Fundamentals and Marketing

Marketing can help you address a lot of problems - low awareness, a product that doesn't match market needs, lack of visibility,  poorly understood sales channels, and so on. But sometimes marketing is supposed to overcome flaws in business fundamentals, and that rarely works. Consider this Business Week article on Cox Communications.

In the scramble for every customer, one cable outfit seems to have hit upon a formula that works: beating the phone companies at customer service. In recent surveys conducted by J.D. Power & Associates Inc., owned by BusinessWeek parent The McGraw-Hill Companies (MHP ), Atlanta-based Cox Communications outscores traditional phone providers such as AT&T (T), Verizon Communications (VZ), and Sprint Nextel (S). On a variety of metrics, from network performance and reliability to billing and cost, customers in several regions describe Cox as their preferred provider.

Having a cable company lead the charge on phone service is doubly surprising given the poor reputation that many have among their own customers. According to Power, cable outfits rank 18th out of 19 industries for service. "Cox customers don't actually hate them, and that is saying something for a cable company," says Craig E. Moffett, a senior cable analyst at Bernstein.

That's nice, but what does it really pay off?

For many cable companies, phone is the fastest-growing portion of their business. Bernstein's Moffett estimates that Cox is generating about $1 billion a year from its 2.1 million phone customers, with profit margins of 50% to 60%. Nearly 20% of the homes in neighborhoods where it offers phone service have signed up, according to researcher IDC (IDC). By comparison, a tad less than 7% of customers in cable giant Comcast Corp.'s (CMCSA) neighborhoods take its phone service, which it started pushing two years ago. (Cablevision Systems Corp. has the industry's best phone- penetration rate, 29%.) Phone companies capture 5% or less of their potential TV customers.

Imagine that - spend money on fixing fundamental systems so that customers like you, and they spend more with you.

While cable and phone companies are busy trying to become a sole source for phone, internet, and television, they're been hobbled by a problem: their customers hate all of them. The choice is, do I want to get all these services from one rotten company, or spread them among several rotten companies? Cox seems to have figured out that if you're the one player that's not despised, you're likely to do well. And providing good service is a great way to avoid being despised.

Sometimes the challenge of finding new customers and expanding your relationship with your existing customers is not a marketing challenge at all.