The Business Book

SUCCESSFUL SELLING 249 tactic was not to cut air fares but Marketing is not the art Theodore Levitt to offer better customer service. of finding clever ways to Marshall saw that the customer dispose of what you make. Acknowledged as one of the experience went beyond check-in, It is the art of creating genuine most original management in-flight, touchdown, and passport thinkers of the modern age, control, and he introduced the customer value. Theodore “Ted” Levitt was world’s first arrivals lounges. Philip Kotler born in Vollmerz, Germany but emigrated to the US with his Customer experience for inflight use. Enhancing a family at ten. He served in the Other full-service airlines have customer experience through US Army during World War II, adapted the BA model. Most internet access and applications on returning to enroll at Ohio airlines now rely on optimizing iPads, tablets, and cell phones is University. With his PhD in customer relationships in order to now a vital consideration in many Economics, he joined the gain a long-term, competitive sectors of industry, something on faculty of Harvard Business advantage. United Airlines, for which Google has capitalized. School in 1959, writing his example, has implemented a famous article “Marketing system that lets staff identify high- In 2005, Google purchased a Myopia” just a year later. For value frequent flyers and proactively little-known company called Android the next 30 years he taught at offer them special services if their Inc., which was developing a Harvard, contributing 26 flight is canceled. American Airlines smartphone platform. Two years articles to the Harvard has promoted its use of technology later Apple released its iPhone and Business Review, of which to make the flight experience more rapidly dominated the market; he was chief editor from 1985 appealing for customers, becoming customers loved it since they could to 1989. In its 2004 edition, the first with permission from the replicate the world of the Internet the journal cited marketing Federal Aviation Administration on a handheld device. Online myopia as the most influential (FAA) to allow flight attendants to search giant, Google, saw that it marketing idea of the past use tablets to help them manage the risked becoming beholden to Apple 50 years. Levitt created a onboard experience more efficiently. for access to sell its applications so, similar stir in 1983 with It was the first major commercial with other cell-phone makers, it another article, “The airline to provide branded tablets to developed an alternative—an open- Globalization of Markets,” First Class and Business passengers source operating system that would which led to him being work on all mobile devices. Google credited with popularizing Airport arrivals lounges were now had a platform through which the term “globalization.” offered to BA passengers to enhance it could generate profit with sales of their experience of traveling with the applications and in-app advertising. Key works airline. Rather than cutting prices, BA chose to focus on customer service. Kotler cites Google as a model 1960 “Marketing Myopia,” of innovation, always seeking new Harvard Business Review ways to solve customers’ problems 1983 The Marketing and help them manage vast amounts Imagination of information. Levitt would have agreed with the first line of Google’s corporate philosophy: “Focus on the user and all else will follow.” ■

THE CASH COW IS THE BEATING HEART OF THE ORGANIZATION PRODUCT PORTFOLIO



252 PRODUCT PORTFOLIO IN CONTEXT T he term “cash cow” refers As entrepreneurs, we adore to an investment or area of shiny new things. But don’t FOCUS business that provides a forget to give some love to the Product assessment dependable source of revenue. In a (cash) cows that keep the corporate context, the cash cow is KEY DATES the product or service that buoys business going. 9000 BCE Cattle, including profits year in, year out and provides John Warrillow cows, are used as the first funds so the business can grow. It form of currency. brings cash in, which becomes the UK entrepreneur (1971–) lifeblood: contributing most of the Mid-1960s Peter Drucker operating expenses; paying for uses the term “cash cow” development, launch, and support of in the context of business new products; and propping up it’s management. less profitable ventures. 1968 The Boston Consulting Cash generator a product that is an easy cash Group devises the growth- The cash cow is typically a product generator. He was drawing on the share matrix: a model for that has reached maturity in its life history of commerce in his analogy: categorizing a company’s cycle. Like its real-life counterpart, livestock such as cows, goats, and products according to its its initial cost has been paid off, it camels served as currency from market share and growth needs little maintenance, and it around 9,000 BCE. While Drucker potential. can be “milked” for the rest of its understood the value of the cash life. Although such products may cow, at the same time he cautioned Early 1970s Consultancy no longer be growing, they still against overreliance on it. He company McKinsey & generate substantial revenue advocated a strategy of planned Company develops alternative because they have good market abandonment when the cash cow GE–McKinsey matrix with share and no longer require much is challenged by another product, client General Electric. capital outlay to keep them going. potentially a rival within the company’s portfolio, which is 1982 H. C. Barksdale and Management veteran Peter growing faster. C. E. Harris publish their new Drucker is said to have first used matrix in “Portfolio analysis the “cash cow” metaphor in the and the PLC.” mid-1960s; he certainly referred to it throughout his career to describe The Boston Consulting Group In 1875, the Boston Safe Deposit thinkers Bruce Henderson (1915– the company. Initially finding it and Trust Company was set up 1992) led to the founding of the difficult to land clients and in its home port in New England Boston Consulting Group (BCG). compete against larger to offer safekeeping services to This management consultancy consultancies, Henderson came local merchants and ship owners. was essentially a one-man band up with the idea of offering Run by several generations of the with Henderson at the helm. “business strategy” as a unique prominent Bostonian family, the service. A few years later, with Lowells, the company had grown Henderson had been a Bible a team of 36, Henderson devised by the 20th century to become a salesman before completing an the now-famous growth-share prominent financial institution. engineering degree at Vanderbilt matrix (1968). His company, University, Nashville, and going on BCG, has since grown to In 1963, a chance meeting to study at Harvard Business become a significant global between the Boston Safe School. He joined Westinghouse management consultancy Deposit and Trust Company Corporation before graduating, employing more than 2,000 staff CEO John Lowell and one of the becoming one of the youngest in 75 offices around the world. US’s brightest management vice-presidents in the history of

SUCCESSFUL SELLING 253 See also: Managing risk 40–41 ■ How fast to grow 44–45 ■ The Greiner curve 58–61 ■ Profit versus cash flow 152–53 ■ Leading the market 166–69 ■ The MABA matrix 192–93 ■ The marketing model 232–33 ■ Marketing mix 280–83 The cash It does not require The cash cow However, it is cow generates any further outlay is the beating a mature product a good income and it funds the and has a good development of heart of the and growing organization. star products share of the new products. are also necessary market. in a balanced portfolio. Peter Drucker cited the case of IBM risks that come with innovation decline. When making decisions in the mid-1970s. The mainframe and developing new, leading-edge about which products it should computer was its cash cow, but the products and ended up being continue to manufacture, an newly launched PC was its fastest- unable to compete amid the rapid organization needs to consider growing product; in fact, IBM technological and marketplace the life cycle of each product and dominated the PC market at first. changes of the 1990s. the balance or synergy between However, the company deliberately all the products in their portfolio. restricted sales of PCs for fear of Drucker may have been the jeopardizing its cash cow, and in first to use the term in a business The BCG matrix provides an doing so, allowed time for clones to context, but the Boston Consulting analytical tool for assessing the flood the market. In fact, IBM lost Group (BCG), founded by Bruce effectiveness of the product mix so much ground that its PC Henderson, first incorporated the and its profitability. A business ❯❯ business never recovered. IBM’s cash cow into a business model in product portfolio continued to be 1968. Referred to as the BCG IBM launched its PC in 1981 and it subordinate to its cash cow. With matrix, Boston Box, or growth- sold well. However, the company failed investors in mind, they avoided the share matrix, this model graphically to capitalize on its success, focusing depicts the relationship between instead on its mainframe computers. A company should have a market growth and market share. portfolio of products with It quickly became a popular different growth rates and business tool for making decisions different market shares. The about which products to wind portfolio is a function of the down and which ones to invest in. balance between cash flows. The product portfolio Bruce Henderson The starting point for the BCG matrix is the concept of a product portfolio—the total mix of products offered by an organization. These can be categorized according to their share of the market, revenues, and growth potential. Each one can also be assessed by its position in the “product life cycle,” which tracks the path of a product from initial growth to maturity and then

254 PRODUCT PORTFOLIO MARKET GROWTH The BCG matrix “Stars” are products that have a Low High can be used to large market share in a growing categorize products market. These require investment MARKET SHARE Dog Question mark in terms of growth to maintain their position and help High Low products have low products, and market share, them grow into the dominant market share and so companies can product in the market. They have growth prospects; sometimes also check that they have the potential to be a future cow. they may be ripe referred to as a well-balanced “Infants,” have product portfolio. “Cows“ are products that were for divestment. Products with a once stars. They continue to hold a the potential for high market share large market share, but they are growth. are plotted into cells mature products in an established on the left-hand market that has little potential for Cow Star column, and those growth. They no longer need much products have a products are with low market investment, because they have strong presence high-selling items share on the right. reached their growth potential, and in the market and in a market that The top row is home as market leaders they sell in large generate a solid is expanding. to products with high numbers of units, giving them the potential for growth, advantage of economies of scale. revenue. while those in the This means they generate cash bottom row are in while costing very little. declining markets. can use this information to make culling from the product portfolio. The matrix in practice sure it has a mix of products that However, before the dog is sold off Nestlé is often cited by management will satisfy its short- and long-term or disposed of, management must theorists as a textbook example of needs, and to think about the priority consider if it is worth keeping for how a company might arrange its and resources they should allocate strategic reasons. For example, if it product portfolio according to the to each product. The matrix assesses is blocking a competitor product or BCG matrix. The world’s largest products on two levels: first, the the market for that industry is likely food company, with some 8,000 potential growth in the market for to pick up in the future, it might be brands, Nestlé has developed a that product; second, the market worth retaining. Or it may play an strategy of building its long-term share held by each product. important role in complementing cows and keeping them as fresh as another product in the portfolio possible, devoting capital to Using the Boston matrix and providing customers with a product areas that have a prospect By using the matrix, managers can stepping stone to that product. of high returns, and shedding see where their products fall among four categories: dogs, question Like the dog, the “question High-growth products require marks, stars, and cows. “Dogs” are mark” product also has a low share cash inputs to grow. products that have low growth of the market, but it is in a high- prospects and a low market share. growth industry. Products in this Low-growth products should These products may be making a box can create a dilemma for the generate excess cash. Both are loss, barely breaking even, or company. If it is new, does the possibly generating a tiny amount product need more time to prove needed simultaneously. of profit. Because they are in a itself, and more investment in Bruce Henderson slow-growing market, there is little manufacturing or marketing? Or chance that performance will does it need more market share, improve under current conditions. which could be arranged by buying Products that fall into this cell of up competitors? Perhaps it needs the matrix are candidates for repositioning in the market. Or should it be dropped entirely?

SUCCESSFUL SELLING 255 products with limited potential. Nescafé coffee is Nestlé’s largest competitive strength. In 1982, The coffee brand Nescafé has brand, a cash cow valued at $17.4 billion. H. C. Barksdale and C. E. Harris continued to perform well since its Growing since World War II, the product proposed two new product 1938 launch, thanks in part to the generated sales of $10 billion in 2012. classifications to add to the original company’s strategy of investing in BCG matrix: “warhorses” and and expanding the range. At growth market, elevating food “dodos.” Warhorses lead the market different times in the company’s products for real dogs and cats into but are threatened by a negative history it has been a cow and a star star products. market growth, so a business must product. Instant coffee is now a gauge whether to ride out the storm reliable cow, funding expansion in Portfolio management in the belief that it will pick up, or other areas. However, the company’s Other models have evolved from the work the horse as long as possible organic food range has suffered low BCG. In the 1970s, General Electric with minimal outlay. Dodos are market share in a growing market, consulted with business advisors about to become extinct, with low making it a question mark. Nestlé’s McKinsey & Company to develop share in a negative growth market. large share of the food seasonings an alternative known as the GE– sector, a low-growth area, could be McKinsey matrix. This nine-cell seen as a cow. model enables a more complex analysis of the product portfolio, Through a series of acquisitions, and allows companies to plot Nestlé has become the leading market attractiveness and pet-food maker in a globally high- Although they lead the Barksdale and Harris market, warhorses are created a matrix that added threatened by the prospect two new classifications known as warhorses and of negative growth. dodos, both of which were expected to decline. On their way to Using the matrices extinction, dodos have A 1981 study by management a low share of a market professors Richard Bettis and W. K. that has an outlook of Hall, and supported by P. Haspeslagh in 1982, found the BCG matrix was negative growth. used by 45 percent of companies ranked in the Fortune 500. However, the BCG matrix has attracted criticism for being overly simplistic and basing judgements on cash flow rather than return on investment. A study by Colorado State University in 1992 discovered that companies using the BCG matrix and similar models had lower shareholder returns than companies not using such models. Despite its detractors, the BCG provides an easy way to make sense of the product portfolio and the strategies involved in managing it successfully. ■

256 EXPANDING AWAY FROM YOUR CORE HAS RISKS; DIVERSIFICATION DOUBLES THEM ANSOFF’S MATRIX IN CONTEXT An organization needs to F irst published in 1957 in the develop and grow... Harvard Business Review, FOCUS Ansoff’s matrix is a Strategic planning ...but moving away from marketing tool for planning the existing products strategic growth of an organization. KEY DATES is risky... Created by mathematician Igor 500 BCE The concept of Ansoff, it is intended for businesses “strategic planning” is first ...and developing that are ready to expand and have used in military campaigns new products to sell the resources to fund growth. The in ancient Greece. matrix offers four possible strategies in new markets that a company might adopt, 1920s Harvard Business doubles that risk. depending on the status of its School develops the Harvard product and the conditions of the Policy Model, one of the first Expanding away from market: market penetration, market strategic planning approaches your core has risks, development, product development, to private businesses. diversification and diversification. In addition to doubles them. presenting these four strategic 1965 Igor Ansoff’s Corporate options, the matrix also attaches an strategy: an analytic approach inherent risk factor to each one. It is to business policy for growth crucial for decision makers to take and expansion is the first book the risk factor into consideration, on corporate strategy. lest it gamble too heavily with the company’s existing resources. 1980 Michael Porter introduces his theory of The four strategies competitive strategy. Each approach is differentiated by whether products or services are 1989–90 Concepts of core unchanged or new, and whether competence and strategic they remain in the existing market intent are developed by Gary or are entering a new one. The least Hamel and C. K. Prahalad. risky of the four strategies is “market penetration”—maximizing sales of an existing product in an existing market. In this approach,

See also: Managing risk 40–41 ■ Take the second step 43 ■ How fast to grow SUCCESSFUL SELLING 257 44–45 ■ Protect the core business 170–71 ■ The MABA matrix 192–93 Is Ansoff’s matrix still relevant? Increasing risk Igor Ansoff (1918–2002) is remembered as the father of EXISTING NEW modern marketing strategy. PRODUCTS PRODUCTS His matrix has generated many variations over the decades Ansoff’s matrix is EXISTING Market Product and became one of the expressed as a square MARKETS penetration development foundation stones of business divided into four equal strategy, underpinning ideas cells, each of which Increasing risk NEW such as core competence and represents different MARKETS competitive strategy. marketing strategies, Market Diversification with different development In the 1970s Ansoff combinations of recognized the problem of product status and “paralysis by analysis”—the market conditions. overthinking of a problem and Market penetration is subsequent failure to act. He clearly the least risky, advocated a more flexible while the quadrant of approach, based on local diversification presents conditions and a company’s the highest risk. individual cirumstances. greater sales might be achieved markets. This strategy reduces risk Ansoff’s matrix has through competitive pricing, in the long term by alleviating a limitations. Because it focuses advertising, loyalty programs, or company’s reliance on core products. on market potential and by driving out competitors. However, a company can risk a great strategies for growth, it is not deal, depending on the initial able to support other factors “Market development” entails outlay, and needs to have plenty of and scenarios, such as the selling the same product in different resources if the strategy fails. resources available, or if a markets. Additional spending may company’s priority is survival be unnecessary unless localization A risky venture rather than growth. However, is required, but the cost of setting UK supermarket Tesco’s venture used with other marketing up distribution channels in the new into the US shows the risks of tools, it remains valuable and is market poses some risk. In this diversification. After 10 years’ still used to gauge actual and model, different geographic or preparation, it launched its Fresh & expected growth. demographic markets, or alternative Easy stores in 2007, but misread the sales channels—such as online or market. Positioning itself in the As companies became direct—might be tapped. middle, it was neither upscale nor increasingly skillful strategy discount, with most of its outlets in formulators, the translation of “Product development” strategy working-class suburbs where strategy into results ... created is the sale of new or significantly consumers looked for bargains. improved products to an existing Critically, Tesco’s small-scale, paralysis by analysis. market. Here, the cost of product walk-in stores did not suit the Igor Ansoff development, associated average car-dependent US shopper. distribution, and marketing support The investment did not pay off, poses a risk. Companies adopting costing Tesco over $1.9 (£1.2) this strategy might offer variants of billion. The outcome may not have the product, or develop related goods. been forecast by Ansoff’s matrix, but the risk would have been clear. ■ The final, and riskiest strategy, is that of “diversification”—moving into new product areas and new

IF YOU’RE DIFFERENT YOU WILL STAND OUT CREATING A BRAND



260 CREATING A BRAND B rands are how organizations Products are made make their product or in the factory, but brands IN CONTEXT service stand out from are created in the mind. the competition. In ancient times, FOCUS cattle and slaves were branded to Walter Landor Brand creation show ownership, and in the Middle Ages paper manufacturers could German brand expert KEY DATES be identified by a watermark in the (1913–95) 1850s During the industrial paper. However, our modern idea revolution products are mass- of the brand—which includes every such as Levi’s began to stamp their produced for the first time, so part of the perceived identity of name on products. These companies supply outstrips demand. a company, from logo to affiliations— were seeking to build a direct did not emerge until the mid-to- relationship with the customer. 1880s and 90s In the US and late 19th century. Europe, brand names— The dawn of advertising including Coca-Cola, Kelloggs, The increasing number of Brands took off in the 1950s, when and Kodak—become popular middle-class, literate consumers there was a postwar boom in mass for promoting products. in Western societies were able for production and televisions became a the first time to choose from a common item in homes. Businesses 1950s TVs become popular in range of items rather than buy from such as Unilever and Procter & the home, providing a new way necessity. In the US and Europe, as Gamble began to create identities for companies to send sales the supply of packaged goods for otherwise indistinguishable messages to the mass market. continued to grow, manufacturers soaps and laundry detergents. They saw the importance of differentiating needed to package their product so 2002 The average number their products. Coca-Cola launched that consumers would reach for it of brands in a US supermarket in 1886 with its name in a is 32,000, compared to distinctive script, backing up the 20,000 in 1990. brand 30 years later with a now- famous contoured bottle. Quaker 2013 Brand advocates— Oats used a man in Quaker members of the public who clothing on its 1896 advertisment, recommend products or holding a package of oats in one services online—are hand, and a scroll saying “Pure” in estimated to number 60 the other. Clothing manufacturers million in the US alone. A person or company Vision and values form These are integrated into has an idea that part of the idea. one “personality” for the is different. product or service. The brand stands out Packaging and In this way, the idea because its positive promotion communicate and all its elements differences from the become the brand. competition are clear. and reinforce the brand image.

SUCCESSFUL SELLING 261 See also: Finding a profitable niche 22–23 ■ Stand out in the market 28–31 ■ Understanding the market 234–41 ■ Make your customers love you 264–267 ■ Generating buzz 274–75 ■ Feedback and innovation 312–13 The “easy” brand began as an airline, but its brand essence—“more value for less!”—has been successfully applied to more than a dozen businesses, from pizza delivery to office-space rental. first. With the rise in self-service stores and supermarkets, brands had to catch the consumer’s eye on the shelf and also appeal on an emotional level. Persil, for example, played on a housewife’s pride in the whiteness of her laundry with the slogan: “Get your whites right.” Creating a brand members of that group. The most for example, was a simple idea. Today, a brand is more than just a powerful brands even have Company founder Sir Stelios Haji- logo or attractive packaging. Brand identifiable ”nonbelievers”—think Ioannou wanted to make air travel creation has to start with an idea, Coke vs. Pepsi, or Mac vs. PC. The easy, cheap, and different than the and the idea is more likely to be sense of belonging to a group that large airline approach. The “easy” successful if it is different than the seems to share your own values is brand, which started in the UK competition’s. Typically, it starts a key part of consumer loyalty. with the launch of an airline in with the customer and what they 1995, is now used by more than a want or need. It might also be based Translatable brands dozen different businesses all over on the way the new company or It is often hard to tell whether the the world. The “easy” idea had product is fulfilling a gap in the product makes the brand, or the many different elements that market. Pret A Manger, for example, brand makes the product. EasyJet, brought it to life—from the way launched its healthy fast-food cafés people book their tickets online as an alternative to the ubiquitous A product can be quickly to the no-frills service onboard— burger chains. The brand revolves outdated; a successful but the essential idea of selling a around the concept of fresh, additive- brand is timeless. basic service at an affordable price free food prepared daily at every Stephen King was translatable to many other branch. Alternatively, a new product forms of business. might be something that improves UK advertising executive on the existing technology through (1931–2006) Vision and values new and innovative design, such as The different elements that make Dyson’s bagless vacuum cleaners. Or up a company’s vision and values the idea might be something that no are integrated to create a brand’s one has thought of before, and did personality. Companies look to this not even know they wanted, like the “personality” to provide the Unique iPad, which has become Selling Proposition (USP) that will indispensible to millions. make their product or service stand out from the competition, while ❯❯ One of the key things about a successful brand, such as Apple or Dyson, is that they build an affiliated community—people who like iPads or prefer Dysons, and are happy to be identified with the other

262 CREATING A BRAND the individual values and vision A brand that captures your language, informal website, and take the brand from an idea on a mind gains behavior. quirky offices at Fruit Towers also piece of paper to a commercial help create Innocent’s personality, reality. The vision for the company A brand that captures your conveying a bold, irreverent brand. reflects where the founders or heart gains commitment. directors want to take the idea. The The third place vision of the furniture store IKEA, Scott Talgo Howard Schultz, who built Starbucks for example, is to create “a better into a global brand, had the idea of everyday life for the many people.” US brand strategist a coffee company with a distinctive The business idea that supports this personality that could create a vision is to offer good-quality of their innovative company to be sense of connection. When Schultz furniture at affordable prices. IKEA openness. Each fruit drink carries joined in 1982, Starbucks was a has become a global brand because a label inviting customers to “call single store in Seattle selling fresh- all aspects of their business support the bananaphone” with their roasted, whole-bean coffees. The this idea, from the unique layout of views, or to drop in to the company name, taken from a character in the shopping environment—such headquarters, Fruit Towers, at any Melville’s Moby Dick, evoked the as family-oriented restaurants and time. The Innocent website also seafaring tradition of early coffee children’s play areas—to invites visitors to join the Innocent traders. Schultz traveled to Italy the advertising. Today IKEA is the “family” and make suggestions for following year and observed that in world’s largest furniture retailer. what the company should do next, Italian coffee bars, coffee was more “as we sometimes get confused.” than just a hot drink: it was an What kind of brand? Their chatty, informal approach experience that sparked daily Values are another subtle element of suggests that the company exchanges. He decided to bring the the brand, and summarize what the prioritizes openness and dialogue Italian coffeehouse tradition back brand stands for. It is important that with customers, whose values and to the US, where he had seen companies don’t just state their opinions it respects. The tone of limited casual social interaction. values; they should be reflected in the way the company operates. The concept of the “third place” was born—a place between work The three founders of the fruit- and home where you can enjoy smoothie company Innocent, conversation and a sense of which started life at a British community. This idea became an music festival in 1999, decided essential part of the brand and was they wanted one of the key values carried through in the café design: Anita Roddick Born to an Italian immigrant that businesses have the power couple in an English seaside town to do good, and she pioneered in 1942, Anita Roddick described the prohibition of animal testing herself as a “natural outsider.” She for cosmetic products, pushed started The Body Shop, a retail the adoption of fair trade, and cosmetics and beauty business, in lent business support to political 1976, with one store in Brighton. causes such as Greenpeace and Drawing on her own diverse Amnesty International. experience and travels in Europe, Africa, and the South Pacific, she In 2000 she published her created natural cosmetic products autobiography Business as in recyclable bottles. The Body Unusual, followed by a series of Shop went on to shape ethical activist publications. She was consumerism because of Roddick’s made Dame Commander of the personal drive and the campaigns Order of the British Empire in that were promoted within her 2004. In 2006 The Body Shop stores. Roddick’s firm belief was was purchased by US giant L’Oreal. Roddick died in 2007.

SUCCESSFUL SELLING 263 REVENUE POTENTIAL and fair trade for suppliers. Despite the strength of branding, Bonding there has been a backlash against This is definitely my kind of brand. the dominance of some brands. Naomi Klein’s 1999 book No Logo Advantage sparked the no-brand movement, I can see how this brand fits me better than others. which highlights globalization and the exploitation of workers in less- Performance L O YA LT Y developed countries who make How well does it compare branded goods, such as sneakers. with other brands? Japanese retailer Muji has consistently followed a no-brand Relevance strategy. At the heart of its ethos is kanketsu (“simplicity”). Product Does this brand fit my packaging is plain and the company spends little on marketing The brand pyramid needs and budget? of advertising, relying on word of mouth. Ironically, this has served was created by the Presence to differentiate the company and its consulting company I have noticed products, creating a loyal following. Millward Brown in the mid-1990s to illustrate the the brand. Today, technology is changing the way that consumers perceive five key stages of building brands. Social media and the Internet encourage consumers to customer loyalty. Revenues share feedback and interact. Big global brands, such as Apple, can increase as customers move influence consumer behavior and have the potential to change society. from an awareness of the product But organizations also recognize that consumers have greater choice to complete commitment. than ever before, and are focused on creating brands that can engage relaxing leather sofas, comfy chairs, products were made, and broader with them on a personal level. ■ and freely available newspapers. In ethical issues was growing. the 1990s, the rise of the coffee bar Roddick sold natural products in on street corners became a social refillable bottles, and aligned the phenomenon that spread from brand with a number of causes. North America to Asia, Europe, and The Body Shop became globally beyond, because they met people’s successful because it was uniquely needs for a friendly gathering place. associated with social responsibility; respect for human rights, the Ethics and branding environment, and animal protection; Anita Roddick started the cosmetics store The Body Shop in the 1970s when her husband was traveling across the Americas, and she needed to support herself and her family while he was away. She had little business experience, but had a gut instinct that her products had to be different to sell. Mass production had brought choice to consumers, but interest in the sourcing of ingredients, how The Starbucks brand is instantly recognizable. In the 1990s Starbucks marketed itself as a relaxing spot between work and home, as well as a place to drink fresh coffee.

264 IN CONTEXT THERE IS FOCUS ONLY ONE Customer loyalty BOSS: THE CUSTOMER KEY DATES 1891 Trading stamps are MAKE YOUR CUSTOMERS LOVE YOU introduced in the US to encourage repeat shopping. Customers are rewarded with stamps that can be collected and redeemed for goods. 1962 Sam Walton opens Wal-Mart, with the slogan “Satisfaction Guaranteed.” 1967 The first toll-free 1-800 customer service centers are launched in the US. 1981 American Airlines offers the industry’s first frequent- flyer program to reward customer loyalty. 1996 With the growth of the Internet, live-chat and email customer support is introduced for online shoppers. T he idea that the customer determines how successful a business becomes has been accepted by numerous entrepreneurs and management experts since the late 19th century. Logically, if customers are happy with a product or service they will make repeat purchases and give recommendations to their friends and family. This helps the business to grow, and in effect pays the wages of employees. Like any love affair, the intensity of a relationship between supplier and buyer is emotional as well as physical. The process involved in building passion and trust between the two parties

SUCCESSFUL SELLING 265 See also: Porter’s generic strategies 178–83 ■ Understanding the market 234–41 ■ Focus on the future market 244–49 ■ Promotions and incentives 271 ■ Maximize customer benefits 288–89 ■ Fulfilling demand 294–95 Customers will reward Therefore companies must Exceed your customers’ good quality give customers what expectations. If you do, they’ll they want... and service with come back over and over. brand loyalty. Sam Walton There is only one ...if they are to cultivate a most people to resist. Coca-Cola is boss: the customer. loyal customer base. credited with introducing the first such enticement in 1887, with a requires not just creativity on the of excitement. The store not only coupon for a free glass of cola. part of the business to promote offered desirable products to buy, an emotional connection with but a complete experience that In the case of Wal-Mart founder the customer, but also practical allowed customers to fantasize Sam Walton (1918–92), saving the know-how to ensure streamlined about a more luxurious lifestyle. customer money was at the core production and distribution of his business plan and this systems. These practical aspects One of the most powerful strategy is credited with making include such things as: order cycle emotional drivers in wooing a him one of the most successful time; availability of products; customer is money—the promise merchants of the late 20th century. convenience of ordering; flexibility of getting more for less is hard for “The idea was simple,” he of delivery times; the look of the explained. “When customers packaging and the ease of opening thought of Wal-Mart, they should it; the simplicity of the returns think of low prices and satisfaction process; and the accessibility of guaranteed. They could be pretty customer service personnel to sure they wouldn’t find it cheaper deal with problems or questions. anywhere else, and if they didn’t like it, they could bring it back.” Customer satisfaction Historically, the process of wooing The importance of quality customers took place face-to-face The quality of the product or on the store floor, and department service being sold is another stores led the way at the turn of the emotional force for customers. 19th century. Selfridges in London Unlike price, which must be was designed from scratch to give consistently kept low for sustained shoppers, especially women, a rush customer commitment, quality ❯❯ Selfridges department store was a destination as well as a place to shop. It featured cafés and a roof garden, and Harry Selfridge exhibited items such as John Logie Baird’s television in the store.

266 MAKE YOUR CUSTOMERS LOVE YOU must be kept high for a long and and building an emotional Customers are willing to line up happy marriage between producer experience around it can be enough for bargains, such is their loyalty to and end user. The founder of to make customers love you—so particular brands. In Italy, shoppers Selfridges, Harry Gordon Selfridge, much so that they are prepared to wait outside a Burberry store in Milan advised: “Remember always that pre-order, wait, and line up. This is on the first day of the sale. the recollection of quality remains demonstrated most clearly in the long after the price is forgotten. fashion world, where customers all the stages of the buying process. Then your business will prosper willingly suffer the indignity of Although acquiring new customers by a natural process.” scrambling for limited-edition is always an important part of handbags or shoes, or—in the case marketing strategy, more income In the early 1980s, industries of luxury brand Hermès—wait is usually generated by existing first quantified the impact of years for a bag. However, for most customers. These customers product quality on profitability businesses this is the exception. will continue to buy the same through studies such as PIMS product or service, or may begin (Profit Impact of Market Strategy). Customers expect providers purchasing other products from the Before this time, “quality” was not of goods and services to do same provider. The business world usually a high priority for industry everything possible to win them has come to recognize that some leaders, but as research continued over and keep them happy through customers are more profitable to show the clear link to profitability, than others, and it pays to woo product quality became an profit-inducing customers and essential factor in strategies for entice them to spend more. attracting and keeping customers. In online retail, repeat purchase Paying a premium can be encouraged by email Even though a company may not campaigns tailored to the buying have the biggest share of the history of the customer. In the market, it can still generate the mail order or direct mail industry, biggest profit if its customers mailings with special offers or perceive the product quality to be cross-selling promotions for so high that they are willing to pay complementary products serve more for it. In the smartphone a similar function, while in a store market, for example, Apple’s iPhone the astute involvement of the sales has a relatively small share but staff can directly provide an garners around 50 percent of the emotional rationale for an additional profit. Making a desirable product sale, though they are also a cost to The Likert scale, created by US psychologist Rensis Likert in the 1930s, is designed to measure attitudes. The five-point scale offers responses to a statement, and participants pick the response they most agree with. Considered a good way to get customer feedback, the scale has been criticized for giving skewed results due to its forced set of choices. Strongly Agree Neither agree Disagree Strongly agree nor disagree disagree

SUCCESSFUL SELLING 267 the business. Making your The customer can fire you and win their loyalty. For founder customers love you therefore hinges by simply deciding to do Tony Hsieh the call center is not a on both the quality of the product running cost, but an opportunity or service and the benefits for the business elsewhere. to market. Call center employees do customer in remaining loyal to a Michael Bergdahl not read from scripts—they seek to particular brand or company, make an emotional connection with whether that’s for convenience, US director for people, Wal-Mart customers. Their reputation for a bargain, or a feel-good factor. (1954–) going out of their way for customers is now enshrined as part of the Cultivating loyalty of points, they receive “Nordstrom brand. Simple tactics such as Pioneered by the airline industry Notes,” which can be redeemed sending goods ahead of schedule, with its frequent-flyer programs, against future purchases. Many and a 365-day returns period, have the idea of loyalty programs is other stores around the world run helped to build a repeat purchase especially important to retailers. similar loyalty programs. rate reported at about 75 percent. A successful loyalty program will not only offer customers a “money- Online challenges CEO of Amazon Jeff Bezos back” type of incentive, but will Retailers who exist online potentially paved the way for the development also enable the business to gather have more to gain from loyal of customer satisfaction in the data about customer preferences, customers, but first they have to digital era. Bezos was able to spending habits, favored brands, overcome the lack of an immediate overcome some of the potential and reaction to promotions. emotional connection provided by stumbling blocks of Internet Retailers use this data to make the ambiance of a physical store. retailing, such as customers not decisions about what products to being able to touch the products stock. Through its loyalty program, For example, Zappos, the online and having to wait for delivery, since US department store Nordstrom shoe seller, uses its call center to its customer service includes next- records the size and color forge relationships with customers day delivery and free returns. The preferences of customers, as well company has consistently ranked at as birthdays, anniversary dates, the top of the American Customer and other personal information. It Satisfaction Index. As Bezos offers “Fashion Rewards”—points asserts, “If you make customers earned for every dollar spent with unhappy in the physical world, they its store card. When a customer might each tell six friends. If you has accumulated a certain number make customers unhappy on the Internet, they can each tell 6,000.” ■ Is the customer always right? Customer loyalty and store cards Department store owners Harry However, since the 1990s, encourage repeat purchase of products Gordon Selfridge (1857–1947), marketers have adopted a more and also provide businesses with the who founded Selfridges in discriminating approach to opportunity to gather data about their London in 1909, and Marshall customers in the belief that the customers’ shopping habits. Field (1834–1906), who in 1865 customer is not always right. started the store bearing his name in Chicago, are both Each customer can be credited with coining the phrase, measured by their individual “the customer is always right,” return on investment (ROI) which has come to mean that it or lifetime value, allowing is cheaper to retain a customer customer-service efforts to focus than find a new one. In an era of on the more profitable patrons. overblown product claims it was Using ROI, some businesses an approach designed to attract differentiate between customers the burgeoning middle classes. who are always right and those who are not worth listening to.

268 WHITEWASHING, BUT WITH A GREEN BRUSH GREENWASH IN CONTEXT When an environmental issue or disaster becomes public knowledge, many consumers want to help FOCUS by shopping responsibly. Business ethics To attract these customers… KEY DATES 1985 Scientists announce that …Company A …Company B …Company C they have discovered a hole in implements makes minimal misleads the the ozone layer. public on its fundamental changes environmental 1986 First use of the term environmental in order to “greenwash” in an essay by claim green policies. US environmental activist reforms. credentials. Jay Westerveld. Some companies Some companies use 1990 By the 20th annniversary take environmental environmental issues as a of Earth Day, a quarter of marketing tool—whitewashing, all new household products issues seriously. coming on to the US market but with a green brush. are advertised as “recyclable,” “biodegradable,” “ozone friendly,” or “compostable.” 1992 The Federal Trade Commission, in association with the US Environmental Protection Agency, publishes “Guidelines for Environmental Marketing Claims.” 1999 The word “greenwash” enters the Oxford English Dictionary.

SUCCESSFUL SELLING 269 See also: Crisis management 188–89 ■ Avoiding complacency 194–201 ■ Morality in business 222 ■ Creating an ethical culture 224–27 ■ The appeal of ethics 270 T he notion of “greenwashing” circumvented or public relations environmental angle, these emerged during the rise problems to be solved. However, in companies frequently appeared in of the environmental 1985, news of the hole in the ozone the press. Their publicity made the movement in the 1990s, and it layer led to a successful consumer adoption of green policies and refers to the perceived practice by boycott of aerosols propelled by products even more alluring. corporate and government sectors chlorofluerocarbons (CFCs), which of adopting an environmentally were considered one of the main At the same time, there was friendly veneer. In the same way threats to the ozone layer. As the growing evidence that consumers that public-interest issues are ground swell of consumer support did not believe everything they described as “whitewashed” when for the environmental movement read or saw and had developed they gloss over difficult aspects or grew, marketers saw an advantage a general scepticism about the cover them up, so “greenwashing” in aligning their products and business world’s green intentions. is defined as putting a surface corporate identity with green issues. However, the corporate world still gleam over environmental topics saw a commercial advantage in to detract from any serious The marketing world first being green, and marketers began discussion or definitive action. seemed to embrace the concept to adopt strategies to try to connect of safeguarding the environment with eco-aware consumers. Environmental activist and New after the release of the Brundtland Yorker Jay Westerveld was the first Report in 1987 (see box). The 1990s Greenwashing has appeared to use the word in print, in a 1986 were forecast as heralding a green in surprising places. The nuclear essay about the practice of hotels revolution, and businesses rushed industry has tried to dispel its asking guests to avoid using too to associate themselves with reputation for being dangerous by many towels, in order to reduce environmentally friendly products presenting nuclear power as a laundering and help the environment. and processes. remedy for global warming. Arms Westerveld interpreted this as a ploy manufacturer BAe announced in to save money rather than the planet. Green companies 2006 that it was making “lead-free Businesses such as The Body Shop bullets.” Marketers need to Growing movement and Volvo had already adopted remember that the public is Until the 1980s, business managers green strategies as early as the generally able to distinguish mostly treated environmental 1970s, and because the media between policies and practices that issues as potential obstacles to be were looking for stories with an are genuinely eco-friendly, and those that are simply greenwashing. ■ Shades of green By the mid-1990s, however, The incidence of … several key studies revealed greenwash—outright, In the years after the release that there was an inconsistency purposeful untruths … of the 1987 United Nations between consumer intent and is probably not that high. Brundtland Report calling for consumer action when it came But there’s an awful protection of the environment, to paying higher prices for green lot … that gets close. the volume of green advertising products. There were also Andrew Winston and campaigns increased worries over the negative effect dramatically. Between 1989 that green strategies might have US environmental strategist and 1990, green product on the attitudes of shareholders. launches in the US doubled. They continued to expand These factors may have led through the early 1990s, to a form of greenwashing where buoyed by market research organizations make genuine but showing that consumers were minor changes to products or interested in environmentally processes to present a green responsible products. face, but do not let environmental issues dent the bottom line.

270 PEOPLE WANT COMPANIES TO BELIEVE IN SOMETHING BEYOND MAXIMIZING PROFITS THE APPEAL OF ETHICS IN CONTEXT T he appeal of ethics is founding of the Fairtrade Foundation. based on a basic human This introduced a labeling system FOCUS preference for a fair deal. for products that had been produced Business ethics Business ethics—the moral and traded without exploitation. principles and rules of trade—has It gave consumers the ability to KEY DATES been an area of study since the choose products on ethical grounds 1867 Karl Marx claims that early 1900s. Early attention focused when making a purchase. capitalism was built on the on workers’ rights and conditions, exploitation of labor. and whether they were paid a “fair From the 1990s, as corporations wage.” In the 1960s, consumers pursued globalization strategies and 1962 US president John also demanded rights too, and they increasingly outsourced production F. Kennedy outlines the wanted to know more about a to low-wage economies, consumers Consumer Bill of Rights: company’s reputation and approach. became more aware of the issues the right to safety, the right involved, and the implications of to be informed, the right to However, it was not until the their buying choices. choose, and the right to be 1980s that ethics began to be heard. This is extended reflected in the market, with the Unilever publicized its ethical and adopted by the United goals in its 2010 “Sustainable Nations in 1985. Mayan coffee sold under the Fairtrade Living Plan,” which promised it label provides consumers with a would halve its environmental 1988 The Fairtrade Foundation guarantee that coffee farmers have footprint and source all of its raw is launched. been fairly paid for their product. products sustainably by 2020. Others have since followed suit. 2008 A study in the journal Although consumers know that Psychological Science claims some companies may fail to make that humans are neurally good on these kinds of promises, programmed to prefer fair they often choose to believe them, treatment. because, as Facebook founder Mark Zuckerberg observed, “people want 2012 The London Olympic to use services from companies Games restricts its food that believe in something beyond retailers to using only Fairtrade simply maximizing profits.” ■ brands of tea, coffee, sugar, wine, chocolate, and bananas. See also: Play by the rules 120–23 ■ Morality in business 222 ■ Creating an ethical culture 224–27 ■ Understanding the market 234–41 ■ Greenwash 268–69

SUCCESSFUL SELLING 271 EVERYBODY LIKES SOMETHING EXTRA FOR NOTHING PROMOTIONS AND INCENTIVES IN CONTEXT M arketers often use the retailer or wholesaler, so that they offer of a free gift, prize, will, in turn, direct consumer FOCUS discount, or bonus to attention toward certain products. Marketing incentives sway customers into buying merchandise. This strategy is Both push and pull incentives KEY DATES known as “incentive marketing” or can cause a short-term lift in sales, 1895 Postum Cereals in the “sales promotion.” It is commonly but over time their impact wears off; US introduces “penny-off” used to launch a new product, promotion fatigue sets in, or the coupons to promote its cereal. regenerate interest when sales incentives become too expensive. growth is flat, or to help build the The success of a promotion is 1912 The offer of “a prize in company’s reputation or brand. measured by looking at return on every box” is used to tempt investment (ROI). When this begins US customers to buy Cracker US industrialist William Wrigley to fall, or the company’s reputation Jack popcorn. was a pioneer of incentives aimed suffers from a surfeit of promotions, at encouraging purchases. In 1892 the strategy is no longer working. ■ 1949 US grain producer he started marketing his chewing Pillsbury devises a marketing gum offering gifts, or “premiums,” One thing I’ve learned is that campaign based around a to successfully woo customers you can’t push technology. product-linked cooking away from the established brands. It has to be pulled. competition. It was a tactic he returned to often Bill Ford to stimulate sales growth. 1975 The “Pepsi Challenge US industrialist (1957–) Taste Test” helps the soft- Push and pull drink brand outsell Coca-Cola In modern marketing terminology, in supermarket sales. Wrigley used “pull” incentives: gifts or price reductions that 1992 Electrical goods maker stimulate consumer demand, so Hoover offers a free flight to that retailers are forced to stock any UK customer spending more of the product. Marketers can $160 (£100) on a product. also use “push” incentives: these are The offer is so popular that it compensations targeted toward the costs the company almost $79 (£50) million. See also: Understanding the market 234–41 ■ Creating a brand 258–63 ■ Generating buzz 274–75 ■ Marketing mix 280–83

272 IN GOOD TIMES PEOPLE WANT TO ADVERTISE; IN BAD TIMES THEY HAVE TO WHY ADVERTISE? IN CONTEXT When a recession begins, consumers FOCUS Advertising cut back. KEY DATES Makers of Brand A Makers of Brand B 1729 Benjamin Franklin, cut advertising spend maintain or increase scientist and Founding Father advertising spending, of the United States, advertises to bolster profit. risking profit shrinkage. his company’s inventions in the Pennsylvania Gazette. Profit may be maximized Profit may suffer in the in the short term but short term but customers 1840 The world’s first stay aware of the brand. advertising agency is founded customers forget about in Philadelphia, PA. the brand. 1939 Coca-Cola uses Santa In bad times people have Claus in its ad campaign, to advertise. helping to create the rotund figure so well known today. I n the corporate landscape times people want to advertise; advertising is sometimes seen in bad times they have to” is that 1955 The iconic Marlboro as a waste of money, and advertising should be employed as Man ad is launched and is expenditure on it is often the first part of an ongoing effort to build hugely successful, despite part of the budget to be cut back relationships with existing and research that links lung during a recession. The point that prospective customers. cancer to smoking. advertising executive Bruce Barton (1886–1967) was making with his Barton, who was responsible 1994 HotWired becomes the much-quoted statement “In good for some of the key American first website to sell banner ads; advertising campaigns of the 1920s a year later the first server able to track and manage ads is released.

SUCCESSFUL SELLING 273 See also: Stand out in the market 28–31 ■ The AIDA model 242–43 ■ Focus on the future market 244–49 ■ Creating a brand 258–63 ■ Make your customers love you 264–67 ■ Generating buzz 274–75 through the 1940s, believed that Kit Kat advertisements in the UK Early to bed, cutting advertising spend was like this one from the 1960s have used early to rise. Work like hell foolhardy. Instead he pointed out the the slogan “Have a break—have a Kit advantages of a continual presence Kat” for almost 60 years. The phrase is and advertise. in the market through constant now synonymous with the brand. Ted Turner advertising. To survive commercial ups and downs, a business needs Barratt, his son-in-law, was more of US media mogul (1938–) to maintain a constant presence in a risk taker. He understood the the mind of the consumer. importance of staying in the public bombarded with information and arena and of constantly evaluating images on a daily basis. Research Barton believed that it is a false changing tastes in the market. into viewer reactions to television economy to advertise only when commercials has shown that even the market is booming and the An outstanding example of when consumers have been company has the budget for it, and image building through long-term overloaded with information, and then to cut back when profit advertising is Nestlé’s Kit Kat. Most are ostensibly uninterested in, or margins are reduced. If a company people in the countries where this immune to, advertising messages, withdraws from advertising, the slogan was used will probably be they are still likely to register positive consumer may forget about them, able to finish the product’s tagline, feelings toward advertisements that making it a tough job to win them “Have a break—have a Kit Kat.” One reinforce previous brand preferences. back later when the economy is reason the slogan is so well known This would seem to support Barton’s buoyant again. in the UK is that it has been in use view that effective advertising since 1957, forming an important requires an enduring commitment. ■ Building a brand part of the brand’s advertising and Barton was not the first to prize the marketing ever since. altered opinion, lifting the taboo value of advertising in developing on women smoking in public. an indelible image for a company or Staying power product. Thomas Barratt (1841–1914), It could be argued that the company Bernays loved competitions sometimes dubbed the “father of that stops advertising risks and to promote soap for Procter modern advertising,” created a disappearing from the public & Gamble he created a soap- number of campaigns for the UK consciousness, perhaps even more sculpting contest for children. soap maker Pears in the late 19th so today when most people are century. These advertisements He set up surveys, gathered helped make the brand synonymous Edward Bernays expert opinions, and arranged with soap. While owner Francis business luncheons to change Pears was extremely wary about Remembered as a pioneer of public opinion. Other clients spending money on advertising, public relations, Edward Bernays included car manufacturer (1891–1995) was able to link General Motors and Philco, special events, press releases, an early pioneer of television. and the influence of third parties to promote his client’s products. Bernays also sought to raise the profile of public relations A nephew of Sigmund Freud, and establish it as a serious Edward Bernays was fascinated profession in its own right. by psychology, often employing psychoanalysts to provide evidence for his campaigns. He famously conducted a successful campaign for the American Tobacco Company in the 1920s, which radically

274 MAKE YOUR THINKING AS FUNNY AS POSSIBLE GENERATING BUZZ IN CONTEXT Word-of-mouth Using online The best ideas marketing is the communities and “catch on” and FOCUS most effective. spread quickly. Word-of-mouth marketing social media, marketers can KEY DATES generate buzz Early 1970s US psychologist for their product. George Silverman pioneers the study of WOMM. He noted A lthough the catchphrase how to do it on purpose,” he the persuasive power of peers is contemporary, the idea believed, though he was certain within research groups testing of “generating buzz” is a that word-of-mouth marketing was new pharmaceutical products. long-standing concept in sales. In a valuable, calling it “manna from sophisticated market populated by heaven.” He also knew the power 1976 UK biologist Richard savvy consumers who no longer of a good laugh. “The best ideas Dawkins articulates how trust most of the messages come as jokes,” he mused. “Make trends spread through a presented by advertisers, word-of- your thinking as funny as possible.” natural process of imitation. mouth marketing, or WOMM, has become a vital tool for anyone in Spreading the message 1997 The spread of the business. The strategy is to use the In the 21st century, WOMM webmail service Hotmail consumer’s own voice—the words strategies are predominantly used becomes one of the first of the ordinary person—to do the online via social media. Modern examples of online selling, rather than the voice of marketers are able to purposefully viral marketing. the big brand or the omnipotent spark word-of-mouth campaigns mass communicator. within online communities, but 2012 Beverage manufacturer they also understand the impact Red Bull sponsors Felix Back in 1973, Madison Avenue of Ogilvy’s advice about using Baumgartner to make the advertising legend David Ogilvy humorous, quirky, and offbeat ideas highest-ever skydiving jump, recognized that ad campaign to get a reaction. Today, people still which attracts 8 million views jingles, catchphrases, and fashions share their firsthand experiences of the live feed on YouTube— could “catch on” and become part with friends, but they also share a social-media record. of social culture. “Nobody knows

SUCCESSFUL SELLING 275 See also: Understanding the market 234–41 ■ Creating a brand 258–63 ■ Memes and imitation Why advertise? 272–73 ■ Benchmarking 330–31 In 1976 evolutionary biologist From a single user sharing Richard Dawkins put forward the theory that, just as genes images or opinions with friends, are responsible for replicating physical characteristics, and those friends passing the data cultural information such as ideas, behavior, or style, can to their friends, with modern also be transferred from person to person. Dawkins technology ideas can spread @ referred to this cultural data as “memes.” These memes, rapidly and ultimately reach like genes, can spread, mutate, or die out in society. As millions of users. Dawkins describes it, “Just as genes propagate themselves @ in the gene pool by leaping from body to body via sperm pictures and videos online, so Kick-starting the process or eggs, so memes propagate information is easily spread. Marketers can mimic this process themselves in the meme Tactics to manipulate this trend by encouraging customers or pool by leaping from brain include guerrilla marketing, which influential members of online to brain via a process which, uses low-cost unconventional communities to kick-start the in the broad sense, can be methods with a surprise element imitation process and become called imitation.” to provoke comment, and viral “brand champions,” sometimes by marketing, which typically employs offering incentives in return for Marketers have applied the social media to spread a brand- reviews and recommendations. theory to online behavior. An sponsored video, or encourages Industries in which trends are Internet meme can be a photo, influential bloggers and others to paramount for success are at the image, video, website, word, or recommend products. forefront of WOMM online. Fashion symbol, which originates from e-tailer ASOS utilizes Twitter and a single user or group of users In The Tipping Point (2000), Facebook to propagate customer and builds momentum when it British social commentator Malcolm recommendations and provide is imitated by other Internet Gladwell outlines the power of entertainment. In its 2011 “Urban users. By piggybacking on social epidemics and how the Tour” campaign, ASOS marketers existing memes, brands can smallest impetus can trigger a created videos showcasing the gain massive exposure for mass phenomenon. According to world’s best street dancers and relatively little cost. Gladwell, the title of his book refers in-line skaters. The videos enabled to a “magic moment when an idea, click-through shopping and were Today, the potential to trend, or social behavior crosses platform-neutral to ease their persuade is in the hands a threshold, tips, and spreads like spread on social-media channels. wildfire.” This describes modern of millions... “word-of-mouth” marketing, Sneaker brand Nike has been at B. J. Fogg though it originates in broader the forefront of the trend, producing ideas about how ideas replicate videos with enough “wow” factor to US behavioral scientist in human culture. As Gladwell send them viral. The two-minute explains, “ideas and products ... “Touch of Gold” video (2008) featured messages and behaviors spread soccer player Ronaldinho showing just like viruses do.” off his skills wearing Nike cleats. ■

276 E-COMMERCE IS BECOMING MOBILE COMMERCE M-COMMERCE IN CONTEXT Buying and selling …but so has the market on the Internet for web-enabled FOCUS smartphones. Mobile commerce (e-commerce) has grown enormously… KEY DATES 1983 US inventor Charles E-commerce is The Internet is now Walton patents the first radio becoming mobile accessed by mobile frequency identification (RFID) devices more often than device, paving the way for commerce. by desktop devices. m-commerce and near field communication (NFC). T he term e-commerce M-commerce works in a similar (electronic commerce) way to e-commerce, with websites 1997 The first m-commerce refers to all buying and and apps adapted or originated for transaction takes place in selling done on the Internet. mobile and handheld devices. It can Helsinki, Finland, with the M-commerce (mobile commerce) also include direct carrier billing, installation of two Coca-Cola specifically involves transactions when purchases can be added to a vending machines that accept that are made through a mobile cell-phone bill. Another function is payment via SMS. telecommunications network. tap-to-pay, where a customer These transactions can range from makes payments using a mobile 1999 The first national the small, such as making an eBay device that has been installed commercial platforms for purchase, to the potentially huge, with credit card information via m-commerce are launched: such as trading stocks and shares. a program such as Google Wallet. i-Mode in Japan and Smart Money in the Philippines. 2007 Nokia launches its first commercial NFC-enabled cell phone. 2011 The Google Wallet app enables stored credit card data to be used for purchases via a cell phone.

SUCCESSFUL SELLING 277 See also: Reinventing and adapting 52–57 ■ Understanding the market 234–41 ■ Lean production 290–93 ■ Applying and testing ideas 310–11 ■ The right technology 314–15 Consumers no longer to show compound annual growth Given that the biggest increase go shopping, they always of 48 percent in the five years from in smartphone sales has been in 2012 to 2017, with the value of emerging markets such as China, are shopping. m-commerce over the same period India, and Africa, it is not surprising Chuck Martin increasing by 250 percent on that these regions are considered smartphones and more than growth hubs for m-commerce. In US CEO of Mobile Future Institute 425 percent on tablets. China, expanding ranks of middle- class youths are fueling a rapid The customer holds the device In the UK, which leads Europe expansion of mobile transactions, against a paypoint enabled with in the growth of m-commerce, while in Africa, e-commerce has a technology called near field Barclays PLC expects m-commerce been virtually bypassed in favor communication (NFC); this to grow by 55 percent over the of m-commerce. In some African establishes a radio connection same five-year period, while countries, in the absence of a between the two devices to traditional online sales will grow conventional banking infrastructure, complete a transaction. by only 8 percent and in-store cell phones have created an sales by 1.6 percent. informal banking system. Growth of m-commerce The value of online sales made on Emerging markets In 2007, the leading mobile mobile devices is predicted to grow The sudden and explosive growth network provider in Kenya, exponentially. North American of m-commerce can be attributed Safaricom, set up a mobile banking research specialist Forrester to several factors. Consumer service called M-Pesa. Money forecasts US m-commerce sales adoption of smartphones and loaded onto the phone can be used tablets is increasing; more and to make purchases or transfer more people access the Internet funds. Currently, M-Pesa operates with mobile devices rather than in Kenya, Tanzania, Afghanistan, with desktop computers; and South Africa, and India, with plans customers have become more used by Safaricom stakeholder Vodafone to shopping on the move, enjoying to roll out the service internationally. the convenience and immediacy As this example indicates, the long- it provides. People are also placing term implication of m-commerce more trust in the service. could be a global cashless society. ■ Mobile banking banking with retail suppliers Using M-Pesa, the cell-phone and provide a personalized money-transfer service, is common in The banking sector has helped service for consumers). Kenya. Funds are transferred by SMS to power m-commerce from the into an electronic wallet on the phone to start, when Merita Bank of La Caixa bank in Spain has be used at stores and agents nationwide. Finland launched the first introduced contactless ATMs, cell-phone-based banking allowing customers to withdraw service using SMS in 1997. cash with a tap of their cell Since then, the key challenges phone. They can also buy tickets for developers have been to events, select seats, and show security (providing a safe a QR code to access venues. In environment for transactions); Australia, Commonwealth Bank technology (developing cross- customers can make tap-and-go platform banking apps that will payments at retailers. Mobile work on any cell phone); and banking is evolving so users can innovation (finding new and make payments irrespective of improved ways to link digital which bank they use or which retailers they go to.

278 TRYING TO PREDICT THE FUTURE IS LIKE DRIVING WITH NO LIGHTS LOOKING OUT OF THE BACK WINDOW FORECASTING IN CONTEXT Predicting the performance of a product in the market relies on… FOCUS Forecasting …qualitative …quantitative …simulations analysis of analysis of of the effect KEY DATES sales data. of external 1939 A quantitative method of behavior in the forecasting is developed, using market. factors past sales correlation. on sales. 1959 Project RAND, a think However, forecasting can never take tank assembled by the US unforeseen events into account. Air Force, creates the Delphi technique for forecasting F orecasting sales is one of a Marketers first suggested the idea using expert opinions. marketer’s most important of using economic models to roles. Other management forecast regional sales in the 1930s, 1970 British mathematicians departments in a company will and from the 1950s onward the idea George Box and Gwilym make critical decisions that affect of quantitative and qualitative Jenkins develop a the entire organization, based on approaches emerged. Qualitative sophisticated model for the information that the marketer forecasting relies on the expertise picking out trends from provides about the anticipated of managerial staff and their historical data. performance of a company’s acquired knowledge about market products in the marketplace. reactions. Quantitative forecasting 1980s Computerized forecasting models appear, such as INFOREM and E3. 2003 Sunil Chopra and Peter Meindel at Northwestern University, IL, emphasize the link between accurate forecasting and supply-chain management.

SUCCESSFUL SELLING 279 See also: Crisis management 188–89 ■ Balancing long- versus short-termism 190–91 ■ Contingency planning 210 ■ The marketing model 232–33 ■ Lean production 290–93 ■ Time-based management 326–27 uses numerical data such as sales The only thing we know September 2012. Luxury watches patterns. Also in this category are about the future is that it became publicly associated with equations that make assumptions corruption, and demand slumped. about future sales by drawing will be different. on a company’s historical data, and Peter Drucker Is forecasting worthwhile? market research that indicates the Management consultant Peter number of potential customers for began—as much as 24 percent in a Drucker was scornful of forecasting. a particular product or service. In single quarter. This was partly due “We must start out with the premise addition, marketers look at external to a slowdown in China’s economic that forecasting is … not worthwhile factors beyond the company’s growth, which exporters might have beyond the shortest of periods,” he control, such as the state of the been able to take into account; but wrote in Management: Tasks, economy, and make simulations of what could not have been expected Responsibilities, Practices (1973). He how quantitative forecasts would was a high-profile incident in the had reason to be wary, having be affected by external factors. Communist Party’s crackdown on declared in a 1929 economic journal corruption. A party official in that stock prices were bound to Unforeseen circumstances Shaanxi province was fired after keep rising, just a few weeks before Even the most carefully planned images of him wearing various the Wall Street Crash. International forecast can be thrown out by luxury watches were found on the auditing company KPMG maintains unforeseen events. In the travel Internet; one timepiece was worth that most companies produce industry, for example, it is difficult more than $32,000. The story made unrealistic forecasts that can be off to predict performance because front-page news across China in by up to 13 percent on average. factors such as weather and world events have a significant impact According to KPMG, better data on customer choices. management, scenario planning, and forecasts that are continually The effect of world events can be updated rather than made long-term seen in the sale of luxury watches to can increase accuracy. Despite the China. From 2009 to 2011, high-end difficulty of accurate forecasting, it watchmakers in Europe enjoyed remains the primary means by growing sales in China, but from which marketers drive the business late 2012 a dramatic decline decisions of a company. ■ Accurate forecasting Shares on the stock market are Producing an accurate forecast accuracy can be optimized by affected by many factors, including depends on the company’s creating a demand-driven supply some that are difficult to predict— required lead time—the time chain, which uses information such as world events, severe weather, from order placement to and technology to shrink lag and global economic forecasts. customer delivery. The longer times between supply decisions the lead time, the greater the and actual demand. Thus the error in forecasting figures. One need for forecasting is reduced theory holds that if lead times when business activities become are reduced by 50 percent, more demand driven. For forecasting errors will also be example, when Wal-Mart asked reduced by 50 percent. stores to place orders every two weeks rather than monthly, Since the 1990s management inventories reduced because theorists, including Dr. Edmund accurate forecasting increased in Prater at the University of Texas, line with the shorter time frame. have advocated that forecasting

280 IN CONTEXT PRODUCT FOCUS PLACE Marketing strategy PRICE PROMOTION KEY DATES 1910 Professor Ralph Butler MARKETING MIX introduces the term “marketing” in the title of his university course. 1920s Marketing becomes further established as a recognized field of study. 1948 James Culliton identifies the idea of the marketer as a “mixer of ingredients.” 1953 Neil Borden coins the phrase “marketing mix.” 1960 E. J. McCarthy sets out the Four Ps as the ingredients of the marketing mix. 1990 Robert Lauterborn advocates the Four Cs in place of the Four Ps. 2013 Philip Kotler keeps the Four Ps alive, adding a fifth P—Principle. T he marketing mix concept is a theoretical framework designed to help businesses plan, and put into practice, effective strategies for launching and selling their products and services. The crystallization of goals helps define a clear role for the marketer, separating the marketing function from other activities within a company. Businesses need to consider a number of factors when bringing a product or service to the market. They must make decisions about aspects of the product (such as its type), its place of distribution, price, and promotion. These factors are the “ingredients” that together make up the “marketing mix” and

SUCCESSFUL SELLING 281 See also: The marketing model 232–33 ■ Product portfolio 250–51 ■ Promotions and incentives 271 ■ Fulfilling demand 294–95 ■ Quality sells 318–23 When an organization They must also consider decides to launch a new or the external market forces updated product, marketers must that affect the marketing mix. figure out the selling strategy. They must carefully The marketer must calculate the proportions of weigh the forces and juggle the elements (such as product, the elements within the constraints place, price, promotion) in the of the resources available. marketing mix. each can be adjusted by the make two lists: the first one as the behavior of consumers, marketer to influence the reaction itemizes the important elements retailers, competitors, government of the consumer to the product or or “ingredients” that make up policy, and other external factors. service being sold. The marketer marketing programs; the second must also take into account outlines the external forces that In Borden’s model, the external market forces, such as may have a bearing on the first list. marketing manager should weigh customer behavior or competition, the effect of external forces, then which will have an impact on the The first list includes ingredients juggle the marketing elements from marketing mix. deemed essential if the company is the first list to achieve the best to win sales—product planning, possible program to fit the Building the mix pricing, branding, distribution, resources of the company. Borden Harvard Business School professor promotion, and so on. The second advocated that to really get a grasp Neil Borden first coined the term list includes market forces, such of all the marketing considerations, “marketing mix” in 1950, using it in the manager should draw up a 1953 in his presidential address to The marketing manager, chart showing the elements of the the American Marketing as head chef, must creatively marketing mix. Association. Borden credited fellow professor James Culliton as being marshal all his marketing Both Culliton and Borden the first to introduce the idea of the activities to advance inspired further development of marketer as a “mixer of ingredients” the concept within the academic in 1948. Inspired by Culliton’s the short and long term community. In 1960, a marketing ideas, Borden began using the term interests of his firm. professor at Michigan State to describe what Culliton’s “mixer Neil Borden University, Edmund Jerome of ingredients” should design. McCarthy, set out what would become the definitive word on the In an article in 1964 titled “The marketing mix. He condensed the Concept of the Marketing Mix,” mix ingredients into an easily Borden advised that when remembered mnemonic, the Four marketing managers build a Ps: Product, Place, Price, Promotion. marketing program, they should In his classic text, Basic Marketing (1960), McCarthy elaborates on ❯❯

282 MARKETING MIX The Four Ps, key ingredients of the marketing Other additions or alternative mix, need to be in careful balance with each other mixes have been proposed, though and the mix as a whole. Alternative “ingredients” none has yet replaced McCarthy’s have been proposed as necessary components of the original premise. marketing mix, but the core Four Ps have endured. In the 1990s, for example, PRODUCT PLACE advertising professor at the Evaluate customer needs; Decide how the product University of North Carolina, Robert establish where and how the will reach the market; Lauterborn, argued that the Four Ps product will be used; decide the channels of distribution; articulated the seller’s view rather on branding and packaging, methods of storage; handling than the buyer’s view, and was and transportation; and how therefore outdated in the customer- and how the product to emulate or differentiate centered marketing of the late 20th will differ from others century. He reimagined the Four Ps from the competition. as the Four Cs: Customer solution, in the market. Convenience, Communication, and Customer cost. THE MARKETING Professors Jagdish Seth and Rajendra Sisodia then posited MIX the Four As: Acceptability, Affordability, Availability, and PRICE PROMOTION Awareness. By 2005, academics Set the price point Look at when and where Chekitan Dev and Don Schultz based on market claimed that the Four Ps were no norms; perceived value to reach the target longer relevant; that consumer by the customer and market; the optimum decisions were motivated by how sensitive they medium (television, radio, emotion and a desire for value, or press); and evaluate rather than for a specific product are to price; to fill a need or a particular price and competitors. the techniques point. Other commentators have of competitors. also pushed for a framework more applicable to e-commerce. On the the nature of the Four Ps. “Product” in the distribution chain—public other hand, Carolyn Siegel, author refers to developing the right relations, advertising, sales of Internet Marketing, states: product or service for the target promotions, and so on. “Price” “Although many attempts have market, whether it is a laundry includes price-setting based on been made to replace or expand the detergent, an accountancy service, competition within the market, the or a political party’s policy, and cost of the entire marketing mix, Marketing mix is the also includes branding, packaging, and what price level the customer pack of four sets of variables, warranties, and anything else will accept. If price is rejected then related to the product offering. the marketer’s efforts are wasted. namely product, price, “Place” refers to how the product promotion, and place variables. will get to the target market, so An enduring formula it is available when and where it From the 1960s, the Four Ps became E. J. McCarthy is needed—in other words, the the undisputed means by which channel of distribution and the marketers made their strategic logistics of transportation, storage, decisions. The approach has become and handling. “Promotion” is an institution, mentioned in almost communication about the product every marketing textbook, and still with the target market and others dominates management thinking.

SUCCESSFUL SELLING 283 Marketing mix represents the company it means greater efficiency, Marketing pioneers setting of the company’s more accurate revenue forecasting, and a greatly reduced risk of being Neil Borden recognized the marketing decision variables overstocked at the end of the season. importance of creating a at a particular point of time. marketing methodology— The marketing mix of fashion a set of stated intentions for Philip Kotler chain Zara embodies the Four Ps. marketers to follow. When he Because of an emphasis on “Place” put forward his marketing mix Ps, they’ve endured as an effective (distribution), new products are concept in 1953, he drew on method for organizing the major delivered twice a week, and there theories developed by earlier tactical tools marketers can deploy are only 10–15 days from the marketing thinkers. in a competitive marketplace.” sketching of a new design to the item’s arrival on the store floor. Such Ralph Butler, professor at The four Ps in practice a streamlined approach to “Place” the University of Wisconsin, In an industry such as fashion, means that “Product” reflects pioneered the use of the term which by its nature needs to be immediate trends; “Promotion” “marketing” by developing a forward thinking and to embrace happens on the instant channel course on selling called e-commerce and m-commerce, the of the Internet; and “Price” is kept “marketing methods” in 1910. Four Ps are still in evidence. To low due to the emphasis on “Place.” A few years later in 1915, H. W. cater for the immediacy demanded Shaw wrote Some Problems in by fashion-conscious customers, UK Marketing guru Philip Kotler Marketing Distribution, in street-wear fashion brand Bench has has acknowledged alternatives to which he identified the tasks focused on “Place”—in this instance the Four Ps, but maintains that of production and distribution. the speed at which the product can they still make a useful framework. reach retail outlets. Rather than More recently, in 2013, he suggested Paul Cherington and Paul relying on the usual trade-show a fifth P—Purpose. This is not only Ivey, among others in the route and showroom invitations, the purpose of a business to make 1920s, further consolidated Bench uses a more direct approach. money, but also a higher purpose of marketing as a field of scholarly Sales people take samples to being a good corporate citizen. This pursuit, laying the groundwork retailers, and send orders directly fifth element is a concept embraced for marketing as a college to headquarters while still with the by Zara, a company that has kept 50 course in its own right. In the retailer. An automated system then percent of manufacturing in Spain 1920s and 1930s, Paul Dulaney generates purchase orders to the rather than subcontracting it to Converse described key manufacturing site within hours. Asia. Not only can the business elements of the marketing From the customer’s point of view react more quickly to changing mix—distribution, pricing, and (both individual consumers and fashions, it can also be applauded advertising—and emphasized retail outlets), styles arrive quickly, for keeping employment local.■ the need to coordinate keeping the brand fresh. For the marketing activities. Fashion store Zara concentrates its marketing mix on “Place.” It is able to deliver new designs to its store floors in just under two weeks.

DELIVER THE GOO PRODUCTION AND POSTPRODUCTION

ING DS

286 INTRODUCTION M arket globalization and who developed innovative ways of nothing; if there is not enough stock fast-paced technological improving quality and efficiency at to meet demand, customers may change have raised the same time. In the 1950s, the search out alternative suppliers. customer expectations, and Union of Japanese Scientists and companies can succeed or fail Engineers invited him to lecture to Cost reduction is the holy grail depending on their ability to deliver hundreds of top-level executives, of production managers, and one the right goods at the right price, at who quickly put his ideas to way to achieve this is to simplify the right time, via the right practical use. Toyota was among production methods. This involves distribution channels. the many businesses who removing unnecessary and costly implemented his methods. The steps, or innovating so that stages If getting it wrong can be costly, company’s approach ultimately grew become faster or less wasteful. getting it right takes time. It means into the “just-in-time” production Entrepreneur Michael Dell saved constantly evaluating every part of system that is widely used today. time and money by cutting out the the production process to see retailer and letting customers design where it can be made more efficient Stock control plays a large part their own computers; these were without a perceived drop in quality in the “just-in-time” system, and is produced to order (“just in time”) or sales. Henry Ford was the first vital to a balanced cash flow. Too and sold directly to the end user. industrialist to recognize the value much stock in the warehouse of offering customers “more for represents money that is doing Creativity and innovation less,” and made it his business to Innovation can come from any part make improvements to his cars Manufacturing is more than of the business. The Japanese idea every year, while simultaneously just putting parts together. of kaizen—meaning continuous dropping their price. Today, many It’s coming up with ideas, improvement—is an ancient use a “low cost, good quality” philosophy, but it was first used in strategy to attract customers, testing principles and an industrial setting by Toyota in especially during times of recession. perfecting the engineering, the 1950s. Founder Elji Toyoda as well as final assembly. expected all employees—from the Low-cost efficiency factory floor to senior executives— One of the most effective ways of James Dyson to constantly come up with ideas lowering costs while maintaining for improving products or production. value is to reduce waste. Known as UK inventor (1947–) “lean production,” it entails This idea took hold around the identifying and cutting waste world. Companies recognized value across the process, from production in setting up teams to increase to delivery. Lean production creativity. However, large companies developed from the ideas of Joseph often limit innovation—or at least Juran, a management consultant the testing of its validity—to an R&D (research and development)

DELIVERING THE GOODS 287 department. They can focus on the also targeting individual For a smooth, fast route to a high- changing needs of markets and customers, offering them products quality product, companies need to respond appropriately, making sure in tune with their preferences. make best use of time and resources. they benefit from the premium This has led to the development of a price of innovative products, and The cost of quality way of working known as “time- build a brand loyalty. Companies aim to satisfy customers based management,” which involves to get repeat business and good utilizing time in the same way as More recently, companies have “word-of-mouth,” which can hugely raw materials. It is often used with also begun to value the creativity of boost sales. Those that operate in critical-path analysis, which their customers. Using an approach the fast-moving-consumer-goods identifies all the stages of a project known as “open innovation,” new (FMCG) market, selling such things and puts them into a logical order, ideas are welcomed from all sources, as chocolate, beer, and cereals, rely saving companies time and money. and customer feedback is valued in on quality for creating customer the product-development process. loyalty. In the service industries, Finally, businesses can improve The opportunity for customers to following this “added-value” processes and sales by observing post product ratings and reviews approach can be problematic. If the best practice of competitors in online allows ready access to competing companies raise the their field, using a process known customer feedback. Some even use quality of their product or service as benchmarking, which takes the online crowdsourcing to refine the to a level that would be unprofitable “best from the best” so companies design of products. to match, this would signal the can deliver the best products in the need for new strategic thinking. best way to satisfy customers. ■ The rise of “big data” Computer systems can collect and However, high-quality goods Improvement usually means yield vast amounts of accurate data, can last for a long time without doing something that we have which can translate into valuable needing replacement, and this information about employees, was a problem addressed by never done before. production lines, and markets. industrial designer Brooke Stevens. Shigeo Shingo He suggested that companies Data collected about customers could increase sales by creating Japanese industrial engineer is often referred to simply as “big in consumers the “desire to own (1909–90) data.” Customer buying preferences something a little better, a little and habits can now be tracked with sooner than necessary.” This seems incredible accuracy—from their especially true today, when new movements around a website, to models of products such as where and how they like to buy smartphones are produced products and services, both online regularly—well before their and in stores. This gives an accurate predecessors are defunct. picture of their overall market, while

288 SEE HOW MUCH, NOT HOW LITTLE, YOU CAN GIVE FOR A DOLLAR MAXIMIZE CUSTOMER BENEFITS IN CONTEXT The customer expects... FOCUS ...high-quality goods. ...value for money. Raising quality But any extra features and benefits included KEY DATES will help to maximize customer satisfaction. 1850 Consumer choice theory is developed by UK economist See how much, not how little, William Jevons—according to you can give for a dollar. this theory buyers seek out products that offer the best H enry Ford spotted a gap in the engine by hand to start it, but value for money. the market for a mass- later models had an electric starter. produced car that ordinary Ford did not opt to make customers 1915 US businessman Americans could afford. The Model pay more for this better product. In Vincent Astor establishes T Ford was launched in 1908 and fact, he did the opposite. The price the first supermarket, in was still selling well nearly 20 years of a Model T Ford fell every year Manhattan, NY. later. During this period, Ford from 1909 until 1916. Ford saw the regularly improved the car. For importance of offering more for less. 1971 Businessman Rollin King example, the first version of the When cost-savings were made on and lawyer Herb Kelleher set Model T required the driver to crank the production line, they were up Southwest, the world’s first low-cost airline, in Texas. 1995 The Liberal government in Canada, under the leadership of Jean Chrétien, manages to cut public spending by nearly 10 percent in their attempt to provide taxpayers with more for less.

DELIVERING THE GOODS 289 See also: Your workers are your customers 132–37 ■ Porter’s generic strategies 178–83 ■ Lean production 290–93 ■ Applying and testing ideas 310–11 immediately passed on to his I don’t understand why Hyundai customers by way of lower prices, anyone would hold something which helped to boost sales. The car manufacturer Hyundai up and proudly say, ‘I paid is the fourth-largest in the Successful companies are able more for this than I needed to.’ world and the third-largest to attract customers by supplying chaebol (conglomerate) in high-quality goods and services at Paul Foley South Korea. Its success is a prices the buyer is willing to pay. direct result of its policy of Companies such as Dollar Tree in Managing director Aldi UK (1958–) offering customers a good deal the US or Poundland in the UK base at a competitive price. their business model on offering inflation has regularly outstripped their customers as much as pay raises, and households have One way Hyundai has possible for $1 or £1—for example, responded by seeking out retailers grown its market share in June 2013 Poundland launched that offer them more for less. is by offering the longest the world’s cheapest bra, which warranties in the auto retailed at £1. Offering more for The secret to Lidl and Aldi’s industry. Long warranties less can be an effective business success is not solely due to their are an obvious selling point, strategy, provided that the price low prices. They also offer high- because if a new car breaks covers costs. Low prices that offer quality products. For example, in down during the warranty excellent value for money attract 2012, Lidl launched its own period the buyer can return customers away from rivals. designer aftershave called G.Bellini it to the manufacturer, who X-Bolt for $6.35 (£3.99). In blind tests will repair it free of charge. More for less the fragrance beat famous brand Hyundai’s warranties Budget supermarket chains, such names, such as Dior Homme, D&G guarantee the engine for ten as Lidl and Aldi in Europe, have The One, and Hugo Boss Bottled, years, cover the bodywork used this strategy to great effect. which cost up to ten times more. for seven years, and offer These businesses have been able free roadside assistance in to grow their market share at the The stores focus on offering the event of a breakdown expense of larger supermarket good value stock rather than an for five years. Despite these chains. Since the financial crisis, attractive shopping experience. long warranties, Hyundai still They offer products on pallets charges relatively low prices Lidl’s supermarkets are basic, with direct from the warehouse, and do for its vehicles. a limited range of products, some of not spend time or money displaying which are displayed on warehouse their goods attractively. They also Hyundai cars are also pallets. However, the products do not stock popular brands that well equipped. Features such themselves can be of a high quality. shoppers will find elsewhere; most as Bluetooth connectivity, stock comes from less well-known heated side-view mirrors, air suppliers that the stores can obtain conditioning, and LED running at competitive prices. lights are all standard. Hyundai competes by offering The challenge for entrepreneurs its customers as much as is to offer outstanding value for possible for the price charged. money, while also keeping costs low enough to trade profitably. ■

290 IN CONTEXT COSTS DO NOT EXIST FOCUS TO BE CALCULATED. Waste reduction COSTS EXIST TO BE REDUCED KEY DATES 1908 The Model T Ford LEAN PRODUCTION automobile is mass produced on an assembly line by the Ford Motor Company in Detroit, MI. 1950 W. Edwards Deming trains engineers and managers (including Akio Morita, the co-founder of Sony) in process and quality control in Japan. 1961 Robots are first used on an assembly line at a General Motors plant in Ewing Township, NJ. 2006 US management consultants McKinsey & Company publish an influential report urging governments to apply lean production techniques to the delivery of public services so taxpayers get more for less. I n business, ideas for new products and production techniques tend to emerge during times of crisis when the old products and methods have become unprofitable. This is the case with “lean production,” a method of planning for demand by reducing waste, developed in Japan by the Toyota Motor Corporation in the 1950s. At that time, Toyota was a relatively inefficient producer of cars. Like many other Japanese companies, Toyota was struggling to overcome the shortages created by an economy that had been devastated by war. Looking for ideas, Toyota sent a young engineer, Eiji Toyoda, to the US to

DELIVERING THE GOODS 291 See also: Reinventing and adapting 52–57 ■ The value of teams 70–71 ■ Creativity and invention 72–73 ■ Leading the market 166–69 ■ Maximize customer benefits 288–89 ■ Simplify processes 296–99 ■ Time-based management 326–27 ...overproduction. Waste is anything ...inventory. Lean producers that adds to a company’s ...movement. try to eliminate these wastes to cost which is not ...waiting. valued by the ...transportation. boost profits. customer, including... ...overprocessing. ...defects. visit Ford’s Rouge plant in Detroit, Seven types of waste The second example of muda MI. Toyoda spent three months Shigeo Shingo, a Japanese is inventory waste. In addition to studying the mass-production industrial engineer who worked stockpiles of unsold finished goods, technique pioneered by Ford at the with Toyota in the 1970s, identified many mass producers keep stocks Rouge. On his return, Eiji reported seven types of waste, or muda. of raw materials and work-in- that he was impressed by the scale progress to reduce the risk of of production that Ford achieved— The first type is overproduction. production being halted. Stocks of the Rouge was so big that it Traditional manufacturers have raw materials are held in case a required its own railroad, hospital, a tendency to mass produce in supplier fails to make a delivery, or and several fire stations. However, advance of sales. These companies to protect against the possibility he also believed that the factory try to forecast what they think that some of the raw materials was riddled with muda—the demand will be for their product, might be defective and unusable. Japanese term for wasted effort, then they make the goods that they Stocks of work-in-progress, or semi- materials, and time. Toyoda and his expect to sell. The main problem completed products, are held just in colleagues set about developing a with this system of manufacturing, case a machine on the production new production system that sought however, is that it relies on accurate line breaks down. These can then to replicate the output and forecasting of demand. If the be inserted into the process to economies of scale achieved by forecast does not accurately match ensure that production continues. Ford, but in a less wasteful manner. demand, the company could be left However, holding stocks of raw ❯❯ with mountains of unsold stock.

292 LEAN PRODUCTION Holding goods in stock is a cost for looking for tools, walking from one The final muda is the production a company, since warehouse space part of the factory to another, or of defective items. Substandard and employees need to be paid for. In bending to pick up parts. This type products signify waste of time and addition, cash tied up in stock could be of waste increases cycle time—the resources, and mean that further in the bank instead, earning interest. time taken to produce a unit of inspection processes are required output. Longer cycle times lead to and the products must be reworked. materials and work-in-progress is lower productivity, which in turn considered wasteful because of the drives up unit labor costs. In addition to the seven types of associated space and staff costs. muda, Toyota identifies two other The fourth muda is time spent potential problems: mura and muri. The third type of muda that waiting. Delays may occur when Mura is uneven flow in a process, Shingo identified is movement. In machines on a production line are leading to unbalanced working some factories, workstations are poorly coordinated, resulting in practices. Muri is the overburdening badly designed, and employees bottlenecks. Time might also be of people or equipment. spend time doing things that do not wasted resetting machinery to add value to the product, such as produce a different part. Lean strategy Using these insights, production The fifth muda is transportation. engineer Taiichi Ohno developed Time and money spent moving the Toyota Production System work-in-progress from one factory (TPS). This lean production method to another will drive up costs, and counters waste in the production this is unlikely to add value to the process by producing more using product, so it is wasteful. less. It enables a manufacturer to increase output without having to The sixth example of muda is pay for extra labor, raw materials, or overprocessing. Consumers will capital. Alternatively, a business only pay for the product features can use lean production techniques that they value. Producing complex, to make a better-quality product overengineered products is wasteful that will sell for a higher price. because it creates additional costs without any extra revenue. Muri, mura, and muda are three Japanese terms identified by the Toyota Production System as MURI Overburdened problems to avoid. Muri refers to the overburdening of individuals or teams, which JUST-IN-TIME is inefficient; mura means an unbalanced work flow, which can cause bottlenecks in supply; and muda are all the areas of waste in a system. MURA MUDA Waste Unbalanced A just-in-time supply system eliminates muri, mura, and muda from the production system, so that teams receive materials as they need them and waste is avoided.

DELIVERING THE GOODS 293 Lean producers try to eliminate production effectively, companies Workers on a production line will overproduction and waste stock by need to shorten the cycle time be much more efficient if all the using the just-in-time (JIT) system, taken to make their products. To components they need are within easy in which production only happens accelerate the pace of production, reach. Time spent searching for items in response to a customer order. managers will need to control the increases the movement muda, which Companies that use just-in-time movement muda, the waiting muda, incurs a cost to the business. never produce output for stock, and and the transportation muda. At its if there are no orders from buyers, simplest, this could be achieved Tune Hotels, is based on value production stops. Thus, production by redesigning workstations and analysis. For Tune Hotels, affordable is pulled through by the consumer, production lines so that employees rooms are its priority. To achieve rather than being pushed through have all the tools and components this, services that push up the price by the manufacturer. The same to complete the task close at hand. of a room but are viewed as principle is extended to raw Likewise, bottlenecks in production nonessential by customers, such as materials and bought-in components. can be eliminated by deploying air-conditioning or toiletries, have Lean producers run with minimal more machinery or more labor at become optional add-ons. The chain buffer stocks, relying instead on the problem area. focuses solely on core qualitites daily, or even hourly, deliveries from such as cleanliness and safety, suppliers. However, the absence of Overprocessing valued highly by the customer. a stock of raw materials means that Lean producers tackle wasteful a faulty shipment of components overprocessing, the sixth muda, To eliminate the seventh muda, could bring an entire factory to a by applying a process called value defective products, lean producers halt. So to make just-in-time work, analysis at the product design seek to create high-quality items. lean producers require reliable stage. Companies using value This requires managers to trust suppliers that produce zero defects. analysis attempt to identify product workers to spot any fall in quality. features that create cost but have Employees have the authority to Lead times no value for the consumer. If these stop the production line in order to If products are to be made to order features can be removed to create a solve the problem, and production rather than supplied from stock, simpler, cheaper product, profit only restarts once the source of the there is a risk that a long lead margins will rise. At the same time, problem has been found and fixed. time (the time between an order revenues should not fall, because being made and delivery to the the features that have been removed High product quality, achieved consumer) could result in customer were not valued in the first place. by lean production, leads to lower dissatisfaction and consequently costs. By solving problems at their falling sales. Therefore, to run lean It could be argued that the source, companies spend less time business model of a no-frills hotel, and money on reworking defective All we are doing is looking as seen in the Malaysian company products to bring them up to the at the time line, from the required standard.■ moment the customer gives us an order to the point when we Regardless of how much workers move, it does not collect the cash. mean work has been done. Taiichi Ohno Working means that progress has been made. Taiichi Ohno

294 IF THE PIE’S NOT BIG ENOUGH, MAKE A BIGGER PIE FULFILLING DEMAND IN CONTEXT During peak periods, Stock is released to demand exceeds supplement current FOCUS Stock management current production. production. KEY DATES If the pie’s not 10,000 BCE Better farming big enough, make techniques allow the creation of surplus food. Grain is stored a bigger pie. for times of scarcity or trade. T he success of a company may switch loyality and never return. 4100–3800 BCE Early can depend in large part on Sales may never regain previous Sumerian culture develops one the effective management of levels, even after supply has been of the earliest writing systems its stock. Customer demand in most addressed, leading to lower profits. in order to keep track of goods. markets varies throughout the year. During busy periods, companies Types of stock 1889 US statistician Herman may not be able to produce enough Companies keep stock as an Hollerith invents the first to satisfy consumers. If companies insurance policy—it enables them to machine-read punch card. fail to match supply to demand, deal with sudden surges in sales or Merchants who had previously potential buyers have to find a sudden drop in output. In addition relied on handwritten notes alternative suppliers and sales will to inventories of finished goods, and stock counting can now be lost. Additionally, once consumers manufacturers may hold stocks of record complex data. have tried out the opposition, they raw materials, to create parts of the 1974 The scannable, modern bar code is introduced, revolutionizing the ability to manage inventory. 2000s Inventory management software programs can instantly update databases using bar-code readers.

DELIVERING THE GOODS 295 See also: Luck (and how to get lucky) 42 ■ How fast to grow 44–45 ■ Avoiding complacency 194–201 ■ Promotions and incentives 271 ■ Why advertise? 272–73 ■ Forecasting 278–79 ■ Lean production 290–93 ■ Simplify processes 296–99 final product or to replace defective costs: warehouse space is Because of our inventory materials. This strategy ensures that expensive, and employees are management, Dell is able to production can continue in the needed to manage it. It can also event of a delay from the supplier; lose value if it perishes or becomes offer some of the newest companies are more likely to hold technologically obsolete. There is technologies at low prices stocks of raw materials if their also an opportunity cost associated while our competitors struggle supplier is unreliable. They may also with holding stock; the cash tied to sell off older products. keep stocks of “work-in-progress,” or up in stock could be earning semicompleted products. Work-in- interest, or be invested elsewhere. Paul Bell progress stock can keep production flowing even if a machine on the The goal is to hold just enough US former senior executive, Dell, Inc. assembly line breaks down. stock to meet demand, with minimum delay to the customer and amount of buffer stock needed. If Stock control at minimum cost to the company. A demand is stable and predictable, Good stock management balances sophisticated computer program at the need for large quantities of meeting product demand with McDonalds, called Manugistics, buffer stock is reduced. minimizing stock-holding costs. If a helps the chain forecast sales and company runs out of stock, it may ensure the correct quantity of stock Online companies may not have to turn orders away, or deliver is ordered for the week ahead. need a storefront. However, unless late and risk losing returning their product can be digitally customers. In 1993 toy manufacturer Buffer stock downloaded, many will still require Bandai was caught off guard by the Most companies hold buffer a physical storage facility, with the popularity of its Power Rangers stock—stock that exceeds the same need to manage inventory figures, and had to impose a “one amount needed to meet current and keep buffer stock. ■ figure per customer” rule in the UK demand. It takes time to replenish until manufacturing could catch up stocks, so companies will reorder with the huge demand. from suppliers well before their inventory falls below the buffer On the other hand, if a company level. The longer the lead time—the is overly cautious and holds too time between placing an order and much stock, it incurs unnecessary the goods arriving—the greater the Surplus buses and other London Hornby lengthened its lead times: it and Olympic-themed models went takes six weeks to transport unsold after optimistic oversupply To help recover the nearly freight by sea from China to the caused a glut in retail outlets. $14 (£9) billion cost of staging the UK. Hornby has to supply London 2012 Olympics, the UK customers from stock, rather sold rights to produce Olympics than current production, so sales merchandise. Hornby paid for the of Olympic products had to be right to produce official 2012 toys, predicted well in advance. including Corgi models of London taxis and buses, its model trains Forecasts proved to be marked with the Olympics logo, extremely optimistic. Hornby and the Olympic mascots Wenlock hoped to make a profit of $3.2 and Mandeville. (£2) million from the Olympics. In the end, the contract cost it $2 Hornby produces most of its (£1.3) million. To sell off stock, products in China and India to take Hornby was forced to cut its advantage of low costs. However, prices by as much as 80 percent, outsourcing production has ruining its profit margins.

296 IN CONTEXT ELIMINATE FOCUS UNNECESSARY Streamlining processes STEPS KEY DATES SIMPLIFY PROCESSES 3rd century BCE The Romans mass-produce lamps. Instead of hand making them, they use two-part molds. 1760 The Industrial Revolution begins, moving from hand- production methods to specialized machines. 1730s US statesman Benjamin Franklin writes about waste reduction in industry in Poor Richard’s Almanack. 1900s Ford revolutionizes car manufacturing with mass production and standardization. 2010 In The Art of Invention, US inventor Steven J. Paley states that it is easier to innovate by adding complexity, but the best results come from simplification. T here are several ways that companies can improve their profits: they can increase their revenue, reduce their costs, or use a combination of both methods. If the cost of producing goods or services can be reduced, without negatively impacting revenue, total profits will rise. A good way to lower costs is to simplify the method of production by removing any expensive and nonessential steps that will not adversely affect the consumer’s perception of the quality of the product. More straightforward— and therefore more cost-effective— production methods have been a goal for centuries. An early example

DELIVERING THE GOODS 297 See also: Stand out in the market 28–29 ■ Creativity and invention 72–73 ■ Thinking outside the box 88–89 ■ The learning organization 202–07 ■ The value chain 216–217 ■ Lean production 290–93 ■ Kaizen 302–09 In competitive markets, Costs can be reduced by consumers look for value streamlining processes or simplifying products. for money. To reduce the price of their Eliminate products, companies may choose to unnecessary steps. lower their production costs. of a process that was successfully iron to create steel were removed Watson Hendry invented plastic- simplified is steel manufacturing. from the metal by blowing air injection-molding technology, which During the Industrial Revolution, through the iron during the was used to produce one-piece huge quantities of steel were needed production process. Bessemer’s chairs and tables much more to build bridges, ships, and railroads. simpler production method was more cheaply than wood. Steel was in short supply because it fuel efficient. As a result, the cost of was expensive to produce. In making steel fell from as much as Mass production Britain, steel had been made in $97 (£60) per ton to $11 (£7) per ton. In the early 1900s, Henry Ford high-temperature, coke-fired revolutionized manufacturing furnaces since the 1740s. Small In some cases, simplifying a by standardizing the method quantities of iron were loaded into process can mean using different used to make cars. Before Ford’s ❯❯ small clay crucibles (containers that materials. In 1946 in the US, James withstood heat) and placed inside the furnace. After three hours, impurities were scraped from the crucibles, leaving the steel behind. Simplifying the process In the 1850s the production method was simplified by the British engineer Henry Bessemer. His so-called Bessemer process did not require crucibles. Instead, the impurities generated from heating Steelmaking was revolutionized by Henry Bessemer’s new converter. It raised the temperature of the iron so that more impurities could be removed during the oxidation process.

298 SIMPLIFY PROCESSES assembly line, cars were made by Almost all quality model on gaining a cost advantage teams of highly skilled craftsmen improvement comes via over his rivals. He did this in two who produced custom-made cars simplification of design, ways. First, Dell specialized in using little more than hand tools. manufacturing, layout, selling custom-made computers; The components used by early processes, and procedures. customers could design their own manufacturers were usually machine, which Dell assembled in nonstandardized. This meant that Tom Peters response to a specific customer’s workers would spend time adjusting order. Dell held virtually zero stock components so that they could be employee was asked to perform and production was pulled through assembled. Ford removed this stage a single task, using the same tool, by the buyer. The main advantage by designing the world’s first over and over again. As a result, of this just-in-time method was that standardized car. Mass production there was no time wasted Dell no longer had to pay the costs of the Model T, made from a searching for, picking up, and associated with storing stock. standard set of components, began putting down an array of tools. When a product was finished, it in 1910 in Highland Park, Michigan. was sent straight to the customer. Finally, Ford removed variety Ford’s second great innovation from the production process. Each Going direct to the buyer was the conveyor belt. In the past, Model T produced was identical; Dell’s second cost advantage was skilled workers had to move around Ford believed in simplicity of that, unlike other PC suppliers, the factory locating raw materials, product, even down to the paint it did not sell its products to components, and tools. In some color, which speeded up production. specialized retailers; instead, it sold factories workers were hired to Time spent resetting and cleaning directly to the consumer via the push partially assembled cars from machines between batches was Internet. This meant that the one workstation to another. Ford avoided. A standard product made it company no longer had to lose believed these were unnecessary possible to institute continuous-flow some of its profit margin to third steps that could easily be removed. production, and the amount of time parties. When Dell sold a computer People were taken out of the taken to produce a car dropped from for $400, it received $400. production process and were over 12 hours to just over one and a Eliminating retailers did not have replaced by specialized machinery, half hours.Ford’s decision to simplify an adverse effect on Dell’s market including a conveyor belt that took production by removing skilled labor share. In fact, the reverse was true. the work to the worker. Each and time from the process enabled Most computer buyers preferred the him to produce his cars at a lower flexibility of being able to build Henry Ford made use of the conveyor cost, which he then used to reduce exactly the sort of computer that belt on the assembly line at his factory the price, and that created a mass they wanted, and also appreciated producing the Model T. Workers market for the Model T. the convenience of home delivery. specialized in one task with one set of tools, which lay within easy reach. Custom production Simple can be harder In more recent times, computer than complex: you have to manufacturer Dell achieved stratospheric rates of growth in the work harder to get your 1990s by streamlining its supply thinking clean. chain. Michael Dell, the founder of Steve Jobs the company, based his business US Co-founder of Apple (1955–2011)