Building Brands Directly

Marketing has always promised more to business than it has delivered.

Relationships with customers are individual and private. Marketing to the individual makes fewer headlines than television and is less well understood. It is instructive to analyse companies that are expert in managing their customer interface, to understand their business models and their critical success factors.

In business, much of strategy’s meaning and force has been lost through misuse. The Oxford English Dictionary defines strategy as: ‘in circumstances of competition or conflict, as in the theory of games, decision theory, business administration, etc., a plan for successful action based on the rationality and interdependence of the moves of the opposing participants’.¹

Increasingly, advertisers invite customers to respond to press and television advertising. I define interactive advertising as communication that motivates customers to take a direct action towards an experience of, and relationship with, a brand.

Sales promotion is defined by Petersen, in Sales Promotion in Action, as an activity consisting of ‘a featured offer, of tangible advantages not inherent in a product or service, for the achievement of marketing objectives’.¹

The traditional model of the buying process consists of five stages: problem recognition, information search, evaluation of alternatives, purchase and post-purchase evaluation. Based on these stages, marketing theorists have developed a parallel model for marketing communications called the hierarchy of effects. Marketing planners explicitly or implicitly use the hierarchy of effects to assign appropriate roles to the different disciplines and media used in marketing.

Creativity resists analysis, and advertising creativity in particular defies attempts to define the factors that underlie success. Advertising is a commercial activity, so must result in sales, but the process by which advertising leads to sales is not well understood. The result is that for business management advertising is often a matter of faith — it is not uncommon to hear of managers who either ‘believe’ in advertising, or otherwise.

Writing forty years ago in How to Sell Successfully by Direct Mail, John Cassels says: ‘Direct mail is the only advertising medium that can make a personal approach’.¹ Direct mail is at the same time an old medium and the first of the new interactive media. From direct to electronic mail is a technological, not a marketing leap. How customers receive and use direct mail by post is relevant to the future of all personalised communication media.

Marketing is generally held to be an uncertain investment. Even the editor of Admap, the magazine devoted to the research and quantification of advertising, confesses that advertising is inherently risky and asks: ‘It is a truism that advertising, at least in the eyes of those who pay for it, seems chancier than virtually any other form of capital expenditure … will it work?’¹

Finance and marketing are not natural partners. Financial management prefers to invest in assets of known value, but marketing objectives like brand image are intangible. Financial management dislikes risk and discounts forecasts which carry a significant level of uncertainty, but marketing is inherently speculative. Financial management deals in numbers, but marketing is not rigorously measured.

The pressures from intensifying competition and demanding customers are the greatest for consumer brands. Their marketing options are limited by the increased cost and fragmentation of media, and by the growth in retail power which has robbed them of most of their ability to compete at the point of sale. Brands have as much to fear as retailers from the potential of home shopping. If brands have little control of their display on supermarket shelves, they have even less opportunity to differentiate themselves on the telephone or on-line through PC and television screens. There are no longer significant differences in quality among brands themselves, and between brands and their private label equivalents. So customers are no longer willing to pay the significant price premium which generated the brand manufacturer’s profits.

Financial products are the ultimate in services. The basic banking product is simply the transmission of money between seller and buyer in a marketing transaction. Banks and other retail financial institutions — building societies in the UK, savings and loans in the US — generate a margin on the transmission of money by lending long term at a higher rate of interest than they pay on short-term deposits. Similarly, life assurance and general insurance companies generate a margin between the price individuals are willing to pay to insure against risks, and the value of claims they make. The delivery of financial services involves huge administrative complexity. Billions of transactions are recorded, processed and reported — a task that before computerisation required armies of clerical staff, few of whom ever met customers.

The changing organisation of business and the rapid advance of technology have increased the complexity of business-to-business decision-making. Many business marketers could once identify the relatively small number of decision-makers in their target audiences. As business hierarchies become flatter and technical specialists grow in influence, the buying points in customer organisations have increased in number and the varying influences on the buying decision have become more difficult to identify. The balance of power in the traditional model of the multiple decision making unit (dmu) has shifted, away from management, to specialists and users who are also choosers (Figure 15.1).

Shopping is no longer an essential household chore but a popular leisure pastime. The shopping experience has been enhanced by giant superstores, and by shopping malls that offer hundreds of stores under the same roof in combination with restaurants and entertainment: a complete family ‘day out’. The extension of opening times to twelve-hour days and seven-day weeks makes the experience available to everyone. Clustered together in retail centres, parks, precincts and malls, departments stores and specialists offer an ever widening range of goods from around the world.

If companies are to realise the value of their customers, changes in organisational structure are essential. The trend in US and British business, unsympathetically referred to as ‘delayering’, is towards leaner and flatter organisations. In their rush to cut costs, however, many companies have neglected the potential of their people. And in their attack on middle management in particular, many companies have neglected the role of this level in communicating across the company and in orchestrating the efforts of different functions.

Companies must organise around their customers. Marketing must take the lead in developing company resources and customer focus. In an article, ‘Marketing — A Mid-Life Crisis’, Professor Malcolm McDonald urges: ‘With marketing largely an attitude of mind vested solely in the department bearing the same name, the critical issue is how to introduce and sustain customer focus across a company.’¹

Marketing should develop its remit to give internal communication to staff equal weight with external communication to customers. This is an action plan for a reorganisation of the marketing function, the integration of marketing with other business functions, and the development of customer focus throughout a company.

There are three types of software in a customer information system. A relational database management system (RDBMS) stores and organises data efficiently. A user interface provides staff with access to the data. Applications software enables staff to carry out various tasks using data.

A customer information system should be integrated within a general companywide IT strategy and database design. Customer data and marketing applications can be linked to those of other key functions, including planning, customer service, sales, personnel, finance and order processing. Applications range from the strategic through management to the operational. In a companywide solution, data is shared, but the user interface and application can be specific to a customer team or an individual staff member.

Within a companywide database strategy, marketing has access to all data relevant to its customers. And all functions and staff involved with customers can access and use customer data collected by marketing. Customer data is integrated with other data, and is distributed to all users throughout the company.

Opening a direct channel of distribution has two overriding advantages related to sales and service. Without significant investment in infrastructure, the direct channel generates incremental sales, usually from new customers, but potentially from existing customers as well. Direct can be complementary not competitive to retail. But the second advantage is that a direct channel enables a company to regain control over the customer interface, and over all the decisions about product, pricing and promotion that it may have surrendered to retailers.

Customer loyalty is the ultimate driver of business profitability, but loyalty is only given where it is earned. Loyalty accompanies change in strategy and process. Companies must change from mass marketing to a focus on the customer as an individual, and to earn the loyalty of customers must offer them demonstrably superior value. Customers will give their loyalty in exchange for more value. Companies must change from hierarchical organisations divided by function to teams based on customers and designed to manage process.

The added values that earn customer loyalty, moreover, cannot consist exclusively of tangible incentives unrelated to product or service. To differentiate their products and justify their premium pricing, companies must build on and revitalise their brand values by adding a relationship dimension. Through closer relationships with customers, companies can express their brand personalities through their people, and involve customers more closely in their products and marketing. To build these relationships the company must simultaneously earn the loyalty of its staff, and motivate them to volunteer added values to customers.

In a report on new flexible manufacturing organisation, The Economist comments: ‘After 80 years of me-too mass production, consumers are once again demanding infinite variety.’¹ To earn their loyalty, marketing must be designed around customers as individuals and offer the same ‘infinite variety’. Companies must not mistake loyalty marketing as another mass activity — and the ‘reward’ system in the ‘loyalty’ agenda below is thus just one element of a total relationship strategy.