Marketing 3.0: Values-Driven Marketing

1. Marketing 3.0: Values-Driven Marketing Philip Kotler Kuwait April 4, 2011

2. Two Recent Books by Professor Kotler

3. Action-Oriented Knowledge Session 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.

4. Action-Oriented Knowledge Session One. How to deal with your company’s major business challenges and opportunities. Session Two. How to search for powerful new ideas. Session Three. How to improve your branding power. Session Four. How to develop a superior company reputation through sustainability thinking.

5. 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

7. Times Are Bad CEO’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.

8. 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

9. 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

10. 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.

11. 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?

12. 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

13. 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?

14. 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.

15. Tomorrow Will Be Different Source: Clayton Christensen

16. 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.

17. 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

18. 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

19. MARKETING’S LOSS OF EFFECTIVENESS MARKETING will be less effective in the next few years Marketing budgets will be lower Companies will want marketers to do more with less DISTRIBUTORS TRADITIONAL MEDIA COMPETITION PUBLIC SOCIAL MEDIA NETWORKS • 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

20. 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.

21. MUST MARKETING BE RE-INVENTED? MARKETERS are prisoners of an OLD PARADIGM MARKETERS are operating in a TIME WARP Companies aim to maximize profits Don’t acknowledge the growing power of the customers Company investors are more important than other stakeholders Don’t acknowledge the growing power of the channels and other stakeholders Customers buy rationally to maximize value Don’t acknowledge the new social media world and their growing social responsibilities Customers get most of their information from sellers and don’t talk to each other about products WE NEED TO…. RE-INVENT MARKETING

22. 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 TWO MARKETING DEPARTMENT…!!! Downstream Marketing Upstream Marketing Markets TODAY’s Product Create TOMORROW’s Product

23. 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

25. 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.comand 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.

26. 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

27. MARKETING 1.0 vs 2.0 vs 3.0 MARKETING 1.0 MARKETING 2.0 MARKETING 3.0 Product-centric Marketing Customer-oriented Marketing Value-driven Marketing Objective Satisfy and retain the consumers Make the world a better place Sell products Enabling Forces Industrial Revolution Information Technology New Wave Technology How companies see the market Mass Buyers with Physical Needs Smarter Consumer with Mind and Heart Whole Human with Mind, Heart, and Spirit Key marketing concept Product development Differentiation Values Company marketing guidelines Corporate and Product Positioning Corporate , Vision, Values Product specification Value propositions Functional and Emotional Functional, Emotional, and Spiritual Functional Interaction with consumers One-to-Many Transaction One-to-One Relationship Many-to-Many Collaboration

28. Values-Based Matrix Model

29. S. C. JOHNSON VALUE-BASED MATRIX MIND HEART SPIRIT Mission Contributing to the community well –being as well as sustaining and protecting the environment Promoting reusable shopping bags Base of the Pyramid For SC Johnson, creating sustainable economic value means helping communities prosper while achieving profitable growth for the company. Sustaining Values: SC Johnson Public Report Vision To be a world leader in delivering innovative solutions to meet human needs through sustainability principles Values Sustainability We create economic value We strive for environmental health We advance social progress We believe our fundamental strength lies in our people.

30. Station Break! Are there any companies that you love or would deeply miss if they went out of business?

31. 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.

32. 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.

33. Action-Oriented Knowledge Session 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.

34. 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

35. 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.

36. 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.

37. Business Model Innovations • Amazon and Kindle • Apple and iTunes • Barnes and Nobles bookstores • Dell computer • Ikea • Starbucks

38. 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

39. Source: Blue Ocean Strategy

40. 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?

41. 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

42. CUSTOMER RESEARCH Ethnographic Studies In-store Observation Quantitative Surveys Focus Groups/ Consumer Panels NeuroScienceand ZMET In home & shopping trips Orientation & Environment Awareness, Attitudes, & Behavior Listening for insights & trends Why do you buy? Customer Research

43. Action-Oriented Knowledge Session 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.

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

45. 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.”

46. 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.

47. 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

48. 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.

49. Brand Asset Valuator Model

50. Score Your Brand (1 to 3) 1 2 3 Product Benefits Distinct Identity Emotional Values