Problem:
Prepare a power point summary and critical review. Cite the article as: name of the author (last name of the first author first and first names of any co-authors first. Report should be about 16-20 slides long. The first slide (top of page 1) should have the complete citation of the article. The remaining slides should provide a summary of the article (label each slide as ' article summary'), then a few slides labeled 'what I thought of the article' (article's writing style, logical organization, clarity, easy to understand language, completeness of the arguments etc). The final few slides each labeled ' what I learned from it' should contain things such as what new concepts/facts/ideas you learned from the article, usefulness of the article information for you and for marketers of consumer products.
The Customer Has Escaped
Traditional go-to-market strategies don't work because they assume customers will stay in the channels that were designed for them. Time for a fresh look at how shoppers really behave.
by Paul F. Nunes and Frank V. Cespedes
Your customers used to get what they paid for, more or less. Now they’re poaching value left and right. Just a few years ago, when typical retail shoppers went to a store and received advice on the size, style, or purpose of a product, they almost always bought the product right then and there. If they were looking for personalized service, they chose stores that offered it—and paid premium prices for it. If they were bargain hunters, they sought out no-frills shops. Whichever distribution channel they opted for, they stayed with it until the sale was made.
Not anymore. Today’s customers “channel surf” with abandon. They routinely avail themselves of the services of high-touch channels, only to buy the product at the end point of another, cheaper channel. Who among us hasn’t leafed through a catalog before heading to the mall, or called a travel agent for advice about airfares and then either bought the tickets on-line or purchased them directly from the airline to get a better price? The result is that companies are left with “stranded assets”—physical and organizational capabilities, typically developed at great expense, that become more useless by the day. Depending on the situation, these may include highly trained but underused salespeople, lightly trafficked retail floor space, and obsolescing inventory dedicated to displays and immediate fulfillment. Forrester Research analysts suggest that as many as half of all customers now shop for information in one channel, then defect from that channel when it comes time for money to change hands. Our own knowledge of clients’ situations in both consumer goods and B2B markets supports this finding.
Surely, this isn’t news to you. But what are you doing about it? You should be rethinking the core logic of your go-to-market strategy. Instead of designing channels to capture targeted demographic segments, you must design them to support unfettered buyers’ behaviors. What’s crucial is that customers get what they need at each stage of the buying process—through one channel or another—and that, at the end of that journey, your company has not spent more money on customers than they have spent with you.
Channel Design as You Know It
Traditional channel strategies proceed directly from market segmentation. A company that is targeting a brand at, for instance, suburban women in their thirties, will rely on a certain channel to deliver its products and related service and sales activities. Another company will choose a different channel to appeal to affluent retirees. One common assumption is that people who share demographic characteristics tend to shop and buy in the same way, through the same, limited channels.
That was a fair assumption until relatively recently. Customers did, in fact, tend to stay reliably in their boxes. The channel held onto the customer, if not from cradle to grave, then at least from initial consideration to repeat purchase. Channel competitiveness hinged on creating a set of product and service components that customers were thought to value. Thus, a channel that served demographic groups with little discretionary income offered a fairly stripped-down combination of goods and services—witness the difficulty of finding knowledgeable salespeople in a discount megastore. A channel designed for busy, affluent customers charged higher prices but threw in “freebies” like fittings and personal advice and product testing. In effect, a company strategically subsidized a few components of the buying process that added particular value to maintain a more attractive value proposition than the next company.
Segmentation based on demographics led Merrill Lynch and other money managers to offer, in the early days of on-line brokerage, separate sales channels for young, technoliterate customers and older, high–net worth customers. The transaction costs for the older customers were higher on a trade-by-trade basis, but those customers had free access to research and advisory services. The arrangement initially made sense: Merrill Lynch and other leading firms in the industry had held focus groups in which older, affluent customers said they had no interest in learning to trade on-line. The problem was, they did learn. And soon enough, the money managers saw activity and amounts invested in those accounts decline, with an attendant dip in account profitability. The full-service customers were taking advantage of the company’s advice and research, then making trades elsewhere on the cheap.
The Unfettered Customer
As the financial services industry’s experience makes clear, expecting discrete channels to serve static segments is no longer a sensible or sustainable option. For a variety of reasons, customers have become detached from the channels that used to claim them. First, they’ve become more adversarial shoppers. They’ve been conditioned, largely by discounters like Wal-Mart and warehouse clubs, to hunt for bargains more aggressively. Second, as customers become more sophisticated about how companies market to them, they’ve become more strategic. For example, studies have shown that holiday shoppers tend to buy later and later with each passing year, factoring in the probability of eleventh-hour sales. Finally, customers are better equipped with information and technology to make advantageous decisions. Companies are newly naked; their products’ quality, availability, and prices have become transparent, and any shortcomings are instantly broadcast to the world. Sophisticated tools are readily available to conduct on-line price searches, identify the criteria by which to select products (for example, average maintenance costs or energy efficiency ratings), and gain access to experts in virtually any field.
Meanwhile, of course, channels have proliferated. The marketer who once sold through a chain of specialty stores now also has a Web site and often a catalog—not to mention several factory outlet stores. A few years ago, the conventional wisdom was that we were seeing a Cambrian explosion of sorts, which would be followed by a shakeout, returning us to a smaller number of channels. But that hasn’t happened, and it no longer appears that it must. Consider the situation in consumer banking, where the advent of a new channel, the automated teller machine, was expected to mean that the conventional channel, the branch location, would wither away. Instead, the industry saw not a shift of transactions from one channel to another, but an explosion of transactions in both of them. In the past decade, the FDIC reports, the number of bank branches in the United States rose by 29%, right alongside increases in on-line banking and ATM use.