Value-based marketing strategy

New marketing meets old marketing: New marketing wins

Agenda Problems with traditional strategic marketing planning process Products, brands and innovation Price and value Distribution channels and value chains Marketing communications The “new marketing” challenge Marketing is strategy

Problems with traditional strategic marketing planning process

Ten steps of the strategic marketing planning process (McDonald 2007) 1 Mission Phase One Goal Setting 2 Corporate Objectives 3 Marketing Audit 4 Market overview Phase Two Situation Review 5 SWOT analysis 6 Assumptions 7 Marketing objectives and strategies Phase Three Strategy Formulation 8 Estimate expected results and identify alternative plans and mixes 9 Budget Phase Four Resource allocation and Monitoring Measurement and review 10 First year detailed implementation programme

PLANNING PROCESS 4 MAIN STAGES - A. ANALYSIS – data driven/market-place/company position within it/relative to competition B. OBJECTIVES – link to corporate strategy/ use ‘SMART’ technique C. STRATEGY – consistent with corporate strategy/general direction which will deliver the objectives D. TACTICS – the detailed action plans underpinning the strategy

Strategic Marketing Planning process Requires one year to complete all stages Needs hard data from detailed and in-depth analysis of market before company can make decisions Undertaken by marketers/strategists without involvement of other people in organisation

Strategic Marketing Planning process Requires one year to complete all stages Nope not necessarily Needs hard data from detailed and in-depth analysis of market before company can make decisions Should be ongoing Undertaken by marketers/strategists without involvement of other people in organisation insane

Problems with strategic planning process Based on ideas of “Planning School” Machine assumption produce each of the component parts as specified, assemble them according to the blueprint, and the end product (strategy) will result! Often reduced to a numbers game of performance control that had little to do with strategy Source: Mintzberg et al (1998) Strategy safari, Hemel Hempstead, Prentice hall

Fallacies of Strategic Planning Predetermination Organisation must be able to predict the course of its environment, to control it, or simply to assume its stability Impossible to predict discontinuities (e.g. technological breakthroughs or price increases) Requires stability during strategy making Source: Mintzberg et al (1998) Strategy safari, Hemel Hempstead, Prentice hall

Fallacies of Strategic Planning Detachment It is through administrative systems that planning and policy are made possible, because the systems capture knowledge about the task… true management by exception, and true policy directions are now possible, because management is no longer wholly immersed in the details of the task itself. Effective strategists .. immerse themselves in daily detail while being able to abstract the strategic messages Source: Mintzberg et al (1998) Strategy safari, Hemel Hempstead, Prentice hall

Fallacies of Strategic Planning Failure of formalisation Failure of: forecasting to predict discontinuities institutionalisation to provide innovation Hard data to substitute for soft Fixed schedules to respond to dynamic factors Source: Mintzberg et al (1998) Strategy safari, Hemel Hempstead, Prentice hall

Problem Companies don’t have time to wait for plan to be developed Rejected marketing and strategy (strategy departments closed in 1980’s) Customers not accept being dictated to by companies and changed relationship – Customer is King

Old marketing has not kept up… Old marketing is about marketing programmes structured/planned around traditional model operations/tactical New marketing is concerned with the underlying process of going to market and strategic choices Traditional model not kept up with way markets have changed Model – based on four Ps

The “new marketing” challenge Confronting revolution in markets Identifying renewal opportunities Developing new ways of doing business/new business models or reinvention Revolution – radical market and customer changes does provide disruptive pressures on the established players in the market. Challenge for them is to understand the specific changes unfolding and where they are going and to respond with coping and adaptation mechanisms Renewal – same market changes identify new opportunities to create superior value for customers by designing new business models, i.e. to develop new ways of doing business which are aligned with market change Reinvention – tracking the specifics of fundamental market changes and the disruptions created is the basis for developing effective responses and evolving new business models.

The “new marketing” challenge Is it real? Are markets revolutionised (since when?) The need for renewal –is it new? Is reinvention/revolution necessary or irresponsible? Or is this a message for incompetent 2nd raters? How did your firm get where it is? What are its problems and opportunities?

Market revolution drives renewal and reinvention Coping/ adaptation mechanisms Disruptive pressures on existing business models REVOLUTION Radical market and customer change/trends Value-creating opportunities for new business models REINVENTION Designing new ways of doing business

Marketing is strategy “the fate of marketing hinges on elevating the role of marketing executives from promotions- focused tacticians to customer-focused leaders of transformational initiatives that are strategic, cross-functional and bottom-line oriented” Nirmalya Kumar, 2004 Recognise that marketing is strategy Kumar – argues that the way for marketing to get back on the CEO’s agenda is to address the issues that matter to the CEO

Marketing is strategy “the fate of marketing hinges on elevating the role of marketing executives from promotions- focused tacticians to customer-focused leaders of (transformational) initiatives that are strategic, cross-functional and bottom-line oriented” Nirmalya Kumar, 2004 Recognise that marketing is strategy Kumar – argues that the way for marketing to get back on the CEO’s agenda is to address the issues that matter to the CEO

Value-based marketing strategy 20

Agenda Brand marketing Relationship marketing Value-driven strategy The search for customer value

Three themes in marketing Branding Relationship marketing Value

Brand marketing Branding is central to conventional marketing thinking – brand the product/service, company, person, country, etc. Brands bring important benefits to customers (reduced search time) and companies (brand equity or value)

Brand marketing Branding can transform markets Cool brands often win BUT – brands do not make you unbeatable Coca-Cola Levi-Strauss Marlboro Cool brands often win – Aston Martin; Apple - ipad; Jimmy Choe; Agent Provoceteur

Coca-cola Most valuable brand in world 1999 had 50% market share of world soft drinks market Problem – world fell out of love with carbonated soft drinks Tried to keep up with fragmenting soft drinks market Introduced bottled water, flavoured water, juice-based drinks, flavoured iced tea and coffee drinks and energy drinks Use local brands Products not always branded with Coca-cola name Lost market share to Pepsi

Dazani UK customers assume bottled water from natural sources ie springs Coca- Cola purified water from tap water in London Origin came to light when a complaint was made to the British Food Standards Agency over Coke's use of the word "pure" in its Dasani marketing - implies that tap water is 'impure'. Like Nestle, McDonald's and Cadbury Schweppes, Coke makes a gratifying target for journalists, in that all those companies trade heavily on their brand. Source: Guardian March 4, 2004

Brand marketing Issues that go wrong with branding blind branding private brand competition brands which are liabilities counterfeit brands wrong brand trajectory, e.g., Stella Artois “wife beater” Blind branding – believe brand will create superior customer value – challenge focussed branding create customer vale in customer terms brands which are liabilities – remind customer how much they hate them e.g. Skoda Wrong brand trajectory, e.g., Stella Artois “wife beater” – marketing triumph drinkers – minimum drinking, maximum aggregation

Brand marketing Strategic brand management is the priority not creativity Does the brand create customer value and how? Strategic brand management is the priority not creativity - Must make strategy real Does the brand create customer value and how? - Exist to serve customer must focus on customer perception of the value in the buying transaction

Relationship marketing Customer relationship provides the basis for market segmentation Contrast the relationship the customer wants (long-term vs short-term) with the closeness wanted in the supplier relationship (close vs distant)

Value-driven strategy Value has become the central focus of strategy (because there is no choice) The key issue is now value innovation (in the customer’s terms) But value does not have a single meaning e.g., operational excellence vs. customer intimacy vs. product leadership (Treacy and Wiersema, 1995) operational excellence – e.g. Federal Express Product leadership – Johnson and Johnson disposable contact lenses

Treacy and Wiersema- Value Disciplines Operational Excellence Providing customers with reliable products or services at competitive prices and delivered with minimal difficulty or inconvenience Customer intimacy Segmenting and targeting markets precisely and then tailoring offerings to match exactly the demands of those niches Companies combine detailed customer knowledge with operational flexibility – can respond quickly to almost any need and creates customer loyalty Product Leadership Offering leading-edge products and services that enhance the customer’s use or application of the product Make rivals goods obsolete Source: Treacy, M. and Wiersema, F., 1993, Customer Intimacy and Other Value Disciplines Harvard Business Review January- February

Choice of strategic value pathway Operational excellence Product leadership Customer intimacy Strategic value pathway (value proposition) Best total cost Best product Best total solution Golden rule Variety kills efficiency Cannibalising your success with breakthroughs Solve the client’s broader problem Core processes End-to-end product delivery Invention Commercialization Market exploitation Client acquisition & development Solution development Improvement levers Process redesign Continuous improvement Product technology R&D cycle time Problem experience Service customization Major improvement challenges Shift to new asset base Jump to new technology Total change in solution paradigm Source: Barnes et al (2009) Creating and Delivering your Value Proposition, Kogan Page p 46

The search for customer value The danger of making assumptions “we know what our customers want” “bung in some customer service” “just make it cheaper” or, perhaps, take customer value seriously? Challenge stereotypes and assumptions about what matters Search for value creating opportunities

The search for customer value Value as rational cost/benefit analysis Value migration value migrates from one attribute feature to another different people buy different value Customer value is complex, multi-dimensional, unstable and idiosyncratic, but it is what matters Assumptions Value as rational cost/benefit analysis – often not measurable Value migration – not stable