[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 segment is the Marketing 101, the basics of principle 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 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 are ever quite this simple, and I'm going to look at the two extremes just to 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 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 the 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 of that. It is marketing should not be the same in the sellers market as in the buyers market. So, in the sellers market, what marketing tends to be is what we call, product focus marketing. 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 costs, 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 studied product-focused markets, 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, enhanced profitability. Higher revenues, lower cost, more profit. That's really the goal of a product-focused market. And when your 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 market. So what's customer focus marketing? Is it the opposite? 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. 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 whereas in a product-focused market, I'm the expert and I create the very best product I can based on my expertise. In the 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 is 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 well 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 focused 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-focused 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 the 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 a 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 value based marketing be profitable? Well the 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 we'll I try to get a little bit from everybody. The idea of customer share or share of wallet is that they go after a more narrow market and try to get more from each of those customers' wallets. And it turns out that loyalty, 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 it's cheaper to retain those customers over time, and that's where the profitability come from. It comes from loyalty. The other thing if you're thinking about building share of wallet in a customer-focused market is that I not only sell one product to you, I think that 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 gotten to a gap or some jeans store, and you go to cash register and you buy a pair of jeans, the cashier or the person behind the counter might say, this are very nice jeans do you think you 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 cannot only sell them one product, but you can cross sell other products that may also meet their needs. So in a customer based market, where profitability come from is premium price, loyalty, and cross selling. Difference between seller's 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 phase marketing and customer-focused market. Now, in today's world, the marketplace 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, technology, and social media and things like that, it's not a one to one conversation anymore. Customer's 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 other friends about what a terrific service your company's doing. Well, that's really good news. On the other hand, if something goes wrong and they tell their friend 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 sellers market and in a buyers market has focused on transactions. In the sellers market I talked about a single transaction, and in a buyers market I talked about transactions over time, or customer loyalty. But in the 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? Let me 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 about 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 a skeptical of marketing. Marketing had some bad names that financial services industry. People lost trust. And so with all those changes in economic environment there's been a focus again in marketing. And marketing now has the 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 persuade the firm to offer what the customer wants. That's a customer-focused 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 markets in terms of what you offer? In a 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 disciplined mind frame, or mindset, you look at genuine value. And what's the 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 companies that do the best 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. And in 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 the 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 overtime, and what are the measurements of profitability? In production orientation as I mentioned market share is tied to profitability. In marketing orientation, it share of wallet or customer share, customer loyalty. In experience market, when your looking at customers talking to other customers. We start measuring social networks and buzz, and word of mouth, and referrals. And in the trust orientation, we really focus on reduced costs. [MUSIC]
