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Rethinking Marketing To Compete in the Interlinked Economy

• Philip Kotler, Ph.D • Kellogg School of Management • Northwestern University

• San Jose, Costa Rica • April 22, 2009

Your Action Agenda
1. Improve Marketing’s Role in Your Business 2. Find New Market Opportunities. 3. Find New Ways to Communicate. 4. Use New Technologies and Metrics.

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

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

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

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

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


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

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

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

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

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

Corporate Level Branding   .

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

Characteristics of Firms of Endearment • • • • • • • • They align the interests of all stakeholder groups Their executive salaries are relatively modest They operate an open door policy to reach top management Their employee compensation and benefits are high for the category. and their employee turnover is lower They hire people who are passionate about customers They view suppliers as true partners who collaborate in improving productivity and quality and lowering costs They believe that their corporate culture is their greatest asset and primary source of competitive advantage. Their marketing costs are much lower than their peers while customer satisfaction and retention is much higher. et al. Source: Sisodia. . their employee training is longer.

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

Co-creation stage.4P stage. 3. 4. .Stages in the Development of the Marketing Discipline 1. 5. Selling stage. 2.Customer relationship management stage. STP stage.

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

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

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

Be the steward of the corporate brand and brand-building practice. Represent the voice of the customer (VOC) to others in the company and champion the development of a strong customer-orientation to build loyal customers. Bring insight into the corporate portfolio and synergies. 4. Measure and account for marketing financial performance and contain media and other service costs. 6. Upgrade marketing technology and skills in the company. Monitor the evolving business landscape and gather customer insights to help develop new products and services for achieving growth objectives. . 5. 3.What is a CMO Expected to Do? 1. 2.

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

Identify the Existing Level of Relationship Undefined Defined Aligned .

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

The Marketing and Sales Funnel Customer Awareness Brand Awareness Brand Consideration Brand Preference Purchase Intention Purchase Loyalty Customer Advocacy Marketing Handoff Sales .

Revise Your Sales Approach .

0 . Sales 3.Drop the Old Sales Model Source: Sandro Magaldi.

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

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

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

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

The company trained 400 employees from a wide variety of functions in a new process of “ideation. Samsung runs an annual Value Innovation conference and awards are given for the best cases. in 1996. . authorized a team of its employees to allocate $20 million to rule-breaking ideas originating anywhere in the company. Of Shell’s 5 largest growth initiatives in 1999. 4 started this way.” • Shell Oil. Core cross-functional team members come together to discuss their strategic projects.000.000 and up to $600. Any employee can make a 10-minute pitch followed by 15-minute Q&A.Three Innovation Models • Whirlpool Corporation launched an effort in 2000 to stimulate greater innovation. Greenlight ideas get an average of $100. • Samsung Electronics established the Value Innovation Program (VIP) Center in 1998.

Observe how your customers are using your product. 3. 2. 5. Encourage or challenge your customers to change or improve your product. . Ask your customers about their dream products. 6. Ask your customers about their problems with your products.Six Ways to Get Ideas From Customers 1. Use a customer advisory board to comment on your company’s ideas. 4. Form a brand community of enthusiasts who discuss your product.

Source: Blue Ocean Strategy .

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

The case of Cereal Bars Cereals for breakfast market New category into Cereal varieties STREETS = .

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

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

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

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

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

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

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

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

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

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

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

Examples of Vendors that Play in Each of these Spaces Although some of the vendors play in more than one category. / Content Mgmt. & Warehousing 3) 2) Business Intelligence & Analytics Marketing Mix Modeling/ Predictive Analytics 7) 4) Campaign Mgmt. 5) Mktg. Tools 8) Personalization Platforms 9) YieldBased Pricing Opt. Mgmt. Tools . Work-Flow Solutions 6) MRM Marketing Comm. 1) Database Mgmt. thi summary is intended to classify software s providers by their predominant solution feature.

October 31.The power to deliver profit growth… P&G Soars Due To Marketing Efforts Brandweek.” CEO A. He did say that this had helped improve the margins and increased earnings 33% during the quarter to $2. Lafley said in a conference call with analysts today. Brand Week.Procter & Gamble credited marketing improvements as part of the reason for its better-thanexpected first quarter of fiscal ’07.G. 2006 . November. 2006 By Constantine von Hoffman BOSTON -. “We’re getting real traction from our marketing ROI and media-mix modeling.7 billion. “That means we’re better able to reallocate” what the company spends on marketing.

Find new market opportunities by working with customers and using ideation frameworks (blue ocean strategy. sales automation. marketing automation) to increase your company’s marketing productivity and financial results measurement. Organize your marketing more holistically and strategically and relate better to sales and to new product development. lateral marketing). . mobile phones. podcasts. 2. email. Incorporate new marketing technologies (marketing models. blogs. 3. webcasts.Your Take-Aways 1. 4. especially during the economic downturn. and buzz marketing) to replace some of your traditional media. social networks. Add newer media (websites.

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