live|work believe that services grow by creating valuable and positive experiences for their customers – not through aggressive sales and expensive advertising. Recent research proves us right.
As a short hand, the classic marketing mix of the five P’s (product, price, place, people and promotion) has stood the test of time. But sometimes it feels like four little p’s and one big P for Promotion. The seductiveness of advertising’s ability to present a more desirable world to large numbers of people means that some of the other p’s get left out or starved of resources.
The dominant logic is get the product ‘right’, ship it and sell it. This works well for an iPhone or BMW, but we live in a service economy and most of our businesses or organisations provide services. Services require a different approach. Services cannot be simply boxed and given to the UPS man to deliver anywhere in the world. They are ongoing relationships with customers who, generally, can take their custom elsewhere if things go wrong. A multi-million pound advertising campaign is next to useless if the customer viewing it has just had a poor personal experience with the same provider.
At live|work we have always known that an overbearing emphasis on big P promotion is a big problem as it distracts from the day-to-day business of delivering great services. Research backs us up and shows that a reliance on ‘promotion’ leads to less effective businesses and public services. INSEAD Professor of Marketing Jean-Claude Larreche shows that the most profitable organisations are not necessarily those with the glossiest campaigns or the biggest sales force, but those who create a strong relationship with their customers and keep it strong. These businesses develop a virtuous circle of revenue growth and positive customer satisfaction followed by that Holy Grail – word of mouth promotion.
Jean–Claude Larreche’s research shows that businesses with a lower than average sales to revenue ratio – i.e. they spend less on sales and marketing per pound, dollar or euro earned than the market average – outperform the market on a statistical basis. Interestingly he also shows how those who spend more than the market average do not outperform others but simply spend more to stand still. Larreche gives those of us who have always known that success in the long term cannot be built solely by promotion, the evidence we have been looking for. It is good service, not good promotion alone that creates revenue growth.
So what is the secret of these successful businesses?
They focus on meeting the needs of customers at the right time and in the right place – these success stories spend above average on the research and development of new products and services – getting them right for customers rather than trying to sell things to people that they don’t really need.
Services are promoted through positive experiences. They can be promoted by ensuring that they meet or exceed customers’ expectations. Get this right and you gain the customer’s loyalty so they are less likely to switch to another company. They are also more likely to recommend your service to someone else – doing your promotion work for you. For example, if my bank put me through hell to make a transaction there is no way they can rescue my perception of them through glossy marketing. They have to do the hard graft of showing me that they can do a good job, or that they have fixed their faults. But if they make my life easier, or delight me by doing something I didn’t even expect, then I will hold them in good regard and be wary of the competition’s next ‘too good to be true’ ad campaign.
Working this way means that promotion becomes a part of the service. It takes place when the customer is tuned into the service and is actively engaged in the value being delivering to them – rather than taking place on the TV when they are more interested in watching the football.
When your service is your marketing promotion becomes ‘one to one’ rather than ‘one to many’. Service providers need to work harder to understand individual customers and their motivations, rather than aggregating common needs across a whole market through bland customer segmentation. Doing this focuses our attention away from the large market survey that creates insight into the average customer, towards paying more attention to the specifics of each customer – and into developing tools to personalise and enable customisation.
Finally, service organisations need to use Service Thinking to help them relate to customers as long-term partners that they need to get to know and develop a relationship with. Only then is it possible to think about how to connect to their needs as individuals, and to ensure that their experiences are valuable and positive.
As Larreche demonstrates, you can slog to stand still by spending more and more on sales and marketing with diminishing returns. Or you can skip a couple of those expensive ad campaigns and spend more time with your customers ensuring that what you do is what they want – because if it’s what they want, their friends will probably want it too.