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
Characteristics of Today’s
Economy
• Hypercompetition
• Nanosecond Culture
• Digitalization
• Globalization
• Empowered Customer
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
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
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
Characteristics of the New
Economy
• Value is shifting from ownership of tangible assets to
intangible assets. Companies are outsourcing assetintensive 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.
How Will the New Economy
Affect:
• Mass advertising?
• The classical advertising agency?
• Field sales forces?
• Store-based retailers?
• Price premiums?
Companies Get Stuck in
Routines
• Entrepreneurial
stage
• Bureaucratic stage
• Intrepreneurial stage
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.
Traditional Marketing Skills
• Sales management
• Advertising management
• Sales promotion management
• Marketing research
• Pricing
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
Three Needed Skills
• E-marketing skills
• Brand-building skills
• Customer relationship management skills
Jack Welch’s View
• “Embrace the Net. Bring me a plan
how you are going to transform your
business beyond adding an Internet
site.”
Internet Initiatives
• Intranet
• Extranet
• Internet
–
–
–
–
–
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Researching
Recruiting
Training
Selling
Buying (e-procurement)
Relationship building (chat rooms, etc.)
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?
Characteristics of Strong Websites
• Context factors
– Fast download
– Easy to understand first page
– Easy to move to other pages
• Content factors
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–
–
–
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Deep information
Changing news
Humor feature, games
Contests
Chat room
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)
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
The Rise of ‘Reverse Marketing’
• Reverse pricing (priceline.com)
• Reverse advertising (pull, not push)
• Reverse promotions (netcentives, bonusmail,
freeride)
• Reverse product design (garden.com)
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.
e-commerce’s Impact on Business
• Falling prices
• Falling procurement costs
• Customer-driven marketing
Tools for Building Brands
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•
•
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•
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•
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•
•
•
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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)
Different Names for
Customer Relationship Management
• Customer relationship marketing (CRM)
• Direct marketing
• Database marketing
• One-to-one marketing
• Dialog marketing
• Interactive marketing
• Technology-enabled marketing
• Permissions marketing
• Customer intimacy marketing
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
What Customer Information to Collect?
• Transaction data
• Demographic data
• Psychographic data (activities, interests,
opinions)
• Contact and contextual data
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.
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%
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.
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.
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.