This is a Guest Blog Post by Jaideep Prabhu and Ritchie Mehta.
In 2006, Devita Saraf, CEO VU Technologies, set out to create a luxury technology brand in India. Her target was the emerging middle-class, a fiercely aspirational yet highly value conscious segment. Devita knew she would have to carefully balance ‘affordability’ with ‘aspiration’ in everything she did. Since then, her company has sold over 100,000 televisions in the sub-continent. While this number may not seem like a world record, it is the business model she used: it has realised 40% cost savings across the value chain! Devita has done this by bringing to life many of the key principles of frugal marketing.
While businesses based out of emerging markets excel at the art of doing ‘more with less’, firms in the West are quickly catching on too, thanks to an increasing number of Western consumers who are looking for affordable luxury and value for money.
A recent survey by PwC finds a systematic 15% upward shift since the financial crisis, (from a base of 50%) of consumers responding yes to questions like ‘Do you seek discounts often?’ And ‘Do you accept living with less?’
In such a world, frugal consumers pass the challenge of doing more with less onto the brands that serve them. And yet many organisations struggle to get to grips with the need to manage marketing budgets more efficiently and engage the consumer for less.
Frugal marketing isn’t, however, about “penny pinching” Devita says, but the need to re-look at and refresh the approach where it matters most to the customer. Here are five key principles that frugal marketers from around the world can adopt to drive greater efficiency and customer impact, in equal measure:
Stop talking: let your product do it for you
Seth Godin, the American author and entrepreneur, famously popularised the notion that sliced bread only became ubiquitous when the American brand Wonder made the idea spread. Although, the importance of getting ideas out there is important, the frugal marketer spends a disproportionate amount of time developing a product that stands out in the first place.
Companies such as VU Technologies focus on creating great products that deliver and exceed consumer expectations. They ‘earn’ great product reviews which in turn propels them ahead of their competitors, in the market. By letting the power of the product do the talking, frugal marketers not only save marketing spend but they also gain customer advocacy at the same time.
The big game changer here is the explosion of people to people (P2P) marketing which makes it easier for customers who use a great product to spread the word in their networks. The flip-side of this customer empowerment is something Devita is obsessed with avoiding: a situation where many companies don’t “build to last” and where consumers spread bad news about the brand in their networks.
Focus on the last mile: communicate at the point of conversion
If you have to communicate, do so where it matters most to customers. Traditional marketing theory suggests that consumers go down a linear path from awareness to purchase. Companies literally spend billions on brand building to get their name out there. The archetype of this approach is a Super Bowl ad that costs $4 million for a 30 second slot. But it is crucial to remind oneself that the single most important point in the customer journey is the point at which a potential customer becomes a customer.
Frugal marketers know this better than anyone and focus relentlessly on the ‘last mile.’ They build their sales funnel as close to the point of conversion as possible in order to maximise the opportunity at the point of purchase. Activities that promote purchase are key.
Take, for instance, the insurance industry. Often brands that feature at the top of a comparison website are ones you have never even heard of before. These are typically the brands of the frugal marketers who build their sales and brands simultaneously, at the end of the customer funnel.
Devita invests the majority of her marketing spend on the ‘last mile.’ These include activities such as promotions to, and training of, retail distributors as well as working directly with third-party e-commerce websites such as Amazon and Flipkart (India’s leading online retailer).
Your next customer is already a customer
Every evening the frugal marketer recites the mantra,
“it is 5 times cheaper to sell to an existing customer than a new one.”
Often, organisations forget about the opportunity at the ‘BoB’ (Bottom of the Bucket) and focus instead on ‘one hit wonders.’
VU Technologies has a culture centred around delivering a real, human feel through their product and marketing, to their existing customers. Investing in the relationship is critical in frugal marketing.
“Often a small token of appreciation goes a long way in retaining customers for years to come,”
says Chris Paterson, Managing Partner, The Marketing Lounge Partnership.
This is a point echoed by Rory Sutherland, Vice Chairman of Ogilvy Group UK:
“Very small things can create disproportionate joy just because they are unexpected. Take the case of 5 Guys, the fast food chain. You can choose to have large, medium or small fries. Either way, the server will take a cup, fill it with fries and then take another bunch and throw them in the bag for you. The very fact that they didn’t have to do this but did makes you grateful. Unfortunately, this is often the first thing that the accountant would want the company to cut.”
Herein lies another emerging trend. Conventional marketing focuses on giving preferential treatment to new customers or exhibiting low-high pricing behavior. While one would expect frugal marketers to adopt the converse and offer preferential pricing to existing customers (high-low pricing), this is not the case. A ‘third-way’ has emerged where companies offer ‘low-low’ pricing to earn trust and give customers a consistently good deal. NatWest has been vocal about this approach and has consequently gained traction in this area.
One would expect ‘social’ to be the buzzword on the tip of every frugal marketer’s tongue. Despite the benefits of the effective use of social media (look no further than the ALS Ice Bucket Challenge), it is important to be selective in this area.
Frugal marketing, after all, is about tight control and measured spend. But this is notoriously hard to achieve in the messy world of social media. Second, social media cannot replace core functions that are better serviced through other channels. For instance, despite a social presence, VU Technologies chooses to have all customer service done through the phone and face to face.
Third, as Mark Evans, Marketing Director for Direct Line Group, suggests that if you relentlessly focus on trying to get a campaign to go viral, you could inadvertently lose focus when it comes to your core marketing strategy, which is fundamental to success.
Take the horse to as many ponds, directly
Getting your product out there is critical for success. Today, there are many distribution channels a firm can use to achieve this. Historically, organisations opted for an indirect route; marketing through a plethora of wholesalers and retailers. The end result, however, was an erosion of margin and value for the customer.
Then came Dell and the direct distribution model was born: a win-win for the organisation and the customer. However, direct routes too can be expensive and restrictive. In today’s market, consumer expectations are at an all-time high, and this does not lend itself well to a direct-only distribution model. But is there a middle ground?
VU Technologies adopts a direct/indirect distribution approach where they access the market through retail re-sellers (but negotiate directly with them), own several stores, and also have a significant online presence. No route to market is shut down and instead, each avenue is optimised to remove unnecessary layers within the chain. It is a simple but effective way of getting the best of both worlds.
All in all, organisations can and need to become savvier as they compete for greater customer share and advocacy. However, tomorrow’s winners will not be determined by how much money they throw at a problem but rather how they solve the customer value equation to win both hearts and minds.
As Ronnie Screwvala, Founder of UpGrad, said in a blog post:
“… a lack of funding today is less of an issue than it has ever been. Frugality and bootstrapping are assets in any business, anywhere in the world. An entrepreneur with frugality in his DNA will make fewer mistakes, build more efficient cost models, plan better for the future and increase his chances of success over the person next door who just got well capitalized and feels, mistakenly and arrogantly, that he doesn’t need to make those difficult decisions.”
– This post has been co-authored by Ritchie Mehta, a learning design and CRM expert. He is a marketing professional who is currently a Scholar at the Marketing Academy, London. Prior to this, he was a Fellow of Marketing at Cambridge Judge Business School, UK.