Kotler on Marketing: How to Create, Win, and Dominate Markets

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Kotler on Marketing offers his essential guide to marketing for managers, freshly written based on his phenomenally successful worldwide lectures on marketing for the new millennium. Through Kotler's profound insights you will quickly update your skills and knowledge of the new challenges and opportunities posed by hypercompetition, globalization, and the Internet. Perhaps most important, Kotler on Marketing can be read as a penetrating book-length discourse on the 14 questions asked most frequently by managers ...
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Overview

Kotler on Marketing offers his essential guide to marketing for managers, freshly written based on his phenomenally successful worldwide lectures on marketing for the new millennium. Through Kotler's profound insights you will quickly update your skills and knowledge of the new challenges and opportunities posed by hypercompetition, globalization, and the Internet. Perhaps most important, Kotler on Marketing can be read as a penetrating book-length discourse on the 14 questions asked most frequently by managers during the 20-year history of Kotler's worldwide lectures. You will gain a new understanding of such age-old conundrums as how to select the right market segments or how to compete against lower-price competitors.
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Editorial Reviews

From the Publisher
Robert W. Galvin Chairman of the Executive Committee, Motorola Inc. This book is about WINNING profitably; optimally creating and managing demand from various customers' focused needs.

Al Ries Chairman, Ries & Ries, coauthor of Positioning Kotler is marketing. Everybody who is anybody in marketing should read this book.

Stan Rapp Chairman and CEO, McCann Relationship Marketing Worldwide Must reading from the eye-opening picture of life in the year 2005 to the final look at adapting to the New Age of Electronic Marketing.

Bradley T. Gale author of Managing Customer Value Strategy, tactics, and guidelines for improving marketing effectiveness and customer value spring to life in this must-use book.

David Aaker author of Building Strong Brands Provocative insights and thoughtful prescriptions that will guide executives who face the challenges of powerful customers, global forces, and new technologies.

George S. Day author of Market Driven Strategy A masterful job by the master thinker about marketing....The latest thinking on all the enduring issues of how to find, win, and keep customers.

Professor Leonard L. Berry author of Discovering the Soul of Service An unrivaled opportunity to spend quality time with one of the leading marketing thinkers in the world.

Frederick E. Webster, Jr. C. H. Jones 3rd Century Professor of Management, Amos Tuck School, Dartmouth College Up-to-the-minute examples of best practice. A terrific overview of the rapidly changing field of marketing strategy and tactics.

Kevin J. Clancy, Ph.D. Chairman & CEO, Copernicus: The Marketing Investment Strategy Group An amazing guide to marketing excellence, with original and powerful advice. A must-read for anyone concerned with building, implementing, and monitoring extraordinary marketing programs, from one of the greatest minds in marketing today. I'm ordering copies for everyone in my firm.

Christopher Lovelock author of Product Plus and Services Marketing A treasure trove of practical insights into modern marketing — like taking a master class from the world's leading marketing professor.

Robert W. Galvin
This book is about winning profitably; opitimally creating and managing demand from various customers focused needs.
Harvard Business Review
Polly E. Labarre
InKotler on Marketing: How to Create, Win, and Dominate Markets, he offers a lesson on how marketers today need to collaborate with their customers to codesign the products and services that they want to sell. Kotler's book is a persuasive call for marketers to raise their game.
Fast Company
Publishers Weekly - Publisher's Weekly
If you want to learn marketing, you have to come to Kotler. He is both a pioneer of modern marketing and the leading popularizer of the field. His Principles of Marketing is ubiquitous in business schools throughout the world and he has two other textbooks for advanced classes. Now he gives readers a new way to tap his vast knowledge. The book covers the full range of marketing management and, of course, addresses Internet marketing. Readers won't find the mathematical depth or theoretical rigor that make Kotler's textbook an unpleasant surprise to students expecting an easy course. In fact, this book assumes readers will have a good deal of business experience. It's a terrific capsule of Kotler's marketing savvy. The most significant drawback is that Kotler shows only positive models of successful marketing. This is fine for illustrating general principles and techniques, but it doesn't teach the judgment required to tell good applications from foolish ones. The upshot is that uncritical readers may discover that a little learning is a dangerous thing. Despite these qualifications, this is a fine book on marketing for a general audience.
Library Journal
Kotler, the S.C. Johnson Distinguished Professor of Marketing at the Kellogg Graduate School of Management at Northwestern University, has been writing tremendously popular marketing texts since 1969. Here he has synthesized the materials from his textbooks and marketing seminars to produce a compact and readable review of marketing theory and practice that will allow the reader a quick and thorough overview of the field. Kotler (The Marketing of Nations, LJ 8/96) also has a useful appendix on characteristics and strategies for marketing in various types of business. Notes listing references for further study are included, and a subject index is promised. The text is practical and thorough yet remarkably readable and digestible. As a result, this title belongs on the shelf of every business executive as well as entrepreneurs and small business people.--Littleton M. Maxwell, Business Information Ctr., Univ. of Richmond, VA
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Product Details

  • ISBN-13: 9780684850337
  • Publisher: Free Press
  • Publication date: 4/28/1999
  • Edition number: 1
  • Pages: 272
  • Product dimensions: 6.40 (w) x 9.40 (h) x 1.10 (d)

Meet the Author

Philip Kotler is the S.C. Johnson & Son Distinguished Professor of International Marketing at the Kellogg Graduate School of Management at Northwestern University. Professor Kotler is the author or coauthor of 15 books, including Marketing Management, Ninth Edition, named by the Financial Times as one of the 50 best business books ever written, and Social Marketing, Marketing Races, and The Marketing of Nations, all published by The Free Press. He was voted the first Leader in Marketing Thought by the members of the American Marketing Association and is the recipient of the Paul D. Converse Award, the Steuart Henderson Britt Award, the Distinguished Marketing Educator Award, the Prize for Marketing Excellence, the Charles Coolidge Parlin Marketing Award, and the Marketing Educator of the Year Award. He holds honorary doctoral degrees from the University of Stockholm, University of Zurich, Athens School of Economics, and the Cracow School of Economics.
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Read an Excerpt

PREFACE

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

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Table of Contents

Preface
Pt. 1 Strategic Marketing
1 Building Profitable Businesses Through World-Class Marketing 3
2 Using Marketing to Understand, Create, Communicate, and Deliver Value 17
3 Identifying Market Opportunities and Developing Targeted Value Offerings 35
4 Developing Value Propositions and Building Brand Equity 54
Pt. 2 Tactical Marketing
5 Developing and Using Market Intelligence 73
6 Designing the Marketing Mix 94
7 Acquiring, Retaining, and Growing Customers 121
8 Designing and Delivering More Customer Value 140
Pt. 3 Administrative Marketing
9 Planning and Organizing for More Effective Marketing 165
10 Evaluating and Controlling Marketing Performance 185
Pt. 4 Transformational Marketing
11 Adapting to the New Age of Electronic Marketing 205
Characteristics, Success Strategies, and Marketing Department Roles in Different Types of Industrial Businesses 221
Notes 229
Company and Brand Name Index 235
Subject Index 241
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First Chapter

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

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Preface

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

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Introduction

Discussion Group Questions

1. List the major marketing issues facing your business. What do you regard as your most creative marketing responses to these issues?

2. What do you think of the marketing predictions in this book for the year 2005 AD? What are your predictions for your industry? What are you doing to prepare for them?

3. How to your other departments view marketing? What can be done to improve perception and cooperation? What can be done to get everyone to focus on the customer?

4. Does your business unit operate on the mass-market level, the segment level, the niche level, or the individual customer level? Is this still the right level given the current and future marketplace?

5. Map the normal customer activity cycle that customers go through in acquiring, using, and disposing of your product. What opportunities are suggested by points in the customer activity cycle?

6. List all the marketing tools used by your business. Which are the most important? Are any tools missing that should be added? Are any tools in the list a "waste of money?"

7. Are you satisfied with the proportions of funds that your business unit spends on each promotional tool? If you were to shift funds, which tools would you reduce and which would you increase?

8. Has your company analyzed the average customer acquisition cost (CAC) and compared it with the average customer lifespan profits (CLP)? How does it look? What steps can be taken to improve the ration of CLP to CAC?

9. Do you measure the profitability of individual customers? What percentage of your customers is unprofitable? How do you handle them? How should you handle them?

10. In what ways have you been able tohelp your customers reduce their ordering, inventory, processing, and administrative costs? What further opportunities do you see?

11. Has your company established a sufficient number of market segment managers and area managers to respond to the market differences that exist in your market?

12. Do you see enough seamless cooperation between product management, sales management, and customer service? If not, recommend how to improve the situation.

13. Does your company use marketing scorecards in judging performance? What marketing measures are included in your marketing scorecard? What measures should be added?

14. Is your company building and using a rich database containing the names and profiles of your customers and prospects? Are you applying data mining techniques to extract insight from the information in the database?

15. How has your company utilized the marketing opportunities posed by the Internet? What next steps are called for?

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Reading Group Guide

Discussion Group Questions

1. List the major marketing issues facing your business. What do you regard as your most creative marketing responses to these issues?

2. What do you think of the marketing predictions in this book for the year 2005 AD? What are your predictions for your industry? What are you doing to prepare for them?

3. How to your other departments view marketing? What can be done to improve perception and cooperation? What can be done to get everyone to focus on the customer?

4. Does your business unit operate on the mass-market level, the segment level, the niche level, or the individual customer level? Is this still the right level given the current and future marketplace?

5. Map the normal customer activity cycle that customers go through in acquiring, using, and disposing of your product. What opportunities are suggested by points in the customer activity cycle?

6. List all the marketing tools used by your business. Which are the most important? Are any tools missing that should be added? Are any tools in the list a "waste of money?"

7. Are you satisfied with the proportions of funds that your business unit spends on each promotional tool? If you were to shift funds, which tools would you reduce and which would you increase?

8. Has your company analyzed the average customer acquisition cost (CAC) and compared it with the average customer lifespan profits (CLP)? How does it look? What steps can be taken to improve the ration of CLP to CAC?

9. Do you measure the profitability of individual customers? What percentage of your customers is unprofitable? How do you handle them? How should you handle them?

10. In what ways have you been able to help your customers reduce their ordering, inventory, processing, and administrative costs? What further opportunities do you see?

11. Has your company established a sufficient number of market segment managers and area managers to respond to the market differences that exist in your market?

12. Do you see enough seamless cooperation between product management, sales management, and customer service? If not, recommend how to improve the situation.

13. Does your company use marketing scorecards in judging performance? What marketing measures are included in your marketing scorecard? What measures should be added?

14. Is your company building and using a rich database containing the names and profiles of your customers and prospects? Are you applying data mining techniques to extract insight from the information in the database?

15. How has your company utilized the marketing opportunities posed by the Internet? What next steps are called for?

Read More Show Less

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