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A Strategy Document on The New Marketing Paradigm Holistic Marketing ● Lateral Marketing ● High-tech Marketing by PHILIP KOTLER Documentation Sponsored by Canon. logo unit. Kotler On Marketing How To Create, Win, and Dominate Markets. Philip Kotler, Ph.D Kellogg School of Management

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    1. A Strategy Documenton The New Marketing ParadigmHolistic Marketing ● Lateral Marketing ● High-tech MarketingbyPHILIP KOTLERDocumentation Sponsored byCanon

    2. logo unit

    3. Kotler On MarketingHow To Create, Win, and Dominate Markets • Philip Kotler, Ph.D • Kellogg School of Management • Northwestern University • Indiatimes Mindscape • Mumbai and Delhi • October 11, 12, 2004 Printed on CANON

    4. Two Challenges Facing Indian Companies • Will Indian companies be able to defend their market against the growing invasion of foreign global brands? • Can Indian companies develop strong global brands? Printed on CANON

    5. Can Indian Companies Defend the Domestic Market? • Foreign competitors will not only go after the high end market in India. They will target the middle and eventually the low end. • The main defense for India will be developing stronger skills in innovation, differentiation, branding, and service. In a word, MARKETING! Printed on CANON

    6. But India Needs Stronger Marketing • Confusing marketing with advertising. • Advertising is hard sell. • Sometimes ads appear before the product is in distribution. • Some companies over-spend on advertising and go broke. • Little use of marketing research; can’t trust. • Therefore little segmentation of market and poor targeting. • Over focus on winning through low price; neglecting differentiation. • Retailers carry the same goods and their service is poor. Printed on CANON

    7. Marketing is More Important than Production! • The Indian manufacturer of a Hugo Boss shirt gets only $12, or 10% of the final price of $120 that is paid by a customer of Saks Fifth Avenue. • The retailer gets 60% ($72) and the Brand company gets 30%, or $36. • Would you rather be the manufacturer, Brand owner, or retailer? • The Indian manufacturer has no defense if the Brand Owner wants to switch to another manufacturer to whom he will pay $8 and keep $2 or pass it to the retailer to get more retail support. • Yet India pays more attention to the product engineer than the marketing “engineer.” But India’s future success will require investing in marketing and branding. Printed on CANON

    8. The Strategic Trajectory for India • Low cost, average quality domestic products. • Low cost, good quality domestic products. • Indian high-end products made for other companies. • Indian branded products (regional). • Indian branded products (global). • Indian dominant brands (global). Printed on CANON

    9. Ranbaxy Pharmaceuticals (India) • Originally sold bulk substances to unsophisticated markets but gross margins were too low to cover export costs. • New CEO, Parvinder Singh, challenged Ranbaxy to become a truly global company. He said: “Ranbaxy cannot change India. What it can do is to create a pocket of excellence. Ranbaxy must be an island within India.” • The company moved into higher-margin businesses like selling branded generics in large volume markets like China and Russia. • Ranbaxy then entered the U.S. and Western Europe. In just five years, more than half of its US$ 250 million revenues now come from outside of India. Printed on CANON

    10. The Case of Haier Haier developed through three stages. 1. Fix quality (Zhang Ruimin smashed 76 refrigerators). 2. Diversify (Microwaves, toasters, air conditioners, dishwasher, vacuum cleaners, etc.) 3. Globalize (Asia Region, U.S., Europe) • Haier entered with a U.S. partner and is challenging Whirlpool and GE. • Haier’s brand name products are sold in Wal-Mart, Best Buy, Sears, Lowe’s, Home Depot and Target. • Haier is promoted as a global brand, not a Chinese one. (Many people think it is German). • Puts lower price models in price-only stores and higher price models in top stores. Printed on CANON

    11. Five C’s Favoring India • Capital: India has and can attract capital. • Cost: Another 50 years of low cost production • Capability: Large number of trained workers, engineers, scientists, and business people • Consumers: Immense domestic market • Calm and stability: in a world of turmoil and uncertainty Printed on CANON

    12. A Quiz: Who Said This? • “The purpose of a company is ‘to create a customer…The only profit center is the customer.’” • “A business has two—and only two—basic functions: marketing and innovation. Marketing and innovation produce results: all the rest are costs.” • “The aim of marketing is to make selling unnecessary.” • “While great devices are invented in the Laboratory, great products are invented in the Marketing department.” • “Marketing is too important to be left to the marketing department.” Printed on CANON

    13. My Message • Marketing’s performance has been disappointing. • You must replace your Old Marketing with New Marketing that is: • holistic, • technology-enabled, • and strategic. Printed on CANON

    14. Facing the Increasing Pressure for Marketing Accountability • Marketing has become a one P discipline = selling. • Marketing involves a great deal of waste. • $2 million for 30 seconds on the Superbowl. • Direct mail campaigns with a 1% response rate. • Cold sales calls which play the numbers. • High rate of new product failure. • Marketing costs are high and rising. • Marketing lacks accountability. • Marketing does not create major new ideas. • Marketing is too involved in short-term thinking. • Marketing doesn’t focus on its real assets. • Brands, customers, service quality, stakeholder relationships, intellectual capital, corporate reputation Printed on CANON

    15. Needed:Holistic Marketing • Marketing must become strategic and drive business strategy. • A company needs to take a more holistic view of: • the target customers’ activities, lifestyle, and social space. • the company’s channels and supply chain. • the company’s communications. • the company’s stakeholders’ interests. • Holistic marketing will require strong software support. Printed on CANON

    16. HOLISTIC RELATIONSHIP MARKETING FRAMEWORK 1) Who is involved? CORPORATION COLLABORATORS CUSTOMERS MARKET SPACE 2) How can we define relevant market space? 3) What are the potential opportunities emerging from the market space? POTENTIAL OPPORTUNITIES 4) What business capabilities and infrastructure required? BUSINESS INVESTMENT CUSTOMER FOCUS CORE COMPETENCIES COLLABORATIVE NETWORK Printed on CANON

    17. Exploring Value 4 COMPETITIVE PLATFORMS Customer Focus Core Competencies Collaborative Network COGNITIVE SPACE COMPETENCY SPACE RESOURCE SPACE Business Architecture Market Offerings BUSINESS PARTNERS CUSTOMER VALUE BUSINESS DOMAIN Creating Value Marketing Activities Operational System Delivering Value CRM ERP SCM Printed on CANON

    18. Responding to Low Margins and the Economic Slowdown • Commoditization and rapid imitation leading to shorter product life cycles. • Competition of cheaper brands from China and elsewhere. • Rising selling and promotion costs and decreasing sales effectiveness. • Shrinking margins. • Proliferation of sales and media channels. • Power shifting to giant retailers who are demanding lower prices. • Recession: lower incomes and purchasing power. • Mergers, large company bankruptcies. Printed on CANON

    19. Improving Marketing Efficiency and Effectiveness • Improving marketingefficiency • buying inputs more efficiently • hunting down excessive communication and sales travel expenses • closing unproductive sales offices • cutting back on unproven promotion programs and tactics • putting advertising agencies on a pay-for-performance basis • Improving marketing effectiveness • replacing higher cost channels with lower cost channels • shifting advertising money into better uses • reducing the number of brands or sku’s • Improving supply chain responsiveness Printed on CANON

    20. Responding to the Economic Slowdown • Reevaluate your current resource allocations. • Geographical mix • Market segment mix • Customer mix • Product mix • Channel mix • Promotion mix • Decide whether to attack to gain market share rather than retrench. • Be sure to maintain the value proposition promised by your brand. • Try to add value instead of cutting the price. Printed on CANON

    21. Marketing Strategies Are Showing Diminishing Returns • Product differentiation is harder to achieve. • Acquisitions and mergers have as many failures as successes. • Internationalization is offering less opportunities because either the good markets are overcrowded or the poor markets have no money. • New products unfortunately fail more times than they succeed. • Price cutting doesn’t work because competitors will match. • Pricing raising doesn’t work since there isn’t enough differentiation to support it. • Cost cutting has eliminated much of the fat but is now risking cutting the muscles. Printed on CANON

    22. Strategies for Firms in Different Market Positions Printed on CANON Jagdish Sheth, Singapore Marketer, 2002

    23. Five Winning Strategies • Cost reduction: (IKEA, Southwest Airlines, Wal-Mart, Enterprise Rent-a-Car). • Improved customer experience (Starbucks, Harley Davidson) • Innovative business model (Barnes & Noble, Charles Schwab, FedEx, Sony). • Improved product quality (P&G, Toyota). • Niching: (Progressive Insurance, Tetra) Printed on CANON

    24. Planning for today Defining the business. Shaping the business to meet needs of today’s customers Improving alignment between functional activities and business definition Organization mirrors current business activities Optimizing current operations to achieve excellence. Planning for tomorrow Redefining the business Reshaping the business to compete for future customers and markets Making bold moves away from the existing ways of doing business Reorganizing for future business challenges Managing change to create future operations and processes Dual Strategies Printed on CANON

    25. In many markets, the growing number of competitors in mature markets leads companies to target niches of low profitability. Y O G U R T S M A R K E T Number of competitors Market Size Time Average profitability of all competitors or players Printed on CANON

    26. Some Vertical Marketing Methods • Modulation • The juice manufacturer varies the sugar content, fruit concentrate, with or without vitamins… • Sizing • Potato chips are offered in sizes 35 grams, 50 grams, 75grams, 125 grams, 200 grams, multi-packs… • Packaging • Nestle’s Red Box chocolates comes in different containers: cheap paper box for the grocery trade, premium metal box for the gift trade… • Design • BMW designs cars with different styling and features... • Complements • Biscuits with sugar spread on it, with cinnamon, with chocolate, with white chocolate, with black chocolate, filled biscuits… • Efforts reduction • Charles Schwab offers different channels for transacting such as retail stores, telephone, internet…. Printed on CANON

    27. New category Cereals for breakfast market = into STREETS Vertical Marketing Process Cereal varieties The case of Cereal Bars Lateral Marketing Process Printed on CANON

    28. The case of Barbie Lateral Marketing Process Teenager New category Baby dolls market To feel as... = Doll varieties Vertical Marketing Process Printed on CANON

    29. Other Examples of Lateral Marketing • Kinder Surprise = candy + toy. • Seven Eleven = food + depot. • Actimel = yogurt + bacteria protection. • Gas station stores = gas station + food. • Cyber cafes = cafeteria + Internet. • “Be the godfather of a kid” = Donation + adoption. • Huggies Pull-ups = diapers + 3 year olds. • Walkman = audio + portable • Source: Philip Kotler and Fernando Trias de Bes, Lateral Marketing: A New Approach to Finding Product, Market and Marketing Mix Ideas (Wiley, 2004) Printed on CANON

    30. Check Where You Stand • Marketing does the marketing -> everyone does the marketing. • Organizing by product units -> organizing by customer segments. • Making everything -> outsourcing more goods and services. • Using many suppliers -> working with fewer suppliers. • Emphasizing tangible assets -> emphasizing intangible assets. • Building brands through advertising -> building brands through integrated communications.  • Attracting customers to stores -> making products available on-line. • Selling to everyone -> selling to target markets. • Focusing on profitable transactions -> focusing on customer lifetime value.  • Focusing on market share -> focusing on customer share. • Being local -> being “glocal. • Focusing on the financial scorecard -> focusing on the marketing scorecard.  • Focusing on shareholders -> focusing on stakeholders  Printed on CANON

    31. Building Brand Equity MARKETING IS THE ART OF BRAND BUILDING * IF YOU ARE NOT A BRAND, YOU ARE A COMMODITY. * THEN PRICE IS EVERYTHING AND THE LOW-COST PRODUCER IS THE ONLY WINNER! Printed on CANON

    32. 1. How Important is Branding? • The NUMMI plant in California produces two nearly identical models called the Toyota Corolla and the Chevrolet Prizm. • Toyota sold 230,000 Corollas compared to sales of 52,000 Prizms. • And Toyota’s net price is $650 higher! Printed on CANON

    33. On the demand side: higher price increased sales volume lower churn more brand stretching On the supply side: greater trade acceptance, more favorable supplier terms, lower rejection lower staff acquisition and retention costs lower cost of capital better scale economics through higher volume A Strong Brand Improves Demand and Supply Printed on CANON

    34. Donald Trump’s family name is Drumpf. But he can’t call it Drumpf Towers. Alan Alda’s name was Alphonso D’Abruzzo. Chinese gooseberry was renamed kiwifruit. Paradise Island in the Bahamas used to be Hog Island. Names are Important in Branding Printed on CANON

    35. A Brand Must be More Than a Name • A brand must trigger words or associations (features and benefits). • A brand should depict a process (McDonald’s, Amazon). • A great brand triggers emotions (Harley-Davidson). • A great brand represents a promise of value (Sony). • The ultimate brand builders are your employees and operations, i.e., your performance, not your marketing communications. Printed on CANON

    36. Your Company’s Brand • What word does your brand own? 2. Write down other words triggered by your brand name? A. Circle the favorable words; square the unfavorable words. B. Underline the words that are favorable but not widely known. C. Double underline the words that are unique to your company. 3. Are any of the following a source for strengthening your brand’s personality? A. Founders B. Spokespersons C. Characters D. Objects E. Stories and mythologies Printed on CANON

    37. 2. How Do You Develop a Brand Concept? • “The brand must be an essence, an ideal, an emotion. ” It must be supported by beautiful logos, clever tag lines, creative turns, edgy names, rave launch parties, big ticket giveaway promotions, and publicity buzz-making. (Advertising agency view) • “The brand should have a target group in mind and be positioned to solve one of their problems better than competitive offerings.” Furthermore the brand’s reputation is ultimately based on product quality, customer satisfaction, employee communications, social responsibility, etc. (Kevin Clancy, CEO of Copernicus) Printed on CANON

    38. Branding Components • Name • Short, suggestive, memorable, unique, pronounceable • Slogan • Logo and typeface • Colors • Music • Themelines (Got Milk!) • Stationery and business cards • Offices • Trucks • Dress code Printed on CANON

    39. Brand Slogans • BA, “The World’s Favorite Airline” • American Express, “The Natural Choice” • AT&T, “The Right Choice” • Budweiser, “King of Beers” • Ford, “Quality is #1 Job” • Holiday Inn, “No Surprises” • Lloyds Bank, “The Bank that Likes to Say Yes” • Philips, • “From Sand to Chips” • “Philips Invents for You” • “Let’s Make Things Better” Printed on CANON

    40. There is No Such Thing as a Commodity: Differentiate by Segments • Mobil conducted a study of 2,000 gasoline buyers and identified five segments: • Road Warriors (always driving) • True Blues (brand or dealer loyal) • Generation F3 (liked convenience store aspect) • Homebodies (fills up at nearest station) • Price Shoppers (20% of all the buyers) • Mobil rolled out Friendly Serve: cleaner property, bathrooms, better lighting, well-stocked stores, and friendlier personnel. • Mobil charged $.02 more and sales increased by 20-25 percent. Printed on CANON

    41. 3. How Do You Promote a Brand? • “How do I justify spending millions on creating an image. That’s millions my customers have to spend when they buy from us.” Tom Parker, CEO of Clark’s shoes. • Brands are built by performance, not advertising. Printed on CANON

    42. Don’t Overuse Advertising to Build a Brand • People don’t pay that much attention to ads anymore (wallpaper). • Some exceptional TV ads grab attention but do not provide motivation. • Advertising doesn’t have much credibility or believability. • The existence of so much advertising makes advertising less effective. Yet the cost of advertising keeps rising. Printed on CANON

    43. Tools for Building Brands • Advertising (e.g.,Absolut Vodka) • Sponsorships (e.g., Kodak and Olympics) • Clubs (e.g. Nestle’s Casa Buitoni Club) • Company visits (e.g., Cadbury’s theme park, Hallmark’s Museum) • Trade shows • Traveling exhibits • Worldwide web casts of presentations, roundtables, entertainment • Distribution outlets (e.g., Haagen-Dazs) • Public facilities (e.g., Nestle Nestops) • Social causes (e.g., American Express) • High value for the money (e.g. buzz created by Ikea, etc.) • User community building (e.g., Harley-Davidson) • Founder’s personality (e.g., Colonel Saunders) • Celebrity spokespersons Printed on CANON

    44. 4. What Makes a Strong Brand? • Strong brand = Product Benefits x Distinct Identity x Emotional Values • Peter Doyle, Marketing Management & Strategy, 1997 Printed on CANON

    45. THE Y&R MODEL OF BRAND STRENGTH A successful brand has brand vitality and brand stature. Brand vitality consists of: 1. Differentiation, the brand is distinct 2. Relevance, the brand is meaningful and personally appropriate. Brand stature consists of: 1. Esteem, the brand is seen to have quality and momentum. 2. Familiarity, the brand is known and understood by many people. Some conclusions: 1. A brand that has high familiarity but low likeability is a troubled brand. 2. A brand that has high likeability but low familiarity has high advertising potential. 3. A brand with high vitality but low stature has excellent potential. 4. When a brand’s differentiation and relevance start slipping, esteem will slip next, and then familiarity will decline. Printed on CANON

    46. Characteristics of Strong Brands • Provides superior delivery of desired benefits. • (Starbucks, FedEx, Amazon) • Maintain innovation and relevance for the brand. • (Gillette, Charles Schwab) • Establish credibility and create appropriate brand personality and imagery. • (Apple, Virgin) • Communicate with a consistent voice. • (Coca-Cola, Accenture) • Strategically design and implement a brand hierarchy and portfolio. • (BMW, The Gap) Printed on CANON

    47. Strong Brands Supply Use Value as Well as Purchase Value Nestle: • Sells baby food • Provides free dietitian phone line • Nestops along the highway Home Depot: • Sells home improvement products, such as paint, electrical supplies, plumbing • Offers free kitchen remodeling design service • Offers free workshops on how to paint, fix faucets, etc. Volvo • Teaches safe driving, • Supports lower insurance rates for safe drivers Printed on CANON

    48. When Do You Stretch a Brand Name? • Mercedes is putting its name on large, medium and small cars. • Gap decided to invent Old Navy in going down and buying Banana Republic in going up. Printed on CANON

    49. How Do You Revitalize a Brand? • A dowager brand pioneered the market but now is declining. It will be hard to reverse the decline and give it new life but the decline can be slowed down. • Two general approaches: • Marketing mix modification • Improve the product, distribution, price, or promotion • Market modification • Find new segments, new usage benefits or occasions, more frequent usage, etc. • Find out to whom the dowager brand is losing share: • Old peer brands • New peer brands • Retail store brands • Generic brands • Elite brands • Find out to whom the dowager brand is losing sales. • Interview people who defected to each competitive class and their dissenting rationales. • Determine a counterlogic for each group and direct them to the groups that can most easily be won back. • Source: Dennis W. Rook and Sidney J. Levy, “Defending the Dowager: Communication Strategies for Declining Main Brands.” Printed on CANON

    50. How Do You Rationalize Your Product Line? • Unilever found that the largest 50 brands accounted for 63% of its revenues. • Unilever decided to emphasize 400 core brands and dispose, delete or consolidate 1,200 of its marginal brands. • Unilever selected its 400 core brands based on brand scale, brand power (#1or 2), and brand growth potential. • 40 brands were designated as core global brands (e.g., Dove, Knorr, Lipton), and 360 as regional core brands. • The core brands would get disproportionate investments in advertising and promotion, innovation, marketing competence and management time. The core brands would be extended. • Weak brands had small market shares; poor profitability; negative cash flow; weak channel support; disproportionate consumption of management time. • The weak brands would be milked, sold, delisted, or their attribute would be migrated to another brand. Printed on CANON