Multichannel Customer Strategy

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 sold 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
   • Customer behaviour and market research methods
   • Emerging approaches in segmentation
   • Pricing in the Omni-channel era
   • Bio-marketing
2. Multichannel Marketing
   • Co-creating omni-channel branded experiences
   • Channel-Content-Context
   • Multichannel marketing metrics
   • Marketing planning
3. Customer Relationship Management
   • CRM basics
   • The digital transformation and CRM
   • Marketing machines
   • Big Data and CRM

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 want. If we start cutting prices, we will erode the budget. Differentiation is the best choice.

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 decides 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 becomes too costly to be paid back by the customer. Customers 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 will lead someone to release better features. In order to differentiate: start working on aspects that make you grow beyond the technical intangibles aspects.

Needs

"A feeling that something is missing (privation) compared with the general satisfaction of the human condition" (Kotler, 1991).

What is a need?

• Need: a feeling of lack, something missing in our existence
• Desire or want: possibility to satisfy the need
• Demand: if you can afford it

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 invents 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 does not care about being rich, he/she doesn’t look for it. Marketing convinces 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)

Some needs depend on the fact 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 experienced regardless of the situation of others.
• Relative needs: needs whose satisfaction takes us beyond our 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
   • Relatively stable
   • Abstract
2. Desire
   • Objectification of a need
3. Demand
   • 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 is food and water to survive (Physiological aspect); once you are not starving or dying of thirst, you look for safety since you are in a place you do not know (Safety). Now you have sufficient assurance you will not die, you are reasonably safe and warm. At that point, you look for social relationships and look for friends to feel a sense of belonging (Belonging: human beings want to feel to be part of something). Then you want to have a leading role in the group (Status). Finally, now that you are admired 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 (Self-actualization).

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 motivate 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 a 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: Safety and Physiological needs are absolute; the others are relative. According to the homeostasis principle, the needs that are the furthest from being satisfied are the ones that motivate more.

E.g. iPhone 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, etc. 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 about 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 between the customer and the product.

The evolution in the offer follows three steps:

• Experiences: intimate, co-created
• Services: intangible, flexible
• Products: tangible

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 necessarily 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.

The scenario and customer behavior

The general idea standing behind is the ‘Pareto Law’: in whatever social set, a small part of it generates the largest part of the phenomenon observed. This idea generates, as an example, blockbusters. E.g. the 20% of the products generates the 80% of the turnover.

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 on the menu. Generally speaking, sometimes we choose a product because we like them, sometimes because there is nothing better in the market.

[With the possibility of customizing 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 pays Google depending on the number of times the advertisement has been viewed: cost-per-click model]; 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 clicks to get one purchase = 2€. Live expenses = 100€ flat. If the price is 10€ it is worth launching 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 there is no menu and free choice, there are plenty of new little products collecting market share: long tail effect. 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.

Pareto law is a social law: nowadays we are switching from product to services so maybe the platform is standard but we can find a lot of variety and so there is the possibility for everyone to find what he better tastes. In the contemporary 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 back. Very often special products are in loss. Services follow a different model: standardization of underline process and high customization in the front end. As the economy moves from product to services the long tail effect arrives.

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

Intangibles, to be effective, must be one-to-one. It’s about understanding what are the things that make you laugh (that are specific of every single person, not generally valid). An intimacy with the customer has to be established. Competition and long tail are conceptually close to each other. It is necessary to be able to engage customers to work conceptually as the pizza house with the freedom of choice.

Implications of this situation

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 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 amounts 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 versions 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 pays the desired 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.
• 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 create intimacy with someone without establishing a conversation. Conversation occurs if it goes in both directions: from the company to the customer and vice versa. To establish an intimacy, we must have a dialogue with the customer. 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 have increased exponentially in the last years. Since mobile is increasing, also social media are: the long tail effect creates a competitive advantage. Wikipedia is an example of how 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 are used to generating 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 looks at your message; nowadays there are countless channels.