Chapter 3 - The Six Markets Model

Traditional marketing is myopically focused on the customer, neglecting other internal and external relationships with key stakeholders that are critical to the success of the firm. Contact with any group other than buyers has been relegated to "public relations," which was treated as a necessary evil. Considerable work has been done in the strategy field on stakeholder management, and insights from the strategy literature have awakened the marketing profession to the importance of "other" audiences.

The Role of Multiple Stakeholders

Organizations do not exist in a vacuum, but have a large and diverse range of stakeholders, including suppliers, investors, employees, customers, regulators, unions, environmental groups, partners, and so on. Various departments within an organization seek to manage these relationships, but it is generally not done in a coordinated manner. Neither is stakeholder management often considered strategically, but instead it is handled as incidents arise, inconsistently and often quite awfully.

It is a fairly recent development (EN: at the time the book was published) for firms to take a more holistic approach to stakeholder management, identifying their roles and interests and putting in place a cohesive plan. Two observations:

  1. Managing relationships with other stakeholders has a significant impact on your relationship with customers.
  2. The tools and techniques for customer relationship management can be effectively leveraged to manage other stakeholders.

Doing so requires the organization to take a broader perspective on the role of stakeholders, recognizing that "the public" consists of potential customers, as well as many individuals who have the ability to influence existing and potential customers (a dispute with a labor union, or a single disgruntled employee, can cause damage to the brand). Particularly in the age of the Internet, customers are aware of the way that the company treats others, and it impacts their perception, sometimes considerably.

The "six markets" model for relationship marketing is a useful tool for reviewing the role of stakeholders. In the model, customers are a major stakeholder, but also included are the various players in the influence, recruitment, referral, internal, and alliance markets.

The Customer Market

The customer market domain is already the primary focus of most businesses, though they tend to focus on the single sale rather than building long-term relationships.

Some companies serve the consumer of the product directly - but for others, there is a supply chain between them and the consumer that includes wholesalers and retailers, whose needs and interests must be served, and whose cooperation is necessary in reaching consumers (more on this in "the alliance market'). It's also noted that a customer of a brand will not use a single channel, but may use multiple channels to purchase the brand.

For each channel, the customer has different expectations, the participants have different needs, and the competitors in the channel may be different. It can be very complex and should not be oversimplified.

Many manufacturers fail to develop relationships with their customers, figuring that the wholesalers and retailers are a buffer and they have no direct contact. They are aware of the ability to communicate to the market through advertising to drum up demand, but often fail to consider that operations such as their support desk are critical to maintaining the relationship with customers.

Generally, the manufacturer sees support as unimportant and seeks to minimize cost, which results in a terrible customer experience that sours many consumers on the brand. In an age where support has a dismal reputations, companies such as General Electric have emphasized customer support and leverage it to foster loyalty.

The same is said of the service departments of automobile dealerships: the poor quality of service is a factor that causes many customers to consider a different make on their next purchase. The authors indicate that there were few dealers who are beginning to recognize the importance of service to loyalty. (EN: In the present day, quality of service has become a selling point for most non-economy brands.)

The authors also mention firms that are attempting to develop more direct relationships with their customers. (EN: This was also not common when the book was written, but it is now fairly commonplace for manufacturers to attempt to connect with and engage their customers via the Internet and develop an ongoing relationship.)

There's a final caution about focusing too heavily on marketing activities directed to drumming up short-term sales: customers shun firms who make overtures to them, only to deluge them with marketing material. This may win some sales but does more damage to the firm's reputation by adverse word-of-mouth.

The Referral Market

The referral market consists of individuals who influence other to purchase. In a broad sense, this includes customers who advocate for the brand and non-customers who advocate for it.

Customer referrals

The authors first consider that information about a brand is communicated not only by those who are its customers, but also buy former customers. (EN: They overlook apparitional customers - people who very much want to buy but cannot, such as someone saving up to make a purchase. Such individuals are often quite vocal, and are among the most positive advocates of a brand.)

They further subdivide the category into "advocacy referrals" for customers who speak out on their own initiative and "customer base development" for customers who have been prompted by the brand to advocate for them.

The authors suggest that customers become advocates when they are completely satisfied with a company's products or services, such that firms can benefit greatly from getting their customers to recommend them to others. Firms that do this well can generate significant amounts of business without advertising.

Customer base development occurs when a company encourages customers to advocate for the brand. One case study suggests that only 49% of lawyers' clients indicate they were asked to refer business to the firm, but virtually all those who indicate to have been asked claimed to have provided one, as opposed to only 8% of those who indicated the firm did not ask. (EN: This smells a bit fishy, and I expect there's a strong psychological incentive to claim to have done something that was asked, whether a person had done it or not.)

Non-customer referrals

The notion of "non-customer" referrals is fairly broad - as it pertains to anyone who is not a customer, so the author attempts to describe some of the more common instances.

A category of "General Referrals" include instances in which one service provider refers to another (such as a general practitioner referring a patient to a specialist), expert referrals where the customer defers to another person's expertise, specification referrals are when an organization requires or strongly recommends a provider (a hiking club recommends a brand of shoes to its members), and capacity referrals occur when a company is overwhelmed and sends its customers to a competitor for service.

"Reciprocal Referrals" are likened a kind of general referral in which there is a standing agreement between two providers to refer customers to one another (a kennel and a veterinarian might refer customers to one another). In some instances, the services offered are entirely separated, in others they may be interdependent.

Incentive-base referrals involve a payment from one firm to another in exchange for sending business their way, which can be common when one business benefits from referrals but is unable to refer business back. The author suggests caution as this arrangement may be unethical or prohibited in some instances.

Staff referrals occur when an employee whose job is not selling refers a client to their employer, and may also occur when there are different salesmen for different segments or product lines. Some firms maintain relationships with former employees, who continue to refer them business.

(EN: In all of this, the authors seem to focus exclusively on the positive side of the referral market. The same individuals also have the potential to actively dissuade others from doing business with a firm. Companies tend to be dismissive of them, assuming them to be lunatics with a personal grudge, but should give them better consideration: they may have a positive intent to encourage the firm to do better, or they may be warning people away for good reason.)

The Supplier and Alliance Market

The difference between a supplier who sells products or services to the firm and a partner who works with the firm to serve customers is entirely meaningless to customers, who do not consider the nature of the relationship, only their impression of the brand.

The traditional approach to these firms has been adversarial, with the brand attempting to keep its own costs low and revenues high to the expense of the other firms. There is tremendous inefficiency and missed opportunities in competing rather than collaborating with them.

Recent trends are for firms to reduce the number of suppliers and work in closer, more open, and more collaborative relationships. This is largely the result of growth in globalization and outsourcing, in which firms wish to leverage the cost benefits of using other firms to do tasks more cheaply, but ensuring they are still done properly and consistently.

This is a complete reversal from the previous era, in which firms attempted to take on more of the tasks in the value production chain in order to retain more of the profit, ideally becoming a completely self-contained operation to transform raw materials into finished goods. The present goal seems to be one of outsourcing everything and doing practically nothing.

Another way to distinguish suppliers from alliance partners is to consider the relationship of the firms contributes to the value delivered to the customer. But here, the authors seem to switch the axes: a horizontal partner performs a step in the value chain, and a vertical one does something above or beneath the value chain.

Managing the relationships with other firms is critical to the success of a brand: where these relationships break down completely, the firm loses its ability to deliver value to customers until the function of the former supplier once fulfilled are replaced. Even when they function inefficiently, there is a sacrifice in cost, quality, or timeliness that can harm the brands' reputation with its customers.

The Influence Market

The author's notion of this market is nebulous, and includes a wide range that includes shareholders, stockbrokers, the business press, the other media, consumer groups, unions, regulatory agencies, environmental groups, and the like. What all of these players have in common is that they do not participate in the supply chain (they contribute nothing, they purchase nothing, they assist with nothing) and yet wish to control the manner in which the firm operates for their own benefit.

The relationship is therefore entirely parasitic, but these are parasites that have influence or control over other parties who are direct participants in the supply chain: a union can prevent employees from contributing, the media can discourage potential customers from purchasing, investors may cannibalize operational resources to generate financial results, etc.

Investors and other parties that provide financial resources to a firm have a significant amount of resources. Some seek to profit as a result of the firm's success, some insist on profiting in spite of it, and others still find a way to profit by harming the firm. In public companies, investors have legal ownership of the firm and can operate it to serve their own interests, to the detriment of other stakeholders.

Regulatory agencies, nonprofit organizations, militant groups, and even individuals who espouse environmental causes have been particularly obstructive to commercial enterprises in recent years. Many firms seek to develop relationships with some of the leading groups to avoid such issues.

The author's consideration of competitor influences seems a bit oblique and sketchy, suggesting affirm can become an "industry statesman" or, by its good behavior, can get positive publicity when a competitor misbehaves. (EN: This also overlooks the more common method of working with competitors in industry associations, sharing resources that are not considered to be a means of competition, or partnering in a research effort that will be mutually beneficial..)

The Recruitment Market

The author asserts that the scarcest resource for most companies is no longer capital or raw materials, but employees. While the availability of unskilled labor waxes and wanes, there is always a shortage of individuals with particular skills; who are highly productive, innovative, and effective; and who share a given organization's values.

While some firms seem highly attentive to this market when they are in dire need of labor, those who are constantly attentive to their relationship to the market on ongoing basis find it easier to meet their needs on an ongoing basis, and find themselves less often in crisis situations.

(EN: There is a lot of information that strays into advice for recruiting employees and maintaining a positive relationship with certain sources, such as universities and recruiting firms. In addition to being superficial and random, I have the sense it's dreadfully out of date.)

The Internal Market

The "internal market" generally applies to employees and business units within the organization. Attention to this market ensures that every employee reflects organizational culture and that employees and departments work together effectively to accomplish to organization's mission and goals.

Specifically in terms of relationship marketing, those within the organizations must understand how the impact relationships between the firm and other parties, do so in a way that reflects and supports the organization's long-term goals, and resolve conflicts of interest accordingly.

Managing internal relationships is essential to change management. Change is embraced far more quickly when information is readily available, and when employees are convinced rather than commanded to adopt new patterns of behavior.

Particularly in service organizations, where employees are highly visible to the customer and empowered to make critical choices, maintaining a positive relationship is critical. Details are provided about Nordstrom's, a department store that is legendary for customer service, and in which the sales staff on the floor are recognized to be the face of the company to customers, and as such are empowered and supported.

The internal market can be segmented based on job role - considering the stakeholders with whom an employee interacts. The author identifies four key groups:

Maintaining positive relationships and high morale among employees is a hallmark of companies that are legendary for customer service. The author cites firms such as Nordstrom, Virgin, and Disney as brands that benefit from strong relationships with their internal markets.

Assessing Performance in the Six Markets

Regardless of which of the markets is being considered, firms can use the following steps to determine the level of attention and resources they should devote:

  1. Identify key participants or market segments
  2. Research the expectations and requirements of each
  3. Review the current and proposed level of emphasis
  4. Determine whether a formal plan is needed to achieve the desired level

Some of this information may be gathered from secondary sources or by mining the data that the organization has collected, but market research may be necessary to obtain specific information that is germane to the tasks related to maintaining relationships.