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Artur Alekperov

They Are Waiting for You Marketing through the Prism of Expectations

Moscow, 2011

2011913254 978-1-4653-0299-1 978-1-4653-0298-4 978-1-4653-0300-4

All rights reserved. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without permission in writing from the copyright owner. This book was printed in the United States of America.

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UDC Identifier 339.138 BBC 65.290–2 Author’s number А45

Arthur Alekperov They Are Waiting for You—Marketing through the Prism of Expectations. UDC Identifier 339.138 BBC 65.290—2 Author’s number А45

Why do people buy? Why do they buy specifically from you? Why will they continue to buy from you? This book is dedicated to answering these questions. The author has worked on the launch of brands such as Stream, 009, and Internet from the Moscow City Telephone Network. The book is primarily targeted at people who are involved in managing a company’s business. It will allow them to better understand why marketing is actually necessary, what can be expected from it, and in what it can be most useful. This book may give practicing marketing experts some food for thought about their customers, their expectations, and may also help them gain a fresh perspective on situations. The book will also be of use to students of marketing and management, as it will give them a foothold in the foundations of marketing, which are often unclear in the big classic textbooks, owing to their all-encompassing nature and the sheer volume of information they contain. Proofreading—Polina Kovalenko Artwork, page proofs, design—Dmitri Makalkin

Prologue If you feel an inner need to do something—do it.

Victor Gornostaev

Even though I had known for a long time that I had an inner need to share my thoughts and observations, I would have never taken that first step if it weren’t for Viktor Petrovich Gornostaev. We met at the beginning of 2007 and worked together on the Internet from the Moscow City Telephone Network project for several months. He was a man with encyclopedic knowledge and a variety of interests: philosophy, music, psychology, and teaching. He couldn’t tolerate idleness or empty promises. He was always doing something even though it was hard for him because of an old sports back injury from when he was a volleyball player. Petrovich was strong-willed like Dikul and led a very active life. During one conversation—out of the several that we had throughout the years when we worked together—I mentioned how I had wanted to write a book about marketing for a long time but that it wasn’t working out. From then on, Petrovich took the book’s fate into his own hands. In his e-mails (which he called ‘prods’), he began a methodological siege: every day he made me do something. He sent me opening quotes for chapters, he asked to see the content, and he drew me into discussions about various issues. However, fate had something else in store . . . Now, I feel compelled to finish writing this book and dedicate it to the memory of Petrovich. This book is not a classic marketing textbook. I find uncompromising textbooks daunting. Do it once, twice, three times . . . did you do everything correctly? Sure. And it didn’t work? That’s strange . . .

You’d be tempted to ask: just what exactly should have happened? All kinds of training lead to understanding of a particular set of schemes that make your conclusions more obvious. Case studies tell us how various companies acted in similar situations. That is all well and good but it deprives people of the possibility of free thought. Entrepreneurial spirit, intuition, and the firm intention to carry out an idea to its logical end—all come together to form the basis of success. So should we put SWOT analysis, Ansoff matrix, BCG matrix, Roger’s curve, and the lifecycle curve into the trash? Of course not. We just have to understand that these things are all just tools that help us to build an understanding of marketing. They make things easier. They make things clearer. They reduce the likelihood of overlooking things. There was a brilliant magician called Arutyun Akopyan. He would stand in front of you doing tricks. One, he tears a poster into tiny pieces; two, he neatly stacks the pieces; and three, the poster is whole again. You can do the same thing 10,000 times and the same thing will happen. When you begin to try and fill in a SWOT analysis table, you will realize that you are only dealing with the tip of the iceberg. In order to fill in the page, you have to sift through a lot of information, audit the company, research markets . . . You can spend weeks and months working to find out your opportunities, your consumers, and market situation, and only ten minutes to show the fruits of your labor to your shareholders. Each of them wants to add to your strengths and weaknesses. If you want to learn how to fill out a table correctly with the right numbers, then pick up a classic textbook. If you are trying to understand the nature and essence of things, then we are on the right path.

ChAPter 1 Managing Expectations and Relationships Even what is familiar is familiar only to a few.

Aristotle

MaRkEting is BRoadER than PEoPlE think Letâ&#x20AC;&#x2122;s begin from the end. No matter what definitions for marketing we come up with, it all boils down to the answers to a group of questions: What do people buy? Why do they buy? Why do they buy specifically from us? How much do they pay? Why do they return? etc.

No matter what definitions for marketing we come up with, it all boils down to simple questions.

Many people see marketing as the activity between three entities in the market: the product (brand), the consumer, and the vendor. And that’s it. But there’s more. When we begin to think about a product (brand), it turns out that this category may be broader than generally considered. We sell ourselves to an employer and sign a contract with him to carry out a set of duties at an expected level of quality. Politicians also sell themselves to us. The only difference is that we have a ballot in our hands, not a sales receipt. Do you think that it has more to do with PR? Yes, I agree. I just think that marketing and PR (in the modern sense of the term) are actually the same thing. That way we can manipulate these concepts however we like. For example, ‘marketing is PR in the market’ or ‘PR is marketing in social relationships.’ They do have differences in products, target audiences, and complexity of communication, but in essence, they both work with the same things: expectations and relationships. The practical idea behind this is that marketing and PR must be as close as possible. My experience has been that synergy between the two areas yields great results.

i Buy ExPEctations Expectations hold the key to marketing. No matter what people are buying from you, they are actually buying an expectation. This is true whether it is the first time they are buying something or the second. But the second time they buy they are doing so with the expectation that the product will be as good as it was the first time. It doesn’t really matter how these expectations came about—through advertising, recommendations, or perhaps they just felt like a bit of variety and grabbed your yogurt off the shelf. In practical terms, it is very important to understand what expectations people might have and how they relate to satisfying demand.

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No matter what people are buying from you, they are buying expectations.

The formula, ‘By purchasing these boots I’ll become the coolest guy in town,’ is a formula of expectations. There is a demand or goal which can be incredibly cynical, to ‘stand out of the crowd’, and there is the expectation that it is these boots which will help him achieve that goal. If the expectations and reality are not the same things, then they will be disappointed. This is called cognitive dissonance (meaning that there is a disparity between the two things). Therefore, it will not matter that the boots are of very high quality and are made from crocodile skin. The goal has not been achieved. Why did the guy decide that the way to achieve his goal was by owning those boots? Who told him that? Perhaps it was the stereotypes that exist in his mind? Maybe, the salesperson told him? How can we describe our behavior? Why do we do certain things? Why do some people lounge around on the couch and watch TV, while others go for a walk, and still others seek entertainment in a store by purchasing things? Why do we do what we do? What motivates us?

conscious and unconscious goals Goals are what motivate us. A goal may be conscious (such as me writing this book) or unconscious (we instinctively try to avoid danger). It may be to satisfy needs: food, water, enjoyment, adrenaline, whatever. Or it may be to achieve Nirvana. The main purpose of marketing is to understand goals, help them become a reality, and propose a way of achieving them. During every minute and second of our existence we are trying to achieve goals.

During every minute and second of our existence we are trying to achieve goals. Try pausing for a minute and recording your goals and then link them to their actions. Is the room too warm? Your body gives you the goal of making the room a more comfortable temperature. What action will you take? Will you open the window? Take your shirt off? Turn on the air conditioner? Take a bath? Any action you take may or may not lead to achieving that goal. If it is 30째C outside, opening the window is hardly going to help you. A goal is one thing, but the ways of achieving it are completely different. Therefore, we turn to another set of factors which we need in order arrive at a decision.

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consuMPtion situation One of these factors is the consumption situation. We may do different things in different situations. For example, when walking in the park we are more likely to buy ice cream to cool off rather than turn on an air conditioner. But we do buy air conditioners for our homes or offices.

We can do different things in different situations to achieve goals.

By the way, where did you get your air conditioner from? Let me guess, you bought it. You bought it because you are sure that it is one device that can save you from the heat. Everything we have discussed so far has been simple facts. Did you expect anything else? What brand is your air conditioner? I am absolutely certain that your purchase was not done at random and you were able to find out a lot of information about air conditioners, which you think still do not matter. For example, what kind of coolant it uses, how many filters it has, its noise level, and so on and so forth. You might have become an expert in air conditioners and even recommended a ********* brand air conditioner to a friend.

So why do you believe that a Toshiba air conditioner is better than a Daikin? Did you say that you didn’t care which one you bought? But didn’t you end up choosing one of them? Maybe they just didn’t have any Daikin air conditioners and you didn’t want to bother looking for any? Meaning that you had the added benefit of not having to travel anywhere. If that store had had Daikin brand air conditioners then would you have bought one? Without trying to offend anyone who works in the marketing department at Daikin, that would have been their mistake. Hypothetically speaking, of course. Although I am again speaking about seemingly banal things the experienced eye would spot several marketing aspects in that short paragraph. In addition to goals and consumption situations, we have spotted properties.

PRoPERtiEs We are now coming to a very interesting area, which is really at the heart of marketing. Let’s review what has happened. The air conditioner is a complex apparatus and has several properties. Of course, I am not an expert in air conditioners, but I have had to buy one before. So with the aid of the Internet, I’ll list some air conditioner properties: • • • • • • • •

Windowed, split system, channel, mobile, cassette; Anti-bacterial filters; Productivity; Hot/cold; Noise levels; Type of Freon; Cost; Service

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If you are an air-conditioning expert it probably wouldnâ&#x20AC;&#x2122;t be hard for you to compare two dozen air conditioners and pick the best one. I, personally, do not intend to do that. For me it would only make sense to have a few, specific characteristics such as: is it powerful enough to cool a 20 m2 room, does it get rid of harmful bacteria, is it quiet enough to not wake the neighbors, and, finally, I donâ&#x20AC;&#x2122;t want it to break down. I think all of these factors are important because I read about them on the Internet, I talked to friends who already have air conditioners, or I have asked a salesperson. Judging by all of these indicators, I should pick a Daikin, Hitachi or Toshiba air conditioner. But I bought a brand that I was completely unfamiliar with because the last salesperson convinced me that Carier air conditioners are the best.

recent contact with the retail sector has only strengthened my belief that even if you have a unique product with outstanding branding, its sales will be disappointing if the salesperson in the store is not motivated to sell it.

Recent contact with the retail sector has only strengthened my belief that even if you have a unique product with outstanding branding, its sales will be disappointing if the salesperson in the store is not motivated to sell it. I donâ&#x20AC;&#x2122;t know how different brands of air conditioners work, but mine has been working without any problems for six years now. All of the marketing efforts boiled down to the recommendation of one person, who seemed like he knew what he was talking about.

fRoM a fact to a REcoMMEndation Let’s recap. The product has certain consumer properties. They may be objective ones (2 kW of power) or virtual (the fastest Internet). These are facts. The buyer may or may not decide to pay attention to certain facts. He might believe you or not believe you. He might even be convinced that it is not an objective fact. For example, the idea that a fiber-optic cable is connected to his room. This is yet another myth from the Internet. At one time the modem was the symbol of dialup, Internet access through a telephone line. Any connection to a modem (cable or ADSL) made buyers think of slow and inconvenient access to the Internet. That was a damaging stereotype for ADSL and DOSIS Internet providers who used special modems, but it was useful for Ethernet Internet providers who used network cards that all computers have. Here we are adding two more ingredients to the marketing cocktail: the myth and the stereotype.

Myths and stEREotyPEs If these ingredients didn’t exist then mankind would go mad. Every fraction of a second we are thinking about where to step, what ingredients are in this yogurt or that yogurt, what kind of steel is used to make these scissors, how was it hardened—these are all unconscious thoughts. About 99 percent of our actions are automatic; we do them out of habit because of the stereotypes and myths that we have.

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About 99 percent of our actions are automatic.

I act the same way. If I did not stop every once in a while to think about buying something new for a change, I would end up buying the same cheese every time. If it was not available then I would find myself in a Buridan’s ass situation and end up not buying anything.

chain of PossiBilitiEs Let’s try to create a chain of possibilities. Goal—way of achieving the goal—product—fact—value—choice— evaluation. The chain can be broken at any point. For example, a person does not have to buy the product to achieve the goal.

Цель

Способ достижения

Товар

Факт

Значение

Выбор

Оценка

The Chain of Marketing Possibilities

The only thing that we must always keep in mind is that at any moment we may find a way of achieving the goal that is connected to the product. Water is a simple example of this. There is nothing easier than turning the tap and getting a glass of water. That’s how it has been for years. Yet

now there is a whole industry based around selling the very same water in bottles. Sales are boosted by the myth that tap water is unsafe. I cannot be sure myself—so I buy bottled water just to be on the safe side. ‘It’s easy to fool me—I happily fool myself.’ I would be quite upset if I ever found out that all that stuff about bottled water was just a con. If it is actually all just a con, I would prefer not to find out about it. I really think bottled water tastes better than tap water. People create these myths and often want to believe them.

don’t shattER usEful illusions Let’s think of how this chain can benefit us. Each link in the chain helps us to think about and gives us an insight into what we should do. We already talked about goals in the first chapter, so let’s change focus and look at it from the point of view of a business opportunity. Whenever we think about marketing, our brains are constantly flooded with ideas about what to do. The idea may be restricted to the links, ‘product—fact—value—choice’. However, the solution may lie in another link: goal setting. What do I mean? Let’s go back forty years when IBM mainframes were around. I can picture a multimillionaire who decides to go out and buy one of these home computers—although I can’t imagine why he would have needed one. If we were to poll a group of consumers, none of them would have ever thought that in only a couple of decades’ time they would own a computer, just as they own a refrigerator and television. Buying a computer would become a goal. Analyzing consumer goals, we can find goals that we can satisfy. Or, we can come up with new goals, which people will aspire to. Goals are often are connected to ways of achieving them. The habit of listening to music, on the one hand, leads to the goal of listening to it when and where I want, and on the other hand, it presupposes a way of achieving this goal, that is, buying a music player and an iTunes subscription.

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The desire to feel more comfortable in unfamiliar places presupposes a way of achieving this goal—by purchasing a GPS navigator. Can we create a new goal that people will aspire to? The answer is yes, but we will discuss new goals a little later on. First let’s try to formulate some common goals which most people have: • • • •

Satisfaction of physiological needs (food, water, sex etc.); Safety; Desire for knowledge, satisfaction of curiosity; Desire to have a decent place in society.

This list could go on, but we are only interested in it for the purposes of goal-setting. Much work in the field of psychoanalysis is dedicated to the study of consumers and their behavior. We won’t delve too deeply into this area, and as far as theoretical constructs are concerned, we’ll only use the Maslow Pyramid with the understanding that it is not an ideal tool.

If we accept that all goals are exclusively dictated by human nature then we must recognize that there cannot be any new goals, there can only be new ways of achieving them.

If we accept that all goals are exclusively dictated by human nature then we must recognize that there cannot be any new goals, there can only be new ways of achieving them. From that perspective, spiritual practices would be a means of defining one’s place in life, of delving into the depths of consciousness and so forth. But if we accept that these

goals are hierarchical then this situation can be exploited for marketing purposes. Likewise, the desire to learn a foreign language becomes a worthy goal that can be achieved in a variety of different ways: taught courses, self-study, online programs, etc. At this point I would like to focus on an idea that will give some flexibility to our marketing research. The goal and the means of achieving the goal are not only closely connected to each other, but depending on the situation, the means of achieving a goal may become the goal itself or vice versa. Studying a language is both a goal and a means of attaining another goal, that is, perhaps, on a higher level. For example, improve your skills, which will in turn improve your ability to negotiate in business situations. By recognizing the hierarchy of goals we can now formulate new goals to motivate people to make purchases. Letâ&#x20AC;&#x2122;s go back to the music player from earlier. Perhaps the goal of the individual is to be able to listen to music anytime and anywhere. Then we should create another goal. For example, the goal of feeling like they belong to a group of people who are ahead of the crowd. In that case, that simple metal music player could become a cult phenomenon. If everybody around me has a particular music player then Iâ&#x20AC;&#x2122;ll want one like it, too.

the goal and the means of achieving the goal are not only closely connected to each other, but depending on the situation, the means of achieving a goal may become the goal itself or vice versa.

Home Internet used to be considered a service which allowed people to achieve goals such as enabling democratic discussion, obtaining

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necessary information, or things like that. However, today paying for Internet access can in itself become a conscious goal, as all my friends already have Internet access at home. Letâ&#x20AC;&#x2122;s apply this to our own business and try to think of consumer goals that we can help people achieve. So, by thinking of new goals and ways of achieving these goals, we can find completely unexpected ways of developing our business. Now we are ready to offer consumers a product or service as a way of achieving those goals.

a fact Must BE MEaningful, othERWisE it doEs not Exist We need to establish a set of facts, which we think are important when making a choice. We may suddenly find out that those characteristics we consider to be our fundamental advantages, literally mean nothing to the consumer. This means we will have to further develop these, so that the consumer will attribute some meaning to them.

FACt FACt

A fact must be meaningful.

Now, Iâ&#x20AC;&#x2122;m going to put forward a question, and answer it myself. What is most important point in Internet access today? I can assure you that the answer is the following (I just know this from research): reasonable speed, uninterrupted service, and response by the Internet provider to our problems. A reasonable level of speed is a loose concept. The tariff-related meanings of speed proposed by service providers have little to do with this. When people tell you about high-speed access such as 100 Mbps, this is not entirely true. Strictly speaking, this is the speed from your computer

to the roof space, where the switch is set up. And beyond this, the speed is no longer 100 Mbps. You have no idea how many of these Megabitss you are receiving per second, as the speed begins to fluctuate depending on the number of Internet users who are on your provider’s fiber-optic cable, and how active they are. And we haven’t even gotten to the Internet itself yet, which is full of ‘slow-down’ sites. Now I’m going to say something scandalous: if you don’t download films from Torrents, then 512 kbps is perfectly adequate for work purposes; little-used Internet sites give information more quickly. The second question is: which provider offers the quickest service? If your answer is Corbina, then the message you have seen many times in outdoor advertising (‘Corbina is the fastest Internet’) has become lodged in your brain. I can assure you that any provider of FTTB-solutions (QWERTY, NBN etc.) can offer you the exact same service. And that’s a fact. Then we were taught to attach importance to this fact when choosing a provider. Corbina has just proven this to be true—the early bird catches the worm. Or more specifically, Stream was the first to start talking about Internet speed, but then they switched to television and handed the Internet ‘worm’ over to Corbina. And what if I told you that by switching to DOCSIS 3 AKADO, you could have 400 Mbps, instead of the 16 megabytes you currently have? How quickly will AKADO be able to implant this fact in the mind of the consumer? Or, will they think up some new fact and try to get consumers to attach importance to it? Having the best product is important, but it’s not the only thing. We will have to take this statement as a hypothesis and come back to this later.

Evaluation—is that What i Bought And finally, the last link in the chain: evaluation. Having bought a product, the consumer certainly will look for confirmation that they have made the right choice. And if we can provide him with these arguments,

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then not only will he consider the purchase to be a success, but also will he recommend our product to others. Often, salespeople neglect this aspect, and they are wrong to do so. This is especially the case if the person is going to buy your product again and again. With regard to Internet access, subscriber outflow is one indicator. People reject some services and switch to another provider for a variety of reasons. Sometimes they do so because they are moving house; sometimes it is due to problems with services; sometimes it is because another, better deal has become available. However, a simple fact is often overlooked: people’s reasons for leaving are already created at the time of payment. If the buyer remains satisfied, he will more than likely make excuses for you, but if he is not satisfied, he will store up ‘dirt’ on you.

If the buyer remains satisfied, he will more likely make excuses for you, but if he is not satisfied, he will store up ‘dirt’ on you.

Sooner or later, his patience will run out. To avoid this happening, you will have to try to make a second impression, which is much more difficult and costly.

Buying and ExPEctations We have established that any action undertaken by a person leads to the achievement of his goal. Buying is an action a person undertakes, because he expects that the purchase will lead to him achieving his goal.

Now, here’s an important point—a classic question. Let’s suppose that a person has bought a drill. This purchase would be absolutely useless if he cannot bore holes in the wall with this drill. So, what then has our imaginary person bought—has he bought holes, perhaps? Or maybe for him it wasn’t at all worth buying a drill, but he had to call a tradesman who would drill these holes for him? It seems to me that Western people would rather have chosen the second option, but our mentality is different. From long years of deficit and irritating service we have learned to do everything ourselves. But what does a person need holes in a wall for anyway? It seems it is because he wants to hang a picture on the wall. That is, in buying a drill, this person has actually bought himself the possibility of hanging up a picture. Actually, we have now come to one of the fundamental elements of marketing, the so-called 4Ps: product, price, place, promotion. More detailed information about the above may be found in Kotler’s books. In principle, the 4Ps are a kind of decomposition, with regard to how we proceed with our wonderful product and make it into a brand. But, as with any other decomposition with an arbitrary quantity of Ps, it is often misleading, becoming an end in itself and a means of demonstrating marketing knowledge.

There are two ways of helping to overcome the barrier: lower the bar, or come up with a new incentive to overcome it.

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In his book, Birth of a Brand, which I recommend to anyone seeking practical guidance on creating brands, Dan Herman states that, â&#x20AC;&#x2DC;a product is not just a product, but is anything that we offer to consumers in exchange for money, all promises, impressions from the purchase and use, all sources of basic profit, including added value, and sources of tangible and intangible benefitsâ&#x20AC;&#x2122;. I am ready to repeat this phrase again and again, like a mantra, because basic marketing mistakes go hand in hand with ignoring this fundamental truth. If someone says that for him, the price is the most important thing, and he isnâ&#x20AC;&#x2122;t interested in anything else, whether or not the salesperson is polite, whether he describes the product to him, whether he puts the product into a store-branded bag, then that person, most likely, is not being truthful. Man is weak and his ego needs gratification and respect.

A product is not just a product, but anything that we offer to consumers in exchange for money, all promises, impressions from the purchase and use, all sources of basic profit, including added value, and sources of tangible and intangible benefits.

In the book, Delivering Quality Service: Balancing Customer Perceptions and Expectations, the authors (Valarie A. Zeithaml, A. Parasuraman, Leonard L. Berry) identify another P: perception. This is about the sensitivity of consumers to how salespeople behave towards them. In fact, this is not just another P, but is the most important of all. This conclusion is the result of research and not simply a fabrication of the authors. Of course, there are some exceptions.

to thE BaRRiER! These exceptions actually tell us that if a consumer believes that he truly needs a product; his perception will be dulled. And he will be willing to accept some inconveniences for the sake of getting what he wants. For example, he will be prepared to go to another town or another country, put up with rude salespeople, and so on and so forth. Here it is very appropriate to quote Aristotle. â&#x20AC;&#x2DC;If you want to drink, but the cup in which you are served water is not gold and besides, the boy serving the water is not sufficiently curly-headed, you do not want to drink.â&#x20AC;&#x2122; In a highly competitive arena, feelings can become aggravated. When the Moscow City Telephone Network raised prices, people kicked up a bit of a fuss. However, due to the lack of a realistic alternative, very few people refused to use their services. The situation on the Internet market is completely different. A provider must have exclusive benefits, confidence credit or be able to explain their actions so that subscribers believe that there is no other possible way. In any case, the consumer has to overcome certain barriers. The stronger the desire, the higher the barrier the person is prepared to overcome. What kinds of barriers can there be? High prices, inconvenient purchasing process, uncertainty about the quality of the final product, distrust of the salesperson, and so on. There are two ways to help to overcome the barrier: lower the barrier, or come up with an incentive to overcome it.

lEtâ&#x20AC;&#x2122;s BREak thE PRoduct doWn Now it is time to discuss the constituent components of a product, which we will have to think long and hard about before we see it on the market. When we talk about the components of the product, we should always remember the value (delivery) chain. Ultimately, your product will only

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become a brand when it has some value for the client, at the right price, when the customer has the opportunity to learn more about it and when it goes on sale in an easily accessible place. ‘I’ll sell you A at a price of B (including discount). In order to buy, you need to do something (call, come in person, order online). If you buy within a certain time frame, you’ll receive an extra guarantee and “cover” as a gift.’ Components of the Product The main function: If we’re talking about washing powder, then it should wash things. If we’re talking about a broadband Internet connection, then it should provide a comfortable surfing and downloading experience. If it’s a phone, it should make and receive phone calls. And it should ring LOUDLY. As an aside, if your phone is the loudest, maybe it makes sense to publicize this? Perhaps, it would be appropriate here to talk about product categories, rather than individual products. Properties: Analyzing properties can help us to find what makes our product uniquely different from others: carefully listing them on paper and discussing them within the company should become a habit for you. Design, Shape, Color: In fact, these are properties of the product, but we are examining them separately here, because sometimes the purchasing decision is made solely on the basis of, ‘I like this—I don’t like this’. Incidentally, ergonomics as an element of design can be critical. ‘I need the buttons and on-screen text to be big, I don’t really care about anything else.’ I think that salespeople can confirm that this can indeed be one kind of motivation. Quality: The buyer hopes that the service or product is of sufficient quality. The Internet should work smoothly and at the speed promised (although the bulk of problems arise from different understandings of speed).

Additional Functionality: A set of features the buyer receives. The modern mobile telephone is similar to the landline telephones of the 1970s only in that you can use it to talk to someone. The rest of the features transform it into something of a universal device: here we have an address book, a camera, a Dictaphone, a music player, a selection of ringtones, and Internet access. Packaging: If you think that a good product doesn’t need good packaging, you’re mistaken. This has been proven by experiments carried out with cola, when without packaging, people were unable to identify their favorite drink. Good packaging adds value. Advertising: ‘Nothing kills a bad product faster than good advertising.’ (Joseph Jaffe, Life after the 30-Second Spot). But even if believe that our product is a good one, we won’t be forgiven if our advertising is not colorful or interesting enough. Stick up little sheets of paper, printed at a local printer’s, and it will create a certain impression of your product, I think. In any case, advertising and packaging are the ‘clothes, for that initial impression’. Incidentally, if you think that advertising is only important for new consumers of our product, you are deeply mistaken—we should always be well-dressed. People take advertising much more seriously than you think. ‘I’m so sick of this commercial’—this is the kind of answer you will get of you ask, ‘How do you feel about advertising?’ But when you ask this question, ‘Tell me about the commercial you find most memorable,’ you can be sure that they will tell you about it in rather great detail. Particularly, if the commercial is for a product the person is interested in. Warranty: Another mistake is to believe that warranties are related to technical maintenance. You must think seriously about the lengths people must go to make use of their right to a warranty. I don’t understand companies who send their customers round in circles, making the process

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as difficult as possible, trying to prove that the customer himself is a fool. In a majority of cases, repairs under warranty will have to be done anyway, but the customer’s impression of you will be spoiled. There is a widespread myth that a dissatisfied customer will tell at least ten people about the reasons he is dissatisfied. We will discuss this further, as it is the foundation of modern marketing. In a world of unlimited information possibilities, just one angry customer can do you enormous harm. Swift and uncompromising recognition that your customer is right will be a lot cheaper . . . And what if our product doesn’t break at all? ‘Monetize’ this quality in the form of a lifetime guarantee and free replacement if the product suddenly does break. Maybe, we’ll be able to build on this unique advantage! When we think about guarantees, we shouldn’t get ourselves all caught up in the technical part. At the end of the day, ‘money back’ is one type of guarantee. ‘Does not cause allergies’—that is also a guarantee. Make up a guarantee; in the end, it’s the added value that can be transformed into a price premium. I don’t know who first came up with saying that sunflower oil contains no cholesterol (or so I’ve been told), but consumers certainly take notice of this. Price: No price, no product! Furthermore, the price will be crucial in the positioning of your product. If you believe that Vertu is the most dynamic phone, then you’re probably wrong. By purchasing it, you are buying your position in society, just as you would by buying an Ulysse, Nardin or Patek Philippe watch. In fact, you should buy them in certain stores, if you don’t want to pass for an eccentric millionaire, who buys things at clearance sales. Terms of payment are part of the concept of price and can also be important. For example, credit or installment payments. Place of purchase. I’m not at all trying to contradict the 4Ps. It seems to me that the very same product, purchased in different places, can give a

greater or lesser amount of satisfaction. I won’t accept the offered product if I have to drag it to another part of the country, unless I really need it. The opposite is also true: in the right place, I’ll even buy things that I may not really need. For example, when I was in Tula, I bought Tula spiced cakes, which I don’t usually buy, and of which there are plenty in Moscow. There is a whole science, which explores how to sell you more or give you greater satisfaction from your purchase. The only thing we have to do is show up at the store. Incidentally, I can’t remember a single time when I left Metro or IKEA without buying something I wasn’t intending to buy at all. And if you have any doubts about your own buying habits, take a look in your attic—you’ll find plenty of things you didn’t need to buy. Method of purchase. What must a customer do? Come to the store, make a phone call, and wait for the repairman at home. Is he prepared to overcome difficulties in order to obtain a company product? A complicated purchasing process can be a significant barrier for a customer. The purchasing process and using the product. Processes may have a far more significant influence than it might seem at first glance. By the way, it is not true that simplifying the buying process will necessarily lead to a growth in sales. If that were the case, e-commerce would have a much larger share in sales than it actually has. What about talking? The salesperson may be the first person to confirm that you are making the right decision. He might tell you some secret tips about using the product. Maybe you’ll see in his eyes that he approves of your decision. I can assure you—two identical products, bought in different locations, from different salespeople, etc., can differ in their perceived value. At the end of the day, shopping is a form of entertainment that gives many people quite palpable pleasure. But shopping is not a product, but a process. If we buy a process then the goods we get as a result don’t have an awful lot of meaning for us. Don’t you know that feeling you get when you

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buy something just for the sake of buying, just so the shopping process wasn’t pointless? Staff. Do you happen to know why it is so much more pleasant for us to shop in this shop specifically? Isn’t it due to the fact that the salespeople here are much more courteous or competent? Isn’t it true that we buy with much more confidence from a salesperson whom we trust? And if we know that the salesperson uses the product himself, then won’t we trust him more? Our discussion of what people buy has come to its logical conclusion. It seems to me that looking at a product as an integrated entity is, of course, useful. It expands the scope of our search for competitive advantages.

A persistent quest to improve the taste of yogurt may not bear fruit, but changing the packaging will change the positioning of the product, and will increase its perceived value, and most interestingly, will lead to a change in taste.

Perhaps the difference between this approach and the 4P approach is not immediately obvious. It’s likely that by considering each aspect in turn—the price, the place where the product is sold, and promotion work—you will come to the exact same conclusions about launching new products onto the market. Or, perhaps, not. I fully admit that the formula ‘basic + added + added’ gives fundamentally different results to a formula where any component could serve as the foundation. What do I mean by that? A persistent quest to improve the taste of yoghurt may not bear fruit, but changing the packaging will change the

positioning of the product, and will increase its perceived value, and most interestingly, will lead to a change in taste. The Russian business coach, Leonid Ivanov, who was famous in his time, used to tell a very instructive story at his seminars. This story was repositioning of a particular brand of beer: a new bottle and new label ‘changed’ the taste of the beer. Now, before we move on to discuss how people find out about our product, let’s digress slightly from our plan.

PRoduct and sERvicE MaRkEting Is there a difference between the two? If there is, then what is the difference? The most commonly held belief is that marketing services are very specific. When we talk about marketing products, we look at four areas. But when we talk about marketing services we can add at least another three: process, people, and physical evidence. We have already talked about another ‘P’ (perception) earlier. At first glance, it is all quite logical and I am not going to try to refute that idea. In this case both assertions are fair: that marketing is the same in both cases and that service marketing has its own specific peculiarities. Should we ignore the additional 3Ps in marketing products? How would you answer? I am more than confident that if you stop and think about it for a while, you will come to the conclusion that all marketing is service marketing.

All marketing is service marketing.

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Because the acts of selling, delivering, and connecting are all parts of a process, because the salesperson who sells you the product, the product support staff whom you call if you don’t know how to correctly use the product, and the automobile service employees are all people. The product itself is its own physical evidence (which, by the way is not always correct. Sometimes this physical evidence might be the packaging, a coupon or something like that). I know many people who hold onto bottles from good cognac, tin cans for tea, or things like that. My arguments are practically irrefutable when it comes to complex products, but they begin to look less logical when applied to everyday products—yogurt, milk, bread, and others. If you don’t care who sells you yogurt and are indifferent as to what you need to do in order to get it, then you are probably very hungry. I recently bought a tub of cottage cheese. I had never bought this brand of cottage cheese before. I had never felt a compulsion to buy it even if it was just for a bit of variety. Yes, you guessed correctly, the salesperson in the store had talked to me about the cottage cheese. He very kindly gave me some details about that brand of cottage cheese. Also, I recently refurbished my apartment. How did I do this? The goal is obvious—to refurbish the apartment. The way of achieving this: Hire builders. My expectations: Prompt, professional work for a reasonable price and without me having to get too involved. Decision: Made on the recommendation of my designer. Myths/stereotypes: Local builders do a better job than those who come from out of town. Fact/value: The main factor was the designer’s recommendation, which I valued quite highly. Assessment: It was completed as expected and I was even less involved than I had anticipated.

suMMing uP Nowadays, it is becoming harder and harder to separate products from the services we receive when we buy that product. We understand that goals motivate people. We more or less know that we should not confine our search exclusively to the productâ&#x20AC;&#x2122;s characteristics when we are looking to sell something. But how can we turn all this into specific offers people canâ&#x20AC;&#x2122;t refuse?

ChAPter 2 an offer you can’t Refuse Those who have experience succeed more than those who have abstract knowledge.

Aristotle

foREsight oR ManagEMEnt We will not be with you to produce a hypothetical product in the country of your dreams. Whenever you come across the word ‘marketing’, you probably either already have a product or a product category in mind, which you believe will be successful, or you have the ability to do whatever you think people need you to do. The old textbook example of, ‘We found that there is demand in the market for product A so we decided to produce it,’ is rather inadequate. We mostly encounter companies with set abilities and a diversification strategy that they can only be carried out within certain limits. If you work on the Internet then you will hardly be interested in creating hydroelectric power plants. You would more likely be attracted to television or other such media. We are not going to invent SOMETHING revolutionary which everybody is going to want. Although Steve Jobs made the first personal computer in his garage, the product category had already existed at that stage. It is true that the only computers back then were large machines that were developed in big laboratories in huge, high-tech factories, and

that nobody had yet found out how to make a personal computer. The Sony Walkman is an example of the superiority of excellent foresight over marketing as the Walkman had huge and clunky precursors. Mobile phones were also not completely unconventional. Eventually, even Russia had mobile communications networks like Altai. I probably got lucky. Since the beginning of 2000, I have been involved in several significant Internet access projects the first of which was Tochka Ru. Then I moved on to Stream, Internet from the Moscow City Telephone Network, and finally AKADO.

fRoM tochka to akado The basic service of Tochka Ru, Stream, and Internet from the Moscow City Telephone Network was the same technology: ADSL or Asymmetric Digital Subscriber Line. In order to understand what we are dealing with, I will try to briefly describe the technology used and how it came about. The first way of getting Internet access was through dialup. I will explain the gist of what this was while trying not to go into too much detail. There were telephone companies that provided telephone lines. There were cable operators, who provided cable television services. One day somebody thought, ‘If a voice can be transmitted through a telephone line then why can’t we send information?’ It turned out you could do so by installing special modems on two sides which were able to communicate with each other through the telephone line. In order to transmit the sound of a person’s voice, the bandwidth only needed to be 4 kHz. And no matter how hard they tried, the band width could not be expanded past 33 Kbits per second. As telephone lines were being used, the Internet was accessed through a dialup connection. First the modem reaches the modem pool then it establishes a connection and—presto! There’s the Internet. Perhaps, I

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am slightly breaking away from the actual sequence of events, but cable operators thought that if they could provide Internet access through a slow telephone network then doing so through a high-speed coaxial cable was certainly possible. Actually, that is exactly how the DOCSIS standard was created. In order to provide this high speed access they had to install 8 MHz in the cable line and create a return channel. The problem was that they had to restructure the network to avoid overloading the signal. Meanwhile, the telephone operators were also thinking about what they could do. A telephone line itself is capable of transferring a more or less steady stream of information at frequencies up to 1000 kHz. Voice transmission only requires 4 kHz. Therefore, the telephone line is split into two parts: one part is for voice transmission and telephone calls, while the other transmits information through a DSLAM to the Internet. As a result, ADSL technology came into existence which was able to transfer information at speeds of 7.5-8 Mbps which was fantastic at that time. They could not improve on this speed because of the length and quality of the wire itself. ADSL2+ has been the topic of conversation in Moscow for the past two or three years and works only on short subscriber lines. This requires that the DSLAM be closer to the subscriber’s home, which is a very complex thing to do. While cable and telephone operators were considering business plans for expanding broadband Internet access, home networks began to appear, which were built on the principles of home networks—cables that went to the homes themselves (a fiber-optic or copper cable with an x-DSL compressor or a wireless signal). They installed home switches and laid wiring from these switches to the subscribers’ homes with a category 3 twisted-pair cable. Then the professionals got into the game and began to use category 4 and 5 twisted-pair cables, the switches became manageable, and the network resembled an operator network. I am just going to discuss a few details of these decisions as these formed the basis of operators’ insight into the market.

thE fastEst intERnEt We are not going to focus on consumer goals and ways of achieving them. We assume that people need the Internet, and the only way of getting it is to connect to your Internet service provider. High level of service Reasonable prices Convenience, ease of connection Ease of payment Fast connection and installation Access to modern services Internal network resources Well-know provider Recommendations from friends/acquaintances The opinions of experts Leading provider in the market Appeal of advertising

Potential

Users

Now let’s try to list facts about modern Internet access: – – – – – – – –

Connection through a fiber-optic cable. Constant Internet connection. Speed of 1 Mbps (2 Mbps etc.). Unlimited contract. Additional equipment needed (cable or ADSL-modem). Possible home Wi-Fi. Connection within one or two days. For some consumers, such as gamers, fast response time, and sometimes static IP addresses are crucial.

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Disruptions to Internet

32%

Slow speed

14%

Higher prices than competitors

I was transferred to a more expensive tariff without my consent

Money was taken from my account for no reason

Support service does not deliver on promises

Good price

No disruptions to the Internet

44%

High speed

35%

10. I am satisfied with the price—quality ratio

17%

11. Support service is good

14%

I would recommend my ISP:

I would not recommend my ISP:

The list above is how consumers ranked the most important factors when choosing an Internet provider in 2007. We can note in passing that in 2007 the market for Internet access was continuing to grow at a rapid rate, and was at a transitional point, from a market of pragmatists to a conservative market. Now let’s fast forward to spring 2009. The rate of new users has dropped from 40 percent to 10 percent. However, if sales have declined, then (for the leaders, at least) this is only because they have been less active in promotion and sales. Our calculations show that 40-50,000 existing clients/subscribers end up back on the market for Internet access every month. Why? We questioned subscribers themselves about this, and asked if they were prepared to recommend their Internet service provider to friends. Here’s what we found.

Service, which came out on top in one poll, was not a deciding factor in another. So, if we are to draw any conclusions from this—that is, the idea we want to convey to the consumer—I congratulate you: we are at a dead-end!

In search of insight, let’s jump back in time to 2004. The market is dominated by dial-up. The prices for home networks, which barely cover one-third of homes in Moscow, are simply outrageous. For $50 a month, you could get maybe 500-600 megabytes of data. We can’t speak of any level of service. I can’t speak for all Moscow Internet users, but at those times when I really needed Internet access, I didn’t have it. It was almost impossible to find a network host then. However, they did listen to everything I had to say about them, at least once a month, when their courier (proudly called a ‘manager’) would show up at my doorstep, to take my monthly fee. Although I was on a $20 contract, I never paid less than $40-50. I wasn’t overly happy about losing control over my budget, but I didn’t want to incur the guaranteed extra expenditure associated with switching to a more expensive contract. There was a pent-up demand practically right up until Stream was established, but very few people knew what ADSL was. Initially, it was necessary to draw attention to this decision and to support it through opinion leaders, such as network administrators and technology journalists. Internet accessed through a phone line too closely resembled dial-up, which people were already fed up with by that stage. The offer of 1 gigabyte for $30 was totally revolutionary at the time, but it was still an offer for an undeveloped market. About 8 percent of all Moscow households had broadband Internet access. The emergence of unlimited contracts on the market in spring (Comcor-TV offered unlimited happiness for $33 per month) was not a high-profile event. This was mainly due to the fact that Comcor-TV was present in only a very limited area in Moscow. And so, with little advertising and without any major fuss, Stream signed up four to six thousand Internet subscribers per month, having signed up about 20,000 subscribers by August 2004.

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shaREholdERs aRE iMPatiEnt A company’s management is more conservative than its shareholders. This is because the latter believe in fairy tales (you can always find a storyteller), and the former must make these fairy tales come true. You can’t simply announce a revolution, you have to prepare one. The desire of shareholders to gain considerably more subscribers became, on the one hand, a serious motivator for management to quickly ‘cross the gulf ’ from the early to mass market, and on the other hand, gave rise to problems with the readiness of technology for such a breakthrough. Two months was enough time for the analysis and design of a product and even to prepare an advertising campaign, including shooting commercials and getting them on television. However, this was nowhere near enough time for technical services and to roll out a fully-fledged dealer network. At first, they marketed the product heavily. Because the support services were hopelessly behind, by the end of October the market was ready to stone us. We couldn’t give people what they wanted. It took up to two months to get connected, or in some cases even longer. The achievements of the February Internet Revolution were swept away by an army of people seeking quality Internet access.

do studEnts havE MonEy? This is what our assets were by August: -

Some brand awareness of Stream came to around 30 percent of people. In general, given the low cost of advertising, that wasn’t bad. This meant that an approximately two-fold gain in sales could be achieved by increasing the brand awareness.

Around twenty thousand subscribers responded positively about the service. High subscription fees were a barrier. A price reduction could increase the flow of subscribers by 40 percent. Prospects for sales of five to seven thousand contracts per month with no price change.

These were the liabilities: -

The need for dramatic growth in monthly sales. The demand for the Internet as a whole in an early market. Lack of distribution channels. Technologically unprepared to provide connections in line with the business plan.

Geoffrey Moore’s conclusions regarding the diffusion of innovations focused primarily on the business to business (B2B) market. He believed that there was a gap between the early (innovative) and mass markets. While representatives of the early market were willing to put up with the shortcomings in the product (either, they will remember the product, or they will get sick of it and throw it out), the mass market representatives are far more pragmatic about product quality, the level of service provided, warranties, etc. Pragmatists don’t tend to look at innovators as examples to follow. They only look at what their counterparts are doing as examples to follow. Doctors do what other doctors are doing. The same is true for chemists, utility workers, and so forth. It is a vicious circle: pragmatists will not buy while other pragmatists aren’t buying. Moore also proposed a way of crossing the gap; the so-called ‘bowling alleys’. This means offering an innovative product to very narrow market segments. One well-struck pin/niche may cause other pins to fall. When the pragmatists see how useful and good this actually is, that segment goes

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through a boom, which Moore dubbed a mini-tornado. A mini-tornado merges with other mini-tornadoes and becomes a powerful tornado which brings the product to the mass market. This is what actually happened to Stream. This is one more characteristic of the mass market. It must have competitors. Pragmatists need a starting pointâ&#x20AC;&#x201D;remember Gogolâ&#x20AC;&#x2122;s Korobochka in Dead Souls? When marketing directors said that students were the key target audience to cross the chasm, people objected saying that students had no money. Nevertheless, the $20 or $25 per month plus $50 connection fee that they paid in 2004 came to quite a sizable amount of money indeed.

thE Magic nuMBERs 20 and 25 Of course, these figures were not chosen at random. And it does not matter whether a subscriber is offered a limited or unlimited contract. It matters whether or not the consumer regards the offer as acceptable. If so, then he is prepared to pay $25 for the advanced service and $20 for the standard service. Price Sensitivity Model (PSM) analysis has shown other amazing figures regarding connection fees. 120% 100%

Share of people prepared to connect to Stream Neo

80% 60% 40% 20% 0%

15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Subscription fees in USD

80%

Acceptable price range

70% 60% 50% 40% 30% Optimal price range

20% 10% 0% 65

95 100 110 115 120 125 130

Connection charge Too expensive

Expensive, but not too expensive

Too cheap

Cheap, but not too cheap

The obvious conclusion to be reached is true even now—whatever service you offer to the consumer, he will be willing to pay $25 per month for it if it is of acceptable quality. That is the standard. If he believes that he doesn’t have that many requirements then he would be willing to pay $20 or $15. Now providers offer access at 4 Mbps for an average of $15, 8 Mbps for $18, and 20 Mbps for $23. Five years ago Stream Neo successfully sold an unlimited contract at 160 kbps and Stream Neo Plus for 256 kbps. This actually bears a strong resemblance to the computer market. Yes, of course, computer prices fell to a ridiculous ten to twelve thousand rubles per computer, but when you make the computer more high-tech, the price jumps to twenty thousand and even upwards of thirty thousand rubles. More bang for your buck. Shall we continue?

lEt’s talk aBout advERtising BRiEfs oR aBout thE claRity of dEsiRE ‘He who thinks clearly, speaks clearly’, this saying by Schopenhauer is the best way of expressing the need for marketing and creative briefs. If marketing directors don’t know how to express their ideas in an accessible, creative, and specialized way then that is a very bad thing indeed. That

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means that there will always be unclear points which are open to perhaps arbitrary interpretation. Marketing people must pay attention to briefings for other reasons too. They organize our thoughts, allow us to see the potential for conflict, and ultimately, it is our idea that is passed through a corporate designer prism and takes a form which is accessible for the consumer. This book contains a somewhat simplified (without any figures) example of a brief, which stems from the mind of the creators of a ‘clumsy’ concept. I remember a commercial where a student couldn’t upload his exam and ended up chopping his computer with an axe at six in the morning. Or a married couple, who didn’t share a telephone, got by because they had both a phone and a laptop. They all needed Stream therapy as medicine for their bad Internet.

The creative concept behind the Stream advertising campaign during autumn 2004.

Even though I believe that the concept was controversial and the older generations were in shock, thinking ‘what kind of maniacs are these people?’ But the target audience reacted appropriately—for them it was a very familiar situation. Although the creative concept reached its target and the fall advertising campaign was effective, the explosion in sales was not thanks to

these reasons but was brought about by correct proposal to the target audience. Lines stretching several hundred yards stood outside the MTU-Intel head office. People were lining up for Stream products—this was the first time that something like that had ever happened. Sales reached 3,000 units per day, which were unheard of numbers for the Internet back then. Stream became brand of the year.

ExaMPlE of a cREativE BRiEf Client™ Stream—Tochka Ru Date of Brief Completion General Information Brief Description of the Challenges for the Agency • Develop creative concepts for advertising campaigns as examples of scenarios for TV commercials. • Use the same methods as in other forms of advertising (radio, outdoor advertising, online advertising, metro posters, point of sale materials). Why Is there a Need for a New Advertising Campaign? • To make Stream the leader brand. • To achieve a significant increase in the amount of subscribers by the end of the year. The Subject of the Creative Promotional Concept Stream, a service from Tochka Ru, is a highly reliable home Internet provider with high-speed data transfer capabilities on a telephone line which does not use a home telephone number.

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The Goal of the Advertising Campaign To increase awareness of the brand. Around 75 percent of Internet users surveyed should know the basic services and understand what makes them unique and a leader in the market, while 45 percent should be able to clearly discern the main parameters of consumer value. Proposal Stream is new, very fast, affordable, and available from a supplier who is the undisputable leader of home Internet access. Marketing Idea Today people are wowed by how fast home Internet is. Stream is clear, fast, and easy. This forces competing home network providers to improve their services (see below: ‘Information on Competitors’). These companies have certain advantages, which allow them to download large quantities of data; they have many resources, experience in promoting services, and high speed intranet services, free of charge. Packaging: Stream is a new level of service, which resolves the problems of Internet use in a modern and effective way. Overview of the Market Situation Some brief information about the operator—their history, spheres of production, and current trademarks™. MTU-Intel is a subsidiary company of the Moscow city telephone company. It relies on the network of its parent company, which has a monopoly in Moscow, with telephone lines in almost every household citywide. Furthermore, MTU-Intel is the leader in providing dial-up services in Moscow (50 percent-60 percent of Internet users out of 700,000). Between 2000 and 2002, it introduced the brand ‘Tochka Ru’, and secured a leading position for this brand on the corporate market.

Information about Competitors 1. The main competitors today are FTTH networks—these are quasilegal companies and communities which offer No-name services with similar (but, usually worse) parameters. They may be seen by customers as providers of a more economical solution, which is familiar to them. 2. In the broader sense (as indirect competition) dial-up carriers could also be considered as competition (including ‘internal competition’): this service has qualitatively worse consumer properties (you need to dial up to establish a connection, the connection breaks down frequently, the speed is five to thirty times slower than if you were to use Stream), but consumers see it as a cheap alternative. Trademark/Product Positioning of the brand Stream is a home Internet channel for entertainment, work and study, at a qualitatively new level compared with dial-up. The problem solved by trademarks You can conveniently (without dial-up, without occupying your phone line, with no breaks in connection) and quickly (five to thirty times faster than with a modem connection) receive/send large quantities of data via the Internet, including free (free of charge) and fast access to special informative and entertaining resources, created for Stream users. The product concept (description of the product, retail price per unit) A contract with the first month’s Internet access prepaid, plus a special set of equipment, provides for a dedicated Internet line.

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The unique properties of the product (or USP) New ADSL technology allows us to transform a telephone line to provide a convenient and fast Internet access. Within one wire there are two independent lines at workâ&#x20AC;&#x201D;a telephone line and an Internet line. High speed access, an unrestricted phone line, reliable connections, and round-the-clock technical support. Target Audience The Customer Is the person who decides to purchase the product: his socio-demographic characteristics (sex, age, income, education, and lifestyle). A. Students, men, and women, aged between seventeen and twentytwo; they study a lot of the time and are equally active in seeking out entertainment. B. Successful, well-educated men and women aged between thirtyfive and forty-five; they have families and children, and an income of $300+ per person. They are active and focused on self-development, as well as in the development of their children. C. Working, educated (and possibly still in education) young men and women, aged between twenty-three and thirty, possibly married but usually without children, with an income of $300+ per person. They are building a career for themselves and actively seek out entertainment (in terms of consumer behavior. they are often oriented towards the style and parameters of group B). D. The parents of teenagers. Consumers of Services Teenagers, who are studying and preparing to continue their education, aged between twelve and sixteen, interested in entertainment (in

terms of consumer behavior, they are often oriented towards the style and parameters of group A; the decision to make a purchase is usually made by parents, who belong to group B). Other groups: see above. The main reasons for purchasing a product, consumption situations – To develop current consumption. – To avoid the irritation associated with low-quality access, primarily dial-up. – To make the transition to modern, ‘smart’ consumption. – To eliminate the problem of a busy phone line. The importance of a brand – Lack of trust, feeling that ‘it’s too complicated’ with regard to FTTx networks and dial-up access providers, the demand for a solid, leading brand. Priority Features – Simple, convenient, and economical means of getting music and videos. – Help for study: provides access to a vast quantity of supplemental information (via highly developed search engines), the possibility of downloading articles or essays on a given topic; the feeling that as a student, you will be more successful as a result. – Working at home: extending certain (convenient, interesting) elements of workplace behavior to the home; and possibly feeling that as a professional you will be more successful as a result. – The ability to communicate with others, primarily in the form of network games. Additional Features – Training and tests

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– Managing video surveillance of your home – The opportunity to create your own Web site, a photo album, etc. In-depth understanding of target customers, which will help you to motivate them The barrier: if people perceive the service to be a novelty, there is the suspicion: ‘But is it worth it to pay for a service with little-known consumer value, without experience of a similar service?’ What is the target audience thinking and doing now? A. Generally uses dial-up. B. Possibly uses FTTx networks. C. Possibly doesn’t use Internet at home, but makes active use of quality Internet access (with similar parameters to those of Stream) in the workplace. What do we want the target audience to think and do in response to an advertising campaign? i. ‘Stream offers a unique proposition as the leading company in the market.’ ii. ‘Stream offers a new level of quality for services at an affordable price.’ iii. ‘I need to change my current level of consumption quality and, to do so, I need to ask the company or a dealer about specific features and ways of obtaining these services.’ Additional Information Distribution Main sales outlets In company sales offices (there are three in Moscow) or at dealers

Areas where Services are Marketed Moscow The Key Idea of the Advertising Campaign The best (fastest, most affordable, from a supplier who is the undisputed leader) of all possible high-speed Internet access options for home computers, to solve priority tasks of key audiences, A and B. Is there a legend behind the brand name? It should be created as it establishes the benefits of the product, so that the consumer is correctly perceived and evaluated. This will help you to be successful. Practical recommendations for developing the creative concept of promotion, limitations, and mandatory elements The direct connection between the new concept and the previous one (the character, the style of animation). Preferably, every target group will get its own personalized message. Commercials for other target groups show Streamâ&#x20AC;&#x2122;s advantages compared with home networks and dial-up connections.

ChAPter 3 strategic strategy Surprise encourages people to philosophize

Aristotle

choosing a stRatEgy Shareholders have saved us from having to choose a marketing strategy. The senior managersâ&#x20AC;&#x2122; intuition often allows them to make the right decisions without having to resort to marketing tools. However, letâ&#x20AC;&#x2122;s leave intuition to one side and see what Igor Ansoff (he is a leading world expert in management strategies) says about strategies for launching a product in the market. Product novelty/ Type of market

Existing market

New market

Existing product

Market penetration

Entering new markets

New product

Product development

Diversification

Ansoff actually reduces strategy selection to four options. If your product is not new then you can either use the penetration strategy to dramatically increase market share or you can move on to new markets. It may be a new geographical market or may just be a new market segment. We all know that a scalpel is a surgical instrument, but is also great for sharpening pencils. Perhaps this is not a completely precise example, but

I am trying to show that we can create new uses for an already existing product. It’s possible that surgeons use scalpels to sharpen pencils, or maybe even to cut vegetables. Searching for new uses for a product is the same thing. Now let’s discuss what product penetration and development would look like, shall we? Let’s go back to Stream. It is important to know whether we are dealing with a new or existing market. The answer depends on how we define what the market is. If we are talking about access to the Internet, then, of course, that market already exists and is quite a large one. If we are talking about broadband access to the Internet, the market already exists but it is far from saturated and has not yet entered the rapid growth stage. This market had significant pent-up demand because of high prices. When Stream was launched, around one million homes had Internet access and of that figure around 70 percent used dialup. However, 30 percent used dedicated line access. Should Stream have had two strategies or was it sufficient to focus on one? Reality is more complicated than just that. The market is made up of consumers. Some of them buy access to the Internet while others don’t. The market becomes a mass market when the latter begin to buy. Of course, we still bear in mind the pragmatists who are guided by other pragmatists, about the bowling pins, and about the tornado. Obviously, Stream has covered a large market category, and interest in broadband access began to grow exponentially. But the challenge was to achieve as much market growth as possible and to not compete with FTTx networks. It doesn’t make sense to fight over a puddle when there is a whole lake full of fish nearby. The commercials we talked about earlier were aimed at dial-up users and drew attention to the existing problems that competitors had but wasn’t representative of the actual competition between FTTx networks. But we rattled the competitors . . . The market ratio stands at 70/30 but 85-88 percent of sales were from dial-up users. What was Stream’s strategy? Of course, it was the strategy

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of product development with all the consequences that come along with it, the most important of which was the ‘cannibalism’ of its own dial-up service. Were prices set by a strategy of price skimming or by a market penetration strategy? If we look at the Internet access market as a whole, then we can see that Stream’s prices were not exactly prices for market penetration. The average profit from a dial-up user was around $5-7, but from a Stream user it was more like $22-25. But they weren’t exactly the cream of the crop. FTTx network prices were the highest, and thanks to Stream, their prices drop to mass market level. But to be honest, none of that really matters. Stream was a leader at that time, its prices were a leader’s prices based on research findings on the level of price elasticity in demand, and they defined the level of fair prices for the next few years. Now let’s take the second big player in the Internet access market. There was a cable operator Komkor-TV. Its market was in Chertanovo, Khamovniki, and other areas in central Moscow. Their main tools for marketing were telemarketing and direct mail, which allowed them to advertise in individual areas and not throughout Moscow as a whole. We will come back to promotional tools later on. In April 2004 Komkor-TV introduced flat rate contracts, which were actually in response to Stream’s February offering, and these prices became the penetration price in separately covered areas. Therefore, by absorbing a new area, Komkor-TV temporarily shifted their marketing strategy to the Ansoff style. This let them adopt a strategy to break into new markets. As for diversification, offering a new product on the market is a very risky strategy, but may prove to be very beneficial—or it may end up being disappointing. Stream TV is a paid television service that uses ADSL technology and is the best illustration of this strategy. In essence, the use of this strategy for an important product in the Moscow market was not that impressive. Also, I am sure that the emergence of Stream TV increased demand for the same services paid TV competitors, especially NTV+ and Komkor TV, but it may be difficult to defend Stream’s leadership

position for Internet access. I believe that there are three reasons for this: a) the product was too raw and it didn’t provide enough speed to stream television shows in many homes; b) dissatisfaction with one service leads to dissatisfaction with another, and c) Internet promotional efforts have been weakened. The company took four years to attract 120 thousand customers. In comparison with Stream, which sold between thirty and forty thousand Internet contracts per month, Stream TV was an ‘ugly duckling’. Will it turn into a beautiful swan? Only time will tell. You see how, by looking at it from another angle, we came upon strategic tools like the Ansoff matrix. As with any simplification, it is not a perfect tool, but let’s try to find a solution in a given coordinate system. Let’s try to rewind the tape a little further. Before defining a strategy for breaking into a market, we had to make another decision. Why did we suddenly decide to introduce the product into the market? Why is a certain company going to manage its introduction to market and not another? What do the shareholders want to receive as a result? The task we have before us is to gain capital.

a Magic BusinEss Plan I read about a brewery in Australia called Brewtopia, which didn’t make any business plans at all. And that didn’t prevent it from becoming a successful company. Try telling that to bankers when you are applying to get a loan. Even if they find the idea interesting, they wouldn’t be able to give you a loan because of the standard procedure they have to go through. They want to be sure that you will be able to return their money. Therefore, you will have to write out sales figures, revenues, and profits for the next ten years. But won’t the markets change so much over the next ten years that it will be useless to predict all that? Yes, it will be useless. But everybody will continue to play the game anyway.

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The environment is changing so rapidly in the external markets that traditional planning cycles are becoming obsolete.

Igor Ansoff, the management guru who is considered the ‘father of strategic planning’, introduced a new concept: the level of turbulence in the external business environment. The speed of changes in the external environment is such that traditional planning cycles no longer make sense. They are more harmful than helpful, as often instead of concentration and movement in target directions, the management begins to oscillate wildly from one side to another. One moment, they are increasing the number of subscribers at any cost; the next they are squeezing everything they can from subscribers; then they’re cutting staff. Instead of organic, logical actions that lead to the growth of the business, they start trying to plug holes and build up false facades. The health of the business goes on the back burner. Charles D. Schewe, in his book, The Portable MBA in Marketing, quotes Paul Allaire from Xerox, ‘If we do what’s right for the customer, our market share and our return on assets will take care of themselves.’ European-style movement from point A to point B is being replaced by Eastern-style movement from point A to space B. The right move in the right direction is becoming a more harmonious and sure way of achieving success, than implementing plans at any cost. ‘Any price’ is a price that the consumer ends up paying in the end. They have no rights, they are dissatisfied, and they are exhausted by constant advertising attacks, the couldn’t-care-less attitude of the company towards their needs, and the fact that they can’t get through to the company—this

is the price of an obsession with planning. Is this something you really need? The right way is not always the shortest way. Here’s an example Denis Lobanov (CEO of AKADO-Capital) likes to mention in regard to this topic: if you want to go to the Urals—first you need to go to the airport in the south of Moscow.

european-style movement from point A to point B is being replaced by eastern-style movement from point A to space B. the right move in the right direction is becoming a more harmonious and sure way of achieving success, than implementing plans at any cost.

In 1999, few people could have imagined that mobile penetration in Moscow would exceed 100 percent. I haven’t seen the initial business plans of mobile operators, but I can assure you that no one before could have predicted that after a couple of years subscribers’ accounts would hit the millions. Even if somebody had imagined this, they would hardly have decided to show his plan to financiers. Financiers don’t believe in revolution, and if you are planning a revolution, you’ll have to work hard to find something to convince them. I certainly don’t want to offend financiers, but they part with their most-prized possession—money—and they want to be able to sleep soundly at night, safe in the knowledge that they will get this money back again, with a profit. Money makes money. Your shareholders also want to be sure of the coherent development of the company and its ability to generate future revenue, and hence be sure of its value.

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Incidentally, playing around with value sometimes has just as negative consequences as an obsession with planning. On the market, there are a lot of experts who specialize in inflating the value of companies: they can give them a fresh lick of paint, they can doll them up and they’ll look as good as new. However, bubbles tend to burst and blow away, and then what’s left? Unmotivated staff? Consumers angry about the poor quality of the product? A company that has perfect reports, but is, morally speaking, a monstrosity? Or maybe, you believe that a successful sale essentially wipes out all the above? Everything except your reputation as a business partner that is. Think about it.

stRatEgic MaP The ultimate goal of the majority of shareholders is money: capitalization, revenue, profits, and dividends. The goal of proper management is to implement the company’s mission, which will eventually lead to achieving financial objectives. These goals must be consonant with one another. Shareholders want to be sure that management is taking steps in the right direction. If shareholders don’t understand the actions taken by management, they will be very upset. When management says, ‘We have to build a relationship with subscribers’, shareholders may ask, ‘Why is management planning to do this with our money?’ A system of balanced scorecard, according to the vision of its creators, R. Kaplan and D. Norton, was to be the magic key to the treasure chest of ‘creating shareholder value’ and complete understanding between shareholders and management. The main idea of this system is to create a transparent system of goal-setting, which would also establish separate goals at all levels. The idea is that as goals are achieved through the actions of all employees, we must have a mechanism to ensure that each

employee is constantly informed of the strategic goals of the company, and to ensure that he is at all times involved in business processes and that his participation is evaluated. Maybe, I don’t have much faith in such a mechanism, as I have never actually used it personally. But it is probably because of the global nature of this mechanism. In general, I am frightened by global systems when they are applied to developing business. When we discussed marketing, we noted that the essence of marketing is managing expectations and relationships. This is the essence of analog processes, which are very difficult to fully describe using a system of numerical indicators. People say that there are successful examples of such systems being implemented, and I have no reason to cast doubt over this. However, in Balanced Scorecard there is one mechanism which is very useful in harmonizing shareholder goals and the company’s mission—the strategic map. I have used these, and they really are useful. What do Norton and Kaplan make of this? They note that valuecreation is an indirect process. Intangible assets, such as knowledge and technology, rarely have a direct impact on financial results such as revenue growth, reduced expenses, and increased profit. Due to the fact that this influence is non-transparent, actions taken by management are not always properly appreciated by shareholders. Nonetheless, we can establish a chain, which will clearly show how actions aimed at improving quality affect the growth of customer satisfaction, and consequently, impact on customer loyalty, which in turn is a prerequisite for growth in sales and profits. On the strategic map, you can clearly see how the strategy combines intangible assets and value creation processes, as tasks, processes, and goals from the lower level influence goals at the upper levels. The Map has Four Layers The financial and client layers describe the desired results of the strategy: financial—using traditional financial concepts, and client—through proposals with use value for target customers. The whole system only

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works if we believe that financial results are a function of satisfaction of target customers’ needs. No customers, no money! The layer of internal processes identifies a number of very important processes that are crucial in implementing the strategy. For example, one organization might increase investment in developing and promoting new products on the market as well as in technology to produce them, so that the customer will get a high-tech new product. Another company trying to offer customers a proposal with the same use value, decides to develop new products, through joint ventures and partnership. The learning and growth layer reflects the intangible assets that are most important to the strategy. The goals of this element are to set down the kinds of activities (human capital), systems (information capital) and corporate culture, leadership, and teamwork environment (organization capital), which are essential to support the processes of value creation. As an example, let’s use the strategic map of AKADO. This was developed in 2008, but it’s now somewhat outdated because of the financial crisis. Let’s go through all the elements we examined in the financial layer of the map in order. So, the goal of the upper layer is an increase in capitalization. Financially, productivity and business growth affect the growth of capitalization. Productivity is determined by: cost structure, return on assets, labor efficiency of employees, and the structure and quality of the existing subscriber base.

Capitalization Growth PRODUCTIVITY GROWTH STRATEGY COST STRUCTURE Reduce customer acquisition costs

Financial Layer

EFFICIENT USE OF ASSETS Maximize market share in digital TV and Internet

GROWTH STRATEGY POTENTIAL INCOME GROWTH Regional development Subscriber base

Improve Related structure of businesses (DTH) subscriber base Transition to digital TV in Return on technical regions infrastructure Sell (maximize sales to) Increase to existing employee efficiency subscribers Return on intangible assets Returns on Content

Wide range of services Increase loyalty Reduce churn Increase recommendations by clients Alliances and partnerships

VALUE FOR CUSTOMERS Watch what I want, when I want, where I want Variety and new products I pay less than what the product actually costs Free applications Works reliably Convenient and easy to use Responsibility and obligation

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PRODUCT FEATURES

Client Layer

CLIENT RELATIONSHIPS

Products meet or exceed market standards (standards must be described)

IMAGE AND REPUTATION

Friendliness

Brand awareness

Openness

Leadership

Attention and care

‘Desired’ operator status

Competence Expert reputation Emotional attributes

OPERATIONS MANAGEMENT

CLIENT MANAGEMENT

Joint programs with content providers

Feedback system—Realtime information about customer problems

Development of distribution and service channels

Internal Processes Layer

Cooperation within business units Quick response to subscriber requests

Service development strategy

Research technology Up selling system trends Brand platform

Logistics (supplying customer equipment)

INNOVATION MANAGEMENT

Brand strategy Communications strategy Continued relationship with clients, even If they switch User-friendly program Retention and loyalty program Recommendation system Differentiated services

LEGISLATIVE AND SOCIAL PROCESSES Concept of digital TV (Government program)

Participation in implementation of government Regulation of R programs and D process Selecting sponsorship areas

Learning and Growth Layer

TRAINING

RELATIONSHIPS

Trained personnel (connections, service) Staff communication skills FO Computer and network Technology used by FO staff Standards for interacting with customers Train FO staff to exceed customer expectations Motivate staff to strive for self-perfection

Staff loyalty Shared values Delegate authority for flexible solutions Link reward systems and customer satisfaction Retention of trained staff

IT Information accessibility Identical information at all points

cost stRuctuRE In order to understand what kind of cost structure it is, we need to refer back to yet another strategic instrument—the value creation chain, as explained in the marketing works of M. Porter. We will need to analyze all the components in detail, from the moment of creating the service to when it is delivered to the consumer and paid for. Such an analysis will likely give us an answer to many of our questions. It will also allow us to create the ideal cost structure. However, this kind of work takes quite a long time, and at some point you will realize that 80 percent of your efforts are directed at researching certain links in the chain that will contribute no more than 20 percent to the final result. It is clear that it would be best for us to concentrate on the 20 percent of links that contribute 80 percent. One of these Internet business links is the connection process. In order to understand the role this process plays, let’s take a closer look at the connection process itself. It is imperfect because it does not involve expenditure on internal logistics, promotion, permanent equipment, etc. However, we can see that sales expenses account for the lion’s share of expenses by over 60 percent. The next biggest expense is on customer equipment. If we want to improve some aspect of the cost structure, we will have to pay close attention to the

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above processes. What does this mean for us? The decision to subsidize equipment may highlight your efforts to perfect the logistics system. If you believe that the equipment can’t be improved upon, then we will have to work on perfecting routes. If we succeed in considerably cutting journey time, then we should be able to reduce how often they have to pull over for gasoline. But that’s not all! If we create a self-installation system, then we will save $9 per connection, but we will have expenses linked to the distribution system. On the other hand, sales via a retail system could well turn out to be more profitable for us. Expenses, per person/per minute

Expenses in $

250

Call out expenses

Travel to customer’s residence

Work carried out at customer’s residence

Welcome call

Sales (Telemarketing)

Equipment and materials Filling out forms and receiving purchase orders Total Sum

20 60/8

1 81

In any case, we will have to manage customer acquisition costs (SAC—subscriber acquisition cost). This indicator is not a part of financial statements but is very useful in managing costs.

REtuRn on assEts It is clear that assets should work and should bring in profit. If you have built a network, but you’re not selling anything with it, then you’re just throwing away opportunities. Suppose you’ve decided to connect an ordinary house to the network. You spend $5,000 on this. If there is only one customer in this house, then all these costs will fall on him. Taking into account that the Average Revenue per User stands at $17, it will take you about 300 months to recoup that $5,000. If you add travel expenses, monthly maintenance, etc., into this as well, then it’s clear that you won’t be getting your money back from this project anytime soon. It is a vicious circle; assets must work effectively. In order to do so, you will have to at least spend money to attract clients. But in fact you will also have to invest in the development of the network, customer loyalty, etc. As a matter of fact, we started discussing strategic maps only to demonstrate how useful this tool can be, and how it can clearly align goals.

thRough thE layERs of thE MaP Let’s take one element from the financial layer and examine it through all the other levels. Сapitalization will grow if you get a lot of subscribers. In order to get lots of subscribers, we have to sell a lot and spend only a little. To achieve that, we need: a) To have a product that is a leader or, at least, close to it, b) To create a relationship with the subscriber so he will continue to use our services and is willing to recommend us to other people, and c) To attract subscribers and keep them; we need a certain image and a good reputation.

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In order to achieve all of that, we need to: a) b) c) d) e) f) g)

Develop distribution and service channels, Create a feedback system, Create a rapid response system to respond to customer requests, Make an ideological attitude in subscriber relations, Develop or improve the brand platform, Develop a strategy for service development, and Create a strong brand.

We can see all of that in the layer of internal processes. In order to make these processes effective we need trained personnel, who believe in the company’s ideology and share a common goal. We need to create an effective system of motivation and delegation of authority. We need standards of service. And we need information: integrity and identity at all points of contact. If you look at the map, it’s all there to see. On one sheet!

stRatEgy and non-stRatEgy The boundary between strategic and operational marketing is very blurred. They simply do not exist without each other. Most operational marketing decisions are strategic. How can you call a decision on the target audience’s choice nonstrategic? Or decisions on price policy? Or a decision concerning brand positioning? However, any operational marketing book will broach these issues. Certainly, there are goals and challenges, which cannot be reviewed in a company’s strategy especially if it concerns a holding company or a group.

A product is what a producer makes, while value and brand is what the consumer receives.

Some strategic decisions are made from the top. For example, an operating company can solve the problems of working in a specific market, such as a broadband access company in a particular city. Its strategy will be targeted at achieving only those set goals. The goals of a group of companies may cover a wider range of goals. Then the key points in managing a companyâ&#x20AC;&#x2122;s strategy may be to redistribute businesses between operating companies, to access regional markets, to create relevant skills, to decide not to develop certain areas, and to achieve synergy, alliances, and so on. I am not completely sure that this can be called a marketing strategy. It is more like a business strategy. For marketing-oriented companies, though, that means the same thing. That is how marketing looks to Phillip Kotler, one of the authorities on marketing. In fact, a generation of marketers has grown up reading his books. (Marketing Management Millennium Edition, Tenth Edition by Philip Kotler.)

Marketing Strategy

Tactical Marketing The Chain of Value

He is talking about value here. This is a fundamental point because a product is what a producer makes, while value and a brand are what the consumer receives. Every marketing manager should write that on the wall next to his desk: value, value, value. He should not be thinking

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about how to sell something, he should be thinking about how and why people buy things.

stRatEgy and invEstMEnt There is no strategy without investment. Moreover, we need it when shareholders are least inclined to invest further and the amount of debt that the company has is high. There was a period when Russian companies followed the trend set by American and British stock markets. That time was great for Russian companies. Now that they have this access to money, things have become significantly harder. Therefore, most Internet companies have scaled down their development plans and, in doing so, committed a terrible marketing error. In a crisis you have to increase pressure on the market—that is the simplest way of changing the balance of power win back market share, and secure future cash flows. There is one fundamental rule: an expanding company cannot move forward without investment. A company which is now bringing in 100 rubles per month in revenue cannot break into the 100,000 ruble market. Self-financing at the expense of operational activities is self-deception. You need money for growth. Rapid growth requires large amounts of money. If shareholders don’t invest, it is as if they have a suitcase without a handle—dragging it along is uncomfortable but it would be a shame to throw it away. But the more they drag it the more they want to throw it away.

You need money for growth. Rapid growth requires a lot of money.

Who are the market leaders in Internet access in Moscow? Answer: Comstar (Stream), Vimpelcom (Corbina), and AKADO, are all companies that had investment sources to spur their growth.

Why i didn’t dEdicatE a sEPaRatE chaPtER to coMPEtitivE analysis? I had a few reasons for limiting my discussion to competitive analysis and competition. But this book is about relationships and I should keep any departures from the main topic to a minimum. Additionally, competitive analysis, strategy and tactics deserve at least a separate book. But not mentioning competition at all would be quite wrong, too, because it strongly and significantly influences our actions. I really like the comparison between competition and warfare. In general, brilliant military strategists are admired. Read The Art of War, a treatise by Sun Tzu, written 2,000 years ago, and you will find many methods to be used in competitive warfare. One excerpt from the book reads, ‘. . . For to win one hundred victories in one hundred battles is not the acme of skill. To subdue the enemy without fighting is the acme of skill.’ There is also a useful quote from Clausewitz that says, ‘War is very simple,

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but in war the simplest things become very difficult.’ Another good one is, ‘Forces must be concentrated in the majority. That is the fundamental idea. Always be prepared for everything and as soon as possible.’ I would like to finish these quotes with another one from Clausewitz, ‘Many believe that a half-hearted effort can bring success. It is easier to make a short jump than a long one, but no one can cross a wide stream in two jumps.’ Let’s imagine that consumers are the people in the towns and cities that we are going to fight over. But that is also what our competitors want to do. We must know everything about them, and that is the job of our reconnaissance teams, to find out what they have, how they think, what they are going to do. They might be stronger and more powerful than us, they may have a much larger marketing budget, but should we give up? National liberation movements have ruined great empires. The most important thing is that the people see us as liberators and as one of them, not outsiders. They have to want us and want us to come to them. Somebody has to create this desire because we know that invaders use powerful propaganda. Therefore, we must create a fifth column and start the resistance process. The stronger the pressure, the stronger the resistance. By using military terms to analyze competition, we can make great strategies for defeating our enemy and for taking those towns and cities. For example, by having a significantly larger budget, we can squeeze out any competitor, any service, and create the necessary image of our company in the mind of the consumer. We can have a very precise war plan that will help us gain foothold after foothold. We can use the element of surprise, make our enemy fight in a swamp, use diversionary tactics, or make alliances or unions with others. I think we should end our discussion on competition there. Read books on military strategy and transfer it to marketing. Leaving competitive strategies behind, let’s go back to the hard-torefuse offer.

Read books on military strategy and transfer it to marketing.

We must remember who is buying our offer and why. Are they buying because they believe that our product will help them achieve goals? Of course, some reasons for buying are so obvious that we just need to make some information about our product available on the market. You canâ&#x20AC;&#x2122;t sell something if nobody knows anything about it or that it even exists, or if people donâ&#x20AC;&#x2122;t care about the specific characteristics your product has. Therefore, we have to try very hard so that people notice us. But what if the reasons for buying are not that obvious? Most of the time, we have to carry out research. A lot of research, in fact.

ChAPter 4 understanding Means succeeding One man’s mistake is another man’s baseline value.

Murphy’s law.

Quality to think aBout How can you find reasons for buying when the person doesn’t know what they want themselves? That is why we have qualitative research. If we want to drag out the deeply ingrained reasons then we would probably have to have in-depth interviews and very qualified experts to carry out and interpret them. There is another time when we do need that kind of research such as in focus groups. Sometimes the group leader might bring everybody around to his way of thinking and end up distorting the findings of the study. However, for ten years, I have not had to resort to any interviews but I have held several focus groups. As a matter of fact, the technique of using focus groups is beyond the scope of this book, and it would not be of much use for non-experts in research. Around 90 percent of a focus group’s success is down to the task and the moderator. The rest doesn’t really matter. An experienced moderator can talk to any quiet person and get them talking. An experienced moderator is able to keep discussions on topic and keep people from going off on tangents.

What conclusions can BE dRaWn fRoM QualitativE REsEaRch? Usually none. But we can see that stereotypes and myths exist and that there are reasons or barriers against buying of which we know nothing about. We can get a sense for the emotional component of consumer behaviour. We can hear what people think about our product and we can find out novel ways of using that information. We can see people’s reaction and gain insight into our offer (idea positioning). But we will never know how many people think along the same lines. When drawing conclusions from the results of focus group we risk getting a narrow view of people’s opinions about the offer. Sometimes focus groups produce a very strong impression. That is what happened to us in 2003 when we were carrying out research on the Internet. We were astonished by men and women over thirty-five. I remember, at that time, the Internet was still not seen as something that was in every home. How do you think these men answered to moderator’s questions? Most of them were not interested in the Internet, saying that they preferred to spend time with friends, in the outdoors, fishing, etc. But the moderator asked the general question—What do you usually do while you are at home? The response was no less astonishing— I usually watch TV with my family. This meant that the computer is definitely a distraction from the family while the television is a shared, family thing. In contrast, the women said something like, ‘I spend the whole evening washing, cleaning, cooking . . . now let me sit quietly and surf on the Internet.’ For them the Internet was a relief from housework and hassle.

fRoM Quality to Quantity From all that we heard in focus groups, we have to choose something substantial to review through quantitative research.

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It is probably not worth to try and create a survey by yourself. Even small nuances are extremely important. For example, we get two different responses from two similar questions: 1. Would you recommend this Internet provider to friends or acquaintances if they asked you about it? Please rate the likelihood of you recommending your provider on a scale of one to five; one being, ‘I would not recommend it’ and 5 being, ‘I would definitely recommend it.’ 2. Would you recommend your Internet provider to friends or acquaintances? Please rate the likelihood of you recommending your Internet provider on a scale of one to five. One being, ‘I would not recommend it’ and 5 being ‘I would definitely recommend it.’ In the first case, the respondent only makes a recommendation when asked about it. In the second case, the respondent can take the initiative and recommend it himself. It is possible that the results of both would be close, but it is possible that they wouldn’t be. Another area to pay attention to in quantitative research is quality and randomness of the sample. There is almost never a, ‘everybody who lives in Moscow’ category. Usually categories would adhere to the formula ‘people who live in Moscow between the ages of sixteen and fifty-five and earn more than the average person and are Internet users’. That gives you the opportunity to focus on that one specific group. Then you want to focus even further and find out, for instance, if there is a difference in the behavior of different age groups. For example, we would like to find out what radio station respondents aged fifteen to nineteen years listen to. Or how many of them have a digital TV? What channels do they prefer? Now let’s imagine that the total sample is 400 respondents. Of these, seventy respondents are in the relevant age bracket. Of these fifteen have digital TV . . . What conclusions can we draw from that?

This means that you need to have a representative sample at every stage. There are several ways of attaining the representativeness that you are looking for. For example, we can immediately set an age quota and then weigh them according to demographic information. Or we could analyze the respondents from specific groups. The most important thing to remember is to keep the research unbiased. No matter what, you have to discuss all of that with the researchers. Here is a sample scenario of a study. The table shows the approximate calculations of sampling errors. Dimensions of statistical errors for several samples (in percent) 2/98 3/97 4/96 5/95 6/94 8/92 10/90 12/88 15/85 20/80 25/75 30/70 35/65 40/60 45/55 50/50

SAMPLE SIZE

5,6

6,8

7,8

8,7

9,5

10,8

14,3

17,3

18,3

19,1

19,6

19,8

4,9

5,6

6,2

6,8

7,7

8,5

9,2

10,1

11,4

3,2

3,9

4,5

5,5

6,2

6,9

7,5

8,2

9,2

12,3

13,5

13,9

14,1

14,2

10,5

11,3

11,4

11,5

100

2,8

3,4

3,9

4,4

4,8

5,4

6,5

7,1

8,7

9,2

9,5

9,8

9,9

150

2,3

2,8

3,2

3,6

3,9

4,4

4,9

5,3

5,9

6,6

7,1

7,5

7,8

8,1

8,2

200

2,4

2,8

3,1

3,4

3,8

4,3

250

1,8

2,2

2,5

2,7

3,4

3,8

4,6

5,1

5,7

6,1

6,5

6,8

7,1

4,1

4,5

5,5

5,8

6,2

6,3

300

1,6

2,3

2,5

2,8

3,1

3,5

3,8

4,1

4,6

5,3

5,5

5,7

5,8

400

1,4

1,7

2,2

2,4

2,7

3,3

3,6

4,3

4,6

4,8

4,9

500

1,3

1,5

1,8

600

1,1

1,4

1,6

1,8

2,1

2,4

2,7

2,9

3,2

3,6

3,9

4,1

4,3

4,4

4,5

2,2

2,5

2,7

2,9

3,3

3,6

3,8

3,9

4,1

800

0,98

1,2

1,4

1,5

1,7

1,9

2,1

2,3

2,5

2,8

3,2

3,3

3,4

3,5

1000

0,9

1,1

1,3

1,4

1,5

1,7

1,9

2,1

2,3

2,5

2,8

2,9

3,1

3,2

2000 3000

0,61 0,75

0,86

0,96

1,2

1,3

1,4

1,6

1,8

1,9

2,1

2,2

0,51 0,62

0,71

0,79

0,87

0,99

1,1

1,2

1,3

1,4

1,6

1,7

1,8

5000

0,4

0,49

0,56

0,62

0,68

0,77

0,85

0,92

1,1

1,2

1,3

1,4

10 000

0,3

0,34

0,44

0,45

0,54

0,6

0,77

0,8

0,86

0,92

0,98

15 000 0,23 0,28

0,36

0,39

0,44

0,49

0,58

0,65

0,7

0,75

0,8

0,81

0,82

20 000

0,24

0,31

0,34

0,38

0,42

0,5

0,57

0,61

0,65

0,69

0,7

0,71

25 000 0,18 0,22

0,28

0,3

0,34

0,38

0,45

0,51

0,55

0,58

0,62

0,63

0,2

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I would like to note that we have chosen the hall test as the method to be used. A telephone survey is cheaper but is limited in what it can do. The length of the surveys is one of these limits. It is commonly believed that a telephone survey should not last longer than ten minutes. Also, you canâ&#x20AC;&#x2122;t use visual materials such as advertising models. New-fangled methods of research using online tools also have their limitations. Actually, unlike qualitative research, this type of study allows you to reach concrete conclusions. For example, we can determine how indicative the barriers for Internet connection are that we discussed in focus groups. Without a qualitative study, we would probably not be able to find out the main barrier; a lack of need for the Internet. The survey for a quantitative study has to contain several more questions. It is true that one will have to formulate a hypothesis for that. However, that hypothesis may not end up being correct. We have managed to get information about whether or not potential buyers know about our service and what exactly they know about it.

The marketing expert should get as much information as they can.

What stereotypes are most common? We saw the differences between age segments and their willingness to purchase services. We investigated price sensitivity.

In fact, we have gathered all the necessary information in order to produce a modified proposal. Everything about what we discussed was about what people can understand and imagine. But what do we do with the unimaginable?

hoW to find out thE uniMaginaBlE? It would be silly to ask how many people would be prepared to pay for SOMETHING that has no value for them. Of course, you could spend money and try to create value, and then ask what people thought. But we’d really like to know about this earlier. We can note another important aspect here, which should be taken into account when carrying out research: value is a variable quantity. If our product doesn’t attract attention today, that doesn’t mean this will necessarily be the case in the future. The converse is also true; the slide rule is an example of this. Incidentally, I was recently told about an electronic slide rule, which, according to engineers, is much more convenient to use than a calculator. As we finish our discussion of the uses of research, let us note that research is useful but it is not a panacea. Some data require interpretation, and straightforward questions may lead us in the wrong direction. I haven’t even mentioned deliberately distorted questions yet, such as, ‘Are you ready to give up bad Internet?’ Two more tips: Firstly, all research results require interpretation. You don’t just need numbers, you need results. Secondly, don’t try to compare research results that have been obtained using different methods. If you need to find out trends, you can use saleswave research. The main limitation of this is that you can’t change the

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questionnaire or research method. Although, you can try asking questions that interest you at the end of the questionnaire. Also, you shouldn’t neglect consumer panels—sometimes they can give very useful data, particularly with regard to the connection between lifestyle, demographics, and the use of one or another product. It can be useful to draw up a simple table in which you can lay out exactly what you want to find out, why you need this information, and how you will gather this information. Research Task Case Study Research Objectives • The main areas of this research include: • Using the Internet at home • The proportion of home Internet users • Knowledge of ways to access the Internet • Internet providers used • Average monthly expenditure on the Internet • Average monthly traffic • Average amount of time per day spent on the Internet • Knowledge of companies Knowledge and attitude towards the new service • Level of knowledge about the new service • Sources of information • Attitude towards the new service • Motivations and barriers to connecting • Advantages and disadvantages of the service • Intention to connect • Testing of service (traffic volume, connection conditions, speed of data transmission, and connection process) • Loyalty

Evaluation of sensitivity of demand to the level of prices offered • Testing one-off payments • Testing the value of a set of equipment • Testing tariff plans Knowledge and attitude towards a given advertisement • Overall impression • Sources of information and memorability of advertising • Advantages and disadvantages • How informative the advertising is • Impact on the perception of the brand image • Desire to sign up to the service • Comparative analysis before and after the advertising campaign. • Identifying reasons why people may not use an Internet connection at home.

REsEaRch MEthod The objectives established above were achieved by carrying out a quantitative survey, using the hall-test method. Target Audience Men and women, aged 16-55, who use the Internet at home make the decision to connect to the Internet either independently or along with other family members. Quotas Men Women 16-24 years old 25-34 years old

70% 30% 27% 29%

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35-44 years old 45-55 years old

31% 13%

Date of Field Work Sample Size Some 900 people will be interviewed, who represent the target audience. To ensure a uniform distribution of the sample population, the survey will be carried out in all the administrative districts of Moscow, in each of which 100 people will be interviewed, who are to be chosen in accordance with sex and age quotas. The error in the master sample is ±2.5 percent at a 95 percent confidence interval. This means that with 95 percent probability, we can state that the results we obtain from this survey will not deviate from the real data (which we can obtain from a survey of the entire target audience in Moscow) by more than 2.5 percent.

fRoM REsEaRch to action Let’s sum up: – We know practically everything about our target audience and their consumer behavior. – We know what stereotypes exist in our target audience’s perception of ways to access the Internet. – We know what barriers impede them. – We can predict their reaction to the product/service we offer them. So, what do we have to do? Essentially, our task now is to change consumer behavior by making it more favorable for us.

What aRE WE going to sEll, and to WhoM? Sometimes, some conclusions seem so obvious that people wonder whether or not they should even study them. For example, research carried out in 2003 led to the conclusion that young and active people are more inclined to purchase online than older people, and that students were the Internet’s core users. It was also obvious that dial-up people, who already understand the customer value of the Internet, are going to be the first to respond to a new offer. However, price sensitivity is not that easy to gauge because customers would have to spend four to five times more on the Internet. Yet, the market average revenue per user (ARPU) for dialup was $7. By the time Stream introduced unlimited contracts, it was already selling more contracts per month than any other provider, but there was not a boom in sales of the Internet. One factor for the doubling in Stream’s sales was down to the fact that people weren’t aware of the brand. However, lack of awareness alone cannot account for the five- to six-fold growth in monthly sales. This means there had to have been something else. Perhaps people were motivated by the fact that they could control how much they spend because they would have unlimited contracts? It’s possible, but I doubt it. At the beginning of September, of course there was deferred demand, because one day is not enough to have a large jump in brand awareness. Therefore, attracting the core group of Internet users, which is an active community in itself, through incentives led to more interest in the proposition. The fact that customers, who had forgotten their student cards at home or were sharing student cards between each other, started to come in and they only created more interest in the scheme that Stream had introduced.

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MTU-Intel is extending student discounts for Stream home Internet. Now the discounts will be available until 28 February inclusive. During the promotional period, you can purchase the kit, including a contract and a modem for only $49. To get the discount, you only need to show your student card at any MTU-Intel sales office. Don’t forget about our new contracts available. All customers have access to two unlimited contracts— Stream Neo 20 and Stream Neo 25. Stream Neo 20 allows you to connect to the Internet at speeds of 128 kbps for only $20 per month. While if you sign on to Stream’s Neo 25 plan you will have twice the data speed, 256 kbps for only $25 per month.

to find out.

Over two months, brand awareness more than doubled, from 32 percent to 70 percent. This is thanks, in large part, to a combination of the advertising campaign and word of mouth.

did WE ManagE to changE consuMER BEhavioR? and, if so, hoW is it diffEREnt? The first thing that changed was the concept of Internet access because dialup was quickly becoming outdated. Active involvement in the buying process and in the discussion of connectivity options as well as deferred demand all started to turn into current demand. Stream had a product to which people turned to first. Internet users began spending between $20 and $25 on Internet access instead of $7 to $10. But did we manage to instill the idea in customers’ heads that Stream is a new level of service which is both modern and capable of solving any Internet use problems on a new and better level? We would have to ask our customers

ChAPter 5 loyalty Most people desire benefits but avoid doing good as they receive no payment.

Aristotle

loyalty? loyalty to What? Why do companies fight for customer loyalty? The cynical view would be that they don’t want their customers to leave and they want their customers to buy more. Alongside the word loyalty providers tend to use the words, ‘hold’, ‘retain’, and ‘fight against churn’. Loyalty is a fashionable term that is used so often that it is losing meaning. Thus, the marketing expert should explain what it means and the manager should understand it. Most of the time, they are most concerned about ‘fighting against churn’ (or about the frequency of return shoppers), as reducing churn yields tangible business results unlike brief discussions about commitment and customer relationships. Is this right? Not really. Because churn is just a symptom, like body temperature. Sometimes emergency measures must be taken, but they are to combat the disease, not the symptom.

Don’t fight the symptom, fight the illness.

Let’s list the benefits of customer loyalty. – – – – –

Reduction in churn, which we have already discussed. Lower price sensitivity. Additional purchases. Lower maintenance costs. Recommendations, which reduce the need for investing in advertising.

Why do custoMERs lEavE? So why do your customers leave? There aren’t that many major reasons. a Problem with the Product Will the consumer buy a product that the last time turned out to be faulty? He will need strong evidence to do it again. Do you have enough credibility and does the customer have enough patience? If you have never upset your customers before, then they might begin to look at the

company’s behavior a bit more closely. Going back to what I was saying earlier, marketing people should understand the product and everything about it, such as the product itself, the service that comes along with it, the price, the sales policy, the care, and the desire to solve problems to satisfy customers. At AKADO we regularly investigated NPS’ Moscow providers. The table below contains typical reasons for subscriber dissatisfaction. It usually doesn’t work It often disconnects without warning It tends to connect improperly Bad relationship with the provider High cost Old customers on inconvenient plans It is diicult to contact support services. It takes a while to solve any problems The speed is slower in the evenings Unclear what they are paying for Repair work when they need the Internet Ineicient tech support—being passed around to diferent specialists Poor service: can’t contact the service personnel or they are incompetent Poor tech support: they don’t call back. Poor relationship with old customers They put me on a new plan without consulting me. They didn’t contact me They turned of the Internet for three days but when I was late for payment by one day, they cut of my access The payment plan is complicated and is not lexible The service is not what I was promised Uncertainty and unreliability They don’t warn you when your balance is running low and then they disconnect you as soon as it runs out They need to warn us about technical work The contract is for one amount, but I end up paying more—the prices go up without warning If the payment is overdue by one day then it ends up taking two to three days to reconnect

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Strangely enough, people respond positively if the company quickly and decisively admits a mistake and instantly compensates people for the inconvenience. Telecommunications operators know from practice that customers, who have had a problem at some point, value their operator’s work more highly than those who have never had to deal with a problem. But only on one condition: that the problem was completely solved and the operator showed as much interest as possible in the customer.

People respond positively if the company quickly and decisively admits a mistake and instantly compensates people for the inconvenience. telecommunications operators know from practice that customers, who have had a problem at some point, value their operator’s work more highly than those who have never had to deal with a problem.

Of course, if you’re constantly making mistakes and apologizing for them, your customer isn’t going to like it. If the Internet speed is slow or unavailable when the customer actually needs it, the customer’s patience will run out eventually. Problem with Value If your product is great but you didn’t learn to use it, then it may as well exist only in your head. We had that problem with digital television at AKADO. We sold packages with many channels over the years, until we discovered that but this had begun to create its own problems. The more

channels, the less there is to watch. Flicking thought the channels are no longer enjoyable, and are even irritating. Therefore, it is obvious that more channels need more variety in programming so that each viewer can find exactly what he feels like watching at that very moment.

People can forgive you for anything; just don’t ignore the fact that they are people.

Paradoxically, a product both sort of is and sort of isn’t. The perceived value is much lower than the real value. It is worthwhile thinking about how you could enhance the perceived value. Ignoring Is the Worst Mistake There Is People can forgive you for anything; just don’t ignore the fact that they are people. I even react badly when the interests of the provider are put before my own. I don’t care about your orders and procedures—change them. I do not want to have to wait for a few months to get anything done, or to call ten times to explain my problem, yet again, to a different person on the end of the line. How to Not Lose Customers? It is obvious that you want to keep them, but what do you do to keep them? Ask any CEO whether he wants to lose customers. What do you think he’ll say? I’ll put it in other words. What do you have to do to keep subscribers from leaving you and how much is that going to cost you? That is another way of putting the

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same question. If somebody thinks that retaining customers isn’t worth anything then he is wrong. The question is how and what to calculate. For example, would you consider higher qualified employees? How about advertising costs? Or technical work on improving product quality? Maybe it’s time to look at the problem of customer retention from a different angle.

When a tornado is blowing through the market (J. Moore, Inside the Tornado) our ‘customer bucket’ will quickly fill up.

There is another thing which we should bear in mind. The problem of retaining customers changes over the lifecycle of a product. When a tornado is blowing through the market (J. Moore, Inside the Tornado) our ‘customer bucket’ will quickly fill up. We are not too concerned about churn because for every customer that is lost, five new customers will take his place. But once the tornado begins to subside, you will find that you will quickly have to mend the hole in your bucket because the inflow of new customers begins to dry up, and the customer base quickly flows out of the bucket though the holes of dissatisfaction, frustration, and competition.

What aRE coMPany standaRds? Erecting a Barrier For example, having a complicated procedure for terminating a contract is erecting a barrier. Even great companies have that problem. I occasionally buy products from Apple’s App Store. The purchasing process is as simple as could be—you just say that you want something and you put in your password. I somehow bought a program which didn’t work like it was supposed to. So I went to return it. You would think you would have to click ‘uninstall’, enter your password, and you would get your money back. But that wasn’t the case. They sent me to talk to the programmer. Well, actually, they just sent me away because it was impossible to get in contact with the programmer. What did Apple get out of all of this? I only buy cheaper products that aren’t worth more than $10. Steve Jobs, my wallet sends its regards. You see, I could be spending much more money than I am spending now.

Developers of loyalty programs which compete amongst each other for the size of a piece of candy

You could think of another thousand ways of taking the customer hostage. For example, a while ago mobile operators tried hard to tie their

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customers to telephones, and in doing so, to keep them hostage. They could make arrangements with building owners and not let competitors into the building. These methods would work but your customers will be unhappy. Loyalty Systems The system of accumulated bonuses or airlines miles is hard to refuse. The programs may be internal and as part of an alliance like Malina, where rewards are given for purchases in several different companies. I remember a Russian cartoon about a girl. In it a character said, ‘Whoever praises me the best of all will get a piece of candy’. A parallel can be drawn between this story and all developers of loyalty programs which compete amongst each other for the size of a piece of candy. Of course, bonuses and loyalty cards help retain customers, but not to obtain their loyalty. Customer Retention Offer individualized services if the customer wants to leave your service. Improving Service Quality This is certainly one of the best ways of ensuring loyalty. If the customers can contact you at any time and receive a satisfactory response—don’t go getting a big head.

loyalty coMEs fRoM BEing WhERE you don’t havE to BE Let’s try another question. Are we talking about loyalty in general or loyalty to something specific? There are much nicer restaurants than McDonalds out there. However, you will find many more people at McDonalds than in the most fashionable restaurant where you eat like a king, the staff is well-trained, and satisfaction is guaranteed.

Yet McDonalds’ customers come back again and again. Shall we discuss what loyalty is? Judging by the definition of loyalty that we have just created, we should talk about what it means in this example. Why is that? What is the reasoning behind loyalty? As everybody knows, fast food is not the best food in the world. Then why are people so loyal to it? There is probably something that compels them to come back to the fast food chain over and over again. We can compare the opinions of customers with the vision of the management. No, I am not about to organize focus groups, but you can find a lot of interesting information on this topic in blogs. The following blog post confirms the idea that there is something that attracts people to McDonalds. This is what the blogger, britney-911, said about it: ‘I was in McDonalds. none of my friends can stand the place. but i really love it. every time they decide to join me there, before I even take a bit before they are all over me screaming that the food is so bad for me. but no matter what they say about how bad it is for your health we still end up going for some fries and a cheese burger, and a McFlurry, and a milkshake, etc. I wonder why?’ It was in those blogs that I found a controversial book by the German journalist, Edward Shlosser, called Fast Food Nation (thanks blogger, drakonchik007). This is how to describe the motivation for Shosser’s consumers: The play area attracts children, the children have parents, and the parents have money.

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McDonalds doesn’t sell burgers and coke, it sells entertainment and a good time with family and friends.

Around 90 percent of American kids come here every month. On top of the play area and clown they are attracted to the toys that they get with their burger and coke in a Happy Meal. The toys are characters from a recently released cartoon or film and they want to collect them all. If you still think that McDonalds just sells burgers and Coke, then I beg to differ. They sell entertainment and a good time with family and friends. They are strengthening social ties. As McDonalds sells to children, it is ensuring its future. People subconsciously desire to experience pleasurable things again and again and want to give a similar experience to their children. Even growing up, knowing all about the ‘benefits’ of fast food, adults continue to go there with their children and grandchildren. What are they trying to find there? Perhaps, some nostalgic memories from childhood?

lEt’s talk aBout PlEasuRE Do you like surprises? Only nice ones? Of course, nobody likes unpleasant surprises. Yet several companies still give unpleasant surprises. For instance, I really don’t like the company Ingosstrakh. Its behavior

became unexpectedly unpleasant for me. Even though it did not break any rules according to the Russian insurance industry, the company refused to pay for my father’s car insurance claim when the lady who drove into him left the scene. Her license was revoked for eighteenth months. She was officially recognized as a participant in the accident which damaged my father’s car. But they did not confirm that it was her car that had caused the damage. They don’t refer to it at all. I didn’t want to spend a lot of time on getting it sorted out, although I could have fought. Yet my car is still insured by Ingosstrakh for two reasons: I feel I can trust my insurance agent and I am too lazy to bother to switch to another insurer. I don’t feel like getting the best out of a bad lot. If people whom I trust were to recommend that I change my insurer to somebody else, I would probably switch. Many people, me included, are held hostage to some degree by their service providers. I’ll give you a more recent example. In August 2010, a conflict flared up between Vimpelcom and the realtor Penny Lane Realty, which was a corporate client of Vimpelcom. They were fighting because Penny Lane had refused to pay for some of Vimpelcom’s services. One of Vimpelcom’s employee’s accounts was ‘unfairly’ charged 522,000 rubles. Much of this fee was for using mobile Internet for four hours in Egypt on the Russian provider network BeeLine while roaming. Wilpelcom continues to believe that it was not at fault in that situation. This is the classic example of harmful thinking. Was Beeline right? Probably. Legally speaking. But from a marketing point of view, it committed the classic mistake, which, a) led to the loss of a client, b) damaged the reputation of the company and led to loss of confidence in the company and make people doubt its honor, c) devalue the investment of the work for several years of the company and the work they had achieved in client relations, something that they had spent tens of millions of dollars on. What would have been the right thing to do? First of all, when there is a problem with the billing system, you should suspend the service and contact the client. Does he understand the situation? In general, for such expensive

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services, you should first give notice before trying to go on the Internet because they are going to be billed for it. If the client fully understands and allows you to use the Internet then you can go forward. Let’s say the billing system didn’t work properly and that kind of inconvenience happened. What should Vimpelcom have done? They should have immediately said that there was a misunderstanding, thank the client for bringing the error to his attention, and charge him a fair price even if Vimpelcom ends up losing money because of the roaming charges. They can no longer expect the client not to know what is going on. If the client does not know the situation it is the responsibility of the operator. Even if Vimpelcom gets the money (which I doubt) it will come at a bad profit.

What is thE BEst Way to look at loyalty? I have had to read or leaf through many books about loyalty. Their biggest problem is that they treat loyalty as a self-evident truth. Nobody questions the idea that loyalty is necessary. I recommend that you read a book, by a group of authors, called, Loyalty Myths: Hyped Strategies That Will Put You Out Of Business—And Proven Tactics That Really Work. The authors might have been a bit scathing in parts, but at the very least, they did cast doubt on the idea of loyalty as a self-evident truth and give a completely fresh and original view on the subject. I really enjoyed this phrase from the book, ‘We’re broke, but we have love’, meaning that a company may have very loyal customers but they may not necessarily help it to successfully run a business. It is possible that everything will become easier if we look at consumer behavior in a different way. For example, if we have the hypothesis that using services and purchases are actually the same thing. As everybody knows, the first purchase is always the hardest to make because the person does not know much about the product and for all they know, they may have to do something else after buying it.

For example, to connect to the Internet you first need to have a cable, make holes in the walls, and set up a new connection to comply with the new rules. However, return purchases are much more straightforward because instead of uncertainty and dangerous potential risk, you have experience and are prepared to go through a set of automatic actions such as paying monthly fees. Why do people choose our product over better products even though those companies regularly attack us? Why would I bother changing anything when I already have everything set up? Many mobile phone subscribers have still not changed their old payment plans even though better plans have been around for quite some time. This habit accounts for some of the operators’ revenue, but also poses a risk for subscriber churn when they find out that they have been taken advantage of. The probability of them leaving the network if they find out something like that is much higher than the probability of them just changing their payment plan with the same network. We’ll discuss the concept of ‘harmful’ or bad profit again. Of course, if the return purchase turns out to be complicated and expensive, the difference between the initial and return purchases is practically nil except that the customer has had some experience with the brand. What does all that mean? The conclusion is simple—you buy your customers not once but constantly, every day, every minute, showing them that they were right to choose you.

loyalty is the faith your customer has that he has made the right decision.

As with any client acquisition there is a cost. Call it subscriber retention cost if that is what you are used to. Do not ever assume that once you have

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bought a customer they are yours outright. The idea of ‘customer lifetime value’ or ‘the customer as a business’ is certainly right. Except, you cannot always define this in terms of money. A customer who doesn’t provide much profit for a company may actually be much more interesting for you. Perhaps, we need to start thinking about profit in a different way. Now I’ll try to explain another hypothesis to you: brand management and loyalty management go hand in hand. A brand reduces the risk for new buyers and instills a feeling of confidence in the customer that his decision was correct. This belief is based on both on their own opinion and the attitude to other brands. If we think that a negative experience with other brands does not affect us, then you have the wrong idea. People tend to be more critical of things that they haven’t paid any attention to.

What is good foR thE goosE is not good foR thE gandER Despite what you may think, loyalty is not an absolute category. The no-frills European airline Ryanair proves it. What kind of attitude are you looking for if the ticket only costs €20? This is what blogger, poplovks, writes: I flew but not comfortably. It was even dirty in the cabin of the plane. The airfare did not include food or drinks. But you wouldn’t mind that too much. During the flight they brought out junk food that you could buy. They weighed our baggage very carefully, and they would not accept anything over 15 kgs. When I booked the ticket online I had to print it out at home because they won’t even send you out the ticket. So you have to choose between price and quality.

PS. Then we decided to travel by car instead and to return the tickets. But they wrote in black and white across the ticket that there were no refunds, even though we still had another month to go before the flight. Those are all of the drawbacks. I wouldn’t go with Ryanair again. But that is just my opinion. The printout is your ticket and flying Ryanair will save you a maximum of £15. If you wanted caviar you will be disappointed. Now the baggage allowance is only 20 kgs. I have friends who always fly with Ryanair and they are perfectly happy with it. But you could go with Aeroflot and pay a good price; $200 to London. While Logrus’a thinks: 10.18.2004, 11:12 Many people have had to fly with Ryanair, Easyjet, SkyEurope, and other discount carriers. Advantages: cheap airfare, they fly from London-Stansted, which for me personally is more convenient to get to by car and the car park is not that expensive. Disadvantages: it is cramped, no allocated seats, no food (personally, I like to bring a bit of cognac with me in a flask for short haul flights:)); there are usually problems with boarding because they sell more tickets than there are seats on the plane, and then they quickly close the doors to the plane as though people has arrived late for takeoff (that is what happened to a friend of mine); they close check-in 40 minutes before

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the flight (once I was late for the plane because I got there 39 minutes before the flight! At any other airline they would have checked me in without any problem. Once I arrived at Heathrow with only four minutes left before the plane was meant to leave. They waited while I ran and they closed the door behind me:)); problems with punctuality (it could just be that I am particularly unlucky, but in the few dozen times that I flew with a budget airline, they never managed to leave on time. There were always delays of between 15 minutes and one and a half hours. So you have to check in on time and stand waiting in line at the gate which is terribly tedious and annoying). I think that if the flight is longer than two and a half or three hours it is not worth it. Your health is more valuable (I shudder to think of flying to, say, Thailand with a budget airline on that kind of plane in such cramped quarters. I find it hard to get comfortable and I am not exceptionally tall. But for short haul flights it makes perfect sense to use them because you wouldn’t really mind losing an hour or two if you are not under any strict time restraints. Ryanair’s latest initiative, put forward by the company’s general manger, Michael O’Leary, caused a scandal as it was to introduce standing room on planes. So what? Ryanair had sixty-five million passengers in 2009 compared to Lufthansa’s fifty-seven million in 2008. Are customers loyal to a company? Judging by our definition—they are. Do they get angry? Yes, they do, but they still fly all the same. It is interesting to think what would happen with Lufthansa if it started behaving like Ryanair. How many millions of its passengers would not fly with it anymore?

loyalty is inextricably linked with expectations.

Here we come to an obvious idea that loyalty is inextricably linked with expectations. There was a character called Jack Vosmerkin from a great Soviet film called. ‘Jack Vosmerkin is an American’. In the movie. nobody really believed that he was a salesman and, in the end, he didn’t sell any cigars.

What is thE solution? The answer is simpler than you can imagine: strict adherence to your mission and purpose as well as following through on your promises to create a positive experience for the customer. That is exactly what churches do and they have the most loyal ‘customers’. Make your company into a ‘church’ or a cult for your customers, and you won’t ever have to try to retain your customer base. However, this is easier said than done. Because a company is not made up of a boss and a few top managers who can think of the right things to do and have enough powers to solve any problem. A company is made up of hundreds and thousands of employees who have to think of the company’s mission, and be competent and capable enough to carry out the mission.

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A company is made up of hundreds and thousands of employees who have to think of the company’s mission, and be competent and capable enough to carry out the mission.

‘Ruin, therefore, is not caused by lavatories but it is something that starts in people’s heads.’ This phrase by Bulgakov suits this situation perfectly. The problem is that not you as a company leader represent the company to the client. People judge your company and you personally by your employees, their competence, their behavior, and even their appearance. Can all customers be made loyal? Probably not. You will have some customers who are loyal disciples, some are unhappy, and others are neutral and don’t need that much from you. For example, the brand Harley has a small, but fiercely loyal core of customers. If the company was ever in trouble, I would not be surprised if the brand’s customers came out and rallied to save it. Igor Niesov, a leading expert in psychology, defines loyalty as the following: ‘Customer loyalty (allegiance) reflects the degree to which customers conform to the company’s mission and is made up of three levels: • Customer satisfaction (if the company follows through on the services that they have agreed to provide); • Involvement (connected with the customer’s positive emotions when dealing with the company); • Commitment (the customer’s belief that the company will stick to their mission and satisfy the needs of the customer).’

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Now that we have described what ‘loyalty’ is in brief, let’s try to go a bit more in depth.

MEasuRE and EvaluatE How do we know if we are moving towards loyalty or not? There are a range of instruments that measure loyalty, or rather, its different facets. One of the most simple instruments is the NPS—Net Promoter Score. This indicator was developed and introduced by Frank Reicheld, honorary director of Bain & Company. The method has won many people over with its simplicity and accessibility. The score is calculated based on telephone surveys of customers, who are asked a simple question: basically, customers are asked to evaluate their willingness (on a scale of eleven points) to recommend the company (their service and brand) to people they know. On this scale, 10 is ‘extremely likely’ and 0 is ‘not at all likely’. Then, the percentage of people who respond with a nine or ten is established (known as ‘Promoters’). The percentage of those who answer with less than seven points (known as ‘Detractors’) are subtracted from the percentage of Promoters. To increase the NPS, companies must increase the number of Promoters and decrease the number of Detractors. A simple increase in the level of satisfaction of the majority of customers may affect the NPS, but not proportionally. As a customer, I may well be satisfied but I won’t take the risk of recommending the service or product. I will at least try to identify all the potential problems. An NPS of less than twenty-five is considered to be an indication of a company with problems. The experience of Russian researchers, in particular GFK Rus, has shown that Russians are not very good at using this ten-point scale; they

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are more accustomed to five-point scales, so in Russia a modified method is used. Here is a sample questionnaire on a cable operator. – Would you recommend this paid TV service operator to friends who would like to sign up to paid TV? Please estimate how willing you would be to recommend this operator on a five-point scale, where 1 is ‘not at all likely’ and 5 is ‘extremely likely to recommend’. – Please explain your decision (Please do not mark all possible answers). 1. 2. 3. 4. 5. 6. 7. 8. 9.

Nothing to watch, bad channels Expensive, prices are higher than those of competitors Interruptions in paid TV services Poor support service Poor image quality Good selection of channels Prices are lower or no higher than competitors Other (please give details) Not sure/ prefer not to answer

It is possible to reduce the number of Detractors by improving the quality of services and also ensuring that you fulfill your responsibilities, refuse ‘harmful’ profits, and compensate customers for any inconvenience. As a result, your company can reduce the number of negative responses. Moreover, often the most zealous critics in the end turn out to be just as ardent Promoters. To increase the proportion of Promoters, your company will have to build relationships with your clients, involve them in an active relationship with the company (through best product testing, holding online and offline events that the audience can relate to), and form communities, etc.

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Promoters buzz about your service, and this way is far more effective than advertising. The problem is that very few business leaders believe it. And if senior management is not wholly convinced, then it is better not to chase it, because if you begin acting this way, you will have to do this constantly, because people will expect this from you. And, as we’ve said before, meeting expectations is one of the main factors in satisfaction and loyalty. Is NPS the ideal tool for measuring loyalty? In my opinion, it is not. It can flag up problems that exist in the company, it describes the recommended activeness of subscribers, but you cannot draw an unambiguous conclusion about your customers’ loyalty from NPS. After the mass exodus of Detractors, the NPS increases. But does this mean that the amount of negative responses is decreasing or that the amount of positive ones is increasing? As a minimum, we must take into account the influence of reputation and former clients. The Secure Customer Index (SCI), developed by the research company, Burke, is another tool we can use. To calculate confidence levels in customers, three indicators are used: – Overall satisfaction – Likelihood to recommend the company to others – Likelihood to make future purchases The coefficient of confidence in customer is defined as the percentage of customers who are: – ‘Very satisfied’ with the service, – ‘Would definitely recommend the organization to others’, and – ‘Would definitely continue to use’ the service.

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Below you will see a useful table, prepared by the research company, IKS-Consulting, which outlines some features of this indicator, as applied in Russia. Burke Index/SCI

Comments

Unsatisfied, SCI = 25 or below

In Russia, we find SCI ratings that would be uncommon in the USA and Western Europe. For example, the average SCI of customers of regional telephone network companies1 is in the range of 3-17

Indifferent, 30-40

Such an index is commonly found in the regions. The majority of telecommunications companies have an SCI of 35 and under for business clients, and between 20 and 30 for individual subscribers. in terms of the corporate market in the capital, indexes are typically higher, ranging from approximately 40 to 60.

Favorable, 55-70

In Russia, an SCI of 60 or above is very rare.

Secure, 75 and above

In seven years, neither the author of this report nor his colleagues have ever encountered an SCI of 75 or above in Russia.

1 This indicator is for both individuals and legal entities.

As the experience of research into markets of communications services for individuals has shown, if the major market players have an SCI of 20 or below, then the likelihood is extremely high that a mass crossover of customers will take place if there are even comparatively small changes in the services offered. However, observation has not revealed any connection between the SCI level and the inflow of new customers. The client base can increase thanks to an active inflow of new clients, which more than compensates for the outflow of current customers; this may be true even for mass markets with low SCI scores. At an SCI level of 30,

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notable marketing initiatives are necessary, as well as relatively active communications on the part of the competitor, to induce customers to switch companies. At an SCI level of 40, the customer base is fairly stable. If the SCI stands at 50 or thereabouts, you should carefully evaluate the economic practicality of re-dividing the market and attracting customers away from companies with such SCIs. In many cases, the cost of attracting customers can be unreasonably high.

conclusions on loyalty There is no single universal instrument for measuring loyalty. If you are going to try to measure loyalty, consider what you will measure it with, and to what end. If the NPS says more about the activeness of your clients (both positively and negatively disposed towards your company), then the SCI shows how confident you can be about your customers and the probability of customer churn. Combining these indicators will cover virtually all aspects of loyalty.

hoW long doEs a suBscRiBER last? If the head of a company takes an interest in the structure of the subscriber base, he will make some surprising discoveries. The fact that 80 percent of income comes from 20 percent of subscribers is unlikely to surprise himâ&#x20AC;&#x201D;the Pareto principle has proven its universality. But he will be surprised to find that the company pays many clients for the fact that they use the companyâ&#x20AC;&#x2122;s services. A popular trend is to adopt the concept of CLVâ&#x20AC;&#x201D;customer life value. The idea of the method is as follows: the company attracts customers, spends money on advertising, subsidizes equipment, and bears the cost of paying commission to salespeople and to set up connections.

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The customer makes once-off and regular payments, and the company continues to spend money on customer service, it tries to retain the customer, etc. In the end, the customer leaves and the company bears the cost of disconnection. If we add up the income and expenses resulting from this client for this period of time, we can define the value this customer has for the company. This is called customer lifetime value: the company spent so much in such a length of time, the customer gave us so much. Read ’em and weep! It’s clear that calculating the cost related to an individual client is not an easy task. Here’s just one example: a customer uses up a certain amount of bandwidth. We somehow calculate the loss to the company from this client, who uses up a lot of bandwidth, to be about 20,000 rubles per month. We calculate the income generated from this client to be between 1.5 and 2,000 rubles per month. So what? Is this a bad customer? Not at all! Of course, the fact that the customer base is skewed towards ‘downloaders’ leads the company to spend money to beef up the network, as well as to buy additional lines, but how do you know when you have enough power? By getting rid of this customer, you lose 2,000 rubles, but will you end up spending less? Probably not, as creating power always creates redundancy too, and so other customers will pay for your ‘downloader’. As they say, ‘many a little makes a mickle’. The main problem lies in cost distribution among clients. However, the example shows how difficult it can be to assign even direct costs, before we even mention indirect costs. For example, the number of administrative staff does not grow in proportion to the number of subscribers. In the end, it seems even unprofitable customers in large numbers ‘make themselves’ more profitable due to economies of scale. Furthermore, you should bear in mind (and we’ve already talked about this) that the value of the customer is not defined only by money. How much would you pay for a recommendation by, say, Exler, whose blog is read by many people, and whose opinion is trusted by many people?

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You will get a recommendation for free, if your work deserves it. Seth Godin refers to these people, and to himself, as ‘sneezers’: when they find something great, they spread the word. Meanwhile, returning to the CLV concept, we can note that in this concept, particularly in the B2C market, segmentation is used, and conclusions and types of action are made for the segments. However, the customer lifespan here is averaged. Most often it is calculated at the EBITDA level (earnings before interest, taxes, depreciation, and amortization). As a rule, the CLV is calculated taking into account the discount, as the value of money received and spent at different times varies. Based on the CLV values, companies can decide what action to take. For example, customers with high CLV are so tempting for competitors that we need to rack our brains to think of ways to retain these customers. But if the segment is not profitable, maybe it would be worthwhile investigating as to why this is the case. It’s not an absolute fact that the segment has no future prospects. If I don’t buy something today, that doesn’t mean that I won’t buy it tomorrow. CLV is certainly great concept, but we must use it very carefully.

oBtaining loyalty Although we’ve managed to establish what loyalty is, we’ve not yet succeeded in answering the question of how to achieve customer loyalty. We have talked about brand management and loyalty management going hand in hand. So, all our further reasoning will be based on branding, and if something remains outside of this framework, we will certainly take note of it. The main thing to remember is this: brands are part of the value system of the customer. Take away their favorite brands, and they will be unhappy. Very few people cut labels off branded jeans.

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What We should or should not do 1. Do not make unrealistic promises. Many companies abuse amazing advertising with slogans that sound great, but these do not have any relation to reality. You must consistently fulfill the brand promises. 2. Clearly define distinguishing features and articulate them to the customer. They must identify you and understand what differentiates you from others.

Brands are part of the value system of the customer. take away their favorite brands, and they will be unhappy.

3. Try to make a strong first impressionâ&#x20AC;&#x201D;this is the most important for the perception of the brand. However, we should remember that any negative interaction can spoil an initially good impression. 4. Give people information. You may be brilliant, but people must find out about this, and not just from you. Mass promotions undertaken without adequate coverage will only lead to a loss in revenue for your company. 5. Take all the details into account. Packaging, advertising, clear instructions, showing that you care about the customer, competency, having music when people are on hold on the phone, intonation, fair discountsâ&#x20AC;&#x201D;all these combine to form a unified perception of the brand. 6. Ensure all employees understand and share the brand mission, and the corresponding behavior expected of them.

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7. Have strictly regulated working scenarios with customers, which should be combined with an informal approach to solving customers’ problems. 8. Give people a simple way to express their emotions. Establish a feedback system, find out what people want, consolidate relationships with the most active customers, and make them your followers and disciples.

PRoMisEs, again Of course, stories about how a congress center employee bought a book for a client, the same as the one he had forgotten on the airplane, on her own initiative, even putting a bookmark in at an unread chapter; or about how a technician at a service center set up the buttons on the new radio, exactly like they were on the old one, without the customer even having to ask, seem totally incredible in Russian business. However, these actions cost the companies practically nothing, but in the clients’ eyes they are invaluable. I am positive that customers were delighted when they told these stories to their friends, and in so doing they became the very same ‘sneezers’ we discussed above and spread the ‘virus’ everywhere. How many brownie points did these companies earn, to the benefit of their reputation, at virtually no cost? Is the strategy of exceeding expectations the only way to succeed in business? This is a rhetorical question. It is certainly difficult to keep producing competitive distinctions. However, the example of Ryanair shows that the low-cost strategy is a very competitive business strategy. Every strategy has something in common. Namely, promises that meet created expectations. Do you want something cheap or would you like in-flight food service? If you want the former—choose Ryanair, if you want the latter—Lufthansa.

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diffEREncEs Do you know the game ‘Find ten differences between two pictures’? Anyone who has tried this game knows that it can be very difficult: you need to concentrate and pay very close attention to the pictures. Looking for the differences that could become your strategic differentiators is even more difficult. We can, most likely, find and articulate these differences, but are they important to the consumer. Can we make them important to the consumer and how much will doing so cost? These are the questions we must try to answer. Mistakes can cost our shareholders dearly. The main problem is that even if we don’t purposefully seek out and reinforce differences, they will still be created, but not by us—they will be created by consumers, competitors, opinion leaders. ‘Some people think . . .’ is a terrible expression. It may mean that your company is in trouble. And it’s not true that it corresponds to reality. If you are in this situation, you will hate it, but it is much more difficult to change an opinion than to create it. Remember our conversation about stereotypes. The difficulty is that you don’t know which difference matters and which difference doesn’t. Remember the story about elusive Joe? He was elusive, because no one needed him. So even a selected difference may turn out to be useless. Sometimes, however, we come across a real gem. For example, ‘the new taste of chicken’. I’m not kidding; I really did see this written on a sign at a market stall. Say, do you want some shrimp-flavored chicken? Or would it still be easier to just buy shrimp? You can find many positioning definitions which sound great, but make absolutely no sense at all. Of course, there are methods of searching, but nothing more. And they do not guarantee that you will succeed in finding what really sets you apart, even if you have searched very carefully. For example, it is

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worth trying to conduct focus groups and so clarify what people are truly concerned about. Although we may get totally unexpected answers to the question, ‘Do you care whether bottles are sterilized with steam?’ But if you explain to people why bottles should be sterilized with steam, will they attach any value to this in the future? How much significance will people attribute to this? You could carry out a quantitative study and find that 2 percent of people are ready to take into account whether or not a bottle has been sterilized with steam. What decision should be taken based on this? It’s obvious—don’t use steam-sterilization as a factor in selection. But say the director made his decision contrary to the above, and the subsequent massive advertising campaign had unexpected results: people have begun to pay attention to how bottles are sterilized. And they’re already convinced that you sterilize bottle better than anyone else. The early bird catches the worm! Now, a new quantitative study shows that this factor is now a significant one. Therein lies the difficulty in defining selection factors and incorporating them into your differences—people’s opinions change with time. Under the influence of advertising, word of mouth, personal experience, etc. So what conclusions can we draw from this? In any case, if you describe your differences on paper, this can be a useful exercise. Would it be worth showing this paper to people who are far removed from your specialty? Will they instantly be able to see what you cannot, because of your knowledge and preconceived notions?

thE fiRst iMPREssion This point doesn’t actually require much of an explanation. There’s a reason why people say ‘never judge a book by its cover’. Remember Susan Boyle from the television show, ‘Britain’s Got Talent’? Remember how the public and presenters’ perception of this strange woman changed when they heard her phenomenal, magical, enchanting voice. There is also

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a more scientific term—‘the first impression effect’—which is formed in the first few minutes of meeting a person, and on the basis of which judgments are made and opinions are formed.

The main mistake companies make is to forget about customers immediately after the sale.

Of course, a preliminary opinion can be formed in advance, as a result of things friends and even strangers say about a given thing or person. People can form an opinion after reading reviews on the Internet. Therefore, your actions can either confirm people’s fears or dispel them. Don’t waste this opportunity! The main mistake companies make is to forget about customers immediately after the sale. Perhaps your customer doesn’t need anything further from you, and so he has no need to get in contact with you. But then how can we talk about loyalty? So, what are we discussing? The need to make an impression. Otherwise, later we will have to keep correcting it. Do you remember how romance first bloomed between you and your partner? Just don’t say you never tried to make a good impression on him or her!

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This is an almost instinctive action that is part of our nature. There are so many jokes and stories about it; for example, how lovely a woman was until she got married, and how vicious she became after the wedding.

Another mistake managers make regularly is to produce a lot of advertising campaigns, but not gather any information about them.

Doesn’t this remind you of irresponsible business practices: give the customer money, and suddenly he is in debt to the company, he is faced with an army of lawyers and debt collectors, hideously complicated points in contracts . . . does such a situation sound familiar to you? We will discuss later whether there is any alternative to such behavior, and what that may be.

lack of infoRMation Another mistake managers make regularly is to produce a lot of campaigns, but not gather any information about them. I have never understood this kind of imitation of manic activity. We’re trying so hard, so hard . . . we did this, this and this, as well as this. If you have done something better than others, the customer must be made aware of this. What’s more, the customer must value this. And even more importantly, the customer must talk about it. Unfortunately, communication costs money, but developing of campaign apparently does not. This is a profound error, as you continue to have staff involved in preparation of such campaigns. Somehow, we calculate money differently. If your employees do this, then it’s not really worth the money. So, have a look at your payroll.

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no such thing as sMall stuff Remember the film ‘The Toy’ [Le jouet], starring Pierre Richard? One of the journalists was sacked by his boss for having sweaty hands. The boss had unlimited power and could fire anyone and everyone, for whatever reason he liked. It was easy to do so, as there were plenty of unemployed journalists lining up, ready to take up a vacant position. Today, consumers have just as much power, as hordes of business competitors are languishing in the street. Today, your company could be ‘fired’ from a household for any one of thousands of different reasons. Customers may dislike the appearance of your employees, the tone of the conversations they have with them, your shabby carpets, the lack of understanding, sluggishness, deceit, lack of competence, poor management, the grubby radio, the ragged advertising leaflets stuck under windshield wipers, and they encounter obtrusiveness. They can also form an opinion based on the reviews of other customers. Negative experiences build up, and you don’t know what will be the reason for your ‘dismissal’.

shaRing thE Mission Your staff needs good service just as much as your clients do. They want to be happy to go to work; they want to believe that their company is the best. If this is not the case, they will be under constant stress and begin to feel as though they are just putting in the time, daydreaming about when they can clock-off. At one point we discussed a very subtle association. We are here, in a fortress, and our customers are outside. We venture out on raids but we don’t feel safe doing so. Sometimes, angry customers overcome all the barriers in their path, and burst into our fortress; then we must go on the defensive. If you are building a client-oriented business, give your staff the right guidance, teach, and inspire them, give them a

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chance to make the customer happy. And, lastly, give them the opportunity to enjoy their work and feel like a part of a united team. This probably sounds rather pretentious. However, this is all doable and has been tested in practice. The most important thing is to make sure you prepare the ground for this in advance—no one wants to look like the bad guy.

an infoRMal aPPRoach When you have a million subscribers, you cannot be flexible enough to informally deal with every individual customer’s problems. But this isn’t necessary anyway. The majority of requests are uniform. However, when the Procrustean bed of standards encounters difficult issues, which have no prescribed solutions, we have a problem. I have heard plenty of cock-and-bull stories (which make customers hopping mad) in my time working in telecommunication companies. And what can the operator say if he can’t even enter information into the system? A special working group on non-standard situations was created in AKADO; this group deals primarily with blogs. The staff in this working group has no official time limitations when working to resolve customer issues. Judging by reviews, this was absolutely the right move; it allowed the company to demonstrate both its interest in solving customer problems and its flexibility.

listEn When working on the mass market, it is not possible for the marketing expert to communicate with every single customer. Salespeople and service staff come face to face with customers, so they can accumulate invaluable information. However, for various reasons this information may not be available, or it may be available in the form of simplified reports. Such reports are generally useful, but they contain only dry statistics, no emotions.

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For example, 100 percent of customers get through to the call center within forty seconds. This is excellent, but does it mean that the customer is satisfied? The answer is NO. It just means that the opportunity to establish or maintain a relationship with customers exists. When people tell me that customer dissatisfaction is caused by faults, I call this into question. Of course, people don’t like it when the product they buy doesn’t work very well, but they are exasperated by something else. It really gets on their nerves when a company is indifferent to them, when a company won’t even listen to them in order to understand and fix their problem. Technology is something that will come with time; after all, all providers have service failures, but few companies today display real efforts to solve their customers’ problems. Recording conversations is a great tool for marketing professionals. If you want to put your finger on the nerve of customer relationships, LISTEN and LISTEN again. You will gain much more from this than from the dry language of reports. Informal communications are extremely important. It is no secret that call center operators stick closely to their instructions and only do what they are told to do within the framework of those instructions. Unfortunately (or fortunately) human relationships go beyond the boundaries of instructions. AKADO may well have been the first company in Moscow to introduce informal communication (after the crisis) with customers as the main tool for building relationships with them. The American cable TV operator Comcast started to do the same in its own time. As Frank Eliasson, who initiated work by the company on blogs and social networks, says, it began with disgruntled subscribers creating the Web site, ‘Comcast must die’.

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Every moment of contact with a customer or buyer must leave a trace

It’s obvious that dissatisfied costumers behave differently: some unleash their anger online, others do so at work, and still others swallow their resentment, thinking, ‘What’s the point in trying to fight against these monster companies?’ We have created a group whose main task is to solve subscribers’ problems, which we find out about through blogs and forums. The staff in this group has no formal time or method restrictions with regard to solving these problems, they just have one task: to SOLVE the subscriber’s problem, no matter how odd it may be. By the way, giving a clear explanation is also a solution. Now let’s suppose that you have successfully sold a product or service to a person. What is your criterion for this success? How do you know if a person is satisfied or dissatisfied with a purchase? The simplest way to find out is to ask him. Believe me, you are sure to find out lots of new and unexpected information. It’s true that sometimes this feedback method can be costly, and the marketing professional may not be able to imagine what financial justification there is for this cost, when it is all based on the future: will there be churn of some or other customers; will subscribers be happy to purchase more services and spend more? All these are from the realm of faith and practical experience of managers and shareholders. It is much easier to cut staff numbers—the financial results are instantly evident, not sometime in the future.

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It all becomes more complicated if salespeople are outside your sphere of influence—retailers will charge you for even basic questionnaires. Well, you must be prepared for this. In any case, if you take it as a rule that every moment of contact with a customer or buyer must leave a trace, even a generalized one, this will help you to better understand consumer behavior and take measures before you are dropped by a customer.

caPital I don’t know why I decided to pick up this topic here. Beginning with Marx, we were convinced that capital refers to certain assets that are used to obtain wealth. Next, they enter into economic relations with the work force, which, using these assets, creates new wealth. The information age makes us look at capital differently. If we look at capitalization of a company, it is easy to see that the lion’s share is not machines and equipment, or routers and networks, but intangible assets.

Investors buy from you what doesn’t belong to you

Do subscribers belong to you? Formally, no. Every subscriber has complete freedom of choice and can easily switch to a different provider. Recent M and A deals show that investors buy from you what doesn’t belong to you. A wonderful network is worthless without subscribers. Good customers are like rent—they pump up the company’s income portfolio. That is to say, we can convert our subscribers into money; so it follows that subscribers are our asset. And if they’re an asset, we must pay

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as much careful attention to them as we would to our means of equipment: we must take care of them, oil, wipe, and repair them. Furthermore, we must do even more. Every year we contact millions of subscribers and potential subscribers. How do these contacts work for us? Or, do they work against you, as you can’t solve even the simplest problems customers have? Information about what your customers think and desire is also our asset. Do you know the joke ‘well, buy an elephant’? Every day we offer people things they don’t need, because we don’t know what they need—because the results of millions of contact minutes with customers, potential and actual, have not been made into an asset. Within the masses of customers there are people who are prepared to not only recommend us, but also to provide us with free services, create program modules, maintain banners on our Web site etc. Do we use them? Do we attract them, give them a chance to benefit our company, by fulfilling their potential? They may have a slew of reasons to do so. Non-professional marketers are a force to be reckoned with. By the way, there’s nothing wrong with them making a little money from you. Do employees belong to us? Formally, no. They are all free to go to another employer. Moreover, we can fire them ourselves. But suddenly, you find that the person you hired in place of a former employee works slower and is worse than his predecessor. Employees, their skills, and abilities, the system of understanding in place—these are also our assets, which we must look after, motivate, engage, train, and weed, so that they don’t start to work against us. Of course, both subscribers and employees are assets that are riskier in terms of investment protection than equipment: subscribers can abandon your company and employees can leave, taking with them both their knowledge and customers. To sum up, let’s simply list the assets we’ve mentioned above: – Subscribers – Information on what customers think and how they feel

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– Non-professional marketers – Staff All of these assets need love, attention, and proper care. On that note, we’ll conclude our discussion of loyalty, although we could continue discussing this topic forever.

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ChAPter 6 Brands, Products, and goods In response to a question by Dionysus on why philosophers go to wealthy people and not the other way around, Aristotle said, ‘Because some know what they need and others don’t.’*

aBout MEtaMoRPhosEs What is the difference between a brand and a product? To answer this question we need to return to the first chapters when we discussed goals and expectations. If you open any book on brands, you will see very similar ideas. What sort of metamorphosis happens to a product to make it into a brand? Let’s take the example of Apple. Is it a brand? Certainly. Was it a brand ten years ago? Of course. What do we know about the brand other than the fact that its logo is an apple with a bite taken out? We also recall the image of Jobs and Wozniak working on the personal computer in their garage. We knew that they had a more user-friendly interface than Windows and MsDos. They knew that designers preferred it. So? Everything changed with the emergence of products (strictly speaking, sub-brands) such as the iPod and iPhone. They completely changed how we perceive the Apple brand. Now Apple is not just a music player and a telephone. It is a part of the modern person who has a thirst for life. Apple is not the company

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which lost the battle for the mass market to Bill Gates but is the company which sets itself apart from its predecessors in its desire to create things that are convenient for people.

thE PRoduct is thE Body and thE BRand is thE soul If you go to Wikipedia and search for the word ‘brand’ the next word you’ll see will be ‘identity’. Wikipedia defines identity as the following, ‘In philosophy, identity is that which defines the essence of something in terms of its qualities or characteristics that set this item’s essence apart from another’s. In other words ‘identity’ is something which makes something similar or different.’ If you have not been able to follow that definition, don’t worry about it. I have seen several different definitions for the term, brand. While they have all been right, I have always had a niggling, unsatisfied feeling inside. Still, a brand is not just identity because a brand itself is useful for making rational choices. However, we have to touch on relationships and emotions when trying to understand the term. It’s pretty, smart, and sleek, but we still don’t like it. We don’t know why. It reminds us of a person we don’t like. Dan Herman believes that a brand is the consumer’s expectation of a certain feeling which a specific product promises to provide. This is probably quite true as are many other things which connect a product with a brand. Can we say that a product is the rational heart of a brand? I think so. We may even go so far as to say that if the product is the body then the brand is the soul. What is the relationship between trade mark and brand? A trademark is just a label that wants to become a brand because brands only live in consumers’ minds and brands appear in the real world through consumers. If there are emotions and expectations then there is a brand.

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There are several questions which seem philosophical but the answers to them are completely practical, and to find out the answers, cost real money. ‘I wonder,’ he said, ‘whether the stars are set alight in heaven so that one day each one of us may find his own again.’ We all remember that phrase from the book, The Little Prince. What are brands to us and why do we need them so much? All the ideas that we had about products in the first chapters of the book were accurate concerning brands. There is no way around it—a brand is also a product. It doesn’t matter which market it is sold in or how it is sold. People are brands, countries are brands, and products are brands. Think about that and try to define what feelings they give you and what image they give you. Let’s try to do just that. We are not going to use politicians even though we certainly do have a relationship with them. We understand what we can and cannot expect from them. Whom we buy, or, I should say, vote for, is a very important question. It is understandable that most people will vote according to some very important issues, the first of which is our future security. Another issue is the reputation of the politician. Sometimes certain factors come into play, which don’t have anything at all to do with the person running. For example, a handsome man has a greater chance of success as women voters often vote for candidates whose appearance they like. Now let’s move on to the example of Turkey. Do you have any impressions or ideas attached to the country or what kinds of feelings do you have when thinking about it? Now let’s think about Iran, how have your feelings changed? You probably became more alarmed thinking about Iran. Even though it certainly has some very interesting places and the country may even be safer than Turkey. So a name itself can give us certain impressions, associations, and expectations. Now let’s move on to product brands. Coca-Cola, Apple, Volkswagen, Volvo, Procter, and Gamble, Sony—take note of the feeling each gives you.

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You will surely find a lot of associations with them other than the fact that Volvo is an automobile maker and that Sony makes televisions.

What do BRands havE that sEts thEM aPaRt fRoM Just PRoducts? If we take everything into account, we will see emotions and expectations come to the fore. For instance, an Audi Quattro advertisement made a lasting impression on me. The first thing you see is greyhounds chasing hares. Then you see a cheetah lying down calmly while the slogan, ‘Nothing to Prove’, appears on the screen. Oftentimes professional buyers ignore brands, instead preferring no-name producers. This usually happens after they carry out tests on a product and visit the place of production in order to gain confidence in their selection. In fact, professionals just need to know the composite parts of the product in order to come to a decision about the level of the item’s functionality and its reliability. Of course, the most important criterion is the price. However, an average person does not have enough time or the opportunity to carry out research or test any of the products. He has to either rely on the opinion of a person who has already tried the product, on his own experience with other products made by that brand or on the brand’s public reputation. But this is something that we will deal with later on when we discuss choice. Before talking about how brands stick in a consumer’s mind, let’s talk about why they need brands in the first place.

What has gRoWn, has gRoWn The first thing that comes to mind is to simplify choice. Do you remember our discussion about air conditioners? If a professional had not recommended anything to me, what would I have done? My choices

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are actually limited to a few brands. I would not have chosen the most upmarket brand, but probably would have chosen what I believed to be the best in terms of price/quality, which would have made me seem like a well-informed person who doesn’t buy cheap things but who also doesn’t throw money out the window. Hold on. But that’s just my reputation: what about the air conditioner? Let’s put that to the side for a bit and come back to it later. I don’t know about you, but I was determined to put some time and effort into making my decision because the purchase was important. However, I am not prepared to research the product in depth and spend a great deal of time on it. Why would I not buy any air conditioner that was just in the right price range? Because I wanted to own something that would not give me any problems in the future; meaning, I had to be satisfied with the purchase. If my expectations were not met, I would be upset. My level of cognitive dissonance could be too high. Do you think that branded products don’t make duds? For the past few years, I have been using a famous Japanese telephone brand, but we have not been on friendly terms. The text is too faint, the software freezes up, the keypad goes on the fritz and you can hardly see the letters on it. Is that a contradiction to what I said earlier? Not at all. I chose that telephone because I hoped that the company’s name would somehow guarantee its quality. But I was wrong. Nobody can say, however, that the no-name brand phone would have been any different. They still break—not the phones themselves but the batteries do. So maybe I was in luck because even though I ruled out this brand out from all of the phone brands out there I was also able to rule out that company when buying a laptop. In summary, a brand is, above all else, a guarantee for the consumer. Like pedigree puppies are—if the owner raises the dogs well, he will end up with a dog that has a more or less predictable appearance and behavior. A stray dog might be cute when it is a child, but you never know what it is going to be like when it grows up.

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thE consuMER nEEds thE BRand MoRE than thE BRand oWnER doEs Now let’s go back to where we left our bookmark. But we will begin with a basic question. Who needs a brand to be successful? Are you sure that it is the brand owner? I have some doubts about that.

Brands are successful because they give people something more than just a product.

From the moment a primitive man first put an eagle’s feather on his hair, he became different from the others. It is completely possible that it wasn’t he who plucked the feather from the eagle. But who was the feather more important for: the person who brought it to him and who might have received a piece of meat in gratitude, or for the person who used the feather as a symbol of their superiority? We have only barely broached the subject of the owner’s status. In this scenario we don’t really care what the person did: whether he wanted to be accepted into the group and not be an outcast from it or whether he was trying to lead it. If somebody was the best at sharpening stones then it would have been important for him to highlight his role and importance in his group. It is quite possible that high-ranking warriors

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ordered weapons from him and it would have cost them more than a measly piece of meat but more like a whole bear hide. Others were content with the weapons they made themselves while others were satisfied with the less-skilled work of other producers. Brands are successful because they give people something more than just a product. They give people the opportunity for self-identity in a society which is extremely important for social creatures such as human beings. Therefore, the brand does not just have to win my heart, but it also has to be recognized by the group to which I belong or aspire to belong to. Of course, you can find instances where a millionaire chooses a life of destitution. However, this is not an exception to the rule, but is, rather, another way of self-identification and self-affirmation. I assure you; as soon as vagrancy becomes fashionable, businesses and brands will pop up to help people achieve just that (I’m not sure they don’t exist yet. I just haven’t had any interest in looking). Perhaps, we don’t like to hear that such base feelings are behind our desire to own brands. Over time we are getting more and more opportunities for self identification; we acquire more habits, more rituals, and more products. But the bottomline is the same as it has always been: to be a part of the group, to hold a position in the group that’s in line with how we see ourselves, to stand out of the crowd and hold the highest possible position in the hierarchy. These are the deep-seated motives why we look for certain brands and need them. If we need brands so much then there will definitely be somebody who will try to satisfy that need. Do you think that a Maybach is so different from any Audi insofar as functionality is concerned? Like the line from a Russian film goes, ‘I am beginning to smell a rat.’ Also, it is very important to set out the rules of the game and to build a whole world of brands which won’t be quite as big but be profitable themselves. A typical example of this is skiing or golf. Accessories for these two sports cost so much that these types of sports have become accessible only for a limited circle of people but they bring tangible benefits to the many brands that have arisen in that field. The person who sticked

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stone earlier would not even have imagined his idea would go on to be a multi-billion dollar industry. But somebody commercialized that idea and created the rules of the game.

BRand PREMiuM We understand consumer motives but why do companies need brands? Everything seems extremely simple here. Firstly, people tend to buy things that they have heard about as it minimizes risk. Secondly, they are prepared to pay a premium price for a brand. Thirdly, people tend to make return purchases when they like a brand. All of that is on the surface. But there is something more to it than that. Now it is the non-material things that are the most expensive. Not something made from iron, not a program, but something that is contained into a brand. It’s a promise. For example, a return to childhood for Coca-Cola drinkers or the possibility of hitting the heights for those who buy Virgin products. The feeling of being a part of the chosen few when buying one of these cars because they manufacture so few that any price can be justified. This value is often the most important for a company and brings in large profits, especially if the company is trying to raise its value. Let’s think about that for a bit. The first thing a marketing expert says when he joins a company is, ‘Guys, the brand is everything.’ We will figure out what to do (rebranding) and everything will be just fine. Now let’s think, how many companies do we have, how many products in all—can all of this information really fit into the consumer’s mind? How can we find a place in his mind and heart? Can we really think that another marketing professional at another company won’t start to do the exact same thing with his product? And then another company would do the same and so on so forth. So you approach a manager or a shareholder with some brilliant idea. The first question you’ll hear is, how much? And then the next question will be, how much is how much? You put forward a proposal from a stakeholder to set the price (for example for Internet access) at 100

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rubles. Everybody will come running and we will save tens of millions of dollars, because you don’t just have to spend money on launching the brand. So you have to go back and ask for more money to support the brand. But they thought that the spending bit was over. How many brands have been knocked off their pedestals or simply withered and died? In Internet access alone, as it is the area I know most about, I can name ten: Cityline, MTU-Inform, Demos, Zelon, ROL, Tochka. Ru, Relkom, Elvis, Golden Line, and PTT Teleport. I wonder if they managed to recoup the money that was spent on creating and promoting the brands.

aRE you Managing oR aRE you BEing ManagEd? Why do we need brands anyway? If you don’t engage in purposeful branding, the brand will still be formed, but in a random manner, outside of your control. ‘Some people think . . .’—people who are a little bit older will remember this great Communist Party Committee phrase. I have always wondered who these ‘people’ are. It’s unclear who they are, it’s vague.

If you don’t engage in purposeful branding, the brand will still be formed, but in a random manner, outside of your control.

If you gain reputation as being homeless, you can hardly expect people to buy from you even if you are selling something at a low price. If no one knows what you do and how you do it, then in the end, the director will ask: what does that man do? And everyone will just shrug their shoulders. In any case, we need to talk about what we do, and why we do it better than others. If we don’t, no one will know about us and no one will buy anything from us. Surely we want people to buy from us. Our name will pop up in this regard, and will begin to be associated with how we look,

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how we speak, and how we perform. Building a brand is not at all about manipulation using our name, but actions that speak louder than words. No matter how vehemently we insist that something is chocolate, that won’t make it taste sweet. Lies kill a brand. And the more people know about it, the faster this will happen.

stoPovER En RoutE Now let’s make a stop on our journey and summarize our initial results. Consumers need brands for two reasons: they make the decisionmaking process easier, and they help them to identify themselves and position themselves in society. I intentionally avoid phrases like ‘get the impression’, ‘pleasure’, and ‘satisfaction’ as branded and non-branded products can serve these purposes equally successfully. What difference does it make what parachute you jump with? Does the Versace parachute impress people more? (My apologies to Versace, who do not yet make parachutes, I think.) If the product is reliable, then the only aim of jumping with a branded parachute is to fit in with the other people who share your love of heights and adrenaline. By the way, the fact that your parachute is no worse than the others’, and is even cooler than theirs, will give you an additional emotional boost. But that’s when you’re on the ground. Perhaps, if you’re the leader, others will start paying attention to what parachute you’re using, how it folds, etc. Copying others is also an aspect of our behavioral habits. But that is another matter: it’s psychology. Acting like other members of the group is a survival instinct. Companies need strong brands as they help to gain a place in the consumer’s mind (top of mind), get a price premium, get customers to make repeat purchases, and not switch to other brands. In addition to this, the brand increases the value of the company. And now we come to the most important thing. How do we create what both sides need?

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In fact, the entire book is about just that. And we’ve almost said everything about it already. So, whatever people buy from us, they buy expectations. Thus, it follows that the first element of success is correctly formulated expectations. Let’s just agree that we can’t create expectations in absolutely every area, because the company’s skills are limited.

soME PEoPlE think Let’s try to create the ideal Internet provider brand. It’s clear that first we must create a product. This product will be the core of our brand. Which rational factors should we put forth on the market? As no one is interested anymore in 128 kbps Internet, we will have to think of something more worthwhile. Today we have 5 Mbps, 10 Mbps, and 100 Mbps on the Internet market. We’ll ignore the fact that the vast majority of Internet users can’t really imagine speed in megabits. There are certain magic numbers: twice, three times, five times as fast. In short, as respondents usually say, ‘normal Internet speeds’. If we decide to use Ethernet technology, in the best case scenario we will be copying what competitors offer customers, and in the worst case scenario, we will be dumping. We don’t really want to create a discount brand as the promise of 10 Mbps won’t be of much interest to customers. We will have to find a promise that will really attract people’s attention. Those who keep an eye on the market will know that many Internet users today don’t have a product of proper quality. Let’s try looking for a promise here. For example, we guarantee to resolve any fault within four hours, and if we don’t keep this promise, then you get a month’s service for free. What kind of price premium would you hope to get for such a promise? In a study the majority of respondents would probably say that they would be prepared to pay a little more for a guaranteed stable service. This may not actually be the case. But in the end, the quality of services

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will become equal between companies, and our promises will cease to mean anything to the consumer. So, we continue our search. Let’s look, for example, at the properties of our product. Note that we are constantly returning to the beginning of this book. Do you remember the promise given in the very first lines—that we would begin at the end (i.e., with results) and work our way back to the source? So we’re unlikely to find a differentiator in the basic features of the product. Maybe, we should look for it in the additional features? MTS did just this. They added WiFi to the 6 Mbps. Why not? Say this doesn’t particularly inspire me—I’ll just set up an access point myself that will make WiFi available throughout the apartment. But there are plenty of subscribers who have more important things to worry about than dealing with router settings. So what is this worth? Sixty rubles per month for rental may seem a bit on the expensive side to some, but if there are no underlying problems with this offer, these days it seems like a pretty good deal, even a bargain. I’ve been unlucky; the routers I’ve bought have burnt out after a couple of years, which by the way cost the same as two years’ rental. Now let’s suppose that all our competitors have immediately gone and done the very same thing. Do we search for differentiators again? Maybe play around with the design of the devices? You think people won’t like that? Not at all! At AKADO, for example, we had many requests for STBs the same color as their television, and they decided not to use our services, because they needed black ones, and we only had silver. Perhaps subscribers will be so pleased by how we take care of them that they will forgive us for minor issues? Maybe we need to become number one in services? In any case, when we talk about a product, about leadership, the best line of action is to provide appropriate service parameters—this is essential—and to find one or two parameters that positively distinguish us from others. It is clear that these features should be important or potentially important for consumers. As I am now in the process of doing

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up my apartment, I’m sure to find out plenty of important parameters which before I would never have even thought of! Remember: ‘Some people think . . .’ If we succeed in attaching importance to some or other feature of our product in the consumer’s eyes, which he had never paid any attention to before, then we have almost won. What we have just done is nothing other than searching for a differentiator, or how to distinguish ourselves from competitors. But what should we do if all the products in the market are identical? We can still find differences. It could be in the delivery methods, in the way in which the company communicates, in the compensation offered for inconvenience. Study your customers and look for what could become important to them. Begin to do that better than anyone else. That’s all well and good, but what about the brand? That’s a totally reasonable question.

Mission PossiBlE In fact, we have entered the branding process somewhere in the middle. However, when you call well-known brand builders, they have an entirely different point of departure. They make you formulate your mission statement and purpose. Maybe this is the first time you have tried to define what a ‘mission’ is: it is not just a load of fancy words for investors or consumers, but a tree trunk, on which you will have to hang your products, communications, and behavior. If you write in your company’s mission statement that you will offer the cheapest products, designed for economical and rational people, then the whole construction of the business and brand will be based on exactly this premise. You find cheap but good quality materials, you cut all unnecessary expenses, you are not prepared to transport readymade furniture, and you optimize the number of support staff. Have you guessed which brand this is yet? But before your mission can be finalized, you will need to carry out a number of studies, examine consumers and the market, as well as your

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company and your expertise, and pin down the long-term factors of success. And, most importantly, you will need to stick to your mission, and not try to stick all sorts of other things to the ‘trunk’: this will only confuse consumers and your staff. Imagine a Christmas tree trunk with oak leaves, bits of dead wood, and wooden boards attached to it, instead of ordinary Christmas tree branches. What would we see as a result? That tree would hardly resemble a proper Christmas tree. Let’s take the company’s mission to be our morals, our Ten Commandments. I assure you that if you strictly abide by these commandments, consumers will take this into account, and research on semantic differentials will show where you stand in the heads and hearts of consumers. However, epithets can be very offensive: for example, ‘sneaky’, ‘dishonest’, ‘unscrupulous’, ‘greedy’, ‘stupid’ etc.?

The mission is our morals, our Ten Commandments

The most difficult question is whether our mission is necessary at all. ‘Well, if you want to, so be it, write it down, but we know what to do’—I have heard these words many times. I have no answer to this question. Let’s weigh up all the pros and cons. Imagine that we ourselves are the product. Our knowledge, skills, ability to get along with and manage

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people—this is what we sell to an employer. We may not have a written mission, but we certainly have an idea of what we want to achieve in life. Maybe we even have a cherished dream. Psychologists recommend writing down on paper even personal goals you want to achieve, as your brain starts to automatically take steps towards achieving your goals. Since everything happens in the one brain, our behavior will be wholly predictable and logical. However, if we have a small company, through everyday conversations with one another we will establish a shared understanding of our place in society. But what do we do if the company is a large one? How do we interact with staff members with whom we don’t have the opportunity to talk every day? Each department begins to formulate its own mission of sorts. And so, here we are, we’re appalled by what our employees are doing: we thought that our brilliant ideas had gotten through to everyone because we spent so much time and effort on it, we made inspired speeches, we got them behind us. The inspirational person has left, but the immediate supervisors remain: ‘In general, it’s like this . . . we have a plan, we need to . . .’ and after that comes a list of actions, which are nothing like what they originally heard being said. The dogs bark, but the caravan goes on. Certainly, a mission limits one’s room for maneuver. If it says in our mission ‘we want to make our customers’ lives easier’, then any action, even logical, can be brushed aside because they run counter to the mission. Instead of ‘Come in and buy your equipment’, it’s ‘We’ll come to you; we’ll install the equipment and show you how to use it. When will it suit you?’ But sticking to the mission is not without its own problems and doesn’t come for free. The mission may turn out to be quite unrealizable; then it is simply a pipe dream. However, a company mission is useful in that it makes the company’s behavior more predictable, it allows you to avoid creating excessive expectations. You asked for it, you got it. Remember Ryanair? ‘It’s cheaper for you, what have you got to complain about?’

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A mission gives rise to a business strategy, but sometimes it grows out of it. I don’t know whether or not this is a good thing. Market success is the sole criterion of the correctness of the approach taken, and success is never blamed. Well, to be more accurate, successful people are judged, but further down the line. ‘What did they do that was so special? They just slashed prices . . .’ Anyone who is involved in practical marketing will understand me. By the way, having a mission is also important because management has changed. A company mission can moderate the enthusiasm of a ‘new broom’. The mission goes hand in hand with values. Sometimes they are simply incorporated into the mission, sometimes they are formulated separately. For example, here are AKADO’s values: ‘We exist to improve our customers’ quality of life and to give them the opportunity to discover and make the most of new technology. We transform complex technology into innovative and consumer-friendly services. For us, there are no problems that cannot be solved.’ Those who use the company’s services can judge for themselves how much the above corresponds to what the company actually does and how it acts. Of course, different people may have different opinions on the very same thing. What one customer likes, another customer will find irritating. For example, discounts for new subscribers annoy old and loyal customers. Different guidelines give completely different results. One example is when the operator is told, ‘You represent the company and so you must defend its interests’. Another example: ‘As the director, I have entered into an agreement with the customer and made a promise to him. You are here to help the customer resolve his problem, because I gave him my word, a guarantee, and what’s more, I signed it.’ The second example wasn’t my idea; the former President of AKADO, Mikhail Silin, told me about this himself. During his time as CEO of Comcor TV, he said exactly that to call center operators during a meeting.

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vision and stRatEgy There are great entrepreneurs who don’t need any formal vision or strategy. They know what is right and what isn’t through intuition. If you ever find a person like that, get them write down all of their good ideas like a biographer. However, most managers, especially those who are paid a wage, tend to not rely on intuition but prefer to formalize a strategy and calculate risks. Therefore, our brand builders prefer to see everything out on paper before presenting an idea for a brand. What is a brand strategy and how does it differ from a business strategy? There is a very simple answer to this complicated question—I don’t know. A brand strategy is formally part of a business strategy, but informally they are the same thing. If a brand is an expectation then the strategy is to define those expectations which make the brand great and describe the path from the company to the heart of the consumer. It’s that simple. But before creating expectations we must understand what kind of expectations the modern consumer has and what kind of expectations he is going to have two or three years down the line. What are our competitors promising our subscribers and how are they following through with these promises? As I have said, I am not going to analyze the competition and their methodology; you can find out about all that in any marketing book. However, that is an extremely important point because we do not live in a vacuum.

Put in a good WoRd foR thE PERfEct PRovidER Seeing as we’re tackling the problem of creating the perfect provider, let’s get to it. It is extremely important for the brand. But we will talk about that later on. We carried out timely research and the results were quite curious indeed. The first thing that we found out was that the respondents could not

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reach a consensus concerning several requirements for those companies. They believed that it depended on the kinds of services provided, which cannot be combined as well as on the format of communication. The result of the study was that suppliers were divided into four groups. Visible These providers include hospitals, service stations, dry cleaners, etc. Visual contact with the representatives of these services is not only necessary, but crucial. Invisible This includes Internet providers, paid TV services, security services for cars and apartments, and mobile phone operators. There is limited contact with them and it is generally confined to one meeting during installation or setting up and sometimes they might be connected without ever seeing anybody. Further contact (when necessary) takes place through the Internet or over the telephone. Public Respondents divided municipal electricians, gas systems workers, and water systems workers into a separate group. The requirements for these services are minimal and they are easy to contact. Other competitive advantages are not important because of a lack of choice. Deliverymen (food, goods, etc.) Despite the fact that visual and non-visual contact is constantly happing between customers and representatives of these companies, it is not an important factor. The criteria for being selected are down to price and the speed of use. Seeing as we are interested in Internet providers, letâ&#x20AC;&#x2122;s look at what requirements they have to meet.

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When customers choose an invisible service supplier they first pay attention to: – – – –

Price (compared to competitors); Reputation (advice from friends, family members, acquaintances); Ease of payment; Transparency (no additional costs for unclearly stipulated points).

While after connection to a service the most important criteria become: – Uninterrupted service; – Ease of communication (the possibility to easily contact); – Competence of staff (the ability to answer any questions without being passed on to another person); – Guarantees (elimination of inconsistencies in a person’s account); – Working hours of the help service (until late and at weekends); – A choice of options (packages, additional services). Note that contact with the operator is only in the context of when a problem occurs. They quickly contact the operator and receive a competent response. There is no mention of a brand or of its values. Because contact with invisible suppliers is minimal, and generally only occurs during connection, the consumer does not expect any steps to be taken by the supplier. They prefer to find out about new offers through the same channels such as text messaging, Internet, cable TV, depending on what services the company provides. Customers express the same wishes and also request for more ways of giving feedback. As for the format of communication, you can either have formal or informal communication, and address customers by the first or last names

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according to what information they have left when they signed up to the service. The second option is more pleasant for the customer, but is not a criterion for evaluating the company’s work. Connection to the service (service call) has requirements, which are the same as those for the public services: • Quick (for all). • Reliable (especially for men). • Clean (especially for women). Everything that we are talking about comprises myths and stereotypes, which we should make use of, if we want to be noticed. So let’s use the users’ words to draw a portrait of the ideal service supplier. Not a Monopolist Customers believe that the concepts of ‘perfection’ and ‘monopoly’ are incongruous because they believe that ‘perfection supplier’ has to be among other suppliers. We can use the example of MosVodoKanal, a water supplier for greater Moscow, to help illustrate this point. Customers have never thought about and will never think about how perfect the company is because ‘as long as there is water in the house what else do you need?’ Even if the water is temporarily cut off people don’t think that it is a ‘violation of the company’s perfect record’, rather they believe it to be a natural complication that can be fixed. Therefore, one cannot compare the water cut offs in other water companies and how quickly they restore their services. A Lack of a ‘Negative’ in Operations A company cannot claim to be perfect if it still has negative aspects in its operations (customers who are dissatisfied with the service itself). Although competitors have even bigger negatives, customers tend to draw

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the conclusion that there is simply no perfect operator in the market. Furthermore, no added service can compensate for poor quality services or operational disruptions. There is no doubt that the â&#x20AC;&#x2DC;idealâ&#x20AC;&#x2122; operator can only be selected from companies that have high quality operations support services. Pricing Policy The company that has the highest prices in the market cannot be recognized as the perfect company even if it has the highest level of service because there is a huge segment of the market that is looking for the most advantageous (optimal) prices even if it means that they will have poorer quality service. The optimal combination for an operator is a mid-priced but high-quality service. A low price, like a high one, may damage the companyâ&#x20AC;&#x2122;s image. Ease of Payment Payment should not present added difficulties for the customer. Companies must bear in mind three basis factors: convenient place for payment, simplicity, and a convenient time. Ease and Format of Communication For the customer: calls answered quickly (multiple telephone lines), no diverting of calls, the possibility of receiving advice or a consultation over the phone/Internet, the possibility of having a service call/to sign up for one during a convenient time. For the company (when supplying services): unobtrusiveness, addressing people by name only if the customer himself has ever given his first name to the company. For the company (during working hours): advance warning if the conditions are set to change, a detailed informative campaign, and what the reasons are behind the change. For the company (the format of communication): convenient for the customer, a multi-line telephone, a company Web site, and brochures about the company.

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Speed of Service The speed of service does not just refer to the speed of the service itself, troubleshooting etc. It also refers to the speed and efficiency of the beginning stages: records/calls/lack of lines/special urgency for extra payment. Bonuses, Discounts Many respondents admitted that they did not want to experiment with different companies because they have a system of accumulated discounts at their current company and they didn’t want to lose what they had ‘racked up’. This bonus system may extend into once-off orders, ‘I bought a service worth over . . . and received an extra service as a gift.’ Guarantees and Compensation It is not just the guarantee of availability and terms that are important for the customer but the way that the company acts when there is a disruption in service or if the product malfunctions. To take on the process of resolving the problem or to pass the customer along to somebody else (to a service center, to the factory where it was produced, etc.). Transparent Conditions It is extremely important that before signing a contract the customer is familiarized with the unpleasant points of the contract, which are generally written in fine print or are not mentioned to them by the salespersons. Ideally, the customer would have a brochure (which is not considered an agreement) where they can read a description of what they can do and the company’s conditions (the obligations of the representative, prices, terms and telephones) in case any difficult issues arise. Courtesy When it came to the concept of courtesy, the respondents did not just name friendliness and that the person should be smiling, but that the

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representative should be patient and be attentive to their problem. They believed that many company representatives do not go to the heart of their problem and often try to pass them on to the next person, which means that the customer has to often go around in circles and has to come back again to that same person. Competence People gave examples of when they requested help with a problem from a service supplier, the representative who only told them, ‘That is impossible’, or ‘We do not know what to do/We are not responsible for it/ It is your fault.’ Given the fact that a company’s telephones are only there to help answer customers’ questions and solve their problems, those types of situations may cause irreparable damage to the company’s image and to the customer loyalty. Feedback There are two points for implementing feedback that are important to the customer: responding to customer feedback and overseeing company operations (especially when introducing new conditions), consistency, adherence to law. The respondents said that doing all of this through the company’s Web site was the most convenient way. There, we have drawn the portrait of the ideal provider. We must also understand that over time the demands and perceptions of services change. For example, Western consumers are different because courtesy is a given for them and staff competency is considered to be of utmost importance. Nobody wants to talk to living robots.

BEcoME PERfEct Why are there no perfect providers? As they say, when you have endless amounts of money and time you can do anything. But money itself is never enough and your competitors will never give you enough time.

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Let’s look at a customer’s wish list and try to think up ways of satisfying their wishes. It’s no coincidence that we are starting to create a brand from evaluations of the product and our efforts. As they say, ‘Clothes (logo, advertisement, packaging) do not make the man.’ Not a Monopolist This one is the easiest. The market is already saturated and any new product into the market will not be successful. I am not saying, however, that it can never be introduced. A Lack of a ‘Negative’ in Operations Meaning that: – – – – – – –

Nothing can ever break down. The speed has to be exactly as advertised or even a bit faster. Prices are not inflated. Payment must be as transparent as possible. Instant contact to a call center. The staff is respectful, competent, and professional. Convenient management of services through interfaces that are convenient for the subscriber. – If a subscriber’s Internet is not working, a specialist will go straight out to fix the problem free of charge. – Convenient payment system without interest charges. Now think of how much all of that will cost. To ensure that nothing would break down you would have to have several network junction nodes along with all the necessary subscriber equipment for them. Imagine that a digger tore an optic cable. That means that another route cable has to be attached to each house. What if the power supply to the switch is cut off?

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You can’t build your own power grid. It would hardly make any sense to continue on because you could do all of those things but it would never be a profitable business. That means that you have to factor in a certain amount of money for breakdowns because there will always be subscribers whose Internet will break down. But what if the subscriber’s computer becomes infected with a virus and his Internet doesn’t work? What is guaranteed speed? The operator has to build a network with a bandwidth that will be able to cope with any flow of information at the busiest times. Therefore, most of the time the network will be practically empty and will only be somewhat busy for two to three hours per day. Of course, you could guarantee bandwidth but that would cost a lot more money. So we cannot have a completely reliable setup and there will be a certain number of subscribers who will not be happy with that. What do I mean by immediate access to a call center? I know from experience, especially from working with pre-paid services that the amount of phone calls on the first few days of the month shoots up three or four-fold. Now imagine trying to accommodate that. Building a call center that can withstand any amount of calls and can hold three to four more operators who have to be constantly trained can be quite expensive. I suppose it is good to hire all of those people but they will end up without a place to work if you adopt that approach because the center would have to close down. So, we have to take the middle ground and understand that at peak times some subscribers will not be able to get through or will have to wait a while before they get through. Of course, we could solve this problem using a sliding scale for billings, but that would not solve the problem of uneven information flow. Let’s move forward. Pricing Policy One of the most attractive parts of a brand for its owner is the possibility of receiving a price premium for the brand. Therefore, brand services are more expensive than no-name products. Of course, blatantly

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ripping off your customers will not do your brands any favors. Let’s just say that the price has to be fair. It is true that the most difficult question is what consumers think is a fair price? When Stream released a service of $30 per gigabyte, it was the fairest in the market. But when limitless contracts emerged for $20-$25 the price of $30 came to be seen as not that fair anymore. Ease of Payment By and large, this is not a problem in Moscow. The only inconvenience is the commission, which can cause the price to rise by 4, 5, or even 10 percent. Convenience and Communication Format This is an issue that providers often forget about. They have a service, it works, and their subscribers can contact help if they need to. Let’s begin with the easy bit—the contract. They are impossible to read. All of the most important information is printed in such small type that a magnifying glass would not even help. Maybe somebody could hazard a guess about what the contract was saying and write out in plain language what exactly the subscriber is signing up for and what they have to pay attention to. Let’s see at user guides. Subscribers have said that it is easier to get into Harvard than to go through those incomprehensible texts. My son and I once tried to use an instruction manual and ended up spending a half an hour trying to decipher it when it turned out that we just had to press two buttons on the remote. We often underestimate the word ‘communication’. It is not just words, texts, and pretty pictures. What does this word literally mean? It is an exchange of messages. A serviceman’s appearance is a message—a message that a subscriber is with a decent company. If the serviceman wears shoe covers it gives out the message that he respects you and doesn’t want to dirty your carpet. If he does his work properly and cleans up after himself that is also a message.

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We often underestimate the word ‘communication’. It is not just words, texts, and pretty pictures. What does this word literally mean? It is an exchange of messages.

If we don’t understand that all of our actions are actually messages then our shareholders might think—what kind of managers have they hired? It is something that you can never invest much money in, but it is something that needs money. It’s a paradox. Service Speed Like with the call center, we probably wouldn’t be able to have as much staff as would be needed to ensure the necessary reaction time in emergency situations. But having the sincere desire to help solve the problem and doing more than just give instructions will leave a lasting impression. At least for a while, because this is such a rarity in today’s world, where a person always owes everybody something—even to his operator. Bonuses, Discounts We have already spoken about this area. The topic is ambiguous. It all depends on policy. Of course, a small reduction in price is quite nice, but any price reduction hurts your EBITDA (earnings before interest, taxes, depreciation, and amortization). So sometimes it is actually a better idea to not have a discount and to compensate by having better service, relations and a desire to do well, delight, and surprise. Guarantees and Compensation Guarantees and compensation within reasonable limits are absolutely essential. Of course, this costs a certain amount of money, but this is one of the areas worth spending on.

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Transparent Conditions We discussed this earlier. Transparency underlines your honesty and reliability. It symbolizes your respect and genuine (not feigned) concern. ‘For your convenience, all conversations with the operator are recorded’—are you familiar with this impersonal phrase, behind which there is neither a desire to ensure convenience for the customer, nor indeed any real meaning? Let the customer decide for themselves what is convenient and what isn’t. Say the telephone operator is rude to you, but the shift supervisor calls you back a little later and apologizes, and even offers you compensation to make up for the behavior of the operator—this is the kind of convenience and helpfulness people need. Curtsey Generally operators don’t have any problems with this, but if you are politely informed that you are an idiot, and they aren’t trying to solve the problem or meet you halfway, then this is ostentatious politeness, which doesn’t help to create a positive attitude towards the brand. Unfortunately, this problem can only be fixed by firing offending employees, training the rest, and introducing moral standards. That also costs money. Competence Sometimes it’s easier to deal with a robot than with an operator who doesn’t solve your problem, not because he doesn’t want to, but because he either doesn’t know how to solve it or is constrained by instructions and guidelines from his superiors. Because he can’t be flexible in making decisions, he lacks the knowledge and competence to do so. But a competent specialist costs a lot more, and the big question is whether the company can afford him. Feedback Frankly speaking, so far Internet providers do not have much in the way of feedback systems. If you send a letter by fax, no one reads it. If you send an e-mail—no one will reply. Western Internet providers have long

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understood that contact with customers is the most important form of capital. But we continue to sit in our fortress; beyond its walls there are enemies, who are always looking for something from us. We have made excursions, and quickly returned, the thick walls shelter us. Don’t be afraid of your customers, listen to them, establish contact with them, and show that you care about their problems. Somehow I’ve gotten carried away; it seems we’ve touched a sore spot for me personally. Well, that’s just what it is. However, we had started to discuss brands. So all of that had to do with brands. It’s not a call center operator who is in contact with customers, it’s the brand. It’s not a careless installer, it’s the brand. Do you see what I’m getting at? Everything you do, how you communicate with people, the brand does. This is because the brand is perceived through the prism of contact with its representatives. On the whole, you understand the issue here: we won’t be able to create the ideal provider. But do we need to, anyway? We live in the real world, and the people we like are far from perfect. But that doesn’t stop us from loving them, being friends with them, and talking to them; because they have something that attracts us.

it’s vERy attRactivE This ‘something’ is what we need to find. We have to be distinguishable from others. It’s highly likely that even so not everyone will like us, but we’ll find loyal customers and advocates. Do you think everyone likes Apple? Of course not. So it has its own turf and so do others, for example, Android. By the way, I also like the Android, and I liked it even more when I read the terms and conditions of iTunes. In contrast with them, the contracts of our providers are the pinnacle of customer-friendly attitudes. Actually, searching for our differences, which may be noticed by one group of customers, and which form the basis of the selection

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process and deter customers from switching to another brand, is a key question in the brand strategy. How can we make a decision? All providers offer totally rational reasons: quality, reliability, speed, prices. But no one tries to play in the field of emotions. However, we believe that people need not so much the Internet itself, but what they can achieve with it. Let’s build a brand that will get people behind it, that galvanizes them into action, with whose help they will be able to achieve more. Here’s another argument. Today, the main problem is not that the Internet has problems, but that providers are so far removed from their subscribers, and they put their own interests before those of the subscribers. Let’s be better at staying in contact with customers. There will always be those who don’t just want their opinion to be heard but for the provider to take some specific action as a result, for example, to introduce new services or to change the conditions. Let’s take it as the basis of our philosophy that we can do everything a little better for our customers than we are currently doing. In fact, we have described certain needs that we plan to satisfy and rules that we intend to follow. All of this is a part of the ‘mission-visionstrategy’ triangle. It is clear that from one case to another, the mission and strategy will be completely different. The direction taken, the key business processes, the staff, and training system will also be different. Everything will be. Imagine people who could personify these various aspects. The first person is restless, a person who is always raring to go, who’s interested in everything, and whose energy is infectious. Being with this person is very exciting and fun. The second person is a friend. He listens to you, gives you advice, helps you to solve your problems, comforts you, and offers you a shoulder to cry on. If you take a look at your circle of friends, you’re sure to find someone like this among them.

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The following method is often used in brand building. ‘If the brand was a person, what would he look like, who would he be, how would he act?’ As a rule, this line of reasoning is only used within the confines of the company, but I think you’d like to find out which characters provide the basis of certain brands. For example, the Moscow city telephone network embodies the submarine commander played by Harrison Ford—reliable, fairly modest, but is able to shoulder responsibility. In contrast to him, Jeeves (from the television series ‘Jeeves and Wooster’) knows on which side his bread is buttered, is sly, but totally loyal to his master and gets him out of all sorts of scrapes. He is aspired to be the character behind AKADO. To a certain degree the appearance of a character will help you to decide on how to form certain aspects of the brand. However, I want to warn against excessively switching around the brand and personality. The brand must be unique and distinctive, but besides that, it must be aimed at accomplishing commercial tasks, no matter how banal that may sound. Business is business, after all. Now the time has come to formulate a promise. And not just decide on a promise, but put all our efforts into delivering on it. We have a promise, but we must also follow through on it. Otherwise, it will be nothing more than nice words on paper, and no one will ever pay any attention to it. Unfulfilled promises shape your customers’ attitude towards you. Try to imagine the face of your brand through their eyes. Do you like what you see? Everything we have discussed concerns the essence of a brand. But there are also the external attributes of a brand to consider: the logo, the font, the style. As I’m not a design expert, I can hardly explain how the fonts ‘Futuris’ or ‘Helvetica’ affect the perception of the brand, and I take my hat off to the specialists who not only know this, but understand the impact of fonts on consumers’ mood and perception. In this regard, we should be more concerned about something else: the overall impression consumers have of our brand. Today, customer

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experience has become a hot topic. We discussed this a little in the chapter on loyalty. The main problem is that a whole range of factors influence the experience. Some of these factors—design, how staff interact with customers, the overall style of communication, behavior—you can control directly. Others—reviews by opinion leaders, actions of competitors, the opinions of other subscribers—are very difficult to manage. For example, when Stream introduced affordable prices, home networks began to look like awful money-grubbers, who were fleecing customers for bad quality services. All this means that your achievements today will become mundane tomorrow, and the day after tomorrow they will be detrimental to the impression you and your brand make. This is exactly why you must always monitor what is happening with your brand, using whatever method you choose to measure its strength. From time to time it would be good to conduct ‘mystery shopper’ research, to evaluate the whole chain of impressions shoppers and current subscribers get from your company and its work. Now that we understand all the aspects of building a brand, let’s try to formulate some kind of vision and strategy for our operator. The strategy is based on implementing the concept of close contact with the subscriber and creating a system of complete trust. However, we know for sure that no one today expects this kind of behavior from Internet operators, that is, where the Internet works perfectly and the customer is happy with everything. But think for a minute—is that all there is to it? There are quite a few things on the Internet I’d like to get, but they are not very accessible. For example, say I want to buy a book on Amazon.com. In general, you have to go to quite a bit of effort. Besides this, I have the problem of sending my credit card details over the Internet. Why doesn’t the operator act as my agent? I believe him, and he believes me . . . We’ll build a completely different relationship where payment is concerned. Say a customer has forgotten to pay on time—we’ll send a text message, and the service will continue to work for another three to four days. Even after this, he won’t be automatically cut off; we’ll just call him and find

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out if something has happened. In this way, we are building an interface for communication, through which the subscriber can tell us about the service access, but also what he has tried to do, and what hasn’t worked. Because we have smart staff, they’ll understand and fix any problems. This is how systems administrators work at our company: rather than messing about and wasting time, they call and say what they need. These guys get everything done quickly. However, it doesn’t matter to me as a customer whether my Internet troubles are due to a server breakdown, or if it’s because of my own mistake. I’ll never forget the story Vladimir Dankin told me. His friend didn’t have Internet (Corbina was his provider) for three days due to a breakdown. When Vladimir asked him, ‘How do you put up with this?’, his friend replied, ‘Well, they called me and explained it all’. Just as simple as that. They called him and explained the situation to him. I’d be very grateful to an operator who didn’t keep me in the dark, but who called and explained everything to me, and then even offered me compensation for the inconvenience caused. Because he respects me, and this is clear from his behavior. When I call the experts, it’s far more pleasant to hear. ‘Although all our service team members are out on calls at the moment, if you really can’t wait for a few days then we’ll redistribute assignments to help you out’. Obviously, not everything is within the power of the operator, but if I deem that the explanation given to me is acceptable, and not just an excuse, I’ll stay with this operator for a long time. Don’t go thinking that today that’s the only possible strategy. But it is a strategy which will distinguish you from the masses of providers out there. And this strategy will give you long-term advantages, as they are linked with the introduction of a completely different kind of corporate culture. It seems that we have said everything there is to say about brands. There are some aspects which don’t fit into the outline of this book, but which present us with certain difficulties. Let’s discuss them.

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aRchitEctuRE The book is dedicated to this, but it all comes down to a choice: monobrand or umbrella brand? By this we mean any brand architecture under the umbrella, beginning with corporate brands and ending with product-line brands. Let’s talk about this a little bit. How are monobrands good? They are more focused on the interests of a certain target group, so any promises and communications associated with it can be quite specific. Consequently, we concentrate the entire power of our promise into a narrow beam, with a hyperboloid effect. How are monobrands bad? If we create a new product, it all starts again. It’s very similar to our own lives, when parents help their children to take their first career steps. Although we know of cases where the children of famous parents have taken a different surname and don’t want to be associated at all with their parents, saying, ‘I’ll do it all by myself!’ Monobrands are the same. Everyone must take their own place in life. Sometimes a supporting brand gives added value: for example, a particular company name. But it can also have the opposite effect, though this is rare. Still, when a new brand is being launched, people need some guarantee of its quality. ‘Oh, it’s Siemens (or Nokia, or Philips, or Samsung . . .), OK, I get it.’ That is to say, some criteria can assure customers about a purchase. But if the product turns out to be of poor quality, that will reflect badly on the reputation of the parent brand. Of course, it all depends on how the company behaves. Remember when I said that my phone made me think hard about buying other products from a certain respected company in the future? Surely, I’m not the only person to behave in this way. On the other hand, there are umbrella brands, which can offer a particular promise, and a whole industry can be built around this promise. Virgin, for example—if you want to get away then you’re in the right place. This means that all sub-brands, products, and product lines will say exactly this, and provide exactly this.

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Incidentally, the common assertion that with umbrella brands you can save on advertising costs is a myth. You still need to make people aware of the product. If you cut costs, thinking that the parent brand will push the product, you are fooling yourself. Besides, there are always groups with specific needs. Lexus and Toyota, Infiniti, and Nissan are examples of consideration of such needs. Another thing to note is that the parent brand creates an information space around itself. Once we enter this space, we find out about this product. That’s a given. If I call into an Apple Store every day, then I have a better chance of gaining information about new Apple products. If I don’t go into the shop, Apple will have to use standard communication channels. There is another plus. This type of product may require somewhat less frequent advertising exposure, as compared with monobrands. Besides, Apple makes good use of its fans and regularly stirs up interest in products that have not even appeared yet. Word of mouth does the rest. But in order to obtain such an advantage, first we need to become Apple. So, which brand architecture should we choose? I think that if we put our heads together, it will help us to find the answer.

BRand PlatfoRM In fact, everything we have discussed is a part of the brand platform. It’s the set of ideas and principles which we make the foundation of our brand. It’s the set of our paradigms from which we build the strategy and communications of our brand.

intERnal BRand coMMunications Sometimes this element slips out of our field of vision. However, it is extremely important, because if employees disapprove of or do not accept the brand and its values, they may vent their feelings by ignoring the

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established standards of behavior. Here, then, we would see a discrepancy between what the company says and what it does. Correct behavior versus an imitation of correct behavior. We can always tell whether a person is doing something because they want to, or because they have been ordered to. The first, we like. The second, we can accept, but there’s a feeling of falsity and insincerity. Because we’re emotional creatures, aren’t we? That means that the level of trust in the company will be lower in the latter case.

can WE MEasuRE thE BRand? Of course, there are methods of measuring brand strength. Could we say that here we are dealing with certain objective criteria, such as the oil level in a car, which would give us a very clear answer? Most likely not, as all the measurements are based not on technical sensors, but on people’s opinions. Today, a person may be in a bad mood. It’s clear that averaging can offset this factor, but how can we exclude factors that influence not one person, but everyone? For example, say the economic situation worsens, or the government makes some decision which people consider to be a blow to them. If a study is conducted at that point in time, we may get distorted results. In any case, by carrying out regular research by the same method, you can get data which, when interpreted, will allow you to evaluate your own brand and compare it with competing brands. So, for me, a range of relationships have always been important. For example: prompted and unprompted brand awareness, depth of knowledge, attitude towards the brand, intention to purchase, purchase, intention to continue using the product, and readiness to recommend it. However, it’s worth bearing in mind that at various stages of the lifecycle of the product, certain relationships may be more important than others for us.

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ChAPter 7 communications He who knows how to speak, knows also when.

Plutarch, ‘Lycurgus’

What you Want to say to ME Usually when people talk about marketing communications, they have in mind primarily advertising and PR. In the chapter on brands, we discussed how communication should be viewed more broadly, because people can pick up information from the company’s actions, the behavior of its employees, and how they talk to customers. ‘For your convenience’—remember our discussion of this? Firstly, about why someone decided this would be ‘convenient’ for me. Secondly, no one is going to do what would really be convenient for me. ‘For your convenience, all conversations with operators are recorded’. So what exactly about this is convenient for me—is it that when I call technical services again, the operator has no idea about what I talked to him just a few minutes previously? Or is it that it will be very convenient for the company to have a record of the conversation to produce in court? The problem our Russian companies suffer from is polite rudeness. It seems you can’t accuse them of blatant rudeness, but what else would you call polite repetition of a set phrases and an unwillingness to actually solve the problem?

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For example, say a customer calls up and says: ‘Guys, I haven’t been using your service, I’ve been abroad for six months. Recalculate the bill.’ The operator looks at the customer data sheet and replies: ‘You’ve been charged this much for services used for this many months.’ The customer says: ‘I know, but I’m telling you, I didn’t use your service.’ And the same thing continues for ten minutes, until this stupidity drives the customer over the edge, and he says: ‘That’s it, I’ve had enough, I’m cancelling my contract!’ What would have been the correct thing to do in this situation? It’s very simple. Immediately take the customer’s side. When people say to me that customers will use me and con me, I say—let them. Firstly, because of 2 percent dishonest customers, you suspect the other 98 percent, who are honest. Secondly, because you send people the message that you need their money, but not them. Thirdly, because people can make mistakes, and when they realize it, they will feel they have an obligation to you. Fourthly, inveterate cheats are a very interesting audience; some of them may become your ‘sneezers’. Because, ultimately, all products and services are simply toys and games for grown-ups, played by certain rules, which we and our customers accept. Any change to these rules will result in a misunderstanding.

a chain is only as stRong as its WEakEst link Mutual understanding is a very complicated thing. ‘Well, we’re almost like polka-dancing butterflies in front of them, but they’re just brazenly using us to try and grab a freebie’. The problem is that the signals sent and received are not the same, because there are a lot of obstacles in the path of the signal, in the form of personal experience, stereotypes of certain groups and other factors. It can be difficult even in a one-on-one scenario to arrive at a common understanding, so when you are serving a mass of people the task becomes

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far more complex. This is particularly the case when the process involves several sources (advertising, salespeople, installer, dispatcher, call center operator). This is exactly why it is important to simplify the message in the mass market. It’s true that it may come across to some people as too simple, while some may even find it stupid, but on the other hand, the message will be unambiguous. The advertising campaign of the Stream with axes was not at all aesthetically pleasing, but it’s easy to understand for anyone who has had plenty of trouble with slow dial up and busy phone lines. In the process of providing services, we are constantly exchanging messages, even when we think we’re not sending any messages. Let’s think for a moment. The customer types in the Web site address into the browser, and . . . the computer freezes up. Does this send a message? Definitely. Then this message is processed, and in response to it, logical chains are formed in the brain. A computer hangs because there are too many windows open, it’s become overheated, it’s malfunctioning—in a word, the number of conclusions and logic both depend on the experience of a given person. But maybe it’s not the computer, but rather something more worrying from the provider’s point of view—the Internet has frozen. That is, the message ‘the Internet has frozen’ easily gives rise to another message ‘my Internet provider service is malfunctioning’. This message may be internal, but it can become external, received from the computer guru who lives on the floor above.

sEE Who said What The message is inextricably linked with those who convey it. For this reason, there can be totally different reactions to the message. Why does this happen? We can easily explain this—it’s because of the expectations created. The very same message, but from different forms of advertising can cause customers to react in completely opposite ways. For example,

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the majority of people reacted to the offer of ‘washing your boots in the Indian Ocean’ with a wry smile. But if the same message had been delivered by another person, they might have found it shocking. What one provider may be forgiven for, another may not be. Our minds are structured so that we share negative emotions with others more than positive ones. Before it was thought that this ratio was approximately 1:10, but in the information age this ratio may be even more astonishing: 1:10,000 or even worse, for example. Worse for a provider, anyway! Hoping to get lucky on the mass market doesn’t work—you won’t be able to make the leap.

Any change in our behavior sends a message

Any change in our behavior sends a message. If everyone is used to hearing a particular person swearing, when he speaks without swear words he will get a mixed reaction from others. And vice-versa: if a well-spoken intellectual person suddenly starts swearing, the people listening to him may be shocked. So, let’s set down a few points. 1. The message is not only generated by direct communication (verbal or visual), but also by our actions. 2. If actions are predictable and understandable, the message will convey practically zero information. 3. Any change in our behavior will introduce a certain amount of information into the message, and inspire a reaction in response. Incidentally, this effect creates a problem for the company. Better service will be taken for granted. No one worries about whether others are worse-off. If you are constantly doling out compensation for inconvenience, then when you don’t offer compensation,

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it will be perceived totally differently than if you never gave out compensation at all.

‘this is violEt, ovER’ As we said before, the message sent and the message received are not the same thing. In fact, it’s actually worse. The message we intend to send may inaccurately reflect the idea we are trying to get across. This is perhaps because the basic messages we receive from advertisements are things like ‘cheap or free’, ‘Bugatti’ at reduced prices. Of course, creating messages which correctly convey ideas and are capable of entering into the public consciousness is no trivial task. Incorrect coding is a half of the problem. The other half lies in the fact that our message goes unheeded. In the information age, if a person tries to react to all incoming messages, he will be overloaded with information, and may develop a range of problems such as depression and other unpleasant illnesses. So we have learned to react only to things that concern us. In childhood, we absorb every message we receive, and ask our parents questions that sometimes make them uneasy. Later we form a kind of map of the world in our head, and we automatically classify everything we see, hear and feel. We form associative links. About 99 percent of the junk information we receive, we immediately throw in the trash can. So, billions of dollars are spent pointlessly. How can we ensure that our message is part of that 1 percent? That’s what we’re trying to figure out. Moreover, the same message, received in different situations, will be perceived differently. My mother used to joke that I wasn’t allowed to go to the store when I was hungry. Naturally, I used to come back with all sorts of unnecessary purchases. Today, it’s the very same: how full my basket is at the supermarket depends on how hungry I am. The place, time, format, the consumer’s physical condition, and concern about resolving a given problem—this is just a fraction of factors which influence whether or not our message will sink in.

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At some point you have probably had to find a friend of yours in a crowd. What did you do when you spotted them? You started waving your arm, right? That is, you tried to attract their attention. So, the first thing we need to do to ensure that our message gets heard is attract attention to it. In communications, this is called an anchor. I sometimes use the expression ‘grab by the collar’. If it failed to catch on, it means the message is just floating around. Whether or not the anchor should be linked with the basic message is debatable. Often, dissonance in advertising can be a good anchor. It’s important that we discuss this.

If it failed to catch on, it means the message is just floating around.

The Message

In the art of public speaking, there are several tricks to keep the audience’s attention. The pause, for example. Or the sound of a pen falling in complete silence. Or calling upon someone from the audience to do something: say something, ask a question, debate something. Visual advertising also has its own tricks. For example, the emergence of a large empty space around the message or something obviously quirky in the video. My friends, who create these things, were fond of telling me that in advertising, there are two sure-fire winning themes: children and dogs.

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True, there are legal restrictions with regard to children in advertising, but that’s another story. The task at hand doesn’t include a discussion of all possible tricks for attracting attention—you can read about that in other books, on messages. We just need to understand the importance of this element. After we have succeeded in getting people’s attention, we still have a few seconds to convey our core message. Here, we are very dependent on the format: for example, stickers in the subway and billboards on the street can contain different amounts of information. When they’re in the subway, people look for something to direct their gaze at, and it’s not unusual for them to read a sticker from ‘cover to cover’, so to speak. With billboards, the situation is different: here we have only a split second, so it’s better to use just a set of key words which will stick in people’s heads. ‘The intelligence; honor and conscience of our age’—for my generation, there’s no need to decode what this phrase is about.

PEoPlE foRgEt Bad things aMazingly Quickly I recently discovered an article that amazed me, by Berger and Sorensen, entitled, ‘Positive Effects of Negative Publicity’. The main point of the article is that negative information works in favor of your brand, if it is not a well-known one. ‘The human brain operates through associations’, the authors explain their observations. ‘So for that reason, we easily remember any information about things we know well’. As an example, they conducted an experiment in criticism of famous and non-famous authors. Participants remembered criticism of popular authors’ works in detail, and for a long time. However, the participants ceased to attach any importance to the nuances of reviews of fictitious authors after just a short break. They only remembered the names of the authors. Ultimately, this determined their choice. ‘It is not just the objective qualities of the product that influence consumer preferences’, say the authors. ‘It’s very important that the brand

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itself is being talked about . . . Producers of all calibers fear negative reactions to their products. Our results show that, to a certain degree, market newcomers should not fear this. Criticism can actually be very useful for them. Incidentally, we should also not forget that such ‘advertising’ looks far more natural. People always accuse the expert of working to order even though he sincerely believes in the product. While the customer who goes online to express his positive impressions of the product is suspected of viral marketing. People tended to trust those expressed dissatisfaction most of all. Therefore, there is not absolute formula: suspicious customers might blame a critic saying that he works for the competition.’ The authors’ ideas seem so important to me that I have allowed myself to quote them at length. I very much hope that these quotes will be read by the senior management and shareholders of start-up companies and that as a result, they’ll stop being so hysterical about marketing and PR on this topic.

thE Right MEssagE Now let’s try to create the right message. It is not about creating something abstract, but rather a very real message. It’s not something half-finished, but a concrete message, needed by the company. And we’re going to design it. So, I have an idea that I want to outline briefly to you. In the process of using the Internet, subscribers come up against a range of problems that lie outside the responsibility of the provider; they are connected to the performance of the computer, software settings, or the computer being infected with viruses, Trojans, and other horrible things that slow down the computer and the Internet. A company is created whose goal is to offer services maintaining computer performance and other home systems for a fee, naturally. The problem is that for customers it’s difficult to distinguish Internet performance problems from computer problems, which is why when they phone the operator, customers most commonly

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say, ‘My Internet isn’t working’. They tend to react angrily and badly to offers to fix the computer for money: ‘What am I paying you for? So, get on with it please!’ The challenge is to design a message that will emphasize the value of this work and will create a competitive advantage rather than something negative. Now let’s try to formulate the basic values that we’re going to give the consumer. The most obvious, but auxiliary value, is having staff from a wellknown company, who have the necessary qualifications and have been screened, to make house calls. To be honest, I’m not keen on letting just any old person into my house. The least obvious, but the most important value is ensuring the computer works without any problems. But what exactly to do? The computer is working just fine. If it breaks, well, then we’ll think of something. It may get viruses from time to time, but the neighbor will come over and fix it. In general, I’m in no hurry. But even if you can do all this yourself, why would you waste your time doing this? That’s another value—not wasting your time on pointless work. Let’s try to write an essay on this topic. Subscription Computer Services Only for AKADO Customers As we know, computers tend to break down, or get clogged up with unnecessary service information and the remnants of deleted programs and viruses. Problems crop up when least expected and just when you really need your computer. This is very inconvenient, as the computer starts to work slower, it hangs, refuses to open Internet sites. There are only a few solutions: call out a specialist, fix it yourself or ask a neighbor or friend for help. Hiring a specialist will cost from 1,000

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to 3,000 rubles, depending on how difficult it is to restore your computer to its prior state. Besides, you don’t know any companies in this field to whom you could turn for help in complete confidence, on a regular basis. Even if you’re able to fix the computer yourself, it’ll take you quite a lot of time. A knowledgeable neighbor or friend is the best option, but it won’t always suit him to come and help you out, as he has his own things to do at home.

Why AKADO Deals with Computers We have our own reasons for doing so. Firstly, the customer doesn’t care why his Internet isn’t working, whether it’s due to network disruptions or the computer crashing. In any case, customer expects qualified assistance primarily from his provider. Secondly, even though as the provider, we aren’t responsible for computer breakdowns, we worry; because dissatisfaction with one thing can spread to others. Thirdly, computers aren’t just a big part of our work—they are the foundation of our business. Business is business.

How to Use the Service In any case, it all starts with a call to technical support. The price level we set for you is very low, so we don’t want to send staff out to you unless it’s absolutely necessary. We want to resolve the problem remotely. And therefore, more quickly.

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Pricing Policy We offer 15 percent discount for AKADO customers on the whole range of computer maintenance services. Subscribing to a service package costs from 200 rubles per month. Subscription—a unique offer, only for AKADO customers The point of subscribing is that by making small but regular payments, you guarantee yourself quick and qualified help in solving your computer problems. If something happens, you save lots of money, but if nothing happens then at least you haven’t lost anything, because you’ve ensured yourself a life free of computer worries. We have gathered together the most frequently-ordered services in our packages. However, we offer quite a broad spectrum of services. So, in order to keep down the prices of our packages, we haven’t included relatively rarely needed services in them. However, we do have substantial additional discounts on these services for subscribers. Additional Advantages of Subscription: – When you phone up the call center, you will be put through to the professional technical support line as a priority – Remote troubleshooting – An additional 20 percent discount on all types of work Three of Our Best Subscription Packages: • ‘Insurance’ package: antivirus service. For the cost of an antivirus program, you get a comprehensive antivirus service. • ‘Standard’ package: includes the most frequently requested types of tuning and restoration services.

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• ‘Complete’ package: a unique service, guaranteed technical assistance for subscribers on site within four hours. AKADO—Your ‘Computer Doctor’ • Experts with proven professional skills • Guarantees by a leading Internet service provider • Our subscriptions are unique in the market—your peace of mind, with clear savings And now let’s forget this lovely essay, because no one can actually read it. Let’s try to turn it into something more easily digestible. Let’s try to write down all the key words and phrases, assigning them a value between 0 and 10 for importance. We give a word/phrase a 10 if it must appear in the title or subtitle. Beyond intuition and your business experience, you don’t need anything else when you’re assigning numbers. Sometimes it can be useful to ask various company employees to do their own version of the scoring. It’s better if you can get people from a variety of professions to do this, so that we can better grasp the nuances of perception. kEY PHRASE (WORD)

IMPORTANCE

Computer

Subscription

Discount

Guarantee

Professionalism

Antivirus Services

Priority Calls

Only for AkADO Customers

Remote Services

Expert Call-Out

Unique Service

168 kEY PHRASE (WORD)

IMPORTANCE

Computer Doctor

Skilled Computer Care

Little, but Often

Breakdown

Viruses

Problem

Conidence

Immediate Call-Out

Inconvenience

AKADO

Skilled Computer Care One number to solve any problem Proven professional staff Guarantee by a leading Internet service provider Priority calls to technical support Immediate call-out Remote configuration of computer possible

231-4444

Only for AKADO customers

it WoRks siMPly Of course, the text has become rather boring and dull. But only these kinds of texts work. And if anyone decides to investigate more closely, then our essay will be there for him. By the way, any kind of format can be created from this essay and this extract. For example, by adding a picture to the extract, you can make a hanging advertisement for doors.

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By adding some explanations and emotional color, you can make a leaflet or booklet. But for billboards, you will have to ‘streamline’ the extract, by leaving in the title, phone number, and two promises; the guarantee of a leading Internet service provider, and immediate call-out. We still have to think of an anchor. Could the title be this anchor? In theory, we could leave it there, as many people are concerned about computer problems. Consequently, they should latch on to the advertisement. What does the advertisement tell us about? Computer support services. Is it relevant today? Yes. What kinds of barriers are there? Lack of confidence in tiny and unknown firms, in the quality and professionalism of their staff. It’s just a stereotype, but you do encounter it. AKADO’s promise: skilled computer care. Why will customers believe you? Only because of the brand. And later, because their choice is confirmed as correct: because of the highquality professionals (could it be any other way in a big company?) and guarantees you offer. What do customers have to do? Simply call up and any problem will be resolved. Additional promises. Priority calls, immediate call-out, and (a controversial, but interesting) point about remote configuration for computers. Like surgeons performing remote operations . . . And lastly, some kind of promise in exchange for choosing us. Only for AKADO customers. I don’t think I’ve managed to do anything amazing here. I’ve simply used a particular method of working with texts. I don’t consider myself to be a creative type; chance enlightenment absolutely doesn’t count. By the way, about enlightenment—creative ideas often come about by chance. I remember how the idea of Stream’s advertising campaign

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‘Internet for Girls’ was born. At that point in time, the Stream tornado had already swept up students, though they were mostly male. We really wanted to attract a female audience, but they’re always more pragmatic and cautious about the Internet. So this was the marketing problem. Our creative guys Volodya Ikonnikov and Dima Machalin brought in a concept that was consistent with the idea on the whole, but it didn’t really grab us. We spent hours discussing the problem in the sales manager’s office, but to no avail. Suddenly I decided to ask Katya Sryvkova (a DJ on Radio Maximum at the time) a totally banal question: ‘Katya, if you were buying Internet for yourself, what would you ask the salesperson?’ The answer was absolutely brilliant: ‘I’d ask for something for girls’. There it was—Internet for girls, a product without the frills boys go for; elegant, practical, and understandable Internet.

a Binding foRMat For me one of the most memorable advertising campaigns out there was for an alarm company called Clifford. They had twelve rotating billboards that had the profile of a car with the phrase ‘Was it stolen? They should have had a Clifford.’ That is the ideal format. The anchor was that they showed a car and asked the question, ‘Was it stolen?’ and then they provide the solution—‘They should have had a Clifford. Call . . .’ This concept is good because it can be used in practically all formats: magazines, leaflets, and indoor advertising. It can also be adapted to radio with some alteration because there is no visual aspect. The metro advertising campaign of the Georgia water company, Borozhomi, was completely different. The poster was full of written text about the distinctive features of Borozhomi. The most interesting thing that respondents said was that they had an enviable amount of knowledge on the subject and were informed about practically all of the brand’s features. However, if we were to put a poster on a television commercial we would be very disappointed with the results. This is a pretty moot point

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because nobody would even try to put a poster on the television and nobody does. Each form of promotion has its own specific particularities as regards the amount of information contained, how it looks (text, picture, video, sound), perception, as well as the audience. Besides, some forms go very well together and complement each other. For example, outdoor advertising and radio go well together. In general, media planning is a whole branch within an advertising business. As a rule, it is very difficult to break away from media buying because some types of media are so in demand and limited that they are bought up ahead of time. Therefore, any exercise in planning by an advertising campaign will remain just that, an exercise, if you are not able to buy what you had planned to buy. Nevertheless, we will continue our exercise on AKADO’s computer service. It is clear that the target audience is made up of AKADO subscribers— both existing and new ones. What challenges are we facing? One is to make everybody aware of the brand. Another is to create the motivation for people to pay for a service in which they don’t feel any necessity until the computer will have to be broken. The third challenge is to overcome the barrier of people not actually knowing what the Internet service provider’s responsibilities are. It would be all well and good to achieve brand awareness through traditional forms of advertising but it is simply too expensive. It is also hard to overcome the barrier and motivate people to pay for a service that cannot be provided. Let’s discuss buying situations and proposal meetings. The First Situation A serviceman sets up a person’s computer. Seeing as the subscriber has to pay him 1,500-2,000 rubles for doing so and has an offer of 2,400 for an annual subscription, 3,000 rubles won’t seem like an outrageous

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sum to pay. Moreover, if the subscriber signs up and pays immediately, setup is free. The Second Situation The serviceman goes out to connect the Internet or digital television (if that is what the Internet subscriber wants). He might leave a leaflet about further services and rattle off two or three memorized phrases about the company. The person is unlikely to connect immediately but when the computer breaks down, he will remember the leaflet that the serviceman gave him. That information will serve as a reminder to the subscriber. The Third Situation There is a phone call at the service center. After they successfully solve the person’s problem he is asked how often he has problems with computers. They then tell him that there is a way to solve those problems. Could we have achieved that result and sent out a similar kind of message using IVR? I’m not sure we would have because the person who is calling would be tense and might not like having to speak to a machine seeing as he is paying for a service. Of course, that is not the way to spread awareness of your product quickly. So we need different channels of communication. We must remember that people are not prepared to pay for additional services and we have more pressing areas that need our advertising investment. What do I mean by that? The first thing that comes to mind is a Web site and personal account. You shouldn’t use direct message through SMS, but if you are warning them about a virus that is going around, people won’t mind and won’t see it as a solicitation. Let’s sum up the importance of format. Each form of advertisement is unique in that it has its own specific amount of information it can present, its own way of presenting it, and its own way of being perceived by the target audience. I find it hard to remember now whether or not I have experienced any difficulties with similar forms of communication.

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As far as I can remember I did, because I remember speaking with media planners about the strong and weak points of different kinds of advertisements. Now several forms of advertising (media mix) come to mind when I think about an advertising campaign, about the message, and who it is aimed at. Do you know the Russian film, ‘Wedding in Malinovka’? There was a character who asked, ‘Where from, where to, why’? The same thinking could be applied to this situation—what, to whom, where, and when?

hoW Much should you invEst Even if we create the perfect message and choose the right form of advertising, we cannot achieve the result we want to without having the right amount of weight behind it. Of course, I mean behind the advertising campaign. Unfortunately, we don’t have a way of measuring how much weight is the correct amount to have behind an advertising campaign, and each form of advertising has a different way of judging the correct amount of weight. For example, television advertising has had the term GRP (gross rating point) for quite a while. It is the sum of the ratings of the programs that contain our message. While the press uses a system called CPT or cost per thousand readers. The Internet judges advertisement in terms of clicks. All of these are media planning tools. An experienced advertising specialist will be able to determine how much funds should be allocated to advertising to achieve the required level of awareness—to within 10 percent. There are no miracles in advertising—an advertisement needs money if it is to work. Indicators such as ‘reach+’ and ‘effective frequency’ are far more interesting for us and for advertisers. For example, we want our message to reach 70 percent of the target audience. Reach+1 will actually attain that 70 percent. We understand that for some products one advertising exposure might be enough. That might be the case when there is hidden or latent demand. However, more often than not, one form of advertising simply isn’t enough. We don’t just need people to find out about the product but

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we need them to buy it—as this is the main challenge in marketing. While reach+1 has had impressive success, results achieved through reach+2, reach+3, and other reach+ systems are much more modest. For example, reach+3 can only achieve 40 percent of the target audience. There is a story going around that you need to achieve three advertising exposures before the person makes a purchase. That story is just that, a story. It may be true but that is only because the understanding of the term ‘advertising exposure’ is very vague. There is another important aspect to be considered in media planning. For example, we have decided to raise reach+3 to 60 percent of the target audience. If we were to monitor the advertising program everyday then we would see that this indicator has significant growth at the beginning but after it reaches a certain threshold it slows down substantially. This threshold cannot be defined exactly because it is different for each situation. In fact, after this threshold has been reached every percentage point that reach+ increases begins to cost too much. What is the target frequency? From my experience, I believe that it is around 7, 8, or more times. It all depends on how we define the target audience and how we judge their inclination to buy our product. Let’s suppose that I am dissatisfied with the work of the advertising agencies who themselves know the exact frequency to achieve the desired awareness. You take the information that the advertisers have and double the weight behind advertising campaigns. But don’t you need results and not a process? We won’t know how much money you may have wasted, but spending too little on advertising is far more damaging for a company than spending too much. Just compare your sales with how much you spend on advertising—it doesn’t make any sense to scrimp. Argue with your advertising agencies and get them to prove the effectiveness of each of their proposals aimed at your target audience.

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Not putting enough weight behind your advertising campaign means that all of your investment and operational efforts will go to waste.

There are always nuances in everything. For example, a strong creative idea reduces the need for repeating the advertising message. Ideally, if the creative idea is really good it will spread by word of mouth. I remember an advertisement from BeeLine, a Russian mobile phone operator, which had the Tinsmith Day as its premise and everybody wished each other happy Tinsmith Day. Or the tagline, ‘Just pour and leave’ for Moya Semya, a Russian juice brand. These two campaigns that have the same amount of weight behind them achieved completely different results in terms of awareness and ability to embed their advertising message into people’s minds. It is a pity that I wasn’t there to monitor the advertising campaign day to day as we always carry out an assessment after each ad flight is chosen. Of course, we always get feedback in the form of phone calls and purchases, which are more important than awareness because that is the real aim of all of our efforts. The problem is that you can never give the advertisers a sales-based challenge because they can only manage the creative idea, the media mix, and weight of the advertising campaign. But we still have demand, product, supply, and reputation to deal with. Do you remember when we talked about how nothing kills a bad product quicker than great advertising? But there is another truth. We have already mentioned it. Not having enough weight behind an advertising campaign is as good as throwing all of your investment and operational efforts out the

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window. If we haven’t created enough awareness, a relationship and an intention to buy, then we are just FOOLING OURSELVES. Waving loads of banners about the product in front of the shareholders is as good as robbing them of their money because we should be waving those banners in front of potential customers. Of course, it is true that a good product sells itself, but that is only a part of the story because we only have a vague understanding of what ‘good’ means. It is only just our attitude to something. But people’s attitudes themselves are subject to change. Reasons such as: because other products have come into the market, because of competition from other advertising campaigns, because of a change in mood, because of the weather, or because she saw her aunt with the same dress—all change people’s attitudes. Let’s try to sum up what we have gone over. 1. It is very important to have an anchor. It helps you attract attention. 2. Making people aware of your product requires some weight behind the advertising campaign. 3. The advertising campaign must achieve a result; otherwise, it will be a senseless waste of money. 4. Part of the money allocated to advertising will go to waste and we won’t know how much of it was unnecessary. (That idea belongs to Ogilvy, the ‘father of advertising’). 5. A good creative idea can reduce the need to have weight behind an advertising campaign because people will be more likely to remember it and for it to become well-known through word of mouth.

thE advERtising PiPElinE So we have achieved awareness, yeah! However, our sales figures do not make us happy at all. People know about it but they are not buying it. Now let’s discuss how to move from awareness to purchase and find out what an advertising pipeline is.

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Let’s say we have decided to bring an Internet provider, to the market, which is faster than the others. Let’s say it gets 50 Mbps. Of course, it is going to be more expensive than companies which offer 5 Mbps. It is 20 percent more expensive. A person sees the advertising campaign, which promises him that now 50 Mbps is the best that is out there. The first question he’ll ask himself is, ‘Why do I need that? I’m fine with the Internet I have now.’ Since this person doesn’t see any reason to buy it, the information from the advertisement gets lost somewhere in the back of his mind. Then he goes to work and hears how his friend signed up with that Internet and it’s really great—he can watch HD movies in real time. Then there is a television commercial that says that if you don’t have 50 Mbps then you don’t have the Internet. The new Internet standard is 50.

From awareness to purchase

The seed of doubt is sown: a person is no longer sure that his Internet plan (which he knows works perfectly fine) is modern. If the Internet user is conservative, it will take him a while to come around and if he is pragmatic then he will begin to become interested in what is going on around him. He finds out that another colleague has gone with that Internet provider. Now 50 Mbps has got stuck in his mind and he is beginning to think that it wouldn’t be such a bad thing to have. Finally, he comes around to the idea and sets out to buy it. Now we end up with another chain: attention—awareness—interest— in-depth knowledge—intention to buy—belief—purchase.

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Of course, if we think that the purchasing process goes sequentially from link to link, then we are wrong. The links in the chain may move about as they please. Interest may come first. But something interferes before they make the purchase. The intention to buy something especially after not being able to buy the thing that they really wanted to buy can become a main motivator for a purchase. I couldn’t buy a television so maybe I’ll buy a lamp—it’s still something for the home. If we are dealing with an individual then the links in the chain may move around a bit, but when we are dealing with the mass market each link will come in sequential order. Firstly, with only some awareness you can ensure some sales because possibly a person has been waiting for your product for a long time. They’ll think, ‘Finally. It’s here.’ I’m sure you’ll agree, even intuitively, that it is easier to achieve awareness than create a specific impression in the consumer’s mind—to become the product at the top of his mind. Nowadays everybody knows about the Internet, but the same could not be said ten years ago. What about aeroflight? Would you like to know what that is? Then it’s the product for you! What does a person think of when he hears aeroflight? The best case scenario is that he would think, ‘What is it? What are they about?’ Or the worst-case scenario would be they just wouldn’t pay any attention at all to it thinking, ‘It’s just something to do with aviation.’ Then he walks out onto the street and sees a flying chair. Of course, he doesn’t know what it is called just by seeing it, but he will start to look for information about it and realize that he had already heard about it. Then what happens to this man—does he acquire the intention to buy? There are several reasons why the path from awareness to purchase is long and treacherous and depends on the product’s significance for us, the opportunity to buy, the perception of the brand, people’s feelings, recommendations, and so on, so forth.

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But it would be nice to learn how to change the different stages of purchasing. Of course, purchases and return purchases (continued use) are at the very heart of the pipeline, while awareness is the most superficial thing. We could limit inflow and outflow but we want to assess more accurately how much of an effect advertising was having. For example, it would be nice to see how accurately people understood our message and what people thought of our product (brand) as well as whether a person has the intention of buying it. All of these elements can be easily measured in quantitative surveys. Then the chain might look like this: • Awareness of the product—70 percent (hypothetical figure) • Knowledge, in-depth understanding—precise representation of the product and the ability to create the basic idea of our message—30 percent • Intention to buy and the reasons why a person does that or doesn’t—10 percent • Return purchase or continued use of a product—5 percent Therefore, at each stage we undergo a sort of transformation: from awareness to knowledge, from knowledge to the intention to buy, from the intention to buy to buying. The more we are able to move on from awareness to the intention to buy, the more effective the advertising campaign has been. The more first-time buyers who return to make repeat purchases or to continue using the service, the more effective the marketing efforts were. Let’s suppose that we were able to move from awareness to knowledge, but the sales figures still did not go up. Why is that? There may be several reasons why. For example, there might not be much demand for the product or for the product category as a whole. The parent brand or the

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product itself may not have a very good reputation. The price might be too high. It is hard to buy. Let’s look at it from a different angle. In a study carried out, 20 percent of potential customers had the intention to buy a product in the near future. But only 2 percent of them ended up doing so. Perhaps, we should try to understand the barriers in place and stimulate sales. Let’s say you are going out to buy yogurt and while you are in the shop you see a new brand. You don’t know anything about it, but you pick it up off the shelf and put it in your basket. You have NO awareness of the brand, NO knowledge of it either, but you still bought it. Is that ultraefficient marketing? That situation is not an exception to the rules and only serves to confirm the rules. It is not an exception at all. What exactly happened there? You were looking for yogurt. That means that you were aware of and knew that it is a tasty and healthy thing (actually billions of dollars have been spent just to make us aware of this because yogurt was not always popular in Russia). There isn’t any fear that the yogurt will be poisonous because of the place from where you bought it, which, to some extent, guarantees that you will buy a high-quality product. The desire for variety seems to be the motivation for this purchase. The price is a part of any spontaneous purchase without any long consideration and studying the product. So what is the point of marketing then? The point is that the product is in the right place, on the right shelf (the art of merchandising), in attractive packaging, and available at a price that we are willing to pay. Occasionally, producers use sampling and let customers try some of the product before they buy anything.

diffEREncEs in Buying BEhavioR Different situations and different products have different types of buying behavior. For people like us in the communications field, it is important to understand whether or not our product requires a high level of involvement. It is really important because if it does require a lot

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of involvement there will be a lot of reference groups that will have to be consulted before they buy it. The space for evaluating a product is multidimensional: cheap— expensive, does the product mean something to us—does it not, famous— unknown, unique—common. Of course, there is a complex correlation between these fields. For example, buying generic drugs is significant and means something to us because it has to do with our health. The role of reference groups (such as doctors) is very important in this instance. Of course, the significance of an expensive product is always higher than a cheap one. But reference groups aren’t always around when an expensive product is bought. They can indirectly influence customers—for example, if people in the group tend to wear a certain thing (a watch, tie, belt, etc.) then that, to a certain degree, influences the decision that each person in the group makes. However, the level of involvement that each group member has in the buying process may be minimal. I also think that when a person buys a significant and expensive product, there is a certain level of responsibility in making a decision, which is lowered when a man is separating his responsibility for decision with other people, or through choice from famous brands which they may have already used and experienced, and stimulating offers of the product. We must also understand that the higher the responsibility, the more we are inclined to carry out a follow-up evaluation of the purchase in an effort to lower cognitive dissonance and to receive approval for our choice. Significance is not a constant. I’ll give you a simple example. The decision to buy a fairly expensive DVD player when buying a television is different than buying the DVD player alone. In the first case, the purchase may be somewhat spontaneous (the respective prices of the TV and DVD player affect the significance of the purchase). While in the second case, the purchase may have been well thought-out, so the purchase was significant.

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EffEctivEnEss in achiEving MaRkEting REsults The pipeline that I proposed is not the only one. Many advertising agencies have their own view of the effectiveness of advertising. Therefore, the pipeline might look different. But in any case, people need to be aware of the brand (product) in order to buy. There must be a relationship between the brand and in achieving their goals. That relationship can be measured in terms of association with the brand, for example, with the help of a semantic differential. There is another nuance to this because we are giving consumers a message in the process. We have to achieve awareness through that message. That message has a goal, for example, to change how people think about a brand. We can measure how our message has affected the brand and the intention to buy. I, personally, like the term ROO (return on objective), which allows us to compare the results from our efforts to the goals we set. It goes without saying that setting goals correctly is extremely important. We could achieve the wrong kind of goal but it would end up being useless for us and just be a waste of resources. The question is, what goals should we set for ourselves? Because I believe that this issue is of crucial importance, I will attempt to give an exhaustive group of goals that one might try to achieve. It could practically be used as a template for briefs. The results of having an advertising campaign: – Awareness (general or spontaneous) of the brand grows by . . . percent and reaches . . . percent. – Awareness of the message reaches . . . percent. – People’s memory of the advertisement without being prompted reaches . . . percent. – Group of associations with the product (brand) improves in terms of dynamic semantic differential reaches 70 percent.

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– We have moved 10 points to the right towards the leadership axis on the competitor’s graph. – When people are asked to list the brand that comes to the top of their mind for our product category the product achieves 40 percent. – The NPS indicator grows by five points. Intermediate results: – The number of hits on the Web site grows by 200 percent during the advertising campaign. – 10,000 coupons are sold. – The ratio of incoming and outgoing sales change from 50:50 to 70:30. Because I am absolutely convinced that advertising is an investment and not an expenditure, I think it would be a good idea to use ROI, a universal tool. But I think that would be a difficult thing to do because it is extremely difficult to separate the marketing campaign factor from the other factors. For example, your churn is being reduced. Is that because the advertising campaign increased the value of the product? Or is it because the product was updated? Perhaps it was because the price was lowered? Or was it because the quality of service improved? Is it thanks to the fact that a competitor went out of business?

If we have done something better than others, then people should be aware of it.

More than likely, we will not choose the correct kind of advertising and we’ll have to model the ROI on the business model, setting aside

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the more or less separate elements for GAP analysis. By separating each element, I can understand a set of related investments: if you built a production plant and began to create a product that everybody needed, but you didn’t allocate any investment for awareness, then it makes no sense to calculate ROI for production investment. Everything will be in place but there will be no return on investment. The trickiest question for marketing analysts is, how does advertising affect sales? How can we explain that advertising doesn’t always have an effect on sales? What is the point of advertising then? How do we show that if we don’t invest in advertising then our ARPU will go down, churn will increase, and sales will decrease? Nobody ever knows these things beforehand, do they?

What conclusions can WE dRaW fRoM this chaPtER? If we have done something better than the others, then people should be aware of it. It should be the topic of debate, otherwise the value of this ‘something’ is zero. However, if we begin to talk about something, then we should learn how to measure that thing. Before we measure it we have to correctly set goals that we will strive to achieve.

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InsteAd oF An ePIlogue As you may recall, we started our book from the end, more specifically, we started with the question of why people buy things. Now, I propose, we rewind our conversation back to the very beginning. There are 39 conclusions and observations: 1. Whatever we do that is good, it will only be good in our own minds— in order for other people to value our work, we have to tell people about what we have done. We also have to think how to create the right attitude, so that awareness transforms to intention, and intention becomes purchasing. 2. To do so we will have to spend money—possibly a lot of money. Because, if we don’t do this, we are effectively withdrawing all of our investment in the product, infrastructure, staff, etc. 3. Having not enough weight behind an advertising campaign is as good as throwing all of your investment and operational efforts out the window. If we haven’t created enough awareness, a relationship and an intention to buy, then we are just FOOLING OURSELVES. Waving loads of banners about the product in front of the shareholders is as good as robbing them of their money because we should be waving those banners in front of potential customers. 4. An advertising campaign should obtain results; otherwise, it becomes a pointless waste of money. It doesn’t matter if we end up wasting a little bit of money. The main thing is that the other money spent achieves real results. We need to learn how to properly set goals and measure to what extent they have been achieved. 5. A good creative idea can reduce the need for investment in advertising. By a good creative idea, we should mean something that makes people want to buy our product, not just something that has won awards.

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6. The format of the advertisement dictates the format of the advertising message. There’s no point in writing reams of information on billboards and banners; no one will read them. 7. Besides the format, other factors significantly influence how our message is perceived. For example, the place, the time, a person’s physical condition, how much he is concerned about solving a particular problem, and so on. When it is hot, people want ice cream. 8. The message sent and the message received are not the same thing. Our task is to make them identical. To be sure of this, we need to constantly monitor the situation: what people know about us and our product, and to what extent they understand it. 9. The message is not just what we say or show, but also what we do. Any change in our behavior sends a message. When people receive mixed messages, it leads to cognitive dissonance. 10. Everything eventually becomes familiar. It’s better to exceed expectations than to promise something and fail to deliver on it. A pleasant surprise is much nicer than something you were expecting. 11. People share negative emotions with others far more than positive ones. The old ratio, 1:10, is now outdated; in the information era, this ratio can reach proportions that are potentially disastrous for companies. 12. The perception of the message (and what reaction it gets) depends on the message source. 13. Simple messages work best. 14. Avoid the phrase, ‘for your convenience’—allow the customer to decide what is convenient for him and what isn’t. 15. Now let’s figure out what we could tell people—about the brand, what we offer, and our actions, which we believe should influence people. If we want people to find out about this, then at a minimum we must achieve brand awareness. 16. A brand talks to people at different levels. At the offers and promises level, people will develop a particular attitude to product or service

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offered. At the goal-setting level, the brand is considered as a potential means of achieving a particular goal. At the trust level, people compare promises with their prior experiences of the brand or with what they have heard about the brand’s reputation. 17. People need brands more than brand owners do. This is because people have goals, and they need things that will help them to achieve these goals. If you took away all brands, people would be unhappy, because they wouldn’t know how to achieve their goals. 18. Brands are intangible, even though they may be associated with a physical object. However, if the consumer has no impression in his mind when the brand is mentioned to him or when he sees the brand symbol, then that brand is nothing more than a sticker or nameplate. No-name products also have names. It’s just that no one remembers their names; they say absolutely nothing to us. 19. Brands formulate and suggest goals to us; they dress this up in the form of promises. 20. Brands make choosing easier, as they reduce the number of parameters involved in choosing (a complex product) to a reasonable minimum. 21. Branding is a completely essential business process, which allows us to paint a picture of the world in the consumer’s mind: and in this picture, there is definitely a place for our brand. Even if we are not purposefully engaged in branding, the brand will still be formed. However, it will be formed in a totally random way, outside of your control. And when your competitors begin positioning their brands, and occupy the most important slots in people’s minds, the pathetic remains of our brand will be swept clear out of their memories: ‘What’s that? Oh, yeah, we remember now, it was some small-fry provider. Nothing important, it’s not worth my time. Some people think that . . .’ 22. Mission and values are not just a load of fancy words for investors or consumers, but a tree trunk, on which you will have to hang your products, communications, and behavior. It is very bad for a company to be unpredictable as it causes the consumer to become

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23.

24.

25.

26.

confused. As the Pushkin quote goes, ‘The queen gave birth last night—not to a son, nor a daughter, nor a mouse or frog, but to a dreadful beast.’ Of course, the mission and values limit the scope for activities. If your mission reads, ‘We want to make the lives of our subscribers more comfortable,’ then any action taken, however logical it may be, might have to be undone because it goes against your mission. I believe that shareholders have to pay particular attention to the mission so that the management doesn’t have any particular desire to destroy the business’s base. Yet it is a completely different thing if nobody in the market needs our mission—like a shoemaker who is now obsolete. But then he can create another business and another mission. Once you have a promise you must follow through on it. Otherwise they will just be nice words on paper that nobody pays any attention to. The latter is terrible. Not following through on your promises creates a certain kind of attitude amongst your customers to the brand. Do you remember when we discussed customer experience? Many factors influence a customer’s experience with a brand. Some of which include: design, manner of contact, general style of communication, behavior—all of which we can control directly. Other factors include, for example, feedback from leaders, opinion of the subscribers—which is very difficult to control, but it is possible. Involvement is a powerful thing. We can also control competitors’ actions because they follow what we are doing and will start copying what we do. Today’s achievements are tomorrow’s everyday things, and the day after that, the way people see our brand will deteriorate. That is why we have to constantly be in control of what is happening with our brand and implement measures in time to ensure that the brand is still considered relevant. Internal communication about the brand is every bit as important as external communication. If the company’s employees reject the brand

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27.

28.

29.

30. 31.

32.

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and its values or don’t have confidence in it, they will not abide by the standards of behavior that are set out in the mission. The information age has made people view capital differently. If you look at the capitalization of companies then it is easy to see that the lion’s share of it is not taken up by equipment, machines or networks but by intangible assets. Therefore, most of the capital does not belong to us. A brand is capital. But it only exists in its customers’ minds. Subscribers and buyers are capital. They are prepared to buy from us, but we don’t own them. Civil marketers are capital. Staff is capital. Even though we have a contract with them they still do not belong to us. Any capital needs to grow, otherwise it will erode away. This is something that managers sometimes forget about. They remember about machinery and grease it or wipe it with alcohol, that is, take care of it, but they forget to take care of the intangible assets that are a great deal more expensive. There is one more type of capital—customer loyalty. By this I mean the customers’ intentions to repeatedly buy from us and preferring us over all the other competitors as well as their readiness to recommend our services and defend us against attacks. Loyalty creates credibility. Because you have credibility, consumers are willing to forgive you for minor problems. Retention and loyalty are not the same things. Loyal customers stay with your company out of their free will, while neutral and disloyal customers stay with a company because they do not want to incur any fees. Remove that barrier and all of them gladly leave. Playing around with customers has nothing to do with loyalty. However, a company still has to earn profit for its shareholders by doing its job correctly. We all have a part to play but the role of ‘we are penniless but happy’ has no place in business because we have to make money. Your customers will not benefit if the company is ruined. People want to spend money, so help them to do just that.

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33. Unfortunately, loyalty is not necessarily a given thing. The situation can change, competitorsâ&#x20AC;&#x2122; offers change, and we have to constantly prove to the customer that they have to make the right decision by choosing us. 34. Managing the brand and managing loyalty go hand in hand. 35. If we want to achieve loyalty, then the first thing we have to learn is to avoid unrealistic promises. That customers will be loyal to, you have to cement your brandâ&#x20AC;&#x2122;s specific characteristics in their minds and keep giving them more and more reasons why yours is the best in order to instill in them the belief that they have made the correct decision. You may be great but people need to find this out from others and not just from you. 36. The worst mistake that only we can make is to forget about the customer right after the purchase is made, which is when they most need our support. Bear all aspects in mind. Packaging, advertisements, understandable instructions, caring, competence, playing music while keeping people on hold, intonation, fair price reductionsâ&#x20AC;&#x201D;all of this works in tandem to create a unified idea and perception of the brand. 37. Give people the opportunity to express their feelings and what they are actually concerned about. Keep feedback lines open, find out what people want, establish a relationship with the most active people to give feedback and make them your followers and disciples. 38. Employees also need good service. They want to like coming to work and to believe that their company is the best. Internal loyalty is also capital and we have to do everything possible to increase it. 39. Collect information bit by bit. That is also capital. Only you have this information, and it takes years to gather. It is much easier to understand a person, their needs and requirements when you have built up a long-term relationship with them.

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Ps. My FAvorIte QuotAtIons Sergio Zyman, The End of Marketing as We Know It • The only thing that any marketing person should care about is real consumption. • I have approached every new campaign, every new promotion, and every new product as an investment that has to pay a return. • Marketing has to be tested and measured just like any other investment. • Unless you have a 100 percent market share, you should always increase market share in traditionally low periods. • Sales volume only makes sense when it brings in a profit or provides sustained growth, with the promise of becoming profitable. • The worst thing you can do is to bring your products to market, and sit back and relax. • . . . Portfolio management—that’s when you build borders for each of your products, so that no other brand from your portfolio can cross over into its territory . . . I believe that in the competitive fight, every brand is on its own, and must compete with everything, including your other brands. Brand cannibalism is a normal phenomenon, so it’s better that brands eat their own offspring than leave them to the mercy of competitors. • Marketers make a big mistake when they hide behind the concept of building images so that they won’t be held accountable for producing any results. • Promise. Do more. Trump.

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Seth Godin, Permission Marketing • The more the customer is engaged—the more he or she has collaborated with you to fashion the service you are rendering or the product you are selling—the more likely the customer will remain loyal to you, rather than going to the trouble of switching this collaborative activity to one of your competitors. • Catch-22: The more they spend [on marketing], the less it works. The less it works, the more they spend. • Human beings have a finite amount of attention. • Consumers’ wallets are not one-size-fits-all. Peter Cheverton, Key Marketing Skills: Strategies Tools and Techniques for Marketing Success • Never take anything for granted. • Always ask why and listen to the answers no matter how unpleasant they might be to hear. • The market itself doesn’t buy anything, people do. Timothy L. Keiningham, Terry G. Vavra, Lerzan Aksoy, and Henri Wallard, Loyalty Myths: Hyped Strategies that Will Put You Out of Business— and Proven Tactics that Really Work • We haven’t got a penny but we still have love. • Retaining 100 percent of customers will never be profitable. • Blindly hoping for loyalty will always end up destroying you. • A customer who takes part in surveys and research provides significantly more profit to the company for up to a year after the survey was conducted. • The main guarantee for customer loyalty is to sell the right things in the right place at the right time to customers who need them. • Customer loyalty . . . needs to be constantly maintained and earned.

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Dan Herman, The Brand Builder’s Guide • We live in an enriched reality that is subjective and generalized. • Brand strategy is the creation of expectations of benefit among your potential customers. • There is no difference between tangible and intangible advantage. • . . . the misconception that consumers have feelings about brands. • All of our efforts are aimed at consumers who are in the prime of their lives but we do not interest them whatsoever. • The only way to get through to customers is to make them think that there are problems . . . • A product is not just an item but is anything that we offer customers to buy for money, all promises from the purchase and use, all sources of basic benefit including added value, sources of tangible and intangible benefits. Joseph Jaffe, Life After the 30-Second Spot: Energize Your Brand With a Bold Mix of Alternatives to Traditional Advertising • Nothing kills a bad product quicker than great advertising. Geoffrey Moore • An whole product is useless for real experts. • Try to cut the fat. • It is marketing’s fault. • The biggest danger in developing a high-tech market is the transfer from an early market which is dominated by a few visionaries, to a major market which is dominated by a significant group of buyers who are largely pragmatists. Moscow, 2010 Translation to English 2011

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Index A

difference of product from 120-3 external attributes of a 150 measurement of 155

advertising 26 forms of 44, 171-3

premium price for a 127, 144

visual 161

reasons for consumerâ&#x20AC;&#x2122;s need for a

advertising campaign 39, 173-6,

129 brand architecture 154

182-3, 185 advertising pipeline 176

brand communications, internal 154

Allaire, Paul 55

brand platform 154

analog processes, essence of 58

brand strategy 136, 193

Ansoff, Igor 51, 55

Brewtopia 54

Ansoff matrix 6, 54

briefings 43

Art of War, The (Sun Tzu) 68

buying, definition of 21

assets, intangible 58-9 Asymmetric Digital Subscriber Line

(ADSL) 14, 34-5, 47, 53 average revenue per user (ARPU) 64, 80

capital 117, 189-90 capitalization 59, 64, 117, 189 cognitive dissonance 9, 186

communication 145-6, 161, 188 informal 115, 138

balanced scorecard 57-8 behavior, message in change of 159, 161 Birth of a Brand (Herman) 23

marketing 156 company: main mistake of a 111-12 standards of a 88-9

Boyle, Susan 110

consumption situation 11

brand 66, 95, 106-7, 125-6, 128, 136,

cost structure 62

148, 181-2, 186-9

customer life value (CLV) 104, 106

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customers:

reasons in loss of 83 ways to prevent loss of 86

Herman, Dan 121

D Delivering Quality Service (Zeithaml, Parasuraman, Berry) 23

I identity, definition of 121 Internet 149, 163, 173 access of 14, 19, 21, 34, 38, 81

facts on accessing the 36 users of 45, 80-1, 130, 177

EBITDA level 106

investment 67

Eliasson, Franks 115

Ivanov, Leonid 30

evaluation 20 expectations 8, 130, 136

formula of 9 loyalty linked with 98

Jack Vosmerkin is an American 98 Jobs, Steve 33

F K facts, establishing a set of 19 focus groups 71-2

Kaplan, R. 57 Komkor-TV 53

G goals 10, 15, 57, 187

Kotler, Phillip 22, 66

common 17 recognizing the hierarchy of 18 guarantees 27, 141, 146

Lobanov, Denis 56 loyalty 82, 89, 104, 189-90 achieving customer 106 best way to look at 93 definition of 99

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expectations linked with 98

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solution to 98-9 Loyalty Myths (Keiningham, Vavra, Aksoy, Wallard) 93, 192

Pareto principle 104 perfect providers 142 Portable MBA in Marketing, The

(Schewe) 55 Porter, M. 62 price sensitivity 80

marketing: chain of possibilities for 15-16

Price Sensitivity Model (PSM) 41

effectiveness in achieving results

product, components of the 24-5,

for 181, 183

28, 30

essence of 58

promotion, forms of 170-1

fifth P of 23

properties 12, 14, 25

4 Ps of 22 questions to define 7

relation to PR of 8 services for 30, 32

qualitative research 71-2, 75

strategic and operational 65-6 mission 132, 135, 187-8

mission statement, formulation of 132, 135

Reicheld, Frank 100

Moore, Geoffrey 40, 193

research 75-6

myths 14, 72, 139

return on investment (ROI) 183 return on objective (ROO) 182

Ryanair 95-7

net promoter score (NPS) 100, 102,

104 Niesov, Igor 99

Secure Customer Index (SCI) 102-4

Norton, D. 57

service supplier, portrait of the ideal 139-40, 142 shareholders 39, 51, 57, 67

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Sony Walkman 34

stereotypes 14, 72, 75, 139 strategic map 57-9

value 57, 66, 76, 135, 187

Stream 20, 38-9, 41, 44, 52, 80-1

Vosmerkin, Jack 98

advertising campaign of 43-6, 4950, 158, 169 Neo plans of 42, 81 prices of 53 TV 53-4 subscriber acquisition cost (SAC) 63 suppliers, four groups of 137

T telephone lines 34-5 trademark 121

Contents Prologue. ...................................................................................................................................................................5 ChAPter 1. ....................................................................................................................................................................7 Managing expectations and relationships. .....................................................................................7 Marketing Is Broader than People think.........................................................................................7 I Buy expectations. ......................................................................................................................................... 8 Conscious and unconscious goals.................................................................................................... 10 Consumption situation. ............................................................................................................................. 11 Properties. ...........................................................................................................................................................12 From a Fact to a recommendation. ...................................................................................................14 Myths and stereotypes. .............................................................................................................................14 Chain of Possibilities. ...................................................................................................................................15 don’t shatter useful Illusions. ...............................................................................................................16 A Fact Must Be Meaningful, otherwise It does not exist..................................................19 evaluation—Is that What I Bought. ................................................................................................. 20 Buying and expectations. ..........................................................................................................................21 to the Barrier!. ................................................................................................................................................ 24 let’s Break the Product down. ............................................................................................................. 24 Product and service Marketing. ........................................................................................................... 30 summing up. ....................................................................................................................................................32 ChAPter 2. ................................................................................................................................................................. 33 An offer you Can’t refuse. ..................................................................................................................... 33 Foresight or Management. ...................................................................................................................... 33 From tochka to Akado.............................................................................................................................. 34 the Fastest Internet. ................................................................................................................................... 36 shareholders Are Impatient. .................................................................................................................. 39 do students have Money?. ................................................................................................................... 39 the Magic numbers 20 and 25. ............................................................................................................41

let’s talk about Advertising Briefs or about the Clarity of desire............................... 42 example of a Creative Brief. ...................................................................................................................44 ChAPter 3. ..................................................................................................................................................................51 strategic strategy. .........................................................................................................................................51 Choosing a strategy. ....................................................................................................................................51 A Magic Business Plan. ............................................................................................................................... 54 strategic Map. ..................................................................................................................................................57 Cost structure. ............................................................................................................................................... 62 return on Assets. ..........................................................................................................................................64 through the layers of the Map. ........................................................................................................... 64 strategy and non-strategy. ................................................................................................................... 65 strategy and Investment. ........................................................................................................................ 67 Why I didn’t dedicate a separate Chapter to Competitive Analysis?. ....................... 68 ChAPter 4..................................................................................................................................................................71 understanding Means succeeding. .....................................................................................................71 Quality to think about. ..............................................................................................................................71 What Conclusions Can Be drawn from Qualitative research?. .......................................72 From Quality to Quantity. .......................................................................................................................72 how to Find out the unimaginable?. .............................................................................................. 76 research Method. ......................................................................................................................................... 78 From research to Action. ......................................................................................................................... 79 What Are We going to sell, and to Whom?. ..............................................................................80 did We Manage to Change Consumer Behavior? And, If so, how Is it different?. ..................................................................................................81 ChAPter 5. ................................................................................................................................................................. 82 loyalty. ................................................................................................................................................................ 82 loyalty? loyalty to What?. .................................................................................................................... 82 Why do Customers leave?. ................................................................................................................... 83 What Are Company standards?. .........................................................................................................88 loyalty Comes from Being Where you don’t have to Be. ................................................. 89 let’s talk about Pleasure. .........................................................................................................................91 What Is the Best Way to look at loyalty?. .................................................................................. 93

What Is good for the goose Is not good for the gander. ................................................ 95 What Is the solution?. ...............................................................................................................................98 Measure and evaluate. .............................................................................................................................100 Conclusions on loyalty. ..........................................................................................................................104 how long does a subscriber last?. .................................................................................................104 obtaining loyalty. ......................................................................................................................................106 Promises, Again. ...........................................................................................................................................108 differences. ..................................................................................................................................................... 109 the First Impression. ..................................................................................................................................110 lack of Information.................................................................................................................................... 112 no such thing as small stuff. .............................................................................................................113 sharing the Mission. ...................................................................................................................................113 An Informal Approach. ..............................................................................................................................114 listen...................................................................................................................................................................114 Capital. ................................................................................................................................................................ 117 ChAPter 6. ............................................................................................................................................................... 120 Brands, Products, and goods. ............................................................................................................. 120 About Metamorphoses. ........................................................................................................................... 120 the Product Is the Body and the Brand Is the soul. ...............................................................121 What do Brands have that sets them Apart from Just Products?. ............................123 What has grown, has grown. ............................................................................................................123 the Consumer needs the Brand More than the Brand owner does. .........................125 Brand Premium. .............................................................................................................................................127 Are you Managing or Are you Being Managed?. ..................................................................... 128 stopover en route. .....................................................................................................................................129 some People think. ................................................................................................................................... 130 Mission Possible. .......................................................................................................................................... 132 vision and strategy................................................................................................................................... 136 Put in a good Word for the Perfect Provider. ........................................................................... 136 Become Perfect. ........................................................................................................................................... 142 Itâ&#x20AC;&#x2122;s very Attractive. .................................................................................................................................... 148 Architecture. ...................................................................................................................................................153

Brand Platform. ............................................................................................................................................ 154 Internal Brand Communications. ...................................................................................................... 154 Can We Measure the Brand?. ...............................................................................................................155 ChAPter 7. ................................................................................................................................................................156 Communications. .........................................................................................................................................156 What you Want to say to Me. .............................................................................................................156 A Chain Is only as strong as Its Weakest link. .........................................................................157 see Who said What. .................................................................................................................................. 158 â&#x20AC;&#x2DC;this Is violet, overâ&#x20AC;&#x2122;. ................................................................................................................................. 160 People Forget Bad things Amazingly Quickly. .........................................................................162 the right Message. .................................................................................................................................... 163 It Works simply. ........................................................................................................................................... 168 A Binding Format. .........................................................................................................................................170 how Much should you Invest. ............................................................................................................173 the Advertising Pipeline. .........................................................................................................................176 differences in Buying Behavior. ......................................................................................................... 180 effectiveness in Achieving Marketing results. .......................................................................... 182 What Conclusions Can We draw from this Chapter?. ....................................................... 184 InsteAd oF An ePIlogue. ......................................................................................................................... 185 Ps. My FAvorIte QuotAtIons. .............................................................................................................191 Index. ...........................................................................................................................................................................195