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Wednesday, July 14, 2010

NEW STUDY BY CENTER FOR MARKETING AND INNOVATION STUDIES SHOWS COMBINATION OF MARKETING AND INNOVATION PAYS OFF FOR BUSINESSES

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.

 

The 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.”

 

The 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.

 

 

3:55 pm pdt 

Tuesday, June 22, 2010

HOLDING ONTO BRAND POSITIONS THROUGH TURBULENT TIMES

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

Key words:  brand management, marketing strategies, marketing in a recession, target markets, value proposition, consumer trust, Abercrombie & Fitch, Singapore Airlines, Starbucks, AIG.  

10:06 am pdt 

Monday, May 17, 2010

THANK YOUR CUSTOMERS THEY WILL LOVE YOU FOR IT

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. 

Don’t 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?

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:  Customer service, customer loyalty, customer retention, marketing strategies, marketing in a recession, call centers, SwimOutlet.com, AAA, Register.com

 

 

 

 

 

 

 

2:54 pm pdt 

Sunday, April 18, 2010

THE POST-RECESSION BRAND RESHUFFLE

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 down.

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.

This 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

Key words:  Marketing, brand management, recession, marketing strategies, coupons, brand building, marketing budgets, R&D budgets, employment, cash, Honda, Toyota, cars.

9:39 pm pdt 

Thursday, February 25, 2010

INNOVATIONS THAT CHANGE THE WORLD

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

10:56 am pst 

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