Category: Customer Relationship Management

Brands and Connectivity

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I just attended a talk by Debbie Millman on branding. One idea that I found very interesting from the talk was discussion on the current wave of tribal branding since 2000. Ms. Millman made the point that in this wave of branding, a brand that builds/facilitates connectivity is likely to be successful. She enlisted statistics that show 1 in 3 households in America now consists of a single person, in contrast with only 1 in 10 households as a one-person household in 1950. As traditional communion places like the household downsizes to be a single’s cave, our need for connectivity as human beings has to be channeled through other places and other objects such as brands.

This association between brand and connectivity is very interesting and is consistent with the evolution of contemporary marketing. So I’d like to elaborate on this idea a little further. The marketing discipline is witnessing two interconnected trends: an increasing emphasis on building customer relationships (i.e., relationship marketing) and a perception change of consumers as objects/targets of marketing efforts to consumers as collaborators (see Vargo and Lusch 2004). Both of these are manifestations of connectivity and how marketing may play a role in building connectivity.

So to use some concrete examples to illustrate the concept, a brand can build or contribute to connectivity in two ways: physical or infrastructural connectivity; and psychological connectivity. Brands in the former category build infrastructure for people to connect with each other, such as T-Mobile, MySpace, and Facebook. These brands derive their value not necessarily from consumers’ emotional connection with the brands per se but rather from the value of relationships that are built on these infrastructures. For example, the popularity of a social networking website such as Facebook is dependent on the people that we as users can connect to through the website and how satisfying that connection experience is. Consumer collaboration dominates in this setting as a demonstration of connectivity.

Brands in the second category aim more toward establishing actual psychological connections between consumers and the brand and between consumers and consumers. While the connection between people is still essential to the connected nature of such brands, each individual’s connection with the brand is an essential ingredient to this type of connectivity. For example, Harley Davidson or Apple owners identify among themselves because of a mutual connection with the brand. In this type of situation, rather than functioning as an underlying platform for connectivity to occur, the brand becomes an indispensable bridge in the connection process. Relationship marketing and CRM become key strategies for enhancing connectivity in such cases.

It is possible for brands to crossover between categories. An example of crossover from psychological connectivity to infrastructural connectivity is the online communities that many CPG companies have established, such as Kraft community. Consumer interaction in those communities may no longer be brand-centric and may broaden beyond the brand to other realms of life. An example of crossover in the other direction is Second Life, where devotees who have been able to build meaningful relationships in the virtual world come to love SL as their virtual country, no less than the feeling of patriotism that we feel as citizens of a country. By crossing over or occupying both realms of connectivity, these brand names build a stronger hybrid form of connectivity that is valuable to today’s single-dominant world.

Air Travel Delay

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Flying back from Puerto Rico, I was pleasantly surprised that both legs of my flight left and arrived on time. Having traveled more than I normally do in the last few months, delays (and subsequently missing the connecting flight) have become an expected frustration in my travel experience. So I did a little search on airlines’ on-time performance. According to the Bureau of Transportation Statistics, the on-time rate for all airlines combined was 64.34% in December 2007 and 72.36% in January 2008. The on-time rate for the major airlines in 2007 are as follows, from top performers to bottom performers:

Southwest Airlines: 80.85%
Delta Airlines: 76.89%
AirTran: 76.81%
Continental Airlines: 74.24%
United Airlines: 70.33%
American Airlines: 68.74%
US Airways: 68.71%

Surprisingly, in the bad month of December 2007, out of 35.66% delayed flights, only 1.39% was caused by weather. National aviation system delay and air carrier delay each accounted for 10.42% and 9.17% of the delays. What these numbers reveal is an outdated air traffic management system that is unable to satisfy the current travel demands. With all the fancy technology today, one would think that managing flights should be done better and faster. But historical data show that airline on-time performance has not improved but rather has slightly declined from an on-time rate of 77.20% in 1998.

It is time for airlines and air traffic controllers to rethink the model of air travel and the hub-and-spoke system. Ironically, I saw a BMW display ad at the Atlanta Airport saying “Miss your flight. But still make it to your meeting on time.” Too bad most people cannot afford a BMW, otherwise, we’ll all switch to the “flying” experience of a BMW, even though no peanuts and beverages are served.

Wireless Companies Need to Update Their Marketing Strategy

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For those who use cell phones, it is a well-known fact that when you first join a wireless service provider, you can buy a phone at a very low price or even for free. But once you have used the company for a while, if you try to upgrade your phone to a newer model, you are charged a hefty price for it. Although some companies offer a discount on phones if you are willing to extend your contract, the discount is much smaller compared with what new customers get. Below is a comparison of the prices a new vs. existing T-mobile customer (i.e., me) would receive on the same phone models:

Phone | w/o Extension | w/ 2-year extension | New customers

Nokia 6103 | $149.99 | $49.99 | $0

Motorola W490 | $159.99 | $109.99 | $49.99

Dash | $399.99 | $267.99 | $149.99

One can envision the reason for charging a higher price to existing customers when, in old days, people were locked in to a company by their phone numbers. If you wanted to switch to a different wireless provider, you would lose your number. That was a significant switching cost for a consumer. Therefore, it took “sweeter” deals to lure people to switch. Now with the portability of phone numbers, such a switching barrier is no longer present. By still offering much lower prices to new signups, cell phone companies are essentially encouraging consumers to switch providers frequently rather than staying with one firm.

While firms do have a need to make a profit and should not give everything away, under the new business environment, it makes much more sense to reverse the pricing strategy and offer existing customers a deeper discount instead. From a customer relationship management perspective, it is much more economical and efficient to keep your existing customers rather than trying to chase after new ones. When a consumer’s existing contract is about to expire with a wireless provider, the provider should offer the consumer an incentive to happily stay rather than going back onto the market and starting to look for better deals from another provider.

In sum, wireless companies should adapt their existing pricing strategy to the new market environment and aim to build a more profitable business around a core group of loyal customers rather than “hoppers”.