A Framework for Profitable Growth: The Three Pillars of Marketing


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The three pillars outlined in this whitepaper - brand building, market development and customer development - provide a strategic framework for sustainable value creation and profitable growth. Although marketing priorities may vary at any given point in time, they will most likely always fall under the umbrella of these three overarching strategies. Using this construct helps busy marketing exectives stay focused, grounded and increases their value as a strategic partner in the executive suite.

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A Framework for Profitable Growth: The Three Pillars of Marketing

  1. 1. CREATIVE SOLUTIONS A Framework for Profitable Growth: The Three Pillars of Marketing
  2. 2. cREATiVE sOLUTiONs A Framework for Profitable Growth: The Three Pillars of Marketing EXEcUTiVE sUMMARy When one looks at successful, enduring companies, several shared characteristics emerge. They offer products and services that customers find relevant, they know who their target buyers are and they occupy a unique place in the market. All of these key elements are, at least primarily, the domain of marketing. And yet, too often, marketing departments aren’t really focused on these core issues. Instead, they’re thinking about the next promotion they’re going to run or the next tradeshow they’ll be attending. At B2B companies, in particular, marketing is frequently viewed as an extension of the sales department. While it’s important to support day-to-day selling activities – for example creating product literature or announcing new services on social media – its mission shouldn’t stop there. For established businesses, there’s a strong tendency to take these larger concerns for granted, which is one the reasons many marketers focus almost exclusively on short-term challenges. The problem is that markets aren’t static. When new competitors crop up, or customer preferences change, the results can be jarring. One of the classic examples is Polaroid, a company that either didn’t foresee, or failed to plan for, advances in digital technology. As a result, the once-revered enterprise went bankrupt and squandered its reputation as a market leader. History is full of similar, though often less prominent, stories. For companies to thrive, and to continue thriving, they have to understand the true mission of marketing: to drive profitable, long-term growth. At a broad level, firms achieve this goal by mastering the three different “pillars” of marketing: brand building, market development and customer development. Put simply, they need to have clear positioning, acquire profitable customers and maximize marketing investments. The three pillars form the basis of a mental model, depicted below left, that can provide marketers with much-needed perspective. Rather than focusing on the near-term impact created by tactical marketing activities, managers begin to see how marketing can affect the bigger picture through attainment of three critical outcomes – brand equity, market share and lifetime value. These three marketing metrics are arguably most important because they align most closely with the longer-term financial objectives of most organizations. Marketing strategies implemented cohesively across the three pillars are additive and culminate in maximization of long-term profitable growth and brand equity. For this reason, we will specifically discuss the concept of brand equity in greater depth during our last section. Naturally, the amplification of marketing’s role requires buy-in from senior management. And yet, too often, it isn’t there. Many organizations today don’t have a marketing representative in the C-suite, a sign that top executives downplay its role. According to a recent PricewaterhouseCoopers survey, only 18 percent of directors said that adding marketing expertise to the board was very important, significantly trailing other disciplines. This is an unfortunate state of affairs. When executives expect bigger things out of their marketing team and allocate resources accordingly, the results can be extraordinary. The first step is realizing that long-term profitability depends as much as anything on a solid go-to-market strategy. Building that strategy around the three primary marketing pillars can help ensure lasting success. Continued Innovative People Redefining Print
  3. 3. The Three Pillars of Marketing 3 BRAND DEVELOPMENT The first of the three pillars, or columns, is “brand building.” While developing a great brand is a complex process, it starts with the right positioning. Companies need to understand why their product or service is different from competitors and how it’s relevant to consumers. This is really the foundation of a great marketing plan because, when the brand position isn’t solid, everything else falls apart. The power of great positioning is that it enables small and medium-sized companies to compete against larger competitors who may have advantages in other areas, such as cost and distribution. This is especially true in retail. Smaller players can win over customers by providing something different, whether it’s unique merchandise, superior customer service, a distinctive store experience or exciting events. This sounds straightforward enough, but it’s surprising how many businesses struggle with defining their brand and who their target customer is. In such cases, they find out only afterward that the product or service they deliver isn’t meeting the needs of the market. The business may put a band-aid over the problem by running promotions or slashing prices to liquidate inventory. And suddenly, earnings erode. Steinhafels, a family-owned furniture retailer, illustrates this point. In a category that was particularly hard-hit by the economic downturn, the Wisconsin-based company managed to remain profitable and grow its geographic footprint. It did this by combining the appeal of a small retailer – strong customer service and a family-oriented culture – with the benefits of a superstore. That means great product selection from a wide range of vendors and value-added services like interior design expertise. In their insightful book Blue Ocean Strategy, W. Chan Kim and Renée Mauborgne outline the main criteria for a successful brand identity. Among them are what they call “focus” and “divergence.” Focus simply means understanding what your brand is and what it isn’t. It stands to reason that if a company can’t clearly articulate where its place in the market is, customers won’t either. Divergence, the degree to which an offering differs from the competition, is perhaps even more important. One of the biggest mistakes companies can make is trying to follow the competition, offering only incremental differences. By contrast, organizations achieve greatest success by creating unique, uncontested spaces in the market – what Kim and Mauborgne call “blue oceans.” Brand Development – Key Metrics • Price premium – The amount consumers are willing to pay for a brand in comparison to other, similar offerings. Typically, buyers will accept a premium for products and services that offer greater value than the competition. • Customer acceptance – Companies that have strong brands stand a better chance of launching new products successfully. “Time to profitable revenue” is a measure of how long it takes for a product’s sales to eclipse the firm’s upfront development and marketing costs. Source: Laura Patterson, Measure What Matters Building a competitive advantage is by no means a one-time event, especially given the way online shopping and mobile technology are changing customer preferences. The cosmetics retailer Ulta is a good example. For years, the company’s convenient “off-mall” locations and extensive product selection provided a compelling alternative to department stores. However, some observers believe that Amazon.com and other Internet competitors are at least starting to threaten its business model. To stay relevant, the company is being forced to adjust its identity. One of the ways to measure the effectiveness of brand-building is through the presence of a price premium. When companies offer a unique, compelling product, customers are generally willing to pay more than they would for competing brands (the exceptions are discounters like Walmart and Kmart, whose buyers shop largely on price). This ultimately results in higher margins and greater profitability for the organization. To determine the presence of a premium, it may be helpful to survey customers and ask how much they would be willing to pay for various brands in the same category. Pricing strategist Rafi Mohammed prefers a more qualitative approach. Instead of discussing price directly, he asks buyers of a Continued Innovative People Redefining Print
  4. 4. The Three Pillars of Marketing particular brand what rival products they consider purchasing. If they have trouble naming any, the company has created differentiation and is more likely to justify a higher price point. This information can have an important secondary benefit as well. As marketing expert David Aaker notes, “knowing the brand’s value helps to calibrate brand-building investments, and changes in value can assist in the evaluation of marketing programs.” Another sign that you’ve truly created a blue ocean is the initial acceptance of your products or services. Again, there are both quantitative and qualitative ways to measure this. Are your items flying off the store shelf from Day 1? If your business relies heavily on personal selling, do potential buyers sound enthusiastic when you discuss a new product line? These are early indicators that you’ve established an uncontested space in the market with high profit potential. MARKET DEVELOPMENT Carving out your “blue ocean” is one thing – getting people to swim in it is quite another. The importance of acquiring new customers, and doing so at a lower cost than your competitors, is hard to understate. A bigger share of the market brings not only revenue growth, but economies of scale, brand recognition and bargaining power with suppliers and channel partners. The challenge today, especially for B2C businesses, is to keep up with dramatic changes in buying behavior. More than a decade ago, the Internet allowed consumers to become more active participants in the buying process. With the widespread adoption of smartphones, that trend is accelerating at a breakneck pace. Now, shoppers can look up and compare different brands virtually anywhere, at any time. The folks at Google have Market Development – Key Metrics • Market share – The brand’s share of all the products in a specific category. Simply divide the brand’s sales volume by the total sales volume of the entire category. • Customer acquisition cost – How efficient a company is at bring new buyers on board. To calculate, determine the ratio of costs (marketing, labor and any other expenses) to the number of new customers during a set period of time. 4 a term for this pre-purchase research: The Zero Moment of Truth, or ZMOT. What’s startling is the extent to which ZMOT has become part of the buying process. According to a Google study, nearly 80 percent of individuals today use a smartphone when they’re shopping. And they’re looking up virtually everything they buy, not just big-ticket items. A few years ago, consumers would sit down at their computer to find the right car. Now, plugging into the web is so easy that they’re looking up reviews for cans of house paint or a toaster. Marketers have to realize that, at some point, an individual is likely to online before deciding what to buy and where to buy it. This paradigm shift changes the way we build awareness of our brand. It’s no longer a matter of buying more advertising than the competitor or getting better placement in stores. Increasingly, gaining market share is a function of search results. If you’re an electronics store, does your name come up when local residents search for televisions or stereo equipment? If your business sells specialty apparel, do pertinent keywords take the customer to your homepage? If not, it’s probably time to revisit your search strategy. The good news, especially for small- and mediumsized businesses, is that companies today can increase their search engine visibility without huge outlays. An effective social media strategy is invaluable. By engaging key influencers in the social sphere and providing interesting content that’s linked back to the company website, a move up in the rankings is almost sure to follow. Another highly effective strategy for attracting online visitors is providing video content, whether it be on the corporate website, YouTube or any other relevant spaces. Search engines love multimedia content, which is why, according to Searchmetrics, video clips appear in roughly 70 percent of Google’s top 100 listings. Given the diminishing cost of digital production equipment, the barriers to doing so are lower than ever. But gaining visibility is only one half of the equation. Once customers discover you online, your site has to aid the decision-making process. In other words, you need to convert prospects into buyers. Continued Innovative People Redefining Print
  5. 5. The Three Pillars of Marketing More than ever, it’s important for marketers to step back and view your digital storefront from the shopper’s perspective. Asking these questions about your online presence can be invaluable: • Are you describing your products and services in language that your customers use? • Are you using software to show what different options – for example different color or patterns – look like on an item? • Is it easy for customers to find the nearest location or make a purchase on the web or their phone? • Are there unbiased customers reviews that educate the buyer and help you build credibility? • Can shoppers view videos that show the product in action or from different angles? So where does this leave traditional media, like print and broadcast? It turns out, they’re still extremely relevant. In fact, a Google/Shopper Sciences survey found that television, direct mail and publication inserts are still the most effective ways to trigger interest in a product or store, far ahead of online ads. These tried-and-true channels can play an important role by breaking through the clutter, something that’s much harder to accomplish in the digital realm. 5 seamlessly carry the individual into the next stage of the process. The more successfully marketers do this, the better their odds of earning the sale. The terms “multi-channel” and “omni-channel” are thrown around a lot these days, but many organizations struggle to build synergies with their media mix. Again, looking at your marketing efforts through the eyes of the customer is vital. Is it easy for someone who receives a newspaper insert or direct mail piece to extend their engagement with your brand on a mobile device? If not, some re-tooling is probably in order. Fortunately, there are a growing number of ways to make different brand experiences spill over into each other. For instance, a growing number of advertisers are putting QR codes on store signage or direct mail so that customers can further their product research electronically. As long as the mobile site that they’re activating is compelling and customer-friendly, this can be extremely valuable. But the options don’t end there. Some forwardthinking manufacturers and retailers are starting to offer augmented reality apps either in the store or in their print materials. Now, a consumer can scan an image of a shoe in their favorite catalog and see how it looks in different colors and from different angles. For shoppers that want to research and get a feel for products like never before, opening up these kinds of experiences is powerful. CUSTOMER DEVELOPMENT One of the common mistakes that companies make is to put virtually all their effort into finding new customers and take for granted those that they already have. The problem is that converting non-buyers into buyers is much more expensive than simply retaining existing ones. From a profit standpoint – and again, that’s where the focus has to be for marketers – retention has to be a major emphasis. This is the third pillar of great marketing. What the digital revolution does mean is that companies need to think about their campaigns holistically. The graphic above shows what a typical shopping experience looks like today. A direct mail piece or television ad might be the stimulus that puts the buyer in motion, but he or she is likely to seek more information before making the purchase. So the print pieces we mail out, for example, should Researchers from Columbia Business School analyzed a range of companies and found that, on average, a 10 percent increase in retention led to a 30 percent boost in lifetime value. One is hard-pressed to think of many factors that bring this kind of return on investment. But retaining customers also has a secondary benefit. Continued Innovative People Redefining Print
  6. 6. THE THREE PiLLARs OF MARKETiNG cUsTOMER DEVELOPMENT – KEy METRic • customer lifetime value – An estimate of the profit a customer will bring over the lifetime of the relationship. One of the simplest ways to calculate CLV is to multiply the customer’s average monthly revenue by the gross margin and divide this number by the monthly churn rate (the percentage of customers a business loses over a period of time). When the same people are buying your products and services year after year, it becomes much easier to understand their motivations and values. As Ron Strauss and Bill Neal point out in their book Value Creation: The Power of Brand Equity, “This insight enables you to become smarter about anticipating and meeting their needs, and crafting your brand promise so as to increase your brand’s differentiation and relevance.” When organizations make customer development a bigger priority, collecting and analyzing information about the customer becomes imperative. When you know who’s buying high-margin items and who’s most enthused about your brand, it suddenly becomes possible to focus your efforts. Gathering insights is no longer the domain of large, multinational corporations; in the digital world, small and medium-sized businesses should be targeting shoppers with the same precision. 6 best salespeople, so making them feel valued is key. This extends into the social media sphere as well. Marketers should be staying on top of what their customers are saying online, good or bad. When you have an effective brand advocate tweeting about you, a little encouragement and appreciation can go a long way. Entrepreneur Alex Lawrence suggests sending your most loyal followers a personalized “thank you” email along with a special coupon code or other incentive. Rewarding these “brand ambassadors” is logical enough, but it’s surprising how many companies fail to nurture this vital group. It stands to reason, however, that such efforts have little impact if the customer isn’t satisfied with their purchase. A number of great companies recognize this fact through their deference to existing shoppers. Outdoor apparel retailer L.L. Bean is one case in point. If customers aren’t completely happy with merchandise, they can either return it to a A robust loyalty program is essential. A successful initiative really requires two things – collecting meaningful information about buying patterns and tailoring incentives accordingly. Fortunately, it’s now possible to form a relationship with your high-value customers and communicate with them across different media channels. local store or mail it back using prepaid labels. And there’s no time limit – if a product hasn’t held up five years later, they can still get their money back or a replacement. Clearly, the company recognizes that taking a hit here or there is a relatively small investment given the long-term value of that customer. QR codes and other scanable content can play an important role in developing long-term customer relationships. Now, you can invite buyers to scan store signage or newspaper inserts, and within seconds they can sign up for your e-mail list on their smartphone. Or, you can target repeat buyers with a direct mail or email campaign and include a unique QR code for each recipient. When they scan it, they can get special discounts or even an invitation to an exclusive event to reward their loyalty. BUiLDiNG BRAND EQUiTy For most successful companies, the single biggest item on their balance sheet is something that can’t be touched or seen – it’s their brand equity. Brand equity can be defined as a brand’s power derived from the goodwill and name recognition that it has earned over time, which translates into higher sales volume and higher profit margins against competing brands. According to David Aaker, acclaimed author of Building Strong Brands, measurements of brand equity can be grouped into five broad categories as Passionate, enthusiastic buyers are some of your Continued Innovative People Redefining Print
  7. 7. THE THREE PiLLARs OF MARKETiNG 7 reduce potential pain points that may tarnish their perception of the brand and reduce the chance that they’ll come back. So how can organizations create a superior buying experience? Again, differentiation is key. Three powerful strategies can help create distinction, including: 1. Decision simplicity, or the ease with which consumers can gather trustworthy information about a product and confidently and efficiently weigh their options; depicted in the diagram above. According to one study, 30 percent or more of the market value of large corporations comes from their brand. Brand equity doesn’t comprise its own marketing pillar, but rather results when the other phases are performed well. Yet it’s so foundational to long-term, profitable growth that the idea is worthy of further discussion. Iconic names like Apple, Coca-Cola and Walt Disney illustrate why brand equity is so important. Because of the goodwill these organizations have built up over time, customers are more likely to buy from them – even if they can’t pinpoint specific advantages of their product over another. As Tracy Stokes of Forrester Research notes, “a strong brand makes every dollar spent more effective.” In other words, if the customer enters a buying decision with a clear preference for a certain brand, the company’s cost of customer acquisition becomes a lot lower. It may sound simple, but in the retail world, the customer experience really is the brand. If a company has great advertising, but lackluster product selection, mediocre customer service or a labyrinthine website, they’re fighting a losing battle. To build status in a highly competitive marketplace, small and medium-sized businesses have to excel in these very areas. Often, developing journey maps, which plot each step in a typical buying process, can be helpful. By doing so, team members can identify key touchpoints between the brand and the customer and refine the overall strategy. The idea is to 2. Enriched brand experiences – that is, infusing digital innovations into the store shopping experience, such as comparison shopping, gamification and branded videos; and 3. Focusing on a brand’s bigger value story. These same strategies also apply to catalog and e-commerce experiences. Great brands tend to have certain values that set them apart, from social responsibility to innovation. These values ultimately enhance the customer experience and create a unique perception of the brand, something that makes it much easier to obtain new buyers in the long run. A lot of organizations start out with a clearly defined set of principles, only to see them diluted as the company grows and adds employees. Nordstrom has succeeded in this regard where many others have failed. Despite operating more than 100 department stores, the company enjoys a reputation for exceptional customer care than dates back to its founding in 1901. Codifying its core ideals has proved important. The Seattle-based retailer published The Nordstrom Way, a book that explains its philosophy to employees and consumers alike. But its “customer-centricity” doesn’t just exist on paper. From one location to another, Nordstrom Continued Innovative People Redefining Print
  8. 8. The Three Pillars of Marketing salespeople are encouraged on a daily basis to go the extra mile for a shopper. A very different company that also offers some great lessons is OpenX, which provides advertising technology for digital media outlets. Founded in 2008, management realized just three years in that its values were starting to erode as the firm took on new staff. To counter this tendency, OpenX held a companywide meeting to help solidify what its core values were. Now, its five core principles (e.g. “our customers define us,” “we evolve fast”) are prominently displayed on a 30-foot wall at its headquarters and passed along to new staffers in the form of a one-page document. To reinforce those values, the firm identifies a particular value each month and votes for the employee who has best exemplified that ideal. All this really does impact the bottom line. When you build a halo around your brand, increasing profit becomes a much more manageable goal. Not only do you encourage repeat sales, but you open the door to cross-selling and up-selling opportunities as well. And strong brands also have an easier time expanding into new, adjacent markets. For example, Williams-Sonoma’s reputation for high-end, fashionable furnishings allowed it to branch off with its PBteen, West Elm and Mark and Graham offshoots. CONCLUSION As marketers, there’s a tendency to think incrementally about upcoming challenges. But without a broader view of where the company is in the marketplace and who its most profitable customers are, achieving long-term earnings growth becomes an uphill battle. The three pillars outlined here provide an important framework for planning and executing omni-channel marketing plans that build sustainable value. When companies have a clearly defined, unique space in the market, everything else becomes easier. Execution is imperative, too, because it helps build loyalty and therefore reduce the need for costly customer acquisition efforts. It’s important to realize that the three pillars outlined here – brand building, market development and customer development – aren’t one-time processes. 8 Markets are dynamic, with new technologies routinely changing how consumers shop. Businesses need to be agile enough to adapt. When they do, the result is a strong brand that consumers will instinctively look for when it’s time to make an important purchase. ABOUT QUAD/GRAPHICS CREATIVE SOLUTIONS Quad/Graphics Creative Solutions is a full-service brand communication firm that helps organizations build strong brands and deliver relevant communication across multiple channels, including traditional print (i.e., catalog, publication, direct mail and collateral) and digital media (i.e., web, mobile and tablet devices, video, search marketing and social media). We provide solutions that are equal parts strategy, award-winning creative and processdriven production. Those solutions come to life through our team of over 50 creatives who have the knowledge and skills to help you grow both your brand and your business. As part of Quad/ Graphics Media Solutions, we can put a broad range of talent and technologies to work for you giving you creative, workflow and digital media solutions that resonate with your audience and directly impact your bottom line. We’re good for your brand. We’re good for your business. ABOUT THE AUTHOR R. Jay Olson is a senior brand & marketing strategist at Quad/Graphics Creative Solutions. Jay’s areas of specialization include: brand positioning, value proposition development, integrated message strategy, channel integration strategy, brand portfolio strategy, marketing research and marketing performance measurement. He formerly served as: principal/ vice president of marketing research and strategic marketing services for Phoenix Marketing Group; vice president of marketing for Marcus Restaurants; and director of marketing for Ralston Purina Company’s casual-theme dinnerhouse restaurant division. Jay is a graduate of San Jose State University and is an honorary faculty member at Michigan State University School of Hospitality Business. Jay has been a guest presenter at leading organizations, including the American Marketing Continued Innovative People Redefining Print
  9. 9. Association-Milwaukee Chapter, the Wisconsin Direct Marketing Association, AFS 2010 Marketing & Selling of Castings Conference, Michigan State University School of Hospitality Business, and the National Restaurant Association Annual Marketing Conference. Recent speaking topics have included: “The Transformational Power of Branding,” “Transforming Your Website into a Powerful Strategic Weapon” and “Measure What Matters Most.” i. Insights from the Boardroom 2012. Available at http://www.pwc.com/us/en/financial-services/events/assets/pwc-annual-corporatedirectors-survey.pdf ii. Blue Ocean Strategy. W. Chan Kim and Renée Mauborgne. Harvard Business School Press, 2005. iii. Measure What Matters. Laura Patterson. VisionEdge Marketing. iv. Mohammed, Rafi. “How to Find Out What Customers Will Pay.” Harvard Business Review blog. Available at http://blogs.hbr.org/cs/2012/09/ how_to_find_out_what_customers_will_pay.html v. Building Strong Brands. David Aaker. The Free Press, 1996. vi. Winning the Zero Moment of Truth. Available at http://www.zeromomentoftruth.com/ vii. MarketingWeek. “Retailers should focus SEO strategies on images and video.” Available at http://www.marketingweek.co.uk/retailersshould-focus-seo-strategies-on-images-and-video/3028972.article viii. Winning the Zero Moment of Truth. Available at http://www.zeromomentoftruth.com/ ix. “What are your customers worth?” Optimize magazine. Available at http://www.exgroup.com/thought_leadership/articles/what_are_ your_customers_worth.pdf x. Value Creation: The Power of Brand Equity. Ron Strauss and Bill Neal. Cengage Learning, 2008. xi. “Five Customer Retention Tips for Entrepreneurs.” Alex Lawrence. Available at http://www.forbes.com/sites/alexlawrence/2012/11/01/fivecustomer-retention-tips-for-entrepreneurs/ xii. L.L. Bean website. Available at http://www.llbean.com/customerService/aboutLLBean/guarantee.html xiii. Stokes, Tracy. “Invest in the Brand Building Experience.” Forrester Research. xiv. Ibid. xv. HBR.org, May 2012 xvi. LinkedIn post. “10 Lessons In Defining Your Company Values.” Available at http://www.linkedin.com/today/post/article/201305031315053257535-10-lessons-in-defining-your-company-values FOLLOW QUAD/GRAPHICS ON Innovative People Redefining Print © 2012 Quad/Graphics, Inc. All rights reserved. | 06.12