Marketing 3 0 ValuesDriven Marketing Philip Kotler Kuwait

Marketing 3. 0: Values-Driven Marketing Philip Kotler Kuwait April 03. 2011

Two Recent Books by Professor Kotler

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.

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.

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 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.

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

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.

• Causes Globalization – 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 Different Yesterday Tomorrow Ford Toyota Cherry Department stores Wal-Mart Internet retail Digital Equipment Dell RIM Blackberry Delta Southwest, Ryan Air Sky. West, Air taxis IBM Microsoft Linux At&T Cingular Skype Sony Disk. Man Apple i. Pod 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 You. Tube 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 DISTRIBUTORS TRADITIONAL MEDIA § DISTRIBUTORS will § Traditional media demand more TRADE such as TV 30 PROMOTION. This will second spots, leave less money for newspapers, etc. , marketing research, are growing LESS advertising and EFFECTIVE 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 Marketing budgets will be lower COMPETITION § Categories are so crowded with competitors that heavy price cutting will be UNAVOIDABLE Companies will want marketers to do more with less PUBLIC SOCIAL MEDIA NETWORKS § The public, in its wish § Social media to spend less, will be networks will play an less inclined to pay increasingly higher prices for top influential role in brands where the shaping brand quality differences evaluations 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.

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 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 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 channels and other stakeholders Don’t acknowledge the new social media world and their growing social responsibilities WE NEED TO…. RE-INVENT MARKETING

You Need Two Marketing Departments!! Most marketing departments are engaged in tactical brandmaintenance instead of brand-building. Strategic marketing is missing in many marketing departments. Strategic marketing requires taking a 3 -5 year view of the business. SO L N O I UT TWO MARKETING DEPARTMENT…!!! Downstream Marketing Markets TODAY’s Product Upstream Marketing Create TOMORROW’s Product

Five shifts: • 1 st Shift - from creating marketing strategies to driving business impact. • 2 nd Shift - from controlling the message to galvanizing your network. • 3 rd Shift - from incremental improvements to pervasive innovation. • 4 th Shift - from managing marketing investments to inspiring marketing excellence. • 5 th 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 21 st USA Today Super Bowl Ad Meter defeating ads made by professional agencies.

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 MARKETING 1. 0 MARKETING 2. 0 MARKETING 3. 0 Product-centric Marketing Customer-oriented Marketing Value-driven Marketing Objective Sell products Satisfy and retain the consumers Make the world a better place 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 Product specification Corporate and Product Positioning Corporate , Vision, Values Value propositions Functional and Emotional Functional, Emotional, and Spiritual Interaction with consumers One-to-Many Transaction One-to-One Relationship Many-to-Many Collaboration

Values-Based Matrix Model

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

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, Car. Max, Caterpillar, Commerce Bank, Container Store, Costco, e. Bay, Google, Harley-Davidson, Honda, IDEO, IKEA, Jet. Blue 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.

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.

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 3 M. • 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 i. Tunes 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, i. Tunes) – 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 In-store Observation Quantitative Surveys In home & shopping trips Orientation & Environment Awareness, Attitudes, & Behavior Why do you buy? Focus Groups/ Consumer Panels Listening for insights & trends Customer Research Neuro. Science and ZMET

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

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 Fed. Ex - overnight Wal-Mart - low prices/good values Hallmark - caring Nike - performance 3 M - 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 (Mc. Donald’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

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

LEADING B 2 B BRANDING COMPANIES • Du. Pont • Siemens • Bosch • General Electric • Saint-Gobain • UPS • Fed. Ex • Tentra Pak • Microsoft • Caterpillar • IBM • Daimler • Michelin • Tata Steel • Morgan Stanley

The Brand Within the Brand: “Ingredient Branding“ or In. Branding

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 My. Rate 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? ” 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. ”

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”

What Should Your Measure About Your Brand’s Standing? • Customer perceived value • Customer satisfaction • Customer loyalty • Customer advocacy • Customer co-creation

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.

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 FTSE 4 Good 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 longterm 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. Sustainability Profitability ? Returnability 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 1 Stretches disposable income by providing goods and services at lower prices. 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 2 Expands disposable income by providing goods and services not previously available for the bottom of the pyramid Nicholas Negroponte's XO and Nova net. PC personal computers. Glaxo. Smith. Kline and Novo Nordisk providing new essential medicines. 3 Increases disposable income by growing the economic activity of the underserved society. Grameen Phone illustrates this. 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 Mc. Kinsey-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