[Free] Chapter 1 - Introduction to Managing Marketing
[MUSIC] Hello, I'm Noel Capon. Welcome to Capon's Marketing Video Book, in particular welcome to Chapter One, The Introduction. Many of you I'm sure either play basketball, or have watched basketball or are interested in basketball. And in the 1960s and 1970s in college basketball the UCLA Bruins guided and coached by a gentleman called John Wooden won the national NCAA championship 12 years out of 13 years.
12 years out of 13 years. Now, we all know that good basketball players can do an awful lot of crazy interesting things with a basketball. But what John Wooden said when he was asked why he was successful for so many years, he said, Well, you just got to get the fundamentals right.
He said, there are three fundamentals in basketball: dribbling, passing, and shooting Surely, once you get those three right you're going to be okay. So I've taken that model and moved it into the marketing, and what I believe is that to be a successful business, you've got to get your marketing right. In particular you got to get the fundamentals right, and there are three fundamentals.
There are what I term six marketing imperatives, four marketing principles, and marketing as a philosophy, and we're going to spend this introductory chapter talking about these three fundamentals. Now, when I ask managers what you're in business for, there's typically some conversation about what different things managers are concerned about, but ultimately it typically comes down to well, we're interested in current profits, making profits today and promising profits tomorrow. Then I say to managers well, what happens, you're supposed to do a good job of that, what happens? On top of that, what happens or conversely if you don't do a good job, what happens? Well, if you don't do a good job this year and next year and the year after, ultimately you'd probably go out of business in one form or another.
But if you do a good job, then your organization survives and grows and if that happens That happens all things being equal you'll be able to enhance shareholder value. Then the question becomes, so that makes some sense, what do you have to do to promise profits tomorrow and make profits today? What asset do you need as an organization to be able to do that?
I get a lot of different answers to that question. But fundamentally there's one asset that you need no matter what business you're in, no matter what country you're in, no matter what technology you deal with. And that is you do a good job of attracting, retaining and growing customers, you will make profits today, promise profits tomorrow, the organization will survive and grow and shareholder value will increase and your shareholders will get very happy.
The question becomes, then, what does a firm have to do to attract, retain, and grow customers? The answer is quite straightforward--the firm must deliver value to those customers. Here we have a fairly robust, a bit fairly straight model. If the firm produces value for its customers, all things being equal it will retain and grow those customers.
The firm will make profits today, promise profits tomorrow, survive and grow as an organization, and increase shareholder value. That seems to make a whole lot of sense. The question on the table is, is that a complete model or is there anything missing from the model? Or anything missing from the model.
The fact of the matter is there's something missing. The fact of the matter is that that's all fine for companies to deliver customer value but there're some other guys trying to do the same thing. So that's really, for me, is the fundamental business model. All things being equal, if the firm does a better job of delivering customer value than its competitors, good things will happen.
Profits, survival, and growth as an organization, and enhanced shareholder value. But if on the other hand competitors do a better job and competitors do a better job consistently ultimately the firm will declare bankruptcy and go out of business. The business environment the history is littered with corpses of companies who have delivered less value for their customers and have gone out of business Gone out of business.
Now, let's move on then to talk about how the company should go about making sure that it is on the winning side of that competitive battle. And there are really six imperatives tasks, if you like, of things of marketing must do and must do well in order to do a better job of delivering customer value than its competitors, hence making profits, surviving and growing, and enhancing shareholder value.
So let's start off with imperative one. Imperative one says the firm must determine and recommend which markets to address. Now this imperative differs somewhat from the remaining imperatives where marketing makes decisions: in this imperative marketing is advisory to top management.
So it has a very important advisory role. So marketing is advisory to top management it has a very important advisory role. So here's some issues to think about. Where shall we invest? Shall we invest in current businesses and markets or shall we invest in new businesses and markets? Now the reason I've got this brands up here from [UNKNOWN] is a A few years ago, they took a very serious look at their portfolio and they had some extremely strong brands that they had for many many years.
But they felt that perhaps they had spent too much resources in going off to new areas and not have enough resources on their base brands so they started to invest very seriously in their major brands and that was very, very successful for them. And a number of companies have looked at their overall brand portfolios and realized that they are too spread out and come back and invested. So we see here Amazon and eBay.
Amazon of course, grew up, if you like, focusing on books. It then moved into CD's and that was sort of Amazon's business, but since then, it's gone into many other businesses. Certainly it's become a major store on the Internet where you can buy many products. It's also gone into totally different directions, like offering computer cloud services and social to different sets of customers.
Even eBay, which we know is an organisation that started where individual people were able to find things that they wanted to sell, to put them on eBay, and other individuals would then purchase those products, and that's still of course a major part of eBay's business. eBay has moved also into a world where some of it customers are corporations like [UNKNOWN] onto eBay so eBay Are corporations like the Ralph Lauren's of this world where they in effect put a store front onto eBay.
So eBay in addition to having individuals as customers also now has gone into this newer business where it has corporations as customers. So the issue here, is where do you put your effort, in current businesses or in future businesses? How much will you invest? Those are serious issues.
Is this an area for serious major investment or is this an area for let's-check-it-out small investment? That's something marketing can advise on. But in the same way that we figure out where we want to go, we want to figure out where we don't want to be. You will recall that when Jack Welch went to GE they called him Neutron Jack and Neutron Jack, because he in fact closed a whole host of businesses, the idea being of course that these were insufficient, were not developing reproducing the returns that he wanted to return to GE.
But many other companies have made decisions over the years to withdraw from businesses and that's a very serious and important issue. Do they withdraw? Disinvest is one possibility; the other option is straight-out withdrawal. Now Peter Drucker, the very famous management theorist, once said that periodically each organization should look at the business that they're in and ask themselves this question: if I were not in this business right now, would I get in it today? And if the answer to that question is no, they should consider getting out of that business.
So although we tend in marketing to focus on the new or exciting places to go for opportunity, we should not forget We should not forget to look at the ones we're in and make the affirmative decisions as to whether or not we should stay in these businesses, withdraw, withdraw slowly, or actually get out of them.
What you see on the screen is the logo for Intel and this is a very famous example where Intel, which had grown up with memory chips and the memory chips business many years ago, found itself under very tough price competition from the Japanese companies. The landed prices in United States of Japanese goods were less than the cost of Intel.
Intel also had a microprocessor business, it withdrew, made the decision to withdraw from memory chips and put all these effort into microprocessors. In his autobiography, Make that decision. But it was a move that actually saved Intel. And ultimately lead into a very strong position in the technology area.
So where to go, how much to spend in it, where not to go, and where to disinvest and where to withdraw. One of the roles for marketing here, were the two really source of roles. The first role is an opportunity identification role. Marketing is the only function in the organization, that really has the job of looking outside the organization and figuring out what the opportunities are.
So one of the marketing jobs is to go out there, identify opportunities, and then bring those back into the organization and then make recommendations as to which ones the firm should go after. Some the firm will say yes to and some other the firm will say no to, but it's marketing's job to keep these opportunities going.
The other part The other part of the job is to advise on proposed corporate actions. In fact, new directions from the firms not only come from marketing it comes from many many different parts of the organization. Or also from people that solve [INAUDIBLE AUDIO] organization consultants, inventive bankers, and so forth.
And they come along with acquisition ideas, with divestiture ideas, and so forth. Decisions which will change the direction of the organization. Often finance plays a major role here. The marketing must insist on a seat at the table. Whenever the corporation is making some decisions. We are all here.
The marketing must insist on a seating table. Whenever the corporation is making some decisions that are going to change its portfolio, to change its direction to acquire an organization, to divest part of the current organization. Marketing's voice should be heard. We really need to understand what the marketing implications of those decisions are and when you look around the corporate landscape and when you see how many acquisitions are made by corporates and how many of those fail, you're forced to ask yourself the question: was marketing involved and did marketing indeed give good advice because perhaps target market segments?
So we've figured out which markets to enter into and the thing of the matter is set at maybe at the very early stages. Markets can be thought of as a number of segments where the customers in those markets are all looking for the same sort of thing with the same sets of values, benefits, have the same needs to satisfy.
Then there comes some separation. Some people in that market or some organizations, if it's B-to-B market, want certain sets of benefits and values. Others want a somewhat different set of benefits than values and the firm has to understand benefits and values--others are somewhat different instead of benefits and values and the firm has to understand what the segments are and to figure out which ones to address.
So this is a little chart which gives you a sense of that. Here is a market defined by the circle and then what we have are A, B, C, D, E, These are different segments. The customers in segment are A looking for something different from the customers in segment B, and that's different from the customers in segment C and so forth.
So at the end of the day marketing must (A), identify those segments and (B), then make decisions for each segment [INAUDIBLE] So two jobs, the first job is like creative and really figuring out how to segment the market. The second job then is to figure out which of those segments to address.
And I think of all the marketing imperatives, one show in the marketing reader perhaps doing the segmentation right Imperatives. One show in the marketing reader, perhaps doing the segmentation, doing the segmentation right is one of the most critical imperatives. And let me just illustrate that with an example which will certainly be wrong to US students but maybe to other students abroad, but certainly all students will be able to understand what I'm talking about here.
And the market that I want to talk about is the car rental market. This is a market that's been in maturity for a long number of years. This is not a growth market, like some technology markets, this is a very two segments. There's what we will call business segment and what we will call the leisure segment.
The business segment the typical example is the executive going to fly from New York into Chicago for example, and when they get to Chicago they need a car to drive to the meetings to see customers or whatever on the one hand, and the typical leisure example is the family who want have a car to go on vacation or something like that.
The key players in these markets, in the business markets in United States would probably be Hertz and Avis. The key players in this markets, in the business market in United States would probably be Hertz and Avis would probably be the key players. And in the leisure market people like Budget, Dollar, Advantage would be those sorts of firms.
So if you are playing in the business market, the chances are your customer, your customer target is either the executive or the executive's personal assistant and is probably the one who makes the decision and in terms of value or [UNKNOWN] a good car or a range of cars, high-quality cars, [UNKNOWN] and then because arriving at the airport and jumping in the car is as short as possible and [UNKNOWN] make it very easy for me to turn the car back.
That doesn't cover all businesses cases but that sort of in a nutshell talks about that business segment. On the other hand, there is the leisure segment. We're going on vacation, time is probably not quite as important here, the finances are important because whereas in the business segment the corporations probably pay in the leisure segment, we're paying individually so we worry about the price segment we're paying individually, so we worry about the price, we're less worried about time, so often we're prepared to get into a little bus and go a mile down the road to the office of the car rental company and the decision is made by the family, the father, mother, or some combination of the two, about which rental company to use.
So for many years that was believed to be the way of the car market. Then along came [UNKNOWN] Let's suppose your car won't start one morning, you've got to go in to the garage. Let's suppose [INAUDIBLE] you have an accident which got [UNKNOWN] out of commission for a couple of weeks while it goes through the repair.
That could be a different segment and the fact that [UNKNOWN] and a price, and that segment I call the car-in-the-garage segment and there are some very big differences here in the way you would treat that segment.Whereas in the business and leisure segment critical issues are going to be being for travel, the only random place is clearly but important ones clearly sort of irrelevant, if it's a car in the garage segment you want the offices sort of near where people live.
Further more the decision makers are going to be different especially in the insurance case in the case of a crash where your car is damaged, its insurance company is going to be involved and further more if it's not a crash and you've got a problem with your car and the garage comes to pick it up, you might well want to ask the garage or the garage mechanic where can I get another car.
And in fact Enterprise when they started to spent significant effort both with insurance companies and garage owners as influence or even garage mechanics whose influence was for potential customers. Potential customers. That proved to be extremely profitable for them, there was a period a number of years ago and I haven't followed them recently, where Enterprise had overtaken all the other car rental companies, it was the largest car rental company in the United States In fact it was the largest purchases of automobiles at the world that time, was purchasing something like 800,000 vehicles a year.
The reason I mentioned that and bring up this example is this was a mature market, the way Enterprise grew and became successful, was by the way it understood the markets. Notice the automobiles are the same, the cars are from Hertz and Avis or Budget or Advantage, are all the same, they're same as the cars for Enterprise.
So it's nothing to do with the identify the segment and then went after that segment. And now there is a new segment developed just one in the last few years, the one commonality across this three segments is that you rent a car for 24 hours that's the minimum, but suppose you don't need a car for 24 hours, you need a car for four, five or six hours.
So along to deal with this market came a couple of companies that merged to become Zipcar. They're here as a different model and many U.S. students will know the Zipcar story, that here you become a member of Zipcar, it's a membership organization. Once you belong you just then go on to the Zipcar side, you identify the newest space where there's a Zipcar, you book your Zipcar, you shop the garage you enter the car with a key that looks like a credit card and off you go.
And there're a lot of Zipcar operations kin different parts of the United States often in college towns and in other cities where there's often the case that people don't in fact want to rent cars because it's too much trouble. So the point is here that it was segmentation. It was being ahead of the local market and develop segments that led to success.
It's imperative to then identify segments and, imperative three, set strategic direction and positioning. Now there're a number of different strategic areas and we'll talk about these all in the book--let me just highlight them in this introductory chapter. First of all we have to set performance objectives.
We have to figure out what we're going to achieve. In general, in this segment, are you trying to grow? Are you trying to make profit? Are you trying to generate cash to put somewhere else? And then how much in by rent is the operational part? Secondary, there is the notion of a positioning statement.
Positioning statement in our segment says who are our customer targets, who are we going up against compared to targets, what's the value of proposition--what are we offering them, what value are we offering those target customers--and what's the reason to believe, why should people in this segment believe that we can actually deliver on the value proposition.
And just to give you a heads-up of what's coming this is an example from Cemex, the Mexican multinational that's in the cement business, and then suppose there is a potential customer building a shopping center, an apartment complex, or something like that. They need Cemex, who are their customer targets? They need two targets, well there are maybe two.
I'm going to pick on two. One is the site manager, the person who is responsible for getting the building up and the second is the investor, the project investor who put in the money who's financing the building. Those are the two different customer targets. Who is the competitor target? Well these are other cement manufacturers, people in the city who also make and deliver cement.
So what's the value proposition, well two different value propositions, two different customer targets. The site manager, the value proposition for that site manager is that we can deliver. When we deliver our cement, within 30 minutes of getting a phone call, versus the regular other cement manufacturers, it's going to take them three hours.
That's important. That's very important for the site manager, it means that he or she can keep their construction on schedule, they don't have on schedule they don't have workers sitting around drinking beer and so forth. For the project investor a somewhat different value proposition, here the notion is we'll be able to complete the building on time, maybe even a little bit ahead of schedule. If we can do that the revenues are going to come in faster and so the ROI for the investors is going to be greater.
So there we have customer target, competitive target, value proposition About the important reason to believe how can you do this in 30 minutes versus three hours--well the reason is we have a GPS system. We have GPS on each of our trucks, we have a fancy computer system, software program, and so forth, we know where all our trucks are, so as soon as we can get the call we can get it to get the truck too.
That's the positioning. Another important strategic piece it has to do with markets that are in different phases of development. So we have, for instance, you see this life cycle here where we have sales flowing on the y-axis and time along the x-axis. We're talking about markets, we're talking about the sales for all products in the market, and there's an introductory phase, an early growth phase, a late growth phase, a maturity phase, and then a decline phase. Most markets got through this. This sort of form, maybe not with the precise curve we've got here, somewhat many different types occur, but with this general sets of phases or stages.
Clearly a strategy that we would require for an early phase introduction or early growth is going to be quite different. For early growth it's going to be quite different from a strategy for maturity or decline, and marketing has to have a view and start to think about what those different strategies are.
Then there are issues of branding, here there are three issues first of all, brand identity, what is it we want customers to think about our brand, then there's brand image, what do customers actually think about our brand, so there is an operational job here of trying to get those two aligned, and then there's also the issue of brand equity the value of the brand which is becoming increasingly important part of marketing and corporate consideration in fact.
And finally, do we have a profitable business model. What I'm thinking about here is so many Internet companies, that start out they get a whole lot of customers, a lot of people love the sites, a lot of people show up do things on the site, but there is a real issue is do they have a model. Those customers have got to deliver revenue for the organization.
So that's a set of issues around imperative three, set strategic direction and positioning. Imperative four is design the market offer, and here what we are really doing is executing all the value propositions. The question is, how do we do that? We typically do that with what we call the four Ps of the marketing mix, and many of you if you have taken an introductory marketing course some of them along the line are probably pretty familiar with this concept off four Ps of the marketing mix. And we are talking about design here, design of the product, design of promotion, or communications which we owe to advertising web sort of stuff plus any personal communication themselves people and sell for distribution. How we get the distribution, how we get the product to or service to the customer, and to conform to the four Ps framework, we often call this place. And the price, the price we ask our customers to pay.
Now with respect to the four Ps the critical issue here is that there are--so what you see in the screen here refers to the SteubenGlass company of offer a set of products that are figurines. You see there one figurine and the apple for the teacher and what you have here are very high-quality products. In fact there are no seconds from Steuben, they actually anything which is side this fully just throw away and smash it.
So every piece that comes out of the factory that comes to a customer is absolutely top flight. Those products, if you want them, they're sold in the high-grade department stores. Department stores, the people that deal with you tend to be well dressed, well educated, present very well.
Those products are advertised in the shelf of the high quality shelf magazines that you see and you pay for for them, you pay a significant amount of money. So the idea is that the marketing makes us hang together must be coherent. Now, two things to think about, we said that the segments were different, and it's different segments--people, customers have different needs therefore the marketing mix in segment A is going to be different from the marketing mix in segment B.
And then the other part about it which is really critical is the way we define that marketing mix. That has serious implications with what goes on inside a segment where product quality is an important value to the customer. Then that has implications for the production operation.
If on the other hand, lower-quality products are quite acceptable for another particular segment then presumably that also has implications for production. We can think about the job of marketing here using the metaphor of builder and architect. So here you see in the pictures on the wall on the left side an architect and on the right side you've got [UNKNOWN] you've the electrician you've got the plumber and so forth.
And it's not a perfect metaphor but it's not a bad metaphor for marketing. Marketing is really an architect. Marketing's job is to go into the market and figure out what customers are looking for, and then designing the marketing mix, designing an offer for those customers, For those customers but actually putting it off together the delivery part is often responsible for all the people in the organization, the [UNKNOWN] department, the production department, the technical service department or whatever.
So if you still keep that in mind in terms of the design, the offer, the marketing is the architect. Now, imperative five, rolling on from that is securing the support of other functions. It is one thing for marketing to design, but these other functions,the organization's got to deliver.
And here the notion is making sure we can pull all these different functions, typically which have individual objectives, goals, and their own functional strategies. Make sure they don't operate in silos, which is what the left picture is supposed to represent, but rather come together and work together as one in the goal of delivering value to customers and implementing that market mix.
There are two jobs here for marketing. The first job is support the design. So let's suppose marketing goes out. It does the work on segmentation identify the segment which we all believe makes sense to go after. That segment has a set of requirements. Marketing designs the marketing makes, then goes back in the organization and says in order to be successful with these customers we have to do in our organization (A), (B), (C), and D.
Let's suppose your organization says we can't do that. We don't have the resources, the capability to do that. So in other words there's a mismatch between what the organization is able to do and what is necessary to serve and deliver customer value. This is where marketing has to be strong.
Marketing has to push your organization it has to be the evangelist for the customer. With that part of the organization and the other part of the organization you get organizational change. Doesn't always happen, it's often a very difficult job. Your marketing must be very, very tough there, it must do a very good job of being very clear about what customers want and then it's going to turn around and work it's organization and make sure the organization is able to deliver on what is necessary.
The second area of support is for implementation. So in this case, yeah sure, we can do all the things that are necessary to deliver on the marketing 'I' is for implementation so in this case, yeah sure we can do all the things that are necessary to deliver on the marketing mix design.
Here is the question on getting all the ducks in line making sure the different parts of the organization do what they are supposed to do when they are supposed to do it. So the simple level, for example, what we don't want to happen is that the advertising department comes out and develops its advertising, has its advertising run in June, but in fact the product never gets delivered to the stores until October.
That's the sort of thing we are talking about. So here from the at the right time so we deliver that value or deliver on that marketing mix at the time that it's supposed to be delivered. So then marketing's responsibility at a general level is to keep the firm focused on the customer. There are many different kind of focuses within the firm, often related to the individual function areas, but what must overarch that customers, is the customer focus.
Because as we said right at the beginning, it's only through doing a good job delivering value to customers that the firm secures revenues, makes profit, survives, grows and keeps shareholders happy. Although different functions in the organization may do their own thing, ultimately marketing's job is to make sure that they in fact do what they have to do to deliver value to customers.
Finally then in order to make that happen there are already two organisation leviers. One is a cultural issue. In other words it is believed in the organization--and we will talk about it later on in this chapter--that serving customers is critical. This really has to come from the top of the organization.
If the CEO is really customer focused and shows the organization and shows organization by his or her words and deeds the criticality of serving customers, then the chances are we are in a good shape to get different people in the organization to do what they are supposed to do.
The other other part is measurement and reward systems.. People in organizations do what they are paid to do. And if you have a system that set in place a compensation system that rewards behaviors that do not directly lead to values for customers you'll get the behaviors but you will not get the value, the values of the customers.
For example a very simple example. Production are typically measured on cost per unit on how inexpensively they can produce products. If that drives them, they may do things to reduce product costs that may not be good for the customers.. I've come across companies that may do things to reduce product cost that they not be good for customers.
I have come across major companies, where production managers in an effort to reduce cost of change to part of a product they make. They've taken a high-quality part and gone to a some how less lower-quality part Sure, they've reduced the cost of production but the customer and the overall value of that customer to the firm reduced in the value of the firm to the customer.
A very important imperative secure support from other functions in the organization. And then the final imperative is monitor and control. What I mean by monitor and control is three different questions. The first question is, are we achieving the market confidential performance objectives that we set out in our market plan? Set out in our market plan. Here's the sort of thing I'm talking about.
On the left-hand side, what you see is performance on the y-axis and time on the x-axis. The southern line is the projection, it's what kept us out of the planning system, what we intend to achieve. This could be sales units, sales revenue, profits, whatever measure's important.
Then the dotted line shows the actual. Now in this particular case, the dotted line sometimes is a little below the plan, sometimes is a little bit above the plan, but basically, we're on track, if you move to the right-hand side, on the other hand here you see the dotted line moving away from the southern line.
Here it's fairly early on in the year. We did not want to wait till the end of the year till to figure out we got a problem. We want to figure out we got a problem early in the year and then take whatever actions we need to bring us back on track.
So first piece of monitor and control is with respect to performance. The second piece of monitor and control is are we doing what we said we would do. We will develop a market plan, a strategy, and action programs which involves certain people doing certain things. Whether it's R&D people, production people, tech service people, customer service people, the advertising department whatever, these are the actions that will implement the strategy.
Question is, are we doing what we said we would do? Very, very simple question, but very important to monitor our actions to make sure we are in fact we're able to do what. Finally, and sort of more broadly, the marketing environment and the future business environment in general.
The question here, is are those assumptions still holding to make it okay for us to go forward with our plan or should we retrench. Now typically the world changes, of course, but in the planning system we should take care of that for minor changes. But if it's a major change like the recession in the late 2000 we may have to throw out our planning assumptions and our [UNKNOWN] and start again.
So these are the three areas that are concerned with monitoring and control. So just to review in terms of the session road map in terms of our imperatives. Imperative one, determine and recommend which markets to address. Imperative two, identify and target market segments. Imperative three, set strategic direction and positioningThese are the core set of jobs that marketing must do.
If your company is not doing all these jobs or if it's not doing all of them well, you've got a problem. So when you look at your overall marketing effort and you as students look at the marketing effort of the companies you may be going to work for, these are the six key areas you've got to have in their head and blazing along your brain so they drive the set of questions you ask of the corporations you intend to work for.
And this will give you a very good idea of insight into what they are doing, whether or not they are on top of their game in doing these imperatives or whether they are not. Now what we are going to do is to move on to look at four marketing principles. So these four marketing principles will help you make marketing decisions so when it comes to the time you make a--Let's just take a look at what these principles are.
Principle one is the principle of selectivity and concentration. What the principle of selectivity and concentration says is that marketing must carefully choose targets for the firm efforts. So where you play is very important, whether it's an issue of which markets to go into or an issue of which segments in the market to go into as we've just talked about in the imperatives. Marketing's got to pretty clearly decide which those are and then it's got to concentrate its resources.
The broad idea here is that you don't spread your resources around a lot of different opportunities; you've got to focus on a few key targets. The other way this principle is sometimes stated is concentration and concession, In other words, you decide where to concentrate and you affirmably say, here I'm not going to play, I'm going to concede this to someone else.
So, the broad notion of then of seller activity and confirmation is in your placing bets. You're placing bets in just the same way as a gambler is placing bets, the only issue when you are in the business world rather than playing against the house, rather than acting on chance, you have the ability to shift the odds in your favor by securing information inside about the customer's competitors and so forth.
Moving on to principle two, this is a principle of customer value. The principle of customer value says that the firm has got to focus on providing value to customers. Customers do not want your products; customers only perceive value in the benefits, product, and investment decisions.
And the market and financial performance relates directly to your ability to deliver customer value. So this takes us back to that initial chart we developed at the start of Chapter One: the one that had customer value: attract, retain, and grow customers, earn profits today, promise profits tomorrow; survive and grow as an organization; and enhance shareholder value.
Customer value is at the center of that fundamental business model. You have to as an organization thrive to deliver tender of that fundamental business model. You have to, as an organization, drive to deliver customer value and it should underpin all the investment decisions that you make.
If you make an investment decision, you have to ask yourselves And answer the following question, is this investment going to help deliver customer value? If at the end of that your answer is really no there's no way there's no relationship whatsoever, then that's probably an investment that you shouldn't make.
Thirdly, there's a vertical line of customer value up through shareholder value. But there's some other guys trying to do the same thing. So not only do you have to deliver value to your customers, you have to deliver value greater than your competitors. So, more formally, a differential advantage is a net benefit or cluster of benefits offered to a sizable group of customers which they value and are willing to pay for, but cannot get or believe they cannot get elsewhere and the operational job of marketing then, is to both deliver value They cannot get elsewhere and the operational job of marketing, then, is to both deliver value and secure differential advantage.
The emphasis here, then, is on, competition and customer value per se is not enough. The extra value is going to be greater the more competitors offer. Some advantages are clearly better than others. We'll get into these issues later on in the book. All differential advantages eventually get eroded by competition.
So no matter how good or how are delivering, over time, competitors are going to get better. So even though we've got a terrifically strong position right now, you can expect that over the short run, the medium run or the long run, some competitor is going to come along and offer better value or a different value that's It's going to take those customers away.There are so many examples of companies that have led their industries, but are no longer around because that differential value was so critical for them and led them to such success and ultimately became competed away.
Furthermore, the firm must be willing to cannibalize its own differential value and here is often a difficult situation for firms. So the firm is doing very well, it comes up, is offering a great differential value, and the, coming from R&D there are some other options to improve these difference of advantage.
Question is, maybe we don't make so much money on this new differential adavantage as we made on the old differential advantage. The fact of the matter is that, very often, if you don't compete against that initial differential value or the new one a competitor is going to come along and do so.
So very often you have to work with something that's doing very well for you while you're delivering good customer value but come on and develop better customer value because if you don't do it someone else is going to do so. And finally, many firms come up with product services that are different from the competition but frankly it doesn't matter because there is no differential advantage there.
So that's our third principle. The fourth principle is that of integration, and here what we are saying is the firm is carefully integrated all elements in the design and execution of the marketing offer and there are really two areas here, two types of integration. It certainly has got to integrate at the front, as we said in the earlier imperative. Imperative five is that we have to get the firm on track all different functions and business units working together to serve the customer that's one part of it.
The second part of it is, we've got to be integrating the customer so marketing mix has got to hang together in the way we talked about earlier on. It's a high-quality product that has implications for communications has implications for distribution, has implications for price, and so forth.
And finally integration requires and this is a nontrivial issue--agreement on priorities by functions, and different management levels of business units. It relies on co-operative working relationships among those designing and implementing the market offer, and it relies on a shared value of serving customers being widespread in the organization So, we've talked about six imperatives, we've now talked about four principles, then we moved on to talk about this issue of marketing as a philosophy.
Here with imperatives and principles, there are some pretty solid things we can get a handle on. With philosophy it's a little bit more nebulous but absolutely critical. It moves beyond the marketing department into the entire organization. So let's explore a little bit about what I mean about a marketing philosophy.
It's really the extent to which the firm's focus and its attention are on markets customers, competitors, complementors and the environment in general. The notion is that the firm does not, is not inward looking but it's outward looking, it's trying to understand what's going on out in the world and then select a set of values to deliver to its customers. So we can think about a dimension here, on one hand an internal orientation and on the other hand an external orientation.
And we can ask ourselves some questions. Do you treat your customers as answers? Are you responsive to customer requests? Are you clearly focused on beating competitors? How quickly do you react to environmental changes? And how well do your functions of business units work together to deliver customer value? Depending on how you answer that set of questions will determine whether in general you are more externally oriented or you are more internally oriented. Firms that are internally oriented tend to focus the efforts on their internal things that go on inside the organization.
They tend to focus on sales or finance or technology. Whereas the firm that's externally oriented focuses outside the organization on customers, competitors, complementors, suppliers. About here is important is to focus towards the right-hand side rather than the left-hand side.
Now I want to just demonstrate this internal external orientation to you, with an illustration. But this is an illustration that occurred a long time ago. And this is an illustration that occurred a long time ago, but is one that most people certainly in the United States and reason around the world are familiar with.
What I'm taking about is Henry Ford and the Ford Motor Company. Now the Ford Motor Company started in I think it was 1903, something like that. And by 1925, by the mid-'20s they had achieved something like 55% market share of the U.S. auto market. They were clearly dominant players very high market share.
From a start up as it was in 1903 up to being the dominant player in the mid-20s. And the answer is what Ford understood was that people wanted basic transportation. Hitherto the way to get around was maybe on a bicycle or [INAUDIBLE AUDIO] And then he not only devised the model to Ford and the production line and the support to that Ford to offered products to the marketplace that did the job, gave basic transportation and were affordable. So here is a place that did the job, gave basic transportation, and were affordable.
So here is how it works with this model, the novelty of course, as you know the old joke goes, you can have a novelty and they'll recover any car you want as long as it's black. He was able to reduce prices. If you lower your prices what happens? Well if you lower your prices you're unsaleable right? Because there's a demand curve out there. And so Ford sales went up.
The sales went up. What happened to his production cost? Well the unit production cost if our sales go up our product production goes up. The production line system as we all know, if our cost is able to go down then we can put our prices down. If our prices go down, our volume goes up if our volume goes up our costs go down and our prices also go down, so it's sort of a virtuous circle. What happened to Ford then is he rode this this virtuous circle all the way from the start up in 1903 to this 55% market share.
Now by the early 30s Ford's market share dropped to about 22%, significant So the question is was what happened to Ford. What happened to Ford was William Sloan. William Sloan put together General Motors. What Sloan wanted was look outside the organization. What he said was in fact, now we had 20 years of people having basic transportation and that is a good thing.
But now people want more than that, some people want choice, they want different colors to choose from, they want different levels of comfort in their automobile, they are prepared to pay. If on the other end of the spectrum you want lots of comfort, lots of choice etc., we'll offer you a Cadillac.
But then in between you've got an automobile, a polyarc buric and so forth. So what's [UNKNOWN] was to look outside the organization, focus on the evolving market environment and then react to that in terms of different products which then became the different divisions of General Motors.
Now the thing you notice here, is that both Sloan and Ford were good marketing people. Ford understood that people wanted basic transportation, Ford put together the system and the productFord then put together the system and the product to satisfy that need and to solve that problem.
But customer needs change and whereas [UNKNOWN] seldom change. Sloan put together General Motors in terms of tapping into those different segments. Ford did it. Ford moved from being externally focused on customers early on to being internally focused much more on the production line system.
So those decisions made almost 100 years ago, 90 years ago led to GM being the leading automobile company in the United States and even the world for many years and left Ford in number two position. But this or the bill company in the United States need to lead the world for many years in that four and number two position.
But this experience that we see here that occurred 100 years ago, we see that in market after market, so just as one other contemporary example If you wanted to buy a book 15,20 years ago, you would have probably gone to Barnes & Noble. Barnes & Noble revolutionized the bookselling industry by first of all building very large stores, they had very large inventory for different people to go through.
And also made it a sort of entertainment store to kids, so if you wanted o go out on a date, go to a movie, might want to take your date to [UNKNOWN] very very successful. Then came the environment change, happened to be the Internet. Jeff Bezos happened to see that change, started Amazon, and Amazon is now the newest book seller. Who should have been able to do that, who knew more about books than anyone else? It was Barnes and Noble but they didn't make the move.
And then part of the reason that companies don't make the move is because their current strategies hold them back. They have the strategies, they make investments and those investments rather than being positive sitting on their balance sheets and being positive things are in fact often strategic liabilities.
They hold the company back and they call company from changing. And I think the example of Ford certainly shows this, Barnes and Noble shows, this and if you go across the business environment company after company that's been a leader has not made the change that needs to be made in order to deal with the new reality.
So then rather than focusing on what it does well, welcome things change. It internalizes marketing as a philosophy. Some people say marketing is too important to be left to the marketers and this is what they mean. The extricating firm strives to reduce the functional boundaries, reduce the silos, so that all functions in your organization can work together to ultimately deliver that value to customers which is at the centerpiece, the critical area of ultimately securing profits, survival growth and increased shareholder value for the organization.
So these are the fundamentals. Just as John Wooden at UCLA as a basketball coach many years ago told Tibet the three fundamentals of being a successful basketball player. So we have three fundamentals, six marketing imperatives, four marketing principles, and marketing as a philosophy.
These fundamentals are the basis for what we're going to be talking about in this video. In this video book we cover much more depth in some of the areas which we already just managed to sketch on here. So thank you very much for your attention to Chapter One. I hope you enjoyed this introduction to Capon's Marketing Video Book.
I hope that you learned a few things and we look forward to seeing you in chapter two and succeeding chapters. Thank you very much.