Want to be the chosen one?

By Laxman Narasimhan & Pankaj Sahni

Most Indian businesses have faced challenges of increasing globalisation, access to new and better technology, and increased competition. But there’s a new bee in the entrepreneurial bonnet, and it is called the customer. Better informed and highly-demanding customers have added a new dimension to the challenges of business.

Increased competition has ensured that customers are spoilt for choice, making it imperative for companies to customise products and services, and use the right messages in marketing.

As mobile connectivity and access to the internet go up, there is an explosion of touch points. People are discussing experiences increasingly, lending a new meaning to word of mouth recommendations. This is forcing companies to think about new ways to attract and retain customers.

It is no longer enough to understand customer needs; companies have to influence decision-making as well. They must adapt quickly to the evolving decision process, and determine ways to attract new customers as well as extract more business from existing ones.

THE CUSTOMER DECISION JOURNEY IS CHANGING
Traditionally, companies have viewed consumer purchase decisions as a linear process of elimination. Once a customer identified a need, s/he short-listed a few brands or companies that are likely to meet those needs. What followed then was a battle amongst all the companies or brands under consideration to put their best foot forward and make their case. Finally, a process of elimination—based on an assessment of the product or service features and, of course the price—led to the selection of one of the competitors.

McKinsey research has shown that this process of decision making is changing. The decision journey has become more circular, with four key battlegrounds or customer touch points:

      1) initial consideration;
      2) active evaluation;
      3) closure; and
      4) post-purchase experience.

It is important for companies to understand the importance of these battlegrounds and the dynamics at play, if they want to target the customer or decision-maker and ensure success in all the relevant decision touch points.

What has also changed is how companies need to engage with customers along this journey. Given the wealth of information available today, customers prefer to ‘pull’ the necessary information through external trusted sources, such as word of mouth or the internet. Consequently, reliance on company or vendor ‘pushed’ messages is decreasing, requiring a more holistic and sophisticated customer-acquisition approach.

FIVE KEY CONSIDERATIONS FOR WINNING THE SALE
As companies think about winning and retaining customers, there are five key insights that are important to consider.

1. Companies or vendors enter and exit throughout the journey: The original funnel-based linear elimination process does not work anymore. Our research has shown that companies can make an appearance in the active evaluation stage, even if they were not part of the initial consideration set. This often differs by industry; for example, in the European automotive industry, on average, while customers may consider 3.8 brands during the initial stage, they look at another 2.2 when they are actually evaluating the different options. However, in computer purchases, the numbers tell a different story: while there are 1.7 brands in the initial stage, only 1 gets added during evaluation.

2. Being part of the initial consideration set is crucial: While companies may enter the race during active evaluation, they do so at a significantly higher cost. Further, the probability of final purchase for those in the initial consideration set is 2-3 times higher. Given that customers limit the number of companies they consider in the initial consideration set, it makes sense to focus on being part of the initial set than trying to enter the race in the next stage. Take the example of traditional US automobile manufacturers versus Toyota. Traditionally, Toyota focused on its brand strength and product quality to ensure inclusion in the initial consideration, while the US auto makers used sales incentives and in-dealer programmes to win in the active evaluation and moment-of-purchase phases. The result was overwhelmingly in favour of Toyota. Its superior product experience generated such strong positive word-of-mouth that even disproportionate dealer incentives from the US auto makers could not overcome the customer loyalty that Toyota enjoyed. Clearly, in the automotive as in other industries, both positive word of mouth e.g., superior product experiences, and negative word of mouth, e.g., product recalls, directly impact customer brand consideration.

3. Customers rely more on independent sources such as word-of-mouth and the internet: Scepticism around company or vendor promises, and the availability of and access to alternate information, means that decision makers are relying much more on customer-driven marketing tools to make decisions. Word-of-mouth, internet and offline or print reviews account for the top influential touch points across phases in the customer decision journey. A large industrial products company understood the importance of positive awareness and word of mouth, and used an effective online viral video campaign to build positive buzz around how its products helped improve lives and protect people. The videos were hosted online and influential bloggers were targeted. In a survey conducted after the launch, 93 per cent of the viewers claimed to have learnt something new and 76 per cent of them said they would talk to friends about the company, while over 80 per cent viewed it as a company that was a leader in R&D and one that cared about people.

4. Customer experience still matters: Experiential touch points still significantly influence closure. Ultimately, the purchase decision is based on the customer’s experience and a view of whether the specific product or service meets a specific need. In an attempt to deliver on this expectation, some large PC manufacturers have created online communities to help spot new product ideas, help customers choose the right product and connect deeper with the brand. In addition, they also offer a rich set of online business services including support, planning and reporting.

5. Active recommendations are the real loyalty: Loyalty is critical, but companies should aim to ensure that customers actively recommend their product to others. Recommendations are key, especially for smaller companies with less established brand names. A positive recommendation of existing users can be crucial to help get the company or the vendor included as part of the initial consideration set. More importantly, it can help in closing the sale. A negative recommendation is likely to eliminate the company from the consideration set and if negative word of mouth spreads further, it can end up with catastrophic consequences with some companies being eliminated from the market altogether.

MAKING IT HAPPEN FOR YOUR COMPANY
As companies adopt more a customer-driven marketing approach—using tools such as customer recommendations—they need to manage different elements in the sales and marketing cycle, all the way from product or service development to advertising messaging and targeting. Aligning the organisation to understand the needs and decision-making process of the customer is critical, so that the right messages can be provided in the right place, at the right time which coupled with the right execution at critical points along the decision journey, will help customers make the right choices.

—By Laxman Narasimhan and Pankaj Sahni, McKinsey & Company, India

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