We are often reminded that we are marketing at a time when competing products perform largely at parity levels, and when almost any product improvement can be matched by a competitor.
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That was not the case some 50 years ago, when packaged goods companies were demonstrating how brands were built, and showing the world how profitable businesses could be established and sustained. Brands were differentiated based on product performance (whiter, cleaner, softer, "lemon-fresh"). Product development was a cornerstone of corporate activity, and continual product improvement was an acknowledged (and well-funded) objective for any brand marketer.
However, while companies still invest heavily in research and development, and still seek a product performance edge wherever it can be found, it is a marketing maxim that differences in performance now are often minimal at best. It's not merely that many colas taste the same, or that many competing pizzas are indistinguishable. Checking accounts are alike. Cellular phone services seem interchangeable. Cars look alike, and -- if syndicated customer ratings are to be believed -- they perform and satisfy customers to increasingly similar degrees as well.
There is, thus, a critical marketing dilemma that confronts brand managers in this age when products and brands seem interchangeable. How can differentiation -- which is the sine qua non of branding -- be achieved? How can a brand be made to stand apart from its competitors so that it will be chosen, and chosen again?
Lacking meaningful product performance differences, marketers have turned to other familiar marketing tools as a means to establish unique associations with their brands, and to create a unique position relative to competition.
Location, location, location
Retailers, grocers and bankers, along with gasoline and hospitality marketers, have traditionally emphasized another marketing resource: the "bricks and mortar" solution. Here, brand selection is reinforced by proximity, availability, and ease of access. In other words, products that are conveniently available will -- all other things being equal -- be chosen most often.
Bricks and mortar is, of course, an expensive solution to the differentiation dilemma. In addition, there are important threats to this marketing solution, posed by various direct marketing alternatives. What could be more convenient than a store on the corner? Possibilities include a catalog on the table, an 800-number and, more recently, a web site. These alternatives all serve to make physical location advantages rather moot.
The price is right
What other tools are available? Pricing has been another marketing tool often used to establish differentiation. The obvious challenge, however, is how to "own" a real (or perceived) long-term price advantage. Short-term offers, deals, and price promotions can provide a brand an apparent price advantage and the appearance of differentiation. However, as the acknowledged goal of brand marketing is to build customer loyalty (i.e., not just trial, but repeat business), a short-term advantage or a temporary point of differentiation is simply not sufficient. Sustainable differentiation is required. If the sustainable differentiation is to be based on price, and is to be owned over time, the marketer must occupy the "low-cost provider" position. There can be only one of these in a category. It is an enviable position, no doubt, but only for one competitor -- and, given similar production and distribution costs, it simply isn't a reasonable goal for most of the marketers competing today.
Say it with advertising
Where else can marketers turn? The most commonly pursued marketing solution lies in the area of brand communications -- advertising and promotions.
At a time when products perform in similar ways, when availability differences are often minimal, and when price differentiation may be only temporary, brand differentiation must be achieved through brand communication -- or so the theory goes. After all, there are four Ps in marketing -- and, if you cannot differentiate your offerings on Product, Place or Price, the astute marketer turns to Promotions.
Powerful advertising messages, creatively carving a sustainable and unique position in the minds of a receptive audience. That's the ticket!
Or is it?
In a recent major research and development effort, Gallup surveyed more than 1,600 consumers in each of three service categories that are often cited as examples of product performance parity: checking accounts, long distance telephone service, and domestic airline travel.
Brands in each of these categories have attempted to create product performance differentiation, using strategies ranging from fiber optics to on-time arrival statistics. Many of the competing brands have employed location (branch banking, supermarket banking and ATMs), pricing (10 cents a minute, no fees), or heavy advertising spending in an attempt to attract and retain customers.
Has it worked?
The customer perspective
To shed light on the impact of these various differentiation tools, Gallup talked to customers in each of these three categories. We obtained information about their current purchasing habits, their brand consideration sets, and their intended brand behaviors (purchase/choice for the next possible use occasion). We asked about a variety of factors that could influence customer decisions to repeat or to switch, and we looked at their perceptions of the leading competitors. These decision-driving factors included ratings of Product, of Price (value), of Place (locational convenience), and of Promotions (advertising). Added to this list (the "four Ps" of marketing) was a fifth P: People.
Why "People?" Because Gallup has found that the key to an enduring customer relationship may well be the "customer facing employees" who provide the products and services, and who represent the brand to customers. It is the people, in many service-related categories, who are challenged to fulfill the brand promise, and who bridge the gap between brand promise, and brand delivery.
What did we learn?
We learned that, in the eyes of customers -- and despite the best efforts of marketers -- there truly is a great deal of parity. Most customers view several brands, whether they are banks, long distance services, or airlines, as basically the same.
This perceived parity extends beyond product performance. It's not just that airlines, long distance services and banks are all equally reliable. In spite of enormous price competition -- or perhaps because of it -- customers feel that most airlines feature the same ticket prices, most long distance providers offer the same deals, and most banks charge the same for their checking services.
Thus, price -- as well as product performance -- is not what differentiates these brands. So, is price what keeps customers coming back (or keeps them from leaving)?
In most cases, no.
What builds repeat business?
In the airline category, price and product were not significant loyalty drivers for customers of any of the six domestic airlines studied. Instead, accessibility and schedule convenience were important. That would be expected, although schedule convenience appears to have only about half the impact as the reinforcing quality of airline ads when it comes to building a brand bond with the customer.
More important than schedule convenience -- and as much as three or four times more important than brand advertising -- are the people on the ground and in the air who "touch" the customer. Customers who report that an airline's employees stand out are up to fifteen times more likely to say they will choose that airline the next time they fly.
When it comes to long distance telephone service, there's a different story. Locational convenience is not an issue; competitors are seen as equally accessible. What drives the decision to continue with a particular carrier? It's not the reliability of the product. Frequently, it is the price/value customers perceive they're getting. Those who believe they are being provided excellent value are two to four times more likely to say they would stay with that same provider.
Again, however, the role of people in this category -- in which interaction with employee representatives occurs far less frequently than it does for those climbing onboard airplanes -- is dramatic. Customers who feel the people associated with their long distance provider are exceptional are from eight to 12 times more likely to stay with that provider. Thus, when we looked at what motivates customer retention, the company's employees are actually three to four times more important than the perceived value of the service.
It's a similar story in the banking world, at least when it comes to checking accounts. Given the perception of price and product parity in this category, neither factor proves to be significant in motivating customers to return. For some banks, locational convenience is a factor. Advertising is an important reinforcer of customer commitment for others.
For all six U.S. banks examined, however, the No. 1 driver of intended loyalty isn't location. It isn't price. It isn't product and it isn't advertising. It's people. Just as in the other categories, customers who feel that a bank's employees stand out are far more likely -- as much as 10 to 20 times -- to indicate that they would keep their checking account at that bank.
This is consistent -- and powerful -- evidence that people play a key role in building customer brand loyalty.
Does this mean that product performance doesn't matter? Not at all. Product performance is, however, largely a "dissatisfier." Unreliable performance will drive away customers from a bank, an airline, or a long distance service. Customers expect highly reliable and dependable service. It does not increase loyalty.
Can outstanding value increase loyalty? Yes. And raising prices can drive customers away. Can increased locational convenience build loyalty? As long as it remains clearly superior to the competitions', it can. Can advertising? Again, yes. Advertising can create an important emotional connection between the service or company and its customers.
Yet, across all brands, in each of these three categories, the most powerful factor in building commitment is none of these. The most powerful marketing tool isn't even thought of as a marketing tool by most companies. It's the people.
Can people be a differentiator in a world of service and product "parity"? They can be, and they are. Moreover, they represent potential brand differentiation on the single most powerful driver of continued customer commitment.