When it comes to marketing, many companies confuse cause and effect. They base their budgets on annual sales forecasts rather than letting marketing spur sales, and they expect immediate gains in market share. But developing a loyal customer base can take many years. And short-term thinking only sabotages the process. We recommend another approach: strategic marketing investment. Companies can gain a competitive advantage over more established rivals by treating marketing expenditures the same way they treat capital outlays: as investments that drive revenue over time. Consider the following scenarios: In 1970, RTE-ASEA (now a subsidiary of MagneTek, Inc.) entered the U.S. electric transformer market with an undifferentiated product. Industry giants General Electric and Westinghouse already dominated the market, which was on the verge of decline. RTE-ASEA’s late arrival looked like a formula for failure, but the company decided to gamble with an innovative marketing-driven strategy. Rather than tying marketing dollars to sales projections—and expecting results within 90 days—RTE-ASEA treated these monies as investments that would increase market share over the course of several years. Although it spent much less than its competitors, RTE-ASEA was able to leverage its investments by targeting customers who were unhappy with their suppliers. The strategy paid off. By the late 1980s, the company was not only surviving; it boasted a 40% share of the market.1 In 1983, Glaxo introduced Zantac into the antiulcer medication market, taking on Tagamet, a SmithKline drug that had held a virtual monopoly since the late 1970s. Most analysts predicted that Zantac would achieve at most a 10% share by the late 1980s. Glaxo launched an aggressive investment-driven marketing campaign, however, which included advertisements citing Tagamet’s side effects. The approach worked. In six years, Zantac had gained a 50% share of the market, while Tagamet’s share had declined to 23%. Although success stories like these are rare, they show how companies can benefit by replacing their expense-driven approaches with strategic marketing investments that lead to future share and profit gains. What matters is not how much money companies spend on marketing but how well they spend it. Smart companies can leverage even modest investments by targeting the most profitable customers at the correct stages of the product life cycle. In this way, small sums of money can work like large amounts, compounding over time with surprising strength. Couple that strategy with a continuous advertising campaign that delivers an “unmatchable” message, and even late arrivals to the market can come out ahead. The Expense vs. Investment Mind-SetThe traditional definition of marketing focuses on product development, price determination, place of distribution, and promotion. But paying attention to the “Four Ps” is no longer enough to ensure competitiveness. We are proposing a redefinition of marketing that also emphasizes analysis, target market selection, and strategic investment as a means of seeking and keeping customers profitably. Unfortunately, too few companies understand the need for an investment strategy, despite the staggering sums they devote to marketing. In 1992, U.S. companies spent more than $700 billion on activities such as selling, advertising, and sales promotion. For many companies, sales and marketing expenditures represent 15% to 20% of each revenue dollar. From that same dollar, about 4% to 10% is devoted to capital budgeting projects. While capital budgeting expenditures are carefully examined and analyzed—and treated as investments—the much larger marketing piece is viewed as an annual expense. Consider the thinking that goes into the decision to build a factory. The need is determined, costs scrutinized, competitors evaluated, resources examined, and plans made. The perspective here is that an investment will be made in year one and amortized over many years. The long-term revenues and profits are looked at in terms of return on investment. Contrast this with the thinking that leads to most marketing expenditures. Advertising is often based on so many dollars per unit projected in the sales forecast. Customer development is supposed to take weeks, or months, and the returns are expected within 90 days. We have watched sales managers in high-tech companies determine the number of salespeople they need by dividing next year’s sales forecast by the revenue they expect per salesperson. In these situations, marketing resources are not seen as a determinant of long-term market position and overall revenue. If thinking like this prevailed in the factory decision, the facility would be built on the installment plan. In the first year, the foundation and a few rooms might go up; in subsequent years, the company would add (or subtract) various production lines and equipment as sales volumes and profit permitted. No one thinks of constructing a factory that way, but almost everyone thinks of marketing expenditures devoted to building a customer base or building market share that way. Not surprisingly, as a result, marketing monies rarely accomplish their goals: establishing a competitive position based on strong customer relationships and brand equity. Instead, companies waste their money on the wrong customers and tasks. Building a customer base demands the same assumption as building a factory: investment drives revenue, not the reverse. A customer base is established by developing the “right” customers. They must be made aware of a product or service, then induced to use it—perhaps tentatively at first, then casually, then routinely, and finally, loyally. This does not happen overnight. The nature of the customer development process involves a lag between action and results. Investment thinking makes this lag time clear and understandable. Expense thinking confuses cause and effect. Even worse, it can let unrealistic sales projections determine the marketing budget. A manager’s thinking is revealed in his or her questions. The expense-driven manager asks:
For the investor, the important questions are:
Skillful leveraging is the way late arrivals beat their established competitors—they use fewer resources better than their foes. But before learning how to do this, newcomers need to appreciate the power large players wield and why confronting them is so difficult. How the Giants Got That WayA company’s current market share in a particular category is a consequence of cumulative marketing expenditures. For the giants of this world, the cumulative investment represents monies well spent on sales and marketing activities over years or even decades. The graph “Investments Pay Off in Later Years” illustrates how this works. Leading brands like Ivory Soap, Heinz Tomato Ketchup, and Ritz Crackers have built such high brand equity through consumer awareness and preference that their positions seem unassailable.  Investments Pay Off in Later Years Hawaiian Punch’s track record illustrates the enduring impact of a cumulative investment. Up through the mid-1980s, Hawaiian Punch invested $10 million to $20 million a year on advertising. After 1985, the company cut back ad spending dramatically; from 1987 to 1990, when P&G acquired Hawaiian Punch from Del Monte, ad levels were less than $2 million. Although sales eroded, Hawaiian Punch enjoyed sales of over $100 million a year even several years after advertising was reduced. Remarkably, consumers “remembered” seeing the “Punchy” character ads in the past three months, even though they hadn’t run for over three years. Cumulative marketing investment is potent primarily for early entrants, who can gain the lion’s share of a category. Early entrants alert customers to the existence of the category, define the category in terms of initial consumer preferences, and build a customer base. As such, they have the greatest potential to invest in developing loyal customers. The introduction of beta blockers hypertension medication illustrates this process.• • • Beta blockers were first launched for hypertension in 1975. By the mid-1980s, the first five entrants together had spent over $1 billion to build and protect customer loyalty. As the dotted line on the graph “The Investment-Share Relationship Changes Over Time” indicates, cumulative marketing investment was the most important determinant of market share. The investment-share relationship changed over time, however, as the solid line indicates. The graph reflects two economic realities: new product launch costs increased dramatically, and the cost of gaining a point of share also rose. This investment-share pattern shows up in dozens of other product categories where product differences are relatively minor. The Investment-Share Relationship Changes Over Time Sources: IMS America, Ltd. and CDI estimates. Later entrants to an established market face two distinct challenges: they must dislodge customers from the market leaders, and they must draw the customers through the development process from product awareness to loyalty. Achieving these goals is usually an expensive undertaking: for example, in the beta blocker category, launch costs were $20 million in 1980 and $80 million in 1989. Comparatively few companies succeed at breaking through this cumulative investment barrier, but a premier example of one that did is Philip Morris with Marlboro. (See the graph “Strategic Marketing Investment Paid Off for Marlboro…”) Strategic Marketing Investment Paid Off for Marlboro and Created Superior Returns for Zantac Too Introduced in the 1920s, Marlboro registered a feeble 1% share of the market by the mid-1950s. This tiny share would hardly support a massive advertising attack on the category leaders, which, at the time, were Winston and Camel. So Philip Morris developed a campaign based on a powerful and distinctive symbol, the American cowboy, which effectively differentiated the brand and attracted younger male smokers. This success, combined with strong brand loyalty, created growth momentum for the brand that rivals could not match. Philip Morris followed this strategy for decades; even now, Marlboro’s share of younger male smokers is estimated at 60% to 70%. In addition, continuity of focus has been matched by continuity of message. The first Marlboro Man advertising ran in 1954; by the early 1960s, the Marlboro Country advertising campaign presented key images linked to the brand. Today these themes are so well known that the product name doesn’t have to appear—only a cowboy lighting up.• • • No cumulative investment barrier lasts forever, however. External and internal factors can level playing fields. New products and services, emerging customer needs, and a company’s internal changes can depreciate the value of cumulative marketing investments. The value can also be eroded when manufacturers teach consumers to think more about prices than quality. When they aggressively raise prices and issue coupons, they are saying to people, “Don’t buy because of the brand. Buy because the price is low this week.” The switch to consumer promotion, at the expense of advertising, has undermined the power of manufacturers’ brands and reflects an attitude that focuses on today and not enough on tomorrow. Rather than waiting for competitors’ missteps to rearrange the marketplace, companies with fewer resources to spend can use the principles of strategic marketing investment to leverage their investment dollars. Leveraging to Beat the OddsA popular way to lose money, conventional wisdom dictates, is to plunge into an established category and take on three or four leaders that have already built substantial customer loyalty—and do so with an undifferentiated product. We agree that the odds of success in such a scenario are indeed low, but the rewards of a single strategic victory are high. Determining which customers to target is the crucial starting point for companies that are willing to take the risk. Just as equity investors recognize that the astute use of debt can multiply returns on an investment, marketing investors should recognize that the shrewd choice of customers can turbocharge returns. Innovation in customer selection is the key leverage available for companies seeking to improve their position. The conventional marketing approach calls for targeting established demographic groups, such as people aged 25 to 44 with incomes above $34,000. But following this convention results in too many companies going after the same people. More sophisticated marketers think about behavioral segmentation, targeting customers according to their lifestyles. Neither strategy, however, takes into account what it will cost to acquire customers and how profitable they will be over the long term. We recommend focusing on the three groups that create maximum value for the marketing investor: 1. Customers who have low acquisition costs: “switchables;” 2. Customers generating the most returns: “high-profit customers;” and 3. Customers contributing to long-term growth: “share-determiners.”• • • Acquiring competitors’ most loyal customers can be prohibitively expensive, but identifying and attracting their “switchable” customers, those who are sufficiently unhappy with their current supplier to welcome being courted, can be extremely attractive. Acquisition costs for switchables can be one-fifth to one-tenth what it costs to win over a competitor’s loyal customers. Attracting competitors’ “switchable” customers is much cheaper than trying to win over rivals’ loyal customers. Companies need to differentiate very clearly between chronic “garage-sale” switchers, who always go to the cheapest source, and genuine switchables, who are legitimately unhappy with their current suppliers. Chronic switchers are not “investment-grade customers” and, therefore, not worthy of long-term attention. Genuine switchables, however, are loyal customers in play. Many factors can increase “switchability” in a competitor’s customer base: poor service, growing mismatches between what customers want and what they are offered, post-merger confusion, and financial uncertainty. Switchable customers can even be found where switching costs are presumed most high. One example comes from the computer-aided-design software industry, with its installed base of industry leaders, IBM, Computervision, and Intergraph. Into this tough terrain marched Parametric Technology Corporation, which understood that even its customer-rated superior technology was insufficient to grow share a lot without innovations in customer-selection strategy. So PTC didn’t attempt to compete on projects with long cycles and large preexisting databases, where barriers to switching were extremely high. Instead, PTC sales reps concentrated on ferreting out new projects with shorter design cycles, where design engineers, many of whom were already predisposed to PTC’s technology, could greatly influence purchasing decisions. PTC reinforced this strategy by also targeting Computervision’s customer base. As the object of a leveraged buyout, Computervision had a high debt level. PTC capitalized on Computervision’s apparently insecure financial situation with great success; during 1990 to 1992, PTC’s profits rose more than 80% per year. The switchability window can change very quickly, however, so frequent review is necessary. When Computervision restructured its debt and went public, it dramatically reduced its vulnerability to the financial uncertainty attack. At approximately the same time, IBM’s market value collapsed. Furthermore, confusion over the future of one of its products, CADAM, and uncertainty about the future of host-based systems as opposed to workstations made many IBM CAD/CAM accounts vulnerable. Switchability for Computervision declined while, at the same time, switchability for IBM increased, and the whole marketing investment picture was significantly altered for all CAD/CAM players.• • • Profitability varies enormously among customers, a fact most companies do not fully appreciate or quantify. High-profit customers are not overly concerned with price and cost less to service than other customers. Because they can quickly generate resources for investing in products, high-profit customers are crucial for companies seeking to create or protect market position. They are rarely from a single demographic group or region, however, and can be tough to identify. Companies need to conduct a customer-base audit to uncover these valuable prospects. A good customer-base audit reveals how much customers purchase and how much they cost to serve. Not all accounting systems are set up to show a clear picture of customer profitability, however. An effective cost accounting system records data by product, order, and account and records costs beyond the factory, including selling, transportation, and applications or design engineering. Presale, production, distribution, and postsale service costs should also be analyzed and included with order and account information. Once they know these costs, companies can plot them against realized prices to show the dispersion of account profitability. Companies can then focus on acquiring and defending the most profitable accounts. An electronic materials supplier provides a good example of what customer analysis can do. The company was investing its marketing resources equally in three different customer groups: original-equipment manufacturers (OEMs), large independents, and small custom-fabrication shops. When the company performed an in-depth customer-base audit, however, dramatic differences in customer profitability became clear: the large OEMs were generating 35% operating margins, while the small custom-fabrication shops were generating 15% operating losses. The large OEMs, though fewer in number, were highly profitable because of low price sensitivity and low service requirements. The company realized it was underinvesting in these customers and was beginning to lose them to a smaller competitor that was funneling all its resources toward acquiring them. Alerted, the company re-channeled its marketing investment to defend and reacquire the OEM accounts and, in the process, acquired several new high-profit OEMs. The high-profit customer is not always a preexisting category defined by volume, transaction size, price sensitivity, and the like. A company can manage customers to high profitability. FactSet Data Systems, a financial information company, did this very successfully. Instead of marketing its services broadly, Fact-Set decided to target 15 to 20 major new accounts per year to build on the base of the approximately 150 customers it had developed by the mid-1980s. FactSet invested heavily in the first three to four months of each new account’s life: the goal was to understand the account’s internal systems and embed FactSet’s products within them. Although this investment caused negative earnings and cash flow initially, these were eventually offset by the development of high-profit customers, content with products tailored to their needs. With a strong base of loyal customers—retention rates reached 95%—FactSet went on to develop the next group of 15 to 20 customers with little fear of competitor encroachment. Moreover, the company’s clear focus enabled it to employ a significantly smaller sales and marketing force than its competitors.• • • One of the most powerful sources of marketing leverage stems from identifying, investing in, and ultimately owning “share-determiners.” These customers have the greatest impact on a company’s long-term position. They may cost a lot to acquire, but they deliver higher returns than many other customers because of the duration and extent of their influence. The simplest group of share-determining customers to identify are those who are growing differentially faster than the industry. If a supplier had targeted Wal-Mart early in its growth period, for example, the supplier’s sales would probably have grown much faster than the overall mass-merchandising industry. Very likely, the vendor would have enjoyed share increases mirroring Wal-Mart’s own share gains in the retail arena. When the growth rate of a customer like Wal-Mart becomes clear to all vendors, however, the customer usually demands discounts and premium service and ceases to be as profitable. Discovering share-determiners calls for creative thinking. It’s like creating a stock portfolio through careful analysis of the fundamentals. Figuring out which customers in your base have established a competitive advantage over their rivals can help to identify prospects for above-average growth. It’s a high-risk proposition, but with the correct choice, the initial investment in “overservicing” a growth customer early on will lead to an enduring relationship, high revenue growth, and high profitability. In addition to high-growth customers who are gaining share in their own competitive arenas (Wal-Mart, Toys “R” Us, Circuit City, and Staples, for example), many other types of share-determiners have a disproportionate influence on long-term market share. They include demographic groups with particular strategic value—not necessarily the obvious ones—distribution channels, professional influencers, assemblers, and others. Demographic GroupsFor Glaxo, medical residents were the long-term share-determining segment. Having been “won” while training, the newly minted physicians took their Zantac prescribing practices with them. For Toyota, it was 18- to 25-year-old car buyers. U.S. companies, by contrast, have high share with buyers over age 55, who might purchase 2 or 3 more cars, compared with the 10 or 12 that may be left for the 18- to 25-year-olds. For Philip Morris, it was 18- to 22-year-old smokers. Distribution ChannelsIn marketing Tylenol, Johnson & Johnson sought to create high market share in hospitals; the hospital “prescription” then followed the patients home. Tylenol’s advertising continues to reinforce this linkage today. Specialty beverages have focused on restaurants as a share-determining segment because they create awareness (it’s on the menu) and an opportunity to try the product. Perrier sparkling water and Rolling Rock beer have both pursued this strategy, gaining strong positions in restaurants with larger gains following in retail distribution. Opinion Leaders, Including Professional InfluencersReebok promoted heavily to people influential in its market, such as aerobics instructors, who became literal carriers of the Reebok message, recommending Reebok products to their students. Nike pioneered this approach by first going after coaches, Olympic runners, and then onto other athletes, both amateurs and superstars. In another arena, a disproportionate share of Zantac’s marketing dollars were invested in communicating to and supporting the research efforts of gastrointestinal specialists, whose recommendations and prescribing behavior carried great weight in the medical community. In building materials, architects and specifiers represent an important influencer group. In the 1980s, W. R. Grace achieved significant share advances in the concrete admixtures market by promoting heavily to architects and engineers. Moreover, by integrating this influencer strategy with a focus on large customers in the process of acquiring their smaller competitors, W. R. Grace grew share enormously during the mid-1980s. In every market, there are also important influencers who operate as informal opinion leaders. They are often heavy product-category users whom other, less knowledgeable users view as experts. Sophisticated large farmers, for example, often lead the agricultural market in categories such as herbicides and equipment. Exploratory market research may be necessary to identify these opinion leaders, but the rewards for doing so can be substantial. AssemblersIn many market situations, assemblers have sufficient influence over suppliers to qualify as a share-determining segment. In industrial software, for example, major assemblers like Boeing and Ford can help determine suppliers’ choices of systems. They can encourage or even mandate standardization to conform to systems the assemblers are using. Other Share-DeterminersSome types of influential customers defy easy categorization. MCI’s Friends and Family program demonstrates the power of unconventional thinking directed to identifying share-determining customers. It targets customers who are willing to recruit other customers, so everyone can get a discount. In each of the foregoing cases, a strong position with the share-determining segment has a multiplier effect on future share gains. By investing to gain strength with share-determiners, high share in this segment today translates into high overall market share tomorrow. Innovative Customer Selection and TimingAstute, innovative customer selection must be accompanied by a clear understanding of timing: the life cycle of a product or service category and the industry in which it resides. Going against an established company is hard enough with an undifferentiated offering; doing so at the end of a life cycle is almost suicidal. Life cycles usually have four broad phases: entry, growth, maturity, and decline. Conventional wisdom holds that a company should avoid entering a market in the maturity or decline phases. We believe that the issue is not so simple, however, and have already provided examples of companies that challenge traditional thinking. A careful look at what the market leaders are doing and a well-designed strategy for leveraging a marketing investment can go a long way toward maximizing the returns earned on marketing investment even in the late phases of the cycle. Strategic marketing investors focus on gaining strength with share-determiners because high share in this segment today means high overall market share tomorrow. The graph “Target Customers According to Life-Cycle Phase” displays an approach to matching life-cycle phases with the three customer types. The graph’s upper left corner represents the perfect world, the entry phase: companies that were lucky enough to have founded a product category and have the resources to acquire the highest profit customers. Investment in the early phase of the market takes tremendous discipline. It’s an open field, the competitors have not yet arrived, and there is an irresistible temptation to pursue all the customers who are there for the taking. Yet companies cannot afford to build high levels of loyalty (and relative immunity to competitor incursion) with every customer. Therefore, even at this early stage in the cycle, it is critical for companies to select the most valuable prospects: high-profit and share-determining customers. Target Customers According to Life-Cycle Phase Of course, companies don’t always have the luxury of being early. As we’ve discussed, more typical situations are either being late to enter the market or deciding to build share in a later life-cycle phase. Targeting share-determining customers is particularly effective in the growth stage; that was the approach Glaxo took with Zantac. At maturity, going after switchable customers makes most sense; Marlboro and RTE-ASEA used this approach. And in decline? The sensible strategy at this time is to protect existing loyal customers and to discover the high-profit group among them. Though it’s rarely the exciting strategy, nurturing an installed base may be the only feasible approach. Not protecting already loyal customers only puts potential switchables into play. • • • Smart choices in customer selection and timing enable companies to channel investment resources into building the highest “quality” of market share. Consider the profiles of two companies, company “A” and company “B” in the graph “Quality of Market Share Matters.” Each company owns a 30% share of market position, and, although their customer-base profiles are quite different, companies A and B may temporarily have income statements with similar levels of profitability. It is tempting to infer the profitability of a customer base through the profit margins reflected on the income statements, but that may be extremely misleading. Company A, for instance, is reinvesting profits in share-determiners while building barriers around certain accounts to lower its ratio of switchables. Thus its current income statement may show moderate profitability. But an in-depth customer-base audit would reveal high levels of security, growth momentum, and excellent future profitability potential. So company A is establishing a very high quality of market share. Quality of Market Share Matters Company B’s outlook is not so bright. With few high-profit or share-determining customers and 50% of its base at risk, we can anticipate flat or declining sales and unattractive margins. Moreover, Company B’s weakness actually enhances A’s value. Company A has low vulnerability (few switchables) in its base and has the profit resources to invest. It is therefore the leading candidate to acquire B’s switchables. Thus these seemingly equal market positions in fact are very different when the quality issue is investigated. Strategic marketing investment requires that investments be regularly reviewed to ensure that they are focused on the appropriate customers, well timed, effectively executed, and sensitive to evolving competitive opportunities and activities. An annual marketing investment review provides this opportunity. Such a review also enables the management team to measure better the lag among decisions, actions, and results. This improved understanding of time lags can form the basis for constructing a portfolio of long- and short-term marketing investment programs that address current competitive needs and capitalize on share-building opportunities over the long haul. Critical Tactics: Unmatchable Message and Investment ContinuityTwo tactics carry special significance for the marketing investor because of their unique role in leveraging the work of the marketing investment dollar: the “unmatchable” message and continuity of investment. One of the most powerful weapons a company can employ is an unmatchable message, a message that another company cannot imitate, which transforms a weakness into a strength. This tactic has significant impact on return on investment. Once high tar and nicotine levels were linked to lung cancer, Marlboro, whose tar and nicotine levels were among the industry’s highest, suffered a tremendous disadvantage. So Philip Morris repositioned the brand, which was originally aimed at women, to equate it with “strength”: high tar and nicotine became a matter of taste and rich flavor. Philip Morris reinforced this message with the rugged cowboys and Old West of the Marlboro Country ads. When RTE-ASEA entered the electric transformer market, it had no installed base. To turn that obvious weakness into a source of strength, the company introduced a five-year warranty. Not only was this a point of differentiation, but it also was unmatchable. Given their market presence, GE and Westinghouse would have had to lay out substantial sums to provide their own warranties, a step they chose not to take because of the costs.• • • Glaxo’s Zantac, basically a me-too version of SmithKline’s Tagamet, also needed to differentiate itself. Its marketing strategists compiled a list of adverse reactions Tagamet might produce; none was statistically significant, but Zantac took advantage of the large absolute number of side effects. As a result, Tagamet’s greatest strength, a record of generally safe and effective usage, became a distinct liability and weakness. Tagamet was unable to counterattack directly because, in fact, many people had experienced some side effects. Instead, to defend its installed base, Tagamet was forced to spend huge sums to point out, in essence, “We’re not that bad.” Visa changed “bad” ubiquity (ordinariness) into “good” ubiquity (“We’re everywhere you want to be”). It thus took on American Express’s exclusivity and prestige, transforming them into a weakness (“And they don’t take American Express”). Visa transformed a weakness into a strength with its message, “We’re everywhere you want to be.” These unmatchable messages are more than clever advertising slogans; they are seriously considered tactics linked to a consistent investment strategy. Glaxo, for example, focused its advertising on a different side effect each year, thus hammering home problem after problem to be found in Tagamet. Moreover, Zantac introduced new product forms in rapid succession, which expanded both the reality and the perception of its differentiation over Tagamet. Because SmithKline was unable to market Tagamet in comparable or new forms as quickly, the leader inexorably became the follower. The type of message that carries the company’s investment to the customer has an impact on the level of returns. An undifferentiated message does little to leverage the investment. A differentiated message delivers higher returns, but the odds are that another company will eventually imitate it and strip it of its power. A message that is not just differentiated but is also unmatchable by competitors provides the highest degree of leverage. Reinforcing the MessageSeveral companies we have discussed seem to have executed strategically brilliant and tactically flawless campaigns. But why are successes like these so rare? One pressure working against such efforts is failure to respect the impact of continuity. The expense-driven approach to marketing investment is a principal culprit. Considering the time and effort needed to get customers from awareness to loyal usage, when companies willfully disrupt a message or fail to reinforce it consistently, they shoot themselves in the foot. We see this happen time after time. Many companies change an ad campaign and introduce coupons or other price promotions. This is a foolproof formula for increasing the number of switchable customers in a marketplace when the object should be to increase the number of loyal customers. Worse, it creates chronic switchers, customers who change suppliers at the drop of a dime. The failure to appreciate the power of continuity is most noticeable in a leveraged investment situation. Given a scarcity of resources or the desire to conserve resources, the important question should be: What is the brand identity that we want to support for the next ten years? Unfortunately, the question too often is: What’s a new idea that can give us a good one- to three-year run? The marketing investor, and especially the investor aiming to leverage, does not wish to be frozen in place. But messages like GE’s “We bring good things to life” and Allstate’s “You’re in good hands” demonstrate how the consistent identity coupled with the reinforced message is a distinct advantage, one which can be communicated effectively for years. How Far Can Leveraged Investing Take You?Zantac entered the antiulcer medication market in 1983, built a blockbuster that helped propel Glaxo from sixteenth to number two position in the worldwide pharmaceutical industry, and raised the company’s market value from $4 billion in 1983 to $36 billion in 1992. But Zantac had the advantage of playing in a new category, which was growing at 20% to 30% per year. The late entrant RTE-ASEA faced a tougher challenge in a market dominated by two giants. Yet the company drove down the cost of customer acquisition by meticulously identifying switchable customers and investing to convert its own switchables to loyals and convert competitors’ switchables to RTE-ASEA accounts. This was a leveraging strategy born of scarcity but one that RTE-ASEA applied with great discipline. The strategy turned out to be very effective, raising the company’s market share from 18% in 1981 to 25% in 1983. For RTE-ASEA, leveraged marketing investment created growth in a down market, profitability (and therefore the resources to reinvest), and a loyal customer base. It created high-quality market share. It also created an invaluable byproduct: superior knowledge of the customer base. The last chapter of the story, the development of a new customer-driven product that took the company to a 40% share position, was not due to leveraged marketing investment but was enabled by it. In fact, because leveraged marketing investment builds superior knowledge of the customer base as well as higher quality share, companies that employ this strategy enjoy more informed and effective decision making in research and development, pricing, service strategy, and other areas. The successful companies we’ve discussed here treat marketing expenditures with the same care and focus on returns with which they approach capital investments. They apply principles of strategic marketing investment to drive returns to the highest possible level. When they leverage those investments with shrewd customer selection at the appropriate phases of the product life cycle and add a consistent, unmatchable advertising message, even small sums can yield large returns. Managers may not see results in 90 days, but with patience, they can win in the end. 1. Dennis H. Gensch, Nicola Aversa, and Steven P. Moore, “A Choice-Modeling Market Information System That Enabled ABB Electric to Expand Its Market Share,” Interfaces, January–February 1990, pp. 6–25. A version of this article appeared in the September–October 1993 issue of Harvard Business Review. |
Which of the following scenarios best illustrates reinforcement in purchasing decisions
zusammenhängende Posts
Urheberrechte © © 2024 paraquee Inc.
