1. New Marketing for the New
Economy
Philip Kotler, Ph.D.
Kellogg Graduate School of Management
Northwestern University
Society for Marketing Advances
Orlando, Florida
November 9, 2000
3. We Are Entering a New Economy
• Old Economy was based on Manufacturing industries:
– standardization
– scale
– replication
– efficiency
– hierarchy.
• The New Economy is based on Information industries:
– differentiation
– customization
– personalization
– networks
– speed
4. Old Economy - (Supply-side Marketing)
• Organize by product units
• Focus on profitable transactions
• Look primarily at financial scorecard
• Focus on shareholders
• Marketing does the marketing
• Build brands through advertising
• Focus on customer acquisition
• No customer satisfaction measurement
• Overpromise, underdeliver
5. New Economy - (Demand-side Marketing)
• Organize by customer segments
• Focus on customer lifetime value
• Look also at marketing scorecard
• Focus on stakeholders
• Everyone does the marketing
• Build brands through behavior
• Focus on customer retention and growth
• Measure customer sat. and retention rate
• Underpromise, overdeliver
6. Characteristics of the New
Economy
• Value is shifting from ownership of tangible assets to
intangible assets. Companies are outsourcing asset-intensive
activities. (Marriott)
• Value is shifting from companies that provide products
to companies that can provide high customization at
low cost (Dell) or who are solutions providers (IBM).
• Companies are achieving significant savings by
conducting their business electronically.
7. How Will the New Economy
Affect:
• Mass advertising?
• The classical advertising agency?
• Field sales forces?
• Store-based retailers?
• Price premiums?
8. Companies Get Stuck in
Routines
• Entrepreneurial
stage
• Bureaucratic stage
• Intrepreneurial stage
9. Companies Evolve Through Five Stages
• Heavy sales transaction stage.
• Product differentiation stage (features, design,
branding).
• Customer service stage (product maintenance,
customer service systems).
• Customer segmentation and channel
differentiation stage.
• Enterprise-wide customer database and
customer relationship management stage.
10. Traditional Marketing Skills
• Sales management
• Advertising management
• Sales promotion management
• Marketing research
• Pricing
11. Competencies Needed
by Today’s Marketers
• Database marketing and data-mining
• Telemarketing and call center management
• Public relations marketing (including event and
sponsorship marketing)
• Customer relationship management
• Partner relationship management
• Brand building
• Experiential marketing
• Profitability analysis applied to customers, market
segments, channels, and order sizes
13. Jack Welch’s View
• “Embrace the Net. Bring me a plan
how you are going to transform your
business beyond adding an Internet
site.”
14. Internet Initiatives
• Intranet
• Extranet
• Internet
– Researching
– Recruiting
– Training
– Selling
– Buying (e-procurement)
– Relationship building (chat rooms, etc.)
15. Questions to Ask
• Do we need a website?
• Should we do e-commerce on our
website?
• How do we attract, keep and grow
visitors to our website?
• How do we form a learning relationship
with our visitors?
• How do we pay for the site or make a
profit?
16. Characteristics of Strong Websites
• Context factors
– Fast download
– Easy to understand first page
– Easy to move to other pages
• Content factors
– Deep information
– Changing news
– Humor feature, games
– Contests
– Chat room
17. E-Commerce: “Kiss the Stores Goodbye?”
• Travel agents (Travelocity.com)
• Brokers (E*trade.com)
• Banks and insurance companies (First
Direct.com, Direct Line.com)
• Music stores (MP3.com)
• Book stores (Amazon.com)
• Toy stores (e*toys)
• Car dealers (Edmunds.com; Autobytel.com)
• Supermarkets (Peapod.com; netgrocer.com;
streamline.com; cybermeals.com)
• Newspapers (cnn.com)
18. Business-to-Business: Internet
• Business-to-business e-commerce will be 10X larger
than consumer e-commerce.
• Businesses will use the Internet for buying, selling,
auctioning, negotiating, researching, recruiting,
training, relationship building, etc.
• GE created the Trading Process Network where GE can
request quotas, negotiate terms, and place orders.
• Techdata provides an electronic catalog of 45,000
products from 900 manufacturers.
• Office Depot services the office supply needs of 40,000
users in 5,000 companies over the Internet.
• Dell
• e-hubs
19. The Rise of ‘Reverse Marketing’
• Reverse pricing (priceline.com)
• Reverse advertising (pull, not push)
• Reverse promotions (netcentives, bonusmail,
freeride)
• Reverse product design (garden.com)
20. The Internet Will Lead to Lower Prices!
• Shopping bots
• Customer-specified pricing (priceline.com)
• Volume pricing (mercata.com, powerbuy.com)
• Yield-based pricing
• Auction markets
• Sites like buy.com which price at cost.
21. e-commerce’s Impact on Business
• Falling prices
• Falling procurement costs
• Customer-driven marketing
22. Tools for Building Brands
• Advertising (e.g., Absolut Vodka)
• Public relations and press releases
• Sponsorships (e.g., Kodak and Olympics)
• Clubs and consumer communities(e.g., Harley
Davidson, iVillage)
• Factory visits (e.g., Cadbury’s theme park)
• Trade shows
• Event marketing
• Mobil marketing
• Public facilities (e.g., Nestle Nestops)
• Social causes (e.g., American Express)
• High value for the money (e.g. Ikea)
• Founder’s personality (e.g., Richard Branson)
24. The Essence of One-to-One Marketing
• Identify your target customers.
• Differentiate your customers by their needs and
their value to your company.
• Interact with your customers to form a learning
relationship.
• Customize your products, services, and
messages.
• Source: Peppers and Rogers, 1 to 1 Marketing
25. What Customer Information to Collect?
• Transaction data
• Demographic data
• Psychographic data (activities, interests,
opinions)
• Contact and contextual data
26. Testing Two Alternative Communication Plans
• AT&T spent 70% on advertising and 30% on
direct mail. The cost per lead was $200, and the
marketing cost per sale was $6,250.
• AT&T then spent 10% on advertising, 25% on
direct mail, and 65% on telemarketing. The
average cost per lead was $67 and the
marketing cost per sale was $444.
27. Testing Different Levels of Media Integration:
Citicorp Experiment to Sell Home Equity Loans
• Mail only (control group). 1% response.
• Mail with an 800 number. 7% response, 63%
decrease in marketing costs
• Mail with an 800 number followed by a
telemarketing call to inquiries. 14% response,
decrease in marketing costs 72%
• Mail with an 800 number followed by a
telemarketing call to inquiries and supported by
print advertising. 16% response, decrease in
marketing costs of 71%
28. Database Marketing is Expensive!
• Requires a tremendous investment in information
gathering about individual customers and prospects.
• Requires constant updating of information.
• Some critical information may not be available.
• Requires a high investment in software programs.
• Requires integrating individual customer information
from a variety of sources.
• Requires people skilled at data mining.
29. Does Every Business Need CRM?
• No. The following businesses may not benefit from CRM:
– Businesses where customers by the product only once in a lifetime.
– Businesses where the unit value is low.
– Businesses where the CLV is low.
– Businesses with high churn.
– Businesses where there is no direct contact between the seller
and ultimate buyer.
• Yes.
– Businesses that can sell a variety of products to the same customer.
– Businesses whose product get old and have to replaced
– Businesses whose product is continuously upgraded.
– Businesses that have many VIP customers and need to know a
lot about them.
– Businesses that normally collect a great deal of data in the course of
their business.
30. New Marketing Rules
for the New Economy
• Exploit e-commerce and e-business.
• Build and use a customer database to manage the
customer portfolio.
• Focus on customer lifetime value, customer value
management, customer share, and customer
profitability.
• Shift promotion funds away from broad advertising
toward more direct promotion.
• Build brands in new ways.
• Go electronic and paperless.
• Partner with your employees, customers, suppliers, and
distributors.