Mistakes Marketers Make - WSJ.com

Mistakes Marketers Make - WSJ.com: "Mistakes Marketers Make
Seven pieces of conventional wisdom -- and why they are wrong"

wasted. In many cases, they're right.

The problem is that too much marketing is based on conventional wisdom. And the old assumptions ignore advances in the understanding of consumer behavior -- discoveries that have been validated across a wide range of product categories in markets around the world.

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The result is twofold: Sales suffer, and money is drained away that could instead go straight to the bottom line or be more profitably invested. In tough economic times like these, especially, companies can't afford that kind of misstep.

Here, then, are seven elements of marketing's conventional wisdom, and some thoughts on what marketers should really be doing.

• Companies need to find and target the market segments for their brands.

In planning their marketing, many companies try to identify and target the segment of the population that would want to buy their brand instead of a rival's. But that's a mistake. Instead, they need to aim at a broader target -- people who are likely to want the type of product the company and its competitors sell.

Suppose a company sells a device that provides mobile Internet access. It clearly makes sense to identify the sort of people who will value being able to access the Internet while they are traveling or out of their office or home. The company can then target those people with its marketing campaign.

To try to figure out who would prefer their brand to someone else's, though, is futile, because market segments at the brand level don't normally exist. That is, the profiles of those who buy different brands usually aren't very different, especially in what are called repertoire markets, where consumers typically buy several brands regularly -- a repertoire -- rather than just a single brand.

Most frequently purchased consumer goods are in repertoire markets, though many consumers don't realize it. Consider a study of gasoline buying in Australia. The 500 participants were asked if they always bought the same brand; 46% said yes. All the participants then kept a diary of their gas purchases for six months. At the end of that time, it was found that only 6% had been loyal to just one brand.

Think Again

• The Status Quo: Too much marketing is rooted in conventional wisdom that ignores advances in the understanding of consumer behavior.
• The Cost: Marketing by the book can stifle sales and waste money that could go straight to the bottom line or be more profitably invested.
• The Solution: Recognizing the flaws in the conventional wisdom -- such as too much focus on customer loyalty and product differentiation, and not enough on brand strength -- allows a company to market itself more effectively.

You might think that because gas is a commodity, this is an extreme case, but it isn't. Beer is a common drink among Australian men, and many claim they wouldn't drink any other than their favorite brand. However, data on actual behavior show that only 10% of these men are loyal to a single brand. This is typical of the many repertoire markets in the developed world. But that doesn't stop some companies in these markets from paying market-research firms and consultants to help them find the specific set of customers who buy their product exclusively, and then focusing their marketing effort on them. Ignoring the other 90% of the market restricts their sales.

Some marketers may look at global consumer-products giants and observe that they market lots of brands and variants within product categories. This may look like these companies are targeting consumers at the brand level. What they are actually doing is simply offering variety to their many customers in various markets. They have recognized the repertoire behavior of their customers, who are often buying on behalf of a family with a range of tastes, and these companies want to ensure that they own as much of the repertoire as possible.

• Loyal customers are the most valuable.

Well, not in repertoire markets. Studies have found that the individuals who are totally loyal buyers of a brand tend to make up only 10% of all buyers, and they buy it less frequently than others, too. An analysis of the loyal buyers of a rather old-fashioned spirit drink, for instance, found that many were older women who bought a small bottle every other year around Christmas. A company that focuses on gaining and retaining such customers isn't doing the smartest thing commercially.

• There are several ways to promote long-term growth of a brand -- increasing the customer base, increasing the loyalty of customers and increasing the frequency of their purchases.

No, there is really only one way for a company to achieve lasting growth in sales, and that is to increase its customer base, by either reaching new customers in existing markets or entering new markets. That doesn't stop some marketers from trying to do the impossible.

For Further Reading

See these related articles from MIT Sloan Management Review.

• A Plan to Invent the Marketing We Need Today

By Yoram (Jerry) Wind (Summer 2008)
The world in which marketing operates has fundamentally changed.
http://sloanreview.mit.edu/smr/issue/2008/summer/11/

• How to Market to Generation M(obile)

By Fareena Sultan and Andrew J. Rohm (Summer 2008)
The mobile platform provides the perfect mechanism for reaching young consumers.
http://sloanreview.mit.edu/smr/issue/2008/summer/12/

• A Strategic Perspective on Sales Promotions

By Betsy Gelb, Demetra Andrews and Son K. Lam (Summer 2007)
A strategic focus to sales promotions leads to efforts that defy or delay imitation and yield disproportionate benefit for companies that have already developed a strong competitive position.
http://sloanreview.mit.edu/smr/issue/2007/summer/01/

• Viewing Brands in Multiple Dimensions

By Pierre Berthon, Morris B. Holbrook, James M. Hulbert and Leyland Pitt (Winter 2007)
Contrary to the beliefs of many managers, their companies' product and corporate brands cannot truly be managed, much less owned.
http://sloanreview.mit.edu/smr/issue/2007/winter/10/

• The Continuing Power of Mass Advertising

By Paul F. Nunes and Jeffrey Merrihue (Winter 2007)
For several years now, marketers have been urged to embrace one-to-one marketing and to offer microsegmented consumers customized products and services through targeted outreach.
http://sloanreview.mit.edu/smr/issue/2007/winter/13/

Take, for instance, the brand manager who discovered from a recent market-research survey that many of the buyers of her brand had seemingly defected to a much bigger rival brand. Her brand had won many fewer defectors from the major brand, and her brand was being bought less frequently by her customers than the rival's brand was being bought by its customers. She believed that she clearly had a major loyalty problem and a minor one of poor frequency of purchase.

The proposed solution: Undertake an advertising campaign focused on stopping her customers from defecting and on increasing the frequency with which they bought her brand to a level higher than that of the rival.

Such a campaign would be a waste of money. The survey results she based this strategy on are quite normal for a repertoire market: Companies regularly swap customers with competitors. But that rarely results in significant changes in market share, so trying to prevent such swapping is pointless. And trying to increase the frequency of purchase to a level above that of a bigger competitor is futile: It almost never happens.

This brand manager needed to work at gaining market share, but by reaching more customers, not by worrying about loyalty and getting existing customers to buy more often.

• To succeed in the market, a company needs to differentiate its product from those of its competitors.

OK, this is certainly sometimes true. But it isn't always true, and being different for the sake of being different can restrict a company's market potential and distract the firm from important goals.

Those who have sought to compete with dominant companies like McDonald's Corp. usually accept that the heavyweight has found a formula with wide appeal, and so they copy it, by and large. If they offer something different, they usually are judged by many in the market to be not as good as the company that set the standard. So they run the risk of restricting their own appeal to the small set of customers who like what they've done differently.

The humble Toyota Corolla offers another lesson. Most people would be hard-pressed to find something unique in its features, but it is one of the most popular cars in the world. What most customers want is not more differentiation but products and services that are simply better at providing the routine things they expect when they make a purchase. Toyota Motor Corp. has succeeded by making reliable cars and providing good customer service. This may not be admired by motor-sport enthusiasts and style commentators, but it sure satisfies millions of customers world-wide -- and shareholders.

• Promotions bring in extra, worthwhile business.

This is often true in only a limited way. There are some good reasons for running promotions, like unloading stock that might otherwise become redundant. But a reason often cited by marketers to justify a promotion is that it will bring in new customers who will become loyal buyers at the regular price. What actually happens is that promotions mostly attract people who already were customers, so the company ends up giving a discount to people who would have bought anyway. New customers attracted by a promotion usually don't become frequent customers.

• The competitor that's best at marketing's four P's -- product, price, place and promotion -- will come out ahead.

This is only half right.

It's important to have a quality product at the right price in the right markets, and to promote it effectively. But there is another factor in the success of any consumer product: the strength of the brand.

A strong brand is one that people trust because they're familiar with it and it has a track record of quality and reliability. Brand strength amplifies the effect of all the other elements of marketing. Coca-Cola Co., for instance, has been very good at the four P's, but its brand strength multiplies this capability greatly.

The power of brand strength means young companies need to be sure to do everything they can to nurture their brands -- to create positive associations with their products in the minds of consumers. They also need to understand the advantage an established competitor with a strong brand has, and find creative ways to try to offset that advantage.

For established companies, it is especially important to understand the power of brand strength when marketing new products. A strong brand name can give a new product a big boost. But it can also be a big liability if it is misapplied -- if a company wants to move upmarket, for instance, and uses the same brand name to sell its goods to affluent customers that it uses for the mass market.

• Marketing is all about hunting and capturing clients.

No, not anymore. These days, in the Internet Age, marketing is sometimes about the company being the prey.

The role of marketers has long been to hunt out clients and, with the aid of salespeople, capture this prey. However, particularly with the maturation of the Internet, the tide is turning. For instance, in the vacation market now, many people hunt out the holiday they want themselves. They use the Internet to find and then make choices, sometimes interrogating potential sellers online. In industries like this, the role of marketing is to make sure that a company's products or services are easily found online, and that the company responds effectively to potential customers.