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Using knowledge to pre-empt consumer buying behaviour

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Image: Using knowledge to pre-empt consumer buying behaviourAlthough not known for his contribution to marketing research, it is undeniable that Sir Francis Bacon was on to something when he observed some 400 years ago that, “knowledge is power”.

Firms across the globe have, of course, realized this and made marketing a keystone in their operations. But the advent of new technologies has enabled a heightened ability to channel consumer feedback into the product or service development process.

Capturing so much data, in any meaningful way, has been the real challenge, beyond the filling of huge databases with consumer information from loyalty cards, for example. Approaching marketing in a more qualitative way while utilizing this new technology has been a severe test of the marketing functions of many corporations.

iKnowledge

With so much knowledge at people's fingertips – from iPhones and BlackBerrys to web-enabled laptops and iPads – it is perhaps surprising that organizations have yet to successfully harness them for themselves. There have, of course, been several great examples of collaboration to create knowledge, such as Wikipedia, but few have actually been able to sell anything for something recognizable as a profit.

A 2010 article, “Customer managed knowledge factories”, argues that what could evolve from current customer relationship management systems and knowledge management techniques is a “customer managed knowledge factory”. The idea is that rather than trying to control users and their input, the knowledge factories are created and developed by external stakeholders with just the minimum amount of supervision from the relevant company.

The website YouTube is perhaps the best example of this, where hundreds of millions of items of user-generated content have been uploaded for everyone else's entertainment, with the only restrictions placed on adult-themed content and size of files. Apple's App Store has led to consumers developing over 200,000 applications for iPhones and iPods, and while Apple has been criticized for the amount of control it places over these developers – for example not allowing any pornographic apps or technologies such as Flash – it has engaged the thousands of developers to a much greater degree by effectively using them as hired hands to create all their software.

Enabling software developers to work for Apple, and offering them generous terms to do so, has created a huge workforce for Apple that is dynamic, creative and able to keep them ahead of competitors such as RIM (BlackBerry), Nokia and Google in the guise of their operating system Android.

"Whether they are software developers or student authors, both sets of collaborators are both consumers and employees in the widest sense, and therefore have a unique perspective on the organization or project they are working for."

However such collaboration has more profound consequences in less privileged arenas. The Global Text Project (GTP) was formed to enable the very poor in developing nations to access the latest research. One way to do this was to conceive of a textbook that would be written and developed by students across developing countries for other students who, like themselves, could never afford a second-hand or even third-hand book. Collaborating and creating chapters as they themselves learned, the numerous authors were able to publish an electronic book for a market they understood intimately.

Deeper understanding

Whether they are software developers or student authors, both sets of collaborators are both consumers and employees in the widest sense, and therefore have a unique perspective on the organization or project they are working for. Part of the knowledge factory process is to harness this knowledge, as well as labour, in order to provide a strong quality of consumer feedback. Another way this is possible is to utilize more traditional marketing techniques to discover what consumers think about one product or another, however often the results are inconclusive or misleading.

Take, for example, the preference or otherwise of consumers for cheaper, supermarket-branded goods against the more well known brands. The question to ask is how can retailers gain a competitive advantage over competitors by using private label brands (PLBs)? The leveraging of customer knowledge will be key to this, as retailers will need to know intimately their consumers and their buying habits in order to satisfy their needs for PLBs – if of course there is one.

While there is evidence to suggest that sales of PLBs are growing faster than many leading brands, and moreover growing market share, there is a suspicion that the appetite for these is finite, and may indeed be saturated with alternatives to every brand imaginable in all major grocery outlets. For example, the UK retailer Marks & Spencer, famous for stocking only its own-branded items, in 2010 started selling leading brand alternatives, turning the original question on its head.

While the sales stats have been pored over by retailers and researchers alike, one area that is poorly served is the quest to discover what consumers think about PLBs before they intend to purchase anything. Their intention to buy a PLB can be regarded as a state in itself, and knowledge of a customer base's predisposition in this area will be critical to any retailer seeking to secure competitive advantage.

There is still a strong demand for PLB, and, indeed, the luxury end of this segment is yet to be fully satisfied. Exploiting other niche product areas such as environmentally friendly products or dietary aware products also have a way to go according to the research. The only warning is that while demand looks strong, PLBs still have to offer the traditional strengths of quality at low cost, and if this is lost so will the competitive advantage they offer an innovative retailer.

What is knowledge?

The more information companies have at their disposal, the greater the challenge is for them to utilize it more effectively. As demonstrated, there are some high profile examples of tech firms mobilizing their consumers like a large standing army, prepared to pitch in at any time, as well as retailers and service providers having the potential to use knowledge and technology to develop competitive advantage. But how likely are these innovations in knowledge management likely to filter down to SMEs and become business as usual?

Although Apple and the iPhone are perhaps the most quoted example of business innovation and success on many levels, in the realm of knowledge factories they are perhaps unique in how powerful the idea of the App Store has been in empowering users to actually create the company's own products. While it is evident many lessons can be learned in this type of knowledge management, the real challenge will be if anyone can replicate the sheer scale of its development.

September 2011.


This is a shortened version of "Knowledge factories: from iPhones to iHotels: How marketing is being shaped by new technologies", which originally appeared in Strategic Direction, Volume 27 Number 1, 2011.