Back to the M&E BalanceRemember that companies follow the differential financial balance:
Δ$in - Δ$out = Δ$AccumulatedThis applies to marketing in two ways:
Δ $in = Net new revenue from:
(a) new customers
(b) existing customers purchasing more services/products
Δ $out = Net new spend from:
(a) acquiring new customers
(b) keeping the customers you havethe art of marketing is using as much science as possible (versus just gut) to maximize Δ$Accumulated. Contrary to popular belief, marketing success is not solely driven from advertising (as implied by this recent NPR article), but from applying resources to both acquiring new customers and keeping the ones you have. Rewards programs are examples of customer retention costs, direct sales force salaries/commissions are examples of customer acquisition costs, and product development is a cost of both customer acquisition and customer retention. All of these activities are marketing tactics, but the strategy behind marketing can be tied to the M&E balance: who do I go after, with what, and how, in order to maximize Δ$Accumulated?
Advanced M&E: application to an industryAn analogy I’ve used when describing the M&E balance is filling a leaky bucket with water. As long as I’m filling faster than the hole is leaking, the water level in the bucket is always rising. Savvy investors and analysts have been paying attention to Facebook’s leak rate as an indicator of future success (article). All companies have customer leaks, and if they can’t reduce your leaks (“churn”) they'll end up in trouble, as did the pre-Cingular-merger AT&T. Before AT&T was the preferred iPhone vendor, it once had a reputation for two things: great deals but poor customer service (including coverage). AT&T was actually the first to market with an “all you can eat” voice plan for $99/month, but this deal couldn’t stop up the company's leaks. The rate at which customers were leaving AT&T was outpacing the number of customers its was acquiring. In an industry where it's critical to have a large stable customer base to maintain revenue streams, a negative ΔCustomersAccumulated made their mobile business untenable, causing the company to leave the market until its later acquisition of Cingular (article). Why did this neglect of the customer base happen? Various reasons, but a very human reason is that new customer acquisition is fun and sexy, and feels less like finance. For an executive team without an appetite for operations or market research, a focus on customer retention could easily fall to the wayside. Where the ChE background provides value is the balanced perspective that you don’t get something for nothing. Customers that you are trying to keep, as well as the new customers you are going after, are going to need resources. Once you’ve decided to maximize your financial balance, you can use the scientific method to segment your potential customers and help them meet their needs, based on the resources you can bring to bear. Is this starting to sound like process control? It should, as we’ll talk about that next.
Can you think of other examples where the scientific method applies to your new understanding of marketing?
Photo: Robert J.Pennington, www.rhizomeimages.com ©2011 Arkan Kayihan, used with permission
- How ChE Prepared Me for Business (and How It Didn’t): Finance
- How ChE Prepared Me for Business (and How It Didn’t): Operations
- How ChE Prepared Me for Business (and How It Didn’t): Intro
- How ChE Prepared Me for Business (and How It Didn’t): Human Behavior
- How ChE Prepared Me for Business (and How It Didn’t): Sales