By David Aaker
Marketers are attracted to social media to communicate their offerings and programs largely because traditional mass media lacks coverage and is increasingly fragmented, expensive, complex, and ineffective. Social media is the apparent salvation, even though it is difficult to manage and the lack of control is frightening.
However, social media can also augment the offering to expand the value proposition. If this augmentation is compelling enough, it can change what people buy - effectively creating a new category or subcategory.
The end goal should be to create a community that would provide not only functional benefits but also emotional, social, and self-expressive benefits. To make the ideas concrete, let's consider an example.
One of my favorite social media brands is Dell, whose program has eight different types of social media efforts, including IdeaStorm, an online community, 10 different blogs, support forums, groups, and, of course Facebook and Twitter presences. This enables Dell to interact in whatever way the participant finds most comfortable, rewarding, and useful. The various vehicles enjoy enormous synergy, and the multiple variants allows participants to focus on an interest area where content is always personally relevant.
The program activates the major motivations to listen - namely to get useful information, become part of a shared interest group, and connect with a knowledgeable and prestigious (in their setting) group of people. It also activates the motivations to talk - namely to help people, express neighborliness, demonstrate knowledge, and participate in a social group that offers security and friendship.
To look at the Dell program as simply a technical effort to communicate and provide product support is missing the much bigger strategic picture. Many of its channels have actually changed what is being bought, changed the category, or changed the subcategory. Dell is no longer just about computer hardware and software, but hardware and software surrounded by a responsive, computer-based support system, that is more importantly connected to a social network, providing social, emotional, and self-expressive benefits, as well as the functional.
Another computer seller without such a linked social network may no longer be relevant. Even if the competitor were to develop such a network, attracting a user who is already embedded into the Dell system may be next to impossible.
The implications are enormous. There is now a different view of loyalty and barriers to competitors. Loyalty is now tied not just to the computer system working well and providing a good usage experience, but to the active interactions with Dell, and users in its community. The result is loyalty barriers that competitors will find hard to overcome.
To create a new category or subcategory with barriers to competitors, the social experience needs to be managed and resourced. It needs to be designed to be effective, staffed with enough people to be responsive, and involve the type of people who will be concerned, friendly, and competent.
And the ROI is likely to be so high - especially if you consider the lifetime customer value - that it will be impossible to overinvest in it.
The increasingly complex ecosystem for engaging with customers is putting brands under pressure to perform more effectively, but senior managers aren’t convinced their marketing teams are up to the challenge, a new study by Prophet finds.
According to senior partner Mike Leiser, 55% of the survey group said their most pressing concern was supporting business growth through a well-differentiated and relevant brand positioning. But other findings suggest that may not be easily achieved:
- A majority (66%) of executives still believe that the company (not the customer or other stakeholders) is the primary “owner” of the brand.
- A quality offer (product/service) will continue to be the most important driver of brand equity, one-third of respondents said. Twenty percent said word of mouth will play a key role in building brand equity; only 6% gave weight to advertising.
- Targeting customers is problematic; three-fourths of respondents said they’re not doing it effectively. Over 90% are targeting more than one segment, and over half of these do so with multiple positionings of a single brand. Importantly, however, those multiple positionings are similar. What’s different among most in this group are the tactics used in bring them to life.
Weighed against these sentiments, the survey group said their marketing teams have sufficient traditional Marcom skills required to build brands, such as in-market advertising, messaging, and creative (46%). But 84% said more innovative approaches to targeting and marketing are needed; 68% percent cited better capabilities in digital strategies.
Prophet’s survey group encompassed more than 150 executives in marketing and C-level or business unit management roles. They represented businesses with revenues ranging from $25 million to over $40 billion and in a variety of industries.
When it comes to the four Ps of marketing, the reality is that one of them – pricing – tends to be owned by the CEO, finance, or other commercial interests in the organization. Not marketing. It’s an issue, says Philip Otley, senior partner with Prophet’s EMEA operations. In this Q&A, he attempts to throw a little light on the dark art of pricing, and show why marketing needs to get brought back in the game.
Q: Can you give us an overview of pricing’s importance?
A: Pricing is often the single, most powerful lever of improved performance available to senior executives. At its most sophisticated, it reflects not just the short-term balance between supply and demand, but the longer-term relationship between the business, the brand, and targeted customers and their perceptions of value.
Statistically, the rule of thumb is that a 1% reduction in costs will create a 3% improvement on the bottom line. If the executive team focuses on getting a 1% improvement in realized price, however, it is likely to create a 10% or better increase on the bottom line. That leverage also works the other way – so uncontrolled pricing movements downward can rapidly send companies into a tailspin.
There’s often a temptation to compete on price to get performance bumps when needed, but the cumulative effects of discounting can be severe: Pricing is a very clear signal around the value of the exchange and the brand. Pricing decisions made in isolation can be dangerous over the long term.
Q: Can you describe the continuum of pricing practices?
A: There are differing degrees of maturity to how organizations think about pricing. The least sophisticated might be cost-based pricing: “It costs us $XX to make this product, so $XX plus 30% is our price.” It’s surprising how many businesses use that approach, which doesn’t reflect anything about the nature of demand or value of the product. It’s just reflecting the input cost.
A little further up the maturity curve is competitive-based pricing. “If all my competitors are charging $XX, so will I.” Though new entrants might charge $XX minus a few percentage points. The majority of organizations follow this path.
Leading organizations, however, in both B2B and B2C, are far more sophisticated in understanding their customer segments and in trying to get a meaningful segmentation in terms of behaviors, not just demographics. This informs an ongoing measurement exercise that tries to understand the customer’s buying decisions as influenced by competitor moves, advertising campaigns, the economic situation.
What we recommend is modeling based on a lot of database insight to understand, at as granular level as is meaningful, the price elasticity for particular products. It’s critical to have all the appropriate facts around the pricing discussion, but equally important to bring all the relevant people who need to play a role to the table.
Q: How surprising can the findings be, once more rigor is brought into the pricing process?
A: Very, particularly in the B2B world. I’ve been involved in client situations where just doing the analysis has surfaced very counterintuitive findings that have gone against ingrained expectations. In one instance, we performed the analysis of a commodity-type business with very few, large customers. We found about 30 different “leakage points” before we got to pocket price, or what the firm was getting from clients. These were things like pricing turns or exchange rate variations or bonuses for early payment. The counterintuitive finding, though, was that the largest clients were actually losing the company money. Because of their size, they had more bargaining power; they were sophisticated enough to extract more and more value. And the smaller clients, which were viewed as unprofitable - they “cost too much to get” - were actually quite profitable.
Q: What’s the takeaway you try to impress on those trying to get a better handle on their pricing policies?
A: Pricing is not done in isolation. There’s often the attitude that “If I’ve got a hammer, everything looks like a nail. And if I can optimize pricing, I should do that.” But what about optimizing pricing against long-term brand value, which will have a far more positive effect on overall performance over time? That’s where your profitability will come – in very strong hues and in the ability to better engage with your customers, long term.
By Fred Geyer & Chiaki Nishino
Breakthrough. All marketers strive to make their offerings stand out, be noticed and gain traction. Few achieve their goals – categories are competitive, media is cluttered, budgets are limited and customers are moving too fast to notice.
In pursuit of breakthrough, many marketers repeat worn-out methods or fall prey to the latest digital fad. Many believe breakthrough can only be achieved through big advertising budgets or by putting blind faith into the power of innovation to sell itself.
A savvy few, however, have put their efforts into signature touchpoints – with resounding success. Creating them helped Electrolux vault from a miniscule market share to owning a third of the North American premium kitchen appliance market in less than a year, despite the recession.
It was important for Electrolux to reconfigure European products for the U.S., and fashion a compelling message. But what made the difference was finding new ways to engage customers in the showroom, on the Web, and among kitchen designers, all critical to kitchen remodelers. In creating signature touchpoints around those interaction points, Electrolux’s team created traveling designer showcases featuring spokeswoman Kelly Ripa, redesigned the in-store environment, and built a highly-engaging Web experience.
Signature touchpoints are a bundle of related points of customer interaction that have been redesigned to improve the customer experience and foster a unique, proprietary customer connection. They engage, motivate, and, importantly, provide a platform for products and services to bypass customer filters and competitive noise to breakthrough.
Read more to learn a systematic approach to creating signature touchpoints that create enduring customer connections.
Royal Friesland Campina, an €8.1B international dairy cooperative, aimed to profitably double revenues from its Dairy-Based Beverage division by 2020 and become the world’s leading naturally healthy beverage company. The company faced tough competition due to increasing commoditization across the industry and needed an effective brand-led strategy to break through the category and command higher margins. Learn how we helped with solutions here.
2010 - 2011 European Reputation - Tech Companies Reign; Oil and Gas Firms Bring Up Bottom
By Greg Handrick, Jay Milliken, and Mark Esser
Learn more about Prophet’s European Corporate Reputation Study fielded in the United Kingdom, Germany, and Switzerland.
The Inspiration Discipline: The Path to Sustainable Innovation
By Andy Stefanovich, Fred Geyer, and Jesse Purewal
In this article, Andy, Fred, and Jesse explain how every organization can become a productive source of inspired and actionable ideas by practicing the Inspiration Discipline.
How CMOs Build Brands by Collaborating Across Silos
By David Aaker
David Aaker contributes to the Harvard Business Review website by talking about the challenge for the Chief Marketing Officer to create marketing and brand building that is both exceptional and efficient in the face of country, product, and functional silos.
When was the last time you Looked At More?
By Andy Stefanovich
Introducing Look at More – Andy Stefanovich’s book which underlines the 5M Model of Innovation. It’s a comprehensive framework for understanding and leading sustainable innovation within your organization. Mood. Mindset. Mechanisms. Measurement. Momentum.
Prophet highlights findings on automotive industry from its 2010-11 U.S. Corporate Reputation Study.
Andy Stefanovich's newest book, Look at More, made it to the Top 20 book lists of Inc. magazine and CEO Read. The book shares how he and his team have helped clients like GE, Disney, Coca-Cola, the U.S. Olympic Committee, and Ritz-Carlton look at more to spur development of new products, build brands and audiences, grow market share, encourage workforce creativity, and more.
Jennifer Barron joins Prophet as Senior Partner.
Zurich Financial and Prophet have won two silver Transform awards for the Zurich Financial rebranding effort.
Arikan Olguner joins Prophet as Associate Partner.
Spotlight on Speaking
International Retail Design Conference
September 8 — San Francisco
Peter Dixon will share the Emart case sudy with Lee Peterson, WD Partners, and Neil Stern, McMillan Doolittle.
Chief Marketing Officer Conference
September 29 & 30 — Zurich, Switzerland
The European CMO Conference is Europe's leading platform for marketing executives to access strategic marketing knowledge and exchange marketing insights. *Use the discount code "Prophet" to register and get 20% discount.