Marketing Principles - Learning Outcome 1 (1.2.1)

 

1.2.1 - Marketing Benefits

Marketing Orientation - Benefits

So, leaders are recognising that if they do not deliver the value and satisfaction that their customers need and want, their competitors probably will. And, as customers, we will quickly turn away from those brands that don’t deliver against their promises and our expectations.

Let’s explore the overriding benefit to businesses of being customer-focused:

The ability to recruit and retain more, profitable, loyal customers than the competition

In the previous session (LO1.1), we were able to understand how retail giant Tesco, are putting the customer at the heart of its business strategy.

How Tesco has created a marketing orientated business

They have created a five-point plan for improving customer loyalty, aiming to achieve 100% in each of these five areas:

1. Customer Loyalty

Doing the right thing for loyal customers and retaining their loyalty is the first priority. Spending marketing money to recruit new consumers is only a good investment if the business retains these customers’ loyalty, otherwise it’s a waste of money!

2. Customer Recruitment

To build a loyal customer base, in addition to retaining existing loyal customers, Tesco need to attract new ones. This means attracting customer away from the competition by offering a better value proposition and greater satisfaction.

3. Customer Shopping Convenience

Tesco knows that their customers have the choice of how, when and where to shop. So they strive to offer the full range of channels, from High Street shops to Out-of-Town Superstores to online retail to

4. Customer Choice Benefits

Tesco offer a wide range of food and non-food products, as well as financial services. So customers can visit a store of their choice or go online to buy clothing, household products, electrical goods and even pet insurance. The convenience is being able to get everything we need and want from one destination, saving us time and inconvenience.

5. Customer Advocacy

By achieving 100% in the first four, functional measures, Tesco will achieve their fifth target of having customer love their brand. To love the brand, Tesco must be able to engage consumers on an emotional level. Emotionally loyal customers, advocates and fans become brilliant ambassadors and drive word of mouth, as well as engaging more broadly and deeply with the business.

The modern-day marketing orientation has become a customer-focused orientation

From the Tesco example and PwC research above, it is clear that companies have moved away seeking competitive advantage from within their businesses and they now look outside.

There are three key areas that customer-focused businesses research and track:

Benefit #1: Long-term business survival

Customer-orientated businesses are more likely to retain and recruit more, loyal purchasers. They are also more likely to keep high-performing employees. Both these factors help the business to compete and survive in to the future.

If a business does not constantly and consistently meet the needs and wants of its customers, than it will lose those customers to the competition. The result is that it must try harder and harder to recruit new purchasers, just to survive. This customer ‘churn’ is not sustainable in the long run.

Benefit #2: Creating competitive advantage

If a brand can meet the demands of the customer and offer a superior value proposition, then it is more likely to attract and retain new ones.

Benefit #3: Generating more profits

There is a great deal of evidence that being customer-orientated improves commercial performance (e.g., Slater and Narver, 1994).

Savings are made because: Having a loyal customer base reduces marketing costs; customer are more willing to pay a premium for brands that they perceive offer greater value and efficiencies are made by stripping out unnecessary processes and activities that do not add customer value. 

Savings are made because: Having a loyal customer base reduces marketing costs; customer are more willing to pay a premium for brands that they perceive offer greater value and efficiency are made by stripping out unnecessary processes and activities that do not add customer value.

Benefit #4: Increasing employee satisfaction 

click on the image to find out more:

Being customer orientated requires people in the business to be commitment to continually improving customer value. So, people generally have a shared goal and a better understanding of their role in achieving it.

This enables employees to understand their contribution and the positive impact they have on creating customer satisfaction and business success.

Benefit #5: Improving innovation

By constantly auditing customer needs and wants and competitive offerings, customer orientated businesses are more likely to spot new opportunities. They then strive to develop new products/services to exploit these opportunities.

In their efforts to deliver customer value, businesses will also be seeking competitive advantage by developing innovative new products/services that better satisfy customer needs and wants.

These are just some of the compelling reasons why a business will want to adopt a customer focused orientation. But this cannot be at any price!

Organisations must balance their efforts to deliver customer satisfaction with the commercial realities of the business to ensure they create customer value whilst making the required level of profit.

This ‘health warning’ to following a customer focused orientation refers to the costs involved and the dangers of following a niche or narrow customer focus.

Marketing’s return-on-investment

Like every other aspect of business, marketing is accountable for meeting goals and targets. Marketers need to justify their expenditure and investments which, in some companies, can run into millions of GB pounds.

You can see from this league table how must the top advertisers spend, with BskyB topping the chart at over £264 m in 2013.

But we shouldn’t view marketing as a business cost, rather we should view it as a business investment.

There are many ways that marketers can calculate the marketing investment requirement, and measure the commercial return, known as ROMI (Return-On-Marketing-Investment).

For example,

The objective of the marketing budget is always to:

Maximise value, efficiency and effectiveness

  •  

Minimise spend

They can set the budget using four broad methods, including:

  1. As a percentage of sales: Known as the Marketing Budget Ratio (MBR). The Chartered Institute of Marketing tells us that this ratio is commonly around 10%. So, for a business with a turnover of £10,000,000, the marketing budget would be £1,000,000.
  2. Affordability method: This method involves forecasting revenue and expenditure over a period of time to calculate what the business can afford to invest, whilst safeguarding the financial security of the company.
  3. Competitive parity method: Part of the affordability method may involve researching competitors’ investments to set a similar budget level. This helps to ensure that the business retains its market share and doesn’t risk losing customers to rival brands.
  4. Fully costed method: This is one of the most common approaches to setting marketing investment, and involves scoping the marketing objectives and strategy and then calculating the investment needed to execute the plan. So budgets are set on a case-by-case basis

Click anywhere on this image to read about the methods that businesses use to set marketing investment levels.

Calculating the ROMI

Marketers calculate the return-on-investment in order to measure the profit earned from each £ spent. Understanding ROMI often requires a complex and detailed analysis of sales, profit margins, customers and investments made.

At its simplest the equation is:

(Gross Profit – Marketing Investment)
Marketing Investment

The marketing costs will typically include:

  • Creative and production costs (Such as print ads, TV and radio commercials)
  • Printing costs (Such as brochures, promotional materials and packaging etc.)
  • Digital costs (such as email platforms, website coding, apps etc.)
  • Management time (Including everyone involved in the marketing process)
  • Cost of sales (Overheads, materials, manufacturing, transport etc.)

But marketers need to measure much more than the simple ROMI in terms of increased sales and profit.

For example, many businesses will calculate a range of metrics including:

  • Brand share value
  • Customer loyalty and lifetime value
  • Average customer spend
  • Customer brand perception
  • Brand awareness levels
  • Share of voice
  • Enquiry rates
  • Sales conversion rates
  • Digital metrics (Website visits, app downloads etc.)

Each of these elements will be affected by the marketing activity and so marketers seek to discover how successful the marketing strategy has been in delivering the results set in the

 

 

 

 

Click anywhere on this image to read more about marketing analytics