Chapter 1. Open Your Mind to the New Marketing

• How can the new marketing capability help companies increase their top-line growth?

• What key factors are sustaining the new marketing capabilities you need, and how do you get them?

• Can some simple principles guide your transformation to the New Marketing?

When we visit corporate executives, whatever business they are in and whatever geography they inhabit, their number one priority is always the same: “How do we generate growth, how do we sustain growth, and how do we achieve the culture of growth?” The problems of the supply side are largely solved. Supply has its processes, its software, and its metrics of efficiency. Today’s focus is the demand side. The financial markets, the board of directors, and our customers all require growth. It’s what matters in business today.

Growth Is Now Priority One

Survey data confirms our experience. The majority (80%) of CEOs have identified revenue growth as their primary objective. Most believe that growth will come from developing new products and entering new markets over the next five years.¹

¹ IBM Business Consulting Services, The Global CEO Study 2004 (IBM, 2004). Conducted with 456 CEOs.

Although the need for growth is universal, the capability for growth remains elusive. Ninety percent of those CEOs believe their companies are neither responsive enough to changing business conditions nor nimble enough to pursue new market opportunities.

Fortunately, the answer is at hand. In fact, it is right under our corporate noses. The answer is marketing.

You may recoil at this. Marketing is that slightly unsavory first cousin to sales that focuses on communications, with a little bit of glitz and a lot of spin, wrapped up in buzzwords like “positioning.”

Not so. We are talking about a totally new approach to marketing—one that ignites the engines of growth and energizes the capabilities these CEOs are clamoring for. We seek to change how management, from the top down, views and implements marketing and its strategic role in their organization.

Table 1.1 summarizes the differences in our approach compared to conventional marketing.

Table 1.1. Old Versus New Marketing

Companies with mature business units, such as Kimberly-Clark, Brown-Forman, and Wachovia, have successfully reignited their growth by developing the new marketing capability. We will show you how their marketing reengineering generated success and how you can adapt their experience to your business.

What’s New: The Trends That Are Reshaping Marketing

Marketing is at the end of its old S-curve and at the beginning of the next. The S-curve, shown in Figure 1.1, is a phenomenon of advances in technology. It portrays the life of a technology that starts with a disruptive innovation, advances through competitive exploration of possibilities to achieve the breakthrough to industry standards, and then reaps its economic rewards in maturity. As it does so, the next S-curve starts to form as a new disruptive cycle begins. The new curve eventually replaces the old one.

Figure 1.1. The marketing S-curve.

Marketing is on just such an S-curve. The current one is at its most extreme point—almost over. The current S-curve started in the 1930s when Proctor & Gamble (P&G) invented the market research department and the brand manager. In the 1940s and 1950s, the company added mass advertising, and then promotional marketing in the 1960s. A funnel approach was conceived, in which marketing generates as much awareness as possible to turn—by increasingly smaller percentages—that awareness into consideration, trial, repeat purchase, and loyalty. It’s built-in inefficiency. That’s pretty much the model that exists today. Marketing identifies customers by asking them survey questions. Advertising reaches these customers in various ways, and then Research asks them more questions to see if they “got it.” Promotion offers them discounts and special offers. Management assesses the effectiveness of all this via market share (the most laggard of lagging indicators) and penetration of a mass customer base. Not only are marketing departments devoted to maintaining this model, but also the finance department that manages the budgets, and the advertising agencies and marketing services companies that spend the budgets.

That’s the top of the old, aging S-curve. What’s at the beginning of the new one (shown in Figure 1.2)? It has a number of key elements:

• The new marketing has a different starting point. It begins with insights. An insight is a deep understanding of the motivations underlying customer behavior that can be turned directly into business action to generate new revenue. You’ll see in this book how the science of generating insights has advanced, along with the process of turning insights into innovative growth initiatives.

• Insights are derived from data, and marketing now has data that couldn’t be captured before. Several new methods are not only changing how data is collected; they’re also generating totally new data. One example is behavioral data from the Internet. Many individual customers are now “addressable.” Increasingly, marketers can reach customers individually as an electronic address that might move between a desktop computer attached to the Internet, a laptop on the go, a web-enabled mobile handheld communications device, or an iPod. Customers might be using e-mail, Instant Messenger, blogging, knowledge management tools, collaborative business software, or shopping. Marketers can reach them at most times and follow them around the web to analyze the behavior that reveals their needs.

Qualitative methods are advancing in the same direction. It is possible to conduct ethnographic studies (broadly defined as observing and recording how people behave) that generate behavioral data from around the globe. It’s quite easy, via the Internet, to identify ethnographic researchers in more than 100 countries and turn them loose with a research brief. Then you quickly get data back on the behaviors of customers in each of those countries.

Electronic or behavioral, this is new data. Marketers didn’t have it before; it doesn’t come from surveys.

• Not only is the data new, but marketers’ ability to analyze it has advanced as a result of new computational tools, both hardware-based and software-based. Statisticians and analysts can apply computational algorithms to the data to generate a totally new understanding of behavioral patterns that simply weren’t available before today.

For example, Yahoo! processes 10 terabytes of data per day about consumer behavior on the Internet. Browsing patterns, shopping patterns, the relationship between information and purchase, and innumerable other behavioral data streams are available.

• Marketing can process that data more rapidly. The exponential acceleration of microprocessor capabilities and the advent of networked techniques such as distributed computing enables Yahoo! and every other marketer on the planet to generate insights from all this data. Technologies such as search engines and advanced analytics software and predictive models can troll through the data and quickly identify the patterns, anomalies, and trends. Marketers can run what-if scenarios and forecast potential outcomes with lightning speed. We have solved the needle-in-a-haystack problem. Marketing is now poised to become a genuinely data-based science.

• Marketing can share data globally with internal and external constituencies to build a new, networked capability. Via the Internet and collaborative knowledge-sharing software, we can share a greater volume of information at greater speed with more people. The result is a faster speed of learning—defined as launching an initiative into the marketplace, reading the results, and reacting with new and more effective initiative. Information sharing takes place not just within the business community of individual firms and their customers. Today, huge productivity can be mined from sharing data with a broader community of practice that has the same mission and goal but doesn’t necessarily work for or do business with one company. Researchers, model-builders, academics, and peer-group panels can all participate in global data sharing and thereby accelerate the speed of learning.

• Marketing can allocate resources in new and more productive ways. The results of gathering new data, processing it with new tools and models, and sharing it in a network of global learning can include new ways to allocate resources effectively to drive growth. The new technique of resource allocation can be summarized as “Pick the winners, and advance them really fast.” The winners include success models, countries that are growing quickly, new products that test well and launch well, customer groups that are becoming more loyal and generating new revenues, and new customer engagement techniques. As Larry Huston, Vice President of Innovation at Procter & Gamble, suggests, “The world is not flat; it’s spiked.” The new science of marketing resource allocation focuses on identifying the emerging spikes, accelerating them until they peak, and then moving on to the next set of spikes.

• Most important, marketing is learning to use process to manage the demand side with a holistic approach, in the same way that supply-side management uses process to integrate the supply chain. Think of this as an end-to-end integrated demand-management process. All of the management thinking behind the productivity revolution of the past 50 years has been centered on process as the core methodology. Yet marketing has never been a process-based discipline—until the recent advance from the old S-curve to the new one. Great advances are being made in not only mapping the processes, but also capturing them in software and making them available on every marketing practitioner’s desktop across the globe. Working inside software for the first time, marketers can tap into the new data and analytics, utilize knowledge-management capabilities, and collaborate globally in open innovation networks.

Figure 1.2. The new marketing S-curve.

The Marketing-Led Growth Model

All this adds up to a new model of marketing-led growth. New data, never before available, processed with new speed via new analytics, is shared globally with a networked internal and external marketing community. The community uses the data in a disciplined process to create new initiatives in product and service innovation, communications innovation, customer engagement innovation, and channel management innovation. Rapid introduction of the innovations to the marketplace generates some “spikes,” which are identified by performance analytics and are accelerated by dynamic resource allocation. The model operates continuously to generate growth that is above the benchmark because the speed and integration of the end-to-end process capitalizes on the competitive advantage before the market can arbitrage it away. This is the new marketing.

Can you be confident in the direct link between investing in marketing—in the end-to-end capability building that encompasses insights generation, insights-into-innovation, brand building, and analytics? Subsequent chapters explore this concept in supportive detail:

• You’ll read about Brown-Forman and its portfolio of brands—especially the Jack Daniel’s brand. Some years ago, Chairman and CEO Owsley Brown declared that the company would invest in marketing and become the best brand builder in its industry. As a result, Brown-Forman has been able to deliver consistent revenue and profit growth. In its last annual report, sales increased 10%, and earnings grew 15% for the year, extending an impressive ten-year run of double-digit top-line and bottom-line growth. Jack Daniel’s continues to be the driving force, with double-digit growth in gross profits and depletion (sales volume) growth of 8%.

• In Chapter 14, “Metrics and Building the Culture of Accountability,” you will read about research conducted in the pharmaceutical industry (a particularly data-rich field). This research demonstrates the direct causal link between an increase in brand equity (defined as a measure of how customers—in this case, physicians—feel about a particular pharmaceutical brand) and a commensurate increase in market share. These increases translate directly into revenue. The model can compute the revenue value of a one-point increase in equity and the cost of a one-point increase in equity, and therefore accurately define the ROI. The model is applicable in a broad range of industries beyond pharmaceuticals.

• In Chapter 5, “Measuring Consumer Engagement,” you’ll read about the process and metrics of customer engagement, a fundamental building block of the new marketing. This metric measures the level of customer engagement, and, in comparing one brand or company to its competitors, computes a share of customer engagement. By tracking both the cost of generating engagement and the revenue that results from it, the system delivers a measure called return on brand engagement. This is a direct measure of the ROI in marketing. Numerous case studies show returns of up to 40% (increases in revenue over increases in marketing costs). The model’s validity holds in every field in which it has been applied, from automobiles to zirconia.

You can be confident in the linkage among marketing investment, the growth of brand equity (how your brand, company, product, or service is perceived by its target audience), and revenue growth and profits.

From Function to Core Capability: The Role of Marketing Redefined

The new marketing can solve the biggest challenge that CEOs face: driving and sustaining real top-line revenue growth. But doing so requires the commitment of the CEO and the management team to turn marketing into a powerful business-building tool by making it a core capability rather than a staff function.

A useful analogy is to think of marketing as a set of capital assets. If you invest in the assets appropriately, they create value and generate return. Four kinds of assets make up the marketing capability:

• Intellectual property assets are the processes, knowledge base, patents, methods, ideas, and innovations that can be shared with the customer network and marketing community. We will focus especially on the brand.

• Human assets include the talent that’s inherent in the human resources recruited, cultivated, and retained; the skills that are developed through purposeful training and management; and the culture that is managed through marketing leadership.

• Relationship assets include all the interactions that connect the individuals inside and outside the firm, as well as the channel and partner relationships with vendors, distributors, and service providers. It is clear that marketing will develop a new type of human capital—different people with different skills—than has been the case in the past.

• Reputation assets are your external relationships with customers, channels, and partners. They are strengthened and lengthened when your reputation is good. So is your ability to recruit, retain, and leverage your human assets in your internal network. Reputation is about keeping your promises so that you develop trust. Keeping your promises requires not only intent, but investing in systems that mean that you can deliver on your marketing promises.

• In addition, structural factors include the software, technology, communications, and other infrastructure to share knowledge and ideas internally; to improve intellectual property, including processes and methodologies; to bring new ideas to the market as innovation; and to help strengthen relationships with outside entities, including both customers and suppliers.

With these assets, marketing capability can be built systematically. How? By demanding the same systematization in marketing as in the corporation’s other business processes. Systemization does the following:

• It builds on marketing insights, business processes, and the use of technology.

• It lets you measure ROI in business processes.

• It enables corporations to focus investments in projects that increase ROI and shareholder value.

Marketing as a function is perceived as a staff-driven department that lies in the expenses column of the balance sheet. Marketing as a core capability is strategic and is integrated into every aspect of the organization.

Drive Top-Line Revenue Growth by Building Brand Equity

For the 21st-century global corporation, marketing has the potential to become a driving force for shareholder value. The key asset that is leveraged for value is the brand. You will read more about brand building in subsequent chapters, but at this point, let’s establish context. The term “brand” often conjures a narrow picture of familiar packaged-goods basics like Tide and Snickers. In this book, brand has a different meaning:

A brand is that intangible capital asset that generates reliable, long-lasting, low-risk cash flows by generating loyal purchase behavior among identifiable users.

Brands that fit this definition include IBM, American Express, Cadillac, the New York Times, and JetBlue. You can fill in others you consider brands as well.

The breakthrough-growth company recognizes that the single most important strategic objective is to build brand equity: that set of perceptions in customers’ minds associated with favorable purchase behavior and loyalty. The easiest way to understand the significance of brand equity is to recognize that brand loyalty is a function of higher brand equity. The two correlate. The cultivation of customer loyalty is the most important and easily measured objective for which marketing should be held accountable. More-consistent revenue growth, better profit margins, longer profit life cycles, and a greater likelihood of successful innovations to continue generations of long-term growth will follow.

Brand Building Is the Wisest Investment for Sustainable Growth

Brands are assets that get stronger with time. They represent a historical accumulation of investment in the form of customer understanding, innovation, communications, distribution, public awareness and visibility, research and development (R&D), and the application of knowledge and energy by the people who have worked to support the brand over time. The longer they’ve been in existence, the better.

Consumers who hold strong perceptions of a brand overwhelmingly favor that brand with more frequent purchase and usage and greater loyalty (the brand fills a higher percentage of their requirements). These customers require fewer promotions and price incentives and therefore are more profitable to the corporation. They recommend the brand to their friends and coworkers and become a low-cost and highly persuasive marketing campaign on their own. They are highly receptive to brand expansion into adjacent areas of need and therefore make the introduction of new items faster, cheaper, and more profitable.

One of the great advantages of strong brands is their capacity to introduce products and services outside of a narrow category description. They can be positioned as leaders in new, innovative, emergent fields that have greater growth and profitability potential. For example, Dell is now a vast array of products, all on a single web-based customer interface and advertising platform. And the value of that brand has multiplied from when it was simply a direct-delivery desktop computer. Huggies^® from Kimberly-Clark are not only diapers, but other forms of baby clothing (training pants and swimming pants), baby toiletries, and websites. They are also information exchanges to help moms answer their questions about baby development and linking them to other moms in a “community of practice” information exchange.

So, brand loyalty leads directly to higher shares, faster growth, valuable distance versus the competition, and economies of scale. These benefits translate directly into shareholder value.

This Is Not Your Father’s Brand Building

You may rightly ask whether this is the same branding and positioning story we have been hearing since Rosser Reeves (Reality in Advertising) identified the unique selling proposition, David Ogilvy (Confessions of an Advertising Man) focused on a brand personality, and Trout and Ries (Positioning) defined positioning as the perceptual space in the consumer’s mind. Indeed, if we want to go back to the 1920s, Claude Hopkins (Scientific Advertising) pretty much set the stage for the advertising industry in the 20th century, and others have provided variations on his theme. Their basic idea is that after the product or service is produced, it is the marketer’s job to define the inherent emotional insight and/or product attribute that will create value in the consumer’s mind. This assumes parity products in a category. The focus is on perception of brand value rather than a systematic integration of marketing insight, marketing management, and technology to methodically increase sustaining value for the enterprise.

The difference we propose is quite fundamental. Twentieth-century branding was focused in the customer’s mind based on mass-distributed products or services advertised via mass media. Twenty-first-century marketing successes will be defined by companies that can integrate customer insights directly into a systematic application of business processes. Technology will be used to create products and services that are dynamically responsive, adaptive, and based on better and faster methods to satisfy the consumer’s needs. This will happen in ways that were inconceivable in the era of mass marketing and distribution of parity products.

Growth as a Process Captured in Marketing Software

One of the most exciting aspects of the new marketing is that in the future it will be managed with the help of enterprise software systems. This development will bring all the productivity benefits of technology investments to marketing—productivity to which marketing has not had access in the past.

Marketing process can be integrated into marketing software, transforming marketing into a true business discipline.

This is the same principle that governs enterprise resource planning (ERP) software, a well-established business discipline at the “back end” of the enterprise. ERP organizes the manufacturing, logistics, and supply chain that enable the enterprise to effectively and efficiently manufacture and deliver services and products to customers and consumers.

ERP runs the supply side of virtually all corporations today. Enterprise marketing management (EMM) software will run the demand side.

It’s important to understand the fundamental and revolutionary difference between ERP software and marketing software. ERP is transactional software. The steps in the process are transactions between suppliers and customers, or between internal groups and their internal customers. The software manages the transaction, focusing on matching what is “ordered” to what is “supplied.”

Marketing is social software. It operates in a world of knowledge and relationships. Marketing captures data and information and processes it into insights. Then it translates those insights into innovations, communications, and experiences that build brand equity. Within the corporation, marketing is collaborative. Between the corporation and the customer, marketing builds and manages relationships. These processes are iterative, not transactional. They are flexible and responsive more than they are rules-based.

Social software is built around customer-/consumer-centric process, collaborative knowledge sharing, learning, networking, and continuous improvement via metrics.

Marketing capability incorporates the organization, skills, knowledge, technology, and resources to operate the software effectively, efficiently, and competitively.

This will not be software as we thought of it in the twentieth century—as operating systems and applications residing on laptops, desktops, and servers. This will be new software that shares knowledge and creates new knowledge through both human collaboration and continuous data loops. This software also will build intelligence by tracking customer behavior and creating the behavioral profiles that result in relevant and differentiated innovation, communication, and branded experiences. From the customer’s standpoint, it is marketing “on demand”—responsive to needs and reinforcing relationships.

Figure 1.3 illustrates this end-to-end process.

Figure 1.3. The end-to-end marketing process.

Summary

• Growth is the universal business goal.

• Growth need not be hit-or-miss or high-risk. It can be systematized and sustained.

• Marketing drives growth when it is viewed as a capability rather than a specialized function.

• The elements of capability are process, knowledge sharing, innovation skills and execution, relationship building and learning, and responding through measurement. Technology captures and systematizes this capability.

• The equivalent technology for the supply side is ERP—transactional management software.

• The software for demand creation and demand management is social software rather than transactional software.

• This social software can be systematically structured using component business modeling and can be made available on demand.