Marketing Management Insights

Consultants

Consultants can play a positive role in helping companies reappraise their market opportunities, strategies, and tactics. Consultants provide a client company with an outside-in view to correct the company’s tendency to take an inside-out view.

Yet some managers say: “If we are successful, we don’t need consultants. If we are unsuccessful, we can’t afford them.”

We need fewer consultants and more resultants. Too many consultants give you advice and fail to grapple with the difficult problem of implementing the recommendations. Keep the consultant and pay him or her according to results.

Here is a test for finding a good consultant. Ask each consultant, “What time is it?”

The first consultant says: “It is exactly 9:32 A.M. and 10 seconds.” Hire him if you want an accurate, fact-filled study.
The second consultant answers: “What time do you want it to be?” Hire him if you don’t want advice so much as corroboration.
The third consultant answers: “Why do you want to know?” Hire him if you want some original thinking, such as defining the problem more carefully. Peter Drucker says that his greatest strength as a consultant is to be ignorant and ask a few basic questions.

There is a lot of cynicism about consultants. As early as the first century B.C., Publilius Syrus, a Latin writer, noted: “Many receive advice, few profit by it.” Robert Townsend, former CEO of Avis Rent-A-Car, described consultants as “people who borrow your watch and tell you what time it is and then walk off with the watch.”

William Marsteller, of Burson-Marsteller public relations, added: “A consultant is a person who knows nothing about your business to whom you pay more to tell you how to run it than you could earn if you ran it right instead of the way he tells you.”

The cynicism simply means that there are good and bad consultants and your task is to be able to tell the difference.

Corporate Branding

There is great payoff in building a strong corporate brand. Sony can put its name on any electronic device and customers will prefer it to the competition. Virgin can enter almost any business and be successful because its name means brings a fresh approach to that business.

The major requirement for corporate branding is for the company to stand for something, whether it is quality, innovation, friendliness, or something else. Take Caterpillar, the heavy construction equipment manufacturer.

Caterpillar’s brand personality triggers such associations as hardworking, resilient, tough, bold, and determined. So Caterpillar has been able to launch Cat jeans, sandals, sunglasses, watches, and toys, all designed with the same traits in mind.

A strong corporate brand needs good image work in terms of a theme, tag line, graphics, logo, identifying colors, and advertising dollars. But the company shouldn’t overrely on an advertising approach.

Corporate image is more effectively built by company performance than by anything else. Good company performance plus good PR will buy a lot more than corporate advertising.

Creativity

Companies formerly won their marketing battles through superior efﬁciency or quality. Today they must win through superior creativity. One does not win through better sameness; one wins through uniqueness. Winning companies such as IKEA, Harley Davidson, and Southwest Airlines are unique.

Uniqueness requires developing a culture that honors creativity. There are three ways to increase your company’s creativity:

Hire more naturally creative people and give them free rein.
Stimulate creativity in your organization through a myriad of well-tested techniques.
Contract for creativity help. Go to Brighthouse in Atlanta, Faith Popcorn in New York, or Leo Burnett in Chicago, for example, and get help in ﬁnding a breakthrough idea.

Some of the leading creativity techniques that can be used in-house:

Modification analysis. With respect to some product or service, consider ways to adapt, modify, magnify, minify, substitute, rearrange, reverse, or combine.
Attribute listing. Deﬁne and modify the attributes of the product. For example, in seeking to build a better mousetrap, consider ways to improve bait, method of execution, method of hearing execution, method of removal, shape, material, price.
Forced relationships. Try out new combinations. For example, in trying to build a new type of office furniture, consider combining a desk and a bookcase, or a bookcase and a filing system.
Morphological analysis. Play with the basic dimensions of the problem. For example, in trying to move something from one point to another, consider the type of vehicle (cart, chair, sling, bed), the medium in which/by which the vehicle operates (air, water, oil, rollers, rails), and the power source (compressed air, engine, steam, magnetic field, cable).
Product problem analysis. Think of all the problems that a specific product has. For example, chewing gum loses its flavor too quickly, may cause dental cavities, and is hard to dispose of. Think of solutions to these problems.
Decision trees. Define the set of decisions that are to be made. For example, to develop a new grooming aid, decide on the user (men or women); type of aid (deodorant, shaving product, cologne); type of package (stick, bottle, spray); market (commercial, gift); and channel (vending machines, retailers, hotel rooms).
Brainstorming. Gather a small group and pose a problem, such as, “Find new products and services that homes might need.” Encourage freewheeling thinking, stimulate a maximum number of ideas, try new combinations, and avoid criticism at the beginning.
Synectics. Pose a generic problem, such as how to open something, before posing the real one, hoping that it broadens the thinking.

A major source of ideas can come from futurists such as Alvin Tofﬂer, John Naisbet, and Faith Popcorn and the trends they have spotted. Faith Popcorn became famous for her creative labeling of trends, including anchoring (religion, yoga), being alive (vegetarianism, meditation), cashing out, clanning, cocooning, down-aging, fantasy adventure, 99 lives (multitasking), pleasure revenge, small indulgences, and vigilant consumers.

She would consult on how aligned a company’s strategy is with these major trends, and often tell a company that it is off-trend in several ways.

Smart companies set up idea markets. They encourage their employees, suppliers, distributors, and dealers to offer suggestions that will save costs or yield new products, features, and services. They establish high-level committees that collect, evaluate, and choose the best ideas.

And they reward those who suggest the best ideas. Alex Osborn, the developer of brainstorming, said: “Creativity is so delicate a flower that praise tends to make it bloom, while discouragement often nips it in the bud.”

It is sad that creativity probably peaks at age 5 and then children go to school only to lose it. The educational emphasis on left brain cognitive learning tends to undernurture the creative right brain.

Customer Needs

Marketing’s original mantra is to “find needs and fill them.” The company ﬁnds needs by listening to or interviewing customers and then prepares an appropriate solution to each need.

Today, however, there are few needs that companies don’t know about or address. Pietro Guido, an Italian marketing consultant, wrote a book called The No-Need Society to make this point.

But there is another answer to the “no-need society”—that is, to create new needs. Sony’s Akio Morita, in his Made in Japan, said: “We don’t serve markets. We create markets.” Consumers never thought of videotape recorders, video cameras, fax machines, Palms, and so on, until they were made.

Of course, new needs will emerge even if the old ones are satisfied. Events can create new needs. The tragedy of September 11, 2001, increased the need for greater security in the air, food supply, and transportation and the country rapidly responded with new security measures.

Trends can create new needs, such as the interest in “Down-Aging.” As people get older they want to feel and look younger, and this leads to buying sports cars, having plastic surgery, and using exercise equipment.

So we can distinguish between existing needs and latent needs. Smart marketers will attempt to anticipate the next need and not only conﬁne their attention to today’s need.

Sometimes a need is obscured because a company has taken too limited a view of customers. Certain dogmas get set in concrete, such as the cosmetics industry dogma that women basically use cosmetics in order to be more attractive to men.

Along came Anita Roddick, who started The Body Shop with the assumption that many women want products that will give good care to their skin. She added another value: that many women care about social issues and will patronize a company that cares.

Greg Carpenter and Kent Nakamoto have challenged a core assumption of marketers that buyers initially know what they want. Instead they learn what they want. And companies play a strong role in teaching buyers what to want.

Different brand competitors add new features to their computers, cameras, and cellular phones that buyers may not have known of or asked for, and in the process, buyers form a better idea of what they want.

Such companies are not just market driven (by customer needs), but are market driving (by innovation). In this sense, competition is less a race to meet consumer needs and more a race to define these needs.

One reason that early market entrants (such as Xerox or Palm) often gain sustained market leadership is because the attributes they initially build into their products define the wants that were otherwise ill-defined.

Consumers see the attributes as defining the category. Late-entry competitors are forced to supply the same attributes at a minimum as well as innovate new ones.

Customer Orientation

How do you get your whole company to think and breathe customer? Jan Carlzon, former CEO of Scandinavian Airlines System (SAS), wrote Moments of Truth, in which he described how he got his whole work-force to focus on the customer.

He would emphasize at meetings that SAS handled 5 million customers a year and the average customer met about ﬁve SAS employees in connection with a single journey. This amounted to 25 million moments of truth, moments to deliver a positive brand experience to customers, whether delivered in person, over the phone, or by mail.

Carlzon went further. He embarked on changing the company’s structure, systems, and technology to empower the workforce to take any steps necessary to satisfy its target customers.

Today’s CEOs must show employees, in financial terms, how much more affluent they and the firm would be if everyone focused on delivering great value to customers. The customers would spend more and cost the firm less to serve. Everyone would benefit, and special rewards would go to employees who rendered outstanding customer service.

The task begins with hiring the right people. You have to assess whether job candidates have not only the right skills but also the right attitudes. I was always struck by the fact that most people chose to fly Delta Air Lines from Chicago to Florida when they could have chosen Eastern Airlines, which offered the same flight schedule.

The difference: Delta hired its flight crews from the Deep South where friendliness is the norm; Eastern hired its flight crew from New York City.

Those whom you hire need good training. Disney runs a training program that lasts a week in order to convey what experience the company wants customers to have at Disneyland. A customer mind-set doesn’t just happen. It has to be planned, implemented, and rewarded.

Yet companies tend to give two conﬂicting messages to their people. L. L. Bean and other companies train their people to value every customer: The customer comes ﬁrst. Meanwhile they recognize that customers differ in their value to the company (i.e., what they add to revenue) and should therefore receive different levels of treatment.

The conclusion: Treat every customer with care but not necessarily equally.

To be truly customer-oriented, the ﬁrm should be run by customer managers (or customer group managers), not brand managers. They will ﬁnd out the set of company products and services that their customers would care about and then work with the product and brand managers to deliver them.

Too many companies are product driven rather than customer centered. Their thinking goes like this:

Assets → Inputs → Offerings → Channels → Customers

Being product driven and heavily invested in assets, they push their offerings to every conceivable customer and fail to notice customer differences and values. Not knowing much about individual customers, they cannot efficiently cross-sell or up-sell.

Both processes require capturing transaction and other information on individual customers and inferring what else they might be interested in. A customer-oriented company visualizes a different approach, called sense and-respond marketing:

Customers → Channels → Offerings → Inputs → Assets

By starting with an understanding of customers, the company is in a much better position to develop appropriate channels, offerings, inputs, and assets.

Customer Relationship Management (CRM)

Everyone is talking about customer relationship management (CRM) as the new panacea. Yet it is an empty term until it is deﬁned. Some people deﬁne it as the application of technology to learning more about each customer and being able to respond to them one-to-one.

Others don’t see it as a technology issue but rather a humane issue: treating each customer with empathy and sensitivity. One cynic said that CRM is an expensive way to learn what otherwise might be learned by chatting with customers for five minutes.

Customer relationship marketing, in practice, involves the purchase of hardware and software that will enable a company to capture detailed information about individual customers that can be used for better target marketing. By examining a customer’s past purchases, demographics, and psychographics, the company will know more about what the customer might be interested in.

The company will send speciﬁc offers only to those with the highest possible interest and readiness to buy, and will save all the mailing or contact costs usually lost in mass marketing. Using the information carefully, the company can improve customer acquisition, cross-selling, and up-selling.

Yet CRM has not worked out that well in practice. Large companies sometimes spend $5 million to $10 million on CRM systems only to find disappointing results. Less than 30 percent of CRM-adopting companies report achieving the expected return from their CRM investments. And the problem isn’t software failure (only 2 percent of the cases).

CRM-Forum reported the following causes of failure: organizational change (29 percent), company politics/inertia (22 percent), lack of CRM understanding (20 percent), poor planning (12 percent), lack of CRM skills (6 percent), budget problems (4 percent), software problems (2 percent), bad advice (1 percent), other (4 percent).

Too many companies see technology as a silver bullet that will help them overcome their bad habits. But adding new technology to an old company only makes it a more expensive old company. Companies should not invest in CRM until they reorganize to become customer-centric companies. Only then will they and their employees know how to use CRM properly.

Frederick Newell goes further and accuses CRM of falling far short of the answer to serving customers well. CRM puts the company in the driver’s seat with a hunting gun instead of putting the customer in the driver’s seat with a hunting gun. He wants companies to empower customers, not target them.

Instead of companies just sending mailings to sell their products (a product-centered approach), they need to ask their customers what they are interested in (and not interested in), what information they would like, what services they would want, and how, when, and how often they would accept communications from the company. Instead of relying on information about customers, companies can rely on information from customers.

With this information, a company would be in a much better position to make meaningful offers to individual customers with much less waste of company money and customer time. Newell advocates replacing customer relationship marketing (CRM) with customer management of relationships (CMR).

My belief is that the right kind of CRM or CMR is a positive development for companies and for society as a whole. It will humanize relationships. It will make the market work better. It will deliver better solutions to customers.

Customers

We now live in a customer economy where the customer is king. This is a result of production overcapacity. It is customers, not goods, that are in short supply.

Companies must learn how to move from a product-making focus to a customer-owning focus. Companies must wake up to the fact that they have a new boss—the customer. If your people are not thinking customer, they are not thinking. If they are not directly serving the customer, they’d better serve someone who is. If they don’t take care of your customers, someone else will.

Companies must view the customer as a ﬁnancial asset that needs to be managed and maximized like any other asset. Tom Peters sees customers as an “appreciating asset.” They are the company’s most important asset, and yet their value is not even found in the company’s books.

Recognizing the value of this asset will hopefully lead companies to redesign their total marketing system toward capturing customer share and customer lifetime value through their products/services portfolio and branding strategies.

Over 30 years ago, Peter Drucker emphasized the importance of customer thinking to the success of a ﬁrm. He said that the purpose of a company is “to create a customer. Therefore the business has two—and only two—basic functions: marketing and innovation. Marketing and innovation produce results: all the rest are costs.”

L. L. Bean, the outdoor mail order ﬁrm, wholeheartedly practices a customer-oriented credo: “A customer is the most important visitor on our premises. He is not dependent on us—we are dependent on him.

He is not an outsider in our business—he is a part of it. We are not doing him a favor by serving him ... he is doing us a favor by giving us the opportunity to do so.”

Products come and go. A company’s challenge is to hold on to its customers longer than it holds on to its products. It needs to watch the market life cycle and the customer life cycle more than the product life cycle. Someone at Ford realized this: “If we’re not customer driven, our cars won’t be either.”

Regrettably, companies spend most of their effort in acquiring new customers and not enough in retaining and growing business from their current customers. Companies spend as much as 70 percent of their marketing budget to attract new customers while 90 percent of their revenues come from current customers. Many companies lose money on their new customers during the ﬁrst few years.

By overfocusing on acquiring new customers and neglecting current customers, companies experience a customer attrition rate of between 10 and 30 percent a year. Then they waste further money on a never-ending effort to attract new customers or win back ex-customers to replace those they just lost.

Companies emphasize customer acquisition at the expense of customer retention in several ways. They set up compensation systems that reward getting new customers and do not reward salespeople as visibly for maintaining and growing existing accounts.

Thus salespeople experience a thrill from winning a new account. Companies also act as if their current customers will stay on without special attention and service.

What should our aim be with customers? First, follow the Golden Rule of Marketing: Market to your customers as you would want them to market to you. Second, recognize that your success depends on your ability to make your customers successful.

Aim to make your customers better off. Know their needs and exceed their expectations. Jack Welch, retired CEO of GE, put it this way: “The best way to hold your customers is to constantly ﬁgure out how to give them more for less.” And remember, customers are increasingly buying on value, not on relationship alone.

It isn’t enough to just satisfy your customers. Being satisfied is no longer satisfying. Companies always lose some satisfied customers. These customers switch to competitors who can satisfy them more. A company needs to deliver more satisfaction than its competitors.

Exceptional companies create delighted customers. They create fans. Take a lesson from Harley Davidson and the customer who said that he would rather give up smoking and other vices than be without a Harley.

Tom Monaghan, billionaire founder of Domino’s Pizza, wants to make fans out of his customers. “Whenever I see a new customer walk through the door, I see $10,000 burnt into their forehead.”

How do you know if you are doing a good job for the customer? It is not shown in your profits this year but in your share of the customer’s mind and heart. Companies that make steady gains in mind share and heart share will inevitably make gains in market share and proﬁtability.

Marketing thinking is shifting from trying to maximize the company’s proﬁt from each transaction to maximizing the profit from each relationship. Marketing’s future lies in database marketing, where we know enough about each customer to make relevant and timely offers customized and personalized to each customer. Instead of seeing a customer in every individual, we must see the individual in every customer.

But while it is important to serve all customers well, this does not mean that they must all be served equally well. All customers are important, but some are more important than others. Customers can be divided into those we enjoy, those we endure, and those we detest.

But it is better to divide them into ﬁnancial categories: platinum, gold, silver, iron, and lead customers. The better customers should be given more benefits, both to retain them longer and to give other customers an incentive to migrate upward.

One bank runs a club to which it invites only its high-asset depositors. Quarterly meetings are held, part social, part educational. The members hear from financial gurus, entertainers, and personalities. They would hate to lose their memberships by switching banks.

A company should classify its customers another way. The first group consists of the Most Proﬁtable Customers (MPCs), who deserve the most current attention. The second group are the Most Growable Customers (MGCs), who deserve the most long-run attention. The third group are the Most Vulnerable Customers (MVCs), who require early intervention to prevent their defection.

Not all customers, however, should be kept. There is a fourth category called Most Troubling Customers (MTCs). Either they are unprofitable or the profits are too low to cover their nuisance value. Some should be “fired.”

But before firing them, give them a chance to reform. Raise their fees and/or reduce their service. If they stay, they are now profitable. If they leave, they will bleed your competitors.

Some customers are profitable but tough. They can be a blessing. If you can ﬁgure out how to satisfy your toughest customers, it will be easy to satisfy the rest.

Pay attention to customer complaints. Never underestimate the power of an irate customer to damage your reputation. Reputations are hard to build and easy to lose. IBM calls receiving complaints a joy. Customers who complain are the company’s best friends. A complaint alerts the company to a problem that is probably losing customers and hopefully can be fixed.

Customer Satisfaction

Most companies pay more attention to their market share than to their customers’ satisfaction. This is a mistake. Market share is a backward looking metric; customer satisfaction is a forward-looking metric. If customer satisfaction starts slipping, then market share erosion will soon follow.

Companies need to monitor and improve the level of customer satisfaction. The higher the customer satisfaction, the higher the retention. Here are four facts:

Acquiring new customers can cost 5 to 10 times more than the costs involved in satisfying and retaining current customers.
The average company loses between 10 and 30 percent of its customers each year.
A 5 percent reduction in the customer defection rate can increase proﬁts by 25 to 85 percent, depending on the industry.
The customer proﬁt rate tends to increase over the life of the retained customer.

One company bragged that 80 percent of its customers are satisfied or highly satisfied. This sounded pretty good until it learned that its leading competitor attained a 90 percent customer satisfaction score. The company was further dismayed to learn that this competitor was aiming for a 95 percent satisfaction score.

Companies that achieve a high satisfaction score should advertise it. J. D. Powers gave the Honda Accord the number one rating in customer satisfaction for several years, and this helped sell more Accords.

Dell achieved the highest satisfaction ratings for its computer service and advertised this in its ads, giving prospects confidence that they could trust ordering a computer sight unseen from Dell.

The importance of aiming for high customer satisfaction is underscored in company ads. Honda says: “One reason our customers are so satisfied is that we aren’t.” Cigna advertises, “We’ll never be 100% satisfied until you are, too.”

But don’t make too big a claim. Holiday Inns ran a campaign a few years ago that promised “No Surprises.” Guest complaints were so high that the slogan “No Surprises” was mocked, and Holiday Inn quickly canceled this slogan.

Customer satisfaction is a necessary but not sufficient goal. Customer satisfaction only weakly predicts customer retention in highly competitive markets. Companies regularly lose some percentage of their satisﬁed customers.

Companies need to focus on customer retention. But even retention can be misleading, as when it is based on habit or an absence of alternative suppliers. A company needs to aim for a high level of customer loyalty or commitment. Loyal packaged goods customers, for example, generally pay 7 percent to 10 percent more than nonloyal customers.

The company should therefore aim to delight customers, not simply satisfy them. Top companies aim to exceed customer expectations and leave a smile on customers’ faces. But if they succeed, this becomes the norm.

How can a company continue to exceed expectations after these expectations become very high? How many more surprises and delights can a company create? Interesting question!