Notes

[MUSIC]
Hello, I'm Barbara Kahn, and I'm a
professor of marketing at the Wharton
School.
And, I'm here to talk to you about
marketing.
So this, this segment is Marketing 101,
the basics, the principles of marketing.
And my focus is going to be on building
strong brands because of
course the essence of marketing is to have
a very strong brand.
So, let's start off with the first
question, a very basic question but maybe
not
as obvious as you might think.
Which is what is marketing?
And I'm going to argue that marketing is
the studies of a market.
So what's a market?
A market is an exchange between two
partners, frequently a buyer and a seller,
but marketing also, applies to non-profit
or
things where there isn't necessarily money
being transacted.
But what you need for marketing to exist
or for a market to
exist is to have an exchange.
And what I'm going to argue is that what
marketing means is
going to differ as a function of different
aspects of those exchange.
So let's let's look at the basic exchange.
You have one buyer and one seller.
And I'm going to give a very simplified
view to
make a point no markets were ever quite
this
simple and I'm going to look at the two
extremes
just to get get a a make my point here.
and the real markets
are somewhere in the middle.
But you'll see when I start defining this,
that
it's very useful to use this, this kind of
simplification.
So if we think of an exchange between
buyers and sellers.
On one extreme we could have what's called
a seller's market.
And in the seller's market what that means
is the seller has a
product, and if you want that product, you
have to come to the seller.
So the seller has all the power.
The opposite of that would
be a buyer's market where there's lots of
competition, a
lot of products out there, and the buyer
has the power.
And what I would argue, and I think would
make sense to you too if you think
about it, is marketing should not be the
same
in the seller's market as in the buyer's
market.
So, in the seller's market, what marketing
tends
to be is what we call product focus
market.
You have the product.
If the customers want it, they're going to
come to you.
In that case, you should develop that
product to the best of your ability.
You should innovate in that product, you
should try to
reduce cost and you should really focus on
the product.
Your business objective in a
product-focused
market is to sell as much as
you can, and profitability from a
product-focused
market is going to come from volume.
Selling as much as you can.
In the past when we've studied product
focus market,
we've shown that profitability is tied to
market share.
So market share becomes your business
objective.
And why does market share increase
profitability?
Because the bigger your market share, the
more your revenues.
And the bigger your market share, and your
volume, the lower the product cost and
hint profitability.
Higher revenues, lower cost, more profit.
That's really the goal
of a product focused market and when
you're product focused, where do you get
growth?
Will you develop new products based on
your
product experience or you go to new
markets?
That's product focused marketing.
So what's customer focused marketing?
Is it the opposite?
And the, and the answer's going to be no,
not exactly.
In fact, it's quite a different type of
marketing.
Let's think about it.
Customer focused marketing means that I
need
to focus on the customer to get that
customer to buy from me rather than the
competition.
Well, what's the best way to get the
customer
to buy from you rather than from the
competition?
The best way to do it is to look at what
that
customer wants, and deliver a product that
meets the needs of that customer.
So where is in product-focused market, I'm
the expert, and I
create the very best product I can based
on my expertise.
In a customer-based market, what I'm going
to do is look at what
the customer wants, and try to create
product to meet that customer's need.
That's a very different point of view.
Some people call it inside-out, this
product focus, and outside-in is customer
focus.
Okay, so now we're going to look at what
the customer wants to deliver value to
that customer.
But, think about it.
What does the customer want?
Well, the first question is which
customer?
You can't give every customer what they
want, and we know
customers are going to want all different
things, so the reason why
a buyer's market or customer focused
marketing is so different than
product focus, is that every customer out
there, wants something different.
If we try to give everybody what they
want, we'll go out of business.
That's too hard to do.
So the intuition of customer focus
marketing, is to pick and choose
customers.
Deliver value to some customers.
Say yes to some customers and no to other
customers.
That's the process of segmentation and
they call that,
I'm going to talk about that in the next
section.
But the idea here is that I go after some
customers and I say no to other customers.
Well, then, how do I become profitable in
that?
Understand that in a product focused
marketing, what
we did is sell as much as we can.
We sold that product to anybody who wanted
that product.
In the customer focused market, we're
saying
no to some customers and yes to others.
So, how do we make that profitable?
And, the answer is you pick and choose the
customers you want to deliver.
You deliver value to that customer, give
them exactly
what they want and that they're willing to
pay for,
and where the profitability comes from is
not from volume, but it's from creating
value.
How can, how can value-based marketing be
profitable?
Well, first thing is if I give you exactly
what you
want, many times, you'd be willing to pay
a premium price.
Then the profitability comes in not from
reduced cost, which we
saw in the seller's market side, but from
increased price premium.
If you give me exactly what I want, I'll
be willing to pay a higher price for it.
So that's one way.
The other way, customer based marketing is
profitable is by
giving the customer what they want time
after time after time.
I don't think about just one transaction,
I think about building customer loyalty.
And, delivering value to that customer
over time.
That concept is called customer share.
Rather than market share, while I try to
get a little
bit from everybody, the idea of customer
share, or share of
wallet is that I go after a more narrow
market and
try to get more from each of that, their,
those customer's wallets.
And it turns out that loyalty is very,
can,
if you do it right can be very profitable.
And why is loyalty more profitable?
Because it's the cost
of delivering value to the customer.
When I'm doing a customer based marketing
it's actually
quite expensive to give the customer
exactly what they want.
Once I figure out what that customer wants
and I deliver it to them
the first time, it's cheaper to deliver it
to them time after time after time.
So it's more difficult and more expensive
to acquire new customers, but
its cheaper to retain those customers over
time, and that's where the profitability
comes from.
It comes from loyalty.
The other thing, if you're thinking about
building share of wallet in
the customer-focused market, is that I not
only sell one product to you.
I think about other things that you might
need and I try to cross sell around it.
Let me give you an example of this notion
of cross selling.
If you've ever gone into a GAP or some
jeans store, and, and
you go to the cash register and you buy a
pair of jeans.
The, the cashier or that person behind the
counter might say: Oh these are very nice
jeans.
Do you think you'll need a belt with that?
Do you think you'll need socks?
That's the notion of cross selling.
So I'm selling other things to you besides
that one specific product.
All of these are the idea of increasing
customer share
and that's a very important part of
customer focused marketing.
Give the customer exactly what they want.
They'll be willing to pay a premium price
for it.
Give them what they want, and keep
delivering value over time,
they will stay loyal to you, and they'll
buy over time.
And that's more profitability.
And if you understand their needs, you can
not only deprut, sell them one
product, but you can cross-sell other
products
that may also nee, meet their needs.
So in a customer-based market, where
profitability come
from is premium price, loyalty, and cross
selling.
Difference between sellers market says you
focus on the product, on what the customer
does well, and you push that out.
And in a customer based market, you focus
on the customer, what the customer wants.
And you deliver value to the customer
better than the competition.
So that's the basic difference between
product based marketing and customer focus
market.
Now in today's world the market place has
changed even more.
What's changed?
Well now not only do you have an exchange
between buyers and sellers, but because of
globalization and because
of the Internet and technology and social
media and things
like that, it's not a one to one
conversation anymore.
Customers can talk to other customers.
That's good and bad.
If you're doing a really good job and
meeting the, needs of the customers,
the fact that they'll buzz to their other
customers and tell their, their other
friends about what a terrific service your
company is doing.
Well, that's really good news.
On the other hand, if something goes
wrong, and they
tell their friends something bad, well
that's not such good news.
And so you have to be really careful, in
every transaction with the customer now,
that you deliver not only value, but
that you deliver a top notch customer
experience.
Because although
what I've been talking about in the
seller's market
and in a buyer's market has focused on
transactions.
In the seller's market I've talked about a
single transaction.
In a buyer's market, I talked
about transactions over time or customer
loyalty.
But in a connected community, if your
message is being transmitted
by customers to other customers, they talk
about the customer experience.
What do I mean by customer experience?
Lemme give you an example.
It starts way before the transaction, and
it goes way after the transaction.
So for example, if a customer told
another customer that their experience at
a restaurant.
They might say, well I was driving to that
restaurant and I hit a lot
of traffic, then I got to the parking lot
and I couldn't find a parking
space, finally when I got into the
restaurant, I finally got a table, the
meal
was really good but then at the end of the
meal when I was leaving
I tripped and fell.
That may be the way they describe the
experience at the restaurant.
And if that's the way your message about
your product is going to be transmitted
from
customer to customer then you as a
marketer
need to focus on the entire customer
experience.
So, one of the things, and we'll talk
about this later that's changed in
marketing in
this world of social media and internet
and
globalization, is that the marketer has to
be
completely transparent, has to be
authentic, and
has to focus on the entire customer
experience.
One thing else to mention, we're seemingly
coming out
of a recession now, but there was a global
recession, and in the last few years,
probably starting
about 2008, we had some real strong
economic uncertainty.
There was a lot of scandals going on.
People became skeptical
of marketing.
Marketing had some bad names, the
financial services industry.
People lost trust.
And so with all those changes in the
economic environment, there's been a focus
again, in marketing.
And marketing now has to focus on
authentic, genuine customer value.
In order to be profitable, you not only
have to
deliver customer value over time and in an
experiential way,
but now because of the tightness of the
economy and
the uncertainty there, you really have to
cut costs and figure
out a way to deliver value in a very
discipline
manner and be very flexible to changes in
the market place.
So let me just summarize what I've just
said.
The different types of marketing
orientations.
There's the product orientation where you
focus on the product and you persuade
the customer to want what the firm has.
There's the marketing orientation.
Where you persu, persuade the firm to
offer what the customer wants.
That's a customer focus approach.
The experience orientation says that you
not only think
about the transaction, and think about the
transactions over time.
But you try to manage the customer's
entire experience with the firm.
And when times get tough or
customers stop trusting markets, then you
need to remember to
build that relationship based on
authenticity, on trust, and on discipline.
And what's the difference in these
different types
of marks in terms of what you offer?
In the production orientation, you're
focusing
on product innovation, but also reducing
costs.
So you tend to see generic products and
standardization.
When you're focusing on customer value,
you see differentiated products,
and we'll talk about that, when we talk
about brands also.
How you position your product to meet the
needs of the customers better.
In an experience orientation you look at
experiential value.
And when you're going to that tight
discipline
mindframe or mindset you look at genuine
value.
And what's the competitive sustainable
competitive advantage in
each of these markets?
In a product orientation the bigger
companies win because they tend to have
larger market share and lower cost, and
lower cost is a big strategic advantage.
In a marketing orientation, when you're
focusing on the customers,
the, the companies that do the best are
customers, are
companies that really know their
customers, that can deliver quality,
and that have a lot of customer data and
know
how to use that data to deliver better
value.
In an experiential market, you look at
transformation.
The customer becomes a co-creator of the
value, and it's really
making the customer and the product one
kind of overall experience.
And in a trust orientation, the
sustainable
competitive advantage are the companies
that you trust.
And that means you've had a long history
with them.
They're transparent, and
you trust them over time.
And what are the measurements of
profitability?
In production orientation as I mentioned,
market share is tied to profitability.
In marketing orientation, it's share of
wallet or customer share, customer
loyalty.
In experienced market, when you're looking
at customers talking to other customers,
we start measuring social networks and
buzz and word of mouth and referrals.
And in a trust orientation, we really
focus on reduced costs.
So in summary for just this little
section, let me
say that there's three principles of
marketing that I've discussed.
and this is the essence of what marketing
is.
The first principle is, if you want to
provide something to a customer,
to buyer, and get them to buy from you,
rather than the competition,
you've got to give them real, genuine
Customer Value.
That's the Principle of Customer Value.
The second principle is the Principle of
Differentiation.
You have to provide customer value to that
customer what the
customer wants but you have to do it
better than the competition.