Four: Why Marketing is Simple but Hard
The isolationist approach to marketing insists: "it isn't our job to develop, producer, transport, or find great products , though we may think it should be." These functions are served by other areas of the firm, into which marketing should not presume to intrude.
It's long been said that a good product sells itself: a great salesman cannot move a bad product, nor can a bad salesman fail to move a good product - as such the task of sales is merely finding the customer who needs the product, and marketing is enabling the customer who needs the product to find the salesmen.
What firms are coming to understand that the customer's experience depends on every part of the organization being aligned to deliver the promised experience. Left to their own devices, production, logistics, and the other parts of the business become myopic and pursue goals related to efficiency and cost-savings, often to the detriment of customer experience. Over the long run, the cost that is saved using cheaper materials does not offset the revenue of customers who are disappointed with the durability of the product - and who take their business away and discourage others from buying.
Being Reasonable
Customers give their business to the supplier that provides as much as possible for as little as possible. But for businesses, there remains the necessity of earning enough of a margin to sustain the firm: it cannot give away everything for nothing and escape bankruptcy.
Granted, that is not entirely realistic: customers expect to pay for the benefits they receive, and have a sense of what level of quality can be expected at a given price point. The challenge to business is to identify a price-for-value proposition that they are capable of satisfying while remaining profitable.
The Inside-the-Bottle Syndrome
The authors use a bottle as an analogy for a company, and suggests that employees lose sight of the world outside of their bottle, being caught up in the everyday busywork and the internal processes and ignorant of the consequences their actions have in the world outside of it. To the previous example, an internal efficiency expert will consider the efficiency and cost-savings of a proposed change and will ignore or downplay the impact the change will have on the market.
Particularly in large firms, small changes that save a few pennies per customer can add up to thousands or millions of savings, given a large body of customers over a year, and customers may not flinch much at each increment, but over time it adds up. Customers don't leave in large numbers when a restaurant chain switches to cheaper napkins, becomes miserly with the condiments, withdraws its offer of free refills on coffee, and so on - but over time the effect of many small changes gives them the vague sense that the quality of experience has diminished.
Firms generally assume customers to be satisfied so long as they are not complaining - and by the time that the behavior is noticed, it is often too late. A firm that makes a major mistake has the opportunity to salvage their reputation by reversing course - but one that has subjected customers to a long procession of small disappointments will find it's impossible to pin down the cause of defection to any specific thing.
The authors refer to research into customer satisfaction (Reichheld), which suggests that stated customer satisfaction and demonstrated customer loyalty are out of joint. The automotive industry demonstrates high satisfaction scores on new customer surveys, yet less than half of them purchase the same brand a second time. (EN: This is an old study - did some checking and it is presently around 20% - and the number of brand-loyal motorists plummeted in recent years, from about 75% in 1986 to 50% in 2000 to about 20% in 2009) In a broader sense, between 60% to 8)% of customers who change brands indicate that they were "satisfied" or "very satisfied" with the brand they decided not to repurchase.
Ultimately, loyalty as reflected by the actual behavior of repurchasing is a far more meaningful measure of business performance - a firm makes not income from customers who say they are satisfied. (EN: While the numbers are undeniable, the reaction I've seen in CX is to question the metrics - there's a sense that satisfaction metrics are flawed and, more importantly, the assumption that it is possible to change them to produce more accurate results. It seems theoretically possible - but thus far I have not seen any claim of more than marginal improvements.)
Traffic or Conversion?
Traditionally, the main goal of marketing is to increase traffic - to get more people to come into the store or visit the site - on the presumption that the same percentage of people who are attracted by advertising will convert to buyers as those who have sought out the vendor of their own accord.
The flaw in that approach should be quite obvious: people who seek out a vendor of their own accord have an intrinsic motivation to consider buying the product. Those who are hooked in by advertising are not as inclined to purchase, and certainly not at the regular price.
But aside of that flaw, the practice of constantly prospecting for new customers to replace the ones that the firm is losing is an expensive proposition. The authors refer to the leaky bucket analogy - that rather than constantly pouring water into a bucket that has a leak, it's wiser to patch the leak, which means retaining the customers you have by ensuring their experience is truly satisfactory.
(EN: While the conclusion that delighting customers to earn the second sale is sound advice, the perception that they are ever "in your bucket" and can easily be retained by patching things up is a bit of a distortion that stems from the fallacy that a customer will repurchase unless something is wrong - in essence, it's taking them for granted, which leads to failing to appreciate them and neglecting to earn their business. A more accurate perception is that you still have to work to sell previous buyers - they are not "established customers" but merely prospects who have purchased in the past, and whose experience of your firm will make it easier or harder to sell to them a second time.)
Managing (Only) What's Measurable
The current culture of western business claims to be proceed on facts and figures rather than fuzzy values - but the "fuzzy values" represent facts that they do not understand and cannot reduce to numbers. Even the "facts and figures" on which they reply are often simplified and incorrect models of a reality they are unable to grasp.
For example, consider Costco, a warehouse retailer that pays its employees about 50% better than its competitors and provides them with healthcare and benefits. One analyst remarket that "it's better to be an employee or a customer than a shareholder" of this firm.
This analyst and others are ignoring factors they cannot measure. Consider that the wages and benefits means that Costco has an extremely low rate of turnover and absenteeism among its employees and experiences considerably less employee theft. The level of service these employs provide has created an "almost cult-like following of loyal customers" that are the envy of their competition. And, by the way, the stock performs very well on Wall Street.
In this sense, a "fuzzy value" such as employee morale can clearly be seen to result in a great deal more savings and revenue that it costs: but try to convince an accountant, a CFO, or a committee of executives who look for results that are specific and measurable in dollars and cents is impossible: they are blinded by focusing only on what is measurable, and steadfastly dismissive of anything they do not understand and cannot reduce to numbers and simple equations.
Understanding Your Customers
The success of a business depends on generating revenue from serving its customers - which means that the most critical skill for every firm is understanding the needs of its customers.
The problem in doing so is that customers are human beings, who are not as simple as those of Pavlov's dog. They do not all respond to the same things, or even want the same things.
Many firms, even those with the best of intentions, adopt an egocentric perspective on customer value: insiders believe that what they imagine they would want if they were a customer, rather than considering what customers actually do want. Even in instances where insiders are similar to the customers, they are not like them in every respect.
Many businesses have turned to focus groups, surveys, and other methods of market research to determine what customers want, but they often yield artificial and inaccurate results. People may not consider their motivations, or they may be reluctant to share their true motivation, or they may have difficulty describing it. As such, even their best efforts are a work of fiction, or at least confabulation, bearing little resemblance to the truth.