Creating Value for Customer through R.O.I
http://www.thejakartapost.com/news/2009/07/29/creating-value-customers-through-roi.html
Totok Sugiharto , Contributor , Jakarta | Wed, 07/29/2009 1:07 PM | Management
Achieving economics of scale is necessary to capture the lion’s share of the market. Usually it is expected by focusing on product and promotion.
To gain a stronghold in the market, cost effectiveness rather than uncontrolled spending is crucial at every stage of the value chain process. This can be done by integration, not by separate business functions.
Today, one of the key factors in initiating integration is the demand for value-based approaches. Practitioners in this area seek an approach that is essential to generating greater cash flow and creating value for the firm.
The demand for accountability in the form of balanced scorecards, activity based costing, economic added value and the like is greater now than ever before. All the concepts of accountability and its measurements of financial returns on business activities are fundamental to strategy and are very important.
In view of demand for the value-based approach, one tremendous management model of integration is marketing communication (Marcom). Marcom is a strategic business process used to plan, develop, execute and evaluate measurable, persuasive brand communication programs over time in connection with customers and prospects.
The goal is both to generate short-term financial returns and build long-term brand value. This approach is unique as it integrates all components of an organization around a single factor: to fulfill customers’ wants and needs.
Nowadays, Marcom is very important for several reasons. First, the concept has been promoted from a marketing tactic to business strategy.
Second, it involves the whole organization and spans the entire spectrum of brand, customer, product, channel and service contacts of the firm with stakeholders at all levels.
Third, it requires ongoing measurement, evaluation and accountability for return on investment (ROI), and last, the concept offers a process that boosts performance in the long term and builds relations with customers over time.
Shift in 4Ps
When manufacturers lost control of the distribution channel (Place), the other 3Ps also began to slip from their grasp. The implication was a shift in power from manufacturers to retailers, which meant a shift away from the 4Ps concept.
This implied a shift of funds from media advertising to other forms of Marcom (Promotion). In reality, there are movements away from advertising focusing on mass media to the rapid growth of database marketing.
The objectives of Marcom are completely aligned to a corporation’s goals. One of them is focus on generating cash flow that is greater than the cost of the forms of Marcom used to achieve them.
The aim is to build shareholder value by increasing the brand equity value of a firm. Strength in brand equity is recognized by the financial market and commonly increases equity shares prices. It will provide value for a firm, both in the short and long term.
The expected results of Marcom is the acquiring of new customers, the retaining of existing customers, growth in sales volume, profit from existing customers and to manage them through the firm’s products or services.
The critical factor of these outcomes is: can Marcom have an effect on the behavior of customers and on prospects?
The key ingredient in Marcom is essential to influencing behavior, because behavior can result in income flowing in from customers to the firm. When Marcom is designed to influence customers’ behavior, their behavior can be measured and valued in financial terms.
Once a firm starts to consider customers as an income base, then the next logical step would be to treat customers as assets. That means that investing in customers and/or prospects then following through by expecting return on the investment. Investing in customers through various types of Marcom programs should generate measurable responses in the form of sustaining or increasing a firm’s income.
Viewing customers as a current or prospective income base is the key element in understanding the demand for the value-based approach. In the traditional view, if a firm can get the Product, Price, Place (distribution) and Promotion right, customers will buy and continue to buy over time.
In reality, however, the challenge is in the current dynamic environment. In the new marketplace, driven by the Internet, mobile and wireless telecommunication and other technological advances, customers have the upper hand.
They are able to identify, evaluate and purchase products and service from all over the world using their own time frames and through processes they set up.
Since Marcom puts the customer at the heart of the process, it changes the entire concept of value. No longer is value added sequentially as in the traditional marketing model. While the traditional model focuses on the 4Ps, Marcom concentrates on Relevance, Receptivity, Response, Recognition and Relationship (5Rs).
Using the 5Rs changes the way in which managers think about and develop a company’s Marcom program, and this involves integration. In Marcom integration, value of brand to the customer is taken into account and determined as a primary factor.
This approach offers a new way of thinking, starting with the design of a Marcom program of products and services to meet customers’ wants and needs, and ending with generating greater cash flow and creating value for the firm, through the measurement of return on investment.
The writer is a lecturer at Pelita Harapan Graduate School.