The New Role of Marketing in the Global Digital Economy Philip Kotler Kellogg School of Management Northwestern University Moscow November 12, 2011
Schedule Today’s Schedule Session 1. The Role of Marketing 3. 0 in Company Growth Session 2. The Need for Entrepreneurship and Innovative Thinking Session 3. The Need for Strong Branding and Reputation Building Session 4. Panel Discussion about Marketing in Russia
Session 1 The Role of Marketing 3. 0 in Company Growth
The Problem and Opportunity Agenda • Globalization and Chindia • Regionalization • Deregulation and privatization • Internet • Hyper-competition • Shorter product life cycles • Commoditization • Media proliferation • Retail transformation • Environmental concerns • Consumer empowerment • Recession and turbulence
Three forces moving business away from normal • Business Cycle • Turbulence • Disruptive innovation
Disruptive Innovations Disruptive Technologies NEW OLD • • • Photographic film Wired telephones Store retailing Classroom education Offset printing General hospitals Open surgery Cardiac bypass surgery Manned fighters Full service stock brokerage Source: Clayton M. Christensen, The Innovator’s Dilemma, p. xxix. ; google. com • • • Digital photography Mobile telephones On-line retailing Distance education Digital printing Outpatient clinics Endoscopic surgery Angioplasty Unmanned aircraft On-line stock brokerage
Tomorrow Will Be Different Yesterday Tomorrow Ford Toyota Cherry Department stores Wal-Mart Internet retail Digital Equipment Dell RIM Blackberry Delta Southwest, Ryan Air Sky. West, Air taxis IBM Microsoft Linux At&T Cingular Skype Sony Disk. Man Apple i. Pod Cell Phones Source: Clayton Christensen ; gettyimages. com
Most Companies are Short Lived • Average company may last from 10 -20 years. – Hypercompetition – Changing buyer wants and budgets – Lack of an innovation culture – Short term focus and failure to invest in a longer term performance • Yet some companies have last for hundreds of years. • What are their secrets?
Arie de Geus Companies Traits of Long-Living • In Living Companies, Arie de Geus found that 30 companies have been around at least 100 years, including Du. Pont, W. R. Grace, Kodak, Mitsui, Sumitomo, and Siemens. • Four traits of Living Companies: – Conservatism in financing – Sensitivity to the world around them – Awareness of their identity – Tolerance of new ideas • Four priorities: – Valuing people, not assets – Loosening steering and control – Organizing for learning – Shaping the human community
It is time to become WORLD CLASS! STANDARDS The need to meet the highest standards anywhere in order to compete. WORLD CLASS CONCEPTS Access to the best and the latest knowledge and ideas PEOPLE The growth of a social class defined by its ability to command resources and network beyond borders and across wide territories Source : Rosabeth Moss Kanter Page 10
World class companies can be local, regional, or global Local companies have limited choices. Customer management, product management, and brand management can only be local. Regional companies have more choices. The customer management should remain local but product and brand management can remain local or become regional. Global companies have plenty of choices. While customer management should always be local, product management can be local or regional while brand management can even be global. Page 11
Define Your Target Market Global Glocal Local Bottom Consumers who want offerings to have the same attributes and quality that products in developed countries have and are willing to pay global prices for them Consumers who demand customized products of near-global standard and are willing to pay a shade less than global consumers do Consumers are happy with products of local quality and at local prices People who can afford only the least expensive products MARKET Source : Emerging Giants : Building World-Class Companies in Developing Countries. Harvard Business Review October 2006 Page 12
The Two-Speed 6/2 World IMF projects the fastest growth among the 18 largest economies IMF Projected Nominal GDP Growth (2009 – 2015) Indonesia Russia China India Brazil Turkey South Korea Japan USA ASEAN (excl. Indonesia) Source : Chairul Tanjung, National Economic Council, International Monetary Fund, World Economic Outlook Database, October 2010 Page 13
The Strategic Trajectory for a Growth Company Country • Low cost, average quality domestic products exported. • Low cost, good quality products exported. • High-end products made for other companies. • Branded products (regional). • Branded products (global). • Dominant brands (global).
Build an Early Warning System Customers and channels Competitors and complementors Inside the company Political, legal, social and economic forces Focal area Emerging technologies and scientific developments Influencers and Shapers Source: Peripheral Vision, George S. Day and Paul J. H. Shoemaker
Build a Scenario Planning System Undetectable Turbulence Detectable Turbulence Chaos Early Warning System Chaos impacts the Company Construction of Key Scenarios (Opportunities : Vulnerabilities) Scenario 1 Scenario 2 Scenario 3 Strategy Response 1 Strategy Response 2 Strategy Response 3 Strategy Selection Chaos Source: Chaotics Management System in Kotler and Caslione. Latent Vulnerabilities Latent Opportunities (Addressed Turbulence) Unaddressed Turbulence
Source: The Beginning of Selling and Marketing
Marketing, however, came about much later Early 1900 s 1 st academic courses on marketing Pioneer of marketing person or group in company
Marketing started because Sales departments needed others to: Conduct consumer research Find Leads Prepare brochures and other promotions
Job Positions in Today’s Marketing Organization • Chief Marketing Officer (CMO) or Marketing Vice President • Brand managers • Category managers • Market segment managers • Distribution channel managers • Pricing managers • Marketing communication managers • Database managers • Direct marketers • Internet and social media managers • Etc.
The Evolution of Marketing 2000 s 1990 s 1980 s 1970 s 1960 s 1950 s FINANCIALLY-DRIVEN ONE-TO-ONE UNCERTAIN POSTWAR • The Marketing Mix • Product Life Cycle • Brand Image • Market Segmentation • The Marketing Concept • The Marketing Audit SOARING TURBULENT • • The Four Ps • • Marketing • Myopia • Lifestyle • Marketing • The Broadened • Concept of • Marketing Targeting Positioning Strategic Marketing Service Marketing Social Marketing Societal Marketing • Macro-marketing • Marketing Warfare • Global Marketing • Local Marketing • Mega-marketing • Direct Marketing • Customer Relationship Marketing • Internal Marketing • Emotional Marketing • Experiential Marketing • Internet and ebusiness Marketing • Sponsorship Marketing • Marketing Ethics • ROI Marketing • Brand Equity Marketing • Customer Equity Marketing • Social Responsibility Marketing • Consumer Empowerment • Social Media Marketing • Tribalism • Authenticity Marketing • Co-creation Marketing
Four CEO Views of Marketing The size and type of department depends on the type of industry, size of company, nature of buying, and other factors. Much depends on the CEO’s view of marketing. • • 1 P 4 P STP ME CEO CEO
What are the 6 Tasks of the CMO? 1. 2. 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. Monitor the evolving business landscape and gather customer insights to help develop new products and services for achieving growth objectives. 3. Be the steward of the corporate brand-building practice. 4. Upgrade marketing technology and skills in the company. 5. Bring insight into the corporate portfolio and synergies. 6. Measure and account for marketing financial performance and contain media and other service costs.
If You Are Appointed CMO, You Prefer That Your Office Be Located Next To: 1. CEO office ? 2. CFO office 3. CTO office 4. CIO office 5. VPS office ?
Holistic Marketing
Is Marketing Only A Department? – This means that marketing is a cost center whose costs should be charged to each internal client. – Marketers should measure the incremental revenue created by their activities to see if these activities were profitable. There are others who believe that marketing should be a leading player in developing the future growth plan of the company. – Marketing is in the best position to detect business opportunities, calibrate their size and estimate their likely profitability. – Marketing manages important intangible assets (brands, customer relationship, networks, market position, market information)
EVOLUTION OF MANAGEMENT THINKING Product Management 1950 s – 1960 s Customer Management 1970 s – 1980 s Brand Management 1990 s – 2000 s Value Management 2010 s – 2020 s
Five shifts 1 st Shift • Creating Marketing Strategies Driving business Impact 2 nd Shift • Controlling the message Galvanizing your network 3 rd Shift • Incremental improvement 4 th Shift • Managing marketing investment 5 th • Operational Focus Shift Pervasive innovation Inspiring marketing excellence Relentless customer focus
The Marketing Management Process Plan • Marketing Investment • Demand Modeling Manage • Marketing Resource Management Execute • Campaign Management • Lead Management • Events Management • Loyalty Management • Media Management Measure • Marketing Analytics • Web Analytics
Power Shifting to the Consumers Power isis Shifting to the Customers • As a result of technological advances – computers, the Internet, social media, You. Tube, smart phones and tablets - power is shifting from the marketers to the customers. • Today customers can consult their friends and peers, independent experts and rating systems to accumulate information and experiences about product and brand standings. • Consumers have now become the Brand Influencers – they are publishers, broadcasters and critics of different products and brands. • The result is a data explosion. – 90 percent of the world’s data today has been created in the last two years. – Facebook has more than 750 million active users, Twitter users send 140 million tweets a day. – You. Tube’s 490 million users upload more video content every two months more than the three major U. S. TV networks created in 60 years. – Mobile commerce is showing an annual growth rate of 40 percent. – There will be a growth from 70 million tablets worldwide today to 300 million by 2015. Source: The 2001 IBM Global CMO Study of 1, 734 CMOs in 19 industries and 64 countries, November 2011.
CMOs are Underprepared Marketers Are Underprepared for Operating in the. New World for this Digital World • Only 26 percent of CMOs are tracking blogs, 42 percent are tracking third part reviews and 48 percent are tracking consumer reviews. Yet tracking these sources could provide insight into what customers want and buy. • 80 percent of CMOs are still focusing primarily on traditional sources of information such as market research and competitive benchmarking. 68 percent rely on sales campaign analysis. • They don’t understand the younger generation in the U. S. and the emerging middle class in developing countries. Marketers in India have been focusing on affluent Indian consumers rather than on the Indian emerging middle class. Source: The 2001 IBM Global CMO Study of 1, 734 CMOs in 19 industries and 64 countries, November 2011.
CMOs Need to be More Financially Accountable but Lack the Skills, Tools and Influence on the 4 Ps • CMOs Need to be More Financially Accountable but Lack the Skills, Tools and Influence on the 4 Ps 63 percent of CMOs believe ROMI will be the most important measure of marketing performance by 2015, but only 44 percent feel prepared to deliver this measure. • CMOs recognize that they will need more digital, technological and financial proficiency in the coming years. • CMOs recognize that they have a strong influence over promotional activities like advertising, external communications and social media initiatives but CMOs play a smaller role in shaping the other 3 Ps. • – Less than half have much sway over key parts of the pricing process. – Less than half have much impact on new product development or channel selection. • Source: The 2001 IBM Global CMO Study of 1, 734 CMOs in 19 industries and 64 countries, November 2011.
Needed Actions by CMOs • CMOs must increase their use to social media to engage with their customers and must monitor social talk about their brand, looking for customer insights. • CMOs must combine the analysis of data from social networks with their analysis of sales and transactional data to uncover insights and trends. • CMOs must increasingly listen to the voice of consumers in real-time and apply social media analytics – in contrast to solely depending on slower marketing feedback from field surveys. • Source: The 2001 IBM Global CMO Study of 1, 734 CMOs in 19 industries and 64 countries, November 2011.
Competency Skills Needed by Today’s Marketers • Brand asset management. • Customer relationship management (CRM) and database marketing, telemarketing. • Partner relationship management (PRM). • Integrated marketing communications. • Internet and social media. • Public relations marketing (including event and sponsorship marketing). • Service and experiential marketing. • Profitability analysis by segment, customer, product, channel.
Session 2 The Need for Entrepreneurship an Innovative Thinking R
How Does a Company Innovate? Some Thoughts on Innovation "Most innovations fail. And, companies that don't innovate die. “ (Henry Chesbrough) “A business has two—and only two—basic functions: marketing and innovation. Marketing and innovation produce results: all the rest are costs. ”(Peter Drucker ) “While great devices are invented in the laboratory, great products are invented in the Marketing Department. ” (William H. Davidow) Source : google. com; http: //blogbusinessworld. blogspot. com
Types of Innovation Product and service incremental innovation Marketing innovation Business model innovation New to the world innovation Source: http: //2. bp. blogspot. com/_q. D 9 Y 8 Ncd 3 I 4/Sb 6 h. KKOJk. JI/AAAACDo/f. HZHCQbv. Re 4/s 400/Born. To. Innovate 2009. jpg
A Balanced New Product Portfolio A Few Big Strategic bets Portfolio of new ventures, prototypes, projects. Many incremental quick wins and continuous Improvements. Source: Rosabeth Moss Kanter
Innovation and Your Company Where do you focus your search for innovation (inside or outside of the firm)? How do innovative ideas flow in your firm (top down or bottom up)? How are innovative ideas developed (build internally or buy)? Source: http: //www. henkel-cee. com/cee/content_images/36406_72 dpi_605 W. jpg Where is the innovation organization located? How is the innovation process managed (formal processes or informal processes)?
Roles in a Company’s Innovation Process Activators Browsers Creators Developers Executors Financiers Source: Philip Kotler and Fernando Trias de Bes, Winning at Innovation, 2011.
The. The Relationship between Innovation and Marketing • How do the mindsets of Development and Marketing differ, and what are their potential biases? – Development: Masters of the Possible – Marketing: Masters of the Valuable • What are the reported levels of engagement between Development and Marketing? • What are the potential contributions of marketing to the stages of the innovation process? • What steps can a company take to improve the working relationship between Development and Marketing ?
Session 3 The Need for Strong Branding and Reputation Building
Examples of Great Missions and Vision Leader Brand IKEA Make stylish furniture affordable Richard Branson Virgin Bring excitement in boring industries Walt Disney Herb Kelleher Walt Disney Southwest Airlines Create magical world for families Make flying possible for many people Anita Roddick The Body Shop Embed social activism in business Bill Gates Microsoft Steve Jobs Apple Jeff Bezos Amazon. com Ingvar Kamprad Mission and Vision Realize ubiquitous computing Transform how people enjoy technology Provide the biggest selection of knowledge delivered conveniently
CUSTOMER RESEARCH Ethnographic Studies In-store Observation Quantitative Surveys In home & shopping trips Orientation & Environment Awareness, Attitudes, & Behavior Why do you buy? Focus Groups/ Consumer Panels Listening for insights & trends Customer Research 1. Neuromarketing 2. ZMET
Neuromarketing 1 “The member is exposed to a series of visual and sonic stimuli aimed to stimulate. . . a brainwave response to a definite recognition of the stimulus shown” 2 When a part of the brain becomes active, the brightness of the images changes. By analysing the images using sophisticated computer programs, we can quantify and localise brain activity in areas involved in emotion, attention, memory and decision-making. ”
Zaltman ZMET Technique • Gerald Zaltman dismisses focus groups and questionnaires as a “waste of time. ” • Zaltman wants to bypass the verbal left brain and dip into the right brain and unconscious • A researcher from ZMET (Zaltman Metaphor Elicitation Technique) asks individual consumers to collect pictures, creates collages, and discuss these in an interview. • Zmet searches for deep metaphors underlie our thinking. • ZMET claims to achieve insight into product themes and concerns that do not emerge through verbal research.
Deep Metaphors
In B 2 B, To Whom Do You Sell? Who is in the Buying Center? 1. Initiators. 2. Users. 3. Influencers. 4. Deciders. 5. Approvers. 6. Buyers. 7. Gatekeepers.
Emotions Work in B 2 B Marketing • Security: The brand gives customers a feeling of safety, comfort, and self-assurance so that customers do not experience worry or concerns. • Social approval: The brand results in customers having positive feelings or satisfaction about the reactions of others to themselves. • Self-respect: The brand makes customers feel better about themselves; customers feel a sense of pride, accomplishment, or fulfillment.
Two Customer Value Types Value = Benefits – Cost Consultative Customers Have a problem • Value your time • Buy on expertise and trust • © 2010 Neil Rackham Transactional Customers Know what they want • Treat you as a commodity • Buy on price and convenience •
Five years ago 10% were consultative 10% were transactional TRANSACTIONAL • • • Cost focus Convenience Decision Don’t want to meet CONSULTATIVE • • • Most customers would pay a little extra for some advice © 2010 Neil Rackham Advice focus Expertise decision Want meetings
Customers Today More want deeper consultative relationships More buy transactionally TRANSACTIONAL • • • CONSULTATIVE Cost focus Convenience Decision Don’t want to meet • • • The middle is going away. © 2010 Neil Rackham Advice focus Expertise decision Want meetings
Today’s Competing Value Propositions OR “We’ll offer you cheap and convenient products, but don’t expect extras. ” “We’ll use our expertise to solve your problems and create custom solutions, for which we’ll charge you a premium. ” © 2010 Neil Rackham
Marketing the Mission to… Consumers Employees Channel Partners Shareholders
The Ownership Quotient A customer owner is one who tries a product or service, is so satisfied that she returns to buy more, states a willingness to tell others of her experiences, actually convinces others to buy, provides constructive criticism of existing offerings, and even suggests or helps test new products or ideas.
The Ownership Quotient Employee owners exhibit their sense of ownership through loyalty, referrals of other high-potential employees, and suggestions for improving the quality of processes and work life as well as the organization’s overall effectiveness in serving customers. A company’s OQ is the proportion of all customers and employees who meet this description. The higher the OQ, the higher the company’s performance and profits.
Comparison of Marketing 1. 0, 2. 0, and 3. 0
Values-Based Matrix (VBM) Model
Values-Based Matrix of S. C. Johnson
The 3 i of S. C. Johnson
Companies Americans Love Amazon, Apple, Best Buy, BMW, Car. Max, Caterpillar, Commerce Bank, Container Store, Costco, e. Bay, Google, Harley-Davidson, Honda, IDEO, IKEA, Jet. Blue 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. These “firms of endearment” were highly profitable. They outperformed the market by a 9 -to-1 ratio over a ten-year period. More fulfilled employees, happy and loyal customers, innovative and profitable suppliers, environmentally healthy communities.
Characteristics of “Firms of Endearment” 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.
What are some major social causes that companies adopt? Avon General Mills General Motors Home Depot Kraft Levi Strauss Motorola Pepsi Cola Shell Petsmart Aleve British Airways Starbucks Best Buy Breast cancer Better nutrition Traffic safety Habatat for Humanity Reducing obesity Preventing AIDS Reducing solid waste Staying active Coastal cleanup Animal adoption Arthritis Children in need Tropical rainforests Recycle used electronics See Philip Kotler and Nancy Lee, Corporate Social Responsibility: Doing the Most Good for Your Company and Your Cause, Wiley 2005.
What is the Relationship between Business and Society? • Old philosophy: “What is good for business is good for society!” The simple act of profit maximization is good enough. • New philosophy: “What is good for society is good for business. ” (GE) – Every company should figure out not only how to improve its output but also its outcomes. A food company should improve nutrition; an energy company should improve energy; a bank should improve sound savings. Michael Porter and Michael Kramer, “The Big Idea: Creating Shared Value, ” Harvard Business Review, January/February 2011.
thanzyl@markandcomm. com
MOVING TOWARD MARKETING 3. 0 Marketing 1. 0 Marketing 2. 0 Marketing 3. 0 MIND HEART SPIRIT PRODUCTCENTERED CUSTOMERORIENTED VALUES-DRIVEN ECONOMIC- VALUE PEOPLE-VALUE ENVIRONMENTVALUE PROFITS SOCIAL PROGRESS HUMAN HAPPINESS • Where is your company now? • Where do you want it to be? • Why? • What would steps would you take?
“Within five years. If you’re in the same business you are in now, you’re going to be out of business. ”
Session 4 Panel Discussion
