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For several years, Robert Wallace, the distinguished senior editor of The Free Press, urged me to write a marketing book for managers, one that would show the latest marketing thinking and not run 700 pages! He did not want me simply to condense my graduate student textbook, Marketing Management, but to write a completely new book. Bob had heard that I have been presenting one- and two-day marketing seminars around the world for twenty years and had even seen a copy of my seminar notebook. He said that the material in the notebook itself could constitute a new book.
I put off his requests because of my busy teaching, research, and consulting schedule. I was learning new things in consulting with AT&T, IBM, Michelin, Shell, Merck, and several banks. I was also trying to think through the revolutionary impact on the marketplace and marketing practice of the new technologies the Internet, e-mail, fax machines, sales automation software and new media cable TV, videoconferencing, CDs, personal newspapers. With the marketplace changing so rapidly, it didn't seem the right time to write.
I finally realized that the marketplace would continue to undergo radical change. My rationale for postponing the book could no longer hold.
I have had a thirty-eight-year romance with marketing and continue to be intrigued. When we think that we finally understand marketing, it starts a new dance and we must follow it as best we can.
When I first came upon marketing in the early 1960s, the literature was basically descriptive. There were three approaches at the time. The commodity approach described the characteristics of different products and buyer behavior toward those products. The institutional approach described how various marketing organizations worked, such as wholesalers and retailers. The functional approach described how various marketing activities advertising, sales force, pricing perform in the marketplace.
My own training, centered in economics and decision sciences, led me to approach marketing from a managerial point of view. Marketing managers everywhere faced a plethora of tough decisions; they had to choose target markets carefully, develop optimal product features and benefits, establish an effective price, and decide on the proper size and allocation of the sales force and various marketing budgets. And they had to make those decisions in the face of incomplete information and ever changing market dynamics.
I felt strongly that marketing managers, in order to make better marketing decisions, needed to analyze markets and competition in systems terms, explicating the forces at work and their various interdependencies. That sparked my interest in developing models of markets and marketing behavior, and in 1971 put my ideas together and published Marketing Decision-making: A Model-building Approach. The book ran 700 pages, starting with a picture of the simplest market consisting of one firm operating in one market selling one product and using one marketing instrument in an effort to maximize its profits. Subsequent chapters introduced added complexities, such as two or more competitors, two or more marketing instruments, two or more territories, two or more products, delayed responses, multiple goals, and higher levels of risk and uncertainty. The modeling challenge was to capture marketing effects that tended to be nonlinear, stochastic, interactive, and downright difficult.
My intention was to put marketing decision-making on a more scientific basis. In subsequent years it has been gratifying to witness substantial advances in the body of scientific literature in marketing both explanatory and normative contributed by a generation of talented marketing scholars bent on improving our understanding of how markets work.
Virtually all marketing theorizing before 1970 dealt with for-profit firms struggling to sell their products and services for gain. But other organizations nonprofit and governmental also face marketing problems, which I described in Strategic Marketing for Nonprofit Organizations. Colleges compete for students; museums try to attract visitors; performing arts organizations want to develop audiences; churches seek parishioners; and all of them seek funding. Individuals, too, carry out marketing activities: politicians seek votes; doctors seek patients; and artists seek celebrity. What is common to all such cases is the desire on the part of someone to attract a response or resource from someone else: attention, interest, desire, purchase, good word-of-mouth. But to elicit those responses, one must offer something that someone else perceives to be of value, so that the other party voluntarily offers the response or resource in exchange. Thus exchange emerges as the core concept underlying marketing.
I also felt that marketable objects included more than products and services; one can market people, places, ideas, experiences, and organizations. My desire to understand those less routine applications of marketing led me to research and publish High Visibility (person marketing), Marketing Places and Marketing of Nations (place marketing), and Social Marketing (idea marketing), along with some published articles on experience marketing and organization marketing.
Furthermore, marketing required another broadening move, one that wouldn't assume that marketing's only task is to increase demand for some product or service. What if the current demand for a product is too strong? Shouldn't the marketer raise the price, cut advertising and promotion spending, and take other steps to bring demand more in line with supply? Those measures took on the name demarketing, which proved an applicable concept in many situations. What if a reform group wants to destroy the demand for a product deemed unhealthy or unsafe, such as hard drugs, tobacco, fatty foods, guns, and other questionables? Its marketing task is named unselling. Other marketing tasks included trying to change the image of unpopular products and trying to smooth out irregular demand. All those observations led to my recognizing that marketing's central purpose is demand management, the skills needed to manage the level, timing, and composition of demand.
The broadening of marketing's domain was not an easily won battle. It drew critics who preferred that marketing stick to figuring out how to sell more toothpaste, refrigerators, and computers. But my thinking has been that new perspectives enter a marketplace of ideas, and, as in any marketplace, those perspectives survive which have use value. I have been gratified to see the overwhelming majority of scholars and practitioners accept the legitimacy of the broadened marketing concept.
One of the main contributions of modern marketing has been to help companies see the importance of shifting their organization from being product-centered to becoming market- and customer-centered. Ted Levitt's classic article "Marketing Myopia," along with Peter Drucker's famous five questions that every business must ask itself, played an important role in launching the new thinking. But many years passed before many companies actually started to undergo a transformation from "inside-out" thinking to "outside-in" thinking. Even today there are still too many companies operating on a selling product focus instead of a meeting needs focus.
As great as the changes in marketing thinking have been until now, future changes in marketing thinking and practice will be even greater. Scholars today are questioning whether the core concept underlying marketing should be exchange or relationships or networks. Much is changing in our thinking about services marketing and business marketing. And the greatest impact is yet to come, as the forces of technology and globalization move apace. Computers and the Internet will bring about enormous behavior shifts in buying and selling. I have tried to describe and anticipate these revolutionary changes in the last chapter of this book.
My hope is that this book will enrich the marketing mindset of managers who cope with marketing problems on a daily basis. I have added "questions to consider" at the end of each chapter so that managers can reflect on each chapter's content and apply it to their company's situation. Groups of managers within a company could periodically meet to discuss each chapter and draw marketing lessons for their business.
Copyright © 1999 by Philip Kotler
From: Chapter One
Are There Winning Marketing Practices?
Besides winning business practices, is there a set of winning marketing practices? One frequently hears of one-liner formulas that promise marketing success. Here are nine of the more prominent one-liners:
1. Win Through Higher Quality
Everyone agrees that poor quality is bad for business. Customers who have been burned with bad quality won't return and will bad-mouth the company. But what about winning through good quality? There are four problems.
First, quality has a lot of meanings. If an automobile company claims good quality, what does it mean? Do its cars have more starting reliability? Do they accelerate faster? Do the car bodies wear better over time? Customers care about different things, so a quality claim without further definition doesn't mean much.
Second, people often can't tell a product's quality by looking at it. Consider buying a television receiver. You go into Circuit City and see a hundred different sets with the picture on and the sound blaring. You took at a few popular brands that you favor. The picture quality is similar with most receivers. The casings may differ but hardly tell you anything about the set's reliability. You don't ask the salesperson to open the back of the set to inspect the quality of the components. In the end, you have at best an image of quality without any evidence.
Third, most companies are catching up to each other in quality in most markets. When that happens, quality is no longer a determinant of brand choice.
Fourth, some companies are known to have the highest quality, such as Motorola when it touts its 6 sigma quality. But are there enough customers who need that quality level and will pay for it? And what were Motorola's costs of getting to 6 sigma quality? It is possible that getting to the highest quality level costs too much.
2. Win Through Better Service
We all want good service. But customers define it in different ways. Take service in a restaurant. Some customers would like the waiter to appear quickly, take the order accurately, and deliver the food soon. Other customers would feel that this is rushing them on what otherwise should be a leisurely evening out. Every service breaks down into a list of attributes: speed, cordiality, knowledge, problem-solving, and so on. Each person places different weights at different times in different contexts on each of the service attributes. Claiming better service isn't enough.
3. Win Through Lower Prices
A low price strategy has worked for a number of companies, including the world's largest furniture retailer, IKEA; the world's largest general merchandise retailer, Wal-Mart; and one of America's most profitable airlines, Southwest. Yet low-price leaders must be careful. A lower-price firm might suddenly enter the market. Sears practiced low prices for years, until Wal-Mart beat it on prices. Low price alone is not enough to build a viable business enterprise. The Yugo automobile was low in price; it was also lowest in quality and disappeared. A measure of quality and service must also be present, so that customers feel they are buying on value, not price alone.
4. Win Through High Market Share
Generally speaking, market share leaders make more money than their tamer competitors. They enjoy scale economies and higher brand recognition. There is a "bandwagon effect," and first-time buyers have more confidence in choosing the company's products. But many high market share leaders are not that profitable. A & P was America's largest supermarket chain for many years and yet made pathetic profits. Consider the condition of such giant companies as IBM, Sears, and General Motors in the 1980s, a time when they were doing more poorly than many of their smaller competitors.
5. Win Through Adaptation and Customization
Many buyers will want the seller to modify his offering to contain special features or services they need. A business firm might want Federal Express to pick up its daily mail at 7 P.M., not 5 P.M. A hotel guest might want to rent a room for only part of the day. Such needs can represent opportunities for the seller. However, for many sellers, the cost may be too high to adapt the offering to each customer. Mass customization is working for some companies, but many others would find it to be an unprofitable strategy.
6. Win Through Continuous Product Improvement
Continuous product improvement is a sound strategy, especially if the company can lead the pack in product improvements. But not all product improvements are valued. How much more would customers pay if they are told about a better detergent, a sharper razor blade, a faster automobile? Some products reach the limit of their improvement possibilities, and the last improvement doesn't matter very much.
7. Win Through Product Innovation
A frequent exhortation is "Innovate or Evaporate." True, some great innovative companies, such as Sony and 3M, have earned substantial profits by introducing superb new products. But the average company has not fared well in its new product introductions. The new product failure in branded consumer packaged goods is still around 80 percent; in the industrial goods world, it is around 30 percent. A company's dilemma is that if it doesn't introduce new products, it will probably "evaporate"; if it does introduce new products, it may lose a lot of money.
8. Win Through Entering High-Growth Markets
High growth markets such as solid-state electronics, biotechnology, robotics, and telecommunications have the glamour. Some market leaders have made fortunes in those industries. But the average firm entering a high-growth market fails. One hundred new software firms start up in an area, such as computer graphics, and only a few survive. Once the market accepts some firm's brand as the standard, that firm begins to enjoy increasing volume and returns. Microsofts Office has become the standard, and other good alternatives have been shuttled aside. An added problem is that products become obsolete very fast in these fast-growing industries, and each company must invest continually to keep up. They hardly recoup their profits from their last offering before they have to invest in developing its replacement.
9. Win Through Exceeding Customer Expectations
One of the most popular marketing clichés today is that a winning company is one that consistently exceeds customer expectations. Meeting customer expectations will only satisfy customers; exceeding their expectations will delight them. Customers who are delighted with a supplier have a much higher probability of remaining a customer.
The problem is that when a customer's expectations are exceeded, he has higher expectations next time. The task of exceeding the higher expectations gets more difficult and more costly. Ultimately, the company must settle for just meeting the latest expectations.
Put another way, many of today's customers want the highest quality, added services, great convenience, customization, return privileges, guarantees all at the lowest price. Clearly each company has to decide which of these many customer wants it can meet profitably.
What Constitutes a Winning Marketing Strategy?
Clearly there is no one marketing road to riches. Instead of relying on one major differentiation or thrust, a company needs to weave its own unique tapestry of marketing qualities and activities. It is not enough to do most things a little better than the competitors. Professor Michael Porter of Harvard argues that a company doesn't really have a strategy if it performs the same activities as its competitors, only a little better. It is simply operationally more effective. Being operationally excellent is not the same as having a robust strategy. Operational excellence might help the firm win for a while, but other firms will soon catch up or pass up the firm.
Porter sees a business as having a robust strategy when it has strong points of difference from competitors' strategies. Thus Dell Computer developed a robust strategy by choosing to sell computers over the telephone instead of through retailers. It developed a mastery of direct and database marketing and could convince customers of its superior value and service. Then Dell created a subsequent strategy breakthrough by adding the Internet as a sales channel. Today Dell is selling more than $3 million dollars' worth of computers daily on the Internet.
Other companies have created unique strategies. Ikea created a new way to make and sell furniture that stood in stark contrast to typical furniture retailers. The Saturn division of General Motors sells cars in an entirely different way from the typical auto manufacturer. Enterprise Rent-A-Car carved out a unique niche in the rental car market by renting older cars in cheaper locations and tying in with referrals from insurance companies.
But don't these successful new strategies get imitated very quickly, only to settle into being ordinary? Yes, imitators come along, as Southwest Airlines and IKEA have learned. However, it is one thing to copy some aspects of a new strategy, but quite another for an imitator to copy all aspects of the strategic architecture. The great strategies consist of a unique configuration of many reinforcing activities that defy easy imitation. The imitator not only has to incur great costs in trying to duplicate all the activities of the leader, but at best he ends up as only a pale imitation with average returns.
What Marketing Challenges Do Most Companies Face?
I have asked many managers in my seminars to describe how they see today's customers. Here are their answers:
- Customers are growing more sophisticated and price sensitive
- They are short of time and want more convenience
- They see growing product parity among the suppliers
- They are less manufacturer brand sensitive and are more accepting of reseller brands and generics
- They have high service expectations
- They have decreasing supplier loyalty
Then I ask how well their marketing tools are working, and they tell me:
- Their products are not much different from competitors' products
- They are giving away a lot of costly service and add-ons to get the sale
- Their pricing is readily matched by competitors
- Advertising is getting more expensive and less effective
- They are spending too much on sales promotion
- Sales force costs are rising
Copyright © 1999 by Philip Kotler