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A Strategy Document on The New Marketing Paradigm Holistic Marketing ● Lateral Marketing ● High-tech Marketing by PHILIP KOTLER Documentation Sponsored by Canon

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Kotler On Marketing How To Create, Win, and Dominate Markets
Philip Kotler, Ph.D
Kellogg School of Management
Northwestern University
Indiatimes Mindscape
Mumbai and Delhi
October 11, 12, 2004

Two Challenges Facing Indian Companies
Will Indian companies be able to defend their market against the growing invasion of foreign global brands?
Can Indian companies develop strong global brands?

Can Indian Companies Defend the Domestic Market?
Foreign competitors will not only go after the high end market in India. They will target the middle and eventually the low end.
The main defense for India will be developing stronger skills in innovation, differentiation, branding, and service. In a word, MARKETING!

But India Needs Stronger Marketing
Confusing marketing with advertising.
Advertising is hard sell.
Sometimes ads appear before the product is in distribution.
Some companies over-spend on advertising and go broke.
Little use of marketing research; can’t trust.
Therefore little segmentation of market and poor targeting.
Over focus on winning through low price; neglecting differentiation.
Retailers carry the same goods and their service is poor.

Marketing is More Important than Production!
The Indian manufacturer of a Hugo Boss shirt gets only $12, or 10% of the final price of $120 that is paid by a customer of Saks Fifth Avenue.
The retailer gets 60% ($72) and the Brand company gets 30%, or $36.
Would you rather be the manufacturer, Brand owner, or retailer?
The Indian manufacturer has no defense if the Brand Owner wants to switch to another manufacturer to whom he will pay $8 and keep $2 or pass it to the retailer to get more retail support.
Yet India pays more attention to the product engineer than the marketing “engineer.” But India’s future success will require investing in marketing and branding.

The Strategic Trajectory for India
Low cost, average quality domestic products.
Low cost, good quality domestic products.
Indian high-end products made for other companies.
Indian branded products (regional).
Indian branded products (global).
Indian dominant brands (global).

Ranbaxy Pharmaceuticals (India)
Originally sold bulk substances to unsophisticated markets but gross margins were too low to cover export costs.
New CEO, Parvinder Singh, challenged Ranbaxy to become a truly global company. He said: “Ranbaxy cannot change India. What it can do is to create a pocket of excellence. Ranbaxy must be an island within India.”
The company moved into higher-margin businesses like selling branded generics in large volume markets like China and Russia.
Ranbaxy then entered the U.S. and Western Europe. In just five years, more than half of its US$ 250 million revenues now come from outside of India.

The Case of Haier
Haier developed through three stages.
1. Fix quality
(Zhang Ruimin smashed 76 refrigerators).
2. Diversify
(Microwaves, toasters, air conditioners, dishwasher, vacuum cleaners, etc.)
3. Globalize
(Asia Region, U.S., Europe)
Haier entered with a U.S. partner and is challenging Whirlpool and GE.
Haier’s brand name products are sold in Wal-Mart, Best Buy, Sears, Lowe’s, Home Depot and Target.
Haier is promoted as a global brand, not a Chinese one. (Many people think it is German).
Puts lower price models in price-only stores and higher price models in top stores.

Five C’s Favoring India
Capital: India has and can attract capital.
Cost: Another 50 years of low cost production
Capability: Large number of trained workers, engineers, scientists, and business people
Consumers: Immense domestic market
Calm and stability: in a world of turmoil and uncertainty

A Quiz: Who Said This?
“ The purpose of a company is ‘to create a customer…The only profit center is the customer.’”
“ A business has two—and only two—basic functions: marketing and innovation. Marketing and innovation produce results: all the rest are costs.”
“ The aim of marketing is to make selling unnecessary.”
“ While great devices are invented in the Laboratory, great products are invented in the Marketing department.”
“ Marketing is too important to be left to the marketing department.”

My Message
Marketing’s performance has been disappointing.
You must replace your Old Marketing with New Marketing that is:
holistic,
technology-enabled,
and strategic.

Facing the Increasing Pressure for Marketing Accountability
Marketing has become a one P discipline = selling.
Marketing involves a great deal of waste.
$2 million for 30 seconds on the Superbowl.
Direct mail campaigns with a 1% response rate.
Cold sales calls which play the numbers.
High rate of new product failure.
Marketing costs are high and rising.
Marketing lacks accountability.
Marketing does not create major new ideas.
Marketing is too involved in short-term thinking.
Marketing doesn’t focus on its real assets.
Brands, customers, service quality, stakeholder relationships, intellectual capital, corporate reputation

Needed: Holistic Marketing
Marketing must become strategic and drive business strategy.
A company needs to take a more holistic view of:
the target customers’ activities, lifestyle, and social space.
the company’s channels and supply chain.
the company’s communications.
the company’s stakeholders’ interests.
Holistic marketing will require strong software support.

HOLISTIC RELATIONSHIP MARKETING FRAMEWORK MARKET SPACE POTENTIAL OPPORTUNITIES BUSINESS INVESTMENT CUSTOMERS CORPORATION COLLABORATORS CUSTOMER FOCUS CORE COMPETENCIES COLLABORATIVE NETWORK 2) How can we define relevant market space? 3) What are the potential opportunities emerging from the market space? 4) What business capabilities and infrastructure required? 1) Who is involved?

4 COMPETITIVE PLATFORMS Market Offerings COGNITIVE SPACE CUSTOMER VALUE BUSINESS DOMAIN COMPETENCY SPACE Business Architecture BUSINESS PARTNERS CRM ERP RESOURCE SPACE SCM Marketing Activities Operational System Creating Value Delivering Value Customer Focus Core Competencies Collaborative Network Exploring Value

Responding to Low Margins and the Economic Slowdown
Commoditization and rapid imitation leading to shorter product life cycles.
Competition of cheaper brands from China and elsewhere.
Rising selling and promotion costs and decreasing sales effectiveness.
Shrinking margins.
Proliferation of sales and media channels.
Power shifting to giant retailers who are demanding lower prices.
Recession: lower incomes and purchasing power.
Mergers, large company bankruptcies.

Improving Marketing Efficiency and Effectiveness
Improving marketing efficiency
buying inputs more efficiently
hunting down excessive communication and sales travel expenses
closing unproductive sales offices
cutting back on unproven promotion programs and tactics
putting advertising agencies on a pay-for-performance basis
Improving marketing effectiveness
replacing higher cost channels with lower cost channels
shifting advertising money into better uses
reducing the number of brands or sku’s
Improving supply chain responsiveness

Responding to the Economic Slowdown
Reevaluate your current resource allocations.
Geographical mix
Market segment mix
Customer mix
Product mix
Channel mix
Promotion mix
Decide whether to attack to gain market share rather than retrench.
Be sure to maintain the value proposition promised by your brand.
Try to add value instead of cutting the price.

Marketing Strategies Are Showing Diminishing Returns
Product differentiation is harder to achieve.
Acquisitions and mergers have as many failures as successes.
Internationalization is offering less opportunities because either the good markets are overcrowded or the poor markets have no money.
New products unfortunately fail more times than they succeed.
Price cutting doesn’t work because competitors will match.
Pricing raising doesn’t work since there isn’t enough differentiation to support it.
Cost cutting has eliminated much of the fat but is now risking cutting the muscles.

Strategies for Firms in Different Market Positions Jagdish Sheth, Singapore Marketer, 2002

Five Winning Strategies
Cost reduction : (IKEA, Southwest Airlines, Wal-Mart, Enterprise Rent-a-Car).
Improved customer experience (Starbucks, Harley Davidson)
Innovative business model (Barnes & Noble, Charles Schwab, FedEx, Sony).
Improved product quality (P&G, Toyota).
Niching: (Progressive Insurance, Tetra)

Dual Strategies
Planning for today
Defining the business.
Shaping the business to meet needs of today’s customers
Improving alignment between functional activities and business definition
Organization mirrors current business activities
Optimizing current operations to achieve excellence.
Planning for tomorrow
Redefining the business
Reshaping the business to compete for future customers and markets
Making bold moves away from the existing ways of doing business
Reorganizing for future business challenges
Managing change to create future operations and processes

In many markets, the growing number of competitors in mature markets leads companies to target niches of low profitability. Market Size Number of competitors Average profitability of all competitors or players Y O G U R T S M A R K E T Time

Some Vertical Marketing Methods
Modulation
The juice manufacturer varies the sugar content, fruit concentrate, with or without vitamins…
Sizing
Potato chips are offered in sizes 35 grams, 50 grams, 75grams, 125 grams, 200 grams, multi-packs…
Packaging
Nestle’s Red Box chocolates comes in different containers: cheap paper box for the grocery trade, premium metal box for the gift trade…
Design
BMW designs cars with different styling and features...
Complements
Biscuits with sugar spread on it, with cinnamon, with chocolate, with white chocolate, with black chocolate, filled biscuits…
Efforts reduction
Charles Schwab offers different channels for transacting such as retail stores, telephone, internet….

Lateral Marketing Process The case of Cereal Bars into Cereals for breakfast market Cereal varieties New category Vertical Marketing Process STREETS =

Baby dolls market Doll varieties New category Lateral Marketing Process Vertical Marketing Process To feel as... = Teenager The case of Barbie

Other Examples of Lateral Marketing
Kinder Surprise = candy + toy.
Seven Eleven = food + depot.
Actimel = yogurt + bacteria protection.
Gas station stores = gas station + food.
Cyber cafes = cafeteria + Internet.
“ Be the godfather of a kid” = Donation + adoption.
Huggies Pull-ups = diapers + 3 year olds.
Walkman = audio + portable
Source: Philip Kotler and Fernando Trias de Bes, Lateral Marketing: A New Approach to Finding Product, Market and Marketing Mix Ideas (Wiley, 2004)

Check Where You Stand
Marketing does the marketing -> everyone does the marketing.
Organizing by product units -> organizing by customer segments.
Making everything -> outsourcing more goods and services.
Using many suppliers -> working with fewer suppliers.
Emphasizing tangible assets -> emphasizing intangible assets.
Building brands through advertising -> building brands through integrated communications.
Attracting customers to stores -> making products available on-line.
Selling to everyone -> selling to target markets.
Focusing on profitable transactions -> focusing on customer lifetime value.
Focusing on market share -> focusing on customer share.
Being local -> being “glocal.
Focusing on the financial scorecard -> focusing on the marketing scorecard.
Focusing on shareholders -> focusing on stakeholders

MARKETING IS THE ART OF BRAND BUILDING
*
IF YOU ARE NOT A BRAND,
YOU ARE A COMMODITY .
*
THEN PRICE IS EVERYTHING
AND THE LOW-COST PRODUCER
IS THE ONLY WINNER!
Building Brand Equity

1. How Important is Branding?
The NUMMI plant in California produces two nearly identical models called the Toyota Corolla and the Chevrolet Prizm.
Toyota sold 230,000 Corollas compared to sales of 52,000 Prizms.
And Toyota’s net price is $650 higher!

A Strong Brand Improves Demand and Supply
On the demand side:
higher price
increased sales volume
lower churn
more brand stretching
On the supply side:
greater trade acceptance, more favorable supplier terms, lower rejection
lower staff acquisition and retention costs
lower cost of capital
better scale economics through higher volume

Names are Important in Branding
Donald Trump’s family name is Drumpf. But he can’t call it Drumpf Towers.
Alan Alda’s name was Alphonso D’Abruzzo.
Chinese gooseberry was renamed kiwifruit.
Paradise Island in the Bahamas used to be Hog Island.

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.

Your Company’s Brand
What word does your brand own?
2. Write down other words triggered by your brand name?
A. Circle the favorable words; square the unfavorable words.
B. Underline the words that are favorable but not widely known.
C. Double underline the words that are unique to your company.
3. Are any of the following a source for strengthening your brand’s personality?
A. Founders
B. Spokespersons
C. Characters
D. Objects
E. Stories and mythologies

2. How Do You Develop a Brand Concept?
“ The brand must be an essence, an ideal, an emotion. ” It must be supported by beautiful logos, clever tag lines, creative turns, edgy names, rave launch parties, big ticket giveaway promotions, and publicity buzz-making. (Advertising agency view)
“ The brand should have a target group in mind and be positioned to solve one of their problems better than competitive offerings.” Furthermore the brand’s reputation is ultimately based on product quality, customer satisfaction, employee communications, social responsibility, etc. (Kevin Clancy, CEO of Copernicus)

Branding Components
Name
Short, suggestive, memorable, unique, pronounceable
Slogan
Logo and typeface
Colors
Music
Themelines (Got Milk!)
Stationery and business cards
Offices
Trucks
Dress code

Brand Slogans
BA, “The World’s Favorite Airline”
American Express, “The Natural Choice”
AT&T, “The Right Choice”
Budweiser , “King of Beers”
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”

There is No Such Thing as a Commodity: Differentiate by Segments
Mobil conducted a study of 2,000 gasoline buyers and identified five segments:
Road Warriors (always driving)
True Blues (brand or dealer loyal)
Generation F3 (liked convenience store aspect)
Homebodies (fills up at nearest station)
Price Shoppers (20% of all the buyers)
Mobil rolled out Friendly Serve : cleaner property, bathrooms, better lighting, well-stocked stores, and friendlier personnel.
Mobil charged $.02 more and sales increased by 20-25 percent.

3. How Do You Promote a Brand?
“How do I justify spending millions on creating an image. That’s millions my customers have to spend when they buy from us.” Tom Parker, CEO of Clark’s shoes .
Brands are built by performance, not advertising.

Don’t Overuse Advertising to Build a Brand
People don’t pay that much attention to ads anymore (wallpaper).
Some exceptional TV ads grab attention but do not provide motivation.
Advertising doesn’t have much credibility or believability.
The existence of so much advertising makes advertising less effective. Yet the cost of advertising keeps rising.

Tools for Building Brands
Advertising (e.g.,Absolut Vodka)
Sponsorships (e.g., Kodak and Olympics)
Clubs (e.g. Nestle’s Casa Buitoni Club)
Company visits (e.g., Cadbury’s theme park, Hallmark’s Museum)
Trade shows
Traveling exhibits
Worldwide web casts of presentations, roundtables, entertainment
Distribution outlets (e.g., Haagen-Dazs)
Public facilities (e.g., Nestle Nestops)
Social causes (e.g., American Express)
High value for the money (e.g. buzz created by Ikea, etc.)
User community building (e.g., Harley-Davidson)
Founder’s personality (e.g., Colonel Saunders)
Celebrity spokespersons

4. What Makes a Strong Brand?
Strong brand = Product Benefits x Distinct Identity x Emotional Values
Peter Doyle, Marketing Management & Strategy , 1997

THE Y&R MODEL OF BRAND STRENGTH
A successful brand has brand vitality and brand stature .
Brand vitality consists of:
1. Differentiation , the brand is distinct
2. Relevance, the brand is meaningful and personally
appropriate.
Brand stature consists of:
1. Esteem , the brand is seen to have quality and momentum.
2. Familiarity , the brand is known and understood by many people.
Some conclusions:
1. A brand that has high familiarity but low likeability is a troubled brand.
2. A brand that has high likeability but low familiarity has high advertising potential.
3. A brand with high vitality but low stature has excellent potential.
4. When a brand’s differentiation and relevance start slipping, esteem will slip next, and then familiarity will decline.

Characteristics of Strong Brands
Provides superior delivery of desired benefits.
(Starbucks, FedEx, Amazon)
Maintain innovation and relevance for the brand.
(Gillette, Charles Schwab)
Establish credibility and create appropriate brand personality and imagery.
(Apple, Virgin)
Communicate with a consistent voice.
(Coca-Cola, Accenture)
Strategically design and implement a brand hierarchy and portfolio.
(BMW, The Gap)

Strong Brands Supply Use Value as Well as Purchase Value
Nestle:
Sells baby food
Provides free dietitian phone line
Nestops along the highway
Home Depot:
Sells home improvement products, such as paint, electrical supplies, plumbing
Offers free kitchen remodeling design service
Offers free workshops on how to paint, fix faucets, etc.
Volvo
Teaches safe driving,
Supports lower insurance rates for safe drivers

When Do You Stretch a Brand Name?
Mercedes is putting its name on large, medium and small cars.
Gap decided to invent Old Navy in going down and buying Banana Republic in going up.

How Do You Revitalize a Brand?
A dowager brand pioneered the market but now is declining. It will be hard to reverse the decline and give it new life but the decline can be slowed down.
Two general approaches:
Marketing mix modification
Improve the product, distribution, price, or promotion
Market modification
Find new segments, new usage benefits or occasions, more frequent usage, etc.
Find out to whom the dowager brand is losing share:
Old peer brands
New peer brands
Retail store brands
Generic brands
Elite brands
Find out to whom the dowager brand is losing sales.
Interview people who defected to each competitive class and their dissenting rationales.
Determine a counterlogic for each group and direct them to the groups that can most easily be won back.
Source: Dennis W. Rook and Sidney J. Levy, “Defending the Dowager: Communication Strategies for Declining Main Brands.”

How Do You Rationalize Your Product Line?
Unilever found that the largest 50 brands accounted for 63% of its revenues.
Unilever decided to emphasize 400 core brands and dispose, delete or consolidate 1,200 of its marginal brands.
Unilever selected its 400 core brands based on brand scale, brand power (#1or 2), and brand growth potential.
40 brands were designated as core global brands (e.g., Dove, Knorr, Lipton), and 360 as regional core brands.
The core brands would get disproportionate investments in advertising and promotion, innovation, marketing competence and management time. The core brands would be extended.
Weak brands had small market shares; poor profitability; negative cash flow; weak channel support; disproportionate consumption of management time.
The weak brands would be milked, sold, delisted, or their attribute would be migrated to another brand.

What Are the Most Frequent Causes of Brand Failure?
Failure to live up to the brand promise.
Failure to adequately support the brand.
Failure to adequately control the brand.
Failure to properly balance consistency and change with the brand.
Failure to do brand equity measurement and management.

Building Customer Equity
How customer-centered is your company? How do you measure this?
Does your company need to be more customer-centered? To all customers or only the more important customers?
How can you go about becoming more customer-centered?
How much would this cost you in new technology and training?
How much would you gain as a result of becoming more customer-centered?

Achieving Outcomes in Market Space
Achieving a deep customer focus is not done simply by building a customer database or customizing your product offerings.
A company must define its marketspace not in terms of products but in terms of customer outcomes.
Baxter Healthcare supplies “home-recovery enhancement,” not just nursing care or wheelchairs.
IHI, a health insurance company, operates in the “lifetime health and personal safety” marketspace.
A company then examines the customer activity cycle and the value gaps.
The company then invests in filling the major value gaps.
The company ends up being favored and grows through doing more things better for their customers.
Source: Sandra Vandermerwe, “Achieving Deep Customer Focus,” MIT Sloan Management Review, Spring 2004, pp. 26-34

Achieving Deep Customer Focus
Create strategic excitement.
Enlist “points of light.”
Articulate the new market space focused on customer outcomes .
Identify the value opportunities through using the customer activity cycle.
Build a compelling case (not through a plan but a story).
Size the prize.
Modeling the concept with a few chosen customers.
Get people working together.
Get critical mass.
Gather momentum.
Source: Sandra Vandermerwe, “Achieving Deep Customer Focus,” MIT Sloan Management Review, Spring 2004, pp. 26-34.

Building Customer Equity
Reduce the rate of defection.
Increase the longevity of the relationship.
Enhance the growth potential of each customer through cross-selling and up-selling.
Make low-profit customers more profitable or terminate them.
Focus disproportionate effort on high value customers.

Components of Customer Equity
Customer equity is driven by:
Value equity
Brand equity
Relationship equity.
Companies must decide which driver(s) underlie each equity.
Source: Roland T. Rust, Valerie A. Zeithaml, and Katherine A. Lemon, Driving Customer Equity (New York Free Press 2000).

Transaction Marketing vs. Customer Relationship Marketing
Customer Relationship Marketing (CRM) represents a paradigm shift from Transaction Marketing (TM).
TM companies focus on products and making a sale. CRM companies focus on building a long-term relationship that produces satisfaction for the customer and profitability for the company.
TM companies promote everywhere in search of customers. CRM companies promote to a defined customer group and aim to make the right offer at the right time using the right channel to the right customer.
All companies must practice a mix of TM and RM. TM will be stronger in companies facing a large number of customers; RM will be stronger in companies facing a small number of customers.

Treat Different Customers Differently
Most profitable customers
Most unprofitable customers
Most growable customers
Most vulnerable customers

Needed: Technology-Enabled Marketing
Technology-enabled marketing (TEM) combines information technology, analytical capacities, marketing data , and marketing knowledge , made available to one or more marketing decision makers to improve the quality of marketing management.

A 5 Step Model for Database Marketing
Gather useful data on customers.
Classify customers by their needs and by their value to the firm.
Prepare business rules that select the best prospects.
Customize marketing treatments for each prospect in terms of product offers, service mix, media, and channel.
Set up accountability procedures.

Database Marketing is Expensive!
Requires a tremendous investment in information gathering about individual customers and prospects.
Requires constant updating of information.
Some critical information may not be available.
Requires a high investment in hardware and software.
Requires integrating individual customer information from a variety of sources.
Requires people skilled at data mining.
Requires managing and training employees, dealers, and suppliers.

Does Every Business Need CRM?
No. The following businesses may not benefit from CRM:
Businesses where the CLV is low.
Businesses with high churn.
Businesses where there is no direct contact between the seller and ultimate buyer.
Companies that are in the best position to invest in CRM.
Companies that collect a lot of data (banks, insurance companies, credit card companies, telephone companies).
Companies that can do a lot of cross-selling and up-selling (GE, Amazon, etc.).
Companies whose customers have highly differentiated needs and are of highly differentiated value to the company.

Introduction Growth Mature Decline Database Management & Warehousing Historical Database Analytics Database-Driven Marketing Performance Dashboards Marketing Mix Modeling / Marketing Management Work-Flow Solutions Marketing Resource Management Campaign Management Yield-Based Pricing Optimum Tools Marketing Technology Platforms on the Market Development Curve Source: Gary Morris, Adapted from Marketing Advocate, Inc . Predictive analytics

Precision Marketing
Precision marketing is achieved through looking at large quantities of historic data with the help of data mining tools that search for meaningful patterns, and then creating mathematical equations that represent the underlying relationships within the data.
Predictive analytics are used to identify the right offers and right messages to beam through different channels to narrow customer segments, based on the propensity to respond. The expected profit of a campaign can be estimated.
Many tactical marketer tasks will be automated and free up marketers to focus on more strategic decision making.

SALES AUTOMATION
The objective is to empower the salesperson to be an informed salesperson who virtually has the whole company’s knowledge at his or her command and can provide total sales quality .

Marketing Automation
Areas Ripe for Marketing Automation:
Selecting names for a direct mail campaign
Deciding who should receive loans or credit extensions
Allocating product lines to shelf space
Selecting media
Customizing letters to individual customers
Targeting coupons and samples
Pricing airline seats and hotel reservations

Marketing Decision Models and Marketing Mix Response Models
BRANDAID
CALLPLAN
DETAILER
MEDIAC
PROMOTER
ADCAD
See Kotler, Marketing Models

Marketing Dashboards
Tools dashboard
Processes dashboard
Performance dashboard

Marketing Work-Flow Process Tools
Project management
Product management
New product development
Campaign management

Exploit the Internet!
Research a new product on the Internet (panel research, chat rooms).
Create a site to explain how an existing or new product works ( ex., Tide ).
Create a site that consults on a category ( Colgate on dental problems ).
Create a site that consults on the customer’s profile ( Elizabeth Arden).
Sponsor a chat room around your product category.
Answer email questions instantly (Nestle baby care questions).
Send free samples of new products ( freesample.com ).
Send coupons of new products ( coolsavings.com ).
Customize your product ( Acumin vitamins).
Offer to sell very large orders direct.
Offer valuable information to people who will register on the site.

Is New Technology Enough?
NT + OO = EOO
New Technology + Old Organization = Expensive Old Organization

Technology-Enabled Marketing: Examples
Royal Bank of Canada
Decision to purchase CRM
Halifax Bank
Teller suggests financial products
Capital One
A credit card for everyone, but with different interest rates, credit lines, and cash advances.
Tesco supermarkets
Tesco has identified 5,000 customer “needs” segments. It sends out some 300,000 variations of any given offer with redemption rates of 90%. It has formed clubs such as Baby Club, A World of Wine Club, My Time Club
Kraft
Kraft has the names of 110 million customers and 20 thousand facts for each household. Kraft launched print magazine, Food & Family, that is delivered to the homes of 2.1 million Kraft customers in 32 versions tailored to 32 segments.

10 Earmarks of the New Marketing
Recognize growing customer empowerment.
Develop a focused offering to the target market
Design the marketing from the customer-back.
Focus on delivering outcomes, not products.
Draw in the customer to co-create value.
Use newer ways to reach the customer with a message.
Develop metrics and ROI measurement.
Develop high-tech marketing.
Focus on building long run assets.
View marketing holistically to regain influence in the company.

1. P&G Recognizes the New Consumer
Consumers want a conversation, to dialogue, to participate, to be more in control…We’re going from one-dimensional, product-myopic marketing to three-dimensional marketing – that offers better solutions…more delightful experiences… and the opportunity for on-going relationships.
Alan Lafley, CEO, P&G

Do-It-Yourself Marketing
Self-Inform : Customers can research products and issues without relying on experts (e.g., WebMD, MedlinePlus.com)
Self-evaluate : Customers can compare product features and prices with a few clicks of a mouse (e.g., PriceGrabber.com, DealTime.com)
Self-segment : Customers can design and configure products (e.g., Dell, Reflect.com)
Self-price : Customers can propose prices to sellers (e.g., eBay, PriceLine.com, Free Markets)
Self-support : Customer can resolve problems by searching knowledgeable bases and discussion forums (e.g., www.remotecentral.com, www.treocentral.com )
Self-program : Customer can define their own media programming (e.g., TiVo, MyYahoo!)
Self-organize : Customers can join communities of interest to discuss products and issues (e.g., Meetup.org., IVillage)
Self-advertise : Customers can create feedback for their peers (e.g., Amazon.com, Planet Feeeback, BlogSpot.com)
Self-police : Customers can monitor reputations of manufacturers (e.g., eBay, BizRate.com)
Source: Mohan Sawhney lecture

The Evolution of Marketing Adapted from Prahalad and Ramaswamy 2004 Active dialogue with customers and communities Observe customers and learn adaptively Survey customers to elicit needs and solicit feedback Nature of customer interaction Engage customers in defining and co-creating unique value Attract, develop and retain profitable customers Define and create value for consumers Role of firm Prosumers-active participants in value co-creation Portfolio of relationships to be cultivated Passive buyers to be targeted with offerings Role of customer Market is a forum where value is co-created through dialogue Market is where various offerings appear Place where value is exchanged View of market Co-created experiences The customer relationship in the long run The company offering in an exchange View of value Beyond 2000 1980s 1950s Time frame Collaborative Marketing Relationship Marketing Transactional Marketing

2. Develop a Focused Offering to the Target Market
Value customers : Which customer segment(s) do we want to serve?
Value proposition : Can we create a value proposition that delivers superior value through dramatically higher benefits or lower costs?
Value network : Can we run a better network or radically redefine the value delivery system for the industry such as Dell and IKEA have done?
3Vs framework of Nirmalya Kumar

Choose to Serve a Unique Set of Customer Values
1. Identify the value expectations of potential customers.
2. Select the values on which to compete.
Nike values: Winning, roar of the crowd, extreme effort, the smell of sweat, physical development
New Balance values: Self-improvement, inner harmony, balanced, the smell of nature, spiritual development
3. Analyze the ability of the organization to deliver those values.
4. Communicate and sell the value message.
5. Deliver the value promised and continuously improve the company's value model.
See J. Nicholas Debonnis, et. al, Value-Based Marketing for Bottom Line Success: 5 Steps to Creating Competitive Value (McGraw-Hill, 2004)

3. Design the Marketing From the Customer-Back
Marketing must be run as a set of value finding, creation, and delivery processes, not 4P functions. The four Ps are seller oriented.
The 4As are buyer oriented.
Awareness (A1)
Acceptability (A2)
Affordability (A3)
Accessibility (A4)
Market value potential = A1 x A2 x A3 x A4
If A1=100%, A2=100%, A3=50%, A4=50%, Then MV=25%
Source: Jagdish Sheth

4. Focus on Delivering Outcomes, Not Products. Source: Kumar Indirect materials mgt. MRO items WW Grainger Guaranteed uptime Trucks Scania Broken rock Explosives ICI Explosives Uninterruptible power Diesel engines Cummings Animal weight gain Animal feed BP Nutrition-Hendrix Painted cars Gallons of paint Akzo Nobel Solutions focus Product focus Company

Visualize a Larger Market
Nike now defines itself in the sports market rather than the shoe and clothing market.
The late Roberto Goizueta told his company that while Coca Cola had a 35 percent share of the soft drink market, it had only a 3 percent share of the total beverage market.
Armstrong World Industries moved from floor coverings to ceilings to total interior surface decoration.
Citicorp realized that it only had a small share of the total financial market which includes much more than banking.
Taco Bell went from selling food in stores to “feeding people everywhere” including kiosks, convenience stores, airports, and high schools.
Jack Welch asked product managers to redefine their market so that they only had a 10% share.

5. Draw in the Customer to Co-create Value: Two Approaches
Offer a wide product line so the customer can choose something closer to the customer’s desires.
M&M allows customers to special order M&Ms in 21 colors.
Branches Hockey let’s players pick from 26 options: length of a stick, blade patterns, etc.
Stand ready to customize according to the customer’s wishes.
Dell computers are designed by customers
Lands’ End sells tailor-made chinos.
P&G on its reflect.com site lets shoppers design everything from eye moisturize to liquid foundation makeup.
Yankee Candle Company will mix colors and scents to make the candles you want.
Other examples: golf clubs, breakfast cereals, credit card companies

Examples of Collaborative Marketing
P&G’s site has a We’re Listening section and Share Your Thoughts section and Advisory Feedback sessions.
GM offers an AutoChoiceAdvisory on its website
Cisco runs Customer Forums to improve its offerings.
A motorcycle in Italy is being designed by customers.

6. Use Newer Ways to Reach the Customer with Relevant Messages
Make your ads more precise as to who they reach and more relevant.
Let consumers indicate if they have an interest or not. Stop pestering them.
Deliver valuable content with each ad, such as useful information or entertainment.
Reach consumers in newer ways.

Newer Ways to Reach Customers
Sponsorships
Mentions on talk shows
Product placement
Street-level promotion
Festivals
Celebrity endorsements
Mobile billboards

Creating Buzz on the Streets
Chrysler’s PT Landcruiser appeared in fashionable areas and college tailgate parties. 250,000 prospects requested information before official ad campaign began in April 2000.
Models drove around Los Angeles on Vespa scooters and chatted with customers in cafes and bars.
Ford identified 120 people in six key markets and gave them a Focus to drive for 6 months and promotional material.
Vans builds skateboard parks at malls and sponsors Vans Triple Crown.
Hasbro enlisted “cool” pre-teens to play the POX game and tell their friends about it.
Tourist goes into lounge and her telephone rings and picture of the caller appears on the phone.

7. Develop Metrics and ROI Measurement Customer profitability Source: Kumar Customer retention rate Channel profitability Market profitability Customer acquisition costs Market share in each channel Brand profitability Product profitability Sales growth Customer complaints Channel efficiency Brand loyalty Percentage of sales from new products Market share Average transaction size Channel trust Brand esteem Perceived product quality Market penetration Customer satisfaction Channel penetration Brand awareness Relative product quality Markets Customer Segments Channels Brands Products

8. Develop High-Tech Marketing
Predictive analytics
Sales automation
Marketing automation
Marketing models
Process dashboards
Performance dashboards
Campaign management
Project management
New product management

9. Focus on Building Long-Run Marketing Assets.
Brands and brand equity
Customers and customer equity
Service quality
Stakeholder relationships
Intellectual knowledge
Corporate reputation

10. View Marketing Holistically
Marketing must become strategic and drive business strategy.
A company needs to take a more holistic view of:
the target customers’ activities, lifestyle, and social space.
the company’s channels and supply chain.
the company’s communications.
the company’s stakeholders’ interests.

Two Models of Management
Profit-based management
Reduce costs
Reduce compensation
Replace people with technology
Price to extract maximum value
Sell more products
Acquire lots of customers
Loyalty-based management
Invest in marketing assets
Give superior compensation
Leverage people with technology
Price to reward customers
Deepen customer value
Acquire customers selectively
Source: Frederick Reichheld, The Loyalty Effect

Conclusions
Marketing is definitely not filling its potential.
Marketing must become the driver of business strategy.
Companies need to adopt a more holistic view of the marketing challenge.
Companies need lateral marketing thinking to conceive of new product and service ideas.
Companies need to choose from five major strategic paths.
Companies need to move from a product focused to a market and customer focused organization.
Companies need to build, measure and manage brand equity and customer equity.
Companies need to move to technology-enabled marketing to achieve precision marketing and develop better measures of ROI impact.

“ This time like all times is a good one, if we but know what to do with it.” Ralph Waldo Emerson THANK YOU!

Philip

by iherrero on Sep 04, 2008

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