Building value for the customer

6/11/2009 - In a world of many choices, companies can’t sit back and expect customers to come to them. They must work hard to differentiate themselves, and that means innovating and creating value for the customer.

That was the message Kellogg Dean Dipak C. Jain delivered to soon-to-be Kellogg graduates in a series of talks in May. The lectures were part of the “Nota Bene” series, during which Kellogg professors offer parting insights to graduating students. Jain spoke to students May 6 and May 20.

“Customer expectations are increasing but customer loyalty is declining,” Jain said. “Marketing means educating your customers about the value of your offering. It’s education of the customer.”

Using the “sandwich” strategy

Customers are much more demanding in their spending choices due to the multitude of options and easy access to information about brands. In turn, companies are pressured to be more aggressive in attracting customers to their brand. That competitiveness shouldn’t take the form of a reduced price, but in being smart with the differentiation of the product or service and maintaining that competitive edge, Jain said.

Companies can achieve that through a “sandwich” strategy, in which the company provides both a premium product and a lower-cost product, sandwiching the competition, Jain says.

Jain cited the example of FedEx, which faced competition from the U.S. Postal Service in providing express mail services at a lower cost. So FedEx offered customers a new premium option, which cost more but would guarantee mail delivery by 8 a.m. the next day. The firm also offered a lower express-mail rate that guaranteed delivery in the afternoon.

“The last thing you should do is reduce the price,” Jain said. “Price wars are not good for anyone. That is short-term, not long-term. Rather than act on the price, think of innovation.”

Future marketing practices

Providing just a product or service will no longer be enough to win a customer’s loyalty, Jain said. Instead, companies have to provide a total customer experience, giving customers control, convenience and choice.

“Anyone can make the same product or service, but if companies put the three C’s in their products or innovations, they are bound to be successful because this is how customers evaluate their experience,” Jain said.

Companies also must pay attention to and take advantage of the distinct demographics of developed and developing nations’ populations. For instance, India’s fastest-growing age group is 35 and younger, while the U.S.’s is 65 and older.

Jain added that marketing attention has shifted from the product life cycle to the customer life cycle. He said a customer’s needs at age 20 would not be the same at age 50. Companies should think about how to serve the needs of that initial customer throughout his or life.

“Products come and go but customers remain,” Jain said. “Think of what else you can give the customer.”

This year’s Nota Bene series also featured a discussion by Philip Kotler, the S.C. Johnson & Son Professor of International Marketing, on managing and marketing in an age of turbulence. Earlier in May, a panel of four Kellogg professors discussed the job outlook for graduates. Senior Associate Dean David Besanko will close out the series in June with a session for graduates and their guests.