How marketers needed to change in 2010

Next month, April 2060, will be the 10th anniversary of my appointment as interplanetary co-ordinator at Google. I recently made a visit to Earth from my office base in Galaxy 7 to research a historical piece for Market Leader entitled Earth: How Marketers Needed to Change in 2010.

It struck me that the best way to address the topic would be to track what marketers actually achieved in the period 2010–2060 and, from that, draw lessons on how they needed to change in 2010.

As background, let's remind ourselves of the key events on Earth (see chart, right).

The major financial crisis in 2020 occurred because governments failed to take the radical actions clearly necessary after the minor crisis in 2008/9. The customer revolution in 2039 finally forced companies to become customer-orientated, and further enhanced the role of marketing.

MARKETING IN 2010

Marketing started in fmcg in the 1950s. During the next 50 years, fmcg marketers successfully transferred the techniques of marketing to other sectors but, unfortunately, not its philosophy. This involves focusing every activity on meeting customer needs efficiently.

Hugh Davidson talks to the Marketing Society while on his visit from Galaxy 7

Sam Walton, founder of Wal-Mart, summed it up well: 'If you're not serving the customer, or supporting the folks who do, then we don't need you.' A relevant statement, by Howard Morgens, chairman of P&G in the 1960s, has also echoed down the ages: 'There is no such thing as marketing skill by itself. For a company to be good at marketing, it must be good at everything else, from R&D to manufacturing, from quality controls to financial controls.'

By 2010, marketing had only achieved limited success, very different from its dominance today in 2060.

It had largely succeeded in fmcg, much of retailing, delivery services, computer search, drinks and over-the-counter medicines, but largely failed in financial services, energy, telecom, travel and much of B2B.

By 2010, customers had become more powerful and less satisfied. Trust in brands was declining sharply. In many service industries products were opaque and overcomplex. Service companies often regarded customers as something to extract value from, not as partners to add value with.

Unfortunately, in 2010, this strategy of value extraction was often very profitable. A seminal article in the Harvard Business Review of 2007, 'Companies and the customers who hate them' (1), is still remembered. It asked: 'Why do companies bind customers with contracts, bleed them with fees, and baffle them with fine print?' And concluded: 'Because bewildered customers, who often make bad purchasing decisions, can be highly profitable.'

Management in 'value extraction' companies were addicted to the bottom line. The comment by a senior banker, quoted by the Financial Times in 2010 (2), was typical: 'The bottom line is that we have a bottom line. If our costs rise we will charge people more.'

Another illuminating statement, alleged to have been made by a former deputy chairman of Lloyds of London about external investors, was: 'If they behave like sheep, they deserve to be shorn.'

The internet was then in its infancy, and customers were routinely exploited, unlike the way things are today.

THE BIGGEST PROBLEM IN 2010

The biggest problem in 2010 was that most marketers were thinking small. They accepted the business environment they were operating in, rather than trying to change it in favour of the customer.

A typical marketer's day in 2010 revolved around tactical issues. More than 90 per cent of time was spent on maintenance work, very little on development, and almost none on campaigning to change the business environment. Here are the kinds of issues occupying the mind space of many senior marketers in 2010:

how to work better with multiple agencies

capitalising on the internet

hitting the budget

getting the most out of distributors, at least cost

cutting the marketing budget skilfully

managing people and building relationships

day-to-day marketing tactics.

All these 'thinking small' tactical issues needed to be tackled but they did little to advance the impact of marketing or marketers. So, what were the real big issues for marketers in 2010? One stood out above all the others: how can we increase the empowerment of customers?

In fmcg and grocery retailing, customers were empowered with knowledge and helped by high frequency of purchase. They were in the driving seat. By contrast, in financial services, they were routinely abused.

Products were often deliberately complex, dodgy small print proliferated, customer service was poor and there was a strange lack of price or value competition among the big players.

It was no coincidence in 2010 that customer-focused companies operated in sectors where customers called the tune. Strong customers forced effective marketing, so good marketers encouraged more customer empowerment. We all take this simple proposition for granted now in 2060.

BARRIERS TO EFFECTIVE MARKETING

In 2010 there were six major barriers to customer empowerment and effective marketing. None of these big issues received much priority from marketers, whose influence in companies had steadily declined, with few becoming CEOs:

1. Shareholder value approach '

Shareholder value' put the shareholder first. Bad for marketing, bad for customers (3).

2. Weak vision and values by companies

Early this century, I spent two years talking to 125 global organisation leaders about vision and values (4). Few had strong visions; many paid only lip service to values.

3. Limited marketer control over customer touchpoints

In 2010 responsibility for customer touch-points was dispersed and poorly co-ordinated.

4. Negative regulation

Regulation focused on trying to stop companies doing bad things, rather than creating an environment which empowered customers to identify superior value.

5. Ill-advised mergers and acquisitions.

Earlier this century, 60 per cent of mergers failed to add long-term value even for share holders, and many weakened the position of consumers and communities. Unbelievably, marketers were rarely at the M&A table.

6. Insufficient competition in services.

There was weak competition in services. Major banks combined high profits with poor value and service. Structures, regulation and values were not customer driven, with customers often passive and confused.

HOW MARKETERS CHANGED, 2010–60

What occurred in these six areas in 2010–2060 was generally good news for marketers. Let's track what happened:

Change No 1: The Development of Stakeholder Value

Despite resistance from the finance sector, and many CEOs, the concept of shareholder value finally died after the 2020 financial crisis. For decades before 2010, successful companies such as P&G, McDonald's, J&J, Tesco and FedEx had quietly practised stakeholder value where the customer, not the shareholder, was the main stakeholder.

In 2009 after Jack Welsh, one-time chair of GE, said: 'Shareholder value is the dumbest idea in the world', the penny started to drop. Companies realised that profits were the result of superior customer value, delivered cost-effectively by motivated employees. They could no longer be created by massaging the numbers or mortgaging the future. Profits had to be earned, not invented. That's why so few people have heard of shareholder value today.

If you want more on this historical footnote, read an article I wrote 50 years ago in Market Leader (5). It summarised the case against shareholder value and showed how stakeholder value worked. All pretty obvious stuff now.

Change No 2: Strong Vision and Values

In 2010, most organisation visions were platitudes, and you'd laugh if I showed you some now (6). They failed to give future direction and were rarely customer focused. Values were often cooked up in the boardroom and treated with derision by people on the front line.

Why? Because CEOs lacked confidence in their skills to lead in this intangible area. And marketers, the people with the relevant skills, rarely became involved. The good news today in 2060 is that most organisations have strong and distinctive vision and values, plus a management system, led by marketers, to develop and measure them.

Thanks to initiatives by the Marketing Society, the CFM and IPA, marketers really got involved in vision and values in the 2010–2020 period. This also increased their influence at board level.

Change No 3: Co-ordinated Customer Touchpoints

In 2010, more than a million people were involved in aspects of brand development, but less than half reported to marketers.

Companies were not structured to serve customers – they were too complex. With the added complications of interplanetary marketing, company structures have become much simpler, typically with only four executive directors, and a few non-execs with specific roles.

The director of demand is now responsible for sales, customer services, marketing, innovation and anyone helping to bring profitable growth. The director of supply manages supply chain and operations (Figure 1). All three work closely with finance, locally and globally. The CEO usually has experience of both demand and supply but today rarely comes up through finance. This structure helps companies focus on helping customers.

Change No 4: Positive Regulation

Until 2020, regulation was ineffective, adding cost, and hampering rather than helping customers. That all changed rapidly after the big financial crisis of 2020.

Regulators at last recognised that their role was to strengthen customers by increasing competition, breaking up companies with conflicts of interest, insisting on transparent and easily understood products and services, and so on.

An important innovation after 2020 was the requirement that every quoted company had two customer directors, both non-exec. Customer directors today are selected by a randomly chosen panel of employees and the positions are widely advertised.

The voice of the customer is heard loudly. In 2010, less than 10 per cent of board time was spent discussing customers and growth. Now it's more than 60 per cent. Who became customer directors? Qualified members of the public with some knowledge of the markets. Most are women, working closely with the demand director (see table, facing page).

Change No 5: Ensuring M&A Benefit Customers and Communities

Mergers and acquisitions were a running sore in the earlier years of the century. The high failure rate was influenced by the major drivers of M&A – stoking the power, vanity and remuneration of CEOs, and enriching investment bankers rather than benefiting customers or communities.

With the move to stakeholder value, and much greater involvement of marketers, the number of mergers has reduced greatly, but the success rate has improved. The requirement, in 2030, that any merger had to demonstrate benefits for customers and communities had a positive effect, and made M&A more effective for shareholders too.

Change No 6: Intensive Competition in Services Made Value Extraction Unprofitable

The cumulative effect of customer-focused vision and values, demand management led by marketers and positive regulation dramatically increased competition in services.

In 2010 customer value extraction was still a profitable marketing strategy but it's almost disappeared now as it is no longer profitable.

LESSONS FOR 2010 FROM HISTORY

Part of marketing's success in 2010–60 was due to 'wake-up' events such as the major financial crisis in 2020, and the subsequent customer revolution. Megatrends were also favourable to marketing.

The rapid development of the internet transformed the bargaining power of customers and converted most sectors into buyers' markets. The buyer became the most powerful stakeholder. The success of India and China, with low costs and well-educated workforces, dramatically increased competition, especially in services.

The illusion that Western countries could contract out production and operations to the developing world, yet retain control of high-margin tasks such as design and brand development, was destroyed in the 2020s. Now, in 2060, half the world's most valuable brands are controlled by BRIC countries.

But marketers themselves took full advantage of these opportunities, and changed fundamentally in important ways.

Profile of marketers. The best marketers have powerful left- and right-sided brains – both analytical and innovative. 'One-sided' marketers were gradually phased out. The new marketers became smarter than their predecessors in finance, people management, internal politics, and prioritisation.

Thinking big. The new type of senior marketer focused on strategy and people development, delegating tactics more. This freed up time to campaign on the big issues designed to create an environment where marketing could reach its full potential. Marketers clarified their role. Just two things – changing the lives of customers for the better, and enhancing economic performance. They spread the mantra that there's only one route to long-term profitability: committed customers and motivated employees.

Customer-driven regulation. As the 21st century progressed, marketers got more involved in positive regulation, opposing wasteful bureaucracy and giving customers the knowledge they needed to select best value. They helped create an environment where customers could flourish through customer directors, customer and community-driven M&A rules, and the removal of cynical 'exclusion' clauses and small print.

Leading companies in vision and values (V&V). Marketers gradually assumed board leadership in this poorly managed area.

Drive for simplicity and transparency. Marketers further simplified structures, customer propositions and brand ranges. The internet forced greater transparency, ruthlessly punishing misleading claims or weak offers. This helped to raise quality standards.

Could marketers in 2010 have accelerated these changes? Yes, if they had been able to look back from the vantage point of 2060, they would have taken action earlier.

THE GOOD MARKETER

The best thing I can say to anyone is: 'You are a good marketer.' There are plenty in the Marketing Society and outside it. In 2060, after a hundred years of practice, marketing and its enormous potential to change society for the better still excites me.

The good marketer looks after his or her brands, people and customers; nurtures, respects and develops them. The good marketer is strong on analysis, knows about finance and operations; a manager of people and projects; a person of integrity and good judgement. Above all, they listen.

The good marketer believes deeply in the principles of marketing and implements them to six-sigma quality. He or she also gets involved in the big issues affecting customers. The values of the good marketer are the same in 2060 as they were in 1959, when I first started. They are centred on giving customers superior value at minimum cost.

The future of business does not belong to the value extractors but to the value adders, the innovators. The future belongs to the good marketers.

REFERENCES

1. McGovern, G & Moon Y: 'Companies and the customers who hate them' Harvard Business Review, June 2007.

2.Guerrera, F: 'Outcry on Wall Street at “absurd” levy plan', Financial Times, 13 January, 2010.

3.Davidson, H: 'Shareholder value – the enemy of good marketing'. Market Leader, September 2009.

4.Davidson, H: 'The Committed Enterprise – making vision, values and branding work' Elsevier, 2006.

5. Ibid Note 3.

6. Ibid Note 4.

ABOUT THE AUTHOR

Hugh Davidson is author of 'Offensive Marketing and The Committed Enterprise'.