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A MARKET LEADER’S DEFINITION OF MARKETING
How do you define marketing?
When I ask managers this question, the answers are surprisingly diverse, even among marketing managers. But there is one group that defines marketing in very similar terms, and that group shares an important characteristic: they are market leaders.
In almost every industry, the competitive landscape looks similar. The majority of the players are engaged in a bloody battle for market share, competing fiercely with other organisations of their size, and generating about the same margin. I call these companies average performers because they all seem to perform within a narrow profit margin range.
Behind them are the battle-weary under-performers; their bottom lines are red and creditors are circling. These companies are still battling for business, but they’re not getting it. They’re not yet gone, but they are certainly on their way.
And then there are the market leaders. These companies consistently out-perform their market. They attract the best customers and do so at a better margin. And, compared to the fierce battle in which average performers are engaged, they seem to do so effortlessly.
What frustrates many marketing and non-marketing managers at average-performing companies is that an analysis of market leaders’ marketing expenses and activities doesn’t seem to provide insight into their success. Benchmarking studies show that both types of companies spend about the same percentage of their overall expenses on marketing, but they aren’t generating the same results. Market leaders are getting more from those same dollars. Even more frustrating to average performers is that market leaders seem to do the same sorts of things average performers do, from a marketing perspective.
At first blush, it might seem that their secret lies somewhere else. But it doesn’t.
Marketing is the key to market leaders’ success. And it is the key both because they define marketing differently and because they manage marketing differently.
This book will help you understand how market leaders define marketing and why it makes a difference in the results they are able to drive. It will also give you insight into how they manage their marketing operations and how you can emulate their best practices. Let’s begin with a closer look at the market leader’s definition of marketing.
HOW MARKET LEADERS DEFINE MARKETING
For the past 20 years, I have been working with clients to help them improve the financial returns they receive on marketing investments. Initially, I focused on improving operational efficiency in marketing, which I knew from personal experience contributed to sub-optimal returns. Although improving operational efficiencies did deliver substantial financial returns, the changes weren’t enough to produce financial returns rivalling market leaders. So, in 2001, I launched a study to identify why market leaders generate superior results on the same marketing investments and how average performers can adjust their behaviour to match their outcomes.
The research began with a focus group comprising executives from middle-market organisations who were market leaders in a diverse set of industries. I looked for companies that were recognised as leaders by their peers and whose financial performance was better than the average in their markets for at least ten years. In several cases, they had out-performed their competitors for decades. The participants were selected from industries that are fiercely competitive, with well-established competition and alternatives to purchasers. Focus group participants included executives from both business-to-business and business-to-consumer companies, as well as the executive director of a successful not-for-profit organisation.
Because I was particularly interested in how marketing was being managed among market leaders, the first point of discussion was to define marketing so that we could be sure our conversation covered the same basic content. Because definitions of marketing among managers can vary widely, ranging from sales alone, to promotional activities such as advertising, to a full list of the classic four ‘P’s of marketing, I fully anticipated spending time coming to consensus on what marketing is and what activities it includes.
There was no such need. Their definitions were the same. And that wasn’t the only surprise. Not only did all the participants agree, their definition of marketing was far broader than the one used by companies waging battle at the middle of the average performance pack.
For these market leaders, and the others with whom I’ve spoken since that initial focus group, marketing is defined as the profitable management of the interface between the market and its needs, and an organisation’s ability to meet those needs for the purpose of producing mutual benefit. It is why they are in business.
‘Marketing is the profitable management of the interface between the market and its needs, and an organisation’s ability to meet those needs for the purpose of producing mutual benefit.’
On the other hand, when I ask managers and executives within average performers to define marketing, the definitions are operational in nature. They are focused on the specific activities they are undertaking that will help them increase sales. Marketing is simply what they do to drive business in the door.
See the difference?
The market leaders’ definition of marketing focuses on a broader objective. For them, marketing is all about understanding and aligning their business with the needs of the market. In the market leaders’ definition of marketing, there is no mention of the need to sell a product or service. The market leader’s definition of marketing focuses on addressing customer needs. By serving market needs, they produce mutual benefit, which results in profit.
For market leaders, marketing doesn’t drive business to the company; it defines the business the company is in.
Make no mistake. The executives at market-leading companies are, by no means, altruistic. They are in business to build successful, profitable companies. However, they believe that by thoroughly understanding and continually improving their ability to serve their customers’ needs, profitability will result. Because they know that one size rarely fits all customers, they begin by focusing on the customers whose needs they are best able to serve profitably, leaving the others to their competitors. This intense focus on the market whose needs they can best serve, coupled with a carefully cultivated culture of curiosity about the customer, enables them to generate products and services that are more effective at meeting customer needs.
Building a ‘market orientation’ has been a popular concept among business leaders and management consultants for many years, and yet, most average performers haven’t integrated this concept into their core culture. They are still intensely operationally focused, seeing themselves primarily as a vendor of whatever product or service they sell. Although they may understand the benefit they deliver, very little of their focus is on understanding market needs or even understanding which segments of a larger market will be best served by the type of solution they offer.
By contrast, the executives of organisations that are market leaders use the knowledge they generate from their passionate pursuit of a better market understanding to guide virtually every aspect of their business. All of their operational activities are aligned with their understanding of the market.
Because all activities must be aligned, market leaders do not consider marketing to be distinct and separate from strategy. Marketing strategy is business strategy, and the executives within market-leading companies are at the helm of both strategic and marketing leadership.
This, for market leaders, is marketing, and they consider it the key to their financial success.
MARKETING, THE DISCIPLINE, VERSUS MARKETING, THE FUNCTION
After listening to this market-focused description from the executives of market leaders about how they lead marketing, you may be wondering where the marketing department exists in this equation. After all, the market leaders’ description doesn’t talk much about the aspects of marketing that other definitions include, such as advertising or sales. Where do they fit in?
Before answering that question, it should be noted that market leaders make a distinction between marketing, the discipline they champion as CEOs, and marketing, the function. Marketing, the discipline, is all about understanding the market at an intimate level and using that information to guide marketing strategy, which is indistinct from business strategy. It is the paramount responsibility of the executive team. Marketing, the function, is operational in nature and supports the company’s ability to meet the objective of marketing, the discipline: delivering value to customers. Both market leaders and average performers recognise the operational nature of the function of marketing. The difference between market leaders and average performers relative to the function of marketing is how it is managed.
*Source: Philip Kotler’s website: www.kotlermarketing.com/phil_questions.shtml#answer3
The structure of the marketing function varies depending on the organisation and particularly on the organisation’s size. In large organisations, the marketing function may consist of a number of different groups within the organisation, from product management to communications, who guide decisions on all four ‘P’s of marketing, including product recommendations, distribution channel selections, pricing guidelines and promotional efforts. The executive team often has a limited role, consisting primarily of oversight approval.
In smaller companies, the executive team may actively manage a portion of the marketing function themselves. With more limited personnel, they are more likely to assume responsibility for product- or service-offering decisions, pricing approaches, and sometimes channel selection or management. They may also be more actively engaged in the promotional aspects of marketing.
‘Marketing, the discipline, is all about understanding the market at an intimate level and using that information to guide marketing strategy, which is indistinct from business strategy. Marketing, the function, is operational in nature and supports the company’s ability to meet the objective of marketing, the discipline: delivering value to customers.’
Regardless of size, a key distinction between market leaders and average performers is that oversight of the marketing function isn’t delegated away from the executives. Like all aspects of the company’s operations, from finance to IT, human resources to logistics, marketing is carefully monitored by the executive team to ensure alignment with the customers’ needs and the company’s business and financial objectives.
To support this alignment, the marketing teams within market-leading companies are intimately acquainted with the organisation’s objectives, the market’s needs, corporate strategy and the aspects of promotions that are most likely to influence success. This deep understanding of their company’s goals and their alignment with the marketing discipline, as led by the CEO, ensures greater marketing department focus and efficiency. The marketing department is in lockstep with the leadership of companies at the forefront of their industry.
Contrast this to the typical relationship between the marketing discipline and the executive team in companies embroiled in fierce competition at the middle of the competitive pack, and perhaps even your own company. In these companies, the executive team is more likely to have the traditional, internally-focused definition of marketing. It is not uncommon for a CEO, a CFO or a COO to see marketing as largely promotional in nature and not their ‘responsibility’ as leaders. Because the executive team’s focus is on selling products or services, rather than understanding customers, the marketing department is tasked with ensuring that the company’s products or services bring in revenue, often operating outside of the broader business or financial context. In many cases, the only attention the department receives from the executive team is criticism when the company fails to meet sales objectives or wants a budget increase.
Organisations that lack the market orientation and marketing discipline at the executive level and relegate marketing to a function within the organisation are rarely synchronised in their march toward success. Each team member or function within the organisation is moving in a slightly different direction, with a slightly different pace, and the result is wasted energy and resources. This is why they fail to generate the returns that their more successful competitors do on their marketing investments.
MARKETING IN YOUR ORGANISATION—AND IN THIS BOOK
How does your organisation define marketing? Do you use the century-old definition of marketing as ‘the sales and promotions efforts managed by a marketing department within your company’? Does marketing include the broader scope of the classic four ‘P’s: product or service selection, pricing strategies, promotional efforts and placement? Or, do you currently use the market leaders’ definition, aligning everything you do as an organisation with your market’s needs in an effort to generate profitable, mutually beneficial solutions?
Regardless of which definition your organisation uses, I suspect you would prefer to be a market leader, generating superior profitability, instead of an average performer, struggling at the middle of the pack. This book was written for managers and executives whose training and experience has largely been focused on the financial or operational aspects of business. The objective is to give you, the non-marketing manager, the marketing knowledge required to help your organisation move toward market leadership or, if you are already a market leader, to maintain your competitive edge.
To accomplish this objective, you will need to understand how to effectively lead the discipline of marketing. This is the topic of the next section, ‘Managing the Discipline of Marketing.’ You will also need to understand the fundamentals of marketing strategy development in order to effectively evaluate marketing strategies developed by your marketing team. Also, as a manager or executive with a fiduciary responsibility to your organisation’s shareholders, partners, stakeholders, funders or investors, you also have a responsibility to ensure the company’s funds are generating the required rates of return. These are the topics of the third section of this book, ‘Evaluating Proposed Investments in the Marketing Function.’
The fourth section of the book, ‘Managing Marketing Operations,’ provides information about how to manage the marketing function effectively and efficiently, so that the benefits of the investments are realised, and the expenses and risk are minimised. Finally, the last section of the book includes four tests to ensure a marketing plan is ready for approval and a self-assessment tool that allows you to evaluate how well your organisation compares to the behaviours of market leaders.
CHAPTER 1 SUMMARY
Marketing means different things to different people. Definitions sometimes include one or more of the following components:
Advertising and other forms of promotion
Sales and efforts to generate sales
The four ‘P’s of marketing: product, price, promotion and place (or placement)
However, my research and experience reveals that the leaders of companies at the forefront of their industries, the market leaders, share a common definition. Further, that definition is one of the keys to their organisation’s financial success. For market leaders:
Marketing is the profitable management of the interface between the market and its needs and an organisation’s ability to meet those needs for the purpose of producing mutual benefit.
This definition of marketing has a significant impact on the way market leaders manage marketing and their companies. Among the most striking differences between market leaders and the average performers competing against them with less success are that market leaders:
Stay intensely focused on the customer market. The market leaders’ definition of marketing centres around the customer and their needs, not the competitive market or internal operations.
Consider marketing strategy to be business strategy. Market leaders consider marketing to be inseparable from strategy. Marketing strategy is business strategy. As a result, the CEO leads the company’s marketing.
Nurture a culture of curiosity. Market leaders share an intense curiosity about their markets and a passion for finding out more about their needs so that they can more effectively serve them. This passion is supported by a culture that encourages ongoing learning about customer needs, which is leveraged to continually improve company performance. This culture is considered key to marketing success, and nurturing a culture of continual learning is one of the CEO’s primary marketing responsibilities.
Focus on the markets whose needs they can best serve. This deep understanding of the market allows market leaders to be more focused and produce better financial results. They pursue the markets they know they can best serve, leaving less profitable markets to competitors, and they understand how to communicate the value of their solutions to their market more effectively than less curious competitors.
Ensure alignment between all corporate activities and the markets’ needs. Market leaders drive all decision making from this definition of marketing. Although they draw a distinction between marketing, the discipline, led by the CEO, and marketing, the functional department, everyone’s activities, including those of the marketing department, are coordinated in pursuit of the executive’s marketing vision.
Market leaders also make a subtle distinction between marketing, the discipline, which they lead, and marketing, the function, whose performance they oversee and manage. Although they are different in many ways, they work in tandem, and understanding and managing both effectively is critical to success.
The remainder of this book is based on the market leaders’ definition of marketing and covers both marketing, the discipline, and marketing, the function, including the effective management of the marketing function within an organisation and the financial analysis of marketing investments.