Micromarketing papers

‘Over the past century there have been three changes in the orientation of marketing: distribution, selling and brand management. The Internet is consolidating the fourth stage of marketing’s evolution: marketing as managing individual relationships with customers’ (Doyle 2000).

Since the heydays of mass marketing in the 1950’s, through the decades to the twenty-first century, marketing thought has pushed for smaller and smaller groups of consumers as market targets (Schiller 1989 cited by Goldsmith 1999). Initially the response to meeting customer needs better was market segmentation. Companies brought out an increasing number of product variants to meet the diverse needs of their customers. Media too became more segmented: mass circulation newspapers and magazines were replaced by a number of specialised issues, and the digitisation of technology also facilitated an explosive growth of the number of radio and television channels. The most rapid change results from the revolution of information technology. By 2001, only a decade after the emergence of the world wide web, a fundamental change in business and society had occurred- a critical mass of people, over 200 million, at home and at work, are able to communicate electronically with one another at essentially zero cost, using universal, open standards (Doyle 2002).

Micro marketing is a concept that lies in the area of segmentation. It is a segmentation strategy. In Kotlers et al ‘Principles of Marketing’, micro marketing is listed as a level of market segmentation: ‘Companies can practise no segmentation (mass marketing), complete segmentation (micro marketing) or something in between (segment marketing or niche marketing)’ (Kotler et al 1999). While segment and niche marketers tailor their offers and marketing programmes to meet the needs of various market segments, they do not customise their offers to each individual customer. Segment and niche marketing fall between the extremes of mass marketing and micro marketing. The aim of micro marketing is to get as close to the ‘segment of one’, as opposed to mass marketing which does not consider any segmentation at all. Kotler et al (1999) define micro marketing as ‘the practice of tailoring products and marketing programmes to suit the tastes of specific individuals and locations’.

The Dictionary of Business, Oxford University Press (1996) defines micro marketing as:’A form of target marketing in which companies tailor their marketing programmes to the needs of a narrowly defined geographic, demographic, psychographic, or behavioural market segment.’

As micro marketing is a form of target marketing, there are different forms of micro marketing. Micro marketing includes local marketing and individual marketing: local marketing involves tailoring marketing programmes to the needs and wants of local customer groups-cities, neighbourhoods and even specific stores (Kotler 2000). Individual marketing is being described as the ultimate level of segmentation. The individual marketing concept holds that the key to effective marketing is to use interactive communications to develop individual relationships with consumers based on providing superior value through personalised products and services (Doyle 2000). Other terms for individual marketing are ‘customised marketing’, ‘markets-of -one marketing’, and ‘one -to-one marketing’. Christopher (1998) describes micro marketing as an attempt to focus marketing strategies upon ever-smaller groupings of customers.

Jain (2002) sees micro marketing or segment-of-one-marketing as he calls it, as a combination of two independent concepts: information retrieval and service delivery. He describes that on one side the company has a database of customers’ preferences and purchase behaviours; on the other is a tightly engineered service approach to service delivery that uses the database to tailor a service package for individual customers. Pitt (1998) describes four basic but essential steps which marketers have to follow in order to practise one to one marketing successfully. Firstly companies must ‘identify their customers’, in terms of ‘who are the heavy, medium, light and non-users?’, prioritising the most loyal and avoiding costs on those who seem totally reluctant to buy your product. Secondly, the company must then ‘differentiate each customer’ in terms of who are the most valuable customers for the company. The value of a customer determines how much time and investment should be allocated to that customer. Identifying the most valuable customers, recognising their unique preferences and needs, and treating them differently is the essence of micro marketing. Thirdly, the company should ‘interact with their customers’, representing the opportunity to learn more about the customer and his value to the organisation. Finally, Pitta (1998) suggests that the company must ‘customise their products for each consumer’, integrating the production process with a firms customer feedback.

The focus of mass marketing is on mainstream brands. Typically these appeal to a broad cross section of demographic groups. They are promoted using mass distribution media using simple, undifferentiated messages. Promotional effort is shared evenly and little effort is made to customise the product to reflect the particular needs of individual consumers or the localities in which they live.

The focus of micro marketing is quite different. Less interested in market share than in customer lifetime value, micro marketing uses profiling tools to build a careful picture of the target audience for the product. Micro marketing recognises the different motivations that lead different demographic segments to buy each variant of the brand and through different channels. Reliance is on media, which can be highly targeted – direct mail, telephony, the Internet, door-to-door distribution – many of which can be customised on a one-to-one basis. Quantitative techniques such as profiling, mapping, scoring and clustering are used to define and reach target audiences efficiently.

So what are the forces that push marketers towards a customer-focused philosophy of micro marketing?

New Technology

The problem with market segmentation was that it was expensive and limited in effectiveness: more variants meant higher manufacturing costs and spiralling inventory levels leading to lower profits and asset turnover (Doyle 2002). The move towards greater customisation not merely results from the emergence of new technologies in recent years, such as computers, databases, robotic production, e-mail, and fax. A further important catalyst of this development has been the decrease in costs of these technologies. Until recently, even if companies learned about individual requirements, it was generally too costly to customise products. Consequently with the decline in costs, most industries have been ‘standardised’ with a great array of technologies that permit companies to interact with their clients on a one-to-one basis.
Digitisation and networks democratise consumption, making customisation affordable to many rather than few (Lamb 2002).

What we have seen then over recent years was that businesses moved from ‘economies of scale’, towards ‘economies of scope’. With the advent of information technology a more targeted, narrowly created marketing strategy could be pursued: mass customisation. To get the benefits of marketing one to one relationships, a firm must customise. To get the maximum benefit, a firm must customise en masse (Pitta 1998). As described by Kotler above, customisation is the most extreme form of micro marketing. Mass customisation is the ability to prepare on a mass basis individually designed products and communications to meet each customer’s requirements. Media and products can be tailored to the individual customer and made to order, using the prior named technologies to produce and communicate. Furthermore do these technologies allow companies to record all the information they obtain from customers. Creating databases enables these companies to learn about the buying behaviour and preferences of customers and to communicate individually and directly with them.

As already mentioned by Jain 2002, it becomes clear that this kind of customised marketing is not feasible without the proper technology. A highly targeted and customised marketing strategy requires a profile of each individual customer. Such vast amounts of data are only manageable in the form of computerised databases. Again the link between technology and this particularly strategy becomes exposed. Database marketing (DBM) can be seen as the backbone of micro marketing. Using data from a variety of sources such as ACORN, MOSAIC, or PINPOINT assists marketers greatly in targeting customers more precisely, facilitating a much greater degree of personalisation. Database marketing is transforming the ways in which fragmented markets can be addressed and individualised communications delivered (Doyle 2000).

Less obvious has been the influence of service marketing on goods marketing. The services marketing emphasis of customer satisfaction and long term relationship have influenced goods marketers to think differently about their businesses and customers (Goldsmith 1999).

The New Consumer

The information age has brought a marked rise in customer expectations. The new consumer has become increasingly sophisticated in his needs, expecting higher quality, competitive prices and improved faster service. Kotler et al 1999, states that ‘the move towards individual marketing mirrors the trend in consumer ‘self-marketing’. Individual customers are taking more responsibility for determining which products and brands to buy. Furthermore there is a trend towards more interactive dialogue, and less advertising monologues, thus supporting the notion of Doyle 2002. Consumers are becoming more and more educated and place more reliance on their selves.

The Mintel article ‘2020 Vision: Tomorrow’s Consumer’, predicts future socio-demographic trends that will have a fundamental impact on how marketing will have to be practised in the future. The article foresees major changes in consumer lifestyles, which are not utopias, but which are already visible in today’s society indicating a greater extent towards the future.

The article predominantly describes a further increase of fragmentation and segmentation of consumers, characterised by greater social isolation, individualism and self-reliance, supporting Kotler’s (2000) notion of self-marketing. The traditional socio-economic classification of adults by age, sex, economic background and geographic area is no longer a totally reliable method of segmenting society for marketing purposes; marketing must now be based on highly specific and targeted interest groups (Mintel 2000). Further on, the article describes that as a consequence, consumers are no longer content with buying in standard service and product packages, rather they increasingly want to ‘configure’ their own tailor made packages. Consequently as the individualistic self-reliant consumer grows, his demands towards products and services specific to his requirements grow simultaneously. The customer of today is taking more individual initiative in determining what and how to buy. New technologies such as the Internet have reinforced this behaviour, because through the Internet customers are able to look up information and evaluation of products and services and can thus make up their own minds about the best offer.

The strong emphasis of the ‘self’ and the ‘individual’, have been reflected in marketing, as in recent years there has been a strategic shift towards that of engaging into a more intimate, empathetic relationship with the consumer, treating him more as an individual rather than an anonymous person from the mass. Often micro marketing is expressed in relationship marketing. As business focus shifts away from product, towards understanding the customer and increasing their value, the commercial pressure to implement a customer relationship management (CRM) solution across all channels has become enormous (Wilmshurst et al 2002). Kotler (2000) states that the predominance of the customer and the importance of true customer service are one of two converging trends that make mass customisation the organising principle of the 21st century. Relationship marketing is an important ingredient of mass customisation programmes, he continues, because unlike mass production, which eliminates the need for human interaction, mass customisation has made relationships with customers more important than ever.

This brings me to focus on how the concept of micro marketing works in practice by looking at how it applies to durable goods company.

The company that I am going to look at is ‘Dell’. Dell has been a pioneer for their direct business model, enabling customers to configure their own computers via the Internet. In Dell’s case customisation is exerted through both media as well as the product itself. There is nothing special about Dell’s computers and from the beginning it faced many established competitors such as IBM, COMPAQ and Hewlett Packard. Dell sells directly to the customer, cutting out the traditional dealer channel. This gives the company a substantial cost advantage, avoiding the reseller’s mark up and avoiding risks of carrying large stocks of finished goods. Dell only builds computers according to its customers’ precise specifications, such as the amount of RAM memory, type of monitor, modem, or CD drive, amount of hard disk space, and so on. The company is a leader in supply chain management as it works with suppliers to deliver the right components for its customers’ needs (Lamb 2002). Company’s with millions of customers can not engage into a one-to-one dialogue with each of them, since this would not be cost effective. Even for company’s pursuing mass customisation, segmentation is still necessary. But the objective of the segmentation is different; the aim is to segment not by similarity of needs but rather by the potential lifetime value of the customer to the organisation. This is exactly what Dell does. The company segments its customers in terms of profitability for the company.

The Motorola Company is using today’s technology to customise its products – quickly to serve the needs of individual consumers. Motorola co-designs pagers with customers and manufactures customised pagers to their specifications. To accomplish this, Motorola’s pager sales force visits a potential customer and uses the customer’s own specifications to design the pager system that will satisfy the individual customer’s needs. Then the salesperson finalises the specifications on a laptop computer and sends it via modem to the Motorola’s factory. Incredibly, over 20 million types of pagers can be specified by a customer and manufactured by Motorola. More incredibly, it is possible for the factory to finish producing the first customised pager of any customer’s order in two hours. That kind of customisation and speed create an amazingly strong relationship (Peppers and Rogers, 1993).

To assess the future of one-to-one marketing, it is necessary to review the dictates of one-to-one marketing and investigate its information technology requirements (Pitta 1998). It requires a wholehearted commitment and philosophy dedicated to knowing each consumer and treating each one as the company’s complete focus.

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