New Strategies for SuccessPublished: September 17, 1999 in Knowledge@Wharton
Today’s business environment is changing so fast that companies are being forced as never before to rethink their core marketing strategies. In our last review published in the previous edition of Knowledge@Wharton we examined the forces changing the fundamentals of marketing as discussed in Mastering Marketing, containing the views of more than 50 marketing strategists from the University of Pennsylvania’s Wharton School, the J.L.Kellogg Graduate School of Management at Northwestern University, the London Business School, and INSEAD, the European institute for management education. Earlier versions of these articles first appeared in the Financial Times, which has now published the book with Prentice Hall as part of its FT Mastering series.
In this, the second of three reports, we look at what these marketing specialists, plus two others from Bentley College and Emory University’s Goizueta Business School, are recommending to companies determined to stay ahead of the competition.
Too many firms these days are selling services their customers see as mere commodities, say Kellogg’s James Anderson and Gregory Carpenter, adding that savvy managements can protect their companies from falling into this "commodity trap." Allegiance, a health-care company in Chicago, does it by assigning its clinical consultants to work directly on its hospital clients’ premises, and Dell Computer does it by having 30 of its trouble-shooting engineers work full-time at Boeing, where it has 100,000 installed computers.
Wal-Mart sells tons of Procter & Gamble’s Pampers disposable baby diapers, and to keep them in stock, says the London Business School’s Arvind Sahay, it transmits daily Pampers sales data from its nearly 2,000 stores to P&G, which restocks them automatically. Xerox successfully fought off competition from Japanese copying machines, says Wharton’s George Day, by offering its customers a "no questions asked" guarantee if they wanted their old Xerox copier replaced with one of equal value. The only proviso was that it had to be serviced by Xerox, thereby locking out low-cost service firms from grabbing the business.
Dalloz Safety Products came up with a money-making discovery, say Kellogg’s Anderson and Carpenter, when it realized it’s a lot easier to get workers doing dangerous jobs to wear safety glasses if they’re made to look like its snazzy new designer sunglasses.
Famous brands such as Harley-Davidson motorcycles can establish strong bonds with consumers by satisfying their neglected desires such as helping straight-laced professionals become macho men on weekends. These buttoned-down bikers, sometimes referred to as "Rolex riders," say Kellogg’s Alice Tybout and Gregory Carpenter, are sitting ducks for Harley-Davidson brand extensions from black leather, spike-studded jackets to stick-on tattoos.
Television is a great way to sell copiers or anything else, but to do it smartly, says Wharton’s Leonard Lodish, you must "test and test again." Why? Because as retailing tycoon John Wanamaker once said, "I know that half of my advertising doesn’t work but I don’t know which half." It pays to test the payback from TV ads by reducing or ending them in key markets. If sales don’t drop off after 6 to 12 months you can confidently reduce outlays for the entire market. And since sales forces often urge management to hike advertising expenditures to draw more attention to their products, Lodish says, positive advertising test results can win over doubting retailers.
Lower-cost private label brands such as A&P’s Ann Page are winning shelf space in to-days affluent economy at the expense of powerhouse national brands, says Wharton’s Barbara Kahn. Margins on private labels can run 20% to 30% higher than national brands, but while big name retailers can sell Campbell’s soup or Folger’s coffee, only A&P can sell Ann Page. When 1,500 shoppers were asked to evaluate private vs. national brands with their labels switched, says Kahn, "they rated the national brands as being of higher quality even though they were actually store brands in disguise."
Edmund Publications of Beverly Hills, California, has created a unique and valuable computer-based business, says Kellogg’s Mohanbir Sawhney, with a site which some 80,000 people visit each day to get advice on the pricing, buying and financing of new or used cars. Edmunds makes its money by referring shoppers to the sites of its strategic partners such as CarFinance.com, Geico insurance, or Price Auto Outlets for off-lease used cars.
Creating a successful new business as Edmund Publications has done immediately triggers competition. says INSEAD’s Markus Christen. "Pioneers," he says, "attract more attention, shape customers’ preferences and can become the category standard. On the operational side, they can secure patents, preempt scarce resources and accumulate valuable market experience. Research shows, however, that in the long run, the average late entrant is more profitable than the average pioneer. Late entrants can free-ride on pioneers’ trailblazing efforts, copy their operational exper-tise, and take advantage of their inertia. But in the end, concludes Christen, "pioneering yields higher short-term profits and, in certain circumstances, is the optimum strategy."
Retailers are well aware that today’s frenetic lifestyles have taken much of the fun out of shopping, although some of it is creeping back in thanks to the heady mix of retailing, entertainment and recreation in today’s megamalls where Viacom and Warner Brothers can be found cheek by jowl with Benetton and Victoria’s Secret. These malls are going flat out to separate themselves from conventional and electronic retailing, say Jagdish Sheth of Emory University’s Guizueta Business School and Rajendra Sisodia of Bentley College. Some of the newest malls boast "nightclubs, zoos, virtual-reality rides, comedy clubs, target ranges, musical reviews and stadium-style cinemas." At an upscale mall in Los Angeles called CityWalk, the authors note, "sales are running at about $500 per square foot compared with about $203 for the average mall."
In the next and last of our three Knowledge@Wharton reports on Mastering Marketing we’ll examine the ways today’s top companies are winning and retaining customer loyalty.