Can you differentiate undifferentiated products?
This week, I had the privilege of helping teach a class on Marketing Analytics at the Darden School of Business at the University of Virginia (my alma mater). I came back energized and more optimistic about the business leaders of tomorrow and professors of today. The students asked focused, pertinent questions, while I was able to collaborate with the professors on some key issues facing data-driven marketing. What an amazing school, and experience.
One of the students raised an important point about relationship marketing in the class I was in: Are some products inherently relational, while others more transactional in nature? As you consider your relationships as a customer with the companies you and your business patronize, I am sure you recognize products that require more support in the purchase process than others. Those products tend to be:
- Highly customizable — think of paint, cars, weddings. These types of products or services require “consulting” in order to meet your requirements — few are sold exactly the same every time. You feel like you need an expert to navigate the myriad of options to make your purchase successful.
- Outside your skill set — think of heating and air conditioning systems. Unless you regularly make these sort of purchases, the language itself is a barrier. Just understanding what makes an HVAC system efficient or not, and what federal and state tax benefits you incur, requires a steep learning curve that I, for one, do not wish to climb,
- Require significant commitment on your part — think of home purchases. Often the largest purchase in a person’s life, the decision of which home to buy and what the financial impact of that purchase will be is critical. Given such stakes, some outside consulting is probably warranted.
On the other hand, think of groceries, pens and paper, clothing. None of those product categories require very much assistance, so it is likely that the process will be more transactional, right?
Well it can be, but the opportunity for marketers is to differentiate their customer experience using customer insight, rather than product insight, to build relationships. Service is the key, more than the product itself. For example, I have a unique relationship with my drycleaner. Nothing could be more commodity than drycleaning, right? But one day, Ben, who always greets me by name when I pick up my shirts, actually got my drycleaning ready before I even got into the store — he saw me in the parking lot. With that sort of service, how can I leave, if pricing is relatively competitive. I don’t even consider competitors — how could I leave my friends?
Many companies with commodity products hire staff they treat as a commodity as well, easily added, easily replaced. They don’t get it.
Let’s do the math quickly, shall we? If I spend $60 per month on drycleaning, that equates to $720 per year. I have been with that drycleaner for 10 years, meaning that my value to date is $7200 revenue. Given a 50% margin (rough estimate), my value to date is $3600. Note, that $3600 is my margin to date — who knows how long I will stay. So every customer that Ben creates a relationship with yields $2000-4000 in margin (to be a bit conservative). OK, Ben sees me for 15 minutes or less per week. If he can influence 50 frequent customers in a week, he is worth at least $100,000 to the business. And I bet he influences even more! That impact is just from one employee.
What you find is that industries are not transactional, companies are. Companies that invest in and retain superior employees make money from repeat customer relationships, the most efficient marketing method possible.
Are you building relationships or transactions? How would your staff know? How do you measure your progress?
Let me know what you think.
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Mark is spot on. I have spent the last four years with Ukrop’s Super Markets in Richmond, VA, a company that excelled in buidling and maintaining an emotional connection with its customers. Yes it was about the food, but more importantly it was about the shopping experience. That experience required quality people and clear communications with those people about the specific behaviors needed to make the brand come alive. I use the past tense because it was acquired earlier this year: It will be interesting to see if the new owners get it. Thanks, Mark, for highlighting an often overlooked element of commodity marketing.