September 6th, 2010

The Zen of Marketing Management

Courtesy of Filomena Scalise / FreeDigitalPhotos.net

I was thinking about how, as marketers, we are so completely focused on end results, whatever they may be. We are obsessed about new product intro dates, pricing, social media impact, web site hits, sales, profit, market share, and the list goes on. We are whipped into a frenzy around measurement and ROI of our marketing investments.

This in turn reminded me of a Zen story that will shed some light on another important aspect of marketing. It goes something like this:

A student asked a Zen Master,
‘If I work very hard,
how long will it take for me to realize Zen?’
The Master replied,
‘Ten years.’

The student replied,
‘If I work very very hard,
how long will it take for me to realize Zen?’
The Master replied,
‘Twenty years.’

The student replied,
‘If I work very very very hard,
how long will it take for me to realize Zen?’
The Master replied,
‘Thirty years.’

The student replied,
‘But, I don’t understand…
why does it take longer when I work harder?
The Master replied,
‘When you have one eye on the goal, you only have one eye on the path.’

Too often in marketing we are obsessed with the goal, to the point that we fail to understand that the path, or the process, we used to reach the goal is equally, if not sometimes more, important. Oftentimes, marketing professionals fail to invest adequately in infrastructure and business processes that will ultimately help us achieve the expected business results. In marketing, it is often hard to rise above the challenges of the quarter to quarter “what have you done for me lately mentality.” Truth be told, businesses need to ensure that the right processes and tools are in place to reach those treasured results. Having a processes-oriented mentality (following the path if you will) will achieve many important things. First and foremost, it will help you build a better framework for problem solving.

For example, do you want to build a more effective new product launch capability?  In order to do that, you need to map out all of elements of a successful product launch – the timing, actions, owners, and interdependencies. A second important outcome is that a well-defined process should improve overall operating efficiency. Build the process out and you will find what you really need (and don’t need) to run the business efficiently. A well-defined process also optimizes workflow, making the overall decision process more efficient. That could mean reductions in people, time and money. Great BPO projects don’t add resources—they take resources away, because they are more automated, require fewer steps, and so forth. Finally, there is the matter of effectiveness. The path will lead to more effective decisions. The results include (among many other things) better product designs, enhanced time to market for new products, more accurate forecasts and improved pricing. One shortfall of the marketing function is that it is not always favorably viewed as being a tightly-run ship, due to all of the processes, metrics, and control systems such as the supply chain or the financial aspect. Because of this, we get a bad rap; but I think we are getting better and improving over time. Having said this, we still have a long way to go, and a long path to follow!

Therefore, the path to great decisions is as important as the goal. Being more process-oriented will help you keep your eyes on the path. Marketing professionals who focus only the goal will miss the enlightenment that can be found by following the path.

What is your marketing Zen?

Resources:

http://www.amazon.com/Z-B-Business-Administration-Practice-Transform/dp/1577314697

http://www-usr.rider.edu/~suler/zenstory/zenstory.html

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Posted By Vince Ferraro

June 29th, 2010

Using the Model

The principle behind using the model is that you identify and choose 1-3 key issues or opportunities that would improve the total customer experience across each phase of the model. This approach would generate a list of 8-24 opportunities that you could work on that would improve upon the existing total customer experience.

Here are some examples of how we used the model at HP.

1)      We used the model to improve our understanding of how customers used our LaserJet printers in emerging markets. We learned that many customers buy lower end products and used them like higher performance products in high dust/dirty environments. These combination of factors lead to increased product failures and some customer dissatisfaction. By better understanding this, we could improve the way we developed products for emerging markets. Perhaps by offering a different product platform or attaching dust/HEPA filter to printers sold there.

2)      We also used the model to create printer-based MFPs that would deliver a better total customer experience than existing copiers coming from established companies like Xerox or Oce. HP wanted to enter this market, but we wanted to build a better mousetrap and have a more differentiated product. We looked at specific things we could improve on our product line that enhanced our existing customer experience as well as what was being done by our competition. As a result, we made changes in our product designs, usability, and messaging. Our changes worked and we achieved #1 market share in the IDC S4 monochrome speed segment. For example, when Xerox tried to emulate we were doing I was able to show how HP’s total customer experience was better in performance, installing, and using the product.

TCE reports help us understand quantitatively how hp and our competitors perform and compare at each of the lifecycle stages and touch points.  Areas for improvement were identified and projects initiated to close the gaps.

The way to use the model would be to decide how to improve or maintain customer experiences for a product in each of the 8 areas of the ACOILUSD model. It might look something like this.

Click to Enlarge

It is important to make an additional comment about B2C vs. B2B TCE models. They are virtually the same with one exception. Often times for consumer products, “USE”is broken into less than 30 days and more than 30 days. Here is the reason. If a consumer has a dissatisfying experience, he is likely to return the product to the retailer in the first 30 days rather than try to solve the problem. Therefore, companies must do everything that can to help a customer achieve a great customer experience in those crucial first 30 days. If a product breaks or the customer cannot use the product, it is highly likely he will return it and buy something else in those first 30 days.

The TCE model is also very steep in buyer psychology and behavior. The goal of any customer experience system should move buyers from emotional disloyalty (I hate it) and rational dissatisfaction (nothing special) to rational satisfaction (this works very well) and emotional loyalty (I can’t live without it). Properly done, it moves behaviors of loathing and functional to enjoyable and almost a Zen-like level of satisfaction. Wouldn’t that be a great place to be with your customers?

How do you measure success? In terms of measuring the results from improving customer experience, I propose three methodologies. The first is to actually compare your company’s TCE to the competition for the 8 segments of the wheel.  If your company’s experience is best in class in 6 of the 8 categories, chances are you are doing a great job. Other methods of measuring include looking at brand preference, especially if brand preference is significantly lower than brand awareness. If brand awareness is high and preference is lower, chances are something is happening in the sales process that needs to be looked at. It could be a variety of things – pricing, channel switching, not enough product differentiation, etc. In addition, I have found that the state of the TCE can also be a very big contributor. Finally, look at your company’s Net Promoter score. This is probably one of the best measures and can be used as a reliable and important measure of TCE success or failure.

Companies that don’t feel comfortable driving this process on their own can employ a third party to company to help them  with elements of their total customer experience. Companies like Frog Design and Touch360 are examples of firms that can help move a company down the road of improving their TCE.

In conclusion, total customer experience (TCE) is a powerful tool that can improve customer satisfaction, loyalty, and provide meaningful competitive differentiation for your company and its products. It is a significant commitment in both time and money and spans across many functional areas within a company – marketing, sales, channels, operations, product development, etc. At the same time, TCE initiatives are also a great way to engage the overall company in programs and activities that are extremely customer-centric and focused.

Please share your stories of total customer experience on this blog by replying to this post!

Additional Resources:

http://www.1000ventures.com/business_guide/crosscuttings/customer_retention.html

http://wehner.tamu.edu/mktg/faculty/berry/articles/Managing_the_Total_Customer_Experience.pdf

http://jobfunctions.bnet.com/abstract.aspx?docid=149049

http://www.ibj.ca/view_article.asp?intArticle_ID=299

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Posted By Vince Ferraro

June 20th, 2010

Overview

I want to devote this blog post to building and using a customer experience models as part of your overall marketing mix. If you have a new or mature business, developing and delivering great customer experiences can be one of the most important ways to create sustainable, differentiated competitive advantage for your company and products. Think about it, if you have a product line where performance and price are roughly comparable to other market share players, what levers are left that are going to truly propel you to a differentiated market position? I believe there are two key things companies can do beyond executing their core business and marketing strategy. First, build exceptional customer experiences and second, drive more customer-appreciated innovation.

Why do we, as marketers, care about all of this? The economics of customer retention and defection and its impact on profitability are very high. According to research I read, the cost of acquiring new customers costs 5X more than retaining and satisfying existing customers. Average satisfied customers tell 5 others. Very satisfied customers are 6X times more likely to repurchase your products and pay higher prices. On the other hand, consider the economics of dissatisfied customers.  On average, companies loose 10-15% of their customers annually. As a result, average unhappy customers tell 9 others and 91% of them will never buy your products again. Finally, loyal customers are not as price sensitive and research has shown a 5% increase in retention can lead to a 25-80% boost in profits!

Although, HP did not develop it, I believe the ACOILUSD total customer experience framework is one of the most valuable models out there that can help a company document existing and improve future customer experiences. In fact it is so important to HP, that they actually have a patent on the process that uses it. Interesting … don’t you think?

The ACOILUSD model of total customer experiences is a fairly straight forward approach. This model proposes that there are 8 stages of a buyer’s customer experience, which are touch points to a buyer’s entire evaluating, buying and usage cycle. If company’s can improve their products’ total customer experience at strategic touch points, the theory is that brand equity, preference, market share, and product satisfaction/loyalty will increase. These enhancements will ultimately drive more revenues and enhanced profitability. My experience with the model would validate this claim. I will talk more about specific examples in a minute.

Here is the model:

8 Phases of the ACOILUSD TCE Lifecycle

The model simply breaks down a product’s evaluation, purchase, and use lifecycle into 8 discreet components.

The idea being that customers touch a company (and their products) at each phase of the lifecycle wheel and (as a vendor) we should strive to enhance our TCE delivery in each phase. Also, the phases are interconnected and work together to build the overall customer experience.  Therefore, the experience in one phase, can affect the experience in other phases.

The Model

Below are summarized descriptions of each segment of the TCE lifecycle wheel with some examples of what is contained in each one

Aware – What customers hear and read about the brand is the way they become aware of us.  It’s the first opportunity we have to make a genuine, personal connection with customers – to show that we are people dealing with people that care – not a corporation dealing with an impersonal set of customers.

Choose – Once customers know about our products and services, they decide whether or not to choose the brand to meet their needs.  Well-made, dependable products that can be adapted to future needs are one reason customers choose your company’s products. Customers rely on us to help them find a solution that’s right for them.

Order – We inevitably touch customers when they order our products—whether it’s through our Web site, at a retail outlet or over the phone. Ordering is often where customers find out how genuinely friendly, approachable, and easy to do business with we really are.

Install – Quick and easy installation can be facilitated by solid reliability and quality that is built into everything we do. This component can also be applied to opening the box and assembling the product for first use. This is often referred to as the “out of box experience” or OOBE. A very helpful and informative presentation on the topic can be found here.

Learn – Everything from the clarity of our printed instructions to the effectiveness of our training courses impact the learning segment of the customer experience.  Learning is an especially important way to show that we are inspired – passionate about helping people achieve their goals and enabling smarter ways of working and living.

Use – The ability of your company’s technology to perform as it should and deliver what the customer needs every day demonstrates that we are dedicated to making things better for our customers, and results from applying intelligence, innovation, and inventiveness.

Support – Support is a key touch point for retaining trust, demonstrating that we are best at partnering with customers and industry leaders, and treating customers with care and respect whether their support is web-based,  call center, or on-site.

Dispose/Upgrade – Environment-friendly disposal is just one way we make things better for our customers, and upgrades at the right time and right price help people to continue to achieve their goals. Think green programs, recycling, and sustainability initiatives.

Relationship: The relationship phase reminds us about the personal connection we need to make with our customers.  Whether the relationship is directly with your customers or indirect through partners, resellers, and/or retailers – we want all our customers to feel that the company cares about them and treats them well.

In Part 2,  I will write  about how to use and apply this model in your company’s overall strategy and how to analyze results from the efforts.

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Posted By Vince Ferraro

April 30th, 2010

Is Pricing Your Friend or Foe (Part 2)?

In the last blog entry, we examined the roles of commodity vs. differentiated products, elasticity of demand, and relative market share play in pricing strategy. Now I would like to look at three more areas – your sustainable price premium, the use of product configurations, and participating in relevant price bands.

Your Sustainable Price Premium

Your ability to use pricing to your advantage is tied to what people are ultimately going to pay for your products. If you are highly differentiated, have a premium brand, deliver a great product, customer experience, etc., you should be able to charge a price premium for your products. The opposite is true as well. Technology examples of premium priced products include HP printers, Apple PCs, and Intel chips. Now let’s look the opposite situation. You can’t charge a price premium. In fact, you may even have to discount your products relative to average market prices. Can Kia charge as much a Toyota? Can Budweiser charge as much as Heineken? Can Lexmark charge more than HP? Even in the best situations, charging more than 10-20% higher than your nearest competitors (as a share leader and/or premium brand) is extremely difficult. There are notable exceptions. If you are a market niche player or luxury product with extreme product differentiation, and control distribution you may be able to sustain more substantial price premiums. Examples include Bose, Louie Vuitton, and exotic cars like Maserati and Ferrari.

The Use of Product Configurations

As a supplier of a product or service, your goal is to get the highest price per unit the customer is willing to pay. In technology marketing, products with attractive low base prices and options (multiple configurations) that contain additional features and accessories bundled together are typically used. The option prices are set up so that the sum of the parts of the bundle are less expensive to buy than buying them individually or are otherwise unobtainable features (if you don’t buy it in a bundle you can’t upgrade your product later for that feature).

See these two examples:  

Apple’s iPad Pricing

HP’s M4345 Multi-Function Product Pricing

It is an art to decide what features should be included in the base product vs. the options. Customer-centered marketing insights will lead you to the right answer. But the net goal is to have attractive, entry-level price points on the base products then build such an attractive portfolio of options that people, based on their needs, will more than likely purchase a more expensive option.  In addition to this product/pricing approach, there need to be compelling up-sell and sell across marketing communication, tools, and promotions to wring out these higher average selling prices.

Participating in Relevant Price Bands

Based on the above, you should be able to triangulate on your pricing, relative to industry averages and nearest competitors. It is helpful to calculate average selling prices or revenue per unit and compare your performance to that of the competition. Many third party companies track this data (like IDC or GfK for printers and PCs). Equally important is the concept of price bands.

 As a company, you ideally want to sell products at all relevant market price bands (or customer- appreciated price points) – whether they are higher or lower. Why? As mentioned earlier, participating in more price bands opens up broader market access. Over time as a product category matures, lower price bands grow faster than higher price bands and there is a mix shift to lower price bands. This follows the trend of classic technology productlife cycles. This becomes important when you are managing your market share. For example, let’s say 50% of your market is priced over $300 per unit and 50% if your market is below $300 per unit. You don’t currently play in the less than $300 market because it is less profitable, cheapens your brand, etc. Let’s say you have 50% market share in that >$300 market.  That would give you 25% market share in the total market (50% x 50%). Let’s assume you are gaining one share point of market share every year in the >$300 market and the <$300 market is growing 2X faster than the >$300 market. In this scenario, even if you gain market share in your traditional segments of the market, you are losing market share in the overall market. That may or may not be OK, depending on your business strategy. If you are the market share leader for the price bands you participate in as well as the overall market, chances are you will want to hold on to your share and keep prices as high as possible. But as new price (probably lower) price bands emerge, you will need to decide how to respond to them. There are ways to respond (but that will be another blog entry).

Equally important to this conversation is to develop the appropriate tracking mechanisms to measure and respond to your industry’s unique pricing dynamics. Appropriate measures can include revenue share, unit share, price premiums vs. average selling prices, market leadership indicators, brand metrics, and coverage of market price points and bands. Looking at these factors and carefully considering your pricing approach will yield better decisions and help you make marketing a more strategic, value-added function.

Often times, companies will make broad statements – that they would like to grow revenues, profits, and market share – all at the same time. Unless you are starting from nothing, this is almost impossible. At best, only two out of the three variables in play can be optimized. You need to make sure you wisely chose the best ones for your business.

So is pricing your friend or foe? It is you friend if it helps you grow revenues, has neutral or positive effect on market share, and helps you manage your overall profitability to goals. It is your foe if pricing decisions drag down your revenues, gross margins, profits, and market prices. While there are no easy answers to pricing decisions, a framework like this will greatly increase your odds that you are making excellent pricing decisions.

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Posted By Vince Ferraro

March 2nd, 2010

Marketing Executives Networking Group & Anderson Analytics Release Results of Third Annual Top Marketing Trends Survey

Today MENG, along with Anderson Analytics – which is run by MENG member Tom Anderson, announce the results of our 3rd Annual Top Marketing Trends Study. This is a great read as the group and the study crosses a fairly large cross section of the marketing leadership and executives in many companies and industries in the U.S. Theyare top notch people. I resonated with the findings – the trends are are for increased investment in social marketing, marketing performance management, mobile marketing, and focus on emerging markets. Favorite books  and gurus were also included that are popular among marketing executives surveyed. Overall, the marketing community is optimistic about future growth for their industries and are happy in their jobs. Marketing executives reported being happy in their jobs, which is surprising given that CMO turnover in the C-Suite is fatest of all the other functions.

Old Saybrook, CT – March 2, 2010 – The Marketing Executives Networking Group (MENG) and Anderson Analytics today issued the results of its Third Annual Survey of Top Marketing Trends. Anderson Analytics surveyed MENG’s nearly 2000 senior marketing members, focusing on the top marketing concepts, buzz words, social media strategy, geographic / demographic considerations as well as the books and thought leaders that executive marketers look to for inspiration and growth opportunity.

“The annual Top Marketing Trends survey continues to provide valuable insight and direction on where the marketing industry is headed and what’s holding marketers’ attention,” said Richard Sellers, Chairman of MENG and Founder of Demand Marketing. “For example, the high importance of marketing ROI, social media and mobile marketing became evident in this year’s survey findings.”

“While more marketers are optimistic about the future prospect of growth, marketers are still feeling the pressure of a tough economic cycle with the need to prove a return on their marketing investments,” said Tom H.C. Anderson, Managing Partner of Anderson Analytics.  “It’s also no surprise to see social media ranking high in the minds of most marketers, but also shows the group is beginning to tire of some of the social media-related buzz words, especially ‘Twitter’.”

Top Findings: 

66% of marketers are more optimistic about business opportunity in 2010; 28% view 2010 similarly to 2009 while only 6% are less optimistic about the outlook.  Compared to last year’s survey findings, marketers are:

Social media remains hot with 70% of marketers planning new social media initiatives in 2010.  Interestingly, social media, twitter and social networking ranked as the top “buzz words marketers are most tired of hearing.”

Regarding companies’ presence on social media sites, large companies are more likely to have a presence on Twitter, Facebook, YouTube and MySpace; smaller companies rely more on LinkedIn.

“Marketing ROI” moved from the third most important marketing concept in last year’s survey to the number one spot in this year’s survey, followed by “Customer Retention” and Brand Loyalty.”

“Mobile Marketing” and “Social Media” officially made the top-10 concept list for the first time this year.  

Of the 53 identified marketing concepts, “Developed Markets,” “Multi-language,” “Social Consciousness,” “Offshoring” and “Long Tail” were viewed as the least important.

Overall marketing executives are more likely to rely on internal employees for their social media initiatives than any outside firms. Companies that are going outside for help with social media strategy and implementation are much more likely to look to social media consultants, and to a lesser degree interactive agencies, than to advertising agencies or public relations firms.

Not surprisingly, China was still ranked as the top geographic opportunity for growth, followed by India, Latin America and Brazil. And among the various target demographics, MENG members still feel that Boomers represent the best opportunity for customer targeting, followed by women and Hispanics. The overall importance of different demographics has not changed significantly since last year’s survey. 

Top Marketing Gurus & Books:

The main sources of marketing inspiration remained practically the same this year.  Seth Godin remains the favorite marketing / business guru three years in a row. Steve Jobs and Philip Kotler increased in popularity and now occupy second and third place, respectively. Two social media focused gurus, David Meerman Scott and Chris Brogan, made the list for the first time this year.

Outliers, Good to Great, and Blue Ocean Strategy were the top three business books MENG members would recommend reading.  Advertising Age, Wall Street Journal and Fast Company were ranked as the most popular publications read by senior marketing professionals.  And by a large margin, MENG members respect Apple the most in terms of company and brand marketing.

Happiness & Dream Jobs:

Despite tough market conditions, senior marketing executives appear to be quite happy with their current job. Over 60% gave a seven or above overall rating on the job satisfaction scale. When asked about their dream job, 44% of the respondents provided answers within the field of Marketing and over 13% of the members say they currently are in their dream job.

Anderson Analytics conducted the Top Marketing Trends survey among current MENG members between January 11 and February 8, 2010. Anderson Analytics used text-mining software to code open-ended/free form text answers to questions in order to truly understand what issues were top-of-mind among the senior executives. The 533 responses yield a confidence interval of +/-3.64%.

For a complete copy of survey results, visit www.mengonline.com/visitors/newsroom.

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Posted By Vince Ferraro