To prosper we must adapt

YOUR customers are changing - and you need to react. Oliver Stephens offers an insight into how you can make sure that your business doesn't get left behind.

IT'S great that we seem to be coming out of the recession. But do we just get back to what we were doing before? It is has often been said “if you do what you’ve always done you’ll get what you’ve always got”. In other words, if you don’t make changes you’ll end up with the same as you always had.

Of course this is no longer true. If you do the same things now you’ll end up with less. Why? Because due to the recession, the environment has changed, and most importantly, so has your customer.

As businesses we need to understand this new customer and adjust how we communicate with him or her accordingly. We have put together a guide identifying seven patterns and some positive actions we can take. It’s based upon the experiences of our clients, a collation of research, press reports and, of course, our own opinions. Here we present to you your new customer.

It’s hardly surprising that consumers and businesses are changing their buying behaviour given what they’ve been through (and are still going through). They’re bruised and scarred and this has changed the way they respond to our communications and products. The behaviours we’re highlighting are obviously very general and are driven by both emotional and rational issues: The emotions of fear of the future, for instance, supported by the rational ability to share and compare online. Of course, the internet and played a huge part in accelerating this behaviour.

We need to understand and recognise these behaviours fast, because some are now so engrained that they have become the new paradigms for buyer behaviour in both business and consumer markets.

1. The New Value Equation

OUR first new rule of engagement is the New Value Paradigm. We all know this bedrock of marketing theory and pricing strategy. It’s simple and goes along the lines of “you get what you pay for”, because there has always been a trade off between what you pay and the level of quality you expect in goods or services.

But things have changed. Now we demand better pricing, but we expect our usual levels of quality. That doesn’t mean that if we pay rock bottom prices we should get top quality, but we want the same overall quality that we were used to getting before. As Peter Vicary Smith, CEO of Which, summed it up “savvy shoppers can make the most of their money without compromising on quality”.

What’s the evidence of this? Well it’s been clear in many markets, but we’ve seen it with two of our retail clients Sainsbury’s and New Look, who have benefited from the new rules. If you want great value and good quality then Sainsbury’s and New Look would be a good choice for you. Sainsbury’s strengthened their position further in the New Value Paradigm by launching a quality, “value” range which captured share. A great strategy under the circumstances.

Other retailers, either at the bottom or top of the pricing matrix had greater difficulty responding. If you discount in these circumstances, you have to discount long term – and that kills your brand. That’s why the trend has been a move towards value added promotional activity.

We’ve seen this first hand in the growth of our own gift card, e-voucher and rewards business. It’s doubled since the recession started and a big part of the growth has been in the business-to-business market, rewarding customers with other manufacturers’ offerings, adding benefit from the association with another strong brand name. The need to reward customers brings us to our next shift in behaviour.

2. Customers are no longer loyal

THIS has been widely commented upon and for brands it has become an ugly truth. Customers are not by nature loyal any more.

It used to be that there was a genuine inertia preventing consumers and businesses switching suppliers of any sort. The recession and the behaviour of suppliers has meant that loyalty is a luxury which the customer can’t afford any more.

There has consequentially been a massive shift in the perception of trust in brands. We no longer trust established brands like banks and utilities (or governments).

We are more likely to put our faith in retailers and online brands like Google or Money Supermarket and this puts them right back in the place where they can compare prices online, putting even more price pressure on suppliers. Given that we all know how expensive and difficult it can be and how long it can take to get a new customer, this means that more than ever we have to focus on loyalty. We have to think about the mix of new relevant products, and where we communicate about them (and we know they’re looking online so that’ll be a good place to start).

Reward will be important and to prove the point Tesco has launched a new loyalty card. The likes of Dell have been working hard on loyalty as well throughout the recession, providing each customer with an account manager and personalised offers. The key will be to provide schemes that will encourage customers to stay with us, but also purchase more along the way, rewarding long term good behaviour, as opposed to one-off behaviour. The principle can be applied to staff rewards to protect and motivate valuable staff assets.

3. The DIY worthy

THERE’S another rather odd set of behaviour, that has surfaced that we call the new “DIY Worthy”. It’s an almost wartime behaviour and was probably best summed up when Sarah Brown, the wife of Prime Minister Gordon Brown, announced on Twitter (where else?) that she was wrapping all of her Christmas presents in old newspapers!

There had been plenty of evidence before, some of it rational, some of it very much emotional: the rise of urban chicken farmers; increased bike sales; greater home education; large scale increase in knitting and knitting clubs; local holidays (our client Hadrian’s Wall has benefited enormously); and the increasing move towards local food and farmers markets (again we’ve seen the benefits with our client Food Local Food).

It would be a mistake to think that this is a consumer-only shift. We see companies looking to do more of their marketing in house, and you’ll see companies changing their approach to recruitment, purchasing, IT, and even building repairs.

And where these people are not DIYing, they are often deciding to do without – cutting out what are now considered to be “luxuries”. The connecting issue is that they are making decisions driven by financial imperative, but are able to justify their actions as the new, more worthy, way of life. It’s more wholesome, pro-environment, anti-extravagance and this makes it doubly hard to argue against, because it is answering rational and emotional needs.

Somehow we have to persuade people that they are flying in the face of the New Value Paradigm mentioned earlier, because it may be cheaper, but it’s their own homemade inferior product. Our job as marketers is to show how our products and services are clearly better and backed by our own value added arguments.

4. Moral and ethical concerns

ONE associated movement in behaviour which might help develop demand is in moral and ethical marketing. Never mind the new worthy brigade, we all want to do the right thing and to be seen to help good issues and this is an increasing driver of behaviour.

Moral and ethical marketing is without doubt a genuine opportunity for all marketers over the next 12 months, but it’s easy to spot a fake and it will work best where it is sincere and relevant. So beware.

Again it’s not all that it seems and in a recession suggesting we do the right thing is not enough on its own. We have a number of clients in the renewable energy sector. Three years ago there was a general feeling that environmental energy products would flood the market. Why wouldn’t they, when we all want to save the planet? It didn’t happen for a long time and now it might because the government has stepped in to provide incentives, like feed in tariffs, which in effect mean that you can make money while saving the planet. That’s like putting £5 into a charity box and taking £7 out! It’s an easy decision to make.

It shows us how the average mind works when thinking about good causes – money is still a major incentive or, even, disincentive. To look at it in reverse, do people stop buying for ethical reasons? Did they stop buying from Primark when they found out that there was less than ethical production going on? Not when their clothes are such good value.

Customers will drive ethical behaviour when they can, often seen where retailers or public sector buyers dictate that suppliers follow certain ethical policies, but much will still be driven by financial reward.

Well, you might guess this would be how people would behave in a recession. However, there is one interesting piece of research into ethical marketing. We all have our own moral equilibrium. It’s set at our own different levels and it’s what makes us feel comfortable with ourselves and what we’re doing in life.

We’re allowed our little excesses and vices, so long as we pay back in some way. This payback might be going to church, giving some of our time to a society or friends, maybe donating to a good cause, or even buying ethically.

This gives us a real opportunity to get people to respond to the right communications. What’s really interesting from the research though is the balance concept. Apparently communications should be targeted in the opposite way that you might expect. When people are being good there’s little point trying to sell them more ethics, because their scales are already tipped in their favour. You need to reach them when they are feeling some sense of guilt. Maybe hit them with an environmental message when they are buying, driving or reading about their gas guzzler. Perhaps the Salvation Army knew what they were doing when they sold War Cry in pubs - they were looking for people who’s moral equilibrium was out of balance. So should we.

5. Customers are more opinionated and opinion seeking than ever before…

AND, of course, they’re giving and receiving opinions about our products and services on the internet. We’ve had recessions before, but the factor which has so accelerated change in behaviour this time is the internet.

The internet has become the ultimate paradigm shifter by giving us the opportunity to share our views. In research terms these opinionated people are often called “Creators” or “Critics”. The people reading are “Spectators”. Whatever they are called, they’re sharing views, which is in turn both accelerating general consumer attitudes and their knowledge about products. Never before has a potential customer been able to so easily compare us with our competitors and speak to our own customers about us.

This is what is making social media so influential. The growth of Twitter and Facebook reinforces the notion that “people like to exchange views” and it’s a potential problem or opportunity for any organisation. In general terms, organisations have to see beyond the technology and understand how their customers, whether consumers or organisations, are using this influential online world.

6. Customers will be prepared to wait

THERE’S no doubt that one of the biggest impacts of the internet for trading organisations, especially those in the business to consumer sector, has been the margin pressure created by a level of price transparency we couldn’t imagine 20 years ago.

This price erosion has played its part in areas we’ve already discussed – reduced loyalty, the questioning of brand premiums – and the internet may again have a facilitator role in one of the biggest threats we face as sellers or marketers – deflation.

Inflation is on the increase at the time of writing, but we’re already starting to witness a slowdown in expenditure on larger items, driven by a lack of disposable income (real or perceived), concern about what the future may bring or the belief that a better deal will be available later.

The focus for all of us in that scenario will be to find ways of breaking that decision-cycle by giving buyers a reason to make up their minds NOW – not in sixmonths’ time.

7. People are looking for differentiation (good news if we take note of it)

OF course they are, because it is differentiation which provides the ability to make a choice. Are they getting it? “Yes absolutely” if you ask the average CEO. In research 80% reckon that they provide clear differentiation for their customers.

“No way” if you ask their customers, where only a measly 8% think that they can recognise this difference. That’s a problem because it brings price pressure and internet based opinions to bare. When we work with clients for the first time, it’s often the biggest initial hurdle. Finding, agreeing and developing that point of difference which can be recognised and can be such an advantage for our marketing.

There’s no doubt in our minds that the winners will be the companies which can not just take account of the issues that we’ve discussed, but which can stand out and be seen to be doing so.

That might mean developing new products or ranges, (beware, of course, the over hype!), and it might mean finding new positioning messages in our communication, and creating value added promotions. Or it might mean new channels for delivery, like online retail, or social media activities.

Conclusions

THAT’S it then, a quick journey through the minds of the business and domestic customer of 2010. It’s our photo fit of what our new customers might look like and what we should do if we meet him or her. Much of this is backed by research, all of it is backed by anecdote and experience.

The message that we’ve tried to present is that as we come out of recession it’s not necessarily going to be “business as usual”. Something major has happened and there are fundamental changes to buying behaviour. And, as we know, if the environment in which we operate in changes, so should we.

:: Oliver Stephens is managing director of North East-based web design and marketing firm MBL Solutions www.mblsolutions.co.uk

 

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