Marketing Management

Session 2

Marketing Management
Session 4)
Dr Omar Merlo

January 2020
Module overview

 Defining marketing and adopting a customer focus

 Market orientation
 The strategy curve and blue ocean Lectures 1 and 2 with Omar

 Loyalty and customer relationship management

 Managing customer satisfaction and engagement
 Marketing finance
 Evaluating a firm’s product (goods/services)
portfolio
 Market selection
Lectures 3 - 5 with Bryan
 Segmentation and market positioning
 Entering new markets or new segments with new
or existing brands
 Pricing strategies
Coursework: Group presentations

• Come up with something new that you want to market. It could be any new
product, service, brand, idea, etc.
• Using some of the key theories and concepts covered in the course, develop a
marketing plan for your idea and prepare a short video presentation of about 7-8
minutes
• Submit your videos by the 15th of January
• The video will be graded according to the following criteria:
1. Quality and content of analysis – 30%
2. Course concepts application – 30%
3. Substantiation of ideas and recommendations – 30%
4. Overall quality of presentation – 10%
Building Customer Loyalty

• Developing and nurturing relationships with valuable customers has become an

important source of competitive advantage
• Successful companies are becoming increasingly aware of the need to identify
profitable customers and focus on long term relationships
Economic benefits of relationships

Reduced
Operating cost
customer
savings
defection

Increased
Growth Margins Profitability
effect effect from
Loyalty

Increased
Increased
customer
spending etc
retention
Discovering sources of customer profitability

Company Profit

Price Premium
Referrals
Operating Cost Savings
Increased spending
Base Profit

0 1 2 3 4 5 6 7
Year
The leaky bucket approach to customer management

Evaporation
Market

Customer
defection
 Why do customers leave?

Moved to new market (3%)

Develop other networks (5%)
Dissatisfied with price (9%)

Found a better product

(14%)

Service failure/Perceive an attitude of indifference (68%)

Source: The TARP Studies

 Why do customers leave?

Moved to new market (14%)

CSR/Ethical problems (4%)

Dissatisfied with
price (20%)

Found a better product (7%)

Service failure/Perceive an attitude of indifference (55%)

Source: The Keaveney studies, JM

Why do customers leave?

Examples of symptoms of customer disregard:

1. Complicated complaint procedures
2. Delays in product or service changes
3. Many escape clauses in promises & agreements
4. Premise that customers cause product/service problems
5. Poor or non-existent customer-information management
6. Lack of focus on the core category benefits
Core Category Benefits

• Do customers really want to pay for your sources of differentiation?

• Many companies go so far trying to differentiate themselves that they

neglect the basics
• While companies are busy working on better ‘bells and whistles,’ customers
are still waiting on hold, receiving bad customer service, and dealing with
products that fail

• Some companies ignore the core and expected product elements.

But before customers care about “unique” and “different” elements,
they care about fundamental needs!
Better vs Different

This is different:

This is better:
Simplicity vs Complexity

This is “smart” This really isn’t

What consumers really need in the era of overwhelming information is

“decision simplicity”
Workshop on Core Benefits

 Can you think of any examples?

 Can you identify instances where the company becomes so obsessed with
being different that it forgets to be better? Or when complexity eclipses
simplicity?

 How can this bias be avoided?

How defecting customers are identified

Source: KPMG Consulting

Service failure as an opportunity

The bad news... The Opportunity...

70% of complaining customers will be

The average business does not hear retained, if the complaint is resolved
from 96% of its unhappy customers

95% of complaining customers will be

Over 65% of those who do not retained, if the complaint is resolved
complain, will not go back to that quickly (consistent with the
business again customer's definition of quickly)

Customers who have their complaint

On average, customers with a satisfactorily resolved, tell others, and
complaint tell 8 or 9 other people, 13% may become more loyal than
tell 20+ other people. Those numbers someone who never experienced a
are getting higher and higher every problem
day!
Customer complaints and service recovery
Customer satisfaction and loyalty

It is tempting to assume a linear relationship between customer

satisfaction and loyalty...
Yet, the reality is quite different:

Repurchase
probability “Apostles”

“Terrorists”
Customer
satisfaction
Customer Delight Workshop

Can you think of situation where you experienced customer delight?

• What happened?
• What exactly enabled it?
• What can we take away from it that can be generalised to any business?
Examples of how companies delight their customers

Firms may achieve customer delight through:

• Delivering unanticipated value.

• Refusing to be content with merely satisfying customers.
• Rely on innovation and market-driving ideas.
• Focusing on multiple points of contact with the customer
and every day-to-day touch point.
• Positioning the business to deliver solutions as opposed to
product and services.
Dimensions of Service Quality (SERVQUAL)

Studies of companies with the

highest service quality ratings
reveal that top firms excel along 5
dimensions Reliability Empathy

In a recent sample of US
companies, these factors alone
explained about 70% of
perceived service quality Responsive
Tangibles
ness

Assurance
Ensuring That Satisfied Customers Return

The weak link between customer satisfaction and purchase intent:

WORD OF MOUTH
AND REFERRALS

CUSTOMER PURCHASE
SATISFACTION BEHAVIOUR

CUSTOMER
PARTICIPATION
AND CO-
CREATION

So, there are two “missing links” that we can leverage: two forms of Customer
Voluntary Performance (CVP)
1. Choose your profits carefully!

Consider the following sources of profits:

Financial services Travel Telecommunications

 Mutual funds with hidden  Charges to change or  Obscure pricing schemes

administrative fees cancel an airline ticket
 Plans designed to waste
 Large amount of small print  Travel insurance with prepaid minutes
with hidden terms and unclear and limited coverage
conditions  Unclear rules and
High hotel phone charges exclusions to prepaid minutes
 Retails banks charging high
fees for bounced checks or  Car rental companies and  Roaming charges
small overdrafts expensive petrol charges
 High charges and long waits
 Unclear rules governing for customer support
promotional interest rates
 How bad profits undermine growth

Find ways to
get even

The firm’s reputation is

tarnished

Drive up
service costs
by reporting The ability to find new
problems
profitable customers is
affected

Detractors Effect on
Bad Profits growth
It becomes difficult to
Demoralise
increase spending from
employees existing customers
with
complaints

The ability to recruit the best

employees diminishes

Spread
negative
word of
mouth
The alternative: Good profits

If bad profits are earned at the expense of customers, good profits are
earned with customers’ enthusiastic cooperation
You are earning good profits when:
• Your customers are so delighted that they willingly come back
• Your customers recommend your business to others
• Your customers become your best marketers!

These customers are known as Promoters

A simple way to identify good profits

• How likely is it that you would recommend

The Net Promoter® this company to a friend or colleague?
Score • NPS = P% – D%

Not likely at all Extremely likely

0 1 2 3 4 5 6 7 8 9 10

GOOD
PROFITS Loyal enthusiasts who keep
Promoters buying and urge others to do
the same

Satisfied but unenthusiastic

Passives customers that are easily
wooed by competitors

Unhappy customers trapped in

BAD Detractors a bad relationship who slow
PROFITS down growth
The benefits of the NPS
Companies are embracing the NPS primarily because of:
• The ease with which data can be collected and analysed
• The quantity and quality of the respondents from which data is generated
• Its predictive power and correlation with business growth…
NPS and revenue growth
NPS varies across industries
Ensuring That Satisfied Customers Return

The weak link between customer satisfaction and purchase intent:

WORD OF MOUTH
AND REFERRALS

CUSTOMER PURCHASE
SATISFACTION BEHAVIOUR

CUSTOMER
PARTICIPATION
AND CO-
CREATION

So, there are two “missing links” that we can leverage…

2. The Second Missing Link: Customer Participation

Customer’s
network OUTWARD
ACTIVITY Referrals
Customer

INWARD Participation
ACTIVITY
The Brand

Source: Merlo, Eisingerich and Auh (2013)

Transparency makes you future-proof

• Transparency reduces customer

uncertainty, and is associated with
higher loyalty and less price
sensitivity.
• Being transparent pays off even
more for organisations that are
perceived to have a relatively
lower ability to deliver their service
offerings, than those reputed to
very capable.

Source: Merlo, Auh and Eisingerich (2014)

Relationships may be more difficult than we think

Marketers often make a number of assumptions about their customers:

• Customers are interested in brands

• Customers want to learn about brands
• Customers pay attention to brands
• Customers are knowledgeable about brands
• Customers can’t wait to have a relationship with brands
• Customers want to be loyal to brands, etc…

Yet customers are usually more apathetic than we may think.

An effective brand strategy should be built on a realistic view of how customers
truly relate to brands.
Customers are usually not relationship-oriented

77%
THE PERCENTAGE OF

PEOPLE
WHO SAY THEY
DON’T HAVE A RELATIONSHIP
WITH BRANDS

SOURCE: IBM in “To Keep your customers, keep it simple”. Harvard Business Review, May 2012
Harvard Business Review Study: 3 Myths about Customer Engagement
Most customers are not interested in branded experiences

“ Almost every app built

for a brand on Facebook
has practically no
usage… Heavy,
“immersive” experiences
are not how people
engage and interact with
brands… Heavyweight
experiences will fail
because they don’t map
to real life.”

- Paul Adams, Global Head

of Brand Design at Facebook
Most customers do not engage around brands
Most customers don’t know much about brands
Autopilot is a powerful foe
The challenge of customer apathy

Wine
is chosen in less than 1 minute.

Cereal
in less than 23 seconds.
SOURCE: W+K
Duplication of brand purchase is unavoidable
Customers are more self-driven than brand-driven
The challenge of customer apathy
Brand knowledge is usually limited
Consumers are just not that into you!

Because learning about

brands is boring!
Competition can come from the most unusual places

• Most of what brands do online is trivial and incidental at best. Especially when
compared to the real stuff of life…
Implications for brands

 Therefore, successful brand management is not about ‘conquest’ and

‘conversion’. You’re unlikely to get devotion.
 A brand’s health depends on lots of people who don’t know you very
well, don’t think very much of you, and don’t buy you that often.
 Brands need to stand out in an increasingly cluttered world where
customers are mostly apathetic

 So, manage for distinctiveness not just brand differentiation.

Defeating customer apathy

Any part of the brand experience can help a brand craft a story around who
they are, making sure the story resonates and lingers with customers.

Colours Logos Taglines Symbols Advertising Celebs

Differentiation focuses on meeting personal needs in a different way,

whereas distinctiveness is about reducing consumers’ cognitive effort.
The more consumers can rely on an implicit reaction to a brand, the more
likely they are to buy that brand
Strong brands have both physical and mental availability
The UK cola market
Purchase frequency data

Percentage of UK cola buyers purchasing Coke x times Percentage of UK cola buyers purchasing Pepsi x times

Number of purchases in a year Number of purchases in a year

Source: TNS Impulse panel (Sharp)

An example of brand distinctiveness
Finish Tablets

52
Another example of brand distinctiveness
Lurpak butter
Another example of brand distinctiveness
Cadbury Chocolate
Marketing distinctiveness

• Can you think of any other examples?

Do loyalty programmes work?

• Some evidence suggests that only about 10% of buyers for many consumer
goods are 100% loyal to a particular brand over a one-year period

• Those who have 100% loyalty often tend to be light buyers of the product

• Polygamous loyalty better describes actual consumer behaviour than either

brand switching or promiscuity
Research evidence about loyalty programmes

A study of the Flybuys programme in Australia revealed:

• No evidence that Flybuys brands experienced increased
purchase frequency
• Only two out of the six participating stores showed some
repeat purchase loyalty, but such deviations were also
observed for non-members

A study of the Tesco programme in the UK revealed:

• The programme had had very little impact on the

loyalty and behaviour of individual customers
Loyalty programmes objectives

• The objective of a loyalty

Motivate
programme is not always
Discourage customers to
loyalty defections give more of
their business
• Businesses need to be
clear about the specific
objectives of their loyalty
programme Encourage
Turn a profit additional
• Successful programmes purchases
are clear about their goals
and focus on one or more
objectives Gather data
Cabo San Viejo Case Study

1. What are the characteristics of Cabo San Viejo’s customer base?

2. What are the key customer-related issues the resort faces?
3. Develop and outline a plan to address these issues.