We're still astounded by the number of companies that consider talking to customers as a last ditch option—if they consider it at all—to fix an ailing business. Most senior managers know that they need customers to buy their products and services, but when the firm is in trouble and sales are going nowhere, there aren't many folks who look much further than the four walls of ye olde corporate headquarters for ways to solve the problem. A telling story, we recently met with the CEO, CFO, and CMO of one of the largest companies in America; a company that proudly displays its vision statement in the lobby of its corporate headquarters. The statement proclaimed, "We are a customer-centric firm." Yet less than an hour into our meeting, we discovered that top management knew virtually nothing about their customers—other than collected anecdotal comments from the sales force. And for all practical purposes, they didn't even have a buyer research department.

Companies such as Interstate Bakeries, the makers of Twinkies and Wonder Bread, and Krispy Kreme offer typical cases in point. Both companies had powerful and popular brands staring them right in the face along with problems that screamed for a marketing solution, yet they looked for ways to cut costs out of operations instead of talking to customers to find a way to fix stagnating sales. In the case of Interstate, it focused R&D efforts, not on new products to appeal to consumers, but on an enzyme that extended the shelf life of products. Never mind that it degenerated the quality of Wonder Bread, the company's top brand, adding the enzyme meant Interstate could cut costs in the form of fewer deliveries and manufacturing facilities. For its part, Krispy Kreme announced a restructuring plan that cut about 25% of its non-store workforce. There's no evidence that anyone at the company is talking to consumers about their problems, products they'd like to see, and what would get them to go to Krispy Kreme more often. What's happened to date? Interstate's move decimated sales and lead to a bankruptcy filing and Krispy Kreme's sales have slowed down even further. The problems didn't disappear, they compounded.

GM is a more recent example. As its sales continue to plummet, GM announced it will eliminate 25,000 jobs, merge dealerships, cut the number of products within each brand, offer an "employee discount for everyone" along with a lower base price on new models of cars, and increase ad spending by an arbitrary 10%. The firm also decided to "re-position" its brands. Pontiac will offer cars that are sporty and athletic, Buick, quiet and quality, and Saturn—a division that has engendered extreme loyalty—from "the cuddly marketer if utilitarian vehicles to a much sportier brand." Do any of these moves represent solutions to problems car buyers reported having? True, by all accounts, consumers couldn't tell the difference between GM's eight different brands or all the makes and models offered, but none of the new brand positionings are unique—almost every car maker has a quiet, high quality make and model, as well as a sporty and athletic one—and "we offer fewer make/model options to choose from now" isn't exactly a compelling reason to buy message. All of the planned moves smack of boardroom-only brainstorming, not comprehensive consumer investigation.

Contrast Interstate Bakeries, Krispy Kreme, and GM, with P&G. P&G's CEO A.G. Lafley directed a companywide initiative to find out what women want when it comes to all manner of household and personal care products. As the Wall Street Journal described in a recent article, before Lafley, the company:

…used to develop consumer goods in its labs and market them based on the product's best technical feature. Its market research tended to be about the pros and cons of specific products. These days, employees spend hours with women, watching them do laundry, clean the floor, apply makeup and diaper their children. They look for nuisances that a new product might solve. Then, they return to the labs determined to address the feature women care most about.

Five years ago when Lafley took over the company, P&G was in a slump, but since he took over and required a thorough understanding of the customer, the company's earnings have increased 17% a year on average and stood at $6.5 billion in 2004.

So listen up Interstate, Krispy Kreme, GM, and all other firms who don't go out and talk to customers as the immediate first step of any corporate recovery program: talking to customers can save your business.

The targeting decision—which specific group of buyers a firm wishes to market its products and services to—is one of the worst made and implemented decisions in marketing today. Very little time is spent considering the options, as a result, marketers spend little time asking and answering (with research) important questions such as, "is this group the most profitable (or even profitable at all) for us to pursue?

Not surprisingly, the folks that account for the most revenue—the so-called "heavy buyers" or the 15% or so of the market that accounts for 80% of sales—usually look like the best prospects on paper. If marketers took the time to consider profitability for a moment, however, they'd see that target group revenues and profitability are, in fact, often curvilinearly related, making heavy buyers very often the least profitable target to go after. When the marketing programs based on this targeting strategy start to fail, every and anyone starts to look like a good prospect.

"Where are the revenues?" is not the same as "where are the profits?" The heaviest buyers in any category are often more price conscious than the other 85% of the market and, because they tend to look just like any other buyer in the category, they're difficult to isolate through media vehicles and in commercial databases. Add to these undesirable characteristics, they aren't particularly loyal—they're on the look out for the best deal, they're buying so much after all—and all your competitors are likely interested in their business and spending equal if not more money on marketing to get it.

According to a study conducted by customer service relations firm Strativity Group, 42% of customer service and marketing executives in the U.S., Europe, Asia, and Africa claimed their company takes any customer that's willing to pay. This number increases dramatically to 72% for B-to-B firms and to 69% for service firms. Based on these results, the study's authors concluded, "these numbers represent a lack of basic selection of customers who are suitable and will appreciate the company's proposed experience and which ones will not. Lack of basic customer selection leads to relationships with the wrong customers who will later become unprofitable."

Here's a short list of key questions for marketers to ask and, very importantly, answer, not with a best guess, a sneaking suspicion, or slew of sales force anecdotes, but with serious research when making the targeting decision:

1. Is this group sufficient in size to merit disproportionate attention (e.g., 10% to 30% of the market)?
2. Does this group have an "economic value" or potential profitability that is considerably greater than is size (e.g., 50% to 70%)?
3. Is this group growing, as opposed to shrinking, over time?
4. Is this group demographically/corpographically different and, as a result, differentially reachable via traditional and non-traditional media, the sales force, channels, direct response programs, etc.?
5. Does the group have "problems/needs/wants" that are distinctly different from those of other segments?

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According to The New York Times, "Marketing Research Is Back In Style," or so proclaimed Times advertising and media columnist Stuart Elliot. In his recent report on the goings-on at the Advertising Research Foundation's (ARF) 51st Annual Conference, Elliot announced: "For years, advertising research was perceived on Madison Avenue as a staid, even quaint field with little practical relevance. Now, as clients increasingly hold agencies accountable for effective ads, the researchers are being eagerly sought out." Return on investment measurement, media optimization, and generally understanding buyers better all appear to be the research areas of keen interest to advertisers, again according to the article.

Well, hallelujah! If it's true, praise be. For too long, unbridled, ersatz creativity has dominated advertising decision making, leading to one dismally forgettable campaign after another and contributing to the decline of traditional advertising in general. It's become the butt of jokes and earned the ire of CEOs, CFOs, and many CMOs who now question the role of advertising agencies as strategic advisers. It's a driving factor in the questions that many in the industry are raising about whether or not the current advertising model—with creative at the center and media revolving around it like the earth around the sun—is broken and needs to be changed. Frankly, an infusion of rigorous analysis of unimpeachable data is exactly what advertising needs to get back on track.

Now not that long ago, the ARF reported that senior management put less faith in marketing research than most of their other sources of information. While marketing research might be back in style as the CEOs, CFOs, and CMOs place new-found confidence in it, nothing will send it to the back of the rack faster than several of the research fads out there today. Focus groups, neuromarketing, segmentation studies that only investigate 3 or 4 variables out of the thousands possible, concept testing by phone or over the web, using derived importance alone to develop product/service strategies—these are all dangerous but frequently tapped examples of research methods that impede rather than improve marketing performance and will stop the research revival dead in its tracks if marketers aren't careful.

If you want to get the value from research, we suggest:

Focus on targeting and positioning. Nothing is more critical to improving marketing and more specifically advertising—no matter the medium—than better targeting and positioning. "Rigorous analysis of unimpeachable data" should be your mantra as you work hard to be sure you've found the financially optimal target and a unique and compelling positioning.

Bring creativity to the research process. Research should include concepts, product/service attributes and benefits, and eventually analysis that's different than anything currently used in a category.

Shed the need for speed. While there are some technology businesses that change at warp speed so speed of marketing research is of the essence, in most industries and most decision areas, things really do change very slowly. It's more important to do it right the first time than to keep doing it over and over again.

Quantifying the ROI of different research approaches. ROI is the name of the game these days, so why not frame discussion of different research options in the same ROI terminology? A quick example: a typical $20 million TV ad campaign. The average cost to produce one finished 30-second spot is $320K, but only about $25K a piece to produce an animatic or photomatic (a rough version of a commercial) and $20K for a research firm to test it. Two commercials cost $90K in creative and research; four commercials, $180K. Rather than invest $320K on one execution that will in all probability return 54 cents on the dollar if you're a consumer packaged goods company or 87 cents in you're a non-packaged good, why not spend $500K ($320K + $180K) to improve the odds of choosing the execution that will return $1.20 for every dollar spent, or $4 million?

Focus on research innovations that truly save time rather than cut corners. While the internet and other technologies certainly offer opportunities for overcoming many of the impediments to quick data collection, such as distance, incidence, and cost constraints, true innovations should preserve and improve the integrity of data rather than sacrifice it for speed.

For more insightful marketing discoveries, visit http://www.copernicusmarketing.com/discover/index.htm

Have a hot discovery for our next release? Contact us at info@copernicusmarketing.com

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We were fascinated by Professor Sisodia's presentation at the American Marketing Association's 2005 Strategic Marketing Conference last month in which he described "the rule of three" and how companies should adapt their strategies to compete appropriately, so we immediately read his book, co-authored with fellow professor Jagdish Sheth. Based on their extensive research, Sheth and Sisodia build an extremely compelling case for the natural evolution of markets into a sector of what they call generalist, dominated by three main competitors, and a sector of specialists. Rule of Three describes how to identify what sector your company falls into, what your strategy should be, and how to look for what they call "market disruptions" that change the rules. It's a fascinating and insightful book and we're not surprised the American Marketing Association named Rule of Three one of the top five books in marketing in the last three years.

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A few weeks ago, the American Marketing Association (AMA) convened the 2005 Strategic Marketing Conference in Chicago, breaking attendance records and stimulating important discussion about a hot topic in marketing today: the application of Six Sigma processes to the practice.

An all-star line-up of speakers including customer lifetime value measurement and experimental design expert Paul Berger; marketing planning specialists Marian Wood and Jim Kieff; Raj Sisodia, author of The Rule of Three: Surviving and Thriving in Competitive Markets; Michael Silverstein, author of Berry-AMA Book Prize winner Trading Up; Ed Keller, author of The Influentials; James Lenskold, author of Marketing ROI: The Path to Campaign, Customer, and Corporate Profitability; Roland Rust, inventor of the Customer Equity Framework; pricing expert John Hogan; marketing communication guru Lois Kelly; ROI measurement authorities John Nardone and Ed See; interactive marketing trendsetter and one of Ad Age's "Women to Watch" Sarah Fay; Chuck Feltz, the President of Deluxe Financial Services; Regina Lewis and Rebecca Mardulla, the Director and Manager of Consumer/Brand Insight respectively from Dunkin' Brands; and Copernicus' own Kevin Clancy. Each riveted the audience with their perspectives on the critical trends, research methods, decision-making processes, and practices that lead to Six Sigma—six standard deviations above average—results that all marketers, regardless of industry and product category—would love to deliver for their companies and tout to the CEO.

Of particular interest to the attendees, was the presentation by the Dunkin' Brands consumer/brand insight team, who described the concept and product engineering approach that enabled them to test more than two million different restaurant concepts and identify the most profitable option for the company to pursue. Michael Silverstein's talk on the move towards upscale brands, Ed Keller's presentation of emerging trends, and Raj Sisodia's lecture on "the rule of three" theory were also intriguing in their implications for getting the practice closer to the Six Sigma goal.

Speakers and attendees alike walked away with a better understanding of what Six Sigma marketing is and what methods they can apply at their firms to improve the performance of their marketing programs. W

With subject matter and speakers like this, we can't wait for the conference next year.

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