Philip Kotler Marketing To Compete

Rethinking Marketing To Compete in the Interlinked Economy
Philip Kotler, Ph.D
Kellogg School of Management
Northwestern University
San Jose, Costa Rica
April 22, 2009
www.aportasolutions.com

Your Action Agenda
Improve Marketing’s Role in Your Business
Find New Market Opportunities.
Find New Ways to Communicate.
Use New Technologies and Metrics.

1. Improving Marketing’s Role and Relationships in Your Company

Think About This
Easy times are the enemy; they put us to sleep.
Adversity is our friend. It wakes us up.
Dalai Lama, 2008

And This. “ When the storm comes, some build walls, the others build windmills.” Old Chinese proverb

Consumers Will Spend Less
Consumers will move toward favoring lower priced products and brands. They will replace buying national brands with store brands and even generic brands.
Consumers will reduce or postpone discretionary purchases such as autos, furniture, major appliances, and expensive vacations.
Consumers facing higher fuel costs will drive less and buy more from suppliers nearer to their work or home. They will rely more on their home for eating and entertainment.

Therefore Business Will Spend Less
Businesses will reduce production and order fewer goods from their suppliers.
Businesses will cut their rate of capital investment.
Businesses will cut their marketing budgets substantially.
Businesses will postpone new product development and put on hold major new projects.

What Should You Do?
DON’T DO NOTHING
DON’T PANIC!
AND DON’T MAKE ACROSS-THE-BOARD CUTS!!!

HERE IS HOW P&G ADJUSTED
Consider how P&G responded when they decided in a down period that they had cut marketing costs from 25% to 20% of sales to remain competitive. They took the following steps:
They standardized more their product formulations, packaging and advertising around the world.
They reduced the number of sizes and flavors
They dropped or sold some weaker brands
They launched fewer but more promising brands

Here Are Additional Adjustments
Drop uneconomic customer segments
Drop uneconomic customers within a segment
Drop uneconomic geographical locations
Drop uneconomic products
Lower prices or promote lower cost brands
Reduce or discontinue ads and promotions that aren’t working

Answer These Questions
Can your company lower the costs of paper, photography, and other production inputs by negotiating for lower prices or switching to lower cost suppliers?
Can your company switch to lower cost transportation carriers?
Can your company close down sales offices if they are not getting enough use?
Can your company put your advertising agency on pay-for-performance ?
Can your company replace higher cost communication channels with lower cost channels?
Can your company achieve more impact by shifting money for 30-second commercials into public relations or new digital media?
Can your company drop some product features or services for which customers don’t seem to care?
Can your company hold your marketing staff meetings and customer conferences in lower cost locations?

Respond Strategically
Track changes in customer wants and values.
Examine individual competitors’ weaknesses.
Protect your core market.
Decide in which markets to build market share.
Offer lower prices or add value to your offering.
Don’t let your values or long term goals slip.
Think Opportunity!
Source: Philip Kotler and John A. Caslione, Chaotics: The Business of Managing and Marketing in the Age of Turbulence (New York: AMACOM, Spring 2009).

Latent Opportunities Latent Vulnerabilities Chaos Strategy Selection Chaos Strategy Response 1 Strategy Response 2 Strategy Response 3 Scenario 1 Scenario 2 Scenario 3 Chaos impacts the Company Undetectable Turbulence Chaotics Management System Construction of Key Scenarios (Opportunities : Vulnerabilities) Unaddressed Turbulence Early Warning System (Addressed Turbulence) Detectable Turbulence

Corporate Level Branding

Building a Corporate Reputation
Are there any companies that you love or you would miss as a buyer if they disappeared? List them….
Amazon, Best Buy, BMW, CarMax, Caterpillar, Commerce Bank, Container Store, Costco, eBay, Google, Harley-Davidson, Honda, IDEO, IKEA, JetBlue Johnson&Johnson, Jordan's Furniture, LLBean, New Balance, Patagonia, Progressive Insurance, REI, Southwest, Starbucks, Timberland, Toyota, Trader Joe's, UPS, Wegmans, Whole Foods.
The researchers found these firms to be highly profitable.
Do customers love your company?
What is common to companies that are loved?
Source: Raj Sisodia, David B. Wolfe, and Jag Sheth, Firms of Endearment: How World-Class Companies Profit from Passion and Purpose (Wharton School Publishing, 2007)

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.
Source: Sisodia, et al.

Four CEO Views of Marketing
1P CEO
4P CEO
STP CEO
ME CEO

Stages in the Development of the Marketing Discipline
1. Selling stage .
4P stage .
3. STP stage .
Customer relationship management stage .
5. Co-creation stage .

AMA Definition of Marketing
“ Marketing is an organizational function and a set of processes for creating, communicating, and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stakeholders .”

Marketing Objective, Process, and Philosophy
CCDVTP
R -> STP -> MM -> I -> C
CIB

Marketing’s Role
In world class organisations where the customer is at the centre of the business model, marketing as a discipline is responsible:
for defining and understanding markets,
for segmenting these markets,
for developing value propositions to meet the researched needs of the customers in the segments,
for getting buy-in from all those in the organisation responsible for delivering this value,
for playing their own part in delivering this value and for monitoring whether the promised value is being delivered.
Professor Malcolm McDonald

What is a CMO Expected to Do?
Represent the voice of the customer (VOC) to others in the company and champion the development of a strong customer-orientation to build loyal customers.
Monitor the evolving business landscape and gather customer insights to help develop new products and services for achieving growth objectives.
Be the steward of the corporate brand and brand-building practice.
Upgrade marketing technology and skills in the company.
Bring insight into the corporate portfolio and synergies.
Measure and account for marketing financial performance and contain media and other service costs.

Sales Precedes Marketing
In the beginning there was sales.
Marketing appeared later to help sales people.
Marketing was originally located in the sales department.
Then marketing grew as a separate department responsible for the marketing plan (4Ps) and brand-building.
Marketing and sales are separate cultures with interdependent jobs to do.

Identify the Existing Level of Relationship Undefined Defined Aligned

The Sales Funnel Prospecting Qualifying Defining Needs Contract Negotiation Developing Solutions Proposal Preparation/ Presentation Revision & Issue Resolution Implemen-tation Purchase Intention Purchase Loyalty Customer Advocacy

The Marketing and Sales Funnel Purchase Intention Customer Awareness Brand Awareness Brand Consider- ation Brand Preference Purchase Loyalty Customer Advocacy Marketing Sales Handoff

Revise Your Sales Approach

Drop the Old Sales Model Source: Sandro Magaldi, Sales 3.0

Be a Value Merchant, Not a Salesman
Move from features to benefits to the worth of the offering.
Distinguish between the value of an offering and your pricing of the offering. Make the difference between your value and price superior to the competitor.
Your task is to be able to demonstrate (before) and document (during).
Stress the points of differences between you and the competitor, not the points of parity. Make sure that the differences matter to the customer.
Construct a value word equation for each point of difference and point of contention.
Our pump lasts 3 years rather than 2 years and will save you X dollars.
Source: James C. Anderson, Nirmalya Kumar, and James A. Narus, Value Merchants: Demonstrating and Documenting Superior Value in Business Markets (Harvard Business School Press, 2007.)

2. Find New Market Opportunities
“ A business has two—and only two—basic functions: marketing and innovation. Marketing and innovation produce results: all the rest are costs.”
Peter Drucker
“ While great devices are invented in the laboratory, great products are invented in the Marketing Department.”
William H. Davidow, former Senior Marketer
at Intel and author

The Issue
Innovate or stagnate.
But most innovations fail.
Consumer packaged goods…90%
B2B…20%
The ones that succeed are copied so quickly. Does it pay to innovate?
Yes. Stagnating is more fatal.

Opportunity-Driven Companies During the Downturn
Wal-Mart
McDonalds
TJ Maxx offers brand name women's and men's apparel, juniors and kids clothes at affordable prices.
Colgate’s tier 2 brands doing well
Makers of private brands
Pharma companies making sleeping pills
Hyundai offers to take back new car if job is lost
Toll Brothers in home construction is offering to cover 6-months of mortgage payments up to $2,500 per month if a person gets laid off of work after buying a home with Toll.

Three Innovation Models
Whirlpool Corporation launched an effort in 2000 to stimulate greater innovation. The company trained 400 employees from a wide variety of functions in a new process of “ideation.”
Shell Oil , in 1996, authorized a team of its employees to allocate $20 million to rule-breaking ideas originating anywhere in the company. Any employee can make a 10-minute pitch followed by 15-minute Q&A. Greenlight ideas get an average of $100,000 and up to $600,000. Of Shell’s 5 largest growth initiatives in 1999, 4 started this way.
Samsung Electronics established the Value Innovation Program (VIP) Center in 1998. Core cross-functional team members come together to discuss their strategic projects. Samsung runs an annual Value Innovation conference and awards are given for the best cases.

Six Ways to Get Ideas From Customers
Observe how your customers are using your product.
Ask your customers about their problems with your products.
Ask your customers about their dream products.
Use a customer advisory board to comment on your company’s ideas.
Form a brand community of enthusiasts who discuss your product.
Encourage or challenge your customers to change or improve your product.

Source: Blue Ocean Strategy

Reconstruct Market Boundaries Through a Six Paths Framework
1. Look across alternative industries
Home Depot (products and craft advice)
2. Look across strategic groups within industries
Curves (health club or home exercise)
3. Look across the chain of buyers
Canon (small copiers for homes, not companies)
4. Look across complementary product and service offerings
Barnes & Noble book stores
5. Look across functional or emotional appeals to buyers
Swatch (from function to emotion)
Body Shop (from emotion to function)
6. Look across time
. Toyota

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

Hotel: Lateral Marketing Thinking
Substitution : a free hotel room when the flight is cancelled.
Inversion : a hotel without a front desk.
Combinations : a hotel room with a sauna.
Exaggeration : hotel room with two king size beds.
Elimination : a hotel without a room.
Reordering : turning the radio on when leaving the hotel room.

3. Find New Ways to Communicate
One executive said that he needs to continue spending “big bucks” on advertising because he would be blamed if reducing this budget was accompanied by lower sales.
“ Advertising, as you know it, is dead… Advertising is a lot more than just television commercials—it includes branding, packaging, celebrity spokespeople, sponsorships, publicity, customer service, the way you treat your employees, and even the way your secretary answers the phone.” (Sergio Zyman)
The former CEO of P&G said that he would gladly switch half of his advertising budget to the Internet if he knew how to spend it effectively.

“If advertisers spent the same amount of money on improving their products as they do on advertising, they wouldn’t have to advertise them.”
Will Rogers
Remember…

The Basic Question and Challenge
TV ads have been the most effective way to build a brand, especially if there is one positioning.
When we reduce TV advertising, how can we replace it.
Answer: Narrative Branding.
The new media – websites, video, podcasts, consumer generated content – are long-form media. Marketers need to design compelling brand stories with richness and depth.
Narrative Branding is story-telling. It is designed around all senses: sight, sound, taste, touch and smell. Narrative Branding engages people through metaphors, co-creation and a compelling narrative arc.
Narrative branding replaces single positioning.

Make Use of the New Media
Traditional Media
Drum beats and smoke signals
Face-to-face sales calls
Writing
Leaflets and posters
Billboards
Newspapers
Magazines
Direct mail and catalogs
Telephone
Radio
TV
Film
Sponsorships
Street level promotion
Festivals
Trade fairs
Product placement
Digital Media
Websites
Email
Banners and pop-ups
Webcasts
Blogs
Podcasts
Videocasts
Mobile marketing
Social network sites
Stimulated buzz

Your Ads Are Small Compared to the Influence of Consumer-Generated Media (CGM)
Direct customer feedback to company Web sites
Online bulletin boards, chat rooms, forums, and discussions
Person-to-person e-mail
Blogs (personal Web logs/diaries)
Moblogs (sites where users post or send digital images, photos, video clips to others)
Consumer opinions and reviews on Web sites (amazon, netflix, zagat, planetfeedback, epinions)
Podcasts (audio files that can be downloaded and played on various devices)
Webcasts (internet live presentations)
Second Life
You Tube
Wikipedia (encyclopedia) and Flickr (photos)
Instant messages

Your Job is to Create Buzz
Mavens : they are an expert on a topic. You listen to them closely. Their motivation is to inform or explain.
Connectors : they know a lot of people. They are social glue. They may mention things to many others but are not seen as experts.
Salespeople : they are persuasive and help create an epidemic of interest.
Source: Malcolm Gladwell, Tipping Point

4. Use New Marketing Technology and Metrics
Direct marketing and predictive analytics
Marketing metrics
Marketing models
Sales automation
Marketing automation
Marketing dashboards

Some Metrics That Count
Market share
Customer satisfaction
Number of promoters to detractors
Retention rate
Customer lifetime value
Customer equity
Return on customer
Brand strength (perceived relative brand value)
Brand equity
ROI
DCF

Marketing Automation Plan Manage Execute Measure
Marketing
investment
management
Demand modeling
Marketing resource management
Campaign management
Lead management
Events management
Loyalty management
Media management
Marketing analytics
Web analytics

The power to deliver profit growth… P&G Soars Due To Marketing Efforts Brandweek, October 31, 2006 By Constantine von Hoffman BOSTON -- Procter & Gamble credited marketing improvements as part of the reason for its better-than-expected first quarter of fiscal ’ 07. “ We ’ re getting real traction from our marketing ROI and media-mix modeling, ” CEO A.G. Lafley said in a conference call with analysts today. “ That means we ’ re better able to reallocate ” what the company spends on marketing. He did say that this had helped improve the margins and increased earnings 33% during the quarter to $2.7 billion. Brand Week, November, 2006 CEO A.G. Lafley

Your Take-Aways
Organize your marketing more holistically and strategically and relate better to sales and to new product development, especially during the economic downturn.
Find new market opportunities by working with customers and using ideation frameworks (blue ocean strategy, lateral marketing).
Add newer media (websites, email, blogs, podcasts, webcasts, mobile phones, social networks, and buzz marketing) to replace some of your traditional media.
Incorporate new marketing technologies (marketing models, sales automation, marketing automation) to increase your company’s marketing productivity and financial results measurement.

“ Within five years. If you’re in the same business you are in now, you’re going to be out of business.”

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Philip Kotler Marketing To Compete

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