In one of his books, Dr. Stephen Covery mentioned four levels of customer purchase.
The highest level is “Customer Insistence” in which customers want only your product and would not settle for substitute.The second level is “Customer Preference” in which customers prefer your product but may buy a substitute if it is difficult to get. In the third level, “Customer Tolerance“, customers are indifferent to your product. And in the last stage, “Customer Rejection“, they just do not want your product. Every business wants it’s offering to be at “Customer Insistence” level.
You could view customer insistence as “Brand-Equity” or the pulling power of your products. This is the power of your brand that gives it an edge over your competition. It determines whether your customers would choose your products over the competition.
To create and exploit high brand-equity one needs to employ “Pull-Marketing” strategies, which are designed to bring customers to your brand based upon its attractiveness as compared to “Push-Marketing” strategies, which are designed to push your products through the distribution channel and make it easier for customers to select your brand.
There is no doubt that “Pull-Marketing” gives greater power to the producers of the goods than to the distribution channels.
Unequal Opportunities
Though high brand-equity is not the only reason for the success of a business it is one of the critical factors. But opportunities to create high brand-equity and translating it into profit are not equal for all players within a value-chain that consists of raw-material suppliers, intermediate-products suppliers, assemblers, wholesalers, retailers etc.
The success of a product is dependent upon the effectiveness and success of its value-chain. Which means that the raw material and intermediate-product suppliers are dependent upon the success of the eventual product.
If the end consumer rejects the final product then, sooner or later, it will affect other players of the value-chain too. This means that the visibility to end-consumer plays a significant part in creating brand-equity.
In a value chain, usually the downstream players – who are closest to the consumers – are the ones that own the end-customer experience as they either own the distribution channel or their name is on the product. This gives them a greater opportunity to influence consumers purchase decision as compared to upstream value-chain players.
One could infer from this that downstream value-chain players have it easy to create a brand-equity that could be translated into profit as compared to upstream player. Off-course, there are other factors too like quality that create brand-equity but we are talking about only the visibility to the end-consumer.
Leveling The Field
But what would you do if your products were not directly visible to the eventual consumers. What if you are one of the upstream manufacturers? In that case you are dependent upon the downstream value-chain players that are closest to the end customers and the success of your product would be dependent upon the success of final-product.
Well all is not lost and you could still employ various strategies that could level the playing field and offset the inherent disadvantage in the chain. These strategies would enable you to attract the consumers to the products that use your components and increase your visibility to them.
- Establish Awareness with customers for your products
It doesn’t matter if your product is not directly visible to your eventual consumers, if you want to create a strong brand equity that would pull your products down the value-chain then the eventual consumers of your product must be aware of your product and insist upon it.
Example:
Intel has been quite successful with its “Intel Inside” campaign so is BASF with its campaign – “We don’t make a lot of the products that you buy. We make a lot of the products that you buy better“.
Objective:
Your goal should be that every one in the value chain of your product line, starting from the raw-material supplier to the eventual consumers, should be aware of the role that your products play in the final product of the value-chain.
- Leverage features and benefits of your product to influence the purchase behavior of eventual consumers
You demonstrate to your customers why your products are better than the competition for them to buy your products. Why not educate your end consumers about the benefits of your products too even if your products are not directly visible to them. This would prompt them to look for your components in the products that they buy.
Example:
Citibank and American Express do not sell goods and items but they have web sites that have shopping functions. They let you fill out order-forms, search the web and place orders. This ensures that there is a high likelihood of users using their credit cards to make purchases online.
How do Citibank and AmEx attract consumers to come to sites to make purchases, and to use their credit cards? By emphasizing the security of their sites to prevent unauthorized use of your credit cards.
Objective:
Your objectives should be to own the complete shopping experiences of different players of your value-chain, especially the eventual consumers.
- Cross-market your products to create and redirect demand within your product line
Your product-line generally has some inherent dependencies. If you are a retailer or a manufacturer then it is easier for you to leverage the appeal of some of your products to attract customers to other products. Shouldn’t you do the same even if your outlets are not the last one in the value-chain? If you take this approach to the consumers then you could create a suction-tube that would pull your whole product-line down the value-chain.
Example:
PPG Industries, the chemical giant, demonstrates the superior adhesive quality of its sealant used to glue the windshields in a TV ad in which a car with newly installed windshield goes through a car-wash only to come out of it flooded with water. The ad prompts people to ask for PPG Certified glass installers who use PPG adhesives to prevent leaks.
How does it benefit PPG more? PPG also makes after-market auto-glass. If a vehicle owner goes to a PPG certified installer to get PPG adhesive, chances of that installer using PPG glass are also very high.
Objective:
You must work on increasing the captive-customer base of your product-line.
- Develop a profit pool for your value-chain
A retailer has a bigger pool of products that generate profit for it. Some products may have higher margins and some may be commodities and have higher demand but lower margins. Using a combination of such products the retailer could be highly competitive for the commodity items to increase a customer base that also buys higher margin items. This gives it more bargaining power over suppliers and helps it keep the costs down even for higher margin products.
Example:
Visteon’s Carlite Division (former Glass Division of Ford Motor Company) sells auto-glass, a highly competitive product, for after-market through a network of distributors. The distributors then sell glass to large installation chains. These installers also carry other related auto-accessories. Some specialize in security systems, some in auto-accessories. Auto-glass is usually more expensive and has lower margin whereas other products are not as expensive but have higher margin. So to get the customers in the shop the glass installers keep the auto-glass price low. These customers then form a captive-customers base, since they wait in the shop for repair work, for retailers’ higher-margin products.
How does it impact Carlite (Ford Glass Division)? A major customer of Carlite, Apple Auto Glass, an auto-glass installation and wholesale chain in Canada also specializes in truck-accessories. Apple’s 60% of revenue comes from auto-glass installation but only 40% of profit. Since Apple buys lot of glass and gets most of its profits from other products, it has a greater bargaining power than Carlite, which has only one source of profits.
Objective:
Your objective should be to reduce dependence on few products and increase profitability of the complete pool of your offerings.
- Be an economic choke-point for the value-chain
Just like Strait of Gibraltar and Suez Canal, there are choke points in a value-chain that control the flow of business and money within the chain. Any company that controls these economic choke points also controls the destiny of other entities in the value-chain.
Example:
By providing shopping-mall types of services, Citibank and AmEx are trying to become such economic choke points. PPG Industries operates LYNX network for auto-glass replacement. LYNX provides collaborative services to car-owners, insurance companies, glass installers and wholesalers. Even though there is no specific requirement for glass installers to use PPG products to join LYNX, such a network does give an added advantage to PPG to increase its sale of glass and adhesives.
Objective:
You should try to gain leverage over other players in the value-chain.
The business landscape is changing fast. New ways of doing business are opening up and companies must rethink their value-chain relationships. They should work toward achieving the strategic edge over their partners and the competition. In the digital age, every company in a value chain has an opportunity to own the complete customer experience. One of the ways to do that is to increase the your “Brand-Equity” amongst not only the value-chain players but also the end-consumers. And anybody who does that can also control the “Strait of Gibraltar” of the industry value-chain, build competitive advantages and increase profitability.
