This section is about issues in marketing, It discusses relationship marketing and its relation to CRM, issues of ethics and of strategy that are important to the non-marketing managers in the organisation
Isaac Mostovicz writes...
Internet technologies in general and mobile devices in particular allow us certain independence. For example, today, many people book their flights online, check in online and get an electronic ticket, and use their mobile device to show that ticket at the gate. Unfortunately, these technologies can potentially be exploited by our service providers.
A recent study illustrates how financial service companies are promoting the idea of the self-service customer. These financial institutes provide increasingly sophisticated self-service information, used especially on mobile devices, to help people find various financial offers, compare between various products and services, and manage their accounts. The author raises two interesting points. Firstly, he argues that self-management may lead to more and more customers making wrong decisions without the help of an expert. While the author proposes some suggestions for overcoming the lack of expert service, much has yet to be accomplished to put such a service on par with the current offline practice.
However, the interesting nugget in my opinion lies in companies’ reasons behind their online services. The author states: “many financial service suppliers are under pressure to improve efficiency and margin, in some cases to increase the contribution to improving their balance sheet in the wake of the problems of the last few years. This financial pressure is leading some of them to choose the perceived win-win of a self-fulfilled customer experience with minimal staff intervention.”
These financial institutes are self-concerned. They see their margins eroding and their balance sheets heading south and they look for ways to offer an efficient service while cutting overhead and excessive staff. What is wrong with their approach is not that they are striving for greater efficiency, but that their main motivation is self-concern. While they claim that they want to offer a win-win solution, all that is sure is that they are winning. Whether the customer wins is unspoken for. What is wrong here is not what these institutes are doing, but what is behind it – concern for their own issues.
An example on the other side of things –Starbucks started enabling customers to use their mobile devices to order their preferred beverage online, pay for it by waving a barcode on their mobile device in front of a scanner, and send invitations to friends to meet at a certain coffee shop, complete with a map and the option to order their favourite beverage en route to the store. The report that appeared on Bloomberg is full of financial data. It shows that Starbucks invested $25 million in the venture, that Starbucks hopes to pay fewer fees on credit card transactions, and that Starbucks hopes the system will make the company more efficient and increase its sales.
Again, the interesting nugget is not what Starbucks is doing but why it is doing it. Years ago, Starbucks discovered that people are ready to overpay for their coffee and since then sells coffee at a premium price, as luxury. However, the luxury is the cup of coffee, not the experience of purchasing it, which can actually become a drawback. Being the provider of a mass-market luxury therefore, Starbucks suffers from its success. During peak hours people waste a big part of their lunch break standing in line and waiting to be served. Starbucks’ offer started to become a burden. Starbucks found a way to peel off that burden while keeping its luxurious offer intact. With its new program Starbucks manages to offer its luxurious coffee again without taxing its customers. Was it a sound business decision? Of course, more people will buy this expensive offer more frequently, Starbucks will operate more efficiently, and ultimately increase its bottom line. However, the customer only appreciates this program because in his eyes, it is for him and not to enrich Starbucks. Ask the happy customer and he’ll tell you that Starbucks is concerned with the customer’s needs.
Over time any offer should be updated to incorporate new technologies and new social behaviours. Nevertheless, we should not lose our focus. If we focus on our own needs, we will eventually be punished by the customer. However, if we use the same technology, but focus on the customer’s needs, we will be rewarded handsomely.
Isaac Mostovicz writes...
The luxury world’s relationship with the counterfeit industry is puzzling. The counterfeit industry seems to cannibalize the luxury industry by offering products that presumably people would have bought from the luxury industry in the first place. However, as I commented in the past (I need to find the article) the luxury industry does not fight the counterfeit one wholeheartedly.
The luxury industry has very good reasons to allow the counterfeit industry to exist. Having counterfeits means that the original has increased status, as Prada’s CEO announced recently, “We don’t want to be a brand that nobody wants to copy.” The counterfeit industry allows the wider society to become fans of the brand while those who use the true product feel more elite and more respected. More significantly, a Sloan MIT business professor Renee Richardson Gosline found that people use counterfeit as an entry-point to luxury. Gosline discovered that within two years, 46% of buyers of counterfeit subsequently purchased the authentic version of the same product they had purchased the counterfeit of — even though other people could not necessarily tell the difference.
However, there are problems with buying counterfeits. James Lawson, director of Ledbury Research, points out that most of the time their quality is inferior and it is socially uncomfortable to admit to using a fake. Therefore Lawson suggested that renting luxury products could become a superior substitute for counterfeits, and provide an entry-point to the brand as well. Renting genuine luxury products seems to offset the problems of low-quality and social discomfort associated with fakes. One can experience the thrill of having true luxury products at a lower cost, and then return them later.
It is true that renting luxury may eliminate some of the problems with buying counterfeits. However, from the luxury marketer’s perspective, a major difference exists between them: the time span. People who buy counterfeits become accustomed to having the product in their lives. They identify with the brand that the counterfeit is imitating, and often seek to buy the real thing eventually. Renting luxury doesn’t give this experience at all. People have the great feeling of using luxury, but for a short time only. They don’t necessarily identify with the brand, and there is so far no evidence that they move on to buy the real product. While renting luxury may replace buying counterfeits in the short-term, it is clearly inferior from the perspective of being an entry-point to the brand.
I feel ambivalent about this increasingly popular phenomenon. I would argue that a major component of the luxury experience is purchasing a luxury item at a high price. Renting luxury does not provide a luxury experience just because it involves luxury products. Unlike counterfeits, it is also not an entry point to luxury. However, while it may not fit the definition of luxury, nor lead to a luxury experience, who does not want to be king, even if only for one day?
Isaac Mostovicz writes...
Value for money is a well-known economic concept – but does it really reflect the reality of how people buy? Years ago, economists observed that individuals pay a price for service or a product. However, observing individuals was not very helpful for economists who always try to measure and quantify. So they exchanged individuals with “the market”, a virtual entity that is difficult to define. This allowed them to talk more generally about the exchange of money for products or services in a way that was detached from the human psyche and its motivations. Next, the principle of exchange was introduced. Economists argued that we determine the value of products and services by the amount of money we are willing to pay in exchange for them. Following this logic, economists claimed that a person will always try to pay the least amount of money possible for the goods or services that he desires. The term “value for money” (VFM) was born.
Exchange Value and Commodities
In this discussion I’m focusing on exchange value and how it relates to marketing. This term, widely used in political economy and especially in Marxian economics, is one of the four major attributes of commodity. Commodity is defined by its fungibility, or the ability for one unit of the commodity to be fully exchangeable with another unit of the same commodity. For example, a $10 bill can be exchanged with another $10 bill or one barrel of petrol can be exchanged for another one. However, would you exchange a $10 bill for a stack of quarters? Are all petrol barrels similar? Finally, did you notice that services were dropped out of my discussion? Actually, whenever we exchange our money for goods they are always bundled with a service, whether it is in the form of who serves us, how easily we can obtain the goods, or something else. How do we factor service into the value of the “commodity”? We’d like to think we can talk about two items that cost the same or that are exchangeable having the same value, or being similar to commodities, but in reality it’s hard to find such items. Practically speaking, value is hard to quantify.
And yet, economists tend to relate to all products as commodities. From the buyer’s perspective, when we relate to an item as a commodity, we tend to feel that the supplier has no right to mark up the item by one cent. We should be able to pay the cheapest price available and nothing more. Think about exchanging money in the airport – who doesn’t resent have to pay a commission? Because money is a commodity, we don’t think anyone should be able to charge more than it’s worth.
Luxury – the Antithesis of VFM
Luxury is the antithesis of the value-for-money economic thinking. Luxury consumers are definitely not looking to maximize value by taking the cheapest offer. After all, the principle of luxury is needlessly overspending. Moreover, the element of paying in luxury is not just about exchanging a price for the goods or services received. Paying is an integral part of the luxury experience. Luxury can never be free and the more we pay, the stronger the luxury experience is.
A Different Principle: Value or Money
From my experience, value for money is an illusion based on only observing the act of exchange without really understanding the psychological dynamics behind it. I have found that economic exchanges are always about either value or money. When we focus on the value we’re getting, we do not think much about the price. Nobody chooses a dish in an expensive restaurant based on its value for money, (“I think the 250g entrecote is a better deal than the sea bream, price-wise”), unless he is an economist. We have a general idea how expensive the meal might cost and we simply select the dish according to our liking. Likewise a person who values high quality, comfortable shoes does not fret over their expense, nor does he extensively weigh the value against the money he spends. Because he values the shoes enough, he regards the price as simply instrumental in getting the value.
By contrast, when we focus on the price of an item and not its value, we commoditize the item and start looking for the cheapest price possible. We will buy because an item is comparatively cheap or not buy because an item is comparatively expensive – and not really consider the value at all. We all know of items that we choose based on price. For some people maybe it’s napkins in the grocery store, for some maybe it’s movie tickets or a music album. Somewhere in our minds, the value of these items is unclear or appears insignificant. And the moment we disregard value, we tend to focus on price alone. “The supplier shouldn’t charge more than the bare minimum” is the mantra here. And if a person were to choose not to buy at all for this reason, often it is not be because he thinks the value and price are not commensurate. He doesn’t really think about the value, he only thinks that the offer is “too expensive,” a term that economists cannot live with because it is unquantifiable, subjective, and personal.
How We Feel About It
When we buy based on value we feel positively toward the offer and sense that we are getting something we need and desire. When we buy based on price, we feel hostile toward the offer, as if someone is demanding that we pay money that we would rather hold on to.
Price and value are not two sides of the same equation. We either purchase for value or we purchase based on price. Moreover, whether we relate to the price or the value of a product is psychologically determined, and is subjective, personal, and unquantifiable. I do not know what economists do, but as a marketer I know that by creating value my customers will recognize, I can always get a good price.
Isaac Mostovicz writes...
According to the economic news, Graff Diamonds, founded by Laurence Graff, recently pulled its IPO offering just before its deadline. At the time it had orders for just half of its $1billion initial public offering.
Who is Laurence Graff? Allow me to share a short story with you. Between 1998 and 2000, Enea Galucero, the late David Kiets – one of my colleagues at De Beers – and I tested the high-class jewelry market by sending people to pose as diamond jewelry shoppers along Old Bond Street in London. For the most part, they had horrible experiences in the most glitzy shops. But one of my “shoppers” had a great experience at Graff. She entered the shop, telling the salespeople she couldn’t afford a thing and that she was probably in the wrong place. Laurence Graff was present and, making her feel like a queen, managed to turn her initial impression on its head and almost convinced her to buy.
When the group of “shoppers” met afterwards, everyone wanted to know what Graff diamond she had been offered. However, even though she was a pro in diamond lingo, she was not sure whether the diamond had been round or square and remembered only vaguely that its weight was close to 1.5 carats. And yet she almost bought it! Graff had spoken to her, about her – and not about diamonds. With this approach, despite his diamonds going for prices of 25k and up – he was almost able to sell to someone with no intention to buy at all! One must bow his head when seeing such a master.
Sadly, now Laurence Graff seems to want to bail himself out of his diamond inventory by using part of the IPO proceedings to buy out his own diamonds. Does the master not believe in his own sales skills to turn his diamond stock liquid?
But he never saw his sales approach as his truly unique offering, and therefore did not spread that to his other shops. That was the mistake that put him in the position he is in today. Exceptional salesmanship – like Graff’s – sells; reputation is not enough. And now he seems to be jumping ship and just trying to liquidate funds. Hopefully Graff will overcome the current economic pressure. Even more so though, hopefully he will realize that his power is in his customer-oriented sales – and use that to appeal to more clients and build himself up.
Isaac Mostovicz writes...
This maxim of Alfred Korzybski came to my mind when someone reacted to my previous blog, “Cupid and Psyche: Marketers must ‘delve deep’ to know their clients”. Here I argued that marketers must delve deep to discover the positive values in a client that motivate his purchase in order to appeal to and satisfy these positive drives. This unique form of relationship marketing (RM) leads to a truly satisfied customer, as opposed to marketing methods that appeal to people’s impulses, which brings out their negative traits and keeps them constantly seeking more.
Upon presenting my arguments, I received an e-mail from someone who claimed that there is a tool that answers marketers’ need to “delve deep” and truly know their customers. He said this tool was Customer Relationship Management (CRM) – in particular, his version of the software.
CRM is a widely used model for managing a company’s interactions with its customers and potential clients. It utilizes technology to track, organize, and automate its sales, marketing, and customer service activities. Its purpose is to utilize prior information about customers and their buying habits to enable the company to synchronise its activities so as to retain existing customers, identify new customers, and reduce operation costs.
Can the CRM method help up us understand our customers enough to truly satisfy them? As an example, take a popular version of a CRM program which I was recently introduced to. This CRM program proposes that when talking to a prospective customer one should ask four questions: What product is the customer interested in? What is his budget? Who is the decision-maker? When does he plan to purchase?
What kind of information do these questions give us? A man walks into a hardware store, looking for an electric saw. He says he’d like to spend no more than $100. The decision-maker seems to be him and he says he wants to purchase today. Using the above questions, we know is that he wants a particular product, feels comfortable spending a particular sum of money, will make the purchase himself and wants to purchase soon. Yet the customer himself – his motivations, his needs, and his values are completely unaddressed.
Answering these questions answers the “What?” “How much?” “Who?” and “When?” questions, but does not even touch the “How?” and “Why?” questions. Yet it is precisely the “How?” and “Why?” questions that teach us who our customer is, what he wants, and how a particular purchase addresses his needs. Does the fact that he wants an electric saw tell us what project he is working on and what it is for? Does his budget tell us what values may be motivating his purchase – whether they be family enjoyment, efficient storage, creative expression, or any number of other things? Not at all.
In the luxury market, customers often do not even have answers to the CRM questions. For instance in diamonds, a woman may not know what she is interested in, may assume she does not have the budget, might defer the decision to someone else, and certainly does not know when she plans to purchase. So what do we gain from using this CRM approach here? Not only do we not learn anything about our customer, we basically disqualify her as one. Because of this, Randy Pearson, the manager of Kahro Diamonds inRaleigh, says, following this kind of CRM method might cause him to lose all his customers. If we had been asking the “How?” and “Why?” questions to begin with, perhaps we could have appealed to what she was looking for on a deeper level and helped her make a truly satisfying purchase.
So we return to the question, does the CRM method help you know your customer enough to truly satisfy him? While the above and other CRM methods sometimes give us an abstract, map-like knowledge of the customer, they do not reveal his deeper needs. Though sometimes we can use such a map to make sales, we cannot use it to truly know our customers. We need to know the territory – who our customers are, why they want a particular product, and how that product addresses their needs and values – in order to truly satisfy them.
As a marketing approach, CRM is shallow – it barely scratches the surface of the customer. RM at least seeks to understand the customer and is therefore effective, though it can be used manipulatively. However, for the most part both are based on the wrong principle – self-interest instead of interest in the customer. We might as well rephrase the questions above: What product can I sell you? What’s the maximum that I can make selling it to you? Who should I speak with to make the sale? When will I make this sale? When CRM is used in conjunction with true knowledge of the customer, it may be very helpful. But used as the only tool for knowing the customer, it easily degenerates into a self-centered marketing tool with the seller’s interests at the center and the customer, a pawn for serving them. By contrast, we seek to know more than the surface of the customer and ask the “How?” and “Why?” questions in order to help us address the wellbeing of the customer and his values and needs.
CRM might be an excellent tool once we know who our customer is and what he wants. But CRM cannot replace real knowledge of the customer. More so, if we rely solely on CRM to know our customers, we may fall into the trap of merely satisfying ourselves. Alone, CRM cannot be an effective marketing tool. Using it, we may realize that not only do we not know the territory of our customers, but the map we are using is actually a map of our own interests. To market effectively and morally, we need a tool that enables us to look deeper.