Wednesday, July 14, 2010
NEW STUDY BY CENTER FOR MARKETING AND INNOVATION STUDIES SHOWS COMBINATION OF MARKETING AND INNOVATION PAYS OFF FOR BUSINESSES
3:55 pm pdt
I have just finished the first part of a project that
has consumed me for much of the year. I developed something I’ve called the MKG + INV 100, a list of 100 firms with
high levels of spending on both marketing and innovation during the 2009 calendar year. I believe this is the first study to examine the role that marketing and innovation together play in creating firm value.
Automakers Ford, Honda and Nissan lead the list. Computer programming and data processing firms,
such as Microsoft, Yahoo, eBay, Activision and Intuit dominated the MKG +INV 100 with a total of 29 entries, and drug companies,
such as Pfizer, GlaxoSmithKline and Bristol-Myers Squibb also featured strongly with 17 entries.
I was very surprised by just how much value a combined marketing and innovation strategy added – I found that the Return on Assets (ROA) for the MKG + IN 100 was 4.79 percent, Return on Sales (ROS) 6.97 percent,
and Return on Equity (ROE) 12.55 percent. To allow for comparison, I calculated performance ratios for a control group of
firms that did not spend anything on marketing or innovation. The ROA for the control group was only 0.51 percent, the ROS
3.02 percent and the ROE 4.26 percent.
It makes sense that an organization should pursue a strategy that combines marketing and innovation
because in order to create value, an organization needs to be capable of developing ground breaking innovations. But at the
same time, the firm needs to identify market opportunities, successfully launch new products by demonstrating to consumers
how new products meet unmet consumer needs or better satisfy existing needs, build consumer demand for the new products and
develop and nurture brands once the new products are in the market.
findings confirm what Peter Drucker once famously said: "Because its purpose is to create a customer, the business has two - and only two - functions: marketing and
innovation. Marketing and innovation create value, all the rest are costs.”
report, including the list of the MKG + INV 100, a selection of results and an outline of the research
method, can be downloaded from The CenterForMarketingAndInnovationStudies.com
Jenny Darroch is on
the faculty at the Drucker School at Claremont Graduate University. She is also the founding
Director of the Center for Marketing and Innovation Studies. See www.CenterForMarketingAndInnovationStudies.com and www.MarketingThroughTurbulentTimes.com
Key words: marketing, innovation, firm performance, Ford, Honda, Nissan, Microsoft, Yahoo, eBay, Activision, Intuit, Pfizer, GlaxoSmithKline, Bristol-Myers Squibb, Peter
Drucker, new product development.
Tuesday, June 22, 2010
HOLDING ONTO BRAND POSITIONS THROUGH TURBULENT TIMES
10:06 am pdt
We know that good marketing practice means knowing: (1) who your
target market is; (2) what problem(s) your target market is trying to solve; (3) what your brand’s value proposition
is; and, therefore, (4) whether your brand will solve your target market’s problem.
But recessions can be tough on brands because the relationship between consumer problems
and brand solutions often becomes decoupled and preconceived mental models we hold of our markets are called into question.
That’s why we see brands trying to reposition in an effort to remain relevant (think: Starbucks) or hold onto their
original position in the hope that the brand will survive the recession (think: Singapore Airlines or Abercrombie & Fitch).
At the start of the recession, Abercrombie &
Fitch declared that it would not lower its prices even though sales were down 34% year on year and David Cupps, the General
Counsel and Secretary at Abercrombie & Fitch, was quoted as saying the brand would not offer hefty discounts because
such “discounts could hurt the brand’s integrity and appeal in the long run” (Los Angeles Times, December
13, 2008). In May 2010, same store sales at Abercrombie & Fitch were down 3% year on year at a time when rival stores
were starting to show small gains. One commentator suggested that Abercrombie & Fitch might have lost its appeal and
is no longer seen as cool by its target market (www.MarketWatch.com, June 3, 2010). By staying true to its brand position, did Abercrombie & Fitch fail to stay relevant in a changing market?
Singapore Airlines is another example of a brand that stayed
committed to its market position during the recession. Just before the financial markets collapsed in 2008, Singapore Airlines
converted two of its US-Singapore routes to business class only. The cost to travel on this route was $8,000. Rather than
reposition the brand, Singapore Airlines instead choose to park planes and cut costs in an effort to ride out the recession
(Fortune, June 24, 2010). A clever move from a marketing point of view and hopefully one that will pay
off for Singapore Airlines.
Not only does the
relationship between consumer problems and brand solutions become fragile during such turbulent times but the recession has
also exacerbated a general mistrust consumers already had toward brands. This is why some brands have no choice but to reposition
or, in the case of AIG, rename. Bloomberg BusinessWeek (June 7, 2010) reported that AIG has sold and its
fund management division, which is now called PineBridge Investments, sold its auto insurance division, which is now called
21st Century Insurance, renamed it core property casualty company Chartis and renamed its annuities business
National Western Life.
Singapore Airlines decided
to remain focused on its brand position on the basis that the recession, and its effects on corporate travel, was cyclical.
Indeed, recessions are cyclical but in the case of the Great Recession, the recession has been longer
and deeper than any we have experienced in our life times. It takes a bold company to do what Singapore Airlines did.
Jenny Darroch is on the faculty at the Drucker School at Claremont Graduate University.
She is an expert on marketing strategies that generate growth. See www.MarketingThroughTurbulentTimes.com
brand management, marketing strategies, marketing in a recession, target markets, value proposition, consumer trust,
Abercrombie & Fitch, Singapore Airlines, Starbucks, AIG.
Monday, May 17, 2010
THANK YOUR CUSTOMERS – THEY WILL LOVE YOU FOR IT
2:54 pm pdt
It happened again - I was thanked for
being a customer. This time, I received a hand written card from SwimOutlet.com, an online swim shop, thanking me for being
such a loyal customer. Sure, we buy from SwimOutlet.com a lot as we have four swimmers in the family and from time to time
I contact their customer service center to return an item or query an order. To this day, every interaction
I have ever had with SwimOutlet.com has been favorable, which is why I still buy from them, but it meant a lot to me to be
acknowledged as a customer.
get me wrong, I’m not the kind of person that craves affirmation but as a marketing professor, and probably a critical
consumer, I have become increasingly concerned by the way in which organizations treat their customers. What organizations
seem to overlook is that the reason they are in business is because of customers. I think the recession
has exacerbated the mistreatment of customers because many organizations did cut the number of people performing customer
service roles in an effort to reduce costs. The consequence is that we as customers often have to do more of the “work”
that the organization once did for us.
There is no doubt
that I get irked by having to do the organization’s work for them. Worse still, however, are the long waits I endure
before I can speak to a person when I contact a customer service center. My record so far is one hour – this is the
time it took an operator to pick up my call on the Internet for a live chat. I only waited because I would get messages telling
me how many people were ahead of me and I foolishly thought that being 5th in line wasn’t a bad thing (just
in case you are wondering, I was on speaker phone and kept working while I was waited to be helped).
There are other organizations I like to deal with. When I phone Register.com, the organization that
hosts some of my websites, a live operator answers my call and then directs me to the appropriate person. Sure, I sometimes
wait 5-10 minutes to speak to someone who can resolve my query but it makes a difference to me to have a real person direct
my call in the first instance because I don’t much care for listening to menu options to figure out where I need to
go for help. AAA is another organization that understands its livelihood depends on customers. Anytime I call AAA, which is
normally at the end of the year when the insurance premium is declared for the following year, I am thanked for my 6 years
(and growing) of business with AAA.
So, remember the reason
you are in business is because of the customers who try your products or services once and come back for more. When was the
last time you “mystery shopped” your organization so as to see your organization from the customers’ point
of view? What do you do to make your customers feel valued?
Darroch is on the faculty at the Drucker School at Claremont Graduate University. She is an expert on marketing strategies
that generate growth. See www.MarketingThroughTurbulentTimes.com
Key words: Customer service,
customer loyalty, customer retention, marketing strategies, marketing in a recession, call centers, SwimOutlet.com, AAA, Register.com
Sunday, April 18, 2010
THE POST-RECESSION BRAND RESHUFFLE
9:39 pm pdt
Last night I was reading
the latest copy of Newsweek, the one with the heading “America’s Back” (April 19, 2010). The feature article
included short interviews with a number of economic commentators who, predictably, gave mixed messages on whether the economy
would recover quickly, along with likely economic growth figures for the short and medium term.
All well and good but can we expect big brands to emerge unscathed? Nielsen previously reported
that, on average, marketing spend was down by 9% during 2009. But, not all marketing spend was down: spending
on coupons was up 11.5%, while spending on magazines, television and newspapers was down anywhere from 9-24%.
What this shows is that spending on short-term sales generation was up and spending on long-term brand building was
Of interest to me is that when companies
come out of the recession, those firms that neglected to continue investing in their brands by focusing on short-term sales
generation might find their market shares slide.
short-termism that has characterized marketing expenditure has also characterized other aspects of business. Think about it:
if demand for goods and services is down and cash positions are up (for example, the total cash held by Standard & Poor’s
500 is now over $830b) some fairly drastic cuts have been made in an number of key areas: we know that employee numbers have
been slashed and marketing budgets have been cut, and it seems that companies have also looked for other ways to save money
by cutting back on R&D and quality. For example, in an article in Boomberg BusinessWeek (April 19 2010), reference was
made to a slight drop in Honda’s market share at a time when Honda should be doing well against a troubled Toyota. The
view expressed in the article was that Honda was no longer the “Japanese BMW”; its cars look pale alongside newer
models from companies such as Nissan, Hyundai, Ford and GM.
I think we could find a reshuffle among brand leaders in the next 12-24 months with some historically strong brands
finding that they are no longer relevant to the market. Of course, with a bit of good luck and good marketing these brands
could be strengthened again but some might fall off the radar. Another outcome of the great brand reshuffle is that there
will be some great opportunities for brands that are trying to gain traction.
Jenny Darroch is on the faculty at the Drucker School at Claremont
Graduate University. She is an expert on marketing strategies that generate growth. See www.MarketingThroughTurbulentTimes.com
Marketing, brand management, recession, marketing strategies, coupons, brand building, marketing budgets, R&D budgets,
employment, cash, Honda, Toyota, cars.
Thursday, February 25, 2010
INNOVATIONS THAT CHANGE THE WORLD
10:56 am pst
The March issue
of Fast Company came out this week and in it was a list of the World’s 50 Most Innovative Companies. Now, I
like a good list and I particularly like this one. The list of the World’s 50 Most Innovative Companies is compiled
based on expert opinion, data, reports, interviews and debate. More importantly, the list gives “a snapshot of creativity
at work in the global market place”.
When you skim through the top 50, there are some companies you would expect to find on such
a list – for example, Facebook, Amazon, Apple and Google took the top 4 spots. A number of other high-profile companies
were also on the top 50: HP, Hulu, Netflix, Nike, Intel, GE, IBM, and Disney.
But there were others that really captured my attention – for example, First Solar
and PG&E for their work in sustainability and renewables.
Others would be pleased to find themselves on the list – for example, Wal-Mart at #9.
For a long time, Wal-Mart positioned itself as excelling in cost leadership and was well regarded for its excellence in supply
chain management. But Wal-Mart is now making inroads into sustainability by working with its 100,000 suppliers and encouraging
them to “go green”. A number of years ago, Wal-Mart tried to have the same impact on supply chain management with
the introduction of Radio Frequency Identification (RFID) tags by mandating their suppliers had to comply with Wal-Mart’s
RFID requirements. The use of RFID tags never took off as predicted (I’ve been told it is because the price of RFID
tags never really dropped). Let’s hope that Wal-Mart can succeed in their efforts to impact sustainable business practices
because without an organization with the clout of Wal-Mart, many managers might have been slower to grasp the concept of sustainability
and determine what it means for their organization.
There is another characteristic that defines the inclusion of many firms on the top 50 list. Many have had a substantial
impact on the way in which the markets behave. Hulu (#11) and Netflix (#12), for example, are both altering the way in which
consumers access TV and movies. The impact of Netflix, with its 11m subscribers who have accessed 2.5b DVDs, Blu-ray discs
and video streams since Netflix launched in 1999, has already altered the structure of the industry by making traditional
video rental stores an endangered species. Or Patients Like Me (#23), a website that allows you to click on a symptom and
connect with others who have the same symptom, identify treatment options and talk to other patients about their experiences.
What a great example of peer-to-peer communication and, again, a service that has the potential to change consumer behavior
– this time, with respect to how we find health related information. Here’s another one: Sportsvision (#34), a
service that captures and analyzes sports movement and provides data that on the ability of a player – how fast the
player moves, the player’s offensive ability and reaction time, etc. Very soon, this type of data will infuse Monday
morning water cooler discussions about sports games.
Every now and then I stop to reflect upon different iterations of products I have used to satisfy different needs
– e.g., listening to music on vinyl records and cassettes, to CDs, to the iPod or making phone calls through a switchboard
operator using a phone that shared a party line with three other families, through to Skype. I often feel that when an innovation
is successful, I can’t imagine life without it. I feel like that about many of the companies that made the top-50 list.
For me, I can’t imagine life without Google or Netflix. Soon, I will probably add the Apple iPad to the list. I wonder
what else I will add to my own “can’t live without it” list in five years time.
Jenny Darroch is on the faculty at the Drucker School at Claremont Graduate University. She is an expert on marketing strategies
that generate growth. See www.MarketingThroughTurbulentTimes.com
Key words: Fast Company, innovation,
consumer behavior, sustainability, top-50 innovative companies, Facebook, Amazon, Apple, Google, Hewlett Packard, HP, Hulu,
Netflix, Nike, Intel, GE, IBM, Disney, First Solar, PG&E, Wal-Mart, Patients Like Me, Sports Vision