Rational Marketing

Category: Marketing Strategy

  • Competitive Forces That Shape Strategy

    This is classic business strategy information. We thought you would appreciate an opportunity to think about competition and profitability in different ways.

    The Harvard Business Review is selling an article by Michael E. Porter that updates a 1979 article.

    The article suggests that to sustain long-term profitability you must respond strategically to competition. Naturally you keep tabs on your established rivals. But as you scan the competitive arena, are you also looking beyond your direct competitors? Four additional competitive forces can hurt your prospective profits.

    • Savvy customers can force down prices by playing you and your rivals against one another.
    • Powerful suppliers may constrain your profits if they charge higher prices.
    • Aspiring entrants, armed with new capacity and hungry for market share, can ratchet up the investment required for you to stay in the game.
    • Substitute offerings can lure customers away.

    Commercial aviation is one of the least profitable industries because all of the about forces are strong. Established rivals compete intensely on price. Customers are fickle, searching for the best deal regardless of carrier. Suppliers—plane and engine manufacturers, along with unionized labor forces—bargain away the lion’s share of airlines’ profits. New players enter the industry in a constant stream. And substitutes are readily available—such as train or car travel.

    By analyzing these competitive forces, you can gain a picture of what’s influencing profitability in your industry. You identify game-changing trends early, so you can swiftly exploit them. And you spot ways to work around constraints on profitability—or even reshape the forces in your favor.

    By understanding how these competitive forces influence profitability in your industry, you can develop a strategy for enhancing your company’s long-term profits. Porter suggests the following:

    Position Your Company Where the Forces Are Weakest

    Example: In the heavy-truck industry, many buyers operate large fleets and are highly motivated to drive down truck prices. Trucks are built to regulated standards and offer similar features, so price competition is stiff; unions exercise considerable supplier power; and buyers can use substitutes such as cargo delivery by rail. To create and sustain long-term profitability within this industry, heavy-truck maker Paccar chose to focus on one customer group where competitive forces are weakest: individual drivers who own their trucks and contract directly with suppliers. These operators have limited clout as buyers and are less price sensitive because of their emotional ties to and economic dependence on their own trucks. For these customers, Paccar has developed such features as luxurious sleeper cabins, plush leather seats, and sleek exterior styling. Buyers can select from thousands of options to put their personal signature on these built-to-order trucks. Customers pay Paccar a 10% premium, and the company has been profitable for 68 straight years and earned a long-run return on equity above 20%.

    Exploit Changes in the Forces

    Example: With the advent of the Internet and digital distribution of music, unauthorized downloading created an illegal but potent substitute for record companies’ services. The record companies tried to develop technical platforms for digital distribution themselves, but major labels didn’t want to sell their music through a platform owned by a rival. Into this vacuum stepped Apple, with its iTunes music store supporting its iPod music player. The birth of this powerful new gatekeeper has whittled down the number of major labels from six in 1997 to four today.

    Reshape the Forces in Your Favor

    Use tactics designed specifically to reduce the share of profits leaking to other players. For example:

    • To neutralize supplier power, standardize specifications for parts so your company can switch more easily among vendors.
    • To counter customer power, expand your services so it’s harder for customers to leave you for a rival.
    • To temper price wars initiated by established rivals, invest more heavily in products that differ significantly from competitors’ offerings.
    • To scare off new entrants, elevate the fixed costs of competing; for instance, by escalating your R&D expenditures.
    • To limit the threat of substitutes, offer better value through wider product accessibility.

    Soft-drink producers did this by introducing vending machines and convenience store channels, which dramatically improved the availability of soft drinks relative to other beverages.

    Does this information inspire you to craft a new marketing message? Can we help you reach some customers with Direct Mail?

  • Low Cost Publicity Tips & Ideas

    You want to stretch every marketing dollar right now! If you decide to promote your own company here are ten ideas and tactics to get you started. We saved the traditional ideas for last.

    1. Network! Join groups and talk to people.
    2. Start a newsletter. This implies you have a mailing list. If you don’t have one, start building it now. In your newsletter always make sure you include news your readers can use – there has to be at least one part that will benefit your readers directly.
    3. Ask for testimonials. If your clients were happy with your services, ask them for a testimonial to use in your marketing. If they don’t time to write one, write it yourself and ask them to approve it.
    4. Blog about it. Don’t have a blog? Get one! If you’re worried about the cost, you can sign up for a free account. When writing your posts, take considerable time in writing your headline. Make sure to include keywords that relate to your post. Also comment on blogs. Compile a list of blogs that complement your service/company or relate to your industry and comment on their posts. Consider guest blogging too. Offering to guest blog on someone else’s blog can be a great way to introduce yourself or service to others. Research a list of relevant blogs and contact the blogger. You’ll be surprised at how easy it is and how willing bloggers will be to talk to you.
    5. Profile your company in Wikipedia. Check out how other companies profile themselves and use the same format. Be sure to include links to your site so people can find you.
    6. Leverage Social Media. Social networking sites can be a great way to market your company and/or offering. Make a list of groups on each that are relevant to you, join them, network with other members, and promote yourself and your service.
    7. Add E-Mail Signature Lines. You are probably constantly e-mailing vendors, clients, partners, etc. Did you know you can also market your new services in them? Add a signature line at the end of your e-mail with a link to your site that promotes your new service or blog post. It’s easy to do.
    8. Start a contest. Everybody loves to win something and a great way to market your company is to start a contest. Make one of your offerings for free as the prize. Use this opportunity to add to your mailing list.
    9. Write an interesting article. Writing articles is a great way to establish credibility. The key is to make sure your article ends up benefiting the person reading it. Send us an email and we will share lists of topic ideas. Your headline should draw people in make it short, funny, thought provoking and/or engaging. Sometimes writing it last works best. Your byline should give readers a brief background of yourself and your company. Be sure to include contact information.
    10. Submit a Press Release. Write a noteworthy press release in third person and submit it yourself at free online sites. You can also send the press release to the local media around your area. To gain a better chance of getting it picked up, include a cover letter that showcases how the information in your release benefits your local community. It may prove worthwhile to pay for one PR service if you have truly newsworthy information.

  • Tips for Print Buying

    We are all being pressured to produce more with less. More powerful campaigns, more cutting-edge designs, more targeted pieces, more tangible ROI, more pizzazz than your competitors’ materials, more pressure to deliver faster with less money in your marketing budget.

    These tips should apply in any economy, but right now it is so important to save every possible fraction of a cent.

    1. Maintain a list of vendors and their capabilities, they offer different services at different prices, this is due the differences in press sizes and other equipment features. Also track information about concerns, list the name of the vendor, dates and any possible problems.
    2. Get recommendations from other buyers and designers who produce similar types of materials, ask about pricing, service, ability to meet deadlines.
    3. Don’t expect printing to be done overnight.
    4. What matters most to you, delivery date, price, print quality or “wow!”? Know your priorities and share them with your printer.
    5. Get quotes from new suppliers and develop relationships during times when you are not busy, the more details you provide a potential printer, the better estimate you will receive.
    6. If you plan to mail the pieces, think about schedules, post office regulations, designing for mailing, USPS rates/costs, mailing lists, mailing houses, fulfillment, and so on. Dean’s Mailing is happy to review proofs before they go to press to look for possible improvements.
    7. Take advantage of payment terms and discounts.
    8. Consider direct paper stock purchases, paper is the biggest cost factor of a print job.
    9. Meet with paper vendors to determine what paper stocks can bring the most value and look for incentive programs.
    10. Work with up to five printers, don’t concentrate all your resources with just one vendor.
    11. Find the printers who can offer your more; creative ideas, lots of experience, current with the technology, and people who understand your business.

  • Make the Most of What You Have

    Direct Magazine published an article titled, “Make the Most of What You’ve Got”. Author, Carol Lustig, shared some realistic practical information with a great attitude. She talked about how her information technology systems were not completely up to date and she was not able to get the exact customer purchase data that she wanted to use for a new campaign.

    The result was that working with what was available, a new campaign has been launched and customer relationships are being retained using targeted specific information.

    We have talked about the ideals of customer segmentation and market analysis, but the other side of those ideas is that we just need to do something! Maybe that something is just to start with what we have.

    Please talk to us, we are here to save you every possible fraction of a cent on postage and that sensibility can help you make the most from what you already have (creative ideas, artwork, customer information, extra mailing pieces, samples…).

  • Inexpensive Marketing Maneuvers

    Forbes Magazine featured a story about some marketing ideas. Our favorite was to make your customer the star.

    Using a classic cooperative strategy, you could create their marketing for them. If you provide services or products to other businesses, can you help them with creative marketing featuring your products. Do you sell framing materials to frame shops, create postcards featuring finished frames.

    To feed egos of your customers, feature a few them enjoying your products and services. Make them look really good, help them say smart, witty things or touch on their vanity with great lighting, hair and makeup.

    To draw your customers into your creative process, what about a creative writing, illustration or visual contest? The contest could be tied to something new like a product launch and the reward for submitting an entry could be a sample of the new product. Contests are also great opportunities for publicity and free media coverage. Since you really want to stay in touch with your current and past customers, sending them a postcard or letter explaining the contest accomplishes many goals at once.

  • The Future of Marketing?

    Is it really the economy, or is the recovery sluggish because people are not being reached when they want to consider marketing messages?

    In a post that appeared on a Harvard Business Review blog, Dick Patton suggested that the four P’s of the traditional marketing mix (product, price, placement and promotion) be replaced. His article suggests a new acrostic: ROIDs

    • Responsibility marketing, including social responsibility, green marketing, and sustainability
    • Organizational leadership, requiring marketing to touch as much of the value chain as possible
    • Insights about customers, based on new analytic techniques that replace yesterday’s market research
    • Digital marketing, requiring companies to master an amorphous bundle of fast-changing media

    What about the four D’s?

    • Dependability, as in marketing that is accountable, conscientious and responsible
    • Direction, marketing should be an integral part of determining where the company goes
    • Discernment, understanding of customers and the environment
    • Digital, companies must harness the power of ever-changing media, but be careful not to give it more influence than it deserves

    Direct marketing needs to stay an integral part of this future; even as the environment, the rules, the models and what is really working and yielding results and returns on investment keep changing. Many businesses in many sectors have put more and more resources toward marketing using new technology, but the profits and revenue have not been created.

    We need to talk to people when they want to receive information, not when they are in the middle of trying to just get through 50 emails or when they are gathering information for what they are ready to buy right now.

  • Expand Markets And Optimize Costs With Segmentation Strategy Part 3

    This is a continuation of Target Marketing Magazine’s article about customer segmentation.

    Modeling for Performance

    Behavioral models can help you refine campaigns and follow-up marketing by allowing you to predict the likelihood of profit-driving behaviors such as payment, multiple orders and renewal. Model-based, predictive segmentations can be applied in the following ways:

    • Refine descriptive segments to increase campaign impact.
    • Manage campaign costs by eliminating lower-performing groups.
    • Expand market reach by targeting the top-performing groups.
    • Segment incoming orders for fulfillment and upsell by profiling for profitable behaviors.

    As an example, imagine that your descriptive Segment Y is statistically more likely to respond to a given offer, but the payment rate for the group is only 50 percent. Let’s say your business requires a 60 percent payment rate on new orders to be profitable. A net payment model can help you identify the individuals (or households) who are more likely to respond and pay within the segment. By subsegmenting the group, you can see that targeting only the top 80 percent of the file is likely to achieve your 60 percent cutoff.

    Building a solid model requires that you have results from previous campaigns to that segment and that the modeler has access to a large source of relevant data. The resulting model can dramatically expand the reach of your marketing campaigns and significantly increase ROI by helping you identify and target only the most profitable groups. The result? Your overall mail costs go down because you don’t promote to the entire file, but your net response stays more or less the same and payment goes up. You deliver higher ROI.

    Models also can help you expand list populations by letting you mine segments that you haven’t been able to work with before. If you’ve been using on a 60-day selection, the model should let you expand to a 90- or 120-day selection, providing larger universes.

    Finally, your models also can work for you in untargeted media or other channels. Models can be applied to responders—or in real time on your site—to help you make decisions about fulfillment, upsell targeting and future marketing contact.

  • Expand Markets And Optimize Costs With Segmentation Strategy Part 2

    This is a continuation of Target Marketing Magazine’s article about customer segmentation.

    Third Party Information

    The data you have on your customers, great as it is, just isn’t a complete picture. Understanding what, when, where and how consumers do business across a large group of marketers gives you insight you can’t get from your housefile. New sources of data can help you create broad-based, descriptive segments that provide opportunity for product development, channel selection and increased lifetime value. Understanding your customers through the prism of third-party data sources helps you see far deeper into your customers and gives you a more intensive understanding of their buying interests and behaviors. Consider some of the outside data attributes you can use:

    • RFM: Recency, frequency, monetary value.
    • Product Type: Continuity, one-shot, online subscriber, magazine, music, video, sweeps.
    • Affinity Type: History, health, gardening, sports, cooking, home, crafts, kids.
    • Acquisition Channel: Mail, telemarketing, e-mail, Web store, package insert.
    • Performance: Fast payer, slow payer, returner, write-off, repeat buyer, renewer.

    Suppose you discover that many of your customers have a strong interest in something you don’t sell, like gardening products. Or if your customers have a strong affinity for video, you might consider offering a DVD as a premium. As you develop insight into which groups prefer specific offers via specific channels, you run the risk of making your segments so small that they are no longer truly predictive. Segments can only show you that, on average, a certain group is likely to perform in a certain way. Groups can be too small to be statistically predictive.

    Make sure your segments are statistically significant, big enough to be actionable, and likely to remain stable and consistent while you execute your expanded marketing plans. Chances are you’ll begin to see a pickup in response as you reach out to new prospects in new ways.

    In the next post we will look at what can be gained by modeling your lists.

  • Expand Markets And Optimize Costs With Segmentation Strategy Part 1

    Target Marketing Magazine published an article about customer segmentation.

    Why Rethink?

    Everyone talks about reaching the right consumer with the right offer at the right time, but how do you deliver? Many marketers do a great job capturing, tracking and leveraging customer data. They know what segments work and which don’t. But today, every marketer’s “ideal customer segment” is a moving target—and growing increasingly fragmented as consumer attention flits from medium to medium. In this environment, it doesn’t make sense to expect your legacy segmentation strategy to be as reliable as it once was.

    The first question to ask yourself is: Are your existing segmentations meeting your business objectives? Everyone seeks higher response, but is that enough? What about net payment rates? Or lifetime value?

    Looking Into—and Beyond—Your Customer List (Housefile)

    Building a segmentation strategy that gives you the flexibility to operate profitably in a multichannel world starts with reviewing your housefile. Simple segmentations are readily apparent: actives and expires; payers and nonpayers; product interests and demographics. These descriptions are great for doing things like selecting list sources and segments for mailings. Descriptive segments are useful for customizing creative. For instance, if you are fielding an offer for political biographies, you use your descriptive segmentation to change the copy and featured book for the Republicans versus the Democrats you’re targeting.

    Successful descriptive segmentations move beyond intuitive target groups by using statistical techniques to uncover correlations and segments that may not be readily apparent. Overlaying additional data can significantly deepen and broaden the resulting segments.

    Four rules for developing descriptive marketing segmentations.

    1. Mutual exclusivity. Groups of households or individuals should be homogenous and unique.
    2. Business rules. Only consider segmenting based on variables that are appropriate and actionable for the entire available universe.
    3. Actionable. A good segmentation provides basic guides for crafting custom offers and customer relationship management.
    4. Statistical data discovery methods. Develop segmentation rules that identify data-driven variations in your populations.

    In the next post we will look at what can be gained by enriching your list with demographic or purchase of other products information.

  • Feature the Flaw

    Scott Anthony recently wrote a post for the Harvard Business Review on disruptive innovation.

    Turning a flaw into a feature is a time honored tradition in the software industry. “It’s not a bug, it’s a feature” dates back at least to the mid-’80s. Turning bugs into features is also a critical skill of the would-be disruptive innovator.

    The heart of disruptive innovation is the intentional trade-off — sacrificing raw performance in the name of simplicity, convenience, or affordability. The trick is finding the customer who embraces this trade-off because they consider existing solutions to be too expensive or too complicated.

    In other words, disruption is almost always a strategic choice. Companies with a would-be disruption on their hands have to carefully consider their target customer.

    Consider, for example, what would have happened if Procter & Gamble had tried to sell its Swiffer line of quick cleaning products to people obsessed with deep cleaning. Those consumers would have looked at a product designed to clean without sweating as inferior. In fact, Swiffer initially struggled in markets like Italy where consumers considered sweating an integral part of the cleaning process!

    Instead, P&G sought customers who embraced simplicity, because often their choice wasn’t a deep clean or a quick clean, it was a quick clean or no clean at all. The “flaw” of light cleaning was a “feature” to the simplicity seekers.

    Featuring the flaw often requires looking at markets in new ways and finding seemingly invisible customers. Some simple questions to use to guide thinking include:

    • What are the competitive alternatives to your idea?
    • Where are you better?
    • Where are you worse?
    • Are there people who consider existing alternatives out of reach?
    • Are there circumstances where using existing alternatives problematic?

    The next time someone tells you to a fix a potential flaw in your idea, flip the problem on its head by seeking a customer that would consider the flaw a feature. Does this spark any ideas for your marketing? Is there something about your product or service that you can turn into a great feature?