by Frederick E. Webster Jr.

22 yollHo.4 MARKITING MAmGEMENI

MARKETING MMGmm

Defining theNew Marketing Concept

Forget about being market-driven! The future belongsto companies that are customer value-driven.

The old marketing concept—the man-agement philosophy first articulated inthe 195()s—is a relic of an earlierperiod in economic history. Most ofits assumptions are no longer appro-

priate in the competitive global markets of the1990s. As the marketplace evolves under the con-verging pressures of changing demographics, poli-tics, economics, technology, and social mores, soare organizations changing. And as organizationschange, so must the role of marketing within them.

In the traditional business environment, trans-actions are conducted in a competitive market-place between hierarchical, divisionalized.bureaucratic organizations and their customers.Today, however, the world is moving rapidlytoward a pattem of economic activity based onlong-term relationships and partnerships amongeconomic actors in the loose coalitional frame-works of "network" organizations.

To survive in the future, every business willhave to be customer-focused, market-driven,global in scope, and flexible in its ability todeliver superior value to customers whose prefer-ences and expectations change continuously asthey are exposed to new product offerings andcommunications about them.

Global competition is now a fact of economic lifefor the industrialized nations as well as for most ofthe developing economies. The global marketplaceis a.s real for the small manufacturer and local retail-er or bank as it is for the multinational corporation.All customers have purchasing options that span theglobe, not just the community or the nation.

The old marketing concept grew out of theneed to serve customers created hy the conditionsof post-World War II affluence and populationgrowth. These consumers became the beneficiariesof aggressive competition among domestic pro-ducers, with new entrants in many industries asfirms adjusted from military to peacetime produc-tion and entrepreneurs jumped at the prospect ofunprecedented growth in consumer spending.

Marketers in the 1950s faced the necessity of

EXECUTIVE BRIEFING

r his article, the first in a two-part series, outlinesa new marketing concept. The original niarketinii

concept was horn in the post-war economy of scarci-ty, pent-up consumer demand, and throwing consumerconfidence; the new one thrives in a world of afflu-ence, sophisticated and informed consumers, eco-nomic pessimism, and global competitors committedto delivering superior value based on their distinctivecompetencies. The marketer's key strategic weapon isknowledge of customers and their dynamic definitionof value. From the local savings bank to the largestmultinational corporation, the focus of every compa-ny must he on managing loyalty among employeesand carefully chosen customers.

IMRKCTING MMGIMENT .4 23

Value isdefined in themarketplace—

not in thefactory.

becoming truly knowledgeable about and respon-sive to ;i consumer with increased discretionaryspending power who was informed, demanding,and confident about the future. Mass productionand mass consumption of products with highsymbolic value characterized the era of the con-sumer, dubbed "The Affluent Society" by JobnKennetb Galbraith in his I9.S8 book of the samename. It was an age of "conspicuous consump-tion." in whicb products were purchased as muchon the basis of wbal they conveyed about theself-concept and lifestyle of the consumer as forthe specific performance benefits tbey delivered.

The Global Customer

T he new marketing concept addressestoday's global customer who can cbooseamong a much larger variety of products

and services from producers located throughoutthe world. Tbe new consumer is much more likelyto judge products and services in terms of theirfundamental value, defined simply as the ratio ofbenefits to cost/price, including costs in use. Theconcept of customer value is at tbe heart of thenew marketing concept and must be tbe centralelement of all business strategy.

The global customer quickly leams about tbewide range of choices available through many kindsof modem telecommunications technologies thatgive virtually instant access to cultural events, politi-cal news, fashions, and economic developmentsthroughout the world. For example, a single perfor-mance by the three great tenors Jose Carreras.Placido Domingo, and Luciano Pavarotti in 1990 at

the Baths of Caracalla in Rome was airedlive to more than 5{M) million televisionviewers throughout the world. Tbe CableNews Network (CNN) broadcasts politi-cal events and military actions around theworld as they are happening in placessucb as Kuwait, Tianiunen Square,Somalia, and Bosnia-Herzegovina. Thetraveler can view CNN 24 hours a day in

hotels almost everywhere in the world.

International travel is becoming increasinglycommon, giving first-band exposure to globalproducts and services of all kinds and creatinginformed, sophisticated, and demanding cus-tomers. Travelers likewise infomi tbeir host coun-tries* consumers about choices available to themin the global marketplace, helping to spread andhomogenize consumer needs and preferences aswell as create tbe demand for global products andservices. Coca-Cola. Levi's jeans. Fritos cornchips. Honda automobiles. McDonald's burgers,Inter-Continental Hotels. Caterpillar tractors. IBMPCs. Avis rental cars. Hermes scarves. Colgate

tootbpaste, Swissair, Kodak film. Omega watches,Sony Walkmen. Heineken beer, and Madonna areeverywhere! Consumers in developed countrieshave more than enough options in virtually everycategory of product and service.

The global customer faces a fundamentally dif-ferent economic scenario from the consumer of the1950s. Instead of scarcity, optimism, and growth,tbe market environment of the 1990s is one ofmaterial abundance, excess productive capacity,pessimism, and stagnation.

Altbougb manufacturer brands remain impor-tant and global brands are becoming more domi-nant, in most product categories, store brands ihatpromise the customer greater value increasinglywill replace manufacturers' brands on the shelves.In many product categories, I expect to see onlytwo or three national manufacturer brands survivetbe 1990s as merchants and their brands becomeincreasingly powerful in the marketing channel.

Although retailing is likely to remain primarilynational in scope, appearing with increasing fre-quency will be global retailers such as SouthlandCorp.'s "T-FIeven" convenience stores, whichoriginated in tbe United States, expanded toJapan, and wound up being acquired in the UnitedStates by their Japanese partner. Other largeretailers with a growing international scopeinclude Price Club/Costco. Wal-Mart, Toys 'R'Us, and fashion merchandisers sucb as LouisVuitton, Jaeger, and Chanel.

Value-Delivery Strategy

A necessary response lo an increasinglyinformed, sophisticated, cautious, andvalue-conscious global customer is ihe

value-delivery concept of strategy. Tbis concepthas helped bring customer-orientation, as called forby the old marketing concept, back into tbe fore-front. But it also added ihe fundamental notion thaithe firm's value-delivery strategy must be based onsome distinctive competence, a source of uniqueand sustainable competitive advantage.

More often than not, this distinctive compe-tence springs from intellect and knowledge, whichis to say. people, not physical materials, plant, andequipment. In Intelligent Enterprise, James BrianQuinn says that "al their core, most successfulenterprises today can be considered "intelligententeiprises,' converting intellectual resources intoa chain of service outputs and integrating theseinto a form most useful for certain customers... .[MJost of the processes that add value to materialsderive from knowledge-based service activities."

All businesses, including manufacturing com-panies, should define themselves as service busi-nesses because customers buy benefits, nol prod-

24 M2JO.4 MARKETING imAmm

Defining the New Marketing Concept

ucts. Usually, the physical product itself is onlyone part of the total value-delivery system for thecustomer; customer expectations revolve aroundthe service aspects of the product offering.

Infonnation can turn any product into a ser-vice and. thereby, build a customer relationship.For example, a package of Procter & Gamble'sCrest toothpaste includes a toll-free telephonenumber allowing customers to call in with ques-tions or comments. When callers request infor-

._ . mation about dentalLosing a customer I care, their names and

can be the best thing I ^ dresses become• part ot a database, in

to h a p p e n to a business. I this way. the productbecomes a service

and a two-way relationship between the marketerand the customer, who is buying improved dentalhealth, not just a physical product.

A company's ability to command naturalresources, technology, and capital as sources ofcompetitive advantage is taking a back seat strate-gically as the ability to control knowledge andinibnnation moves to the forefront. The value-delivery concept of strategy is based on the funda-mental assumption that value is defined in the mar-ketplace—not in the factory. It is defined by cus-tomers who continuously assess competitive prod-uct offerings as well as their own needs and prefer-ences, which change as the customer leams.

Customer Knowledge

A base of knowledge about customers, theircharacteristics, needs, and preferenceswill be at the core of the successful busi-

ness of the future. This knowledge will be sup-ported by technology that makes the infonnationinstantly available to decision-niiikers throughoutthe organizational network. Becau.se customersdefine value, infonnation about them becomes thecritical strategic resource.

Through their definition of value, customersalso define the business by the demands they placeon it. In a business world increasingly character-ized by network organizations—coalitions of firmsbringing together their distinctive competencies tocreate customer value-—customer knowledge is thelink that holds the network together and defines itsshared objective and common purpose.

It is only one of several distinctive competen-cies necessary for survival, however, and byitself won't differentiate the firm from its com-petitors. The firm must have other knowledge-based competencies, especially those related totechnology and other dimensions of the productoffering, that allow it to design, develop, anddeliver superior customer value.

Not Just Any CustomerEvery finn {and every network organization) is

limited in its competencies: the finn committed tna strategy of value delivery must, therefore, limitthe customers with which it proposes to do busi-ness. Customers define ihc business by placing aset of demands on it for delivering superior value.Customer selection—the market segmentation andtargeting decision—thus establishes the criteria bywhich the firm will be judged in the marketplace.

Selecting the right customers becomes the criti-cal strategic choice, the polestar for everythingthat happens in the business, most especially,development of the product offering. The productis a variable: the customer is the given.

Under both the old marketing concept and thenew. market segmentation, market targeting, andpositioning are essential requirements for effectivestrategic planning. In the new marketing concept,however, the focus is sharpened by adding theidea of the value proposition.

The value proposition is the verbal statementthat matches up the firm's distinctive competen-cies with the needs and preferences of a carefullydefined set of potential customers. It's a commu-nication device that links the people in an organi-zation with its customers, concentrating employeeefforts and customer expectations on things thatthe company does hest in a system for deliveringsuperior value. The value proposition creates ashared understanding needed to form a long-termrelationship that meets the goals of both the com-pany and its eustomers.

To maintain its strategic focus, fulfill its com-mitment to customers, and develop its distinctivecompetence, the firm must be selective. Not allcustomers are valuable customers: opportunismand the siren song of sales volume must be avoid-ed. Losing a customer ean be the best thing to hap-pen to a business if that customer cannot be satis-fied at a reasonable cost.

However, customers who value the thingsthe firm does well must be attraeted andretained. In the slow-growth markets of the1990s, the key to survival for most firms willbe retaining their best customers, rather thanattracting hordes of new customers.

Customer Loyalty

U nder the old marketing concept, theobjective was to make a sale. Under thenew marketing concept, the objective is

to develop a customer relationship, in which thesale is only the beginning. The customer is along-term strategic business asset. As customerrelationships and strategic buyer-seller partner-ships replace transactions and simple repeat pur-

11 Ho. 4 25

chases as the focus of marketing activity, a newdefinition of customer loyalty emerges.

"Brand loyalty" used to be defined as the por-tion of a customer's purchases concentrated on tbebrand. It was a definition based on statistical char-acteristics of a string of purchases by an anony-mous customer. Customers were defined as statis-tical averages and central tendencies within a pt>p-ulation, nol as individuals.

The concept of'"customer loyalty" replacesbrand loyally in ihe new marketing concept. Inthis sense, loyalty becomes a two-way street; Cus-tomers remain loyal to ihe company that servesiheir needs and preferences with a total set ofrelated products and services, while companiesdemonstrate iheir loyalty to customers by becom-ing knowledgeable about tbem and respondingwith enhanced product offerings. The commitmentto deliver superior value to customers contains anexplicit commitment to manage customer loyalty.

Customer loyalty bas meaning only within Ihecontext of relationship niiirketing. Relationshipmarketing is only possible wben the company

.. _ , . _ knows the cuslomer as anMass market ing was I individual, not as a statisti-

the h a n d m a i d e n I cal phenomenon, and can1 - B address communications

of m a s s p r o d u c t i o n . I and specific product offer-ings to him or her. In this

way, the customer also develops a relationship withtbe company, not just with a product or brand.

A repeat customer is much more valuable thana new customer for many reasons: multiple pur-chases from the same customer, the likelihoodihal Ihe loyal customer will pay a somewhathigher price, lbe opportunity to sell other prod-ucts and services, the benefits of favorable word-of-moutb, and tbe avoided costs of finding andattracting new customers. Price-oriented promo-tions often attract tbe "wrong" customers, thosewho are interested only in price, reducing bothloyalty and profitability in the long run.

In relationship marketing, the objective is toretain loyal customers by offering them superiorvalue, defined as the ratio of benefits lo cost/price.Tbere is a positive trade-off between spendingmoney to retain customers vs. spending promotionaldollars to attract new ones. However, when design-ing their customer retention programs, most man-agers assume tbat the customers in danger of beinglost are, in fact, wortb retaining. This is only true iftbe business has carefully and strategically selectedtbe correct customers in the first place, namely,those who value the things the finn tries to do well.

Pricing should be used as part of the process bywhich customers and companies select one another,not as an indiscriminate t(H)i for attracting as manycustomers as iwssible. good and bad. The company

must commit tbe resources necessary to retain thegix)d customers hy offering them a broad range oflelated products and services that will keep tbemloyal as their needs change and evolve over time.

Innovation Revisited

R etaining customers means keeping them sat-isfied, and keeping them satisfied requiresinnovation. Even though mosl people

remember that cuslomer orientation was the centraltheme of the old marketing concept, few may recallthat innovation held nearly equal importance.

Back in the m^Os and l%Os the word "innova-tion" was synonymous with new product develop-ment. That was entirely consistent wilh tbe growthmarkets of tbe time and the opportunity lo exploittechnology, much of it developed as part of mili-tary and space exploration programs and madeavailable for the consumer society. The objectivewas lo invent pr(Klucts that could be produced inlarge quantities at low cost and sold at Ihe lowprices required to create mass markets.

The concept of innovation for mass prtxiuctioncreated an interesting paradox: Innovation impliesdynamic change, whereas mass production calls foran unchanging product and a stable productionprocess. As finns saw the huge growth in consumermarkets, managers assumed that ihe key to prof-itability would be efficient production of largequantities of standardized products that would per-mit economies of scale. Once product designs wereset, it was marketing s job to generate the necessaryvolume. Because mass marketing was tbe hand-maiden of mass production, marketing could quick-ly reven to a sales orientation—and it often did.

The quality movement of the I97()sand 1980sredefined innovation to emphasize the notion ofcontinuous improvement. Tbis sbifting emphasisand the quest for new and better solutions to cus-tomer problems are major hallmarks of the newmarketing concept. Tbe dynamic mechanism ofcustomer expectations guarantees that tbe defini-tion of quality keeps changing. As companiesmeet customers' expectations, they revise themupward. Competitors respond in kind withimprovements and innovation, adding anotherstimulus to the firm's own innovation.

Continuous improvement represents a dramaticshift from the ideology of mass production, wherethe emphasis was on getting an oplimuni designand process and then maximizing the volumebeing run ibrougb ihal process. Continuousimprovement applies more to prtKesscs than prod-ucts, although prcKluct improvement often is a by-product. The new concem for process improve-ment was closely related lo tbe realization tbat thesupporting service bundle is often at least as

26 M2.NO.4 MARKETING mmfmi

Defining the New Marketing Concept

important as the physical product in defining cus-tomer value. This has led many companies toredefine their business as a service business.

Corporate ReengineeringThe commilment to continuous improvement

has led to the development of the relatively newdiscipline called "reengineering," defined byMichael Hammer and James Champey in Reengi-neering the Corporatiflii as a fundamental, radicalrethinking of the business from the ground up.

To improve the level of customer service and tofind and eliminate unnecessary costs, many com-panies arc engaged in iii-depth study of theprocesses involved in developing and deliveringcustomer value. In reengineering. managemenllooks at the company and its processes of valuedelivery from the customer's perspective andredesigns those processes and their related organi-zational structure "from scratch."

Reengineering concentrates on processimprovement. Although continuous improvementin the pursuit of ctistomer satisfaction and loyaltyis an iniportanl part of the new marketing con-cept, product innovation in the more traditionalsense of truly new ideas, major technical break-throughs, and totally new products should not bedismissed. 1 have been involved in research withcompanies in Japan, Europe, and the UnitedStates that shows a business' ability to innovate inthis traditional sense is among the strongest deter-minants of its growth and profitability. This find-ing has been consistent across countries and dif-ferent types of corporate cultures.

The lower costs of doing business v 'ith exist-ing customers is undoubtedly one of the majorreasons for the strong, positive relationship theresearch found between innovativeness and busi-ness performance. Innovation results in productsthat are in tune with the customer's changingneeds and preferences, in new products that havethe potential to attract valued new customers andbuild customer loyalty. Continuous improvementand new product development are essentialingredients in relationship marketing.

Mass CustomizationThe old marketing concept evolved in a world

of standardized products, mass production, andmass marketing. Traditional methods of market-ing research were built around survey method-ologies that sought the common denominators ofcustomer needs and preferences, the characteris-tics of the "average" consumer. Once that profilewas established, perhaps for multiple market seg-ments in the case of the more sophisticated mar-keters, a standard product was designed for maxi-mum appeal. Then the company used mass com-

munications and other forms of mass marketingto attract and persuade the largest possible num-ber of potential buyers.

Mass marketing, using the mass media andespecially the new medium of television, provid-ed the sales volume necessary to support the largefactories delivering the economies of scale in pro-duction necessary for low cost and profitability.Mass production and mass marketing dependedon highly standardized products and messagesthat had the greatest appeal for the maximumnumber of potential customers.

Customers of the 1990s demand more preciseand more complete response to their needs andpreferences. With domestic and foreign producersaggressively competing for theirbusiness, people can afford tobe demanding and ask for alarger variety of products andeven custom-tailored products.And they can get them!

We have moved from theage of mass production to anera of mass customization,made possible by the impact of infonnation tech-nology on the processes of order entry, productdesign, production scheduling, manufacturing,inventory management, product delivery and dis-tribution, and customer feedback.

Cable television and the advent of literally thou-sands of new special interest magazines aimed atsmaller target audiences created media fragmenta-tion that has decimated the large audiences oncedelivered by the Big Three TV networks and gen-eral interest magazines. By the late 1980s, it v/asabundantly clear that the mass production and massconsumption view of business was ob.solete. Massmarkets continue to disintegrate, and the costsas.sociated with serving them—both production andmarketing costs—are too high.

The objective of the old mass-production/mass-marketing paradigm was producing products insufficient quality at a cost most people couldafford. Low cost still is a necessary condition forprofitability, but the new mass-customization par-adigm is based on the goal of developing, produc-ing, and delivering affordable goods and serviceswith enough variety and customization that nearlyeveryone finds exactly what he or she wants.

With the commitment to continuous improve-ment thai came out of the total quality movementand rising customer expectations, firms learnedto live with dynamic process change instead ofstable processes. The next and final step is tomake the form of the product as dynamic as theprocess that produces it.

The concept of mass customization is easier tounderstand in the case of services because there is

We have movedfrom the ageof mass productionto an era of masscustomization.

4 27

Customer andemployee loyalty

are related;each reinforces

the other.

no factory that must be tuned for flexibility. Even inIhe prtxiuction of services, however, Quinn pointsoul that some "'factory-hke" technology, such as acomputer and a database, usually can be accessed inmodular fonii in the background, allowing the ser-vice provider to assemble components into a ser-vice package that appears to be completely tailoredto an individual customer.

When a traveler contacts a travel agent or airlinesales representative, for example, she selects desti-nation, time of day, class of travel, routing, seatk)cation. a special meal, payment terms, and othervariables that represent a unique product. Her prod-uct is "assembled" in the computerized reservationssystem where it is "held in inventory" until it isdelivered at the time of travel. But it is truly aunique product; it literally has her name on it. and

she is identified in the customerinformation file by a large ;iniount ofdata describing a unique individualto whom communications can beaddressed ;uid whose needs and pref-erences have been duly noted. If sheis a frequent traveler, her travelinghistory—a series of transactions—isnoted clearly, and the value ofthe

relationship can be determined rather precisely.

Even though the concept of mass customizationmay appear to be more applicable to services, it isincreasingly relevant for the production of productsas well. In the case of automobiles, for example,the number of options available in styles, acces-sories, colors, and so forth, makes it possible toproduce a unique car for each of the millions ofpeople who purchase one eaeh year.

The automotive press reports that Toyota isworking on an information and production systemthat will make it possible for an individual con-sumer to specify a car that will be delivered to hisor her home within a few days of ordering. AJapanese bicycle company already offers a similarservice, tailoring each bike to the physical charac-teristics of the rider, although delivery takes a fewweeks. Personal computers can be assembled withhardware features, such as modems and softwarechosen from hundreds of options and installed tomeet the unique needs of the customer.

With mass customization, the product trulybecomes a variable, as called for by the new mar-keting concept. Mass customization means work-ing with existing product technology, often inmodular form, to create specific product bundlesfor a parlicular customer. From time to time, thewhole process is invigorated with the introduc-tion of new technology, created through theongoing process of invention. In either case, thecompany should start with a customer whoseneeds and preferences match its capabilities and

then tailor the product as precisely as possible todeliver superior value. That is the ultimate fulfill-ment ofthe new marketing concept!

In the world of mass customization, the task ofthe marketing function is to understand customersas individuals, not as part of a "mass" market.Increasingly, it makes sense for the firm to thinkof itself not as a producer of goods or services forthe customer, hut as engaging in a process of co-development and co-production with the customer.

The co-production idea can be understood moreeasily in the context of business-lo-business mar-keting, in which case a producer of raw materialscoordinates efforts with ihe customer in designingand managing the customer's manufacturingprocess. Increasingly, however, the concept alsomakes sense for marketers in the consumer arena,from home-office personal computers to bankingservices and insurance to kitchen appliances andfrozen foods. In every instance, the marketer mustunderstand the individual customer and his or herapplication of the product or service.

In the new marketing concept, this knowledge,understanding, and commitment is not the specialprovince ofthe marketing department. Rather, itis shared throughout the organization, as market-ing becomes part of the organization's culture aswell as the knowledge systems that guide decisionmaking at all levels.

Managing CultureBefore companies can implement the new mar-

keting concept, they must actively manage theorganizational culture, strategy, and organizationstructure. Organizational culture is the basic set ofvalues and beliefs that are shared throughout theorganization. These values and beliefs helpemployees understand how the company tunctionsand dictate behavioral norms.

A customer-oriented organizational culture isone in which the customer's interests come first,always. The firm stays focused on the customer ineverything it does, and management constantlyasks how it can do things better on behalf of thecustomer. The customer-oriented finn puts the cus-tomer's interests ahead of those of the owners, themanagement, and the employees. Everyone's job isdefined in terms of how it helps to create and deliv-er value for the customer, and internal processesare designed and managed to ensure responsive-ness to customer needs and maximum efficiency invalue delivery. The customer-oriented finn is com-mitted to relationship marketing, and employeeswork together to solve customer problems.

Employee morale is a critical success factor inthe customer-oriented company, especially foremployees who deliver ,some aspect of a product'sservice bundle. Management issues a clear stale-

28 U2JQ.4 MARKETING MHASEMENI

Defining the New Marketing Concept

ment ofthe value proposition, which becomes thefocal point for the organization and a rallying cryfor employees. It becomes part of the symbols andrituals of the organizational culture.

Hierarchy and authority are relatively unim-portant in a customer-oriented company culture.Over time, it's likely that a value-delivery defini-tion of strategy will result in a fiattening oftheorganization and elimination of layers of middlemanagement as the firm attempts to improve itsresponsiveness to customers.

Loyal Customers and EmployeesIn relationship marketing, employees know cus-

tomers by name and may even develop enduringpersonal relationships. Loyal customers are treatedas a key strategic asset and resource, one that mustbe preserved and defended. Loyal employees alsoare essential—to maintain a strong culture, toimprove efficiency in the value-delivery process,and to build long-term customer relationships.

Customer and employee loyalt> are related;each reinforces the other. Experienced employeescan serve customers best because they understandeach customer's needs. This knowledge is anessential part of continuous improvement. Tlie cus-tomer's sense of confidence and trust in the organi-zation is enhanced by dealing with the employeesas individuals, helping to form a bond with theorganization. Likewise, this ongoing relationshiphelps bond the employee to the customer andbuilds the commitment to customer satisfaction.

Wal-Mart often is used as an example of acustomer-oriented company with a strong orga-nizational culture. Until his death in 1992, com-pany founder Sam Walton was clearly the foun-tainhead of Wal-Mart's culture, its chiefspokesman and cheerleader. Today, top manage-ment carries on this tradition vigorously.Among the most important and more tangibleaspects of the culture are:

• A commitment to the customer and value basedon low prices.

• A strong dedication to the welfare of employeesand their families.

• "Greeters" who welcome customers at thestore door.

• The famous Saturday morning managementstaff meetings.

• Several company cheers regularly repeated inemployee meetings. For example, every employ-ee pledges to greet any customer who is within10 feet of him. "so help me. Sam!"

• "Be an agent for the customer" is one of the specif-ic values articulated as part of the Wal-Mart culture.

To perpetuate the Wal-Mart culture, each newstore is headed up by a manager with at leastseven years of Wal-Mart experience. Assistantmanagers, in contrast, are moved about everytwo years to give them additional experience andexposure to the Wal-Mart culture. Most employ-ees/associates own stock in the company. Every-one is focused on serving the customer and beat-ing the competition. It is the essence of a mar-ket-driven company, focused on delivering cus-tomer value through motivated employees whohave a sense of ownership. Customer orientationis a core value in the corporate culture.

Market Intelligence

C ustomer orientation is more than a set ofbeliefs, however. It must be supported byup-to-date and accurate infonnation about

the needs, wants, preferences, and buying habitsof customers ohtained through direct contact withthem. The central question that should guide al!information gathering is. "How does the customerdefine value and how well are we providing it?"

Although traditional survey research methodsstill play an important role in specific instances-such as routine measurement of customer satisfac-tion with a large, valid sample of recent cus-tomers—other techniques are likely to be morevaluable for management problem solving.

Small focus groups with actual or potentialcustomers may be particularly helpful in devel-oping new product offerings and service features,for example. For business marketers, carefullyplanned visits to customer sites can be invaluablein providing information to guide R&D, manu-facturing planning, and sales force development.In any company, top management's understand-ing of market conditions must be obtained first-hand via frequent field visits and one-on-oneconversations with customers.

The new marketing concept calls for definingthe business "from the outside in," being aninfonned "expert" about the customer, and lettingthe customer define value by matching up the cus-tomer's needs and preferences with the firm'scapabilities. As Ross Perot would say, "It's justthat simple!" Of course, it's a simple idea, but itsimplementation is not simple at all.

Top-level professionals should manage themarketing information function. Most compa-nies also will need up-to-date knowledge aboutinformation technology, commercially availabledatabases, management science methods forbuilding models and analyzing data, and the

.4 29

A

communication aspects of management infor-mation systems.

The principal responsibility of tbe marketingfunction in a customer-oriented, market-drivencompany is to provide decision makers through-out the organization with up-to-date informationabout customers and competitors, helping every-one understand tbe customer's constantly shiftingdefinition of value.

The Learning Organizationrelevant new idea is that of "the leamingorganization," one that is dedicated tocontinuous improvement and reinventing

itself as market conditions demand. To changeproductively, an organization must first see thechanges occurring "on its periphery," Jobn SeelyBrown of Xerox Corp. is quoted as saying inSeeing Differently: lniprovini> the Ability ofOrganizations to Anticipate and Respond toChanging Needs of Customers and Markets.Management must carefully watcb its markets,capture new ideas, and learn from tbese events.

Market intelligence is a key input to tbe learn-ing organization. It must be committed to under-standing customer needs, defining specific areasthat need improvement, and identifying "best

practice" wherever it is occur-ring throughout the organiza-tion and in other companies.

The learning organizationcreates and manages strategic

b u s i n e s s strategy. | all.ances with customers ando / " other partners. It is mherent m

the definition of an "adhocracy" type of culture,one that remains extemally focused and capable ofquick and flexible response to a changing market.

Tbe concept of tbe learning organization willbecome increasingly important in tbe networkorganizations of the 1990s, with more opportu-nities for parts of the organization to learn fromone another. In fact, the motivation for manystrategic alliances is simply to create a learningorganization, introducing change into the exist-ing structure to develop and improve its distinc-tive competence and learn critical new skillsfrom the new partner.

Network Organizations

I n the firm committed to a value-deliveryconcept of strategy, management will havedefined the distinctive competencies it

must own and develop and those tbat it needsto acquire through partnership with others inthe value chain. The role of marketing in thenetwork organization is to keep all of the part-

Customer valuemust be the central

element of all

ners focused on the customer's definition ofvalue. This is a new responsibility for market-ing, and it requires close cooperation withother management functions including pur-chasing, R&D, engineering, manufacturing,and distribution.

Many kinds of marketing partners make uptbe network organization. These include pro-curement, where marketing and purchasingmanagers must work together to ensure that sup-pliers of raw materials, components, subassem-blies, or complete products with the company'sname on them understand the nuances of thecompany's value proposition and customerneeds and preferences. Some companies transfermanagers between tbe marketing and purchasingfunctions because tbey have negotiation skillsvaluable in both areas. These companies recog-nize that each function can benefit from a betterunderstanding of the other.

Technology partnerships, increasingly neces-sary where distinct and rapidly developingtechnologies converge on a particular productcategory, require close cooperation under theguidance of both qualitative and quantitativemarket research. In really new areas, wherecustomers may not be able to express tbeir pref-erences for products that do not yet exist, expe-rienced marketing managers must work witbtheir technical colleagues to make subtle judg-ments based on an intimate understanding ofcustomer needs and wants. Tbeir relationshipwith the customer must be strong enough tolead the customer into the new product future.Managers with experience in both marketingand R&D/engineering may be best able to makesuch judgments.

Partnerships with resellers are perhaps the bestknown marketing alliances. In fact, the acade-mics have focused their study of strategic mar-keting alliances on marketing channels and distri-bution, areas where there is a useful body ofknowledge dealing with power, trust, cooperationand conflict, and other aspects of interorganiza-tional relationships.

In network organizations, however, the tradi-tional interorganizational conflict between man-ufacturers and resellers is replaced by a newemphasis on cooperation in serving the cus-tomer. Instead of asking "'Who's customer is it?"and fighting for control of the customer relation-ship, participants focus their energies on tbeshared tasks of understanding and deliveringcustomer value. It may be belpful to define tbecustomer for any company as the party who paysthe bill. Different companies will answer thequestion of customer definition within the net-work in different ways.

30 M l No. 4 MARKiriNG mmGEMENI

Out With the Old

T be new marketing concept is essential forcompanies facing an economic scenariowhere material abundance and excess pro-

ductive capacity coexist with pessimism andstagnation. In an age of increasingly informed,sophisticated, and value-conscious consumers,the emphasis on customer value must be the cen-tral element of all business strategy.

Companies must increase their knowledge ofcustomers and selectively target them. Continu-ous improvement builds customer loyalty andfeeds retention. And innovation can attract newcustomers as well as keep old ones. In the shiftfrom mass production to mass customization, cus-tomers are demanding, and getting, products tai-lored to a variety of needs and wants.

In the end, the survivors will be organizationsthat have tbe ability to reinvent themselves asmarket conditions change and make a full com-mitment to the new marketing concept. In the

About the AuthorFrederick E. Webster Jr. is tbe CharlesHenry Jones Third Century Professor ofManagement at tbe Amos Tuck Scbool ofBusiness Administration at Dartmouth Col-lege, where he has been on the faculty since1965. He eamed his doctorate at Stanford'sGraduate School of Business. At Tuck, hebas served as Associate Dean and as FacultyDirector for Executive Education. He hasbeen a visiting professor at tbe IntemationalManagement Institute in Geneva, Switzer-land and Executive Director of the Market-ing Science Institute. Fred's research in mar-keting strategy, industrial marketing, salesforce management, corporate culture, andbuyer behavior has resulted in the publica-tion of over 50 joumal articles and bookchapters and a dozen books, including Indus-trial Marketing Strategy, whicb is in its thirdedition. His article "The Changing Role ofMarketing in the Corporation" received theAlpha Kappa Psi Award from the Journal ofMarketing as best paper in 1992. Fred is amanagement consultant and lecturer in exec-utive programs, and President of FEW Con-sulting Services Inc. He serves on tbe boardsof several corporations, a savings bank, theVermont Public Radio network, and the Mar-keting Science Institute.

next issue of Marketing Management, I will dis-cuss what it means to be market-driven in the'90s and set forth some guidelines for imple-menting tbe new marketing concept.

Author's NoteThis article is adapted from the author'sforthcoming book, Market-Driven Man-agement: Using the New Marketing Con-cept to Create a Customer-Oriented Com-pany, to be publisbed by John Wiley &Sons, Inc., in April 1994.

Additional Reading

Adams, Majorie (1993). "Seeing Differently:Improving the Ability of Organizations to Antici-pate and Respond to Changing Needs of Cus-loniers and Markets." Conference Summary,Report No. 93-103. Cambridge, Mass.: The Mar-keting Science Institute.

Deshpande. Rohit, John U. Farley, and Frederick E.Webster Jr. (1993), "Corporate Culture. Cus-tomer Orientation, and Innovaliveness in Japan-ese Firms: A Quadrad Analysis," yowr/jo/ of Mar-keting, 57 (January), 23-27.

Galbraith, John Kenneth (1958), The Afflucm Socicly.Boston: Houghtori Mifflin Co.

Hammer, Michael and James Champey (1993),Reen^ineeritiii ihe Corporation: A Manifesto forBusiness Revolution. New York: Harper CollinsPublishers Inc.

Pine II, B. Joseph (1992), Ma.'is Customization: TheNew Frontier in Business Competition. Boston:Harvard Business School Press.

Quinn, James Brian (1993), Intelligent Enterpri.se.New York: The Free Press.

Frederick R. Reichhetd (1993). "Loyalty-BasedManagement," Harvard Business Review, 71(March-April). 64-73.

Bill Saporito (1992). "A Week Aboard the Wal-MartExpress," Fortune. 126 (Aug. 24), 77-84.

Walton, Sam (1992), Made in America. New York:Doubleday.

Webster Jr.. Frederick E. (1992). "The Chiinging Roleof Marketing in the Corporation," Journal of Mar-keting, 56 (October). 1-17.

[2 , Wo. 4 31