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2: Marketing Starts with Customers

A common mistake among marketing managers is that they consider the individual customer or consumer outside of the context of the network of people and organizations involved in the marketplace. It's suggested that companies take a "whipsaw" approach to their neighboring links (their vendors and distributors) to "win" in the immediate transaction, but lack attentiveness to the value of having a collaborative long-term relationship.

The author suggests a "six markets" view. There is no universal formula for the role and impact of the six markets - it differs by product and conditions both internal and external to a company may make one more productive than another.

The first market is the "ultimate customer market," which is the most obvious one and the one that traditional marketing focuses upon. It is the last person to purchase an item before it is used (by themselves or another party). Approaches to this market include acquisition of new customers, retention of existing ones, increasing purchase frequency and/or volume, and migration to higher value products. There is an ongoing struggle between interests to maintain existing customers versus acquiring new ones, and the latter two concepts - increasing share-of-wallet and developing customers over time - are relatively new and require attention to an ongoing relationship rather than a once-and-done transaction.

The second market, "intermediary markets," involves the downstream members of distribution channels to which the company provides goods, and who will resell them to others, and eventually the ultimate consumer. These are commonly called "middlemen," whose demand is derived from the market, and whose skills and interests come to bear in pushing product through the distribution chain (or, by another perspective, are a stop through which the product is pulled by end-consumer demand). It is becoming more common, through large retailers such as Wal-Mart, for the middleman to be a conduit that does not buy inventory, but merely channel it for their vendors (specifically, the retailer does not "own" the merchandise and the vendor is not paid until it sells), and as such put little effort into maintaining the brand integrity. It's also noted that it is in the interest of the middleman to build his own relationship with customers - if his vendors and customers get together, the need for a middleman is eliminated, and it doesn't matter which brand their own customers buy, so long as they get a sale. While the manufacturer may have some power in the channel for products in high demand, most do not, and must depend on a working relationship with the middlemen who handle their goods.

The third market is the supplier market, from which a company purchases goods for resale, whether it is raw materials or "finished" goods to which the company will add value and resell. While traditional approaches to business emphasize a "tough customer" approach and "squeezing" suppliers to get a good deal, this is a myopic approach: to alienate a supplier is to lose a source of material that is critical to your own business, and as you will have ongoing needs, there is a need to maintain an ongoing and collaborative relationship with a supplier.

The fourth market is the "Referral Market." This includes existing customers who speaks positively of the company and its products to peers, associates, social networks, and other potential customers. Another type of referral is the third-party reference, which is a knowledgeable source that communicates to the market about products in a certain category. Traditionally, this was limited to magazines, trade associations, and consultants - but the Internet has vastly increased the number of third-party sources of information that buyers may consult when considering a purchase.

The fifth market is the "influencer market," whose actions may have an indirect impact on the customer's willingness or ability to buy. For example, the housing market is strongly influenced by the availability of bank loans. Likewise, a government or regulatory agency may pass a law or enforce a policy that is detrimental to the demand for a specific product. (EN: the author also includes the news media as an influencer, but it's a bit hazy - they would seem to belong in the referral market in most instances.)

The sixth market, the "internal market", is made up of individuals within the organization itself, and includes employees who have direct customer contact as well as those whose actions may impact the brand relationship indirectly. While some firms are beginning to take to the notion that every employee is a marketer, resistance is also common: marketing has no formal authority, and performance metrics for many departments are based on operational efficiency, to which marketing initiatives are often an obstacle.

VISUALIZING CUSTOMER RELATIONSHIPS

One school of marketing used the six markets as a basis for a "spider chart", which connects the company at the center with each of the six markets (actually seven, as customers are split into "new" and 'existing") and, along each spoke, provides a rating scale (1 to 10) that represent the the company's relationship - both the importance of the relationship and its present strength are plotted. Doing this enables the marketer to visualize the "strength" of connections, as a method of identifying where improvement is needed.

(EN: The author goes into further detail, but the concept is fairly simple and does not warrant elaboration, given that this approach is highly subjective - "how important" and "how strong" the connections are seems vague and arbitrary. My sense is that it's better than nothing, in that it may enable a firm to meditate on the value of these connections as compared to their present strength, but it doesn't seem to bear much fruit.)

THE CHALLENGE OF ACHIEVING CUSTOMER FOCUS

Becoming "customer focused" is a fashionable notion, but few organizations have been able to achieve it. Even companies that are genuinely interested in the concept have a difficult time defining, then achieving, goals related to customer focus.

In a broad sense, companies tend to be focused on the supply-chain model, which focuses on creating financial value within the organization, then "selling" it to the next firm in the supply chain. This is often focused on efficiency: creating the most profit at the lowest possible cost, appealing to the broadest range of potential consumers. This is also based on the belief that a company can create value internally, without input from customers. The notion that the customers are "not very smart" about their own needs is distressingly widespread, hence the company knows best, and "marketing" must be done to persuade the customer to come around to the company's way of thinking.

The demand-chain model begins by analyzing the needs/desires/requirements of the customer, then the company aligns its operations toward serving those needs. The focus is not on convincing the customer that the company's product is good, but in adjusting the product to the needs of the customer. The author mentions Dell as an example of this approach - where rather than offering "stock" models, the company began by letting customers design their own computer, and eventually identified patterns of customer choices that were popular in deciding what base models to offer (and still offer customization).

THE 4P MARKETING MODEL

The author suggests that the "four Ps" of marketing (product, place, price, promotion - omitting people) are no longer relevant. This approach dates back to the era where marketers were tasked with selling whatever product came off the assembly line, by convincing the customer to accept and value it.

It's also based on an outdated notion of scarcity - that educating the customer about the product, offering it at an affordable price, making it conveniently available, and informing the customer how to obtain it will, if done properly, cause customers to "magically appear."

This model also provides a simple and clear-cut course of action that a marketer can follow to "guarantee" success - but is grounded in the assumption of scarcity: that the customer has no way to meet their needs, and will be glad to learn of your product - if only you make them aware of it.

This assumption was valid through the early industrial age (until 1950). Even until 1985, it remained largely workable - during the 1950-1985 era, competition emerged, but it was light, such that your product was one of few options, and you had to present a better value than a limited number of competitors.

After that period, competition became widespread and many products are available from a plethora of suppliers. Buyers are "overwhelmed with the cacophony" of marketing messages and are savvy to the ploys advertisers counted upon for years. As such, the "Four Ps" tactic is no longer effective.

(EN: I would qualify that with "in the long run." During the early stages of the product lifecycle, customer information is still critical to introduce a new product to the market, and comparative advertising is still effective while there are few competitors. And in some instances, the period of "few competitors" can last for quite a long time, and may resume in the declining phase of the lifecycle. So I wouldn't entirely dismiss the traditional approach - but would concede that in a market of many sellers, it is less effective.)

THE SIVA SYSTEM

The author mentions a recent approach called the SIVA model: solutions, information, value, access (EN: he seems evasive about who developed this system, and it may be his own concept he's attempting to promote. I can find no reference elsewhere to its origins.)

SIVA is differentiated from the traditional 4P approach of marketing in that it begins with the customer's needs and seeks to define a solution to them, rather than with a product in search of a need. (EN: my sense is that this is not entirely a departure, in that it's a thinly-veiled modification: solutions = product, information - promotion, value = price, access = place.)

A "solution" is differentiated from product in that it does not take the nature of the good or service as granted and immutable. Instead, the marketer identifies the customer's need and seeks to define a product or service that solves it. (EN: this is a common notion in retail marketing, where the seller chooses inventory by the interests of his customer base, rather than excepting the output of a specific manufacturer.)

"Information" differs from promotion in that it is and less aggressive and more objective. Given that Americans are exposed to over 3,000 advertisements per day, the desire to be heard in the cacophony is difficult to fulfill without becoming overly intrusive (which drives customers away); and given that customers are savvy and have access to multiple sources of information,, tactics to present a product in a positive light, contrary to its objective value, is not possible (and wil likewise repel customers who learn the truth). In particular, customers now control the flow of information, and are more critical of the information they receive - so the best tactic is to provide information for the customer to find, and to avoid temptation to color perception or misrepresent the product.

The notion of "value" extends price, to the total effort a customer must make to obtain a solution. The obvious example is the premium charged for convenience goods a ready-to-eat meal is a greater value than a frozen dinner, which is a greater value than raw materials, as the latter two require additional effort to obtain the ultimate value the customer is seeking.

"Access" is differentiated from "place" by the notion that convenient location is not always desired by the customer. For certain goods (soft drinks), there was the motive to be readily available in any location. For others, exclusivity of access is valued by the consumers, and there may be a preference for channels that would seem to require greater effort than others.