Rethinking Marketing -- Summary (Read me if you haven't read the case)

[Ian Chen]

When it comes to “Marketing”, typically, most people think about strategies to sell goods or services to customers; however, Dr. Roland Rust, a professor at the University of Maryland, has a new outlook to offer. In his famous writing published by Harvard Business Review, he describes how marketing strategies today should be revised according to the current competitive markets.

Cultivating customers

Processes such as pushing new products to customer and measuring performance by aggregate sales are now considered outdated styles of developing marketing strategies. Dr. Rust focuses less on selling products and more on maximizing customer lifetime value
(CLV http://en.wikipedia.org/wiki/Customer_lifetime_value for more info.)
Instead of depending on traditional marketing strategies, Rust explains that companies should be more customer-cultivating. This means that companies must build stronger relationships with their customers and meet customer needs via two-way communication. With this, a company’s long-term value can be raised. However, before cultivating customers, a wide range of data is required, and there are many challenging problems firms are confronted with in order to manage and control customer information. Thanks to IT technology today, we can already maintain customer relationship by several integrated CRM systems.

Reinventing marketing

Dr. Rust also describes how the customer-oriented architecture should be set up for large B2B or B2C companies.

1. As customer relationships evolve over time, they can be handed off to different parts of the organization. By doing this, the company ensures its future value and prospect.
2. Analyzing customer behavior and customizing offerings are essential parts of customer-based marketing strategies.
3. Extend existing customers’ spending ability to a trusted circle of family members or partners. This will, in turn, bring in more potential new customers.
4. Capitalize on customer’s life events and make both the customers and merchants winners in their respective network.

The CCO

To shift from transaction-focusing to relationship-focusing firms, companies, and more specifically their marketing department, should reinvent their organizational structure. In the process of reinventing Marketing departments as a “Customer department”, the Chief Marketing Officer would be replaced by the Chief Customer Officer. To be effective, the new CCO role must be a powerful, operational position that reports directly to the CEO. Besides promoting a customer-centric culture, as a successful CCO, he must also create incentives that eliminate any counterproductive mind-set which might be obstacles to the company’s profitability.

Customer manager

In the new customer department, customer needs must be identified, and resources should be shifted from the product department to this new one. Recently, this has become a common trend in the B2B world. In this way, managers encourage customers to move from less-profitable “Brand A” to more-profitable “Brand B”, whereas traditionally, brand manager would encourage customers to stay for their own brand profit.

Customer facing functions

Now some customer facing functions, which the customer department usually deals with, are being handled by the marketing department. Yet, based on survey CRM are taking 42% by IT group, 31% by sales, and only 9% by marketing. The customer department should take CRM, therefore this means the department also needs to bring IT and analytic skills as well.

Market research

As marketing concerns are shifted to the customers, marketing research should also be adjusted as well.

1. Users of marketing research extend beyond the marketing department to all areas that touch customers.
2. The scope of analysis shifts from an aggregate view to an individual view of the customer.
3. Put attention on what improves customers-focused metrics.


Research and development

When a product is more about clever engineering than customer needs, sales can suffer. For example, engineers like to pack lots of features into products, but we know that customers can suffer from feature fatigue, which hurts future sales. To make sure that product decisions reflect real-world needs, the customer must be brought into the design process. Integrating R&D and marketing is a good way to do that. Nokia in Asia is a good example, they bring users and developer teams together to make new features and products, including even "wacky ideas"

Customer service

Generally, in-house customer service is provided by companies to ensure high quality service. Even lower service costs are desired, generally leading to outsourcing, the tradeoffs should be seriously considered, in CLV (Customer lifetime value) will suffer.

A New Focus on Customer Metrics

As companies shift from product-focused to customer-centric, new metrics are necessary to measure the effectiveness of moving:

1. From product profitability to customer profitability; for example, unprofitable products that strengthen customer relationships.
2. From current sales to customer life value(CLV), which evaluates future profits generated from a customer.
3. From brand equity(value of a brand) to customer equity(sum of the lifetime values of customers)
4. From current market share to customer equity share(the value of a company’s customer base divided by the total value of the customers in the market)

Conclusion

This change described in the article would be difficult to achieve since it magnifies the conflicting interests of different departments within a company. Therefore, as stated by Dr. Rust, a top-down approach toward transformation is needed. However daunting it might be, the shift is inevitable and will soon be the only competitive way to serve customers.