Strategy Dynamics Briefing 42: More extensions of the customer choice pipeline

Posted by:

Although the choice pipeline is most easily seen in fast-moving consumer products, it also shows up in many other situations… Where? Consulting companies, law firms and other professional service businesses must make clients aware of and understand the provider’s service before they can be expected to buy it. Many business-to-business (B2B) providers have little problem with the early stages in the chain — most significant business customers, for example, are very familiar with all the alternative telecoms providers and their services. In such sectors, then, the challenge focuses on the upper stages, with selling efforts focused on changing a customer’s interest level enough for them to make a potentially risky move in switching suppliers. Even in B2B cases, though, novel offerings need efforts at the front end of the chain, just as a new consumer brand does.

Non-business cases

Choice pipelines also arise in the voluntary and public service sectors. For example, many people who may gain from welfare benefits, are unaware of those benefits or how to obtain them. There have even been cases where government agencies, in an effort to minimize their costs, budget for their expenditure in the full knowledge that uptake will be far less than 100%, and make no efforts to increase that uptake. Whether intentional or not, the under-claiming of welfare benefits frequently results in voluntary organizations having to provide advice to potential claimants. Voluntary organizations themselves often face the same problem — that the people they wish to help do not know of their existence or of their services.

Small firms

Firms who are small relative to their market face a particularly large challenge to get themselves known at all. This makes it especially important to identify a clear part of the wider customer population where they stand some chance of getting noticed. Simple market segmentation tools help here. By segmenting customers both into different groups and the specific needs that they may have, it is possible to focus limited marketing efforts more narrowly. Many independent hotels, for example, have been able to build a name amongst special interest-groups who, though few in number, are well-enough connected to offer a cost-effective target for marketing.

Adding word-of-mouth and other feedback mechanisms

Briefing 20 explained the Bass diffusion model, in which word-of-mouth between potential customers and already active customers added to advertizing in encouraging people to become customers. The choice pipeline offers several routes for that interaction to operate. Existing customers may make other people aware, make them interested, or encourage them to buy a product (Figure 1). But even more interactions are possible, such as interested customers making others aware, even though they do not themselves buy the product, and loyal customers persuading others to become loyal.

Figure 1: Word of mouth helps push customers along the choice pipeline.

Word of mouth helps push customers along the choice pipeline.

It is rarely possible or affordable to do enough research to separate all these mechanisms from each other and from marketing effects – and there are still further factors influencing the pipeline, such as competitor efforts to capture customers. But it is still valuable to be conscious at least that these mechanisms are at work. Not only can it help clarify dynamics that are not precisely accounted for by numerical analysis, but it can also suggest activities or policies to improve strategic performance. Many B2B companies, for example, go to industry exhibitions to make potential customers aware of their capabilities – events that are almost purpose-made to create the kinds of choice stimulation shown in Figure 1. Companies can radically raise the effectiveness of such an event by being quite explicit beforehand about the purposes for which it is to be used—which customer segments are to be targeted, with which information, about what products. Furthermore, the identified group of aware and interested customers created at the event becomes a high-quality target list for promotion and sales efforts.

Until next time…

 

If you would like to receive the series from the beginning in your email inbox, please register on the Strategy Dynamics website and subscribe to Briefings in “My Account”

Strategic Management Dynamics book cover
Beware of the “Sales Funnel

The choice pipeline may seem similar to the sales pipeline commonly used in sales force management, but with a focus on the upper stages of the pipeline. People often describe the sales process as operating like a “funnel,” with very large numbers of potential customers at the top narrowing down to a very small number of eventual sales.

But the funnel is a bad analogy. Everything entering the top of a funnel emerges from the bottom. This is not the case for sales prospects, which can stop at certain stages, move back up the funnel, or be lost from it completely. The ambiguity can cause confusion between states in which customers reside (e.g. a qualified prospect) and movement between those states (e.g. an initial approach).

A clearer picture is of customers being moved up a series of tanks on a hillside, and being likely both to flow back down from tank to tank, or to flow out of the side altogether. Every tank in that picture is a specific state of mind for the customer (e.g. “I have heard of this supplier,” or “I am in negotiation with them”), and every flow corresponds to a specific change in the customer’s state of mind (“I have just become informed about what this supplier offers,” or “I have just decided to reject this supplier”). And remember, back-flows matter too – there is a big difference between approaching 100 prospects and losing none, and approaching 500 and losing 400!

This briefing summarises material from chapter 6 of Strategic Management Dynamics, pages 352-355.

Read more about the book on the Strategy Dynamics website

0
  Related Posts

Add a Comment