MARKETING SPECIAL................... A Step-by-Step Guide to Winning the Customer

A Step-by-Step Guide to Winning the Customer
 

Companies that understand the stages of consumer purchasing decisions have an outsized influence in their outcome.

Let’s begin with a question: Who are your competitors? Take a minute to list two, three, or four companies. Then ask yourself how you know that these are your closest rivals. Are they the companies that most often pitch for business alongside your company? Do their brands sit beside yours on the shelf? Are they coming up close to your brand in search-page rank? Do they compete with you for resources and employees? Do they vie with you for the consumer’s dollar?

If a company or brand is truly your competitor, you should have answered yes to at least some of these questions. But ultimately, only one condition really determines a rival: whether your target customers include it among the brands they consider in relation to yours.

So let’s ask the question differently. Instead of considering which brands are your competitors, ask which brands the customer considers before making a choice. To determine this, you have to find a way to get into the customer’s mind. This is not easy, but it is worth doing, because your list of competitors and the customer’s list may not be the same. Invariably, the latter is more relevant and indicative of your true competition than the one you prepare in the comfort of your office.

Of all the products available to fulfill a given need, the customer will generally consider fewer than a handful before choosing one to buy, even in the most elaborate of purchasing scenarios. This group of products is the consideration set—your closest competitors. These brands are evaluated on a limited number of criteria before one is ultimately chosen for purchase. From a marketer’s perspective, then, how you analyze and address the competition boils down to three critical issues:

1. How do you make sure your brand is among those considered for purchase by the customer?
2. How do you ensure that, for as many people as possible, there are as few competing brands as possible in that consideration set?
3. Which other brands are in the consideration set, and how do you make sure your brand is the one chosen for purchase from among those?

Now let’s delve a little deeper into the consumer’s thought process to understand how you can systematically increase your chances of success in addressing each of these strategic concerns.

Gaining Entry into the Consideration Set

Customers simplify the large set of available alternatives to the much smaller consideration set by applying rules of thumb that use certain criteria as cutoffs or must-haves. Any of the following, for example, could be a cutoff criterion for consumers forming consideration sets before choosing an automobile: It must have six seats and room for the dog, be a hybrid, be priced below US$25,000, be made domestically, be from a German brand, get at least 30 highway miles per gallon, and be easy to parallel park. These cutoff criteria are so pervasive among consumers that car companies often define the target segments by their customers’ cutoff criteria: the large-vehicle segment, the environmentally friendly segment, the price-conscious segment, the domestic segment, the German-car-enthusiast segment, the fuel-efficient segment, and the urban-car segment. Under this definition, a segment is a set of consumers who are sufficiently convinced by a given criterion to use it as a cutoff in forming their consideration set.

Your first strategic goal, then, is to convince as large a segment of the market as possible to use cutoff criteria that favor your brand. Sure, German car brands compete with each other, but they also have a collective interest in ensuring that a significantly large segment of consumers continue to be sufficiently fascinated by the mythology of German engineering to use that as a cutoff criterion in forming their consideration set. The simplifying heuristic of “German” makes the consumer’s decision much easier because it eliminates a large swath of available brands that are irrelevant to this segment’s choice. A look at the chat boards of German-car enthusiasts shows that to this customer segment, a Lexus, an Infiniti, an Acura—and all other luxury Japanese car brands—simply do not compare with the solidity and drivability of a German-made Mercedes, BMW, Porsche, or Audi. So convinced is this segment of the superiority of German engineering that year after year, members of the group willingly ignore the Consumer Reports testing results that place several Japanese brands higher on tests of both drivability and reliability, even as they accept the higher annual cost of owning a German vehicle. The marketer of German brands could not hope for a better cutoff criterion or a more convinced set of customers. After all, BMW’s marketing managers would much rather limit their consideration set to Mercedes, Audi, and Porsche than compete with a more extensive set of global brands. One benefit of comparisons with these brands is that it improves BMW’s relative value per dollar, more than would a comparison with a broader set of less expensive brands.

BMW would rather limit its consideration set to Mercedes, Audi, and Porsche than compete with a more extensive set of brands.

Close the Door behind You

As a member of a consideration set, you have a second strategic imperative: to ensure that the membership of the set remains as exclusive as possible. A smaller consideration set means fewer competitors and, thus, less intense competition. In a study of computer purchasers, I found that consumers who bought an iMac considered 2.11 brands prior to the purchase, whereas consumers who bought a Windows-based PC considered 3.35 brands. The cutoff criteria that led consumers to consider an iMac were based on its differentiated positioning (its use of a different operating system, its emphasis on design and usability, and even its higher price), which automatically eliminates numerous competitors and leaves the iMac playing in a much smaller consideration set than Windows-based PCs.

One way to make the cutoff more exclusive is to convince consumers to raise the bar on the cutoff criteria they use, stranding competitors that do not match the new standard. Consider the arms race on the cutoff criteria of smartphone “generations.” Many consumers are aware of a correlation between the generation of the network (the G) and network data transfer speeds, but the real meaning of the Gs plays out in the competitive battle. Smartphone manufacturers must match the latest cutoff criteria or risk being left out of the game. Few consumers today would consider buying a 2G or even a 3G phone, which was the standard a couple of years ago. And given the pace of development in network technology, the cutoff continues to rise, as criteria such as LTE (long-term evolution, a network technology that speeds up data transfers) set new standards. And although it is true that these technological advancements are resulting in superior performance, carriers and manufacturers aggressively market their latest breakthrough standard as a way of trying to redefine the rules of competition.

Indeed, a technological lead becomes a downstream competitive advantage only if customers use the distinctive technological feature as a criterion of purchase. Otherwise, your investments in its development are merely a means of staying in the game, and they are unlikely to have the returns you expected. The goal is to develop technological features that competitors cannot easily replicate and that customers will use as criteria to eliminate numerous alternatives from their consideration set.

You may have noticed that the two strategic imperatives discussed so far are likely to be at odds with each other. On the one hand, you want to convince the largest possible segment of consumers to use your cutoff criteria. On the other hand, you want to limit the number of brands entering the consideration set. The more “exclusive” the cutoff you use, the fewer the people who are likely to use it. Given this trade-off, the marketer’s strategic options are often framed as a choice between a niche-player approach (such as for the iMac), so that you contend with fewer competitors inside the consideration set, and a wider-market approach (such as for a Dell computer), which gives you the concomitant burden of more competitors. Most brands can be successful only by choosing one approach.

Who Else Is in the Consideration Set?

The third strategic move for marketers is to influence not just the size of the consideration set, but also its composition. Yes, you have a say about who else gets into the consideration set with you. The Honda automobile website, like those of many other manufacturers, helpfully provides visitors with a comparison tool that allows them to benchmark the Civic against competitor brands such as the Toyota Corolla, the Chevrolet Cruze, and the Ford Focus—but, crucially, not the Hyundai Elantra, the Nissan Sentra or Versa, or the Mazda 3. The absence of the Nissan and Mazda brands may be attributed to their small market share, but the Elantra’s absence is conspicuous because it is the most serious challenger to the Civic’s position as a market leader. Honda excludes the Elantra in its suggested comparison set presumably to reduce the likelihood of the competitor car’s inclusion in consumers’ consideration sets. Of course, consumers today can find comparisons of any combination of products online if they make the effort. But sellers, by presenting their product judiciously, can influence which products consumers will make the effort to compare, and which criteria they use to do so.

The second, third, or fourth players in a market sometimes use comparative advertising that pits them in a contest against the leading brand. This technique serves three purposes. First, it attempts to limit the consideration set to the two brands compared. Second, it raises consumer awareness of the criterion on which the comparison takes place (which presumably favors the challenger). Finally, it allows the challenger to piggyback on the awareness of the leading brand to introduce a lesser-known name into the consideration set. The market leader rarely engages in comparative advertising. Because its brand is well known and belongs in the consideration set, its focus is on reinforcing the criteria that customers are already using. Coke does not compare itself to Pepsi, but Pepsi compares itself to Coke, and presumably leaves smaller brands and private-label colas out of the fray.

Efforts to influence the composition of the consideration set are not limited to communication tools. Automobile manufacturers and dealers have made significant efforts to maintain a brand-based dealership structure, in which dealers sell only noncompeting vehicles, and have resisted moves toward independent car superstores that carry multiple competing brands. As a result, the car buyer rarely gets to do a side-by-side comparison and may be deterred from considering too many cars, because of the time and cost involved in visiting multiple dealerships. The same logic is evident in many other industries. Take Häagen-Dazs, the superpremium ice cream, which offers retailers special display freezers in which, by agreement, only Häagen-Dazs ice cream is displayed. These units limit comparison: Once consumers have opened the freezer door, they have redefined the comparison set to the banana split, vanilla bean espresso, and dulce de leche flavors of the Häagen-Dazs brand.

Trade-Offs and Exchange Rates

Once your brand is inside the consideration set, the competitive game changes. Customers use their criteria not as hard cutoffs, but to make trade-offs. Their information-processing goal is no longer to eliminate brands that do not fit their needs, but to pick the one that fits best. With just a few brands to consider, customers engage in the more complex task of evaluating multiple criteria simultaneously, trading off price for reliability, roominess for style, sportiness for comfort, and so on. The use of trade-offs means that the brand the customer eventually chooses is not necessarily one that dominates on all criteria (there are very few brands or products that do), but rather one that offers the best compromise.

The use of trade-offs means that the brand the customer chooses is not necessarily one that dominates on all criteria.

Your first goal is to ensure that once inside the consideration set, you understand which criteria are important to customers and comprehend the exchange rate the customers use in their trade-offs: How much fuel efficiency will customers trade off for greater roominess in a vehicle? Understanding customers’ trade-offs allows you to tailor your products and messages. Knowing that roominess is more important than fuel efficiency to the family segment allows you to give that feature appropriate emphasis in product design, in brochures, and in sales pitches.

The second goal of marketing inside the consideration set is to influence the trade-offs that consumers make. The competitive task here is essentially to increase the relative importance of attributes associated with your brand as well as the perceived value of your brand on these attributes. Brand managers for erectile dysfunction drug Cialis challenged Viagra for market leadership by first emphasizing the importance of duration as a criterion of purchase for patients and physicians and then demonstrating their brand’s unequivocal superiority on this dimension.

Let’s consider another example. If you’re Volvo, you may have convinced a segment of consumers to use a very high safety standard as a cutoff criterion—a standard that leaves only Volvo in the consideration set. This is Volvo’s core segment of consumers. But for many other consumers, the cutoff criterion for safety is somewhat lower and is thus met by several brands, all of which enter the consideration set. Inside this set, other criteria come into play. Volvo brand managers would like to ensure that these consumers still use a relatively high exchange rate for the safety dimension when considering the other criteria. The managers want consumers to be reluctant to trade safety for any other criteria, such that the buyers are even willing to accept less-than-optimal styling or fuel efficiency in exchange for an enhanced feeling of safety. This, of course, is why Volvo’s ads stress both the importance of safety and the dire consequences of the lack of it.

If you’re BMW, on the other hand, you want to turn safety into a basic cutoff criterion in the consideration set. Indeed, brand managers would aim to make safety no longer relevant in the consideration set, because all cars inside this set meet the requisite safety norms. BMW would prefer that inside the consideration set, consumers evaluate cars on criteria such as driving dynamics, styling, and pleasure. At BMW’s popular daylong driver training courses, where customers (and soon-to-be customers) learn about driving from professional race-car and rally drivers, for example, the trainers begin by underscoring both safety principles and the safety of the BMW vehicle. They then spend much of the day in hands-on demonstrations of the handling prowess and driving dynamics of BMW vehicles. The higher the value consumers attach to these latter criteria, the less willing they will be to trade them off against other criteria and the more likely they will be to choose the BMW brand from among the brands in the consideration set.

The rules of the competitive playing field spell out how brands compete for consumers’ consideration, choice, and loyalty. You can’t play if you’re not considered, and you can’t win if you don’t exert strong influence on the elements of consideration.

by Niraj Dawar  http://www.strategy-business.com/article/00238?pg=all