THE FOUR PILLARS OF PROFIT-DRIVEN MARKETING

HOW TO MAXIMIZE CREATIVITY, ACCOUNTABILITY, AND ROIBy LESLIE H. MOELLER EDWARD C. LANDRY THEODORE KINNI

The McGraw-Hill Companies, Inc.

Copyright © 2009 Booz & Company
All right reserved.
ISBN: 978-0-07-161505-1

Contents

Chapter One

The Marketer’s Challenge

The craft of marketing has not kept pace with the changing world in which marketers ply their trade. In fact, the disconnect between the environment and the craft has become so pronounced that the need to predict and measure results, impose order on and optimize marketing spending, and continuously improve customer insights and creative responses has become a matter of urgent concern.

The theory and practice of marketing management as a science first gelled in the 1950s. It was designed for an Ozzie and Harriet world where the nuclear family was still intact and happily migrating to new homes in the fast-expanding suburbs. Everybody read magazines such as Life or the Saturday Evening Post, subscribed to the local newspaper, and watched the Big Three television networks. The marketer’s stock in trade was his or her ability to influence a monolithic, easy-to-reach market.

The 1960s celebrated iconoclasm, but, from the marketer’s perspective, little had changed. Marketers had to learn the language of a new generation, but once they were fluent, they discovered that the baby boomers consumed goods with an appetite unmatched in history. A brand could still hitch its star to a clever ad campaign and sales would then soar.

In the 1970s, however, fundamental environmental change did impact the marketer’s craft. Oil embargoes by the Organization of the Petroleum Exporting Countries (OPEC) and the Iranian hostage crisis brought globalization to the doorstep—or, more precisely, the gas tanks—of the developed nations. Runaway inflation and a deep recession constrained both consumer spending and business growth. The Nixon administration imposed price controls, which unwittingly stimulated the growth of trade spending—companies began hiking list prices to avoid future price freezes and then reimbursing customers through trade allowances. It wasn’t so easy to be a marketer anymore. But it was easy, and perhaps even justified, to blame the economy rather than the marketer’s capabilities.

The economy recovered in the 1980s, but the media landscape pixilated. Niche magazines, videocassette recorders (VCRs), CNN’s 24-hour news cycle, MTV’s quick-cut music videos, personal computers (PCs), and video games diverted and shortened customers’ attention spans. But the TV networks could still deliver mass audiences, and so marketers were slow to respond to the growing number of new vehicles. Their marketing mix stayed the same, but they did reduce the 60-second TV spot to 30 seconds, running more ads, as well as experimenting with cable advertising. The fault line between environment and craft began to open under the marketers’ feet.

In the 1990s, the fault split wide open. The growth of the Internet and the continued fragmentation of media made it harder than ever to reach customers en masse. There were fewer and fewer viewers for the 30-second spot. At the same time, retailers consolidated into larger and larger chains, and “big-box” competitors emerged in every segment. The power of the retailer was growing, and, as a result, spending to support retailers became a bigger and bigger expense, eventually eclipsing advertising spending in many companies. The traditional marketing model was failing, and still too many marketers continued to think in terms of yesteryear’s mass media and markets.

In the new millennium, shocks and uncertainties have become a way of life, symbolized by the terrorist events of September 11, 2001, but also manifest in the world of business and commerce. Globalization, wireless communications networks, and rising information transparency have led to an increasingly mobile work-force, disruptive technologies and business models, and customers who are harder to reach and to engage than ever (think: Do Not Call Registry and new demands such as “green” products and services). Customers have many new media options—iPods, social utilities, and online video gaming, to name a few—which have changed the way they consume information and entertainment. And marketers are finding it more and more difficult to keep up with customers, let alone effectively deploy the rapidly multiplying vehicles. The fault between the marketers’ environment and the craft has become a chasm.

Marketers weren’t sleeping as all this change was occurring. They refined their ability to elicit insight about and from consumers (adopting ever-more-sophisticated segmentation strategies and market research techniques, for instance) and they improved their creative responses. But, these tactics alone haven’t been enough to keep pace with the radical change we’ve experienced. In the past few years, marketers have come to realize that the climate requires that they rethink their craft, and today even the best of them are still grappling with the issues and searching for solutions.

This hard reality has created a tremendous amount of pressure and tension in the profession. In the sections that follow, we will explore how two forces, the same two great forces that are driving the continuing reordering of our entire world, are creating and feeding this pressure and tension within marketing. We will describe how the first force, technology, has fundamentally altered the marketing landscape by empowering customers and giving rise to new media, and how the second, globalization, has created a migration of hard skills and a consolidation in many industries that has shifted the sources of corporate competitive advantage as well as growth. Also, we will discuss how these forces have raised the corporate demand for marketing efficacy and accountability to new heights, a third major source of the pressure and tension that many marketers are feeling.

EMPOWERED CUSTOMERS, SPLINTERED MEDIA

Technological change has irrevocably altered the behavior of customers. Think about the changes in customers’ personal habits wrought by the revolution in technology over the past decade. How do they plan a vacation or book a business trip; shop for a new car, home appliances, or clothing; share the photos they take; choose a restaurant; listen to music; pick a book to read or a movie to watch; or decide on medical care or fill a prescription? People are approaching many, if not all, of these tasks in ways that are fundamentally different than in the past because of advances in technology. These advances also permit them almost instantaneous access to product and service information and a vast number of new buying opportunities.

Not only are customers changing their own behavior through the use of technology, they are also changing the behavior of others. They are creating communities—using Web sites, blogs, wikis, social utilities, journals, and so on—at sometimes astonishing rates. (In June 2008, for instance, Technorati, Inc., reported it was tracking over 112 million blogs, with 175,000 new blogs being created worldwide each day.) They are sharing experiences, answering questions, and pooling information and opinions about everything under the sun, including your products and services.

As customers change the way they act in order to capture the benefits of new technology and embrace it to create communities that they control and where they can speak their minds, markets become more transparent and customers’ buying behaviors are empowered. Customers also spend less time with traditional passive media. In short, purchase decisions are far less easily influenced by marketers and their practices than in the past. In fact without individual champions within these communities, marketers can’t penetrate their borders or be heard with any degree of credibility. Likewise, segmentation becomes ever more complex as smaller and smaller cohorts spring up to replace the broad categories (such as “Women 18–40”) into which marketers were able to lump customers in previous eras.

The best chief marketing officers are well aware that they must forge new relationships with empowered customers or risk having them wreak havoc on strategic plans and performance targets. Says Beth Comstock, General Electric’s CMO and former president of Integrated Media at NBC Universal: “One of the biggest trends in the media space right now is that consumers are in control. And it’s more than just click-the-remote capabilities or the ability to do a browse/search on the Internet. Consumers are telling us that they want to be in control of the storytelling. And, as a part of that desire, they want to engage in advertising in different ways. Marketers ignore this change at their own peril. Media companies ignore this change at their own peril. There will be times when the old kind of passive experience is going to be just right. But increasingly, consumers want to filter, they want to act, they want to be a part of the experience. And we have to be smart about it.”

Ironically, the same technologies that have improved communication and connected people around the world have also created a host of new media vehicles that have made communication and connection even more problematic for marketers. The huge audiences generated by mass media have splintered, and the task of reaching the right customers at the right time in an affordable fashion has become increasingly complex.

This isn’t a new trend. In 1980, in his best-selling book The Third Wave, futurist Alvin Toffler tracked the early decline of major newspapers and magazines, the broadcast networks, and radio in the face of growing competition. “New, de-massified media are proliferating, challenging—and sometimes even replacing—the mass media that were so dominant in all Second Wave societies,” he wrote. The media landscape, like consumer behavior itself, didn’t change overnight, but in the quarter century since he wrote the book, Toffler’s vision of the demassification of media has become a reality. For example,

• The three major TV networks (ABC, NBC, and CBS) shared 90 percent of television’s prime-time audience in 1980. By April 2007, the four majors (now including Fox) had a 40 percent share, according to Nielsen Media Research.

• In 1964, the average weekday newspaper readership was 80.8 percent of adults, according to Nielsen. In 2007, readership was 48 percent of adults, according to Scarborough Research.

• In 1993, the average listener had the radio on 22.75 hours each week. Between fall 1993 and spring 2007, the average time spent by radio listeners dropped over 18 percent to 18.5 hours per week, according to Arbitron.

Where have the mass audiences of yesterday gone? They have been diverted by a host of new entertainment and social networking vehicles. Among other things, they are watching cable and satellite television, using their DVRs to watch what they want when they want … without commercial interruption, getting their news 24/7 from CNN. Further, when people do consume media, very often their attention is divided. For instance, a Kaiser Family Foundation survey revealed that while people are watching TV, 74 percent of them read newspapers and 66 percent use the Internet.

Not only are people consuming traditional media, such as TV, radio, and print, in new ways, they continue to devote an increasing portion of their time to new media vehicles. In the United States, between 2001 and 2006, the hours consumers spent on the Internet rose 41 percent and the hours on mobile phones rose 1,264 percent. Between 2005 and 2007, the unique visitors per month on social networking site MySpace grew 331 percent to 51 million, according to comScore. This growth in new forms of media is not U.S- centric; for instance, the number of mobile subscribers in China is expected to grow to 940 million by the end of 2011, and in India, the number is expected to rise to 370 million. Increasingly as people study and work, they search Google and Yahoo! and blog while simultaneously instant messaging their friends and sharing iPod playlists. When they really have time to focus on entertainment, they play online video games with friends from around the world.

How has customer behavior been impacted by all of these changes? There are an infinite number of variations in the answers to that question, but let’s examine the behaviors of car buyers over a 16-year period that saw a tremendous explosion in Internet usage and online media for a vivid example. Exhibit 1-1 shows an analysis of how people shopped for new cars in 1992 and in 2007, revealing significant shifts among the factors that influenced their purchase decisions. The most dramatic changes can be seen in the influence of newspapers and TV, which had dropped 56 and 47 percent, respectively, and in the influence of magazines and word of mouth, which had risen 78 and 45 percent, respectively. The Internet, which did not exist so far as car buyers were concerned in 1992, had risen in just over a decade to become one of the top four influencing factors.

The shifting influencers of purchasing decisions reflect a changing landscape that you would have expected automotive marketers to negotiate with care. But when you look at how car companies were spending their advertising dollars in 2007, it is clear that they had barely shifted their advertising spend to reflect the changing degree of influence that media was having on purchase decisions. In fact, in terms of six major media sources, car companies were spending 64 percent of their advertising dollars on TV, which had an impact equating to only 23 percent on the customer’s buying decision. Conversely, as seen in Exhibit 1-2, the same companies spent just 6 percent of their advertising dollars on the Internet, which accounted for an 11 percent of media’s influence on the customer’s decision to buy. What kind of ROI impact do those numbers suggest to you?

The technological changes that have empowered customers and demassified media have created a complex marketing environment. The challenges that these changes present to marketers are not necessarily difficult to overcome. They only become insurmountable problems when marketers cannot adjust to the new realities they represent and spend hundreds of millions of dollars in the wrong places. Marketers who do not understand the changing climatic conditions cannot make rain. As Jerri Devard, former CMO of Verizon Communications, says:

Marketing people have always talked about the importance of single-minded focus—the single message that you disseminate to every channel and every customer. Well, this idea of communicating one message to everyone is just not going to work. Instead of spreading one message to the masses, you’ve got to send focused messages to many different groups—groups that have their own needs and interests. And that’s also where Verizon had to carve out its revenue potential: against a base of customers who come to it for many different reasons.

But I am [marketing] channel agnostic. I want to engage with people wherever they are. If they are Internet-dependent, I want to be there. If they want to pick up the phone and call us, I want to give them that opportunity. If they prefer to read and digest things, I’ll send them direct mail at home. But I always want to make sure I don’t overspend in some places to the detriment of others.

So the world has gotten more complicated. No longer will one message suffice for all of your customers; many customer-specific messages are required. No longer will all of your customers be watching that must-see show on TV at the same time; so your messages will have to reach them wherever they are and whenever they choose to be there. And most difficult, all of this must be achieved in a cost-effective way.

ORGANIC GROWTH, RAMPANT COMPETITION

At the same time technology has driven complexity into the marketer’s job, the forces of globalization have altered the very DNA of corporate success, spawning both corporate gigantism and transforming the sources of competitive advantage. As a result of these trends, marketing itself has become a more important component of corporate performance than ever before and the pressure on marketers to produce results has increased accordingly.

In 1991, Regis McKenna declared in the Harvard Business Review that “marketing is everything, and everything is marketing,” and it turns out that his polemic on the pervasive role of marketing was prescient. In early 2004, the Association of National Advertisers (ANA) and Booz & Company launched a study to determine the relevance of marketing, marketing departments, and CMOs (although they don’t always go by that moniker) in today’s business climate. More than 400 respondents from over 100 companies in nine industries (auto, consumer packaged goods, financial services, health, manufacturing, professional services, retail, technology and telecom) completed a confidential survey. As Exhibit 1-3 shows, 77 percent of the marketers and 78 percent of the nonmarketers said that marketing has become more important or significantly more important to their companies during the past five years.

We’ve also seen a corresponding increase in the demand for marketers from companies across the spectrum. “You can hardly go to a company now where they’re not talking about building marketing capability,” former P&G CMO Jim Stengel says. “I get called almost every day for advice on who can fill a job. The pace of stuff coming in about openings and needs for people with these kinds of capabilities is huge. I sit on Motorola’s board, and I can see people there recognizing the power of marketing in technology.”

General Electric is a notable example of a company that has responded effectively to this marketing imperative. In 2002, onetime GE CEO Jack Welch’s successor, Jeff Immelt, appointed Beth Comstock as the first CMO in the then 110-year-old company’s history and asked that all of the company’s divisions add marketing executives to their senior teams. In the years that followed, GE applied the same energy to teaching its managers about marketing that it had to the study of Six Sigma during Jack Welch’s tenure. Immelt also invited Ralph Larsen, Johnson & Johnson’s former chairman and CEO, and A.G. Lafley, chairman and CEO of P&G, both heads of leading companies noted for their marketing savvy, to join GE’s board of directors.

(Continues…)

Excerpted from THE FOUR PILLARS OF PROFIT-DRIVEN MARKETINGby LESLIE H. MOELLER EDWARD C. LANDRY THEODORE KINNI Copyright © 2009 by Booz & Company. Excerpted by permission of The McGraw-Hill Companies, Inc.. 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.