Is acquisition enough – a telecommunications example

By Charmaine Calleja 211807066

I have been an Optus customer for over 5 years…. until recently.   I was won over by Optus initially because they were advertising a significantly cheaper package than rival competitor Telstra.

Over the first couple of months with Optus I experienced a few issues with the modem coverage at home and was pulling my hair out at the lack of customer service and support provided.  Unfortunately, I was locked into a contract for 24months and couldn’t justify the contract termination fees to change.

While waiting for my contract to end, my modem had eventually been upgraded and the service had improved, and a few more years passed.

Recently, another advertisement caught my eye…….

telstra1

Immediately, the thought of moving to what is known as ‘the most superior telecommunications provider in Australia’ captivated me.   Everyone always talks about Telstra having the best mobile reception in Australia and the most reliable internet service around.

So, I embarked on the journey to switch providers.    Now, of course, we cannot live without the internet at home, so before cancelling the Optus service, I arranged for the connection of the Telstra service.  Things were looking up!  My new modem arrived and was installed, Foxtel was installed, and my new mobile phone sim card had arrived.

The next step was to call and cancel my Optus service.  Ironically, it was the fastest phone response time I had encountered.  The Optus call centre were quite eager to put me through to their retention team and the representative there worked very hard to create an offer to entice me to stay – if only they had been this responsive to my needs 24 months ago!

So what did my telecommunication adventures tell us about marketing evaluation and success?

It is clear that with the right combination of Product and Price, advertising can be veryps-of-marketing successful in the acquisition of new customers.  An enticing proposition coupled with a trusted and reputable brand can drive customers to tackle the barriers sometimes faced with switching between competitors, which can be particularly difficult in industries like telecommunications and banking.

 

In their 2016 financial reports, both Telstra and Optus claim to have continued focus on driving growth and long term shareholder value, an area in which Telstra having been claiming success for some time with the number of 3G subscribers hitting milestone figures in 2007.

growth

Is increasing the number of customers alone reason for claiming marketing success?

There are a number of financial metrics that organisations now rely on to determine how well a marketing strategy or project has performed, such as:

  • Profit Contributionsmetrics
  • Profit Margins
  • Return on Investment
  • Customer Value
  • Customer Life time value

While these metrics can lead to marketing departments being accountable for contributing to creating business value, they also come with their limitations and challenges for example:

  • Financial metrics alone can lead to extremely short term focuses which leads to a lack of investment in long term growth.
  • There is no one metric that can provide an adequate report of performance. In fact most argue that a combination of financial and non-financial measures is required.
  • Some metrics can be open for interpretation. For example, a small investment with a high ROI may contribute less in dollars than a larger investment with a lower ROI.

Retention is the key

retention

Within the telecommunications industry it is not uncommon for customers to be locked into 12, 18 or 24 month contracts.  This essentially works to extend the customer life time value and increases the barriers for customers to switch to competitors.

Locking customers for 2 years does not mean that the organisation can forget about actively managing customer retention.  Long term success comes from customer retention as it is well documented that is cost more to acquire a new customer than to keep and cross-sell products to existing customers.

For my experience, Optus applied customer retention strategies when the customer has called to leave and not actively through the customer life time with the organisation.  At this stage, in most cases, the horse has already bolted!

Telstra on the other hand, have identified the importance of keeping their existing customers happy and are investing initiatives such as creating WiFi hot spots around the country for their customers to use.  Although this cannibalise their potential earnings through use of the 3G and 4G networks, Telstra place more value on keep their existing customers happy.

On this basis, organisations who invest in and measure both short-term (acquisition of new customers) and long-term success (the retention/customer life time value of the customers acquired) provide a more comprehensive view of the success of their marketing performance.

References

ANNIE, L 2001, ‘Branded for success: Telstra leads the fame game with a $9.4b price tag’, Age, The (Melbourne), p. 4

Telstra 3G subscriptions top 2m’, ABC Premium News, 2007.

Docurated. 2016. How to Measure Marketing Effectiveness: Tips from 26 Experts. [ONLINE] Available at: http://www.docurated.com/all-things-productivity/whats-your-1-way-to-measure-marketing-effectiveness. Accessed 03 October 2016.

Telstra. 2016. Telstra Annual Report 2016. [ONLINE] Available at: https://www.telstra.com.au/content/dam/tcom/about-us/…e/2016-Annual-Report.pdf. Accessed 3 October 2016.

Singtel (Optus). 2015. Singtel Annual Report 2016. [ONLINE] Available at: https://media.optus.com.au/annual-reports/2015/singtel-annual-report-2015/. Accessed 3 October 2016.

Ambler, T, 2008. ‘Assessing marketing performance: don’t settle for a silver metric.’ Journal of Marketing Management, 24/No. 7-8, 733-750.

Currim, I, 2013, ‘What Drives Managerial Use of Marketing and Financial Metrics and Does Metric Use Affect Performance of Marketing-Mix Activities?’, Vol 77, 17-40.

Ledbetter, D, 2016, ‘Why Retention is more important than acquisition for Mobile Marketing’, Business 2 Community. Online available at http://www.business2community.com/mobile-apps/retention-important-acquisition-mobile-marketing-01447606#Hcsll14x7AJW0MEr.97 Accessed 3 October, 2016.

Travelling through distribution channels

Charmaine Calleja | 211807066

You may own and operate a hotel with fantastic facilities and have prices that are more than competitive, but that alone will not get customers in your rooms.

No matter how impressive your product is, success relies on people knowing you exist!

Building a strong presence in the market depends on the distribution channels selected to reach and sell to your target customers.

In the travel industry, there has been a significant shift in the channel distribution options since the growth of the online world.  Before the internet, the process of booking a holiday was relatively simple for customer:

  • You chose a travel agent, and sought their advice
  • You flicked through a brochure, assessing your accommodation options based on one or two static 5cm x 5cm photos and half a dozen bullet points describing the facilities.
  • You booked and paid for your trip
  • You walked out with a travel wallet full of paper airline tickets and printed confirmation of hotel bookings.

Although not visible to the customer, the travel distribution channel was one involving a product/service provider, wholesaler, inbound tour operator, retailer and customer

Figure 1: the travel distribution chain

the-travel-distribution-chain

For hotel and holiday accommodation providers, there are both benefits and challenges to the distribution model shown in figure 1.

Wholesalers – Purchase large quantities of products and on-sell through retailers.

Retailers – Sell products to customers.  

A distribution channel utilising a wholesaler and retailer can be beneficial to hotels through the avoidance of costs associated with marketing directly to customers and hiring the sales forces to facilitate the large volume of sales to individual customers required to maintain profitability.

However, with advantages come disadvantages that must be considered….

How do you motivate wholesalers and retailers to promote your product over your competitors?

Through push marketing strategies, hotels can incentivise wholesalers and retailers to promote and sell their product above their competitors.   Typically, wholesalers and retailers are driven by price.  So, if a wholesaler or retailer stands to make more money from selling your product than your competitors, you are sure to find your brochure displayed at eye level in their retail displays.

However, pricing alone will not always appeal to end customers and can be problematic for hotel owners, resulting in their own financial distress.  Hotels need to ensure that the products are appropriately priced and packaged, both to be competitive and to meet the end user’s needs ensuring continued future demand.

According to a Situational Analysis conducted by PWC, the customer purchase cycle within the travel industry consists of the steps shown in figure 3.

Figure 2: The customer purchase cycle

the-customer-purchase-cycle

At the beginning of the purchase cycle, customers draw on all resources available to research options and gain opinions in order to make informed decisions about their own travel plans.

Often, the power of experience can prove persuasive throughout the sales process.  If sales representatives can speak first hand of their experience within a certain hotel, a customer is more likely to make a booking.  Therefore, an effective push marketing strategy for a hotel is to offer members of the wholesaler and retailers significantly discounted accommodation or even complimentary stays to gain that first-hand experience.

How the internet has changed the tourism distribution channels

With the ever increasing use of the internet, customers are taking advantage of a wider range of resources to make more informed decisions.  End customers are now often cutting out the intermediaries within a distribution channel and choosing to deal directly with product/service providers.  Travel is now one of the most popular online activities within major e-commerce markets.

Figure 3: the ‘new’ travel distribution chain

the-new-travel-chain

Now, for businesses in the tourism industry, efforts and budgets need to be equally shared between push and pull marketing.  For hotels, acquiring customers directly through online sales provides a relatively low cost sales and marketing channel and cuts out the lost earnings resulting from sales commissions paid to wholesalers and retailers.

Additional benefits to be gained from direct customer acquisitions lie in the firsthand knowledge and data collection potential.   By connecting directly with customers through online sales, hotels are able to build a database of  ‘Big Data’ which can provide invaluable insights into the characteristics of their customers.  These insights can be used to develop future marketing strategies and ensure on-going company success and profitability.

References:

Iacobucci, D 2013, 2012, MM4 Marketing Management, South Western, Cengage Learning, Mason, OH, USA

McEvoy, A 2010, The principles of tourism marketing, TourismConnect.com.au, retrieved 18 September 2016. http://www.tourismconnect.com.au/industry-action-kit/view-the-kit/starting-a-tourism-business/the-principles-of-tourism-marketing/

PriceWaterhouseCooper, 2012, ‘Distribution 2020: A situational Analysis

Distributing your tourism product, VOLUME 2: Developing your tourism product

Mack, S ‘Selling to Wholesalers’, Small Business.chron.com, retrieved 18 September 2016 http://smallbusiness.chron.com/selling-wholesalers-65164.html

 

NO! I would not like fries with that!

Charmaine Calleja- 211807066

Gone are the days of customers being satisfied with a vanilla one-size fits all approach to service, products and marketing.  Through globalisation and digital transformation, customers have greater access to alternatives, which means that for organisations, survival is dependent on understanding and satisfying customer’s needs better than their competitors.

In today’s world, where ‘big data’ is at everyone and organisation’s fingertips, customers expect personalised conversations based on their unique needs.

Segmentation holds the key to an organisation’s understanding of the market they are in.  The key segmentation areas are:

  1. Demographic – age, family, sex, religion, race, marital status, income, education, social class and occupation
  2. Geographic – region, population, climate
  3. Psychological – Lifestyle, personality, interests
  4. Behavioural – benefits sought, usage rates, user status, brand loyalty, readiness to buy, occasions.

Once a market’s segments are identified, organisations decide on the strategy to apply and segments to target.

Many organisations select a Depth Strategy.  This involves the selection of one specific segment to focus their attention on.  Some examples of this are:

fernwood1

Fernwood identified an opportunity to target the specific health and fitness needs of women and created a chain of gyms for women only.

 

 

 

financial review.jpg

 

It is clear through their title alone, that the Financial Review is focused on one segment of readers.  This paper targets those in the financial sector who are highly educated and high income earners.  In addition to targeted stories and articles, the advertisements within the paper are generally for high end products such as luxury cars and expensive watches.

 

 

 

Some organisations employ a tailored strategy, customising products and/or services to suit multiple segments.   The four major Australian Banks apply this strategy.  The banks typically segment by demographics such as income levels and age as well as life stage and usage behaviour.  ANZ offers 4 different categories of credit cards:

  • Low interest rate cards
  • Low fee cards
  • Reward cards
  • Frequent Flyer cards

Within each of the 4 categories, there are a number of sub-categories to further address lower levels of segmentation.  For example, within the Rewards card category, there is a Classic Rewards, Platinum Rewards and Black Rewards cards.  Each level of sub-category segmentation allows different credit limits and access to different levels of privileges depending on the customer’s level of income and overall credit rating.

It is rare that an organisation can rely on mass marketing to succeed.  However, 10 or 15 years ago, an organisation like Australia Post had no need to develop segmentation and targeted marketing.  They were firmly positioned as the nation’s provider of postal services.   Over recent years, Australia post has lost significant relevance in the modern world which has left them scrambling to re-position the organisation, through the use of marketing slogans like “Australia Post, powering online purchasing”

australia post.jpg

Not just any segment will do!

Once the market segments are identified, choosing the one(s) to focus on requires the organisation closely consider its strategic fit and profitability.

Strategic fit – The marketing segment must align and support the overall company strategy.  If a SWOT analysis can provide insight into an organisation’s strengths and weaknesses as well as the external opportunities and threats that exist in association with the segments being considered.

Profitability – Investigation in to the anticipated level of competition, growth, segment size, customer behaviour and expectations are required to understand if the segment is worth pursuing.  This information can be found through customer surveys representing attitudes, preferences and behaviours as well as industry data available.

Positioning for success!

It can be said that the single most important aspect of marketing is positioning.  Regardless of the amount of time and money an organisation invests in segmentation and targeting, if the customer/market’s perception of the product/organisation is not aligned to the marketing goal success will be limited.

McDonalds are one of the only major fast food retails to invest heavily on ensuring they are no longer considered the generic fast food chain serving all customers with pre-cooked generic food.  McDonalds started to introduce healthy options within their menus for both adults and children.  They also moved away from pre-cooked ‘fast food’ to a fresh cooked to order model.  Most recently the gourmet ‘Create your taste’ menu was introduced allowing customers to create unique burgers to suit their personal desires.

mcdonalds.jpg

In conclusion, a good positioning statement should include an indication of the target segment, a competitive frame of reference and a competitive advantage or unique selling proposition.  This can help guide an organisations marketing strategies and actions to achieve full success.

 

References:

ANZ. 2016. Compare credit cards. [ONLINE] Available at: https://www.anz.com.au/personal/credit-cards/compare-cards/. [Accessed 7 August 2016].

Australian Financial Review. 2016. AFR about us. [ONLINE] Available at: http://www.afr.com/. [Accessed 7 August 2016].

Australia Post. 2016. Sending in Australia. [ONLINE] Available at: http://auspost.com.au/parcels-mail/sending-in-australia.html. [Accessed 7 August 2016].

Iacobucci, D., 2014, Marketing Management (MM4): Student Edition, South-Western: Cengage Learning, Mason.

Fernwood. 2016. Training at Fernwood. [ONLINE] Available at: http://www.fernwoodfitness.com.au/training-at-fernwood/. [Accessed 7 August 2016].

Internet Centre for Management and Business Administration, Inc. 2010. Market Segmentation. [ONLINE] Available at: http://www.netmba.com/marketing/market/segmentation. [Accessed 7 August 2016].

McDonalds. 2016. Create your taste. [ONLINE] Available at: https://mcdonalds.com.au/. [Accessed 7 August 2016].