Strategic Marketing in Action What tough markets demand from Marketers

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Strategic Marketing in ActionWhat tough markets demand from Marketers

Professor Kamran Kashani

Zurich, March 31 2010

GfM Marketing 2Professor Kamran Kashani

What does business worry about today?

Not marketing…..but markets!

Globalizing markets: Shifting buying power

Hyper-competitive markets: Smart new players

Commoditized markets: Disappearing differentiation

Buyers’ markets: Choice, negotiating power, less loyal

Tough markets: Hard to make money!


Challenges

The challenges of surviving and prospering in today’s markets are many

Reinvent the Customer Value Proposition Identify and exploit hidden growth opportunities Avoid the ‘commoditization hell’ Innovate beyond the core product or service– the business model Create customer value, extract value…and make money!


How prepared is traditional marketing in dealing with today’s challenges?

Reinvent the Customer Value Proposition Identify and exploit hidden growth opportunities Avoid the ‘commoditization hell’ Innovate beyond the core product or service– the business model Create customer value, extract value…and make money!

How adequate are the old marketing skills and the new tools:

the 4-P’s, marketing research, advertising, promotions, PR, CRM, loyalty programs, key account selling…?

Challenges


What Marketing could be: Two illustrations

Case studies in winning in tough markets


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NET INCOME($million)

How would you assess this business performance?


Dow Corning : Global leader in silicone products (40% market share)

Silicone applications : Aerospace: Automobiles: Electronics: Construction: Healthcare: Personal care: Textiles

25000 customers in 80+ countries

Dow Corning : Background


R+D : 6% of sales: innovation leader in silicones: new applications

Innovative products : premium prices Value added services :customized applications

: co-development of new products

Corporate vision :

“We will advance the chemistry and related sciences… to contribute to our customers’ success and differentiate Dow Corning from our competitors.”

Dow Corning’s 60-year old strategy: Product Leadership


Mass market CommoditiesBuyers

SpecialtiesBuyers

Demand

Value

Demand

Value

Market Polarization

Dow Corning: Customer shifts challenge market leadership


Mass market CommoditiesBuyers

SpecialtiesBuyers

Demand

Value

Demand

Value

Market Polarization

DC

!

Dow Corning: Customer shifts challenge market leadership

DC


Confronting market change: The denial phase

Scott Fuson : Chief Marketing Officer

“We had the same business model for 60 years. We were trying to get premium prices for our products because we felt we had premium service and we were a premium company. We said to our customers: “Hold on, you can’t compare our silicones to these cheap imitators. They don’t offer comparable new product development assistance, quality assurance, commitment to safety and reliable deliveries.”


Realization: The past success blinded the management from seeing the future.

Chief Marketing Officer:

“We were performing at sub-standard levels. All of us felt that our jobs were at stake. People knew that if [things] didn’t change, then Dow Corning as it existed was not going to continue… the mood was pretty grim.”

“We reached a tipping point… We fundamentally changed the company strategy as there was nowhere else to turn to.”

Confronting market change : The “Tipping Point” (2001)


Top management embanks on a major strategic change process Appoints task force: Marketing and other functions “Provocateurs” to stir & challenge Mandate: Come up with “Big & Hairy” ideas

Self-Audit : Review of 5 years “Voice of Customer” data

Confronting market change: A fresh start


Discovering new customer segments with different needs

Customer needs based segmentation

Solutions customers : innovative solutions: proven solutions: cost-effective solution

Price-seekers : large volume, commodity buyers: have experience in-house services: don’t need services

Chief Marketing Officer:

“There was a whole sector [of customers] across many diverse industries that we were overserving and not getting the growth from… They viewed our products as commodities when making purchase decisions, and didn’t want to pay for all the additional services that we bundle with our product sales.”


Task Force proposals : A web-based business model to lower “cost-to-serve” – never tried before!

: Offer price seekers a “no frills” value proposition

: “No frills” – product only (no services) at low market prices

: Take out all low/no value adding activities

: Develop a new brand – Xiameter: Rejuvenate DC’s core business

through even more innovation and paid-for new services

New strategy: A game changer in the chemicals industry


Task Force proposals : A web-based business model to lower “cost-to-serve” – never tried before!

: Offer price seekers a “no frills” value proposition

: “No frills” – product only (no services) at low market prices

: Take out all low/no value adding activities

: Develop a new brand – Xiameter: Rejuvenate DC’s core business

through even more innovation and paid-for new services

Playing a different game to win: A “disruptive innovation”

DualBrandStrategy

New strategy: A game changer in the chemicals industry


New strategy motto: “Meet customer needs, exactly”

Dow Corning

Product only

Cost-effective Solutions

Proven Solutions

Innovative Solutions

Price Seekers

Product only

Xiameter ®Brand

Product only

Dow Corning ®Brand

Materials + service packages

Dow Corning

Materials delivered in all sizes and quantities Extensive services and solutions Innovative, proven & cost-effective solutions Technology and R&D Personalized customer service Flexible ship dates 7,500 products

Web-enabled business model Large volume orders only No technical service Lead times: average 7-20 days Standard silicones Market-driven prices Dedicated Traders 350 products (initially)


Xiameter’s “Dare to Compare” brand campaign


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Poor performance…


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Xiameter: A success story… A contributor to Dow Corning’s turnaround


Xiameter: A success story re-told by the media and customers

CMO Magazine : Xiameter responsible for Dow Corning’s “metamorphosis”

Marketing News : Xiameter has had a noticeable effect on morale among company’s many “whiz-bangscientists”

Harvard Business Review : Xiameter is a clear winner; it paid back original investment in just 3 months

Customer surveys : The system is convenient, the deliveries are on time and we are happy with the prices and product quality. We don’t need any service support and don’t want to waste time talking to sales reps that most other suppliers have.

We have become more competitive, increased our sales by more than 30%, saved time and have better control over our cash flow.

Quotes

GfM MarketingProfessor Kamran Kashani

1974Patent

acquired

Sales

1980RestaurantsTest Market

1982Office

Test Market

1986New company

established

1988Marketing takes the

lead

1990First club

1995Break-even

The Nespresso story: The marketing impact

2010

Average growth30% +

CHF2.8 billion

GfM MarketingProfessor Kamran Kashani

1974Patent

acquired

Sales

1980RestaurantsTest Market

1982Office

Test Market

1986New company

established

1988Marketing takes the

lead

1990First club

1995Break-even

The Nespresso story: The marketing impact

2010

Revised Strategy

→Re-position: Households

→Create Nespresso Club→24-hour service→New channel: direct pals→48-hour home delivery→Machine partnerships

→In-stone demos→No ads

Average growth30% +

CHF2.8 billion

Revised Strategy

→Re-position: Households→Exclusive Nespresso Club→24-hour service→New channel: direct sales→48-hour home delivery→Machine partnerships→In-store demos→No ads


What do Xiameter and Nespresso success stories have in common?

Big radical strategic decisions were based on customer insights... …brought into focus primarily by marketers Key moves were not bound by marketing research

– Xiameter business idea never tested with consumers

– Early consumer tests of Nespresso concept were disappointing!

Marketers were comfortable with the risk factor in innovation… …and were in the lead, had their voices heard!


To fulfill its strategic role marketing has to break out of its “support” silo…

Strategy Process

FinCEO

NBD

R&DHR

OP

IT

“support”MKTG

Strategic Decisions : What markets?: Which customers?: How to serve?: How to differentiate?: How to make money?

Strategy Process


… and bring the customer’s voice and insights into the strategy process

Strategy Process

FinCEO

NBD

R&DHR

OP

IT

MKTG

Strategic Decisions : What markets?: Which customers?: How to serve?: How to differentiate?: How to make money?

Strategy Process


When marketing’s voice is absent from Big decisions…

…customers’ interests take back seat to other priorities

“Whenever you ask a CEO about the importance of customers, you hear the requisite platitudes. But in fact customers have often lost out in the relentless push to maximize shareholder value…Bain & Company found while 80% of CEO’s think they are doing an excellent job of serving customers…only 8% of customers agree.”

Fortune Magazine, 2006


0%

2001 2002 2003 2004 2005 2006

S&P Total 38.7%

American Customer Satisfaction Index Stock Portfolio 144.5%

Relative Price Change over Time

Source: Harvard Business Review, March 2007

Growing evidence: shareholder value is highly correlated with customer satisfaction


Growing evidence: “…shareholders do better when firms put the customer first.”


“…If more companies made customers the top priority, the quality of corporate decision making would improve because thinking about the customers forces you to focus on improving your operations and the products and services you provide, rather than on spinning lines to shareholders.”

Roger Martin, Harvard Business Review

January-February 2010

Growing evidence: “…shareholders do better when firms put the customer first.”


Strategic point of view: – Spotting long term trends, identifying future scenarios

– identifying market gaps and opportunities

Value mapping: – Looking beyond the first level customers

– Seeing how “value” is created and captured upstream/downstream

Thinking and acting beyond the “researchable”– feel comfortable with uncertainty in innovation

– learn to experiment and take measured risks

– trust one’s well-developed and educated intuition

Skills set

Breaking out of the “support” silo: Are marketers ready for the demands of strategy in today’s tough markets?


Converting customer insights into compelling business plans: – developing an integrative view of business and other functions– defining strategic priorities & initiatives– making a credible case: showing bottom line impact!

Driving implementation:– getting buy-in for market inspired change – learning to by-pass resisters or use them to advantage– mobilizing and energizing the troops!

Are marketers ready for the demands of strategy in tough markets?

Skills set


Scan the market

Formulate the Winning Strategy

Articulate Customer

Value Proposition

Build the Brand

Assess Competition

Lead Implementation

Drill for Insights

Follow-up:Satisfy and Retain

customers

Implementation Planning

IMD’s Strategic Marketing in Action program: inspired by skills set marketers need in today’s tough markets


To conclude: Let’s remember why our profession exists…

“The purpose of business is to create and keep a customer.”

Peter Drucker


Danke!

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Strategic Marketing in Action What tough markets demand from Marketers