40 marketing news | September 2015 MN Sept 2015 1-65-edit-8-20-15-v2.indd 40 8/20/15 5:19 PM the \"customer mix\" marketingmanagement From the Four Ps to the Four 'Why's' Any marketer can spend money. The challenge is to acquire and retain customers, and ultimately generate worthwhile returns. Here's how to better connect the dots from the strategic, to the tactical, to the desired and achieved outcomes. By Chekitan S. Dev and Don E. Schultz chekitan.dev@cornell.edu dschultz@northwestern.edu September 2015 | marketing news MN Sept 2015 1-65-edit-8-20-15-v2.indd 41 41 8/20/15 5:19 PM marketingmanagement the \"customer mix\" I n the late 1950s, when the four Ps concept of marketing product, price, place and promotionwas conceived and presented as the ultimate framework for planning, implementing and measuring a marketing budget, marketing objectives were simple, media options were limited, and consumers were hungry for product information and details. Mass communication was in full gear and television was the new \"darling\" of the consumer. Massive changes obviously have occurred in the marketplace since then, yet many marketers cling to the past, arguing that the \"marketing mix\" of bygone years is still relevant, reliable and, most importantly, pervasive for all marketers. That seems to be particularly true with promotion. However, with the rise in overall marketing spending worldwide, the development of new media forms including mobile and other handheld devices, the increasingly limited consumer attention spans and a host of other changes, marketing executives are feeling tremendous pressure to identify and justify their marketing and communications decisions, and to show a positive return on investmentall in real time. Adding to the challenge is the fact that what worked in the past commonly doesn't work anymore. Many marketers respond by spending more and more, or they cut expenditures or shift them all to less expensive media alternatives, such as social media and the Internet. Not a very viable answer in a bottom-line-driven marketplace. If marketing managers turn to the academic or practitioner communities for advice, they get even less help. A cursory content analysis of most marketing publications, including this one, shows that most content is about the \"what\" of marketing and communication: strategies, tactics, tools and techniques, usually aggregated as the four Ps. There is much less discussion on the \"why\" of marketing communication: the purpose, goals and objectives, and the reason for engaging the marketing communication initiatives in the first place. And there is practically no discussion of returns from all of that spending or all of those new media initiatives. For example, in a market-leading textbook, published in 2014 by Philip Kotler and Gary Armstrong, the objectives and goals of 42 marketing are summarized in less than a page, and limited to mentions only of revenue, profit and market sharenot a word about customers. That seems a rather backward approach to the marketing function in an interactive marketplace. It makes it sound as if spending on product, price, place and promotion, if done often enough, will create returns that will simply fall from the sky. That's why we set out to provide a conceptual framework to manage customers for both long- and short-term growth and profitability, and that's done by organizing marketing communications activities around what we call the four \"why's\": customer acquisition, customer satisfaction, customer retention and customer recommendation. These are the real tools to make marketing communications investments profitable, focusing the entire organization on getting and keeping customers. After all, in spite of all of the hype and hoopla about new tools, tactics and techniques, the goal of all marketing and marketing communication is to get more customers to give you more money over longer periods of time. These four simple \"why's\" encompass everything that marketers do, and provide a framework to organize and allocate resources (people, money and time) in four, and only four, buckets. It's simple, easy, practical and profitable. The Makings of the Framework Once upon a time in the U.S., circa 1960, as was depicted in the television series Mad Men, marketers concerned themselves primarily with customer acquisition. The theory was that once a marketer got a customer's attention, all good things would follow. Customers would buy and would continue to buy with little effort on the part of the marketing organization. marketing news | September 2015 MN Sept 2015 1-65-edit-8-20-15-v2.indd 42 8/20/15 5:19 PM the \"customer mix\" In later decades, the focus of marketing and communication shifted to customer satisfaction its measurement, monitoring and maximization. Toward the end of the 20th century, conference presentations, books and research articles on retention and loyalty were all the rage, with new models and approaches in abundance. With the advent of the Internet, and especially social media, the marketing communicator's attention shifted once again, this time to recommendations: getting satisfied customers to \"promote\" the brand to others. Now a return to basics is required, and that, we argue, is a consistent focus on the customer, and the use of the four \"why's.\" Recently, we examined the best marketing practices of leading companies worldwide, and that examination revealed how the companies balance their customer mix between the four types of customer investments through carefully tailored strategies, tactics and resources. First, smart brands are always communicating in the marketplace, constantly seeking to acquire the most profitable prospects using a combination of the traditional and new marketing tools available to them. The number of companies that can afford to rest on their laurels and live off of their existing customer baseseven brands with a large installed customer base such as Amazon and Alibabaare very few in number. Even well-established, wellknown companies allocate a percentage of their marketing budgets to acquisition, not by getting new customers on the margin of their established businesses, but by wholeheartedly committing themselves to a clearly articulated and resourced acquisition strategy. While customer acquisition, per se, is not a new idea, companies that excel at customer acquisition today are doing it in new ways and using new digital tools to account for how customers now search and buy. Moreover, these companies are carefully considering the impact that new customers will have on the portfolio of the brand's customer mix, and are maximizing the overall profitability of a brand's customer base. For example, the French hotel brand Accor is investing several hundred million Euros in what marketingmanagement the company is calling \"digital hospitality\" to make booking hotel rooms much easier on mobile devices. That's the company's way of upping the ante on competition for customer acquisition. Accor's internal analysis has shown that travelers who book \"direct,\" using the company's new technology, are more profitable than those who book using alternative or third-party websites. Second, our examination revealed that success depends on the ability to maximize the satisfaction of as many current customers as possible. That means matching the brand's capabilities to deliverand to do so efficiently and consistently with what customers really want. These \"right\" capabilities help a brand satisfy its customers and commonly transform the way that they interact with the firm's products and services all along their consumption journey. In January, the Daily Mail reported on a passenger aboard Virgin Trains, the These four simple \"why's\" encompass everything that marketers do, and provide a framework to organize and allocate resources (people, money and time) in four, and only four, buckets. train operating arm of U.K.-based airline Virgin Atlantic Airways Ltd., who used social media to help him out of an embarrassing situation. After using the restroom, the passenger discovered a lack of toilet paper, so he tweeted his predicament to @VirginTrains. Within a matter of minutes, the social media monitoring team tweeted back that help was on the way, and a train attendant soon appeared with a fresh roll. Real-time responses to real-time customer issues are critical in an interactive marketplace. September 2015 | marketing news MN Sept 2015 1-65-edit-8-20-15-v2.indd 43 43 8/20/15 5:19 PM marketingmanagement the \"customer mix\" Third, our examination showed that while acquisition and satisfaction are crucial, ongoing retention is a major emphasis and makes up the third \"why.\" Brands need to know how to maximize overall customer lifetime value. It costs less to bring lost customers back than it does to acquire totally new ones. Commonly, returning customers require a lower servicing cost, as they know their way around the \"store\" and don't have to be trained to use the products and services. Plus, all else being equal, returning customers often spend more per capita than newly acquired ones. Now, keep this in perspective: Bringing back customers who are expensive, and hard to deal with and manage doesn't always pay off. That's where analysis and reviews of the customer experience become crucial. It doesn't take a financial wizard to figure out that a clear, focused retention strategy with the right customers can have a substantial payoff for the firm. Making sure that there is an explicit retention strategy in placemore than just a \"buy 10, get one free\" type of approachsupported by an appropriate level of resource allocation is a key characteristic of the better-performing brands. Mercedes' fanatical focus on customer retention via carefully curated offers and special customer privileges at special eventsfor example, VIP parking at the U.S. Open golf tournament sponsored by Mercedeshelps keep the brand top of mind among its customers. Fourth, from our work, we've found that the smartest companies balance their acquired, satisfied and retained customers with a set of approaches and methodologies to carefully develop, orient, train, motivate and compensate their employees to encourage present customers to recommend the brands and encourage acquaintances to give them a try. Surveys consistently tell us that prospective buyers pay greater attention to their peers' opinions than they do to experts' advice or recommendations. While these \"member get a member\" approaches have been used by membership organizations for years in businesses like country clubs, social organizations, museums and the like, albeit in a mechanical way, what is new is that in this 44 hyper-connected world, brand advocates can create widespread \"buzz\" instantly. Travelers refer to and cite the website TripAdvisor, where ordinary people recommend hotels (or not), more often than they do professional travel critics at esteemed outlets like Cond Nast Traveler or Travel + Leisure. Making recommendations a key \"why\" of marketing communications, and allocating the right type and amount of resources to build and marketing news | September 2015 MN Sept 2015 1-65-edit-8-20-15-v2.indd 44 8/20/15 5:19 PM the \"customer mix\" sustain this component of the customer mix, is becoming a key priority for many companies. The Chinese mobile text and voice messaging service WeChat, the largest standalone messaging app in the world, as measured by monthly active users, has built a very successful business by getting its mostly Chinese users to recommend the service to their family and friends around the world. Collectively, these four \"why's\" represent a high-level road map for marketing and marketingmanagement communications executives to broaden their discourse far beyond the old, tired, out-of-date approaches suggested by the four Ps. Clearly, the devil is in the details and much else is required to not only define strategies for the four \"why's,\" but also allocate the right kind and amount of resources, and develop the right metrics for tracking achievement against goals, but all of that is \"doable\" in today's interactive marketplace. September 2015 | marketing news MN Sept 2015 1-65-edit-8-20-15-v2.indd 45 45 8/20/15 5:19 PM marketingmanagement the \"customer mix\" Implementing the Four 'Why's' Companies can get their customer mix right by answering three important questions: 1. Where is the brand in its brand or customer life cycle? 2. What are the tactics that managers are using now, and how can they be improved or enhanced? We're making the assumption that managers aren't going to simply throw the four Ps overboard. Generally, a transition is the best policy. 3. What measures will be used to track progress on each of the four \"why's\"? The life cycle stage of the product or service can help determine the proportion of the budget to be allocated to the four \"why's.\" Moreover, using a concept such as the stages of a product's or service's life cycle (introduction, growth, maturity and decline) helps frame the internal discussion. Each stage requires a different commitment to each of the four customer types: first-timers, second-timers, repeat buyers and fans. Consider the following hypothetical customer mix and spending ratios based on the stage of a brand's life cycle scenario: 46 Introduction: 70% acquisition, 15% satisfaction, 10% retention, 5% recommendation Growth: 55% acquisition, 20% satisfaction, 15% retention, 10% recommendation Maturity: 40% acquisition, 25% satisfaction, 20% retention, 15% recommendation Decline: 30% acquisition, 30% satisfaction, 25% retention, 20% recommendation The logic of these allocations is based on the idea that, while acquisition is job No. 1 during the introduction stage, putting satisfaction, retention and recommendation initiatives in place is an important step as the customer base begins to build and mature. One of our advisory clients, a travel startup app called CheckedIn.Club, is expending time and resources to build modules for satisfaction, retention and recommendation even as it continues to prepare for its initial launch. Interestingly, even during the brand's decline or phase-out stage, it still needs to keep acquiring the most profitable customers selectively, but it should put more emphasis on preparing customers to migrate to brand extensions or other brands in the portfolio. Another of our consulting clients, the marketing news | September 2015 MN Sept 2015 1-65-edit-8-20-15-v2.indd 46 8/20/15 5:19 PM the \"customer mix\" marketingmanagement Companies can get their customer mix right by answering three important questions: U.K.-based InterContinental Hotels Group, was selectively acquiring profitable customers even as it was phasing out its Holiday Inn Select brand, all the while maximizing their satisfaction, focusing on retention and tracking their recommendations as the firm prepared to migrate the customers to its Crowne Plaza, Holiday Inn and Express by Holiday Inn brands. Combining the four Ps and the four \"why's\" in a more nuanced way helps in planning your overall marketing program. This step simply involves the merger of the marketing mix (the four Ps) and the customer mix (the four \"why's\"). One way to do this is to first create a 4x4 matrix with the four \"why's\" as the first column and the four Ps as the first row. Each cell in the matrix represents an intersection of the \"why\" and the \"what,\" which makes the reason for each marketing initiative very clear, easy to present to other stakeholders, and easy to track. The Finger Lakes Tourism Association implemented this matrix as part of its annual marketing planning process, using Google Docs to invite members to contribute ideas for each cell in the matrix. From this model, the association was able to identify and prioritize highvalue initiatives quickly. Also bear in mind that developing key metrics to track the four \"why's\" is an important determinant of success. As the old adage goes, you manage best what you can measure. Companies that have effective and efficient four \"why's\" programs have developed sophisticated metrics for each of the \"why's.\" For example, for acquisition, it's helpful to know the number of new customers acquired, the cost per acquisition, the revenue per acquisition, the bottomline profit for each acquisition and so on. For satisfaction, it's critical to calculate not only the absolute measure of satisfaction, but also the measures disaggregated by satisfaction on the more important drivers for each customer or type versus the less important drivers. For retention, the key metric is not just the number of customers retained, but the cost of retention versus the benefit returned, as measured by lifetime value. For recommendations, it's not just 1. Where is the brand in its brand or customer life cycle? 2. What are the tactics that managers are using now, and how can they be improved or enhanced? 3. What measures will be used to track progress on each of the four \"why's\"? how many people were referred by each customer, but the \"clout\" score of each customer and the referral potential as measured by, say, \"friends of friends\" on Facebook. In our experience, without clearly addressing the \"why's\" of marketing and marketing communications, and developing the capabilities to execute against them, marketing managers face a real danger of misallocating resources, underinvesting in the crucial elements of retention and recommendation using state-of-the-art tools, or not investing in them at all. m Chekitan S. Dev is a professor of marketing and branding at Cornell University. His work has been published in the AMA's Journal of Marketing and Journal of Marketing Research, and in the Harvard Business Review. Dev has served corporate, government, education, private equity, startup and law firm clients in more than 40 countries as a keynote speaker, advisor, workshop leader and expert witness. Don E. Schultz is a professor (emeritus-in-service) of integrated marketing communications at Northwestern University's Medill School and president of Agora Inc., a global marketing, communication and branding consulting firm. He is the author or co-author of 28 books and more than 150 trade, academic and professional articles. He is a featured columnist in the AMA's Marketing News and Marketing Insights magazines. September 2015 | marketing news MN Sept 2015 1-65-edit-8-20-15-v2.indd 47 47 8/20/15 5:19 PM Copyright of Marketing News is the property of American Marketing Association and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use