Never get caught between a dog and his favourite lamppost. That’s not the most delicate way to express a profound marketing insight, but it makes the point. Channel strategy, which addresses how customers want to buy, is becoming as important as, and sometimes even more important than, product strategy, which deals with what people want to buy.
Forget the four Ps for a moment. Instead, focus on the four key “buckets” where costs are incurred and value can be generated. They are:
Ã¯âÂ· making the actual product or service;
Ã¯âÂ· bringing it to market and selling it;
Ã¯âÂ· buying it;
Ã¯âÂ· using it, to realise its value.
The intriguing thing is that while, historically, companies have focused most of their attention on bucket one, many of the biggest opportunities for incremental value creation lie in the other three buckets.
On the productivity front, overall matching and connecting costs – all the things companies do to bring their products and services to market – have risen from about 25 per cent of total corporate costs to about 50 per cent. This means that for many companies, the biggest challenge now lies in better “matching and connecting” rather than better “making”.
And on both the value and cost fronts, buckets three and four are still virtually virgin territory. What about value-added buying, for instance, rather than value-added products or services? Value-added buying can be as simple as reducing the time, money or hassle customers have to invest in the process of finding and sourcing the products they want. Home grocery shopping’s meteoric growth is a case in point. The products haven’t changed one iota. But the buying process has, to save the customer’s most precious resource: time.
But a million and one other things could be done to offer added-value buying. Internet price and product comparison sites are booming in the US, for instance, because they make it easy for shoppers to find and buy the best-value item for their circumstances. Likewise, Edmunds.com (also in the US) is building a massively influential business providing car buyers with easy access to all the information they need to buy better. This includes vehicle-by-vehicle feature, quality, and cost-to-own comparisons, and area-by-area real price comparisons. (What buyers are actually paying for their cars, taking account of money-off incentives, salesmen’s discounts and so on.)
Not all value-added buying services focus on cost-saving or convenience, of course. As every luxury brand marketer knows, value can be added by creating a richer experience as well as by streamlining. That is why Toyota is creating separate dealerships for its luxury Lexus brand. Failure to do so seems to have held back its sales in Europe.
So what about bucket four? It really comes into its own when the costs of realising value – such as co-ordination and integration costs – become significant. By letting consumers outsource the hassle of shopping for, combining and cooking ingredients, for instance, fast-food outlets grabbed 50 per cent “share of stomach” in the US, with the UK following fast. The potential market for such “solution assembly” services ranges far and wide, from simply outsourcing boring routine tasks, through the ongoing management of important processes, to managing key life events.
British Gas subsidiary House.co.uk, for instance, is effectively inventing a new market for home management services – bringing together all the products and services consumers need to manage their homes, from central heating repair to DIY to moving house. Confetti.co.uk is flourishing on the back of its vision of “bringing together information, advice, planning tools and purchasing opportunities to make the researching and organising of weddings easier and all the more fun”.
The challenge for marketers is that, as consumers migrate to channels and services that offer them greater value as buyers, traditional channels risk being rendered irrelevant. If you start your car search at Edmunds.com (Edmunds’ slogan: “Where smart car buyers start”), how influential will other communication or distribution channels be?
The threat, as stated starkly by Accenture partners Paul Nunes and Frank Cespedes in a recent Harvard Business Review article, is that in many industries “the customer has already escaped”. About half (for instance) shop for information in one channel and then buy in another.
Levi’s jeans, the music industry, travel, cars and financial services are among the brands and industries already being buffeted by channel-switching. Smart companies are already reorganising how they go to market (and, by extension, their own internal operations and infrastructure too) to fit their customers’ shifting buying preferences. Look at Tesco, which is expanding its range of contact points from its mega-superstores through various types of convenience store to Tesco.com. Or IBM, with its range of buying options, from no-frills purchasing (“I just want that device”) to full integration of systems including outsourcing, strategic consultancy and change management.
Such developments are small manifestations of a deeper, long-term shift in marketing’s epicentre – from helping individual organisations in their search for customers to helping individuals in their search for value.
Historically, we started out with a product-centric view of value – focusing mainly on bucket one. We then moved on to a brand-centric view of value, which extended our vision to bucket two. Now we are moving forward again, to a buyer-centric view of value, which embraces all four buckets. A crucial point: this buyer-centric perspective is both richer and broader than a narrowly brand-centric one – unless the brand in question resolutely addresses all four buckets (see buyer-centric.com).
Nune and Cespedes’ advice for companies is straightforward. It’s all about dogs and lampposts – or “never get between your customers and the way they want to shop”. As we edge towards a buyer-centric world, this is becoming a major strategic and marketing issue for ever more companies.
Alan Mitchell’s new book, with co-authors Andrea Bauer and Gerhard Hausruckinger, is The New Bottom Line: Bridging the Value Gaps that are Undermining Your Business. It is published by Wiley