missed the whole point of having a
USP, of differentiating your offering, and could already be doomed.
I'm reminded of a real life case in these forums, where our own Caissa (
Cre8asite's Example of the Year 2003)
said how Amazon was able to sell one of her leading products at a price
that was effectively cheaper (because of the immense bulk buying
discount Amazon can get) than she could buy it from the manufacturer.
Caissa said
Unfortunately,
a competitor has arisen that sells Fritz to the consumer at the same
price I pay for it... Amazon. They are $39.99 with free shipping.
From: http://www.cre8asite...p?p=17470#17470
I believe there was some follow-up to this matter, not only in the same thread, but in the later discussion titled "
Discount Pricing and Shipping", which was all about actually testing lowering the prices on items. Certainly worth a look for some further perspective.
I'm a huge fan of "value extras", with the very strong proviso that they truly do add
core value, as defined by your market/customers, not mere bloat and
creeping featurism that RCJordan provided the name and link for in a recent
post.
The
price is something that helps balance what you offer, against what a
potential customer is asked to give for it. One cannot equate price to
value. Price can be lowered to increase value, but no more effectively
than the offering can be improved to increase value.
What it all
comes down to, is that a markedly lower price can create doubts, instead
of desires. When in doubt regarding prices, people will often look to
what they trust instead, and brands can do very well from this
situation. I guess it shows confidence to
not lower a price, and it may often show a lack of confidence in the product when one company undervalues it.
There
are no fixed answers here, as with so much in marketing. It is about
finding the balance that you believe will work best for your market.
Some markets are about economy and some are about luxury. Which is the
richer market for any given company to enter/target often depends on
their own abilities to identify with that market, connect with that
market, even to handle bulk, or to sell with confidence.
Edited by Black_Knight, 12 December 2005 - 09:41 PM.
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Posted
30 November 2005 - 10:07 PM
Quote
Do you think this lowest price strategy work against companies by creating a 'perception' of inferior quality?
Of course. Consumers interpret something from the price. They infer value. In some cases demand
increases at higher prices.
Being
a price leader is a simple strategy that works in some cases -- but in
most cases it's a poor strategy. There's much more to value than price.
Posted
30 November 2005 - 11:28 PM
The thing I find most interesting about the "Lowest Price" strategy
is that many famous brands used it as the method to enter the market
and become famous brands. Ford Motors and
Volkswagon are obvious examples from the car industry. Both companies
'pioneered' cheaper cars to make the car a thing affordable for all
people. In furniture we see Ikea and 'flat-pack' manufacturers aplenty.
There are hundreds of similar examples in any other industry from
House-building to Jewellery.
What is less successful (generally)
is when an existing brand creates a cheaper range. This can create
confusion about the brand and the 'quality' it represents. What most
companies will choose to do instead is to create a new brand for their
cheaper range. This can create examples such as JVC and Panasonic in
the electronics industry, where higher grade components go into the JVC
brand products, even when the design and manufacture of their products
are otherwise identical.
Despite what we like to think about our
ability to prefer quality and service, the rise of the chain-store, the
mass-production and bulk-discount approach has been the single biggest
success of the past 3 decades. All over the Western world, small,
dedicated businesses based on tradition and passion are closed down by
cheaper-priced chains. This can most easily be seen in bookshops, drug
stores, tools shops, and especially in grocery stores. The super-market
has been conquering these time and again.
People do like low
prices. They just have to believe that they aren't being sold rubbish,
and in your favour, they really do want to believe that they can buy SEO
for $49, a website for $99, etc, etc. The vast majority of people know
very little about what actually makes for quality in most products.
They are often reasured by confidence from the seller, and only confused
by facts.
Posted
02 December 2005 - 04:47 PM
It's important to realize when you're talking about pricing, you're
talking about a critical element of strategy. Price is an important
indicator of the value of the product.
You might think it's
just one of the marketing levers that you can move up or down to boost
sales. You could certainly think of an advertising campaign this month
or a direct mail campaign next month as marketing levers. The reality
is that advertising or direct mail has a transitory effect. In three
months time, the few people who were aware of it will likely have
forgotten it. It doesn't usually change the long-term perception of the
product or service you're selling.
Price on the other hand is a
very visible and memorable factor that attaches to a product or
service. Usually once you've shown you will discount the price, then
folk will assume that says something about your brand and they will be
expecting discounts from time to time. So if you're going to use the
price lever accept that this marks the brand for ever. Price is part of
the strategic make-up of the product or service.
This means that
you should only use price discounting as a weapon if you're prepared to
live with that for the rest of the life of the product or service. If
like Walmart, you decide to use lower price as a major component of
what your product or service delivers, then make sure your cost
structure is better (i.e. lower) than the competition. So if you're
designing websites then you may wish to outsource to high quality
resources that have much lower economics, say in India. If you're
selling pots and pans, you may choose to get your high quality products
from China. That's an essential component of a low-price strategy.
If
you adopt a low-price strategy, then you have to realize that your
margin per unit sold will likely be lower. So you have to sell many
more units. You're usually dealing with a mass market just as Walmart
does. You hope that a great number of people will find that your basic
no-frills product or service fits their needs. You then make a limited
range of products but in great numbers
For most of us, that is
not a strategy that will work for us. We can't afford to take on the
giants who are fighting over the mass market. Luckily the Internet
opens up a new possibility. That's to go after Long Tail micromarkets.
This is an idea developed by Chris Anderson. He has
a blog on the way to a book.
His assumption is that in fact there are a lot of microniches within
the total market. If you can customize your product so that each
microniche will find a version that meets its needs, then you may find
you're the only supplier. You must arrange that your production process
can manufacture all the customized variants needed by the microniches.
You can then set a fair price that allows you to be economic in
supplying each of the microniches, since in essence you do not have any
competitors. There's much more involved than I've set down here but
perhaps that's enough to give the flavour of the Long Tail idea.
Time Traveler Member
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Posted
15 December 2005 - 02:31 PM
Hi
The product life cycle provides a good framework for marketing analysis, the diagram the y-axis could equally be labelled time.
To
use a light-hearted example, successful marriages/relationships are
those were the partners are prepared to analyse the current state of
their relationship. If the relationship has reached the maturity stage,
then it’s time to “spruce things up a bit”, to prevent the relationship
sinking into the decline phase.
Quote
What
makes that complex is that the price you set may influence the number
of competitors and what pricing strategy they adopt. There's lots of
challenging decisions there.
Good point Barry, pricing
is a complex issue, fortunately much has been written on this subject,
from the simple "cost plus" approach, to complex calculations involving
several factors.
TreV
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Posted
10 January 2006 - 05:41 AM
Finally got to reading through this whole piece thanks to Ammon's signature. Very good stuff.
I wonder if we could try to apply this material directly to the business
model that most of the folks in this forum run - that of an online
provider of marketing services (for the web). For some of us, it's
usability consulting, others SEO or SEM management, some are in webdev,
others design and still others, full marketing solutions for online
properties.
Given this business model, are there specific pieces of the puzzle that
are more important or less important to pay attention to. Some that come
to mind for me are:
1. The aforementioned relationship-based pricing over cut-rate pricing.
In some cases, these services may even be a sort of Griffin good, where
the higher the price, the more demand there will be.
2. Customer evangelists are of particular importance in this field,
recommendations are even more important, but getting folks to share that
data is exceptionally hard - most companies I know who work
specifically with an SEO or online marketing consultant prefer to keep
that knowledge very private so as to hoard the resource of talent they
have making them competitive.
3. Focus - It's my belief that finding an underserved niche,
specializing and targeting the "long tail" of customers in a sector is
even more important. You can do it by market segment, i.e. "legal
firms", "real estate", "software vendors", etc. or by targeting unique
service niches, i.e. "keyword research", "linkbait creation", "link
building", "high end design". You can even combine these and offer "real
estate link building" or "high end design for law firm sites".
Here's to hoping this discussion goes on for another year
Posted
10 January 2006 - 04:33 PM
Sevices are a tough product. When selling a company, the Services
company is almost always worth the least amount based on turnover,
because it doesn't own much.
Who's the fastest Athlete? Will that person still be the fastest athlete in 5 years?
Services
sell what people can do. But people can change employer. Other people
can learn to do what you do. It is the most volatile and changable
market. And the value of any given service is generally a fast downward
trend as Services have the least barrier to competition, and are one of
the fastest things to reach saturation point.
Okay, those are the market realities to know and fully accept as the facts.
So
why enter the Service marketplace? Probably for those same reasons.
It doesn't have huge barriers to entry. It doesn't take huge
investment. You can usually copy the ideas of others. In other words,
getting into it is cheap and easy.
The first and most important
thing with your new services business is to accept that the product
life-cycle is short, and that competition will grow. So decide how you
are going to deal with that. Your choices are to keep developing new
products (new services) accepting that each will have the same short
life-span, or to seek to develop something you can own (patents,
technology, a product line).
Noticed how most of the bigger SEO
companies soon develop specialist tools? Now you know why. But again,
are those tools easy to develop? What is the barrier to competition?
What stops a never ending supply of school-leavers with lower wage needs
from copying and undercutting you?
Obviously, I can't give
answers here, because that wouldn't give you a USP. Your competitors
could work on it right now along side you, not even having to wait to
see it to copy the idea.
Nope, you have to answer these questions
for yourself, and the most important consideration you must give is the
barrier to competition. The more investment it would take a newcomer
to create what you have, the fewer competitors will appear, and the
longer your product's life-span will be.
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Posted
21 September 2006 - 10:58 AM
Hi guys!
I'm fresh out of University and just landed my
first online and digital marketing role. Thought i would just throw in
my $0.02 with regards to service marketing.
As well as the 4p's
at university we found that extending these with an extra 3ps helped
when analysing and devising marketing mixes in regards to services.
People
As said earlier, people are the face of most services and can be key to the right delivery of a service
Process
Is
the process applicable to the needs of a customer? A classic example
would be the differing needs of a customer at a fast food restaurant
compared a customer eatinging at the ritz. The process at a fast food
restaurant may be geared to getting you served quickly, whereas the ritz
the process may be geared to your comfort, mood setting and overall
experience over the course of an evening
Physical Evidence
Services have a fairly intangible
product
and so any physical evidence can help in reducing a potential customers
percieved risk associated with it. What does the branding tell you? Is
there a physical location for the service? Do the smells coming from a
restaurant make you want to eat there or do you want to cross the street
to get away? The smell coming from a bakery could be the primary reason
somebody uses it!
So there we are - 7ps for services!
