Marketing Asia

Strategy and Marketing Effectiveness for the Small Sized Professional Services Firm

Much of what has been written about strategy and strategic management is based upon the assumption that strategic choice is actually a viable option for most firms and that resource issues are non problematic. That assumption may hold for large firms but not for SME's. The vast majority of professional service firms in Asia are SME's and a large number of these are in fact micro enterprises consisting of one or two partners. A large law firm in China may have 10 partners whereas a large US law firm will have 100-200 partners and over a thousand lawyers. Whilst one may talk about geographic diversification and practice expansion so readily for a large PSF based on a premium image and heavily differentiated service, the options for SME's can be severely limited due to a number of factors:

1. Lack of time to explore new opportunities
2. Limited market information and research capability
3. Lack of marketing and management expertise
4. Money restraints
5. Lack of accessibility to investment
6. Lack of human resources

 

The list is not exhaustive but essentially highlights the key factors that affect a small PSF (SPSF) from being able to consider opportunities in the same way that larger firms can. These issues become even more pronounced when the SPSF is considering internationalization. Bearing in mind the resource limitations often faced by the SPSF, this chapter will provide knowledge to the owner/operators of these firms that can help them to overcome such barriers and compete effectively.

I Strategy for the SPSF

I have criticized a number of existing strategic management concepts in terms of their applicability to the PSF, this questioning can be extended to the SPSF and indeed the issues faced by such firms exacerbates the problems inherent in the concepts so readily applied to larger firms. For example, use of portfolio management tools (such as the BCG matrix or the GE matrix) are problematic for the PSF yet become even more so for the SPSF. Classifying a business based on such concepts as market share or growth have inherent limitations for smaller firms. The very nature of such firm means they tend to operate in only a few service markets and it is quite possible that the majority of their revenue could stem from markets that would be considered declining ones under portfolio prescriptions yet still highly profitable for the SPSF. If one wanted to take a poorly performing practice area (as prescribed by a portfolio approach) and divest of it, where would one get the money to invest in growing markets that were not yet profitable? Similar problems can be found in the use of Michael Porters three generic strategies. For example, if a niche strategy is successful and hence the niche market itself becomes attractive to other larger firms, what stops the larger firms acquiring the needed expertise in that market and hence competing directly with the SPSF? It is exactly these types of issues that face small firms and little direction is given to them in traditional writings in strategic management and marketing.

In their excellent book, Competing for Markets: Growth strategies for SME's, Khai Sheang Lee and colleagues identify a number of generic strategies that can be utilized by small firms in Asia and in particular, consider the reaction of larger incumbent firms. Although these strategies were not developed for the PSF, they can be readily applied in this context. The generic strategies described by the authors are:

• Niching – if the SPSF can offer a service to an ignored segment of the market that is differentiated and provides a competitive advantage, then it can use a niche strategy. For example, small architectural and design firms rely heavily on the knowledge and creativity of the founding partners and through work have gained prominent positions in niche markets even on a global scale.
• Substitution – a small firm can enter a currently served market by offering a substitutable, but differentiated, service, particularly if a niche strategy is not sustainable over the longer term. Basically, the firm is a second mover and benefits from the market development activities of larger firms. The firm should take care to differentiate its service from competitors either through the service itself or through marketing activities. For instance, a small law firm in China could take advantage of the growing real estate market developed by offering a similar service (with a lower price) but differentiating itself through a focus on local cultural knowledge. It would be self defeating for the larger firms to copy this approach as they focus on their international experience and scale of operation.
• Free riding strategy – in product marketing there are various forms of free riding but in professional services it is limited to an imitation strategy. A SPSF can benefit from second mover advantages by entering a market that is already developed and well served by larger firms. By offering a service that is the same as the incumbent firms the SPSF does not need to bare the costs of market development and the risks associated with being a first mover. For example, whilst M&A activity is slowing down in the west, the Asian market is growing at 20% lead by globalization and the influx of large firms developing the M&A market. A small firm can take a small piece of this market (or its associated service market) by riding on the coat tails of the development efforts by larger firms.

 

These generic strategies take into account the resource limitations often faced by smaller firms and the fact that creating a competitive advantage is not always as easy as it seems when prescribed by consultants and other expert sources. They also take into account competitive reactions of the incumbent firms in terms of their ability to retaliate or accommodate. Again, it should be stressed that strategy is not a static concept and whilst a small firm may pursue one of the generic strategies discussed it will, over time, need to adapt to changing market conditions and adopt an alternative strategy altogether if necessary.

In reality, a particular strategy may not fit neatly in to the three generic strategies prescribed but that does not devalue them. Small firms tend to be more limited in their strategic choice than larger firms and by using the strategies described and their appropriate decision frameworks a smaller firm should be able to enhance their strategic decision making in line with what the firm can offer and the conditions of the competitive environment.

II Marketing Effectiveness and Success/Failure in the SPSF

It has been well documented that marketing in small firms is quite different from marketing in larger firms. The inherent resource constraints that small firms face means they rely heavily on networks of contacts and although they are aware of general marketing concepts they do not apply them in the same way that larger firms do. For example, planning tends to be a more formal process in larger firms yet more ad hoc in small firms. Whereas certain marketing experts may lament the lack of formal planning in smaller firms, much research supports a less structured approach in smaller firms. This is known as entrepreneurial marketing and in fact can be just as readily applied to large firms as well as smaller ones.

Not only do the marketing practices of small and large firms differ, they should, the limited resources of SME's means they cannot adopt scaled down practices of large firms or text book theory and expect to achieve satisfactory outcomes. The marketing competencies often associated with SME's are:

	knowledge
	experience
	communication
	managerial judgement
	networking

 

When considering the success or failure of SME's, there are essentially two categories to be considered: external and internal. External factors would consist of environmental factors such as the economy and competitors. Internal factors include things such as management, availability of resources and strong leadership. Much research has examined the main factors that affect SME performance in Asia and includes both service firms as well as manufacturing firms.

Research in Singapore by Theng and Boon (1996) examined the failure of SME's and the factors perceived to be the most important causes of such failure. The results found that external factors (finance and labour issues) were important, but that internal factors (short sightedness, lack of management expertise, low initiative and entrepreneurialism) were more important in determining the poor performance of a small firm. Lin (1998) also reached a similar conclusion in her study of SME's in Taiwan as management skills and concepts of the business founders were considered the most important factors when compared to employee skills and concern for production. This was also related to superior business performance.

 

Table 10.1 The Key Success Factors for SMEs in Asia

Key Success Factors  A committed, strong and supportive management team Visionary, capable and strong leadership Adopting the correct strategy Ability to identify and focus on market Ability to identify and sustain capability Good customer and client relationship Good service and delivery system Availability of financial resources Good human resource management

Top 50 in Singapore* 1 2 3 4 5 6 8 9 12

Singapore and Malaysia* 5 7 NA 2 11 1 3 4 6

Australia and NZ* 3 2 NA 5 9 1 4 6 7

Note: The numbers are the rankings of the different countries

(Source: Ghosh et al., 2001)

Table 10.1 summarizes research done on the top 50 SMEs in Singapore as well in other parts of Asia. One can see from this table that it is internal factors which play the largest part in the success of smaller firms. Additionally, it is evident that many of these factors revolve around the broad concept of marketing in that firms must be able to identify the right strategy supported by a strong management and understanding of the firms capabilities.

III Conclusion

The SPSF faces a different environment to that of large firms and hence its decision making should be based on the resource limitations often facing such firms. Such firms should take an entrepreneurial approach to marketing and strategy and strive towards developing those competencies that create successful SME's. Moreover, when looking to external resources to enhance the firms marketing capability, the SPSF owner/partner should seek expertise and education that is rooted in the context specific situation they face. Scaled down text book theory offered by many institutes (such as trade associations and private firms) is not wholly applicable to the smaller firm and indeed may even be detrimental. As the small firm owner/partner, you must demand resources that are geared towards your situation.

The interaction of marketing, management and leadership in professional service firms

The idea that marketing is a key factor in superior organizational performance is not new and substantial research now demonstrates that a market orientation is the bed rock of company performance. This has been demonstrated in both manufacturing and service industries including the professional services. However, two of the major challenges facing professional firms in adopting a more market oriented stance are the restrictions placed by the respective professional associations on the use of marketing activities (such as promotion) and the mind set of existing practitioners. Research shows that many in the professions deem marketing to be below them and not fitting with the image of an industry that has longed pronounced that profit is not a primary goal but that of altruistically serving clients.

This perspective is understandable when one realizes that the perception held by many professionals of marketing is one of advertising and promotion, the type of things that we as consumers are exposed to every day.

To tackle these issues requires two simultaneous processes that must be undertaken by those within and outside the professions. Firstly, marketers need to make clear that promotion is only a very small part of marketing and that a market orientation (note the use of the word market as opposed to marketing-this is not just semantics) is a much broader concept that entails an organizations posture to the market. This includes the type of customers the organization will serve and with what kinds of services, how it will maintain relationships with its existing clients and attract new ones, and crucially, what type of people should the firm hire and how to retain them. One of the unique aspects of the professional service organization is that not only are they competing for new clients, they are very frequently competing to attract and retain talent. As one well known professional once put it 'my most important assets walk out the day and go down the lift everyday'. Secondly, senior staff within the professions must take responsibility for the strategic direction of their firm and assign resources within the organization to understand and build marketing capability. They must take the lead in communicating the need for a strong customer centric organization and break the resistance and apathy that has so often gripped the professions by harnessing forces for change. These forces include the competitive nature now apparent in the professions, the move by most professional associations around the world to reduce restrictions governing marketing activities, and in Hong Kong, the opportunities presented by such initiatives as CEPA.

The marketing of professional services is already a mature industry in the US and growing rapidly in places such as the UK. In Asia and Hong Kong, although still in the embryonic stages in terms of acceptance and understanding, the need for a systematic approach to strategic management of professional service firms will only grow and those firms that take the initiative in building the necessary capabilities will benefit greatly in comparison to those firms that continue with the old way of doing things.

Marketing is as much a mind set as anything else, it is an organizational culture that should pervade the entire organization and people within a firm should realize that any organization is a customer satisfying entity. Although professional service firms are unique and require special application of traditional strategy and marketing concepts that few firms are capable of delivering, it is imperative that professionals open their minds to the adoption and acceptance of a market orientation as the foundation upon which their future firm success will rest.

Since the 're-birth' of the marketing concept prompted by the writings of such people as Frederick Webster in 1988, marketing has once again been placed as an important consideration for organizational performance, and hence has caught the attention of senior management in many businesses that are typically not considered prime prospects for marketing (such as non profit groups, governmental and quasi governmental bodies, and religious organizations). Even the bastions of the educational sector have taken on board some of marketing's trappings.

This is good and bad. There is a substantial difference between the trappings of marketing (such as having a person designated as a marketer) and the substance of marketing, which is concerned with the value that is created for the customer. One may use the analogy of promotion orientation and market orientation to gain a better understanding of the difference between trappings and substance.

A promotion orientation takes the perspective that the organization will sell what it has and that persuasive communications are the key to marketing success, hence the proliferation of organizations advertising, using newsletters, and building web sites. This orientation takes an inside out perspective and is a short term tactical approach to marketing that is unlikely to be sustainable in the longer term as customers no longer want to buy what you are selling and in the form you offer it. The trappings of marketing are not necessarily unimportant but in isolation do not make up what marketing is and means.

In contrast, the substance of marketing is analogous to what is known as a market orientation. This is not the same as a marketing orientation and the difference is more than semantic. Marketing orientation places the emphasis for marketing in the function of the marketing department and hence artificially separates marketing activities from the rest of the organization. It also carries the negative associations of the term marketing that so often seem to exist in the minds of organizational members. A market orientation can be defined according to the two seminal works in this area by Kohli and Jaworski and Narver and Slater. These academics (Jaworski is now a consultant at Monitor Group) have done much to operationalize the implementation of the marketing concept in the form of market orientation.

According to Kohli and Jaworski (1990):

'market orientation is the organization wide generation of market intelligence pertaining to current and future customer needs, dissemination of the intelligence across departments, and organization wide responsiveness to it' (p.6)

According to Slater and Narver (1995):

'a business is market oriented when its culture is systematically and entirely committed to the continuous creation of superior customer value' (p.22)

In addition, Narver and Slater (1990) state that market orientation consists of three behavioural components of customer orientation, competitor orientation, and inter-functional co-ordination.

There are several key points to take from these definitions. Market orientation is both a culture (values and beliefs about customers, a business philosophy) and a set of behaviours. That is, there is a difference between accepting the marketing concept and implementing it. Moreover, the responsibility of responding to market needs falls on the entire organization and not only on the marketing function. Empirical support for the market orientation construct is strong both in Asia and the western world as organizations that exhibit higher degrees of market orientation show business performance levels above their peers. Organization wide action is the key to satisfying customers and an understanding of a customer's entire value needs is what we mean by the substance of marketing. Trappings count for nothing if you have chosen the wrong value. Customer value migrates and pushing what you have will not provide long term profit driven sustainability. Innovation is a key word and this consists of a combination of market driving and market driven management.

I Marketing Culture in the PSF – what it looks like

It should be clear now that adopting a marketing culture is not about the few rainmakers in a firm (assuming such people exist). It is about a firm wide commitment and adoption of the belief that clients and client value should be at the heart of the firms activities and processes. In other words, marketing is 'how we do things around here', it is an organizational culture. More formally, organizational culture can defined as a shared pattern of beliefs and behaviour that are both explicit and implicit.

According to Bruce Marcus and August Aquila in their book Client at the Core, building a marketing culture in professional services requires:

• Top management support
• Good marketing professionals
• Education
• A marketing structure within the firm

 

Research in the architectural industry by Morgan, Foreman and Poh (1994) state that the 4 major hurdles to implementing a marketing effort are:

• Ensuring all staff are trained in the fundamental advocacy of marketing in satisfying customer needs
• Recognizing the need for an integrated marketing approach using grounded market intelligence on which optimal decisions should be made
• Firms top management and partners providing a consolidated commitment to marketing
• Active involvement at all hierarchical levels in the formulation of marketing plans so that successful implementation can be enhanced

 

One can see from such requirements it is not simply a 1-2-3- step process, rather it requires attitude and behaviour modification. In a revealing study, Lloyd Harris studied the barriers to adopting the ideas of marketing in both law firms and accountancy firms. He found that resistance by seniors, professionalism conflict, lack of expertise, and structural difficulties to be some of the key obstacles to adopting more of a marketing mind set. These areas fit very well with the 4 requirements suggested above Bruce Marcus and August Aquila. This highlights the very important fact that instilling a marketing culture is as much a management and leadership issue as a marketing one. One cannot expect a firm wide adoption of the marketing concept without top management support and strong leadership. What PSF is going to change its structure to a client centered or industry structure without it being pushed through by the most senior people within the firm? The lack of expertise can be overcome with outside help as well as the hiring of marketing professionals. These professionals can act as change agents or catalysts for the changes that are needed with the support of top management. Linda Tay and Neil Morgan suggest two crucial factors that can aid a PSF in adopting a stronger market orientation:

• A greater risk tolerance among senior managers
• Careful organization of the marketing function

 

In their study of surveying firms, the authors found that in order to develop and accept innovative and client oriented changes in service and structure, senior managers had to be more willing to try new things and not be threatened by change. Unfortunately, in the PSF, resistance to change is legendary, particularly amongst seniors, yet without their support, enduring change will not happen nor be successful. It is here where the PSF differs substantially from traditional service firms or other commercial organizations. Senior managers within these firms are exposed to the ideas of marketing so much more than those within the professions and hence there is a marketing tradition and a willingness to accept risk. In the PSF, there is no such tradition, rather there is a tradition that the PSF serves its clients altruistically and that marketing is something we neither need nor do. Such an attitude leads down one path, extinction. Recent research by McKinsey shows that only the most profitable law firms will survive due to the ever increasing competitiveness of the professions.

Most successful marketing efforts of professional service providers also ensure that somebody within the firm has overall responsibility for the marketing function. This is usually with the appointment of a marketing director or manager. Even if this is not feasible within a small firm, someone must be given ultimate responsibility in this area. The danger here is that the partners in the firm hire a marketing person and then wash their hands of marketing and think that the issue is now settled, a 'we can leave it to him/her' attitude. This is not going to work. In the cases I have seen in Asia, too many marketing staff are given responsibility for external marketing activities (such as promotion) and not enough to guiding the strategic direction of the firm through internal activities such as training and development for all staff to understand their role in delivering client satisfaction. Moreover, adopting a marketing culture requires integration of people and information across the entire firm and at all levels. This will not happen by itself and certainly cannot be the sole responsibility of the marketing department. Another area that comes up is the coupling of marketing and business development BD). In some firms it is deemed the same thing, in others they are separate departments. Marketing sets the tone for BD. In other words, marketing creates the right culture and sets the strategic direction of the firm in terms of markets the firm should serve and the services it should provide. Once you have a good understanding of these issues will the firm be able to sell effectively. BD without marketing is like shooting in the dark, you will hit your target every now and then but with a huge waste of resources and in the process you will probably upset a number of potential clients by trying to sell them something they neither need nor recognize the value of.

II Firm Structure, Marketing Culture & Performance

As has been stressed a number of times here, marketing is a process and business philosophy that requires a fundamental change in the way professionals think and act. Being client focused is not something that most professionals are good at and yet this is what clients are demanding. In order to fully embrace a marketing culture, the PSF must have the right foundations upon which it can act and respond appropriately to the changing demands of clients and the business environment in general. Nothing demonstrates this as well as issues relating to the structure and management of a PSF.

For example, law firms are well known for structuring around practice groups such as litigation, patents, corporate finance etc and this has worked well in the past. But as industries become more competitive and clients more demanding, industry practice groups will become the norm as different market segments will have different needs that can be best served by such organizational structures. This will require new ways of working and thinking for most lawyers and above all else, strong and committed leadership. The substance that is created by organizing around client needs is the true acid test of whether your firm is living and breathing a marketing culture.

When one considers the ideas of industry or client teams (and the concept applies equally well to other professionals in some form or another), one must consider the fundamental change that must occur within the PSF for this to be successful. Going back to the initial definitions of market orientation cited at the onset of this piece, it becomes apparent that in order to set up and implement effective industry teams, the PSF must become deeply engaged in target market segments and develop an in depth understanding of the needs of the clients within these segments. However, information collection is only the starting point, generation and dissemination of this information that is actionable and implanted across organizational departments such as different practice groups, partner clients and support groups will determine whether such an effort is worthwhile. This idea of cross functional coordination is not unusual to other types of profit making commercial organizations but to the PSF it certainly is. Overcoming fiefdoms and the idea that my client is my client is absolutely vital if the development of a true marketing culture is to progress. The benefits of using such client focused teams are many. Organizational members share and develop news skills whilst developing a big picture view of their clients business as well as their own. Additionally, the inter functional coordination necessary enhances organizational communication to the point where using market intelligence becomes the basis for decision making and innovation. In essence, client teams become marketing teams and if you can develop the skills necessary to implement such practices effectively, you will have developed competencies that keep you ahead of your competition.

Another common issue related to firm structure and marketing is that of partnerships. Partnerships and incisive decision making do not often go hand in hand and hence it becomes crucial that someone within the firm has the final decision making authority over marketing and management matters. That person should have a high level of seniority within the firm and command respect from others. He/she should also be committed to the marketing concept and the necessary effort that is required in its effective implementation. One need only look at the recent demise of once preeminent professional services firms such as Arthur D Little or Brobeck Phleger and Harrison (once called one of the most powerful law firms in San Francisco by the Wall Street Journal) to realize that an inward focus and lack of a market driven structure causes rapid decline and eventual distinction. The PSF must have an outside inside view of the value creation process.

In terms of marketing culture and ROI, research consistently shows that there is a positive relationship between marketing culture variables and firm performance. This has been demonstrated in a number of service industries. These variables have been described as service quality, interpersonal skills, innovation, internal communication, and selling (Appiah-Adu and Singh, 1999). The authors found that service quality exerted the most significant impact on ROI with all other variables having a significant impact also. Although ROI may not be the most appropriate measure of performance for a PSF, it does highlight the link between a marketing culture and performance. All these variables are fundamental aspects of a market orientation. The idea that service quality leads to client satisfaction and hence profitability is known as the service profit chain. It is a marketing culture that will enable the PSF to fulfill the needs and expectations of its clients and hence earn a return above the norm. It should be noted that fundamental to all aspects of implementing a marketing culture discussed here is the idea that a firm must chart its course by having a clear strategic direction and developing a coherent strategic plan. As was mentioned earlier not all clients or target markets will be right for you.

III Conclusion

Marketing and management become strongly intertwined when discussing the ideas of implementing a marketing culture. It is a firm wide effort that as much as anything requires a basic change of attitude amongst professionals and firm seniors that must have strong leadership to effect such change. Crossing these organizational barriers is never easy but one will reap the rewards if one is prepared to take the risk. Firm leadership is crucial and in may ways can be described as marketing leadership. Marketing is so fundamental to a firm that thinking of it as something separate or as something you do when business is slow is a sure fire way to lead your firm to extinction.

Managing Client Relationships in Professional Services (adapted from Chapter 15 – Marketing Professional Services in Asia)

Customer relationship management (CRM) is a marketing buzz word that conjures up all sorts of images. Ask ten people about CRM and you will get ten different answers. Some will say CRM is a database, others will say CRM is about customer loyalty and programs that maintain it. Unfortunately, it is that kind of thinking that has led to CRM initiatives being some of the biggest failures in recent business history. Organizations spend millions on new software and hardware systems intent on capturing reams of customer information in order to make better decisions. You then receive streams of new promotions in the mail that claim to know what you want, but when you call the company for a specific enquiry, you are put on hold for 10 minutes, and end up speaking to someone so junior with little knowledge of your history that you realize you can never get back the last 30 minutes of your life you just wasted.

What these organizations fail to realize is that CRM is none of the things described above. It is a business philosophy, an entire way of thinking about yourself and your clients. It is about recognizing that your firm is a client satisfying organism that must live and breathe a marketing culture in order to benefit from any of the technicalities involved in building a systematic CRM program. According to Edmund Thompson of the Gartner Group, A CRM program is typically 45% dependent on the right leadership, 40% on project management implementation, and 15% on technology. I will go even further and replace that 15% technology with the same percentage but of the professional's mindset.

In order to benefit from relationship and retention strategies a PSF must be cognizant of a number of factors. One of these factors relates to client loyalty. Many firms believe that loyal clients are profitable clients and that retaining them is extremely important. There is certainly some truth to this supposition but research conducted by Werner Reinartz and V Kumar (2002) published in the Harvard Business Review showed that up to 40% of loyal client were barely profitable. Firms should be able to analyze and determine not only the current profitability of a client but also their potential lifetime value. Another factor is the idea that it costs substantially more to gain a new client than it does to keep existing clients. This extra cost is normally associated with pricing discounts, promotional efforts and other resources used to secure new business. Again, research supports this contention and hence a PSF should not only be thrilled by the chase of new business but by the gratification of making existing clients more loyal, assuming they provide a certain level of value to the firm.

Value is a notion that is varied and should not focus solely on monetary issues. Clients maybe valuable for a number of reasons:

• Strategically valuable – some clients can help you gain access to key markets or other firms business through referrals. The work they do may help you build competencies that are of benefit in the longer run and can enhance your competitive advantage.
• Loyal – some clients are valuable because they supply a steady stream of work even if it is not highly challenging. They are moderately profitable and easy to serve.
• Significant – some clients can help raise your profile and reputation which can be of real value in building the brand of your firm and lead to premium pricing down the road.
• Revenue generating – some clients generate large revenues for your firm. They pay quickly and reliably and help maintain a healthy cash flow even if they are not the most profitable clients.

 

For the PSF, it is crucial to have a good understanding of your existing client base and what initiatives you wish to undertake to solidify your relationship with valuable clients and what to do with clients that are not suitable for your firm (such as recommending them to another provider).

David Maister, in his book Managing the Professional Service Firm, identifies five reasons why he believes firms tend to neglect existing clients in favour of developing new clients.

1. Firms find it more fun to chase new business and clients than taking care of existing ones.
2. Firms tend to reward professionals for bringing in new business. Reward schemes are geared towards new client development as opposed to creating new business with existing clients.
3. Budgeting allocation allows for new client development but often times firms have little or no budget allocated for existing client business development. Non billable activities aimed at existing clients shows up as costs and this is viewed as a negative.
4. Marketing to new clients is more hands off and involves activities such as research, proposal writing, and presentations. Marketing to existing clients is more 'high touch' and requires some level of intimacy between the professional and client and many professionals feel uncomfortable with this type of activity.
5. Finally, marketing tends to be reactive in most firms. That is firms will respond to a proposal request or other external stimuli but are not well equipped to be pro active in developing business opportunities.

 

The implications for a PSF are fairly obvious, in order to emphasize marketing to existing clients and to benefit from a relationship management system, firms will have to review their current beliefs and operating systems so that creating new business with existing clients and the time spent getting to know them better is not viewed as non billable time but rather part of a firm wide effort to build more loyal and profitable clients. The results may not be immediate and hence it takes strong firm leadership to create a program that will make a true difference in the medium to long term.

I Client Satisfaction – but they still left!!

Satisfied clients will not automatically become repeat clients. Most client satisfaction ratings are measured on a scale of 1-5, where 1 = highly dissatisfied and 5 = highly satisfied. The significance of findings by the Rank Xerox Corporation that even customers who ranked a company 4 (that is satisfied) where still likely to change to another provider has made firms sit up and take notice that there is little room for complacency in retaining clients. Much research shows that over 50% of customers were satisfied prior to changing to another provider. For a client to become truly loyal, a firm must be able to push up its ranking to 5, whereby a client is highly satisfied with the firm's services and service quality. Of course, this takes considerable effort and resources and hence it is first crucial for the firm to be able identify its most valuable clients in order to use those resources effectively.

Aside from identifying the right clients, it has been mentioned in previous chapters that expectation and client satisfaction are closely linked. Since professionals play a large part in setting client expectations based on what they say they can do, it is absolutely crucial to set realistic expectations at all stages of the relationship as over promising and under delivering will only lead to client dissatisfaction. Even if the client rates your firm a 3 or 4, they are still in the zone of indifference and hence at risk for defection. When building a client relationship program that is targeted at existing clients initially, it is necessary to get some idea how clients view the firm, its services, and the professionals themselves. Although there are a number of methods available, a good starting point would be some sort of questionnaire that surveys client perceptions of your firm on a number of fronts.

These may include:

• Technical quality of work
• Service quality of work
• Firm staff attitude, skills, and EQ
• Knowledge of and interest in your business
• What the client knows about which services you offer and your capabilities
• What services and needs they have/will have
• Overall perceptions of the firm

 

According to C. Zorski in an article in the National Public Accountant (April, 1990), survey efforts are effective when they involve almost everyone and everything in the firm. If you leave only one unresolved problem it will be the one the client complains about. Remember that clients expect change, and if it does not happen, an angry client sooner or later will become a former client. She suggests that partner(s) in charge of the survey should follow the following procedures:

• Indicate the best and worst performance by employees and clients' name.
• Try to improve personnel policy by getting rid of the worst performers and set a time table for the average performers to improve their professional knowledge and responsiveness to client needs. Offer seminars and other means of gaining professional and sociological knowledge. Keep in mind that good staff attracts good clients.
• Provide a means to involve staff in improving the firm's effectiveness through monetary awards or other special recognitions. Induce mathematical correlation between achievement and the reward.
• Identify opportunity for new services and define a strategy on how to offer new services to clients.
• Set a time table to attain your ultimate goal.

It should be stated that surveys are not the be all and end all of measuring and attaining client satsifaction. These are only one small step in an ongoing progress that requires constant communication with clients that is part of an overall marketing process which is intent on taking action when necessary. Conducting a survey and then not acting on client feedback is a sure fire way to upset clients and create even greater dissatisfaction. Moreover, client satisfaction is not independent of staff satisfaction and hence ensuring the satisfaction of people within the firm is essential to creating and maintaing a service quality program in professional services. This is known as the service profit chain and means that internal marketing is just as important as external marketing.

II Building and Managing Relationships – an Asian perspective

Much has been written about relationship marketing in the Western context both for services and consumer goods. Unfortunately, very little work has been done in the professional services context and none in the Asian context. One must consider whether relationship strategies which are prevalent in the west are transferable to the Chinese or Asian context and if so to what degree. In their book, Marketing of Professional Services, Philip Kotler, Thomas Hayes and Paul Bloom suggest four building blocks to developing stronger client relationships. We will look at these building blocks and view from them from the perspective of what is known about relationship marketing and guanxi in the Chinese context.

Trust

Trust is certainly a key variable in building and maintaining relationships and has been the study of much empirical research. David Maister (in his book The Trusted Advisor) goes into some detail about the importance of trust. According to Kotler and colleagues, trust can be built by helping clients with contacts and referring business to them, sending articles of interest to them about their industry, providing free seminars etc. One can view these acts as types of favours and this fits well with the idea of trust and building reciprocity in Chinese society. Oliver Yau and colleagues (2000) in their paper, Relationship Marketing the Chinese Way, state that Chinese seek to determine whether another party can be trusted and if favours are received they are morally bound to return these favours. Such reciprocity may be long term and firms should not act in a manner that shows them to expect quick reciprocal acts but be patient in building social bonds.

Client Knowledge

According to Kotler and colleagues, client knowledge involves research to understand clients and their operating environments, developing an organizational memory through appropriate databases and procedures, and to then make use of that information it obtains. Certainly, as part of an overall CRM program these suggestions are excellent. In the Asian or Chinese context however we can extend these concepts. According to Yau and colleagues, empathy is must be developed in order to see situations from another perspective. Understanding clients and their business more deeply can help in developing empathy but in the Chinese context one must attempt to develop a relationship first before attempting to develop a transaction, which is often what occurs in the Western context. Informal discussions and not only business related discussions is key as a firm can more deeply understand the factual and inner feelings of clients. If one can reach this deeper level of relationship it may be beneficial in developing complex service strategies. Sharing information is also a common occurrence in the Chinese context and helps widen the network of firms. Sharing information is a sign of bonding and trust and not collusion as viewed from a Western perspective (Yau et al., 2000).

Client Access

This is the process of making the firm easy to do business with and involves giving clients every opportunity to communicate with members of the firm (Kotler et al., 2002). In the Chinese context we can extend this beyond traditional business meetings and client contacts. According to Yau and colleagues, social interactions can be a meaningful way of building bonds between business people and events such as attending a Chinese dinner can help extend a relationship from the social level to the business level. Building such relationships and networks should be seen as an investment and form of social capital. Aside from direct clients, it will be important to initiate access for other stakeholders. Building personal relationships with gatekeepers or administrators can help smooth business transactions and extend ones network, this can be highly beneficial since bonding in certain social bases can be transferable. Intermediaries which act as bridges between parties can also be a guarantor of trustworthiness (Yau et al., 2000).

Technology

Here, Kotler and colleagues talk about the importance of software and hardware that can be used to better understand, communicate, and serve clients. In the Asian context, the importance of technology in building client relationships is no less important but perhaps the information can be used in ways that reach beyond the traditional thinking of Western professionals. The ideas of bonding, reciprocity, trust, and empathy discussed in the previous sections can all be enhanced by collecting and utilizing information for acts such as gift giving or favours which may be used with a number of different stakeholders in order to build the network social capital that is of real use when doing business in Asian contexts.

Mutual benefit and building shared goals is an important element of doing business in Asian societies and hence fundamental to relationship marketing strategies for PSF's. The relationships identified in figure 15.1 provide a framework for developing marketing relationships in the Chinese context. The relationship building and maintenance variables are aimed at building dimensions such as trust and reciprocity and should not only be targeted at persons in charge but at a wider network of business associates in order to smooth the business process. It takes time to build trust levels that are bonding in nature and Western professionals should be patient in waiting for a return on relationship marketing activities. People in Asian societies do not distinguish between business and personal relationships as clearly as Westerners and are more likely to develop business from personal relationships.

Fig 15.1 Framework for Developing Marketing Relationships in China

(Adapted from: Oliver HM Yau, Jenny SY Lee, Raymond PM Chow, Leo YM Sin, and Alan CB Tse (2000) Relationship Marketing the Chinese Way. Business Horizons, Jan-Feb, 2000).

There is also an emphasis on the interaction with the firm's service strategy. Trust helps to reduce uncertainty and the purchase of complex professional services creates risk and uncertainty for the client. By building comprehensive relationships the firm is more likely to have opportunities for bidding on projects as well as having more flexibility in their pricing and other service strategies.

III Technical or Functional (Service) Quality?

Throughout this book there have been many references to the distinction between technical quality and service quality. That is, clients not only care that you do your job properly and that you are proficient at what you do, they also care how you deliver your services. It is reasonable to expect that in different professional service settings clients would give different weighting to the importance of service quality, at least in terms of their intention to continue doing business with a firm as well as whether they would recommend the firm to others. Satisfaction and client retention are strongly correlated and being able to identify the key variables that satisfy clients is worthwhile because a firm can then focus its efforts on those variables without wasting time on extraneous factors which are not so critical to the client.

Research conducted in the US by Angela Hausman (2003, Journal of Services Marketing, Vol 17, 3 pp.226-242) examined the relative importance of social aspects of the relationship with a professional service provider and the technical quality of work. The author looked at four types of services which were medicine, hairstyling, minister services, and social work. She found that in services such as medicine, social aspects of the relationship to be more important than technical quality in terms of the customer's intention to use the service again or recommend the doctor to others. The opposite was found to be true for hairstylists and social work. Although one may argue that hairstylists and social workers cannot be categorized as professionals the study highlights some key insights for other PSF's. Since the technical quality of some professionals is hard to judge due to the information asymmetry between provider and client (such as medicine, law, accountancy), clients are likely to look at service quality to judge the relationship with the service provider. In this case, it could be argued that in relationships were the client is less knowledgeable about the services being provided the PSF should stress the service quality and social aspects of the interaction in order to relay quality perceptions to the client. As clients become more familiar with professional services their expectations in terms of technical quality may increase and hence the firm should look to ways to communicate the technical quality of what it is doing. If a client is familiar with the technical jargon of professional speak then perhaps it isn't so bad to use technical language with the client.

Achieving service quality is not something that happens independently of the professionals within the firm and their attitude towards what they do. In his book Practice What You Preach, David Maister analyzed a number of professional firms and found that high standards and employee satisfaction had a direct impact on quality and client relationships. The attitudes that predicted these relationships were:

• I am highly satisfied with my job
• I get a great sense of accomplishment from my work
• The overwhelming majority of the work I am given is challenging rather than repetitive
• I am committed to this firm as a career opportunity

 

He also found that quality and client relationships had the largest impact on financial performance. This information supports the ideas of things such as the service profit chain (mentioned earlier) and hence aside from measuring client satisfaction, one must measure employee satisfaction in order to have a more comprehensive tool kit on which to take corrective action. Telling someone you must improve your client relation skills without providing them the support and tools to do so is like asking your kids to eat their greens without any reward. Maister also identified that appropriate compensation was one of the most important factors in predicting the best performing offices.

IV ROI on Relationship Marketing

Measuring the return on investment (ROI) on marketing activities has been an area of confusion and heated discussion both for marketers and academics for some time. If we take the view that marketing is the lifeblood of the firm and that a marketing culture should pervade the entire firm, marketing probably cannot and should not be measured. Anyone that believes all marketing can be measured by ROI is living in a fantasy world whereby the importance of marketing has been marginalized to discreet activities such as promotion and the role of the marketing people in the firm is artificially separated from the rest of the company. In this kind of firm, marketing will never be recognized as the glue that holds the firm together and the partners in such firms will only recognize marketing activities that can be explicitly tied to some sort of return. On the other hand, when marketing is accepted as a culture and as a set of discreet activities that can be measured then it is certainly worthwhile to consider the ROI on certain marketing investments in order to determine their impact on various dimensions of firm performance.

In 2002, the Marketing Science Institute in the US declared that 'Assessing Marketing Productivity and Marketing Metrics' to be the most important topic for study over the following two years. One of the problems is that many senior executives have found marketing investment hard to quantify and typically look at marketing as a cost rather than an investment. For example, research by the Marketing Leadership Council in the US found that 63% of their blue chip members were dissatisfied with their marketing performance measurement systems. Moreover, linking marketing efforts to performance is extremely difficult given the multitude of factors that can affect the failure or success of any initiative. It is within this context that marketers and organizations have expected and demanded accountability for marketing investment. The Chartered Institute of Marketing in the UK calls this Hard Edged Marketing.

The premise of marketing ROI is quite simple. Identify various marketing effort alternatives and fund those ones that meet a certain ROI threshold or criteria, sometimes known as the hurdle rate. It differs from traditional ROI calculation for capital expenditure due to the often small incremental investments that can be made and hence it tends to be flexible in nature. In practice, it tends to be much more complicated, for instance, the same research cited above also found that these firms believed they were wasting 26% of their marketing budget.

The Anatomy of Marketing ROI

According to Don Schultz, a renowned professor at Northwestern University in the US, marketing return is about meeting customer needs better whilst achieving improved ROI. It is this perspective that sets it apart from traditional measures of marketing performance because it also identifies which types of customers you should be investing in, as not all customers will have the same lifetime value to the organization or the same strategic value.

The formula for calculating marketing ROI in its most basic form is:

ROI = return/investment = gross margin – marketing investment/marketing investment

Although the precise methodology for determining ROI differs according to whom you speak to, there is a generally accepted framework of elements to consider.

• Segment the market and your customers first – it is crucial to know the differences in value of differing customers as well as their growth and response potential
• Net present value (and discount rate) which takes into account the time value of money
• Gross margin with costs fully and properly allocated
• Knowledge of Customer Lifetime Value
• Understanding of incremental revenues and costs

 

One can see that access to organizational information about its own cost structure and key data about customers is vital. Previously, the level of detail in such figures available to decision makers was flawed at best or just too much trouble to determine. With advances in technology applications such as Customer Relationship Management (CRM) this type of understanding and precision is much more readily available.

It is now possible to analyze in detail your customers and their worth to the company over their life time. It is also possible to identify which customers should be invested in and which are likely to remain loyal or leave. All in all, it is becoming increasingly feasible to identify at a fine level of granularity just how much to invest in certain marketing efforts and over what time period and with those customers who are most likely to respond.

According to Peter Doyle, in his book Value Based Marketing (2000), if a company can increase its retention rate from 90% to 95%, it can massively increase the company's growth rate. For example, if two firms are gaining new clients at 10% per year, only the firm with a 95% retention rate will experience any growth, in fact, over 15 years, the firm will double in size. He goes onto show that even in professional services such as advertising agencies or banking, customer lifetime value increase significantly with a 5% increase in loyalty, up to 95% for the ad agency and 85% for banking.

ROI Is Not the Final Solution

Whilst the concept of ROI applied to marketing spend is useful it is certainly no panacea. Firstly, most measures of marketing ROI deal with campaign level approaches and identify the best alternative between an advertising and direct mail campaign for example. This maybe fine but it hardly deals with marketing as a whole, in a broad sense. As Tim Ambler from the London Business School rightly points out, 'that would be like asking the ROI on eating, if you do not do it you die'. At the organization wide level, marketing is a business process and not something that can be turned on or off according to ROI measures which in themselves can mislead in any case.

Secondly, ROI and net return may not actually be equivalent and then one is left to either take the higher net return or the higher ROI. Of course, choosing the right time frame is also problematic. Additionally, some marketing investments may seem especially unattractive according to ROI measures but have potential that no one could have envisioned at the time. Good examples can be found in the excellent book The Innovators Dilemma by Clayton Christensen. Finally some investments have strategic value beyond pure ROI measures because of their impact on market access for example or other parts of the business.

V Conclusion

Client retention and satisfaction should be at the heart of a PSF's culture and as such, marketing must play a leading role. However, it is clear that a firm will not want to build long term relationships with all clients and hence it must first identify the clients that are valuable in order to instigate marketing efforts that will most benefit the firm over the medium to long term. Client satisfaction consists of the firm being able to deliver both technical and functional quality and requires those leading the firm to think proactively and be willing to invest in initiatives that do not necessarily show returns in the short term. CRM and other such initiatives are certainly useful but they are unlikely to be successful unless a firm has the culture and processes in place that are the foundation of true relationship marketing efforts. It is also worthwhile to create metrics that measure the impact of various relationship marketing efforts that consider the lifetime value of clients making sure not to fall into the trap that all marketing can be measured. A PSF operating in Asia should also realize that relationships in Asia are different than those in the West when put in the context of marketing and firms should be bale to adapt their relationship strategies accordingly.