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Marketing in the New Economy


Marketing in the New Economy Philip Kotler, Ph.D Kellogg School of Management Northwestern University Bangkok, Thailand October 19, 2001 Trouble Ahead in 2002 The ... – PowerPoint PPT presentation

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Title: Marketing in the New Economy

Marketing in the New Economy
  • Philip Kotler, Ph.D
  • Kellogg School of Management
  • Northwestern University
  • Bangkok, Thailand
  • October 19, 2001

Trouble Ahead in 2002
  • The tragedy of Sept 11, 2001 ushered in new
    concerns about global trade contraction, supply
    chain problems, and higher costs.
  • Several multinationals are bearing huge losses
    and laying off workers.
  • Hundreds of dot.coms have closed their doors or
    suffered substantial declines in value.
  • Many companies try to mask their problems with
    creative accounting, or mergers and acquisitions.
  • Marketing, the engine that drives growth, is in
    desperate need of an overhaul.

New Forces in Todays Economy
  • Overcapacity and hypercompetition.
  • Overcapacity is 25 pharmaceuticals, 30
    chemicals, 35 automobiles
  • Leads to falling prices and margins, mergers, and
    company failures
  • Ascendant power of customers.
  • Customer shortage
  • Price transparency
  • Ascendant power of distributors over
  • Growth of digitalization and the Internet as
    major sources of efficiency and profitability.
  • Proliferation of channels and media.
  • Globalization and global interdependence.

What is Happening to...?
  • Sales force
  • Advertising
  • Marketing channels
  • Store-based retailers
  • Price premiums

Responding to an 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 price.
  • Have a contingency cost reduction plan available.

Winning Through Better Competitive Positioning
  • One-way Positioning (Ries and Trout)
  • Three-way Positioning (Treacy and Wiersema)
  • Five-way Positioning (Crawford and Mathews)
  • Total Positioning (Michael Porter)
  • Emotional Positioning
  • Experience Positioning

One-way Positioning (Ries and Trout)
  • Be 1 in some important attribute you will be
    the most remembered and preferred.
  • 1 should not line-extend it will lose its
  • If you are the second to enter the market, dont
    call yourself 2. Call yourself 1 on a
    different important attribute.
  • Al Ries and Jack Trout, Positioning The Battle
    for Your Mind (New York Warner Books, 1982).

Three-Way Positioning (Treacy and Wiersema)
  • A company needs to position itself in relation to
    three value disciplines Product leadership,
    operational excellence, customer intimacy.
  • Four rules for success
  • Become best at one of the three value
  • Achieve an adequate performance level in the
    other two disciplines.
  • Keep improving ones superior position in the
    chosen discipline so as not to lose out to a
  • Keep becoming more adequate in the other two
    disciplines, because competitors keep raising
    customers expectations about what is adequate.
  • Source Michael Treacy and Fred Wiersema, The
    Discipline of Market Leaders (Reading, MA
    Addison-Wesley, 1994)

Five-way Positioning (Crawford and Matthews) - 1
  • A company needs to position itself along five
    attributes Product, price, ease of access,
    value-added service, and customer experience.
  • A great company will dominate on one of these,
    perform above average (differentiate) along a
    second, and be at industry par with respect to
    the remaining three.
  • Assign a number from 1 to 5 to each attribute 5
    (dominant), 4 (differentiated), 3 (on par with
    industry), 2 (below par), and 1 (poor).
  • Source Fred Crawford and Ryan Mathews, The Myth
    of Excellence Why Great Companies Never Try to
    Be the Best at Everything (New York Crown
    Business, 2001).

Five-way Positioning (Crawford and Matthews) - 2
  • A great company will exhibit the pattern 5, 4, 3,
    3, 3.
  • Anything less than a 3 on any attribute is not
  • To be dominant or differentiated on more than one
    attribute is excessive and reduces profitability.
  • Being on par requires a company to match its
    industrys average performance a company must
    not let its standing drop below 3.

Company Examples
  • Wal-Mart is dominant on price, differentiated on
    product, and on industry par with access, service
    and experience.
  • Target dominates on product and is differentiated
    on price compared to average competitors. Target
    combines hip design with value pricing.
  • Dell dominates on service and differentiates on
    access, while its competitor Gateway dominates on
    experience and differentiates on price.
  • McDonalds dominates on access and differentiates
    on service.
  • American Express dominates on service and
    differentiates on access
  • Four Seasons dominates on experience and
    differentiates on service.

Score Your Companyand Your Competitor
  • Company Competitor
  • Product
  • Price
  • Access
  • Service
  • Experience
  • What would you recommend to become a more
    successful company?

Total Positioning (Michael Porter)
  • Ikea
  • Southwest Airlines
  • Home Depot
  • Saturn automobile
  • Dollar General

Positioning on Low Price Dollar General
  • Dollar Generals mission is to create a better
    life for people by selling lifes basics at
    budget prices.
  • It targets consumers with annual incomes of less
    than 25,000 and seniors on fixed incomes.
  • Dollar General is not selling cheap things at
    cheap prices but good quality at everyday low
  • To keep its costs down, it does not advertise,
    accepts only cash, carries primarily
    private-label brands, sticks to fast-turnover
    consumables, operates simple stores with
    inexpensive displays and fixtures, signs short
    term leases with low-rents, carries only about
    4,500 stock keeping units, and locates near
    public-transit facilities.

Emotional Positioning
  • Apple Computer
  • Nestle
  • Amazon
  • Harley Davidson
  • Amil

Experience Positioning
  • Starbucks From a beverage to an experience.
  • Barnes Noble From a bookstore to an
  • Niketown is a three story shoe store.
  • REI has installed a climbing wall and customers
    can test a Gortex jacket in a simulated rainfall.
  • Bass Pro Shops lets buyers of fishing rods cast
    into a test pool

Traditional Marketing Skills
  • Marketing research
  • Advertising
  • Sales promotion
  • Sales force management

Competency Skills Needed by Todays Marketers
  • Customer relationship management (CRM)
  • Partner relationship management (PRM)
  • Database marketing and data-mining
  • Telemarketing
  • Public relations marketing (including event and
    sponsorship marketing)
  • Brand building
  • Experiential marketing
  • Integrated marketing communications
  • Profitability analysis by segment, customer,

Winning With Information
  • Real time information systems
  • Seven-Elevens 5th generation information system
    connects stores, headquarters, and suppliers.
  • Companies are setting up separate web portals for
    customers, partners, and employees.
  • Market planning dashboards
  • PG is setting up a dashboard for its marketing
    managers that allows them to access templated
    processes, best practices, testing tools,
    scripts, industry news, project dates, etc.

Formula for Customer Benefit
  • Consumer benefit
  • v(value of market offering)
  • b(value of brand)
  • r(value of relationship)
  • - c(cost of market offering)
  • - t(cost of time)
  • The v, b, r, c, and t vary across customer
    segments and individual customers.

Customer Relationship Marketing (CRM)
  • CRM is an old idea practiced by mom and pop
    stores and salespeople.
  • Companies used to reach customers through a
    single channel sales force, branches, dealers,
    telephone, or mail.
  • Over time, companies added more channels call
    centers, websites, ATMs, kiosks, etc.
  • Companies are trying to integrate these channels
    using CRM software from Siebel, Oracle, or SAP,
    so that companies can get a complete view of the
    customer across channels.
  • The challenge is to deliver a rich and consistent
    customer experience in each channel.
  • Companies need to treat customers unequally.
  • Companies need to migrate customers to lower cost

The Essence of One-to-One Marketing
  • Identify your target customers.
  • Differentiate your customers by their needs and
    their value to your company.
  • Interact with your customers to form a learning
  • Customize your products, services, and messages.
  • Source Peppers and Rogers The One-to-One Future

What Customer Information to Collect?
  • Transaction data
  • Demographic data
  • Psychographic data (activities, interests,
  • Contact and contextual data

How to Estimate Customer Lifetime Value (CLV)
  • Estimate the number of purchase occasions by the
    customer over a given time horizon.
  • Estimate the average amount spent per visit.
  • Estimate likely additional purchases through
    cross selling and upselling
  • Subtract the costs of maintaining the account per
  • Add the value of the new referrals by the
  • Take the present value of this net income stream
    with an appropriate discount rate.

Database Marketing is Expensive!
  • Requires a tremendous investment in information
    gathering about individual customers and
  • Requires constant updating of information.
  • Some critical information may not be available.
  • Requires a high investment in hardware and
  • Requires integrating individual customer
    information from a variety of sources.
  • Requires people skilled at data mining.
  • Requires managing and training employees,
    dealers, and suppliers.

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.

A Companys Balance Sheet is a Lie
  • Physical plant and inventory. Yes.
  • But where on the balance sheet is the value of
    the firms intangible assets?


There is No Such Thing as a Commodity
  • 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
    20-25 percent.

A Brand Must be More Than a Name
  • A brand must at least be able to trigger a word
    or set of associations (features and benefits).
  • A brand also stands for an anticipated process
    (McDonalds, Amazon).
  • A great brand has personality attributes and
    value attributes that trigger emotions
  • A great brand represents a widely understood and
    credible promise of value backed by an
    organization able to deliver it. (Sony)
  • The ultimate brand builders are your employees
    and operations, in other words, your performance,
    not your marketing communications.

Your Companys Brand
  • 1. What word does your brand own?
  • 2. Write down other words triggered by your brand
  • 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 brands personality?
  • A. Founders
  • B. Spokespersons
  • C. Characters
  • D. Objects
  • E. Stories and mythologies

Two Views of What a Brand Should Be
  • 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 brands reputation is ultimately based on
    product quality, customer satisfaction, employee
    communications, social responsibility, etc.
    (Kevin Clancy, CEO of Copernicus)

Branding Components
  • Name
  • Slogan
  • Logo
  • Colors
  • Stationery and business cards
  • Offices
  • Trucks
  • Dress code

Tools for Building Brands
  • Advertising (e.g.,Absolut Vodka)
  • Sponsorships (e.g., Kodak and Olympics)
  • Clubs (e.g. Nestles Casa Buitoni Club)
  • Company visits (e.g., Cadburys theme park,
    Hallmarks 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)
  • Founders personality (e.g., Colonel Saunders)

New Theory of Brand Building
  • Companies should clarify the corporations basic
    values and build the corporate brand. Examples
    Sony, Harley-Davidson
  • Companies should use brand managers to carry out
    the brands tactical work but senior management
    should shape the brand strategies.
  • Companies need to develop a more comprehensive
    brand-building plan using all customer-facing
    processes--events, seminars, news, telephone,
    email, person-to-personto create positive
    customer experiences at every touchpoint.
  • Companies need to define the brands basic
    essence to be delivered wherever it is sold.
    Local executions can be varied as long as they
    deliver the feel of the brand.
  • Companies must use the brand value proposition as
    the key driver of the companys strategy,
    operations, services, and product development.
  • Companies must measure their brand-building
    effectiveness by a comprehensive set of measures
    including customer perceived value, customer
    satisfaction, customer share of wallet, customer
    retention, and customer advocacy.

  • Brand price premiums have fallen and will fall
    further because of hyper-competition and
  • The two best defenses against lower prices are
    customer relationship management (CRM) and
    stronger branding.
  • CRM requires a high investment and operating
    expense but it can pay in certain situations.
  • Brand building requires more tools than
    advertising. Ultimately, brands are built through
    performance, not advertising.

E-Commerce May Restore Transaction-Oriented
  • Electronic marketplaces have significantly
    reduced search and transaction costs for finding
    the lowest price globally.
  • The Internet will lead to lower prices!
  • E-procurement will help offset the price fall.
  • Fight price transparency with value transparency!

CEOs Views About the Internet
  • Embrace the Net. Bring me a plan how you are
    going to transform your business beyond adding an
    Internet site.
  • Jack Welch, former CEO of GE
  • The Internet is not just another sales channel.
    The future company will operate with a digital
    nervous system.
  • Bill Gates, Chairman of Microsoft

Which Internet Steps Should be Taken First?
  • Developing the companys website(s)
  • Selling online (e-commerce)
  • Buying online (e-procurement)
  • Recruiting online
  • E-learning online
  • Developing the company Intranet
  • Developing Extranets
  • Developing Enterprise Resource Planning (ERP)
  • Developing Supply Chain Management (SCM)
  • Developing Customer Relationship Management (CRM)

Winning Through Exploiting 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 customers
    profile (Elizabeth Arden).
  • Sponsor a chat room around your product category.
  • Answer email questions instantly (Nestle baby
    care questions).
  • Send free samples of new products
  • Send coupons of new products (
  • Customize your product (Acumin vitamins).
  • Offer to sell very large orders direct.
  • Offer valuable information to people who will
    register on the site.

E-Commerce Kiss the Stores Goodbye?
  • Travel agents (
  • Brokers (
  • Banks and insurance companies (First,
  • Music stores (CDNow
  • Book stores (
  • Toy stores (etoys)
  • Car dealers (
  • Supermarkets (
  • Newspapers (

How Digital Is Your Company?
  • How much do you sell online?
  • Dell (80) Cisco (90) Schwab (50)
  • How much customer service do you give online?
  • How much procurement do you do online?
  • How much recruitment do you do online?
  • How much learning do your people do online?

New Marketing Rules for the New Economy
  • Exploit e-business.
  • Build and use a customer database to manage the
    customer portfolio.
  • Focus on customer lifetime value, customer value
    management, customer share, and customer
  • Shift promotion funds away from broad advertising
    toward narrowcasting promotion and events.
  • Go electronic and paperless.
  • Partner with your employees, customers,
    suppliers, and distributors for co-prosperity.
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