Part Ten: Sustaining Value
Today, it’s not enough to simply promote and market to a target audience; consumers are starting to demand relationships in different forms prior to, during and after their purchases. The relationships offered by an organisation are another channel of communication to consumers and therefore must also be managed just like all other elements of the marketing plan are.
Relationship Marketing (RM)
RM, also referred to as Customer Relationship Marketing (CRM) is the branch of marketing that caters to the sustaining value of relationship building with customers. The characteristics of RM are:
- Long term plan orientated aimed to preserve customer base
- Commitment and fulfilment of product and organisational promises
- Customer share based, not market share based
- Leveraging customer life-time value
- Two-way dialogue
- Customisation and tailoring the offering to suit each customer
These relationships must exist beyond one staff member, so that, should that staff member leave, the relationship is not destroyed.
Additionally, RM should be managed so that it isn’t the only strategy employed as investing all efforts into keeping current customers and not into securing new ones can be risky. However, a good relationship marketing plan will keep customers happy and encourage repeat purchasing.
The Benefits and Disadvantages of RM
RM strategies can be both positive and negative depending on the type or method used, as well as the industry and product category.
- It provides benefits for customers and suppliers
- Enhances brand loyalty and creates brand advocates
- Allows direct contact with customers
- Allows for interaction and measureable feedback
- Resource demanding
- Unexpected demands
- Opportunity costs
If the target market, currently brand advocates via a RM program change overtime and the organisation wishes to target a new segment, an RM can be quite restrictive as the newer segments may not wish to be associated with the previous segment. This is the case with some clothing brands- the brand develops a solid relationship with a young crowd, however as they get older and the brand wants to refocus on the new youth, they may see the other segment wearing that brand and not wish to be associated with it.
Of course, it can also be the other way around. Banks can secure the next generation if they have a good, long term relationship with the parents and previous generations.
Flank brands are a strategy sometimes employed when an RM program has found extreme loyalty with one segment, and therefore to target a new segment, a separate brand is created.
Targeting a RM Program
An organisation has six main markets that they can build a relationship with. These are:
- The customer target market themselves (ie: purchasers)
- Potential employees
Customer modes are the types of behaviours customers exhibit with their purchase, and determine the level of a relationship they want or expect. Naturally, different customers have a different view on different purchases, however it is important for an organisation to correctly access the mode their target market is in, so as to best cater for their needs.
(1) Transactional Mode: All they want is a quick exchange and no more than a simple brand awareness so they know what their preference is. This tends to be with simple purchases such as a chocolate bar.
(2) Active Relational Mode: The customer expects a relationship otherwise it will negatively impact their value and experience. For example, airlines, real estate, doctors, hotels, and so on.
(3) Passive Relational Mode: Customers want a detached transactional mode until they deem it necessary to fall back onto a relationship. For example, when a car is purchased, most customers don’t want a relationship until it needs a service or they need help.
Depending on these modes, the potential for a good recovery strategy is high here. If a customer is unhappy, they can use the relationship to provide feedback, and if an organisation implements a good response, studies show brand loyalty is increased drastically.
The Scope of Relationships
There is a continuum scale of how best to match a relationship marketing program. If customers exhibit certain behaviours, then an appropriate RM program can be catered to their demands.
Transactional Mode End
- Customers have low anxiety over purchases
- Contact seen as unnecessary
- Standard, low investment products
- Customers purchase easily without a need for follow up
Relationship Marketing (Active and Passive relational modes) End
- High customer anxiety over purchase
- High degree of contact expected
- Confidence, social and special benefits highly valued
- Customers wish to know that the organisation is there when they need them
Besides Relationship marketing, there are two other methods to retain customers. The first is to create exit barriers making it difficult to leave, such as long-term contracts. Whilst this is effective to an extent, it can create a resentment toward the brand.
The second is loyalty schemes. These are gentler and more customer friendly than solid exit barriers, rewarding customers for repeat purchases and getting them comfortable with the product offering.
Whilst these are effective in keeping customers with an organisation’s brand, competitors can come up with clever schemes to undermine these barriers, such as honouring the current loyalty scheme for a competing brand themselves.
An organisation needs to find the best combination to ensure they’re fostering a good relationship with their customers. It takes customer satisfaction, trust and commitment to create customer loyalty (known as the loyalty formula) and if an organisation can’t successfully hit those three factors, their retention strategy is weak.
Customer Trust and Commitment
Customer satisfaction (as a part of the loyalty formula) can be achieved with the marketing mix strategy. The other two elements, trust and commitment derive from:
- Delivering on promises
- Customer care
- Recovery strategies
- Valued relationship
- Shared power (two-way communication channels)
- Avoidance of unethical or untasteful behaviour
- The open sharing of information
- Healthy and positive image/reputation
- Focusing on customer orientation
There is a growing trend that customers are demanding more environmental awareness and practices. Green marketing is promoting environmentally friendly products to create a positive image with the brand and organisation. It is just one way that assists with consumer relationship marketing.
Part Nine: Communication and Relationships
Promotion and advertising is the cornerstone of the marketing plan and marketing department, requiring a strategic plan to work out the best way to leverage marketing efforts to successfully promote a product.
The Promotion Mix
The promotion mix consists of advertising, personally selling, sales promotion, public relations and direct marketing, utilising the main elements of the original marketing mix. It depends on the product, industry and market as to which of the promotions mix to use, however usually a combination of two or more is the most effective way of communicating and sparking the interest of the target market.
Common trends have blurred the lines between which promotion method works well, and consumers today require very tailored messaging for them to actually pay attention to the marketing activity itself. “Same old” advertising is starting to get lost in the clutter, to be replaced by innovative and viral campaigns that engage consumers.
The IMC Approach
Integrated Marketing Communications (IMC) is the approach where all marketing efforts utilised by the organisation from the promotion mix communicate a clear, consistent and compelling message about the product or organisation themselves. Shifts in communication and message should be done slowly overtime, rather than confusing the customers by promoting inconsistent messages. IMC is a way that an organisation manages its entire portfolio of communication.
The Whole Communication Offering
An organisation is constantly communicating messages to the target market. These include:
(1) Planned and deliberate messaging: via the promotion mix
(2) Product messaging: via the marketing mix (such as price, distribution, etc)
(3) Service messaging: via interaction with the customers themselves
(4) Unplanned and uncontrollable messaging: via gossip, external publicity, reviews, rumours and other external environment buzz.
An IMC plan will ensure that an organisation presents a united, solid communication front to customers: this means the management of all contact points of an organisation and product (what is said in the promotional mix, confirmed by the unplanned messages, and performed via the product and service messages).
Elements in the Communication Process
All messages follow a process:
(1) The sender creates the message and encodes. By encoding, this means the process of creativity of the message.
(2) The message is then send out via the medium chosen. At this point is must also compete in amongst what is known as ‘noise’- these are all of the conflicting messages and all other interference that can distract the target receiver.
(3) Once the message is received via the medium, the receiver must decode the creativity of the sender, which is heavily biased by their own perceptions, judgements and past experiences, to finally receive the message.
(4) After this, a response action is triggered, whether it be dismissal, negative, positive, purchase, and so on.
(5) Concluding the action, feedback from the receiver to the sender is sent, which must also go through the ‘noise’ or interference factor before the sender can use the data.
Different elements of the promotional mix approach this cycle in different ways. For example, personally selling is effective because it completes the cycle entirely in almost one transaction, whereas Public Relations campaigns are slower and can experience high amounts of noise.
Developing Effective Communication
(1) Identify the target audience
(2) Determine the objectives and goals of the communication message
(3) Design or encode the message creatively, catered to what would spark the interest of the target audience.
(4) Select appropriate channels
(5) Establish a budget for this message so as to determine best use of resources
(6) Determine which elements of the promotional mix to utilise
(7) Measure results
(8) Manage the IMC system
(9) Collect data on this experience to improve the next message
Reach and Frequency
When it comes to marketing communication strategy, reach and frequency are the two main factors that must be decided upon.
The reach is all about the level of access to the target market. How many segments within the target market need to be accessed? What times? What demographics? Which media do they use?
The frequency is about how many messages through those reach channels, above. If, for example, a magazine is the selected medium, then how many issues is the communication present in? How many times does the advertisement run on television? And so on.
There tends to be an “S”-shaped response curve that occurs with frequency and effectiveness that all marketers must take into consideration. It is generally accepted that a low frequency of communications, such as between zero and three exposures, is not very effective at all. A medium frequency, above this, gains a high acceptance with the target market and thus is very effective (usually between three and ten rapid exposures). However a high frequency starts to lose its effectiveness and can even become negative if the target market becomes saturated and over-exposed to the content.
Advertising, also known as paid-promotion or ‘above the line’ marketing is any communication message that is paid for by an organisation to a medium sponsor (such as a television station, a magazine, a bus shelter, a billboard, a radio station, and so on) that presents and promotes a product, non-personally. This means that it does not involve a personal, one-on-one interaction.
These kind of promotion offers the organisation almost complete control of the message as they can purchase a space and advertise however they’d like, within reason. This is usually the most expensive and competitive form however is extremely effective.
Marketers today, however, face a lot of challenges in advertising as there is a lot of noise and consumers are starting to filter out the ‘same-old’ advertising thrown constantly at them. As consumers are becoming more de-sensitised through over-exposure, marketers have to be far more creative to cater better and more effective messages to the target audience.
Marketers now tend to use different forms of advertising, such as ‘crowd-sourcing’, which is getting the target market actively involved in the advertising and creativity for a reward. This has large uptake by a target market as they feel involvement as worth their attention.
Advertising has five functions when being utilised: informing, persuading, reminding, adding value, assisting organisational efforts and favourability. One message can perform one or a combination of all of these functions. Favourability tends to be utilised more today- if a message is liked by an audience, it will tend to have more cut-through than an ad that rubs the audience the wrong way.
Public Relations (PR)
This is known as ‘below-the-line’ marketing and involves creating good relationships with the organisation’s publics and stake-holders through favourable publicity, positive corporate and product image and managing or debunking unfavourable rumours, reviews and messages.
PR can be positive or negative and can function as an outlet for information or promotion, depending on the context. Unfortunately, PR isn’t always in control by the organisation. Whilst some forms can be intentional, such as a press release, sometimes PR can be written or circulated without the knowledge of the organisation. Organisations such as Greenpeace tend to use witty PR campaigns to gain momentum for the causes within the community.
Event sponsorship is a form of PR, where an organisation pays to be an official branded sponsor. This kind of PR allows for positive brand association with the event. However, for this to be a success, it is important that the product ties in well with the event- it can be a waste if there is no leverage by the organisation. Just a brand at an event isn’t enough; there must be some related activity such as a stall at the event. A good sponsorship PR campaign capitalises by promoting the tie with the event.
However, with event sponsorship, ‘ambush marketing’ threatens to take advantage of such events. This is where an organisation will advertise with the event’s theme unofficially so as to appear to be a sponsor and steal the limelight, when they’re in fact not.
Experiential Marketing Campaign
A good way to gain positive PR is by letting customers trial a brand or product as an experience so that they consume the brand in a favourable experience setting and then share this with the market. For example, wine tasting in a beautiful vineyard or sports drinks during a volleyball game on the beach.
Sampling is another similar example of this, where consumers are given access to free trials to promote the product and break through distrust barriers.
Sales promotion is a short-term incentive given to customers to spur and increase purchase behaviour, such as the push and pull strategies discussed above. These can come in the form of discounts, buy-one-get-one free, coupons, lotteries, competitions and so on.
It is important, however, than an organisation avoids the sales promotion trap, which is over-incentivising to a point where the discount becomes the norm and the organisation can no longer remove the promotion.
Diverting can also occur. This is where someone or an organisation avoids the restrictions of a sales promotion, purchases these discounted goods in one region, and then sells in a non-discounted region.
This type of promotion began with physical mail marketing and has evolved to email and mobile phone marketing. Basically, it is any form of advertising that utilises an interactive media to gain a measureable result and response at any location.
Unfortunately, direct marketing tends to bombard consumers, so a good ‘call to action’ together with something that sparks the interest and curiosity of the target market enough to get them to respond.
The Internet’s Role In Marketing
The internet is a fantastic resource for marketing efforts. It can perform the following functions for an organisation:
- Public relations
- Investor communications
- Customer service
- Prospect qualification
- Product sales
- Customer interaction and feedback
- Internal communications
It is very important that the use of the internet is consistent with the marketing strategy as, because it can perform so many simultaneous functions at once, all must be correctly utilised and managed to ensure a united front and message (a good IMC).
The internet’s use has shifted greatly from simple websites to completely out-of-the-square marketing efforts such as interactive social media campaigns, mobile device marketing and so on.
Part Eight: Distribution
Distribution is the fourth element in the marketing mix, dubbed as ‘Place’. Basically, it is everything involved with making the product offering available to the market. An organisation is faced with many options to get the product within reach of the consumer and that can be either through a channel or direct to market. Having distributors makes economic sense in certain contexts, however the organisation needs to trust the channel by giving up a lot of control.
Today, distribution channels are getting shorter and shorter with technology, which has been called ‘disintermediation’. This basically means it is becoming easier to ‘cut out the middle man to increase profits, maintain greater control and give the organisation direct contact with the customer.
The Strategic Value of Channels
In a more general sense, an organisation can usually cover the information, promotion, contact, matching and negotiation activities of a transaction, however the physical distribution can often be outside the scope and therefore outsourced by the organisation, especially when in the form of a physical good.
Intermediaries specialise in the essential distribution duties and can also offer value-add services like storage and warranty support, so often, it makes strategic and financial sense for, for example, a manufacturing organisation to enlist the partnership of such intermediaries to complete the channel flow, so they can focus on what they do more effective and efficiently.
The issue is, intermediaries are starting to gain a lot of power given that the other organisation relies so heavily upon them to make any sales at all. They can make all kinds of demands and then threaten to stop supplying the market the organisation’s product should they not comply.
This is why some organisations attempt to shift the power using VMS, Vertical Marketing Systems.
Vertical Marketing Systems (VMS)
A VMS is where one part of the channel either purchases or sets-up their own distribution channel or intermediary in order to by-pass powerful distributors and do it themselves. The obvious advantage is that power goes to the original organisation and they have far greater control over the whole channel, even if they use their own and use another distributor, as diluting the stage means that the powerful intermediaries lose their monopolistic power.
The problem with a VMS is that it can be risky and costly to do as the organisation needs to learn to be a good distributor and retailer as well as a manufacturer. There is little use in setting up a VMS if the newly opened intermediaries do not have the right contacts or skill set to really compete with a specialised one.
Apart from a straight VMS, there are two other slightly different VMS models. The first is a contractual VMS, where another intermediary is not technically owned, however they are contractually secured by the other organisation, such as what is done in franchising. The other is a weaker administrative VMS, where an intermediary is not technically owned or contracted to the other organisation, however both organisations work together as partners.
The Intermediary Focus
Whilst this topic can become focused on the manufacturer as the only central focus of a distribution channel, the intermediaries are large players in the channel themselves. There are several intermediaries that have become very successful simply by finding manufacturers in a localised area and simply brought them together in one unified distribution model, creating a symbiotic relationship. An example is a meal delivery service, where the service promotes all of the food and the delivery to the customer, the customer orders through them, and then the meal delivery service places orders with local restaurants and delivers the food.
Influences on Channel Strategy
The strategy an organisation chooses is impacted by both external and internal factors. Internal factors include the organisation’s strategy, goals, objectives, resources, skillset, control and marketing mix. External factors include customers, the market environment, competitors and intermediaries.
As is normal from a marketing focus, the key is to keep customers as a focus for all activities. Therefore, considerations such as what benefits they’re seeking, what channels will provide the best access, which distribution strategy will position the product as the most appealing to them, and so on.
This is a very popular trend in modern distribution strategy and is extremely popular with consumers. There are a few factors to impact on this type of distribution:
- Certain taxes can be avoided
- Legislation and consumer protection
- Loss of physical store jobs
- Government focusing on internet legislation and internet services (such as the NBN)
- Globalisation of economies and markets
- Increased competition as physical restrictions are removed
- Currency exchange rates
- More informed, price conscious consumers
- Access to foreign products
- Cost advantages due to competitive pricing
- Social media has become a norm in society
- Other demographics are becoming more involved
- Socially acceptable to be thrifty
- Time poor customers have a need for convenience
- More accepting and tech savvy demographics
- Self-image is important, so customers can easily share their purchases online
- Easier for all organisations to use and take advantage of
- Increase in accessibility
- Increased security on technology which increases buyer confidence
- More devices to access online shopping
- Big Data allows customers to be better catered to
- More advanced software to assist all stakeholders
- The shortening of the supply chain could reduce environmental impact
- Less need for bricks and mortar stores
- Customers are more environmentally aware
- Less physical distance, reducing barriers to access
There are three main classifications of channel densities.
(1) Zero Level: where the manufacturer goes straight to the consumer direct, such as Dell computers.
(2) One level: where there is only one intermediary in between the manufacturer and customer, such as book sellers and Amazon.
(3) Multilevel: where there are many intermediaries, such as wholesalers and retailers between the manufacturer and consumers. In a multilevel channel, the producer can sell in one straight line (i.e.: one wholesaler and then on to one retailer, then the customer) or through many different intermediaries in different industries (such as agents).
Distribution intensity refers to all strategies an organisation has for getting product through the channel.
(1) Intensive distribution
Where an organisation sends their product through a large variety of intermediaries, channels and stores for maximum access to the market. This type is mainly for simple, inexpensive and easily transportable products that tend to be repeat or impulse buys, given the consumer as much exposure and therefore opportunity for purchase as possible.
Typically, products that are intensively distributed are heavily promoted with low cost and high turn-over. The quality can also be average or low in general.
(2) Selective distribution
Where the organisation is slightly more selective about which channels they chose so as to not cut off all access to customers, but be more selective to give the product a different positioning to a commodity product. This is for products, such as specialty retailers and branded stores, that are more on the specialty or higher end, and therefore restrict certain levels of access to create an aura of quality or provide more intimate customer service.
(3) Exclusive distribution
Where an organisation has a very low number of channels and outlets. This is a very restricted distribution strategy for very high-end, high involvement products and give the perception of exclusivity and uniqueness.
Typically, products that are selectively or exclusively distributed are promoted exclusively, are priced high and the consumer will specifically seek the product as the quality and value is high.
All three distribution types position the product differently in the eyes of the consumer, hence why the channel strategy selected must be consistent with the marketing plan. Obviously this varies with product and industry type.
There are also two types of alternative strategies to the above to increase the flow of the distribution channel:
(1) Pull strategy: the organisation advertises and conducts marketing efforts directly to the end consumer at the end of the channel, which increases their demand, ‘pulling’ products through the channel. To do this, the distribution must be so there is enough access provided for consumers to get the maximum effect.
Such marketing efforts, besides straight promotion, could include free samples, trials, coupons, financing, discounts, specials and so on. Usually, these are quite successful as, being normal fast moving consumer goods (FMCG), a consumer will tend to take advantage of these types of bargains.
(2) Push strategy: when the organisation advertises and conducts marketing efforts directly at other intermediaries within the channel to encourage their demand, ‘pushing’ products through the channel.
Marketing efforts in a push strategy involve incentivising intermediaries so as to encourage their demand, such as benefits to their sales forces, bulk discounts, financing and negotiation on marketing efforts to the end consumer.