The Marketing Century

How Marketing Drives Business and Shapes Society

Jeremy Kourdi, Jeremy Kourdi

• Publisher: Wiley
• Year: 2011
• ISBN:
  9781119974130
• Edition: 1
• Topic: Business
• Subtopic: Sales
• Index: Business

Written to celebrate the Institute's centenary, The Marketing Century explains: how the key elements of marketing have developed; how the various aspects of marketing contribute to performance; what it is that great marketers do; and how the discipline of marketing may develop in the future.

While The Marketing Century describes the years since 1911 it also describes the 21st Century: a time when the ability to understand and connect with customers is more rewarding, complex and valuable than ever. It explains:

• The three forces shaping the past, present and future of marketing: globalization, technology and ethics
• How people behave and connect – and how businesses can benefit from these insights
• The need to manage for the long-term as well as the short-term
• Marketing's impact on business strategy and leadership

The last 100 years have seen a rapid rise in the impact of marketing. It is an activity which has grown in scope and significance, with more people than ever before now engaged in the exciting, fast-changing world of marketing.

The development of the Chartered Institute of Marketing closely reflects the growth and progress of business in general and marketing in particular. Just as marketing has developed as an activity that is highly valued, varied and vital in its contribution to business success, so the Institute's work has expanded as an indispensable source of insight, guidance and practical support.

The Marketing Century provides expert analysis of some of the most significant developments in marketing of the last 100 years – and the next 100.

Each chapter looks at the past, present and future of a different area of marketing, with chapters covering:

Strategic Marketing (Martha Rogers and Don Peppers)
Customer Relationship Management (Merlin Stone)
Segmentation (Malcolm McDonald)
Innovation (John Saunders and Veronica Wong)
Public Relations (Paul Mylrea)
Branding (Graham Hales)
Advertising (Jonathan Gabay)
Digital Marketing (Philip Sheldrake)
Sales and Business Development (Beth Rogers)
Sustainability (John Grant)
Internal Marketing (Keith Glanfield)
Social Marketing (Paul White and Veronica Sharp)

Each chapter explains:

• How the subject has developed
• What is currently 'best practice'
• How this aspect of marketing connects with other topics
• The influences and trends shaping the future

Chapter 1

STRATEGIC MARKETING

Don Peppers and Martha Rogers PhD Founders, Peppers & Rogers Group

Don Peppers and Martha Rogers are founding partners of Peppers & Rogers Group, a worldwide management consulting and media firm dedicated to helping clients improve the customer-facing sides of their businesses.

Peppers and Rogers have co-authored many best-selling books that offer new insights on customer strategy and building the value of the customer. They have devised an entirely new way of measuring the value that businesses create. Their latest book Rules to Break & Laws to Follow: How Your Business Can Beat the Crisis of Short-Termism shows how to maximise long-term profit by revealing what empowered customers, networked employees, innovation and trust can achieve for businesses.

Marketing’s development over the past 100 years has been dynamic, delivering to enterprises genuine value from a wide range of benefits, including branding, customer relationships, innovation, and digital and social marketing. This dynamism has also produced significant challenges in promoting, selling and distributing products and services, challenges that stem from long-standing, but flawed, assumptions about how enterprises create real shareholder value. A long-term strategy for marketing – one that focuses on customer equity and not solely on current profits – can provide marketing with the context and objectives needed to maximise the overall value created by each customer. This is strategic marketing.

The past is … past

Marketing strategy has too often been shaped by the need to imitate what worked in the past, what has been perceived to be successful for other companies or what is currently generating revenue for the company. Decision makers within enterprises review case studies and pursue best-practice guidance centred on the historical success of other companies, and while these behaviours can be reasonable adaptive approaches to the delivery of success, they function as default mechanisms. This behavioural mimicry is hard to overcome. However, our research and experience suggest that mimicking what worked for immediate profits in the past now leads businesses to settle for less and to make irrational decisions that overlook chances for real growth.

The unrelenting pressure to make concrete numbers right now submerges the instinct to do what is ‘right for the company’ and stalls forward-thinking business intelligence, eroding the long-term value of customer-first marketing strategies. We call this management development the crisis of short-termism.

Strategic marketing is future-oriented, requiring energy and the ability to balance hard, rational analysis with soft skills such as creativity. It also requires flexibility and the capacity to learn and change. Our suggestion to twenty-first-century business executives who seek to avoid the crisis of short-termism is to consider making a change in their mental model of success, for both quarterly numbers and long-term financial results. Whether you are running a complicated business, developing the marketing strategy for that business, or conducting a marketing campaign, two straightforward principles for the model are that a) customer trust is an indisputable element for future business success; and b) employees’ trust in the company is fundamental to their commitment to earning your customers’ trust.

The fallacy of short-term thinking

The fundamental task for marketing in the twenty-first century is to help businesses triumph over the fallacy of short-term thinking that seems to erode corporate performance at all levels. We identify some of these flawed assumptions about marketing as rules to break. Some of the truths we’ve learnt about long-term business thinking we call laws to follow, which we expand on later in this chapter. Most important for now, more than any other issue, is that these rules to break and laws to follow all point to the crisis of short-termism and how to make sure your company is not part of it.

It is tempting to believe that the best measures, or rules, for business success are a company’s current sales and profits; that the right sales and marketing efforts will always get a company more customers; and that company value is created by offering differentiated products and services. These are assumptions about how a business thrives that are tied to the past, and they simply don’t work any more. The speed and scope of technological innovation in the past two decades, particularly in the areas of analytics, interactivity and mass customisation, have made formerly accurate, useful and reasonable marketing assumptions obsolete. Adhering to these false assumptions leads to short-termism, a way of thinking that, rather than creating more value, ensnares companies in a cycle of value destruction. Businesses become obsessively focused on short-term shareholder value, revenue and profit at the expense of longer-term returns and the overall future value of the company.

Short-termism and the Return on Customer metric

Business history is full of examples of once-great companies that managed for the short term and as a result no longer exist (or are certainly no longer as great as they once were). Sometimes short-termism results from simple complacency: a belief that the firm is ‘too large to fail’, or that it is so venerated that the future will simply look after itself. At other times, short-termism is bred by outright fraud and corruption, as happened in the cases of Enron and Ameriquest.

Strategic marketing plays an essential role in capturing the greatest benefits for an organisation by developing a corporate culture and focus that look at each customer not only in terms of immediate profit to be generated, but also in terms of long-term value to be created.

Companies are tempted to – and frequently do – concentrate on short-term profit, because poor earnings numbers have serious repercussions for an enterprise’s share price and the ability to raise investment, calling the business’s future into question. The problem is that the narrow focus of short-termism does not maximise profits by thoroughly tapping customer loyalty and satisfaction opportunities, but instead leads to customer churn, which destroys loyalty and strengthens competitors while raising customer acquisition and maintenance costs and lowering profitability. Strategic marketing is based on accurate, relevant measurements that better reveal where a company’s true value lies and it therefore mandates a balance of short-term success and long-term value building. It is essential to assess the return from each customer – what we call Return on Customer (ROC).

The ROC metric is a vital part of valuing a company’s financial potential and determining strategic marketing priorities to realise that potential. ROC measures the value that a business creates or destroys with its actions, and ROC-efficient companies take action to build and maintain their Customer Equity (CE).

The ROC equation

The Return on Customer metric is a vital part of valuing a company’s financial potential and determining strategic marketing priorities to realise that potential. ROC measures the value that a business creates or destroys with its actions.

The long-term value of customers is often both poorly understood and improperly quantified. The best businesses operate as though customers are scarce and markets are competitive. To obtain maximum lifetime value from each customer, enterprises need to adopt an approach to marketing strategy that incorporates all areas of a business, but the most important territory to manage is how companies win and lose the trust of customers. ROC equals a firm’s current-period cash flow from its customers plus any changes in the underlying Customer Equity (CE), divided by the total CE at the beginning of the period.

The Return on Customer equation

Return on Customer can be calculated as follows:

Where

Π_i = Cash flow from customers during period i
_ΔCE_i = change in customer equity during period i
CE_i−1 = customer equity at the beginning of period i

This calculation requires us to define what we mean by CE, which, unlike the tangible business asset of capital, is seen as an intangible business asset. A company’s value, aside from its capital assets, relies on the sum total of its customers’ combined lifetime value (LTV), a fact that by itself can help to determine how CE is used, consumed, altered and replenished in the course of business. It is necessary to keep in mind that there exists no fixed set of customers for enterprises to depend on, no guaranteed patronage pattern; customers can change their minds at any time about what to consume and how much of their money they spend doing so. It is companies’ own actions that influence the future behaviour of their existing and prospective customers, and CE depends on every customer interaction being viewed as an opportunity to increase the customer’s lifetime value.

Customer equity can be estimated by adding the future revenue stream received from each customer (a customer’s lifetime value, or LTV) and adding to it all the lifetime values of current and future customers. By calculating the ROC, businesses will better know where they need to concentrate their resources and where they need to improve. Also, by knowing the potential future cash flows a customer is likely to generate over time, companies will know if the level of investment involved in acquiring that customer is justified.

The link between shareholder return and ROC is impossible to avoid: ROC measures the value that a business creates or destroys with its actions, and ROC-efficient companies build and maintain their CE. Essentially, they are two ways of looking at the same thing: how to maximise potential profit.

Key questions about strategic marketing

• How does your company create value? How do your competitors?

• How could you deliver even greater value for your customers?

• How well do you and your colleagues know your customers? How strong are your customer relationships?

• Do you measure the Return on Customer? Do you see the value of a customer beyond the current purchase they have made? What do you do to get the customer to buy from you in the future?

• Does your business have the right balance between achieving short-term results and planning for the long term? How could this improve?

Chapter 2

MARKET SEGMENTATION

Malcolm McDonald

Emeritus Professor at Cranfield University School of Management and Honorary Professor at Warwick Business School

Professor Malcolm McDonald is Emeritus Professor at Cranfield University School of Management and Honorary Professor at Warwick Business School. He has written over 40 books, including the best seller Marketing Plans: How to Prepare Them, How to Use Them, and he has authored over one hundred articles and papers. He is one of the world’s leading marketing experts, combining academic rigour and commercial application to provide organisations with solutions for strategic marketing and marketing planning, market segmentation, key account management, international marketing and marketing accountability. He is currently chairman of six companies and works with the operating boards of a number of the world’s leading multi-nationals on all continents.

After 50 years, market segmentation is still at the heart of successful marketing. This chapter is in three parts. The first part summarises research into market segmentation and its development. The second part is a practitioner-oriented view of how segmentation can be used to ensure success. The third part briefly discusses the future of market segmentation.

The development of market segmentation

The father of market segmentation is widely considered to be Wendell Smith, who proposed market segmentation as an alternative to product differentiation. Yet it wasn’t until Yoram Wind’s (1978) review of the state of market segmentation that the topic went to the top of the agenda of researchers and practitioners. His plea was for new segmentation bases, for data-analysis techniques and generally for putting market segmentation at the heart of strategic decision making.

In 2009, a whole issue of the Journal of Marketing Management was devoted to market segmentation. The articles confirm that most of the work over the intervening years has been primarily around what segmentation bases to use, such as size of purchase, customer characteristics, product attributes, benefits sought, service quality, buying behaviour and, more recently, propensity to switch suppliers, with much of this work being biased towards fast-moving consumer goods, rather than to business-to-business and services.

Any market, once defined in terms of needs rather than products, consists entirely of what is bought, how it is used and why it is...