Use counterintuitive thinking for better marketing strategies
Published on 08/15/2004 under Book Reviews
The first half of Kevin Clancy’s recent book, Counterintuitive Marketing, is the best marketing book I’ve read. Period. The second half will fly a thousand feet over the heads of most marketing practitioners and can only be enjoyed by dyed-in-the-wool marketing researchers. The funny thing is, however, researchers will probably be too busy taking issue with Clancy’s choice of methodologies to really enjoy his conclusions.
It doesn’t matter. I enthusiastically recommend this book to everyone involved with business-to-business marketing and advertising. I should also note the book was co-authored by Peter Krieg, Clancy’s partner at Auburndale, Mass.-based Copernicus Marketing Consulting, but since I’ve recently had several opportunities to visit with Clancy, Copernicus’ chairman and CEO, I’ll attribute my points from the book to him.
The bottom line is, these counterintuitive concepts will probably change the way you plan and implement your marketing programs. For example, intuitive thinking says the best customers are ones who buy the most. Suppliers fall all over themselves trying to get their tootsies in the door with the Big Guys. They wine and dine them and throw extra-special offers their way. After all, these are the 20% who will generate 80% of your revenues, right?
Well, maybe. They’re also the ones who drive the hardest deals, insist on price concessions and extra services, and send payment for your goods whenever it pleases them. Clancy says customers with the highest sales potential are usually the ones with the lowest profit and ROI potential. And he has lots of research to back that up.
Here’s another counterintuitive concept: If you want to know what’s important to prospective customers, don’t ask “What’s important to you?” People will tell you things they think sound rational, even though those points might not enter into their final purchase decision at all.
In some cases, people really don’t know what’s important because they haven’t taken the time to consider all the possible answers or to weigh the importance of one factor vs. another. And in the b-to-b world, engineers and scientists will never acknowledge that they are swayed by emotional factors even though, in many cases, it can be proven they are.
Closely related to this is the “three scoops for a quarter” approach to new product development. Many b-to-b companies, having struggled mightily with the question of what customers want, ultimately decide to give them everything. Of course, market pressures will quickly reduce the price you can charge for this extravagance, and you ultimately end up losing money on it.
The counterintuitive product developer determines which features can be packaged at a competitive price that will constitute good value for a significant number of customers. As Clancy says, “There is clearly a difference between what the customer wants and what the customer needs and is willing to pay for.”
Clancy goes on a major tear about product positioning, or more precisely, the lack of product positioning. Marketing managers intuitively want to be all things to all people. It’s counterintuitive to be a very specific thing to all people, but that’s what good positioning is. Caterpillar has worked hard to be associated with rugged and dependable construction equipment. IBM has refocused its service image of the ’70s to be “the solutions people” of the new millennium. Intel is performance. In welding equipment, Miller Electric is your “get-it-done” partner.
If you expect customers to understand and play back your positioning strategy, you’d better keep it simple. The mission/vision statement approach just won’t work.
The subject you really don’t want to get Clancy started on, however, is total quality management--or more specifically, 100% customer satisfaction and 100% customer retention. Intuitively, this sounds like a worthy goal and we all know the cost of replacing a customer is more than the cost of hanging on to one you already have.
Clancy relates a story from a meeting with some people at Compaq Computer (before the HP merger). It seems the Compaq managers were concerned about increasing their customer retention levels from 86% to 100%. Clancy’s recommendation was to give them all a new car. “What?” they gasped. “We can’t afford to do that!”
Clancy’s counterintuitive point was they couldn’t afford to worry about that last segment of “price-sensitive, brand-to-brand migrators” either, because the ROI on these customers simply wouldn’t justify the extra cost.
It goes against the grain to think that some customers won’t be totally satisfied at any expense, but it’s true. And you can wipe out your profit margin trying to achieve this dysfunctional goal.
“Few companies,” Clancy says, “know the relationship between customer satisfaction and retention, between satisfaction and profitability, or between retention and profitability.” He compares consultants who preach the 100% satisfaction solution with early 20th century psychiatrists who touted electric shock therapy for psychiatric disorders without understanding how it worked or what its side effects were.
Clancy devotes a lot of space in his book to pricing strategies because most companies don’t seem to have one. The intuitive manager knows how much to charge for his products because he has studied the market and understands competition and the effects of supply and demand. Clancy says this is hogwash.
“Most companies don’t even know what will happen if they raise or lower prices,” Clancy says. Intuitively, we think that lowering prices will cause sales to increase, but that might not be the case. Clancy has examples of situations in which raising prices caused sales to increase. His research suggests that price is the primary consideration for only 15% to 35% of buyers in most product categories.
Clancy also points out the fallacy of cutting prices to make sales quotas. He cites an example in which a manufacturer had to increase sales by 12.5% to offset a 5% price reduction. Price cuts sound logical until you run the numbers.
If you read the book, you’ll probably start questioning a lot of the basic assumptions that business decisions are routinely based on. And to quote our favorite domestic diva-turned-inmate, “That’s a good thing.”