222 Week 3 F /For WIZARD KIM

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9780749478216-Chapter-6-What-Do-Our-Customers-Want-.pdf

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Malcolm McDonald on Marketing Planning: Understanding Marketing Plans and Strategy, 2nd Edition

Reprinted for Personal Account, American Public University System

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Reprinted with permission as a subscription benefit of Skillport,

Chapter 6: What Do Our Customers Want?

Overview

At the end of this chapter, you will understand:

That customers never have, and never will be, rational

How to understand customers' needs and wants (without spending any money!)

How to harness all your knowledge and wisdom in making a better offer to customers

Introduction

This chapter deals with the third heading in the Strategic Marketing Plan, SWOT analyses, shown below.

The first point to make is about the word 'want' in the title to this chapter. As you saw in Chapter 5, people are not rational in their behaviour, no matter what the economists might say.

Most business people will have read about the Coca Cola/Pepsi taste tests, which have been repeated many times over the past 40 years, always with the same results. In 'blind' tasting, a substantial majority prefer Pepsi. The same people, however, when tasting from bottles with the labels on, prefer Coca Cola by a significant majority.

Customers have never known what they want, so don't ask them!

Even neurologists agree that people are not rational when choosing between products, as can be seen from the reference shown in Figure 6.1.

The contents of a Strategic Marketing Plan (T+3, fewer than 20 pages)

Financial Summary

Market Overview

– how the market works

– key segments and their needs

SWOT Analyses of Segments

Portfolio Summary of SWOTS

Assumptions

Objectives and Strategies

Budget for Three Years

'Ventromedial prefrontal cortex (VMPC) is a critical neural substrate for the effect of Commercial brand information on human decision-making and brand preferences. The key finding of this study provides direct evidence that brand preference is the Product of factors unrelated to the product taste. This effect is not present with patients with VMPC damage and defects in emotional Processing.'

SOURCE: Koenigs, M and Tranes, D (2008) 'Corfronal cortex damage abolishes brand-cured preference', SCAN 3, pp 2–6, Department of Neurology, University of Iowa College of Medicine

Figure 6.1: Neurology and brand preference

Neurologists repeated the Coke/Pepsi challenge a number of times always with the same result, except that people with a damaged brain section that affects the emotional part of decision-making consistently preferred Pepsi Cola even when shown the brand names. Those respondents with normal ventromedial prefrontal cortex neural substrate consistently preferred Coke on being shown the labels.

Two further examples should convince you – the first repeated from Chapter 3 to reinforce the point.

1. One of the big carmakers organized a competitor comparison day, buying one example of every rival model in a particular category and lining them up in a row. Each car was silver and the badges had been removed. Not only could the assembled experts not tell them apart, they couldn't even pick out their own car!

2. An extreme case has to be level of pseudo-scientific jargon and meaningless polysyllables used in advertising, often seen for products such as skincare, shampoo and the like.

Hence the crucial importance of Chapter 5, for a failure to understand market segmentation, irrespective of whether you are a business-to-business firm or a business-to-consumer firm, will prevent you from making offers that really meet not only their needs, but also their wants.

Don't waste money on bad market research

Malcolm McDonald on Marketing Planning: Understanding Marketing Plans and Strategy, 2nd Edition

This heading may seem a little strange coming from a Professor of Marketing. The reality, however, is that most market research about customers and consumers is wasted, largely because we ask inane questions about what they want, to which they invariably give rational answers.

To illustrate this point, let me give you an example. A friend of mine, who prided himself on his rational behaviour, decided to apply a rational process to his new car purchase. He collected the brochures for 20 cars and analysed them on a spreadsheet according to factors such as speed, price, depreciation and so on. Not only did he have a three-tier scoring system, but he also had a weighting system, because he reckoned he was less interested in price than speed, etc. He scored all 20 models, multiplied the score by the weight and ended up with a rank order of cars from 1 to 20.

He subsequently asked my advice, as he was clearly unhappy with the results of his own analysis. I asked him why he didn't want the number one ranked car. His response? 'It's a salesman's car'. His reason for being unhappy with the number two ranked car was 'It's an old man's car'. His reason for being unhappy with the third ranked car was 'It's a boy-racer car'. I eventually asked him which car he really wanted, to which he replied: 'It's really difficult Malcolm, because I quite fancy a BMW'. 'But,' I said, 'you can't have a BMW because it's number 19 on your list.' To which he replied: 'Yes, it's really difficult, isn't it?'

Of course, he eventually bought a BMW, but if someone had asked him stupid questions about why he bought a BMW, the truth about the emotional reasons for his purchase would not have been revealed. Top-rated market research companies use many tried-and-tested research techniques to elicit people's real reasons for buying.

Please try to remember the segmentation example given in Chapter 5 about buyers of IT, repeated here as Figure 6.2.

Figure 6.2: Understand the different category buyers

Every market in the world is segmented. All we have to do is find out what these segments are and what they need.

Each of the nine segments shown is different from the others and it is quite easy to imagine how each segment would respond to approaches from suppliers of IT equipment. Let's not forget that it isn't companies that buy things, it is people in companies and people don't stop being people just because they are performing a role in a company.

Most companies, however, 'marmalade' their average message across some mythical, average buyer of IT. The result? Because they don't understand the buyer's real motivations, they inevitably end up having to do a deal on price.

Excellent market research organizations, of course, will not waste your money asking silly questions and there are a number of techniques to elicit the truth about customer motivations that do not involve asking questions.

Please don't ask customers what they want.

If you are an SME, for example, there is absolutely no reason why you can't emulate the excellence of the 3Ms, GEs and Proctor & Gambles of the world when it comes to understanding real customer needs. P&G, for example, before launching products in, say, China, spend time living with families to observe actual behaviours so that when they do launch, they always hit the bullseye.

As a hypothetical example, let's take a company whose customers include factory managers. By observing their environment, the noise, the irritations, the blockages, the interruptions, etc, it is then possible to go back to the 'laboratory' and invent something that helps to reduce all these problems.

Let's take one more hypothetical example. Imagine a 19th-century horse and carriage with four passengers. At a stop, one of our early market researchers approaches them and asks them what they want. The first passenger says: 'Could you please go away and invent the internal combustion engine?' 'What's that?' asks the researcher. 'It's the associated corpuscular emissions per zero point zero gram of air, producing ions carrying one electrostatic quantity of electricity of either sign…'

The next passenger says: 'This horse stinks – could you go away and invent air conditioning please?'

You need a process for harnessing all the knowledge and wisdom you already possess.

The next passenger says: 'Could you please go away and invent ABS brakes?'

The fourth passenger says: 'Could you please go away and invent windscreen wipers?'

Malcolm McDonald on Marketing Planning: Understanding Marketing Plans and Strategy, 2nd Edition

And so on, after ridiculous so on. As Henry Ford said: 'If I had asked customers what they want, they would have said "A faster horse!"'

Have I made my point by now? Your job is to understand the environment in which your customers work and to come up with solutions (offers) that make their lives easier, more profitable, etc – see Chapter 4 on value propositions.

The best way to understand customer needs is to observe them in their everyday environment.

A process for understanding what customers want (without spending money)

Please don't think I am about to suggest that you should all become sophisticated market researchers. You definitely don't need to employ any consultants, as I am about to show you how you can proceed to do a much better job of understanding your customers' real needs. After all – and this has always been my experience of all companies – you already have a wealth of data, information, knowledge and wisdom about their markets and their customers, otherwise they wouldn't have got as far as they have. All you need is a process for harnessing all this wisdom and this is what follows.

You cannot, however, implement this part of the process if you have yet to complete the market segmentation exercise in Chapter 5, otherwise you will be adding yet more nonsense to this existing nonsense.

SWOTs, not SWAGs

(A SWAG is a scientific, wild-aimed guess!)

Nearly everyone knows what a SWOT is – it is an analysis of strengths, weaknesses, opportunities and threats. My experience, however, of SWOTs is that they are about as useful as an ashtray on a motorbike!

Why is this? Figure 6.3 shows what SWOTs normally look like and you will observe that I have scrawled across the middle of the diagram, the word 'WRONG'.

Figure 6.3: Example of a traditional SWOT diagram

Most SWOT analyses are as useless as an ashtray on a motorbike.

As a veteran presenter at in-company workshops and conferences, I travel all over the world and often visit the business part of the hotel in which I am staying. In every syndicate room, in every hotel in the world, there is a flip chart with a SWOT on it and they ALL say more or less the same things.

Under 'Threats', they all list: 'the weather; competitors; government legislation,' etc. Then on the 'Opportunities' side, they all list: 'the weather; competitors; government legislation' – so note the irony in this totally unproductive method.

Don't use meaningless words in SWOT analyses.

Let me give you some more fatuous examples in Figure 6.4, where words are written down without any thought given to their real meaning.

Malcolm McDonald on Marketing Planning: Understanding Marketing Plans and Strategy, 2nd Edition

Figure 6.4: 'Motherhood!' Strengths statements

From my sceptical interpretation of these strengths and weaknesses (with thanks to Professor Nigel Piercy from Swansea University Business School for his original thinking about this topic), you will see that they abuse words and that they come out in a meaningless cacophony.

Even worse, this vapid stream of words reaches a sort of 'my head is in the oven, my feet are in the fridge, so on average I am quite comfortable' conclusion, especially when we apply the technique to any commercial group other than a real segment.

Guidelines for a better approach

Before setting out a more robust way of carrying out a SWOT analysis, let me set out some guidelines to ensure a more meaningful output. These are shown in Figure 6.5.

Figure 6.5: Guidelines for a better SWOT analysis

A process and a template for doing a proper SWOT

Conducting a meaningful SWOT, however, is still quite a difficult task that will, alas, consume some of your valuable time. The results, however, will more than compensate for taking your attention away from the pressing day-to-day problems that confront you. My advice is to set aside a morning or afternoon to meet with a small team of colleagues to complete SWOT analyses on at least five or six segments. Include in your team at least one person who is closely involved with customers, either in a sales or customer service capacity, one person who understands the product/service well and one person who understands your database well. If you have a marketing executive, include him or her.

This small team of four or five people should find an environment in which they will not be interrupted and should be prepared to be totally open-minded about the task to be undertaken. Figure 6.6 is the template to be completed; Figure 6.7 is an example. It can be seen from column 1 that the exercise should be completed on a segment hence, if you have discovered six or seven segments from your work resulting from Chapter 5, you will need to do six or seven SWOT analyses.

Set aside time for conducting proper SWOT analyses on segments.

The following three figures explain the process. Figure 6.8 is the template to complete for each segment.

Step-by-step process for an effective SWOT analysis

Malcolm McDonald on Marketing Planning: Understanding Marketing Plans and Strategy, 2nd Edition

1. Identify the Critical Success Factors (CSFs) that influence the customers' decision. There are usually not more than six really important factors.

2. Assign an importance weighting to each CSF so that the weightings for each segment totals 100 per cent.

3. Identify the key competitors for each segment and score performance of your company and each key competitor on a scale of 1 to 10, where 1 = very poor and 10 = excellent. Limit to a few competitors (between 1 and 3).

4. Multiply the weights by the scores and add up the weighted score for each competitor.

5. Assess your relative strength by dividing your score by the best competitor's score.

6. Identify the key issues from the analysis.

7. Note that you can change you relative business strength by focusing on improving your strength on the criteria that matter most to customers.

Involve a multi-disciplinary team in completing SWOT analyses.

Figure 6.6: Effective template for completing a SWOT analysis

Figure 6.7: Example for how to complete SWOT analysis template (Critical Success Factors)

Malcolm McDonald on Marketing Planning: Understanding Marketing Plans and Strategy, 2nd Edition

Figure 6.8: Strategic marketing planning exercise – SWOT analysis

In box 2 (Critical Success Factors – CSFs) of Figure 6.8, it can be seen that there are only five spaces. The problem here, however, is that there is a tendency to write down words such as 'Product Performance', 'Price', 'Service', etc, all of which are meaningless unless accompanied by a more detailed explanation.

Ensure that 'critical success factor' analysis is properly understood.

The following simple case will explain a methodology for making the summary of CSFs more meaningful.

In 2008, the recession led to a decline in the number of parents sending their children to independent/private schools. In other words, sales declined for most independent schools. The knee-jerk reaction of independent schools was to drop the price, with the inevitable result that the whole sector became unprofitable.

Faced with this dilemma, my company was asked to help. Figure 6.9 shows the five key buying factors that parents took account of when considering which school to send their child to. It is important to stress that uncovering these key buying factors did NOT require research, as the schools already knew them – it was just that until then no one had asked them to rationalize what they already knew!

1. Academic

2. School/family relationships

3. Convenience

4. Costs

5. Enhancement

Figure 6.9: Five critical success factors for independent schools

It was a simple task after that to explore in more detail what each heading really meant and some of the details for just one of these headings are shown in Figure 6.10. The same level of detail was generated for each of the four other factors. Just understand how easy it was to generate these details from the heads of these very experienced people.

Executives in the independent school sector already knew the factors for success. All that was required was a process to elicit this knowledge from them.

The next step was obviously to generate a number of segments of parents, for clearly not all parents have the same needs or considerations in choosing an independent school for their child.

1. Personality and vision of Head

Malcolm McDonald on Marketing Planning: Understanding Marketing Plans and Strategy, 2nd Edition

2. Exam results

3. Class size

4. League table position (compared with regional competitors)

5. Student academic successes (Oxbridge, major universities, competitions)

6. Academic planning: A level, IB, pre-U; GCSE? New subjects?

7. Quality/knowledge/experience of staff

8. Facilities for teaching and learning

9. Learning opportunities outside mainstream subjects (could be vocational skills)

10. Reporting procedures

11. Innovations in teaching and learning

Figure 6.10: Academic success factors for independent schools

The main point, however, is that it is all right to write in Figure 6.8 box 2, for example, 'Academic factors', because behind this there will be a deep understanding of what this really means in the case of a particular segment.

Independent schools are, of course, SMEs, so let's not forget the relevance of this example.

More importantly, however, is the fact that, having done this SWOT analysis on each segment, each independent school can now look at its asset base and appeal, via communications, to those segments to which it is most likely to appeal.

The main points to take from this little case example are:

Irrespective of the 2008 recession, these schools had absolutely no reason to reduce their prices. All they needed to do was to harness the knowledge and wisdom they already possessed, using the processes outlined in Chapter 5 and in this chapter.

Zero market research was involved, as the independent schools already knew this stuff.

They could now carry out focused, meaningful SWOTs on each segment.

Let's now move to box 3 in Figure 6.8. This requires each CSF to be weighted according to its relevance/importance of each segment. Usually, once the hard work has been done in box 2, this isn't too difficult to fathom, but if it is important and if you have real doubts, go and talk to some customers. In some cases, it might even be necessary to do some market research, but this should be a last resort.

Having completed a SWOT on each segment, it is now possible to select those that most closely match our asset base.

In the above case of independent schools, one segment might rank certain aspects of academic achievement very highly, with price being of lesser importance.

Once this step has been completed, it is possible to move to the fourth box in Figure 6.8. Make a note your own organization's score out of 10 for each CSF as well as the score for at least one major competitor. A simple process then follows of multiplying the scores by the weights to arrive at a weighted score out of 100 or 1,000 for you and at least one major competitor.

These weighted scores will indicate why you are the best competitor in this segment or – if not, where your weaknesses lie compared with your competitors.

This step is crucial in developing a winning strategy to grow sales and profits, because these weighted scores will later become the driver of your strategies to achieve your objectives. This will form the basis of Chapter 8.

Remember the chapter on value propositions? The results from your SWOT analyses will also form the basis of your value propositions.

This process will clearly establish what you need to improve to succeed in each segment.

Box 5 in Figure 6.8 features the opportunities and threats from outside the company as they related to each segment. They are NOT internal and at this stage are NOT things you will do. The final step in completing a SWOT analysis for each segment is to summarize all the key issues arising from your analysis (box 6).

The lessons to be learned from the independent schools case are crucial to conducting truly powerful SWOT analyses on each important product/market segment.

I must stress here once again that a SWOT should be conducted on ALL segments, of which there are likely to be at least seven or eight. So it can be seen that this is the most time-consuming and most difficult of all the strategy-formulation steps. Done correctly and diligently, the setting of objectives and strategies becomes a lot easier and more productive.

Opportunities and threats are outside your control.

Critical Success Factors provide a customer-focused way of assessing the strengths and weaknesses of our offering.

Malcolm McDonald on Marketing Planning: Understanding Marketing Plans and Strategy, 2nd Edition

Obtain a customer view where possible – otherwise use a team of those who are close to the customer.

Validate the results against current financials.

Our weighted average score, compared with the best competitor score is plotted on the horizontal axis of the Directional Policy Matrix.

Focus on real segments, not on the whole market.

Shared vision – it works best if done in a small, experienced group.

Expressions like 'customer orientation' are meaningless. It is only meaningful if explained properly and if customers really value it.

Opportunities and threats exist outside the organization – they are not things we plan to do.

Figure 6.11: A summary of the process described above

Finally…

Often it is forgotten that in conducting SWOT analyses, we have had to make assumptions, or educated guesses about some of the factors that will affect our business, for example: about market growth rates; about government economic policies; about the activities of our competitors, etc. So, all that is necessary now before proceeding to the next crucial step, is to list your important assumptions. Examples of assumptions might be:

'With respect to the company's industrial climate, it is assumed that:

Industrial over-capacity will increase from 105 per cent to 110 per cent as new plants come into operation.

Price competition will force price levels down by 5 per cent across the board.'

Assumptions should be few in number and if your plans are possible irrespective of the assumptions made, then the assumptions are unnecessary…

We are now ready to proceed to the next step – setting our objectives and strategies.

Actions

1. Complete a SWOT analysis for each segment identified in Chapter 5 using the analysis sheet shown in Figure 6.12.

2. Make assumptions for each segment.

Figure 6.12: Strategic marketing planning exercise – SWOT analysis

Malcolm McDonald on Marketing Planning: Understanding Marketing Plans and Strategy, 2nd Edition

Chapter 6: What Do Our Customers Want?
Overview
Introduction
Don't waste money on bad market research
A process for understanding what customers want (without spending money)
SWOTs, not SWAGs
Guidelines for a better approach
A process and a template for doing a proper SWOT
Finally…
Actions