Few U.S. companies marketing themselves properly, expert says

November 11, 1999

CHAPEL HILL -- Marketing employees may work hard for their U.S. companies, but many are not working smart, according to a University of North Carolina at Chapel Hill expert. Surprisingly, too often such professionals focus on the entire range of customers rather than on those who can contribute most to the bottom line.

"There are an awful lot of companies out there still operating on 1960s marketing theories," said Robert F. Lauterborn, James L. Knight professor of advertising at UNC-CH's School of Journalism and Mass Communication. "To make money, what they really need to do is to segment their customers - figure out which customers are most profitable for them. They then need to reallocate their marketing and marketing communications resources to concentrate on those people who can maximize profit."

Lauterborn spoke Friday (Nov. 12) at a meeting in New York City titled "Contact Strategies to Retain Best Customers" sponsored by the Institute for International Research, the world's largest business information organization.

"Too many companies still allocate marketing resources evenly across the board, which is ridiculous since we know that all customers are not created equal," he said. "Some customers are just too expensive to attract and maintain."

Many U.S. companies continue to be driven by a form of "Holy Grail" -- the outdated notion that they must at all costs increase market share -- their percentage of available business for the goods or services they provide, Lauterborn said. Beyond critical mass, they should concentrate less on boosting market share, because the last few percentage points are the hardest and most expensive to acquire and keep.

Instead, they should seek to boost what a friend of Lauterborn in marketing calls "wallet share" -- the total amount the best customers spend, he said. Knowing consumer desires is the key.

"The core of everything I teach is that the only sustainable competitive advantage is superior understanding of the customer," the professor said. "You can't maintain a technological advantage or a marketing advantage because it's too easy for somebody to copy what you're doing. The most critical thing a company can know is why customers value their goods and services."

The kind of business a company is in doesn't matter because the principle is universal, he said.

Too many U.S. firms do not know why their customers do business with them, Lauterborn said. Often they perceive price as the chief or only concern, but many people value quality, service, reputation and other factors.

The Limited, a clothing company, has divided its customers into nine groups. They range from women, for example, who want to be the first to wear any fashion and will pay top dollar for it to women who only enter stores during clearance sales when they can buy for 40 percent to 60 percent off.

"Within each segment, it is important for The Limited to understand how much each of those kinds of customers have to spend and how much of their money they spend with The Limited versus some other store," Lauterborn said. "They have a strategic plan and allocate their marketing resources according to the relative profitability of different segments of customer."

Efforts to boost relationships with various customer groups go well beyond just targeting advertising, he said. The best customers may be given a personal counselor and invited to special showings and luncheons for fashion designers. The least-important customer group, which is still useful in clearing out harder-to-sell inventory, may receive only direct mail.

Business-to-business relations are similar, said Lauterborn, a former chairman of Business Marketing Association International.

Historically in marketing, the emphasis has been on going out and getting new customers. "The reality is that we ought to spend at least as much time trying to retain customers as getting new ones. Retained customers can be anywhere from eight to 18 times more profitable than a customer you have just acquired."

Lauterborn said he couldn't think of businesses in which the principles he teaches do not apply, adding, "I think that only a few American businesses are doing this right."

The professor, who had a 30-year career in private industry, rejects the famous four "P"s of marketing -- product, price, place and promotion -- as 180 degrees wrong. Instead, he focuses on what he calls "Lauterborn's four 'C's" -- consumer needs and wants, their cost to satisfy those needs and wants, convenience to buy and communication, which is dialogue rather than monologue.
Note: The meeting is today at the New York Helmsley Hotel, 212-490-8900. Lauterborn can be reached at 919-962-0282 (w) or 919-933-5475 or lauter@email.unc.edu

Contact: David Williamson, 919-962-8596.

University of North Carolina at Chapel Hill

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