Marketing in the New Economy

1
Marketing in the New Economy

• Philip Kotler, Ph.D
• Kellogg School of Management
• Northwestern University
• Bangkok, Thailand
• October 19, 2001

2
Trouble Ahead in 2002

• The tragedy of Sept 11, 2001 ushered in new
  concerns about global trade contraction, supply
  chain problems, and higher costs.
• Several multinationals are bearing huge losses
  and laying off workers.
• Hundreds of dot.coms have closed their doors or
  suffered substantial declines in value.
• Many companies try to mask their problems with
  creative accounting, or mergers and acquisitions.
• Marketing, the engine that drives growth, is in
  desperate need of an overhaul.

3
New Forces in Todays Economy

• Overcapacity and hypercompetition.
• Overcapacity is 25 pharmaceuticals, 30
  chemicals, 35 automobiles
• Leads to falling prices and margins, mergers, and
  company failures
• Ascendant power of customers.
• Customer shortage
• Price transparency
• Ascendant power of distributors over
  manufacturers.
• Growth of digitalization and the Internet as
  major sources of efficiency and profitability.
• Proliferation of channels and media.
• Globalization and global interdependence.

4
What is Happening to...?

• Sales force
• Advertising
• Marketing channels
• Store-based retailers
• Price premiums

5
Responding to an Economic Slowdown

• Reevaluate your current resource allocations.
• Geographical mix
• Market segment mix
• Customer mix
• Product mix
• Channel mix
• Promotion mix
• Decide whether to attack to gain market share
  rather than retrench.
• Be sure to maintain the value proposition
  promised by your brand.
• Try to add value instead of cutting price.
• Have a contingency cost reduction plan available.

6
Winning Through Better Competitive Positioning

• One-way Positioning (Ries and Trout)
• Three-way Positioning (Treacy and Wiersema)
• Five-way Positioning (Crawford and Mathews)
• Total Positioning (Michael Porter)
• Emotional Positioning
• Experience Positioning

7
One-way Positioning (Ries and Trout)

• Be 1 in some important attribute you will be
  the most remembered and preferred.
• 1 should not line-extend it will lose its
  focus.
• If you are the second to enter the market, dont
  call yourself 2. Call yourself 1 on a
  different important attribute.
• Al Ries and Jack Trout, Positioning The Battle
  for Your Mind (New York Warner Books, 1982).

8
Three-Way Positioning (Treacy and Wiersema)

• A company needs to position itself in relation to
  three value disciplines Product leadership,
  operational excellence, customer intimacy.
• Four rules for success
• Become best at one of the three value
  disciplines.
• Achieve an adequate performance level in the
  other two disciplines.
• Keep improving ones superior position in the
  chosen discipline so as not to lose out to a
  competitor.
• Keep becoming more adequate in the other two
  disciplines, because competitors keep raising
  customers expectations about what is adequate.
• Source Michael Treacy and Fred Wiersema, The
  Discipline of Market Leaders (Reading, MA
  Addison-Wesley, 1994)

9
Five-way Positioning (Crawford and Matthews) - 1

• A company needs to position itself along five
  attributes Product, price, ease of access,
  value-added service, and customer experience.
• A great company will dominate on one of these,
  perform above average (differentiate) along a
  second, and be at industry par with respect to
  the remaining three.
• Assign a number from 1 to 5 to each attribute 5
  (dominant), 4 (differentiated), 3 (on par with
  industry), 2 (below par), and 1 (poor).
• Source Fred Crawford and Ryan Mathews, The Myth
  of Excellence Why Great Companies Never Try to
  Be the Best at Everything (New York Crown
  Business, 2001).

10
Five-way Positioning (Crawford and Matthews) - 2

• A great company will exhibit the pattern 5, 4, 3,
  3, 3.
• Anything less than a 3 on any attribute is not
  sustainable.
• To be dominant or differentiated on more than one
  attribute is excessive and reduces profitability.
• Being on par requires a company to match its
  industrys average performance a company must
  not let its standing drop below 3.

11
Company Examples

• Wal-Mart is dominant on price, differentiated on
  product, and on industry par with access, service
  and experience.
• Target dominates on product and is differentiated
  on price compared to average competitors. Target
  combines hip design with value pricing.
• Dell dominates on service and differentiates on
  access, while its competitor Gateway dominates on
  experience and differentiates on price.
• McDonalds dominates on access and differentiates
  on service.
• American Express dominates on service and
  differentiates on access
• Four Seasons dominates on experience and
  differentiates on service.

12
Score Your Companyand Your Competitor

• Company Competitor
• Product
• Price
• Access
• Service
• Experience
• What would you recommend to become a more
  successful company?

13
Total Positioning (Michael Porter)

• Ikea
• Southwest Airlines
• Home Depot
• Saturn automobile
• Dollar General

14
Positioning on Low Price Dollar General

• Dollar Generals mission is to create a better
  life for people by selling lifes basics at
  budget prices.
• It targets consumers with annual incomes of less
  than 25,000 and seniors on fixed incomes.
• Dollar General is not selling cheap things at
  cheap prices but good quality at everyday low
  prices.
• To keep its costs down, it does not advertise,
  accepts only cash, carries primarily
  private-label brands, sticks to fast-turnover
  consumables, operates simple stores with
  inexpensive displays and fixtures, signs short
  term leases with low-rents, carries only about
  4,500 stock keeping units, and locates near
  public-transit facilities.

15
Emotional Positioning

• Apple Computer
• Nestle
• Amazon
• Harley Davidson
• Amil

16
Experience Positioning

• Starbucks From a beverage to an experience.
• Barnes Noble From a bookstore to an
  experience.
• Niketown is a three story shoe store.
• REI has installed a climbing wall and customers
  can test a Gortex jacket in a simulated rainfall.
• Bass Pro Shops lets buyers of fishing rods cast
  into a test pool

17
Traditional Marketing Skills

• Marketing research
• Advertising
• Sales promotion
• Sales force management

18
Competency Skills Needed by Todays Marketers

• Customer relationship management (CRM)
• Partner relationship management (PRM)
• Database marketing and data-mining
• Telemarketing
• Public relations marketing (including event and
  sponsorship marketing)
• Brand building
• Experiential marketing
• Integrated marketing communications
• Profitability analysis by segment, customer,
  channel

19
Winning With Information

• Real time information systems
• Seven-Elevens 5th generation information system
  connects stores, headquarters, and suppliers.
• Companies are setting up separate web portals for
  customers, partners, and employees.
• Market planning dashboards
• PG is setting up a dashboard for its marketing
  managers that allows them to access templated
  processes, best practices, testing tools,
  scripts, industry news, project dates, etc.

20
Formula for Customer Benefit

• Consumer benefit
• v(value of market offering)
• b(value of brand)
• r(value of relationship)
• - c(cost of market offering)
• - t(cost of time)
• The v, b, r, c, and t vary across customer
  segments and individual customers.

21
Customer Relationship Marketing (CRM)

• CRM is an old idea practiced by mom and pop
  stores and salespeople.
• Companies used to reach customers through a
  single channel sales force, branches, dealers,
  telephone, or mail.
• Over time, companies added more channels call
  centers, websites, ATMs, kiosks, etc.
• Companies are trying to integrate these channels
  using CRM software from Siebel, Oracle, or SAP,
  so that companies can get a complete view of the
  customer across channels.
• The challenge is to deliver a rich and consistent
  customer experience in each channel.
• Companies need to treat customers unequally.
• Companies need to migrate customers to lower cost
  channels.

22
The Essence of One-to-One Marketing

• Identify your target customers.
• Differentiate your customers by their needs and
  their value to your company.
• Interact with your customers to form a learning
  relationship.
• Customize your products, services, and messages.
• Source Peppers and Rogers The One-to-One Future

23
What Customer Information to Collect?

• Transaction data
• Demographic data
• Psychographic data (activities, interests,
  opinions)
• Contact and contextual data

24
How to Estimate Customer Lifetime Value (CLV)

• Estimate the number of purchase occasions by the
  customer over a given time horizon.
• Estimate the average amount spent per visit.
• Estimate likely additional purchases through
  cross selling and upselling
• Subtract the costs of maintaining the account per
  visit.
• Add the value of the new referrals by the
  customer.
• Take the present value of this net income stream
  with an appropriate discount rate.

25
Database Marketing is Expensive!

• Requires a tremendous investment in information
  gathering about individual customers and
  prospects.
• Requires constant updating of information.
• Some critical information may not be available.
• Requires a high investment in hardware and
  software.
• Requires integrating individual customer
  information from a variety of sources.
• Requires people skilled at data mining.
• Requires managing and training employees,
  dealers, and suppliers.

26
Does Every Business Need CRM?

• No. The following businesses may not benefit
  from CRM
• Businesses where the CLV is low.
• Businesses with high churn.
• Businesses where there is no direct contact
  between the seller and ultimate buyer.
• Companies that are in the best position to invest
  in CRM.
• Companies that collect a lot of data (banks,
  insurance companies, credit card companies,
  telephone companies).
• Companies that can do a lot of cross-selling and
  up-selling (GE, Amazon, etc.).
• Companies whose customers have highly
  differentiated needs and are of highly
  differentiated value to the company.

27
A Companys Balance Sheet is a Lie

• Physical plant and inventory. Yes.
• But where on the balance sheet is the value of
  the firms intangible assets?

28

• THE ART OF MARKETING
• IS THE ART OF BRAND BUILDING
• IF YOU ARE NOT A BRAND,
• YOUR ARE A COMMODITY.
• THEN PRICE IS EVERYTHING
• AND THE LOW-COST PRODUCER
• IS THE ONLY WINNER!

29
There is No Such Thing as a Commodity

• Mobil conducted a study of 2,000 gasoline buyers
  and identified five segments
• Road Warriors (always driving)
• True Blues (brand or dealer loyal)
• Generation F3 (liked convenience store aspect)
• Homebodies (fills up at nearest station)
• Price Shoppers (20 of all the buyers)
• Mobil rolled out Friendly Serve cleaner
  property, bathrooms, better lighting,
  well-stocked stores, and friendlier personnel.
• Mobil charged .02 more and sales increased by
  20-25 percent.

30
A Brand Must be More Than a Name

• A brand must at least be able to trigger a word
  or set of associations (features and benefits).
• A brand also stands for an anticipated process
  (McDonalds, Amazon).
• A great brand has personality attributes and
  value attributes that trigger emotions
  (Harley-Davidson).
• A great brand represents a widely understood and
  credible promise of value backed by an
  organization able to deliver it. (Sony)
• The ultimate brand builders are your employees
  and operations, in other words, your performance,
  not your marketing communications.

31
Your Companys Brand

• 1. What word does your brand own?
• 2. Write down other words triggered by your brand
  name?
• A. Circle the favorable words square the
  unfavorable words.
• B. Underline the words that are favorable but
  not widely known.
• C. Double underline the words that are unique to
  your company.
• 3. Are any of the following a source for
  strengthening your brands personality?
• A. Founders
• B. Spokespersons
• C. Characters
• D. Objects
• E. Stories and mythologies

32
Two Views of What a Brand Should Be

• The brand must be an essence, an ideal, an
  emotion. It must be supported by beautiful
  logos, clever tag lines, creative turns, edgy
  names, rave launch parties, big ticket giveaway
  promotions, and publicity buzz-making.
  (Advertising agency view)
• The brand should have a target group in mind and
  be positioned to solve one of their problems
  better than competitive offerings. Furthermore
  the brands reputation is ultimately based on
  product quality, customer satisfaction, employee
  communications, social responsibility, etc.
  (Kevin Clancy, CEO of Copernicus)

33
Branding Components

• Name
• Slogan
• Logo
• Colors
• Stationery and business cards
• Offices
• Trucks
• Dress code

34
Tools for Building Brands

• Advertising (e.g.,Absolut Vodka)
• Sponsorships (e.g., Kodak and Olympics)
• Clubs (e.g. Nestles Casa Buitoni Club)
• Company visits (e.g., Cadburys theme park,
  Hallmarks Museum)
• Trade shows
• Traveling exhibits
• Worldwide web casts of presentations,
  roundtables, entertainment
• Distribution outlets (e.g., Haagen-Dazs)
• Public facilities (e.g., Nestle Nestops)
• Social causes (e.g., American Express)
• High value for the money (e.g. buzz created by
  Ikea, etc.)
• User community building (e.g., Harley-Davidson)
• Founders personality (e.g., Colonel Saunders)

35
New Theory of Brand Building

• Companies should clarify the corporations basic
  values and build the corporate brand. Examples
  Sony, Harley-Davidson
• Companies should use brand managers to carry out
  the brands tactical work but senior management
  should shape the brand strategies.
• Companies need to develop a more comprehensive
  brand-building plan using all customer-facing
  processes--events, seminars, news, telephone,
  email, person-to-personto create positive
  customer experiences at every touchpoint.
• Companies need to define the brands basic
  essence to be delivered wherever it is sold.
  Local executions can be varied as long as they
  deliver the feel of the brand.
• Companies must use the brand value proposition as
  the key driver of the companys strategy,
  operations, services, and product development.
• Companies must measure their brand-building
  effectiveness by a comprehensive set of measures
  including customer perceived value, customer
  satisfaction, customer share of wallet, customer
  retention, and customer advocacy.

36
Conclusions

• Brand price premiums have fallen and will fall
  further because of hyper-competition and
  e-commerce.
• The two best defenses against lower prices are
  customer relationship management (CRM) and
  stronger branding.
• CRM requires a high investment and operating
  expense but it can pay in certain situations.
• Brand building requires more tools than
  advertising. Ultimately, brands are built through
  performance, not advertising.

37
E-Commerce May Restore Transaction-Oriented
Marketing

• Electronic marketplaces have significantly
  reduced search and transaction costs for finding
  the lowest price globally.
• The Internet will lead to lower prices!
• E-procurement will help offset the price fall.
• Fight price transparency with value transparency!

38
CEOs Views About the Internet

• Embrace the Net. Bring me a plan how you are
  going to transform your business beyond adding an
  Internet site.
• Jack Welch, former CEO of GE
• The Internet is not just another sales channel.
  The future company will operate with a digital
  nervous system.
• Bill Gates, Chairman of Microsoft

39
Which Internet Steps Should be Taken First?

• Developing the companys website(s)
• Selling online (e-commerce)
• Buying online (e-procurement)
• Recruiting online
• E-learning online
• Developing the company Intranet
• Developing Extranets
• Developing Enterprise Resource Planning (ERP)
• Developing Supply Chain Management (SCM)
• Developing Customer Relationship Management (CRM)

40
Winning Through Exploiting the Internet

• Research a new product on the Internet (panel
  research, chat rooms).
• Create a site to explain how an existing or new
  product works (ex., Tide).
• Create a site that consults on a category
  (Colgate on dental problems).
• Create a site that consults on the customers
  profile (Elizabeth Arden).
• Sponsor a chat room around your product category.
• Answer email questions instantly (Nestle baby
  care questions).
• Send free samples of new products
  (freesample.com).
• Send coupons of new products (coolsavings.com).
• Customize your product (Acumin vitamins).
• Offer to sell very large orders direct.
• Offer valuable information to people who will
  register on the site.

41
E-Commerce Kiss the Stores Goodbye?

• Travel agents (Travelocity.com)
• Brokers (Etrade.com Schwab.com)
• Banks and insurance companies (First Direct.com,
  Direct Line.com)
• Music stores (CDNow MP3.com)
• Book stores (Amazon.com)
• Toy stores (etoys)
• Car dealers (Edmunds.com Autobytel.com)
• Supermarkets (Peapod.com netgrocer.com
  streamline.com cybermeals.com)
• Newspapers (cnn.com)

42
How Digital Is Your Company?

• How much do you sell online?
• Dell (80) Cisco (90) Schwab (50)
• How much customer service do you give online?
• How much procurement do you do online?
• How much recruitment do you do online?
• How much learning do your people do online?

43
New Marketing Rules for the New Economy

• Exploit e-business.
• Build and use a customer database to manage the
  customer portfolio.
• Focus on customer lifetime value, customer value
  management, customer share, and customer
  profitability.
• Shift promotion funds away from broad advertising
  toward narrowcasting promotion and events.
• Go electronic and paperless.
• Partner with your employees, customers,
  suppliers, and distributors for co-prosperity.