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1 A Strategy Document on The New Marketing Paradigm Holistic Marketing ● Lateral Marketing ● High-tech Marketing by PHILIP KOTLER Documentation Sponsored by Canon

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3 Kotler On Marketing How To Create, Win, and Dominate Markets
Philip Kotler, Ph.D Kellogg School of Management Northwestern University Indiatimes Mindscape Mumbai and Delhi October 11, 12, 2004 Welcome. I appreciate being invited to speak in India. I spent 9 months in India many years ago and have made several re-visits since then. This is not to lay claim that I am an expert. Nobody is an expert on India. On past visits, I described India as a caged tiger. Today the cage door is open and you are coming out. In an article by Jeffrey Sachs entitled “Welcome to the Asian Century,” he estimates that by 2050 China and India will each overtake the U.S economy in size. China’s GNP has grown about 10% a year since the 1970s and India’s about 6% while U.S. economic growth as run around 3.5%. Both countries are relatively well managed politically and economically and are attracting foreign investment and developing high tech capabilities. In fact, we are seeing the rise of an integrated Asian economy linking Southeast Asia and southern Asia and Northeastern Asia. This news is both good and bad for the U.S. The concept that the U.S. is the world’s sole superpower and manager—the new Rome--will have to be abandoned. The good news is that world prices will be held down. We will also see more scientific and technological advances coming from Asia. Already many of the best scientists and engineers in the U.S. are from India. I am going to describe what India needs to know to grow and prosper. Printed on CANON

4 Two Challenges Facing Indian Companies
Will Indian companies be able to defend their market against the growing invasion of foreign global brands? Can Indian companies develop strong global brands? Printed on CANON

5 Can Indian Companies Defend the Domestic Market?
Foreign competitors will not only go after the high end market in India. They will target the middle and eventually the low end. The main defense for India will be developing stronger skills in innovation, differentiation, branding, and service. In a word, MARKETING! Printed on CANON

6 But India Needs Stronger Marketing
Confusing marketing with advertising. Advertising is hard sell. Sometimes ads appear before the product is in distribution. Some companies over-spend on advertising and go broke. Little use of marketing research; can’t trust. Therefore little segmentation of market and poor targeting. Over focus on winning through low price; neglecting differentiation. Retailers carry the same goods and their service is poor. Printed on CANON

7 Marketing is More Important than Production!
The Indian manufacturer of a Hugo Boss shirt gets only $12, or 10% of the final price of $120 that is paid by a customer of Saks Fifth Avenue. The retailer gets 60% ($72) and the Brand company gets 30%, or $36. Would you rather be the manufacturer, Brand owner, or retailer? The Indian manufacturer has no defense if the Brand Owner wants to switch to another manufacturer to whom he will pay $8 and keep $2 or pass it to the retailer to get more retail support. Yet India pays more attention to the product engineer than the marketing “engineer.” But India’s future success will require investing in marketing and branding. Printed on CANON

8 The Strategic Trajectory for India
Low cost, average quality domestic products. Low cost, good quality domestic products. Indian high-end products made for other companies. Indian branded products (regional). Indian branded products (global). Indian dominant brands (global). Printed on CANON

9 Ranbaxy Pharmaceuticals (India)
Originally sold bulk substances to unsophisticated markets but gross margins were too low to cover export costs. New CEO, Parvinder Singh, challenged Ranbaxy to become a truly global company. He said: “Ranbaxy cannot change India. What it can do is to create a pocket of excellence. Ranbaxy must be an island within India.” The company moved into higher-margin businesses like selling branded generics in large volume markets like China and Russia. Ranbaxy then entered the U.S. and Western Europe. In just five years, more than half of its US$ 250 million revenues now come from outside of India. Printed on CANON

10 The Case of Haier Haier developed through three stages. 1. Fix quality
(Zhang Ruimin smashed 76 refrigerators). 2. Diversify (Microwaves, toasters, air conditioners, dishwasher, vacuum cleaners, etc.) 3. Globalize (Asia Region, U.S., Europe) Haier entered with a U.S. partner and is challenging Whirlpool and GE. Haier’s brand name products are sold in Wal-Mart, Best Buy, Sears, Lowe’s, Home Depot and Target. Haier is promoted as a global brand, not a Chinese one. (Many people think it is German). Puts lower price models in price-only stores and higher price models in top stores. Printed on CANON

11 Five C’s Favoring India
Capital: India has and can attract capital. Cost: Another 50 years of low cost production Capability: Large number of trained workers, engineers, scientists, and business people Consumers: Immense domestic market Calm and stability: in a world of turmoil and uncertainty Printed on CANON

12 A Quiz: Who Said This? “The purpose of a company is ‘to create a customer…The only profit center is the customer.’” “A business has two—and only two—basic functions: marketing and innovation. Marketing and innovation produce results: all the rest are costs.” “The aim of marketing is to make selling unnecessary.” “While great devices are invented in the Laboratory, great products are invented in the Marketing department.” “Marketing is too important to be left to the marketing department.” Drucker, Yogi Berra, A Chinese Proverb, William Davidow, David Packard Printed on CANON

13 My Message Marketing’s performance has been disappointing.
You must replace your Old Marketing with New Marketing that is: holistic, technology-enabled, and strategic. Printed on CANON

14 Facing the Increasing Pressure for Marketing Accountability
Marketing has become a one P discipline = selling. Marketing involves a great deal of waste. $2 million for 30 seconds on the Superbowl. Direct mail campaigns with a 1% response rate. Cold sales calls which play the numbers. High rate of new product failure. Marketing costs are high and rising. Marketing lacks accountability. Marketing does not create major new ideas. Marketing is too involved in short-term thinking. Marketing doesn’t focus on its real assets. Brands, customers, service quality, stakeholder relationships, intellectual capital, corporate reputation Printed on CANON

15 Needed: Holistic Marketing
Marketing must become strategic and drive business strategy. A company needs to take a more holistic view of: the target customers’ activities, lifestyle, and social space. the company’s channels and supply chain. the company’s communications. the company’s stakeholders’ interests. Holistic marketing will require strong software support. Printed on CANON

16 HOLISTIC RELATIONSHIP MARKETING FRAMEWORK
1) Who is involved? CORPORATION COLLABORATORS CUSTOMERS MARKET SPACE 2) How can we define relevant market space? 3) What are the potential opportunities emerging from the market space? POTENTIAL OPPORTUNITIES 4) What business capabilities and infrastructure required? BUSINESS INVESTMENT CUSTOMER FOCUS CORE COMPETENCIES COLLABORATIVE NETWORK Printed on CANON

17 4 COMPETITIVE PLATFORMS
Customer Focus Core Competencies Collaborative Network Exploring Value COGNITIVE SPACE COMPETENCY SPACE RESOURCE SPACE Market Offerings Business Architecture Creating Value CUSTOMER VALUE BUSINESS DOMAIN BUSINESS PARTNERS Marketing Activities Operational System Delivering Value CRM ERP SCM Printed on CANON

18 Responding to Low Margins and the Economic Slowdown
Commoditization and rapid imitation leading to shorter product life cycles. Competition of cheaper brands from China and elsewhere. Rising selling and promotion costs and decreasing sales effectiveness. Shrinking margins. Proliferation of sales and media channels. Power shifting to giant retailers who are demanding lower prices. Recession: lower incomes and purchasing power. Mergers, large company bankruptcies. Printed on CANON

19 Improving Marketing Efficiency and Effectiveness
buying inputs more efficiently hunting down excessive communication and sales travel expenses closing unproductive sales offices cutting back on unproven promotion programs and tactics putting advertising agencies on a pay-for-performance basis Improving marketing effectiveness replacing higher cost channels with lower cost channels shifting advertising money into better uses reducing the number of brands or sku’s Improving supply chain responsiveness Printed on CANON

20 Responding to the 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 the price. Printed on CANON

21 Marketing Strategies Are Showing Diminishing Returns
Product differentiation is harder to achieve. Acquisitions and mergers have as many failures as successes. Internationalization is offering less opportunities because either the good markets are overcrowded or the poor markets have no money. New products unfortunately fail more times than they succeed. Price cutting doesn’t work because competitors will match. Pricing raising doesn’t work since there isn’t enough differentiation to support it. Cost cutting has eliminated much of the fat but is now risking cutting the muscles. Printed on CANON

22 Strategies for Firms in Different Market Positions
Jagdish Sheth, Singapore Marketer, 2002 Printed on CANON

23 Five Winning Strategies
Cost reduction: (IKEA, Southwest Airlines, Wal-Mart, Enterprise Rent-a-Car). Improved customer experience (Starbucks, Harley Davidson) Innovative business model (Barnes & Noble, Charles Schwab, FedEx, Sony). Improved product quality (P&G, Toyota). Niching: (Progressive Insurance, Tetra) Wal-Mart Strategy Objective: Win by owning lowest price end of the market. Strategy: Find ways to lower all important costs of doing business. Tactics: Build the stores at the lowest cost by causing landowners and towns to compete by giveaways Maintain the lowest inventories by developing a real time information system to order only for restocking Pay low wages by offering other benefits to attract workers and keep out unions Carry fewer brands and extract best deals from these brands based on volume; after a brand depends on us, press them for reduced prices. Don’t spend money in expensive advertising Southwest Airlines Objective: Win by charging the lowest prices in order to attract not only passengers of other airlines but also car drivers Strategy: Bring down all critical costs Develop short-distance routes connecting high traffic inter-cities Use only one airplane type to simplify training and inventory Don’t serve food and therefore reduce cabin crew size Don’t use travel agents; sell tickets directly Don’t offer to transfer luggage Don’t offer higher classes of service Ikea Southwest Airlines - Activity System (Porter) Objective: Win by offering good quality furniture at the lowest price Strategy 1: Reduce all the important costs of doing business Reduce shipping costs by developing knock-down furniture Get customers to locate and load their own purchases Get customers to carry home their purchases Don’t advertise Strategy 2: Make the store an attractive destination Add a good value restaurant Add a day-care center Strategy 3: Create a membership program Send regular catalogs to members Set up discounts below normal price for members Nike Objective: Win by creating the largest volume and deepest profit margin Strategy 1: Create the most exciting shoes Hire famous name athletes and design shoes around them Design and test shoes for highest performance Strategy 2: Create exciting retailing Niketown Strategy 3: Produce shoes at lowest cost Outsource production in the Far East Harley-Davidson Objective: Become a cult product Strategy: Win by creating a community as well as a legendary product Develop a membership program (HOGS) with many benefits Sponsor many events for owners to congregate and travel together Keep production volume low so that customers have to wait for the motorcycle Enterprise Rent-a-Car Objective: Grow volume by renting cars at the lowest cost Strategy: Reduce the costs of running a car rental firm Stay away from high rentals in airports Open in low cost areas near automobile dealers and good traffic Get close to car repair companies Printed on CANON

24 Dual Strategies Planning for today Planning for tomorrow
Defining the business. Shaping the business to meet needs of today’s customers Improving alignment between functional activities and business definition Organization mirrors current business activities Optimizing current operations to achieve excellence. Planning for tomorrow Redefining the business Reshaping the business to compete for future customers and markets Making bold moves away from the existing ways of doing business Reorganizing for future business challenges Managing change to create future operations and processes Printed on CANON

25 Average profitability of all competitors or players
In many markets, the growing number of competitors in mature markets leads companies to target niches of low profitability. Y O G U R T S M A R K E T Number of competitors Market Size Time Average profitability of all competitors or players Printed on CANON

26 Some Vertical Marketing Methods
Modulation The juice manufacturer varies the sugar content, fruit concentrate, with or without vitamins… Sizing Potato chips are offered in sizes 35 grams, 50 grams, 75grams, 125 grams, 200 grams, multi-packs… Packaging Nestle’s Red Box chocolates comes in different containers: cheap paper box for the grocery trade, premium metal box for the gift trade… Design BMW designs cars with different styling and features... Complements Biscuits with sugar spread on it, with cinnamon, with chocolate, with white chocolate, with black chocolate, filled biscuits… Efforts reduction Charles Schwab offers different channels for transacting such as retail stores, telephone, internet…. Printed on CANON

27 Lateral Marketing Process
The case of Cereal Bars Lateral Marketing Process into Cereals for breakfast market Cereal varieties New category Vertical Marketing Process STREETS = Printed on CANON

28 Lateral Marketing Process Vertical Marketing Process
The case of Barbie Lateral Marketing Process Baby dolls market Teenager New category To feel as... = Doll varieties Vertical Marketing Process Printed on CANON

29 Other Examples of Lateral Marketing
Kinder Surprise = candy + toy. Seven Eleven = food + depot. Actimel = yogurt + bacteria protection. Gas station stores = gas station + food. Cyber cafes = cafeteria + Internet. “Be the godfather of a kid” = Donation + adoption. Huggies Pull-ups = diapers + 3 year olds. Walkman = audio + portable Source: Philip Kotler and Fernando Trias de Bes, Lateral Marketing: A New Approach to Finding Product, Market and Marketing Mix Ideas (Wiley, 2004) Printed on CANON

30 Check Where You Stand Marketing does the marketing -> everyone does the marketing. Organizing by product units -> organizing by customer segments. Making everything -> outsourcing more goods and services. Using many suppliers -> working with fewer suppliers. Emphasizing tangible assets -> emphasizing intangible assets. Building brands through advertising -> building brands through integrated communications.  Attracting customers to stores -> making products available on-line. Selling to everyone -> selling to target markets. Focusing on profitable transactions -> focusing on customer lifetime value.  Focusing on market share -> focusing on customer share. Being local -> being “glocal. Focusing on the financial scorecard -> focusing on the marketing scorecard.  Focusing on shareholders -> focusing on stakeholders  Printed on CANON

31 Building Brand Equity MARKETING IS THE ART OF BRAND BUILDING *
IF YOU ARE NOT A BRAND, YOU ARE A COMMODITY. THEN PRICE IS EVERYTHING AND THE LOW-COST PRODUCER IS THE ONLY WINNER! Printed on CANON

32 1. How Important is Branding?
The NUMMI plant in California produces two nearly identical models called the Toyota Corolla and the Chevrolet Prizm. Toyota sold 230,000 Corollas compared to sales of 52,000 Prizms. And Toyota’s net price is $650 higher! Printed on CANON

33 A Strong Brand Improves Demand and Supply
On the demand side: higher price increased sales volume lower churn more brand stretching On the supply side: greater trade acceptance, more favorable supplier terms, lower rejection lower staff acquisition and retention costs lower cost of capital better scale economics through higher volume Printed on CANON

34 Names are Important in Branding
Donald Trump’s family name is Drumpf. But he can’t call it Drumpf Towers. Alan Alda’s name was Alphonso D’Abruzzo. Chinese gooseberry was renamed kiwifruit. Paradise Island in the Bahamas used to be Hog Island. Printed on CANON

35 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. Printed on CANON

36 Your Company’s Brand 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 brand’s personality? A. Founders B. Spokespersons C. Characters D. Objects E. Stories and mythologies Printed on CANON

37 2. How Do You Develop a Brand Concept?
“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 brand’s reputation is ultimately based on product quality, customer satisfaction, employee communications, social responsibility, etc. (Kevin Clancy, CEO of Copernicus) Printed on CANON

38 Branding Components Name Slogan Logo and typeface Colors Music
Short, suggestive, memorable, unique, pronounceable Slogan Logo and typeface Colors Music Themelines (Got Milk!) Stationery and business cards Offices Trucks Dress code Printed on CANON

39 Brand Slogans BA, “The World’s Favorite Airline”
American Express, “The Natural Choice” AT&T, “The Right Choice” Budweiser, “King of Beers” 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” Printed on CANON

40 There is No Such Thing as a Commodity: Differentiate by Segments
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 percent. Printed on CANON

41 3. How Do You Promote a Brand?
“How do I justify spending millions on creating an image. That’s millions my customers have to spend when they buy from us.” Tom Parker, CEO of Clark’s shoes. Brands are built by performance, not advertising. Printed on CANON

42 Don’t Overuse Advertising to Build a Brand
People don’t pay that much attention to ads anymore (wallpaper). Some exceptional TV ads grab attention but do not provide motivation. Advertising doesn’t have much credibility or believability. The existence of so much advertising makes advertising less effective. Yet the cost of advertising keeps rising. Printed on CANON

43 Tools for Building Brands
Advertising (e.g.,Absolut Vodka) Sponsorships (e.g., Kodak and Olympics) Clubs (e.g. Nestle’s Casa Buitoni Club) Company visits (e.g., Cadbury’s theme park, Hallmark’s 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) Founder’s personality (e.g., Colonel Saunders) Celebrity spokespersons Printed on CANON

44 4. What Makes a Strong Brand?
Strong brand = Product Benefits x Distinct Identity x Emotional Values Peter Doyle, Marketing Management & Strategy, 1997 Printed on CANON

45 THE Y&R MODEL OF BRAND STRENGTH
A successful brand has brand vitality and brand stature. Brand vitality consists of: 1. Differentiation, the brand is distinct 2. Relevance, the brand is meaningful and personally appropriate. Brand stature consists of: 1. Esteem, the brand is seen to have quality and momentum. 2. Familiarity, the brand is known and understood by many people. Some conclusions: 1. A brand that has high familiarity but low likeability is a troubled brand. 2. A brand that has high likeability but low familiarity has high advertising potential. 3. A brand with high vitality but low stature has excellent potential. 4. When a brand’s differentiation and relevance start slipping, esteem will slip next, and then familiarity will decline. Printed on CANON

46 Characteristics of Strong Brands
Provides superior delivery of desired benefits. (Starbucks, FedEx, Amazon) Maintain innovation and relevance for the brand. (Gillette, Charles Schwab) Establish credibility and create appropriate brand personality and imagery. (Apple, Virgin) Communicate with a consistent voice. (Coca-Cola, Accenture) Strategically design and implement a brand hierarchy and portfolio. (BMW, The Gap) Printed on CANON

47 Strong Brands Supply Use Value as Well as Purchase Value
Nestle: Sells baby food Provides free dietitian phone line Nestops along the highway Home Depot: Sells home improvement products, such as paint, electrical supplies, plumbing Offers free kitchen remodeling design service Offers free workshops on how to paint, fix faucets, etc. Volvo Teaches safe driving, Supports lower insurance rates for safe drivers Printed on CANON

48 When Do You Stretch a Brand Name?
Mercedes is putting its name on large, medium and small cars. Gap decided to invent Old Navy in going down and buying Banana Republic in going up. Printed on CANON

49 How Do You Revitalize a Brand?
A dowager brand pioneered the market but now is declining. It will be hard to reverse the decline and give it new life but the decline can be slowed down. Two general approaches: Marketing mix modification Improve the product, distribution, price, or promotion Market modification Find new segments, new usage benefits or occasions, more frequent usage, etc. Find out to whom the dowager brand is losing share: Old peer brands New peer brands Retail store brands Generic brands Elite brands Find out to whom the dowager brand is losing sales. Interview people who defected to each competitive class and their dissenting rationales. Determine a counterlogic for each group and direct them to the groups that can most easily be won back. Source: Dennis W. Rook and Sidney J. Levy, “Defending the Dowager: Communication Strategies for Declining Main Brands.” Printed on CANON

50 How Do You Rationalize Your Product Line?
Unilever found that the largest 50 brands accounted for 63% of its revenues. Unilever decided to emphasize 400 core brands and dispose, delete or consolidate 1,200 of its marginal brands. Unilever selected its 400 core brands based on brand scale, brand power (#1or 2), and brand growth potential. 40 brands were designated as core global brands (e.g., Dove, Knorr, Lipton), and 360 as regional core brands. The core brands would get disproportionate investments in advertising and promotion, innovation, marketing competence and management time. The core brands would be extended. Weak brands had small market shares; poor profitability; negative cash flow; weak channel support; disproportionate consumption of management time. The weak brands would be milked, sold, delisted, or their attribute would be migrated to another brand. Printed on CANON

51 What Are the Most Frequent Causes of Brand Failure?
Failure to live up to the brand promise. Failure to adequately support the brand. Failure to adequately control the brand. Failure to properly balance consistency and change with the brand. Failure to do brand equity measurement and management. Printed on CANON

52 Building Customer Equity
How customer-centered is your company? How do you measure this? Does your company need to be more customer-centered? To all customers or only the more important customers? How can you go about becoming more customer-centered? How much would this cost you in new technology and training? How much would you gain as a result of becoming more customer-centered? Printed on CANON

53 Achieving Outcomes in Market Space
Achieving a deep customer focus is not done simply by building a customer database or customizing your product offerings. A company must define its marketspace not in terms of products but in terms of customer outcomes. Baxter Healthcare supplies “home-recovery enhancement,” not just nursing care or wheelchairs. IHI, a health insurance company, operates in the “lifetime health and personal safety” marketspace. A company then examines the customer activity cycle and the value gaps. The company then invests in filling the major value gaps. The company ends up being favored and grows through doing more things better for their customers. Source: Sandra Vandermerwe, “Achieving Deep Customer Focus,” MIT Sloan Management Review, Spring 2004, pp Printed on CANON

54 Achieving Deep Customer Focus
Create strategic excitement. Enlist “points of light.” Articulate the new market space focused on customer outcomes. Identify the value opportunities through using the customer activity cycle. Build a compelling case (not through a plan but a story). Size the prize. Modeling the concept with a few chosen customers. Get people working together. Get critical mass. Gather momentum. Source: Sandra Vandermerwe, “Achieving Deep Customer Focus,” MIT Sloan Management Review, Spring 2004, pp Printed on CANON

55 Building Customer Equity
Reduce the rate of defection. Increase the longevity of the relationship. Enhance the growth potential of each customer through cross-selling and up- selling. Make low-profit customers more profitable or terminate them. Focus disproportionate effort on high value customers. Printed on CANON

56 Components of Customer Equity
Customer equity is driven by: Value equity Brand equity Relationship equity. Companies must decide which driver(s) underlie each equity. Source: Roland T. Rust, Valerie A. Zeithaml, and Katherine A. Lemon, Driving Customer Equity (New York Free Press 2000). Printed on CANON

57 Transaction Marketing vs. Customer Relationship Marketing
Customer Relationship Marketing (CRM) represents a paradigm shift from Transaction Marketing (TM). TM companies focus on products and making a sale. CRM companies focus on building a long-term relationship that produces satisfaction for the customer and profitability for the company. TM companies promote everywhere in search of customers. CRM companies promote to a defined customer group and aim to make the right offer at the right time using the right channel to the right customer. All companies must practice a mix of TM and RM. TM will be stronger in companies facing a large number of customers; RM will be stronger in companies facing a small number of customers. Printed on CANON

58 Treat Different Customers Differently
Most profitable customers Most unprofitable customers Most growable customers Most vulnerable customers Printed on CANON

59 Needed: Technology-Enabled Marketing
Technology-enabled marketing (TEM) combines information technology, analytical capacities, marketing data, and marketing knowledge, made available to one or more marketing decision makers to improve the quality of marketing management. Printed on CANON

60 A 5 Step Model for Database Marketing
Gather useful data on customers. Classify customers by their needs and by their value to the firm. Prepare business rules that select the best prospects. Customize marketing treatments for each prospect in terms of product offers, service mix, media, and channel. Set up accountability procedures. Printed on CANON

61 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. Printed on CANON

62 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. Printed on CANON

63 Marketing Technology Platforms on the Market Development Curve
Campaign Management Historical Database Analytics Database Management & Warehousing Database-Driven Marketing Performance Dashboards Yield-Based Pricing Optimum Tools Marketing Mix Modeling / Predictive analytics Marketing Resource Management Marketing Management Work-Flow Solutions Introduction Growth Mature Decline Printed on CANON Source: Gary Morris, Adapted from Marketing Advocate, Inc.

64 Precision Marketing Precision marketing is achieved through looking at large quantities of historic data with the help of data mining tools that search for meaningful patterns, and then creating mathematical equations that represent the underlying relationships within the data. Predictive analytics are used to identify the right offers and right messages to beam through different channels to narrow customer segments, based on the propensity to respond. The expected profit of a campaign can be estimated. Many tactical marketer tasks will be automated and free up marketers to focus on more strategic decision making. Printed on CANON

65 SALES AUTOMATION The objective is to empower the salesperson to be an informed salesperson who virtually has the whole company’s knowledge at his or her command and can provide total sales quality. Printed on CANON

66 Marketing Automation Areas Ripe for Marketing Automation:
Selecting names for a direct mail campaign Deciding who should receive loans or credit extensions Allocating product lines to shelf space Selecting media Customizing letters to individual customers Targeting coupons and samples Pricing airline seats and hotel reservations Printed on CANON

67 Marketing Decision Models and Marketing Mix Response Models
BRANDAID CALLPLAN DETAILER MEDIAC PROMOTER ADCAD See Kotler, Marketing Models Printed on CANON

68 Marketing Dashboards Tools dashboard Processes dashboard
Performance dashboard Printed on CANON

69 Marketing Work-Flow Process Tools
Project management Product management New product development Campaign management Printed on CANON

70 Exploit 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 customer’s profile (Elizabeth Arden). Sponsor a chat room around your product category. Answer 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. Printed on CANON

71 Is New Technology Enough?
NT + OO = EOO New Technology + Old Organization = Expensive Old Organization Printed on CANON

72 Technology-Enabled Marketing: Examples
Royal Bank of Canada Decision to purchase CRM Halifax Bank Teller suggests financial products Capital One A credit card for everyone, but with different interest rates, credit lines, and cash advances. Tesco supermarkets Tesco has identified 5,000 customer “needs” segments. It sends out some 300,000 variations of any given offer with redemption rates of 90%. It has formed clubs such as Baby Club, A World of Wine Club, My Time Club Kraft Kraft has the names of 110 million customers and 20 thousand facts for each household. Kraft launched print magazine, Food & Family, that is delivered to the homes of 2.1 million Kraft customers in 32 versions tailored to 32 segments. In the mid-1990s, the RBC decided to restructure into a customer-centric enterprise. The Bank asked these questions: How long would it take for the system to be operational? How much will it cost? How much will the incremental revenue be per year? The bank invested and developed a centralized customer database that could project: customer lifetime values customer “growability” to offers customer vulnerability in order to take preventive action. Halifax: As tellers conduct customer transactions, their system suggests relevant products based on PA. Teller tells about offer and if customer accepts brochure, he/she is contacted later. Printed on CANON

73 10 Earmarks of the New Marketing
Recognize growing customer empowerment. Develop a focused offering to the target market Design the marketing from the customer-back. Focus on delivering outcomes, not products. Draw in the customer to co-create value. Use newer ways to reach the customer with a message. Develop metrics and ROI measurement. Develop high-tech marketing. Focus on building long run assets. View marketing holistically to regain influence in the company. Printed on CANON

74 1. P&G Recognizes the New Consumer
Consumers want a conversation, to dialogue, to participate, to be more in control…We’re going from one-dimensional, product-myopic marketing to three-dimensional marketing – that offers better solutions…more delightful experiences… and the opportunity for on-going relationships. Alan Lafley, CEO, P&G Consumer expectations are changing. Consumers used to “lean back” – as passive recipients of one-way broadcast messages. Today, they “lean forward.” Consumers want a conversation, to dialogue, to participate, to be more in control. Consumers expect more personal attention – communication, products and services that are tailored to their wants and needs. Consumers will expect customization, so products and services reflect their unique wants and needs. Marketing is being redefined. We’re going from one-dimensional, product-myopic marketing to three-dimensional marketing – that offers better solutions – product and/or service solutions – more delightful experiences – shopping, usage, total brand experiences…and the opportunity for on-going relationships – meaningful relationships between an individual and his or her brand. Alan Lafley, CEO, P&G Printed on CANON

75 Do-It-Yourself Marketing
Self-Inform: Customers can research products and issues without relying on experts (e.g., WebMD, MedlinePlus.com) Self-evaluate: Customers can compare product features and prices with a few clicks of a mouse (e.g., PriceGrabber.com, DealTime.com) Self-segment: Customers can design and configure products (e.g., Dell, Reflect.com) Self-price: Customers can propose prices to sellers (e.g., eBay, PriceLine.com, Free Markets) Self-support: Customer can resolve problems by searching knowledgeable bases and discussion forums (e.g., Self-program: Customer can define their own media programming (e.g., TiVo, MyYahoo!) Self-organize: Customers can join communities of interest to discuss products and issues (e.g., Meetup.org., IVillage) Self-advertise: Customers can create feedback for their peers (e.g., Amazon.com, Planet Feeeback, BlogSpot.com) Self-police: Customers can monitor reputations of manufacturers (e.g., eBay, BizRate.com) Source: Mohan Sawhney lecture Printed on CANON

76 The Evolution of Marketing
Transactional Marketing Relationship Marketing Collaborative Marketing Time frame 1950s 1980s Beyond 2000 View of value The company offering in an exchange The customer relationship in the long run Co-created experiences View of market Place where value is exchanged Market is where various offerings appear Market is a forum where value is co-created through dialogue Role of customer Passive buyers to be targeted with offerings Portfolio of relationships to be cultivated Prosumers-active participants in value co-creation Role of firm Define and create value for consumers Attract, develop and retain profitable customers Engage customers in defining and co-creating unique value Nature of customer interaction Survey customers to elicit needs and solicit feedback Observe customers and learn adaptively Active dialogue with customers and communities Printed on CANON Adapted from Prahalad and Ramaswamy 2004

77 2. Develop a Focused Offering to the Target Market
Value customers: Which customer segment(s) do we want to serve? Value proposition: Can we create a value proposition that delivers superior value through dramatically higher benefits or lower costs? Value network: Can we run a better network or radically redefine the value delivery system for the industry such as Dell and IKEA have done? 3Vs framework of Nirmalya Kumar Printed on CANON

78 Choose to Serve a Unique Set of Customer Values
1. Identify the value expectations of potential customers. 2. Select the values on which to compete. Nike values: Winning, roar of the crowd, extreme effort, the smell of sweat, physical development New Balance values: Self-improvement, inner harmony, balanced, the smell of nature, spiritual development 3. Analyze the ability of the organization to deliver those values. 4. Communicate and sell the value message. 5. Deliver the value promised and continuously improve the company's value model. See J. Nicholas Debonnis, et. al, Value-Based Marketing for Bottom Line Success: 5 Steps to Creating Competitive Value (McGraw-Hill, 2004) Printed on CANON

79 3. Design the Marketing From the Customer-Back
Marketing must be run as a set of value finding, creation, and delivery processes, not 4P functions. The four Ps are seller oriented. The 4As are buyer oriented. Awareness (A1) Acceptability (A2) Affordability (A3) Accessibility (A4) Market value potential = A1 x A2 x A3 x A4 If A1=100%, A2=100%, A3=50%, A4=50%, Then MV=25% Source: Jagdish Sheth Printed on CANON

80 4. Focus on Delivering Outcomes, Not Products.
Company Product focus Solutions focus Akzo Nobel Gallons of paint Painted cars BP Nutrition-Hendrix Animal feed Animal weight gain Cummings Diesel engines Uninterruptible power ICI Explosives Explosives Broken rock Scania Trucks Guaranteed uptime WW Grainger MRO items Indirect materials mgt. Source: Kumar Printed on CANON

81 Visualize a Larger Market
Nike now defines itself in the sports market rather than the shoe and clothing market. The late Roberto Goizueta told his company that while Coca Cola had a 35 percent share of the soft drink market, it had only a 3 percent share of the total beverage market. Armstrong World Industries moved from floor coverings to ceilings to total interior surface decoration. Citicorp realized that it only had a small share of the total financial market which includes much more than banking. Taco Bell went from selling food in stores to “feeding people everywhere” including kiosks, convenience stores, airports, and high schools. Jack Welch asked product managers to redefine their market so that they only had a 10% share. Printed on CANON

82 5. Draw in the Customer to Co-create Value: Two Approaches
Offer a wide product line so the customer can choose something closer to the customer’s desires. M&M allows customers to special order M&Ms in 21 colors. Branches Hockey let’s players pick from 26 options: length of a stick, blade patterns, etc. Stand ready to customize according to the customer’s wishes. Dell computers are designed by customers Lands’ End sells tailor-made chinos. P&G on its reflect.com site lets shoppers design everything from eye moisturize to liquid foundation makeup. Yankee Candle Company will mix colors and scents to make the candles you want. Other examples: golf clubs, breakfast cereals, credit card companies Printed on CANON

83 Examples of Collaborative Marketing
P&G’s site has a We’re Listening section and Share Your Thoughts section and Advisory Feedback sessions. GM offers an AutoChoiceAdvisory on its website Cisco runs Customer Forums to improve its offerings. A motorcycle in Italy is being designed by customers. Printed on CANON

84 6. Use Newer Ways to Reach the Customer with Relevant Messages
Make your ads more precise as to who they reach and more relevant. Let consumers indicate if they have an interest or not. Stop pestering them. Deliver valuable content with each ad, such as useful information or entertainment. Reach consumers in newer ways. Printed on CANON

85 Newer Ways to Reach Customers
Sponsorships Mentions on talk shows Product placement Street-level promotion Festivals Celebrity endorsements Mobile billboards Sponsorships. Companies have put their names on stadiums, whole teams and on individual athletes in gain attention. Mentions on talk shows. David Letterman during his evening show sent a camera crew out to get Snickers candy bars and ended up talking about it on three subsequent occasions. Product placement. James Bond in Die Another Day drove an Aston Martin, used a Sony cellphone, and prominently featured an Omega wristwatch. Street-level promotion. Companies have hired actors and actresses to walk in busy areas and ask passerbyers to take a picture of them using their new camera phone. Celebrity endorsements. Michael Jordan gave a boost to Nike shoes, McDonald’s, Hanes underwear, and Rayovac batteries. Body advertising. College kids agreed to paste Dunkin’ Donuts logos on their foreheads during an NCAA basketball tournament. Mobile billboards. Printed on CANON

86 Creating Buzz on the Streets
Chrysler’s PT Landcruiser appeared in fashionable areas and college tailgate parties. 250,000 prospects requested information before official ad campaign began in April 2000. Models drove around Los Angeles on Vespa scooters and chatted with customers in cafes and bars. Ford identified 120 people in six key markets and gave them a Focus to drive for 6 months and promotional material. Vans builds skateboard parks at malls and sponsors Vans Triple Crown. Hasbro enlisted “cool” pre-teens to play the POX game and tell their friends about it. Tourist goes into lounge and her telephone rings and picture of the caller appears on the phone. Printed on CANON

87 7. Develop Metrics and ROI Measurement
Products Brands Channels Customer Segments Markets Relative product quality Brand awareness Channel penetration Customer satisfaction Market penetration Perceived product quality Brand esteem Channel trust Average transaction size Market share Percentage of sales from new products Brand loyalty Channel efficiency Customer complaints Sales growth Product profitability Brand profitability Market share in each channel Customer acquisition costs Market profitability Channel profitability Customer retention rate Source: Kumar Customer profitability Printed on CANON

88 8. Develop High-Tech Marketing
Predictive analytics Sales automation Marketing automation Marketing models Process dashboards Performance dashboards Campaign management Project management New product management Printed on CANON

89 9. Focus on Building Long-Run Marketing Assets.
Brands and brand equity Customers and customer equity Service quality Stakeholder relationships Intellectual knowledge Corporate reputation Printed on CANON

90 10. View Marketing Holistically
Marketing must become strategic and drive business strategy. A company needs to take a more holistic view of: the target customers’ activities, lifestyle, and social space. the company’s channels and supply chain. the company’s communications. the company’s stakeholders’ interests. Printed on CANON

91 Two Models of Management
Profit-based management Reduce costs Reduce compensation Replace people with technology Price to extract maximum value Sell more products Acquire lots of customers Loyalty-based management Invest in marketing assets Give superior compensation Leverage people with technology Price to reward customers Deepen customer value Acquire customers selectively Source: Frederick Reichheld, The Loyalty Effect Printed on CANON

92 Conclusions Marketing is definitely not filling its potential.
Marketing must become the driver of business strategy. Companies need to adopt a more holistic view of the marketing challenge. Companies need lateral marketing thinking to conceive of new product and service ideas. Companies need to choose from five major strategic paths. Companies need to move from a product focused to a market and customer focused organization. Companies need to build, measure and manage brand equity and customer equity. Companies need to move to technology-enabled marketing to achieve precision marketing and develop better measures of ROI impact. Printed on CANON

93 “This time like all times is a good one, if we but know what to do with it.”
Ralph Waldo Emerson THANK YOU! Printed on CANON


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