4: Turning Suspects into Qualified Prospects
A majority of marketing dollars are wasted on making overtures to people who will never purchase. For example, newspaper advertising with coupons has a response rate of 0.15% - meaning that 99.85% of the money spent to publish the coupon was wasted on individuals who did not respond. And while some of them merely failed to notice the offer, most of them noticed it, but simply weren't interested.
While hitting a bulls-eye with every marketing message is highly unlikely, the conversion rate can be increased for companies that consider thee key factors in the earliest stages:
- Whom to target. Identify those groups of people who are likely to want to buy your product.
- What position to seek. Determine how your offerings will be considered in the context of many alternatives available to those prospects.
- How to qualify. Not everyone ho wants your product will be able or willing to purchase it, and some are more likely than others to become repeat buyers.
The author explores each of these factors in greater detail in the sections that follow.
Whom to Target
Accurately determining which people are likely to purchase a product can be a time-consuming and costly process, so much so that many companies prefer to skip this step: the cost of carpet-bombing an entire city, or firing out at random groups, is cheaper and faster. As a result, the "cheaper" advertising is not effective in generating actual purchases or building a customer base.
(EN: Another drawback that the author doesn't mention is that marketers seldom consider the damage done when they miss their target - and studies have shown that "spam" generates negative sentiment that can make a recipient less likely to purchase in future and damage a company's overall reputation.)
An example is provided of a biotech company that believed its product should be sold to emergency rooms, but after doing market research, it was discovered that it was the laboratory technicians (not the ER doctors) who made decisions on test kits. This turns out to be a much larger market than they expected (there are many more labs than emergency rooms). They also got feedback that helped them tailor the message to focus on advantages to their product that the technicians would find appealing. The author indicates the company's bottom-line profits more than doubled in the following year.
(EN: The follow-up evidence is a bit lacking. As "more profit" implies the campaign was successful - and it probably was - but specific details about response rate, cost per customer, and whether the new customers became regulars, are all lacking.)
Another example is given of a company that helps customers find cell phone providers, based on their usage and bills (the customer agrees to let them monitor their activity and billing to do this). In doing so, they identified a number of events that make it likely a person will look for a new provider (getting a bill that's higher than normal, for one). By being able to send messaging to just the right people, at just the right time, the service finds that it has had a "sevenfold increase" in customers and has seen customer defection drop to 33% below industry average.
The author discusses the profitability of niche markets. The example given is an auto salesman who reached out to an immigrant community (he was a first-generation American and still spoke the language), figuring that the ability to speak with them in their native tongue would be a competitive advantage. While these immigrants constituted a small portion of the population in the area, the effort to root them out and serve their needs produced a significant number of clients for the dealership.
(EN: The notion of targeting a specific ethnic group might seem a bit distasteful, but the underlying point remains: a group of people with similar needs may not be a significant percentage of a population, but they may still be significant in number to be worth pursuing.)
It's also noted that not all prospects are created equal. Those who are going to be one-time buyers are far less valuable than those who have the potential to purchase multiple times and remain loyal for a longer period of time. It's noted that these customers may be difficult to get, and may not be the most profitable in the short run, but over time the investment pays off.
It's also worthwhile to consider the "value subtractors" - customers who will be demanding of accommodations, needy for support, who will ultimately cost the company more than they will contribute. These, too, are customers to be avoided.
There's an extended case-study about a company that considered existing customers, and found that there were a small number (6%) of customers who fell into the "high value low cost" quadrant, a significant number (32%) were "low value high cost" (value subtractors mentioned above), and the remainder were a wash: either high revenue and high cost, or low revenue and low cost, on which the company made a little profit or took a little loss. So in the end, the company could become more profitable by getting rid of 94% of its customers. The company in question sought to improve its customers - over a ten-year period, it reduced the number of customers it served by roughly half (157 to 78), and profitability increased from $11 million to $30 million.
In the case above, the company identified some of the behaviors and qualities that may indicate a loyal customer (for B2B sales): they are referred from other customers, your product supports ongoing operations rather than a short-term project, they have sufficient project budget, there is not a "blind bidding" process for vendors, and the firm has a history of keeping long-term relations with vendors rather than frequently switching suppliers.
An anecdote is told of a vendor who carefully chooses which jobs to bid - and as a result, only chooses to bid on about 10% of RFPs that come in, and it's remarked that a number of potential customers are taken aback that the firm doesn't want their business.
(EN: No remark on the value of doing so, but having worked both sides of that equation, it makes perfect sense. As a vendor, it takes a lot of time and money to respond to an RFP, and there's no point in chasing down business you're not likely to get or, in this instance, clients who aren't likely to become regular customers - you want a stable of regular clients for business continuity. From a customer perspective, you want a vendor who is going to value your business, be around for the long run, and to go the extra mile to serve you - but as this book is about customer loyalty and not vendor management, I don't expect much consideration of the latter perspective.)
The author presents "ten steps to effective targeting":
- Survey the market to identify all types and categories of customers. Sometimes, the obvious choice is not the best market.
- Segment the market into groups with similar characteristics.
- Analyze the segments in terms of their potential - specifically, their potential to become loyal customers rather than one-time buyers.
- Study how your competitors are marketing to these segments. Your aim is not to copy their approach, but define a better and more compelling one.
- Stratify each segment to determine which customers within the segment represent the most likely prospects. Again, not merely the immediate sale, but their long-term value to the firm, accounting for cost to serve as well as sales revenue.
- Perform market analysis to identify the key decision-makers and understand what motivates them to purchase one option over another.
- Consider which channels will be the most effective/efficient in communicating to the decision-makers who will drive sales.
- Do test marketing. Test marketing is often done when there is a large market base, but it's also important for even a small base to be tested to ensure your efforts will be effective (and do no harm) on the larger scale.
- Analyze feasibility. Based on the test marketing, determine whether it is feasible to proceed to the larger market. It may take more effort to convert the customer (seven calls instead of three), such that the ROI is shot.
- Choose your markets. Consider the results of the test marketing to determine which markets are worth pursuing. Some may be better than others, and some that you thought might be worthwhile may not pan out.
(EN: I'm always put off by an "X steps" approach to any topic, especially when it's a round number. Chances are the author is leaving things out, or stuffing them in, to manage the number of steps. But more to the point, what's important here is not the steps, but the approach: there are a lot of sources on marketing that are geared toward boosting sales in the short-run, and these need to be adapted to focus not just on an immediate sale, but on attracting a quality customer who is likely to remain loyal beyond the first sale. There's just not much of that here.)
The author mentions that there are some "exciting" and "sophisticated" technological advances that make the process of research and segmentation easier. However, there is scant detail about what they are ("databases" and "computer models") and no help in determining how to use them to identify good customers with high potential value.
How to Position Your Products and Services
The author asserts that the belief that advertising and marketing can be used to change consumer's minds about what they want would take a massive campaign to effect a change in consumer attitudes, far more cost than would be paid back by resulting sales. As such, the task of the marketer is to discover the desires of the consumer, and associate the product to the fulfillment of those desires.
(EN: to be fair to the author, her first assertion is that it is erroneous to think marketing can make the customer want something, but I disagree. It is possible, it has been done, and it often costs much less time and money than one might suppose to create demand by helping customers "recognize" unknown needs. If public opinion agrees with your suggestion, you are "educating" customers about their needs; if it public opinion disagrees, you're painted as a manipulator. Regardless, it is in fact possible to create change attitudes to "create" need.)
What marketing can do is to identify existing needs, and position the product accordingly. Given that a customer has a need, how does the product serve it, and how does the product do so differently, and better, than competing products. It's worth noting that it's unusual for a product to serve just one need - most serve two or more - and it's the combination of needs a product serves that make it unique from others (both Kia and Lexus serve the need for transportation, but one bundles it with affordability and the other with prestige).
There is also the notion of "image marketing:" a person will be motivated to buy a product in order to gain esteem. This may be esteem in the eyes of others (people will think I am a rugged individual if I drive a certain brand of truck) or of oneself (I will feel like I am a better parent if I choose a certain brand of peanut butter to feed my kids.) This is especially true of products whose tangible benefit is questionable (consider soft drink advertising it has more to do with image than the flavor or quality of the beverage).
The same is true of character-driven marketing, a fairly recent form of image marketing wherein certain companies (Ben & Jerry's, Starbucks, the Body Shop) portray themselves as being socially conscious - good "corporate citizens" who refrain from unethical or objectionable practices and give to charity. A customer who buys from such firms feels better about themselves, and expects others to think more highly of them, for having made the choice to give their business to an ethical company.
(EN: A key difference with character marketing is that consumers feel like they are more in control, that they are "rewarding" the company with their business and encouraging it in the right direction - never mind that this puts cause and effect out of sequence. But in addition to esteem, this creates a false sense of empowerment that is highly appealing to consumers in the present age.)
Identifying High-Potential Prospects
The third step in the process consists of sorting through the prospects to identify those who are high-potential. Again, there is a difference between the short-term mindset, which seeks prospects who are likely to buy immediately, and the long-term mindset, which considers the prospect that will make one purchase in response to a promotional message and never return to be a low-value prospect.
The author then discusses some sales techniques that have nothing to do with identifying them as a qualified prospect (the introduction patter when making an outbound call, ideas for getting customers to initiate meaningful contact (a give-away or event promotion doesn't succeed because people take the bait, but because they actually buy).
Regardless of how the conversation started, the goal is to identify that the prospect is qualified, which generally means: they need the product; they are willing to buy it; they have the authority to purchase it (formal or informal); and they have the means to buy. Time period may also be of importance - if a suspect will be looking to buy "next year", no sense in pestering sooner.
Identifying needs and wants is a critical step, and it's important to note that the customer is not always "right" about their own motivations to buy. Anecdotal evidence is given from real estate sales, where it's very rare that customers buy the home that they called the agent about, but instead eventually bought a home that is similar in some regards to the advertised one, but was found to be an imperfect match when the agent discussed their needs further.
Willingness to pay is often an obstacle in professional (consulting) services: a company may be willing to pay to have "work" done, but does not see the need to pay someone for the time to evaluate their needs and develop a plan (and the author that notes a client who balks at the planning cost will probably be floored by the development cost). This is often the case where companies would give away certain up-front services in order to obtain a contract, a practice that has fallen by the wayside because companies found they spent a lot of cash on providing proposals that would be rejected or shopped around.
Ability to pay is common in B2C markets, but customers tend to sort themselves out in that regard - so much so that the effect is the opposite, and a customer assumes he can't afford a quality item without knowing the price. The reverse remains true in the B2B marketplace, where companies underestimate the cost of professional services (EN: a good example is the small business that wants a professional Web site). Sorting out customers who can't afford a product, without ruffling their feathers, can be delicate.
Authority to buy is common in the B2B world - subordinates are often tasked with researching products that they must get approval to purchase. Questioning whether they have the authority to make the decision, or demanding to deal with the decision-maker, is often taken as an insult. The author's advice is to ask whom else the person "might have to consult with" to make a final decision.
(EN: This is far more delicate than the author suggests - dismissing someone who doesn't have budget authority in order to reach past them to someone who does may be inadvisable, as the choice of vendor and authorization of payment may be separate responsibilities - so the person with the authority to approve payment may not be authorized to select a vendor. You can also get caught up in office politics by being the vendor who "supports" someone who's trying to grab authority over something. The politics of B2B sales are complicated - seek a separate source specifically on this situation.)
A final consideration is time: a different approach is applicable to a customer who is ready to buy in the near future versus one that is merely considering a possible future purchase. The example given in the real estate industry, where a realtor can invest considerable time with a prospect who is browsing and is unlikely to buy soon (which takes their time from more likely prospects). By asking whether their present home is on the market, the realtor can quickly recognize a buyer who's "serious" from one that is merely browsing.
(EN: The author makes no mention of how to deal with a "browsing" prospect, and I suspect this is an area that needs more attention. To merely dismiss them as being not worth your time is dismissive, and can encourage them to go to someone else when they're ready to purchase.)