Lesson 8
The Past, Present and Future of Marketing

– In your books, you have pointed out that globalization, hypercompetition, and the Internet are reshaping markets and businesses. What effect are these dynamics having on marketing?

All three forces act to increase downward pressure on prices. Globalization means that companies will move their production to cheaper sites and bring products into a country at prices lower than those charged by the domestic sellers. Hypercompetition means that there are more suppliers competing for the same customer, leading to price cuts. And the Internet means that people can compare prices more quickly and move to the lowest-cost offer. The marketing challenge, then, is to find ways to maintain prices and profitability in the face of these macro trends. No country’s industry is going to hold on to its customers if it can’t continue to lead in offering the most value.

At the same time, various world regions are becoming more integrated and more protective. The members of a region are seeking preferential terms from the other members of the region. But artificial trade preferences cannot last long against a substantial deterioration in value.

– What are the main new trends in marketing?

My list would include:

– From make-and-sell marketing to sense-and-respond marketing

– From owning assets to owning brands

– From vertical integration to virtual integration (outsourcing)

– From mass marketing to customized marketing

– From operating only in the marketplace to also operating in cyberspace

– From pursuing market share to pursuing customer share

– From focusing on customer attraction to focusing on customer retention

– From transaction marketing to relationship marketing

– From customer acquisition to customer retention and satisfaction

– From mediated marketing to direct marketing

– From marketer monologue to customer dialogue

– From separated planning of communications to integrated marketing communications

– From single-channel marketing to multichannel marketing

– From product-centric marketing to customer-centric marketing

– From the marketing department doing the marketing to everyone in the company doing the marketing

– From exploiting suppliers and distributors to partnering with them

– How will organizations be affected by the substantial increase in the velocity of change?

Successful companies must practice trend watching and scenario planning. It never hurts to identify trends and speculate about their implications for the company. Companies can also benefit from imagining different future scenarios and planning responses to them. Royal Dutch/Shell attributes some of its profitability to the use of scenario planning.

– What are the major changes within the field of marketing since the famous 4Ps?

There have been countless changes. We have been shifting from mass marketing to segment marketing to niche marketing to one-to-one marketing. We have recognized the growing importance of service. We have improved our skills at brand building and brand asset management. We are making better use of Web marketing. We are developing new metrics for measuring the impact of marketing expenditures.

– What are the newest skills needed in marketing?

Marketing traditionally has relied on four marketing skills and tools: the sales force, advertising, sales promotion, and marketing research. Every company needs to master these tools. But marketing departments also need a whole new set of skills. Among them are brand building, customer relationship management, database marketing, telemarketing, experiential marketing, and profitability analysis by product, segment, channel, and customer.

– What is experiential marketing?

Marketers need to think more about delivering a positive experience for the customer than about simply selling a product or a service. Starbucks markets a «coffee experience» as customers sit in its attractive shops and escape from the hustle and bustle of the busy world. The famous Barnes & Noble chain of bookstores delivers an experience that includes chairs and tables for sitting and reading, evening lectures and performances, and a great coffee shop. REI, a retailer selling climbing equipment, includes a climbing wall and a simulated rainfall in its stores so that customers can test and experience the performance of its products. This suggests that marketers should think through the experience that customers have when they obtain a product or service and see how they can provide a simulation of this experience.

– What are metamarkets?

A metamarket facilitates all of the activities involved in obtaining an item for use or consumption. To buy a car, I must choose the car, finance it, and obtain insurance. Edmunds.com is an online metamarket where I can get information about all cars, search for the best dealer for the car that I want, arrange for a loan, and buy insurance. Another example is theknot.com, an online metamarket for obtaining everything connected with preparing a wedding, including gowns, invitations, gifts, etc.

– What are the most significant challenges marketers face today?

I would list the following challenges:

1. Getting better financial measures of the impact of marketing programs. Marketing has been lax in developing marketing metrics to show what particular expenditures and campaigns have achieved. CEOs are no longer satisfied with measures of how much awareness, knowledge, or preference has been created by marketing programs. They want to know how much sales, profit, and shareholder value has been created. One step in the right direction is at Coca-Cola, where its marketers must estimate the financial impacts of their programs before getting a budget and after spending the money. This will produce a financial mindset in Coca-Cola’s marketers.

2. Developing more integrated information about important customers. Customers come in contact with a company at various touchpoints: by e-mail, by snail mail, by phone, in person, and so on. Yet if these touchpoints are not recorded, the company won’t have a 360-degree view of a prospect or customer and therefore is handicapped in developing sound offerings and communications for that customer.

3. Getting marketing to be the company’s designer and driver of market strategy. Too much marketing today is 1P marketing; that is, marketing deals only with promotion, with other departments heavily determining the product, the price, and the place. I remember a major European airline at which the VP of marketing confessed that he doesn’t set the fare or the product conditions (food, staff, decor) or the flight schedules, but only the advertising and the sales force. How can marketing be effective if the 4Ps are not under unified planning and control?

4. Facing lower-cost/higher-quality competitors. As China continues its rapid growth, U.S. firms will face a repeat of the Japanese threat, which consisted of competing with Japanese companies that were able to offer better products at lower costs. This will force more U.S. companies to shift their production to China, and this will reduce jobs at home.

5. Coping with the increasing power and demands of mega-distributors. Mega-retailers such as Wal-Mart, Costco, Target, Office Depot, and others are commanding a larger share of the retail marketplace. Many mega-retailers are carrying store brands that are equal in quality to national brands and lower in price, thus forcing down manufacturers’ margins. National-brand companies feel more than ever at the mercy of mega-retailers and are desperately searching for defensive and offensive strategies.

– You say that the main economic problem plaguing companies is industry overcapacity. What are the main causes of this problem? How can companies cope with it?

Almost every industry suffers from overcapacity. The world auto industry could probably produce 30% more cars without adding another factory. The same can be said for the steel industry and many chemical industries. Customers are scarce, not products. Overcapacity is the result of companies’ overoptimism about economic prospects and about their prowess in the marketplace. I have seen many companies plan for a 10% increase in sales when the total market is growing by only 3%. When this happens, the result is overcapacity and hypercompetition. Hypercompetition can only result in falling prices. The main defenses include (1) building a superior brand, (2) developing more loyal customers who will pay a higher price, (3) and acquiring or merging with other companies to rationalize the supply.

– What is the difference between a competitive market and a hypercompetitive market?

Many markets have moved from being competitive markets to becoming hypercompetitive markets. In a competitive market, a company can usually sustain its market position and competitive advantage. In a hypercompetitive market, there is hardly any sustainable competitive advantage. Rapid technological change and globalization can destroy competitive advantages overnight. The only hope is to practice continuous improvement – some even say continuous breakthroughs. When Jack Welch was CEO of General Electric, he told his people: «Change or die!» Perhaps the only advantage a company can have is an ability to change faster than its competitors.

Companies, of course, should study other companies that have mastered certain processes, whether those be product development, customer retention, or order fulfillment. Benchmarking, however, has two forms: passive, in which one company copies the practices of another; and creative, in which one company copies and improves on a process seen at another company. Creative benchmarking is about bettering the best, not just copying the best.

– You write that the customer has become the hunter. What impact does that have on marketing strategies?

Customers now have the power. With the advent of the Internet, they have great amounts of information about brands, prices, product quality, features, and service at their disposal. This is in contrast to the past, when information was largely in the hands of the sellers and the cost of acquiring information was high for the buyers. Today the buyer of a car goes on the Internet, searches for product and price information, and comes armed with the facts to wrest a good price from the seller. The sellers who have the best chance to survive and prosper are those who have found ways, in the words of Jack Welch, to «keep giving the customers more for less… while maintaining a profit.»

– How can a company survive in an environment where the markets are changing faster than the marketing?

Not all companies can survive! This is evidenced by the high rate of bankruptcy and the rapid increase in M&As. When there is too much capacity, mergers help to rationalize that capacity. The companies that will do well will be those that can create and deliver the most value to customers. The task is to assess the trajectory of customer wants accurately.