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Transmitting Signals to Consumers for Competitive Advantage
We all know that building a better mousetrap does not guarantee that customers will beat a path to your door. Even a technically superior product needs good marketing to achieve desirable sales results. Consumers must be informed and persuaded about the product's superior features, and they must convinced that they will get better value for their dollar from buying this product rather than some other one. Frequently, this has been done by using advertising and selling approaches with a strong educational component, where careful explanations of the meaning and value of certain features predominate. And sometimes consumers actually inspect or "test drive" the product prior to purchasing, allowing them to see and feel for themselves why the product performs in a superior manner.
But for an increasing number of businesses, these approaches will not work. Many products are too complex to explain readily to consumers, and many services are too intangible to allow inspections and "test drives." Moreover, consumers often are too ill-informed, too lazy, or too busy to take the time to learn about a product's technical features. What happens is that consumers, either by necessity or by choice, begin to rely on rather simple, easy-to-examine "signals" - which do not provide explicit information about the technical features of products - to form inferences about which products have technical superiority and value. As a consequence, competition in many industries is becoming more and more a matter of who can transmit the most attractive "signals" to prospective consumers.
A growing number of companies are using signals like high prices ("L'Oreal costs more, but I'm worth it"), well-known brand names ("You can be sure if it's Westinghouse"), market share leadership ("We're Number 1"), or large advertising budgets ("As seen on national TV") to convince consumers of the value of their products. Signals are flying back and forth in industries as diverse as computers, dental care, air travel, and banking. For the most part, the signals transmit a message of technical superiority. However, sometimes the signals are designed to transmit a message of technical parity ("We're just as good for half the price") or even technical inferiority but a good value ("Kmart value at a Kmart price").
Sound strategic thinking about the transmission of signals to consumers is becoming essential for differentiating a company's products and obtaining a sustained competitive advantage in a growing number of industries. In many industries, the development of attractive signals should be the cornerstone of a company's marketing effort; all other aspects of the marketing program should be consistent with the signaling strategy. Our position is explained in the following way. First, we provide a precise definition of what we mean by the term "signal." This is followed by a review of the reasons why we think signals are generally becoming more essential competitive weapons. We then identify specific types of situations where we feel the development of effective signals tends to be especially important. Next, we present some ideas on how to create and refine signals to provide a competitive edge. Finally, we close with a discussion of how to select the most appropriate signaling strategy for a product.
WHAT IS A SIGNAL?
The term "signal" has many different meanings and is used in a wide variety of contexts. Our use of the term is reasonably consistent with how it is used by economists who study the "economics of information." We are viewing a signal as a marketer-controlled, easy-to-acquire informational cue, extrinsic to the product itself, that consumers use to form inferences about the quality or value of that product. Please note that we are restricting our discussion to how to formulate and manage signals used by consumers. We are not addressing the issue of what to do about signals used by competitors for drawing inferences about a company's strategy - a topic treated extensively in the economics literature.
Let us elaborate on the key points of our definition. First, we state that a signal is marketer-controlled. This means that a signal must be transmitted by someone, and that this transmitter should have the ability to alter the nature and intensity of the signal. Second, a signal is defined as an easy-to-acquire, extrinsic informational cue. It is not part of a product itself, but a piece of information about the product that a consumer can search out, obtain, and process with minimal effort and energy. Third, a signal is described as being used by consumers to form inferences about quality and value. Since it is not an intrinsic part of the product, and since it also does not contain detailed information about the product, a signal can only provide the basis for making inferences about the product's true features. It cannot tell consumers the absolute truth about those intrinsic features. Consequently, a given signal could lead some consumers to infer that a product is high in quality and value, while leading other consumers to infer the opposite.
Price and brand name are probably the signals used most often by consumers. Considerable evidence suggests that, under a broad range of conditions, consumers will tend to use price and brand name as signals of quality and value. Many consumers will choose high-priced, "top-of-the-line" appliances, automobiles, athletic shoes, restaurants, brokerage houses, or haircutters because they believe high price and high quality to be strongly associated. Likewise, many consumers will gravitate to products with brand names they have come to associate with quality and value - names like General Electric, Toyota, New Balance, Ben and Jerry's, American Express, or Vidal Sassoon. Although the price and brand name on a product do not explicitly reveal how well the product actually performs, they are often the major focus of the prepurchase investigating done by consumers.
Other signals used by consumers for making product choices more quickly and easily include:
* The type of warranty provided. Consumers may infer that a company would not back a product with a strong warranty unless it were really of high quality and unlikely to perform poorly. To some consumers, however, a warranty that provides a money-back …