Download - KMG Strategic Marketing.for Internet Companies

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Strategic Marketing for Strategic Marketing for Internet CompaniesInternet Companies

Milton Kotler, PresidentMilton Kotler, PresidentKotler Marketing GroupKotler Marketing Group

IT ForumIT ForumUniversity Club, Nov. 15, 2000University Club, Nov. 15, 2000

Setting the StageSetting the Stage

We are moving from an old market We are moving from an old market economy to a new market economy to a new market economy. The new economy is economy. The new economy is powered by the Internetpowered by the Internet

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Jack Welch’s ViewJack Welch’s View

““Embrace the Net. Bring me a Embrace the Net. Bring me a plan how you are going to plan how you are going to transform your business beyond transform your business beyond adding an Internet site.” adding an Internet site.”

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Ten DifferencesTen Differences

Old EconomyOld Economy – Tangible assetsTangible assets– ScaleScale– Vertical organizationVertical organization

- Protected markets- Protected markets– CompetitionCompetition

- Distribution hierarchy- Distribution hierarchy- Rigid barriers- Rigid barriers- Standardization- Standardization

– DomesticDomestic– Cycle timeCycle time

- Seller power- Seller power

New EconomyNew Economy– Intangible assetsIntangible assets– IntrapreneurshipIntrapreneurship

- Out-sourcing- Out-sourcing- Open markets- Open markets

– HypercompetitionHypercompetition- Direct to customer- Direct to customer- Flexible entry- Flexible entry- Personalization- Personalization

– GlobalGlobal- Nanosecond culture- Nanosecond culture- Buyer power- Buyer power

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Key Elements of the Internet Key Elements of the Internet EconomyEconomy

The new economy is powered by information and network technologyThe new economy is powered by information and network technology In B2B, the foundation is information exchange for integrated supply chain In B2B, the foundation is information exchange for integrated supply chain

managementmanagement In B2C, the Internet has become an integrated sales, communications, In B2C, the Internet has become an integrated sales, communications,

distribution, and even product design channeldistribution, and even product design channel The Internet has accelerated price transparencyThe Internet has accelerated price transparency

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The New Economy ProblemThe New Economy Problem

New Economy thinking has been driven by technology and technological potentialNew Economy thinking has been driven by technology and technological potential• Marketplaces are driven by customer demandMarketplaces are driven by customer demand• Customer demand for new technology only proceeds as fast as it provides value to the Customer demand for new technology only proceeds as fast as it provides value to the

customer customer • Customers do not buy for potential value, but for current and future valueCustomers do not buy for potential value, but for current and future value

The Market has slipped into The Market has slipped into technology orientedtechnology oriented rather than rather than customer orientedcustomer oriented thinkingthinking

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The New Economy – Fast The New Economy – Fast ForwardForward

The model of generating demand through The model of generating demand through buzz marketing does not workbuzz marketing does not work

Generating customer demand is too costlyGenerating customer demand is too costly ““Path to profitability” must prevailPath to profitability” must prevail B2B must demonstrate value to customersB2B must demonstrate value to customers B2C must create distribution pushB2C must create distribution push The Internet economy enters its strategic The Internet economy enters its strategic

marketing phase marketing phase

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What is Strategic Marketing?What is Strategic Marketing?

"Marketing is not the art of finding clever "Marketing is not the art of finding clever ways to dispose of what you make. It is ways to dispose of what you make. It is the art of creating genuine customer the art of creating genuine customer value." - Dr. Philip Kotlervalue." - Dr. Philip Kotler

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The Elements of Strategic The Elements of Strategic MarketingMarketing Market researchMarket research Customer researchCustomer research Segmentation and targeting customer markets Segmentation and targeting customer markets Positioning against the competitionPositioning against the competition Value proposition and brandingValue proposition and branding Product, Pricing, Distribution and Communication Product, Pricing, Distribution and Communication

strategystrategy Tactical campaignTactical campaign Budgeting and implementationBudgeting and implementation Monitoring performance and control Monitoring performance and control

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Do Internet Companies Do Internet Companies Understand these Elements?Understand these Elements? “ “ A lot of companies have forgotten that in order A lot of companies have forgotten that in order

to keep the client they have in the first place, they to keep the client they have in the first place, they have to have models and processes in place to have to have models and processes in place to keep their client loyal to their brand” -- a keep their client loyal to their brand” -- a business developer for an ASPbusiness developer for an ASP

““Everything on the Internet is a component. You Everything on the Internet is a component. You sell the features, benefits and convenience... and sell the features, benefits and convenience... and focus on your customer’s costs... It is a lot like focus on your customer’s costs... It is a lot like selling a McDonald’s hamburger” -- the founder selling a McDonald’s hamburger” -- the founder of an Internet software companyof an Internet software company

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What Strategic Marketing Isn’tWhat Strategic Marketing Isn’t

Buzz MarketingBuzz Marketing• Paying for site visitsPaying for site visits• PR to Impress VCsPR to Impress VCs• Advertising revenue Advertising revenue

modelmodel• Rush to IPORush to IPO

• Rush to brand and build Rush to brand and build shareshare

• Cutting pricesCutting prices• Eyeballing customersEyeballing customers

Strategic MarketingStrategic Marketing• Targeting unmet needsTargeting unmet needs• Branding the valueBranding the value• A business model based A business model based

on transactionon transaction• Validating the business Validating the business

model before going publicmodel before going public• Research and target Research and target

attractive segmentsattractive segments• Demonstrating valueDemonstrating value• Achieving distribution Achieving distribution

pushpush

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B2C Strategic Marketing Issues B2C Strategic Marketing Issues (1)(1)

The Internet is not yet revolutionary in B2C: not The Internet is not yet revolutionary in B2C: not creating enough additional demandcreating enough additional demand• Priceline: the segment with a high preference for Priceline: the segment with a high preference for

price over convenience and flexibility is too small to price over convenience and flexibility is too small to support a low-margin businesssupport a low-margin business

A dot com has to facilitate existing demand not A dot com has to facilitate existing demand not try to create ittry to create it• Amazon.com and Napster: real innovation is in the Amazon.com and Napster: real innovation is in the

distributiondistribution• Ticketmaster and travel sites: Internet builds on the Ticketmaster and travel sites: Internet builds on the

original business modeloriginal business model

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Identify and size realistic target segmentsIdentify and size realistic target segments• Pets.com: the real opportunity for a pet care Pets.com: the real opportunity for a pet care

specialist was to serve the high-involvement specialist was to serve the high-involvement purchaser; but these are niche markets, not mass purchaser; but these are niche markets, not mass marketsmarkets

The product must be customer driven, not The product must be customer driven, not technology driventechnology driven• Land’s End addresses real needs with online Land’s End addresses real needs with online

shopping pals and an online modelshopping pals and an online model

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Work with the old economy to complete the Work with the old economy to complete the offering and leverage competenciesoffering and leverage competencies• JC Penney now offers its logistics for outsourcingJC Penney now offers its logistics for outsourcing• Yahoo and Kmart partnered to create BlueLight.comYahoo and Kmart partnered to create BlueLight.com• Petsmart is the healthiest in pet care - it had 500 Petsmart is the healthiest in pet care - it had 500

stores to bring marketing support and financial stores to bring marketing support and financial stability to its money-losing Internet businessstability to its money-losing Internet business

• Peapod vs. WebvanPeapod vs. Webvan Content, hits, and advertising revenues are not Content, hits, and advertising revenues are not

an adequate business model an adequate business model

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B2B Strategic Issues (1)B2B Strategic Issues (1) A technological Gold RushA technological Gold Rush

• Numerous startups competing in every nicheNumerous startups competing in every niche• Compelling need to acquire customer “territory”Compelling need to acquire customer “territory”• Everyone is making the same claimsEveryone is making the same claims• Consequently, the marketing challenge is seen as Consequently, the marketing challenge is seen as

SHOUTING LOUDER in the mediaSHOUTING LOUDER in the media• Price is used to gain sales at the expense of profitabilityPrice is used to gain sales at the expense of profitability• Premature brandingPremature branding• Panic instead of tacticsPanic instead of tactics• The “marketing plan” only ratifies internal assumptionsThe “marketing plan” only ratifies internal assumptions

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B2B Strategic Issues (2)B2B Strategic Issues (2)

To find the winning product model, you must To find the winning product model, you must find the right customer market for your find the right customer market for your technologytechnology

Customers want benefits, not technologiesCustomers want benefits, not technologies Is your technology a feature or a product?Is your technology a feature or a product?

• Is its added value substantial enough to go-to- Is its added value substantial enough to go-to- market as a stand-alone product?market as a stand-alone product?

• Should you go for an M&A to enhance another Should you go for an M&A to enhance another product on the market product on the market

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The stratification of the customer The stratification of the customer segments must be reflected in segments must be reflected in marketing strategymarketing strategy• officedepot.com provides different levels of officedepot.com provides different levels of

service and differentiated pricing for its service and differentiated pricing for its most valuable customersmost valuable customers

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The product has to fit the customers core The product has to fit the customers core business processes and culturebusiness processes and culture• Develop the best technologies if you can, but Develop the best technologies if you can, but

develop your products around your customers’ develop your products around your customers’ real capabilities, not the ones you wish they hadreal capabilities, not the ones you wish they had

• Part of segment attractiveness is the customer’s Part of segment attractiveness is the customer’s capacity to act on their needcapacity to act on their need

– For Apexmail, the biggest obstacle to growth is the For Apexmail, the biggest obstacle to growth is the refusal of potential customers to understand the refusal of potential customers to understand the economics of outsourcing economics of outsourcing

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B2B Strategic Issues (5) B2B Strategic Issues (5)

The most common pricing strategy is The most common pricing strategy is competitive pricingcompetitive pricing• The danger is that competitors will cut their price The danger is that competitors will cut their price

when they get desperate for a sale and force you when they get desperate for a sale and force you to follow to follow

• The best pricing strategy is economic value The best pricing strategy is economic value pricing. This requires that you document and pricing. This requires that you document and demonstrate in monetary terms the greater total demonstrate in monetary terms the greater total value of your offeringvalue of your offering

– Lowest total costLowest total cost– The price premium paid by the customer’s customer The price premium paid by the customer’s customer

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VC Strategic IssuesVC Strategic Issues

Is the company going-to-market or to M&A?Is the company going-to-market or to M&A? VCs are presented business plans without VCs are presented business plans without

either a marketing plan or customer researcheither a marketing plan or customer research• VCs need a strategic marketing due diligence VCs need a strategic marketing due diligence

process to understand the value of their investment process to understand the value of their investment to customers to customers

• VCs need to incorporate a strategic marketing VCs need to incorporate a strategic marketing cultureculture

• VCs need a strategic marketing resource to deployVCs need a strategic marketing resource to deploy• VCs need a Marketing Scorecard to track the VCs need a Marketing Scorecard to track the

progress of their investments progress of their investments

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Start-up Strategic IssuesStart-up Strategic Issues Technological orientation is a barrier to customer-Technological orientation is a barrier to customer-

oriented market strategy that must be overcomeoriented market strategy that must be overcome A robust business model and documented progress is A robust business model and documented progress is

the only sustainable defense against equity dilutionthe only sustainable defense against equity dilution Beware: buzz marketing is easier to accept than Beware: buzz marketing is easier to accept than

strategic marketing, because it toots the technology strategic marketing, because it toots the technology hornhorn

Unfocused market entry is the norm:Unfocused market entry is the norm:• leads to higher costs, frustrated and demoralized salespeople, leads to higher costs, frustrated and demoralized salespeople,

out-of-control pricing, and unrealized marketing potentialout-of-control pricing, and unrealized marketing potential• Product models and sales strategy must be guided by a Product models and sales strategy must be guided by a

strategic marketing planstrategic marketing plan

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Why Strategic Marketing?Why Strategic Marketing? Companies in the New Economy need to know Companies in the New Economy need to know

where they where they fitfit in converging markets in converging markets What is the strategic direction you must follow What is the strategic direction you must follow

to participate in this process?to participate in this process?• Are you a product? Are you a product? Focus marketing resources on your Focus marketing resources on your

brand equity to a target segmentbrand equity to a target segment• Are you the consolidator/aggregator?Are you the consolidator/aggregator? Aggregators Aggregators

acquire outsourced components, while focusing their resources acquire outsourced components, while focusing their resources on understanding and meeting customer needson understanding and meeting customer needs

• Are you a value-adding feature?Are you a value-adding feature? “Feature” companies “Feature” companies merge or partner to serve the customer’s need for superior, merge or partner to serve the customer’s need for superior, comprehensive product offeringscomprehensive product offerings