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The New Marketing Paradigm
Holistic Marketing ● Lateral Marketing ● High-tech Marketing
by
PHILIP KOTLER
Documentation Sponsored by
Canon
logo unit
Kotler On Marketing
How To Create, Win, and Dominate Markets
Indiatimes Mindscape
Mumbai and Delhi
October 11, 12, 2004
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Two Challenges Facing
Indian Companies
1. Will Indian companies be able to defend their
market against the growing invasion of foreign
global brands?
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Can Indian Companies
Defend the Domestic Market?
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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.
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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 $36.
Would you rather be the manufacturer, Brand owner, or
retailer?
Yet India pays more attention to the product engineer than the
marketing “engineer.” But India’s future success will require
investing in marketing and branding.
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The Strategic Trajectory
for India
Low cost, average quality domestic products.
Low cost, good quality domestic products.
Indian high-end products made for other companies.
Indian branded products (regional).
Indian branded products (global).
Indian dominant brands (global).
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Ranbaxy Pharmaceuticals (India)
Originally sold bulk substances to unsophisticated
markets but gross margins were too low to cover
export costs.
New CEO, Parvinder Singh, challenged Ranbaxy to
become a truly global company. He said: “Ranbaxy
cannot change India. What it can do is to create a
pocket of excellence. Ranbaxy must be an island
within India.”
The company moved into higher-margin businesses
like selling branded generics in large volume
markets like China and Russia.
Ranbaxy then entered the U.S. and Western Europe.
In just five years, more than half of its US$ 250
million revenues now come from outside of India.
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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)
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A Quiz: Who Said This?
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My Message
Marketing’s performance has been
disappointing.
technology-enabled,
and strategic.
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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.
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HOLISTIC RELATIONSHIP MARKETING FRAMEWORK
1) Who is involved?
MARKET
SPACE 2) How can we define relevant market space?
Market Business
Offerings Architecture
Creating
CUSTOMER BUSINESS BUSINESS
Value VALUE DOMAIN PARTNERS
Marketing Operational
Activities
System
Delivering
Value
CRM ERP SCM
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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.
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Improving Marketing
Efficiency and Effectiveness
Improving marketing efficiency
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
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Responding to the
Economic Slowdown
Reevaluate your current resource allocations.
Geographical mix
Market segment mix
Customer mix
Product mix
Channel mix
Promotion mix
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Marketing Strategies Are Showing
Diminishing Returns
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Strategies for Firms in Different Market Positions
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Dual Strategies
Planning for today Planning for tomorrow
Defining the business. Redefining the business
Shaping the business to Reshaping the business
meet needs of today’s to compete for future
customers customers and markets
Improving alignment Making bold moves away
between functional from the existing ways of
activities and business doing business
definition
Organization mirrors Reorganizing for future
current business
business challenges
activities
Managing change to
Optimizing current
create future operations
operations to achieve
and processes
excellence.
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In many markets, the growing
number of competitors in mature
markets leads companies to target
niches of low profitability.
YOGURTS MARKET Number
of
competit
ors
Market
Size
Time
Average
profitabili
ty of all
competito
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players
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….
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The case of Cereal Bars
into STREETS
=
Cereal varieties
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The case of Barbie
To
feel =
as...
Doll varieties
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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)
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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.
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Focusing on shareholders onfocusing
CANON on stakeholders
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!
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1. How Important is Branding?
The NUMMI plant in California produces two
nearly identical models called the Toyota
Corolla and the Chevrolet Prizm.
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A Strong Brand Improves
Demand and Supply
On the demand side:
higher price
increased sales volume
lower churn
more brand stretching
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Names are Important in Branding
• Donald Trump’s family name is Drumpf.
But he can’t call it Drumpf Towers.
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Your Company’s Brand
1. What word does your brand own?
A. Founders
B. Spokespersons
C. Characters
D. Objects
E. Stories and mythologies
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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)
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Branding Components
Name
Short, suggestive, memorable, unique, pronounceable
Slogan
Logo and typeface
Colors
Music
Themelines (Got Milk!)
Stationery and business cards
Offices
Trucks
Dress code
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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”
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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 20-25
percent.
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3. How Do You Promote a Brand?
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Don’t Overuse Advertising
to Build a Brand
• People don’t pay that much attention to ads anymore
(wallpaper).
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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
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4. What Makes a Strong Brand?
Strong brand = Product Benefits x Distinct
Identity x Emotional Values
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THE Y&R MODEL OF BRAND STRENGTH
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.
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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)
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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
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When Do You Stretch
a Brand Name?
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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.”
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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.
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What Are the Most Frequent Causes
of Brand Failure?
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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?
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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 then examines the customer activity cycle and the value
gaps.
The company ends up being favored and grows through doing more
things better for their customers.
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Achieving Deep Customer Focus
Create strategic excitement.
Identify the value opportunities through using the customer activity cycle.
Gather momentum.
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Components of Customer Equity
Customer equity is driven by:
Value equity
Brand equity
Relationship equity.
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Transaction Marketing vs.
Customer Relationship Marketing
Customer Relationship Marketing (CRM) represents a
paradigm shift from Transaction Marketing (TM).
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Treat Different Customers Differently
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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.
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A 5 Step Model for
Database Marketing
1. Gather useful data on customers.
2. Classify customers by their needs and by their
value to the firm.
3. Prepare business rules that select the best
prospects.
4. Customize marketing treatments for each prospect
in terms of product offers, service mix, media, and
channel.
5. Set up accountability procedures.
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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.
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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.
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Marketing Technology Platforms
on the Market Development Curve
Yield-Based Pricing
Optimum Tools
Predictive analytics
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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.
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Marketing Automation
Areas Ripe for Marketing Automation:
Selecting names for a direct mail campaign
Selecting media
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Marketing Decision Models
and Marketing Mix Response Models
BRANDAID
CALLPLAN
DETAILER
MEDIAC
PROMOTER
ADCAD
Tools dashboard
Processes dashboard
Performance dashboard
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Marketing Work-Flow Process Tools
Project management
Product management
Campaign management
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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 email 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.
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Is New Technology Enough?
NT + OO = EOO
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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.
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10 Earmarks of the New
Marketing
1. Recognize growing customer empowerment.
2. Develop a focused offering to the target market
3. Design the marketing from the customer-back.
4. Focus on delivering outcomes, not products.
5. Draw in the customer to co-create value.
6. Use newer ways to reach the customer with a message.
7. Develop metrics and ROI measurement.
8. Develop high-tech marketing.
9. Focus on building long run assets.
10. View marketing holistically to regain influence in the company.
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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.
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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., www.remotecentral.com,
www.treocentral.com)
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)
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The Evolution of Marketing
Transactional Relationship Marketing Collaborative Marketing
Marketing
Role of firm Define and create Attract, develop and Engage customers in
value for consumers retain profitable defining and co-
customers creating unique value
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Choose to Serve a Unique Set of
Customer Values
1. Identify the value expectations of potential
customers.
Source: Kumar
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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
Printed only had a 10% share.
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5. Draw in the Customer
to Co-create Value: Two
Approaches
1. 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.
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6. Use Newer Ways to Reach the
Customer with Relevant Messages
Make your ads more precise as to who they
reach and more relevant.
Product placement
Street-level promotion
Festivals
Celebrity endorsements
Mobile billboards
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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.
Ford identified 120 people in six key markets and gave them a
Focus to drive for 6 months and promotional material.
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.
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7. Develop Metrics and ROI
Measurement
Products Brands Channels Customer Markets
Segments
Relative Brand Channel Customer Market
product awareness penetration satisfaction penetration
quality
Perceived Brand Channel trust Average Market share
product esteem transaction
quality size
Percentage Brand loyalty Channel Customer Sales growth
of sales from efficiency complaints
new products
Product Brand Market share Customer Market
profitability profitability in each acquisition profitability
channel costs
Channel Customer
profitability retention rate
Source: Customer
Kumar profitability
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8. Develop High-Tech Marketing
Predictive analytics
Sales automation
Marketing automation
Marketing models
Process dashboards
Performance dashboards
Campaign management
Project management
New product management
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9. Focus on Building
Long-Run Marketing Assets.
Brands and brand equity
Customers and customer equity
Service quality
Stakeholder relationships
Intellectual knowledge
Corporate reputation
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10. View Marketing Holistically
Marketing must become strategic and drive
business strategy.
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Two Models of Management
Profit-based management Loyalty-based management
Reduce costs Invest in marketing assets
technology technology
Price to reward customers
Price to extract maximum
value Deepen customer value
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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.
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“This time like all times is a good
one, if we but know what to do with
it.”
Ralph Waldo Emerson
THANK YOU!
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