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MARKETING Freshly Canned The Wisdom of Philip Kotler The state-of-the-mart concepts of the first, and still the finest, master of marketing management are redefining the art--again.
Such as that of value-based segmentation, killing customer segmentation. Or of the value-driven system, replacing the manufacture-market-service diptych. Or of customer-share, spelling the death of marketshare. All of them are ideas whose IQ (innovation quotient) stunned the 313 marketing pros who had congregated to hear the master's sermon. As the faithful watched and listened, Kotler led them through the intricacies of his insights into the future of marketing. Then, in a private session exclusively with BT's Pareena Kawatra and R. Sukumar, he improvised on his themes, spinning a web of new marketing fundamentals as only he knows. Mining both the presentation and the dialogue that followed, BT presents the inimitable Philip Kotler in his own words, his own ideas, and his own value-delivery system. The Brand Is Actually A Value Delivery Mechanism Today, a brand must be connected more accurately with the process of customer value management. Many brands are just names. A brand is supposed to deliver value. When most people work out a branding strategy, they are simply trying to work out a name, a slogan, or an image. That is no longer enough. The key issue is customer value management, and the brand is merely a promise that you build around a set of capabilities that you have. A company may say `Buy From Us, Our Products Have The Highest Quality.' For the customer to really experience that quality, the promise should be backed by manufacturing, by purchasing. That's not always the case today; the marketing department is mostly asked to take something the company makes, and sell it. Actually, the marketing people should be involved in saying what should be offered that is stronger and has a superior value position vis-à-vis a competitor. But we will soon see explicit linkages. To build such linkages, we need to distinguish between halo brands and genuine brands. The former offer no value proposition or a value-delivery system. The reason for brands being under attack today is that they are built largely with advertising. Brands are expensive, and not very differentiated. Thus, we see most automobile advertising showing a car running up the side of a mountain. We over-rely on advertising to create a brand. The USP Is Dead The concept of a USP is now being questioned. We are now moving towards a value proposition, which means looking at a set of benefits rather than just one unique selling proposition. There are many expectations that a brand creates. So, a brand needs to be more connected with a value-delivery system, and must not just be turned into a slogan or a name. Value is a ratio between what the buyer gets and what he gives up, that is, the ratio between benefits and costs. Forget About Positioning It is time we moved from what we call positioning thinking--which is all about why someone should buy our product--and sloganeering--or inventing words that stand for our brand--to creating value propositions. A value proposition is the total set of experiences I promise to offer customers. Let's say you buy a car from me. I give you a set of keys; I also tell you that you can come back in case there is a problem. But a true value proposition would mean different things. One, if anything happens to your car, even in the middle of the night, you can call me, and I will either fix that car or give you another car for the time it takes me to fix your car. That's a larger value proposition which most companies have to extend. But it means organising themselves differently. And that's the big change. Marketing people, all too often, are forward marketers. They don't design the organisational architecture to support the value-delivery system. So, the key issue in the future would be: what is your value proposition, and is your delivery system equipped to handle that? So many companies succeed at marketing by breaking the rules of marketing. They are successful without even having a marketing department, big-budget research, or big-budget advertising. That's the first stage of enterprise: entrepreneurial marketing, created by people with an idea. The second stage is of formula marketing. This is where most companies get stuck. There is routine allocation of budget for research and marketing. There is no radical rethink on reallocation of money spend on promotions. It is a stale stage. No wonder we have no brand-loyalty from customers today. It is the same old brand, which does not invoke passion any longer. Companies need to go back to the first stage. If you can synthesise the two, invigorate your brand, and make your company vibrant, you have entered the third stage, that of intrapreneurial marketing. Introducing The Value Discipline Companies can choose from 3 value disciplines to frame their value propositions: product leadership, operational excellence, and customer intimacy. The product leadership discipline leads to the `best product' value proposition--the claim that the company's products have the greatest performance impact or experiential impact for its customers. The operational excellence discipline leads to the `best total cost' proposition--the claim that the combination of the company's prices, product reliability, and hassle-free service is unbeatable. The customer intimacy discipline leads to the `best total solution' proposition--the claim that the company helps its customers identify their specific problem and the best solution, and then takes charge of implementing it. For instance, what is ge good at? Aerospace engineering, where the value discipline is product leadership; large appliances, where it is operational excellence; and plastics, where it is customer intimacy. May Be Your Brand Is A Commodity We use the term brand for national and global brands. But stores are becoming more credible with their own brands. In England, Sainsbury's has its own label. Brands like these worry manufacturer-brands. I see store brands becoming stronger. Indeed, the balance of power has shifted to giant stores. But some manufacturers will continue to be successful because they own the categories. Kraft is the best in cheese, and stores must have Kraft. p&g is strong in detergents, and stores must have its brands. Years ago, Marlboro shocked the world by pruning the price of its cigarettes by 40 cents a pack. That move sent other consumer good firms into a tizzy because it was an admission that brands are not strong enough to command a premium. That, in turn, leads to a basic question of the quantum of premium that a superior brand can charge. Years ago, it used to be 30 to 70 per cent. But, as the reseller brands are getting better, I do not know if the superior brand can charge more than 15 to 20 per cent today. And most of the companies which own these superior brands are worried because their costs are higher and they expect to get a premium. The reason you build a brand is to get that premium; otherwise, you are a commodity. Market, Don't Manufacture Usually, the No. 1 firm will not manufacture for the stores. It provides the label, the brands. It is the No. 3 brand which does that. The reason is that the No. 1 and No. 2 firms still have strong brands. The No. 3 firm has more unutilised capacity and will, therefore, manufacture for the store (brand). Regardless of who owns the brand, there is a growing separation between owning brands and manufacturing facilities. Nike's shoes are made in Taiwan and elsewhere. Sara Lee, which owns many well-known brands, has just moved towards selling its manufacturing facilities. Since it only needs brands, why should it go into manufacturing? Especially when there is an overcapacity in manufacturing, and it can get good prices from people owning plants. I soon see a separation between owning brands and manufacturing (facilities). Price Can Still Conquer All Developing an effective pricing strategy remains the most important and difficult part of the marketing process. For instance, a nominal 1 per cent increase in price realisation will boost net income by 6.40 per cent for Coca-Cola and 28.70 per cent for Philips. The price-positioning and the value-delivery mechanisms should be done with one rule in mind: the performance of the product, or the value associated with it should always be higher than the price. For instance, a company that has either a product or a service whose performance or value is medium would do well to follow a low-cost pricing strategy. One-To-One Marketing? OK There are some basic assumptions behind one-to-one marketing. The company can obtain the addresses and other relevant information about prospects and customers to form a database. It can identify potentially interested individuals in this database and customise the message and the offer for each at a reasonable cost. The company can find low-cost media for sending messages and deliver the ordered goods at a reasonable cost. And, finally, the customers can interact with the company at a reasonable cost. But Mass Marketing Isn't Dead There's a question I am asked very often. Is mass marketing dead? And I think the question really skips the main issue. Mass-marketing used to mean making 1 bottle of Coca-Cola and getting the whole world to use it, even if some people wanted it sweeter or some people wanted it light. Today, we have moved into the world of target marketing, and target markets--for instance, the segment for light colas--are very large. So, target marketing is nothing but camouflaged mass marketing. A few people do believe in one-to-one marketing. They think it will be economical to customise the message and the offering to each individual. Some companies are doing this. It is common in business-to-business marketing. Panasonic has done it with bicycles, and so has Levi Strauss with jeans. I think one-to-one marketing is a paradigm that will have to co-exist and work along with mass marketing and target marketing. Incidentally, in a few under-developed countries, the best thing to do is to have just one offering at the lowest-possible price. Much of what we do depends on which part of the world we are talking about. The discipline of marketing has evolved through three paradigms. In the beginning, there was mass marketing or mass selling. This was the traditional paradigm. Then came a transitional paradigm, target marketing. This involved concepts like segment marketing, niche marketing, local area marketing, or cell marketing. The new paradigm is called customer marketing. It involves key customer marketing, database marketing, and electronic, or on-line, marketing. The Net makes it much less time-consuming than the past for shoppers to compare prices worldwide. It will be harder for companies to protect their high prices in the face of lower price options. The Net Is Your Market The Net has emerged as a communication channel, a search channel--because you find a lot of information on it--and a selling channel--we call it an e-commerce and payment channel. For, when we begin trusting the encryption mechanism, we will end up giving our Visa numbers to make payments. The real issue for me is that the Net gives us access to cyberspace--a marketspace as opposed to the traditional marketplace. Eventually, we will be able to buy everything we need in the marketspace. According to Forrester Research, by 2002, e-commerce volumes will reach $327 billion. However, 70 per cent of that will be business-to-business transactions. The greater functionality of the medium will lie in business-to-business marketing, not consumer marketing. For instance, how will shopping for groceries change because of the Net? Today, there are a few ways of shopping for groceries on the Net. Like Peapod or Net Grocer. No system is alike, and none of them is really about delivering food at lower price, but about delivering food in different ways. You do not have to go to a store, stand in a queue, and carry something home. There are bound to be many conveniences that the Internet will offer to busy people. And young people are so computer literate now. So, as generations change, we will all find a lot of things on the Net. The Endword? Customer-Share Customer-share, unlike old-fashioned marketshare, does not have a natural measure yet. A company like McDonald's, for instance, is fighting for a share of stomach against the supermarkets because, in the past, we got all our food from the supermarkets and cooked it. Now, we get about half of our food from restaurants. I have not seen any discussion on the subject--but it will begin. Soon. Because it must. Questions For Monday Morning Where does a company go form here? How does it translate concepts into a actionable tasks? I leave you with 10 questions.
Remember, buyers will favour companies that care about use-value, not just purchase-value; companies that are easy to reach with inquiries and complaints; companies that go beyond continuous improvement into occasional breakthroughs; and companies that manifest social responsibility and earn a reputation as a good citizens. |
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This guru believes in brand extensions.
Especially his own. Thirty years ago, Philip Kotler injected method into the madness of
marketing with his seminal textbook, Marketing Management: Analysis, Planning,
Implementation & Control. Now 67 years young, the indefatigable iconoclast has kept
his brand of seminal thinking as fresh as ever, cannibalising his own concepts of the past
to create striking new paradigms for marketers in the 21st Century. 