Last week we looked at the link between quality and brand performance. This week we look at how customers’ needs change over time, and the way their expectations of products also change.
For a brand to be successful, wherever it is sold it must:
1. deliver functional benefits to meet the market need at least as well as the competition does
2. offer intangible benefits over and above the basic benefit of the core product
3. comprise various benefits which are consistent with each other and present a unified character or identity
4. offer special features that customers want, that is, something valued and which customers judge nobody else can offer. Being ozone-friendly or low in cholesterol are features that are appropriate in the 21st century, although they probably would not have sold many products 50 years ago!
As a final comment on meeting customers’ needs and wants, we can link together our discussion on product levels, product life-cycles and brands. We have seen that customers’ needs change over time and their expectations of products also change.
Needs may change because circumstances change; for example, when a couple have children, they may need a larger car. Consumers’ expectations change as organisations develop and later products and think up new features and benefits which add value to their offering.
Customers begin to expect new features as part of the standard offering and look to organisations to provide them. The implication for organisations is that they have to continually develop the products they offer as well as launch new products to fulfil new needs that customers may have.
It also means that over time some products are no longer wanted by customers so organisations have to stop providing them and therefore need other products to replace the revenue that they lose. In order to achieve this, organisations need a balance between cash-generating or resource-attracting products (income) and cash- or resource-using ones (expenditure).
Organisations cannot sustain a negative cashflow over a long period unless they have substantial reserves and clear objectives for doing so. So a major task for organisations is to decide which products to encourage and develop, continue with, phase down or phase out in order to maintain cashflow.
Organisations also need a constant flow of new ideas from which new products will eventually grow and be introduced to the market.
In addition to new product ideas, other innovations are necessary:
New product development, then, is an important part of any organisation's activities. It does not happen by chance, but must be planned for and given resources to ensure it happens.
A final implication of the constantly changing nature of customers’ needs and expectations is the development of brand names by organisations. This drive is aimed at creating repeat purchasing among customers and, hopefully, loyalty to a particular product.
This means that although organisations still need to improve existing products and develop new ones, customers may continue to buy an organisation's products because they trust the quality, and feel an affinity with the brand identity rather than because it always provides the most innovative products.
Last week we looked at how brands which are well known and trusted can serve as a shortcut for consumers trying to choose between competing offers. This week we look at the link between quality and brand performance.
Arnold (1992) says that three important principles have emerged from research into brand performance:
1. Market leaders and superior brand positions are interlinked. Top brands are virtually all leaders, or joint leaders, in their markets. This is not just because the companies spend a lot on advertising or because the brands have a good name or are inherently better quality products. It is the perception of quality by the customer which is important. That perception depends on how the product meets customers’ needs and wants.
UNICEF, the children’s charity, is able to encourage donations through a well-established image and a perception that it is meeting customers’ needs - both the children it helps and the people who give their time or money so that the organisation can carry out its objectives.
2. Market-leading brands tend to have higher proﬁt margins. Research shows that market leaders command a price premium and therefore make higher profits. Recent surveys conclude that in the USA the market leader returns a margin four times that of the number two in the market, and in the UK the margin is six times greater. Leading brands also demonstrate greater resilience during recessions or price wars. Perceived superior quality is reflected in consumers’ willingness to pay more.
3. There is no such thing as a brand life-cycle. Once a leading brand is established with a loyal customer base, there is no reason why that position cannot be maintained almost indefinitely. Brands are larger than products. They can be updated regularly and altered in almost any aspect to maintain their relevance to the market. As long as the brand is kept up to date there is no reason why it should not live forever.
This does not mean that brands will live forever, just that they may be able to if properly managed and looked after. There are examples of brands which have disappeared or run into trouble. One distinguished brand which has been in existence in the UK since 1894 — Marks & Spencer, a retail store selling clothing, home furnishings and food — went through difficult times in the late 1990s. Brands which have been around for over 60 years and show no signs of disappearing. All purchase decisions involve an element of risk, and buying behaviour shows that the drive for something well-known and trusted is often stronger than the drive for novelty.
We have mentioned brand names a few times. We said that a brand name can be a good way of differentiating a product. Brands which are well known and trusted can serve as a shortcut for consumers trying to choose between competing offers.
If two products are similar, customers are more likely to buy the product with the brand name they know, rather than the one they have not heard of.
An interesting example of how important brand image is can be seen from taste tests carried out by Coca-Cola and Pepsi Cola. Respondents were asked to decide which of the two cola drinks the cola drinks they preferred.
When they were allowed to see the brand of the drink there was a marked preference for Coca-Cola — 65 per cent preferred it. However, when the respondents were blindfolded the distinction between the two brands was reduced significantly. In this test 51 per cent of testers preferred Pepsi.
The differences between the two sets of results suggest that customers ‘taste’ both the drink and the brand image. The brand image adds value to the product or service in the mind of the customer. When they see the familiar Coca-Cola package and logo, value is added on an emotional level.
Branding can provide benefits for both buyers and sellers. Customers beneﬁt because they can immediately identify specific products that they do and do not like.
Without brands, product selection would be quite random, with customers having to read the packaging every time to find out about each product and how it matched with what they wanted. This beneﬁt of branding is the reason so many companies use an existing brand name for a new product. They hope that the values which attach to the brand name will attach to the new product in the mind of the customer and make them more likely to purchase it.
Sellers also beneﬁt because branding makes repeat purchasing easier for customers, which in turn may lead to brand loyalty, something all companies try to engender. Creating brand loyalty also permits companies to charge a premium price for a product.
For example, the manufacturers of Nurofen, a pain-relieving product, charge more than the manufacturers of generic products which use the same active ingredient (ibuprofen).
However, these benefits do not come free. Brand owners will spend large amounts of money on advertising their brands. For example, Coca-Cola spends over £12m a year in the UK on advertising, and Andrex (toilet tissue) over £8m.
One of the outcomes of this high spending for Andrex is that the brand is linked to the advertising symbol used — a Golden Labrador puppy. The attributes of the puppy — softness, gentleness — are attached to the product itself.
This outcome also allows Andrex to link its name with a charity, Guide Dogs for the Blind. This works well, as this type of dog is a popular choice of guide dog in the UK.
Today’s great brands have their own identity. If you ask someone to describe a brand they will usually use adjectives to describe its qualities. Branding is to do with the way customers perceive products, not just about the name or the symbol associated with a brand.
Last week we looked at how to identify the different attributes within a product and how to use this knowledge to develop a product which will be attractive to customers.
This week we finish off looking at products features, then we look at the product life cycle and its impact on features.
The augmented product features additional benefits and customer services that have been built around the actual product. These are often added to differentiate it from other offerings. These extra benefits are unlikely to represent the reason for purchase, but may be the reason for choosing one product over another.
For example, a customer might decide to use a particular bank because it offers a higher interest rate on their savings account or because bills can be paid from the account using the Internet or telephone. Another reason might be that it offers more interest if money is left in the account for longer than 12 months. Alternatively, the name and reputation of the bank might give the customer more reassurance than other banks do that their money is safe and problems will be rectified.
So far we have been talking about products as though they were fixed and immutable. We have discussed the three levels of a product — core, actual and augmented — and allocated different aspects of the product to each of them.
However, products are not immutable. What differentiates a product from its competitors in one year may not do so in another. A product which has been developed and introduces a unique feature will eventually be copied by competitors, or even improved on and surpassed.
The transitory nature of the uniqueness of product features means that it is important to develop a brand name which customers will trust even if the product itself changes over time.
For example, clothes may be fashionable only for one season, yet the designer houses that produce the clothes retain their relevance for the customer over a number of seasons and years. In this case, it is the designer name which is the brand and which encourages customers to carry on buying the clothes.
When a product with a new feature is introduced, competitors look at what has changed and whether it is successful. If it is, they will introduce that feature into their own products. Customers will then start to see a range of products with this particular feature and, if they perceive it as worthwhile, they will start to expect all products to have it. Once this happens, the feature ceases to differentiate the product.
In other words, it moves from the augmented level to the actual product level.
For example, in the USA all new cars come with airbags, usually for the driver and the passenger, and some manufacturers are now introducing side airbags as well. In the early 1990s very few manufacturers fitted airbags, yet now they have almost become a requirement. Not to have airbags would preclude manufacturers from competing at all.
So products will change and develop over time in response to customers’ needs and competitors’ activity, and some products will disappear altogether. They may be replaced by new and better products, or just withdrawn from the market. The Rubik’s cube puzzle was popular at one time.
However, once the puzzle was solved, there was little point in buying another one. The slide rule was bought by most schoolchildren (or their parents) up to about 30 years ago, but has since been replaced by the pocket calculator. It is still possible to buy slide rules, but they are much less popular now.
One way of examining the particular phases most products go through is to use the idea of a product life-cycle. This also demonstrates the likely financial implications as a product moves through the various stages of the cycle:
Phase 1 — introduction. Customers are wary because new products are often costly or have teething problems, so people may prefer to stay with familiar products rather than take risks. Sales are slow and restricted to those who want — and can afford — to try out innovations.
Phase 2 — growth. People begin to understand the benefits; the product has been tested and is more reliable and more available. Sales start to grow and competitors may enter the market, creating even more interest in and awareness of the product.
Phase 3 — maturity. At this stage, almost everyone who wants the product has got it; cautious people are buying now and others are updating their models. In the case of fast-moving goods, sales have settled down to a steady number of regular purchasers, with few people discovering the product for the first time.
Phase 4 - decline. Overall sales are declining, price wars may have broken out and new products are coming along as substitutes. There are too many competitors and firms may start to leave the marketplace.
With a fashionable product such as the Rubik’s cube this whole cycle can happen in the space of one or two years. With products which are less susceptible to fashion trends, such as Coca-Cola or garden fertiliser, the cycle may stretch over many decades.
Products can be given a facelift from time to time with new packaging or a promotional campaign to try to keep them in the mature stage of their cycle. These efforts remind customers and potential customers that the goods are still on the market and reassure them about quality and reliability.
Often products are phased out when income ceases to cover variable costs, or when sales fall below an acceptable level. This can happen in both the private and public sectors and when it does, it is more beneficial to invest the money in developing further new products.
However, there are examples of products which have entered a new growth phase: the glassware company Waterford Crystal nearly failed completely, but was rejuvenated by means of a successful marketing strategy.
In some instances, products have an expected or a natural life; for example, it is widely accepted that for mass-produced cars the life- cycle of a particular model is five years, after which customers expect new models. However, a loss-making product may continue to be supported if it serves a purpose in the overall product portfolio of the organisation.
Last week we looked at the whole area of customer needs, and started by looking at products, their features and benefits.
This week we continue this look in more detail, particularly at how we can identify the different attributes within a product and how to use this knowledge to develop a product which will be attractive to customers.
If we look at the difference between features and benefits, what we generally find is that features are what an organisation provides and benefits are what a customer sees. The organisation has to incorporate particular elements, systems, processes or technologies that will allow the customer to receive a particular beneﬁt.
How the organisation goes about solving a particular problem may be of limited interest to the customer as long as the outcome is what they are looking for. It does not matter to the hairdresser’s customer whether the hairdresser uses a database, a card index or their own memory, as long as they are conﬁdent that the hairdresser knows them and what their needs are. The feature is only of importance if it delivers the required beneﬁt.
This idea of looking at features and beneﬁt can be applied to products and services that are internal to an organisation. Not all employees are in the front line of product provision. You may provide a product which enables those in contact with external customers to carry out their jobs more efficiently, or you may be even further removed from external customers.
However, the concept of features and benefits is just as important to internal customers as to external ones. Much of what is ‘sold’ internally is likely to be intangible: a service rather than a physical product.
However, we should still think through what benefits are being offered to internal customers. In a company manufacturing textiles, the technical department may keep a library of information on all competing products. This feature provides different benefits to different departments.
For the research and development department, access to the library of information allows it to develop new textiles which are superior to those of the competition. It allows the marketing department to compare the strengths and weaknesses of its own product with those of competitors.
This will help in developing its advertising campaigns. The technical department must be aware of how the other areas are using the information so that it can be sure that its information is held in a way that is usable by all.
A closer look of products
Any product, whether a tangible good or an intangible service, should be assessed in terms of its features and benefits, in order to ensure that it is providing what a customer wants or needs. Looking at features and benefits is a useful way of keeping customers’ needs in mind.
The core product
The core product describes the fundamental reason for wanting to buy the item. In a market where there is a choice of products this is unlikely to be a unique beneﬁt offered by any one product. Instead, it will be a generic description of the core beneﬁt of a number of competitive offerings. For example, the basic beneﬁt of a savings account is that it is a safe place to keep ‘extra’ money or money that is not needed immediately.
This refers back to our discussion of features and benefits. What we are. interested in when identifying the core product is the basic beneﬁt to the customer. Is a ﬁlm distributor in the business of selling films or entertainment? People do not need films, but they may feel a need for entertainment. A ﬁlm may meet this need, whether at the cinema or on video or DVD, depending on the particular circumstances of the customer.
The actual product
The actual product describes the key features a customer expects from a product. These are often the minimum required for a product to have any chance of survival in a competitive environment. The actual features expected of a savings account might be access conditions (instant or with a notice period), rate of interest and number of branches.
Last week we looked at a programme of activities for the implementation of a plan. This week we take a different tack and look at the whole area of customer needs, and start by looking at products, their features and benefits.
In the exchange process which happens whenever an organisation and a customer carry out a transaction, the customer receives not just a tangible good or service but a way to solve a particular problem or fulfil a particular need. People do not need 5mm drill bits; what they really want is 5mm holes. The drill bits are merely one way of getting 5mm holes.
In fact, we could say that people do not really want 5mm holes: they probably want the means to attach something to a wall, and the holes are necessary to achieve this. People do not want washing machines for decoration, but because they want clean clothes and a washing machine is one way of obtaining them.
Taking clothes to a launderette is another way, as is taking them to a cleaning company. Whatever products they choose, people buy them in order to achieve something, not for their own intrinsic beauty or appeal.
Of course, people buy pictures, ornaments and other decorative items for their intrinsic appeal, but even these are often fulfilling other needs or desires, such as decorating a house to provide a particular environment or atmosphere. Other items may be bought as an investment, or because the purchaser feels they say something about him- or herself to friends and relations.
The academic Kotler has deﬁned a product as follows: "A product is anything that can be offered to a market to satisfy a want or need. Products that are marketed include physical goods, services, experiences, events, persons, places, properties, organisations, information and ideas."
This concurs with our idea that the reason for a product’s existence is to satisfy a want or a need, and also stresses that the term ‘product’ covers anything that is offered by an organisation in exchange for something that a customer has. This idea of exchange is apparent in the definition by Dibb et al.: "Everything's both favourable and unfavourable that is received in an exchange. It is a complexity of tangible and intangible attributes, including functional, social and psychological utilities or benefits."
Here we have the interesting view that customers might get something they do not want in the exchange. At a simple level, this might be because, for example, they buy a particular washing machine but use only three out of the 30 programmes available. There are 27 which are unnecessary or unwanted.
At a more complex level, the customer might buy a car which is sporty and fast and looks beautiful, but comes with a very small storage space. However, they are prepared to compromise because the benefits outweigh the disadvantages.
Dibb et al. emphasise that a product can be a combination of both tangible and intangible elements. If we accept that anything that is sold is actually solving a problem or satisfying a need, then any commodity, even a tangible one, will have some intangible benefits attached to it.
It is important to recognise that the nature of these intangible beneﬁts will depend on the perception of the customer. For example, one customer might describe an estate car as slow, heavy to handle, ugly and having high petrol consumption, whereas another would describe it as spacious, with lots of room for children and luggage, safe, comfortable and costing little to service.
This emphasises the importance of understanding who your customers are and what they want from your product, that is, what problem they are trying to solve. This definition also points out the complexity of a product and suggests that it is made up of a number of attributes.
Next week we will look in more detail at how we can identify the different attributes within a product and how to use this knowledge to develop a product which will be attractive to customers.
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Last week we looked at reviewing objectives and developing strategies. This week we continue to look at a programme of activities for the implementation of a plan.
On a smaller scale, there are lots of things that can be done to foster a customer orientation among staff:
The failure of many organisations to satisfy their customers rarely occurs because they did not know what they should have been doing, but because they never put it into practice.
Sometimes the gap between excellent plans and what actually happens is so great that the organisations themselves fail. The path to customer orientation is littered with the career hopes of managers who believed in it but never got round to doing much about it.
For the purpose of your personal action plan to improve customer satisfaction, what matters is that your approach to customer orientation is permanently built into your role and agenda.
We hope that one of the messages of this blog so far has been that you do not think about your customers only at some special occasion or annual planning stage, but that their needs are always in your mind, shaping your priorities and actions.
We have been deliberately positive about the difference you can make to customer satisfaction. We have considered the other orientations that customer orientation has to compete with in reality. We have provided you with a framework for a personal action plan to help you achieve increased customer satisfaction. We hope that you share this genuine belief that you can make a difference.
Last week we looked at an example of a manager trying to reduce the number of complaints about the financial reports their department produces monthly for managers throughout their organisation.
This week we look at reviewing objectives and developing strategies...
This is the point at which an organisation commits itself to achieving its objectives by developing appropriate strategies. (The four Cs framework may be useful here.)
This stage of the planning process flows directly from the SWOT analysis. Similarly, from the perspective of your personal action plan to improve customer satisfaction, what you do in the first three stages (see Figure 4.3) should help you clarify what it is appropriate and feasible to aim for. You may find you need to look again at your original objectives in the light of the audit and the SWOT analysis you have carried out.
This is not unusual. We will look at the programme of activities in a moment. However, sometimes it is difficult to see the distinction between objectives, strategies and the programme of activities.
You may come across a number of different names for a programme of activities: some people call it tactics, others call it plans. The choice of word is not important; what is important is the meaning attached to the words, and the stage in the planning process when these programmes or plans are put together.
It may be helpful to think of them in this way:
There is no point deciding on your means of transport (your programme of activities) before you have decided on your route (your strategy), and equally you need to know your destination (objective) before you can work out the route (strategy).
Each is important, but there is a sequence in their development. This does not mean that you cannot revise your strategy in the light of what is feasible in your plan; however, you should see that it is important to consider these in the order given here if your overall objective is to be achieved.
The following activity forms a central component of this session's aims. It builds on the three stages above and uses the four Cs framework to help you define the objectives you could set for improving customer satisfaction in your own organisation, and what strategies would help you achieve those objectives.
The programme of activities
The programme of activities sets out who will do what, when they will do it and how. Budgets, processes and structures need to match the programme of activities. Detailed programmes of activities form the important implementation part of a good plan.
For the purpose of your personal action plan to improve customer satisfaction, what matters is to take account of the fact that you cannot improve it completely on your own. You will need to talk to, work with and influence colleagues.
We can interpret this component of the plan to mean the process of deciding whom you will need to work with to achieve the objectives you set. An important aspect of this part of the process is helping to ensure that a customer orientation is developed. Organisations become responsive only when their front-line employees become responsive, as the following example shows:
Them and us
An architectural and design practice was worried about the number of companies that had terminated their work with the practice. So the managers organised two surveys. The first was of 36 staff working in 11 organisations which had stopped using the practice. The other was with the practice’s own 150 staff.
The results shocked the managers, who had clearly failed to foster a customer orientation in their staff. Staff perceptions of what the practice was good and bad at were completely at odds with the perceptions of the customers’ staff. The staff’s understanding of customers was poor partly because they rarely met them. This, combined with the managers’ practice of keeping the staff in the dark, contributed to an attitude of 'why should I care?' on the part of the employees.
Now, after a fundamental reassessment of management styles, the staff have been given the responsibility, the authority and, most important, the information they need to respond to the customers' problems. This has increased customer satisfaction and employee morale, and has led to increased business.
Last week we looked at the third stage of keeping in touch with your customers, namely responding to information.
This week we look at an example of a manager trying to reduce the number of complaints about the financial reports their department produces monthly for managers throughout their organisation.
The manager might do a SWOT analysis for the department. In this SWOT analysis we can see that the strengths and weaknesses relate to the department — those areas which are internal to the department and affect the way the tasks can be carried out.
The opportunities and threats relate to the wider organisation environment — those aspects which are external to the department. Again, the factors which are included here are those which are considered to have the greatest impact on the department's ability to achieve the objective of reducing the number of complaints.
Whenever a SWOT analysis is drawn up from an audit, it is important to make sure that the definition of what is internal and what is external is clear. For some people, internal will mean what happens within a department; for others it may be what happens within a unit or even within a whole organisation.
External factors will also vary from context to context. Sometimes they will include the environment outside an organisation, sometimes the environment outside a department but within its organisation.
There are two further things to note about a SWOT analysis before we move on to look at the next stages of the planning process.
Many organisations carry out a SWOT analysis but then do not use it in the development of strategies. In fact, an analysis can be crucial in the development of plans that are appropriate to the environment and feasible, given the current situation within a department.
Constant reference to the SWOT elements will lead to plans that can be implemented. It will also highlight areas where resources are available, and areas where extra resources are likely to be needed.
Organisations need to make and state certain assumptions about the future. These assumptions will be based on the information about their customers they have acquired, disseminated and responded to (Stages 1-3 discussed earlier).
The assumptions need to be realistic. For example, it would be no use if the manager of the finance department in the example above assumed that the organisational structure would stay the same, as the new Managing Director has informed him that there will be changes.
Assuming no change in this case is likely to invalidate any plans that the manager makes. Assumptions also need to be based clearly and explicitly on information available, so that others can understand the reasoning behind the development of any plans. Assumptions may also need to take into account the availability of resources in the future.
Next week we’ll look at reviewing objectives and developing strategies...
Last week we looked at disseminating information, and how dissemination works upwards, downwards and sideways. This week we look at the third stage - responding to information...
Stage 3: Responding to information
Making practical suggestions to colleagues and your own managers is an important way of responding to information. Another is to bring information about customers' experiences to any regular or special team meeting or briefing you may be responsible for, so that your team can consider together what this may mean for how they work.
This can be a particularly useful way of focusing on customer orientation if otherwise your meetings tend to be dominated by expositions of new senior management edicts or policies or the discussion of operational problems.
Finding out about your customers and the environment is time-consuming and you may feel that you are wasting time finding out rather than doing things. However, unless you spend this time, the things you do may not be the right things, or not the things that will make the most difference to the satisfaction of your customers.
So far, we have talked about being curious and finding out about customers, without providing any structure for this. One way of trying to ensure you have covered everything is to start with your department and consider the products it provides to customers, to employees, and to the organisation's structure, technology and systems.
You should then consider customers and all the contact points for them with your department. Being curious and finding out about customers should provide you with a view of the strengths and weaknesses of what you do. Looking more widely at your organisation should provide you with the context for your own department's activities.
It should also reveal what opportunities might be available, and the possible threats to your success. You may also need to consider what is happening outside your company in the wider environment.
For example, are there any changes to laws that might affect you, or changes in technology? Perhaps society is changing in the way it responds to your products or the demands it makes of your organisation. These areas also need to be considered.
The SWOT analysis
A SWOT analysis is the assessment of an organisation's or department's activities, and the strengths and weaknesses in them. The strengths are then matched to opportunities evident in the audit and the weaknesses to threats identified there.
A full SWOT analysis is a major strategic process requiring techniques beyond the scope of this session. However, it is still a useful tool for incorporating customer-oriented thinking into your management.
For the purpose of a manager trying to enhance customer satisfaction, the key is not to be ambitious when using SWOT. Whether you manage a team, a project, a department or a small business, SWOT is a proven framework for categorising your thinking about what is working (and what is not), and what is changing in the interface you have with your customers.
A danger with SWOT is that it encourages long lists of wishes and constraints that remain the same year after year. It is therefore important to focus on the areas that are within your control or that you can influence.
The framework can be particularly useful whenever you review and plan what you do as a manager. It could be an insightful part of preparing for team away-days, annual appraisals and target-setting processes.
Next week we’ll look at this in an example of a manager trying to reduce the number of complaints about the financial reports their department produces monthly for managers throughout their organisation...
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