A nationally recognized expert on retail and database marketing, Dr. Robert Blattberg recently moved to Sarasota from Chicago, where he was director of the Center for Retail Management at Northwestern University’s Kellogg School of Management. Blattberg’s articles have been published in many leading academic journals, and he has co-authored four books on retail marketing. He also has consulted to such national companies as American Express, Kroger, Best Buy and Rite Aid. He is currently a professor at the Carnegie Mellon Tepper School of Business and working on a fifth book about the lifetime value of customers.

How important is developing a marketing strategy right now?

Extremely important. There are two parts to business, the cost side and the sales side. A lot of companies have been cutting costs, and now they're at the point where they're wondering how to improve sales. That's where marketing really comes in. Everybody wants to build these elaborate, sophisticated marketing strategies. If I had a small business, I would simplify it and ask myself, 'How can I start driving sales into my business?', 'Who is my sales force?', 'Do I need a sales force?’ It's an area where companies have a lot of problems. They don't know how to manage a sales force, nor are they able to exert discipline with their sales force or hold them accountable.

How can businesses exert discipline on their sales teams?

Sales is one of the toughest jobs in business, because it's all about rejection. I compare it to actors at "cattle-call" auditions; they're getting rejected 90 percent of the time. What sales people do as a defense mechanism is seek out people they like, or call on smaller businesses where they may have an advantage. This may not be advantageous for the business you're running, because you've got to think about your target audience. You have to consider how much time you can devote to your existing customers versus prospecting and developing new ones. You need to structure your sales organization so they're doing the right types of activities, and you have to build an infrastructure to support it.

What kinds of systems can help generate sales?

You need a lead generation system. That can be done through word of mouth, but also by using the Web or similar techniques. If I were running a b2b operation, I would be very focused on designing a system for my sales organization and monitoring that. I used to teach a program about sales management, and I considered it a production system. People running sales forces don't like to see it that way, but you need the discipline that people have when they're running a production operation. I have to measure their effectiveness and check where they are making their sales calls—are they calling on high-potential prospects? 

How can small businesses develop and retain their customers in today's economy?  

No. 1, you have to provide value. Too many companies think they have to have high margins. Costco is one of the great retailers of all time. They run their business on a 12-percent margin, which means that their prices relative to their costs are very low. A company like Walgreen's or CVS probably runs a 30-percent margin, so they are much higher priced. In today's world you have to ask yourself, "Where is value? Who is really growing?” Walgreen's and CVS have been growing because they've been opening a lot of stores, and they’re also focused on the right age demographic: older people who are using more and more pills. But they are starting to see their growth slow, as they aren't opening as many stores. Costco provides great value to the customer, and that's a winning strategy. 

Do a lot of small businesses price too high?

They think they have to charge this much to make money, and they don't focus enough on volume. Customers today are very value-oriented, so companies have to figure out how they can drive their business in a different way. They have to design it backwards, from "This is how much I can charge" and “How do I make money," versus "I'm going to charge this much and hope I have customers." Costco says it will never have higher than a 12-percent to 14-percent margin, and it re-engineers its business backwards. Wal-Mart does the same, and both are highly successful. It's a very different mindset—far too few businesses think that way.

What else is important in developing and retaining customers?

Customer service. Very few businesses really understand what they want the customer experience to be every time they walk into that store, or how they can employ people to deliver that properly. Take the Ritz-Carlton hotel, one of the great service providers. They do it with a very low-paid staff, yet when you walk into a Ritz-Carlton, the employees greet you and are very polite to you.  Another example: The best experience I have traveling—politeness, service, check-in, take-off and de-embarkation time, etc.—is consistently Southwest Airlines. It's a no-frills, low-cost airline, and it's not that great a flying experience, but everybody should study Southwest Airlines. First of all, they simplified their business: They only fly one plane, a 737-200. Then, while United Airlines will explain that a 45-minute flight is too short for them to serve refreshments, the attendants on a Southwest Airlines flight will not only serve you a drink, but walk back down the aisle asking if you'd like another one!

How important is your first interaction with a customer?

I used to force business owners to think about the key interactions they had with their customers that develop their brand. I would make them write down the three most important things from a customer perspective that drove the relationship. I'm a huge advocate of customer loyalty; when you get a new customer, the first interaction you have is the most important. Take a new restaurant, for example. If you receive bad service the first time you go there, the chances are that you're not going to go back.

Why do you advocate keeping small business simple?  

People make their businesses overly complex. They don't say, for example, “I only want three things out of you as an employee: I want you to be friendly, I want you to greet people and I want you to learn their names.” Structuring the business in terms of the employees recognizing what they have to do to serve the customer is critical. You also have to ask yourself, “Why does the employee enjoy working for me?” If your employees enjoy working for you, two things happen: They're going to be loyal, and they're going to make your customers happy. A lot of organizations fail to understand that employee satisfaction can drive customer satisfaction. So it's critical to choose the right employees.  

One of the most important people in an organization is the human resources person. It's a job that is traditionally denigrated in business but HR is what drives successful businesses. In Japan, which is a very customer service-oriented country, HR is a very important function. But in the U.S. it's a level below the head engineer and the plant operators. That's a huge mistake. 

How is social media changing the picture for small businesses?

Social media can be highly beneficial, because it's a very low-cost way to get your brand communicated, but it's also uncontrollable. I can go on YouTube or Facebook and rant and rave about some airline or car company, and this is the worst nightmare for a lot of companies, because you lose a lot of control over your communications with customers. Any small business has to learn how to be Web savvy. If I were to make one investment as a small business owner in terms of marketing, I would get myself as good a Web person as I could, to be able to learn all the sophisticated ways of communication in the local market. The quality of your Web site does matter.

How are consumer behavior and pricing changing? 

The United States has always been a strange country in the sense that it's affluent and price-sensitive. The margins for retailers in the United States are much lower than they are in Europe, for example. But Americans are not as service-sensitive as they are in other parts of the world. Behavior is changing because conspicuous consumption is on the decline. People are almost embarrassed to demonstrate that they have money in this environment. A lot of businesses don't focus enough on how they can drive down their costs and provide better value to the consumer. If you look at the broad trends in retailing, it's all about value. Saks, Neiman-Marcus, Bloomingdale’s, they're not doing well, while all the value retailers like Wal-Mart, Target, Costco are booming.

Any advice on keeping costs low?

Ask yourself these questions. What is my essential inventory and what is my nonessential inventory? How can I manage my inventory more effectively, because better inventory management equals at least short-term cash flow. Do I have too many people on staff, and how do I start using as much flex-staff as I can? What else can I sell within my store that increases my sales? The more I can drive through that small space, the better off I am. And last, do not expand. Everybody wants to build fancy new stores. Try to get by with what you have.  

What implications does the growing gap between the rich and the paycheck-to-paycheck population in this country have for businesses?

Marketers have to figure out which segments they can serve, and the bulk of consumers are not the high-end shopper. That doesn't mean that they aren't disproportional in certain businesses; if I'm a bank, higher-income consumers are clearly more my target because banks are disproportionately driven by wealth. On the other hand, there are lots of businesses that service the middle and lower market, and in that segment I've got to be absolutely value-oriented—more so today than ever. I would ask myself: What products am I selling that provide good value for my customer? Can they afford what I'm selling?

How does that widening gap between haves and have-nots affect our society?

On a societal basis—and people don't want to admit to this—that gap is driven by education. The growing gap between the educated and the noneducated in our society is unfortunately going to become bigger. Education is the No. 1 priority in our nation; we have got to work on educating our population.