Copyright K.B.Wong & Associates Inc., January
2005 This presentation is provided for the personal
records of participants in the (name of session).
Any reproduction or distrbution, in whole or in part,
requires the expressed written consent of Kenneth
B. Wong & Associates Inc
© Kenneth B. Wong, December 2004
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Marketing to the Power of One
by: Ken Wong
Queen’s School of Business
© Kenneth B. Wong, December 2004
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“Good Business” is the answer to…
… in a world filled with
MARGIN-SUCKING
MAGGOTS
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© Kenneth B. Wong, December 2004
How you can SURVIVE
and THRIVE…
Who Are the Margin Sucking Maggots?
Senior
– when we fail to focus on the real
Management drivers of profitability
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© Kenneth B. Wong, December 2004

The Four Routes To Higher Profits
Price
Unit
Margins
Return On
Investment
Divided
By
Assets
Managed
Cost
Times
Unit
Volumes
Market
Share
Times
Market
Size
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© Kenneth B. Wong, December 2004
Net
Income
Minus
Profitability Myth 1
The Role of Marketing and Sales
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© Kenneth B. Wong, December 2004
is to build VOLUME
A Comparison of Profit Levers
Creates a change in
operating profit of ...
Price
11.1%
Variable Cost
Volume
7.8%
3.3%
(Average economics of 2,463 businesses in Compustat)
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© Kenneth B. Wong, December 2004
A 1%
change in...
KW-210

We start seeing PRICE as an OBJECTIVE and not solely
as a tool for building volume

The same processes used to generate premium prices
can be used to apply marketing as an instrument of
policy - as a tool of cost abatement as opposed to being
a cost center
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© Kenneth B. Wong, December 2004
MARGIN: Marketing’s New Emphasis Means…
How Marketing Changes When Price/Cost Abatement is An
Objective
WHICH PRODUCT IS CHEAPEST?
A: $1.01
B: $1.00
C: $0.999,999,999,999,999,999,999,999,999,999,999,999,999
WHICH PRODUCT HAS THE BEST QUALITY?
B: “Great Quality”
C: “Smokin’ Good Quality”
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© Kenneth B. Wong, December 2004
A: “Wonderful Quality”
Profitability Myth 2
All Volume Is Equally “Good”
© Kenneth B. Wong, December 2004
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Marketing Can’t Rectify Bad Strategic Choices
Have and
Intend to
Keep
Plan to
Drop to
Cut Cost
Do Not Have
and Would
Not Add
Segment I - Insurance Minimizers
Life Insurance
Accidental Death
Prescription Drugs
Long-Term Disability
Second Opinion of Surgery
Separate Coverage for Accidents
Segment II - Basic Buyers
Life Insurance
Accidental Death
Prescription Drugs
Long-Term Disability
Second Opinion of Surgery
Separate Coverage for Accidents
Segment III - Premium Buyers
Life Insurance
Accidental Death
Prescription Drugs
Long-Term Disability
Second Opinion of Surgery
Separate Coverage for Accidents
Denotes segment average
Segment
Insurance Minimizers
Basic Buyers
Premium Buyers
Size
30%
34%
36%
Revenue per Customer *
100
163
181
Claims Problems *
100
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© Kenneth B. Wong, December 2004
Have and
Will Not
Drop
Company Share
40%
27%
11
19%
* Indexes for customer revenue and claims problems set equal to 100 for insurance minimizers
KW-245
The Profitability of a Transaction Focus
Profit
contributed by:
Profit
Cost of new
customer
Time
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Source: Bain & Company (Frederick Reicheld)
© Kenneth B. Wong, December 2004
Base profit
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KW-153
The Value of Customer Loyalty
Profit
contributed by:
Price premium
Referrals
Profit
Lower costs
Increased volume
Cost of new
customer
0
1
2
3
4
5
6
7
Year
Source: Bain & Company (Frederick Reicheld)
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© Kenneth B. Wong, December 2004
Base profit
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Profit Impact of a 1 Percent
Increase in Customer Loyalty
Volume
3.3%
Advertising agency
Cost
7.8%
Price
11.1%
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17
Bank branch deposits
17
Publishing
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Auto/Home insurance
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Auto service
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Credit cards
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Software
0
4
8
12
16
Percentage Increase in Profits per Customer
Source: Bain & Company (Frederick Reicheld)
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© Kenneth B. Wong, December 2004
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Industrial distribution
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
While we may want (or have) to serve everyone, not all
customers are created equal in terms of the benefits of
successful penetration.

Even where all customers must be served, not all
customers need to be – nor want to be – treated in the
same way.
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© Kenneth B. Wong, December 2004
MARGIN: Marketing’s New Emphasis Means…
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Who Are the Margin Sucking Maggots?

Senior
– when we fail to focus on the real
Management drivers of profitability

Customers
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© Kenneth B. Wong, December 2004
– who want the highest quality at
the lowest cost
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1.
All customers are created equal
2.
All customers should be treated the same
3.
All customers want more service
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© Kenneth B. Wong, December 2004
Three Great Customer Myths That Destroy Margins
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Are We “Really” Customer Focused?
How to Improve the Retail Experience
(Sample Advice)

Personalize the experience

Help the customer find their way

Explain product differences

Show them you care

Show them why they “get what they pay for” (i.e. up sell)

EDI, E-tailing, etc. etc.
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© Kenneth B. Wong, December 2004

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Match Your Plans to the Customer You Want
HIGH PRICE SENSITIVITY
PRICE BUYER
HIGH
VALUE
FROM
DIFFERENTIATION
LOW PRICE SENSITIVITY
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© Kenneth B. Wong, December 2004
LOW
VALUE
FROM
DIFFERENTIATION
Buys lowest cost
product with
minimum acceptable
quality
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
Buying Motive:
Minimum Acceptable Quality at
Lowest Price/ Compliance

Key Success Factor:
Low Cost Producer/
Operational Efficiency

Key Indicator:
Cost

Typical “On Strategy” Ideas:
Rationalize quality to “good enough” levels (e.g. generics)
Promotions that “prove” you have “good enough quality”
Identifies “low value services” and lets the buyer do it
Increase Standardization/Minimize Assortment
Automate services: people aren’t scalable
 Minimize marketing costs by selling on price
 Maximize distribution coverage





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© Kenneth B. Wong, December 2004
Winning the Price (Compliance) Buyer
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Match Your Plans to the Customer You Want
HIGH PRICE SENSITIVITY
LOW
VALUE
FROM
DIFFERENTIATION
HIGH
VALUE
FROM
DIFFERENTIATION
Buys what’s
available
LOW PRICE SENSITIVITY
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© Kenneth B. Wong, December 2004
CONVENIENCE
BUYER
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
Buying Motive:
Product Availability

Key Success Factor:
Wide Market Coverage

Key Performance Indicator: Distribution Intensity
Capacity

Typical “On Strategy” Ideas:


Builds “Point-of-Need” Availability
Reduces shopping and transaction time
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© Kenneth B. Wong, December 2004
Winning the Convenience Buyer
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Match Your Plans to the Customer You Want
HIGH PRICE SENSITIVITY
RELATIONSHIP
BUYER
HIGH
VALUE
FROM
DIFFERENTIATION
Buys best brand
within reasonable
price range
LOW PRICE SENSITIVITY
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© Kenneth B. Wong, December 2004
LOW
VALUE
FROM
DIFFERENTIATION
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
Buying Motive:
Best Product/Service

Key Success Factor:
Differentiation/ Product Leadership

Key Indicators:
Price Realization
Product Quality

Typical “On Strategy” Ideas:






Helps identify clients with “tough problems”
Offers Exclusivity
Maximizes Personalization and Frequency of Contact
Increases Product Features
Enhances Ancillary Services
Broadens Assortment (“Share of Wallet”)

esp ComplimentarY products that provide Integrated Solutions
 Advances in handling complex logistical arrangements
 Anything encourages referral business
 Tangible Justification for Premium Pricing
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© Kenneth B. Wong, December 2004
Winning the Relationship Buyer
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Match Your Plans to the Customer You Want
HIGH PRICE SENSITIVITY
VALUE BUYER
Buys best
ratio of
price-to-quality
HIGH
VALUE
FROM
DIFFERENTIATION
LOW PRICE SENSITIVITY
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© Kenneth B. Wong, December 2004
LOW
VALUE
FROM
DIFFERENTIATION
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To Sell on Value, Know Your Costs…
… and the Value They Create
Add “Good”
Costs
Reduce “Bad”
Costs
Increase
“Value”
Reduce
“Waste”
Higher Prices
and Sales
Lower
Costs
Higher Profits
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© Kenneth B. Wong, December 2004
Total Costs
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Winning the Value-based Buyer

Buying Motive:
Best Deal or Price-to-Quality

Key Success Factor:
Niche/ Customer Intimacy/Focus
Key Indicators:
Market Penetration
Loyalty (Lift and Retention)

Typical “On Strategy” Ideas:

SEGMENTATION AND CUSTOMER VALUATION:
 Devices

to assist in profiling and valuating different customers
DIFFERENTIATED OFFERINGS (Positioning):
 Devices
that enable us to discriminate the communication, distribution, pricing
and product/service configuration delivered to different accounts
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© Kenneth B. Wong, December 2004

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SOME QUESTIONS TO PONDER
Have you identified and targeted your “ideal” customer?
1.
Who spends the most?
2.
Who costs the least to sell and service?
3.
What is the ideal “customer experience”?
•
IF you sell to more than one type of account…
•
•
5.
How do you change to accommodate their different needs?
Are you “charging” for things the buyer doesn’t want or need?
Where are the greatest potential for “share of wallet” gains?
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© Kenneth B. Wong, December 2004
4.
Do they want “more” service OR a “different kind” of service?
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Why It Matters : Three Numbers to Remember
Are you leaving money on the
table?
Spending too much?
Chasing the wrong accounts?
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© Kenneth B. Wong, December 2004
11 - 7 - 3
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FOCUS ON “EXECUTION”
The EXECUTION of the
MAGGOTS
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© Kenneth B. Wong, December 2004
MARGIN-SUCKING
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Ken Wong
c/o Queen’s School of Business
Kingston Ontario
K7L 3N6
tel: 613-533-2367
fax: 613-533-2321
email: [email protected]
© Kenneth B. Wong, December 2004
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