Harvard Business School Working Knowledg e Archive

The Strategic Role of Marketing

5/31/2004
In the Harvard Business School Press book Marketing as Strategy, London Business School's Nirmalya Kumar argues that marketing must help drive organizational change. Q&A.

Management has forgotten, or never realized, the ability of the marketing function to help drive organizational change, says Nirmalya Kumar in his new book, Marketing as Strategy: Understanding the CEO's Agenda for Driving Growth and Innovation, published by Harvard Business School Press.

In this interview, Kumar discusses how the burden is on marketers themselves to rise above the tactical level and drive organization-wide initiatives to deliver value to customers.

Manda Salls: You make the point that marketers are often (and increasingly) treated as a function rather than as part of the strategic team. Why does this happen? Have CEOs lost their faith in marketers?

Nirmalya Kumar: CEOs have lost faith in marketing primarily for two reasons. First, shareholders and analysts are pressuring corporations and their CEOs to deliver against short-term profit and revenue objectives. CEOs are unsure of returns from marketing expenditures and marketers have acquired a reputation as a "spend" function rather than a "save and make" function. The belief is that a finance person managing a brand would probably take more time to determine how much to spend to support it and how to measure the effects of the spending than a marketer, who would just ask for more money. Marketing initiatives must have a substantial, demonstrated, top- or bottom-line effect to excite the CEO.

Second, marketers are too often seen as specialists and tacticians talking about the "Four Ps" (product, place, price, and promotion) rather than strategists who help CEOs lead organization-wide initiatives that have strategic, cross-functional, and bottom-line impact. With all its specialization, marketing has not aspired to lead major transformational projects that involve cross-functional, multinational teams sponsored by the CEO. Other functions have been better at rallying around transforming initiatives such as Total Quality Management (TQM) and reengineering led by operations; Economic Value Added (EVA) and Mergers and Acquisitions (M&A) guided by finance; and the Balanced Scorecard driven by accounting. The result is that one encounters the positions of chief operating officer, chief technology officer, and chief financial officer much more frequently than the chief marketing officer in companies.

Q: How can marketers begin to improve their value to a company? Are marketing executives short-selling themselves?

A: Given the above, to improve value to the company, marketers must engage CEOs and the top leadership in meeting the two marketplace challenges that all companies face: enhancing customer loyalty and reducing downward pressure on prices. To meet this, companies are looking for growth-related initiatives like expanding to new and growing channels of distribution, selling solutions instead of products, and pursuing radical rather than incremental innovation.

Marketing initiatives must have a substantial, demonstrated, top- or bottom-line effect to excite the CEO.

Marketing executives have the skills to lead such initiatives if they are willing to take the leadership role and be more cross-functional in their thinking. None of these initiatives can be successfully implemented by the marketing function alone.

Q: As markets become global, how important is it for marketers to tailor products and marketing strategies for each region? How does this weigh against the importance of a unified market strategy for a product?

A: Overall, with more open media and economies, consumers are to some extent moving closer together in needs. Yet, differences remain. One needs to balance the economies of scale and higher profits that come from global products and programs versus the increased sales and penetration of markets that result from tailored marketing strategies.

The challenge is to be elemental—find which aspects of marketing are really scale-sensitive versus those elements where local adaptation truly increases value for customers. Unfortunately, in practice this is very hard to implement, as local managers tend to believe everything is unique about their markets while corporate headquarters tend to see the world as more global than it is. Thus there is, and will always be, a tension between designing programs and products that are global versus local. Increasing understanding through market research that allows the examination of this issue in a more "objective" manner and moving managers across countries to enhance communication are two methods used by companies to grapple with this challenge.

Q: From the low-carb craze to product lines aimed at men, new brands seem to be multiplying exponentially. What problems can brand proliferation cause companies? How can a company determine if it has too many brands?

A: There are four problems caused by brand proliferation and if a company observes these then it knows it has too many brands.

First, the larger the number of brands in the company's portfolio, the greater the overlap of brands on target segments, positioning, price, distribution channels, and product lines. The overlapping results in cannibalization of sales and duplication of effort. If managed poorly, many of the brands in the portfolio may end up competing with each other rather than with the brands of competitors.

Second, a larger brand portfolio means lower sales volumes for the individual brands as the total market divides among them. Without scale economies in product development, supply chain, and marketing, firms cannot support each brand at competitive levels. Third, the rise of powerful mass merchants such as B&Q, Carrefour, and Wal-Mart has triggered brand consolidation perhaps more than anything else. Retailers' tremendous negotiating power, especially against weaker brands, forces manufacturers to critically evaluate their brand portfolios.

Finally, marginal brands end up consuming a disproportionate amount of a company's time and resources, and exacerbate tensions between the narrowly focused brand and country managers.

Local managers tend to believe everything is unique about their markets while corporate headquarters tend to see the world as more global than it is.

Q: In your book, you talk about the changes technology has brought to distribution channels, and the risks and rewards of being an adopter of new technology. What would you recommend to companies that are considering a channel migration?

A: A well-articulated strategic logic for entering a new or emerging channel of distribution is the bedrock of any channel migration decision. The following six questions are helpful in evaluating the opportunity presented by the new distribution channel:

  1. How attractive is the value proposition that the new distribution channel gives our target segments?
  2. Is the proportion of our target segment attracted to the new channel large enough to demand our attention?
  3. Do we have a differentiated value proposition or an operational advantage in serving customers through the new channel?
  4. Is our cost structure and value network optimized to serve customers through the new channel?
  5. What can and will competition do with the new channel?
  6. How will the new distribution channel change consumer channel preferences and strategies of existing channel members?

In light of the answers to these question, becoming either an early adopter or a follower first requires that a company balances the potential for additional sales and margins against the risk of upsetting its existing distribution structure.

[ Buy this book ]

Manda Salls is Web editor for Baker Library.

Market-Driving Checklist

by Nirmalya Kumar

Market-Driving Mind-Set

  • Does our top management continuously reinforce the need for market-driving ideas?
  • Do we actively seek to cannibalize our own products?
  • Is the pursuit of competing emerging technologies permitted?
  • Are new ideas routinely imported from the outside?
  • Are time and resources allocated for curiosity-driven explorations?
  • Market-Driving Culture

  • Do we tolerate failures when people are attempting something really new?
  • Are processes in place to capture learning from failures?
  • Are people encouraged to share their failures publicly?
  • Do we constrain innovation through too much respect for hierarchy?
  • Are organizational rules and norms enforced too rigidly?
  • Do we tolerate mavericks and allow space for champions to flourish?
  • Market-Driving People

  • Do we hire people who will increase the genetic pool of our company?
  • Do we mix people on teams to generate creative abrasion?
  • Are novices included on important projects to question assumptions?
  • Do we think our people are entrepreneurial?
  • Are exceptional innovation achievements and efforts recognized and rewarded?
  • Market-Driving Processes

  • Do we allow for long payback horizons for innovation projects?
  • Do we accept alternative routes to obtain funding and approval for market-driving ideas?
  • Do we have processes that move ideas from the bottom to the top without obstruction?
  • Do we run competitions to generate radical new concepts?
  • Do we ensure that radical ideas do not lose resources to incremental ideas?
  • Excerpted with the permission of Harvard Business School Press from Marketing as Strategy: Understanding the CEO's Agenda for Driving Growth and Innovation by Nirmalya Kumar. Copyright 2004 Nirmalya Kumar; All rights reserved.