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IMC, THE NEXT GENERATION
Five Steps for Delivering Value and Measuring Returns Using Marketing Communication
By Don Schultz, Heidi Schultz The McGraw-Hill Companies, Inc.
Copyright © 2004Don Schultz and Heidi Schultz
All rights reserved.
ISBN: 978-0-07-143621-2
Excerpt
CHAPTER 1
IMC: FROM COMMUNICATION TACTIC TO PROFIT-BUILDING STRATEGY
Integrated marketing communication (IMC)—a process through which companies accelerate returns by aligning communication objectives with corporate goals—has its roots in the boom times of the 1980s. Yet back then, few firms were interested in the idea of integrating any of their business functions. Companies were neatly divided into departments that operated as independent silos. Each one—whether it was responsible for particular products or services, geographic areas, logistics, or other activities—operated as a unique profit center. From the top down, a regimen of "command and control" kept all units operating by top-down direction. It was the rare exception for firms to think of integrating these separate functions. Fewer still felt there was any need to integrate their marketing or marketing communication (marcom). The problem? Business was good! And since businesses had enjoyed unprecedented growth when they were structured around specific functions and skills, most assumed that their prosperity had something to do with that organizational structure. All the signs indicated that businesses were structured appropriately—for many, profits were consistently rising, shareholder value was at an all-time high, and there were career opportunities for employees at all tiers of the organization. So, why change business structures when everything was ticking along like clockwork?
To answer this question, we must first look outside the limited perspective of the U.S. business organization. Early moves toward integrating business activities were made soon after the end of World War II—but not in the United States. Instead, Japan and Europe led the way. To compete in what was swiftly becoming a global economy, managers needed to find ways to work across boundaries and borders. Those boundaries were not just geographic and cultural, but internal, too. Like voices crying in the wilderness, proponents of integration gradually influenced—or at least came to the attention of—corporate America. Management thinkers like W. Edwards Deming and Joseph Juran, for example, argued for the use of total quality management (TQM) systems based on the Japanese model they had helped to develop. Michael Hammer and James Champy advocated organizational reengineering, while C. K. Prahalad and Gary Hamel championed organizational focus. Yet despite the successes of cross-functional teams overseas, U.S. companies, for the most part, held on to the structures that had served them so well in the past. Nowhere was this more evident than in the marketing function. After all, U.S. managers had "invented" marketing. And that function was solidly and unwaveringly organized around four independent marketing concepts—the Four Ps of product, price, place, and promotion.
A Shift Away from the Four Ps
First popularized by Jerome McCarthy in the late 1950s and proselytized by Philip Kotler and other marketing academicians, the Four Ps quickly became the theory base for almost all marketing education and practice. It governed the manner in which businesses conducted their marketing activities. But notice there is no mention of customers or profits in the Four Ps model—a clear sign of its internal, "siloed" orientation. Using the Four Ps approach, managers managed things they knew and controlled—selection of products, setting of prices, organization of distribution channels, and implementation of advertising and promotion programs. The theory was that if a company got each of the Four Ps right, business would grow and prosper. And the proof for this approach was right there in the growing marketplace. Or was it?
Well, it sure seemed to be. For more than forty years, companies spun out products and services as though there were an unlimited supply of customers or prospects. Nowhere was this more evident than in the United States. With pricing, too, profit optimization was the name of the game. The mantra "Never leave any money on the table!" encouraged marketers to believe that new, higher- paying or faster-using customers were easy to get—customer retention was not terribly important. Further, marketers controlled distribution—as "channel captains" of manufacturer-driven programs, marketers assumed they would continue to build their "value-adding chains" far into the future, governing the way in which their products reached customers. And for a long time, this inwardly focused approach really seemed to work!
In the 1980s, the first major business database, developed at Harvard University, allowed companies to monitor their activities and performance relative to their competitors. A new focus on "market share" as the key to future profits assumed that if the firm achieved a dominant—even monopolistic—share of the market, crowding out competitors and controlling customer choices, profits were sure to follow. And very often, that's what happened. The result was that organizations spent more time trying to outthink, outmaneuver, and outpromote competitors than they did trying to understand their customers and prospects. Mass media, mass distribution, and mass promotion were all themes of business management well into the 1990s. And some companies continue to pursue these approaches even today.
But to get to mass, you had to have concentration, and this is where the silo system of organizational structure that had neatly accommodated the Four Ps model began to fall short. Achieving the economies of scale necessary to capture the lion's share of the mass market meant concentration of product and promotion. It was no longer enough to outspend, outpromote, or outdistribute. To gain a stronghold in mass markets, cost efficiency—rather than more spending—was critical at every stage of the supply chain, and this meant integration—not separation—of business functions. Among the first to realize this were retailers such as Wal-Mart, Home Depot, Toys 'R' Us, and Best Buy. These "category killers" found that by consolidating activities they could drive out smaller competitors and control more consumer dollars. Moreover, their size would allow them to influence and even dominate their upstream suppliers, the manufacturers. Almost overnight, the tables were turned. Retailers, until now merely distribution channel partners, suddenly became adversaries. And since manufacturers no longer controlled the distribution channel (place), the other components of the Four Ps model—product, price, and promotion—also began to slip from their grasp.
A Parallel Shift in Marketing Spending
As the Four Ps model began to show its flaws, similar factors were driving change in marketing communication, specifically advertising and promotion. Product proliferation, a plethora of new channels, and more competitive pricing all demanded new forms and types of marketing communication. In place of the so- called promotional mix of the early 1980s—which focused on the sales force, media advertising, and some forms of publicity—a new breed of communication strategies began to take shape. Sales promotion, direct marketing, and public relations activities all burgeoned as businesses sought ways to influence the behavior of customers and prospects in an increasingly cluttered marketplace.
Intent on keeping these interlopers in their place, old-line marketers—including advertising directors and general ad agencies—did what they could to maintain the status quo. New promotional techniques—including discounts, contests, and other incentives that increased volume only in the short term—were derisively referred to as "below the line" and w
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Excerpted from IMC, THE NEXT GENERATION by Don Schultz. Copyright © 2004 by Don Schultz and Heidi Schultz. Excerpted by permission of The McGraw-Hill Companies, Inc..
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