Marketing will always have a major responsibility for generating new sources of revenue. In my last blog, I talked about sourcing that growth in new products and services. In this blog we look at the other avenue: acquiring new accounts.

The Challenge

How would you respond if a complete stranger approached you one day and said “Let’s get married”? Unless you are the truest believer in love at first sight, you’d probably run in the opposite direction! Why would it be any different when acquiring a new account?

One of the most common mistakes or misconceptions about marketing and selling is that they are intended to generate a sale as a direct result of the promotional program. While, ultimately, a sale is the objective, many marketing and sales activities are best viewed as “acts of courtship”: the goal is not always to make a sale but rather to cultivate a relationship that will predispose the customer to doing business with you.

Think of it this way. First, before I can become a loyal customer, I must first try your product for the first time. Second, I cannot try a product unless I know it exists. That is, “adoption” first requires “trial” and “trial” requires “awareness.” Thus, we can think of a customer acquisition “project” as involving:

1. making the customer “aware” of your offering,
2. getting them to migrate from a state of awareness to “trial,” and
3. moving them from a state of trial (i.e., a one-time buy) to “adoption.” 

This implies that there are multiple routes to building your sales volume, depending upon the stage of your relationship with accounts and based on whether and at what cost you can move them through awareness and trial. Figure 1 (below) illustrates:

Awareness-Trial-Adoption Revealed

Figure 1

In Figure 1 we start with a universe of 1,000 customers. Of that 1000, you estimate that 600 of them (60%) are “aware” of what it is you offer, while 400 have no idea what you represent and thus cannot possibly buy from you. Of the 600 you have a chance to win, you estimate that 300 or 50% liked your concept so much that, upon hearing about it, they decided to try it out (i.e., trial). The other 300 dismissed the idea as irrelevant for them and thus never did business with you – and, in the absence of some event, won’t ever.  Of the 300 that tried your product, 75 felt the product delivered on its claims and are now loyal, satisfied customers. Unfortunately, the other 225 felt the product did not deliver and thus chose a competing product.

The 75 loyal customers out of the original 1000 are your “share of accounts.” If your 75 customers use the same amount per account (i.e., they buy as much) as the other 925 people, your share of accounts and share of units sold will be the same as your share of customers: 7.5%. By contrast, if your user uses 10% more than the average customer, your share of unit sales will be (7.5% plus 10% of 7.5% =) 8.25%. Similarly, if your user pays, say, 20% higher prices than the average user, your dollar market share will be (7.5% plus 20% of 7.5% =) 9%.

Awareness Building

Suppose you decide to focus your marketing efforts on the 400 people who are unaware of your product (see box I in Figure 1). There are any number of ways to do this – advertise, internet, radio, billboards, flyers, social networks, etc. Regardless of how you do it, there are two keys to remember. First, your budget: the data in Figure 1 tell you for every 100 people who become aware, 50% (or 50) will give you a trial. Of the 50 that give you a trial, 25% (or 12.5) will become loyal users. This means that your break-even marketing budget for a campaign that moves 100 people to a state of awareness will be 12.5 (new users) × their average usage × your average profit per usage. If the resulting number exceeds the cost of your awareness-building program, then you can justify the cost on the basis of new profit contribution.

Second, never forget that while awareness of your brand name is always a good thing, the best form of awareness is not just something that “breaks through the clutter and gets seen,” it is an awareness of how you want to be known and seen by customers (i.e., your “value proposition”).  Outrageous stunts may garner you awareness but it may be for the wrong thing.

Trial Generation

Trial depends upon four things:

1. The intrinsic relevance of what you created awareness about.
2. The appropriateness of the audience that gained that awareness: you could say the right things but to the wrong audience, depending upon your media selection.
3. The customers’ ability to find the product once they decide to buy it.
4. The risk for the customer that your message “over-promises” or that your organization “under-delivers”: that is, for some reason, the customer doesn’t actually get what they expect.

There is no shortcut here. Start with your message. Ask who you think will care most about it. Then be certain the medium you choose for sending out the message is reaching that audience. Next be sure you have the product in sufficient stock and on prominent display. Finally, do all you can to ensure the customer knows how to get the maximum benefit from the product being bought.

In regards to budget, you can do the same calculation here that we did for awareness building: what percentage of those who give you trial will ultimately adopt, and how much is each of those new “adopters” worth?

Adoption: The Source of Expansion

There will be some who have tried your product but have chosen to buy from someone else. The most common error here is to assume that we just need to step up our advertising. Not so! Recall that this person saw the advertising, liked it enough to buy from you one time, but has chosen to buy elsewhere. More advertising won’t give them anything they don’t already know. Here, we need to find out why they have rejected us. We may find that we need a “new and improved” message and to provide an incentive (i.e., promotion) to encourage them to give us another chance.

But don’t stop there! Our work isn’t done with loyal customers. While it may seem redundant to keep selling to people who are already loyal, we may still want to market to them to

1. remind them to keep buying from us,
2. show our appreciation and improve the likelihood we retain their business,
3. inform them of other things they could be buying from us, and
4. encourage them to tell a friend (see my blog post “Economics of Customer Loyalty”).

The Bottom Line

You cannot fix something until you know why it isn’t working. The same applies to customer acquisition. Don’t spend on marketing until you know what, precisely, your marketing effort has to do. Break your problem down and find out if you need to build awareness, generate trial or stimulate adoption. You’ll find it easier to know what to do and you can even figure out what it’s worth to you to fix it.

Many Canadian pharmacies will need to take a hard look at operations in response to new legislation on revenue sources. Some will make the mistake of trying to reduce costs in order to cover the loss of revenue – a strategy that almost always leads to a loss of customer service and a consequent loss of both margin (due to the inevitable eroding of prices) and volume. Instead, pharmacies should be looking to grow their top line by adding new products and services. The only question is “How do I know whether the new product or service will fly?”

While there can be no guarantees, the best framework for evaluating new ideas is called the “Diffusion of Innovation.” It offers five characteristics of any innovation that determine its likelihood of rapid acceptance. The thinking is that once a preliminary evaluation is done, any areas of weakness can be shored up with the appropriate actions; accordingly, the new product idea should be dropped if remedies cannot be found.

Factor 1: Relative Quality Advantage

This refers to how much better the new product is in comparison to whatever (in the broadest sense) the customer is currently using.  For example, a new line of bandages would be compared to existing bandages; a new method of quitting smoking would be compared to whatever the customer is now using to quit smoking, and if you are adding a new product category to your store, the comparison would be against wherever the consumer now buys the product.

There are two key things to remember. First, in comparing quality, don’t just think about the advantages of the innovation. The acceptance of most innovations involves a tradeoff, so there are likely to be disadvantages too. For example, shopping on the internet has time and transportation savings but suffers from shipping and handling costs and an inability to “touch the goods.”

Second, in making quality comparisons, be sure to segment the market between early adopters who will easily see the advantages and/or don’t care about the disadvantages and those in the more mainstream market who will need to be “educated.” The greater the number of early adopters, the less you’ll need to spend to introduce the new product and the faster the innovation will gain momentum.

Factor 2: Compatibility with Values

Sometimes a product can deliver great relative quality but it does it in a way that some people will reject. For example, genetically modified food may be enriched, look better and last longer, but some people will reject it on the basis that it is less natural. Similarly, some people may see the benefits of looking younger as desired but may reject methods that require the injection or ingestion of artificial substances.

This is one of the toughest issues, since such objections are usually philosophical in nature and are as much a matter of opinion as of fact. All you can do is try to determine the prevailing philosophy for your target customer. Example: beer advertising is often seen as male-oriented but it continues because women tend to be low consumers of beer (and yes, I realize this is a “chicken and egg” issue).

Factor 3: Complexity of Adoption

This refers to how easy it is for the consumer to purchase, adopt and use the innovation. For example, DNA testing for proclivity toward certain diseases may be available and a seemingly great idea. However, the acceptance of this innovative service has been hampered in gaining widespread adoption by the high price tag, the need to send samples away to a lab and the time lag between desire (wanting the product) and fulfillment (getting the report). For drug and OTC products, you might consider factors like size of pill, rigidity of schedule or complexity of application.

Factor 4: Inherent Risk

There are two levels of risk. First is the risk that the product will not work as promoted and the consumer will be out the purchase price. This risk is relatively easy to minimize via guarantees, samples and trial periods. The second risk is more complex: the risk of downstream consequences. For example: try this tooth whitener – if gums go raw or teeth fall out, will the consumer be happy with a refund of purchase price?

Factor 5: Communicability

This refers to how easy it is to communicate factors 1 through 4 to your consumer. For tangible products, you can always rely on the power of product demonstration to actually show the product working. For less tangible products, like services, you need to find a way to let the customer gain reassurance or experience the benefit without actually having the product (try communicating great taste without the customer actually tasting it). Sampling can help, but you can also use recommendations from satisfied users, certification from accredited sources and in-store demos to make your point.

A Final Note

There is a tendency to think that great scores on four of the five factors can compensate for a weak score on the other. This is incorrect. Experience suggests that you are only as good as your weakest link, so leave nothing to chance. Do the evaluation and be brave enough to explore new ideas to overcome deficiencies.

New products fail more often than they succeed and there is almost never a perfect innovation right out of the box. Don’t be afraid to try new things, even if they require a little work to make them right. My favourite saying in this regard: “A ship in harbor is safe – but that is not what ships are built for.”