Several trends have emerged in marketing strategy as the experts seek to convince us of the central importance of marketing to the function of business. But does the reality match the hype? By Leon Gettler
In a world in which the focus has shifted from an industrial economy to services, from manufacturing and selling goods to getting inside the mind of the customer, marketing has undergone profound transformation.
The changes are an inevitable result of oversupply. Seiko produces 5000 watch models, Sony turns out more than 5000 new products a year (more than two per working hour), and Disney chief executive Michael Eisner claims that his company issues a new product be it a book, a movie, a CD or comic every five minutes.
Deregulation and globalisation are also underpinning the changes by letting market forces loose everywhere. This has transformed the industrial landscape by creating markets for just about everything, from industrial components to genes. The related forces are the falling costs and increasing reach of technology. One study has found that the amount of internet traffic doubles almost every 100 days. The market analyst IDC estimates that 10 billion e-mails are received every day worldwide. They forecast that this will increase to 35 billion by 2005. Neither of these figures include spam.
In the crowded market of post-industrial societies, attention becomes valuable. Understanding and managing attention is now an important weapon for business success, and marketing is part of an organisation’s firepower.
At the same time, companies are moving away from the idea that they are making and selling products, instead embracing the notion of themselves as brand builders. And, as Naomi Klein points out in her book No Logo, brand builders are the new primary producers in the knowledge economy. Marketing is underpinning the change.
Led by the swoosh of Nike, corporations are moving away from manufacturing. Companies that once maximised the mark-up between the cost of factory production and retail price are now outsourcing everything to factories for mark-ups that were unimaginable under the old model.
Making and selling the goods is unimportant. What is crucial now is the marketing; it is now the bricks and mortar of every business strategy. Items you cannot see or touch, such as reputation and customer service, are seen as more valuable in the market than tangible assets like buildings and machinery. Although manufactured goods can be evaluated before the transaction, services and ideas can trade only on how well they are regarded.
Mention the “emotional economy” and “economies of soul” and no one bats an eyelid. Motorola and Microsoft team up with the Rolling Stones, and entrepreneurs like Richard Branson are treated like rock stars. In such a world, brands and stars become one and the same thing. As Posh Spice said: “We wanted to be a household name. Like Ajax.”
Walter Landor, president of the Landor branding agency, said: “Products are made in the factory, but brands are made in the mind.”
Writing eight years ago, management thinker Peter Drucker was one of the first to see it in terms of the shift away from production towards marketing. “The customer is the foundation of a business and keeps it in existence,” he wrote in his book The Practice of Management. “Because it is its purpose to create a customer, a business enterprise has two and only these two basic functions: marketing and innovation Marketing is the distinguishing, the unique function of the business. It is the whole business seen from the point of the final result, that is, from the customer’s point of view. Concern and responsibility for marketing must therefore permeate all areas of the enterprise.”
It has permeated so far, in fact, that it has given rise to several important trends in marketing strategy.
The first trend is mass customisation. The pioneer in this area was Michael Dell, head of Dell Computer Corporation, whose business model of direct sales by telephone and over the internet usurped Compaq, the PC industry leader, and enabled Dell to grow 40% a year. The model is simple: Dell customers specify what they want on their PC, and they pay upfront by credit card. The customer chooses from a variety of modules, with a lot of the customisation coming from the particular software chosen. The machine is then assembled and dispatched within three days.
The trend has now spread to the motor industry. According to The Economist, 19% of the cars sold in Europe are now custom-made, compared with 7% in the United States. In Germany, about 60% of cars are now built along the lines of customer specifications. Such is the trend that companies including Volkswagen, Ford, General Motors, Nissan, Honda and Peugeot have got together for what is known as the “3DayCar” project to see how far the Dell model can apply in car making.
The most striking example of mass customisation comes from the National Bicycle Company of Japan. Its showroom is a cyber cafe where people use a computer screen to design a bike in the colors they want and with the components they require. The information is then sent to the company’s robotic production line. The whole thing is assembled in three hours but customers have to wait three weeks before it arrives. The National Bicycle Company knows that customisation is as important for its customers as getting the finished product.
Related to this is what marketers now call “customer intimacy”. Amazon.com keeps a list in its electronic files of customer preferences, and it sends out flurries of e-mails to customers to tell them of forthcoming products they might be interested in. For the greeting-card company Hallmark, it is a list of important birthdays and anniversaries. It e-mails customers timely reminders along with suggestions about possible cards. The hotel chain Holiday Inn operates Priority Club for its most frequent guests, who spend 60% of their nights on the road staying at one of its hotels. Twice a year, it brings them together at one of its resorts for a weekend of recreation, and it holds focus group discussions on hotel management. Burger King has a Kid’s Club with four million members worldwide. They receive many perks, including age-directed magazines and a pen-pal club that matches up members. Burger King’s Michael Evans puts it thus: “We want to capture the hearts and minds of kids and keep them until they are 60.” Car clubs, particularly recreational vehicle associations, have similar marketing philosophies.
Another trend has been the rise of so-called “cultural intermediaries” or “cool hunters” who are constantly searching the world for new trends and experiences in popular culture. Most of these trends are to do with youth, and the trends are packaged and sold like commodities. Corporations like Nike, Coca-Cola, Disney, Chanel, McDonald’s, IBM, and Calvin Klein employ cool hunting firms like Trendology, Sputnik, Bureau de Style and Brain Reserve to scour net traffic, school yards, malls, clubs and skateboard parks for the latest cultural trends that form the zeitgeist. How reliable is the information they give? It is anyone’s guess, because the clients believe there are huge reservoirs of untapped cool out there. As for the hunters themselves, they might have a vested interest in making sure clients keep thinking that way. But with so much money being paid out, there is no denying that cool now has a power of its own in marketing.
Then there is buzz. Some examples: the PalmPilot, The Blair Witch Project, Hotmail, Pokemon, Viagra, Virgin. All have used buzz, the killer marketing strategy, in which success is propelled more by hype than by conventional marketing or advertising.
Under this model, the product’s champions exploit the nodes, clusters, hubs and invisible networks that channel the buzz. Information flows freely down these pathways, which can include casual conversations, parties and gatherings, chat rooms, newsgroups, Web sites, talk shows and even the movies.
In New Zealand, Coca-Cola allows local bands to record the Coke jingle in their own way, reconfiguring it to suit their music. Dyson Appliances, which sells the revolutionary vacuum cleaner that comes with no bag, exploits buzz and does it brilliantly. The company’s warranty cards show that 60% of sales come from buzz. Hotmail, which claims to have more than 80 million registered users, got off to its spectacular start by tagging every e-mail with a promotion for its services (“Get your free e-mail at Hotmail).
The management consultancy McKinsey & Company estimates that buzz shapes 54% of the United States economy, mostly in toys, fashion, sporting goods, movies, broadcasting, and amusement and recreation services. Investment products, electronics, printing and publishing, tobacco, automotive, pharmaceuticals and health care, transport, agriculture, food and drink are also buzzable.
The battle for control of the customer’s mind will continue. The question, however, will continue to be whether reality matches the hype. The customer might be king, but rising dissatisfaction levels suggest that there is a growing gap between marketing and customer satisfaction. Drucker’s claim that the customer is the foundation of a business has some way to go before customers feel that they being treated with respect.
Is marketing contributing to the problem by treating all customers as the same? As Henry Mintzberg puts it in his new book, Why I Hate Flying: “Treat me like cargo. Isn’t that why you have Marketing?”
There is nothing new about developing a brand. It is as old as the marking of cattle with red-hot irons; the origin of the term. But the creation of a brand strategy is not conducted in isolation: it reflects market behavior and the organisation to which it applies. And some profound changes are occurring to markets and businesses.
Kevin Luscombe, executive chairman of the Melbourne marketing consultancy Growth Solutions, says most Australian organisations fail to make the development of a brand central to their strategies: “Brands belong in the boardroom with all the rigor and analysis you give to other investments. There is no such thing as an old world and a new world because [it is about] you as a consumer and me as a consumer. I don’t compartmentalise my head.
“In the old-world companies in Australia it doesn’t appear to be high enough up the tree, and in the new-world companies it is getting run over by speed of need: people busting their neck to be in the market in five minutes to get a competitive strike. Only after do they say: I wish we had thought through this. ”
Few managers would argue against the need to understand and appeal to consumers that is the basis of their business. So why are brand strategies so often regarded as an afterthought? The reason is that market structures and organisational designs were biased towards production, not market reception.
Michael Hammer and James Champy, in Re-Engineering the Corporation, describe how customers have “taken charge” of markets. “Now that they have choices, customers can no longer behave as if they were all cast in the same mould. Customers consumers and corporations alike demand products and services designed for their unique and particular needs. There is no longer any such notion as the customer, there is only this customer: the one with whom a seller is dealing at this moment.”
Just as market dynamics have altered, so have organisations been required to change shape. In a vertically integrated organisation, developed along divisional lines, the assumption has been that there is a mass market at the other end. The challenge is to create internal efficiency, as there will be sufficient demand if the price is attractive. Branding is used for boosting margins or refining the mass market; in other words, the final stage.
But in a market that is fragmenting and altering its character, it is perilous to leave branding to such a late stage. Hammer and Champy write: “Companies today consist of silos, or stovepipes, vertical structures built on narrow pieces of a process people involved in this process look inward toward their department and upward towards their boss, but no one looks outward toward the customer.”
One of those “silos” is the marketing department, the division in charge of brand strategy. Since businesses indulged in aggressive attempts to “re-engineer” themselves a fad that eventually became little more than a euphemism for retrenching workers this is less likely to be so. But for many organisations the problem remains. Brands are not made the central plank of organisational strategy.
Grace Chopard, Asia Pacific strategic change leader for the consultancy PricewaterhouseCoopers, believes that contemporary markets will be increasingly organised according to their role in global “supply chains” rather than by industry sectors. There will be commodity businesses that are capital intensive, and whose competitiveness is derived from cost efficiency, and there will be businesses based on brand uniqueness, whose assets are mostly intangible. Both types will increasingly be involved in producing the same product. “Companies are moving out of the four walls and getting into maximising external networks,” Chopard says. “It is about moving from closed communities to more virtual communities. But in order to add value you have to be best in the class.”
Saul Berman, the global strategic change leader for PricewaterhouseCoopers, says businesses will face the challenge to alter their businesses. Citing and admonition from the chief executive of General Electric, Jack Welch, to “blow up your business”, Berman says: “The more successful you are, the harder it is to change your business.” He cites the oil and gas company Enron, which at one stage derived 80% of its revenue from its pipelines. Since it became a B2B network servicing the oil and gas industry, it gets only 3% of its revenue from pipelines. In the process, it has developed a leading e-commerce brand, which was integral to success, not an addition.
The dynamic change to markets and organisational structures depicted by the consultants is not in itself a reason to focus on brands. In commodity-type industries, brands may not be especially important. The experience of Asia (other than Japan) seems to bear this out. More than half of United States manufacturing takes place in the region, yet it has produced almost no global brands. It is possible to have a thriving business based on cost efficiency without a powerful brand.
Victor Fung, chairman of the Hong Kong B2B manufacturer Li & Fung, says that, despite success in developing a regional supply network, the company does not depend on a strong brand. It is only now thinking of developing one. “How do we nurture and further promote that name? We might do that as we develop our B to small-B strategy. It may be one of the few brands at the B2B level coming out of Asia.”
The changes to business are prompting managers, at the very least, to look closely at the premise that underlies brands: the relationship with the customer. A brand is the realisation of a set of relationships. Talk to any marketer and the emphasis will be on the relationship with the customer. As businesses reconfigure themselves, these relationships must change; and so must the brands that they develop. For example, the relationships in B2B commerce are fewer in number than with a retail business, but this does not mean that a brand is unnecessary. Rather, the character of the brand will be different.
Equally, retailing will change because of e-commerce and the internet. Berman says record companies in the United States have prevented the music-sharing network Napster from passing on free music. However, they now find that this means a loss of marketing power, as the music is no longer shared. The challenge is not only to develop brands that result in a profit from the business/customer relationship, but also to find ways of exploiting other kinds of relationships.
“P2P (person to person e-commerce) holds the potential to be disruptive, but that is where business is headed,” says Berman. “As P2P becomes the universal language, it does away with intermediaries. This could potentially enable networks without a hub. Music is building communities, so the question is: How else can you monetise it? You could sell subscriptions, for example.”
Relationships are occurring in new ways and becoming more complex. Young consumers have grown up in a world saturated with brand images. Brands are no longer just a way of packaging something else, they often are the package. In a recent feature on the pop singer Madonna, local fans were asked: “Why do you like Madonna?” The answer? “We like her marketing plan.” For postmodern consumers, there is intrinsic entertainment in the manipulative techniques of branding entertainment that is itself the “product”.