Thriving with Marketing 3.0

Philip KotlerJeddah, 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

• NEW

• Digital photography• Mobile telephones• On-line retailing• Distance education• Digital printing• Outpatient clinics• Endoscopic surgery• Angioplasty• Unmanned aircraft• On-line stock brokerage

Source: Clayton M. Christensen, The Innovator’s Dilemma, p. xxix.

Tomorrow Will Be DifferentYesterday 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 effective in the next few

years

Marketing budgets will be lower

Companies will want marketers to do more with

less

DISTRIBUTORS TRADITIONAL MEDIA COMPETITION SOCIAL MEDIA

NETWORKSPUBLIC

DISTRIBUTORS will demand more TRADE PROMOTION. This will leave less money for marketing research, advertising and consumer promotion for brand building and ultimately reduce brand equity.

Investors will then downgrade the stock. This will leave the company with fewer resources to prop up demand.

This is a VICIOUS CIRCLE

Traditional media such as TV 30-second spots, newspapers, etc., are growing LESS EFFECTIVE

Categories are so crowded with competitors that heavy price cutting will be UNAVOIDABLE

The public, in its wish to spend less, will be less inclined to pay higher prices for top brands where the quality differences are minimal. There is a strong shift to store brands and sub-brands. This means that top brands are overvalued and there may be a brand bubble.

Social media networks will play an increasingly influential role in shaping brand evaluations

STRATEGIC vs TACTICAL MARKETINGMost 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.

SOLUTION

TWO MARKETING DEPARTMENT…!!!

Downstream Marketing

Upstream Marketing

Markets TODAY’s Product Create TOMORROW’s Product

The Age of Social Media. Marketers have Lessening Influencein Shaping Their Brand Image

Marketing 2.0 Marketing 3.0

Managers listened to the consumers’ voices to understand their minds and capture market

insights

Consumers play the key role of creating the value through co-

creation of product and service

Person-to-person conversations about many products can exceed the amount of communication under the company’s control.

Thus a brand can be hijacked.see Alex Wipperfürth, Brand Hijack: Marketing without Marketing, New York: Portfolio, 2005

FOUR POSSIBILITIESEveryone is talking negatively about the company

There is no talk about the company

The talk is a mix of good and bad comments

Virtually all the talk is favorable

EVOLUTION OF MANAGEMENT THINKING

Product Management

1950s – 1960s

Customer Management

1970s – 1980s

Brand Management

1990s – 2000s

Value Management

2010s – 2020s

THE FUTURE OF MARKETING

TODAY’S MARKETING CONCEPT

FUTURE MARKETING CONCEPTS

PRODUCT MANAGEMENT

CUSTOMER MANAGEMENT

BRAND MANAGEMENT

The Four Ps(Product, Price, Place,

Promotion)

The STP(Segmentation, Targeting,

and Positioning)

Brand Building

CO-CREATION

COMMUNITIZATION

CHARACTER BUILDING

THE DISCIPLINES OF MARKETING

CO-CREATION

Evolution of a company’s relationship to its customers:

Make a Product Refine the Product

Invite Customers

with minimal customer testing

with extensive customer input and

testing

to provide ideas and co-create

The new ways of creating product and experience through collaboration of companies, consumers, suppliers, and channel partners interconnected in a global network of innovationC.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 CO-CREATION:

1 2 3 Ask for consumer feedback and enrich the platform by incorporating all the customization efforts made by the network of consumers.

Individual consumers customize the platform to match their own unique identity.

A company creates a “platform”.

MARKETING 1.0 vs MARKETING 2.0 vs MARKETING 3.0

Product-centric Marketing

Customer-oriented Marketing

Value-driven Marketing

Objective

Enabling Forces

How companies see the market

Key marketing concept

Company marketing guidelines

Value propositions

Interaction with consumers

MARKETING 1.0 MARKETING 2.0 MARKETING 3.0

Sell products Satisfy and retain the consumers

Make the world a better place

Industrial Revolution Information Technology Social Media

Mass Buyers with Physical Needs

Smarter Consumer with Mind and Heart

Whole Human with Mind, Heart, and Spirit

Product development Differentiation Values

Product specification Corporate and Product Positioning

Corporate , Vision, Values

Functional Functional and Emotional

Functional, Emotional, and Spiritual

One-to-Many Transaction

One-to-One Relationship

Many-to-Many Collaboration

DeliverSATISFACTION

RealizeASPIRATION

PracticeCOMPASSION

ProfitAbility ReturnAbility SustainAbility

Be BETTER DIFFERENTIATEMake a

DIFFERENCE

Mind Heart Spirit

Mission(Why)

Vision(What)

Values(How)

INDIVIDUAL

CO

MPAN

Y

Values-Based Matrix Model

DeliverSATISFACTION

RealizeASPIRATION

PracticeCOMPASSION

ProfitAbility ReturnAbility SustainAbility

Be BETTER DIFFERENTIATEMake a

DIFFERENCE

Mind Heart Spirit

Mission(Why)

Vision(What)

Values(How)

INDIVIDUAL

CO

MPAN

Y

For SC Johnson, creating sustainable economic value means helping

communities prosper while achieving profitable growth

for the company.

Sustaining Values:SC Johnson Public

Report

We believe our fundamental

strength lies in our people.

MIND HEART SPIRIT

Promoting reusable shopping bags Base of the Pyramid

MissionContributing to the community

well –being as well as sustaining and protecting the environment

VisionTo be a world leader in delivering

innovative solutions to meet human needs through

sustainability principles

ValuesSustainability

We create economic valueWe strive for environmental

healthWe advance social progress

S. C. JOHNSON VALUE-BASED MATRIX

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.

Consumers

Employees

Channel Partners

Shareholders

Marketing the Mission to…

Marketing 1.0 Marketing 2.0 Marketing 3.0

MIND HEART SPIRIT

PRODUCT-CENTERED

CUSTOMER-ORIENTED

VALUES-DRIVEN

ECONOMIC- VALUE PEOPLE-VALUE ENVIRONMENT- VALUE

PROFITS SOCIAL PROGRESS SUSTAINABILITY

MOVING TOWARD MARKETING 3.0

•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

ENERGI ZEDDI FFERENTI ATI ON

The brand’s point of difference

Relates to marginsand cultural currency

ESTEEMHow you regard the

brandRelates to perceptions of quality and loyalty

KNOWLEDGEAn intimate

understanding of the brand

Relates to awareness and consumer experience

RELEVANCEHow appropriate the

brand is to youRelates to consideration

and trial

Leading I ndicatorFuture Growth Value

Current I ndicatorCurrent Operating Value

BRAND STRENGTH BRAND STATURE

Figure 2: BrandAsset ®Valuator Model

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

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.”

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?”

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.

No one communication

alone tells the whole brand story

Each communication provides a different

insight into the brand

Responsible, Locally involved

Fairly Priced

BrandMantraRich, Rewarding

Coffee Experience

Relaxing,Rewarding moments

Reach sensory consumption experience

Convenience, Friendly service

Varied, exotic coffee drinks

Fresh, high quality coffee

Totally integrated

system

24 hour training of

baristas

Caring

Green & Earth Colors

Triple Filtrated

water

Siren logo

Stock option/ health benefits

or baristas

Thoughtful

ContemporaryCONSUMER TARGET

Discerning Coffee Drinker

CONSUMER INSIGHT

Coffee and the drinking experience is often unsatisfying

CONSUMER NEED STATE

Desire for better coffee and a better

consumption experience

CONSUMER INSIGHT

Local cafes, Fast food & convenience

shops

CONSUMER TAKEAWAY

Starbucks gives me the richest

possible sensory

experience drinking coffee

HYPOTHETICAL STARBUCKS BRAND POSITIONING BULLSEYE

40

The Mercedes-Benz “Enduring Passion”

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

Measure Your Brand Effectiveness

• Customer perceived value • Customer satisfaction

• Customer repeat purchase

• Customer advocacy

• Customer co-creation

The GOOD Outdoor-inspired Footwear

and Apparel Company

• Engaged Citizenship• Environmental

Stewardship• Global Human

Rights

The 3i Model of Branding

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 Sustainability Index

Corporate sustainability as “a business approach that creates long-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

Profitability Returnability

The issue is to find a linkage of between

sustainability, profitability, and

returnability

THREE important metrics that can be quantified financially:Improved cost productivityHigher revenue from new market opportunitiesHigher 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

The integration of sales and marketing tends to progress through

four distinct stages or levels of complexity.

Define the Existing Level of Relationship

Undefined Defined Aligned Integrated

Selling Funnel

PurchaseIntention

Marketing SalesHandoff

CustomerAwareness

BrandAwareness

BrandConsideration

BrandPreference

Purchase Loyalty CustomerAdvocacy

Integrating Customer ManagementInto the Sales Funnel

PurchaseIntention

Purchase Loyalty CustomerAdvocacy

Prospecting Qualifying DefiningNeeds

DevelopingSolutions

ProposalPreparation/ Presentation

Revision & Issue Resolution

ContractNegotiation

Implementation

• Sales becomes value creation, not value communication

• So the role of sales is to add value to our mousetrap

• There’s not enough value in the mousetrap to differentiate us from competition

• Our mousetrap is one of many ways to kill mice

©2009 Neil Rackham

The Alternative Business Model

Two Customer Value Types

©2010 Neil Rackham

Value = Benefits – Cost

Consultative Customers

Transactional Customers

• Know what they want

• Treat you as a commodity

• Buy on price and convenience

• Have a problem

• Value your time

• Buy on expertise and trust

©2010 Neil Rackham

Five years ago

TRANSACTIONAL CONSULTATIVE

• Advice focus• Expertise decision• Want meetings

10% were transactional

10% were consultative

Most customers would pay a little extra for some advice

• Cost focus• Convenience Decision• Don’t want to meet

©2010 Neil Rackham

Customers Today

TRANSACTIONAL CONSULTATIVE

• Advice focus• Expertise decision• Want meetings

More buy transactionally

The middle is going away.

• Cost focus• Convenience Decision• Don’t want to meet

More want deeper consultative

relationships

Today’s Value Propositions

©2010 Neil Rackham

Today, depending on what they are buying, the value propositions customers want are:

“We’ll use our expertise to solve your problems and create custom solutions, for which we’ll charge you a premium.”

“We’ll offer you cheap and convenient

products, but don’t expect extras.”

OR

Competencies for Transactional Sales

©2010 Neil Rackham

Transactional Sales

Branding Advertising

Trade shows

Campaigns

Multi-customer events

Direct Marketing

Internet

Call centers

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

Companies need to move from a shareholder to a stakeholder view of the enterprise.

Companies need to practice the Triple Bottom-Line Model: Economic Value, Environmental Health, and Social Progress. Companies must better define

their corporate social responsibilities.

Marketers get their clues from how the company defines its mission, vision and values. The marketers then send offerings that touch the

customer’s mind, heart, develop and human spirit.

Marketing can contribute by serving more actively in developing the company’s plans for long run profitable growth.

“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