CHAPTER THIRTY-TWO

Four Marketing Lessons for the Future

OF THE TOP MARKETING lessons for the highly competitive ’90s, the most crucial one may well be that buying customers doesn’t work. Witness two spectacular marketing failures of the past few years: the collapse of the Hyundai Excel and the fiasco caused by the discounts and bonuses offered by the Big Three U.S. auto makers.

The Excel was the Wundercar of 1987-88. Fifteen months after the Korean car’s introduction into the U.S. market, it was selling at an annual rate of more than 400,000 cars—the fastest growth of any automobile anywhere in history. But by mid-1990, only two years later, the Excel had all but disappeared.

There was nothing wrong with the car. But the company had greatly underpriced it to shoot itself into the U.S. market. As a result, it had no profits to plow back into promotion, service, dealers or improvements to the car itself. Hyundai, copying the Japanese, attacked the undefended low end of the market. But the Japanese learned long ago that to do so requires a substantial profit cushion, if only in the home market. They always quote to me what Henry Ford is supposed to have said, all of 80 years ago: “We can sell the Model T at such a low price only because it earns such a nice profit.”

Few New Buyers

GM and Chrysler—and Ford to a lesser degree—also tried to buy customers in the late ’80s; the results have been equally disastrous. Faced with growing defections of customers to the Japanese, the Big Three offered round after round of special incentives: discounts, cash bonuses, low-interest or no-interest financing. Each offer brought immediate sales and was hailed as a success. But the moment it expired sales collapsed, and to a lower level than before the latest special offer.

The offers attracted few, if any, new buyers; customers who had already decided to buy a domestic car simply waited for the next special offer to come along. Potential customers, however, were turned off. “If they can sell cars only by giving them away,” was the reaction, “they can’t be much good.” Thus the American public brushed aside the very real improvements the Big Three have made in the past five years in quality, service, and styling.

As a result, GM and Chrysler have lost substantial market standing to the Japanese—and Ford has barely held its own. The Big Three have also weakened themselves financially. Compared to its archrival, Toyota, even GM no longer has very deep pockets.

How to define the market is the second lesson—the lesson of what was both a major marketing success and a major marketing fiasco: the conquest of the American market by the fax machine.

Seven or even five years ago, these machines were found only in a few large offices. Today they are ubiquitous and are rapidly spilling out of the office and into the home. The fax machine is American in invention, technology, design, and development. And U.S. manufacturers had fax machines all ready to be sold. Yet not one fax machine offered for sale in the U.S. today is American-made.

The Americans did not put the fax machines on the market, because market research convinced them that there was no demand for such a gadget. But we have known for decades that one cannot conduct market research on something not in the market. All one can do then is ask people: “Would you buy a telephone accessory that costs upwards of $1,500 and enables you to send, for $1 a page, the same letter the post office delivers for 25 cents?” The answer, predictably, will be “no.”

The Japanese, instead, looked at the market rather than market research. It told them that economics are a poor guide to the information and communications markets. Not one of the successes in these markets since the early ’50s can be explained in economic terms, whether the mainframe computer, the PC, the copying machine, the car telephone, or the VCR. None reduces costs or increases profits. Even more important, the Japanese defined the market differently. They did not ask, “What is the market for this machine?” Instead, they asked, “What is the market for what it does?” And they immediately saw, when looking at the growth of courier services such as Federal Express in the ’70s and early ’80s, that the market for the fax machine had already been established.

Another lesson born of failure: the precipitate decline of the big-city American department store. The cock of the walk in 1980, it is in severe trouble, if not in bankruptcy, 10 years later. The decline is not—as is widely believed—the result of financial manipulation and miscalculation burdening the stores with crushing debt. If department stores today had the same share of the market they had 10 years ago, they could carry the debt. What brought them low is the most common of all marketing sins: ignoring the people who should be customers but aren’t.

No one has better customer data than the big department store or studies them more assiduously. But these data are all about people who already shop at the store. During the ’80s the department stores, by and large, held on to their old customers. But their share of new customers was shrinking steadily—especially their share of the most significant group, the educated and affluent two-earner families. They never learned that these people shop together, shop in the evenings, and are far more value-conscious than the traditional department store customer. Sooner or later the total number of customers always goes down, and with it the customer base, if an industry’s or business’s share of new customers declines. By then it is in serious trouble.

Marketing starts with all customers in the market rather than with our customers. Even a powerful business rarely has a market share much larger than 30 percent. This means that 70 percent of the customers buy from someone else. Yet most businesses or industries pay no more attention to this 70 percent than the department stores did.

The final lesson is that of the success of the new “pastoral” churches by exploiting demographic changes as marketing opportunity.

Traditional churches and synagogues in the U.S. have been losing members steadily for 40 years, whether “mainstream” or “dissident”; liberal, conservative, evangelical, or fundamentalist; Protestant, Catholic, or Jewish; white, black, or racially integrated. But during the past 15 years new kinds of congregations have been growing fast. They range across all denominations and across the theological spectrum from ultraliberal to rockbound fundamentalist—and many have no discernible theology at all. But they do have one thing in common. They saw a major opportunity in America’s demographic changes—in the emergence of a large population of elderly people, but especially in the emergence of the new educated, affluent two-earner family.

Both groups were bored with the traditional churches and increasingly stayed home. Traditional churches saw them as “noncustomers”; the pastoral churches saw them as “potential customers.” They asked what these customers need and want in a church. They focus, as a result, on the individual’s spiritual wants; and on the individual’s need for a freely chosen but close community. And they try to satisfy the desire of the affluent younger people to be put to work in the church and to hold responsible positions in its governance.

Large Pastoral Congregations

Fifteen years ago there were few such churches around, and most were quite small. Today there are some 20,000 large pastoral churches, each with a membership of 2,000 people or more—and some 5,000 of them have congregations in excess of 4,000 or 5,000.

None of these marketing lessons are new. Anyone who has taken a marketing course these past 30 years or who has read a marketing text should know them. We have known all along that buying customers boomerangs; that one can use market research only on what is already in the market; that the customer rather than the maker defines a market; that those who should be customers but aren’t are a critical group to watch; that change has to be exploited as opportunity, and that demographic change offers the greatest—and the least risky—opportunity.

But the right marketing knowledge won’t be much help in this turbulent, competitive, fast-changing decade. It requires the right marketing action.

[1990]