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New Economy, Leadership, Entrepreneurship, Management, Global Business

Profiting From Proliforation

Posted by iBlog on January 6, 2008

n explosion of new customer segments, sales and service channels, media, and brands is challenging marketers to reinvent themselves so they can simultaneously prioritize opportunities in a more sophisticated way and increase the consistency and coordination of their marketing execution.

June 2006


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The proliferation challenge

David Court, Thomas D. French, and Trond Riiber Knudsen

The scope of today’s marketing challenge is breathtaking, and proliferation is the reason. Recent advances in technology, information, communications, and distribution have created an explosion of new customer segments, sales and service channels, media, marketing approaches, products, and brands. But despite better customer information management and lower communications costs, marketing to consumers and businesses is becoming more complex and difficult every day. Marketers—even the most sophisticated—are struggling to keep up.

To understand the full impact of proliferation, consider the wireless-telecommunications market. Carriers used to manage 3 demographically oriented consumer segments; today they manage more than 20 need- and value-based ones. Rather than view baby boomers as a single segment, the industry has created 6 or 8 subsegments, differentiated by their usage tendencies and product needs. The number of discrete offerings has ballooned into the hundreds: prepaid and postpaid calling plans; family-friendly and nights-and-weekend plans; text-, data-, and messaging-capable mobile telephones; video and music phones; and so on. The number of distribution touchpoints has increased from three to more than ten, including company-owned stores, shared and exclusive dealers, telemarketing agents, affinity partners, and the Web. As a result of customer-specific service bundles, the number of price points exceeds 500,000. And the number of communications vehicles will continue to grow dramatically as event marketing, viral marketing, product placement, and other approaches augment traditional media such as television, whose effectiveness is under assault.

The same picture holds true in business-to-consumer (B2C) and business-to-business (B2B) industries as varied as packaged goods, pharmaceuticals, retail banking, post and parcel, automotive, and advanced materials. Although proliferation is playing out differently across sectors, a few common characteristics underlie its challenge for marketers:

  • Polarizing and fragmenting customer segments. In many industries, including cars, clothes, computers, and retailing, revenues are growing faster at the high and low ends of the market than in the middle (Exhibit 1). At the same time, in B2B markets such as air cargo and specialty chemicals, customers are becoming more discerning about when they are, and when they are not, willing to pay extra for premium offerings or solutions. For B2C and B2B companies alike, staying in the middle is often a death sentence, while focusing on just one end of the market is a recipe for slow or no growth.1 What’s more, in many B2C industries, marketers must contend with an increase in the number of meaningfully different customer segments—an increase resulting from factors such as the greater influence of ethnicity and lifestyle differences in consumption patterns.
  • More sales and distribution touchpoints. To meet the rising demand for convenience and flexibility, nearly all marketers are adding new channels, touchpoints, and, sometimes, distribution partners. By offering more sales and service options, marketers help consumers to cope with a busier, more complex world and enable B2B buyers to deal with an increasingly competitive environment. In so doing, these marketers have conditioned customers to expect great flexibility and choice. Even in an industry as basic as maintenance and repair operations, new technologies let companies offer more just-in-time channels, such as Internet ordering and on-site automatic parts dispensers. Yet the channel and touchpoint needs of customers vary widely by segment, and giving all of them everything they want is a recipe for financial ruin.
  • Diverse communications vehicles. Advertising is exploding; in Germany, for example, the number of television commercials increased from 400,000 in 1991 to 2,500,000 a decade later. Cutting through such clutter is challenging and will become even more so. Rising advertising costs, an increasingly fragmented viewership, and the growing prominence of digital video recorders are reducing the efficacy of TV advertising, which by 2010, we estimate, could be only 35 percent as effective as it was in 1990. A similar story is playing out in direct marketing. For B2B marketing, the impact of recent trends is harder to measure but probably will be equally dramatic as media proliferation dampens the effectiveness of traditional vehicles, including sponsorship events and trade magazines.

    Alternative vehicles—such as the Internet, viral marketing, and product placement—show great promise: in some categories, banner ads and online video generate brand awareness more cost effectively than traditional television advertising. But these alternatives haven’t achieved the scale needed to pick up the slack from traditional “workhorse” communications vehicles. Advertising will thus be effective only if marketers can manage a diverse and complex media mix.

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