A Waste of Money Or The Most Important Thing You Can Do?

By Bob Norton

Marketing is a very broad term that sometimes encompasses many different things for many different people. It is ill defined in the real world, though academics will all offer some definition that is impractical for 90% of companies. Hence it needs some definition here before we even try to discuss it. To make things more difficult rarely does the Vice President of Marketing, or anyone, have full control or authority over all the issues that are in fact “marketing”. Responsibility without authority is always a problem, therefore some aspects of marketing can be a thorny issue for all involved.

At the most basic level a “Marketing Department” can be relegated to a simple brochure and corporate communications function. On the other end of the spectrum the marketing department can be an integral part of the product design and positioning and have responsibility for pricing, market positioning, channel selection and even sales and customer service tactics and methodologies. More participation by marketing people is better early on and becomes very difficult later in a product’s lifecycle. Most often this is not the case as the management team (or founder or investors) often selects one or more of the key variables before marketing is involved leaving marketing fewer choices. If a product is established, less marketing expertise is needed, as many of these choices have already been made, but certainly some good marketing expertise can add value. In my experience neither way is right or wrong, but the design of the marketing function must reflect and complement the nature of the product, the expertise (or mix) of the management team (founder and vision) and other people who drive the business’s product and market strategy.

The first thing to determine is what model of marketing (and sales) works best for your industry, product or overall business and sales model. Unless you are trying to revolutionize an industry, like Staples did to office product distribution, with its associated risks and capital intensive nature, then odds are you should be selling and marketing in a similar way that competitors currently do. The buyers are buying that way and unless you have a huge benefit to offer that no one else does this is very difficult to change. Innovation can be helpful but driving change can also get very expensive.

Many marketing departments are responsible for “filling the pipeline” with leads, and then sales is responsible for converting those leads into paying customers. This works very well when a broad stroke marketing program with advertising, public relations, trade show events and/or other programs are used to create a “multi-media” campaign to generate awareness and leads. It does not work so well on the other end of the spectrum when you have a clearly identifiable target customer base (can acquire an actual list of prospects) who simply need to be sold to. In this case you are going to have a more sales intensive than marketing intensive process. In other words, when you need to identify customers broadly a marketing department with lead generation responsibilities is very important. In the alternate situation, where you know the buyer universe, good sales people can target and prioritize and handle a large database of prospects to call with appropriate frequency and offers and marketing should probably get less investment dollars.

It is also important to realize that the actual price and margin of your product will have a huge influence on how much selling versus marketing is necessary. As the price goes up the market will generally get smaller and easier to identify and shift more towards a sales intensive approach with less “marketing”. Mass market products (i.e. beer, shampoo, soap) require a high level of marketing and marketing expertise. This is partly because the customers are hard to find and reach, and partly because you are selling a commodity and need to create demand and leverage an “image” created by marketing that customers in a certain segments of the population want to associate with. This is not to say that real marketing talent cannot add value to any product, it can, but the more specific the customer segment can be identified, generally the less marketing creativity and effort is needed to identify customers.

Where Will Your Product Fall on This Diagram?
This will have a huge impact on the marketing you will need to do.
Commodities can be driven to success with good marketing (i.e. Purdue Chicken and Ocean Spray cranberry juice), but sustainable competitive advantage comes from a unique market position and differentiation which typically must evolve over time.

Product, Promotion, Placement and Price

Some people like to say that marketing is all about the four “P”‘s. Product, Promotion, Price and Placement. I agree with this in many ways and in others think it can often be the proverbial “tail waging the dog”. The problem with this is that changing any one of these can impact all the others so dramatically as to make all previous assumptions invalid. Lets take an example.

Let say you want to market a sophisticated software product to the insurance industry (or widgets to any industry). If you decide to set a high price you lock yourself into a certain segment of the target market that can afford, and benefit from, that particular price-to-value ratio. This will likely limit your options in the following ways:

1. In terms of “Placement” (channels of distribution) you probably need a sales and support intensive channel to justify the price and ensure the customer can understand, and in fact leverage, the benefits you provide over a lower cost alternative.

2. In terms of “Promotion” you are probably not going to pursue a give it away free strategy to get your first few customers, as this would erode your “high-end” image, since people will assume if it is free it cannot be very valuable.

3. In terms of “Product” you now need to have some features that are significantly better than lower cost competitors or they will likely steal all your sales too easily for you to achieve a profitable volume and lead-to-sales conversion ratio.

“Wow! But all I did was pick a price point” you say and suddenly the world became very limited. Yes, the fact of the matter is that, depending on your industry’s circumstances, choosing ANY single one of these can sometimes force you into very limited options on ALL the others!

So in fact picking any of the four “P”s can create a vicious circle and the best way is often to prioritize which of these can be used to create the most unique market position (assuming there is a market there) and then iterate on the others until you have designed a set that is not only compatible, but support each other in various ways that help your overall business economics.

In my view it is most important to do market research sufficient to understand the many variables in any market and the customers’ needs in great depth. This is easy to read and not understand, so I am going to list just SOME of what I mean by this and then say it again.

Price sensitivity and the subjective and objective value of the product/service to the customer (for your segment, which you might not know yet which can be differentiated and used to justify an ROI at your proposed price)

  1. Competitive products/services
  2. Competitive intelligence on those companies
  3. Major variables that you can differentiate on (3-10) (which may not be possible with a pure commodity and which I really do not account for in this article)
  4. Who is the customer? Customer segmentation (generally many ways possible)
  5. Benchmarks of industry costs in terms of cost of sales, production, selling, distribution and overhead
  6. Where is the customers “pain”?
  7. What is the buying process for the target customer and what does the “buyer” look like and think about?
  8. One-on-one customer interviews with many open end questions. NOTE: This must come with an understanding that customers can not be trusted to design the next revolution in your business. I like to say that you can’t expect the customer to describe a filet minion when he/she is used to buying hamburgers. They are more likely to request a slice of cheese, which is not sufficient value added to really differentiate your company.

In my view it is most important to do market research sufficient to understand the many variables in any market and the customers’ needs in great depth. As you can see much of this information will be iterative. In other words as you refine your product and marketing strategy, only then can you begin to answer most of these questions with enough confidence and detail to really say you have a real vision. Only when you have ALL of this information can you begin to design a new business, product/service or marketing program!

So how do you measure the effectiveness of your marketing efforts? Well the fact of the matter is that this is a difficult endeavor and varies wildly with good reason, because of how much the marketing department does also varies wildly. It is sometimes also difficult to tie specific customers to specific marketing vehicles, but this should be attempted whenever possible. As such the table below shows there is probably no real good answer to this that is not very specific to a certain market and set of circumstances.

Primary Measurements of Marketing Effectiveness
Used by Senior Marketers Worldwide, February 2003
(as a % of respondents)

25.3% Sales
21.8% Leads
12.6% Varies by program
9.2% ROI
6.9% Conversion to Sales
3.4% Cost/qualified opportunity
3.4% Customer survey
3.4% Awareness
3.4% No criteria/subjective
2.3% Press/media outreach
2.3% Sales/cost efficiency
1.1% Communication responsiveness
1.1% Stock price
1.1% Closed loop tracking
Note: n=90
Source: International Data Corporation (IDC), March 2003

Just because many companies measure and reward based on these many metrics does not mean they are generally the “right” measure of their success. Few marketing departments will be able to prove their worth to a high level of accuracy (except in direct mail where each expense can be tracked well to each sale). Many of these metrics can be proxies for success or may have little to do with what the marketing department did. Alternately the right marketing strategy can definitely make the company! So you will have to decide for yourself, or get some outside help that can independently and objectively ask the tough questions that internal staff are not likely to want to due to various self interests. Sorry but I call it as I see it, and this is just the nature marketing that is done differently in just about every company under the sun.

One recommendation would be to start with lots of market research that includes (or results in) a series of Competitive Landscape Maps. This can be an invaluable method to visually display a complex problem with many variables that the human mind needs help to grasp. From there you can begin to prioritize the four “P”s and design a marketing department and campaign that can work best for you. The bottom line is that marketing can be a total waste of money or the most important thing you can ever do. This will depend entirely on your specific circumstances and how you define marketing. You will have to decide base on your particular circumstances, but unfortunately you can NEVER let the marketing department decide this as this is a conflict of interest.