Warning Signs in Sales

The cavemen used signs as communication tools when there were no other means to pass on messages. As time went by, signs have lost its significance and now we use languages instead. With the evolution of language, people have lost the ability to read signals even when signs convey rich meaning. Tribal people who have stubbornly refused to integrate into the civilized world still use signs to communicate to others.

To a caveman, signals may be a powerful means of communication. But in today’s sales parlance it is a cue that conveys information that is unobservable from a sender to recipient. Sales management is all about signaling that ultimately leads to increased revenue. Managers design campaigns through the filter of signaling, a process of sending messages with the objective of influencing purchasing behaviors. Done correctly, this can lead to the desired amount of transactional sales. On the downside, market perception may turn out to be unfavorable.

A signal can mean different things to different users (Spence, 1974). When sales executives use signaling, test the waters by experimenting it with a smaller subset of the market. This will enable them to contain rapidly any undesirable consequences and thus manage it appropriately.

When not to use signaling

However, at times, there are costs involved in marketing signaling. It may result in product line cannibalization whereby customers wait for the signaled action and delay purchasing the existing product. Or circumstances beyond the sender’s control may affect the timely delivery of preannounced product or features of it as promised. Similarly, a price cut could be the result of excess inventory or product elimination. So, it would be in the best interest of all to not engage in price war that would dilute profit.

Sign language used by companies

Price signaling raised turbine generator profit/sales ratios in the 1950s. In 1992 Ford announced a 6% price increase to signal not to start a costly war for market share.

Service firms

Firms that sell intangible products may indicate their high value through prestigious addresses, fancy club memberships, office décor, etc. Some companies hint to the customers their willingness to work around customer needs. They do it through differential pricing, increasing staff count for peak times and by providing complimentary services.

Airlines

Airlines are notorious for undercutting fares on those routes that are lucrative to their competitors in a bid to undermine the best efforts of their rivals. In such cases, if the undercutting of fares is done to put a spanner in the works then the rates are brought up to the normal level as soon as the objective has been achieved even before some of the travel agents have found out.

Stockmarket

Firms pay dividends to its shareholders as a sign of strength signaling to the market that there is no need to hoard cash. Some investors look for a company’s Corporate Social Responsibility initiatives to gauge the health of the enterprise. Such companies use CSR to signal the appropriate messages.

Restaurants

Restaurants open up in an up-market locale with high rents to signal to the patrons of its five-star status as well as to advertise its good food. Warranties and guarantees are other examples marketers use to show the credibility of the quality of the product. They offer insurance against faulty products to potential buyers. Longer the warranty, higher the quality.

Marketing signaling is also messages sent to other companies within the industry either to convey to or to gain information from competitors. Companies selectively leak information to manipulate the opponent’s choice of actions. Employees find press announcements to be more credible than internal communications.

Types of signaling

Kirmani and Rao (2000) distinguishes between two types of signaling based on the financial consequences. They are:

  • Default-independent signals, where companies incur financial loss, such as heavy advertising costs or fixed upfront costs, whether the signals default on their claims or not.
  • Default-contingent signals where companies suffer monetary loss only when the signals default on their claims, for instance, when a high price signal matches with equally high quality.

Keys to signaling success

Maintaining a consistency throughout the organization as to the meaning of the signals is crucial to the success of signaling marketing. Once a signaling strategy has been decided by the company executives the information must be passed on to every employee from top to bottom. Failure to do so may not only cause inconsistency in the quality level but also mar the reputation and integrity of the brand. Equally important is how the rival companies interpret the meaning of signaling.

Also, as responsible marketers, it is rather important to examine your conscience before indulging in signal marketing as using it to promote transactional sales at the detriment of brand integrity is unethical and immoral. In light of this, signaling management has become a tricky task of business leaders. The correct interpretation of sales signals enable the executives to brace themselves to avoid any potential threat or to position them to take advantage of the opportunity.

Having said that, with signaling marketing it is still hard to predict the response of the target audience. Neither is it easy to gauge the perception in the minds of the recipients. Moreover, the way one party perceives the meaning of signals may not be the way another party views them. And that is why it is advisable and a prudent strategy to test the signal response on a smaller scale in an area that closely resembles the target market.

Photo Credit: Bart Anestin