Growing exponentially on the basis of emotional and mutually beneficial connections, communities of netizens are the key to expand a brand's heart share. When it comes to communal word of mouth, netizens are the best amplifiers.
A brand message will flow along social connections if it receives the netizens' seal of approval. Summary: Youth, Women, and Netizens Youth, women, and netizens have long been researched thoroughly by businesses but typically as separate customer segments. Their collective strength, especially as the most influential segments in the digital era, has not quite been explored. Youth are early adopters of new products and technologies. They are also trend setters, yet are fragmented as to the trends they follow.
Ultimately they are game changers. As information collectors and holistic shoppers, women are de facto household managers, the chief financial officer, purchase manager, and asset manager all rolled into one. Finally, netizens are social connectors, as they overwhelmingly connect, converse, and communicate with their peers.
They are also expressive evangelists as well as content contributors in the online world. Together, youth, women, and netizens hold the key to marketing in the digital economy. Reflection Questions How can your business acquire greater mind share by leveraging youth's roles of early adopters and trendsetters? How can your business grow market share by leveraging the household influence of women?
How can your business identify and utilize netizens to win greater heart share? McKinsey lists top innovations that have had the most significant economic impact, including mobile internet, automation of knowledge work, the internet of things, cloud technology, advanced robotics, and 3-D printing, among others. These digital technologies have been around for some years but their impact reached the highest point only recently, fueled by the convergence of multiple technologies.
These technologies help develop multiple sectors in the economy such as retail e-commerce , transportation automated vehicles , education massive open online courses , health electronic record and personalized medicine , as well as social interactions social networks.
However, many of the same technologies that drive the digital economy are also disrupting key industries and upsetting major incumbents. Large retailers such as Borders and Blockbuster, for instance, experienced the disruptions caused by digitally empowered entrants in their respective industries. These digitally empowered entrants—Amazon and Netflix—are now the new major incumbents in their industries.
Interestingly, even the past disrupters may experience the same fate. Apple's iTunes, which once successfully disrupted the brick-and-mortar music retailers with its online music retailing, has been disrupted by Spotify and its music-streaming business model.
Apple's revenue from music sales has been in decline since its peak in the early s. Apple launched its own music-streaming service, Apple Music, in mid to rival Spotify. Adapting to the emerging disruptive technologies, most customers are excited and anxious at the same time. Automation of knowledge work, for example, has not only bumped up productivity but has also brought fears of losing jobs. But on the negative side, 3-D printing can also be misused for producing guns, for example.
The most significant dilemma is perhaps caused by the mobile internet. It has brought peer-to-peer connectivity and empowered customers to be much smarter and better informed than in the past. But a study by Przybylski and Weinstein of the University of Essex proved that mobile phones may also hurt relationships. The research revealed that mobile phones divert people's attention away from their current environments.
It also discovered that the feeling of being able to connect to a wider network often inhibits people's abilities to be empathetic to others nearby. Therefore, as the drive toward digital economy intensifies, customers are longing for the perfect application of technologies that allows them to self-actualize while becoming empathetic at the same time.
In this transition and adaptation period to the digital economy, a new marketing approach is required to guide marketers in anticipating and leveraging the disruptive technologies.
For the past six years, marketers have been asking for a sequel to Marketing 3. Our book was so universally accepted that it was translated into 24 non-English languages.
In the book, we talked about the major shift from product-driven marketing 1. We now want to introduce Marketing 4. In the digital economy, digital interaction alone is not sufficient. In fact, in an increasingly online world, offline touch represents a strong differentiation.
While it is imperative for brands to be more flexible and adaptive due to rapid technological trends, their authentic characters are more important than ever. In an increasingly transparent world, authenticity is the most valuable asset.
Finally, Marketing 4. Moving from Traditional to Digital Marketing From Segmentation and Targeting to Customer Community Confirmation Traditionally, marketing always starts with segmentation—a practice of dividing the market into homogenous groups based on their geographic, demographic, psychographic, and behavioral profiles.
Segmentation is typically followed by targeting—a practice of selecting one or more segments that a brand is committed to pursue based on their attractiveness and fit with the brand. Segmentation and targeting are both fundamental aspects of a brand's strategy. They allow for efficient resource allocation and sharper positioning. They also help marketers to serve multiple segments, each with differentiated offerings.
However, segmentation and targeting also exemplify the vertical relationship between a brand and its customers, analogous to hunter and prey. Segmentation and targeting are unilateral decisions made by marketers without the consent of their customers. Marketers determine the variables that define the segments. The involvement of customers is limited to their inputs in market research, which usually precede segmentation and targeting exercises.
Many consider one-way messages from brands to be spam. In the digital economy, customers are socially connected with one another in horizontal webs of communities. Today, communities are the new segments. Unlike segments, communities are naturally formed by customers within the boundaries that they themselves define.
Customer communities are immune to spamming and irrelevant advertising. In fact, they will reject a company's attempt to force its way into these webs of relationship. To effectively engage with a community of customers, brands must ask for permission. Permission marketing, introduced by Seth Godin, revolves around this idea of asking for customers' consent prior to delivering marketing messages.
However, when asking for permission, brands must act as friends with sincere desires to help, not hunters with bait. This demonstrates the horizontal relationship between brands and customers.
However, companies may continue to use segmentation, targeting, and positioning as long as it is made transparent to customers. From Brand Positioning and Differentiation to Brand Clarification of Characters and Codes In a traditional sense, a brand is a set of images—most often a name, a logo, and a tagline—that distinguishes a company's product or service offering from its competitors'.
It also serves as a reservoir that stores all the value generated by the company's brand campaigns. In recent years, a brand has also become the representation of the overall customer experience that a company delivers to its customers. Therefore, a brand may serve as a platform for a company's strategy since any activities that the company engages in will be associated with the brand.
The concept of brand is closely linked with brand positioning. Since the s, brand positioning has been recognized as the battle for the customer's mind. To establish strong equity, a brand must have a clear and consistent positioning as well as an authentic set of differentiation to support the positioning. Brand positioning is essentially a compelling promise that marketers convey to win the customers' minds and hearts.
To exhibit true brand integrity and win customers' trust, marketers must fulfill this promise with a solid and concrete differentiation through its marketing mix. In the digital economy, customers are now facilitated and empowered to evaluate and even scrutinize any company's brand-positioning promise.
With this transparency due to the rise of social media brands can no longer make false, unverifiable promises. Companies can position themselves as anything, but unless there is essentially a community-driven consensus the positioning amounts to nothing more than corporate posturing.
Today, consistently communicating brand identity and positioning in a repetitive manner—a key success factor in traditional marketing—may no longer be enough.
With disruptive technologies, shorter product life cycles, and rapidly changing trends, a brand must be dynamic enough to behave in certain ways in certain situations. What should remain consistent, however, are the brand characters and codes. When the core of the brand remains true to its roots, the outer imagery can be flexible. Think of it this way: by having countless logo adaptations—Google calls them doodles—MTV and Google remain solid yet flexible as brands. From Selling the Four P's to Commercializing the Four C's The marketing mix is a classic tool to help plan what to offer and how to offer to the customers.
Essentially, there are four P's: product, price, place, and promotion. Product is often developed based on customers' needs and wants, captured through market research. Companies control the majority of product decisions from conception to production. To establish a selling price for the product, companies use a combination of cost-based, competition-based, and customer value—based pricing methods.
Customers' willingness to pay, estimated in consumer value—based pricing, is the most important input that customers have in connection with pricing. Once companies decide what to offer product and price , they need to decide how to offer place and promotion. Companies need to determine where to distribute the product with the objective of making it conveniently available and accessible to customers.
Companies also need to communicate the information about the product to the target audience through various methods such as advertising, public relations, and sales promotions. When the four P's of the marketing mix are optimally designed and aligned, selling becomes less challenging as customers are attracted to the value propositions. In a connected world, the concept of marketing mix has evolved to accommodate more customer participation.
Marketing mix the four P's should be redefined as the four C's co-creation, currency, communal activation, and conversation. In the digital economy, co-creation is the new product development strategy. Through co-creation and involving customers early in the ideation stage, companies can improve the success rate of new product development.
Co- creation also allows customers to customize and personalize products and services, thereby creating superior value propositions. The concept of pricing is also evolving in the digital era from standardized to dynamic pricing. But advancement in technology has brought the practice to other industries. Online retailers, for instance, collect a massive amount of data, which allows them to perform big-data analytics and in turn to offer a unique pricing for each customer.
With dynamic pricing, companies can optimize profitability by charging different customers differently based on historical purchase patterns, proximity to store locations, and other customer-profile aspects. In the digital economy, price is similar to currency, which fluctuates depending on market demand.
The concept of channel is also changing. In the sharing economy, the most potent distribution concept is peer-to-peer distribution. Players such as Airbnb, Uber, Zipcar, and Lending Club are disrupting the hotel, taxi, auto rental, and banking industries, respectively.
They provide customers easy access to the products and services not owned by them but by other customers.
The rise of 3-D printing will spur this peer-to-peer distribution even more in the near future. Imagine customers wanting a product and in a matter of minutes receiving the product printed in front of them. In a connected world, customers demand access to products and services almost instantly, which can only be served with their peers in close proximity. This is the essence of communal activation. The concept of promotion has also evolved in recent years. Traditionally, promotion has always been a one-sided affair, with companies sending messages to customers as audiences.
Today, the proliferation of social media enables customers to respond to those messages. It also allows customers to converse about the messages with other customers.
The rise of customer- rating systems such as TripAdvisor and Yelp provide a platform for customers to have conversations about and offer evaluations of brands they have interacted with. With a connected marketing mix the four C's companies have a high likelihood of surviving in the digital economy. However, the paradigm of selling needs to change as well. Traditionally, customers are passive objects of selling techniques.
In a connected world, the idea is to have both sides actively obtain commercial value. With increased customer participation, companies are engaging customers in transparent commercialization. Once they decide to buy, they are considered kings in a traditional customer-service perspective. Shifting to the customer-care approach, companies view customers as equals. Instead of serving customers, a company demonstrates its genuine concern for the customer by listening, responding, and consistently following through on terms dictated by both the company and the customer.
In traditional customer-service, personnel are responsible for performing specific roles and processes according to strict guidelines and standard operating procedures. This situation often puts service personnel in a dilemma over conflicting objectives. In a connected world, collaboration is the key to customer-care success.
Collaboration happens when companies invite customers to participate in the process by using self-service facilities. Integrating Traditional and Digital Marketing Digital marketing is not meant to replace traditional marketing. Instead, the two should coexist with interchanging roles across the customer path details about customer path are provided in Chapter 5. In the early stage of interaction between companies and customers, traditional marketing plays a major role in building awareness and interest.
As the interaction progresses and customers demand closer relationships with companies, digital marketing rises in importance. The most important role of digital marketing is to drive action and advocacy.
Since digital marketing is more accountable than traditional marketing, its focus is to drive results whereas traditional marketing's focus is on initiating customer interaction. See Figure 4. Figure 4. It helps marketers to transition into the digital economy, which has redefined the key concepts of marketing. Digital marketing and traditional marketing are meant to coexist in Marketing 4. Reflection Questions How can your brand develop a powerful differentiation based on human-to-human touch in the digital world?
How can your business transition from the traditional four P's to the digital four C's by adopting co-creation, taking advantage of currency-like pricing, engaging in communal activation, and driving conversation?
What are the fundamental changes required in your customer-service strategy to embrace collaborative customer care? As the pace of life accelerates and their attention span drops, customers experience difficulty in focusing. But across multiple channels—online and offline—customers continue to be exposed to too much of everything: product features, brand promises, and sales talk.
Confused by too-good-to-be-true advertising messages, customers often ignore them and instead turn to trustworthy sources of advice: their social circle of friends and family. Companies need to realize that more touchpoints and higher volume in messages do not necessarily translate into increased influence. Companies need to stand out from the crowd and meaningfully connect with customers in just a few critical touchpoints.
In fact, just one moment of unexpected delight from a brand is all it takes to transform a customer into the brand's loyal advocate. To be able to do so, companies should map the customer path to purchase, understand customer touchpoints across the path, and intervene in select touchpoints that matter. They should focus their efforts— intensifying communications, strengthening channel presence, and improving customer interface—to improve those critical touchpoints as well as to introduce strong differentiation.
Moreover, companies need to leverage the power of customer connectivity and advocacy. Nowadays, peer-to-peer conversation among customers is the most effective form of media. Given this lack of trust, companies might no longer have direct access to target customers. As customers trust their peers more than ever, the best source of influence is the army of customers turned advocates.
Thus, the ultimate goal is to delight customers and convert them into loyal advocates. Elmo Lewis, and was first adopted in the fields of advertising and sales. It serves as a simple checklist or a reminder for advertising executives when they design advertisements and for sales executives when they approach prospects.
The advertising copy and sales pitch should grab attention, initiate interest, strengthen desire, and ultimately drive action. Similar to the four P's of marketing product, price, place, and promotion , AIDA has undergone several expansions and modifications. In this more recent framework, the interest and desire stages are simplified into attitude and a new stage, act again, is added. The modified framework aims to track post-purchase customer behavior and measure customer retention.
It considers an action of repurchase as a strong proxy for customer loyalty. The four A's framework is a simple model to describe the straightforward funnel-like process that customers go through when evaluating brands in their consideration sets.
Customers learn about a brand aware , like or dislike the brand attitude , decide whether to purchase it act , and decide whether the brand is worth a repeat purchase act again. When it is treated as a customer funnel, the number of customers going through the process continues to decline as they move into the next stage. People who like the brand must have known the brand before.
People who purchase the brand must have liked the brand before. And so on. Similarly, when treated as a brand funnel, the number of brands that are being considered along the path continues to decline. For example, the number of brands people recommend is less than the number of brands people buy, which in turn is less than the number of brands people know.
The four A's also reflects a primarily personal path. The major influence on customers' decision making as they move across the path comes from companies' touchpoints e. Today, in the era of connectivity, the straightforward and personal funnel-like process of the four A's needs an update. A new customer path must be defined to accommodate changes shaped by connectivity.
In the pre-connectivity era, an individual customer determined his or her own attitude toward a brand. In the connectivity era, the initial appeal of a brand is influenced by the community surrounding the customer to determine the final attitude. Many seemingly personal decisions are essentially social decisions. The new customer path should reflect the rise of such social influence.
In the pre-connectivity era, loyalty was often defined as retention and repurchase. In the connectivity era, loyalty is ultimately defined as the willingness to advocate a brand. A customer might not need to continuously repurchase a particular brand e.
But if the customer is happy with the brand, he or she will be willing to recommend it even when currently not using it. The new customer path should be aligned to this new definition of loyalty. When it comes to understanding brands, customers now actively connect with one another, building ask-and-advocate relationships. Netizens, in particular, have very active connections in customer forums.
Customers who need more information will search for it and connect with other customers with better knowledge and more experience. Depending on the bias shown during the conversation, the connection either strengthens or weakens the brand's initial appeal.
The new customer path should also recognize this connectivity among customers. Based on these requirements, the customer path should be rewritten as the five A's: aware, appeal, ask, act, and advocate. See Figure 5. Figure 5. This is the gateway to the entire customer path. A customer who has previous experience with a brand will likely be able to recall and recognize the brand.
Advertising driven by companies and word of mouth by other customers is also a major source of brand awareness. Aware of several brands, customers then process all the messages they are exposed to—creating short-term memory or amplifying long-term memory— and become attracted only to a short list of brands.
This is the appeal phase. Memorable brands—with wow factors—are more likely to enter and even go higher on the short list. In highly competitive industries where brands are abundant and products are commoditized e. Some customers respond to brand appeal more than others. Youth, for example, are usually among the first to respond. That is why they are more likely to be early adopters of new products. Customers can either call friends for advice or evaluate the short list themselves.
When they decide to research some brands further, they might search online product reviews. They might also contact call centers and talk to sales agents for more information. They might also compare prices and even try out products at stores. Today, the ask is further complicated by the integration of the digital online and physical offline worlds. As customers browse through products in-store, they might also search for information on their mobiles.
Since customers may go to multiple channels for more information, companies need to have a presence at least in the most popular channels.
At the ask stage, the customer path changes from individual to social. Decisions will be made based on what customers take away from the conversation with others. The brand appeal needs confirmation from others to allow the path to continue. Brands need to trigger the right amount of customer curiosity. When the curiosity level is too low, it means that the brand appeal, although existent, is rather low. If they are convinced by further information in the ask stage, customers will decide to act.
It is important to remember that the desired customer actions are not limited to purchase actions. After purchasing a particular brand, customers interact more deeply through consumption and usage as well as post-purchase services. Brands need to engage customers and make sure that their total ownership and usage experience is positive and memorable. When customers have problems and complaints, brands need to pay attention and make sure the customers receive solutions. Over time, customers may develop a sense of strong loyalty to the brand, as reflected in retention, repurchase, and ultimately advocacy to others.
This is the advocate stage. Active advocates spontaneously recommend brands they love without being asked. They tell positive stories to others and become evangelists. But most loyal advocates are passive and dormant.
They need to be prompted by either a query or a negative advocacy. When they do encounter such a prompt, they feel obliged to recommend and defend the brands they love. Since loyal advocates take risks to recommend certain brands, they are also more likely to buy more of those brands in the future. With attention deficit, customers might skip a certain phase along the customer path. For instance, a customer might not be attracted to a brand at first, but a recommendation from a friend drives the customer to eventually purchase the brand.
It means that the customer skips appeal and goes directly from aware to ask. On the other hand, it is also possible that some customers skip ask and impulsively act solely based on the initial awareness and appeal. In other cases e. Tesla products, for example, are well advocated by non-buyers. This means that customers skip act and go directly to advocate. The new customer path is not necessarily a fixed customer funnel, and customers do not necessarily go through all the five A's.
Thus, from aware to advocate, the path might expand or narrow in terms of the number of customers going through each stage. The new customer path might also be a spiral, in which customers return to previous stages, creating a feedback loop.
Since the path might be a spiral, the number of brands considered throughout the customer path might also fluctuate across the five A's. The time customers spend on their path to purchase also varies across industry categories depending on the perceived importance of the categories.
In consumer goods categories, for example, aware and appeal occur almost simultaneously. Thus, strong brand awareness without equally strong brand appeal in those categories usually leads to nothing. The time spent on ask is also typically very short. Spontaneous discovery is very common. Customers instantly and impulsively decide which brands to choose as they stroll down the grocery aisles.
Most customers catch only a glimpse of each considered brand in-store and typically do not research further. For big-ticket items such as real estate and cars, on the other hand, customers are willing to spend more time asking questions and doing extensive research before purchasing the items. The five A's framework is a flexible tool that is applicable to all industries. When used to describe customer behavior, it draws a picture that is closer to the actual customer path.
It allows for cross-industry comparisons, which reveal insights into industry characteristics. It also provides insights into a company's relationship with customers in comparison with its competitors. When a company, for example, finds that the most common path its customers often take is very different from the typical customer path in its industry, the company might discover either an authentic differentiation or a hidden customer experience problem.
In general, there are three main sources of influence marketers can use to do so. A customer's decisions across the five A's are usually influenced by a combination of their own influence, others' influence, and outer influence. Let us call them the O Zone O3. It is purposely initiated by brands through advertising and other marketing communications. It may also come from other customer interfaces such as sales force and customer service staff.
From a brand's standpoint, outer influence is still manageable and controllable. The message, the media, and the frequency can be planned. The overall customer touchpoints can be designed, although the resulting customer perceptions may still vary depending on how satisfactory the experience is.
Similarly, others' influence also comes from the external environment. Typically, it comes from a close circle of friends and family as word of mouth. Others' influence can also come from a broader but independent community to which customers belong. For example, customers may be influenced by conversations they heard on social networking platforms.
Customers may also be influenced by communal rating systems such as TripAdvisor and Yelp. Not all sources of others' influence are equal. Others' influence coming from them is often the major driver of purchase. Despite a brand's effort, it is essentially difficult to manage and control the outcome of others' influence. The only way for a brand to do so is through community marketing.
Companies cannot directly control the conversation within the community, but they may facilitate discussion with the help of loyal customers. On the other hand, own influence comes from within oneself. It is a result of past experience and interaction with several brands, personal judgment and evaluation of the brands, and ultimately individual preference toward the chosen brand s.
Often, personal preference own is swayed toward certain brands by word of mouth others' and advertising outer. Indeed, the three major sources of influence are always intertwined. Outer influence often reaches customers first. If a brand successfully triggers conversation with Outer influence, it is usually followed by others' influence. Ultimately, the way these two sources of influence interact will shape customers' own influence.
Any particular customer is usually influenced by all three types, albeit with different proportions. Some customers have stronger personal preferences and are not influenced too much by an advertisement or a friend's recommendation. Some rely heavily on the recommendation of others, and some believe in the advertisers.
Despite individual variations, today's customers rely more on others' influence than their own and outer influence for reasons we have already discussed. Across the five A's, customers are most open to influence during the ask and act stages.
In ask, customers seek advice and absorb as much information as possible from others' and outer influence with regard to a short list of brands. The ask stage serves as a window of opportunity for marketers to increase brand favorability.
In act, customers shape their own perception of brands over time. Since they are no longer wary of outer pressure to buy at this stage, they have an open mindset.
First-time buyers of a product category typically go through the entire five A's and rely a lot on outer influence. Thus, many first-time buyers end up buying brands with the highest share of voice. As they become more experienced after a few rounds of purchase, they rely more on others', sometimes skip the appeal stage, and perhaps switch brands. The most experienced customers usually have stronger own influence.
When they have finally found their favorite brands, they will skip most stages in the five A's and continue to use the brands perpetually until the brands disappoint them. The O3 is another tool that helps marketers to optimize their marketing efforts. When marketers manage to identify the importance of outer, others', and own influence, they will be able to decide which activities to focus on.
When outer influence is more important than the rest, marketers can focus more on marketing communications activities. On the other hand, when others' influence is the most important, marketers should rely on community marketing activities. Summary: Aware, Appeal, Ask, Act, and Advocate In the digital economy, customer path should be redefined as the five A's —aware, appeal, ask, act, and advocate—which reflect the connectivity among customers. The concept of Marketing 4.
In doing so, marketers should leverage three main sources of influence—own, others', and outer influence. This is what we call the O Zone O3 , a useful tool that can help marketers optimize their marketing efforts.
Reflection Questions How can your brand identify and leverage the most critical touchpoints in the customer path? How can your business improve brand favorability and optimize marketing efforts by evaluating the three main sources of influence across the customer path? But too often we see marketers in various industries battling it out to achieve top-of-mind brand awareness, only to falter in driving customers to purchase and ultimately to advocacy.
Brand awareness is indeed important, and brand managers realize this. They regularly conduct research to track how well the market actually remembers and recognizes their brands. Spontaneous—and especially top-of-mind— recall is usually their goal. Some even believe that share of top-of-mind recall is a good predictor of market share. This is true in some industries that have low customer engagement and a short purchase cycle e.
But in industries with high customer engagement and a long purchase cycle, awareness is only the beginning of the job. In a separate room across the hall, service managers are tracking customer satisfaction and loyalty. A large number of delighted customers is reflected in a high loyalty index. Loyalty itself has been redefined as customer willingness to recommend a particular brand.
Thus, the ultimate goal on this end is to reach a high number of customers who are willing to advocate their brands—that is, a higher brand advocacy than that of other brands.
Metrics such as awareness and advocacy, however, have inherent weaknesses; they focus more on the outcome rather than the process to reach the goal. The metrics are useful for tracking a brand's progress and for measuring the performance of the brand and the service teams. But brand and service managers often face difficulties understanding why their scores go up or down in any given quarter. Consequently, changes in the results are not being followed up with any marketing interventions.
Moreover, brand managers and service managers do not necessarily talk to each other when it comes to conducting and analyzing their own research. Because of these organizational silos, companies often fail to see any correlation between awareness and advocacy.
They miss the simple but important insight into how effective they are in converting people who may be aware of their brands in the market into customers and even into loyal advocates. Essentially, we are tracking the number of customers who go from aware A1 to act A4 and eventually to advocate A5. From a population of people in the market, for example, Brand X is spontaneously recalled by 90 people; out of that 90, only 18 people end up buying the brand, and only 9 spontaneously recommend the brand.
On the surface, Brand X looks promising since it has a brand awareness of 0. See Figure 6. Figure 6. Similarly, PAR and BAR allow marketers to measure the productivity of their spending, particularly for generating brand awareness. For most industries, the biggest marketing spending goes to raising awareness through advertising. The first is purchase action which, from a company's perspective, directly translates to sales.
The second is advocacy, which indirectly translates to sales growth. In a DuPont analysis, ROE is seen as the product of three major parts: profitability as measured by net profit margin , asset use efficiency as measured by asset turnover , and financial leverage as measured by equity multiplier. When comparing brands, a higher ROE might result from higher profitability, more efficient asset use, and higher leverage. A better ROE due to the first two causes is clearly a great result. Specific prices for specific quantities for specific lengths of time.
In the case of a change in list prices, the terms contain negotiable parameters, perhaps linked to such indexes as moving price averages of scrap and other steel-making ingredients over specified periods.
The terms may also be reflected in discount structures related to the promptness of payment and add-on provisions for extended payment periods. Support efforts. Depending on what the uses of the product are, the purchaser may expect special applications advice and support. New ideas. All this may be well known, but the underlying principles encompass much more. The failure to fulfill certain more subtle expectations may reflect unfavorably on the generic product. A shabby brokerage office may cost a realtor access to customers for his or her properties.
The customer may actually expect and want less. Different means may be employed to meet those expectations. Hence differentiation follows expectation. Differentiation is not limited to giving customers what they expect.
What they expect may be augmented by things they have never thought about. When a computer manufacturer implants a diagnostic module that automatically locates the source of failure or breakdown inside his equipment as some now do , the product goes beyond what was required or expected by the buyer.
It has become an augmented product. When a manufacturer of health and beauty aids offers warehouse management advice and training programs for the employees of its distributors, that company too has augmented its product beyond what was required or expected by the buyer.
In every case, the supplier has exceeded the normal expectations of the buyer. In the steel example, it can be done by developing better ways of fabricating and coating the product or by reducing thickness to cut weight. Not all customers for all products and under all circumstances, however, can be attracted by an ever-expanding bundle of differentiating value satisfactions. Some customers may prefer lower prices to product augmentation. Some cannot use the extra services offered.
Steel users, for instance, once dependent on mills for applications help and engineering support, gradually grew sufficiently sophisticated to free themselves of that dependence—a freedom which, incidentally, led to the rapid growth of independent steel distribution centers in competition with the mills.
Now the centers, which have distinguished themselves from the mills by faster delivery on standard grades and sizes, a wider item mix, and ability to handle small orders, have augmented their product by doing more minor fabricating and adding certain specialty steel application services.
As a rule, the more a seller expands the market by teaching and helping customers to use his or her product, the more vulnerable that seller becomes to losing them. A customer who no longer needs help gains the flexibility to shop for things he or she values more—such as price.
At this point, it makes sense to embark on a systematic program of customer-benefiting, and therefore customer-keeping, product augmentation. The seller should also, of course, focus on cost and price reduction.
The augmented product is a condition of a mature market or of relatively experienced or sophisticated customers. Not that they could not benefit from or would not respond to extra services; but when customers know or think they know everything and can do anything, the seller must test that assumption or be condemned to the purgatory of price competition alone. Everything that might be done to attract and hold customers is what can be called the potential product.
For the steel user, the offering may include:. Only the budget and the imagination limit the possibilities. But what the budget is and ought to be is often a function of what is necessary to being competitive in all the dimensions of the potential product. Offerings will vary with conditions—economic conditions and competitive conditions. Competition may be a function not simply of what other steel suppliers offer but also of what suppliers of substitute materials offer.
Reordering responsiveness is not nearly as important to buyers in good times as in bad—except when a competitor strategically uses the good times that is, when demand is high and supply short to accommodate a large prospective customer in order to get a foot in the door.
Nor are the ingredients of the described classifications fixed. As with most things in business, nothing is simple, static, or explained very reliably by textbook taxonomies.
One thing is certain: there is no such thing as a commodity—or, at least from a competitive point of view, there need not be. Everything is differentiable, and, in fact, usually is differentiated. Durum is a variety of wheat produced in rather small quantities and almost exclusively in three counties in eastern North Dakota. Its main use is in pasta. Farmers generally deliver the durum in truckload quantities to country elevators, from which it is shipped to processors.
In recent years, however, many large farm operations have built their own storage elevators. Using very large trailer trucks, they make direct shipments to the elevators of large users. Thus they not only avoid middleman storage discounts, but they also obtain access to premiums paid by the purchasers for high-quality wheat.
Similarly, country elevator operators in the Great Plains have increasingly organized to take advantage of unit-train shipments to the Gulf Coast and thereby qualify for substantial rail tariff discounts. These arrangements affect the quantities and schedules by which country elevators prefer to buy and take delivery from growers, which in turn affect how the growers manage their delivery capabilities and schedules.
The prices that elevator operators and processors pay vary substantially, even for identical grades of durum wheat. The elevator operators will pay premiums above, or take discounts from, prices currently quoted or prices previously agreed to with farmers, depending on the results of protein and moisture tests made on each delivery.
Wheat users, like Prince Spaghetti Company, make additional tests for farina and gluten content. Premiums and discounts for quality differences in a particular year have been known to vary from the futures prices on commodity exchanges by amounts greater than the futures price fluctuations themselves during that year. The way a company manages its marketing can become the most powerful form of differentiation. Indeed, that may be how some companies in the same industry differ most from one another.
Brand management and product management are marketing tools that have demonstrable advantages over catchall, functional modes of management. The same is true of market management, a system widely employed when a particular tangible or intangible product is used in many different industries. Companies that organize their marketing this way generally have a clear competitive advantage.
The list of highly differentiated consumer products that not long ago were sold as undifferentiated or minimally differentiated commodities is long: coffee, soap, flour, beer, salt, oatmeal, pickles, frankfurters, bananas, chickens, pineapples, and many more. Among consumer intangibles, in recent years brand or vendor differentiation has intensified in banking, insurance of all kinds, credit cards, stock brokerage, travel agencies, beauty parlors, entertainment parks, and small-loan companies.
Among consumer hybrids, the same thing has occurred: theme restaurants, opticians, food retailers, and specialty retailers are burgeoning in a variety of categories—jewelry, sporting goods, books, health and beauty aids, pants and jeans, musical records and cassettes, auto supplies, and home improvement centers.
In each of these cases, especially that of consumer tangibles, the presumption among the less informed is that their competitive distinction resides largely in packaging and advertising. Has PDF.
Publication Type. More Filters. This research has been undertaken in response to the recent changes to the Higher Education environment driven by the UK government.
In particular the increased competitiveness caused by the removal … Expand. Highly Influenced. View 4 excerpts, cites background.
How to build an experience differentiation strategy for software business : customer values perspective. This thesis takes a human values perspective on the concept of differentiation. The aim is to understand how the concept applies to experience creation in a software company, and how decisions about … Expand. View 8 excerpts, cites background. View 8 excerpts. ACM Trans. View 8 excerpts, cites background and methods.
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