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Customer Manufacturing Update
March 2013
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Where's The Value Add?
An article in Business Week, "Even Better Than the Real Thing," focused on the rise of private label sales in retail grocery during this downturn, and the increased focus these house brands are receiving from their companies. Private label or so-called house brands usually show a sales rise in a downturn. However, this time it may be different. 
Major retailers, including Safeway and Kroger, are hiring product and brand managers to grow these product lines. The article notes that a 1% shift from national brand to house brand translates into $5.5B in increased revenue for retailers nationally.
The primary value to the consumer of the private brand has previously been adequate quality at a lower price point. "Adequate" being a relative term. More house brands are finding ways to offer "quality" at least equal to the national brand at a lower price point. (The title of the article says it all.) McKinsey notes that 75% of consumers who "traded down" to private label during the recession have no plans to switch back when conditions improve.
That's because they actually did not trade down as McKinsey suggests. Consumers have found that in many cases the national brand does not offer added value, only added costs. The difference in price between private brands and national brands may narrow however, as the retailers add costs (brand and product managers and their needs) to the mix. If the house brand vs. national brand price gap narrows from the 20% or so that it has historically been, this will increase the need for the retailers to make sure they are "keeping up with the Jones" if they want to maintain or increase their market share.
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We Need To Go Back To A 1950's Definition of Marketing
We need to go back to an OLD definition of Marketing to succeed in the future. Studies have found that the Chief Marketing Officer of most companies is really only responsible for the "back end" of Marketing: the promotion and communications pieces. We have felt that calling such a position Chief Marketing Officer was a misnomer and fundamentally diminished the true role of Marketing in a company. We have espoused for 20 years that true Marketing is the leverage point in a business; and the only piece that can't be out-sourced. 
Turns out we are 60 years late to the party.
Advertising Age had a very, very interesting article by positioning and brand guru Al Ries. Take a look at this excerpt (and ignore the sexist language):
When I started to work at General Electric...marketing was an omnibus concept that gathered all of a company's exterior activities under one umbrella. As General Electric's 1952 annual report put it, "The marketing department will establish for the engineer, the designer, and the manufacturing man what the consumer wants in a given product, what price he is willing to pay, and where and when it will be wanted. Marketing will have the authority in product planning, product scheduling, and inventory control, as well as sales, distribution and servicing the products."
What the heck has happened to Marketing over the last 60 years to go from that correct definition to the limited one most companies use today, by virtue of the role they give their Chief Marketing Officer? For those of us who've been advocating this very same concept of Marketing as the fundamental function of the corporation, this is interesting, indeed. It turns out that we're not rebels or pioneers, but keepers of the flame!
We have long distinguished between the "front end" of marketing, a.k.a. strategic marketing, that encompasses research, product planning, market selection, and product development, from the "back end" of marketing, a.k.a. tactical marketing, which encompasses the traditional promotional activities of advertising, promotion, sales support, and branding ... which unfortunately is what the term "marketing" has come to mean almost exclusively today (our book, Value Acceleration, explains this division of marketing in much more detail).
Every serious person who has looked at how to improve corporate success has arrived at the conclusion that all the leverage is in doing a better job at the marketing "front end" (for example, the Product Development Management Association has conducted too many studies to list that have arrived at this conclusion).
In our practice we propose a process-centric approach to marketing's front end, to its integration with marketing's back end, and to its integration with other corporate functions. This is a way of achieving the vision articulated in GE's 1953 annual report with tools validated by the undeniable success that business process management has achieved since that report was published.
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There Are No Advanced Management Techniques
In almost any activity in which the stakes are high and the cost of failure immediately imposed - such as military operations and professional sports - there is a saying: "There are no advanced techniques, only the basics done to a high level of performance".
Indeed, spend time with any high-level  trainer in one of these disciplines and you are struck by the utter simplicity of what they do. And by the discipline with which they do it to an extremely high level of skill.
Of course, new developments come along, and techniques change, but the new knowledge is almost always incorporated into training and performance in the form of a basic - not something that is only for "advanced" people in the field; that is: it's incorporated into the basic training of the discipline. It's the same in business management.
New military tactics and equipment are an example of this truth. To succeed in military "management" today, you need to understand the new equipment just as to succeed in "marketing" you need to understand the new reality of the bi-directional communication the Internet and its spin-offs have produced.
Almost nothing that makes a company successful is not part of the basic "blocking and tackling" that any business has to do. There are no magic techniques that can be granted to you by some wizard. The best companies just do what we all learned in management (or marketing) 101 through 501 excellently, consistently, and with discipline. There are no secrets, only discipline and the leadership to encourage it.
This is why we are focused on process management in our practice. New developments in strategic marketing come along only so often, but the lack of a practical tool (process management) to leverage the basics that most companies already have is usually the missing element in obtaining excellent performance.
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How Did It Get So Wrong?
Too many CMOs are really just CMCOs (Chief Marketing Communications Officers). This point was driven home ... again ... in listening to many of the speakers at a recent Marketing Conference.
The breakthrough thinking at this conference, is that Marketing needs to think about the customer first, then the promise of the brand, then the communications piece.
Apparently this is exactly backwards from what they have historically done. And you wonder why "half the money they spend on advertising is wasted." From our perspective, they're lucky it's only half.
Apparently, too many marketing professionals are really marketing communications professionals. While an important skill, communications comes after you know Who you are targeting and What you can provide them that is uniquely valuable. Or at least apparently uniquely valuable.
Marketing Communications, especially in the age of the Internet, is a complex skill and must be driven from a context of understanding the core aspects of the customer and the promise.
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Free Reading Guide
If you have a copy of our book Value Acceleration, you can download a free reading guide to help you and your team get the most from the book. (And btw, the book was updated in 2012 and is also available in a Kindle edition.)
We appreciate your feedback to help improve these Updates. If there are others you feel would benefit from this issue, use the Forward email link just below on the left. Sincerely,
Mitchell Goozé
Customer Manufacturing Group, Inc.
www.customermfg.com |
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