The Press, May 2006
Marketing is the art of looking at your business from the customer's perspective. The more you understand their world the better decisions you can make about product features, market selection, distribution channels etc. Better marketing decisions mean products that sell more profitably. Of course you first have to answer a fundamental question - who is your customer?
For some businesses the answer is easy, for others it is far more complex. To the corner dairy owner it is clear that the punters coming in the door are the ones to focus their attention on. But many organisations supply products within a long chain (the 'value chain' in business-speak) and have no visibility to the end purchaser of the good.
Take a component producer for personal computers (PC). They might sell an electric fan to a company who then assembles it with other components to sell as a power supply unit to a firm who manufactures and sells the PC to a retailer or end-customer.
The total focus of the initial business in the value chain is often on their immediate customer i.e. the manufacturers or assembler that they supply to. But is that their customer in a marketing sense? Who should they focus their product, their message, their support and so on around? The next company in the chain i.e. the customer who pays their invoice? Or the end consumer - the PC buyer who actually uses the finished good?
Every link in the value chain is relevant but it is always ultimately about the end consumer. Understanding them is the piece of marketing knowledge that can really make a difference for a business.
Everything and everyone in a value chain ultimately contributes to the experience of the consumer. The more you know and understand about that consumer the better return you can derive from the chain. Commodities are those products that don't offer this distinct value.
New Zealand Merino is an organisation which has escaped the commodity trap by looking to the end-consumer. Responding to consumer demand for quality natural fabric in high fashion garments like suits, they sought to develop relationships with international fabric companies and knitwear companies.
What NZ Merino call the 'high country to high fashion chain' has resulted in the likes of Yves St Laurent and Ralph Lauren paying a premium to use the superfine wool. Last year they signed a $40 million contract to supply wool to US apparel company SmartWool, guaranteeing 80 farmers premium prices for their product over the next seven years.
Intel is the classic technology example. A struggling manufacturer of processing chips for computers, Intel doggedly supplied product for the next company in the chain, the PC manufacturer. Intel realized there was a need amongst customers for being reassured about the technology 'under the hood' of the PC. They met, and continue to meet, that need with a huge international advertising campaign that positioned their processor as the one that should be in your next PC. Most PC consumers had no idea what an Intel microprocessor does, but feel more comfortable with their purchase if it has "Intel inside." Intel rocketed from also-ran to lead their industry.
Not many New Zealand companies could afford the marketing budget of an Intel, but they can afford to have a better understanding of the end consumer of what they produce. Even if you are supplying a widget as part of a complex product, the more you understand about the end consumer the more potential you have to demonstrate value to your immediate customer. The less unique value you can demonstrate the harder it is to avoid being caught in the commodity trap.
New Zealand industries like electronics, software and manufacturing are becoming more exposed to competition from low cost providers in China, India and other fast developing countries. They are becoming more sophisticated while operating far lower cost structures. Even industrial giants like General Electric realise this threat. "We are all just a moment away from commodity hell," CEO Jeffrey Immelt recently said.
Having a focus on the end consumer is the way to avoid this fate. It is a key to creating real value, a brand for which the next company in the chain will pay a premium.
What are the steps to building this picture of your end consumer?
- Map all links in the chain, especially the end consumer.
- Understand the experience they have with the product, what need of theirs it is meeting and if any needs are not being well met.
- Build a picture of the gaps in this experience and where you might be able to contribute.
New Zealand companies must be able to add value. We can't compete on price, but we can compete on smarts. Not just the technology smarts we're famous for, but being equally smart about who our customers are.