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Monday, December 28, 2009

Why Marketing Must Change

Not long ago, companies looking to distribute their message to a large, diverse and fragmented market had only one real option: cover the market simultaneously using one-way mass communication. That model is crumbling before our eyes, and people in marketing disciplines who I hold in high regard seem lost in the Tsunami of change impacting marketing. Traditional advertising companies are caught in the shift from decades of standard print and network advertising to the world of digital marketing and online advertising. PR people are reeling from the shrinking news holes of traditional print media -- due in part to the previously mentioned shift to online advertising -- and from the rapid escalation of social media as an alternative to mainstream media outreach. Trying to react from a deep cultural deficit dating back to the 1950s is difficult for traditional firms. Many are scrambling to add digital arms to try to keep pace with the highly accelerated shift. But that is only a band-aid addressing the symptoms not the cause.

Perhaps the most succinct description that we've encountered of the real cause in this shift comes from the January-February 2010 issue of Harvard Business Review. In an article titled, Rethinking Marketing, the authors cite the fact that marketing for too long has been disconnected from customers.

"Because companies can now interact directly with customers, they must radically reorganize to put cultivating relationships ahead of building brand."

This makes intuitive sense to us, but carries massive challenges in implementation. Marketing departments must undergo wholesale restructuring, replacing the CMO with a Chief Customer Officer reporting to the CEO and "accountable for increasing the profitability of the firm’s customers, as measured by metrics such as customer lifetime value (CLV) and customer equity as well as by intermediate indicators, such as word of mouth (or mouse)."

Customer-facing functions must then be realigned under the new CCO. To accomplish this, long standing silos need to be destroyed and that is not an easy task. Responsibility for CRM systems and data must move from IT to the new customer-centered organization. Brand equity must be subservient to new customer equity metrics that measure long-term value of customers. R&D and product development must be undertaken with customer input rather than by simply adding features and benefits of interest to the developers. And product managers have to shift focus from maximizing their products’ or brands’ profits and help customer and segment managers maximize their profits. This is nothing short of massive cultural and structural change -- inevitable, according to HBR, but not for the faint of heart.

The authors point to an example at IBM as illustration of what the future must look like:

IBM's Insurance Process Acceleration Framework relies on a service-oriented architecture. In this structure, "customer and industry specialists in IBM’s insurance practice work with lead customers to build fast and flexible processes in areas like claims, new business processing, and underwriting. Instead of focusing on short-term product sales, IBM measures the practice’s performance according to long-term customer metrics."

This kind of change is inevitable and will continue to accelerate. Marketing, as we know it, must keep pace, but it is going to be like riding an angry bull suddenly released from the gate. The technology exists at many levels to enable this shift, customers not only want this world, they expect it, and the right set of metrics and data-collection tools exist to enable it. Customer-centric is no longer a buzz word, it is a mandate and the impact is devastating to marketers who don't adapt quickly. We all must acknowledge, as the authors point out, "The key distinction between a traditional and a customer-cultivating company is that one is organized to push products and brands whereas the other is designed to serve customers and customer segments. In the latter, communication is two-way and individualized, or at least tightly targeted at thinly sliced segments."

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