Transcript The Aftermarket Business Its Logic & Issues

Strategic Marketing in Action
What tough markets demand from Marketers
Professor Kamran Kashani
Zurich, March 31 2010
© 2007-2009 IMD International. Not to be used or reproduced without permission.
What does business worry about today?
Not marketing…..but markets!
Globalizing markets:
Hyper-competitive markets:
Commoditized markets:
Buyers’ markets:
Tough markets:
Professor Kamran Kashani
Shifting buying power
Smart new players
Disappearing differentiation
Choice, negotiating power, less loyal
Hard to make money!
GfM Marketing
2
The challenges of surviving and prospering in today’s markets
are many
Challenges





Reinvent the Customer Value Proposition
Identify and exploit hidden growth opportunities
Avoid the ‘commoditization hell’
Innovate beyond the core product or service– the business model
Create customer value, extract value…and make money!
Professor Kamran Kashani
GfM Marketing
3
How prepared is traditional marketing in dealing with today’s
challenges?
Challenges





Reinvent the Customer Value Proposition
Identify and exploit hidden growth opportunities
Avoid the ‘commoditization hell’
Innovate beyond the core product or service– the business model
Create customer value, extract value…and make money!
How adequate are the old marketing skills and the new
tools:
the 4-P’s, marketing research, advertising, promotions,
PR, CRM, loyalty programs, key account selling…?
Professor Kamran Kashani
GfM Marketing
4
What Marketing could be: Two illustrations
Case studies in winning in tough markets
Professor Kamran Kashani
GfM Marketing
5
How would you assess this business performance?
SALES
2800
2750
2700
2650
2600
2550
2500
2450
2400
2350
1995
1996
($million)
1997
1998
1999
2000
2001
1999
2000
2001
NET INCOME
300
200
100
0
-100
-200
-300
-400
-500
-600
-700
1995
Professor Kamran Kashani
1996
1997
1998
GfM Marketing
6
Dow Corning : Background
 Dow Corning : Global leader in silicone products (40% market share)
 Silicone applications : Aerospace
: Automobiles
: Electronics
: Construction
: Healthcare
: Personal care
: Textiles
 25000 customers in 80+ countries
Professor Kamran Kashani
GfM Marketing
7
Dow Corning’s 60-year old strategy: Product Leadership
 R+D : 6% of sales
: innovation leader in silicones
: new applications
 Innovative products : premium prices
 Value added services : customized applications
: co-development of new products
 Corporate vision :
“We will advance the chemistry and related sciences… to
contribute to our customers’ success and differentiate Dow
Corning from our competitors.”
Professor Kamran Kashani
GfM Marketing
8
Dow Corning: Customer shifts challenge market leadership
Demand
Demand
Value
Mass market
Professor Kamran Kashani
Value
Commodities
Buyers
GfM Marketing
Specialties
Buyers
9
Dow Corning: Customer shifts challenge market leadership
Demand
Demand
!
DC
DC
Value
Mass market
Professor Kamran Kashani
Value
Commodities
Buyers
GfM Marketing
Specialties
Buyers
10
Confronting market change: The denial phase
Scott Fuson : Chief Marketing Officer
“We had the same business model for 60 years. We were trying to get
premium prices for our products because we felt we had premium service
and we were a premium company. We said to our customers: “Hold on, you
can’t compare our silicones to these cheap imitators. They don’t offer
comparable new product development assistance, quality assurance,
commitment to safety and reliable deliveries.”
Professor Kamran Kashani
GfM Marketing
11
Confronting market change : The “Tipping Point” (2001)
Realization: The past success blinded the management from seeing the future.
Chief Marketing Officer:
“We were performing at sub-standard levels. All of us felt that our jobs
were at stake. People knew that if [things] didn’t change, then Dow
Corning as it existed was not going to continue… the mood was pretty
grim.”
“We reached a tipping point… We fundamentally changed the company
strategy as there was nowhere else to turn to.”
Professor Kamran Kashani
GfM Marketing
12
Confronting market change: A fresh start
Top management embanks on a major strategic change process
 Appoints task force: Marketing and other functions
 “Provocateurs” to stir & challenge
 Mandate: Come up with “Big & Hairy” ideas
Self-Audit : Review of 5 years “Voice of Customer” data
Professor Kamran Kashani
GfM Marketing
13
Discovering new customer segments with different needs
Customer needs based segmentation
Solutions customers
: innovative solutions
: proven solutions
: cost-effective solution
Price-seekers
: large volume, commodity buyers
: have experience in-house services
: don’t need services
Chief Marketing Officer:
“There was a whole sector [of customers] across many diverse industries
that we were overserving and not getting the growth from… They viewed
our products as commodities when making purchase decisions, and didn’t
want to pay for all the additional services that we bundle with our product
sales.”
Professor Kamran Kashani
GfM Marketing
14
New strategy: A game changer in the chemicals industry
Task Force proposals
Professor Kamran Kashani
: A web-based business model to lower
“cost-to-serve” – never tried before!
: Offer price seekers a “no frills” value
proposition
: “No frills” – product only (no services) at
low market prices
: Take out all low/no value adding activities
: Develop a new brand – Xiameter
: Rejuvenate DC’s core business through
even more innovation and paid-for new
services
GfM Marketing
15
New strategy: A game changer in the chemicals industry
Task Force proposals
Dual
Brand
Strategy
: A web-based business model to lower
“cost-to-serve” – never tried before!
: Offer price seekers a “no frills” value
proposition
: “No frills” – product only (no services) at
low market prices
: Take out all low/no value adding activities
: Develop a new brand – Xiameter
: Rejuvenate DC’s core business through
even more innovation and paid-for new
services
Playing a different game to win: A “disruptive innovation”
Professor Kamran Kashani
GfM Marketing
16
New strategy motto: “Meet customer needs, exactly”
Dow Corning
Dow Corning
Brand
®
Xiameter
Brand
Materials + service packages
Innovative
Solutions







Proven
Solutions
Product only
Price
Seekers
Cost-effective
Solutions
Materials delivered in all sizes and quantities
Extensive services and solutions
Innovative, proven & cost-effective solutions
Technology and R&D
Personalized customer service
Flexible ship dates
7,500 products
Professor Kamran Kashani
®
GfM Marketing








Web-enabled business model
Large volume orders only
No technical service
Lead times: average 7-20 days
Standard silicones
Market-driven prices
Dedicated Traders
350 products (initially)
17
Xiameter’s “Dare to Compare” brand campaign
Professor Kamran Kashani
GfM Marketing
18
Poor performance…
SALES
2800
2750
2700
2650
2600
2550
2500
2450
2400
2350
1995
1996
($million)
1997
1998
1999
2000
2001
1999
2000
2001
NET INCOME
300
200
100
0
-100
-200
-300
-400
-500
-600
-700
1995
Professor Kamran Kashani
1996
1997
1998
GfM Marketing
19
Xiameter: A success story… A contributor to Dow Corning’s
turnaround
SALES
5850
5450
5050
4650
4250
3850
3450
3050
2650
2250
2001
2002
2003
($million)
2004
2005
2006
2007
2008
2009
2006
2007
2008
2009
NET INCOME
800
700
600
500
400
300
200
100
0
-100
Professor Kamran Kashani
2001
2002
2003
2004
2005
GfM Marketing
20
Xiameter: A success story re-told by the media and customers
: Xiameter responsible for Dow Corning’s
“metamorphosis”
Marketing News
: Xiameter has had a noticeable effect on
morale among company’s many “whiz-bang
scientists”
Harvard Business Review : Xiameter is a clear winner; it paid back original
investment in just 3 months
CMO Magazine
Customer surveys
: The system is convenient, the deliveries are on time and we
are happy with the prices and product quality. We don’t need
any service support and don’t want to waste time talking to
sales reps that most other suppliers have.
We have become more competitive, increased our sales by
more than 30%, saved time and have better control over our
cash flow.
Professor Kamran Kashani
GfM Marketing
21
CHF
2.8 billion
The Nespresso story: The marketing impact
Sales
Average
growth
30% +
1974
Patent
acquired
1980
Restaurants
Test Market
Professor Kamran Kashani
1982
1986
Office
New company
Test Market established
1990
1988
First club
Marketing
takes the
lead
GfM Marketing
1995
Break-even
2010
CHF
2.8 billion
The Nespresso story: The marketing impact
Sales
Revised Strategy
Revised Strategy
→Re-position: Households
→Re-position:
Households
→Create Nespresso
Club
→Exclusive
Nespresso
Club
→24-hour service
→24-hour
service
→New channel:
direct pals
→New
channel:
direct sales
→48-hour home delivery
→48-hour
delivery
→Machine home
partnerships
→Machine partnerships
→In-store
→In-stone demos
demos
→No
ads
→No ads
1974
Patent
acquired
1980
Restaurants
Test Market
Professor Kamran Kashani
1982
1986
Office
New company
Test Market established
1990
1988
First club
Marketing
takes the
lead
GfM Marketing
Average
growth
30% +
1995
Break-even
2010
What do Xiameter and Nespresso success stories have in
common?
 Big radical strategic decisions were based on customer insights...
 …brought into focus primarily by marketers
 Key moves were not bound by marketing research
– Xiameter business idea never tested with consumers
– Early consumer tests of Nespresso concept were disappointing!
 Marketers were comfortable with the risk factor in innovation…
 …and were in the lead, had their voices heard!
Professor Kamran Kashani
GfM Marketing
24
To fulfill its strategic role marketing has to break out of its
“support” silo…
CEO
Fin
OP
“support”
Strategy
Process
Strategy Process
IT
Strategic Decisions :
:
:
:
:
Professor Kamran Kashani
NBD
HR
MKTG
R&D
What markets?
Which customers?
How to serve?
How to differentiate?
How to make money?
GfM Marketing
25
… and bring the customer’s voice and insights into the strategy
process
CEO
Fin
OP
MKTG
Strategy
Process
Strategy Process
IT
Strategic Decisions :
:
:
:
:
Professor Kamran Kashani
NBD
HR
R&D
What markets?
Which customers?
How to serve?
How to differentiate?
How to make money?
GfM Marketing
26
When marketing’s voice is absent from Big decisions…
…customers’ interests take back seat to other priorities
“Whenever you ask a CEO about the importance of customers, you
hear the requisite platitudes. But in fact customers have often lost
out in the relentless push to maximize shareholder value…Bain &
Company found while 80% of CEO’s think they are doing an
excellent job of serving customers…only 8% of customers agree.”
Fortune Magazine, 2006
Professor Kamran Kashani
GfM Marketing
27
Growing evidence: shareholder value is highly correlated with
customer satisfaction
Relative Price Change over Time
American Customer Satisfaction Index Stock Portfolio 144.5%
S&P Total 38.7%
0%
2001
2002
2003
2004
2005
2006
Source: Harvard Business Review, March 2007
Professor Kamran Kashani
GfM Marketing
28
Growing evidence: “…shareholders do better when firms put
the customer first.”
Professor Kamran Kashani
GfM Marketing
29
Growing evidence: “…shareholders do better when firms put
the customer first.”
“…If more companies made customers the top priority, the quality of
corporate decision making would improve because thinking about
the customers forces you to focus on improving your operations
and the products and services you provide, rather than on
spinning lines to shareholders.”
Roger Martin, Harvard Business Review
January-February 2010
Professor Kamran Kashani
GfM Marketing
30
Breaking out of the “support” silo: Are marketers ready for the
demands of strategy in today’s tough markets?
Skills set

Strategic point of view:
– Spotting long term trends, identifying future scenarios
– identifying market gaps and opportunities

Value mapping:
– Looking beyond the first level customers
– Seeing how “value” is created and captured upstream/downstream

Thinking and acting beyond the “researchable”
– feel comfortable with uncertainty in innovation
– learn to experiment and take measured risks
– trust one’s well-developed and educated intuition
Professor Kamran Kashani
GfM Marketing
31
Are marketers ready for the demands of strategy in tough
markets?
Skills set

Converting customer insights into compelling business
plans:
– developing an integrative view of business and other functions
– defining strategic priorities & initiatives
– making a credible case: showing bottom line impact!

Driving implementation:
– getting buy-in for market inspired change
– learning to by-pass resisters or use them to advantage
– mobilizing and energizing the troops!
Professor Kamran Kashani
GfM Marketing
32
IMD’s Strategic Marketing in Action program:
inspired by skills set marketers need in today’s tough markets
Scan the market
Follow-up:
Satisfy and Retain
customers
Lead
Implementation
Drill for
Insights
Implementation
Planning
Assess
Competition
Articulate
Customer
Value
Proposition
Build the
Brand
Formulate the
Winning Strategy
Professor Kamran Kashani
GfM Marketing
33
To conclude: Let’s remember why our profession exists…
“The purpose of business is to create and keep a
customer.”
Peter Drucker
Professor Kamran Kashani
GfM Marketing
34
Danke!
Professor Kamran Kashani
GfM Marketing
35