Marketing 3.0

1. Thriving with Marketing 3.0
Philip Kotler
Jeddah, Saudi Arabia,
October 10, 2010

2. Winning in Hard Times
Session One. How to meet today’s and tomorrow’s challenges
with Marketing 3.0.
Session Two. How to increase your brand power.
Session Three. How to manage sales and marketing.

3. Session 1.
Using Marketing 3.0 to Meet the New Challenges

4. On a scale of 1 to 3 (3 = highest),
How much is this a challenge to your company?
• Distrust of business
• Globalization
• Economic recession and turbulence
• Technological advances and disruptions
• Environmentalism and climate change
• The new social media
• Political and regulatory changes

5. Is Your Company Going to Fail?
Signs to Watch for
• James Collins wrote in How the Mighty Fall :
– Stage 1. Successful companies get arrogant and
think they can do many things.
– Stage 2. They pursue aggressively wild growth.
– Stage 3. They ignore early warning signs of failure
– Stage 4. Their failure becomes very public.
– Stage 5. If they don’t reform, they finally go
bankrupt.
• Consider General Motors.

6. Economic Recession and Turbulence
• Distinguish between:
– Recession
– Disruption
– Turbulence
• Risk reduction strategies
– Larger reserves
– Shared investments
– Early warning systems
– Scenario planning
– Corporate social responsibility

7. Disruptive Technologies
• OLD
• Photographic film
• Wired telephones
• Store retailing
• Classroom education
• Offset printing
• General hospitals
• Open surgery
• Cardiac bypass surgery
• Manned fighters
• Full service stock brokerage
• NEW
• Digital photography
• Mobile telephones
• On-line retailing
• Distance education
• Digital printing
• Outpatient clinics
• Endoscopic surgery
• Angioplasty
• Unmanned aircraft
• On-line stock brokerage
Source: Clayton M. Christensen, The Innovator’s Dilemma, p. xxix.

8. Tomorrow Will Be Different
Yesterday Today Tomorrow
Ford Toyota Cherry
Department stores Wal-Mart Internet retail
Digital Equipment Dell RIM Blackberry
Delta Southwest, Ryan Air SkyWest, Air taxis
IBM Microsoft Linux
At&T Cingular Skype
Sony DiskMan Apple iPod Cell Phones
Source: Clayton Christensen

9. Consider How Marketing
Has Changed
• Old definition of marketing
– “Act or practice of advertising and selling a product” (Random
House Webster Dictionary of American English 1997)
• New definition of marketing
– “Marketing is the activity, set of institutions, and processes for
creating, communicating, delivering, and exchanging offerings
that have value for consumers, clients, partners, and society at
large.” (American Marketing Association, 2008)
• Offerings include products, services, experiences, places,
persons, ideas, and causes

10. Sales Precedes Marketing
• In the beginning there was sales.
• Marketing appeared later to help sales people:
– By using marketing research to size and segment the
market
– By using communications to build the brand and
develop collateral materials
– By finding leads through direct marketing and trade
shows
• Marketing was originally located in the sales department.
• Then marketing grew as a separate department responsible
for the marketing plan (4Ps) and brand-building.

11. Stages in the Development
of the Marketing Discipline
1. Selling stage. (the idea of setting up selling systems
involving distribution, sales people and advertising).
2. 4P stage. (the idea of integrating the marketing tools).
3. STP stage. (the idea of refining the market targets and
branding).
4. Customer Relationship stage. (the idea of building a loyal
customer base).
5. Co-creation stage. (the idea of involving customers in
developing products and communications).

12. Marketing Objective, Process,
and Philosophy
• CCDVTP
• R -> STP -> MM -> I -> C
• CIB

13. MARKETING’S RECENT LOSS OF EFFECTIVENESS
MARKETING will be less
effective in the next few
years
Marketing budgets will be
lower
Companies will want
marketers to do more with
less
DISTRIBUTORS
TRADITIONAL
MEDIA
COMPETITION
SOCIAL MEDIA
NETWORKS
PUBLIC
 DISTRIBUTORS will
demand more TRADE
PROMOTION. This will
leave less money for
marketing research,
advertising and consumer
promotion for brand
building and ultimately
reduce brand equity.
 Investors will then
downgrade the stock.
This will leave the
company with fewer
resources to prop up
demand.
 This is a VICIOUS
CIRCLE
 Traditional media such
as TV 30-second spots,
newspapers, etc., are
growing LESS
EFFECTIVE
 Categories are so
crowded with
competitors that
heavy price cutting
will be UNAVOIDABLE
 The public, in its wish
to spend less, will be
less inclined to pay
higher prices for top
brands where the
quality differences are
minimal. There is a
strong shift to store
brands and sub-
brands. This means
that top brands are
overvalued and there
may be a brand
bubble.
 Social media networks
will play an
increasingly influential
role in shaping brand
evaluations

14. STRATEGIC vs TACTICAL MARKETING
Most marketing departments are engaged in brand-maintenance instead of brand-
building.
Company marketers spend only 15-30% of their time doing true marketing activities.
The rest of the time is spent on forecasting volume, securing approvals on label
artwork, checking manufacturing schedules, and doing routine analysis.
Strategic marketing is missing in many marketing departments. Strategic marketing
requires taking a 3-5 year view of the business.
Downstream
Marketing
Upstream
Marketing
Markets TODAY’s Product Create TOMORROW’s Product

15. The Age of Social Media.
Marketers have Lessening Influence
in Shaping Their Brand Image
Managers listened to the
consumers’ voices to understand
their minds and capture market
insights
Consumers play the key role of
creating the value through co-
creation of product and service
Person-to-person conversations
about many products can exceed the
amount of communication under the
company’s control.
Thus a brand can be hijacked.
see Alex Wipperfürth, Brand Hijack: Marketing
without Marketing, New York: Portfolio, 2005
FOUR POSSIBILITIES
Everyone is talking negatively about
the company
There is no talk about the company
The talk is a mix of good and bad
comments
Virtually all the talk is favorable

16. EVOLUTION OF MANAGEMENT THINKING
1950s – 1960s 1970s – 1980s 1990s – 2000s 2010s – 2020s

17. THE FUTURE OF MARKETING
TODAY’S MARKETING
CONCEPT
FUTURE MARKETING
CONCEPTS
PRODUCT
MANAGEMENT
CUSTOMER
MANAGEMENT
BRAND
MANAGEMENT
The Four Ps
(Product, Price, Place,
Promotion)
The STP
(Segmentation, Targeting,
and Positioning)
Brand Building
CO-CREATION
COMMUNITIZATION
CHARACTER
BUILDING
THE DISCIPLINES
OF MARKETING

18. CO-CREATION
Evolution of a company’s relationship to its customers:
Make a Product
Refine the
Product
Invite
Customers
with minimal
customer testing
with extensive
customer input and
testing
to provide ideas and
co-create
The new ways of creating product and experience through collaboration of companies,
consumers, suppliers, and channel partners interconnected in a global network of
innovation
C.K. Prahalad and M.S. Krishnan, The New Age of Innovation: Driving Co-created Value Through Global Networks, New York:
McGraw-Hill, 2008
Three key processes of :
1 2 3 Ask for consumer feedback and
enrich the platform by
incorporating all the
customization efforts made by
the network of consumers.
Individual consumers
customize the platform
to match their own
unique identity.
A company creates a
“platform”.

19. MARKETING 1.0 vs MARKETING 2.0 vs MARKETING 3.0
Product-centric
Marketing
Customer-oriented
Marketing
Value-driven
Marketing
Objective
Enabling Forces
How companies see
the market
Key marketing
concept
Company marketing
guidelines
Value propositions
Interaction with
consumers
MARKETING 1.0 MARKETING 2.0 MARKETING 3.0
Sell products
Satisfy and retain the
consumers
Make the world a better
place
Industrial Revolution Information Technology Social Media
Mass Buyers with
Physical Needs
Smarter Consumer with
Mind and Heart
Whole Human with
Mind, Heart, and Spirit
Product development Differentiation Values
Product specification
Corporate and Product
Positioning
Corporate , Vision,
Values
Functional
Functional and
Emotional
Functional, Emotional,
and Spiritual
One-to-Many
Transaction
One-to-One
Relationship
Many-to-Many
Collaboration

20. Deliver
SATISFACTION
Realize
ASPIRATION
Practice
COMPASSION
ProfitAbility ReturnAbility SustainAbility
Be BETTER DIFFERENTIATE
Make a
DIFFERENCE
Mind Heart Spirit
Mission
(Why)
Vision
(What)
Values
(How)
INDIVIDUAL
COMPANY
Values-Based Matrix Model
Deliver
SATISFACTION
Realize
ASPIRATION
Practice
COMPASSION
ProfitAbility ReturnAbility SustainAbility
Be BETTER DIFFERENTIATE
Make a
DIFFERENCE
Mind Heart Spirit
Mission
(Why)
Vision
(What)
Values
(How)
INDIVIDUAL
COMPANY

21. For SC Johnson, creating
sustainable economic
value means helping
communities prosper while
achieving profitable growth
for the company.
Sustaining Values:
SC Johnson Public
Report
We believe our
fundamental
strength lies in our
people.
MIND HEART SPIRIT
Promoting reusable
shopping bags Base of the Pyramid
Mission
Contributing to the community
well –being as well as sustaining
and protecting the environment
Vision
To be a world leader in delivering
innovative solutions to meet
human needs through
sustainability principles
Values
Sustainability
We create economic value
We strive for environmental
health
We advance social progress
S. C. JOHNSON VALUE-BASED MATRIX

22. Companies Americans Love
Amazon, Best Buy, BMW, CarMax,
Caterpillar, Commerce Bank, Container
Store, Costco, eBay, Google, Harley-
Davidson, Honda, IDEO, IKEA, JetBlue
Johnson & Johnson, Jordan's Furniture,
L L Bean, New Balance, Patagonia,
Progressive Insurance, REI, Southwest,
Starbucks, Timberland, Toyota, Trader
Joe's, UPS, Wegmans, Whole Foods.
The researchers found these “firms of
endearment” to be highly profitable.
They also found eight characteristics
common to these firms.

23. Characteristics of “Firms of Endearment”
• They align the interests of all stakeholder groups
• Their executive salaries are relatively modest
• They operate an open door policy to reach top management
• Their employee compensation and benefits are high for the
category; their employee training is longer; and their employee
turnover is lower
• They hire people who are passionate about customers
• They view suppliers as true partners who collaborate in
improving productivity and quality and lowering costs
• They believe that their corporate culture is their greatest asset
and primary source of competitive advantage.
• Their marketing costs are much lower than their peers while
customer satisfaction and retention is much higher.

24. Consumers
Employees
Channel Partners
Shareholders
Marketing the Mission to…

25. Marketing 1.0 Marketing 2.0 Marketing 3.0
MIND HEART SPIRIT
PRODUCT-
CENTERED
CUSTOMER-
ORIENTED
VALUES-DRIVEN
ECONOMIC- VALUE PEOPLE-VALUE ENVIRONMENT-
VALUE
PROFITS SOCIAL PROGRESS SUSTAINABILITY
MOVING TOWARD MARKETING 3.0
•Where is your company now?
•Where do you want it to be?
•Why?
•What would steps would you take?

26. The Challenge
• Re-moralize the market
• Re-localize the economy
• Re-capitalize the poor

27. Session 2. Increasing Your
Branding Power

28. The brand name may account for more than half
of the brand value on the balance sheet.
Almost 70% of the market capitalization of such brands as Nike and Prada lie in its
intangibles, especially the brand.
The former chairman of Quaker Oats said: “If the business were split up, I would
take the brands, trademarks, and goodwill, and you could have all the bricks and
mortar—and I would fare better than you.”

29. What’s In a Name? Everything!
Donald Trump’s family name is
Dumpf. Drumpf Towers?
Alphonso D’Abruzzo renamed
Alan Alda.
Chinese gooseberry renamed kiwifruit.
Hog Island in the Bahamas renamed Paradise
Island.

30. Your Brand Needs to
Own a Word
• Mercedes - engineering
• BMW - driving
• Disney - family fun entertainment
• Saturn - no hassle car buying
• FedEx - overnight
• Wal-Mart - low prices/good values
• Hallmark - caring
• Nike - performance
• 3M - innovation
• Volvo - safety
• Starbuck - best coffee experience

31. A Brand Must be More Than a Name
• A brand must trigger words or associations (features and
benefits).
• A brand should depict a process (McDonald’s, Amazon).
• A great brand triggers emotions (Harley-Davidson).
• A great brand represents a promise of value (Sony).
• The ultimate brand builders are your employees and
operations, i.e., your performance, not your marketing
communications.

32. Brand Asset Valuator Model
ENERGIZED
DIFFERENTIATION
The brand’s point
of difference
Relates to margins
and cultural currency
ESTEEM
How you regard the
brand
Relates to perceptions
of quality and loyalty
KNOWLEDGE
An intimate
understanding
of the brand
Relates to awareness and
consumer experience
RELEVANCE
How appropriate the
brand is to you
Relates to consideration
and trial
Leading Indicator
Future Growth Value
Current Indicator
Current Operating Value
BRAND STRENGTH BRAND STATURE
Figure 2: BrandAsset ®Valuator Model

33. LEADING B2B BRANDING
COMPANIES
•DuPont
•Siemens
•Bosch
•General Electric
•Saint-Gobain
•UPS
•FedEx
•Tentra Pak
•Microsoft
•Caterpillar
•IBM
•Daimler
•Michelin
•Tata Steel
•Morgan Stanley

34. Find a Way to Brand These Commodities
• Chicken
• Cement
• Bricks
“It is possible to brand sand, wheat, beef, bricks, metals, concrete, chemicals,
corn grits, bananas, apples, aspirin, …”(Sam Hill, How to Brand Sand).
CAN YOU DESIGN NEW FEATURES FOR AN AUTO INSURANCE POLICY?

35. Creating genuine customer value: Progressive Insurance
Name Your Price lets
customers customize their
policy to fit their budget.
“ I want an easier way to see how I can
meet my insurance needs at a great
price.”
MyRate rewards lower risk
drivers with lower rates.
“ I don’t drive a lot of miles, I’m a safe
driver, and I’m not usually on the road
late at night when accidents are most
likely to happen. Since I’m less likely to
be in an accident, shouldn’t I pay less for
car insurance?”

36. Build a Brand Community!
• Examples: Harley Davidson, Saturn, Porsche,
BMW, Apple user groups, Lexus owners, Barnes
and Noble bookstores, The Body Shop, Ikea.
• Harley’s Owner Groups:
– HOGs have 250,000 members divided into 800
chapters: VietNam vets, lesbians, born again
Christians, Ladies on Harleys.
– Tools include: Rallies, anniversaries, lectures on
maintenance and safety, competitions, shows,
internet sites.
– The researchers describe Harley as “a religious icon
around which an entire ideology of consumption is
articulated.”

37. Develop a Memorable Brand Slogan
• BA, “The World’s Favorite Airline”
• American Express, “The Natural Choice”
• AT&T, “The Right Choice”
• Budweiser, “King of Beers”
WHAT DO YOU THINK OF THESE SLOGANS
• Ford, “Quality is #1 Job”
• Holiday Inn, “No Surprises”
• Lloyds Bank, “The Bank that Likes to Say Yes”
• Philips, “From Sand to Chips”
» “Philips Invents for You”
» “Let’s Make Things Better”

38. BRAND JOURNALISM
Brand Positioning = Brand Journalism
“Marketers should communicate different messages to different market
segments at different times, as long as they broadly fit within the basic
brand image.”
-Larry Light, former McDonald’s CMO-
McDonalds is positioned differently in the minds of kids, teens, young adults,
parents and seniors. It is positioned differently at breakfast, lunch, dinner,
snack, weekday, weekend, with kids or on a business trip.

39. Responsible,
Locally involved
Fairly
Priced
Brand
Mantra
Rich, Rewarding
Coffee Experience
Relaxing,
Rewarding
moments
Reach sensory
consumption
experience
Convenience,
Friendly
service
Varied, exotic
coffee drinks
Fresh, high
quality coffee
Totally
integrated
system
24 hour
training of
baristas
Caring
Green &
Earth Colors
Triple
Filtrated
water
Siren
logo
Stock option/
health benefits
or baristas
Thoughtful
ContemporaryCONSUMER
TARGET
Discerning Coffee
Drinker
CONSUMER
INSIGHT
Coffee and the
drinking experience
is often unsatisfying
CONSUMER
NEED STATE
Desire for better
coffee and a better
consumption
experience
CONSUMER
INSIGHT
Local cafes, Fast
food & convenience
shops
CONSUMER
TAKEAWAY
Starbucks gives
me the richest
possible
sensory
experience
drinking coffee
HYPOTHETICAL STARBUCKS BRAND POSITIONING BULLSEYE

40. 40
The Mercedes-Benz “Enduring Passion”
“The brand Mercedes-Benz is a brand icon, from its founding day till today.”

41. Measure Your Brand Effectiveness
• Customer perceived value
• Customer satisfaction
• Customer repeat purchase
• Customer advocacy
• Customer co-creation

42. The GOOD Outdoor-
inspired Footwear
and Apparel
Company
• Engaged Citizenship
• Environmental
Stewardship
• Global Human
Rights
The 3i Model of Branding

44. SUSTAINABILITY AND SHAREHOLDER VALUE
There is a link between corporate sustainability and strong share
price performance.
Companies that put more emphasis on social and environmental impacts
reported annual profit growth of 16% and share price growth of
45% while those from companies that did not put a lot of emphasis reported
annual profit growth of only 7% and share price growth of only
12%. (Economist Intelligence, 2008)
More executives believe that the concept of sustainability is good for
corporations in attracting consumers and employees and improving
shareholder value.

45. TRACKING SUSTAINABILITY
Needed: indices that measure how well a company performs in the triple
bottom line: profit, planet, and people.
The AIM:
To encourage companies to improve their economic, environmental, and social
impact on the society.
Company Approach
FTSE4Good Index Good companies work toward environmental sustainability, have
positive relationship with all stakeholders, protect universal human
rights, possess good supply chain labor standards, and counter
bribery practices
Dow Jones
Sustainability Index
Corporate sustainability as “a business approach that creates long-
term shareholder value by embracing opportunities and managing
risks deriving from economic, environmental and social
developments.”
Goldman Sachs Introduce the GS Sustain Focus List, which includes the list of
companies with sustainable practices

46. Selling Sustainability to Investors
To convince shareholders, the company needs to provide tangible evidence
that the practice of sustainability will improve shareholder value by creating
a competitive advantage.
?
Sustainability
Profitability Returnability
The issue is to find a
linkage of between
sustainability,
profitability, and
returnability
THREE important metrics that can be quantified financially:
Improved cost productivity
Higher revenue from new market opportunities
Higher corporate brand value
(For details, see Marketing 3.0).

47. Session 3.
Ending the War Between
Sales and Marketing
•

48. Sales and Marketing Complaints
• An Oracle salesperson told us, “Marketing sends us business cards they
collect at trade shows from people who don’t need us and don’t want to
see us. They call these things “leads”.”
• Marketing says “We generate about 25,000 leads a year for sales. Most of
these leads aren’t followed up and go cold.”
• “Marketing,” a senior airline sales manager told us, “are the people who
come up with these fancy value propositions that mean nothing to
customers but do tell us how out of touch they are with business reality.”
• The Head of Marketing had a different perspective. “We have a value
proposition that’s powerful – if only our sales force knew how to sell it.”

49. The Six Key Responsibilities
of the CMO
1. Gather meaningful customer insights.
2. Strengthen the brands.
3. Drive new product development based on customer
needs.
4. Utilize new marketing technology.
5. Measure marketing effectiveness.
6. Improve marketing’s working relation with the other
functions.
Source: Adapted from a McKinsey study

50. The integration of sales and marketing tends to progress through
four distinct stages or levels of complexity.
Define the Existing Level of Relationship
Undefined Defined Aligned Integrated

51. Selling Funnel
Purchase
Intention
Marketing SalesHandoff
Customer
Awareness
Brand
Awareness
Brand
Consideration
Brand
Preference
Purchase Loyalty Customer
Advocacy

52. Integrating Customer Management
Into the Sales Funnel
Purchase
Intention
Purchase Loyalty Customer
Advocacy
Prospecting Qualifying Defining
Needs
Developing
Solutions
Proposal
Preparation/
Presentation
Revision &
Issue Resolution
Contract
Negotiation
Implementation

53. • Sales becomes value
creation, not value communication
• So the role of sales is to add
value to our mousetrap
• There’s not enough value in the
mousetrap to differentiate us from
competition
• Our mousetrap is one of many ways
to kill mice
©2009 Neil Rackham
The Alternative Business Model

54. Two Customer Value Types
©2010 Neil Rackham
Value = Benefits – Cost
Consultative
Customers
Transactional
Customers
• Know what
they want
• Treat you as a
commodity
• Buy on price
and
convenience
• Have a
problem
• Value your
time
• Buy on
expertise
and trust

55. ©2010 Neil Rackham
Five years ago
TRANSACTIONAL CONSULTATIVE
• Advice focus
• Expertise decision
• Want meetings
10% were
transactional
10% were
consultative
Most customers would pay a
little extra for some advice
• Cost focus
• Convenience Decision
• Don’t want to meet

56. ©2010 Neil Rackham
Customers Today
TRANSACTIONAL CONSULTATIVE
• Advice focus
• Expertise decision
• Want meetings
More buy
transactionally
The middle is going away.
• Cost focus
• Convenience Decision
• Don’t want to meet
More want deeper
consultative
relationships

57. Today’s Value Propositions
©2010 Neil Rackham
Today, depending on what they are buying, the
value propositions customers want are:
“We’ll use our
expertise to
solve your
problems and
create custom
solutions, for
which we’ll
charge you a
premium.”
“We’ll offer you
cheap and
convenient
products, but don’t
expect extras.”
OR

58. Competencies for Transactional Sales
©2010 Neil Rackham
Transactional
Sales
Branding
Advertising
Trade shows
Campaigns
Multi-customer
events
Direct
Marketing
Internet
Call centers

59. Where is Marketing Going?
• More companies are adopting a market and customer
orientation
• 47% of Fortune 1000 firms have a CMO (80% have a CFO).
• Your CMO should be an active participant in the company’s
strategic planning group.
• Decide if you want your company to become market-driven or
market-driving.

60. MESSAGE

61. “Within five years, if you run your
business in the same way as you do
now, you’re going to be out of
business.”
Philip Kotler