Kotler - 3rd generation of marketing

A brief on “What is Next in Marketing?”
The Business of Managing and Marketing in the Age of Turbulence
City Stars – Intercontinental Hotel
Cairo, Egypt
15-16 October 2009
PhD. Philip Kotler
Marketing Brief - Etisalat MisrCopyright©

Marketer’s Concerns
Part I – Dealing with the Recession
Part II – Managing Marketing and Sales
Part III – Discovering Opportunities
Copyright© Marketing Brief - Etisalat Misr

 The world keeps changing:
 Globalization: Different countries contribute to develop one product / whatever happening in
one area will definitely affect other areas.
 Globalization: Rise of China (annual GDP increase 8-10%)+ India (annual GDP increase 6-9%)
 Regionalization: Each group of countries in the same region develop an economic union.
 Deregulation: Remove rules & limitations on all Trade activities, as well as, Marketing.
 Privatization: Many governments stop supporting the public sectors and offer them for sale for
sake of cash & better competitive environments.
 Internet: Ease of customer reach-ability, E-Marketing, Challenges & Opportunities .
 Network Topology: E All parties are connected together in a network topology (Customers,
Suppliers, Vendors, Manufacturers, Services Providers, Marketers, Sales Forces,…).
 Digital Convergence: E Technologies’ joint to fulfill new purposes (Entertainment, IT,
Telecom,…). (1)

 The world keeps changing – continued:
 Hypercompetition: Modern Technologies not controlled yet by current laws & rules. (2)
 Shorter product life cycle & disruptive technologies: E Faster time to market, quicker expiry period
& unexpected product/service improvement(s). (3)
 Commoditization: Transformation of services & goods into commodities (goods with standard
characteristics & prices). (4)
 Media Proliferation: Utilize the New-Media in improving Marketing & Advertisement.
 Retail Transformation: E Efficient optimization of companies’ Selling, General and Administrative
(SG&A) costs by performing certain processes & techniques. (5)
 Environmental Concerns: Go green, think green, act green.
 Consumer Empowerment: Customers are driving the products & services development &
introduction.
 Recession: E Impacting consumers’ behaviour who started looking for higher value products/services
with maximum ROI (Return On Investment).

 Consumer Adjustments during Recession
 Consumers will move toward buying lower priced and higher value products & brands.
 Consumers will reduce/postpone discretionary purchases.
 Business Adjustments during Recession
 Businesses will reduce production and order fewer goods from suppliers.
 Businesses will cut their rate of capital investment.
 Businesses will cut their marketing budgets substantially.
 Businesses will postpone new product development and put on hold major new projects.

 What is the best Strategy in a Recession?
STRONG
COMPANY
STABLE
COMPANY
STRUGGLING
COMPANY
FAILING
COMPANY
FINANCE 
MARKETING 
STRONG
STRONG
STRONG
WEAK STRONG
WEAK WEAK
WEAK
Buy competitors /
their assets, Increase
marketing
expenditures
Build stronger
marketing team,
acquire some strong
brands
Generate new cash by
slashing overhead.
Renegotiating with
suppliers, process
improvements
Close down and
salvage what you can.
Your company is
hopeless.

 Company should invest in three boxes
Manage the Present
Selectively
Forget the Past
Create The
Future
BOX I BOX II BOX III
Cut the fat, drop
unprofitable
products, segments,
customers and
geographical areas.
Make operational
improvements.
Right sizing.
Work on new
products that are
ready.
Move into
opportunities.
Exploit nonlinear
changes.
Develop a big new
strategic intent (an
efficient electric car,
a cure for cancer…)
A strategic intent will
have direction,
motivation, and
challenge.

 Marketing Steps to Take
 Complete inventory of marketing activities & costs. Identify items that may be
eliminated in a cost-cutting plan.
 Shed unprofitable segments, customers and geographies.
 Delete poor-selling products and brands.
 Weed out under-performing distributors. Reposition pricing.
 Shift to a more efficient media mix, including the new Media.
 Focus on getting more spending by existing customers and less on attracting new
customers.
 Build stronger relationships with high potential customers whose business will grow
when the economy gets better.

 Define Essential Marketing Budget
 Must use some budget for marketing research to learn how customers & competitors
are adjusting and to test some new segmentation and other initiatives .
 Must have some money to change product features or to introduce a lower cost
version.
 Must have some money for reaching key customers and messaging why it is still wise
to buy the products.
 Must use some budget for consumer and trade promotion.
 Must have funds to back a highly promising launch.

 Advertise in a Recession IF…
 The company has a value brand (Wal-Mart and McDonalds).
 The company launches a value sub-brand.
 The company launches an existing new offering.
 The company can demonstrate that its product has more quality than what
is paid for.
 The company shows that its category is a good answer to saving money
(frozen foods, soup…).

 Overcome Purchase Resistance…
If our price is
cheaper in the
next three
months, we
will refund
the difference
We will take
the product
back if you
lose your job
(with a small
adjustment)
Prices will
probably rise
and this is the
best time to
buy
Customer decides
to buy later
because he expects
prices to be lower
Customer worries
about losing his
job
Customer feels
poorer

 Some Helpful Tips
 Try to Lower the costs of paper, photography and other production inputs by negotiating lower
prices or switching to lower cost suppliers.
 Try to Switch to lower cost transportation carriers.
 Try to Close down sales offices if they are not getting enough use.
 Try to Put Advertising Agency on pay-for-performance scale.
 Try to Replace higher cost communication channels with lower cost channels.
 Try to achieve more impact by shifting money for 30-second commercials into public relations or
new digital media.
 Try to drop some product features or services for which customers don’t see to care.

 Recession Life Cycle
Spurts of
Prosperity
Spurts of
Downturn

 Procter & Gamble (P&G) Response Plan
 They decided in a down period to cut marketing costs from 25% to 20% of sales to
remain competitive. They reached this achievements by doing the following:
1. They standardized more their product formulations, packaging and advertising around the
world.
2. They reduced the number of sizes and flavors.
3. They dropped or sold some weaker brands.
4. They launched fewer but more promising brands.

 Ideal Response Plan
 Track changes in customer wants and values.
 Examine individual competitors’ weaknesses.
 Protect your core market.
 Decide in which markets to build market share.
 Offer lower prices or add value to your offering.
 Don’t let your values or long term goals slip.
 Think Opportunity!

Part II – Managing Marketing & Sales
 Marketing Objective, Process and Philosophy
Create
Communicate
Deliver
Value
Target
Profit
Research
Segmentation, Targeting,
Positioning
Marketing Mix
Implementation
Control

 Characteristics of “Firms of Endearment”
 They align the interests of all stakeholder groups.
 Their executive salaries are relatively modest.
 They operate an open door policy to reach top management.
 Their employee compensation and benefits are high for the category; their employee
training is longer; and their employee turnover is lower.
 They hire people who are passionate about customers.
 They view suppliers as true partners who collaborate in improving productivity and
quality and lowering costs.
 They believe that their corporate culture is their greatest asset and primary source of
competitive advantage.
 Their marketing costs are much lower than their peers while customer satisfaction
and retention is much higher.

Holistic
Marketing
Internal
Marketing
Integrated
Marketing
Relationship
Marketing
Socially
Responsible
Marketing
Ethics
Environment
Legal
Community
Marketing Department
Senior Management
Other Departments
Communications
Channels
Products & Services
Partners
Channel
Customers

 CMO Main Responsibilities
1. Represent the voice of the customer (VOC) to others in the company and
champion the development of a strong customer-orientation to build loyal
customers.
2. Monitor the evolving business landscape and gather customer insights to
help develop new products and services for achieving growth objectives.
3. Be the steward of the corporate brand and brand-building practice.
4. Upgrade marketing technology and skills in the company.
5. Bring insight into the corporate portfolio and synergies.
6. Measure and account for marketing financial performance and contain
media and other service costs.

Marketing Roles
Defining&
Understanding
Markets
Segmenting
DefinedMarkets
DevelopingValue
Prepositions
Gettingbuy-in
Monitoring
DeliveryofValue

Customer
Awareness
Brand
Awareness
Brand
Consider
ation
Brand
Preference
Purchase
Intention
Purchase Loyalty
Customer
Advocacy
 Marketing & Sales Funnel
Handoff

 Sales Models
Potential Product
(Resource Integration)
Augmented Product
(Product + Service)
Generic Product
(Expected)
Integrated SalesEnhanced SalesSimple Sales
Value
Orientation
Provider of Products Solutions Competitive
Advantage

 Improve Marketing/Sales Alignment
1.Hold
regularly
scheduled
meetings
between
Marketing
& Sales
2.Make it
easier for
Marketing
& Sales
people to
communi
cate with
each other
3.Arrange
for more
joint work
assignmen
ts and job
rotation
between
Marketing
& Sales
4.Appoint a
liaison
person
from
Marketing
to live with
Sales Force
and help
Marketers
understand
Sales
Problems
better
5.Set
Shared
Revenue
Objectives
& Reward
Systems
6.Improve
Sales
Force
Feedback

 Be a Value Merchant, Not a Salesman
1. Move from features to benefits to the worth of the offering.
2. Distinguish between the value of an offering and your pricing of the
offering. Make the difference between your value and price superior to the
competitor.
3. Your task is to be able to demonstrate (before) and document (during and
after).
4. Stress the points of differences between you and the competitor, not the
points of parity. Make sure that the differences matter to the customer.
5. Construct a value word equation for each point of difference and point of
contention.
6. For example, you may say that “Our pump lasts 3 years rather than 2 years
and will save you X dollars”.

 Find New Market Opportunities
 “A Business has two – and only two – basic functions: marketing
and innovation. Marketing and Innovation produce results: all the
rest are costs.”
Peter Drucker
 “While great devices are invented in the laboratory, great
products are invented in the Marketing Department.”
William H. Davidow,
Former Senior Marketer
At Intel and Author

 Customer Value Types
Value Benefits Cost
Price
Buyers
Solution
Buyers
Strategic
Relation
Buyers
Enterprise
Assets

 Selling Models for Value Creation
Value
Creation
Potential
Cost Of Sale
Enterprise Model
Consultative Model
Transactional Model
Price
• Convenience
• Cost
• Availability
Solution
• Problem Solving
• Customization
Solution
• Business Process changes
• Leveraging enterprise
resources
2009 Neil Rackham ©

 Treat Transactional & Consultative Customers Differently
 Transactional customers are becoming more transactional due to perceived
commoditization and the Internet:
1. Move them to the cheapest sales channels such as the Internet.
2. Standard Products.
3. Value Proposition: “Cheap and easy to do business with”
 Consultative customers require higher up-front investment, a better trained sales
force to match higher customer expectations:
1. Assign skilled resources where they create the most value.
2. Problem Solving and customizing.
3. Fewer, deeper, accounts.
4. Value proposition: “We’ll understand your needs better.”
 Don’t use one sales force to sell to both types of customers!! A talented salesperson
is wasted selling to transactional customers. It is not true that a skilled salespersons
can turn any transactional customer into a consultative customer.

Part III – Discovering New Opportunities
 Marketing Success – Think Value!!!
 A New Way of Thinking
Value
Delivery
Value
Identification
Value
Creation
Value
Capture
1
3 2
4

 Value is defined differently by different types of customers
Target Customer Group
Offering
Positioning
Value Proposition
Value Communication System
Value Delivery System
Customer
Satisfaction
Company Profitability

 Forms of Stating a Value Proposition
 For (target customers), (our products) provide (key benefits) and (key points of
difference to competition).
• Example: “For (people with business interests, who need to keep up with the latest), (the Wall
Street Journal) provides (global business information) and (is more current than weeklies).”
 “We believe (the customer), should be able to (improve what?) by (how much?)
through the ability to (do what?) as a result of (what enabler, service, etc.?)“.
• Example: We believe that (electricity consumers), should be able to(improve the performance of
their electrical system) by (20%) through the ability to (monitor the meter) as a result of (digital
cost tracking system).
 “(Brand X) is better than (competitive set) for (target market and need) because it
offers (strategic advantage) with the result that (key proposition).
• Example: (Blackberry) is better than (Palm Treo) for (heavy users of email) because it offers (faster
and more reliably delivered emails) with the result that (business decisions can be made faster) ”

 Value Proposition Alternatives
 Cite a major Point Of Difference (POD).
• Volvo’s car is the safest (this was the original positioning suggestion by Ries and
Trout).
• Make sure that the POD is strong, favorable , and unique
 Cite several Points Of Difference (PODs) as well as Points Of Parity
(POPs).
• Shows that we offer all the category benefits and neutralize competitor’s
benefits.
 Cite the financial value of the Value Proposition. Your aim is to show
“lowest total cost of ownership or use”.

 Value Proposition as seen by a customer in a Sales Situation
 Why should I take action now to address this problem/opportunity?
 What differentiating capabilities do you bring to the solution?
 What is the financial value to me of your differentiating capabilities
compared to the financial value I would receive from the competitive
alternatives?
 Why should I believe each of these claims?

 Criteria for the company evaluating its own value proposition
 Does the value proposition fit the key needs of our valued customers?
 Is our value proposition sufficiently differentiated from the competitors?
 Are we positioning on too many benefits to be credible?
 Are we positioning on attributes that we can defend against competitive
attacks?
 Which high cost or low value added activities could be eliminated,
reduced or outsourced in our value network?
 Do we have the necessary capabilities to deliver the value proposition?
 Are our value proposition claims reinforced by underlying product and
service features?
 Can we serve the valued customers with the value proposition at a profit?

 Sources of New Ideas
Scientists &
Engineers
• Motorola
• Philips
Employees
• Whirlpool
• Shell
• Samsung
Customers
• Problems in
present products.
• Dream products.
• Enthusiasts

 Some past differentiators have lost their uniqueness
Differentiati
on won’t
help if the
category
basics aren’t
done right!!!
Jaguar
automobiles is a
good example

 Ways to Differentiate
Features, Performance,
Conformance, Durability, Style,
Design, Packaging
Product
Expertise, Courtesy, Credibility,
Responsiveness, Clarity
Personnel
Symbols, Media, Atmosphere,
Events
Image
Delivery, Installation, Customer
Training, Consultancy, Repair
Services
Coverage, Expertise, Performance
Channels
List Price, Payment Terms,
Financing Programs
Price

 Much Marketing Differentiation occurs Outside of Marketing!
Accounting
• Develop an
invoice
format that is
easier to
understand
Finance
• Develop
flexible
payment
options for
different
customer
segments
Logistics
• Help improve
a major
customer’s
supply chain
Receptionist
• Smiles at the
hotel guests
Differentiation beyond the Selling of a Product
VOLVO not only sells safe cars but teaches safe driving, supports lower insurance rates for safe drivers, etc.

 New Media vs. Traditional Media
Traditional Media
• Drum beats & Smoke signals
• Face-to-face sales calls
• Writing
• Leaflets & Posters
• Billboards
• Newspapers
• Magazines
• Direct mail & catalogs
• Telephone
• Radio
• TV
• Film
• Sponsorships
• Street Level Promotions
• Festivals
• Trade Fairs
• Product Placement
Digital Media
• Websites
• Email
• Banners & Pop-Ups
• Webcasts
• Blogs
• Podcasts
• Videocasts
• Mobile Marketing
• Social Network Sites
• Stimulated Buzz

 Consumer Generated Media (CGM)
• Direct customer feedback to company Web Sites.
• Online Bulletin Boards, Chat Rooms, Forums, and Discussions.
• Person-to-person e-mail.
• Blogs (Personal Web Logs/Diaries).
• Moblogs (Sites where users post or send digital images, photos, video clips to
others).
• Consumer opinions and reviews on Web Sites (amazon, netflix, zagat,
planetfeedback, epinions).
• Podcasts (audio files that can be downloaded and played on various devices).
• Webcasts (Internet Live Presentations).
• Wikipedia (Encyclopedia) & Flicker (Photos).
• Instant Messages.

 Creating Buzz: Distinguish three types of diffusers
From Malcolm Gladwell, Tipping Point

 The Professionalization of Buzz
• David Balter wrote Grapevine. He started BzzAgent.com and recruits agents of
teens, senior citizens, and other groups.
• Bzz only accepts good products to submit to buzz.
• An agent receives a list of campaigns and chooses campaigns they are
comfortable with.
• They receive the product and a tipsheet on how to use WOM if they like the
product and will talk about it.
• They write a report on every incident when they mentioned the product and
they get points which turn into rewards.
• They are asked to report negative things as well as good things about the
product.

 MAJOR METRICS
1. Sales growth
2. Market share
3. Sales from new products
4. Customer Readiness to Buy Metrics
5. Awareness
6. Preference
7. Purchase Intention
8. Trial Rate
9. Repurchase Rate
10. Customer Metrics
11. Customer Complaints
12. Customer Satisfaction
13. Customer Sacrifice
14. Number of Promoters to detractors
15. Customer Acquisition Costs
16. New Customer Gains
17. Customer Loses
18. Customer Churn
19. Retention Rate
20. Customer Lifetime Value
21. Customer Equity
22. Customer Profitability
23. Return On Customer
24. Brand Metrics, Strength & Equity
1. Number of Outlets
2. Share in Shops Handling
3. Weighted Distribution
4. Distribution Gains
5. Average Stocks Volume (Value)
6. Stocks Covers in Days
7. Out of Stock Frequency
8. Share Of Shelf
9. Average Sales per Point Of Sale (POS)
1. Spontaneous (unaided) brand Awareness
2. Top of mind brand Awareness
3. Prompted (aided) brand Awareness
4. Spontaneous (unaided) advertising Awareness
5. Prompted (aided) Advertising Awareness
6. Effective Reach
7. Effective Frequency
8. Gross Rating Points (GRP)
9. Response Rate
1. Quality of Lead Stream
2. Average Lead to Proposal
3. Average Close Ratio
4. Cost per Inquiry
5. Cost per Lead
6. Cost per Sale
7. Cost per Sales Dollar
1. Price Sensitivity
2. Average Price Change
3. Contribution Margin
4. Return On Investment (ROI)
5. Discounted Cash Flow (DCF)
6. Cost per Sale
7. Cost per Sales Dollar

Marketing
investment
management
Demand
Modeling
Marketing
resource
management
Campaign
management
Lead
management
Events
management
Loyalty
management
Media
management
Marketing
analytics
Web
analytics
 Marketing Automation
Plan Manage Execute Measure

 Value-Based Marketing
Practice
Compassion
SustainAbility
Make a
Difference
Realize
Aspiration
ReturnAbility
Differentiate
Deliver
Satisfaction
ProfitAbility
Be BETTER
Marketing V1.0
“Mind”
Marketing V2.0
“Heart”
Marketing V3.0
“Spirit”
Mission
“Why”
Mission
“Why”
Mission
“Why”
Company
Individual
Source: Philip Kotler and
Hermawan Kartajaya,
Marketing 3.0

References
1. Wikipedia, (2009), ‘Digital Convergence’, [Internet], available from Digital Convergence, Last Accessed on: Sunday 18th October
2009
2. Wikipedia, (2009), ‘Hypercompetition’, [Internet], available from Hypercompetition, Last Accessed on: Sunday 18th October 2009
3. Wikipedia, (2009), ‘Disruptive Technologies’, [Internet], available from Disruptive Technologies, Last Accessed on: Sunday 18th
October 2009
4. Wikipedia, (2009), ‘Commoditization’, [Internet], available from Commoditization, Last Accessed on: Sunday 18th October 2009
5. Capgemini, (2005), ‘Retail Transformation: Driving Cost Reduction’, [Internet], available from Retail Transformation, Last
Accessed on: Sunday 18th October 2009.
6. Kotler, Philip & Caslione, John, (2009), ‘Chaotics: The Business of Managing & Marketing in the Age of Turbulence’, New York –
AMACOM, Spring 2009
7. SlideShare, (2009), ‘Philip Kotler – Marketing to Compete’, [Internet], available from Philip Kotler - Marketing To Compete. , Last
Accessed on: Tuesday 20th October 2009
8. Sisodia, Raj et al, (2007), ‘Firms of Endearment: How World-Class Companies Profit from Passion and Purpose’, Wharton School
Publishing.

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