[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, this segment is Marketing 101, the basics, the principles 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 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 were ever quite this simple and I'm going to look at the two extremes just to get get a a 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, 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 a 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 about it, is marketing should not be the same in the seller's market as in the buyer's market. So, in the seller's market, what marketing tends to be is what we call product focus market. 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 cost 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've studied product focus market, 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 and hint profitability. Higher revenues, lower cost, more profit. That's really the goal of a product focused market and when you're 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 marketing. So what's customer focused marketing? Is it the opposite? And the, 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. Well, 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 where is in product-focused market, I'm the expert, and I create the very best product I can based on my expertise. In a 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, this 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 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 focus, 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 focus 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 they 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 the 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, how can value-based marketing be profitable? Well, 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, while I try to get a little bit from everybody, the idea of customer share, or share of wallet is that I go after a more narrow market and try to get more from each of that, their, those customer's wallets. And it turns out that loyalty is very, can, 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 its cheaper to retain those customers over time, and that's where the profitability comes from. It comes from loyalty. The other thing, if you're thinking about building share of wallet in the customer-focused market, is that I not only sell one product to you. I think about 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 gone into a GAP or some jeans store, and, and you go to the cash register and you buy a pair of jeans. The, the cashier or that person behind the counter might say: Oh these are very nice jeans. Do you think you'll 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 can not only deprut, sell them one product, but you can cross-sell other products that may also nee, meet their needs. So in a customer-based market, where profitability come from is premium price, loyalty, and cross selling. Difference between sellers 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 based marketing and customer focus market. Now in today's world the market place 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 and technology and social media and things like that, it's not a one to one conversation anymore. Customers 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, their other friends about what a terrific service your company is doing. Well, that's really good news. On the other hand, if something goes wrong, and they tell their friends 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 seller's market and in a buyer's market has focused on transactions. In the seller's market I've talked about a single transaction. In a buyer's market, I talked about transactions over time or customer loyalty. But in a 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? Lemme 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 that 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 skeptical of marketing. Marketing had some bad names, the financial services industry. People lost trust. And so with all those changes in the economic environment, there's been a focus again, in marketing. And marketing now has to 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 persu, persuade the firm to offer what the customer wants. That's a customer focus 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 marks in terms of what you offer? In the 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 discipline mindframe or mindset you look at genuine value. And what's the competitive 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, the companies that do the best are customers, 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. In an 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 a 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 over time. And what are the measurements of profitability? In production orientation as I mentioned, market share is tied to profitability. In marketing orientation, it's share of wallet or customer share, customer loyalty. In experienced market, when you're looking at customers talking to other customers, we start measuring social networks and buzz and word of mouth and referrals. And in a trust orientation, we really focus on reduced costs. So in summary for just this little section, let me say that there's three principles of marketing that I've discussed. and this is the essence of what marketing is. The first principle is, if you want to provide something to a customer, to buyer, and get them to buy from you, rather than the competition, you've got to give them real, genuine Customer Value. That's the Principle of Customer Value. The second principle is the Principle of Differentiation. You have to provide customer value to that customer what the customer wants but you have to do it better than the competition. So you have to differentiate your offering. And the third principle is the principle of segmentation targeting and positioning says when you're in a customer focus market you cannot deliver value to everybody and make money it's just too difficult to do. So what you do is segment the market into different segments. You target or choose a segment you want to focus on, and you position your brand to meet the needs of that target segment. And what are the tools that you use to deliver these three marketing principles? They're the four P's of Marketing. The four P's of Marketing are product, place, promotion, and price. Lets go back to that exchange, and that exchange says your a buyer and a seller. What the seller puts into the exchange is the product. What the buyer puts into the exchange is the price. The way the seller communicates the benefits about that product to the buyer, is called the Promotion. Could be advertising sales, whatever. And the way the seller delivers the product to the customer is the Place Decision. It can be in a physical store, it can be online, it can be through downloading. Whatever the method of distribution is that's the Place Decision. So those are the four P's of Marketing. Product, place, promotion and price. Typically, when you talk about marketing, you talk about the business world, but you can use these principles of marketing in non-profit marketing as well. Think about blood donation. The American Red Cross used marketing principles to get increases in blood donations. Now let's think about what is the product for the American Red Cross when they want more blood? It's not blood, is it? Because that's not what they're putting into the exchange. Blood, is actually the price. It's what the customer puts into the exchange. So what is the product? What the American Red Cross did was try to figure out ways to get people to be more willing to donate more blood. So in one way they did, you know, feel good about yourself. You're going to help save lives. That worked for some people. For some people, that wasn't enough. They needed a little sticker that said, yes, I gave blood today and I saved lives. For other people, the orange juice and the cookies were enough. And it turned out that some of the best blood donation successes they had were in high school. You could give b, bla, blood donation if, I think if you were over 16. And it turned out what, one of the products that the American Red Cross could give to high school kids to give blood, was to allow them to miss class. So, that was the product there. The promotion again is the way they communicate the benefits of giving blood to the American Red Cross. And the place decision was how they got the product delivered to the, and the exchange made. And in this case the American Red Cross had the Blood Mobile. And, and went to the customers so that was a very innovative distribution decision. So you can play around with these four P's in very interesting ways and some of the new businesses that we see now are doing some very clever things with these four P's. But the basic concept should be clear, product, place, promotion and price. [MUSIC]
