Posted by: Mitch/Ralph on: July 2, 2009
One of the things which happens in any downturn is that people try lower priced goods and services. They may try private label over brand, or they may shop in stores they normally have not shopped in to try to save some money. What many of these people find is that the “value” they thought they were receiving at a higher price is not really greater value, and in some cases the value proposition for the higher priced goods or services is reinforced.
Some private label goods have consistently gained and kept market share after each downturn. Wal*Mart is quoted as saying they expect to keep virtually all of the new customers they are gaining as trial customers during this downturn even after the economy turns around. On the flip side, Apple iPhone sales are sky high even though it is the highest priced phone of its type.
I was reminded of this phenomenon again in a short article by Rich Karlgaard in the May 25, 2009 issue of Forbes. As you might expect Rich travels a lot and has apparently been used to staying at Ritz-Carlton, Four Seasons and JW Marriott hotels. He notes that he has lately been staying at Residence Inn, Hyatt Place and Holiday Inn Express, with “no complaint.” He points out that these hotels (and I would add Hilton Garden Inn and Marriott Courtyard to that list) do an exemplary job of hitting the business market with exactly what the business traveler needs, no more and no less, at a fair price.
He suggests this is “disruptive technology.” He likes that term because his good friend Clayton Christensen uses it and it is a cool, in term to use. I argue it is not disruptive in any way. It is simply a focus on a segment of customers who need, want and demand certain things that are both more and less than is offered by the luxury hotels he cited. Not disruptive … focused.
As an aside, I suspect Mr. Karlgaard will be back with his “old friends,” Ritz, Four Seasons and JW just as soon as he can, because as good a job as these business class hotels do for him, I suspect he prefers the value he receives from the luxury hotels.
Mitch
Posted by: Mitch/Ralph on: July 1, 2009
People have many different definitions of Marketing. Unfortunately, most of it focuses on what we call the “back-end” functions of advertising, promotion, etc. Since that is where most of the money is spent, we understand that focus, but that does not suggest that is where the leverage is.
We have stated for many years that more emphasis should be placed on the front-end of the process. If the U.S. car companies had built cars people wanted to buy, they would not have needed the so-called “brilliant” marketing that produced the price discount programs such as Friends and Family or Employee pricing. Just discounts to move product that was not as desirable as it should be.
Marketers, and their employers need to remember something Philip Kotler said: “…most of the impact of marketing is felt before the product is produced, not after.”
Mitch
Posted by: Mitch/Ralph on: June 30, 2009
As we noted in a January post, Hyundai USA created a program to overcome new car sales resistance, which they perceived was caused by fear of the customer losing their job. The Hyundai Assurance program worked well for them and the idea was copied by others.
Apparently Hyundai’s current customer insight program has determined that 40% of people who are open to buying a new car are resisting visiting a showroom to buy because they are concerned about gas prices. (Gas prices have increased almost 50% in the last few months.)
Not a company to let external influences get in their way if they can avoid it. Hyundai announced today a program to guarantee their new car purchasers $1.49/gallon for one year. We’ll see how this idea works for them.
Our commendation for innovative thinking based on customer insight.
Mitch
Posted by: Mitch/Ralph on: June 29, 2009
I was reminded again that what gets measured gets managed and if you don’t have metrics alignment within your team, you can end up at cross purposes. In the airline industry, gate agents are measured against on-time performance. I am not really sure what flight attendants are measured on, but it is not on time performance. This disconnect was evident on a recent flight.
As I was boarding the plane the “purser” (that would be the lead flight attendant on that flight) who was clearly needing to assert his authority over the gate agent and reminded him that he was the “…purser on this flight,” was reprimanding the gate agent for allowing Coach class customers to board before he (the purser) had given permission. (The fact that this reprimand was going on in public is a whole other conversation.)
The purser noted that he had “graciously” allowed the gate agent to board the First Class passengers before the plane was completely cleaned, but that the gate agent had clearly overstepped his bounds by then boarding the Coach passengers before the purser had granted permission. Such behavior was not to be tolerated, and he wanted the gate agent to know this, even though the cleaners had left the plane before any Coach passengers had tried to board.
I understand the issue of complicating the cleaning process and the boarding process, which is not the issue here anyway, since the cleaners had left the plane. The gate agent was focused on his metric: getting the plane off on time. The flight attendant is not measured on that and has no empathy for that situation. Results: Teammates at odds with each other due to differing metrics of performance.
Are your people focused on differing metrics, which may in fact be in conflict with each other? How is this impacting your customers? And what about employee morale?
Mitch
Posted by: Mitch/Ralph on: June 26, 2009
My wife’s hair stylist informed her that she was RAISING her prices about 9%. Is my wife going to find another hair stylist? No. Is she going to get her hair cut less often? No. Is she mad about the price increase? No. Does she wish the price had not increased? Of course.
Why is all of that true? Because the value my wife receives from her stylist is still a fair value to her. Most of us improperly price our goods and services because we fail to understand the value the customer is getting, from their perspective. In this economy people are rushing to lower their prices in the hopes it will increase sales. You cannot ignore price, nor can you ignore alternatives to your offering which may be at much lower prices, however, that does not automatically suggest you must lower your price. Apple has lowered their prices because they were perceived to be too high compared to alternatives. However, they are still the high priced product in their categories and the iPhone and iPod outsell all of their competitors.
For more on value pricing you can download a paper we wrote on this a while back. And it’s free (still everybody’s favorite price).
Mitch
Posted by: Mitch/Ralph on: June 22, 2009
A year ago we published a paper on marketing in a down economy. We identified 11 key tactics. I am sharing them in this blog over the next few weeks, but if you want them all at once you can download the paper free.
Secret #7 is get the most from your vendors (aren’t your customers trying to do the same to you). In downturns almost everything is cheaper (even Apple has lowered their prices). Talk with you advertising vendors, your trade show vendors, etc. and see if you can get more for less. Take a new look at programs you may have previously thought would not provide a useful ROI and see if you can reduce the I so that the R is now acceptable. Look, even city and state governments have figured out that now is a good time to buy construction and related services because prices are so low.
Mitch
Posted by: Mitch/Ralph on: June 18, 2009
In our office park, we are visited almost daily by cold calling sales people who stop in to see if we might be in the market for whatever they are offering. We usually are not, but they are overly persistent and usually spend way too much time in our office for any return they are going to get.
A refreshing change occurred earlier this week. A young sales person dropped in to sell us shipping services. He asked if we used Fed Ex or UPS to which we said yes. I told him our office manager was out, but he could take his card and check back with him. Rather than do that, he asked me a qualifying question: Do we ship every day? I said not even close. He then replied that he would not waste anyone’s time since they would not be a fit for us.
Fantastic. A sales guy who knows WHO to target and may even know WHAT (not sure on that since I didn’t talk with him about his services.)
Mitch
Posted by: Mitch/Ralph on: June 17, 2009
When Ralph and I published our book Value Acceleration, we were asked for ideas on the steps to take to get Value Acceleration for your company. We came up with seven. We will post them here over the next several of weeks for your amusement. BTW, the book hit #1 Industrial Marketing book on amazon.com on May 1.
Step 3 is to have a strategy. The key to a successful strategy is to identify the strategic direction that allows you to take advantage of your enablers while overcoming the obstacles that must be overcome. Your strategy should be a unique, customer-focused direction that allows your company to achieve its goal.
And even in this economy, hope is not a strategy.
Mitch
Posted by: Mitch/Ralph on: June 15, 2009
As I have posted a few times in the last few weeks, I do not understand the logic behind reducing dealers and saving the car companies. I understand why the manufacturers might want to reduce the number of dealers, but I do not understand the use of cost savings as the justification. I have been waiting for an answer from them or somebody.
I thought I might get one from the Congressional hearings last week, but if an answer was provided, it never made the press. I suspect it was not provided as the House members involved do not understand business (except that it should be taxed) well enough to ask the right questions. I may be wrong, but I don’t choose to listen to hours of hearings in the hope I might find my answer.
The car company execs simply stated that they “needed” to reduce the number of dealers to survive. I suspect, like many small children, they have confused “need” with “want.” And in this case, under Chapter 11, and without proper probing, they can get what they want.
Again, I do not disagree that they had too many dealers, I just wonder if they yet know what they are doing. Probably one of the best comments I read came from Rep. Bart Stupak of Michigan who stated that “When it comes time to purchase a new vehicle, many of my new constituents will abandon GM or Chrysler and go to whichever brand is still sold locally …”
As we have said for many years, How the customer wants to buy is critical to their buying process and whether you get a chance to serve them. Failure to support your customer’s buying process preferences leads to lost sales. Time will tell if Rep. Stupak’s statement is prescient.
Mitch
Posted by: Mitch/Ralph on: June 13, 2009
The June 8th issue of Forbes has as its cover story the new breed of American car companies. Unlike to old days, in which car companies were vertically integrated manufacturing enterprises, the new breed is more akin to a fabless semiconductor firm. The fabless semiconductor company doesn’t own any manufacturing capacity; rather it designs semiconductors to fill a market need and outsources the manufacturing to a manufacturing specialist. The capital advantages to this approach are obvious and so are the market speed advantages. What seemed so unusual about the fabless semiconductor companies when they appeared years ago was that semiconductor manufacturing had always seemed like the perfect example of an industry that had to remain vertically integrated, since the manufacturing of semiconductors was so critical a competence.
Well, fabless semiconductor companies are now abundant, and now plant-less car companies are proving that the auto industry too can pare its essence down to design and Marketing (with a big “M”) as so many other industries have. As we’ve said so many times, Marketing is the one essential, core, non-outsourceable function of any company—its sine qua non. In the case of the new car companies, for good reason, they have elected to also keep design in-house, although the design function is really more of an integrating engineering function that pure design-from scratch. Take a proven engine from GM, drive train from another supplier, integrate them with some lesser unique elements and outsource the manufacturing to spare auto manufacturing capacity somewhere in the world, and you have a late 20th century company, in a turn of the century industry, finally appearing in the early 21st century. The essence of the new American car company will be the forward-looking identification of profitable market needs, the financially and technically competent specification of a product to fill that need, the management to drive it all to happen, and the delivery of those products to the market with appropriately designed channels.
In other words, the new American car company will be a Marketing company..and not a whole lot else.
Ralph
