A Strategy DocumentA Strategy Documenton on

The New Marketing ParadigmThe New Marketing ParadigmHolistic Marketing ● Lateral Marketing ● High-tech MarketingHolistic Marketing ● Lateral Marketing ● High-tech Marketing

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PHILIP KOTLERPHILIP KOTLER

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Kotler On MarketingKotler On MarketingHow To Create, Win, and Dominate MarketsHow To Create, Win, and Dominate Markets

Philip Kotler, Ph.DPhilip Kotler, Ph.D Kellogg School of Kellogg School of

ManagementManagement Northwestern Northwestern

UniversityUniversity

Indiatimes MindscapeIndiatimes Mindscape Mumbai and DelhiMumbai and Delhi October 11, 12, 2004October 11, 12, 2004

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Two Challenges Facing Two Challenges Facing Indian CompaniesIndian Companies

1.1. Will Indian companies be able to defend their Will Indian companies be able to defend their market against the growing invasion of foreign market against the growing invasion of foreign global brands?global brands?

2.2. Can Indian companies develop strong global Can Indian companies develop strong global brands? brands?

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Can Indian Companies Can Indian Companies Defend the Domestic Market?Defend the Domestic Market?

Foreign competitors will not only go after the Foreign competitors will not only go after the high end market in India. They will target the high end market in India. They will target the middle and eventually the low end.middle and eventually the low end.

The main defense for India will be developing The main defense for India will be developing stronger skills in innovation, differentiation, stronger skills in innovation, differentiation, branding, and service. In a word, branding, and service. In a word, MARKETING!MARKETING!

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But India Needs But India Needs Stronger MarketingStronger Marketing

Confusing marketing with advertising.Confusing marketing with advertising.

Advertising is hard sell.Advertising is hard sell.

Sometimes ads appear before the product is in distribution.Sometimes ads appear before the product is in distribution.

Some companies over-spend on advertising and go broke. Some companies over-spend on advertising and go broke.

Little use of marketing research; can’t trust.Little use of marketing research; can’t trust.

Therefore little segmentation of market and poor targeting.Therefore little segmentation of market and poor targeting.

Over focus on winning through low price; neglecting Over focus on winning through low price; neglecting

differentiation.differentiation.

Retailers carry the same goods and their service is poor.Retailers carry the same goods and their service is poor.

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Marketing is More Important Marketing is More Important than Production!than Production!

The Indian manufacturer of a Hugo Boss shirt gets only $12, or 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 10% of the final price of $120 that is paid by a customer of Saks Fifth Avenue. Fifth Avenue. The retailer gets 60% ($72) and the Brand company gets The retailer gets 60% ($72) and the Brand company gets

30%, or $36.30%, or $36. Would you rather be the manufacturer, Brand owner, or Would you rather be the manufacturer, Brand owner, or

retailer?retailer?

The Indian manufacturer has no defense if the Brand Owner The Indian manufacturer has no defense if the Brand Owner wants to switch to another manufacturer to whom he will pay 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 $8 and keep $2 or pass it to the retailer to get more retail support.support.

Yet India pays more attention to the product engineer than the Yet India pays more attention to the product engineer than the marketing “engineer.” But India’s future success will require marketing “engineer.” But India’s future success will require investing in marketing and branding.investing in marketing and branding.

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The Strategic Trajectory The Strategic Trajectory for Indiafor India

Low cost, average quality domestic products.Low cost, average quality domestic products.

Low cost, good quality domestic products.Low cost, good quality domestic products.

Indian high-end products made for other companies.Indian high-end products made for other companies.

Indian branded products (regional).Indian branded products (regional).

Indian branded products (global).Indian branded products (global).

Indian dominant brands (global).Indian dominant brands (global).

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Ranbaxy Pharmaceuticals (India)Ranbaxy Pharmaceuticals (India)

Originally sold bulk substances to unsophisticated Originally sold bulk substances to unsophisticated markets but gross margins were too low to cover markets but gross margins were too low to cover export costs.export costs.

New CEO, Parvinder Singh, challenged Ranbaxy to New CEO, Parvinder Singh, challenged Ranbaxy to become a truly global company. He said: “Ranbaxy become a truly global company. He said: “Ranbaxy cannot change India. What it can do is to create a cannot change India. What it can do is to create a pocket of excellence. Ranbaxy must be an island pocket of excellence. Ranbaxy must be an island within India.”within India.”

The company moved into higher-margin businesses The company moved into higher-margin businesses like selling branded generics in large volume like selling branded generics in large volume markets like China and Russia.markets like China and Russia.

Ranbaxy then entered the U.S. and Western Europe. Ranbaxy then entered the U.S. and Western Europe. In just five years, more than half of its US$ 250 In just five years, more than half of its US$ 250 million revenues now come from outside of India.million revenues now come from outside of India.

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The Case of HaierThe Case of HaierHaier developed through three stages.Haier developed through three stages.1.1. Fix qualityFix quality

(Zhang Ruimin smashed 76 refrigerators).(Zhang Ruimin smashed 76 refrigerators).2.2. DiversifyDiversify

(Microwaves, toasters, air conditioners, (Microwaves, toasters, air conditioners, dishwasher, vacuum cleaners, etc.)dishwasher, vacuum cleaners, etc.)

3.3. GlobalizeGlobalize(Asia Region, U.S., Europe)(Asia Region, U.S., Europe)

Haier entered with a U.S. partner and is Haier entered with a U.S. partner and is challenging Whirlpool and GE. challenging Whirlpool and GE.

Haier’s brand name products are sold in Wal-Mart, Haier’s brand name products are sold in Wal-Mart, Best Buy, Sears, Lowe’s, Home Depot and Target. Best Buy, Sears, Lowe’s, Home Depot and Target.

Haier is promoted as a global brand, not a Chinese Haier is promoted as a global brand, not a Chinese one. (Many people think it is German).one. (Many people think it is German).

Puts lower price models in price-only stores and Puts lower price models in price-only stores and higher price models in top stores.higher price models in top stores.

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Five C’s Favoring IndiaFive C’s Favoring India Capital: India has and can attract capital.Capital: India has and can attract capital.

Cost: Another 50 years of low cost productionCost: Another 50 years of low cost production

Capability: Large number of trained workers, Capability: Large number of trained workers, engineers, scientists, and business peopleengineers, scientists, and business people

Consumers: Immense domestic marketConsumers: Immense domestic market

Calm and stability: in a world of turmoil and Calm and stability: in a world of turmoil and uncertainty uncertainty

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A Quiz: Who Said This?A Quiz: Who Said This?

““The purpose of a company is ‘to create a customer…The only The purpose of a company is ‘to create a customer…The only profit center is the customer.’”profit center is the customer.’”

““A business has two—and only two—basic functions: A business has two—and only two—basic functions: marketingmarketing and and innovation.innovation. Marketing and innovation produce Marketing and innovation produce results: all the rest are costs.”results: all the rest are costs.”

““The aim of marketing is to make selling unnecessary.”The aim of marketing is to make selling unnecessary.”

““While great devices are invented in the Laboratory, great While great devices are invented in the Laboratory, great products are invented in the Marketing department.”products are invented in the Marketing department.”

““Marketing is too important to be left to the marketing Marketing is too important to be left to the marketing department.”department.”

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My MessageMy Message

Marketing’s performance has been Marketing’s performance has been disappointing.disappointing.

You must replace your Old Marketing with You must replace your Old Marketing with New Marketing that is:New Marketing that is:

holistic, holistic, technology-enabled, technology-enabled, and strategic.and strategic.

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Facing the Increasing Pressure for Facing the Increasing Pressure for Marketing AccountabilityMarketing Accountability

Marketing has become a one P discipline = selling.Marketing has become a one P discipline = selling.

Marketing involves a great deal of waste.Marketing involves a great deal of waste. $2 million for 30 seconds on the Superbowl.$2 million for 30 seconds on the Superbowl. Direct mail campaigns with a 1% response rate.Direct mail campaigns with a 1% response rate. Cold sales calls which play the numbers.Cold sales calls which play the numbers. High rate of new product failure.High rate of new product failure.

Marketing costs are high and rising.Marketing costs are high and rising.

Marketing lacks accountability.Marketing lacks accountability.

Marketing does not create major new ideas.Marketing does not create major new ideas.

Marketing is too involved in short-term thinking. Marketing is too involved in short-term thinking.

Marketing doesn’t focus on its real assets.Marketing doesn’t focus on its real assets.

Brands, customers, service quality, stakeholder Brands, customers, service quality, stakeholder relationships, intellectual capital, corporate reputationrelationships, intellectual capital, corporate reputation

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Needed:Needed:Holistic MarketingHolistic Marketing

Marketing must become strategic and drive business strategy. Marketing must become strategic and drive business strategy.

A company needs to take a more holistic view of:A company needs to take a more holistic view of: the target customers’ activities, lifestyle, and social space.the target customers’ activities, lifestyle, and social space. the company’s channels and supply chain.the company’s channels and supply chain. the company’s communications.the company’s communications. the company’s stakeholders’ interests.the company’s stakeholders’ interests.

Holistic marketing will require strong software support. Holistic marketing will require strong software support.

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HOLISTIC RELATIONSHIP MARKETING FRAMEWORKHOLISTIC RELATIONSHIP MARKETING FRAMEWORK

MARKETSPACE

POTENTIALOPPORTUNITIES

BUSINESSINVESTMENT

CUSTOMERS CORPORATION COLLABORATORS

CUSTOMER CUSTOMER FOCUSFOCUS

CORE CORE COMPETENCIESCOMPETENCIES

COLLABORATIVE COLLABORATIVE NETWORKNETWORK

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?

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4 COMPETITIVE PLATFORMS4 COMPETITIVE PLATFORMS

Market

Offerings

COGNITIVESPACE

CUSTOMERVALUE

BUSINESS DOMAIN

COMPETENCYSPACE

Business

Architecture

BUSINESS PARTNERS

CRM ERP

RESOURCE SPACE

SCM

Marketing Activities

Operational

System

Exploring Exploring ValueValue

Creating Creating ValueValue

DeliveringDeliveringValueValue

Customer Customer FocusFocus

Core Core CompetenciesCompetencies

Collaborative Collaborative NetworkNetwork

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Responding to Low Margins and the Responding to Low Margins and the Economic SlowdownEconomic Slowdown

Commoditization and rapid imitation leading to shorter product Commoditization and rapid imitation leading to shorter product life cycles.life cycles.

Competition of cheaper brands from China and elsewhere.Competition of cheaper brands from China and elsewhere.

Rising selling and promotion costs and decreasing sales Rising selling and promotion costs and decreasing sales effectiveness.effectiveness.

Shrinking margins.Shrinking margins.

Proliferation of sales and media channels.Proliferation of sales and media channels.

Power shifting to giant retailers who are demanding lower Power shifting to giant retailers who are demanding lower prices.prices.

Recession: lower incomes and purchasing power.Recession: lower incomes and purchasing power.

Mergers, large company bankruptcies.Mergers, large company bankruptcies.

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Improving Marketing Improving Marketing Efficiency and EffectivenessEfficiency and Effectiveness

Improving Improving marketingmarketing efficiencyefficiency buying inputs more efficiently buying inputs more efficiently

hunting down excessive communication and sales travel hunting down excessive communication and sales travel expenses expenses

closing unproductive sales offices closing unproductive sales offices

cutting back on unproven promotion programs and tactics cutting back on unproven promotion programs and tactics

putting advertising agencies on a pay-for-performance basisputting advertising agencies on a pay-for-performance basis

Improving Improving marketing effectivenessmarketing effectiveness replacing higher cost channels with lower cost channelsreplacing higher cost channels with lower cost channels

shifting advertising money into better usesshifting advertising money into better uses

reducing the number of brands or sku’sreducing the number of brands or sku’s

Improving supply chain responsivenessImproving supply chain responsiveness

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Responding to the Responding to the Economic SlowdownEconomic Slowdown

Reevaluate your current resource allocations.Reevaluate your current resource allocations. Geographical mixGeographical mix Market segment mixMarket segment mix Customer mixCustomer mix Product mixProduct mix Channel mixChannel mix Promotion mixPromotion mix

Decide whether to attack to gain market share rather than Decide whether to attack to gain market share rather than retrench.retrench.

Be sure to maintain the value proposition promised by your Be sure to maintain the value proposition promised by your brand.brand.

Try to add value instead of cutting the price.Try to add value instead of cutting the price.

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Marketing Strategies Are Showing Marketing Strategies Are Showing Diminishing ReturnsDiminishing Returns

Product differentiationProduct differentiation is harder to is harder to achieve.achieve.

Acquisitions and mergersAcquisitions and mergers have as have as many failures as successes.many failures as successes.

Internationalization Internationalization is offering less is offering less opportunities because either the good opportunities because either the good markets are overcrowded or the poor markets are overcrowded or the poor markets have no money.markets have no money.

New productsNew products unfortunately fail more unfortunately fail more times than they succeed.times than they succeed.

Price cuttingPrice cutting doesn’t work because doesn’t work because competitors will match.competitors will match.

Pricing raising Pricing raising doesn’t work since doesn’t work since there isn’t enough differentiation to there isn’t enough differentiation to support it.support it.

Cost cutting Cost cutting has eliminated much of has eliminated much of the fat but is now risking cutting the the fat but is now risking cutting the muscles.muscles.

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Strategies for Firms in Different Market PositionsStrategies for Firms in Different Market Positions

Jagdish Sheth, Singapore Marketer, 2002

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Five Winning StrategiesFive Winning Strategies

Cost reductionCost reduction: (IKEA, Southwest Airlines, : (IKEA, Southwest Airlines, Wal-Mart, Enterprise Rent-a-Car). Wal-Mart, Enterprise Rent-a-Car).

Improved customer experienceImproved customer experience (Starbucks, (Starbucks, Harley Davidson) Harley Davidson)

Innovative business modelInnovative business model (Barnes & Noble, (Barnes & Noble, Charles Schwab, FedEx, Sony).Charles Schwab, FedEx, Sony).

Improved product qualityImproved product quality (P&G, Toyota). (P&G, Toyota).

Niching: Niching: (Progressive Insurance, Tetra)(Progressive Insurance, Tetra)

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Dual StrategiesDual Strategies Planning for todayPlanning for today

Defining the business.Defining the business. Shaping the business to Shaping the business to

meet needs of today’s meet needs of today’s customerscustomers

Improving alignment Improving alignment between functional between functional activities and business activities and business definitiondefinition

Organization mirrors Organization mirrors current business current business activitiesactivities

Optimizing current Optimizing current operations to achieve operations to achieve excellence.excellence.

Planning for tomorrowPlanning for tomorrow Redefining the businessRedefining the business Reshaping the business Reshaping the business

to compete for future to compete for future customers and marketscustomers and markets

Making bold moves away Making bold moves away from the existing ways of from the existing ways of doing businessdoing business

Reorganizing for future Reorganizing for future business challengesbusiness challenges

Managing change to Managing change to create future operations create future operations and processesand processes

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In many markets, the growing In many markets, the growing number of competitors in mature number of competitors in mature markets leads companies to target markets leads companies to target niches of low profitability.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

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Some Vertical Marketing MethodsSome Vertical Marketing Methods ModulationModulation

The The juicejuice manufacturer varies the sugar content, fruit manufacturer varies the sugar content, fruit concentrate, with or without vitamins… concentrate, with or without vitamins…

SizingSizing Potato chipsPotato chips are offered in sizes 35 grams, 50 grams, 75grams, are offered in sizes 35 grams, 50 grams, 75grams,

125 grams, 200 grams, multi-packs…125 grams, 200 grams, multi-packs… PackagingPackaging

Nestle’s Red Box chocolatesNestle’s Red Box chocolates comes in different containers: comes in different containers: cheap paper box for the grocery trade, premium metal box for cheap paper box for the grocery trade, premium metal box for the gift trade…the gift trade…

DesignDesign BMWBMW designs cars with different styling and features... designs cars with different styling and features...

ComplementsComplements Biscuits Biscuits with sugar spread on it, with cinnamon, with with sugar spread on it, with cinnamon, with

chocolate, with white chocolate, with black chocolate, filled chocolate, with white chocolate, with black chocolate, filled biscuits… biscuits…

Efforts reductionEfforts reduction Charles SchwabCharles Schwab offers different channels for transacting such offers different channels for transacting such

as retail stores, telephone, internet….as retail stores, telephone, internet….

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into

Cereals for breakfast market

Cereal varieties

New category

STREETS =

The case of Cereal Bars

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Baby dolls market

Doll varieties

New category

Tofeelas...

=

Teenager

The case of Barbie

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Other Examples of Lateral MarketingOther Examples of Lateral Marketing

Kinder Surprise = candy + toy. Kinder Surprise = candy + toy.

Seven Eleven = food + depot. Seven Eleven = food + depot.

Actimel = yogurt + bacteria protection.Actimel = yogurt + bacteria protection.

Gas station stores = gas station + food.Gas station stores = gas station + food.

Cyber cafes = cafeteria + Internet.Cyber cafes = cafeteria + Internet.

““Be the godfather of a kid” = Donation + adoption. Be the godfather of a kid” = Donation + adoption.

Huggies Pull-ups = diapers + 3 year olds.Huggies Pull-ups = diapers + 3 year olds.

Walkman = audio + portableWalkman = audio + portable

Source: Philip Kotler and Fernando Trias de Bes, Source: Philip Kotler and Fernando Trias de Bes, Lateral Marketing: A New Lateral Marketing: A New Approach to Finding Product, Market and Marketing Mix Ideas Approach to Finding Product, Market and Marketing Mix Ideas (Wiley, 2004)(Wiley, 2004)

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Check Where You StandCheck Where You Stand Marketing does the marketing -> everyone does the marketing. Marketing does the marketing -> everyone does the marketing. Organizing by product units -> organizing by customer Organizing by product units -> organizing by customer

segments.segments. Making everything -> outsourcing more goods and services. Making everything -> outsourcing more goods and services. Using many suppliers -> working with fewer suppliers.Using many suppliers -> working with fewer suppliers. Emphasizing tangible assets -> emphasizing intangible assets. Emphasizing tangible assets -> emphasizing intangible assets. Building brands through advertising -> building brands Building brands through advertising -> building brands

through integrated communications. through integrated communications.  Attracting customers to stores -> making products available Attracting customers to stores -> making products available

on-line. on-line. Selling to everyone -> selling to target markets.Selling to everyone -> selling to target markets. Focusing on profitable transactions -> focusing on customer Focusing on profitable transactions -> focusing on customer

lifetime value. lifetime value.  Focusing on market share -> focusing on customer share. Focusing on market share -> focusing on customer share. Being local -> being “glocal.Being local -> being “glocal. Focusing on the financial scorecard -> focusing on the Focusing on the financial scorecard -> focusing on the

marketing scorecard. marketing scorecard.  Focusing on shareholders -> focusing on stakeholders Focusing on shareholders -> focusing on stakeholders 

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MARKETING IS THE ART OF MARKETING IS THE ART OF BRAND BUILDINGBRAND BUILDING

**IF YOU ARE NOT A BRAND,IF YOU ARE NOT A BRAND,YOU ARE A YOU ARE A COMMODITYCOMMODITY..

**THEN THEN PRICEPRICE IS EVERYTHING IS EVERYTHING

AND THE AND THE LOW-COST PRODUCERLOW-COST PRODUCERIS THE ONLY WINNER!IS THE ONLY WINNER!

Building Brand EquityBuilding Brand Equity

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1. How Important is Branding?1. How Important is Branding?

The NUMMI plant in California produces two The NUMMI plant in California produces two nearly identical models called the Toyota nearly identical models called the Toyota Corolla and the Chevrolet Prizm. Corolla and the Chevrolet Prizm.

Toyota sold 230,000 Corollas compared to Toyota sold 230,000 Corollas compared to sales of 52,000 Prizms.sales of 52,000 Prizms.

And Toyota’s net price is $650 higher!And Toyota’s net price is $650 higher!

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A Strong Brand Improves A Strong Brand Improves Demand and SupplyDemand and Supply

On the demand side:On the demand side: higher pricehigher price increased sales volumeincreased sales volume lower churnlower churn more brand stretchingmore brand stretching

On the supply side:On the supply side: greater trade acceptance, more favorable supplier terms, greater trade acceptance, more favorable supplier terms,

lower rejectionlower rejection lower staff acquisition and retention costslower staff acquisition and retention costs lower cost of capitallower cost of capital better scale economics through higher volumebetter scale economics through higher volume

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Names are Important in BrandingNames are Important in Branding

Donald Trump’s family name is Drumpf. But Donald Trump’s family name is Drumpf. But he can’t call it Drumpf Towers.he can’t call it Drumpf Towers.

Alan Alda’s name was Alphonso D’Abruzzo.Alan Alda’s name was Alphonso D’Abruzzo.

Chinese gooseberry was renamed kiwifruit.Chinese gooseberry was renamed kiwifruit.

Paradise Island in the Bahamas used to be Paradise Island in the Bahamas used to be Hog Island.Hog Island.

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A Brand Must be More A Brand Must be More Than a NameThan a Name

A brand must trigger words or associations (features and A brand must trigger words or associations (features and

benefits). benefits).

A brand should depict a process (McDonald’s, Amazon). A brand should depict a process (McDonald’s, Amazon).

A great brand triggers emotions (Harley-Davidson). A great brand triggers emotions (Harley-Davidson).

A great brand represents a A great brand represents a promise of value promise of value (Sony).(Sony).

The ultimate brand builders are your The ultimate brand builders are your employeesemployees and and

operationsoperations, i.e., your performance, not your marketing , i.e., your performance, not your marketing

communications.communications.

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Your Company’s BrandYour Company’s Brand

1.1. What word does your brand own?What word does your brand own?

2.2. Write down other words triggered by your brand name?Write down other words triggered by your brand name?

A. Circle the favorable words; square the unfavorable words.A. Circle the favorable words; square the unfavorable words.B. Underline the words that are favorable but not widely known.B. Underline the words that are favorable but not widely known.C. Double underline the words that are unique to your company.C. Double underline the words that are unique to your company.

3.3. Are any of the following a source for strengthening your brand’s Are any of the following a source for strengthening your brand’s personality?personality?

A. FoundersA. FoundersB. SpokespersonsB. SpokespersonsC. CharactersC. CharactersD. ObjectsD. ObjectsE. Stories and mythologiesE. Stories and mythologies

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2. How Do You Develop 2. How Do You Develop a Brand Concept?a Brand Concept?

““The brand must be an essence, an ideal, an The brand must be an essence, an ideal, an emotion. ” It must be supported by beautiful logos, emotion. ” It must be supported by beautiful logos, clever tag lines, creative turns, edgy names, rave clever tag lines, creative turns, edgy names, rave launch parties, big ticket giveaway promotions, and launch parties, big ticket giveaway promotions, and publicity buzz-making. (Advertising agency view)publicity buzz-making. (Advertising agency view)

““The brand should have a target group in mind and The brand should have a target group in mind and be positioned to solve one of their problems better be positioned to solve one of their problems better than competitive offerings.” Furthermore the brand’s than competitive offerings.” Furthermore the brand’s reputation is ultimately based on product quality, reputation is ultimately based on product quality, customer satisfaction, employee communications, customer satisfaction, employee communications, social responsibility, etc. (Kevin Clancy, CEO of social responsibility, etc. (Kevin Clancy, CEO of Copernicus)Copernicus)

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Branding ComponentsBranding Components

NameName Short, suggestive, memorable, unique, pronounceableShort, suggestive, memorable, unique, pronounceable

SloganSlogan Logo and typefaceLogo and typeface ColorsColors MusicMusic Themelines (Got Milk!)Themelines (Got Milk!) Stationery and business cardsStationery and business cards OfficesOffices TrucksTrucks Dress codeDress code

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Brand SlogansBrand Slogans

BA, BA, “The World’s Favorite Airline” “The World’s Favorite Airline” American Express,American Express, “The Natural Choice” “The Natural Choice” AT&T,AT&T, “The Right Choice” “The Right Choice” BudweiserBudweiser, “King of Beers”, “King of Beers” Ford,Ford, “Quality is #1 Job” “Quality is #1 Job” Holiday Inn, Holiday Inn, “No Surprises”“No Surprises” Lloyds Bank,Lloyds Bank, “The Bank that Likes to Say Yes” “The Bank that Likes to Say Yes” Philips, Philips,

““From Sand to Chips”From Sand to Chips” ““Philips Invents for You”Philips Invents for You” ““Let’s Make Things Better”Let’s Make Things Better”

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There is No Such Thing as a Commodity: There is No Such Thing as a Commodity: Differentiate by Segments Differentiate by Segments

Mobil conducted a study of 2,000 gasoline buyers and Mobil conducted a study of 2,000 gasoline buyers and identified five segments:identified five segments: Road Warriors (always driving)Road Warriors (always driving) True Blues (brand or dealer loyal)True Blues (brand or dealer loyal) Generation F3 (liked convenience store aspect)Generation F3 (liked convenience store aspect) Homebodies (fills up at nearest station)Homebodies (fills up at nearest station) Price Shoppers (20% of all the buyers)Price Shoppers (20% of all the buyers)

Mobil rolled out Mobil rolled out Friendly ServeFriendly Serve: cleaner property, : cleaner property, bathrooms, better lighting, well-stocked stores, and bathrooms, better lighting, well-stocked stores, and friendlier personnel.friendlier personnel.

Mobil charged $.02 more and sales increased by 20-25 Mobil charged $.02 more and sales increased by 20-25 percent. percent.

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3. How Do You Promote a Brand?3. How Do You Promote a Brand?

““How do I justify spending millions on How do I justify spending millions on creating an image. That’s millions my creating an image. That’s millions my customers have to spend when they buy customers have to spend when they buy from us.” Tom Parker, CEO of Clark’s from us.” Tom Parker, CEO of Clark’s shoesshoes..

Brands are built by performance, not Brands are built by performance, not advertising.advertising.

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Don’t Overuse Advertising Don’t Overuse Advertising to Build a Brandto Build a Brand

People don’t pay that much attention to ads anymore People don’t pay that much attention to ads anymore (wallpaper).(wallpaper).

Some exceptional TV ads grab attention but do not Some exceptional TV ads grab attention but do not provide motivation.provide motivation.

Advertising doesn’t have much credibility or Advertising doesn’t have much credibility or believability. believability.

The existence of so much advertising makes The existence of so much advertising makes advertising less effective. Yet the cost of advertising advertising less effective. Yet the cost of advertising keeps rising.keeps rising.

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Tools for Building BrandsTools for Building Brands AdvertisingAdvertising (e.g.,Absolut Vodka) (e.g.,Absolut Vodka) SponsorshipsSponsorships (e.g., Kodak and Olympics) (e.g., Kodak and Olympics) ClubsClubs (e.g. Nestle’s Casa Buitoni Club) (e.g. Nestle’s Casa Buitoni Club) Company visitsCompany visits (e.g., Cadbury’s theme park, Hallmark’s Museum) (e.g., Cadbury’s theme park, Hallmark’s Museum) Trade showsTrade shows Traveling exhibitsTraveling exhibits Worldwide web casts of presentations, roundtables, entertainmentWorldwide web casts of presentations, roundtables, entertainment Distribution outletsDistribution outlets (e.g., Haagen-Dazs) (e.g., Haagen-Dazs) Public facilitiesPublic facilities (e.g., Nestle Nestops) (e.g., Nestle Nestops) Social causesSocial causes (e.g., American Express) (e.g., American Express) High value for the moneyHigh value for the money (e.g. buzz created by Ikea, etc.) (e.g. buzz created by Ikea, etc.) User community buildingUser community building (e.g., Harley-Davidson) (e.g., Harley-Davidson) Founder’s personalityFounder’s personality (e.g., Colonel Saunders) (e.g., Colonel Saunders) Celebrity spokespersonsCelebrity spokespersons

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4. What Makes a Strong Brand?4. What Makes a Strong Brand?

Strong brand = Product Benefits x Distinct Strong brand = Product Benefits x Distinct Identity x Emotional ValuesIdentity x Emotional Values

Peter Doyle, Peter Doyle, Marketing Management & StrategyMarketing Management & Strategy, 1997, 1997

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THE Y&R MODEL OF BRAND STRENGTHTHE Y&R MODEL OF BRAND STRENGTH

A successful brand has A successful brand has brand vitalitybrand vitality and and brand staturebrand stature..

Brand vitalityBrand vitality consists of: consists of:

1. 1. DifferentiationDifferentiation, the brand is distinct, the brand is distinct

2. 2. Relevance,Relevance, the brand is meaningful and personally the brand is meaningful and personally

appropriate.appropriate.

Brand statureBrand stature consists of: consists of:

1. 1. EsteemEsteem, the brand is seen to have quality and momentum., the brand is seen to have quality and momentum.

2. 2. FamiliarityFamiliarity, the brand is known and understood by many people., the brand is known and understood by many people.

Some conclusions:Some conclusions:

1. A brand that has high familiarity but low likeability is a troubled brand.1. A brand that has high familiarity but low likeability is a troubled brand.

2.2. A brand that has high likeability but low familiarity has high advertising potential.A brand that has high likeability but low familiarity has high advertising potential.

3.3. A brand with high vitality but low stature has excellent potential.A brand with high vitality but low stature has excellent potential.

4.4. When a brand’s differentiation and relevance start slipping, esteem will slip next, and then When a brand’s differentiation and relevance start slipping, esteem will slip next, and then familiarity will decline.familiarity will decline.

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Characteristics of Strong BrandsCharacteristics of Strong Brands

Provides superior delivery of desired benefits.Provides superior delivery of desired benefits. (Starbucks, FedEx, Amazon)(Starbucks, FedEx, Amazon)

Maintain innovation and relevance for the brand.Maintain innovation and relevance for the brand. (Gillette, Charles Schwab)(Gillette, Charles Schwab)

Establish credibility and create appropriate brand Establish credibility and create appropriate brand personality and imagery.personality and imagery. (Apple, Virgin)(Apple, Virgin)

Communicate with a consistent voice.Communicate with a consistent voice. (Coca-Cola, Accenture)(Coca-Cola, Accenture)

Strategically design and implement a brand Strategically design and implement a brand hierarchy and portfolio.hierarchy and portfolio. (BMW, The Gap)(BMW, The Gap)

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Strong Brands Supply Use Value Strong Brands Supply Use Value as Well as Purchase Valueas Well as Purchase Value

Nestle:Nestle: Sells baby foodSells baby food Provides free dietitian phone lineProvides free dietitian phone line Nestops along the highwayNestops along the highway

Home Depot:Home Depot: Sells home improvement products, such as paint, electrical Sells home improvement products, such as paint, electrical

supplies, plumbingsupplies, plumbing Offers free kitchen remodeling design serviceOffers free kitchen remodeling design service Offers free workshops on how to paint, fix faucets, etc.Offers free workshops on how to paint, fix faucets, etc.

VolvoVolvo Teaches safe driving,Teaches safe driving, Supports lower insurance rates for safe drivers Supports lower insurance rates for safe drivers

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When Do You Stretch When Do You Stretch a Brand Name?a Brand Name?

Mercedes is putting its name on large, medium and Mercedes is putting its name on large, medium and small cars.small cars.

Gap decided to invent Old Navy in going down and Gap decided to invent Old Navy in going down and buying Banana Republic in going up.buying Banana Republic in going up.

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How Do You Revitalize a Brand?How Do You Revitalize a Brand? A dowager brand pioneered the market but now is declining. It will 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 be hard to reverse the decline and give it new life but the decline can be slowed down.can be slowed down.

Two general approaches: Two general approaches: Marketing mix modificationMarketing mix modification

Improve the product, distribution, price, or promotion Improve the product, distribution, price, or promotion Market modificationMarket modification

Find new segments, new usage benefits or occasions, Find new segments, new usage benefits or occasions, more frequent usage, etc. more frequent usage, etc.

Find out to whom the dowager brand is losing share:Find out to whom the dowager brand is losing share: Old peer brandsOld peer brands New peer brandsNew peer brands Retail store brandsRetail store brands Generic brandsGeneric brands Elite brandsElite brands

Find out to whom the dowager brand is losing sales.Find out to whom the dowager brand is losing sales. Interview people who defected to each competitive class and their Interview people who defected to each competitive class and their

dissenting rationales.dissenting rationales. Determine a counterlogic for each group and direct them to the Determine a counterlogic for each group and direct them to the

groups that can most easily be won back.groups that can most easily be won back. Source: Dennis W. Rook and Sidney J. Levy, “Defending the Dowager: Source: Dennis W. Rook and Sidney J. Levy, “Defending the Dowager:

Communication Strategies for Declining Main Brands.”Communication Strategies for Declining Main Brands.”

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How Do You Rationalize How Do You Rationalize Your Product Line?Your Product Line?

Unilever found that the largest 50 brands accounted for 63% of Unilever found that the largest 50 brands accounted for 63% of its revenues.its revenues.

Unilever decided to emphasize 400 core brands and dispose, Unilever decided to emphasize 400 core brands and dispose, delete or consolidate 1,200 of its marginal brands. delete or consolidate 1,200 of its marginal brands.

Unilever selected its 400 core brands based on brand scale, Unilever selected its 400 core brands based on brand scale, brand power (#1or 2), and brand growth potential.brand power (#1or 2), and brand growth potential.

40 brands were designated as core global brands (e.g., Dove, 40 brands were designated as core global brands (e.g., Dove, Knorr, Lipton), and 360 as regional core brands.Knorr, Lipton), and 360 as regional core brands.

The core brands would get disproportionate investments in The core brands would get disproportionate investments in advertising and promotion, innovation, marketing competence advertising and promotion, innovation, marketing competence and management time. The core brands would be extended.and management time. The core brands would be extended.

Weak brands had small market shares; poor profitability; Weak brands had small market shares; poor profitability; negative cash flow; weak channel support; disproportionate negative cash flow; weak channel support; disproportionate consumption of management time.consumption of management time.

The weak brands would be milked, sold, delisted, or their The weak brands would be milked, sold, delisted, or their attribute would be migrated to another brand.attribute would be migrated to another brand.

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What Are the Most Frequent Causes What Are the Most Frequent Causes of Brand Failure?of Brand Failure?

Failure to live up to the brand promise.Failure to live up to the brand promise. Failure to adequately support the brand.Failure to adequately support the brand. Failure to adequately control the brand.Failure to adequately control the brand. Failure to properly balance consistency and Failure to properly balance consistency and

change with the brand.change with the brand. Failure to do brand equity measurement and Failure to do brand equity measurement and

management.management.

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Building Customer EquityBuilding Customer Equity

How customer-centered is your company? How How customer-centered is your company? How do you measure this?do you measure this?

Does your company need to be more customer-Does your company need to be more customer-centered? To all customers or only the more centered? To all customers or only the more important customers?important customers?

How can you go about becoming more customer-How can you go about becoming more customer-centered?centered?

How much would this cost you in new technology How much would this cost you in new technology and training?and training?

How much would you gain as a result of How much would you gain as a result of becoming more customer-centered? becoming more customer-centered?

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Achieving Outcomes in Market SpaceAchieving Outcomes in Market Space

Achieving a deep customer focus is not done simply by building a Achieving a deep customer focus is not done simply by building a customer database or customizing your product offerings.customer database or customizing your product offerings.

A company must define its marketspace not in terms of products but A company must define its marketspace not in terms of products but in terms of customer outcomes.in terms of customer outcomes.

Baxter Healthcare supplies “home-recovery enhancement,” not just Baxter Healthcare supplies “home-recovery enhancement,” not just nursing care or wheelchairs.nursing care or wheelchairs.

IHI, a health insurance company, operates in the “lifetime health and IHI, a health insurance company, operates in the “lifetime health and personal safety” marketspace.personal safety” marketspace.

A company then examines the customer activity cycle and the value A company then examines the customer activity cycle and the value gaps. gaps.

The company then invests in filling the major value gaps. The company then invests in filling the major value gaps. The company ends up being favored and grows through doing more The company ends up being favored and grows through doing more

things better for their customers. things better for their customers.

Source: Sandra Vandermerwe, “Achieving Deep Customer Focus,” MIT Sloan Source: Sandra Vandermerwe, “Achieving Deep Customer Focus,” MIT Sloan Management Review, Spring 2004, pp. 26-34 Management Review, Spring 2004, pp. 26-34

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Achieving Deep Customer FocusAchieving Deep Customer Focus1.1. Create strategic excitement.Create strategic excitement.

2.2. Enlist “points of light.”Enlist “points of light.”

3.3. Articulate the new market space focused on customer Articulate the new market space focused on customer outcomesoutcomes..

4.4. Identify the Identify the valuevalue opportunities through using the opportunities through using the customer activity cycle.customer activity cycle.

5.5. Build aBuild a compelling case (not through a plan but a story).compelling case (not through a plan but a story).

6.6. Size the prize.Size the prize.

7.7. Modeling the concept with a few chosen customers.Modeling the concept with a few chosen customers.

8.8. Get people working together.Get people working together.

9.9. Get critical mass.Get critical mass.

10.10. Gather momentum.Gather momentum.

Source: Sandra Vandermerwe, “Achieving Deep Customer Focus,” MIT Source: Sandra Vandermerwe, “Achieving Deep Customer Focus,” MIT Sloan Management Review, Spring 2004, pp. 26-34.Sloan Management Review, Spring 2004, pp. 26-34.

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Building Customer EquityBuilding Customer Equity

Reduce the rate of defection. Reduce the rate of defection. Increase the longevity of the relationship.Increase the longevity of the relationship. Enhance the growth potential of each Enhance the growth potential of each

customer through cross-selling and up-customer through cross-selling and up-selling.selling.

Make low-profit customers more profitable Make low-profit customers more profitable or terminate them.or terminate them.

Focus disproportionate effort on high Focus disproportionate effort on high value customers.value customers.

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Components of Customer EquityComponents of Customer Equity

Customer equity is driven by:Customer equity is driven by: Value equity Value equity Brand equityBrand equity Relationship equity. Relationship equity.

Companies must decide which driver(s) underlie Companies must decide which driver(s) underlie each equity. each equity.

Source: Roland T. Rust, Valerie A. Zeithaml, and Katherine A. Lemon, Source: Roland T. Rust, Valerie A. Zeithaml, and Katherine A. Lemon, Driving Customer EquityDriving Customer Equity (New York Free Press 2000). (New York Free Press 2000).

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Transaction Marketing vs.Transaction Marketing vs.Customer Relationship MarketingCustomer Relationship Marketing

Customer Relationship Marketing (CRM) represents a Customer Relationship Marketing (CRM) represents a paradigm shift from Transaction Marketing (TM).paradigm shift from Transaction Marketing (TM).

TM companies focus on products and making a sale. CRM TM companies focus on products and making a sale. CRM companies focus on building a long-term relationship that companies focus on building a long-term relationship that produces satisfaction for the customer and profitability for produces satisfaction for the customer and profitability for the company. the company.

TM companies promote everywhere in search of TM companies promote everywhere in search of customers. CRM companies promote to a defined customers. CRM companies promote to a defined customer group and aim to make the customer group and aim to make the right offerright offer at the at the right right timetime using the using the right channel right channel toto thethe right customer. right customer.

All companies must practice a mix of TM and RM. TM will All companies must practice a mix of TM and RM. TM will be stronger in companies facing a large number of be stronger in companies facing a large number of customers; RM will be stronger in companies facing a small customers; RM will be stronger in companies facing a small number of customers.number of customers.

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Treat Different Customers Differently Treat Different Customers Differently

Most profitable customersMost profitable customers

Most unprofitable customersMost unprofitable customers

Most growable customersMost growable customers

Most vulnerable customersMost vulnerable customers

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Needed:Needed:Technology-Enabled MarketingTechnology-Enabled Marketing

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

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A 5 Step Model for A 5 Step Model for Database MarketingDatabase Marketing

1.1. Gather useful data on customers.Gather useful data on customers.

2.2. Classify customers by their needs and by their Classify customers by their needs and by their value to the firm. value to the firm.

3.3. Prepare business rules that select the best Prepare business rules that select the best prospects.prospects.

4.4. Customize marketing treatments for each prospect Customize marketing treatments for each prospect in terms of product offers, service mix, media, and in terms of product offers, service mix, media, and channel.channel.

5.5. Set up accountability procedures.Set up accountability procedures.

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Database Marketing is Expensive!Database Marketing is Expensive!

Requires a tremendous investment in information gathering Requires a tremendous investment in information gathering

about individual customers and prospects.about individual customers and prospects.

Requires constant updating of information.Requires constant updating of information.

Some critical information may not be available.Some critical information may not be available.

Requires a high investment in hardware and software. Requires a high investment in hardware and software.

Requires integrating individual customer information from Requires integrating individual customer information from

a variety of sources. a variety of sources.

Requires people skilled at data mining.Requires people skilled at data mining.

Requires managing and training employees, dealers, and Requires managing and training employees, dealers, and

suppliers.suppliers.

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Does Every Business Need CRM?Does Every Business Need CRM? No. The following businesses may not benefit from CRM:No. The following businesses may not benefit from CRM:

Businesses where the CLV is low.Businesses where the CLV is low. Businesses with high churn.Businesses with high churn. Businesses where there is no direct contact between Businesses where there is no direct contact between

the seller and ultimate buyer.the seller and ultimate buyer.

Companies that are in the best position to invest in CRM.Companies that are in the best position to invest in CRM. Companies that collect a lot of data (banks, insurance Companies that collect a lot of data (banks, insurance

companies, credit card companies, telephone companies, credit card companies, telephone companies).companies).

Companies that can do a lot of cross-selling and up-Companies that can do a lot of cross-selling and up-selling (GE, Amazon, etc.).selling (GE, Amazon, etc.).

Companies whose customers have highly differentiated Companies whose customers have highly differentiated needs and are of highly differentiated value to the needs and are of highly differentiated value to the company.company.

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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

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Precision MarketingPrecision Marketing

Precision marketing is achieved through looking at large Precision marketing is achieved through looking at large quantities of historic data with the help of data mining tools quantities of historic data with the help of data mining tools that search for meaningful patterns, and then creating that search for meaningful patterns, and then creating mathematical equations that represent the underlying mathematical equations that represent the underlying relationships within the data.relationships within the data.

Predictive analytics are used to identify the right offers and Predictive analytics are used to identify the right offers and right messages to beam through different channels to narrow right messages to beam through different channels to narrow customer segments, based on the propensity to respond. The customer segments, based on the propensity to respond. The expected profit of a campaign can be estimated.expected profit of a campaign can be estimated.

Many tactical marketer tasks will be automated and free up Many tactical marketer tasks will be automated and free up marketers to focus on more strategic decision making.marketers to focus on more strategic decision making.

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SALES AUTOMATIONSALES AUTOMATION The objective is to empower the salesperson to be The objective is to empower the salesperson to be

an an informed salespersoninformed salesperson who virtually has the whole who virtually has the whole company’s knowledge at his or her command and company’s knowledge at his or her command and can provide can provide total sales qualitytotal sales quality..

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Marketing AutomationMarketing Automation

Areas Ripe for Marketing Automation:Areas Ripe for Marketing Automation: Selecting names for a direct mail campaignSelecting names for a direct mail campaign Deciding who should receive loans or credit Deciding who should receive loans or credit

extensionsextensions Allocating product lines to shelf spaceAllocating product lines to shelf space Selecting mediaSelecting media Customizing letters to individual customersCustomizing letters to individual customers Targeting coupons and samplesTargeting coupons and samples Pricing airline seats and hotel reservationsPricing airline seats and hotel reservations

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Marketing Decision Models Marketing Decision Models and Marketing Mix Response Models and Marketing Mix Response Models

BRANDAIDBRANDAID CALLPLANCALLPLAN DETAILERDETAILER MEDIACMEDIAC PROMOTERPROMOTER ADCADADCAD

See Kotler, Marketing Models See Kotler, Marketing Models

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Marketing DashboardsMarketing Dashboards

Tools dashboardTools dashboard

Processes dashboardProcesses dashboard

Performance dashboardPerformance dashboard

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Marketing Work-Flow Process ToolsMarketing Work-Flow Process Tools

Project management Project management

Product managementProduct management

New product developmentNew product development

Campaign managementCampaign management

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Exploit the Internet!Exploit the Internet! Research a new product on the Internet (panel research, chat Research a new product on the Internet (panel research, chat

rooms).rooms). Create a site to explain how an existing or new product works (Create a site to explain how an existing or new product works (ex., ex.,

TideTide).). Create a site that consults on a category (Create a site that consults on a category (Colgate on dental Colgate on dental

problemsproblems).). Create a site that consults on the customer’s profile (Create a site that consults on the customer’s profile (Elizabeth Elizabeth

Arden).Arden). Sponsor a chat room around your product category.Sponsor a chat room around your product category. Answer email questions instantly (Nestle baby care questions).Answer email questions instantly (Nestle baby care questions). Send free samples of new products (Send free samples of new products (freesample.comfreesample.com).). Send coupons of new products (Send coupons of new products (coolsavings.comcoolsavings.com).). Customize your product (Customize your product (Acumin vitamins).Acumin vitamins). Offer to sell very large orders direct.Offer to sell very large orders direct. Offer valuable information to people who will register on the site.Offer valuable information to people who will register on the site.

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Is New Technology Enough?Is New Technology Enough?

NT + OO = EOONT + OO = EOO

New Technology + Old Organization = New Technology + Old Organization = Expensive Old OrganizationExpensive Old Organization

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Technology-Enabled Marketing: ExamplesTechnology-Enabled Marketing: Examples

Royal Bank of CanadaRoyal Bank of Canada Decision to purchase CRMDecision to purchase CRM

Halifax BankHalifax Bank Teller suggests financial productsTeller suggests financial products

Capital OneCapital One A credit card for everyone, but with different interest rates, credit A credit card for everyone, but with different interest rates, credit

lines, and cash advances.lines, and cash advances. Tesco supermarketsTesco supermarkets

Tesco has identified 5,000 customer “needs” segments. It sends Tesco has identified 5,000 customer “needs” segments. It sends out some 300,000 variations of any given offer with redemption 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 rates of 90%. It has formed clubs such as Baby Club, A World of Wine Club, My Time ClubWine Club, My Time Club

KraftKraft Kraft has the names of 110 million customers and 20 thousand Kraft has the names of 110 million customers and 20 thousand

facts for each household. Kraft launched print magazine, Food & facts for each household. Kraft launched print magazine, Food & Family, that is delivered to the homes of 2.1 million Kraft Family, that is delivered to the homes of 2.1 million Kraft customers in 32 versions tailored to 32 segments.customers in 32 versions tailored to 32 segments.

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10 Earmarks of the New 10 Earmarks of the New MarketingMarketing

1.1. Recognize growing customer empowerment.Recognize growing customer empowerment.

2.2. Develop a focused offering to the target marketDevelop a focused offering to the target market

3.3. Design the marketing from the customer-back.Design the marketing from the customer-back.

4.4. Focus on delivering outcomes, not products.Focus on delivering outcomes, not products.

5.5. Draw in the customer to co-create value.Draw in the customer to co-create value.

6.6. Use newer ways to reach the customer with a message.Use newer ways to reach the customer with a message.

7.7. Develop metrics and ROI measurement.Develop metrics and ROI measurement.

8.8. Develop high-tech marketing.Develop high-tech marketing.

9.9. Focus on building long run assets. Focus on building long run assets.

10.10. View marketing holistically to regain influence in the company.View marketing holistically to regain influence in the company.

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1. P&G Recognizes 1. P&G Recognizes the New Consumerthe New Consumer

Consumers want a conversation, to dialogue, Consumers want a conversation, to dialogue, to participate, to be more in control…We’re to participate, to be more in control…We’re going from one-dimensional, product-myopic going from one-dimensional, product-myopic marketing to three-dimensional marketing – marketing to three-dimensional marketing – that offers better solutions…more delightful that offers better solutions…more delightful experiences… and the opportunity for on-experiences… and the opportunity for on-going relationships.going relationships.

Alan Lafley, CEO, P&GAlan Lafley, CEO, P&G

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Do-It-Yourself MarketingDo-It-Yourself Marketing Self-InformSelf-Inform: Customers can research products and issues without relying on : Customers can research products and issues without relying on

experts (e.g., WebMD, MedlinePlus.com)experts (e.g., WebMD, MedlinePlus.com) Self-evaluateSelf-evaluate: Customers can compare product features and prices with a few : Customers can compare product features and prices with a few

clicks of a mouse (e.g., PriceGrabber.com, DealTime.com)clicks of a mouse (e.g., PriceGrabber.com, DealTime.com) Self-segmentSelf-segment: Customers can design and configure products (e.g., Dell, : Customers can design and configure products (e.g., Dell,

Reflect.com)Reflect.com) Self-priceSelf-price: Customers can propose prices to sellers (e.g., eBay, PriceLine.com, : Customers can propose prices to sellers (e.g., eBay, PriceLine.com,

Free Markets)Free Markets) Self-supportSelf-support: Customer can resolve problems by searching knowledgeable : Customer can resolve problems by searching knowledgeable

bases and discussion forums (e.g., www.remotecentral.com, bases and discussion forums (e.g., www.remotecentral.com, www.treocentral.com))

Self-programSelf-program: Customer can define their own media programming (e.g., TiVo, : Customer can define their own media programming (e.g., TiVo, MyYahoo!)MyYahoo!)

Self-organizeSelf-organize: Customers can join communities of interest to discuss products : Customers can join communities of interest to discuss products and issues (e.g., Meetup.org., IVillage)and issues (e.g., Meetup.org., IVillage)

Self-advertiseSelf-advertise: Customers can create feedback for their peers (e.g., : Customers can create feedback for their peers (e.g., Amazon.com, Planet Feeeback, BlogSpot.com)Amazon.com, Planet Feeeback, BlogSpot.com)

Self-policeSelf-police: Customers can monitor reputations of manufacturers (e.g., eBay, : Customers can monitor reputations of manufacturers (e.g., eBay, BizRate.com)BizRate.com)

Source: Mohan Sawhney lectureSource: Mohan Sawhney lecture

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The Evolution of MarketingThe Evolution of MarketingTransactional Transactional MarketingMarketing

Relationship Relationship MarketingMarketing

Collaborative Collaborative MarketingMarketing

Time frameTime frame 1950s1950s 1980s1980s Beyond 2000Beyond 2000

View of valueView of value The company offering The company offering in an exchangein an exchange

The customer The customer relationship in the relationship in the long runlong run

Co-created Co-created experiencesexperiences

View of marketView of market Place where value is Place where value is exchangedexchanged

Market is where Market is where various offerings various offerings appearappear

Market is a forum Market is a forum where value is co-where value is co-created through created through dialoguedialogue

Role of customerRole of customer Passive buyers to be Passive buyers to be targeted with targeted with offeringsofferings

Portfolio of Portfolio of relationships to be relationships to be cultivatedcultivated

Prosumers-active Prosumers-active participants in value participants in value co-creationco-creation

Role of firmRole of firm Define and create Define and create value for consumersvalue for consumers

Attract, develop and Attract, develop and retain profitable retain profitable customerscustomers

Engage customers in Engage customers in defining and co-defining and co-creating unique valuecreating unique value

Nature of customer Nature of customer interactioninteraction

Survey customers to Survey customers to elicit needs and elicit needs and solicit feedbacksolicit feedback

Observe customers Observe customers and learn adaptivelyand learn adaptively

Active dialogue with Active dialogue with customers and customers and communitiescommunities

Adapted from Prahalad and Ramaswamy 2004

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2. Develop a Focused Offering 2. Develop a Focused Offering to the Target Marketto the Target Market

Value customersValue customers: Which customer segment(s) do we : Which customer segment(s) do we want to serve?want to serve?

Value propositionValue proposition: Can we create a value proposition : Can we create a value proposition

that delivers superior value through dramatically that delivers superior value through dramatically higher benefits or lower costs?higher benefits or lower costs?

Value networkValue network: Can we run a better network or : Can we run a better network or radically redefine the value delivery system for the radically redefine the value delivery system for the industry such as Dell and IKEA have done?industry such as Dell and IKEA have done?

3Vs framework of Nirmalya Kumar3Vs framework of Nirmalya Kumar

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Choose to Serve a Unique Set of Choose to Serve a Unique Set of Customer Values Customer Values

1. Identify the value expectations of potential customers.1. Identify the value expectations of potential customers. 2. Select the values on which to compete.2. Select the values on which to compete.

Nike values: Winning, roar of the crowd, extreme effort, the Nike values: Winning, roar of the crowd, extreme effort, the smell of sweat, physical developmentsmell of sweat, physical development

New Balance values: Self-improvement, inner harmony, New Balance values: Self-improvement, inner harmony, balanced, the smell of nature, spiritual developmentbalanced, the smell of nature, spiritual development

3. Analyze the ability of the organization to deliver those values.3. Analyze the ability of the organization to deliver those values. 4. Communicate and sell the value message.4. Communicate and sell the value message. 5. Deliver the value promised and continuously improve the 5. Deliver the value promised and continuously improve the

company's value model.company's value model.

See J. Nicholas Debonnis, et. al, Value-Based Marketing for Bottom Line Success: 5 Steps to See J. Nicholas Debonnis, et. al, Value-Based Marketing for Bottom Line Success: 5 Steps to Creating Competitive ValueCreating Competitive Value (McGraw-Hill, 2004) (McGraw-Hill, 2004)

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3. Design the Marketing 3. Design the Marketing From the Customer-BackFrom the Customer-Back

Marketing must be run as a set of value finding, creation, and Marketing must be run as a set of value finding, creation, and delivery processes, not 4P functions. The four Ps are seller delivery processes, not 4P functions. The four Ps are seller oriented.oriented.

The 4As are buyer oriented.The 4As are buyer oriented. Awareness (A1)Awareness (A1) Acceptability (A2)Acceptability (A2) Affordability (A3)Affordability (A3) Accessibility (A4)Accessibility (A4)

Market value potential = A1 x A2 x A3 x A4Market value potential = A1 x A2 x A3 x A4 If A1=100%, A2=100%, A3=50%, A4=50%, Then MV=25%If A1=100%, A2=100%, A3=50%, A4=50%, Then MV=25%

Source: Jagdish ShethSource: Jagdish Sheth

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4. Focus on Delivering Outcomes, 4. Focus on Delivering Outcomes, Not Products.Not Products.

CompanyCompany Product focusProduct focus Solutions focusSolutions focus

Akzo NobelAkzo Nobel Gallons of paintGallons of paint Painted carsPainted cars

BP Nutrition-BP Nutrition-HendrixHendrix

Animal feedAnimal feed Animal weight gainAnimal weight gain

CummingsCummings Diesel enginesDiesel engines Uninterruptible Uninterruptible powerpower

ICI ExplosivesICI Explosives ExplosivesExplosives Broken rockBroken rock

ScaniaScania TrucksTrucks Guaranteed uptimeGuaranteed uptime

WW GraingerWW Grainger MRO itemsMRO items Indirect materials Indirect materials mgt.mgt.

Source: KumarSource: Kumar

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Visualize a Larger MarketVisualize a Larger Market Nike now defines itself in the sports market rather than the Nike now defines itself in the sports market rather than the

shoe and clothing market. shoe and clothing market. The late Roberto Goizueta told his company that while The late Roberto Goizueta told his company that while

Coca Cola had a 35 percent share of the soft drink market, Coca Cola had a 35 percent share of the soft drink market, it had only a 3 percent share of the total beverage market. it had only a 3 percent share of the total beverage market.

Armstrong World Industries Armstrong World Industries moved from floor coverings to moved from floor coverings to ceilings to total interior surface decoration.ceilings to total interior surface decoration.

Citicorp realized that it only had a small share of the total Citicorp realized that it only had a small share of the total financial market which includes much more than banking.financial market which includes much more than banking.

Taco Bell went from selling food in stores to “feeding Taco Bell went from selling food in stores to “feeding people everywhere” including kiosks, convenience stores, people everywhere” including kiosks, convenience stores, airports, and high schools.airports, and high schools.

Jack Welch asked product managers to redefine their Jack Welch asked product managers to redefine their market so that they only had a 10% share.market so that they only had a 10% share.

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5. Draw in the Customer 5. Draw in the Customer to Co-create Value: Two to Co-create Value: Two

ApproachesApproaches1.1. Offer a wide product line so the customer can choose Offer a wide product line so the customer can choose

something closer to the customer’s desires.something closer to the customer’s desires.• M&M allows customers to special order M&Ms in 21 colors. M&M allows customers to special order M&Ms in 21 colors. • Branches Hockey let’s players pick from 26 options: length Branches Hockey let’s players pick from 26 options: length

of a stick, blade patterns, etc.of a stick, blade patterns, etc.

2.2. Stand ready to customize according to the customer’s wishes.Stand ready to customize according to the customer’s wishes.• Dell computers are designed by customersDell computers are designed by customers• Lands’ End sells tailor-made chinos.Lands’ End sells tailor-made chinos.• P&G on its reflect.com site lets shoppers design everything P&G on its reflect.com site lets shoppers design everything

from eye moisturize to liquid foundation makeup.from eye moisturize to liquid foundation makeup.• Yankee Candle Company will mix colors and scents to make Yankee Candle Company will mix colors and scents to make

the candles you want.the candles you want.• Other examples: golf clubs, breakfast cereals, credit card Other examples: golf clubs, breakfast cereals, credit card

companiescompanies

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Examples of Collaborative Examples of Collaborative MarketingMarketing

P&G’s site has a P&G’s site has a We’re Listening sectionWe’re Listening section and and Share Share Your Thoughts Your Thoughts section and Advisory Feedback section and Advisory Feedback sessions.sessions.

GM offers an AutoChoiceAdvisory on its websiteGM offers an AutoChoiceAdvisory on its website

Cisco runs Customer Forums to improve its Cisco runs Customer Forums to improve its offerings.offerings.

A motorcycle in Italy is being designed by A motorcycle in Italy is being designed by customers.customers.

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6. Use Newer Ways to Reach the 6. Use Newer Ways to Reach the Customer with Relevant MessagesCustomer with Relevant Messages

Make your ads more precise as to who they Make your ads more precise as to who they reach and more relevant.reach and more relevant.

Let consumers indicate if they have an Let consumers indicate if they have an interest or not. Stop pestering them.interest or not. Stop pestering them.

Deliver valuable content with each ad, such Deliver valuable content with each ad, such as useful information or entertainment.as useful information or entertainment.

Reach consumers in newer ways.Reach consumers in newer ways.

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Newer Ways to Reach Newer Ways to Reach CustomersCustomers

SponsorshipsSponsorships

Mentions on talk showsMentions on talk shows

Product placementProduct placement

Street-level promotionStreet-level promotion

Festivals Festivals

Celebrity endorsementsCelebrity endorsements

Mobile billboardsMobile billboards

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Creating Buzz on the StreetsCreating Buzz on the Streets Chrysler’s PT Landcruiser appeared in fashionable areas and Chrysler’s PT Landcruiser appeared in fashionable areas and

college tailgate parties. 250,000 prospects requested information college tailgate parties. 250,000 prospects requested information before official ad campaign began in April 2000.before official ad campaign began in April 2000.

Models drove around Los Angeles on Vespa scooters and chatted Models drove around Los Angeles on Vespa scooters and chatted with customers in cafes and bars.with customers in cafes and bars.

Ford identified 120 people in six key markets and gave them a Ford identified 120 people in six key markets and gave them a Focus to drive for 6 months and promotional material.Focus to drive for 6 months and promotional material.

Vans builds skateboard parks at malls and sponsors Vans Triple Vans builds skateboard parks at malls and sponsors Vans Triple Crown.Crown.

Hasbro enlisted “cool” pre-teens to play the POX game and tell Hasbro enlisted “cool” pre-teens to play the POX game and tell their friends about it.their friends about it.

Tourist goes into lounge and her telephone rings and picture of Tourist goes into lounge and her telephone rings and picture of the caller appears on the phone.the caller appears on the phone.

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7. Develop Metrics and ROI 7. Develop Metrics and ROI MeasurementMeasurement

Products Brands Channels Customer Segments

Markets

Relative product quality

Brand awareness

Channel penetration

Customer satisfaction

Market penetration

Perceived product quality

Brand esteem

Channel trust Average transaction size

Market share

Percentage of sales from new products

Brand loyalty Channel efficiency

Customer complaints

Sales growth

Product profitability

Brand profitability

Market share in each channel

Customer acquisition costs

Market profitability

Channel profitability

Customer retention rate

Source: Kumar

Customer profitability

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8. Develop High-Tech Marketing8. Develop High-Tech Marketing

Predictive analyticsPredictive analytics Sales automationSales automation Marketing automationMarketing automation Marketing modelsMarketing models Process dashboardsProcess dashboards Performance dashboardsPerformance dashboards Campaign managementCampaign management Project managementProject management New product managementNew product management

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9. Focus on Building 9. Focus on Building Long-Run Marketing Assets.Long-Run Marketing Assets.

Brands and brand equityBrands and brand equity

Customers and customer equityCustomers and customer equity

Service qualityService quality

Stakeholder relationshipsStakeholder relationships

Intellectual knowledgeIntellectual knowledge

Corporate reputationCorporate reputation

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10. View Marketing Holistically10. View Marketing Holistically

Marketing must become strategic and drive Marketing must become strategic and drive business strategy. business strategy.

A company needs to take a more holistic A company needs to take a more holistic view of:view of: the target customers’ activities, lifestyle, the target customers’ activities, lifestyle,

and social space.and social space. the company’s channels and supply chain.the company’s channels and supply chain. the company’s communications.the company’s communications. the company’s stakeholders’ interests.the company’s stakeholders’ interests.

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Two Models of ManagementTwo Models of Management

Profit-based managementProfit-based management Reduce costsReduce costs Reduce compensationReduce compensation Replace people with Replace people with

technologytechnology Price to extract maximum Price to extract maximum

valuevalue Sell more productsSell more products Acquire lots of customersAcquire lots of customers

Loyalty-based managementLoyalty-based management Invest in marketing assetsInvest in marketing assets Give superior compensationGive superior compensation Leverage people with Leverage people with

technologytechnology Price to reward customersPrice to reward customers Deepen customer valueDeepen customer value Acquire customers selectivelyAcquire customers selectively

Source: Frederick Reichheld, The Loyalty Effect

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ConclusionsConclusions Marketing is definitely not filling its potential.Marketing is definitely not filling its potential. Marketing must become the driver of business strategy.Marketing must become the driver of business strategy. Companies need to adopt a more holistic view of the marketing Companies need to adopt a more holistic view of the marketing

challenge.challenge. Companies need lateral marketing thinking to conceive of new Companies need lateral marketing thinking to conceive of new

product and service ideas.product and service ideas. Companies need to choose from five major strategic paths.Companies need to choose from five major strategic paths. Companies need to move from a product focused to a market Companies need to move from a product focused to a market

and customer focused organization.and customer focused organization. Companies need to build, measure and manage brand equity Companies need to build, measure and manage brand equity

and customer equity. and customer equity. Companies need to move to technology-enabled marketing to Companies need to move to technology-enabled marketing to

achieve precision marketing and develop better measures of achieve precision marketing and develop better measures of ROI impact.ROI impact.

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“This time like all times is a good one, if we but know what to do with it.”

Ralph Waldo Emerson

THANK YOU!