Strategy Dynamics Briefing 40: The customer choice pipeline

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Resources do not just develop within an organization, but may do so before becoming an active part of the business. It is very rare in practice, for example, for customers to be simply switched from “potential” to “active” as implied in Briefing 20. Most often, customers must be moved through a number of stages. Similarly, employees may have been aware of a potential employer for many years before choosing to seek employment, and this dynamic of building awareness and understanding can have a big impact on an employer’s success in hiring the people it needs. The process of customer development has long been recognized in the marketing field. One of the simplest early models of customer development, affectionately known as “AIDA” depicts the winning of customers as working through four stages: gaining their attention, attracting their interest, stimulating desire and finally motivating them into action to purchase the product. Later developments of this idea expanded on these transitions – awareness, knowledge, liking, preference, conviction and purchase, for example – or pointed out that the sequence may vary. In the “low involvement model,” for example, purchase may be somewhat spontaneous, leaving positive interest and attitudes to emerge later.In all such models, though, customers move amongst various stages, some of which do not involve any purchase or any active participation with the product whatever. In spite of this noninvolvement, it is often important to understand these states and how customers move between them.

  • Companies spend considerable sums on marketing activities in order to bring customers through those stages, prior to enjoying any sales revenue from them.
  • There can be interactions involving inactive customers that have important effects on customer acquisition and retention. Many people, for example, have positive attitudes towards BMW cars, even though they have never owned or even driven one, which has a positive influence on the attitudes of other non-owners.

Figure 1 shows a customer-development chain depicting a product launch over 36 months for a mass-market fast-moving consumer brand, such as a coffee product. The marketing challenge is to move consumers up through a series of stages until they hopefully become loyal buyers of the product. Since each flow represents numbers of consumers changing their state of mind each month, marketing is ultimately trying to alter their choice regarding product purchase — hence the framework’s description as a “choice pipeline.

Figure 1: Phasing marketing spend priorities to accelerate profit growth for a consumer brand.

Phasing marketing spend priorities to accelerate profit growth for a consumer brand.

[ You can learn more about this approach in Finskud, L. (2009) Competing for Choice, Business Expert Press. ]

In this illustration, market research suggests there may be 50 million potential consumers for the product, who need to be won by marketing and promotional spending. This particular chain combines the “interest” and “desire” stages of the AIDA framework into a single population of interested consumers. However, it splits active customers between those who are loyal and disloyal. “Loyal” consumers are those who would always purchase the brand when they need this kind of product — “Disloyals” share their purchases between this brand and its competitors.

Management has a total marketing budget of $20million/month to divide across four categories of spending:

    (1) advertizing to build awareness;
    (2) advertizing to communicate the brand’s “values” and win consumers’ interest;
    (3) promotions to persuade interested consumers to add the brand to those they purchase; and
    (4) loyalty promotions to persuade consumers to purchase this brand and no other.

In the base case (dashed lines), the budget is allocated evenly across all four activities in every month. It takes a long time for the early advertizing at the front end of the chain to bring consumers within reach of the promotion spending that will persuade them to actually buy the product. The brand does not break even until month 20, and by month 36 has failed to pay back the investment in its own marketing — cumulative profits are still negative.

In the better case (solid lines), management first prioritizes awareness advertizing, followed by values advertizing in the first year. This pumps up numbers of aware and interested consumers more quickly than in the base case. So when spending is swung towards promotional activity after month 12, it is much more effective. Thereafter, spending at the front of the chain can be cut—since few disinterested people remain to be communicated with—and is increasingly focused on capturing active customers and winning their loyalty. Total active consumers (disloyal plus loyal) climb to roughly the same number as in the base case, 37 million, but a larger proportion are loyal. Furthermore, the total between about months 18 and 30 is considerably greater than before, resulting in a large increase in profitability during that period and helping the brand easily pay back its investment by month 36.

Until next time…

 

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Adding to the choice pipeline framework

Figure 1 covers only a limited number of the potential mechanisms that may need to be captured in customer-development. First, each type of marketing will have some impact on more than a single flow of customers – values advertizing will contribute to awareness as well as making people interested. Multiple consumer segments will often exist, each of which exhibit different responses to the communication, different purchase rates, and so on. The chain does not show all possible movements, e.g. the possibility of consumers moving directly into upper levels of the chain with spontaneous purchase, following the low-involvement model mentioned earlier.

Note also that this illustration assumes that the product is fully available in stores from the start. In many cases, stores or other intermediaries may also need to be taken up a choice pipeline if sales are to be achieved.

This briefing summarises material from chapter 6 of Strategic Management Dynamics, pages 345-348.

Read more about the book on the Strategy Dynamics website

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