Thriving with Marketing 3.0 Philip Kotler Jeddah, Saudi Arabia, October 10, 2010
Winning in Hard Times Session One. How to meet today’s and tomorrow’s challenges with Marketing 3.0. Session Two. How to increase your brand power. Session Three. How to manage sales and marketing.
Session 1. Using Marketing 3.0 to Meet the New Challenges
On a scale of 1 to 3 (3 = highest), How much is this a challenge to your company? Distrust of business Globalization Economic recession and turbulence Technological advances and disruptions Environmentalism and climate change The new social media Political and regulatory changes
Is Your Company Going to Fail?Signs to Watch for James Collins wrote in How the Mighty Fall : Stage 1. Successful companies get arrogant and think they can do many things. Stage 2. They pursue aggressively wild growth. Stage 3. They ignore early warning signs of failure Stage 4. Their failure becomes very public. Stage 5. If they don’t reform, they finally go bankrupt. Consider General Motors.
Economic Recession and Turbulence Distinguish between: Recession Disruption Turbulence Risk reduction strategies Larger reserves Shared investments Early warning systems Scenario planning Corporate social responsibility
Disruptive Technologies OLD Photographic film Wired telephones Store retailing Classroom education Offset printing General hospitals Open surgery Cardiac bypass surgery Manned fighters Full service stock brokerage NEW Digital photography Mobile telephones On-line retailing Distance education Digital printing Outpatient clinics Endoscopic surgery Angioplasty Unmanned aircraft On-line stock brokerage Source: Clayton M. Christensen, The Innovator’s Dilemma, p. xxix.
Tomorrow Will Be Different Source: Clayton Christensen
Consider How Marketing Has Changed Old definition of marketing “Act or practice of advertising and selling a product” (Random House Webster Dictionary of American English 1997) New definition of marketing “Marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for consumers, clients, partners, and society at large.” (American Marketing Association, 2008) Offerings include products, services, experiences, places, persons, ideas, and causes
Sales Precedes Marketing In the beginning there was sales. Marketing appeared later to help sales people: By using marketing research to size and segment the market By using communications to build the brand and develop collateral materials By finding leads through direct marketing and trade shows Marketing was originally located in the sales department. Then marketing grew as a separate department responsible for the marketing plan (4Ps) and brand-building.
Stages in the Development of the Marketing Discipline Selling stage. (the idea of setting up selling systems involving distribution, sales people and advertising). 4P stage. (the idea of integrating the marketing tools). STP stage. (the idea of refining the market targets and branding). Customer Relationship stage. (the idea of building a loyal customer base). 5. Co-creation stage. (the idea of involving customers in developing products and communications).
Marketing Objective, Process, and Philosophy CCDVTP R -> STP -> MM -> I -> C CIB
MARKETING’S RECENT LOSS OF EFFECTIVENESS MARKETING will be less effective in the next few years Marketing budgets will be lower Companies will want marketers to do more with less DISTRIBUTORS TRADITIONAL MEDIA COMPETITION SOCIAL MEDIA NETWORKS PUBLIC
DISTRIBUTORS will demand more TRADE PROMOTION. This will leave less money for marketing research, advertising and consumer promotion for brand building and ultimately reduce brand equity.
Investors will then downgrade the stock. This will leave the company with fewer resources to prop up demand.
Traditional media such as TV 30-second spots, newspapers, etc., are growing LESS EFFECTIVE
Categories are so crowded with competitors that heavy price cutting will be UNAVOIDABLE
The public, in its wish to spend less, will be less inclined to pay higher prices for top brands where the quality differences are minimal. There is a strong shift to store brands and sub-brands. This means that top brands are overvalued and there may be a brand bubble.
Social media networks will play an increasingly influential role in shaping brand evaluations
STRATEGIC vs TACTICAL MARKETING Most marketing departments are engaged in brand-maintenance instead of brand-building. Company marketers spend only 15-30% of their time doing true marketing activities. The rest of the time is spent on forecasting volume, securing approvals on label artwork, checking manufacturing schedules, and doing routine analysis. Strategic marketing is missing in many marketing departments. Strategic marketing requires taking a 3-5 year view of the business. SOLUTION TWO MARKETING DEPARTMENT…!!! Downstream Marketing Upstream Marketing Markets TODAY’s Product Create TOMORROW’s Product
The Age of Social Media. Marketers have Lessening Influence in Shaping Their Brand Image FOUR POSSIBILITIES Person-to-person conversations about many products can exceed the amount of communication under the company’s control. Everyone is talking negatively about the company There is no talk about the company The talk is a mix of good and bad comments Thus a brand can be hijacked. see Alex Wipperfürth, Brand Hijack: Marketing without Marketing, New York: Portfolio, 2005 Virtually all the talk is favorable Marketing 2.0 Marketing 3.0 Managers listened to the consumers’ voices to understand their minds and capture market insights Consumers play the key role of creating the value through co-creation of product and service
THE FUTURE OF MARKETING TODAY’S MARKETING CONCEPT FUTURE MARKETING CONCEPTS THE DISCIPLINES OF MARKETING PRODUCT MANAGEMENT The Four Ps (Product, Price, Place, Promotion) CO-CREATION CUSTOMER MANAGEMENT The STP (Segmentation, Targeting, and Positioning) COMMUNITIZATION BRAND MANAGEMENT Brand Building CHARACTER BUILDING
CO-CREATION Evolution of a company’s relationship to its customers: Make a Product Refine the Product Invite Customers with minimal customer testing with extensive customer input and testing to provide ideas and co-create The new ways of creating product and experience through collaboration of companies, consumers, suppliers, and channel partners interconnected in a global network of innovation C.K. Prahalad and M.S. Krishnan, The New Age of Innovation: Driving Co-created Value Through Global Networks, New York: McGraw-Hill, 2008 Three key processes of CO-CREATION: Ask for consumer feedback and enrich the platform by incorporating all the customization efforts made by the network of consumers. Individual consumers customize the platform to match their own unique identity. A company creates a “platform”. 1 2 3
MARKETING 1.0vsMARKETING 2.0 vsMARKETING 3.0 MARKETING 1.0 MARKETING 2.0 MARKETING 3.0 Product-centric Marketing Customer-oriented Marketing Value-driven Marketing Objective Satisfy and retain the consumers Make the world a better place Sell products Enabling Forces Industrial Revolution Information Technology Social Media How companies see the market Mass Buyers with Physical Needs Smarter Consumer with Mind and Heart Whole Human with Mind, Heart, and Spirit Key marketing concept Product development Differentiation Values Company marketing guidelines Corporate and Product Positioning Corporate , Vision, Values Product specification Value propositions Functional and Emotional Functional, Emotional, and Spiritual Functional Interaction with consumers One-to-Many Transaction One-to-One Relationship Many-to-Many Collaboration
S. C. JOHNSON VALUE-BASED MATRIX MIND HEART SPIRIT Mission Contributing to the community well –being as well as sustaining and protecting the environment Promoting reusable shopping bags Base of the Pyramid For SC Johnson, creating sustainable economic value means helping communities prosper while achieving profitable growth for the company. Sustaining Values: SC Johnson Public Report Vision To be a world leader in delivering innovative solutions to meet human needs through sustainability principles Values Sustainability We create economic value We strive for environmental health We advance social progress We believe our fundamental strength lies in our people.
Companies Americans Love Amazon, Best Buy, BMW, CarMax, Caterpillar, Commerce Bank, Container Store, Costco, eBay, Google, Harley-Davidson, Honda, IDEO, IKEA, JetBlue Johnson & Johnson, Jordan's Furniture, L L Bean, New Balance, Patagonia, Progressive Insurance, REI, Southwest, Starbucks, Timberland, Toyota, Trader Joe's, UPS, Wegmans, Whole Foods. The researchers found these “firms of endearment” to be highly profitable. They also found eight characteristics common to these firms.
Characteristics of “Firms of Endearment” They align the interests of all stakeholder groups Their executive salaries are relatively modest They operate an open door policy to reach top management Their employee compensation and benefits are high for the category; their employee training is longer; and their employee turnover is lower They hire people who are passionate about customers They view suppliers as true partners who collaborate in improving productivity and quality and lowering costs They believe that their corporate culture is their greatest asset and primary source of competitive advantage. Their marketing costs are much lower than their peers while customer satisfaction and retention is much higher.
Marketing the Mission to… Consumers Employees Channel Partners Shareholders
The brand name may account for more than half of the brand value on the balance sheet. Almost 70% of the market capitalization of such brands as Nike and Prada lie in its intangibles, especially the brand. The former chairman of Quaker Oats said: “If the business were split up, I would take the brands, trademarks, and goodwill, and you could have all the bricks and mortar—and I would fare better than you.”
What’s In a Name? Everything! Donald Trump’s family name is Dumpf. Drumpf Towers? AlphonsoD’Abruzzo renamed Alan Alda. Chinese gooseberry renamed kiwifruit. Hog Island in the Bahamas renamed Paradise Island.
Your Brand Needs to Own a Word Mercedes - engineering BMW - driving Disney - family fun entertainment Saturn - no hassle car buying FedEx - overnight Wal-Mart - low prices/good values Hallmark - caring Nike - performance 3M - innovation Volvo - safety Starbuck - best coffee experience
A Brand Must be More Than a Name A brand must trigger words or associations (features and benefits). A brand should depict a process (McDonald’s, Amazon). A great brand triggers emotions (Harley-Davidson). A great brand represents a promise of value (Sony). The ultimate brand builders are your employees and operations, i.e., your performance, not your marketing communications.
Find a Way to Brand These Commodities Chicken Cement Bricks “It is possible to brand sand, wheat, beef, bricks, metals, concrete, chemicals, corn grits, bananas, apples, aspirin, …”(Sam Hill, How to Brand Sand). CAN YOU DESIGN NEW FEATURES FOR AN AUTO INSURANCE POLICY?
Creating genuine customer value: Progressive Insurance Name Your Price lets customers customize their policy to fit their budget. “ I want an easier way to see how I can meet my insurance needs at a great price.” MyRate rewards lower risk drivers with lower rates. “ I don’t drive a lot of miles, I’m a safe driver, and I’m not usually on the road late at night when accidents are most likely to happen. Since I’m less likely to be in an accident, shouldn’t I pay less for car insurance?”
Build a Brand Community! Examples: Harley Davidson, Saturn, Porsche, BMW, Apple user groups, Lexus owners, Barnes and Noble bookstores, The Body Shop, Ikea. Harley’s Owner Groups: HOGs have 250,000 members divided into 800 chapters: VietNam vets, lesbians, born again Christians, Ladies on Harleys. Tools include: Rallies, anniversaries, lectures on maintenance and safety, competitions, shows, internet sites. The researchers describe Harley as “a religious icon around which an entire ideology of consumption is articulated.”
Develop a Memorable Brand Slogan BA, “The World’s Favorite Airline” American Express, “The Natural Choice” AT&T, “The Right Choice” Budweiser, “King of Beers” WHAT DO YOU THINK OF THESE SLOGANS Ford, “Quality is #1 Job” Holiday Inn, “No Surprises” Lloyds Bank, “The Bank that Likes to Say Yes” Philips, “From Sand to Chips” “Philips Invents for You” “Let’s Make Things Better”
BRAND JOURNALISM Brand Positioning = Brand Journalism “Marketers should communicate different messages to different market segments at different times, as long as they broadly fit within the basic brand image.” -Larry Light, former McDonald’s CMO- McDonalds is positioned differently in the minds of kids, teens, youngadults, parentsand seniors. It is positioned differently at breakfast, lunch, dinner, snack, weekday, weekend, withkidsor on a businesstrip. No one communication alone tells the whole brand story Each communication provides a different insight into the brand
HYPOTHETICAL STARBUCKS BRAND POSITIONING BULLSEYE Values / Personality / Character Contemporary CONSUMER TARGET Discerning Coffee Drinker CONSUMER INSIGHT Coffee and the drinking experience is often unsatisfying Points of Difference CONSUMER TAKEAWAY Starbucks gives me the richest possible sensory experience drinking coffee Substantiators (RTB) Caring Thoughtful 24 hour training of baristas Stock option/ health benefits or baristas Points of Parity Responsible, Locally involved Fairly Priced Brand Mantra Rich, Rewarding Coffee Experience Relaxing, Rewarding moments Fresh, high quality coffee Totally integrated system Triple Filtrated water Executional Properties / Visual Identity CONSUMER NEED STATE Desire for better coffee and a better consumption experience CONSUMER INSIGHT Local cafes, Fast food & convenience shops Varied, exotic coffee drinks Reach sensory consumption experience Convenience, Friendly service Siren logo Green & Earth Colors
40 The Mercedes-Benz “Enduring Passion” “The brand Mercedes-Benz is a brand icon, from its founding day till today.”
Measure Your Brand Effectiveness Customer perceived value Customer satisfaction Customer repeat purchase Customer advocacy Customer co-creation
SUSTAINABILITY AND SHAREHOLDER VALUE There is a link between corporate sustainability and strong share price performance. Companies that put more emphasis on social and environmental impacts reported annual profit growthof 16% and share price growth of 45% while those from companies that did not put a lot of emphasis reported annual profit growth of only 7%and share price growthof only 12%. (Economist Intelligence, 2008) More executives believe that the concept of sustainability is good for corporations in attracting consumers and employees and improvingshareholdervalue.
TRACKING SUSTAINABILITY Needed: indices that measure how well a company performs in the triple bottom line: profit, planet, and people. The AIM: To encourage companies to improve their economic, environmental, and social impact on the society.
Selling Sustainability to Investors To convince shareholders, the company needs to provide tangible evidence that the practice of sustainability will improve shareholder value by creating a competitive advantage. Sustainability The issue is to find a linkage of between sustainability, profitability, and returnability ? Profitability Returnability THREE important metrics that can be quantified financially: Improved cost productivity Higher revenue from new market opportunities Higher corporate brand value (For details, see Marketing 3.0).
Session 3. Ending the War Between Sales and Marketing
Sales and Marketing Complaints An Oracle salesperson told us, “Marketing sends us business cards they collect at trade shows from people who don’t need us and don’t want to see us. They call these things “leads”.” Marketing says “We generate about 25,000 leads a year for sales. Most of these leads aren’t followed up and go cold.” “Marketing,” a senior airline sales manager told us, “are the people who come up with these fancy value propositions that mean nothing to customers but do tell us how out of touch they are with business reality.” The Head of Marketing had a different perspective. “We have a value proposition that’s powerful – if only our sales force knew how to sell it.”
The Six Key Responsibilities of the CMO Gather meaningful customer insights. Strengthen the brands. Drive new product development based on customer needs. Utilize new marketing technology. Measure marketing effectiveness. Improve marketing’s working relation with the other functions. Source: Adapted from a McKinsey study
Define the Existing Level of Relationship The integration of sales and marketing tends to progress through four distinct stages or levels of complexity. Undefined Defined Aligned Integrated
Where is Marketing Going? More companies are adopting a market and customer orientation 47% of Fortune 1000 firms have a CMO (80% have a CFO). Your CMO should be an active participant in the company’s strategic planning group. Decide if you want your company to become market-driven or market-driving.
MESSAGE Companies need to move from a shareholder to a stakeholder view of the enterprise. Companies need to practice the Triple Bottom-Line Model: Economic Value, Environmental Health, and Social Progress. Companies must better define their corporate social responsibilities. Marketers get their clues from how the company defines its mission, vision and values. The marketers then send offerings that touch the customer’s mind, heart, develop and human spirit. Marketing can contribute by serving more actively in developing the company’s plans for long run profitable growth.
“Within five years, if you run your business in the same way as you do now, you’re going to be out of business.” Philip Kotler