Excerpt from Passionate & Profitable: Why Customer Strategies Fail and 10 Steps to Do Them Right! By Lior Arussy (printed with permission from the publisher John Wiley & Sons)
For the rest of the March 2005 issue of CRM magazine please click here
The traditional four Ps of marketing, Product, Placement, Price, and Promotion, were subjected to massive depreciation in the last few years. None of them now provide a sustainable differentiation that justifies loyalty and customer commitment. Although companies are still laboring to provide good products and competitive prices available at many locations and promoted through multiple vehicles and media, none of these efforts registers as special in customers' minds. Companies often allocate the vast majority of their resources to these traditional Ps, only to find themselves at par with customer expectations. At par means undifferentiated and therefore not preferred.
Any new product launched in the marketplace is subject to significant and ever growing competitive forces. The uniqueness of the product will wear off much sooner than it would have 20 years ago. The auto industry has been sharing core competency for years and has developed and manufactured cars together to reduce costs. To respond to retailer demand, many national brands began to manufacture private labels, which ended up by diluting the differentiation of their own products. Add to these trends the ubiquitous availability of products through the Web, and a product's differentiation becomes a less defendable position and more of a rite of passage.
The recent surge in availability of cheaper medicines through virtual pharmacies in Canada, Mexico, and elsewhere is another wake-up call for the diminishing effects of placement as a differentiator. Customers will find what they want on their own terms, when and where they want to. The Web allows every customer, regardless of location, to obtain their desired products at the best available prices, so there goes another bastion of marketing leadership.
It's time to move beyond the at-par line. It's time to face the emerging new Ps, around which each company must build leadership and core competency:
Preference of company or product
Portion of overall customer budget
Permanence of overall relationship longevity
Unlike the old four Ps, which represented the company's choices and decisions and were driven by the company's actions, these four Ps are driven by customer actions and finally incorporate customers into the center of a company's principles. Therefore, they are a true measure of the company's overall strength, as they represent the active vote of confidence of their most important asset, the people who pay the bill--the revenue makers. (I have always found it strange and disturbing that most companies regard their salespeople and not their customers as the revenue makers.)
Premium price is about your ability to charge and obtain a higher price. It signifies that the product is perceived by the customer as superior, differentiated, and, most of all, worth their business. Customers buy many products they need for their everyday life, but only a few of those products command premium prices. From the customers' perspective, the fact that a product commands a premium price does not necessarily make it special; thus such products are often purchased at discount. By managing to obtain a premium price the customer bypasses the discount alternative and reaffirms his conviction in the value delivered by the premium priced product. Companies that do not command a premium price are on a downward spiral toward cost cutting, value depreciation, and reduced margins.
Only the premium-priced products are the ones that the customer is actively voting for through willingness to pay the premium. This active vote of confidence is what makes this measure critical to the new customer-centric companies.
Preference for products and services goes beyond selection of a product. Many products are selected daily by millions of customers, temporarily, until a better option appears in the marketplace. Living on borrowed time is not a way to manage a business.
True product preference involves providing referrals to friends and peers, as well as a willingness to support the product publicly. Public support may include endorsement, press interviews, and sharing your opinions via web channels. The customer lends personal credibility to the product and assists the company in selling it. This is a greater level of action, going beyond a personal financial sacrifice (premium price). How do you know whether your product commands preference? Simply examine and ensure your cost of sales and see how often and how many referrals you get free of charge from satisfied customers. Stating satisfaction is easy; providing referrals is harder and requires action. If your product commands premium overtime you will see cost of sales dropping and margins increasing.
Portion of budget is another critical customer action area. It's all about providing your company with a larger portion of the customer's total budget. As long as there are competitors, customers may share their budget among several vendors. This is usually a sign that they lack a preference and don't think that one company deserves their loyalty. When a customer provides one vendor with a greater share over competing vendors, it is a clear sign of commitment. Every company must first benchmark their current share of budget, seek to build value, and measure success through their overall share of customer budget.
Permanence, as in personal relationships, is the ultimate measure. The longer a customer stays with a vendor, the deeper the relationship becomes and the more invested he or she is in the relationship. Although many companies state that their goal is longer, more profitable relationships, they often fail to obtain them. The reason is this: companies do not place enough emphasis on the permanency aspect and often let it die. Beyond the initial selling campaign, companies do not structure and build a program to retain the relationship for the long term. They expect permanence to happen by itself and hope that the initial excitement will last on its own. Customers sense that they are being taken for granted, and thus they seek another provider, who has a willingness to serve and provide an exciting experience.
Another reason for short relationships is lack of excitement in the company's overall value proposition. In the name of maximizing revenues and profits and minimizing costs, companies extend the life of their products and do not innovate and revive them--thus they become boring. Bored customers do not stay long. Boring products and services are another signal that a relationship has been taken for granted.
Permanence needs to be planned. As in personal life, you will not keep your loved ones by doing the same old thing over and over again. You definitely will not establish a long-term relationship on the basis of efficiency and lack of renewal. The customer excitement threshold is lower than ever, and customers will switch faster than ever, unless you give them a fresh and exciting reason to stay. Unlike a one-time trick, permanence reflects a deeper relationship, with long-term commitment. The customer will call your bluff faster than you think. Inertia toward customers is not a strategy--it is living on borrowed time.
Manchester United has one of the most impressive customer-based programs we have found.1 Manchester United is one of the most popular sports franchises in the world. The British-based team boasts 53 million fans around the world. But its fans have a unique way to demonstrate their loyalty and commitment to the team, which goes far beyond attending games and purchasing sports shirts and memorabilia. Fans have the choice of participating in financial products. Credit cards, mortgages, and savings accounts are some of the branded products offered to fans through association with a local bank. The fans who place their money in the savings account are taking a small risk. Their interest rate may be determined on the basis of the team's performance. If Manchester United qualifies to the premiership games, a certain interest rate will be applied to their savings accounts. If the team progresses to the semifinals, a different rate will be applied. If the team wins the premiership or the European championship, the fans will share in the winning, which will be reflected in their savings account interest. Although somewhat different from programs in other industries, the principle remains the same: customer actions determine the true level of loyalty to the company. Customers who are satisfied will put their money where their mouth is. The fans of Manchester United do it.
Choosing the customer means choosing to be in a relationship not because of necessity, but because it is what we want to do. It is a mission and a source of satisfaction. Choosing the right customers and saying no to the rest will be a critical litmus test of your commitment to the first choice. Selecting all customers who are willing to pay implies casual, short-term relationships. Customers will quickly recognize your real intentions and will reciprocate. No company can survive in the long term on such casual, temporary relationships. Without selection, customers will default, and companies will begin the downward spiral of accelerated commoditization. That path must be avoided at all costs. Therefore, selecting those customers who fit our plans is a critical step toward building a customer-centric organization.
Lior Arussy is president of Strativity Group and a CRM magazine columnist
|Learn more about the companies mentioned in this article in the destinationCRM Buyer's Guide:
Sponsored By: Marketo and Real Magnet
Sponsored By: Jacada, Avaya, Confirmit, inMoment and BoldChat
Sponsored By: Genesys, Avaya, Verint, and Aspect
Sponsored By: Informatica
Sponsored By: Verint®, Confirmit and inContact