Last updated: October 2, 2006 4:08 pm

Ask the expert: Business School Online

Bernd Schmitt Q&A

In the second online executive education course in partnership with leading business schools, FT.com presents a lecture on experiential marketing by Bernd Schmitt, director of the Center on Global Brand Leadership at Columbia Business School in New York.

The programme is in five parts, with suggested readings to accompany each of the video instalments.

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To complete the programme, Professor Schmitt answers readers’ questions on the course below.

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Do you think the potential profitability impact of implementing a CEM system differs between different sectors and the method for which goods are purchases and services are consumed? A classic example I can think of is the banking industry and perhaps the opportunity to differentiate based upon the customer experience (for example waiting time, expectation of an outcome v actual result).
James Greenway, London, UK

Bernd Schmitt: The potential profitability impact of implementing a CEM system (and note: CEM is not just a database system like CRM) does differ. Some factors are fairly straightforward (luxury has more impact than steel); others more subtle (if none of the competitors uses experience yet, then there is more potential).

Re: your banking example, I did a project on experience with a major strategy consulting firm in Europe last year in the retail banking sector. We benchmarked great experience initiatives in banking and other industries worldwide to improve the experience and at the same time satisfaction and profitability. I see big potential in banking, especially in Europe. Keeping branches open longer, providing better service, and reducing the “stiffness” of banking through design and cool stuff (like the penny counting machine that Commerce One Bank has here in the US) should do the trick.

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Which of the five types of customer experiences that form the basis of the Experiential Marketing Framework do you think is the most effective? Sense, feel, think, act or relate marketing?
Jack Murphy, San Francisco, US

Bernd Schmitt: The issue is not which one is most effective in general. You can also say for certain product categories (for luxury fashion goods it is mostly sense; for tech products it is think). But even within these categories, there are some brands that differentiate themselves successfully by going against the mainstream - for example using feel or think for fashion, or by using sense or feel for tech products. A case in point: Apple!

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As a dairy farmer I think we produce a great experiential product in milk - it’s the original functional food, it’s produced in a wonderful environment by very dedicated people. However we are at the ‘wrong’ end of the supply chain, we are a disparate group and occasionally the majority are let down by the actions of a few. How do you think we as farmers should communicate the experiential message, when others in the supply chain might prefer for us to be seen as a commodity?
Bruce Mackie, Aberdeenshire, Scotland

Bernd Schmitt: I think you have a great story to tell: How milk is “produced in a wonderful environment by very dedicated people.” Tell that story. In the broader New York area there is a supermarket that does something very similar: Bring in cows and show the kids how to milk a cow. It’s fascinating for nature estranged city dwellers.

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How exactly do you measure customer experience?
Michael Fisher, Brighton, UK

Bernd Schmitt: With my clients I use a scale called The Ex Scale. It measures the five facets of experience discussed in the second video. You can also construct your own customised scales based on interviews with customers. Finally, I suggest to link experience to measures of customer equity (for example, lifetime value).

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What is the best example of experiential marketing you have seen recently?
Richard Scott, London, UK

Bernd Schmitt: Let me take a couple of examples from the last 2-3 years. As you know from the videos of the program, I love the iPod. It is a fabulous example of the principles of experiential marketing: great product design, cool service, use of various touchpoints, and integration of communications. Whole Foods – in the US and now in the UK – also does a superb job in marketing organic and natural foods in an experiential way. It’s not the usual granola joint but really understands lifestyles. The stocks of both companies have seen dramatic rises – and I think it’s due to experiential marketing.

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Can you explain the main differences between CEM and older marketing approaches?
Craig Moore, Scotland

Bernd Schmitt: Traditional marketing differs from CEM in its overall philosophy and in its view of competition, and marketing methodology. Traditional marketing focuses on products (their features and benefits) and does not have detailed concepts to analyse the experience. The view of competition is narrow: competition occurs among product features that you need to tweak to get a competitive advantage. MacDonald’s competes against other hamburger chains in terms of softness of the bun, quality of the lettuce etc. In CEM, the focus of competition is more broadly on the consumption situation. So, MacDonald’s in a way competes also against Starbucks in terms of the interior and look and feel.

Finally, methodology. Traditional marketing uses lots of product features focused choice models, positioning maps, conjoint analyses. CEM uses some of those as well but also customer insight methodologies like spending time in the life of the customer, observations, and creative focus groups.

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What is the best way to promote and market a service and technology lead company with a small marketing budget?
Toby Fischer, London, UK

Bernd Schmitt: I presume, you are interested in doing that experientially. I suggest you go through the users. You need to create a great user experience that customers rave about. That way you create user communities and you get lots of word of mouth. Google started exactly that way.

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I summarise SEMs & ExPros as pure differentiation. As you showed in your refrigerator it is a battle of the brands where customers can move at any time. Seventy per cent of the buying decision is made at the point of sale.Where do you leave the process of building and maintaining customer relationships? I think this process is an essential part of the ultimate challenge for creating the right customer experience. CEM is an important in enabling differentiation, collaboration & operational excellence.
Erick Deister, Switzerland

Bernd Schmitt: You are right: if 70 per cent (your number!) of purchase decisions are at point of sale, there is not much left for customer relationship building. Unless you build it at the point of sale, through the right environment (displays, service, well trained sales people etc).

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I own a local branding firm in my city. We help small and medium businesses to develop their brands that are struggling in an emerging economy against the biggest brands in the world. What do you think are the major challenges for these local Mexican companies if they want to survive or compete successfully with the big boys?
Ral Ordez, Queretaro, Mexico

Bernd Schmitt: The big ones have the advantage of “big pockets”: lots of money to spend on traditional communications, for example, or market research Local Mexican companies, however, should know their customers more intimately. They need to provide an exciting local touch – whether we are talking about food products or services. They need fans – fanatic users. You know, small can be big. But they need to work creatively on addressing local customer needs, and on differentiating their products and services in terms of something that a big multinational cannot deliver.

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I was wondering why many of the theories you develop which make so much sense and end up describing what is best for a company and for its employees don’t seem to penetrate so many in the public square that would profit from them - whether they be managers, management journalists, or public policymakers.

Just to give one example, the domestic outsourcing companies I have worked for or dealt with rarely are better at encouraging their employees to do better and offering opportunities for advancement that would not be offered in the company from which they were outsourced. Their main difference with the companies they service is that they are less expensive and / or easy routes to keep down headcounts.
David Trilling, Los Angeles, US

Bernd Schmitt: Cost cutting may seem as the enemy of customer experience. And it often is. But it does not have to be. Creativity is key in experience management; it is not that experience has to be more expensive.

The real reason why experience does not get picked up and implemented in companies is a different one: the engineering and product focus that pervades most organisation. Most companies are not customer focused; they don’t do customer insight research, and structure their organisation around the customer. That’s the challenge.

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To create trust and purvey it during the service encounter/experience setting is very important. What do you think are the most important elements of trust building?
Stephan Wirtz, Beijing, China

Bernd Schmitt: You are right, trust is key in service encounters, especially in B2B. In an experiential sense, customers must be able to rely on you, you must deliver on your promises, and you must support them in the case of problems and failures. To deliver on all three “elements” of trust is an organisational challenge. Salespeople often overpromise to get the deal, customer support (through call centres, for example) can be frustrating, and so. What you need is an integrated service experience focused on the customer.

There is no one best and great service. Take something we all can relate to as business people: hotels and airlines. Some are service quality intensive (Ritz Carlton and Singapore Airlines, for example); others are “cool” design and service (W Hotels and Virgin Atlantic, for example). So, who is the customer target, and what does the customer want? That’s what you must find out and then restructure your service operations around it. I noticed you are based in Beijing: in China you often have the benefit to start from scratch and rethink service entirely from the customer point of view.

Background

FT Business School Online: Bernd Schmitt of Columbia

Forum: What do you make of experiential marketing?

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