The purpose of business is to create a customer.
Peter Drucker
Marketing is about value as it is perceived by the customer. Every organisation has a customer because no organisation exists for long without demand for what it does. If demand changes, so must the organisation. In the eyes of your customer ‘value’ is not just about economics or functional needs, it is a connection to psychological desires and emotions, too.
In fact, some would even say that marketing is an all-encompassing philosophy of business. Marketing faculty at business schools tend to agree.
Marketing is the first MBA subject that explicitly moves between the internal and external environments of an organisation. Every organisation, whether multinational business, giant public institution, local charity or small start-up, will find marketing is the relevant perspective for setting levels of quality, service and price – the main components of the value proposition. This means that marketing is concerned first with identifying perceptions of value in the marketplace and then with the development, production and distribution of goods and services.
The tactical, practical and day-to-day business of marketing involves the implementation of projects and plans linked to the sale or advertising of what an organisation does. This is the domain of marketing as process and functional specialism. But the manager (and MBA student) should take a broader, strategic view that goes well beyond the marketing department.
Marketing is attuned to the way that the world – and the nature of competition – is changing. This makes it an exciting field of study with many stories and variants of application, but also a difficult one to define or keep completely up to date with.
1 | Who is the person in charge of marketing in your organisation? What are the activities and responsibilities of this person? Ask them whether their marketing spend went up or down in the last five years. Ask for the reasoning behind their responses. |
2 | Who are your organisation’s customers? What would you say is the value proposition of your company? (Think in terms of quality, service and price as perceived by your customers. |
The Chartered Institute of Marketing gives its definition of marketing as:
the management process responsible for identifying, anticipating and satisfying customer requirements profitably.1
In 1960 a former executive of Pillsbury (a fast-moving consumer goods (FMCG) company), Robert Keith, summed up the development of marketing management in three ages:2
The assumption of the marketing era is that others will try to be in the same space as you and will compete for market share by meeting the demands of your customers. This gives customers choice, which our economic system firmly believes to be a good thing, and has led to organisations becoming very, very interested in what strategies competitors are using. From this we get to the concept of competitive advantage, which is an idea proposed most firmly by Michael Porter in the 1980s that you should look at which resources and abilities within your organisation lead to performance at a higher level than your competitors (more about this in Chapter 7).3 This has proved to be a powerful idea in shaping corporate behaviour.
Porter’s view has found some opposition. First, there is the argument that marketing has only ever had one era – that of putting the customer first. Second, that this is a rather narrow model that does not match the complexity of the post-internet world. No one can argue that much has changed since the 1980s and 1990s and there’s now a fourth marketing phase:
4 | The relationship era: This wants the whole organisation to have a market orientation, where market research is aligned to the internal functions (including relationships with suppliers) and all levels of management are asked to embrace marketing principles across the organisation. There are two specific things that have helped define this new marketing: | |
(a) | a strategic focus on customer retention | |
(b) | the internet has led to a redefining of consumer power and a fragmenting of traditional marketing domains. |
Digital marketing, in particular, has challenged many organisations to think again. In fact, social media has already had an enormous impact on marketers and digital marketing may one day need a whole chapter in its own right. Maintaining a consistent message is a much greater challenge in an age where users can generate their own content on, for example, YouTube or Facebook.
Marketing in business schools has been dominated by one name: Philip Kotler. His book, Marketing Management, has been a mainstay on MBA courses for many years.4 With an emphasis on the societal role of marketing, it is a comprehensive overview of a transformation from the marketing orientation to the relationship era. Kotler’s work has highlighted the various ways of looking at marketing in terms of strategy.
A market orientation is meaningless without a coordinated strategy behind it. Michael Porter, again, has been influential in this regard by outlining three generic strategies for competitive advantage, each with roots in a different era in marketing:
1 | Is the marketer’s definition of value in conflict with the finance manager’s (Chapter 5)? Are these aligned with the view of the CEO (Chapter 1)? What about the shareholder? |
2 | Economic value can be derived either from the production end (costs) or the consumption end (price) of the value chain. At which end of the spectrum does your organisation place most of its energy? |
Porter’s influence is slowly fading, partly because the business world he was describing has become more fragmented. Let’s examine how someone else has perceived this. The six markets framework was devised by Adrian Payne at Cranfield University and is an example of an analytical tool for market orientation (see Figure 6.1). Keeping the ‘classic’ customer in the centre of things, it extends marketing to other domains, such as suppliers (this is sometimes called reverse marketing), recruiters of talent, and the potential contained in referrals from existing customers and agents or other intermediaries. An analysis is then made of any gaps or changes between past, current and future focus in the organisation.
FIGURE 6.1 Six markets model
Source: Payne, A., Ballantyne, D. and Christopher, M. (2005) ‘A stakeholder approach to relationship marketing strategy: The development and use of the “six markets’ model”’, European Journal of Marketing, 39(7/8): 855–871. Reproduced with permission of Emerald Group Publishing Ltd.
This still leaves plenty of open questions, and opportunities. What is the market definition of what you do? Is it better to lead or follow others in the market? What are the things under the control of the organisation and what are the things outside (remember SWOT)? What are you doing with the direct contact you now have with your customers?
Limited resources and competitors in the same space mean organisations have to identify groups of customers with similar needs and similar expectations of a value proposition. This is called segmentation, but there are many ways of slicing up a potential market. Below are a few examples:
An attractive segment for a company is one that:
Thorough identification of all the segments in the market will allow selection of those worth targeting. Targeting may also be sub-divided into various decisions between differentiation and concentration within the segment. The ultimate goal for an organisation is to target customers one to one, and in some markets this sort of bespoke service is possible. Most companies, however, need to think carefully about the third step, positioning, where a detailed understanding of emotion, attitude and beliefs as drivers of value perception becomes crucial. Positioning statements connect the resources in an organisation to the segment it is targeting. They are expressions of how you want to be seen through the eyes of your customers. For example, Austrian energy drink company Red Bull5 has employed ‘wings’ as a word and theme in its advertising for more than 25 years. This is a tactical and, by now, strategic choice.
The four Ps of marketing developed by E. Jerome McCarthy in the 1960s have now attained seminal status in marketing management.6 For the record, they are:
Academics and thinkers find it hard to resist alliteration, and the original four have since been expanded to reflect the importance in globalised economies of service industries:
This palette in the marketing mix is an attractive framework to organise basic ideas, but is under severe pressure when you try to use it to keep up with the fragmented and rapidly changing consumer environment. How easily can you apply these to Google, iTunes or Facebook without presenting their business models as simplistic, or – in theory – wrong?
The placement of a financial value of a company’s brand (often found in financial statements) is probably a double-edged sword for marketing. On the one hand it raises the status and profile of the marketing function and enables budget allocation of funds to marketing activities, but on the other it remains very difficult to know the effect of marketing spend on the bottom line. In a business or organisation with few physical assets, value is also derived from the perceived reputation, of which the brand is usually the major component. The Coca-Cola Company owns relatively few tangible assets (other than production of the all-important concentrate) and it is estimated that at least 50 per cent of its market capitalisation is derived just from the premium of the brand name and bottling contracts. For McDonald’s, the comparable figure is 70 per cent.7
I can recall attending a conference in Budapest in the mid-1990s, where I watched the CEO of Saatchi and Saatchi worldwide, Kevin Roberts, deliver a presentation about our relationship with brands. He traced a development from a commodity to a product, and from a product to a brand, and then proposed an idea beyond a brand: the lovemark. This is a product or provider that delivers beyond your expectations and somehow creates a connection to heart as well as head.
1 | What are some of your favourite brands? What do those choices say about you? |
2 | How do you define your ‘personal brand’? What are you most known for where you work? |
Brands present us with choices. We like to believe these are individual, but they also communicate something about us to others. Take a look at what a major brewing company has to say on this subject in the case study.
The extract below is from the company’s 2013 annual report and captures how Anheuser-Busch see its value proposition to its customers. Notice how the alignment includes the intentions of those working in the company.
When people get together over a beer, they’re not simply sharing a favorite beverage. They’re sharing moments, adventures, traditions, inspirations, opportunities and much more – the ingredients that make lasting friendships. At Anheuser-Busch InBev, we’re equally passionate about brewing beer and brewing friendships. We pour ourselves into everything we do: our work, our connections with consumers, our engagement with employees, and our commitment to create a Better World. And that’s why, across the globe, you’ll find our beers wherever friendships are shared and great moments are savored.8
The company goes on to expand on the targeting strategy for the 200 brands in its portfolio (which includes Budweiser, Stella Artois and Corona):
At Anheuser-Busch InBev, our brands are the foundation of the company, the cornerstone of our relationships with consumers, and the key to our long-term success.
Focus Brands
We know focus works. This is why we have rigorously reinforced our focus brands strategy. Focus brands are those in which we invest most of our marketing money, and to which we dedicate the greatest proportion of our share of mind. With a portfolio of well over 200 brands, we are prioritizing a small group with greater growth potential within each relevant consumer segment. These focus brands include our three global brands, key multi-country brands, and ‘local jewels’.
Values Based Brands
All of our brands must have clearly defined and consistently communicated values, making them ‘Values Based Brands’. The process of defining these values is a key discipline for all marketing activities in our business and is proving particularly powerful in renovating and innovating our premium brands around the real and changing habits and preferences of consumers.9
Source: Anheuser-Busch InBev
1 | Recently, Anheuser-Busch has started to measure ROI on its digital marketing strategy. Read this short article about its branding online and try to identify the pros and cons the company faces.10 |
2 | What is your organisation doing about the use of social media platforms in its marketing and branding? |
A product, according to Philip Kotler, is ‘anything that can be offered to a market to satisfy a want or need’.11 The term includes not just tangible goods but services, too. An experience, a cause, a person or even an idea, all these are potentially viable offerings as long as there is a market for them. Traditionally the focus in marketing has been on how to present features of an offering in terms of benefits for a customer. Perceptions of benefits and the value they present change over time, something that the product life cycle expresses (see Figure 6.2). Popularity grows, peaks and then eventually wanes. In fact, a product is defined by this time-based phenomenon of shifting tastes and demand.
A successful product has phases. From development and introduction to market, to sales growth and then a plateau of maturity, before eventual decline. This is the background to many of the functional areas we looked at in Part Two (planning for delivery of a good or service, management of cash flows and investment, and proper management of the people involved). For those involved in marketing, this cycle is also a guide for where and what to do tactically and strategically for the replacement or extension of products. Communication around this concept is therefore a two-way necessity between all departments in an organisation.
FIGURE 6.2 The product life cycle model
1 | Describe the features of one or more of the brands in the organisation you work for (or the branding of your organisation, if this is more appropriate). |
2 | Select one product or service in your organisation and try to establish in your own mind where on the life cycle model it currently is. What options are there for managing it? Then canvas opinions of others in different functional areas. If appropriate, check this with senior management. |
The scope of modern marketing is being extended through a combination of the internet and the pressure on organisations to grow by maintaining profitable margins. Gaining customers is one thing, but retaining them is now seen as the best route to margin and the best way to do that is through what is known as relationship marketing (RM).
Aside from customer retention, RM has the following characteristics:
Customer relationship marketing (CRM) is a further refinement of this, often in the form of investment in IT and database management. CRM is supposed to be under the control of general management rather than just a feature of the marketing department. However, the disadvantage of it being under general control is that it tends to monetise the relationship with the customer. Short time horizons in many companies make the customer relationship one of short-term targets in order to achieve returns on any investment. Long-term benefits may be more important but are harder to show on paper. Even when a company is fully committed to CRM, it’s not easy to get right. For example, making bold customer care promises that are then not kept is very destructive, and even a genuine wish to engage with the customer can easily be translated into a kind of ‘stalking’ (e.g. follow-up surveys after every transaction).
Millions of businesses are suppliers to other businesses, and of course millions more are themselves customers for innumerable products and services from other suppliers. It’s likely that many of you reading this book are employed in organisations that rely – in one way or another – on relationships and transactions with other organisations. Business-to-business marketing shares many similarities with business-to-consumer (B2C), but there are some important differences. In B2B:
Players in a supply chain tend to be conservative and they prefer more permanent relationships with each other (unless they find reasons not to). For a corporation, relationships with end-users are much harder to fix. In contrast, consumers face less risk and have more choice in their purchases and will easily switch (unless they find reasons not to).
1 | Who manages the relationships with suppliers to your organisation? If you can, speak with them about how they see the B2B marketing process. |
2 | What percentage of your organisation’s annual turnover is spent on marketing? How would you go about benchmarking this? |
Marketing is tied closely to behaviour because it’s what organisations do, as perceived by their customers. Customers care about the ‘ends’, which are the products they experience, but increasingly they care also about the ‘means’, or the practices used to make and deliver those products. It’s easy to see how trust could be built or destroyed by refusal to act ethically and in line with the law or with generally accepted norms. There is plenty of room for grey areas, though. All the 7Ps of marketing have ethical dimensions. For example, where does a company draw the line between a strategy of price differentiation (e.g. creating opportunities for consumers to pay a lower price for the same product) and price discrimination (e.g. some customers having no choice but to pay a different price)?
When you define value exclusively as ‘what the customer says it is’, you risk taking a viewpoint that ignores other stakeholders, not least the shareholders, founders or owners of the business. Marketing is an exciting, engaging activity, but it is not only tactical. It is the outward, creative expression of strategic creativity. For middle and senior managers, there are still plenty of unanswered questions:
There is little evidence of a major shift in our thinking about marketing. Change seems to be more incremental than revolutionary, and for all its creativity, marketing is following, not leading, the strategic discussion. The critic argues that we are still looking for tactical ways to reinvent the wheel, and strategic ways of making that wheel bigger. But it’s still a wheel. It usually takes some kind of trauma to kick-start a period of deep reflection and re-evaluation (similar to an aspect of personal development in Chapter 2).
The term marketing – when used strategically as a whole-business philosophy – includes not only the relationships with customers but that with competitors, too. Without customers you have no business. Without competitors you have no identity. Between these is now, as there has always been, a whole range of influencers (one of the six in the six markets framework). Perhaps it is this rich set of interactions that makes marketing so fluid and unpredictable.
A classic text: | Marketing Management by Philip Kotler et al. (2nd Edition, 2012), Pearson. A hefty book with a hefty price tag, but not much escapes its breadth of content. |
Going deeper: | Purple Cow: Transform your business by being remarkable by Seth Godin (2010), Portfolio. |
A Very Short, Fairly Interesting and Reasonably Cheap Book About Studying Marketing by Jim Blythe (2006), Sage Books. A personal and readable account by an experienced author in marketing. | |
Watch these: | ‘David Ogilvy: the essentials’, a short montage of clips about advertising legend David Ogilvy. Get some big ideas! http://youtu.be/yj9rokSeack |
‘The most boring ad ever made?’ Leica challenges you to watch 45 minutes of careful polishing, and makes its point about the brand: http://youtu.be/PpSMW5H7FPQ |
2 Keith, R.J. (1960) ‘The marketing revolution’, Journal of Marketing, 24(3): 35–38.
3 Porter, M.E. (2004) Competitive Advantage, New Edition, Free Press.
4 Kotler, P., Lane, K., Brady, M., Goodman, M. and Hansen, T. (2012) Marketing Management, 2nd Edition, Pearson.
5 http://energydrink.redbull.com/commercial#video/2470339735001
6 McCarthy, J.E. (1960) Basic Marketing: A managerial approach, Richard D. Irwin.
7 www.hrexaminer.com/the-fair-market-value-of-employees/
8 www.ab-inbev.com/go/media/annual_report_2013, Anheuser-Busch InBev. Extract reproduced with permission.
9 http://www.ab-inbev.com/go/brands/brand_strategy, Anheuser-Busch InBev. Extract reproduced with permission.
10 http://digiday.com/brands/inside-anheuser-buschs-digital-strategy/
11 Kotler, P. et al. (2012) Marketing Management, European Edition, Pearson, p. 574.
1 | As a manager, have you ever had to do something you didn’t want to do? How were you persuaded? How did you cope? |
2 | Have you ever made someone at work undertake a task they didn’t want to do? How did you persuade them? How did they cope? |