Archive for November, 2010

 Executive Summary

  This paper details the importance of the function of branding for banks. I have tried to examine the unique nature of banking as a service which is nothing but an unsecuritised loan from an individual to a bank, which is incidentally known as a deposit.

After the description of the nature of the business in which banks are, I have tried to illustrate how a very strong brand can benefit a bank in boosting its volume of business and profitability.

Next I have discussed the kind of challenges that a brand manager will face especially in the banking sphere given the dynamic conditions in the sector.

After this I have presented a schedule of functions which a brand manager must accomplish in order to be able to build a brand. It’s a mapping of the brand building process for banks.

And finally I have tried to describe a few critical components of a bank’s brand followed by the conclusion.

 Unique Nature of Banking as a service

 Banking as a service is unlike any other other. As we know that banking by nature is a customer entrusting his or her hard earned money with a bank without any collateral security in return. The whole transaction is based entirely on trust.

A bank earns its income based on the spread. This spread refers to the differential between the rate at which a bank accepts unsecured deposits from the general public and the rate at which it lends. Higher the spread, higher will be the profits of the bank. The bank also has to ensure to generate a minimum volume of deposits and move a substantial volume of credit in order to maintain reasonable levels of profits.

Other sources of revenue for a bank include fee based incomes from activities such as Wealth management, Demat services, Bill payment services, escrow account services, foreign exchange services; ATM services and so on and so forth. Most of these services generate revenue for the bank and unless and until the customer trusts the bank completely, he or she will never use these services. Therefore building trust with the customers, potential users of the bank’s services is one of the most important functions of a bank and that is accomplished through proper branding.

The importance of branding is brought into sharper focus by the fact that in terms of services that banks offer, there is no much scope for differentiation per se. The nature of the depository services and loan services in terms of interest rates offered is more or less identical across all banks (though some of the banks may have a certain price advantage due to lower costs), the wealth management advice differs from institution to institution but its efficacy tends to remain the same, with all the banks sharing their ATM networks, the ATM penetration too, is no longer a differentiating factor. Even the foreign exchange services are identical across banks.

So then the question arises, that with such homogeneity in services rendered and the products offered, how does the bank create and retain in the competitive advantage?

The answer to this question lies, not in creating a product which is packed with features, (because the fact remains that no matter how innovative the product is, it can be copied within no time by competitors because no patent protections apply to financial products) but winning a piece of the customer’s mind, creating a positive image in the customers mind so that whenever he or she thinks of any of these services, the first thing which hits him or her is the name of the bank or the financial institution in question.

And the answer to all these challenges is effective branding. So the key to acquiring and retaining customers in order to maintain long term profitability and competitive edge lies in creating and maintaining a favourable brand image in the minds of the target customers.

Advantages of Building a strong, trusted and highly recognizable brand

 Customers by nature are cognitive misers. They do not want to do a lot of research and find an out which bank is the best and which one is best suited for their needs. Implausible as it might seem, the choice of banker decision often follows no rational criteria. In such a scenario, any bank will do well to build a strong and highly recognizable brand for it in order to tilt the decision making of the consumers in its favour. A strong brand is like an imaginary signpost in the head of a person who is in need of any type of banking service ans simplifies the decision making process for the customer, be it a long term relationship like that of depositor or a one off transaction like getting a travelers cheque.

A strategic Resource

Just like funds, a bank is well adviced to invest in building a strong brand because at the end of the day, it turns out to be a very useful strategic resource for the bank. As already discussed that potential customers are cognitive misers, a brand helps in lowering customer acquisition costs and ensures that the customers so acquired stay with the bank. It is a verified fact that customer acquisition costs are far higher that retention costs. Thus every rupee spent on branding brings in a higher return on investment in this way.

Higher Revenues and profitability

 

Not only will a strong brand help generate a higher volume of revenues, it will enable the bank to command a higher premium for its services, which means it can accept deposits at a lower rate and lend at higher rates and charge higher fees for all the allied services. This will boost the return on investment and increase shareholder value through increased profitability.

Better Human resources

 

A bank, just like any other organization cannot function without the contribution of high quality human resources. There is always a shortage of people with the right skill set in the market. A strong brand helps the bank in attracting the right type of and high quality manpower to apply for position in its ranks. Here too we can see an indirect benefit of branding spending in the form of value which will be added by the highly qualified and motivated professionals.

Faith among other stakeholders

 

Besides inculcating trust within the customers, which is of paramount importance, a good brand will lead to higher goodwill among other stakeholders namely the investors. Past experience shows that State Bank of India ’s market cap benefited from a successful integrated marketing campaign launched by it. A good brand is also favoured by the government and in case of hard times, the government comes forward to assist the banks who have greater goodwill.

Challenges in Building a Brand

 As we have observed that branding presents a whole host of benefits to the financial institutions, but it must be noted that due to its unique nature, branding a financial service comes replete with its own set of challenges that must be surmounted before a brand can be built.

Getting the Buy in of the top management

 Branding for financial institutions was still a nascent concept in India until a few years ago. No matter how much we espouse and describe the benefits branding, it is very difficult to demonstrate its effectiveness in numerical terms. No one can dissect the revenue of a bank and pinpoint that exactly this portion of the revenues were due to the branding efforts. But still, one should not take this limitation as a damning one as there exists a strong correlation between branding spend of banks and their relative market positions and brand equity.

Different Services and Clients

Brand is nothing but what your company and its offerings stand for your target customers. But in a bank offers a whole gamut of services to a very wide variety of clients, right from a depository services to a poor daily wage earner to the salary account of a middle class employee to foreign exchange services to a jet setting global professional to wealth management services to high net worth individual to demat services to a housewife who is planning to get into stock trading. A bank faces the challenge to present a meaningful sales preposition to each one of these segments based on their specific needs and demographic. Agreed, that it is next to impossible to remain relevant to all particular groups but a bank can build an umbrella brand around certain concepts which will help identify it positively to all customer groups. For example, ICICI is playing completely on the word “trust”. It is not specifically advertising any particular service but tries to depict that “trust” is the underlying factor in all its services to all market segments and this strategy is working very well. Similarly, SBI for some of the segments conveys the concept of convenience.

Client interaction cannot be closely controlled

One of the most critical components of a bank’s brand is the kind of face to face interaction which the customers have had with the employees of that bank. Understandably, the brand manager can control the message that is flashed in the media, but it cannot closely monitor every interaction which customers have with the employees. If a bank intends to present a common message to the market, it must undertake employee training programmes which will ensure a uniform, fruitful and cordial interaction between the employees and the customers so that there is positive word of mouth and long term customer retention. A minor challenge is presented by adjustment of training expenses. While the expense can be seen under the HR head, bulk of the benefits will be reaped by the branding department.

Positioning in the light of current developments

 The current trend in the banking industry is that of consolidation. Mergers and Acquisitions are the order of the day. UTI bank and Global Trust Bank, Centurion Bank and Bank of Punjab are some of the recent examples. In such a scenario. Spending money on branding a bank, when the bank’s name itself may cease to exist in a few years time, may seem foolish. In face of a merger with a bank which stands for something completely different that the current positioning of the merging bank, it becomes very difficult to retain the brand equity while the name is discarded. This is a challenge which can be overcome with subtle retentions which hint towards the past and also strong reminders to the customers that only the name has changed by the organization hasn’t.

Branding Exercise Functions

Now that it has been argued that brand building is not something which is “optional” to the banks, we must look into how exactly a bank must go about building its brand. Following is a laundry list of functions which a brand manager must execute in order to build a strong brand for a bank. Some of the functions are generic while some are specific to the financial sphere.

Establishing Brand preposition

 

Brand preposition refers to what your brand stands for. ICICI has a very specific and strong brand preposition TRUST. It must drawn on what is the existing image of the bank’s brand in the market. It must establish how does the bank intend to serve the specific needs of the customer with a view to partner in their growth.

Integrated marketing Communication

 

As mentioned, customer’s of a bank very greatly in terms of need and net worth. Therefore it is very important to control the message that various segments are getting. For this the brand manager will have to keep a tight leash on the kind of channels used by the marketing function namely print, electronic outdoor and cyber. The brand manager is the custodian of the message of the bank and therefore has to make sure that the intended message goes out to every segment.

Enlisting employee support

 

The biggest brand ambassadors of a bank are not the film stars and the sporting idols which endorse the brand, they are the humble employees who sit behind the counters and conduct the business of the bank on a daily basis. One of the most critical functions of a brand manger is to first convey the message that he wants the customers to reach, to the employees. Unless and until employees buy into the branding effort, no amount of advertising can help build a banking brand.

 Careful planning of client interaction

 

The first step would be to carefully list out the points where an outsider ie a customer has the interactions with the bank and then examine the quality of interaction which is taking place and then find out if there are any gaps, shortcomings or digressions from the intended message. In case any such anomaly is detected, it must be set right immediately by retraining the employees in customer interaction soft skills.

Branding a core area in senior level decision making

 

A brand manager must make sure that branding finds a place in the long term decision making of the bank. It must be a two way process. The strategy of the company must be determined with the kind of brand in place and also the branding must be tweaked in order to compliment the strategy which has been set by the top management. This will help the branding function of a bank to contribute meaningfully to the success and growth of the bank.

A note on what comprises of the Brand

As per the textbook definition, brand is a symbol, a word, a letter or a combination of them all which helps the customer identify the product or service.

But the concept of branding in the sphere of banking now extends far beyond that. These days banks have a 360 degree approach to building a brand. It contains the following things.

Taglines and Slogans

 

Almost all major banks have in their promotional campaign, a slogan which underlines their philosophy towards the customers.

SBI prides itself in pure banking nothing else. It depicts the hassle free dealings which its customers enjoy. Andhra Bank claims that it has “much more to do, with you in focus”. This shows the highly customer oriented approach of the organization. HSBC claims to be the world’s local bank whereas Detusche Bank has a “passion to perform”

A assists the brand building process by succinctly defining what the bank offers to its customers in terms of a banking experience.

Brand Colours

Brand colour imparts a visual appeal to the communication process. SBI has a common colour known as the SBI Blue in all its advertisements and stationery including in branch signage. ICICI has golden orange and Centurion bank of Punjab has red and navy blue, ABN Amro bank has blue and green strips in all its visuals while HSBC is strongly associated with crimson red.

A colour might seem like something trivial, but it is a potent tool of anchoring the brand in the minds of the customer and develop high brand recall.

Theme Music

 

Many banks have developed theme music for themselves, most notably the tune of ICICI Ban, which have an audio appeal and help the customer readily identify the brand in electronic media communications like television and radio advertising. The theme music also plays in the background as you open the homepage of some of the banks’ websites.

Logo

 

A logo itself says a lot about the bank. The logo has come to acquire so much importance in the branding exercise of the banks that many have changed the logo to suit the communication needs the most notable examples being Bank of Baroda and Jammu and Kashmir Bank. SBI’s logo signifies a keyhole, showing safety as well as the philosophy that it reaches the heart of every customer. Deutsche bank has its logo an upward sloping line, encased in a square which signifies growth in a secured environment.

Interior design

Last but not the least, a brand of a bank is also defined by the interiors of its customer service branches. Jammu and Kashmir bank revamped the interiors of its bank to resemble an office where the customer could walk into any end. ICICI got rid of the cage for the cashier and SBI dedicated 80% of the available space for customers and the rest for the employees on the floor.

 In Conclusion

 In today’s times, Branding has attained a great importance for the banks due to the intense competition in this sphere. Branding is one of the activities which can help banks gain an advantage in the cluttered marketplace. Branding presents its own set of challenges thanks to its lack of definition and frequent M&As but still it cannot be dispensed with because in a scenario of identical and easily imitable products, the battle of market share is the battle of mind share.

– Submitted by Shreye Mehtani

Guerrilla Marketing

Posted: November 13, 2010 in marketing

The concept of guerrilla marketing was invented as an unconventional system of promotions that relies on time, energy and imagination rather than a big marketing budget. Typically, guerrilla marketing campaigns are unexpected and unconventional; potentially interactive; and consumers are targeted in unexpected places. The objective of guerrilla marketing is to create a unique, engaging and thought-provoking concept to generate buzz, and consequently turn viral. The term was coined and defined by Jay Conrad Levinson in his book Guerrilla Marketing. The term has since entered the popular vocabulary and marketing textbooks.

Guerrilla marketing involves unusual approaches such as intercept encounters in public places, street giveaways of products, PR stunts, any unconventional marketing intended to get maximum results from minimal resources. More innovative approaches to Guerrilla marketing now utilize cutting edge mobile digital technologies to really engage the consumer and create a memorable brand experience.

Levinson says that when implementing guerrilla marketing tactics, small size is actually an advantage instead of a disadvantage. Small organizations and entrepreneurs are able to obtain publicity more easily than large companies as they are closer to their customers and considerably more agile.

Levinson identifies the following principles as the foundation of guerrilla marketing:

  • Guerrilla Marketing is specifically geared for the small business and entrepreneur.
  • It should be based on human psychology instead of experience, judgment, and guesswork.
  • Instead of money, the primary investments of marketing should be time, energy, and imagination.
  • The primary statistic to measure your business is the amount of profits, not sales.
  • The marketer should also concentrate on how many new relationships are made each month.
  • Create a standard of excellence with an acute focus instead of trying to diversify by offering too many diverse products and services.
  • Instead of concentrating on getting new customers, aim for more referrals, more transactions with existing customers, and larger transactions.
  • Forget about the competition and concentrate more on cooperating with other businesses.
  • Guerrilla Marketers should always use a combination of marketing methods for a campaign.
  • Use current technology as a tool to empower your business

 

Source: http://blogs.siliconindia.com/aaditya/Guerrilla__Marketing-bid-fxDNRPbC50003059.html

Introduction

Marketing communication is one of the major elements of four ‘P’s of marketing literature, and is popularly termed as “Promotion.” With the help of marketing communication, marketers attempt to inform, persuade, incite, and remind consumers directly or indirectly about their marketing offers. Marketing communication plays a vital role in overall branding strategy of a marketer. Effective communication helps marketers to maintain an enduring link with consumers and in turn may enhance value and relationship capacity of their brands. Through communication, marketers try to cement their brand name in the mind of the target consumers to increase intention to buy. In recent times, due to an overcrowded competitive market and media clutter, consumers are slow to recognize and respond to communication through conventional media. To break the clutter, marketers are trying alternative media to create a bond with their consumers. Among existing alternatives, product placement in film and television program is becoming essential part of a successful communication plan. But, there is no clear guideline to the marketers to chart an error free communication strategy through brand placement.

Ultimate goal of marketing is to generate an intense bond between the consumer and the brand. Brands have become the focal point of many a company’s marketing efforts and are seen as a source of market power, competitive leverage and higher returns, describes the relationship between consumers and brands as a multifaceted construct to capture the richness of fabric from which brand relationships arise. The brand concept goes beyond the product concept. A product delivers certain tangible benefits, but a brand offers both tangible and intangible benefits. In marketing, the term “brand” is typically applied to firms, products, and services, and in general, marketers accept that brands may be described in terms of perceived quality, image, and so forth. In recent times, marketing environment of industries is changing very fast due to increasing consumer bargain power, complex competitive dynamics, and easy media accessibility. These have made it difficult for a marketer to formulate a full proof branding strategy for performing profitably in the long run. In this context, marketing communication plays a vital role in overall branding strategy of a marketer.

Recent Trends

In practice, there are different available elements of communication to marketers. Depending on the various modes of communication i.e. either verbal or nonverbal, marketers choose different elements to communicate with their consumers. Five major elements of communication are advertising, sales promotion, PR, personal selling and direct response

Media. Schultz and Kitchen (2000), suggested that ‘the marketing and communication manager of the 21st century must recognize that there are multiple markets, multiple marketplaces, multiple customers, multiple channels, and multiple media’. In the past, competition was not so intense and marketers were able to communicate easily with their target segment through available media options. To break the clutter, marketers are trying alternative media like internet, mobile networks, and product placement to create a bond with their consumers. Among existing alternatives, product placement in film and television programme is becoming essential part of a successful communication plan. Advertisers often make the reasonable assumption that, by building associations with these programmes and stars through brand placement, they can reinforce and build brand image across national and cultural boundaries.

Brand Placement: An introduction

Brand placements started in films since 1940, but it accelerated in recent past

In reality, products were present all along in films or television programmes but once these products were identified as a “brand” of a certain manufacturer, it became a paid form of placement. The origins of product placement can be found in the 1930’s, when US tobacco companies paid movie stars and sporting heroes to endorse their brands. So, it is more relevant to use the term ‘brand placement’ in place of ‘product placement’. According to

Balasubramanian (1994), brand placement is a paid product message, aimed at influencing movie and /or television audiences via the planned and unobtrusive entry of a branded product.

Placement of Sony Vaio in James Bond Movie -Quantum Of Solace

Objectives of Brand Placement

The objective of brand placement as a communication strategy is to increase consumer awareness and create a positive impact on consumer preference and intention to buy

Other objectives include:

  • Enhancing consumer’s attitude towards the placement prominent placements could perform better than television advertising in inducing recall.
  • People recognize or recall brands placed in movies or television brand appearance in feature film impact short-term purchase intention.
  • Treating product as ‘hero’ leads to positive sales result. Multinational marketers select brand placements over advertising because “the number of tickets sold for a moderately successful movie worldwide well exceeds the reach of an average advertisement”.

So, we may say that the basic objectives of brand placement are of five folds. It expects:

  • Increase awareness about the brand
  • Easy recall
  • A rising intention to buy
  • High enquiry about the brand
  • Development of a positive image of the brand

Type of placement:

To ensure maximum benefit from brand placement, advertiser should think about type of placemat. Brand Placement may be of three types

  • Visual only i.e. showing the brand without any sound or voiceover. (In India, The BSA SLR bike featured as a hero of sorts in the film ‘Jo Jeeta Wohi Sikandar)’.
  • Audio only i.e. mention a brand message on the audio track and without any visual presentation (It can be seen in the Hindi film ‘Masti’ where Vivek Oberoi’s character laments to his friends about his ever-present and watchful wife saying, “Itni badi chipku hai ki Fevicolwale use sponsor kar denge” (She’s so hard to get rid of Fevicol would sponsor her).
  • Both audio and visual i.e. showing and mentioning the brand at the same time ( for example In India, in film ‘Dilwale Dulhania Le Jayenge’, the main character Shah Rukh Khan mentioned the brand name while downing a canned Stroh’s an American beer).

Factors Affecting Brand Placement Integration

There are two major types of factors that determine successful integration of brand placement in the film/programme. These are: internal and external factors.

Internal Factors are:

  • Placing of the brand into the plot i.e. how the brand is being introduced in the event.
  • Number of other products placed i.e. presence of other competitive brands as well as other non competitive brands. A large number of brands in a plot reduces the retention rate.
  • Type of placement: Prominent or subtle i.e. whether the brand is a central theme of the plot (like Safari in Road) or it is placed as part of the story (like Western Union Money Transfer in Viruddh).
  • Involvement intensity i.e. whether brand is only present in the film/ programme or it has included itself in the total promotional plan of the film. For example, Allen Solly has taken part in the pre-release promotion of the film ‘Corporate’ by communicating the news that it’s a part of corporate outfit.

External factors are:

  • Performance of the film/programme
  • Shelf life of the film
  • Culture of the society
  • Legal barriers

Benefits of Brand Placement

  • Persuasive communication: power to convince audience in favour of the brand
  • Uninterrupted presence: be a part of the situation and gain exposure automatically
  • Breaking ad clutter: out of crowd media place with commercial messages
  • Broad and easy reach: long area coverage because of wide reach
  • Cost effective: in terms of cost per contact over time
  • Non-aggressive: as a part of the event, role of brand is expected and accepted
  • Logical presentation: convincing because of its linkage with the events
  • New product launch: it helps to launch a brand and increase curiosity

Conclusion:

From the above discussion of strategic road map we may conclude that brand placement offers a promotional tool that may prove powerful in influencing subsequent target viewers in terms of recall and recognition of brand. Advertiser should be clear enough about the linkage or fit of the brand in the plot of the film and programme. They should be clear about any trade-off between their business-led plan and director’s creative-led plan. Further, it propagates that movie-viewing frequency and attitude of viewer about the placement play vital role. For multinational brands, culture of the host country is important. Globally released films may be well aware about the effect of placement in different viewing countries. At the end, a right mix among plot, type of placement, brand image may invite a synergy in terms of communication through brand placement.

– by Shreye Mehtani ( Batch of 2011)

Brand personality is the way a brand speaks and behaves. It means assigning human personality traits/characteristics to a brand so as to achieve differentiation. These characteristics signify brand behaviour through both individuals representing the brand (i.e. it’s employees) as well as through advertising, packaging, etc. When brand image or brand identity is expressed in terms of human traits, it is called brand personality. For instance – Allen Solley brand speaks the personality and makes the individual who wears it stand apart from the crowd. Infosys represents uniqueness, value ,and intellectualism.

Brand personality is nothing but personification of brand. A brand is expressed either as a personality who embodies these personality traits (For instance – Shahrukh Khan and Airtel, John Abraham and Castrol) or distinct personality traits (For instance – Dove as honest, feminist and optimist; Hewlett Packard brand represents accomplishment, competency and influence). Brand personality is the result of all the consumer’s experiences with the brand. It is unique and long lasting.

Brand personality must be differentiated from brand image, in sense that, while brand image denote the tangible (physical and functional) benefits and attributes of a brand, brand personality indicates emotional associations of the brand. If brand image is comprehensive brand according to consumers’ opinion, brand personality is that aspect of comprehensive brand which generates it’s emotional character and associations in consumers’ mind.

Brand personality develops brand equity. It sets the brand attitude. It is a key input into the look and feel of any communication or marketing activity by the brand. It helps in gaining thorough knowledge of customers feelings about the brand. Brand personality differentiates among brands specifically when they are alike in many attributes. For instance – Sony versus Panasonic. Brand personality is used to make the brand strategy lively, i.e , to implement brand strategy. Brand personality indicates the kind of relationship a customer has with the brand. It is a means by which a customer communicates his own identity.

Brand personality and celebrity should supplement each other. Trustworthy celebrity ensures immediate awareness, acceptability and optimism towards the brand. This will influence consumers’ purchase decision and also create brand loyalty. For instance – Bollywood actress Priyanka Chopra is brand ambassador for J.Hampstead, international line of premium shirts.

Brand personality not only includes the personality features/characteristics, but also the demographic features like age, gender or class and psychographic features. Personality traits are what the brand exists for.

Source: http://www.managementstudyguide.com/brandpersonality.htm___

 

 

“More than 30 years after the call to integrate sales and marketing activities ,… we find no firms that had adopted this recommendation” finds Workman, Homburg, and Gruner. Why? Or, more importantly, is this a good thing?

Recent research which maps the strengths of sales and marketing into market performance points to an underlying cause of this permanency in the struggle between sales and marketing: The disagreements can lead to higher performance.

Homburg and Jensen looked at a number of factors regarding competencies and orientations of sales teams versus marketing teams. They importantly examined the effect of these differences on performance as measured by profits and revenue.

 On one hand, differences between sales and marketing can lead to infighting and wasted time on arguments without results. On the other hand, different viewpoints are valuable to developing the right approach at the right time. Homburg and Jensen’s research revealed that the value of applying contrasting points of view outweighs the challenges of allowing disharmony when it comes to performance and contrasting thought worlds, or orientations, of sales versus marketing.

Referring to the work of Cespedes, sales and marketing are oriented in two different key dimensions: product versus market focus and short versus long time horizon focus.

In the product versus market focus, we often find marketing in the product corner and sales in the market corner. In this paradigm, a product focus refers to maximizing individual product line profitability, balancing the product portfolio, and discontinuing less profitable products while a market focus refers to being more account oriented and maximizing channel or customer relationships. At issue is the orientation towards building the product versus developing relationships with buyers. Conflicts can arise when a product orientation argues to discontinue an unprofitable product while a market orientation counters that that product is a key anchor in a customer relationship.

In the short versus long time horizon focus, we often find sales in the short horizon frame and marketing in the long horizon frame. Sales tends to be more focused on immediate action and immediate results, and are compensated and promoted on achieving immediate goals. Marketing tends to focus more on long term product plans and market actions and are compensated and promoted on longer term goals. Conflicts can arise when a short-term thinking argues in favor or taking a pricing action to keep a customer while the long-term thinking argues in favor of maintaining price integrity to achieve strategic positioning and profitability goals.

In many cases, there are also differences in sales and marketing in terms of their competencies meaning skill sets and knowledge. Interpersonal skills, depth of product knowledge, and depth of market knowledge can vary between the sales and marketing teams. In the Homburg and Jensen study, interpersonal skills referred to sustaining conflicts, communicating, and convincing. Market knowledge implied being knowledgeable of customers and competitors while product knowledge implied being knowledgeable about products and internal processes. Variations in competencies are well known. What is important to gain from their study is that these differences affect outcomes.

In examining the effect of contrasting orientations and competencies on operating profits and revenues, Homburg and Jensen found that differences in orientation are associated with better performance, while differences in competencies are associated with poorer performance.

Why are contrasting orientations good for performance? Contrasting orientations enable multiple viewpoints to address a challenge, thus yielding more optimal decisions. Marketing needs sales and direct customer interaction to strike them with reality when setting unrealistic list prices. And, in contrast as noted by Schweiger, Sandberg and Ragan: “Faced with price pressure from customers, sales may be tempted to myopic price cuts (and thus, revenue and profit sacrifices) if marketing did not act as the devil’s advocate.”

Utilizing both orientations within both issues, the short versus long time-horizon and the product versus market focus, yields better decisions and ultimately higher profits.

If contrasting orientations are good, why are varied competencies bad? When individuals have severely differing funds of knowledge, they cannot easily share ideas, thus damaging a cooperative and collaborative work environment. Marketing needs to have interpersonal skills like sales. Marketing should also interact directly with customers in order to firmly ground their fact base. Likewise, sales needs to be cognizant of the market trends and product pathways in order to guide their competitive actions.

In other words, both sales and marketing need to be competent when it comes to interpersonal skills, market knowledge, and product knowledge. They need to respect each other’s knowledge domains and learn means to integrate the other’s knowledge into their decisions. But when it comes to their orientation on how they see the world, celebrate the differences if you want to win.

Pricing

Posted: November 3, 2010 in pricing
Tags: ,

 Conflicts arise in the field of pricing. As research indicates, broad agreement on pricing actions is unlikely to be had anytime soon and, in fact, appears to be undesirable.

Contrasting orientations towards products versus markets and short versus long time horizons both have direct effect on pricing decisions. Skim versus penetration pricing, product portfolio pipeline, price integrity, and influencing industry trends versus customer requests, quarterly profit calls, and market share fights. Pricing must weigh in on each of these issues. In doing so, it has a responsibility to promote a point of view, collegially but firmly, in favor of value differential based pricing, controlled discounting, and price war avoidance.

Sales and others will argue for price discounts, cuts, and commoditization. That is what the customers are most likely to request and claim, time and time again. That’s what sales will hear. Eventually, someone will believe it and then start preaching it internally. If these customer facing people did not request discounts, cuts, and argue at times that your highly differentiated product wasn’t a commodity, you should be wondering if they actually talk and listen to customers. Many have argued that it is best to have the salespeople act as advocates for customers within the firm.

Truth will lie somewhere between the two poles. It is the job of pricing to be bold in capturing margins, maintaining price integrity, and avoiding pricing errors. If you don’t hold up your side of the argument, there is only one way things can go.

 Harmony means that not all points of view are brought to bear on key pricing issues. A little respectful contention, where the parties periodically hold contrasting points of view yet are able to listen and learn from each other, is fundamental to high performance pricing. (Just as the two handed economist was a forefather of pricing, it is good for a pricer to hold conflicting ideas concurrently.)

Or, in other words, if you’re a wimp don’t get into pricing because it is likely the most stressful and least supportive position you can find. Yet that is the job and it is of key importance to the firm that it is done well. Take the lashes as a badge of honor. But maintain your ability to be collegial and listen