Lesson One: FIT for Competitive Advantage
Social Exchange Theory:
1. Cost
2. Trust
3. Reward
The most important rule of marketing
Social Exchange Theory:
You have something to sell. Someone else wants the benefits that come with buying what you have to sell. What determines whether he will buy from you? What determines whether you will sell to him?
Both you and your customer give up something to get what you want. You want the customer's money more than you want to keep the product. Your customer wants your product more than he wants the money you’re charging for it.
Each of you makes the exchange because the thing you're getting is more to you than the thing you're giving up in order to get it.
Social Exchange Theory:
1. Cost
2. Trust
3. Reward
That's the secret of successful marketing. The exchange must be a win-win situation for both you and your customer.
Now where does TRUST fit into all this?
Trust:
It's not enough for the customer trust you before the sale. It's not enough for the customer to be happy at the moment of the sale. He needs to trust you and your product even after the sale.
Trust has several elements:
1. Product safety and health
2. Quality
3. Reliability
4. Service after the sale.
If your product offers the customer status (such as Nike), there’s another element of trust: Social Responsibility.
Social Responsibility:
Suppose you sell a product that's supposed to make the customer feel “cool” or “popular” in some way. Your customer isn't buying just a product from you. He's buying the benefit of being seen as "cool.”
Would your customer feel the same about your product if his friends stopped thinking it was "cool"? Your product might no longer be considered "cool" if people learned that the company making your product:
1. Was a major polluter,
2. Was located in Burma or under some other regime that violates human rights, or
3. Had laborers producing your product under conditions that was dangerous to their health.
In that case, you're at risk of losing your customers' trust.
Stakeholder Relations Management:
Marketing isn't just between you and your customers. It would be very simple if it were. You have social exchanges with a wide variety of people who can help or hurt your business. These people are called stakeholders because they have a stake in how you conduct your business.
To stay in business, you must keep all of them satisfied. Here are only a few of your stakeholders:
1. Your customers
2. Your customers' friends and families
3. People investing in your company
4. The society and environment in which your business operates
5. The society and environment in which your product is made
6. The banks from which your company must sometimes borrow money
7. Many others.
Conflicting Stakeholder Claims:
Different stakeholders want different things, and they often conflict. Here are a few conflicts you have to manage:
Investors: “Use profits to expand the business.”
Shareholders: “Use profits to pay dividends.”
Creditors: “Use profits to pay off loans.”
Customers: “Lower costs”
Workers: “Healthier working conditions.”
Environmentalists: “Less pollution.”
Societies: “Give something back to the community.”
Each of the financial stakeholders mentioned above (investors, shareholders, and creditors) realize that you must satisfy all three groups (as well as the other stakeholders) if you are to stay in business. You satisfy all three groups by giving them more than they can get by dealing with someone else.
This type of stakeholder relations management is called balancing stakeholder claims.
Fit for Competitive Advantage:
When problems arise, there are two kinds of business managers: problem solvers and opportunity seekers. Problem solvers focus on the problem, and sometimes they solve it.
Opportunity seekers see opportunities in every problem. They focus on the opportunities. When you make the most of the opportunities, the problems usually solve themselves. That's because, in every problem, there's a need to be met; needs offer opportunities for the person who can satisfy those needs.
“You don't want a crisis to go to waste.” —Rahm Emmanuel
Nestle in Central Africa
Some years ago, a company called Nestle demonstrated the concept of turning problems into opportunities. Nestle set up a milk-collection station in one of the worst places on Earth to collect milk. Farmers were too poor to keep their cows healthy enough to provide quality milk.
Transportation was so bad that a third of the milk was spoiled before it could get to market.
Nestle provided veterinarians to keep the cows healthy, and refrigeration to reduce spoilage.
They also worked to improve transportation.
Nestle got what they wanted: reliable sources of quality milk. The dairy farmers got what they wanted: higher prices for their milk. The communities got what they wanted: improved living standards and more opportunities for their families. Schools became a reality for many children whose parents previously could not afford an education for them.
Issue Sets Analysis:
Shrewd business managers—like Nestle—look at the whole picture. Marketing isn't just a social exchange between the businessman and his customer. It involves everyone who can help or hurt his chances of successful marketing.
Everybody wants something. Everybody needs something. Everybody fears something or is concerned about something. All these things that people want, need, fear, or give concern are called issues. To a marketer, all these things are called business opportunities.
When a need or problem arises, it's wise to do an issue sets analysis. Ask yourself what each person or group needs. Then look for the perfect FIT so that each person or group involved can benefit from having their needs satisfied. As a general rule, the more satisfaction you can create for more people, the better it will be for your business.
Group Exercise:
Divide up in groups of no more than seven students per group. Imagine that you're business partners.
You're planning to set up a refreshment stand and bicycle supply shop along a riverbank. You and your partners have already borrowed a great deal of money to invest in your project.
The county is making plans to build a bicycle path along the riverbank, and it's expected to extend all the way from the city to the seacoast. They will soon hold a public meeting on the issue.
Bicyclists and local tourists are in favor of the bicycle path. A lot of people, however, are against it. Some of those against it are environmentalists. Some are poor people who will have to move if the bicycle path is built. Others oppose it because they say that it's a waste of tax dollars.
Let's look more closely at why they oppose the bicycle path.
Those who are against the bicycle path:
1. Environmentalists
2. Poor families living along the flood plain
3. Communities along the riverbank.
Environmentalists point out that the planned bicycle path would run the entire length of a flood plain. A flood plain is a flat area that is usually above water but which is sometimes underwater when heavy rains cause the river to overflow.
Much of this riverbank area is marshy. To build the bicycle path, marsh would have to be destroyed and filled in with dirt and rocks. Much of the riverbank consists of mud flats, which would have to be destroyed and filled in as well.
All of these—flood plains, marsh, and mud flats—are called wetlands. Man-made and natural wetlands are home to many kinds of wildlife. They also help to purify the city's waste water that's dumped into the river.
Environmentalists claim that the bicycle path would break up the wetlands into smaller parcels and make it a less healthy environment for wildlife. They also say it would be less attractive and less able to purify the city's waste water.
Poor families on the flood plain: Forty years ago, groups of poor people who belong to a racial minority group came to the city in search of jobs. The jobs were low-paying, and they couldn't afford to live in the city. So, they used throwaway materials to build homes for themselves on the flood plain.
From time to time, the river overflows its banks and floods their homes. They rebuild their homes and continue living their lives and tending their gardens.
When the city began developing plans to build a bicycle path along the riverbank, these settlers were told they would have to move. The settlers don't have deeds to their property.
According to common law, though, if you claim land and work and develop it for many years without anyone objecting to it, you have a right to the land. These people, however, can’t afford lawyers to help them with their claim to the land. Besides, the city claims the right of eminent domain in building a way people can pass through the area.
People living in communities along the riverbank say that the bicycle path would do nothing for them. They see no reason for their tax dollars to be spent on something that would benefit only local tourists and recreational bicyclists.
Let's look at their claim:
1. The bicycle paths wouldn't cause people to bike instead of driving because the bicycle paths wouldn’t go anywhere than people would have been driving anyway. For example, they don't help anyone go from home to school or from home to work or the store.
2. Tax dollars would be leaving their communities to pay for the building and upkeep of the bicycle path, but the bicycle path would not be taking money back to them in terms of tourist's dollars.
3. They also argue that the bicycle path was designed to meet urban needs, which are different from the needs of small-town and rural areas.
Now let's look at those who are in favor of the bicycle path:
1. Bicyclists want it for recreational purposes. The bicycle path would be in a scenic area, and it would be an enjoyable way to exercise. It's also much safer than bicycling in the city.
2. Casual nature lovers often enjoy bird watching, being among the sights, sounds and smells of nature. Since the riverbank is an ecologically diverse area, there’s much more to enjoy there than in the city.
3. Government leaders believe that the bicycle path would be an important part of developing the riverbank area for tourism. By making the area more scenic, it would attract local and foreign tourists. They also say that it would encourage people to ride bicycles instead of driving cars everywhere they go.
Get together with your group and come up with a business plan that will please everyone—environmentalists, settlers, communities, bicyclists, casual nature lovers, and government leaders. While you’re at it, your business plan should gain more customers for your business, as well as build your reputation as a responsible business leader.
Now it's your turn!
