This isn’t Your Dad’s Marketing


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[Over the coming weeks I’ll be sharing excerpts as we work towards completing the manuscript for ‘What’s Your Purple Goldfish?’. Yesterday was Chapter 1 and today is a glimpse at Chapter 2]


DEAL is no longer a bad four letter word. It’s a badge.

Value is now the new black. Today’s difficult economy is forcing both brands and consumers towards a ‘value’ model.

Consumers are expecting more value. According to the Brand Keys Customer Loyalty Index, successful brands are those that stand out because consumers think of them as valuable. They don’t see the term value as a synonym for cheap.

Brand Keys analyzed the likely consumer values, needs and expectations and offered the following trends:

  1. Value is the new black: Consumer spending, even on sale items, will continue to be replaced by a reason-to-buy at all. This may spell trouble for brands with no authentic meaning, whether high-end or low.
  2. Brand differentiation is brand value: The unique meaning of a brand will increase in importance as generic features continue to propagate in the brand landscape. Awareness as a meaningful market force has long been obsolete, and differentiation will be critical for sales and profitability.
  3. Consumer expectations are growing: Brands are barely keeping up with consumer expectations now. Every day consumers adopt and devour the latest technologies and innovations, and hunger for more. Smarter marketers will identify and capitalize on unmet expectations. Those brands that understand where the strongest expectations exist will be the brands that survive and prosper.
  4. It’s not just buzz: Conversation and community is increasingly important, and if consumers trust the community, they will extend trust to the brand. This means not just word of mouth, but the right word of mouth within the community. This has significant implications for future of customer service.
  5. Consumers talk with each other before talking with brands: Social networking and exchange of information outside of the brand space will increase. This – at least in theory – will mean more opportunities for brands to get involved in these spaces and meet customers where they are.

Price is relative to the value received. Here are some highlights from a survey by Convergys:

“Today’s consumer expectations are clear. They expect good value for their money and timely acknowledgement and resolution of their issues by knowledgeable employees,” said Jim Boyce, President, Global Sales and Services for Convergys. “It is more apparent than ever that consumers are willing to take their business elsewhere when their needs are not met. At the same time, companies that have the customer service mechanisms in place to give their customers what they want are the companies that will retain and even grow their market share.”

Those who stay are more likely to seek and expect resolution from a company when they do not receive the service and value they expect. Survey respondents reported that they informed companies of their bad experiences 66% of the time, up from 63% in 2008. Companies that were not equipped to resolve or respond to customer complaints paid the price in customer defections. 59% of survey respondents who reported a bad experience and did not receive a response from the company stopped doing business with the offending party, as did 53% of respondents who received a response without resolution.

85% of survey respondents who had a bad experience with a company also told their friends and colleagues about it, spreading the word through face-to-face chats, e-mails, text messages and social media, which has immense power to amplify the voice of the frustrated consumer widely among a company’s customers and potential customers. Interestingly, this trend did not belong just to the social media savvy Millennial, but stretched across all of the age groups surveyed.

Here are three truisms for the future of marketing:

1. Word of Mouth
Positive word of mouth is still the most effective tool in marketing. Today, more than ever, your customer has a voice. Even though over 90% of word of mouth is offline, social media tools have acted as both an amplifier and a long tail. How are you giving your customers something to ‘talk, blog, tweet, and post to Facebook about’?

2. Retention
Retention is fast becoming the new acquisition. It’s common knowledge that acquiring a new customer costs 5 to 10 times the amount of retaining a current one. Studies have shown that a reduction in attrition of 5% can boost profit by 25%. How are you going above and beyond to drive customer value, keep your current customers, and eliminate the revolving door effect?

3. Differentiation
It is becoming harder and harder to differentiate our products and services. Everything is moving toward becoming a commodity. How are you figuring out ways that you can stand out in the ‘sea of sameness’?

Using Pareto’s Law to Flip Traditional Marketing

Vilfredo Federico Damaso Pareto was an Italian economist that made a famous observation in 1906. He stated:

“20% of the population in Italy owns 80% of the property”

The rule was popularized in the early 1940’s by Joseph Juran and is now commonly referred to as the 80/20 principle, i.e. 20% of your customers will account for 80% of your sales or 20% of your efforts will net 80% or your results. Juran applied the principle in the area of quality management.

stew leonards hall of fameStew Leonard’s is a retailer that always understood the Pareto Principle. They own the distinction of being the most profitable grocery store per square foot in the world. They’ve done this by carrying only a couple thousand of items in the store, a mere fraction of what a normal grocery store would carry. The Leonard’s made a conscious effort to concentrate on the best selling 20% of grocery items. Instead of stocking 10 varieties of an item, they may carry one or two of the leading brands. This creates a nice double-edged sword. Stew’s saves space by merchandising less and then buys deeper into the selected product to get the benefit of preferred pricing. Efficiency and profitability in one fell swoop.

Enter the Phelps 80/20 Corollary

If we subscribe to the principle that, “80% of your results is generated by 20% of your efforts”, then I respectfully posit the Phelps corollary:

“80% of your traditional marketing efforts will net you 20% of the results”

We know that traditional marketing (tell and sell broadcast advertising) is woefully ineffective. I always refer to the infamous Joseph Wanamaker quote about advertising,

“Half the money I spend on advertising is wasted . . . the problem is that I don’t know which half”.

I personally think 50% is an understatement and therefore I put forth that for the vast majority of your marketing spend on the traditional funnel (the 80%) . . . you are receiving one dollar worth of return for every four that you spend given the Phelps 80/20 corollary.

The Revolving Door Effect

There is a huge flaw when you focus the majority of your marketing efforts on the traditional purchase funnel. That flaw is what I call ‘The Revolving Door Effect’. Because the majority of your marketing is mainly focused on prospective customers, you may only be adding 10% to 25% of new customers per year.

Wait a second . . . most companies would say, “Sign me up right now for an increase of 10% to 25% of customers per annum”. The problem is that most businesses have huge problems with retention. It may not be uncommon to lose 10% to 25% of the customer base in a given year. The net effect is that you might negate all of your gains and in essence create a revolving door by not taking care of your new and current customers.

The overwhelming traditional view of marketing is that it’s mainly about the process of acquiring prospective customers. Eighty to ninety plus percent of marketing budgets are aimed towards getting consumers into the ‘purchase funnel’. We’ve become so preoccupied about generating awareness and interest that we forget about our most important asset . . . our current customers. We need to flip that rational on traditional marketing. First we need to heed Pareto’s Law and determine the 20% of traditional marketing we are doing that is generating a strong ROI. Once you’ve earmarked that vital 20%, it’s time to put the other 4/5ths to work by putting the focus squarely on current customers.

By putting the focus on your current customers, you can generate the following three benefits:

  • Reduce attrition
  • Increase satisfaction
  • Promote loyalty

Bumping Customers Down the Funnel

The net effect of focusing on your customers first and foremost is fourfold by bumping them down the flipped funnel:

1. New customers become Occasionals

2. Occasionals become Frequents

3. Frequents become Regulars

and most importantly . . .

4. Regulars become Evangelists

How do you stand out in a sea of sameness? What is your one signature differentiator in customer experience?

Instead of being a ‘me too’, what is the one special thing our company does that is superior and distinctive in the eyes of our customers? What is that little something extra that we add that is tangible, valued and talkable?

What do you hang our hat on? Do you do anything to stand out from your competition?

What is your warm signature Chocolate Chip Cookie like Doubletree?

What is your ‘Bags Fly Free’ value like Southwest?

What is your free peanuts and bonus fries like Five Guys?

What is your free shipping upgrade to overnight like Zappos?

Where is your ‘penny arcade’ in the lobby like TD Bank?

What’s Your Purple Goldfish?

[Next Up Chapter 3 – A word worth traveling to New Orleans to get]

Republished with author's permission from original post.

Stan Phelps
Stan Phelps is the Chief Measurement Officer at 9 INCH marketing. 9 INCH helps organizations develop custom solutions around both customer and employee experience. Stan believes the 'longest and hardest nine inches' in marketing is the distance between the brain and the heart of your customer. He is the author of Purple Goldfish, Green Goldfish and Golden Goldfish.


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