AT&T and DirectTV merger case study

Chapter 01 Minilecture - Marketing in Today's Economy

This week's mini-lecture, the first of about 10 for this semester, will resemble a PowerPoint presentation more than anything else. 

First, these words about my minilectures:  Each minilecture is intended to run more or less parallel to the materials in your text chapter.  Between your reading of the text, and the reading of the minilectures, you should be able to get a nice three-dimensional view of the important ideas I'd like you to take away from ba651.  One of my priorities for myself as a teacher and for you as a student is to get you comfortable with the language of marketing, in particular, and business generally.  Having a natural feel for - and some experience with - the vocabulary of marketing subtly signals to colleagues and employers that you know your stuff.  It may sound oddly superficial at first, but many commentators in the area of business education have pointed to the role of fluency in language and vocabulary in successfully building networks and establishing your credentials.  In your casework and in your exams, I'll give you plenty of material to work with.

Another comment, I feel I can present additional ideas clearly in writing – in these minilectures – and also feel it gives you a fuller opportunity to pull out the value, and refer back to it when necessary.  

Each week or so, I'll post that week's minilecture(s) to the corresponding week at the website.

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What follows here is a summary of some important points about the brave new world of marketing, as presented by marketing's foremost thinker and writer, Dr. Philip Kotler, the S.C. Johnson and Son Distinguished Professor of Marketing at Northwestern University.  Dr. Kotler presented his thoughts as the keynote speaker at a recent Marketing Management Association annual conference, and I was privileged to attend and hear him point the way forward.  You'll probably notice a substantial similarity to the points made in your text.

Kotler begins his discussion of 21st century marketing by identifying some basic realities, which he refers to as Characteristics of Today's Economy:

· Hypercompetition

· Nanosecond Culture

· Digitalization

· Globalization

· Empowered Customer

To summarize briefly, technology has simply changed the rules of competition. It comes from every corner of the globe: the products and services your company provides are being produced, often at a cost advantage, in places like India, China, and Indonesia, to say nothing of the developed economies of Western Europe.  More significantly, many of the high-value services once provided exclusively in the U.S. (e.g. tax accounting, management consulting, laboratory analysis of CAT scans, and literally hundreds of others) are now being outsourced to low-cost, high-brain places like India.  An interesting -- and encouraging -- development is that recently more companies are beginning to "insource:" to bring customer support and other activities back to the "home country."  Part of this has to do with Public Relations, customer dissatisfaction, and cost structures, which are becoming more favorable to US workers as labor costs continue to rise in the BRIC countries (Brazil, Russia, India, China) and elsewhere.  Whatever the case, in today's globalized economy, there are more suppliers of goods and services, and employment markets are being squeezed as never before.  All of which has three primary results:

01) the need to find and reduce all sources of cost to the firm,

02) the need to find partners -- anywhere on the globe -- to speed up the process of, for example, product design and development or accounts payable, and lower the cost of these activities, and

03) the empowerment of customers to search, shop, negotiate, and generally drive down prices, especially when firms fail to find the true sources of value in their offerings and price accordingly.

Tables 1a and 1b below are an extension of exhibit 1.4 in your text, page 21.  These provide an indication of the fundamental differences between yesterday's transaction-based economies and the relationships-based economies of today and tomorrow.  What I referred to above -- companies working with partners to create value -- is a good example of the move in the direction of valuable long-term relationships: they don't just exist between firms and their customers, but also between all the members of the value chain. When a publishing company in Silicon Valley hires an Indonesian company to literally key in every single name in the San Francisco telephone book, and then turns around and sells value-added Internet-based directory searches, this is the new reality of digitalization and partnerships that Kotler is talking about.  Someone in Jakarta has probably keyed in your name several times, and FTPed it back to list-providers in the U.S.

Another word about "relationships vs. transactions" (or as listed in Table 1b below, "customer lifetime value").  This concept gets a lot of attention in the marketing-sphere, and you may have asked yourself  "do I really want to have a relationship with my grocer? With Amazon.com?  Actually, those marketers will do well to identify and retain their best customers, but in reality, the "relationship / transaction" dichotomy is most meaningful in the business-to-business sector, where buying/selling relationships are complex, involving huge sums, regular purchasing cycles, and several layers of decision making.  It is in this context that most marketers, teachers, bloggers, and analysts emphasize the importance of relationships over transactions.

Another important distinction from the tables is the large-scale move away from the old idea of mass replication of standardized products in search of mass markets and scale economies.  Today's technology-enabled companies are seeking markets of one:  if you've created your own virtual model at the Lands End website and uploaded your measurements, body-type, hair color, and dozens of other bits of personalized information, you can -- for a premium -- order clothes custom-made for you.  And of course, Amazon, Netflix, and iTunes have a very good idea of new products that you and only you would be interested in before you're even aware of it.  Differentiation, customization, and increased satisfaction: these are the new terms of competition.

Table 1a: The Old Versus the New Economy

The Old Economy	The New Economy
standardization	differentiation
scale	customization
replication	personalization
efficiency	networks
hierarchy	speed

Table 1b: The Old Versus the New Economy

The Old Economy (supply-side marketing)	The New Economy (demand-side marketing)
organized by product units	organized by customer segments
focus on profitable transactions	focus on customer lifetime value
focus on shareholders	focus on stakeholders
builds brands through advertising	builds brands through behaviors (e.g., public relations)
focus on customer acquisition	focus on customer retention and growth
no customer satisfaction measurement	measure customer satisfaction and retention rate

The skills you will need to succeed in this modern marketing environment are summarized in Table 2 below.  Banks, telecommunications companies, insurance companies, and literally hundreds of others have re-designed their business to align with the new priorities.  As we'll discuss in more detail in Chapter 10 the old ways of communicating with customers just don't work so well any more.  One-to-one marketing will require marketers to communicate with ever-smaller audiences, to understand their needs, to seek profitable relationships with preferred customers and business partners, and to find new ways to build brands: things like Public Relations, event marketing, sponsorships, word-of-mouth. The work-horse for these new approaches will be the oceans of data now available to marketers.

Lest you get the idea that everything important in the new world of marketing is technologically driven, let me dispel this notion.  Because possibly the most important wind blowing across the landscape is as old as the hills, and until now has not been applied rigorously to marketing: accountability.  In management, they've long understood the need for accountability, with management objectives, and carefully-measured results to justify management expenditures. In production, Total Quality Management measures everything workers do. Finance and accounting have similarly employed productivity and outcome measures as far back as anyone can remember.  But in marketing, the old saying "half my advertising budget is wasted, I just don't know which half" kind of summarizes the idea that we marketers have, perhaps understandably, had a hard time justifying our budget.  How many sales are produced by a $500,000 ad on the super bowl? How much profit does a brand development initiative at, say, Verizon, generate?  Put simply, marketers too are now under pressure to undertake activities that show measurable results, and an ad campaign, like the building of a manufacturing facility, needs to offer ROI figures or other measures of profitability.  If you pursue a career in marketing, you will probably report - directly or indirectly - to the chief financial officer of your firm, and she or he will ask you a lot of tough questions about payback and results.  I hope you'll find the Management-By-The-Numbers activities useful in learning to think quantitatively about marketing decisions.

And the drive for measurable results in marketing is the reason for ALL the skills identified on the right half of Table 2. More on this later.

Table 2. New Competencies Required for Marketing

Traditional Marketing Skills	Competencies Needed in Marketing Today
Sales Management	Database Marketing and Data Mining
Advertising Management	Telemarketing and Call Center Management
Sales Promotion Management	Public Relations Marketing (Including Event- and Sponsorship-Marketing)
Brand Management	Customer Relationship Management
Product Category Management	Partner Relationship Management
Marketing Research	Brand Building
Pricing	Experiential Marketing
Channel Management	Profitability Analysis Applied to Customers, Market Segments, Channels, and Order Sizes

 

And, the Internet. Procurement, sourcing, planning, purchasing are among the primary beneficiaries of technology. Kotler's bulleted points below speak for themselves, I think.

Business to Business: Internet

· B2B e-commerce will be 10x larger than consumer e-commerce

· Businesses will use the Internet for buying, selling, auctioning, negotiating, researching, recruiting, training, relationship building, etc.

· General Electric created the Trading Process Network where GE can request quotes, negotiate terms, and place orders

· Techdata provides an electric catalogue of 45,000 products from 900 manufacturers

· Office Depot services the office supply needs of 40,000 users in 5,000 companies over the Internet

E-Commerce's Impact on Business:

· Falling Prices

· Falling Procurement Costs

· Customer-Driven Marketing

Customer Relationship Management

You've probably read enough by now of the tectonic shift in marketing away from transactions, and toward sustainable, profitable relationships with customers. After providing several synonyms for Customer Relationship Management (CRM) in Table 3 below, Kotler borrows from Don Pepper and Martha Rogers' wildly-popular idea of One-to-One Marketing.  Pepper and Rogers were among the first to discover the ways the Internet will allow marketers to establish and deepen relationships with their very best customers, and along with many others, are big believers in the "80/20" rule: that 80% of our sales, profitability, and our business future comes from only about 20% of our customers.  The imperative, then, is to find, reward, and retain, these select 20% of customers, and to stop throwing away marketing budget on the other 80%.  I'm sure this is a subject we'll return to later.

(important note:  the 80/20 rule doesn't universally apply to all companies, obviously.  It's a rule of thumb, basically.  Also, you could have variations, depending on the company or industry:  75% of sales from 30% of customers, 70% of sales from 10% of customers, etc.  Note also that the values don't have to add to 100% because they're two different figures:  sales, on the one hand; customers on the other.)

Table 3. AKA CRM

Different Names for Customer Relationship Management
Customer Relationship Marketing	Direct Marketing
Database Marketing	One-to-One Marketing
Dialogue Marketing	Interactive Marketing
Technology-Enabled Marketing	Permissions Marketing
Customer Intimacy Marketing
The Essence of One-to-One Marketing
Identify your target customers
Differentiate your customers by their needs and their value to your company
Interact with your customers to form a learning relationship
Customize your products, services, and messages.

 

Table 4. Who Needs CRM?

Does Your Business Need CRM?

NO. The following businesses may not benefit from CRM:

· Businesses where customers buy the product only once in a lifetime

· Businesses where the unit value is low

· Businesses where the Customer Lifetime Value is low

· Businesses with high churn

· Businesses where there is no direct contact between the seller and the ultimate buyer

YES. CRM should be beneficial for:

· Businesses that can sell a variety of products to the same customer

· Businesses whose products become outdated and must be replaced

· Businesses whose product is continuously upgraded

· Businesses that have a lot of VIP customers and need to know a lot about them

· Businesses that collect a great deal of data in the course of normal activities

 

One final point...

Perhaps it's because of all the foregoing, or perhaps it's because marketers are constantly striving to keep their brands relevant, arguably the mantra of the day for marketers everywhere is something like: "We must do everything is takes to deepen consumers' engagement with our brands."  Throughout this course, in my minilectures, I will be saying quite a lot about consumer involvement.  Consumer involvement and the significance consumers attach to your brand -- whether it's an energy drink, a gel pen, an airline ticket, or an insurance policy -- is the ONE BEST protection your organization has against commodity hell.  Against having to compete on price against all those other marketers, because consumers just don't see what makes your brand different.  Starbucks, Tom's of Maine (which, along with another great brand Burt's Bees, is owned by parent company Colgate), Apple, and others have been successful for a lot of reasons, but one thing they've done well is to deepen consumers' engagement with their brands.  This is good for profit margins and share price - a topic to which we'll return in Chapter 02.

Social media has proven remarkably useful toward this end - more on that later. And of course, advertising and promotion, are increasingly all about deepening consumers' engagement.  The article in "Additional Readings...” has an excellent and timely piece from the New York Times (" Marketers Chase Evolving Consumer ,” October 6, 2013).  IMPORTANT NOTE: From time to time I'll include hyperlinks for sources of information, like the NYTimes article, just as a form of documentation.    In summary:

1. New Marketing Rules the New Economy.

2. Exploit e-commerce and e-business.

3. Build and use a customer database to manage the customer portfolio.

4. Focus on customer lifetime value, customer value management, customer share, and customer profitability.

5. Shift promotion funds away from broad advertising toward more direct promotion.

6. Build brands in new ways.

7. Build consumer engagement with your brand.

8. Partner with your employees, customers, suppliers, and distributors.

Last modified: Saturday, January 12, 2019