New Marketing for the New Economy

1. New Marketing for the New Economy Philip Kotler, Ph.D. Kellogg Graduate School of Management Northwestern University Society for Marketing Advances Orlando, Florida November 9, 2000

2. Characteristics of Today’s Economy • Hypercompetition • Nanosecond Culture • Digitalization • Globalization • Empowered Customer

3. We Are Entering a New Economy • Old Economy was based on Manufacturing industries: • standardization • scale • replication • efficiency • hierarchy. • The New Economy is based on Information industries: • differentiation • customization • personalization • networks • speed

4. Old Economy - (Supply-side Marketing) • Organize by product units • Focus on profitable transactions • Look primarily at financial scorecard • Focus on shareholders • Marketing does the marketing • Build brands through advertising • Focus on customer acquisition • No customer satisfaction measurement • Overpromise, underdeliver

5. New Economy - (Demand-side Marketing) • Organize by customer segments • Focus on customer lifetime value • Look also at marketing scorecard • Focus on stakeholders • Everyone does the marketing • Build brands through behavior • Focus on customer retention and growth • Measure customer sat. and retention rate • Underpromise, overdeliver

6. Characteristics of the New Economy • Value is shifting from ownership of tangible assets to intangible assets. Companies are outsourcing asset-intensive activities. (Marriott) • Value is shifting from companies that provide products to companies that can provide high customization at low cost (Dell) or who are solutions providers (IBM). • Companies are achieving significant savings by conducting their business electronically.

7. How Will the New EconomyAffect: • Mass advertising? • The classical advertising agency? • Field sales forces? • Store-based retailers? • Price premiums?

8. Companies Get Stuck in Routines • Entrepreneurial stage • Bureaucratic stage • Intrepreneurial stage

9. Companies Evolve Through Five Stages • Heavy sales transaction stage. • Product differentiation stage (features, design, branding). • Customer service stage (product maintenance, customer service systems). • Customer segmentation and channel differentiation stage. • Enterprise-wide customer database and customer relationship management stage.

10. Traditional Marketing Skills • Sales management • Advertising management • Sales promotion management • Marketing research • Pricing

11. Competencies Needed by Today’s Marketers • Database marketing and data-mining • Telemarketing and call center management • Public relations marketing (including event and sponsorship marketing) • Customer relationship management • Partner relationship management • Brand building • Experiential marketing • Profitability analysis applied to customers, market segments, channels, and order sizes

12. Three Needed Skills • E-marketing skills • Brand-building skills • Customer relationship management skills

13. Jack Welch’s View • “Embrace the Net. Bring me a plan how you are going to transform your business beyond adding an Internet site.”

14. Internet Initiatives • Intranet • Extranet • Internet • Researching • Recruiting • Training • Selling • Buying (e-procurement) • Relationship building (chat rooms, etc.)

15. Questions to Ask • Do we need a website? • Should we do e-commerce on our website? • How do we attract, keep and grow visitors to our website? • How do we form a learning relationship with our visitors? • How do we pay for the site or make a profit?

16. Characteristics of Strong Websites • Context factors • Fast download • Easy to understand first page • Easy to move to other pages • Content factors • Deep information • Changing news • Humor feature, games • Contests • Chat room

17. E-Commerce: “Kiss the Stores Goodbye?” • Travel agents (Travelocity.com) • Brokers (E*trade.com) • Banks and insurance companies (First Direct.com, Direct Line.com) • Music stores (MP3.com) • Book stores (Amazon.com) • Toy stores (e*toys) • Car dealers (Edmunds.com; Autobytel.com) • Supermarkets (Peapod.com; netgrocer.com; streamline.com; cybermeals.com) • Newspapers (cnn.com)

18. Business-to-Business: Internet • Business-to-business e-commerce will be 10X larger than consumer e-commerce. • Businesses will use the Internet for buying, selling, auctioning, negotiating, researching, recruiting, training, relationship building, etc. • GE created the Trading Process Network where GE can request quotas, negotiate terms, and place orders. • Techdata provides an electronic catalog of 45,000 products from 900 manufacturers. • Office Depot services the office supply needs of 40,000 users in 5,000 companies over the Internet. • Dell • e-hubs

19. The Rise of ‘Reverse Marketing’ • Reverse pricing (priceline.com) • Reverse advertising (pull, not push) • Reverse promotions (netcentives, bonusmail, freeride) • Reverse product design (garden.com)

20. The Internet Will Lead to Lower Prices! • Shopping bots • Customer-specified pricing (priceline.com) • Volume pricing (mercata.com, powerbuy.com) • Yield-based pricing • Auction markets • Sites like buy.com which price at cost.

21. e-commerce’s Impact on Business • Falling prices • Falling procurement costs • Customer-driven marketing

22. Tools for Building Brands • Advertising (e.g., Absolut Vodka) • Public relations and press releases • Sponsorships (e.g., Kodak and Olympics) • Clubs and consumer communities(e.g., Harley Davidson, iVillage) • Factory visits (e.g., Cadbury’s theme park) • Trade shows • Event marketing • Mobil marketing • Public facilities (e.g., Nestle Nestops) • Social causes (e.g., American Express) • High value for the money (e.g. Ikea) • Founder’s personality (e.g., Richard Branson)

23. Different Names for Customer Relationship Management • Customer relationship marketing (CRM) • Direct marketing • Database marketing • One-to-one marketing • Dialog marketing • Interactive marketing • Technology-enabled marketing • Permissions marketing • Customer intimacy marketing

24. The Essence of One-to-One Marketing • Identify your target customers. • Differentiate your customers by their needs and their value to your company. • Interact with your customers to form a learning relationship. • Customize your products, services, and messages. • Source: Peppers and Rogers, 1 to 1 Marketing

25. What Customer Information to Collect? • Transaction data • Demographic data • Psychographic data (activities, interests, opinions) • Contact and contextual data

26. Testing Two Alternative Communication Plans • AT&T spent 70% on advertising and 30% on direct mail. The cost per lead was $200, and the marketing cost per sale was $6,250. • AT&T then spent 10% on advertising, 25% on direct mail, and 65% on telemarketing. The average cost per lead was $67 and the marketing cost per sale was $444.

27. Testing Different Levels of Media Integration: Citicorp Experiment to Sell Home Equity Loans • Mail only (control group). 1% response. • Mail with an 800 number. 7% response, 63% decrease in marketing costs • Mail with an 800 number followed by a telemarketing call to inquiries. 14% response, decrease in marketing costs 72% • Mail with an 800 number followed by a telemarketing call to inquiries and supported by print advertising. 16% response, decrease in marketing costs of 71%

28. Database Marketing is Expensive! • Requires a tremendous investment in information gathering about individual customers and prospects. • Requires constant updating of information. • Some critical information may not be available. • Requires a high investment in software programs. • Requires integrating individual customer information from a variety of sources. • Requires people skilled at data mining.

29. Does Every Business Need CRM? • No. The following businesses may not benefit from CRM: • Businesses where customers by the product only once in a lifetime. • Businesses where the unit value is low. • Businesses where the CLV is low. • Businesses with high churn. • Businesses where there is no direct contact between the seller and ultimate buyer. • Yes. • Businesses that can sell a variety of products to the same customer. • Businesses whose product get old and have to replaced • Businesses whose product is continuously upgraded. • Businesses that have many VIP customers and need to know a lot about them. • Businesses that normally collect a great deal of data in the course of their business.

30. New Marketing Rules for the New Economy • Exploit e-commerce and e-business. • Build and use a customer database to manage the customer portfolio. • Focus on customer lifetime value, customer value management, customer share, and customer profitability. • Shift promotion funds away from broad advertising toward more direct promotion. • Build brands in new ways. • Go electronic and paperless. • Partner with your employees, customers, suppliers, and distributors.