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Lateral Marketing: New Techniques for Finding Breakthrough Ideas

Lateral Marketing: New Techniques for Finding Breakthrough Ideas

by Philip Kotler, Fernando Trias De Bes
A revolutionary new system for generating the next big marketing ideas and opportunities
According to Philip Kotler, the widely acknowledged "father" of modern marketing, and Fernando Trias de Bes the marketing techniques pioneered in the 1960s and '70s have worked too well. Fierce competition among products with little or nothing to distinguish one from another,


A revolutionary new system for generating the next big marketing ideas and opportunities
According to Philip Kotler, the widely acknowledged "father" of modern marketing, and Fernando Trias de Bes the marketing techniques pioneered in the 1960s and '70s have worked too well. Fierce competition among products with little or nothing to distinguish one from another, along with modern product positioning and targeted marketing techniques, have led to increasing market segmentation. If the trend continues, individual market segments soon will be too small to be profitable. In Lateral Marketing, Kotler and Trias de Bes unveil a revolutionary new model to help readers expand beyond vertical segmentation and generate fresh marketing ideas and opportunities.
Philip Kotler (Chicago, IL) is the S. C. Johnson & Son Distinguished Professor of International Marketing at Northwestern University's Kellogg School of Management. Fernando Trias de Bes (Barcelona, Spain) is the founder of Salvetti & Llombart whose clients include Pepsico, Sony, Hewlett-Packard, Nestlé, Credit Suisse, and other top corporations.

Editorial Reviews

From the Publisher
“…He is challenging the conventions; coaching marketers to broaden our horizons; delivering a new set of solutions; thinking the unthinkable…” (Interactive Marketing, Vol 5, No 4, April/June 2004)

These two marketing innovators provide effective and practical concepts and tools to help readers create new products and services based on thinking across rather than within markets. Understand the power of marketing creativity and how "lateral marketing" can expand thinking and profits. (Best Business Books 2003, Library Journal, March 15, 2004)

Soundview Executive Book Summaries
In a consumer economy saturated with homogenous products and inhabited by customers who are more and more immune to advertising messages, traditional vertical marketing - with its emphasis on market segmentation and brand proliferation - is failing us. But, according to Northwest University's Philip Kotler and international marketing expert Fernando Trias de Bes, there is a better way to reach consumers, to create innovative products and markets that don't yet exist and to gain a real competitive advantage. This way is through an entirely different way of thinking: lateral marketing. The authors explain that lateral marketing complements traditional marketing by providing an alternative route to generating fresh new ideas.

Whereas vertical marketing helps us find increasingly smaller subgroups for which a product might be developed, the authors explain that lateral marketing lets marketers develop an entirely new product that finds a much wider audience. Instead of accepting that your product or service will have a small share of a saturated market, you will find yourself the leader in new markets - reaping the rich rewards of being the first or second in creates.

The authors write that lateral marketing is a work process which, when applied to existing products or services, produces innovative new products and services that cover needs, uses, situations or targets not currently covered. As a result, lateral marketing leads to new categories or markets.

The lateral marketing process is a creative one. Creative thinking follows three simple steps:

  1. Select a focus. This will be a product or service.
  2. Make a lateral displacement for generating a stimulus. A lateral displacement is an interruption in the middle of a logical thought sequence.
  3. Make a connection.

Here is an example. Let's take "flowers" as our product focus. A logical thought sequence about flowers is the fact that "flowers die." A lateral displacement of that sequence is "flowers that never die." Then we make connections between the new concept and the original focus. In this case, that would involve asking ourselves under what circumstances will a flower never die? If a flower is made of cloth, silk or plastic, then it would never die. We have found a new concept: "artificial flower." This is creativity. Innovations are a result of connecting two ideas that have no apparent or immediate connection.

If you want to apply lateral marketing, the authors explain, it is essential for you to understand each step. If you are thinking about the focus, you must be prepared to generate a displacement. If you are thinking about a possible displacement, they write, you have to be aware you are generating a stimulus for later use. And if you are working on a movement for making a connection, you have to be aware that you are working on changing your stimulus to make it logical.

Applying the process to real life, the authors explain that this is how it would work. First, choose a product or service you market. Creative thinking works from the bottom up, from the concrete to the general. It is inductive, not deductive. Make sure it is one where you have difficulty competing.

Once you have chosen a product or service, break it into pieces using the scheme of vertical marketing. You will then be able to see the whole picture.

According to the authors, the basis of lateral marketing is creating a gap. If there is no gap, there is no lateral marketing. A gap exists only if it requires you to jump. But this is hard to do, because we have been trained to think logically. You are thinking laterally if you are thinking about substituting, inverting, combining, exaggerating, eliminating or reordering your product or service.

To successfully implement lateral marketing, the authors write, you must understand the underlying principles, summarized here:

  • Companies need to innovate if they are to grow and prosper.
  • An excessively high percentage of new products fail (80 percent of consumer goods and 40 percent of business goods) in spite of careful market research and planning. The reasons for the innovation crisis lie in the traditional innovation process.
  • Most new products offer just a specialized version of something already on the market, such as a new flavor, size or package. This is segmentation or vertical thinking.
  • Repeated application of vertical thinking results in a hyperfragmented market so that few niches remain that are big enough to yield profit.
  • Marketers need a complementary way of thinking up new products or services that will lead to new categories or markets. This strategy is lateral thinking and although it carries greater risks, the rewards are also greater.
  • Lateral marketing thinking uses a distinct framework and processes that can be taught to anyone, can become a part of an innovative company's culture, and can be used in conjunction with vertical marketing.
  • Lateral marketing thinking might occur spontaneously or consciously. It requires putting together ideas. If you can get everyone to think laterally, you will create a company full of innovative market creators. Copyright © 2003 Soundview Executive Book Summaries

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Lateral Marketing

New Techniques for Finding Breakthrough Ideas

By Philip Kotler Fernando Trias De Bes

John Wiley & Sons

Copyright © 2003

Philip Kotler, Fernando Trias De Bes
All right reserved.

ISBN: 0-471-45516-4

Chapter One

The Evolution
of Markets and
the Dynamics
of Competition

The last decades of the twentieth century were prosperous
for most companies in the developed world. A stable
period of peace, together with a strong demographic
increase and a higher life expectancy contributed to this prosperity.
To these factors we must also add the role of growing
company marketing sophistication. Marketing departments had
the use of large budgets to develop and launch new products,
and educate and communicate with consumers toward generating
product trial, repeat purchase, and brand loyalty.

But reaching success at the beginning of the twenty-first
century is more difficult. Here are the main reasons.

1.1 In Consumer Packaged Goods, Distribution
Concentration Has Increased Greatly

In the 1950s, distribution in the United States and Europe was
largely in the hands of small independent retailers. Today, as a
result of innovative distributors-companies like Wal-Mart
and Ikea-andmergers and acquisitions, much distribution is
in the hands of giant corporations and multinationals. Today,
hypermarket and supermarket chains control (in the food sector)
more than the 80 percent of final consumer purchases.
And major franchises-McDonald's, KFC, Subway, Domino's
Pizza-account for another major share. There are similar situations
across all industries.

The bottom line is that power has been transferred from
the manufacturers to the distributors. The distributors own
the shelf space and decide which manufacturers to favor and
how much shelf space to give them. They charge slotting fees
and exit fees and virtually dictate the allowances and promotions
they require.

Distributors respond by concentrating.
Channels are concentrated in the hands
of fewer distributors with a lot of power.

1.2 The Number of Competitors Has Been Reduced, but
the Number of Brands Has Strongly Increased

Many producers were not able to survive the strong pressure
of the giant retailers and either disappeared or were acquired
by the "big fishes." Although there were now fewer producers,
these producers continued to introduce more brands into the
market. The following chart shows the growing number of
registered brands in three countries between 1975 and 2000.

The Evolution of Markets and the Dynamics of Competition

Effective Registrations by Country of Origin

United States United Kindom Germany
1975 30,931 11,440 12,828
1995 85,577 33,400 21,934
2000 109,544 65,649 70,279

Three factors led to the increased number of brands:

1. First, there was the need to adapt products to the
specific needs of certain groups of consumers (segments),
and even to smaller groups (niches). This
was established through the application of segmentation

2. Second, more brands make competitor attacks more
difficult. It is harder to beat many brands all at once
than to beat just the one that dominates a given category.
Market atomization also discourages new competitors
from entering the market.

3. Third, with more brands in the portfolio, the producer
can negotiate better with the distributor. A higher discount
offered on one brand compensates for a lower
discount on another brand in the portfolio.

Multinationals and other
corporations have been gaining
in power. There are fewer players,
but a higher number of brands.

1.3 Product Life Cycles Have Been
Dramatically Shortened

New products last for a shorter time. Why?

In the first place, companies find it easier to launch new
brands, especially if they have excess production capacity.
They can introduce new ingredients, flavors, features, designs,
or packaging with minimum changes in production
processes. They can plan to absorb all the development costs
in first-year sales and pray that the product can sell for a few
more years.

In the second place, consumers increasingly are ready to
try the new brands that they see advertised. They are willing
to drop their previous brand if the new one is more satisfying.
In turn, they may also drop the new brand if it fails to satisfy.

In the third place, consumer markets can be characterized
as an arms race. Every new brand takes sales away from existing
brands. Hurt competitors have no other way to recover
than by also launching new brands. Other competitors then
must retaliate with new brands, and on and on the cycle goes.

In the hypermarkets, the new brands take more shelf space,
and as a result the desperate war for shelf space intensifies. The
manufacturers move from brand management to category management
to optimize the profitability of their scarce space.

Launching new brands is costing less.
The dynamic of launching new brands
is currently accelerated. New products
survive in the market for shorter times.

1.4 It Is Cheaper to Replace than to Repair

Hard goods don't last as long as formerly. When they break
down, it is easier to replace them with a later model than to
repair them. Consider the following examples:

A new laser printer costs around $180 and can be delivered
in one day. Repairing it can cost nearly $120 and
may take two weeks. Why would a consumer choose the
old printer that may break down again?

A new electric razor costs less than $60 and you can take
it home immediately when you buy it. Repairing it can
cost nearly $100 and may take two to three weeks. All
shops recommend that you buy a new one.

It is often cheaper, faster, and easier, and saves you both
money and time, to buy a new product than to repair
it. The resulting culture is one that uses and accepts disposable
products. Electrical appliances such as television
sets or videotape recorders used to last seven or eight years,
and now are replaced in two or three years. The acceptance
of product disposability further fans the fever of new product

Manufacturing processes are so efficient
that replacing becomes cheaper than
repairing. This accelerates the frenetic
rhythm of new product launches.

1.5 Digital Technology Has Provoked a Revolution in
Many Markets

Today everything can be transformed into zeros and ones: images,
sounds, voice, text, and data. All are reproducible. Still
pending is the ability to duplicate smell and flavor. It may be
only a matter of time.

Digital technology has led to a whole new range of products:
computers, interactive TVs, personal digital assistants,
digital phones, smart dishwashers, microwaves, toasters, and
so on. Technology is being extended to the most simple products:
Books now come with sound and dolls are singing 20
melodies. Global Positioning Systems (GPS) are leading to a
new set of satellite services such as locating stolen cars and
missing people and animals.

And finally there is the Internet putting people in contact
with millions of other people at almost zero cost. The Internet
is still creating a revolution in the information, consumption,
and communication practices of consumers; we are only
at the beginning of this revolution.

The digital era facilitates the appearance
of new products and services. Technology
accelerates the rhythm of innovation
and the number of new products.
The Internet facilitates the appearance of
new brands and ways of capturing business.

1.6 The Number of Trademarks and Patents Is Increasing

More new products are being developed to replace products
that have been with us only a few years. As technology gets
better, there are more upgrades to these new products. Applications,
per year, to the U.S. Patent Office almost doubled
during the 1990s. It is getting difficult even to register trademarks
with five or fewer letters since most of them have already
been registered.

The growth in the number of patents and trademarks
proves the increasing competitiveness of the markets.

1.7 The Number of Varieties of a Given Product Has
Increased Radically

In any product category that you can name, you will find a
greater number of varieties than in the past. Some examples:

Go into a supermarket and write down the names of all
the yogurts you can buy, by flavor and sizes. You can probably
list over 50 different yogurts: plain, with sugar, with
vanilla, with pieces of different fruits, various flavors, low-fat
or nonfat, mousse, and so on.

Look in any car magazine and count how many different
types of vehicles and brands or variations are available:
station wagons, minivans, SUVs, or small cars; diesel or
no diesel; three, four, or five doors; different alternatives
of engine power; and so on. In Spain, more than 450
models and brands can be bought at this moment.

Take a look at the yellow pages and adult education
brochures in your city and list all the types of hobby
courses. Whereas some years ago the most frequent were
courses in European languages, painting, dancing, music,
and some sports, today you can find rarer interests such as
tai chi, acupuncture, Japanese, Arabic languages, and
hundreds of others.

Within a given category, the number of varieties
available for consumer choice has increased
exponentially. Categories are saturated with varieties.

1.8 Markets Are Hyperfragmented

Companies, in their search for differentiation, have identified
and created more and more segments and niches, resulting in
highly fragmented markets. Ultimately this will lead to one-to-one
customized products and marketing. This makes it very
difficult to find profitable market cells offering a promising return
on investment. Additional volume will be incremental
rather than substantial for every new product launched. The
profits are shared until they are spread very thin.

Markets are fragmenting into small
niches, which are less profitable.

1.9 Advertising Saturation Is Reaching Its Highest
Levels, and the Fragmentation of Media Is
Complicating the Launch of New Products

A normal citizen of a large urban area is daily exposed to an average
of 2,000 advertising or communication stimuli. Out of
these, only a few can be recalled at the end of the day. Advertising,
once the most efficient way for brand building and the motor
of new products penetration, is now threatened by its own
growth, as proliferation of advertising is causing people to notice
ads less.

A brand manager launching a new chocolate bar today has
real problems in communicating it effectively. Whereas several
millions of consumers might have tried it some years ago when
most people watched the same limited media, today's consumers
may be watching any of 100 television stations, listening to any
of 200 radio stations, or reading any of 1,000 magazines. If these
consumers are not zapping the TV ads, they probably aren't
watching TV at all and are instead spending their time at their
computers or in outdoor sports or activities. Today's audiences
are so diverse in their media habits that companies have to invest
in many media to reach them. Advertising costs, as a result,
may be too high.

Advertising saturation is occurring.
Market segments are smaller and smaller.
Communicating a new product is getting more
expensive. It is necessary to be present with a
brand in many media to obtain good coverage.
This makes new product launches more expensive.

1.10 The Capacity of Obtaining Space in the Mind of the
Consumer Has Been Reduced

From the previous discussion, one can understand how difficult
it is to obtain space in the minds of the customers. It has
the feel of a "Mission Impossible."

Consumers have become tremendously selective persons
regarding products and advertising. They ignore most ads
without having the feeling that they are losing anything important.
Consumers have learned to look without seeing, to
hear without listening.

Go to a doctor's office and observe someone in the waiting
room looking through a magazine. Although exposed to
more than 40 ads, that person probably isn't reading more
than a few. Consumers need only half a second to pass by
an ad.

The challenge is not only to fight against so many competitive
products, brands, and ads, but also to fight against a
closed consumer mind toward commercial communications.
If your brand lacks novelty or special value, it will be ignored.
Claims that companies make about products such as "new,"
"improved," "better flavor," or "more natural" are strategies to
capture the attention of customers. They are trying to promote
novelty in order to fight against saturation.

Consumers have become selective. They are
increasingly ignoring commercial communications.
Novelty may be the only way to catch the attention.

Conclusion: Markets Are Much More Competitive

Doing marketing today is more complicated than ever. This
is not to say that challenges did not exist in the past, but
they certainly are different today. Now the challenge is to
fight against fragmentation, saturation, and the storm of
novelties that appear daily in the markets where we compete
(see Figure 1.1).

And these thoughts bring us to an obvious and immediate
conclusion: If (1) innovation and new products are the basis
of competitive strategy, and (2) the rate of new product success
is low, should it not be a high priority to find ways of creating
and launching more successful products? In fact, this is
one of the main objectives of lateral marketing.

We will start by analyzing how new products are conceived
today. We will uncover this process in the second


Innovation is the key and the basis of competitive
strategies today. The rate of new product
introductions is frenetic, but the failure rate is


Excerpted from Lateral Marketing
by Philip Kotler Fernando Trias De Bes
Copyright © 2003 by Philip Kotler, Fernando Trias De Bes.
Excerpted by permission.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

Meet the Author

PHILIP KOTLER is the S. C. Johnson Distinguished Professor of International Marketing at Northwestern University’s Kellogg School of Management. Considered the father of modern marketing, he is the author of twenty-five books, including Marketing Insights from A to Z, also available from Wiley. He has worked as a consultant to corporations such as IBM, Bank of America, General Electric, and AT&T.

FERNANDO TRIAS de BES is founder and Partner of Salvetti & Llombart, a firm specializing in consulting and market research with an international scope and clients such as PepsiCo, Sony, Hewlett-Packard, McKinsey & Co., Nestlé, and Dannon. He is also a consultant on innovation in marketing. He is an Associate Professor of the Marketing Department at ESADE Business School in Barcelona.

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