A RIDICULOUS BOARD EDICT

Last week one of my favourite young marketers called me in distress. His company has been achieving annualised revenue growth of about 13 per cent in an industry that is recording four per cent growth.

Suddenly the directors, all of whom have little qualification in business, are demanding an increase of over 100 per cent in revenues for the year ahead in a heavily regulated financial services sector.

Their claim is that it is marketing’s job to find the business, whatever the targets may be. But will they have the resources to do so? Or must marketing pull a rabbit out of a hat?

THE PURPOSE OF MARKETING

Let us agree that the purpose of a business is to create shareholder value, and that shareholder value is determined by anticipated future cash flows, adjusted for the cost of capital. Marketing’s contribution is to develop strategies that deliver enhanced cash flows through, for example, successful new product launches, or the creation of strong brands which can command high margins and market shares.

Under this view, the role of marketing can be seen as driving value creation through the optimum choice of markets and target segments in which to operate, and the creation of a differential or competitive advantage in these markets. Obviously all of this takes place within the context of the resources of the firm.

RESOURCE-BASED MARKETING

The concept of research-based marketing suggests that firms should base their marketing strategies on equal consideration of the requirements of the market and their abilities to serve it.

Under this approach, a long-term view of customer requirements is taken in the context of other market considerations (such as competitor offerings and strategies, and the realities of the supply chain), together with mapping out the assets, competencies and skills of the organisation to ensure they are leveraged to the max.

But we are running ahead of ourselves; for we are discussing concepts and strategies before considering the fundamental principles of marketing.

SIX FUNDAMENTAL PRINCIPLES

In essence, modern marketing is built around six fundamental principles which firms ignore at their peril. For those who are schooled in the discipline they may appear intuitive, but in fact they are not. So let’s look at each of them in turn.

Principle 1. Focus on the customer. A first principle of marketing is that the long-term objectives of the organisation, be they financial or social, are best served by achieving a high degree of customer focus — but not a blind focus! From this recognition flows the need for a close investigation of customer wants and needs, followed by a clear definition of if and how the company can best serve them. It also follows that the only arbiters of how well the organisation satisfies its customers are the customers themselves. The quality of the goods or services offered to the market will be judged by the customers on the basis of how well their requirements are satisfied.

Principle 2. Only compete in markets where you can establish a competitive advantage. Market selection is one of the key tasks for any organisation — choosing where to compete and where to commit its resources. Many factors will come into the choice of market, including how attractive the market appears to the firm. Especially important in competitive markets, however, will be the question: do we have the skills and competencies to compete here? The corporate graveyard is littered with firms that were seduced into markets which looked attractive, but when competition got tough they found they had no real basis on which to compete.

Principle 3. Customers do not buy products. They buy what the product can do for them, or to put it another way – the problem it solves. In other words, customers are less interested in the technical features of a product or service than in what benefits they get from buying, using or consuming the product or service. How often, for example do you find people pushing products at you, and you, meanwhile are asking yourself, “What am I going to do with that?”

It is critical that marketers ensure that the organisation gears itself to solving customers’ problems, rather than exclusively promoting its own current (and often transitory) solutions.

Principle 4. Marketing is too important to leave to the marketing department (if there is one). While there should be a qualified person in charge, it is increasingly the case that marketing is everyone’s job in the organisation. Now please don’t take that to mean everyone must become a salesperson. Instead, this marketer’s view is that everyone in the firm should be taught to become a micro-marketer as we navigate the age of one-to-one marketing.

Principle 5. Markets are heterogeneous. Most markets are made up of different individual customers, sub-markets or segments. Some people just want a reliable car to take them to work, while some must arrive in the style that befits their position, and so demand for motor cars ranges from the basic to the BMW or Porsche.

Principle 6. Markets and customers are constantly changing. This is a tough one, but the truism that the only constant is change keeps marketers on edge. Markets are dynamic and virtually all products have a limited life that expires when a new or better way of satisfying the underlying want or need is found. Products are not omnipotent. They follow a product life cycle pattern of introduction, growth, maturity and decline, which should lead companies to ensure that by the time the current breadwinners die there are new products in the company’s portfolio to take their place. Who would have believed that the Sony Walkman would become obsolete in just a few years?

THE LAST WORD

Some small, member-owned organisations need to review the composition of their board. Far too often they elect popular, well-meaning people who have very little knowledge of leading a modern business, and this lack of knowledge sometimes leads these board members into making ridiculous demands of management.

And there is more. It is bad enough when ill-informed directors, ignoring their resource base and the first and basic principles of marketing outlined above, are instructing highly qualified managers to achieve the impossible. But what is even worse is when these directors are aided and abetted by consultants who should know better.

Next week we will look at the role of marketing in leading strategic change.

Herman Alvaranga is a Fellow of the Chartered Institute of Marketing (FCIM) and president of the Caribbean School of Sales & Marketing (CSSM). For more insights on sales and marketing please go to his blog at www.cssm.edu.jm