Marketing in the Boardroom

So I’ve prepared a model which attempts to summarize the major points I’ve learned so far in marketing. It has been developed with the intention of being able to expand it as the course continues (ie: the 4 P’s of Product, Price, Place and Promotion) but  in order for me to organize my thoughts, it’s important for me to get something down on paper. It’s also a great opportunity for me to play with a new software package I’m trialling. If you’ve been looking for something that allows you to draw quick conceptual maps then checkout Mindjet MindManager. Thanks to the Devil’s Inquisitor for pointing me in the right direction and if you’re interested in sustainability, check out his blog ‘The future we face rests on the choices you make.’

So looking at this process, there’s another insight that’s been bubbling away for me since I started looking at the value creation process. Namely that marketing isn’t a business unit, at least, not in the way that manufacturing or HR or accounting is. There’s an execution component, sure, activities that needs to be done by marketing professionals like setting up the advertising campaign or understanding the customer and explaining that to the rest of the organization but the more I look at it, the more critical it seems for C-level executives and members of the board to have not only an understanding but a marketing orientation.

It’s a bit like organizational culture; an organization where the CEO yells at people gives implicit permission to the rest of the company that it’s acceptable to do the same thing. In the same way, if you don’t have at least a member of your board with an understanding and willingness to promote marketing within the organization then you’re going to miss out on diversity, insight and perspective. That’s not unique to marketing, and holds true across a board for a number of specialties, but I’ve observed that this is acknowledged far more readily for technical professions or legal or finance than for marketing and that’s the sort of unrecognized bias that keeps a company from reaching its full potential.

In terms of business as a whole, selling has been a critical component since the market came into existence, but selling isn’t marketing. I’d argue that sales is a business unit, like the others listed above (HR, accounting etc.) but where marketing differentiates itself is that it is cross functional. It’s job is to share the mantra of the company, to align the different organizational silos so that everyone understands how they contribute and impact the customer. From this perspective, it’s just as important to market internally as externally, to use the marketing team to help the manufacturing group understand what our customers want via market research or to help the HR team understand the drivers of company culture to assist them to recruit people that are the right fit.

Going back a couple of posts, I talked about customer orientation vs. product orientation: where the product is determined by the customer needs rather than creating the product first and then finding a market to sell it into. It’s the marketing team that is driven to understand the customer and share that insight with the rest of the organization. This intrinsically links marketing with vision and strategic direction and that’s without bringing in the ongoing tasks of product line extension and mix, branding or customer relations.

Post-MBA I’m intending to move to the boardroom, to use the skillsets I have to work as a non-executive director. Taking on the Masters of Marketing has given me a whole new insight into the diversity that needs to be present at board level for the management of risk and the optimization of vision but also how marketing is used internally as another channel for creation of culture and dissemination of information. Having a background in business, but no previous experience in marketing, the value generated from doing a compressed course in Marketing has helped me far more than continued technical specialization would.

Positioning

So this weeks lecture was on positioning, which is the final step in the STP (Segmentation, Targeting, Positioning) process.

In my previous post I talked about segmenting the market, putting your customers into categories. Off the back of that, you make a decision about which customers you want to target (the health conscious breakfast market with a vitamin enhanced juice for example). Positioning delves deeper into that side of things ie: what strategy are you going to use to sell to the segment you’ve targeted.

Positioning relies heavily on your brand. If you are a known brand in the marketplace then consumers are already going to have a bunch of preconceptions about who you are and what you do. When you launch a new product or service, they’re going to assess that new product against what they know about your brand and attribute emotions and beliefs to your product before they’ve even seen it. Likewise, if you’re an unknown brand, you may find it a tough sell if you’re asking people to buy stuff that requires that they trust you (say a car for example, where you want reliability and the assurance that they’ll be around over the next 10 years for servicing and parts). We’ve got a whole unit on brands (which I’m told is really, really good by a lot of the senior students) so I’m not going to get into it too much now but I did want to highlight that it’s an important part of the positioning process. Sort of the background picture on your desktop… something that sets the unconscious mood.

But the thing I found really interesting in Positioning was the idea of Points of Parity and Points of Differentiation. Points of Differentiation (PoD from now on for ease of use) is the one we mostly think of when we’re thinking about products. ‘What does this product offer me that the competition doesn’t’ – like an app store that extends the functionality of your phone to an extent that no single company could match.

But from a product design point of view, that’s starting backwards. Where you need to start is the Points of Parity, namely, what do you need to offer to be considered a ‘product’ in a category. In the example below, that’s the first three circles: the core benefit, the generic and the expected. So for example with mobile phones, the core benefit is that it needs to be able to make & receive calls and be conveniently portable. Every generic product needs a screen for feedback and an address book that stores numbers. Expected benefits are things that might have once been a point of differentiation, but are now just par for the course, things such as customizable ringtones, inbuilt music player and internet access.

Figure 1: Philip Kotler - Five Levels of Marketing

Which now leads us to the two outer rings. Firstly, the augmented product which is the level at which most PoD features occur. This is where an app store like iTunes offers a point of difference to a traditional Nokia or Ericsson. With Windows Mobile and Android both pushing hard into the ap space, it won’t be long before this drops back to the ‘expected product’ ring rather than being a PoD (acknowledging that the ap stores for each system will be different and have their own benefits).

The really interesting one though is the potential product ring. This is where the next set of PoD’s come from, it’s where you leapfrog your competition. One of the things that is really cool about the ap store is it gives Apple (or android or whoever) far more development power than they would have if they were doing all the work themselves. For those of you familiar with Apple products this seceding of control is a big thing for them (they love their end-to-end hardware and software integration and control) but someone there understood that by giving up a little control, they opened up so much potential. There’s stuff put out for phones now that no one could have envisaged 4 years ago when smartphones were just starting to enter the market, augmented reality, micropayment systems, Urbanspoon and yelp.

But to round our the discussion on Points of Differentiation, whatever your killer PoD is, eventually the market will find a way to replicate or offset it. Which is why being the cheapest as your PoD is a really bad idea. Whatever you’re doing, someone can do it cheaper and if you teach customers that the most important thing is price, then the moment someone else is cheaper, you’re market is gone. Which leaves you with a couple of options: Constant innovation (which is good) or making a PoD out of something that’s not easy to copy, like service. In a world where just about anything can be bought out of China (and probably cheaper than you paid for it) finding another way to differentiate means looking at other parts of your product and the most obvious one is service, the way you deliver what you deliver. When I look at the state of Australian manufacturing, I think this model holds true:

There are the innovators – some bring an innovative product to the marketplace and stop, some have a culture of innovation that allows their organizations to exist beyond the first product

There are organizations with differentiators that still apply – ‘yeah you can get it cheaper out of china but who knows what sort of steel they’ll be using or what type of paint but we can guarantee the quality and we’ll have it there in 3 weeks because we only need to truck it down the road’

and there are the organizations with differentiators that no longer apply – ‘yeah you can get it cheaper out of china but who knows what kind of steel they’ll be using or what type of paint… Oh, you’ve got 3 months to procure it and the Chinese are offering 3rd party inspection in their factory for 40% of our price… Oh…’

And the difference between the second and the third type is all on the consumers side, not the suppliers. So I’d get cracking on a new differentiator if I was you… because in the economic climate we’ve got, companies are going to become more concerned consumers.

Market Segmentation

So today’s class was all about Market Segmentation which is the first bit of a 3 part process called STP (Segmentation, Targeting and Positioning).

The idea is that you segment your market and develop consumer profiles for each target segment. There a whole bunch of ways that you can segment a market by:

• geographic (important if you’re a pizza shop, no point in targeting markets outside your delivery area)
• demographic (income or age or stage in the family cycle)
• Psychographic (grouping people based on psychological or personality traits which is important for fast-moving consumer goods in a supermarket: is your target market an impulse buyer or a shopping list maker)
• Behavioural (are they a first time user or a repeat, are they buying from you in a professional context or a personal)

It’s also really important to understand what the market it. When you’re segmenting a market, it’s not just the users of your product, it’s anybody that can use it. The example we were given was fruit juice. The company in question sold fruit juice but had no segmentation of the market. They had a range of products, different flavors, different pack sizes but no real understanding of who wanted them and why. So they sat down and figured out what there main consumption groups were. Turns out there were 3 major times that people consumed juice: at breakfast; out-of-the-home as a snack/lunch drink in a cafe; after school when the kids come home and raid the fridge for anything that will tide them over until dinner.

Then they pushed deeper. Within the breakfast category the Juice company developed consumer profiles, sort of an amalgamated profile of the characteristics of that purchaser/user. There were those consumers who were looking for a meal replacement, others were looking for a heath product and another segment was looking for taste and variety. So the company developed a product for each of those segments. The first one turned out not to be a juice at all, it was a non-juice breakfast meal replacement drink, the second segment got several juices fortified with vitamin A, C & E and folate to capture that health market and the final segment got interesting blends of exotic juices and seasonal flavors.

Every business sells something and for someone with my background, manufacturing engineering, where the selling of the product is quite remote from the execution of the project there’s always the risk that your designers might not have any idea what it is that the consumer actually wants. Which is why marketing is important internally for an organisation. These are the guys who should be helping the designers and the engineers (or the lawyers, or the chemists) understand who the end user is, what motivates them and what their needs and wants are. I’ve never met a designer who wanted to make a crap product but it happens all the time because the communication between what the user wants and what the designer thinks they want isn’t clear (there’s the additional factor of what management will allow them to have but that’s something that marketing should be managing as well). Thoughts?