Texas A&M University Kingsville Strategic Marketing and Quality Engineering Summary

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For the exclusive use of B. Cheeti, 2020. HBR Guide Series General Management FEATURING HBR Guide to Better Business Writing HBR Guide to Finance Basics for Managers HBR Guide to Getting the Right Work Done HBR Guide to Managing Up and Across HBR Guide to Persuasive Presentations HBR Guide to Project Management Stop pushing products—and start cultivating relationships with the right customers. If you read nothing else on marketing that delivers competitive advantage, read these 10 articles. We’ve combed through hundreds of articles in the Harvard Business Review archive and selected the most important ones to help you reinvent your marketing by putting it—and your customers—at the center of your business. Leading experts such as Theodore Levitt and Clayton Christensen provide the insights and advice you need to: • Figure out what business you’re really in • Create products that perform the jobs people need to get done • Get a bird’s-eye view of your brand’s strengths and weaknesses • Tap a market that’s larger than China and India combined • Deliver superior value to your B2B customers • End the war between sales and marketing Stay informed. Join the discussion. Visit hbr.org/books Follow @HarvardBiz on Twitter Find us on Facebook, LinkedIn, YouTube, and Google+ ISBN: 978-1-4221-8988-7 90000 hbr.org/books US$24.95 / CAN$27.50 Strategic Marketing Looking for smart answers to your most pressing work challenges? Try these and other titles in the practical HBR Guide series: On Strategic Marketing  “Marketing Myopia” By Theodore Levitt Classic ideas, enduring advice, the best thinkers— all in one place HBR’s 10 Must Reads series is the definitive collection of ideas and best practices for aspiring and experienced leaders alike. These books offer essential reading selected from the pages of Harvard Business Review on topics critical to the success of every manager. On Strategic Marketing Each book is packed with advice and inspiration from leading experts such as Clayton Christensen, Peter Drucker, Rosabeth Moss Kanter, John Kotter, Michael Porter, Daniel Goleman, Theodore Levitt, and Rita Gunther McGrath. Titles in this bestselling series include: • HBR’s 10 Must Reads: The Essentials • HBR’s 10 Must Reads on Change Management • HBR’s 10 Must Reads on Communication • HBR’s 10 Must Reads on Leadership • HBR’s 10 Must Reads on Managing People • HBR’s 10 Must Reads on Managing Yourself • HBR’s 10 Must Reads on Strategy • HBR’s 10 Must Reads on Teams If you read nothing else on marketing that delivers competitive advantage, read these definitive articles from Harvard Business Review. 9 781422 189887 This document is authorized for use only by Bharath Cheeti in BUOL 733, Strategic Marketing-1 taught by Daniel Kanyam, University of the Cumberlands from Aug 2020 to Feb 2021. HBRMRMarketing_11366.indd 1 1/10/13 2:53 PM 171982 00 i-viii r1 ma.qxd 1/5/13 10:18 AM Page i For the exclusive use of B. Cheeti, 2020. HBR’S 10 MUST READS On Strategic Marketing This document is authorized for use only by Bharath Cheeti in BUOL 733, Strategic Marketing-1 taught by Daniel Kanyam, University of the Cumberlands from Aug 2020 to Feb 2021. 171982 00 i-viii r1 ma.qxd 1/5/13 10:18 AM Page ii For the exclusive use of B. Cheeti, 2020. HBR’s 10 Must Reads series is the definitive collection of ideas and best practices for aspiring and experienced leaders alike. These books offer essential reading selected from the pages of Harvard Business Review on topics critical to the success of every manager. Titles include: HBR’s 10 Must Reads on Change Management HBR’s 10 Must Reads on Collaboration HBR’s 10 Must Reads on Communication HBR’s 10 Must Reads on Innovation HBR’s 10 Must Reads on Leadership HBR’s 10 Must Reads on Making Smart Decisions HBR’s 10 Must Reads on Managing People HBR’s 10 Must Reads on Managing Yourself HBR’s 10 Must Reads on Strategic Marketing HBR’s 10 Must Reads on Strategy HBR’s 10 Must Reads on Teams HBR’s 10 Must Reads: The Essentials This document is authorized for use only by Bharath Cheeti in BUOL 733, Strategic Marketing-1 taught by Daniel Kanyam, University of the Cumberlands from Aug 2020 to Feb 2021. 171982 00 i-viii r1 ma.qxd 1/5/13 10:18 AM Page iii For the exclusive use of B. Cheeti, 2020. HBR’S 10 MUST READS On Strategic Marketing HARVARD BUSINESS REVIEW PRESS Boston, Massachusetts This document is authorized for use only by Bharath Cheeti in BUOL 733, Strategic Marketing-1 taught by Daniel Kanyam, University of the Cumberlands from Aug 2020 to Feb 2021. 171982 00 i-viii r1 ma.qxd 1/5/13 10:18 AM Page iv For the exclusive use of B. Cheeti, 2020. Find more digital content or join the discussion on www.hbr.org. Copyright 2013 Harvard Business School Publishing Corporation All rights reserved No part of this publication may be reproduced, stored in or introduced into a retrieval system, or transmitted, in any form, or by any means (electronic, mechanical, photocopying, recording, or otherwise), without the prior permission of the publisher. Requests for permission should be directed to permissions@hbsp.harvard.edu, or mailed to Permissions, Harvard Business School Publishing, 60 Harvard Way, Boston, Massachusetts 02163. The web addresses referenced in this book were live and correct at the time of the book’s publication but may be subject to change. Library of Congress Cataloging-in-Publication Data HBR’s 10 must reads on strategic marketing. p. cm. — (HBR’s 10 must read series) Includes index. ISBN 978-1-4221-8988-7 1. Marketing—Management. 2. Strategic planning. I. Harvard business review. II. Title: HBR’s ten must reads on strategic marketing. III. Title: Harvard business review’s 10 must reads on strategic marketing. HF5415.13.H368 2013 658.8'02—dc23 2012037855 ISBN: 9781422189887 eISBN: 9781422191521 This document is authorized for use only by Bharath Cheeti in BUOL 733, Strategic Marketing-1 taught by Daniel Kanyam, University of the Cumberlands from Aug 2020 to Feb 2021. 171982 00 i-viii r1 ma.qxd 1/5/13 10:18 AM Page v For the exclusive use of B. Cheeti, 2020. Contents Rethinking Marketing 1 by Roland T. Rust, Christine Moorman, and Gaurav Bhalla Branding in the Digital Age 15 by David C. Edelman Marketing Myopia 29 by Theodore Levitt Marketing Malpractice 57 by Clayton M. Christensen, Scott Cook, and Taddy Hall The Brand Report Card 77 by Kevin Lane Keller The Female Economy 97 by Michael J. Silverstein and Kate Sayre Customer Value Propositions in Business Markets 113 by James C. Anderson, James A. Narus, and Wouter van Rossum Getting Brand Communities Right 133 by Susan Fournier and Lara Lee The One Number You Need to Grow 151 by Frederick F. Reichheld Ending the War Between Sales and Marketing 171 by Philip Kotler, Neil Rackham, and Suj Krishnaswamy About the Contributors Index 195 197 v This document is authorized for use only by Bharath Cheeti in BUOL 733, Strategic Marketing-1 taught by Daniel Kanyam, University of the Cumberlands from Aug 2020 to Feb 2021. 171982 00 i-viii r1 ma.qxd 1/5/13 10:18 AM Page vi For the exclusive use of B. Cheeti, 2020. This document is authorized for use only by Bharath Cheeti in BUOL 733, Strategic Marketing-1 taught by Daniel Kanyam, University of the Cumberlands from Aug 2020 to Feb 2021. 171982 00 i-viii r1 ma.qxd 1/5/13 10:18 AM Page vii For the exclusive use of B. Cheeti, 2020. HBR’S 10 MUST READS On Strategic Marketing This document is authorized for use only by Bharath Cheeti in BUOL 733, Strategic Marketing-1 taught by Daniel Kanyam, University of the Cumberlands from Aug 2020 to Feb 2021. 171982 00 i-viii r1 ma.qxd 1/5/13 10:18 AM Page viii For the exclusive use of B. Cheeti, 2020. This document is authorized for use only by Bharath Cheeti in BUOL 733, Strategic Marketing-1 taught by Daniel Kanyam, University of the Cumberlands from Aug 2020 to Feb 2021. 171982 01 001-014 r1 ma.qxd 1/5/13 10:20 AM Page 1 For the exclusive use of B. Cheeti, 2020. Rethinking Marketing by Roland T. Rust, Christine Moorman, and Gaurav Bhalla I IMAGINE A BRAND MANAGER sitting in his office developing a marketing strategy for his company’s new sports drink. He identifies which broad market segments to target, sets prices and promotions, and plans mass media communications. The brand’s performance will be measured by aggregate sales and profitability, and his pay and future prospects will hinge on those numbers. What’s wrong with this picture? This firm—like too many—is still managed as if it were stuck in the 1960s, an era of mass markets, mass media, and impersonal transactions. Yet never before have companies had such powerful technologies for interacting directly with customers, collecting and mining information about them, and tailoring their offerings accordingly. And never before have customers expected to interact so deeply with companies, and each other, to shape the products and services they use. To be sure, most companies use customer relationship management and other technologies to get a handle on customers, but no amount of technology can really improve the situation as long as companies are set up to market products rather than cultivate customers. To compete in this aggressively interactive environment, companies must shift their focus from driving transactions to maximizing customer lifetime value. That means making products and brands subservient to long-term 1 This document is authorized for use only by Bharath Cheeti in BUOL 733, Strategic Marketing-1 taught by Daniel Kanyam, University of the Cumberlands from Aug 2020 to Feb 2021. 171982 01 001-014 r1 ma.qxd 1/5/13 10:20 AM Page 2 For the exclusive use of B. Cheeti, 2020. RUST, MOORMAN, AND BHALLA customer relationships. And that means changing strategy and structure across the organization—and reinventing the marketing department altogether. Cultivating Customers Not long ago, companies looking to get a message out to a large population had only one real option: blanket a huge swath of customers simultaneously, mostly using one-way mass communication. Information about customers consisted primarily of aggregate sales statistics augmented by marketing research data. There was little, if any, direct communication between individual customers and the firm. Today, companies have a host of options at their disposal, making such mass marketing far too crude. The exhibit “Building relationships” shows where many companies are headed, and all must inevitably go if they hope to remain competitive. The key distinction between a traditional and a customer-cultivating company is that one is organized to push products and brands whereas the other is designed to serve customers and customer segments. In the latter, communication is two-way and individualized, or at least tightly targeted at thinly sliced segments. This strategy may be more challenging for firms whose distribution channels own or control customer information—as is the case for many packaged-goods companies. But more and more firms now have access to the rich data they need to make a customercultivating strategy work. B2B companies, for instance, use key account managers and global account directors to focus on meeting customers’ evolving needs, rather than selling specific products. IBM organizes according to customer needs, such as energy efficiency or server consolidation, and coordinates its marketing efforts across products for a particular customer. IBM’s Insurance Process Acceleration Framework is one example of this service-oriented architecture. Customer and industry specialists in IBM’s insurance practice work with lead customers to build fast and flexible processes in areas like claims, new business processing, and underwriting. Instead of focusing on 2 This document is authorized for use only by Bharath Cheeti in BUOL 733, Strategic Marketing-1 taught by Daniel Kanyam, University of the Cumberlands from Aug 2020 to Feb 2021. 171982 01 001-014 r1 ma.qxd 1/5/13 10:20 AM Page 3 For the exclusive use of B. Cheeti, 2020. RETHINKING MARKETING Idea in Brief Companies have never before had such powerful technologies for understanding and interacting with customers. Yet too many firms operate as if they’re stuck in the 1960s, an era of mass marketing, mass media, and impersonal transactions. To compete in an aggressively interactive environment, companies must shift their focus from driving transactions to maximizing customer lifetime value. That means products and brands must be made subservient to customer relationships. And that means transforming the marketing department—traditionally focused on current sales—into a “customer department” by: replacing the CMO with a chief customer officer, cultivating customers rather than pushing products, adopting new performance metrics, and bringing under the marketing umbrella all customer-focused departments, including R&D and customer service. Building relationships Product-Manager Driven Many companies still depend on product managers and one-way mass marketing to push a product to many customers. Customer-Manager Driven What’s needed is customer managers who engage individual customers or narrow segments in two-way communications, building long-term relationships by promoting whichever of the company’s products the customer would value most at any given time. Customer Product Customer Product 3 This document is authorized for use only by Bharath Cheeti in BUOL 733, Strategic Marketing-1 taught by Daniel Kanyam, University of the Cumberlands from Aug 2020 to Feb 2021. 171982 01 001-014 r1 ma.qxd 1/5/13 10:20 AM Page 4 For the exclusive use of B. Cheeti, 2020. RUST, MOORMAN, AND BHALLA short-term product sales, IBM measures the practice’s performance according to long-term customer metrics. Large B2B firms are often advanced in their customer orientation, and some B2C companies are making notable progress. Increasingly, they view their customer relationships as evolving over time, and they may hand off customers to different parts of the organization selling different brands as their needs change. For instance, Tesco, a leading UK retailer, has recently made significant investments in analytics that have improved customer retention. Tesco uses its data-collecting loyalty card (the Clubcard) to track which stores customers visit, what they buy, and how they pay. This information has helped Tesco tailor merchandise to local tastes and customize offerings at the individual level across a variety of store formats—from sprawling hypermarts to neighborhood shops. Shoppers who buy diapers for the first time at a Tesco store, for example, receive coupons by mail not only for baby wipes and toys but also for beer, according to a Wall Street Journal report. Data analysis revealed that new fathers tend to buy more beer because they can’t spend as much time at the pub. On the services side, American Express actively monitors customers’ behavior and responds to changes by offering different products. The firm uses consumer data analysis and algorithms to determine customers’ “next best product” according to their changing profiles and to manage risk across cardholders. For example, the first purchase of an upper-class airline ticket on a Gold Card may trigger an invitation to upgrade to a Platinum Card. Or, because of changing circumstances a cardholder may want to give an additional card with a specified spending limit to a child or a contractor. By offering this service, American Express extends existing customers’ spending ability to a trusted circle of family members or partners while introducing the brand to potential new customers. American Express also leverages its strategic position between customers and merchants to create long-term value across both relationships. For instance, the company might use demographic data, customer purchase patterns, and credit information to observe that a cardholder has moved into a new home. AmEx capitalizes on 4 This document is authorized for use only by Bharath Cheeti in BUOL 733, Strategic Marketing-1 taught by Daniel Kanyam, University of the Cumberlands from Aug 2020 to Feb 2021. 171982 01 001-014 r1 ma.qxd 1/5/13 10:20 AM Page 5 For the exclusive use of B. Cheeti, 2020. RETHINKING MARKETING that life event by offering special Membership Rewards on purchases from merchants in its network in the home-furnishings retail category. One insurance and financial services company we know of also proved adept at tailoring products to customers’ life events. Customers who lose a spouse, for example, are flagged for special attention from a team that offers them customized products. When a checking account or credit-card customer gets married, she’s a good cross-selling prospect for an auto or home insurance policy and a mortgage. Likewise, the firm targets new empty nesters with home equity loans or investment products and offers renter’s insurance to graduating seniors. Reinventing Marketing These shining examples aside, boards and C-suites still mostly pay lip service to customer relationships while focusing intently on selling goods and services. Directors and management need to spearhead the strategy shift from transactions to relationships and create the culture, structure, and incentives necessary to execute the strategy. What does a customer-cultivating organization look like? Although no company has a fully realized customer-focused structure, we can see the features of one in a variety of companies making the transition. The most dramatic change will be the marketing department’s reinvention as a “customer department.” The first order of business is to replace the traditional CMO with a new type of leader— a chief customer officer. The CCO Chief customer officers are increasingly common in companies worldwide—there are more than 300 today, up from 30 in 2003. Companies as diverse as Chrysler, Hershey’s, Oracle, Samsung, Sears, United Airlines, Sun Microsystems, and Wachovia now have CCOs. But too often the CCO is merely trying to make a conventional organization more customer-centric. In general, it’s a poorly defined 5 This document is authorized for use only by Bharath Cheeti in BUOL 733, Strategic Marketing-1 taught by Daniel Kanyam, University of the Cumberlands from Aug 2020 to Feb 2021. 171982 01 001-014 r1 ma.qxd 1/5/13 10:20 AM Page 6 For the exclusive use of B. Cheeti, 2020. RUST, MOORMAN, AND BHALLA role—which may account for CCOs’ dubious distinction as having the shortest tenure of all C-suite executives. To be effective, the CCO role as we conceive it must be a powerful operational position, reporting to the CEO. This executive is responsible for designing and executing the firm’s customer relationship strategy and overseeing all customer-facing functions. A successful CCO promotes a customer-centric culture and removes obstacles to the flow of customer information throughout the organization. This includes getting leaders to regularly engage with customers. At USAA, top managers spend two or three hours a week on the call-center phones with customers. This not only shows employees how serious management is about customer interaction but helps managers understand customers’ concerns. Likewise, Tesco managers spend one week a year working in stores and interacting with customers as part of the Tesco Week in Store (TWIST) program. As managers shift their focus to customers, and customer information increasingly drives decisions, organizational structures that block information flow must be torn down. The reality is that despite large investments in acquiring customer data, most firms underutilize what they know. Information is tightly held, often because of a lack of trust, competition for promotions or resources, and the silo mentality. The CCO must create incentives that eliminate these counterproductive mind-sets. Ultimately, the CCO is accountable for increasing the profitability of the firm’s customers, as measured by metrics such as customer lifetime value (CLV) and customer equity as well as by intermediate indicators, such as word of mouth (or mouse). Customer managers In the new customer department, customer and segment managers identify customers’ product needs. Brand managers, under the customer managers’ direction, then supply the products that fulfill those needs. This requires shifting resources—principally people and budgets—and authority from product managers to customer managers. (See the sidebar “What Makes a Customer Manager?”) 6 This document is authorized for use only by Bharath Cheeti in BUOL 733, Strategic Marketing-1 taught by Daniel Kanyam, University of the Cumberlands from Aug 2020 to Feb 2021. 171982 01 001-014 r1 ma.qxd 1/5/13 10:20 AM Page 7 For the exclusive use of B. Cheeti, 2020. RETHINKING MARKETING What Makes a Customer Manager? IN A SENSE, THE ROLE of customer manager is the ultimate expression of marketing (find out what the customer wants and fulfill the need) while the product manager is more aligned with the traditional selling mind-set (have product, find customer). Jim Spohrer, the director of Global University Programs at IBM, hires what UCal Berkeley professor Morten Hansen calls “T-shaped” people, who have broad expertise with depth in some areas. Customer managers will be most effective when they’re T-shaped, combining deep knowledge of particular customers or segments with broad knowledge of the firm and its products. These managers must also be sophisticated data interpreters, able to extract insights from the increasing amount of information about customers’ attitudes and activities acquired by mining blogs and other customer forums, monitoring online purchasing behavior, tracking retail sales, and using other types of analytics. While brand managers may be satisfied with examining the media usage statistics associated with their product, brand usage behavior, and brand chat in communities, customer managers will take a broader and more integrative view of the customer. For instance, when P&G managers responsible for the Max Factor and Cover Girl brands spent a week living on the budget of a low-end consumer, they were acting like customer managers. The experience gave these managers important insights into what P&G, not just the specific brands, could do to improve the lives of these customers. We’d expect the most effective customer managers to have broad training in the social sciences—psychology, anthropology, sociology, and economics— in addition to an understanding of marketing. They’d approach the customer as behavioral scientists rather than as marketing specialists, observing and collecting information about them, interacting with and learning from them, and synthesizing and disseminating what they learned. For business schools to stay relevant in training customer managers, the curriculum needs to shift its emphasis from marketing products to cultivating customers. This structure is common in the B2B world. In its B2B activities, Procter & Gamble, for instance, has key account managers for major retailers like Wal-Mart. They are less interested in selling, say, Swiffers than in maximizing the value of the customer relationship over the long term. Some B2C companies use this structure as well, foremost among them retail financial institutions that put managers 7 This document is authorized for use only by Bharath Cheeti in BUOL 733, Strategic Marketing-1 taught by Daniel Kanyam, University of the Cumberlands from Aug 2020 to Feb 2021. 171982 01 001-014 r1 ma.qxd 1/5/13 10:20 AM Page 8 For the exclusive use of B. Cheeti, 2020. RUST, MOORMAN, AND BHALLA in charge of segments—wealthy customers, college kids, retirees, and so forth—rather than products. In a customer-cultivating company, a consumer-goods segment manager might offer customers incentives to switch from lessprofitable Brand A to more-profitable Brand B. This wouldn’t happen in the conventional system, where brand and product managers call the shots. Brand A’s manager isn’t going to encourage customers to defect—even if that would benefit the company—because he’s rewarded for brand performance, not for improving CLV or some other long-term customer metric. This is no small change: It means that product managers must stop focusing on maximizing their products’ or brands’ profits and become responsible for helping customer and segment managers maximize theirs. Customer-facing functions As the nexus of customer-facing activity, the customer department assumes responsibility for some of the customer-focused functions that have left the marketing department in recent years and some that have not traditionally been part of it. CRM. Customer relationship management has been increasingly taken on by companies’ IT groups because of the technical capability CRM systems require, according to a Harte-Hanks survey of 300 companies in North America: 42% of companies report that CRM is managed by the IT group, 31% by sales, and only 9% by marketing. Yet CRM is, ultimately, a tool for gauging customer needs and behaviors— the new customer department’s central role. It makes little sense for the very data required to execute a customer-cultivation strategy to be collected and analyzed outside the customer department. Of course, bringing CRM into the customer department means bringing IT and analytic skills in as well. Market research. The emphasis of market research changes in a customer-centric company. First, the internal users of market research extend beyond the marketing department to all areas of the organization that touch customers—including finance (the source of 8 This document is authorized for use only by Bharath Cheeti in BUOL 733, Strategic Marketing-1 taught by Daniel Kanyam, University of the Cumberlands from Aug 2020 to Feb 2021. 171982 01 001-014 r1 ma.qxd 1/5/13 10:20 AM Page 9 For the exclusive use of B. Cheeti, 2020. RETHINKING MARKETING Reimagining the marketing department The traditional marketing department must be reconfigured as a customer department that puts building customer relationships ahead of pushing specific products. To this end, product managers and customer-focused departments report to a chief customer officer instead of a CMO, and support the strategies of customer or segment managers. CEO Chief customer officer Customer segment managers A B C Product managers Customer relationship management Market research Research and development Customer service customer payment options) and distribution (the source of delivery timing and service). Second, the scope of analysis shifts from an aggregate view to an individual view of customer activities and value. Third, market research shifts its attention to acquiring the customer input that will drive improvements in customer-focused metrics such as CLV and customer equity. 9 This document is authorized for use only by Bharath Cheeti in BUOL 733, Strategic Marketing-1 taught by Daniel Kanyam, University of the Cumberlands from Aug 2020 to Feb 2021. 171982 01 001-014 r1 ma.qxd 1/5/13 10:20 AM Page 10 For the exclusive use of B. Cheeti, 2020. RUST, MOORMAN, AND BHALLA Research and development. When a product is more about clever engineering than customer needs, sales can suffer. For example, engineers like to pack lots of features into products, but we know that customers can suffer from feature fatigue, which hurts future sales. To make sure that product decisions reflect real-world needs, the customer must be brought into the design process. Integrating R&D and marketing is a good way to do that. Few companies have done this better than Nokia in Asia, where its market share exceeds 60%. In an industry where manufacturers must introduce scores of new offerings every year, the group’s ability to translate customer input about features and value into hit product offerings is legendary. Among its customer-focused innovation tools is Nokia Beta Labs, a virtual developer community that brings users and developer teams together to virtually prototype new features and products, inviting even “wacky ideas” that may never make it to the marketplace. (Nokia adopted a different strategy in the United States, using far less customer input, and has seen its market share slide.) Examples abound of companies that create new value through the collaboration of users and producers: Mozilla’s Firefox in the web browser category, P&G’s Swiffer in the home cleaning category, and International Flavors and Fragrances’ partnership with B2B customers like Estée Lauder in the perfume market. In a world in which the old R&D-driven models for new product development are giving way to creative collaborations like these, R&D must report to the CCO. Customer service This function should be handled in-house, under the customer department’s wing—not only to ensure that the quality of service is high but also to help cultivate long-term relationships. Delta Airlines, for example, recently pulled out of its call centers overseas because cultural differences damaged the airline’s ability to interact with North American customers. Delta concluded that the negative impact on the quality of customer relationships wasn’t worth the cost savings. Now, when customer service gets a call, a representative immediately identifies the caller’s segment and routes her to a customer-service specialist trained to work with that segment. 10 This document is authorized for use only by Bharath Cheeti in BUOL 733, Strategic Marketing-1 taught by Daniel Kanyam, University of the Cumberlands from Aug 2020 to Feb 2021. 171982 01 001-014 r1 ma.qxd 1/5/13 10:20 AM Page 11 For the exclusive use of B. Cheeti, 2020. RETHINKING MARKETING The interaction is captured in the customer information system and used, in turn, by the customer department to divine new customers’ needs and create solutions. If customer service must be outsourced, the function should report in to a high-level internal customer manager, and its IT infrastructure and customer data must be seamlessly integrated with the company’s customer databases. A New Focus on Customer Metrics Once companies make the shift from marketing products to cultivating customers, they will need new metrics to gauge the strategy’s effectiveness. First, companies need to focus less on product profitability and more on customer profitability. Retailers have applied this concept for some time in their use of loss leaders—products that may be unprofitable but strengthen customer relationships. Second, companies need to pay less attention to current sales and more to CLV. A company in decline may have good current sales but poor prospects. The customer lifetime value metric evaluates the future profits generated from a customer, properly discounted to reflect the time value of money. Lifetime value focuses the company on long-term health—an emphasis that most shareholders and investors should share. Although too often the markets reward short-term earnings at the expense of future performance, that unfortunate tendency will change as future-oriented customer metrics become a routine part of financial reporting. An international movement is under way to require companies to report intangible assets in financial statements. As leading indicators such as customercentered metrics increasingly appear on financial statements, stock prices will begin to reflect them. Even now, savvy analysts are pushing firms to understand customer retention rates and the value of customer and brand assets. Third, companies need to shift their focus from brand equity (the value of a brand) to customer equity (the sum of the lifetime values of their customers). Increasing brand equity is best seen as a means to an end, one way to build customer equity (see “Customer-Centered 11 This document is authorized for use only by Bharath Cheeti in BUOL 733, Strategic Marketing-1 taught by Daniel Kanyam, University of the Cumberlands from Aug 2020 to Feb 2021. 171982 01 001-014 r1 ma.qxd 1/5/13 10:20 AM Page 12 For the exclusive use of B. Cheeti, 2020. RUST, MOORMAN, AND BHALLA New metrics for a new model The shift from marketing products to cultivating customers demands a shift in metrics as well. Old approach New approach Product profitability Customer profitability Current sales Customer lifetime value Brand equity Customer equity Market share Customer equity share Brand Management,” HBR September 2004). Customer equity has the added benefit of being a good proxy for the value of the firm, thereby making marketing more relevant to shareholder value. Fourth, companies need to pay less attention to current market share and more attention to customer equity share (the value of a company’s customer base divided by the total value of the customers in the market). Market share offers a snapshot of the company’s competitive sales position at the moment, but customer equity share is a measure of the firm’s long-term competitiveness with respect to profitability. Given the increasing importance of customer-level information, companies must become adept at tracking information at several levels—individual, segment, and aggregate. Different strategic decisions require different levels of information, so companies typically need multiple information sources to meet their needs. At the individual customer level the key metric is customer lifetime value; the marketing activities tracked most closely are direct 12 This document is authorized for use only by Bharath Cheeti in BUOL 733, Strategic Marketing-1 taught by Daniel Kanyam, University of the Cumberlands from Aug 2020 to Feb 2021. 171982 01 001-014 r1 ma.qxd 1/5/13 10:20 AM Page 13 For the exclusive use of B. Cheeti, 2020. RETHINKING MARKETING marketing activities; and the key sources of data are customer databases that the firm compiles. At the segment level the key metric is the lifetime value of the segment (the lifetime value of the average customer times the number of customers in the segment); the marketing activities tracked most closely are marketing efforts targeted at specific customer segments, sometimes using niche media; and the key sources of information are customer panels and survey data. At the aggregate market level, the key metric is customer equity; the marketing activities tracked most closely are mass marketing efforts, often through mass media; and the key sources of information are aggregate sales data and survey data. We see that firms will typically have a portfolio of information sources. Clearly, companies need metrics for evaluating progress in collecting and using customer information. How frequently managers contribute to and access customer information archives is a good general measure, although it doesn’t reveal much about the quality of the information. To get at that, some firms create markets for new customer information in which employees rate the value of contributions. _______________________ Like any other organizational transformation, making a productfocused company fully customer-centric will be difficult. The IT group will want to hang on to CRM; R&D is going to fight hard to keep its relative autonomy; and most important, traditional marketing executives will battle for their jobs. Because the change requires overcoming entrenched interests, it won’t happen organically. Transformation must be driven from the top down. But however daunting, the shift is inevitable. It will soon be the only competitive way to serve customers. Originally published in January 2010. Reprint R1001F 13 This document is authorized for use only by Bharath Cheeti in BUOL 733, Strategic Marketing-1 taught by Daniel Kanyam, University of the Cumberlands from Aug 2020 to Feb 2021. 171982 01 001-014 r1 ma.qxd 1/5/13 10:20 AM Page 14 For the exclusive use of B. Cheeti, 2020. This document is authorized for use only by Bharath Cheeti in BUOL 733, Strategic Marketing-1 taught by Daniel Kanyam, University of the Cumberlands from Aug 2020 to Feb 2021. 171982 02 015-028 r1 ts.qxd 1/5/13 10:22 AM Page 15 For the exclusive use of B. Cheeti, 2020. Branding in the Digital Age You’re Spending Your Money in All the Wrong Places. by David C. Edelman T THE INTERNET HAS upended how consumers engage with brands. It is transforming the economics of marketing and making obsolete many of the function’s traditional strategies and structures. For marketers, the old way of doing business is unsustainable. Consider this: Not long ago, a car buyer would methodically pare down the available choices until he arrived at the one that best met his criteria. A dealer would reel him in and make the sale. The buyer’s relationship with both the dealer and the manufacturer would typically dissipate after the purchase. But today, consumers are promiscuous in their brand relationships: They connect with myriad brands—through new media channels beyond the manufacturer’s and the retailer’s control or even knowledge—and evaluate a shifting array of them, often expanding the pool before narrowing it. After a purchase these consumers may remain aggressively engaged, publicly promoting or assailing the products they’ve bought, collaborating in the brands’ development, and challenging and shaping their meaning. Consumers still want a clear brand promise and offerings they value. What has changed is when—at what touch points—they are most open to influence, and how you can interact with them at those points. In the past, marketing strategies that put the lion’s share of 15 This document is authorized for use only by Bharath Cheeti in BUOL 733, Strategic Marketing-1 taught by Daniel Kanyam, University of the Cumberlands from Aug 2020 to Feb 2021. 171982 02 015-028 r1 ts.qxd 1/5/13 10:22 AM Page 16 For the exclusive use of B. Cheeti, 2020. EDELMAN resources into building brand awareness and then opening wallets at the point of purchase worked pretty well. But touch points have changed in both number and nature, requiring a major adjustment to realign marketers’ strategy and budgets with where consumers are actually spending their time. Block That Metaphor Marketers have long used the famous funnel metaphor to think about touch points: Consumers would start at the wide end of the funnel with many brands in mind and narrow them down to a final choice. Companies have traditionally used paid-media push marketing at a few well-defined points along the funnel to build awareness, drive consideration, and ultimately inspire purchase. But the metaphor fails to capture the shifting nature of consumer engagement. In the June 2009 issue of McKinsey Quarterly, my colleague David Court and three coauthors introduced a more nuanced view of how consumers engage with brands: the “consumer decision journey” (CDJ). They developed their model from a study of the purchase decisions of nearly 20,000 consumers across five industries—automobiles, skin care, insurance, consumer electronics, and mobile telecom—and three continents. Their research revealed that far from systematically narrowing their choices, today’s consumers take a much more iterative and less reductive journey of four stages: consider, evaluate, buy, and enjoy, advocate, bond. Consider The journey begins with the consumer’s top-of-mind consideration set: products or brands assembled from exposure to ads or store displays, an encounter at a friend’s house, or other stimuli. In the funnel model, the consider stage contains the largest number of brands; but today’s consumers, assaulted by media and awash in choices, often reduce the number of products they consider at the outset. 16 This document is authorized for use only by Bharath Cheeti in BUOL 733, Strategic Marketing-1 taught by Daniel Kanyam, University of the Cumberlands from Aug 2020 to Feb 2021. 171982 02 015-028 r1 ts.qxd 1/5/13 10:22 AM Page 17 For the exclusive use of B. Cheeti, 2020. BRANDING IN THE DIGITAL AGE Idea in Brief Consumers today connect with brands in fundamentally new ways, often through media channels that are beyond manufacturers’ and retailers’ control. That means traditional marketing strategies must be redesigned to accord with how brand relationships have changed. In the famous funnel metaphor, a shopper would start with several brands in mind and systematically narrow them down to a final choice. His relationship with both the manufacturer and the retailer ended there. But now, relying heavily on digital interactions, he evaluates a shifting array of options and often engages with the brand through social media after a purchase. Though marketing strategies that focused on building brand awareness and the point of purchase worked pretty well in the past, consumer touch points have changed in nature. For example, in many categories today the single most powerful influence to buy is someone else’s advocacy. The author describes a “consumer decision journey” of four stages: consider a selection of brands; evaluate by seeking input from peers, reviewers, and others; buy; and enjoy, advocate, bond. If the consumer’s bond with the brand becomes strong enough, she’ll enter a buy-enjoy-advocate-buy loop that skips the first two stages entirely. Smart marketers will study the decision journey for their products and use the insights they gain to revise strategy, media spend, and organizational roles. Evaluate The initial consideration set frequently expands as consumers seek input from peers, reviewers, retailers, and the brand and its competitors. Typically, they’ll add new brands to the set and discard some of the originals as they learn more and their selection criteria shift. Their outreach to marketers and other sources of information is much more likely to shape their ensuing choices than marketers’ push to persuade them. Buy Increasingly, consumers put off a purchase decision until they’re actually in a store—and, as we’ll see, they may be easily dissuaded at 17 This document is authorized for use only by Bharath Cheeti in BUOL 733, Strategic Marketing-1 taught by Daniel Kanyam, University of the Cumberlands from Aug 2020 to Feb 2021. 171982 02 015-028 r1 ts.qxd 1/5/13 10:22 AM Page 18 For the exclusive use of B. Cheeti, 2020. EDELMAN that point. Thus point of purchase—which exploits placement, packaging, availability, pricing, and sales interactions—is an ever more powerful touch point. Enjoy, advocate, bond After purchase, a deeper connection begins as the consumer interacts with the product and with new online touch points. More than 60% of consumers of facial skin care products, my McKinsey colleagues found, conduct online research about the products after purchase—a touch point entirely missing from the funnel. When consumers are pleased with a purchase, they’ll advocate for it by word of mouth, creating fodder for the evaluations of others and invigorating a brand’s potential. Of course, if a consumer is disappointed by the brand, she may sever ties with it—or worse. But if the bond becomes strong enough, she’ll enter an enjoy-advocatebuy loop that skips the consider and evaluate stages entirely. The Journey in Practice Although the basic premise of the consumer decision journey may not seem radical, its implications for marketing are profound. Two in particular stand out. First, instead of focusing on how to allocate spending across media—television, radio, online, and so forth—marketers should target stages in the decision journey. The research my colleagues and I have done shows a mismatch between most marketing allocations and the touch points at which consumers are best influenced. Our analysis of dozens of marketing budgets reveals that 70% to 90% of spend goes to advertising and retail promotions that hit consumers at the consider and buy stages. Yet consumers are often influenced more during the evaluate and enjoy-advocate-bond stages. In many categories the single most powerful impetus to buy is someone else’s advocacy. Yet many marketers focus on media spend (principally advertising) rather than on driving advocacy. The coolest banner ads, best search buys, and hottest viral videos may win consideration for a brand, but if the product gets weak 18 This document is authorized for use only by Bharath Cheeti in BUOL 733, Strategic Marketing-1 taught by Daniel Kanyam, University of the Cumberlands from Aug 2020 to Feb 2021. 171982 02 015-028 r1 ts.qxd 1/5/13 10:22 AM Page 19 For the exclusive use of B. Cheeti, 2020. BRANDING IN THE DIGITAL AGE reviews—or, worse, isn’t even discussed online—it’s unlikely to survive the winnowing process. The second implication is that marketers’ budgets are constructed to meet the needs of a strategy that is outdated. When the funnel metaphor reigned, communication was oneway, and every interaction with consumers had a variable media cost that typically outweighed creative’s fixed costs. Management focused on “working media spend”—the portion of a marketing budget devoted to what are today known as paid media. This no longer makes sense. Now marketers must also consider owned media (that is, the channels a brand controls, such as websites) and earned media (customer-created channels, such as communities of brand enthusiasts). And an increasing portion of the budget must go to “nonworking” spend—the people and technology required to create and manage content for a profusion of channels and to monitor or participate in them. Launching a Pilot The shift to a CDJ-driven strategy has three parts: understanding your consumers’ decision journey; determining which touch points are priorities and how to leverage them; and allocating resources accordingly—an undertaking that may require redefining organizational relationships and roles. One of McKinsey’s clients, a global consumer electronics company, embarked on a CDJ analysis after research revealed that although consumers were highly familiar with the brand, they tended to drop it from their consideration set as they got closer to purchase. It wasn’t clear exactly where the company was losing consumers or what should be done. What was clear was that the media-mix models the company had been using to allocate marketing spend at a gross level (like the vast majority of all such models) could not take the distinct goals of different touch points into account and strategically direct marketing investments to them. The company decided to pilot a CDJ-based approach in one business unit in a single market, to launch a major new TV model. The 19 This document is authorized for use only by Bharath Cheeti in BUOL 733, Strategic Marketing-1 taught by Daniel Kanyam, University of the Cumberlands from Aug 2020 to Feb 2021. 171982 02 015-028 r1 ts.qxd 1/5/13 10:22 AM Page 20 For the exclusive use of B. Cheeti, 2020. EDELMAN Block That Metaphor Then: The Funnel Metaphor For years, marketers assumed that consumers started with a large number of potential brands in mind and methodically winnowed their choices until they’d decided which one to buy. After purchase, their relationship with the brand typically focused on the use of the product or service itself. Now: The Consumer Decision Journey New research shows that rather than systematically narrowing their choices, consumers add and subtract brands from a group under consideration during an extended evaluation phase. After purchase, they often enter into an openended relationship with the brand, sharing their experience with it online. Consider & buy. Marketers often overemphasize the “consider” and “buy” stages of the journey, allocating more resources than they should to building awareness through advertising and encouraging purchase with retail promotions. Evaluate & advocate. New media make the “evaluate” and “advocate” stages increasingly relevant. Marketing investments that help consumers navigate the evaluation process and then spread positive word of mouth about the brands they choose can be as important as building awareness and driving purchase. Bond. If consumers’ bond with a brand is strong enough, they repurchase it without cycling through the earlier decision-journey stages. chief marketing officer drove the effort, engaging senior managers at the start to facilitate coordination and ensure buy-in. The corporate VP for digital marketing shifted most of his time to the pilot, assembling a team with representatives from functions across the organization, including marketing, market research, IT, and, crucially, finance. The team began with an intensive three-month market research project to develop a detailed picture of how TV consumers navigate the decision journey: what they do, what they see, and what they say. What they do Partnering with a supplier of online-consumer-panel data, the company identified a set of TV shoppers and drilled down into their 20 This document is authorized for use only by Bharath Cheeti in BUOL 733, Strategic Marketing-1 taught by Daniel Kanyam, University of the Cumberlands from Aug 2020 to Feb 2021. 171982 02 015-028 r1 ts.qxd 1/5/13 10:22 AM Page 21 For the exclusive use of B. Cheeti, 2020. BRANDING IN THE DIGITAL AGE Many brands Fewer brands Final choice BUY BUY Consider Evaluate The loyalty loop Bond Advocate Enjoy BUY behavior: How did they search? Did they show a preference for manufacturers’ or retailers’ sites? How did they participate in online communities? Next the team selected a sample of the shoppers for in-depth, one-on-one discussions: How would they describe the stages of their journey, online and off? Which resources were most valuable to them, and which were disappointing? How did brands enter and leave their decision sets, and what drove their purchases in the end? The research confirmed some conventional wisdom about how consumers shop, but it also overturned some of the company’s long-standing assumptions. It revealed that off-line channels such as television advertising, in-store browsing, and direct word of mouth 21 This document is authorized for use only by Bharath Cheeti in BUOL 733, Strategic Marketing-1 taught by Daniel Kanyam, University of the Cumberlands from Aug 2020 to Feb 2021. 171982 02 015-028 r1 ts.qxd 1/5/13 10:22 AM Page 22 For the exclusive use of B. Cheeti, 2020. EDELMAN were influential only during the consider stage. Consumers might have a handful of products and brands in mind at this stage, with opinions about them shaped by previous experience, but their attitudes and consideration sets were extremely malleable. At the evaluate stage, consumers didn’t start with search engines; rather, they went directly to Amazon.com and other retail sites that, with their rich and expanding array of product-comparison information, consumer and expert ratings, and visuals, were becoming the most important influencers. Meanwhile, fewer than one in 10 shoppers visited manufacturers’ sites, where most companies were still putting the bulk of their digital spend. Display ads, which the team had assumed were important at the consider stage, were clicked on only if they contained a discount offer, and then only when the consumer was close to the buy stage. And although most consumers were still making their purchases in stores, a growing number were buying through retail sites and choosing either direct shipping or in-store pickup. The research also illuminated consumers’ lively relationships with many brands after purchase—the enjoy-and-advocate stage so conspicuously absent from the funnel. These consumers often talked about their purchases in social networks and posted reviews online, particularly when they were stimulated by retailers’ postpurchase e-mails. And they tended to turn to review sites for troubleshooting advice. What they see To better understand consumers’ experience, the team unleashed a battery of hired shoppers who were given individual assignments, such as to look for a TV for a new home; replace a small TV in a bedroom; or, after seeing a TV at a friend’s house, go online to learn more about it. The shoppers reported what their experience was like and how the company’s brand stacked up against competitors’. How did its TVs appear on search engines? How visible were they on retail sites? What did consumer reviews reveal about them? How thorough and accurate was the available information about them? 22 This document is authorized for use only by Bharath Cheeti in BUOL 733, Strategic Marketing-1 taught by Daniel Kanyam, University of the Cumberlands from Aug 2020 to Feb 2021. 171982 02 015-028 r1 ts.qxd 1/5/13 10:22 AM Page 23 For the exclusive use of B. Cheeti, 2020. BRANDING IN THE DIGITAL AGE The results were alarming but not unexpected. Shoppers trying to engage with any of the brands—whether the company’s or its competitors’—had a highly fractured experience. Links constantly failed, because page designs and model numbers had changed but the references to them had not. Product reviews, though they were often positive, were scarce on retail sites. And the company’s TVs rarely turned up on the first page of a search within the category, in part because of the profusion of broken links. The same story had emerged during the one-on-one surveys. Consumers reported that every brand’s model numbers, product descriptions, promotion availability, and even pictures seemed to change as they moved across sites and into stores. About a third of the shoppers who had considered a specific TV brand online during the evaluate stage walked out of a store during the buy stage, confused and frustrated by inconsistencies. This costly disruption of the journey across the category made clear that the company’s new marketing strategy had to deliver an integrated experience from consider to buy and beyond. In fact, because the problem was common to the entire category, addressing it might create competitive advantage. At any rate, there was little point in winning on the other touch-point battlegrounds if this problem was left unaddressed. What they say Finally, the team focused on what people were saying online about the brand. With social media monitoring tools, it uncovered the key words consumers used to discuss the company’s products— and found deep confusion. Discussion-group participants frequently gave wrong answers because they misunderstood TV terminology. Product ratings and consumer recommendations sometimes triggered useful and extensive discussions, but when the ratings were negative, the conversation would often enter a self-reinforcing spiral. The company’s promotions got some positive response, but people mostly said little about the brand. This was a serious problem, because online advocacy is potent in the evaluate stage. 23 This document is authorized for use only by Bharath Cheeti in BUOL 733, Strategic Marketing-1 taught by Daniel Kanyam, University of the Cumberlands from Aug 2020 to Feb 2021. 171982 02 015-028 r1 ts.qxd 1/5/13 10:22 AM Page 24 For the exclusive use of B. Cheeti, 2020. EDELMAN Taking Action The company’s analysis made clear where its marketing emphasis needed to be. For the pilot launch, spending was significantly shifted away from paid media. Marketing inserted links from its own site to retail sites that carried the brand, working with the retailers to make sure the links connected seamlessly. Most important, click-stream analysis revealed that of all the online retailers, Amazon was probably the most influential touch point for the company’s products during the evaluate stage. In collaboration with sales, which managed the relationship with Amazon, marketing created content and links to engage traffic there. To encourage buzz, it aggressively distributed positive third-party reviews online and had its traditional media direct consumers to online environments that included promotions and social experiences. To build ongoing postpurchase relationships and encourage advocacy, it developed programs that included online community initiatives, contests, and e-mail promotions. Finally, to address the inconsistent descriptions and other messaging that was dissuading potential customers at the point of purchase, the team built a new content-development and -management system to ensure rigorous consistency across all platforms. How did the CDJ strategy work? The new TV became the top seller on Amazon.com and the company’s best performer in retail stores, far exceeding the marketers’ expectations. A Customer Experience Plan As our case company found, a deep investigation of the decision journey often reveals the need for a plan that will make the customer’s experience coherent—and may extend the boundaries of the brand itself. The details of a customer experience plan will vary according to the company’s products, target segments, campaign strategy, and media mix. But when the plan is well executed, consumers’ perception of the brand will include everything from discussions in social media to the in-store shopping experience to continued interactions with the company and the retailer. 24 This document is authorized for use only by Bharath Cheeti in BUOL 733, Strategic Marketing-1 taught by Daniel Kanyam, University of the Cumberlands from Aug 2020 to Feb 2021. 171982 02 015-028 r1 ts.qxd 1/5/13 10:22 AM Page 25 For the exclusive use of B. Cheeti, 2020. BRANDING IN THE DIGITAL AGE For instance, Apple has eliminated jargon, aligned product descriptions, created a rich library of explanatory videos, and instituted off-line Genius Bars, all of which ensure absolute consistency, accuracy, and integration across touch points. Similarly, Nike has moved from exhorting consumers to “Just Do It” to actually helping them act on its motto—with Nike+ gear that records and transmits their workout data; global fundraising races; and customized online training programs. Thus its customers’ engagement with the brand doesn’t necessarily begin or end with a purchase. And millions of consumers in Japan have signed up to receive mobile alerts from McDonald’s, which provide tailored messages that include discount coupons, contest opportunities, special-event invitations, and other unique, brand-specific content. These companies are not indiscriminate in their use of the tactics available for connecting with customers. Instead they customize their approaches according to their category, brand position, and channel relationships. Apple has not yet done much mining of its customer data to offer more-personalized messaging. Nike’s presence on search engines shows little distinctiveness. McDonald’s hasn’t focused on leveraging a core company website. But their decisions are deliberate, grounded in a clear sense of priorities. New Roles for Marketing Developing and executing a CDJ-centric strategy that drives an integrated customer experience requires marketing to take on new or expanded roles. Though we know of no company that has fully developed them, many, including the consumer electronics firm we advised, have begun to do so. Here are three roles that we believe will become increasingly important: Orchestrator Many consumer touch points are owned-media channels, such as the company’s website, product packaging, and customer service and sales functions. Usually they are run by parts of the organization other than marketing. Recognizing the need to coordinate these 25 This document is authorized for use only by Bharath Cheeti in BUOL 733, Strategic Marketing-1 taught by Daniel Kanyam, University of the Cumberlands from Aug 2020 to Feb 2021. 171982 02 015-028 r1 ts.qxd 1/5/13 10:22 AM Page 26 For the exclusive use of B. Cheeti, 2020. EDELMAN channels, one of our clients, a consumer durables company, has moved its owned-media functions into the sphere of the chief marketing officer, giving him responsibility for orchestrating them. Along with traditional and digital marketing communications, he now manages customer service and market research, product literature design, and the product registration and warranty program. Publisher and “content supply chain” manager Marketers are generating ever-escalating amounts of content, often becoming publishers—sometimes real-time multimedia publishers— on a global scale. They create videos for marketing, selling, and servicing every product; coupons and other promotions delivered through social media; applications and decision support such as tools to help customers “build” and price a car online. One of our clients, a consumer marketer, realized that every new product release required it to create more than 160 pieces of content involving more than 20 different parties and reaching 30 different touch points. Without careful coordination, producing this volume of material was guaranteed to be inefficient and invited inconsistent messaging that would undermine the brand. As we sought best practices, we discovered that few companies have created the roles and systems needed to manage their content supply chain and create a coherent consumer experience. Uncoordinated publishing can stall the decision journey, as the consumer electronics firm found. Our research shows that in companies where the marketing function takes on the role of publisher in chief—rationalizing the creation and flow of product related content—consumers develop a clearer sense of the brand and are better able to articulate the attributes of specific products. These marketers also become more agile with their content, readily adapting it to sales training videos and other new uses that ultimately enhance consumers’ decision journey. Marketplace intelligence leader As more touch points become digital, opportunities to collect and use customer information to understand the consumer decision journey and knit together the customer experience are increasing. 26 This document is authorized for use only by Bharath Cheeti in BUOL 733, Strategic Marketing-1 taught by Daniel Kanyam, University of the Cumberlands from Aug 2020 to Feb 2021. 171982 02 015-028 r1 ts.qxd 1/5/13 10:22 AM Page 27 For the exclusive use of B. Cheeti, 2020. BRANDING IN THE DIGITAL AGE But in many companies IT controls the collection and management of data and the relevant budgets; and with its traditional focus on driving operational efficiency, it often lacks the strategic or financial perspective that would incline it to steer resources toward marketing goals. More than ever, marketing data should be under marketing’s control. One global bank offers a model: It created a Digital Governance Council with representatives from all customer-facing functions. The council is led by the CMO, who articulates the strategy, and attended by the CIO, who lays out options for executing it and receives direction and funding from the council. We believe that marketing will increasingly take a lead role in distributing customer insights across the organization. For example, discoveries about “what the customer says” as she navigates the CDJ may be highly relevant to product development or service programs. Marketing should convene the right people in the organization to act on its consumer insights and should manage the follow-up to ensure that the enterprise takes action. Starting the Journey The firms we advise that are taking this path tend to begin with a narrow line of business or geography (or both) where they can develop a clear understanding of one consumer decision journey and then adjust strategy and resources accordingly. As their pilots get under way, companies inevitably encounter challenges they can’t fully address at the local level—such as a need for new enterprisewide infrastructure to support a content management system. Or they may have to adapt the design of a social media program to better suit the narrow initiative. In the more successful initiatives we’ve seen, the CMO has championed the pilot before the executive leadership team. The best results come when a bottom-up pilot is paralleled by a top-down CMO initiative to address cross-functional, infrastructure, and organizational challenges. Finally, a company must capture processes, successes, and failures when it launches a pilot so that the pilot can be effectively 27 This document is authorized for use only by Bharath Cheeti in BUOL 733, Strategic Marketing-1 taught by Daniel Kanyam, University of the Cumberlands from Aug 2020 to Feb 2021. 171982 02 015-028 r1 ts.qxd 1/5/13 10:22 AM Page 28 For the exclusive use of B. Cheeti, 2020. EDELMAN adapted and scaled. A key consideration is that although the basic architecture of a CDJ strategy may remain intact as it is expanded, specific tactics will probably vary from one market and product to another. When the consumer electronics firm discussed here took its CDJ strategy to East Asia, for example, its touch-point analysis revealed that consumers in that part of the world put more stock in blogs and third-party review sites than Western consumers do, and less in manufacturers’ or retailers’ sites, which they didn’t fully trust. They were also less likely to buy online. However, they relied more on mobile apps such as bar-code readers to pull up detailed product information at the point of purchase. The changes buffeting marketers in the digital era are not incremental—they are fundamental. Consumers’ perception of a brand during the decision journey has always been important, but the phenomenal reach, speed, and interactivity of digital touch points makes close attention to the brand experience essential—and requires an executive-level steward. At many start-ups the founder brings to this role the needed vision and the power to enforce it. Established enterprises should have a steward as well. Now is the time for CMOs to seize this opportunity to take on a leadership role, establishing a stronger position in the executive suite and making consumers’ brand experience central to enterprise strategy. Originally published in December 2010. Reprint R1012C 28 This document is authorized for use only by Bharath Cheeti in BUOL 733, Strategic Marketing-1 taught by Daniel Kanyam, University of the Cumberlands from Aug 2020 to Feb 2021. 171982 03 029-056 r1 ts.qxd 1/5/13 10:25 AM Page 29 For the exclusive use of B. Cheeti, 2020. Marketing Myopia by Theodore Levitt E EVERY MAJOR INDUSTRY was once a growth industry. But some that are now riding a wave of growth enthusiasm are very much in the shadow of decline. Others that are thought of as seasoned growth industries have actually stopped growing. In every case, the reason growth is threatened, slowed, or stopped is not because the market is saturated. It is because there has been a failure of management. Fateful Purposes The failure is at the top. The executives responsible for it, in the last analysis, are those who deal with broad aims and policies. Thus: • The railroads did not stop growing because the need for passenger and freight transportation declined. That grew. The railroads are in trouble today not because that need was filled by others (cars, trucks, airplanes, and even telephones) but because it was not filled by the railroads themselves. They let others take customers away from them because they assumed themselves to be in the railroad business rather than in the transportation business. The reason they defined their industry incorrectly was that they were railroad oriented instead of transportation oriented; they were product oriented instead of customer oriented. • Hollywood barely escaped being totally ravished by television. Actually, all the established film companies went through 29 This document is authorized for use only by Bharath Cheeti in BUOL 733, Strategic Marketing-1 taught by Daniel Kanyam, University of the Cumberlands from Aug 2020 to Feb 2021. 171982 03 029-056 r1 ts.qxd 1/5/13 10:25 AM Page 30 For the exclusive use of B. Cheeti, 2020. LEVITT drastic reorganizations. Some simply disappeared. All of them got into trouble not because of TV’s inroads but because of their own myopia. As with the railroads, Hollywood defined its business incorrectly. It thought it was in the movie business when it was actually in the entertainment business. “Movies” implied a specific, limited product. This produced a fatuous contentment that from the beginning led producers to view TV as a threat. Hollywood scorned and rejected TV when it should have welcomed it as an opportunity—an opportunity to expand the entertainment business. Today, TV is a bigger business than the old narrowly defined movie business ever was. Had Hollywood been customer oriented (providing entertainment) rather than product oriented (making movies), would it have gone through the fiscal purgatory that it did? I doubt it. What ultimately saved Hollywood and accounted for its resurgence was the wave of new young writers, producers, and directors whose previous successes in television had decimated the old movie companies and toppled the big movie moguls. There are other, less obvious examples of industries that have been and are now endangering their futures by improperly defining their purposes. I shall discuss some of them in detail later and analyze the kind of policies that lead to trouble. Right now, it may help to show what a thoroughly customer-oriented management can do to keep a growth industry growing, even after the obvious opportunities have been exhausted, and here there are two examples that have been around for a long time. They are nylon and glass—specifically, E.I. du Pont de Nemours and Company and Corning Glass Works. Both companies have great technical competence. Their product orientation is unquestioned. But this alone does not explain their success. After all, who was more pridefully product oriented and product conscious than the erstwhile New England textile companies that have been so thoroughly massacred? The DuPonts and the Cornings have succeeded not primarily because of their product or research orientation but because they have been thoroughly customer oriented also. It is constant watchfulness for 30 This document is authorized for use only by Bharath Cheeti in BUOL 733, Strategic Marketing-1 taught by Daniel Kanyam, University of the Cumberlands from Aug 2020 to Feb 2021. 171982 03 029-056 r1 ts.qxd 1/5/13 10:25 AM Page 31 For the exclusive use of B. Cheeti, 2020. MARKETING MYOPIA Idea in Brief What business are you really in? A seemingly obvious question—but one we should all ask before demand for our companies’ products or services dwindles. The railroads failed to ask this same question—and stopped growing. Why? Not because people no longer needed transportation. And not because other innovations (cars, airplanes) filled transportation needs. Rather, railroads stopped growing because railroads didn’t move to fill those needs. Their executives incorrectly thought that they were in the railroad business, not the transportation business. They viewed themselves as providing a product instead of serving customers. Too many other industries make the same mistake—putting themselves at risk of obsolescence. How to ensure continued growth for your company? Concentrate on meeting customers’ needs rather than selling products. Chemical powerhouse DuPont kept a close eye on its customers’ most pressing concerns—and deployed its technical know-how to create an ever-expanding array of products that appealed to customers and continuously enlarged its market. If DuPont had merely found more uses for its flagship invention, nylon, it might not be around today. opportunities to apply their technical know-how to the creation of customer-satisfying uses that accounts for their prodigious output of successful new products. Without a very sophisticated eye on the customer, most of their new products might have been wrong, their sales methods useless. Aluminum has also continued to be a growth industry, thanks to the efforts of two wartime-created companies that deliberately set about inventing new customer-satisfying uses. Without Kaiser Aluminum & Chemical Corporation and Reynolds Metals Company, the total demand for aluminum today would be vastly less. Error of analysis Some may argue that it is foolish to set the railroads off against aluminum or the movies off against glass. Are not aluminum and glass naturally so versatile that the industries are bound to have more growth opportunities than the railroads and the movies? This view commits precisely the error I have been talking about. It defines an 31 This document is authorized for use only by Bharath Cheeti in BUOL 733, Strategic Marketing-1 taught by Daniel Kanyam, University of the Cumberlands from Aug 2020 to Feb 2021. 171982 03 029-056 r1 ts.qxd 1/5/13 10:25 AM Page 32 For the exclusive use of B. Cheeti, 2020. LEVITT Idea in Practice We put our businesses at risk of obsolescence when we accept any of the following myths: Myth 1: An ever-expanding and more affluent population will ensure our growth. When markets are expanding, we often assume we don’t have to think imaginatively about our businesses. Instead, we seek to outdo rivals simply by improving on what we’re already doing. The consequence: We increase the efficiency of making our products, rather than boosting the value those products deliver to customers. Myth 2: There is no competitive substitute for our industry’s major product. Believing that our products have no rivals makes our companies vulnerable to dramatic innovations from outside our industries—often by smaller, newer companies that are focusing on customer needs rather than the products themselves. Myth 3: We can protect ourselves through mass production. Few of us can resist the prospect of the increased profits that come with steeply declining unit costs. But focusing on mass production emphasizes our company’s needs—when we should be emphasizing our customers’. Myth 4: Technical research and development will ensure our growth. When R&D produces breakthrough products, we may be tempted to organize our companies around the technology rather than the consumer. Instead, we should remain focused on satisfying customer needs. industry or a product or a cluster of know-how so narrowly as to guarantee its premature senescence. When we mention “railroads,” we should make sure we mean “transportation.” As transporters, the railroads still have a good chance for very considerable growth. They are not limited to the railroad business as such (though in my opinion, rail transportation is potentially a much stronger transportation medium than is generally believed). What the railroads lack is not opportunity but some of the managerial imaginativeness and audacity that made them great. Even an amateur like Jacques Barzun can see what is lacking when he says, “I grieve to see the most advanced physical and social organization 32 This document is authorized for use only by Bharath Cheeti in BUOL 733, Strategic Marketing-1 taught by Daniel Kanyam, University of the Cumberlands from Aug 2020 to Feb 2021. 171982 03 029-056 r1 ts.qxd 1/5/13 10:25 AM Page 33 For the exclusive use of B. Cheeti, 2020. MARKETING MYOPIA of the last century go down in shabby disgrace for lack of the same comprehensive imagination that built it up. [What is lacking is] the will of the companies to survive and to satisfy the public by inventiveness and skill.”1 Shadow of Obsolescence It is impossible to mention a single major industry that did not at one time qualify for the magic appellation of “growth industry.” In each case, the industry’s assumed strength lay in the apparently unchallenged superiority of its product. There appeared to be no effective substitute for it. It was itself a runaway substitute for the product it so triumphantly replaced. Yet one after another of these celebrated industries has come under a shadow. Let us look briefly at a few more of them, this time taking examples that have so far received a little less attention. Dry cleaning This was once a growth industry with lavish prospects. In an age of wool garments, imagine being finally able to get them clean safely and easily. The boom was on. Yet here we are 30 years after the boom started, and the industry is in trouble. Where has the competition come from? From a better way of cleaning? No. It has come from synthetic fibers and chemical additives that have cut the need for dry cleaning. But this is only the beginning. Lurking in the wings and ready to make chemical dry cleaning totally obsolete is that powerful magician, ultrasonics. Electric utilities This is another one of those supposedly “no substitute” products that has been enthroned on a pedestal of invincible growth. When the incandescent lamp came along, kerosene lights were finished. Later, the waterwheel and the steam engine were cut to ribbons by the flexibility, reliability, simplicity, and just plain easy availability of electric motors. The prosperity of electric utilities continues to wax extravagant as the home is converted into a museum of electric 33 This document is authorized for use only by Bharath Cheeti in BUOL 733, Strategic Marketing-1 taught by Daniel Kanyam, University of the Cumberlands from Aug 2020 to Feb 2021. 171982 03 029-056 r1 ts.qxd 1/5/13 10:25 AM Page 34 For the exclusive use of B. Cheeti, 2020. LEVITT gadgetry. How can anybody miss by investing in utilities, with no competition, nothing but growth ahead? But a second look is not quite so comforting. A score of nonutility companies are well advanced toward developing a powerful chemical fuel cell, which could sit in some hidden closet of every home silently ticking off electric power. The electric lines that vulgarize so many neighborhoods would be eliminated. So would the endless demolition of streets and service interruptions during storms. Also on the horizon is solar energy, again pioneered by nonutility companies. Who says that the utilities have no competition? They may be natural monopolies now, but tomorrow they may be natural deaths. To avoid this prospect, they too will have to develop fuel cells, solar energy, and other power sources. To survive, they themselves will have to plot the obsolescence of what now produces their livelihood. Grocery stores Many people find it hard to realize that there ever was a thriving establishment known as the “corner store.” The supermarket took over with a powerful effectiveness. Yet the big food chains of the 1930s narrowly escaped being completely wiped out by the aggressive expansion of independent supermarkets. The first genuine supermarket was opened in 1930, in Jamaica, Long Island. By 1933, supermarkets were thriving in California, Ohio, Pennsylvania, and elsewhere. Yet the established chains pompously ignored them. When they chose to notice them, it was with such derisive descriptions as “cheapy,” “horse-and-buggy,” “cracker-barrel storekeeping,” and “unethical opportunists.” The executive of one big chain announced at the time that he found it “hard to believe that people will drive for miles to shop for foods and sacrifice the personal service chains have perfected and to which [the consumer] is accustomed.”2 As late as 1936, the National Wholesale Grocers convention and the New Jersey Retail Grocers Association said there was nothing to fear. They said that the supers’ narrow appeal to the price buyer limited the size of their market. They had to draw from miles around. When imitators came, there 34 This document is authorized for use only by Bharath Cheeti in BUOL 733, Strategic Marketing-1 taught by Daniel Kanyam, University of the Cumberlands from Aug 2020 to Feb 2021. 171982 03 029-056 r1 ts.qxd 1/5/13 10:25 AM Page 35 For the exclusive use of B. Cheeti, 2020. MARKETING MYOPIA would be wholesale liquidations as volume fell. The high sales of the supers were said to be partly due to their novelty. People wanted convenient neighborhood grocers. If the neighborhood stores would “cooperate with their suppliers, pay attention to their costs, and improve their service,” they would be able to weather the competition until it blew over.3 It never blew over. The chains discovered that survival required going into the supermarket business. This meant the wholesale destruction of their huge investments in corner store sites and in established distribution and merchandising methods. The companies with “the courage of their convictions” resolutely stuck to the corner store philosophy. They kept their pride but lost their shirts. A self-deceiving cycle But memories are short. For example, it is hard for people who today confidently hail the twin messiahs of electronics and chemicals to see how things could possibly go wrong with these galloping industries. They probably also cannot see how a reasonably sensible businessperson could have been as myopic as the famous Boston millionaire who early in the twentieth century unintentionally sentenced his heirs to poverty by stipulating that his entire estate be forever invested exclusively in electric streetcar securities. His posthumous declaration, “There will always be a big demand for efficient urban transportation,” is no consolation to his heirs, who sustain life by pumping gasoline at automobile filling stations. Yet, in a casual survey I took among a group of intelligent business executives, nearly half agreed that it would be hard to hurt their heirs by tying their estates forever to the electronics industry. When I then confronted them with the Boston streetcar example, they chorused unanimously, “That’s different!” But is it? Is not the basic situation identical? In truth, there is no such thing as a growth industry, I believe. There are only companies organized and operated to create and capitalize on growth opportunities. Industries that assume themselves to be riding some automatic growth escalator invariably descend into stagnation. The history of every dead and dying 35 This document is authorized for use only by Bharath Cheeti in BUOL 733, Strategic Marketing-1 taught by Daniel Kanyam, University of the Cumberlands from Aug 2020 to Feb 2021. 171982 03 029-056 r1 ts.qxd 1/5/13 10:25 AM Page 36 For the exclusive use of B. Cheeti, 2020. LEVITT “growth” industry shows a self-deceiving cycle of bountiful expansion and undetected decay. There are four conditions that usually guarantee this cycle: 1. The belief that growth is assured by an expanding and more affluent population; 2. The belief that there is no competitive substitute for the industry’s major product; 3. Too much faith in mass production and in the advantages of rapidly declining unit costs as output rises; 4. Preoccupation with a product that lends itself to carefully controlled scientific experimentation, improvement, and manufacturing cost reduction. I should like now to examine each of these conditions in some detail. To build my case as boldly as possible, I shall illustrate the points with reference to three industries: petroleum, automobiles, and electronics. I’ll focus on petroleum in particular, because it spans more years and more vicissitudes. Not only do these three industries have excellent reputations with the general public and also enjoy the confidence of sophisticated investors, but their managements have become known for progressive thinking in areas like financial control, product research, and management training. If obsolescence can cripple even these industries, it can happen anywhere. Population Myth The belief that profits are assured by an expanding and more affluent population is dear to the heart of every industry. It takes the edge off the apprehensions everybody understandably feels about the future. If consumers are multiplying and also buying more of your product or service, you can face the future with considerably more comfort than if the market were shrinking. An expanding market keeps the manufacturer from having to think very hard or imaginatively. If thinking is an intellectual response to a problem, then the absence 36 This document is authorized for use only by Bharath Cheeti in BUOL 733, Strategic Marketing-1 taught by Daniel Kanyam, University of the Cumberlands from Aug 2020 to Feb 2021. 171982 03 029-056 r1 ts.qxd 1/5/13 10:25 AM Page 37 For the exclusive use of B. Cheeti, 2020. MARKETING MYOPIA of a problem leads to the absence of thinking. If your product has an automatically expanding market, then you will not give much thought to how to expand it. One of the most interesting examples of this is provided by the petroleum industry. Probably our oldest growth industry, it has an enviable record. While there are some current concerns about its growth rate, the industry itself tends to be optimistic. But I believe it can be demonstrated that it is undergoing a fundamental yet typical change. It is not only ceasing to be a growth industry but may actually be a declining one, relative to other businesses. Although there is widespread unawareness of this fact, it is conceivable that in time, the oil industry may find itself in much the same position of retrospective glory that the railroads are now in. Despite its pioneering work in developing and applying the present-value method of investment evaluation, in employee relations, and in working with developing countries, the petroleum business is a distressing example of how complacency and wrongheadedness can stubbornly convert opportunity into near disaster. One of the characteristics of this and other industries that have believed very strongly in the beneficial consequences of an expanding population, while at the same time having a generic product for which there has appeared to be no competitive substitute, is that the individual companies have sought to outdo their competitors by improving on what they are already doing. This makes sense, of course, if one assumes that sales are tied to the country’s population strings, because the customer can compare products only on a feature-byfeature basis. I believe it is significant, for example, that not since John D. Rockefeller sent free kerosene lamps to China has the oil industry done anything really outstanding to create a demand for its product. Not even in product improvement has it showered itself with eminence. The greatest single improvement—the development of tetraethyl lead—came from outside the industry, specifically from General Motors and DuPont. The big contributions made by the industry itself are confined to the technology of oil exploration, oil production, and oil refining. 37 This document is authorized for use only by Bharath Cheeti in BUOL 733, Strategic Marketing-1 taught by Daniel Kanyam, University of the Cumberlands from Aug 2020 to Feb 2021. 171982 03 029-056 r1 ts.qxd 1/5/13 10:25 AM Page 38 For the exclusive use of B. Cheeti, 2020. LEVITT Asking for trouble In other words, the petroleum industry’s efforts have focused on improving the efficiency of getting and making its product, not really on improving the generic product or its marketing. Moreover, its chief product has continually been defined in the narrowest possible terms—namely, gasoline, not energy, fuel, or transportation. This attitude has helped assure that: • Major improvements in gasoline quality tend not to originate in the oil industry. The development of superior alternative fuels also comes from outside the oil industry, as will be shown later. • Major innovations in automobile fuel marketing come from small, new oil companies that are not primarily preoccupied with production or refining. These are the companies that have been responsible for the rapidly expanding multipump gasoline stations, with their successful emphasis on large and clean layouts, rapid and efficient driveway service, and quality gasoline at low prices. Thus, the oil industry is asking for trouble from outsiders. Sooner or later, in this land of hungry investors and entrepreneurs, a threat is sure to come. The possibility of this will become more apparent when we turn to the next dangerous belief of many managements. For the sake of continuity, because this second belief is tied closely to the first, I shall continue with the same example. The idea of indispensability The petroleum industry is pretty much convinced that there is no competitive substitute for its major product, gasoline—or, if there is, that it will continue to be a derivative of crude oil, such as diesel fuel or kerosene jet fuel. There is a lot of automatic wishful thinking in this assumption. The trouble is that most refining companies own huge amounts of crude oil reserves. These have value only if there is a market for products into which oil can be converted. Hence the tenacious belief 38 This document is authorized for use only by Bharath Cheeti in BUOL 733, Strategic Marketing-1 taught by Daniel Kanyam, University of the Cumberlands from Aug 2020 to Feb 2021. 171982 03 029-056 r1 ts.qxd 1/5/13 10:25 AM Page 39 For the exclusive use of B. Cheeti, 2020. MARKETING MYOPIA in the continuing competitive superiority of automobile fuels made from crude oil. This idea persists despite all historic evidence against it. The evidence not only shows that oil has never been a superior product for any purpose for very long but also that the oil industry has never really been a growth industry. Rather, it has been a succession of different businesses that have gone through the usual historic cycles of growth, maturity, and decay. The industry’s overall survival is owed to a series of miraculous escapes from total obsolescence, of lastminute and unexpected reprieves from total disaster reminiscent of the perils of Pauline. The perils of petroleum To illustrate, I shall sketch in only the main episodes. First, crude oil was largely a patent medicine. But even before that fad ran out, demand was greatly expanded by the use of oil in kerosene lamps. The prospect of lighting the world’s lamps gave rise to an extravagant promise of growth. The prospects were similar to those the industry now holds for gasoline in other parts of the world. It can hardly wait for the underdeveloped nations to get a car in every garage. In the days of the kerosene lamp, the oil companies competed with each other and against gaslight by trying to improve the illuminating characteristics of kerosene. Then suddenly the impossible happened. Edison invented a light that was totally nondependent on crude oil. Had it not been for the growing use of kerosene in space heaters, the incandescent lamp would have completely finished oil as a growth industry at that time. Oil would have been good for little else than axle grease. Then disaster and reprieve struck again. Two great innovations occurred, neither originating in the oil industry. First, the successful development of coal-burning domestic central-heating systems made the space heater obsolete. While the industry reeled, along came its most magnificent boost yet: the internal combustion engine, also invented by outsiders. Then, when the prodigious expansion for gasoline finally began to level off in the 1920s, along came the miraculous escape of the central oil heater. Once again, the escape was provided 39 This document is authorized for use only by Bharath Cheeti in BUOL 733, Strategic Marketing-1 taught by Daniel Kanyam, University of the Cumberlands from Aug 2020 to Feb 2021. 171982 03 029-056 r1 ts.qxd 1/5/13 10:25 AM Page 40 For the exclusive use of B. Cheeti, 2020. LEVITT by an outsider’s invention and development. And when that market weakened, wartime demand for aviation fuel came to the rescue. After the war, the expansion of civilian aviation, the dieselization of railroads, and the explosive demand for cars and trucks kept the industry’s growth in high gear. Meanwhile, centralized oil heating—whose boom potential had only recently been proclaimed—ran into severe competition from natural gas. While the oil companies themselves owned the gas that now competed with their oil, the industry did not originate the natural gas revolution, nor has it to this day greatly profited from its gas ownership. The gas revolution was made by newly formed transmission companies that marketed the product with an aggressive ardor. They started a magnificent new industry, first against the advice and then against the resistance of the oil companies. By all the logic of the situation, the oil companies themselves should have made the gas revolution. They not only owned the gas, they also were the only people experienced in handling, scrubbing, and using it and the only people experienced in pipeline technology and transmission. They also understood heating problems. But, partly because they knew that natural gas would compete with their own sale of heating oil, the oil companies pooh-poohed the potential of gas. The revolution was finally started by oil pipeline executives who, unable to persuade their own companies to go into gas, quit and organized the spectacularly successful gas transmission companies. Even after their success became painfully evident to the oil companies, the latter did not go into gas transmission. The multibilliondollar business that should have been theirs went to others. As in the past, the industry was blinded by its narrow preoccupation with a specific product and the value of its reserves. It paid little or no attention to its customers’ basic needs and preferences. The postwar years have not witnessed any change. Immediately after World War II, the oil industry was greatly encouraged about its future by the rapid increase in demand for its traditional line of products. In 1950, most companies projected annual rates of domestic expansion of around 6% through at least 1975. Though the ratio of crude oil reserves to demand in the free world was about 20 to 1, 40 This document is authorized for use only by Bharath Cheeti in BUOL 733, Strategic Marketing-1 taught by Daniel Kanyam, University of the Cumberlands from Aug 2020 to Feb 2021. 171982 03 029-056 r1 ts.qxd 1/5/13 10:25 AM Page 41 For the exclusive use of B. Cheeti, 2020. MARKETING MYOPIA with 10 to 1 being usually considered a reasonable working ratio in the United States, booming demand sent oil explorers searching for more without sufficient regard to what the future really promised. In 1952, they “hit” in the Middle East; the ratio skyrocketed to 42 to 1. If gross additions to reserves continue at the average rate of the past five years (37 billion barrels annually), then by 1970, the reserve ratio will be up to 45 to 1. This abundance of oil has weakened crude and product prices all over the world. An uncertain future Management cannot find much consolation today in the rapidly expanding petrochemical industry, another oil-using idea that did not originate in the leading firms. The total U.S. production of petrochemicals is equivalent to about 2% (by volume) of the demand for all petroleum products. Although the petrochemical industry is now expected to grow by about 10% per year, this will not offset other drains on the growth of crude oil consumption. Furthermore, while petrochemical products are many and growing, it is important to remember that there are nonpetroleum sources of the basic raw material, such as coal. Besides, a lot of plastics can be produced with relatively little oil. A 50,000-barrel-per-day oil refinery is now considered the absolute minimum size for efficiency. But a 5,000-barrel-per-day chemical plant is a giant operation. Oil has never been a continuously strong growth industry. It has grown by fits and starts, always miraculously saved by innovations and developments not of its own making. The reason it has not grown in a smooth progression is that each time it thought it had a superior product safe from the possibility of competitive substitutes, the product turned out to be inferior and notoriously subject to obsolescence. Until now, gasoline (for motor fuel, anyhow) has escaped this fate. But, as we shall see later, it too may be on its last legs. The point of all this is that there is no guarantee against product obsolescence. If a company’s own research does not make a product obsolete, another’s will. Unless an industry is especially lucky, as oil has been until now, it can easily go down in a sea of red figures—just as the railroads have, as the buggy whip manufacturers have, as the 41 This document is authorized for use only by Bharath Cheeti in BUOL 733, Strategic Marketing-1 taught by Daniel Kanyam, University of the Cumberlands from Aug 2020 to Feb 2021. 171982 03 029-056 r1 ts.qxd 1/5/13 10:25 AM Page 42 For the exclusive use of B. Cheeti, 2020. LEVITT corner grocery chains have, as most of the big movie companies have, and, indeed, as many other industries have. The best way for a firm to be lucky is to make its own luck. That requires knowing what makes a business successful. One of the greatest enemies of this knowledge is mass production. Production Pressures Mass production industries are impelled by a great drive to produce all they can. The prospect of steeply declining unit costs as output rises is more than most companies can usually resist. The profit possibilities look spectacular. All effort focuses on production. The result is that marketing gets neglected. John Kenneth Galbraith contends that just the opposite occurs.4 Output is so prodigious that all effort concentrates on trying to get rid of it. He says this accounts for singing commercials, the desecration of the countryside with advertising signs, and other wasteful and vulgar practices. Galbraith has a finger on something real, but he misses the strategic point. Mass production does indeed generate great pressure to “move” the product. But what usually gets emphasized is selling, not marketing. Marketing, a more sophisticated and complex process, gets ignored. The difference between marketing and selling is more than semantic. Selling focuses on the needs of the seller, marketing on the needs of the buyer. Selling is preoccupied with the seller’s need to convert the product into cash, marketing with the idea of satisfying the needs of the customer by means of the product and the whole cluster of things associated with creating, delivering, and, finally, consuming it. In some industries, the enticements of full mass production have been so powerful that top management in effect has told the sales department, “You get rid of it; we’ll worry about profits.” By contrast, a truly marketing-minded firm tries to create value-satisfying goods and services that consumers will want to buy. What it offers for sale includes not only the generic product or service but also how it is made available to the customer, in what form, when, under what conditions, and at what terms of trade. Most important, what it 42 This document is authorized for use only by...
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STRATEGIC MARKETING AND QUALITY ENGINEERING

Strategic marketing and quality engineering
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STRATEGIC MARKETING AND QUALITY ENGINEERING

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Introduction
Engineers are responsible for ensuring that the methods they apply in providing solutions
to problems in organizations do not negatively impact the environment. The reason behind this is
when the environment is not preserved; in the long-run, there will be dire consequences. Because
engineers' role is in the design, construction, and even the use of machinery and other scientific
techniques that need to be employed, the role they play in ...


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