Marketing 3.

0: Values-Driven
Marketing
Philip Kotler
Kuwait
April 03 . 2011


Two Recent Books by Professor Kotler
Action-Oriented Knowledge
Session One. How to deal with your companys
major business challenges and opportunities.

Session Two. How to search for powerful new ideas
and innovate successfully.

Session Three. How to improve your branding
power.

Session Four. How to develop a superior company
reputation through sustainability-driven thinking.
Action-Oriented Knowledge
Session One. How to deal with your companys
major business challenges and opportunities.

Session Two. How to search for powerful new
ideas.

Session Three. How to improve your branding
power.

Session Four. How to develop a superior company
reputation through sustainability thinking.

On a scale of 1 to 3 (3 = highest),
How much is this a challenge to your company?

Distrust of business

Globalization

Economic recession and turbulence

Technological advances and disruptions

Environmentalism and climate change

Customer empowerment and the new social media

Political conflict and regulatory changes

Times Are Bad
CEOs are now playing miniature golf.

Obama met with small businesses - Chrysler, Citigroup and GM, to discuss the
Stimulus Package.

People in Africa are donating money to Americans.

The Mafia is laying off judges.
An optimist is a person who sees an opportunity in every calamity.

A pessimist is a person who sees a calamity in every opportunity.


Winston Churchill
Distrust of Business
In a 2009 survey, only 16% of respondents respect the integrity of
business executives. And car salesmen and advertising executives
were the least admired by the public.
Causes
Business scandals: Enron, World Com, Tyco, Madoff, Goldman Sachs
High pay to the few: CEO paid 350 times average workers salary
Anti-capitalist forces
Recession and falling behind
Solutions
More transparency
Better boards and management
Investing in corporate social responsibility

Is Your Company Going to Fail?
Signs to Watch for
James Collins wrote in How the Mighty Fall :
Stage 1. Successful companies get arrogant and think they
can do many things.
Stage 2. They pursue growth too aggressively.
Stage 3. They ignore early warning signs of failure
Stage 4. Their failure becomes very public.
Stage 5. If they dont reform, they finally go bankrupt.

Companies are often blind-sighted by their eagerness
to build short-term growth and ignore the risks.

Most companies are short-lived.

Globalization
Causes
Advances in information, communication, and transportation
now connect the whole world
Lowering of trade barriers

Downside
Globalization hurts as many nations as it helps
Globalization increases country inequality
Globalization provokes nationalism and protectionism
Globalization threatens cultural traditions and values

Upside
New market opportunities if we can offer something better

Question: Is your company sufficiently globalized?
Economic Recession and Turbulence
Not all companies were hurt by the fiscal meltdown.
Distinguish between:
Recession
Disruption
Turbulence
Risk reduction strategies
Larger reserves
Shared investments
Early warning systems
Scenario planning
Corporate social responsibility
Technological Advances and
Disruptions
Scientific advances and inventions
What is the impact of the birth control pill, Genome
project , digitalization, cell phones, social media, robotics,
nanotechnology, biotech, bioenergy

Creative destruction
Can you avoid the fate of the music industry, publishing
industry (newpapers , magazines, books), high cost
airlines

Theory of disruptive innovation
What can happen to your industry or company?


Disruptive Technologies
OLD

Photographic film
Wired telephones
Store retailing
Classroom education
Offset printing
General hospitals
Open surgery
Cardiac bypass surgery
Manned fighters
Full service stock brokerage


NEW

Digital photography
Mobile telephones
On-line retailing
Distance education
Digital printing
Outpatient clinics
Endoscopic surgery
Angioplasty
Unmanned aircraft
On-line stock brokerage
Source: Clayton M. Christensen, The Innovators Dilemma, p. xxix.
Tomorrow Will Be Different
Yesterday Today Tomorrow
Ford Toyota Cherry
Department stores Wal-Mart Internet retail
Digital Equipment Dell RIM Blackberry
Delta Southwest, Ryan Air SkyWest, Air taxis
IBM Microsoft Linux
At&T Cingular Skype
Sony DiskMan Apple iPod Cell Phones
Source: Clayton Christensen
Environmentalism and Climate Change
Companies need to go green to reduce
waste, pollution, and water shortage.

Those companies that go green early will
establish a strong reputation and following.
They will also save money in the long run.
Customer Empowerment
and the New Social Media
Who has the most market power?
Wholesalers
Manufacturers
Retailers
Customers
What are the best new ways to communicate?
Blogs
Facebook,
Twitter
Linkedin
YouTube
Chat rooms
Rating systems (Edwards, J. D. Power, Rotten Tomatoes, Craigs List)
Wikipedia
Political and Regulatory Change
Growth of social movements
Unionization
Anti-capitalist groups
Environmental groups
Religious groups
Gay rights groups

Political party shifts

Regulatory interventions
Financial regulation
Anticompetitive regulation
Safety and health regulation


MARKETINGS LOSS OF EFFECTIVENESS
MARKETING will be less
effective in the next few
years
Marketing budgets will be
lower
Companies will want
marketers to do more with
less
DISTRIBUTORS
TRADITIONAL
MEDIA
COMPETITION
SOCIAL MEDIA
NETWORKS
PUBLIC
DISTRIBUTORS will
demand more TRADE
PROMOTION. This will
leave less money for
marketing research,
advertising and
consumer promotion for
brand building and
ultimately reduce brand
equity.
Investors will then
downgrade the stock.
This will leave the
company with fewer
resources to prop up
demand.
This is a VICIOUS
CIRCLE
Traditional media
such as TV 30-
second spots,
newspapers, etc.,
are growing LESS
EFFECTIVE
Categories are so
crowded with
competitors that
heavy price cutting
will be
UNAVOIDABLE
The public, in its
wish to spend less,
will be less inclined
to pay higher
prices for top brands
where the quality
differences are
minimal. There is a
strong shift to
store brands and
sub-brands. This
means that top
brands are
overvalued and there
may be a brand
bubble.
Social media
networks will play an
increasingly
influential role in
shaping brand
evaluations

You Need to Build Stronger Marketing
into Your Company

Old definition of marketing
Act or practice of adverting and selling a product (Random
House Webster Dictionary of American English 1997)

New definition of marketing
Marketing is the activity, set of institutions, and processes for
creating, communicating, delivering, and exchanging offerings
that have value for consumers, clients, partners, and society at
large. (American Marketing Association, 2008)

Offerings include products, services, experiences, places,
persons, ideas, and causes.
MUST MARKETING BE RE-INVENTED?
MARKETERS are
prisoners of an OLD
PARADIGM
MARKETERS are
operating in a TIME
WARP
Companies aim to maximize profits
Company investors are more important
than other stakeholders
Customers buy rationally to maximize
value
Customers get most of their information from
sellers and dont talk to each other about
products
Dont acknowledge the growing
power of the customers
Dont acknowledge the growing
power of the channels and other
stakeholders
Dont acknowledge the new social
media world and their growing
social responsibilities
WE NEED TO.
You Need Two Marketing Departments!!
Most marketing departments are engaged in tactical brand-
maintenance instead of brand-building.
Strategic marketing is missing in many marketing
departments. Strategic marketing requires taking a 3-5 year
view of the business.
Downstream
Marketing
Upstream
Marketing
Markets TODAYs Product Create TOMORROWs Product

Five shifts:

1st Shift - from creating marketing
strategies to driving business impact.
2nd Shift - from controlling the
message to galvanizing your network.
3rd Shift - from incremental
improvements to pervasive
innovation.
4th Shift - from managing marketing
investments to inspiring marketing
excellence.
5th Shift - from an operational focus
to a relentless customer focus.

Company examples:
GE, Wal-Mart, Charles Schwab,
Procter & Gamble, Burger King,
Zappos, Best Buy and Dell



Involve Your Customers In Your Planning

Four ways to view customers:
Purchasers of our product
Persons from whom we gain insight and with whom we can test
our planned products
Persons who Influence others to buy our product (net
promotion score NPS)
Persons who co-create product and communication ideas
Company examples of co-creation:
Lexus invites customers to build their own Lexus by going to
www.Lexus.com and drawing from a complete package of
available colors and options packages.
Lego and Harley Davidson have welcomed their respective
enthusiasts to participate in improving their market offerings.
Doritos ran an online promotion urging fans to create 30-second
spots for Doritos and post them for on-line voting to be picked
to air in one of the three Super Bowl slots. The user-generated
ad won the top spot at the 21st USA Today Super Bowl Ad
Meter defeating ads made by professional agencies.


Market to All Your Stakeholders
Our thinking has shifted from maximizing shareholder value to maximizing
stakeholder value.

Stakeholders include customers, employees, channel members, and
investors.
Customers: They need a feeling of gaining superior value from your offering.
Employees: They need to believe in their companys mission, vision and
values.
Channel members: They must believe that they are receiving equitable
reward for their contributions.
Investors: They need assurance that the company has a viable long run plan
for growth and continued profitability

MARKETING 1.0 vs 2.0 vs 3.0
Product-centric
Marketing
Customer-oriented
Marketing
Value-driven
Marketing
Objective
Enabling Forces
How companies see
the market
Key marketing
concept
Company marketing
guidelines
Value propositions
Interaction with
consumers
MARKETING 1.0 MARKETING 2.0 MARKETING 3.0
Sell products
Satisfy and retain the
consumers
Make the world a better
place
Industrial Revolution Information Technology New Wave Technology
Mass Buyers with
Physical Needs
Smarter Consumer with
Mind and Heart
Whole Human with
Mind, Heart, and Spirit
Product development Differentiation Values
Product specification
Corporate and Product
Positioning
Corporate , Vision,
Values
Functional
Functional and
Emotional
Functional, Emotional,
and Spiritual
One-to-Many
Transaction
One-to-One
Relationship
Many-to-Many
Collaboration
Deliver
SATISFACTION
Realize
ASPIRATION
Practice
COMPASSION
ProfitAbility ReturnAbility SustainAbility
Be BETTER DIFFERENTIATE
Make a
DIFFERENCE
Mind Heart Spirit
Mission
(Why)
Vision
(What)
Values
(How)
INDIVIDUAL
C
O
M
P
A
N
Y
Values-Based Matrix Model
For SC Johnson, creating
sustainable economic
value means helping
communities prosper while
achieving profitable growth
for the company.
Sustaining Values:
SC Johnson Public
Report
We believe our
fundamental
strength lies in our
people.
MIND HEART SPIRIT
Promoting
reusable shopping
bags
Base of the Pyramid
Mission
Contributing to the community
well being as well as
sustaining and protecting the
environment
Vision
To be a world leader in
delivering innovative solutions
to meet human needs through
sustainability principles
Values
Sustainability
We create economic value
We strive for environmental
health
We advance social progress
S. C. JOHNSON VALUE-BASED MATRIX
Station Break!









Are there any companies that you love or would
deeply miss if they went out of business?
Companies Americans Love

Amazon, Best Buy, BMW, CarMax,
Caterpillar, Commerce Bank,
Container Store, Costco, eBay,
Google, Harley-Davidson, Honda,
IDEO, IKEA, JetBlue Johnson &
Johnson, Jordan's Furniture, L L
Bean, New Balance, Patagonia,
Progressive Insurance, REI,
Southwest, Starbucks, Timberland,
Toyota, Trader Joe's, UPS,
Wegmans, Whole Foods.

The researchers found these firms
of endearment to be highly
profitable.

They also found eight
characteristics common to these
firms.



Characteristics of Firms of Endearment
They align the interests of all stakeholder groups
Their executive salaries are relatively modest
They operate an open door policy to reach top management
Their employee compensation and benefits are high for the
category; their employee training is longer; and their employee
turnover is lower
They hire people who are passionate about customers
They view suppliers as true partners who collaborate in improving
productivity and quality and lowering costs
They believe that their corporate culture is their greatest asset and
primary source of competitive advantage.
Their marketing costs are much lower than their peers while
customer satisfaction and retention is much higher.
Action-Oriented Knowledge
Session One. How to deal with your companys
major business challenges and opportunities.

Session Two. How to search for powerful new ideas
and innovate successfully.

Session Three. How to improve your branding
power.

Session Four. How to develop a superior company
reputation through sustainability-driven thinking.
How Are You Planning
to Grow Profitable Revenue?

Efficiency
Finance and cost control become important (time and motion
studies)

Acquisition
Finance becomes important

Organic growth
Marketing and sales become important

Innovation
R&D and technology become important
Innovativeness is a Capability
Innovativeness is a capability; consider Sony and 3M.
Innovation requires organizing three markets within the firm:
An idea market
A capital market
A talent market
The best innovations provide solutions to customer problems,
not to the companys product problems.
Strong market-creating innovations have a long life and create
market leadership.

Companies Need an Innovation
Strategy
There are four major types of innovation in business:
Product innovation
Service innovation
Marketing innovation
Business model innovation
A company first needs to choose an innovation strategy.
The decision should include building an innovation culture
and providing funds for training, incentivizing, and
rewarding.
Each approved innovation project must have an innovation
plan, budget, time line, and deadline.
A high level executive manages the innovation projects
portfolio, updates their status, shares with the CEO, and
they make further decisions on extending or terminating.


Business Model Innovations
Amazon and Kindle
Apple and iTunes
Barnes and Nobles bookstores
Dell computer
Ikea
Starbucks
Marketing Innovations
Incentive innovations
Credit cards
Rebates
Zero-interest financing
Gift certificates
Coupons
Guarantees and warranties
Loyalty awards
Subscription selling (Book of the Month Club)
Retailing innovations
Self-service stores
Self-checkout
Coupon feeds
Hypermarkets
Category killer stores
Differentiated stores with same chain (Best Buy)
Exclusive lines of merchandise (Target: Michael Graves, Martha Stewart)
Selling on TV (Home Shopping Network)
Selling on the Internet
Producer innovations
Brand as a platform (Virgin, iTunes)
Customization



Source: Blue Ocean Strategy
Station Break!





How does your company go about getting new
product and service ideas? What are the best
sources of new ideas? Who is responsible for
collecting new ideas?
Sources of New Ideas
Scientists and Engineers
Motorola and Philips
Employees
Whirlpool,
Shell
Samsung
Customers
Problems in present products
Dream products
Enthusiasts
Other partners in the company network
CUSTOMER RESEARCH
Ethnographic
Studies
In-store
Observation
Quantitative
Surveys
Focus Groups/
Consumer
Panels
NeuroScience
and ZMET
In home &
shopping trips
Orientation &
Environment
Why do you buy?
Awareness,
Attitudes, &
Behavior
Listening for
insights & trends
Customer Research
Action-Oriented Knowledge
Session One. How to deal with your companys
major business challenges and opportunities.

Session Two. How to search for powerful new
ideas and innovate successfully.

Session Three. How to improve your branding
power.

Session Four. How to develop a superior
company reputation through sustainability-
driven thinking.
There are so many brands in some categories
that it is difficult to stand out.
The brand name may account for more
than half of the brand value on the balance
sheet.
Almost 70% of the market capitalization of such brands as Nike and Prada
lie in its intangibles, especially the brand.

The former chairman of Quaker Oats said: If the business were split up, I
would take the brands, trademarks, and goodwill, and you could have all
the bricks and mortarand I would fare better than you.



Marketers Have Lessening Influence in
Shaping Their Brand Image
Person-to-person conversations about many products can exceed the
amount of communication under the companys control.
Thus a brand can be hijacked (see Alex Wipperfrth, Brand Hijack:
Marketing without Marketing, New York: Portfolio, 2005).
Four possibilities
Everyone is talking negatively about the company.
There is no talk about the company
The talk is a mix of good and bad comments
Virtually all the talk is favorable
Marketing 2.0 managers listened to the consumers voices to understand
their minds and capture market insights.
Marketing 3.0 is when consumers play the key role of creating the value
through co-creation of product and service.
Your Brand Needs to
Own a Word
Mercedes - engineering
BMW - driving
Disney - family fun entertainment
Saturn - no hassle car buying
FedEx - overnight
Wal-Mart - low prices/good values
Hallmark - caring
Nike - performance
3M - innovation
Volvo - safety
Starbuck - best coffee experience

A Brand Must be More Than a Name
A brand must trigger words or associations (features
and benefits).
A brand should depict a process (McDonalds,
Amazon).
A great brand triggers emotions (Harley-Davidson).
A great brand represents a promise of value (Sony).
The ultimate brand builders are your employees and
operations, i.e., your performance, not your
marketing communications.




Brand Asset Valuator Model
ENERGIZED
DIFFERENTIATION
The brands point
of difference
Relates to margins
and cultural currency
ESTEEM
How you regard the
brand
Relates to perceptions
of quality and loyalty
KNOWLEDGE
An intimate
understanding
of the brand
Relates to awareness and
consumer experience
RELEVANCE
How appropriate the
brand is to you
Relates to consideration
and trial
Leading Indicator
Future Growth Value
Current Indicator
Current Operating Value
BRAND STRENGTH BRAND STATURE
Figure 2: BrandAsset Valuator Model
Score Your Brand (1 to 3)
1 2 3

Product Benefits

Distinct Identity

Emotional Values

LEADING B2B BRANDING
COMPANIES

DuPont
Siemens
Bosch
General Electric
Saint-Gobain
UPS
FedEx
Tentra Pak
Microsoft
Caterpillar
IBM
Daimler
Michelin
Tata Steel
Morgan Stanley
The Brand Within the Brand:
Ingredient Branding or InBranding
Logos of Ingredient Brands
Find a Way to Brand These Commodities

Chicken


Cement


Bricks


It is possible to brand sand, wheat, beef, bricks, metals, concrete,
chemicals, corn grits, bananas, apples, aspirin, (Sam Hill, How to
Brand Sand).

CAN YOU DESIGN NEW FEATURES FOR AN AUTO INSURANCE POLICY?

Creating genuine customer value: Progressive Insurance
Name Your Price lets
customers customize their
policy to fit their budget.

I want an easier way to see how I
can meet my insurance needs at a
great price.


MyRate rewards lower risk
drivers with lower rates.

I dont drive a lot of miles, Im a safe
driver, and Im not usually on the road
late at night when accidents are most
likely to happen. Since Im less likely to
be in an accident, shouldnt I pay less for
car insurance?
Develop a Memorable Brand Slogan
BA, The Worlds Favorite Airline
American Express, The Natural Choice
AT&T, The Right Choice
Budweiser, King of Beers
WHAT DO YOU THINK OF THESE SLOGANS
Ford, Quality is #1 Job
Holiday Inn, No Surprises
Lloyds Bank, The Bank that Likes to Say Yes
Philips, From Sand to Chips
Philips Invents for You
Lets Make Things Better

HYPOTHETICAL STARBUCKS BRAND POSITIONING BULLSEYE
Consumer
Target
Discerning
Coffee
Drinker
Consumer
Insight
Coffee and the
drinking
experience is
often
unsatisfying
Consumer
Need State
Desire for
better coffee
and a better
consumption
experience
Competitive
Product Set
Local cafes
Fast food &
convenience
shops
Consumer
Takeaway
Starbucks
gives me the
richest
possible
sensory
experience
drinking
coffee
Brand
Mantra
Rich, Rewarding
Coffee Experience
Fairly
Priced
Relaxing,
rewarding
moments
Responsible,
locally involved
Rich sensory
consumption
experience
Varied, exotic
coffee drinks
Fresh high
quality coffee
24 hour
training of
baristas
Green &
Earth Colors
Siren
logo
Caring
Contemporary
Thoughtful
Convenient,
friendly
service
Triple
Filtrated
water
Totally
integrated
system
Stock options/
health benefits
or baristas
What Should Your Measure
About Your Brands Standing?
Customer perceived value

Customer satisfaction

Customer loyalty

Customer advocacy

Customer co-creation

Action-Oriented Knowledge
Session One. How to deal with your companys major business
challenges and opportunities.

Session Two. How to search for powerful new ideas and
innovate successfully.

Session Three. How to improve your branding power.

Session Four. How to develop a superior company
reputation through sustainability-driven thinking.
How Will Your Company Be Measured?
Indices now measure how well a company performs in the triple bottom
line: profit, planet, and people.
The AIM:
To encourage companies to improve their economic, environmental, and
social impact on the society.
Company Approach
FTSE4Good Index Good companies work toward environmental sustainability, have
positive relationship with all stakeholders, protect universal human
rights, possess good supply chain labor standards, and counter
bribery practices
Dow Jones
Sustainability Index
Corporate sustainability as a business approach that creates long-
term shareholder value by embracing opportunities and managing
risks deriving from economic, environmental and social
developments.
Goldman Sachs Introduce the GS Sustain Focus List, which includes the list of
companies with sustainable practices
SUSTAINABILITY AND SHAREHOLDER VALUE
There is a link between corporate sustainability and strong
share price performance. Companies that put more emphasis on
social and environmental impacts reported annual profit growth of
16% and share price growth of 45% while those from companies
that did not put a lot of emphasis reported annual profit growth of
only 7% and share price growth of only 12%. (Economist
Intelligence, 2008)


Moreover, executives believe that the concept of sustainability is
good for corporations in attracting consumers and employees and
improving shareholder value.
Selling Sustainability to Investors
To convince shareholders, the company needs to provide tangible
evidence that the practice of sustainability will improve
shareholder value by creating a competitive advantage.
?
Sustainability
Profitability Returnability
The issue is to find a
linkage of between
sustainability,
profitability, and
returnability
THREE important metrics that can be quantified financially:
Improved cost productivity
Higher revenue from new market opportunities
Higher corporate brand value
(For details, see Marketing 3.0).
Serving the Bottom Third
Stretches disposable income by providing goods and services at lower
prices.
Expands disposable income by providing goods and services not
previously available for the bottom of the pyramid
Increases disposable income by growing the economic activity of the
underserved society. Grameen Phone illustrates this.
Unilevers Annapurna provides low price affordable iodized salt that
is better than cheaper non-iodized salt.
House-for-Life program offering low-cost housing solutions
Nicholas Negroponte's XO and Nova netPC personal computers.
GlaxoSmithKline and Novo Nordisk providing new essential
medicines.
Hindustan Levers Project Shakti which employs thousands of
underprivileged women as its sales force to bring its products to rural
consumers and provides them with significant disposable income
Wal-Mart Turns Green
Wal-Mart announced in 2005 that it will be a good steward to the
environment and will spend $500 million a year to increase fuel
efficiency in Wal-Marts truck fleet by 25% over three years; reduce
greenhouse gases by 20% in seven years; reduce energy use at
stores by 30%; and cut solid waste from U.S. stores and Sams
Clubs by 25% in three years.
Critics see Wal-Marts move being mainly done for economic
purposesto save energy, save costs, and increase revenue from
increasing demand for green products. This describes an Investor
Orientation.
Timberland has a Green DNA

Timberland is a leader in the design, engineering and marketing of
premium-quality footwear, apparel and accessories for outdoor
consumers. It believes in doing well by doing good.
In shoes, Timberland uses recycled materials, non-chemical
substances as much as possible, made in energy-saving factories. The
label gives consumers information about the product they are purchasing,
including where it was manufactured, how it was produced, and its effect on
the environment.
Timberland gives back to communities. Under the Path of Service
program, its employees have contributed over 200,000 total hours of
service that benefited over 200 community organizations in 13 countries,
26 states and 73 cities.
To commemorate Earth Day, Timberland plants a tree on behalf of each
consumer who spends $150.
Timberland has also done such things as offering $3,000 incentives to
employees who purchase hybrid cars.
Other companies in this category are Patagonia, Whole Foods Market,
Fetzer Vineyards, and Herman Miller.

Build a Strong Corporate Reputation:
Why Its Important

Financial Community -> Supports Stock Value

Employees/Recruits -> A Great Place to Work

Communities -> A Good Neighbor

Public Opinion - > Good Will

Public Policy Makers -> Access/Credibility/Influence

95% of CEOs from McKinsey-surveyed global companies believe that society
has greater expectations than it did five years ago that companies will
assume public responsibilities.


The Marketing Mindset
Your company and stakeholders need to embrace a market and
customer-orientation.

Your company needs a CMO who participates in formulating the
companys growth strategy.

Your company needs to define its mission, vision and values as the starting
point for its transformation to Marketing 3.0.

Your offerings must touch the customers mind, heart, and human spirit if
they are to win over the customer.

Your company needs to practice the Triple Bottom-Line: Economic Value,
Environmental Health, and Social Progress. This is the key to Profitability,
Returnability, and Sustainability.


Within five years, if you run
your business in the same way
as you do now, youre going
to be out of business.
Philip Kotler