Marketing 3.0: Values-Driven Marketing Philip Kotler Kuwait April 03. 2011

Marketing 3.0: Values-Driven Marketing

Philip Kotler Kuwait

April 03 . 2011

Two Recent Books by Professor Kotler

Action-Oriented KnowledgeSession One. How to deal with your company’s

major business challenges and opportunities.

Session Two. How to search for powerful new ideas and innovate successfully.

Session Three. How to improve your branding power.

Session Four. How to develop a superior company reputation through sustainability-driven thinking.



Session Two. How to search for powerful new ideas.


Session Four. How to develop a superior company reputation through sustainability thinking.

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

• Customer empowerment and the new social media

• Political conflict and regulatory changes

Times Are BadCEO’s are now playing miniature golf.

Obama met with small businesses - Chrysler, Citigroup and GM, to discuss the Stimulus Package.

People in Africa are donating money to Americans.

The Mafia is laying off judges.

An optimist is a person who sees an opportunity in every calamity.

A pessimist is a person who sees a calamity in every opportunity.

Winston Churchill

http://kellylowenstein.files.wordpress.com/2009/09/churchill.jpg

Distrust of Business• In a 2009 survey, only 16% of respondents respect the integrity of

business executives. And car salesmen and advertising executives were the least admired by the public.

• Causes– Business scandals: Enron, World Com, Tyco, Madoff, Goldman Sachs– High pay to the few: CEO paid 350 times average workers salary– Anti-capitalist forces– Recession and falling behind

• Solutions– More transparency– Better boards and management– Investing in corporate social responsibility

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 growth too aggressively.– 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.

• Companies are often blind-sighted by their eagerness to build short-term growth and ignore the risks.

• Most companies are short-lived.

Globalization• Causes

– Advances in information, communication, and transportation now connect the whole world

– Lowering of trade barriers

• Downside– Globalization hurts as many nations as it helps– Globalization increases country inequality– Globalization provokes nationalism and protectionism– Globalization threatens cultural traditions and values

• Upside– New market opportunities if we can offer something better

• Question: Is your company sufficiently globalized?

Economic Recession and Turbulence

• Not all companies were hurt by the fiscal meltdown.• Distinguish between:

– Recession– Disruption– Turbulence

• Risk reduction strategies– Larger reserves– Shared investments– Early warning systems– Scenario planning– Corporate social responsibility

Technological Advances and Disruptions

• Scientific advances and inventions– What is the impact of the birth control pill, Genome

project , digitalization, cell phones, social media, robotics, nanotechnology, biotech, bioenergy…

• Creative destruction– Can you avoid the fate of the music industry, publishing

industry (newpapers , magazines, books), high cost airlines…

• Theory of disruptive innovation– What can happen to your industry or company?

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

Environmentalism and Climate Change

• Companies need to go “green” to reduce waste, pollution, and water shortage.

• Those companies that go “green” early will establish a strong reputation and following. They will also save money in the long run.

Customer Empowerment and the New Social Media

• Who has the most market power?– Wholesalers– Manufacturers– Retailers– Customers

• What are the best new ways to communicate?– Blogs– Facebook, – Twitter– Linkedin– YouTube– Chat rooms– Rating systems (Edwards, J. D. Power, Rotten Tomatoes, Craig’s List)– Wikipedia

Political and Regulatory Change• Growth of social movements

– Unionization– Anti-capitalist groups– Environmental groups– Religious groups– Gay rights groups

• Political party shifts

• Regulatory interventions– Financial regulation– Anticompetitive regulation– Safety and health regulation

MARKETING’S LOSS OF EFFECTIVENESS

MARKETING will be less effective in the next few

years

MARKETING will be less effective in the next few

years

Marketing budgets will be lower

Marketing budgets will be lower

Companies will want marketers to do more with

less

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

You Need to Build Stronger Marketing into Your Company

• Old definition of marketing– “Act or practice of adverting 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.

MUST MARKETING BE RE-INVENTED?MARKETERS are

prisoners of an OLD PARADIGM

MARKETERS are prisoners of an OLD

PARADIGM

MARKETERS are operating in a TIME

WARP

MARKETERS are operating in a TIME

WARP

Companies aim to maximize profits

Company investors are more important than other stakeholders

Customers buy rationally to maximize value

Customers get most of their information from sellers and don’t talk to each other about

products

Don’t acknowledge the growing power of the customers

Don’t acknowledge the growing power of the customers

Don’t acknowledge the growing power of the channels and other

stakeholders

Don’t acknowledge the growing power of the channels and other

stakeholders

Don’t acknowledge the new social media world and their growing

social responsibilities

Don’t acknowledge the new social media world and their growing

social responsibilities

WE NEED TO….

You Need Two Marketing Departments!!

Most marketing departments are engaged in tactical brand-maintenance instead of brand-building.

Strategic marketing is missing in many marketing departments. Strategic marketing requires taking a 3-5 year view of the business.

SOLUTION

SOLUTION

Downstream Marketing

Downstream Marketing

Upstream MarketingUpstream Marketing

Markets TODAY’s Product Create TOMORROW’s Product

Five shifts:

•1st Shift - from creating marketing strategies to driving business impact.•2nd Shift - from controlling the message to galvanizing your network.•3rd Shift - from incremental improvements to pervasive innovation.•4th Shift - from managing marketing investments to inspiring marketing excellence.•5th Shift - from an operational focus to a relentless customer focus.

Company examples:•GE, Wal-Mart, Charles Schwab, Procter & Gamble, Burger King, Zappos, Best Buy and Dell

Involve Your Customers In Your Planning • Four ways to view customers:

– Purchasers of our product– Persons from whom we gain insight and with whom we can test

our planned products– Persons who Influence others to buy our product (net

promotion score NPS)– Persons who co-create product and communication ideas

• Company examples of co-creation:– Lexus invites customers to build their own Lexus by going to

www.Lexus.com and drawing from a complete package of available colors and options packages.

– Lego and Harley Davidson have welcomed their respective enthusiasts to participate in improving their market offerings.

– Doritos ran an online promotion urging fans to create 30-second spots for Doritos and post them for on-line voting to be picked to air in one of the three Super Bowl slots. The user-generated ad won the top spot at the 21st USA Today Super Bowl Ad Meter defeating ads made by professional agencies.

http://www.lexus.com/

Market to All Your Stakeholders

• Our thinking has shifted from maximizing shareholder value to maximizing stakeholder value.

• Stakeholders include customers, employees, channel members, and investors.– Customers: They need a feeling of gaining superior value from your offering.– Employees: They need to believe in their company’s mission, vision and

values. – Channel members: They must believe that they are receiving equitable

reward for their contributions. – Investors: They need assurance that the company has a viable long run plan

for growth and continued profitability

MARKETING 1.0 vs 2.0 vs 3.0

Product-centric Marketing

Product-centric Marketing

Customer-oriented Marketing

Customer-oriented Marketing

Value-driven 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 New Wave Technology

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

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

Station Break!

Are there any companies that you love or would deeply miss if they went out of business?

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.






How Are You Planning to Grow Profitable Revenue?

• Efficiency– Finance and cost control become important (time and motion

studies)

• Acquisition– Finance becomes important

• Organic growth– Marketing and sales become important

• Innovation– R&D and technology become important

Innovativeness is a Capability

• Innovativeness is a capability; consider Sony and 3M.

• Innovation requires organizing three markets within the firm:

– An idea market

– A capital market

– A talent market

• The best innovations provide solutions to customer problems, not to the company’s product problems.

• Strong market-creating innovations have a long life and create market leadership.

Companies Need an Innovation Strategy

• There are four major types of innovation in business:– Product innovation– Service innovation– Marketing innovation– Business model innovation

• A company first needs to choose an innovation strategy.• The decision should include building an innovation culture

and providing funds for training, incentivizing, and rewarding.

• Each approved innovation project must have an innovation plan, budget, time line, and deadline.

• A high level executive manages the innovation projects portfolio, updates their status, shares with the CEO, and they make further decisions on extending or terminating.

Business Model Innovations

• Amazon and Kindle• Apple and iTunes• Barnes and Nobles bookstores• Dell computer• Ikea• Starbucks

Marketing Innovations• Incentive innovations

– Credit cards– Rebates– Zero-interest financing – Gift certificates– Coupons– Guarantees and warranties– Loyalty awards– Subscription selling (Book of the Month Club)

• Retailing innovations– Self-service stores– Self-checkout– Coupon feeds– Hypermarkets– Category killer stores– Differentiated stores with same chain (Best Buy)– Exclusive lines of merchandise (Target: Michael Graves, Martha Stewart)– Selling on TV (Home Shopping Network)– Selling on the Internet

• Producer innovations– Brand as a platform (Virgin, iTunes)– Customization

Source: Blue Ocean Strategy

Station Break!

How does your company go about getting new product and service ideas? What are the best sources of new ideas? Who is responsible for

collecting new ideas?

Sources of New Ideas• Scientists and Engineers

– Motorola and Philips

• Employees – Whirlpool, – Shell – Samsung

• Customers– Problems in present products– Dream products– Enthusiasts

• Other partners in the company network

CUSTOMER RESEARCH

Ethnographic Studies

Ethnographic Studies

In-store Observation

In-store Observation

Quantitative Surveys

Quantitative Surveys

Focus Groups/ Consumer

Panels

Focus Groups/ Consumer

Panels

NeuroScienceand ZMET

NeuroScienceand ZMET

In home & shopping trips

Orientation & Environment

Why do you buy?

Awareness, Attitudes, &

Behavior

Listening for insights & trends

Customer Research

Action-Oriented KnowledgeSession One. How to deal with your company’s major

business challenges and opportunities.




There are so many brands in some categories that it is difficult to stand out.

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.”

Marketers Have Lessening Influence in Shaping Their Brand Image

• 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 possibilities

– Everyone 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

• Marketing 2.0 managers listened to the consumers’ voices to understand their minds and capture market insights.

• Marketing 3.0 is when consumers play the key role of creating the value through co-creation of product and service.

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

Score Your Brand (1 to 3)

1 2 3

Product Benefits Distinct Identity

Emotional Values

LEADING B2B BRANDING COMPANIES

•DuPont•Siemens•Bosch•General Electric•Saint-Gobain•UPS•FedEx•Tentra Pak•Microsoft•Caterpillar•IBM•Daimler•Michelin•Tata Steel•Morgan Stanley

The Brand Within the Brand:“Ingredient Branding“ or InBranding

Logos of Ingredient Brands

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?”

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”

HYPOTHETICAL STARBUCKS BRAND POSITIONING BULLSEYE

Consumer Target

DiscerningCoffeeDrinker

Consumer Insight

Coffee and the drinking

experience is often

unsatisfying

ConsumerNeed State

Desire for better coffee and a better

consumption experience

CompetitiveProduct Set

Local cafesFast food & convenience

shops

ConsumerTakeawayStarbucks

gives me the richest

possible sensory

experience drinking coffee

BrandMantra

Rich, RewardingCoffee Experience

FairlyPriced

Relaxing, rewarding moments

Responsible, locally involved

Rich sensory consumption experience

Varied, exotic coffee drinks

Fresh high quality coffee

24 hour training of

baristas

Green & Earth Colors

Siren logo

Caring

Contemporary

Thoughtful

Convenient, friendly service

Triple Filtrated

water

Totallyintegrated

system

Stock options/ health benefits

or baristas

What Should Your Measure About Your Brand’s Standing?

• Customer perceived value

• Customer satisfaction

• Customer loyalty

• Customer advocacy

• Customer co-creation

Action-Oriented KnowledgeSession One. How to deal with your company’s major business

challenges and opportunities.




How Will Your Company Be Measured?

Indices now 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

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)

Moreover, executives believe that the concept of sustainability is good for corporations in attracting consumers and employees and improving shareholder value.

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.

??SustainabilitySustainability

ProfitabilityProfitability ReturnabilityReturnability

The issue is to find a linkage of between

sustainability, profitability, and

returnability

THREE important metrics that can be quantified financially:

Improved cost productivity

Higher revenue from new market opportunities

Higher corporate brand value

(For details, see Marketing 3.0).

Serving the Bottom Third

Stretches disposable income by providing goods and services at lower prices.

Expands disposable income by providing goods and services not previously available for the bottom of the pyramid

Increases disposable income by growing the economic activity of the underserved society. Grameen Phone illustrates this.

Unilever’s Annapurna provides low price affordable iodized salt that is better than cheaper non-iodized salt.

‘House-for-Life’ program offering low-cost housing solutions

Nicholas Negroponte's XO and Nova netPC personal computers.

GlaxoSmithKline and Novo Nordisk providing new essential medicines.

Hindustan Lever’s Project Shakti which “employs” thousands of underprivileged women as its sales force to bring its products to rural consumers and provides them with significant disposable income

Wal-Mart Turns Green

Wal-Mart announced in 2005 that it will be a “good steward to the environment” and will spend $500 million a year to increase fuel

efficiency in Wal-Mart’s truck fleet by 25% over three years; reduce

greenhouse gases by 20% in seven years; reduce energy use at

stores by 30%; and cut solid waste from U.S. stores and Sam’s

Clubs by 25% in three years.

Critics see Wal-Mart’s move being mainly done for economic purposes—to save energy, save costs, and increase revenue from increasing demand for green products. This describes an “Investor Orientation.”

Timberland has a Green DNA

Timberland is a leader in the design, engineering and marketing of premium-quality footwear, apparel and accessories for outdoor consumers. It believes in “doing well by doing good.”

In shoes, Timberland uses recycled materials, non-chemical substances as much as possible, made in energy-saving factories. The label gives consumers information “about the product they are purchasing, including where it was manufactured, how it was produced, and its effect on the environment”.

Timberland gives back to communities. Under the Path of Service program, its employees have contributed over 200,000 total hours of service that benefited over 200 community organizations in 13 countries, 26 states and 73 cities.

To commemorate Earth Day, Timberland plants a tree on behalf of each consumer who spends $150.

Timberland has also done such things as offering $3,000 incentives to employees who purchase hybrid cars.

Other companies in this category are Patagonia, Whole Foods Market, Fetzer Vineyards, and Herman Miller.

Build a Strong Corporate Reputation:Why It’s Important

• Financial Community -> Supports Stock Value

• Employees/Recruits -> A Great Place to Work

• Communities -> A Good Neighbor

• Public Opinion - > Good Will • Public Policy Makers -> Access/Credibility/Influence

95% of CEOs from McKinsey-surveyed global companies believe that “society has greater expectations than it did five years ago that companies will assume public responsibilities.”

The Marketing Mindset• Your company and stakeholders need to embrace a market and customer-orientation.

• Your company needs a CMO who participates in formulating the company’s growth strategy.

• Your company needs to define its mission, vision and values as the starting point for its transformation to Marketing 3.0.

• Your offerings must touch the customer’s mind, heart, and human spirit if they are to win over the customer.

• Your company needs to practice the Triple Bottom-Line: Economic Value, Environmental Health, and Social Progress. This is the key to Profitability, Returnability, and Sustainability.

“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

Documents

Marketing 3.0: Values-Driven Marketing Philip Kotler Kuwait April 03. 2011