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Strategic Marketing in Action What tough markets demand from Marketers. Professor Kamran Kashani Zurich, March 31 2010. What does business worry about today?. Not marketing…..but markets ! Globalizing markets : Shifting buying power Hyper-competitive markets : Smart new players
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Strategic Marketing in ActionWhat tough markets demand from Marketers Professor Kamran Kashani Zurich, March 31 2010
What does business worry about today? Not marketing…..but markets! Globalizing markets: Shifting buying power Hyper-competitive markets: Smart new players Commoditized markets: Disappearing differentiation Buyers’ markets: Choice, negotiating power, less loyal Tough markets:Hard to make money! GfM Marketing
The challenges of surviving and prospering in today’s markets are many Challenges • Reinvent the Customer Value Proposition • Identify and exploit hidden growth opportunities • Avoid the ‘commoditization hell’ • Innovate beyond the core product or service– the business model • Create customer value, extract value…and make money! GfM Marketing
How prepared is traditional marketing in dealing with today’s challenges? Challenges • Reinvent the Customer Value Proposition • Identify and exploit hidden growth opportunities • Avoid the ‘commoditization hell’ • Innovate beyond the core product or service– the business model • Create customer value, extract value…and make money! How adequate are the old marketing skills and the new tools: the 4-P’s, marketing research, advertising, promotions, PR, CRM, loyalty programs, key account selling…? GfM Marketing
What Marketing could be: Two illustrations Case studies in winning in tough markets GfM Marketing
How would you assess this business performance? SALES ($million) NET INCOME GfM Marketing
Dow Corning : Background • Dow Corning : Global leader in silicone products (40% market share) • Silicone applications : Aerospace : Automobiles : Electronics : Construction : Healthcare : Personal care : Textiles • 25000 customers in 80+ countries GfM Marketing
Dow Corning’s 60-year old strategy: Product Leadership • R+D : 6% of sales : innovation leader in silicones : new applications • Innovative products : premium prices • Value added services : customized applications : co-development of new products • Corporate vision : “We will advance the chemistry and related sciences… to contribute to our customers’ success and differentiate Dow Corning from our competitors.” GfM Marketing
Market Polarization Dow Corning: Customer shifts challenge market leadership Demand Demand Value Value Mass market CommoditiesBuyers Specialties Buyers GfM Marketing
Market Polarization Dow Corning: Customer shifts challenge market leadership Demand Demand ! DC DC Value Value Mass market CommoditiesBuyers Specialties Buyers GfM Marketing
Confronting market change: The denial phase Scott Fuson : Chief Marketing Officer “We had the same business model for 60 years. We were trying to get premium prices for our products because we felt we had premium service and we were a premium company. We said to our customers: “Hold on, you can’t compare our silicones to these cheap imitators. They don’t offer comparable new product development assistance, quality assurance, commitment to safety and reliable deliveries.” GfM Marketing
Confronting market change : The “Tipping Point” (2001) Realization: The past success blinded the management from seeing the future. Chief Marketing Officer: “We were performing at sub-standard levels. All of us felt that our jobs were at stake. People knew that if [things] didn’t change, then Dow Corning as it existed was not going to continue… the mood was pretty grim.” “We reached a tipping point… We fundamentally changed the company strategy as there was nowhere else to turn to.” GfM Marketing
Confronting market change: A fresh start Top management embanks on a major strategic change process • Appoints task force: Marketing and other functions • “Provocateurs” to stir & challenge • Mandate: Come up with “Big & Hairy” ideas Self-Audit : Review of 5 years “Voice of Customer” data GfM Marketing
Discovering new customer segments with different needs Customer needs based segmentation Solutions customers : innovative solutions : proven solutions : cost-effective solution Price-seekers : large volume, commodity buyers : have experience in-house services : don’t need services Chief Marketing Officer: “There was a whole sector [of customers] across many diverse industries that we were overserving and not getting the growth from… They viewed our products as commodities when making purchase decisions, and didn’t want to pay for all the additional services that we bundle with our product sales.” GfM Marketing
New strategy: A game changer in the chemicals industry Task Force proposals : A web-based business model to lower “cost-to-serve” – never tried before! : Offer price seekers a “no frills” value proposition : “No frills” – product only (no services) at low market prices : Take out all low/no value adding activities : Develop a new brand – Xiameter : Rejuvenate DC’s core business through even more innovation and paid-for new services GfM Marketing
New strategy: A game changer in the chemicals industry Task Force proposals : A web-based business model to lower “cost-to-serve” – never tried before! : Offer price seekers a “no frills” value proposition : “No frills” – product only (no services) at low market prices : Take out all low/no value adding activities : Develop a new brand – Xiameter : Rejuvenate DC’s core business through even more innovation and paid-for new services Dual Brand Strategy Playing a different game to win: A “disruptive innovation” GfM Marketing
New strategy motto: “Meet customer needs, exactly” GfM Marketing
Xiameter’s “Dare to Compare” brand campaign GfM Marketing
Poor performance… SALES ($million) NET INCOME GfM Marketing
Xiameter: A success story… A contributor to Dow Corning’s turnaround SALES ($million) NET INCOME GfM Marketing
Quotes Xiameter: A success story re-told by the media and customers CMO Magazine : Xiameter responsible for Dow Corning’s “metamorphosis” Marketing News : Xiameter has had a noticeable effect on morale among company’s many “whiz-bangscientists” Harvard Business Review : Xiameter is a clear winner; it paid back original investment in just 3 months Customer surveys : The system is convenient, the deliveries are on time and we are happy with the prices and product quality. We don’t need any service support and don’t want to waste time talking to sales reps that most other suppliers have. We have become more competitive, increased our sales by more than 30%, saved time and have better control over our cash flow. GfM Marketing
The Nespresso story: The marketing impact CHF 2.8 billion Sales Average growth 30% + 1974 Patent acquired 2010 1980 RestaurantsTest Market 1982 OfficeTest Market 1986 New companyestablished 1990 First club 1995 Break-even 1988 Marketing takes the lead GfM Marketing
The Nespresso story: The marketing impact CHF 2.8 billion Sales Revised Strategy • Re-position: Households • Create Nespresso Club • 24-hour service • New channel: direct pals • 48-hour home delivery • Machine partnerships • In-stone demos • No ads Revised Strategy • Re-position: Households • Exclusive Nespresso Club • 24-hour service • New channel: direct sales • 48-hour home delivery • Machine partnerships • In-store demos • No ads Average growth 30% + 1974 Patent acquired 2010 1980 RestaurantsTest Market 1982 OfficeTest Market 1986 New companyestablished 1990 First club 1995 Break-even 1988 Marketing takes the lead GfM Marketing
What do Xiameter and Nespresso success stories have in common? • Big radical strategic decisions were based on customer insights... • …brought into focus primarily by marketers • Key moves were not bound by marketing research • Xiameter business idea never tested with consumers • Early consumer tests of Nespresso concept were disappointing! • Marketers were comfortable with the risk factor in innovation… • …and were in the lead, had their voices heard! GfM Marketing
To fulfill its strategic role marketing has to break out of its “support” silo… CEO Fin NBD “support” OP MKTG Strategy Process Strategy Process R&D IT HR Strategic Decisions : What markets? : Which customers? : How to serve? : How to differentiate? : How to make money? GfM Marketing
… and bring the customer’s voice and insights into the strategy process CEO Fin NBD MKTG OP Strategy Process Strategy Process R&D IT HR Strategic Decisions : What markets? : Which customers? : How to serve? : How to differentiate? : How to make money? GfM Marketing
When marketing’s voice is absent from Big decisions… …customers’ interests take back seat to other priorities “Whenever you ask a CEO about the importance of customers, you hear the requisite platitudes. But in fact customers have often lost out in the relentless push to maximize shareholder value…Bain & Company found while 80% of CEO’s think they are doing an excellent job of serving customers…only 8% of customers agree.” Fortune Magazine, 2006 GfM Marketing
Growing evidence: shareholder value is highly correlated with customer satisfaction Relative Price Change over Time American Customer Satisfaction Index Stock Portfolio 144.5% S&P Total 38.7% 0% 2001 2002 2003 2004 2005 2006 Source: Harvard Business Review, March 2007 GfM Marketing
Growing evidence: “…shareholders do better when firms put the customer first.” GfM Marketing
Growing evidence: “…shareholders do better when firms put the customer first.” “…If more companies made customers the top priority, the quality of corporate decision making would improve because thinking about the customers forces you to focus on improving your operations and the products and services you provide, rather than on spinning lines to shareholders.” Roger Martin, Harvard Business Review January-February 2010 GfM Marketing
Breaking out of the “support” silo: Are marketers ready for the demands of strategy in today’s tough markets? • Strategic point of view: • Spotting long term trends, identifying future scenarios • identifying market gaps and opportunities • Value mapping: • Looking beyond the first level customers • Seeing how “value” is created and captured upstream/downstream • Thinking and acting beyond the “researchable” • feel comfortable with uncertainty in innovation • learn to experiment and take measured risks • trust one’s well-developed and educated intuition Skills set GfM Marketing
Are marketers ready for the demands of strategy in tough markets? • Converting customer insights into compelling business plans: • developing an integrative view of business and other functions • defining strategic priorities & initiatives • making a credible case: showing bottom line impact! • Driving implementation: • getting buy-in for market inspired change • learning to by-pass resisters or use them to advantage • mobilizing and energizing the troops! Skills set GfM Marketing
IMD’s Strategic Marketing in Action program: inspired by skills set marketers need in today’s tough markets Scan the market Follow-up: Satisfy and Retain customers Drill for Insights Lead Implementation Assess Competition Implementation Planning Articulate Customer Value Proposition Build the Brand Formulate the Winning Strategy GfM Marketing
To conclude: Let’s remember why our profession exists… “The purpose of business is to create and keep a customer.” Peter Drucker GfM Marketing
Danke! GfM Marketing