Multichannel Customer Strategy

MULTICHANNEL

CUSTOMER

STRATEGY

Prof. Lucio Lamberti

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MULTICHANNEL CUSTOMER STRATEGY:

INTRODUCTION

The course objectives are:

- to understand and embrace the challenges of approaching today’s markets;

- to develop the basic skills for designing and managing a multichannel marketing plan;

- to understand how to make marketing more accountable.

There are several examples on how to address customers nowadays.

live chat.

- Chat box: to reach the audience at the lower cost – a certain amount is paid

- Programmatic advertising:

for each possibility of seeing the advertisement.

E.g. website about cars designed in a way that there are areas to insert advertisement. Space

that can be sell to advertisement. 100000 visitors per month and 1000000 page views;

advertisement related (e.g. car maintenance) to the topic of the website probably more

successful. If we want to make the right advertisement (e.g. Bose for car owners, Brembo for

mechanics, …) for the right target of people, we would have to ask visitors to register (in order

to know who they are) but it’s not a good idea. If it is possible to understand the reason for the

visit, it is possible to sell the space for advertisement real time. It is better for both the

advertiser (more targeted) and the website (advertiser more willing to pay).

There is a huge number of customers but each one is treated individually: can the customer pay

back the effort?

Besides the trend:

- How can we use a certain technology?

- How is it possible to make marketing more accountable?

Customer relationship management: managing proper loyalty of customers. But the company

has to understand the potential of the customers: are they willing to pay back?

The course can be split into three different subsectors:

1. Customer Behaviour

a. Customer behaviour and market research methods

b. Emerging approaches in segmentation

c. Pricing in the Omni-channel era

d. Bio-marketing

2. Multichannel marketing

a. Co-creating omni-channel branded experiences

b. Channel-Content-Context

c. Multichannel marketing metrics

d. Marketing planning

3. Customer relationship management

a. CRM basics

b. The digital transformation and CRM

c. Marketing machines

d. Big Data and CRM 2

WHY MULTICHANNEL CUSTOMER STRATEGY?

Example:

T-shirt market. imagine a world where nobody produces t-shirts. You have the first intuition

and start producing a white t-shirt. If the market explodes, other competitors will arrive. What

is it likely to occur? Competition.

Competitive strategies:

- differentiation

- cost: try to decrease the price. Profit equals to zero in the long run (perfect competition):

this is not what companies wants. If we start cutting prices we will erode the budget.

differentiation is the best choice.

à

In case there are two companies; a possible differentiation is based on the colour. First it is

necessary to run a market research: 50% like yellow, 50% like red. Which colour would they

choose? Orange. But no one likes orange: it seems the optimal solution (probability space: 50%

+ 50%: orange is the mean point, closest solution to all the points in the market). Production

of both will happen but not immediately: as soon as the other competitor decide to serve a

specific target: yellow or red. So the previous company will produce the other colour to satisfy

the market and the same to compete with the other company.

Further differentiation: shape of the collar. And keep differentiating again and again until all

the technical differentiation in the product has been achieved or until the point in which

differentiating more become too costly to be paid back by the customer. Customer perceive a

higher value if the products meet their preferences so they are willing to pay more but anyway

there is a maximum price they are willing to pay. Price is given also by brand image.

Differentiating on technical features there will be someone that will release better features.

In order to differentiate: start working on that make you grow beyond the technical

intangibles

aspects.

So what? 3

- Competition leads to segmentation

- Segmentation leads to hyper-segmentation

- Meanwhile, basic needs are reasonably satisfied

NEEDS “A feeling that something is missing (privation) compared with the general

What is a need?

satisfaction of the human condition” (Kotler, 1991)

(sense of lack, something missing in our existence) (objectification,

NEED DESIRE OR WANT

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possibility to satisfy the need) (if you can afford it)

DEMAND

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Can marketing create needs? There are two different positions:

- Yes: marketing can convince you that you lack something.

- No: needs cannot be created, needs exist.

Core needs of human beings are always the same. If we never thought about a possible usage of

a technology it doesn’t mean that we create a need. The fact that somebody invent something,

he did something it was not possible to do before does not mean that a need has been created.

If you are poor, you look for money, …; because you feel being poor as a lack of money. If

someone do not care about being reach, he/she doesn’t look for it.

Marketing convince people to do something, it gives you a reason why to buy. You are free to

choose not to do/buy something you don’t need: companies cannot force you.

Political classification of needs, according to the real “necessity”:

True needs: food to eat (noble need)

• False needs: food to have fun with friends (not noble need)

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More technical definition. Some needs depend on the facts that human beings are not alone and

start comparing them with others; according to the social dimension of need:

Absolute needs (e.g. survival needs: hunger, thirst, …): needs experiences regardless of

• the situation of others.

Relative needs: needs whose satisfaction takes us beyond pur peers, giving us a feeling

• of superiority over them.

Qualitative difference: absolute needs can be satisfied; relative needs can never be fully

satisfied because of their relative nature: there will always be someone better.

The logic sequence is:

1. Need

a. Relatively stable

b. Abstract

2. Desire

a. Objectification of a need

3. Demand

a. Actual purchase aimed at satisfying needs

Example:

People on an island, naked, with no luggage, no belongings and no idea about where you are.

What would you need first? (Cast Away movie): the first thing you look for are food and water

to survive (1- ASPECT); once you are not starving or dying of thirst, you look

PHYSIOLOGICAL

for safety since you are in a place you do not know (2- SAFETY). Now you have sufficient

assurance you will not die, you are reasonably safe and warm. At that point you look for

establish social relationships and look for friends to feel a sense of belonging (3- BELONGING:

human beings want to feel to be part of something). Then you want to have a leading role in the

group (4- STATUS). Finally, now that you are admired and appreciated, (e.g. top managers at

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the end give up even if they are rich and successful and appreciated) besides what’s around

each of us wants to reach what they were born for; work on yourself to be who you want, not

what the community wants you to be, you chase your dreams (5- ACTUALIZATION).

SELF

These needs have strange characteristics: you start perceiving the needs when the lower needs

are already satisfied. And since needs are motivation

you have to work on understanding what is the real

motivating factor. Once you satisfied the need it does

not motivates you anymore because it is not perceived

as a need anymore. Homeostasis is the rule governing

the needs (temperature of the oven).

Assumption: needs derive from sense of privation,

which motivates human beings to go higher-order

needs once they have satisfied the lower-order ones

(homeostasis).

MASLOW’S HIERARCHY OF NEEDS

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Safety and Physiological needs are absolute; the others are relative. According to the

homeostasis principle, the most far away to be satisfied needs are the once who motivates

more.

E.g. I-Phone is a relative need: to communicate, to perceive yourself as a part of a community,

as he awards of a great accomplishment in your life, ….

It is important to work on individuals and not to segment, otherwise the orange t-shirt is the

result.

E.g. Nike’s competitive advantages: M. Jordan (status, self actualization, …), NikeID (customize:

self actualization, status, …)

THE NEW ROLE OF THE CUSTOMER

Need to know a lot the customer: there are plenty of touch points

to be in touch with him and they are needed.

It is not about selling a service but an impact on your existence:

EXPERIENCE. it is the whole set of touch points

CUSTOMER

between the customer and the product.

The evolution in the offer follow three steps

- Experiences: intimate, co-created

- Services: intangible, flexible

- Products: tangible 5

Customers have to participate in the value generation to let us know what motivates them:

touch points make it possible. The idea is to integrate channels to be consistent in delivering

the experience.

Why multichannel? There are plenty of channels to reach customers:

- Mobile: 1,9 B smartphone users

- Retail

- Internet: 3,2 B internet users; e-commerce penetration in China 10,9% on FMCG

- TV

- Radio: coverage of broadband in China 60% ca.

- Social Networks: 1,4 B on Facebook

- Out-of-home

To sum up, in order to succeed a company must be able to:

1) detect intimate customer needs

2) develop a suited customer experience that is necessary multichannel

3) focus on customer loyalty: to be sure that the effort is paid back by the customer.

The better we treat people, the more we get back from people: it is important to implement

such a culture in the company: technically, financially and culturally. It is not just about

understanding the change but implementing it. 6

THE SCENARIO AND CUSTOMER BEHAVIOR

(See Slides)

The general idea standing behind is the ‘Pareto in whatever social set a small part of it

Law’:

generates the largest part of the phenomenon observed. This idea generates, as an example,

E.g. the 20% of the products generates the 80% of the turnover.

blockbusters.

Example:

Picture yourself in a pizza house. There are 8 types of pizza

available. What’s your choice? The majority of us choose

Margherita and the ketchup and fries pizza was chosen by a

small percentage of people. The general implication is to cut the

pizza with the lowest percentage of customers if the customer

is not a crucial one (e.g. ketchup and fries).

Instead, if we had to say what is our favourite pizza, generally

speaking and not choosing in a list, just a small part of

customers that chose Margherita would choose another pizza,

not in the menu.

Generally speaking, sometimes we choose product because we like them, sometimes because

there is nothing better in the market.

[With the possibility of customize products (e.g. pizza house without a menu). For example, in

the publishing industry, if the topic proposed has a very small market (potential readers: 100

people in Italy) and we are the publisher we would not publish it. Costs (promotion, publishing

– min 5000 copies, distribution; total amount = 30000€) are not worth the effort. B.E.P. =

300€/copy so no copy would be sold for that price. As a result, nobody is going to launch the

book. But in a digital world, with the possibility to send a pdf and put it on a platform

(advertisement: keywords on google [advertiser asks google to advertise in case the users click

that word, the advertiser pay google depending on the number of times the advertisement has

cost-per-click model];

been viewed: in this way costs of advertisement are variable – 0,2€/click,

the probability that the one who clicked will buy is 10% - conversion rate. Acquis cost = cost-

per-click/conversion rate 10 click to get one purchase = 2€. Live expenses = 100€ flat. If the

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price is 10€ it is worth to launch the book because the structure of the company has changed.]

A part of people who chose Margherita decided to switch to another pizza (in case of no menu

and free choice) because Margherita is a comfortable pizza: maybe it’s not the favourite but

something we can accept. There are some mainstream tastes. If the is no menu and free choice,

long tail effect.

there are plenty of new little products collecting market share: Instead of a big

market share for a small amount of products, there are a lot

of different products gaining market share (e.g. iTunes): the

long tail effect goes against the ‘Pareto Law’ so it is not true

that 20% of the product make the 80% of the turnover.

nowadays we are switching from

Pareto law is a social law:

product to services so maybe the platform is standard but we

can find a lot of variety and so there is the possibility for

In contemporary

everyone to find what he better tastes.

world, with a lot of choices, it is not true anymore the Pareto

Law that stands behind.

If there are plenty of fixed costs to cover, the Pareto Law is still valid: since there is a huge

investment behind the product, the product needs to have a big market in order to pay them

Services follow a different model: standardization

back. Very often special products are in loss. 7

of underline process and high customization in the front end. As the economy moves from

product to services the long tail effect arrives. competition:

Another reason why the long tail effect arrives is very high competition means

infinite choice for customers. Every time there is an unsatisfied need, there will be someone

producing it. Quality (technical reason) is a very weak competitive advantage that will last for

a very short time (e.g. better smartphones every 3 months). The window to pay back the

investment is short so it is necessary to be aggressive on price and in marketing: customer

service – complementary, since the product is not enough (e.g. maintenance, free assistance) to

make the product less imitable. Technical features are easily imitable, services less. You create

competitive advantages on intangibles (e.g. it makes you laugh, it makes you cry, it’s

fashionable, …). PRODUCT SERVICE INTANGIBLES

à à

Intangibles, to be effective, must be one to one. It’s about

understanding what are the things that make you laugh (that are

An intimacy with

specific of every single person, not generally valid).

the customer has to be established.

Competition and long tail are conceptually close to each other.

à

It is necessary to be able to engage customers to work conceptually

as the pizza house with the freedom of choice.

Implications of this situations:

Demand elasticity:

- how many customers am I going to

gain if I decrease the price.

P1Q1 area = revenues

Q2 is going to buy the product since his willingness to pay is

P2: setting a price, very few people are willing to pay no more

than that and a plenty of people are willing to pay more.

Working on service and intangibles it is possible to convince

Q1 to pay more than P1 by creating customer experience:

price discrimination.

In reality, nowadays, we accept to pay two different amount of

money (price discrimination). If we are able to set the price

equal to the willingness to pay of each customer (different prices) the

revenues are equal to the whole area below the curve. In this way it is

possible to use the higher revenues to extend the market to customers

with a lower willingness to pay – on the right of Q1.

E.g. low cost airlines use this principle.

If you are on the long tail, probably you are willing to pay more.

Innovative Business Model

- Freemium: propose two different version of the same item; the simplest is for free, for

the other one you have to pay. You pay only for extra features (e.g. diminished

“disturbs”)

- Long tail

- Pay-what-you-want: buyer pay the desire amount for a given commodity.

Fee-in Free-out: if you feel the urgency you pay for it, otherwise you will have it for free.

- It works by charging the first client a fee for a service, while offering that service free of

charge to subsequent clients

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- Tiered service: allow users to select from a small set of tiers at progressively increasing

price points to receive the product or products best suited to their needs.

The key is to develop intimacy, and to do that we have to keep in mind that it is unlikely to

conversation.

create intimacy with someone without establishing a

Conversation occurs if it goes in both directions: from the company to the customer and vice

to establish an intimacy we must have a dialogue with the customer.

versa. The main idea is:

THE MULTICHANNEL FRAMEWORK

To establish a conversation, it is necessary first of all to find a target. Social networks seem to

be the best way to establish a conversation.

Revolution of mobile: mobile users has increased exponentially in the last years. Since mobile

is increasing, also social medias are:

the long tail effect creates a competitive advantage.

Wikipedia is an example of how You know

you can find anything on Wikipedia. Same for amazon and Alibaba. So you look there for

everything knowing you can find everything.

Social Networks are very successful because they both give you information and collect

information. Nowadays people is used to generate content and companies must be careful to

this content because establishing a dialogue is about changing contents not just giving them.

The quantity of information generated nowadays is bigger than the quantity that can be

processed worldwide. The higher amount of information has been generated in the last years;

that is the kind of information we have to take into consideration. That means the competitive

set for the attention is huge: your own customer are your competitors. When there was just

television it was easy: with a lot of money you buy some space and everybody look at your

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message; nowadays there are countless chann