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Innovation First: An Iterative Model of Customer Valuation that Decentralizes the Customer

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Brief research paper for Integrated Marketing Communications.

Brief research paper for Integrated Marketing Communications.

Published in: Business

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  • 1. Innovation First: An Iterative Model of Customer Valuation that Decentralizes the Customer Nicole Cathcart Johns Hopkins University October 1, 2009
  • 2. Innovation First 2 Market fragmentation, with roots in the digital revolution, has exponentially acceleratedthe need for more advanced marketing strategies. An abundance of consumer data has revealedcomplex behavioral patterns that can allow marketers to maximize their budgets and increase netrevenue. As businesses have recognized the growing complexity in the marketplace, simpleproduct-oriented strategies and tactics are no longer sustainable options. In their integratedmarketing communications (IMC) approach, Don and Heidi Schultz (2004) build a frameworkfor a strategic shift at the organizational level to centralize the role of the customer, withcustomer valuation as one of the key factors in developing a marketing strategy. However,Glenn B. Voss and Zannie Giraud Voss (2008) present a compelling argument that marketcompetition in some industries may override the centrality of the customer. Their researchsuggests that more dynamic markets use both innovation and customer acquisition models tomeet goals while customer retention models may limit revenue potential. In this suggestion,Voss and Voss present an enhancement of the IMC model where driving firm performancedemands such an iterative model of customer satisfaction that the customer is no longer centralto strategy. The IMC approach to customer valuation reemphasizes that customers are of the highestvalue to the organization and should be considered a financial asset. Although viewing thecustomers as an asset gives them a strategic role that should be recognized, in some cases, thisprocess may reveal that the customer is not the most valuable asset to the organization.Certainly, each customer does not have equal value, and even within aggregated customergroups, Schultz and Schultz suggest options for high- and low-valued relationships. Thisdistinction may not be important for every firm. The process of valuation, however, allows for
  • 3. Innovation First 3greater clarity as to value of the customer compared to other firm assets and represents anessential process for effective strategic decisions. The volume of market competition and the level of demand for innovation represent twokey factors in determining inherent loyalty of a customer base (Voss & Voss, 2008). The natureof a market saturated with constantly improving options creates a demand incongruent with aloyalty strategy. In fact, focusing on customer retention in a saturated, dynamic market maynegatively affect a firm’s net revenue. Promotions that lower prices for retaining customers in alow loyalty market, for example, may expend resources for less gain. In this situation, a firm’sresources are better focused on constant innovation than customer retention, as the innovationfuels the acquisition of new customers, also what Schultz and Schultz label as competitivecustomers. Although dealt with in passing in an IMC context, this customer group becomes thecentral target in the strategy enhancement proposed by Voss and Voss. Arguably, the presentand competitive customer groups combine into one overall target only marginally moreimportant than prospects. Voss and Voss outline two distinct internal and external models as appropriate forconcentrated and dynamic markets. In concentrated markets where competition remains low ormoderate and innovation is a non-critical strategy, the IMC model of refinement oforganizational strategy, communication and products to meet customer expectations makessense. However, in dynamic and highly-innovative markets, organizational culture must shiftaway from the customer towards constant change and innovation. In fact, a model of seekingcustomer learnings may hinder these organizations, as “customer focus may be less effective indynamic environments because it can lead to inertia, myopia, and missed opportunities” (Voss &Voss, 7). Ironically, in the shift from giving the customer what they want to giving the customer
  • 4. Innovation First 4what they don’t even know they want yet, their asset value may diminish while net revenueincreases. This shift from a customer focus does not mean a shift from relying on data and research,a core value in IMC. Instead, studying the competition becomes one of the central strategies topromote innovation. The need to evaluate competition is not particularly groundbreaking, butthe centrality of this role as an organizational development strategy and an alternate strategy to acustomer focus, presents an interesting avenue for success. Certainly, this is a dangerous pathfor an organization that does not have the internal culture and resources to drive innovationappropriately. Although a competitor-centric approach as a primary strategy may only be affective in adynamic, concentrated and innovative market, there may be a piece of this strategy that has moregeneral application. After all, if some markets can recognize that competition drives innovationmore than customer demand, what more might be possible in markets where the customer hasbecome too central in the process? What is the proper balance between matching customerexpectations and defining those expectations? The process developed by Voss and Voss mayhelp answer these questions quantitatively. By allowing firms to measure revenue affects of boththe customer- and competitor-centric models, those that have already determined their customervalue now have an additional option for maximizing performance. The Voss model is then notin conflict with IMC, but rather an optional strategy built on the data IMC can provide. Thisrelationship suggests that IMC may be an important foundation for marketing strategy as marketcomplexity continues to increase.
  • 5. Innovation First 5 ReferencesSchulz, D., & Schultz H. (2004). IMC, the next generation. New York: McGraw-Hill.Voss, G.B., & Voss, Z.G. (2008, November). Competitive density and the customer acquisition– retention trade-off. Journal of Marketing, 72. 3-18.