Thriving with Marketing 3.

Philip Kotler
Jeddah, Saudi Arabia,
October 10, 2010
 Winning in Hard Times
Session One. How to meet today’s and tomorrow’s challenges
with Marketing 3.0.

Session Two. How to increase your brand power.

Session Three. How to manage sales and marketing.

 Session 1.
Using Marketing 3.0 to Meet the New Challenges
 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

• The new social media

• Political and regulatory changes

 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 aggressively wild growth.
– Stage 3. They ignore early warning signs of failure
– Stage 4. Their failure becomes very public.
– Stage 5. If they don’t reform, they finally go
bankrupt.

• Consider General Motors.

 Economic Recession and Turbulence
• Distinguish between:
– Recession
– Disruption
– Turbulence
• Risk reduction strategies
– Larger reserves
– Shared investments
– Early warning systems
– Scenario planning
– Corporate social responsibility
 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
Source: Clayton M. Christensen, The Innovator’s Dilemma, p. xxix.
• NEW
• 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 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

 Consider How Marketing
Has Changed
• Old definition of marketing
– “Act or practice of advertising 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
 Sales Precedes Marketing
• In the beginning there was sales.

• Marketing appeared later to help sales people:

– By using marketing research to size and segment the
market
– By using communications to build the brand and
develop collateral materials
– By finding leads through direct marketing and trade
shows

• Marketing was originally located in the sales department.

• Then marketing grew as a separate department responsible

for the marketing plan (4Ps) and brand-building.
 Stages in the Development
of the Marketing Discipline

1. Selling stage. (the idea of setting up selling systems

involving distribution, sales people and advertising).

2. 4P stage. (the idea of integrating the marketing tools).

3. STP stage. (the idea of refining the market targets and

branding).

4. Customer Relationship stage. (the idea of building a loyal

customer base).

5. Co-creation stage. (the idea of involving customers in

developing products and communications).
Marketing Objective, Process,
and Philosophy

• CCDVTP

• R -> STP -> MM -> I -> C

• CIB
 MARKETING’S RECENT LOSS OF EFFECTIVENESS
MARKETING will be less Companies will want
Marketing budgets will be
effective in the next few marketers to do more with
lower
years less

TRADITIONAL SOCIAL MEDIA

DISTRIBUTORS COMPETITION PUBLIC
MEDIA NETWORKS

 DISTRIBUTORS will  Traditional media such  Categories are so  The public, in its wish  Social media networks
demand more TRADE as TV 30-second spots, crowded with to spend less, will be will play an
PROMOTION. This will newspapers, etc., are competitors that less inclined to pay increasingly influential
leave less money for growing LESS heavy price cutting higher prices for top role in shaping brand
marketing research, EFFECTIVE will be UNAVOIDABLE brands where the evaluations
advertising and consumer quality differences are
promotion for brand minimal. There is a
building and ultimately strong shift to store
reduce brand equity. brands and sub-
 Investors will then brands. This means
downgrade the stock. that top brands are
This will leave the overvalued and there
company with fewer may be a brand
resources to prop up bubble.
demand.
 This is a VICIOUS
CIRCLE
STRATEGIC vs TACTICAL MARKETING
Most marketing departments are engaged in brand-maintenance instead of brand-
building.
Company marketers spend only 15-30% of their time doing true marketing activities.
The rest of the time is spent on forecasting volume, securing approvals on label
artwork, checking manufacturing schedules, and doing routine analysis.
Strategic marketing is missing in many marketing departments. Strategic marketing
requires taking a 3-5 year view of the business.

Downstream Upstream
Marketing Marketing

Markets TODAY’s Product Create TOMORROW’s Product

The Age of Social Media.
Marketers have Lessening Influence
in Shaping Their Brand Image
FOUR POSSIBILITIES
Person-to-person conversations
about many products can exceed the Everyone is talking negatively about
amount of communication under the the company
company’s control. There is no talk about the company
The talk is a mix of good and bad
Thus a brand can be hijacked. comments
see Alex Wipperfürth, Brand Hijack: Marketing
without Marketing, New York: Portfolio, 2005 Virtually all the talk is favorable

Managers listened to the Consumers play the key role of

consumers’ voices to understand creating the value through co-
their minds and capture market creation of product and service
insights
EVOLUTION OF MANAGEMENT THINKING

1950s – 1960s 1970s – 1980s 1990s – 2000s 2010s – 2020s

THE FUTURE OF MARKETING

THE DISCIPLINES TODAY’S MARKETING FUTURE MARKETING

OF MARKETING CONCEPT CONCEPTS

PRODUCT The Four Ps

(Product, Price, Place, CO-CREATION
MANAGEMENT Promotion)

CUSTOMER The STP

(Segmentation, Targeting, COMMUNITIZATION
MANAGEMENT and Positioning)

BRAND CHARACTER
Brand Building
MANAGEMENT BUILDING
CO-CREATION
Evolution of a company’s relationship to its customers:

Refine the Invite

Make a Product
Product Customers

with minimal with extensive to provide ideas and

customer testing customer input and co-create
testing
The new ways of creating product and experience through collaboration of companies,
consumers, suppliers, and channel partners interconnected in a global network of
innovation
C.K. Prahalad and M.S. Krishnan, The New Age of Innovation: Driving Co-created Value Through Global Networks, New York:
McGraw-Hill, 2008

Three key processes of :

1 A company creates a 2 Individual consumers 3 Ask for consumer feedback and
“platform”. customize the platform enrich the platform by
to match their own incorporating all the
unique identity. customization efforts made by
the network of consumers.
MARKETING 1.0 vs MARKETING 2.0 vs MARKETING 3.0
MARKETING 1.0 MARKETING 2.0 MARKETING 3.0
Product-centric Customer-oriented Value-driven
Marketing Marketing Marketing

Satisfy and retain the Make the world a better

Objective Sell products
consumers place

Enabling Forces Industrial Revolution Information Technology Social Media

How companies see Mass Buyers with Smarter Consumer with Whole Human with
the market Physical Needs Mind and Heart Mind, Heart, and Spirit

Key marketing
Product development Differentiation Values
concept
Company marketing Corporate and Product Corporate , Vision,
Product specification
guidelines Positioning Values

Functional and Functional, Emotional,

Value propositions Functional
Emotional and Spiritual

Interaction with One-to-Many One-to-One Many-to-Many

consumers Transaction Relationship Collaboration
 Values-Based Matrix Model
Mind Heart Spirit
INDIVIDUAL
COMPANY

Mission
(Why)
Deliver Realize Practice
SATISFACTION ASPIRATION COMPASSION

Vision
(What)
ProfitAbility ReturnAbility SustainAbility

Values
(How) Make a
Be BETTER DIFFERENTIATE
DIFFERENCE
S. C. JOHNSON VALUE-BASED MATRIX

MIND HEART SPIRIT

Mission
Contributing to the community
well –being as well as sustaining
and protecting the environment
Promoting reusable
shopping bags Base of the Pyramid

Vision For SC Johnson, creating

To be a world leader in delivering
innovative solutions to meet
human needs through
sustainability principles
sustainable economic Sustaining Values:
value means helping
communities prosper while SC Johnson Public
achieving profitable growth Report
for the company.

Values
Sustainability We believe our
We create economic value fundamental
We strive for environmental
health strength lies in our
We advance social progress people.
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.
Marketing the Mission to…

Consumers

Employees

Channel Partners

Shareholders
 MOVING TOWARD MARKETING 3.0

Marketing 1.0 Marketing 2.0 Marketing 3.0

MIND HEART SPIRIT
PRODUCT- CUSTOMER- VALUES-DRIVEN
CENTERED ORIENTED
ECONOMIC- VALUE PEOPLE-VALUE ENVIRONMENT-
VALUE
PROFITS SOCIAL PROGRESS SUSTAINABILITY

•Where is your company now?

•Where do you want it to be?
•Why?
•What would steps would you take?
 The Challenge

• Re-moralize the market

• Re-localize the economy

• Re-capitalize the poor

Session 2. Increasing Your
Branding Power
 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
mortar—and I would fare better than you.”
 What’s In a Name? Everything!
Donald Trump’s family name is
Dumpf. Drumpf Towers?

Alphonso D’Abruzzo renamed

Alan Alda.

Chinese gooseberry renamed kiwifruit.

Hog Island in the Bahamas renamed Paradise

Island.
 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 (McDonald’s, 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
Figure 2: BrandAsset ®Valuator Model
ENERGIZED
DIFFERENTIATION
The brand’s point
of difference RELEVANCE
Relates to margins How appropriate the
and cultural currency brand is to you
Relates to consideration
and trial
ESTEEM
How you regard the
brand
Relates to perceptions KNOWLEDGE
of quality and loyalty An intimate
understanding
of the brand
Relates to awareness and
consumer experience

BRAND STRENGTH BRAND STATURE

Leading Indicator Current Indicator
Future Growth Value Current Operating Value
LEADING B2B BRANDING
COMPANIES

•DuPont
•Siemens
•Bosch
•General Electric
•Saint-Gobain
•UPS
•FedEx
•Tentra Pak
•Microsoft
•Caterpillar
•IBM
•Daimler
•Michelin
•Tata Steel
•Morgan Stanley
 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
MyRate rewards lower risk
drivers with lower rates.
“ I don’t drive a lot of miles, I’m a safe
driver, and I’m not usually on the road
late at night when accidents are most
likely to happen. Since I’m less likely to
be in an accident, shouldn’t I pay less for
car 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.”
 Build a Brand Community!
• Examples: Harley Davidson, Saturn, Porsche,
BMW, Apple user groups, Lexus owners, Barnes
and Noble bookstores, The Body Shop, Ikea.

• Harley’s Owner Groups:

– HOGs have 250,000 members divided into 800
chapters: VietNam vets, lesbians, born again
Christians, Ladies on Harleys.
– Tools include: Rallies, anniversaries, lectures on
maintenance and safety, competitions, shows,
internet sites.
– The researchers describe Harley as “a religious icon
around which an entire ideology of consumption is
articulated.”
 Develop a Memorable Brand Slogan
• BA, “The World’s 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”
» “Let’s Make Things Better”
BRAND JOURNALISM
Brand Positioning = Brand Journalism

“Marketers should communicate different messages to different market

segments at different times, as long as they broadly fit within the basic
brand image.”
-Larry Light, former McDonald’s CMO-

McDonalds is positioned differently in the minds of kids, teens, young adults,

parents and seniors. It is positioned differently at breakfast, lunch, dinner,
snack, weekday, weekend, with kids or on a business trip.
HYPOTHETICAL STARBUCKS BRAND POSITIONING BULLSEYE

CONSUMER Contemporary

TARGET
Discerning Coffee
Drinker CONSUMER
Caring Thoughtful TAKEAWAY
CONSUMER Starbucks gives
24 hour Stock option/ me the richest
INSIGHT training of health benefits possible
Coffee and the baristas or baristas
Responsible, Fairly sensory
drinking experience Locally involved Priced
experience
is often unsatisfying drinking coffee
Brand
Relaxing,
Mantra Fresh, high
Rewarding Rich, Rewarding quality coffee
moments Coffee Experience
CONSUMER Totally Triple
Reach sensory Varied, exotic
NEED STATE integrated
consumption
Convenience, coffee drinks
Filtrated
Desire for better system Friendly water
experience
service
coffee and a better Green & Siren
consumption Earth Colors logo
experience

CONSUMER
INSIGHT
Local cafes, Fast
food & convenience
shops
 The Mercedes-Benz “Enduring Passion”

“The brand Mercedes-Benz is a brand icon, from its founding day till today.”

40
 Measure Your Brand Effectiveness

• Customer perceived value

• Customer satisfaction

• Customer repeat purchase

• Customer advocacy

• Customer co-creation
 The 3i Model of Branding

The GOOD Outdoor- • Engaged Citizenship

inspired Footwear • Environmental
Stewardship
and Apparel • Global Human
Company Rights
 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)

More executives believe that the concept of sustainability is good for

corporations in attracting consumers and employees and improving
shareholder value.
 TRACKING SUSTAINABILITY

Needed: indices that 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 Corporate sustainability as “a business approach that creates long-
Sustainability Index 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
 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 The issue is to find a

linkage of between

Profitability
? Returnability
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).
 Session 3.
Ending the War Between
Sales and Marketing
•
 Sales and Marketing Complaints
• An Oracle salesperson told us, “Marketing sends us business cards they
collect at trade shows from people who don’t need us and don’t want to
see us. They call these things “leads”.”

• Marketing says “We generate about 25,000 leads a year for sales. Most of
these leads aren’t followed up and go cold.”

• “Marketing,” a senior airline sales manager told us, “are the people who
come up with these fancy value propositions that mean nothing to
customers but do tell us how out of touch they are with business reality.”

• The Head of Marketing had a different perspective. “We have a value

proposition that’s powerful – if only our sales force knew how to sell it.”
 The Six Key Responsibilities
of the CMO

1. Gather meaningful customer insights.

2. Strengthen the brands.
3. Drive new product development based on customer
needs.
4. Utilize new marketing technology.
5. Measure marketing effectiveness.
6. Improve marketing’s working relation with the other
functions.
Source: Adapted from a McKinsey study
 Define the Existing Level of Relationship

The integration of sales and marketing tends to progress through

four distinct stages or levels of complexity.

Undefined Defined Aligned Integrated

 Selling Funnel

Customer Brand Brand Brand Purchase Purchase Loyalty Customer

Awareness Awareness Consideration Preference Intention Advocacy

Marketing Handoff Sales

 Integrating Customer Management
Into the Sales Funnel

Purchase Purchase Loyalty Customer

Intention Advocacy

Defining Proposal Revision & Contract

Prospecting Qualifying Developing Implementation
Needs Preparation/ Issue Resolution Negotiation
Solutions
Presentation
 The Alternative Business Model
• Our mousetrap is one of many ways
to kill mice

• There’s not enough value in the

mousetrap to differentiate us from
competition
• So the role of sales is to add
value to our mousetrap

• Sales becomes value

creation, not value communication

©2009 Neil Rackham

 Two Customer Value Types
Value = Benefits – Cost
Consultative Transactional
Customers Customers
• Have a
problem • Know what
they want
• Value your • Treat you as a
time commodity
• Buy on • Buy on price
expertise and
and trust convenience
©2010 Neil Rackham
 Five years ago
10% were
10% were
consultative
transactional

TRANSACTIONAL CONSULTATIVE
• Cost focus • Advice focus
• Convenience Decision • Expertise decision
• Don’t want to meet • Want meetings

Most customers would pay a

little extra for some advice
©2010 Neil Rackham
 Customers Today
More want deeper
More buy consultative
transactionally relationships

TRANSACTIONAL CONSULTATIVE
• Cost focus • Advice focus
• Convenience Decision • Expertise decision
• Don’t want to meet • Want meetings

The middle is going away.

©2010 Neil Rackham
 Today’s Value Propositions
Today, depending on what they are buying, the
value propositions customers want are:

“We’ll use our

expertise to
solve your
OR problems and
“We’ll offer you create custom
cheap and solutions, for
convenient which we’ll
products, but don’t charge you a
expect extras.” premium.”

©2010 Neil Rackham

Competencies for Transactional Sales
Advertising
Branding

Multi-customer
Trade shows events
Transactional
Sales
Direct Call centers
Marketing

Campaigns
Internet
©2010 Neil Rackham
 Where is Marketing Going?
• More companies are adopting a market and customer
orientation

• 47% of Fortune 1000 firms have a CMO (80% have a CFO).

• Your CMO should be an active participant in the company’s

strategic planning group.

• Decide if you want your company to become market-driven or

market-driving.
MESSAGE
“Within five years, if you run your
business in the same way as you do
now, you’re going to be out of
business.”
Philip Kotler