malcolm mcdonald the future of marketing : a dark cloud ... mc… · the brightest star in the...

Emeritus Professor Malcolm McDonald

Liveryman of the Worshipful Company of Marketors

The Future of Marketing- a dark cloud ?

orThe Brightest star in the firmament ?

a view by

Aston June 2019

Marketing and Technology

The greatest threat to marketing is not being out of touch with technology developments, but failing to understand their markets, the basic needs of their customers and the fundamental business drivers

that have always caused long term success.

Professor Malcolm McDonald June 2019

Aston Conference June 2019

A brief history of management

Can Marketing as discipline reassert itself ?

• Data Scientists

• Accountancy

• Fads

• Sales/Marketing

• Production

• Technology

Phases of

management

1760

Today


50 years of management

• Fads instead of marketing strategy• Digital strategy without marketing strategy• The problems with P and L Accounts and Balance Sheets• The failure to develop financially-quantified value propositions.

( only 5% of companies have them in 2017)

(Professor Malcolm McDonald 2017)


3 Principal Communities in Marketing

• Consultants

• Academics

• Practitioners


Consultants


The intellectual roots of many marketing excellence programmes are often shallow and lie not in the rich soil of management science, but in the distorted, abused and sloppy concepts of simplistic management fads.

Hunt, Shelby D (2002), Foundations of Marketing Theory: Toward a General Theory of Marketing (Rev ed.), M.E Sharpe, New York.


• In Search of Excellence

• Marketing Warfare

• One Minute Manager

• MBWA

• Skunk Works

• 7 Ss

• Etc.

FADS (300)


Academics


Academics“Much research is directed at technical refinement, which produces low risk, quick win publications that are largely irrelevant or incomprehensible to practitioners. The voice of academics is becoming weaker” (Hugh Wilmott of MBS)

For a comprehensive academic review of this lack of relevance, contact [email protected]


There are many excellent scientific journals devoted to

neurosurgery. Month by month, they publish learned

papers, each having been subjected to rigorous peer

review, that chronicle the latest discoveries, hypotheses,

case-studies and innovations in the neurosurgery world.

And the shocking thing is this: they are never read by

neurosurgeons.

Patients are put at risk because of the apparent disdain

that the practitioners have for academic theory and the

accumulated wisdom of others.

You’ll have read the above with growing incredulity. That

can’t be true of neurosurgery, you think. And you’re right, thank God.

It isn’t true. But in another trade, much

closer to home, it very nearly is.

Jeremy Bullmore, ‘Bridging the Great Divide,

Market Leader, Spring, 2006, page. 14


The vacuous language of academia

• Academics in the main are responsible for more bad writing than any other group

• They form nouns from verbs and adjectives to lend gravitasto their outpourings , such as “routinisation”, “reflexivity”) Grammarians call them nominalisations, but they are zombie

nouns that suck the lifeblood from their origins • They are concerned with “impact factors” and teaching is a tedious irrelevancy • Their work is peer reviewed for intellectual respectability, but not for

intelligibility• More seriously, the vacuous language cuts off most readers from the thoughts

of some of the best brains in the country• It dignifies much worthless endeavour and passes for serious study at

universities

“The vacuous language of academe” (Johnny Grimmond. The Oldie November 2016. p 65)


In undertaking an in-depth perusal of the evolutionary interaction of this acronymic

organisational communication, the dual orientation for the analysis paradoxically

required an unashamed repositioning of the eclectic conceptual framework amongst the

multi-disciplinary body of illuminative speculation in predominantly scholarly

bureaucratisation.

Yet, coincidentally, its empirical complexity had to remain relevant to the esoteric

realities of postmodern professorial integrative antecedent development trends at

appropriately conceptualised and operationally-implemented meta levels.

Consequently, it was necessary to review the independently formulated psychometric

traditions and to employ confidently the articulatedly-present phenomenological

methodologies currently available for polysyllabic paradigm exploration. Unfortunately,

the ensuing generalised multifaceted model for evaluation (in its specific systems

dimension, naturally) had unexpectedly and unexplainably exploded – though not

exhaustively. The major administrative atomistic components, suitably enumerated, are

now, unfortunately, somewhat hindering the Assessor’s understanding process.

However, tabulation analysis of the topography implicitly indicates that comprehensive

evaluation of the interdenominational micro data has finally exhausted the course

Assessor and any further critical, unbiased, postmodernistical review, will just have to

wait until he has had a few strong gin and tonics!

I suspect you may not know what this means, but I don’t really care, even if it takes you

half an hour to decode it!

I call this style ‘anorexia doctoratitis’ – an excessive desire to be more and more

impressive verbally, leading to mental emaciation and, eventually, death. Aston Conference June 2019

Practitioners


Performance (£million) Base Year 1 2 3 4 5

Sales Revenue

- Cost of goods sold

£254

135

£293

152

£318

167

£387

201

£431

224

£454

236

Gross Contribution

- Manufacturing overhead

- Marketing & Sales

- Research & Development

£119

48

18

22

£141

58

23

23

£151

63

24

23

£186

82

26

25

£207

90

27

24

£218

95

28

24

Net Profit £16 £22 £26 £37 £50 £55

Return on Sales (%) 6.3% 7.5% 8.2% 9.6% 11.6% 12.1%

Assets

Assets (% of sales)

£141

56%

£162

55%

£167

53%

£194

50%

£205

48%

£206

45%

Return on Assets (%) 11.3% 13.5% 15.6% 19.1% 24.4% 26.7%

InterTech’s 5 Year Profit Performance


Performance (£million) Base Year 1 2 3 4 5

Market Growth 18.3% 23.4% 17.6% 34.4% 24.0% 17.9%

Customer Retention (%)

New Customers (%)

% Dissatisfied Customers

88.2%

11.7%

13.6%

87.1%

12.9%

14.3%

85.0%

14.9%

16.1%

82.2%

24.1%

17.3%

80.9%

22.5%

18.9%

77.0%

29.2%

19.6%

InterTech Sales Growth (%)

Market Share(%)

12.8%

20.3%

17.4%

19.1%

11.2%

18.4%

27.1%

17.1%

16.5%

16.3%

10.9%

14.9%

Relative Product Quality

Relative Service Quality

Relative New Product Sales

+10%

+0%

+8%

+8%

+0%

+8%

+5%

-20%

+7%

+3%

-3%

+5%

+1%

-5%

+1%

0%

-8%

-4%

InterTech’s 5 Year Market-Based Performance


Measurement of Segment Profitability

Percentage of market

represented by segment

Percentage of all profits in

total market produced by

segment

Ratio of profit produced by

segment to weight of

segment in total population

Defection rate

Total

Market

Segment

1

Segment

2

Segment

3

Segment

4

Segment

5

Segment

6

27.1

14.7

0.54

15%

18.8

21.8

1.16

28%

18.8

28.5

1.52

30%

11.0

23.0

2.09

35%

9.5

4.9

0.52

17%

14.8

7.1

0.48

20%

100.0

100.0

1.00

23%


• Companies report the customers they gain, but not the customers they lose.

• This is in spite of the fact that a 5% increase in customer retention can increase profits by up to 75% - unless of course HBR, Bain and Company, Forrester and the like are all telling lies!

• Customer acquisition is like hunting. Retention is like farming. Hunting is exciting. Farming is boring.

Customer Retention Measurement


• Only 5% of UK companies have got clearly articulated written value propositions

(Source: McKinsey)

• My own estimate is that only 2% of UK companies have financially quantified value

propositions

(Professor Malcolm McDonald)

Value Proposition Usage

Strategic Purchasing

Nurture supplierExpand Business

Seek New Opportunities

Core

Nuisance

Give Low AttentionLose Without Pain

Exploitable

Drive Lowest PricesSeek Short Term Adv.Risk Losing Supplier

Value of Business

Att

ract

ive

ne

ss

Based on: Kraljic P HBR 1st Sept 1983

Development

Cosset supplierDefend Vigorously

High Level of ServiceHigh Responsiveness


• added value (e.g. revenue gains, improved productivity, service

enhancement, speed etc.)*

• cost reduction

• cost avoidance

• emotional contribution (e.g. trust, “feel-good” factor), confidence, self-

esteem, risk reduction, reduced “hassle”, etc. In this respect, powerful

branding is important. Effective, needs-based market segmentation is

even more important

The Components of a Value Proposition

* This “added value” list is not exhaustive and not all are mutually exclusive. It is recommended that each organisation should brainstorm its own list: better product mix; better customer mix;

more sales calls; better sales calls; increase price; reduce discounts; reduce debtor days, speeding time to market; improving agility (e.g. time to react to market changes); improving

intelligence/insight; improving accuracy of forecasts; reduce cost of capital; etc. The actual relevant list will become apparent on going through the value proposition financial quantification

process.


SKF Quantified Value Proposition

Source: SKF


Quick audience value propositions assessment

“Our value propositions for relevant customers are financially quantified, justified and proven”

SCORE YOUR ORGANISATION ON A SCALE OF 1 TO 10 AGAINST THIS STATEMENT,WITH 10 BEING PERFECT


There is no such person as a “Customer”

The quickest way to go bankrupt is to delight your customers.


The widening rift between profitable and unprofitable customers

1 2 3 4 5 6 7 8 9 10

-3

26

29

2220

8

4

-3 -3

1 2 3 4 5 6 7 8 9 10

% of totalcompanyprofits

Largest 10%of customers

Smallest 10%of customers

customer decile groups

Adapted from: ‘Profitable customers’ by Charles Wilson


How well do you know the real profitability of the top ten accounts ?

TotallyNot

at all


Enterprise Value and Profitable GrowthThere are 4 core ways a company can increase enterprise

value:

Invest in projects that earn > cost of capital

Increase profits from capital investments

Reduce assets in activities that earn < cost of capital

Reduce the firm’s cost of capital


Invest in Markets/Customers that earn > the cost of capital

Grow profits from the existing market/customer

portfolio

• Understand the cost-to-serve different market/customer groups

• Reduce expenditure on markets/customers that earn < the cost of capital involved

• Reduce risk• Increase net free cash

flows

• CFOs rightly demand value-creating plans, but are often unclear about how the plans submitted do this

• The goal is to maximise the financial value of market/customer relationships--- the sum total of revenues minus the directly attributable costs now and in the future

Enterprise value and profitable growth


In capital markets, success is measured in terms of shareholder value

added ( SVA ), having taken account of the risks associated with future

strategies, the time value of money and the cost of capital.

SVA is profit after tax minus (net capital x cost of capital ( % ))

Shareholder Value Added


Shareholder Value-adding Strategies

The Customer Portfolio

Customer Sales/Potential

Large

SmallCustomerRelationship/ServiceRequirements

Low High

KeyAccounts

Developers

Over-Demanders

ConventionalMiddleMarket

MajorAccounts

DirectChannels


Whilst accountants do not measure intangible assets, the discrepancy

between market and book values shows that investors do.

Justifying Investment in Marketing Assets


Asset Breakdown for the USA and UK by Enterprise

Value (US$ millions, 2015)

Brand Finance plc Ranked by tangible net asset %


The case for customer engagement


All products today are excellent, so product innovation, although essential, offers only temporary advantage.

So, be excellent, but above all, be different.

World class customer engagement is the bedrock of commercial success

Market segmentation is the bedrock of successful marketing

The Rational Consumer

20th century economics were based on the lunatic assumption that humans are ‘rational’


Neurology and Brand Preference

“Ventromedial prefrontal cortex (VMPC) is a critical neural substrate for the effect of Commercial brand information on human decision-making and brand preferences.

The key finding of this study provides direct evidence that brand preference is the Product of factors unrelated to the product taste.

This effect is not present with patients with VMPC damage and defects in emotional Processing”.

(Koenigs, M. and Tranes, D.‘Prefrontal cortex damage abolishes brand-cued preference’,

SCAN (2008) 3, pp. 2-6.Department of Neurology, University of Iowa College of Medicine)


Don’t ask customers stupid questions about what they want.

People didn’t ask Apple to invent iPods, iPads, easy music downloads and the like.

Apple just invented ways of making life easier and more enjoyable.


Over 40 years of research into the link between long run financial success and excellent marketing

strategies reveal the following:

Excellent Strategies

• Understand markets in depth

• Target needs based segments

• Make a specific offer to each segment

• Have clear differentiation, positioning and branding

• Anticipate the future

Weak Strategies

• Always talk about products

• Target product categories

• Make similar offers to all segments

• Have no differentiation, poor positioning and branding

• Plan using historical data


30,000 new consumer products are launched each year in the USA. 90% of them fail.

Why?

Fundamental paradigms such as market segmentation are

broken.

Christensen C, Cook, S, Hall, T. ‘Marketing Malpractice. The Cause and the Cure’, HBR, December 2005, pp. 74-83

Market segmentation


If the segmentation is wrong, your targeting and positioning will always be wrong.

Marketers who mistake stereotypes such as Millennials for segments need a new job.

Mark Ritson LBS Marketing Week August 2017 p15

“

’’


How suppliers and customers talk about category need

Supplier View

• fast PAD family

• multimedia FRADs

• PIX firewall

• Gigabit Ethernet

• LAN support

• etcetera


Understand the different category buyers

Business

perfectionist

Radical thinkers

Profit engineer

Save my

budget

Business

general

Save my

career

Conservative

technocrat

Technical

idealist

Radical

architect

“Reward” “Relief”

Technical

Business


Most marketers broadcast identical messages across all channels

“Fourth Annual State of Marketing: insights and trends from 3,500 global marketing leaders”. Salesforce.com/research

August 2017

“

’’


InternetMobile

telephoneiTV Broadcast

TV

• Recognise

Negotiate/tailor

Commit

• Exchange value

Traditional

channels

Exchange potential

• Initiate dialogue

• Exchange information

• Monitor

The Sunworshippers


InternetMobile

telephoneiTV Broadcast

TV

• Recognise

Negotiate/tailor

Commit

.

• Exchange value

Traditional

channels

Exchange potential

• Initiate dialogue

• Exchange information

• Monitor

John and Mary Lively


Identify your core market of primary customers. If you can delight this group with selected differential offers, you will have a resilient customer base.

Trying to delight everyone with all of your offers

guarantees average service that will delight no-one.

Professor Malcolm McDonald

Target and Focus


We live in a very different world


Or not so different?



“Be artificially intelligent”“Be virtually real”“Blockchain” (verb or noun ?) Etcetera.“Drop these into your conversations and presentations four timesan hour, then step back and look like a digital genius.It’s important to not let basic questions like”what the f--- has this got to do with marketing ?” get in the way.

(Mark Ritson. “From the global conference circuit”. Marketing Week. January 2018 pp 16-17)

Blockchain; augmented reality; predictive analytics; robotics; artificial intelligence;voice biometrics; technologies for GDPR ; big data; etcetera

Understand and embrace them. But they will only ever deliver real value if yoursegmentation is correct

(Professor Malcolm McDonald. March 2018)

We live in a very different world

The Future of Marketing

A dark cloud ?

or

THE BRIGHTEST STAR IN THE FIRMAMENT ?


The Marketors is the City Livery Company that supports the City of London, the Marketing profession, numerous charities both

financially and in-kind, and fosters fellowship and a culture of care.

If you want to know more visit www. marketors.org

THANK YOUProfessor McDonald can be contacted at

[email protected]

He is a Liveryman of the Worshipful Company of Marketors


Discover more at The Malcolm McDonald Academy

Slide 53

Go to www.malcolmmcdonald.academy for more course information.


http://www.malcolmmcdonald.academy/

malcolm mcdonald the future of marketing : a dark cloud ... mc… · the brightest star in the...

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