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

www.aportasolutions.com
 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

 And This.

“When the storm comes,

some build walls,

the others build

windmills.”

Old Chinese proverb

 Consumers Will Spend
Less
• Consumers will move toward favoring lower priced products
and brands. They will replace buying national brands with
store brands and even generic brands.

• Consumers will reduce or postpone discretionary purchases

such as autos, furniture, major appliances, and expensive
vacations.

• Consumers facing higher fuel costs will drive less and buy
more from suppliers nearer to their work or home. They
will rely more on their home for eating and entertainment.
Therefore Business Will Spend
Less
• Businesses will reduce production and order fewer goods
from their suppliers.

• Businesses will cut their rate of capital investment.

• Businesses will cut their marketing budgets substantially.

• Businesses will postpone new product development and put

on hold major new projects.
What Should You Do?

DON’T DO NOTHING

DON’T PANIC!

AND DON’T MAKE ACROSS-THE-

BOARD CUTS!!!
 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,

packaging and advertising around the world.

– 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

 Answer These Questions
• Can your company lower the costs of paper, photography, 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?
 Respond Strategically
• Track changes in customer wants and values.
• Examine individual competitors’ weaknesses.
• Protect your core market.
• Decide in which markets to build market share.
• Offer lower prices or add value to your offering.
• Don’t let your values or long term goals slip.
• Think Opportunity!

Source: Philip Kotler and John A. Caslione, Chaotics: The Business of

Managing and Marketing in the Age of Turbulence (New York:
AMACOM, Spring 2009).
 Detectable Undetectable
Turbulence Turbulence

Chaos Chaos
Early Warning Unaddressed
System Turbulence impacts the
Company
(Addressed
Turbulence)

Vulnerabilities
Construction of Key Scenarios
Opportunities

(Opportunities : Vulnerabilities)

Latent
Latent

Scenario 1 Scenario 2 Scenario 3

Strategy Strategy Strategy

Response 1 Response 2 Response 3

Strategy Selection

Chaos
Chaotics Management System
Corporate Level Branding
 
 Building a Corporate Reputation
• Are there any companies that you love or you would miss as a
buyer if they disappeared? List them….

• Amazon, Best Buy, BMW, CarMax, Caterpillar, Commerce Bank,

Container Store, Costco, eBay, Google, Harley-Davidson, Honda,
IDEO, IKEA, JetBlue Johnson&Johnson, Jordan's Furniture, LLBean,
New Balance, Patagonia, Progressive Insurance, REI, Southwest,
Starbucks, Timberland, Toyota, Trader Joe's, UPS, Wegmans,
Whole Foods.

• The researchers found these firms to be highly profitable.

• Do customers love your company?

• What is common to companies that are loved?

Source: Raj Sisodia, David B. Wolfe, and Jag Sheth, Firms of Endearment: How World-
Class Companies Profit from Passion and Purpose (Wharton School Publishing, 2007)
 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.

Source: Sisodia, et al.

 Four CEO Views of
Marketing
• 1P CEO

• 4P CEO

• STP CEO

• ME CEO
 Stages in the Development
of the Marketing Discipline
1. Selling stage.

2.4P stage.

3. STP stage.

4.Customer relationship management stage.

5. Co-creation stage.
 AMA Definition of Marketing

• “Marketing is an organizational function

and a set of processes for creating,
communicating, and delivering value to
customers and for managing customer
relationships in ways that benefit the
organization and its stakeholders.”
Marketing Objective, Process,
and Philosophy

• CCDVTP

• R -> STP -> MM -> I -> C

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

Professor Malcolm McDonald

 What is a CMO Expected to
Do?
1. 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.

2. 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 and 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.
 Sales Precedes Marketing
• In the beginning there was sales.

• Marketing appeared later to help sales people.

• Marketing was originally located in the sales

department.

• Then marketing grew as a separate department

responsible for the marketing plan (4Ps) and
brand-building.

• Marketing and sales are separate cultures with

interdependent jobs to do.
 Identify the Existing Level of
Relationship

Undefined Defined Aligned

 The Sales Funnel

Purchase Purchase Loyalty Customer

Intention Advocacy

Prospecting Qualifying Defining Developing Proposal Revision & Issue Contract Implemen-
Needs Solutions Preparation/ Resolution Negotiation tation
Presentation
 The Marketing and Sales
Funnel

Customer Brand Brand Brand Purchase Purchase Loyalty Customer

Awareness Awareness Consider- Preference Intention Advocacy
ation

Handoff Sales
Marketing
Revise Your Sales Approach
 Drop the Old Sales Model

Source: Sandro Magaldi, Sales 3.0

 Be a Value Merchant, Not a
Salesman
• Move from features to benefits to the worth of the offering.
• Distinguish between the value of an offering and your pricing
of the offering. Make the difference between your value and
price superior to the competitor.
• Your task is to be able to demonstrate (before) and document
(during).
• Stress the points of differences between you and the
competitor, not the points of parity. Make sure that the
differences matter to the customer.
• Construct a value word equation for each point of difference
and point of contention.
– Our pump lasts 3 years rather than 2 years and will save
you X dollars.

Source: James C. Anderson, Nirmalya Kumar, and James A. Narus, Value

Merchants: Demonstrating and Documenting Superior Value in Business
Markets (Harvard Business School Press, 2007.)
 2. Find New Market
Opportunities
• “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,
former Senior Marketer
at Intel and author
 The Issue
• Innovate or stagnate.

• But most innovations fail.

– Consumer packaged goods…90%
– B2B…20%

• The ones that succeed are copied so

quickly. Does it pay to innovate?

• Yes. Stagnating is more fatal.

 Opportunity-Driven
Companies During the
• Wal-Mart
Downturn
• McDonalds
• TJ Maxx offers brand name women's and men's apparel,
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 6-
months of mortgage payments up to $2,500 per month if a
person gets laid off of work after buying a home with Toll.
 Three Innovation
Models
• Whirlpool Corporation launched an effort in 2000 to stimulate greater
innovation. The company trained 400 employees from a wide variety of
functions in a new process of “ideation.”

• Shell Oil, in 1996, authorized a team of its employees to allocate $20

million to rule-breaking ideas originating anywhere in the company.
Any employee can make a 10-minute pitch followed by 15-minute Q&A.
Greenlight ideas get an average of $100,000 and up to $600,000. Of
Shell’s 5 largest growth initiatives in 1999, 4 started this way.

• Samsung Electronics established the Value Innovation Program (VIP)

Center in 1998. Core cross-functional team members come together to
discuss their strategic projects. Samsung runs an annual Value
Innovation conference and awards are given for the best cases.
 Six Ways to Get Ideas
From Customers
1. Observe how your customers are using your
product.
2. Ask your customers about their problems with
your products.
3. Ask your customers about their dream
products.
4. Use a customer advisory board to comment on
your company’s ideas.
5. Form a brand community of enthusiasts who
discuss your product.
6. Encourage or challenge your customers to
change or improve your product.
Source: Blue Ocean Strategy
Reconstruct Market Boundaries
Through a Six Paths Framework
1. Look across alternative industries
• Home Depot (products and craft advice)

2. Look across strategic groups within industries

• Curves (health club or home exercise)

3. Look across the chain of buyers

– Canon (small copiers for homes, not companies)

4. Look across complementary product and service offerings

– Barnes & Noble book stores

5. Look across functional or emotional appeals to buyers

• Swatch (from function to emotion)
• Body Shop (from emotion to function)

6. Look across time

. Toyota
The case of Cereal Bars

Cereals for breakfast market New category

into STREETS
=
Cereal varieties
The case of Barbie

Baby dolls market Teenager New category

To
feel =
as...

Doll varieties
Hotel: Lateral Marketing Thinking
• Substitution: a free hotel room when the flight is
cancelled.
• Inversion: a hotel without a front desk.
• Combinations: a hotel room with a sauna.
• Exaggeration: hotel room with two king size beds.
• Elimination: a hotel without a room.
• Reordering: turning the radio on when leaving the hotel
room.
3. 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.

• “Advertising, as you know it, is dead… Advertising is a lot

more than just television commercials—it includes branding,
packaging, celebrity spokespeople, sponsorships, publicity,
customer service, the way you treat your employees, and
even the way your secretary answers the phone.” (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.
 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
 The Basic Question and
Challenge
TV ads have been the most effective way to build a brand,
•
especially if there is one positioning.

• When we reduce TV advertising, how can we replace it.

• Answer: Narrative Branding.

– The new media – websites, video, podcasts, consumer
generated content – are long-form media. Marketers need to
design compelling brand stories with richness and depth.
– Narrative Branding is story-telling. It is designed around all
senses: sight, sound, taste, touch and smell. Narrative
Branding engages people through metaphors, co-creation
and a compelling narrative arc.
– Narrative branding replaces single positioning.
 Make Use of the New Media
Traditional Media Digital Media

• Drum beats and smoke signals

• Face-to-face sales calls • Websites
• Email
• Writing • Banners and pop-ups
• Leaflets and posters
• Billboards
• Newspapers • Webcasts
• Magazines • Blogs
• Direct mail and catalogs
• Podcasts
• Telephone • Videocasts
• Radio
• TV
• Film • Mobile marketing

• Sponsorships • Social network sites

• Street level promotion
• Festivals • Stimulated buzz
• Trade fairs
• Product placement
 Your Ads Are Small Compared to
the Influence of Consumer-
Generated Media (CGM)
• Direct customer feedback to company Web sites
• Online bulletin boards, chat rooms, forums, and discussions
• Person-to-person e-mail
• Blogs (personal Web logs/diaries)
• Moblogs (sites where users post or send digital images, photos,
video clips to others)
• Consumer opinions and reviews on Web sites (amazon, netflix,
zagat, planetfeedback, 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
 Your Job is to Create Buzz

• Mavens: they are an expert on a topic. You

listen to them closely. Their motivation is to
inform or explain.

• Connectors: they know a lot of people. They

are social glue. They may mention things to
many others but are not seen as experts.

• Salespeople: they are persuasive and help

create an epidemic of interest.

Source: Malcolm Gladwell, Tipping Point

 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 Measure

•Marketing •Campaign •Marketing

•Marketing management
investment analytics
resource
management •Lead •Web
management
management analytics
•Demand •Events
management
modeling
•Loyalty
management
•Media
management
 Examples of Vendors that Play in Each of these Spaces
Although some of the vendors play in more than one category, this summary is intended to classify software
providers by their predominant solution feature.

3) 7)
1) Marketing Marketing
Database 2) Mix 5) Mktg. Comm. / 8) 9) Yield-
Mgmt. & Business Modeling/ 4) Mgmt. Content Personal- Based
Ware- Intelligence Predictive Campaign Work-Flow Mgmt. ization Pricing
housing & Analytics Analytics Mgmt. Solutions 6) MRM Tools Platforms Opt. Tools
The power to deliver profit
growth…
P&G Soars Due To Marketing Efforts

Brandweek, October 31, 2006

By Constantine von Hoffman

BOSTON -- Procter & Gamble credited marketing

improvements as part of the reason for its better-than-
expected first quarter of fiscal ’07.

“We’re getting real traction from our marketing ROI and

media-mix modeling,” CEO A.G. Lafley said in a conference
call with analysts today. “That means we’re better able to
reallocate” what the company spends on marketing. He did
say that this had helped improve the margins and increased
earnings 33% during the quarter to $2.7 billion.

Brand Week, November, 2006

 Your Take-Aways
1. Organize your marketing more holistically and strategically and relate better to sales and to
new product development, especially during the economic downturn.

2. Find new market opportunities by working with customers and using ideation frameworks
(blue ocean strategy, lateral marketing).

3. Add newer media (websites, email, blogs, podcasts, webcasts, mobile phones, social networks,
and buzz marketing) to replace some of your traditional media.

4. Incorporate new marketing technologies (marketing models, sales automation, marketing

automation) to increase your company’s marketing productivity and financial results
measurement.
“Within five years. If you’re in the same
business you are in now, you’re going to be out
of business.”