Current State of the Marketing Communications Business

Current State of the Marketing Communications Business

What Happened and What’s Happening Now?

• What Happened?– Smarter and more skeptical consumer– 1980’s Agency consolidation

• Today, 85% of the world’s advertising placed by 4 holding companies

• 3 of top 5 European– Media vehicles explode leaving media

highly splintered.– Media Departments break away to

remain competitive– Agencies try to sell one stop shopping,

clients want the best of each discipline– Traditional Agencies seen as behind

the times– Megabrands losing their way

• E.g. Coca Cola Classic, IBM, Marlboro, McDonald’s, Ford, GM, etc.

– Clients paying their agencies less – Famous “agency expert” over.– Wal-Mart

• What’s happening now?– What is an agency?– Clients desperate to modernize willing

to take risk with newer agencies– Big agencies trying to become

relevant.– As the Internet grows in importance,

NYC becomes less important and Silicon Valley/San Francisco becomes more important.

– Agencies still acting like herd creatures running from one trend to the next.

– Media Planning & Planning becoming more powerful.

– Full Service agency becoming less and less interesting.

– Wal-Mart backlash opening opportunities for not-Wal-Mart companies.

Where will this all settle?

Fun Stuff I’ll never ask you on a test

• 1704 First newspaper ad• 1742 First Magazine ad• 1843 Volney Palmer (Philadelphia) first ad agency• 1868 NW Ayer (Philadelphia) first successful advertising agency• 1877 First ad agency acquisition: J Walter Thompson buys agency for $500 plus

$800 for the furniture.– Creates the Account Executive title

• 1880 First copywriter hired by J. Wanamaker• 1882 P&G advertises Ivory Soap with unprecedented $11,000.• 1892 NW Ayer hires first copywriter• 1893 Coke registers trademark• 1988 First Ad slogan “Lest you forget, we say it yet. Uneeda Biscuit” The National

Biscuit Company• 1900 NW Ayer opens “Business-Getting Department”• 1920 KDKA first radio station in America (Pittsburgh)• 1941 First TV spot (Bulova Watches)• 1950 Dancer Fitzgerald Sample creates the Soap Opera for Tide (P&G)

Fun Stuff I’ll never ask you on a test

• 1955 Marlboro Man appears• 1956 First Pre-recorded TV commercial• 1960 first copywriter / art director team DDB• 1963 Cola wars begin• 1967 First female head of an advertising agency: Mary Wells• 1970 Saatchi & Saatchi opens in London• 1971 cigarette advertising banned on television• 1981 MTV premiers• 1986 Omnicom created (First advertising agency holding company)• 1986 Saatchi brothers buy Ted Bates then largest advertising agency in the world

(Ted Bates goes out of business in 2004)• 1987 Martin Sorrel creates WPP group buying JWT, O&M, Y&R and last year Grey

Worldwide• 1993 Birth of the Internet• 2005 85% of advertising placed in the world comes from 4 holding companies• 2006 There are over 25,000 advertising agencies in the US alone

• www.adage.com/century/timeline/index.html

We’ve been busy for the past 100 years

• 1905– 1-3 newspapers per

town– 15 magazines in the US– 0 radio stations– 0 TV stations

• 2006– Hundreds of newspapers

per town, national and international newspapers

– 5,000 magazines in US

– 12,500 radio stations in US

– 1,100 commercial TV stations

– The Internet

Where we came from• 1843 – 1980 Advertising People WERE

the Client’s Marketing Department.– We created Media (e.g. The Soap Opera)

• 1980 – 1990 Some client’s lost faith in us.

– The Saatchi brothers– Bob Jacoby $125 million in 1986

• 1990 – 2000 They split up our business and paid us all less

• 1990 – today. We reorganized and reorganized and reorganized.

• The new Advertising Agency: Crispin Porter Bogusky, Taxi, Naked, BBH, etc.

• Bottom Line: They need what we do.

– And we’re creating media & content again…

What will the Advertising Agency in the Year 2030 Look Like

?

So, what is Marketing?

?

What is Marketing?• American Marketing Association Definition of Marketing:

Marketing is an organizational function and a set of processes for creating, communicating, and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stakeholders. 

• World Marketing Association (WMA): “Marketing is the core business philosophy which directs the processes of identifying and fulfilling the needs of individuals and organizations through exchanges which create superior value for all parties.”

• Chartered Institute of Marketing (CIMU) [United Kingdom]: “Marketing is the management process for identifying, anticipating and satisfying customer requirements profitably.”   

Where does Advertising Fit?

MARKETING:The manipulation of the 4 P’s to maximize sales or profitability

Product:What it is, how it works,

what it looks like, smells like, tastes like, how it is packaged, etc.

Price:How much it costs.

Place:Where is it sold?

Promotion: Advertising,

Sales Promotion, PR, Events, Personal Selling,

History of Marketing:

Why is the USA the #1 marketer in the World?

Why is America #1?

Why is America #1?

History of Marketing:

• After WWII, American businesses thrived. – Companies generally sold as much as they could make.

– Europe and Asia were rebuilding, America was a manufacturing economy and was supplying the world.

• US was the only country with a distribution base to build on.

• US had only communications system that could now be used to inform and persuade consumers (expanded during the war).

History of Marketing:

– 1950’s Marketing was born!

• Jerome McCarthy – Professor at the business school at Michigan State

University published the first marketing textbook titled:– “ Four P’s of Marketing: Product, Place, Price and

Promotion.”

• The 4 P’s became the tools of Marketing Managers from the late 1950’s until today.

History of Marketing:

• 1950’s – 1960’s: The Make it and sell it Period. – (Coming out of

Depression and WWII)

History of Marketing:

– 1950’s – 1960’s: The Make it and sell it Period. (Coming out of Depression and WWII)

• Mass Production led to Mass Distribution led to Mass Advertising led to Mass Media.

• Focus was on producing and distributing as much as possible.

• Baby Boom in US.

• Brought homogenization of culture, taste, products and services.

History of Marketing: Mid 1960’s

History of Marketing:

• Mid 1960’s: Competition from Asia and Europe

– Europe higher quality, Asia cheaper (and eventually better). America caught in the shrinking middle.

– Different Philosophies:

» US Model: Produce as fast as possible, sell as many as possible, fix it later and make incremental improvements along the way. Create obsolescence to keep consumers buying.

» Japanese Model: Make as many as you can make “perfect,” sell quality products that will last, and R&D ways to re-invent and make major improvements. Develop better quality products for happier long-term consumers, brand loyalty and a global competitive edge.

History of Marketing

• Mid 1970’s: move from product shortage to surplus. What do you do?

History of Marketing:

• Answer: globalize!

– Baby Boom reached its peak.» How many refrigerators, cameras, and cars do we need?

– Globalization is the answer!

– Internal US strategy: Price Promotion; lower the price and consumers will buy.

» Huge growth in price promotions including couponing, contests, added value sizes,

» Kills brand equity, Kills advertising, Marketing Department begins losing power to those who can manipulate the numbers (Finance). Ad agencies who “report” to them suffer the most.

» Finally once everyone has lowered their prices, profit margins are gone, demand doesn’t increase. Now what do we do?

History of Marketing:

• 1980’s: Become the Low Cost Producer: cut costs in manufacturing.

– E.g. cheese, L’eggs Pantyhose.

» The era of “reengineering,” closing plants, layoffs, reducing overheads, outsourcing,

» Marketing pushed to background.

So, is this stuff even cheese any longer?

• Ingredients: MILK, WHEY, MILKFAT, MILK PROTEIN CONCENTRATE, SALT, CALCIUM PHOSPHATE, SODIUM CITRATE, WHEY PROTEIN CONCENTRATE, SODIUM PHOSPHATE, SORBIC ACID AS A PRESERVATIVE, APOCAROTENAL (COLOR), ANNATTO (COLOR), ENZYMES, VITAMIN D3, CHEESE CULTURE.

He who has the information has the power!

ManufacturerMake/sell what we want. We know what sells and doesn’t.

Channel(stores)Scanners! Now we know exactly what sells and when so we decide what manufacturer will make and how much we will pay for it!

ConsumerThe Internet! Now we can compare products and prices and demand what we want when we want it!

0 - 1980 1980-Internet (’93) Internet forward

History of Marketing:

• Enter the 1990’s: major power shift from Manufacturer to Channel

– Introduction of the UPC code moves information from manufacturer to the store (channel).

– Emergence of Wal-Mart & category killers (Toys-R-Us, Home Depot, CompUSA.

History of Marketing:

– Channels focus on building up shopper base with frequent shopper programs, frequent flyers, etc.

– New forms of communication allow better targeting.» With the control over information came stronger

consumer control over price.

– When channel has power, » controls which products it will sell, » how much it is willing to pay for those products, » how much it will change for those products, » what types of promotion it demands.

History of Marketing:

• And now? The current power shift: from Channel to Consumer– Internet puts information into consumer’s hands. Consumers

determine what they want to buy, search all available sources, compare prices and alternatives and do this wherever and whenever they want to.

• Example: – 1960’s bought a book in a neighborhood book store. – 1980’s bought book from category killer bookstore like Borders. – 1990’s on bought that book at any number of on-line shops.

• Amazon used books.

The missing “P”

MARKETING:The manipulation of the 4 P’s to maximize sales or profitability

Product:What it is, how it works,

what it looks like, smells like, tastes like, how it is packaged, etc.

Price:How much it costs.

Place:Where is it sold?

Promotion: Positioning, Advertising,

Sales Promotion, PR, Events, Personal Selling,

People:Who are we making this product for and

what do they want/need?

Objectives, Strategies & Tactics

– Objective: What you want to accomplish. Broad goals the organization wants to achieve. Organizational objectives generally relate to some financial goal or “scorecard.”

– Strategy: How you want to accomplish your objectives.

– Tactics: Where you will fulfill the strategies.

Types of Products

• Specialty Goods: Only one brand will do.– E.g. Teuscher Champagne Truffles

• Convenience Goods: Any brand will do, give me the cheapest.– milk

• Shopping Goods: I don’t care if I buy a HP Computer or a Toshiba; I’ll shop around until I find the best price on one of them.– Orange juice, gas, computers, most electronics, CDs, etc.

Four ways Marketing Organizations Compete

1. Product Differentiation: Build a better mousetrap and the world will beat a path to your door.

• Organizational goal: stay ahead of competition through product advantage.• Product Differentiation

– superior products (real superiority or perceived superiority) or superior prices– generally limited direct competitors– generally greater product technology (i.e. not just anyone can copy it)– Patents

2. Distribution Superiority: be ubiquitous (always within arm’s length)– top of mind products– ubiquitous– frequent use products

3. Customer Focus– average to high interest products– multiple benefits for different people– high degree of specialization

4. Marketing Communications: out advertise, & promote

• Which is right? Best? Most successful? Answer: all of them.

How do these products compete?Product, Distribution, Customer focus, Marketing Communications