What is Value?

Marketers constantly talk about providing "value" to customers. So what is value? For most organizations, value essentially is the amount of money that can be captured from customers - what MBA types call share of wallet. Much time and effort is expended in chasing this share of wallet usually to little or no avail. Marketers constantly hype the latest, greatest version of their product or service which usually leaves the customer cold.

Businesses and people working in them like to think of themselves as being customer savvy while academics are derided as living in ivory towers unconnected with real world events. The reality is that all too many marketers themselves live in ivory towers. People sitting in head offices are not connected with the local retail environment. Their definition of value necessarily becomes closely connected with value to the company. Sales people generally do not suffer from similar delusions since they are immersed in the retail (or corporate in the case of B2B businesses) environment.

This is a common pitfall which results in sub-optimal design, R&D and marketing. Companies and marketers all too often fall in love with their product/service/marketing campaign whatever. They forget that consumers are not interested in value to the company. No matter how attractive the marketing campaign may be, no matter how many bells and whistles the company puts on its products or services, if it does not meet consumer's requirements, they will not be moved. So value is defined by the consumer and not the other way around. The company or the product or the service is irrelevant. If it were to vanish today, someone else will fill the void. Infact, by not focussing relentlessly on value to the customer, organizations and marketers leave room for upstarts who give them better value.

There are many examples of what I am talking about. For example, Henry Ford succeeded where others failed because he had a relentless focus on the customer but then he fell in love with his creation and forgot the customer. They moved on. He remained mired in the past. General Motors was given an opportunity that it brilliantly exploited and Ford almost went bankrupt. More recently, a similar thing has happened to Nokia. The customer moved on. The company remained stationary. The result was deep financial trouble, the famous burning platform memo and an almost desperate change of direction on which the jury is still out.

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The Changing Consumer

Needs are abstract. They are realized in concrete form through wants. Whereas people have relatively few needs, they map onto an infinite variety of wants. In a sense, it is because of this reason that marketing works in the first place. This is not to say that companies are inducing wants on hapless consumers. There has always been a two way flow of information between marketers and consumers. The difference today is that as compared to earlier times, the voice of the consumer is much louder thanks to the proliferation of blogs (like this one) and the rise of social media like Facebook and Twitter. Earlier, consumers could voice their opinions either through letters (to the company or to the press) or via investigative (sometimes yellow) journalism or simply by not buying. However, companies could get away with treating their consumers as blank canvasses onto which anything could be projected.

Consumers today have much bigger muscles to flex. As a result, their wants have also become correspondingly more complex and sophisticated. This is a global phenomenon. It used to be that older, obsolete, inferior quality products could be easily sold in developing countries. That is no longer the case. If anything the reverse has happened. Developing countries tend to get cutting edge products first. In essence, they are used as guinea pigs in order to sort out bugs and flaws before the product is introduced into developed countries. Is this a form of exploitation? I don't think so. Both parties are getting value. If a company now tries to foist shoddy products onto developing country consumers, there is a swift outcry and a very rapid reaction; the offending company is very quickly forced to correct itself.

This increased sophistication is across the board. It has also resulted in consumers taking an active role, if not outright charge of marketing and branding communication. This means a loss of control over their products and brands that most companies are unprepared for.What do marketers do when consumers take control of their carefully constructed marketing and brand message and use them in unexpected (and maybe from the company's point of view undesired) ways. That is the challenge for 21st century marketing.

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Needs

What are the basic motivators that drive a person? This question sits at the heart of marketing. Marketer exist in order to create value for customers. Only by doing so will they be able to capture value from customers. However, without a basic understanding of motivating factors - needs and wants - marketers simply cannot be effective. Human motivations have been studied for a long time now. Many models of human behaviour have been proposed. Anyone who has worked in a transnational corporation has come across one of them namely Maslow's Hierarchy.

The question of what motivates people becomes a little simpler to understand and frame if we think in terms of needs and wants. These two terms are usually interchanged in normal conversations but for marketing purposes, we need to draw a clear distinction. For our purposes (and as defined by Kotler), needs are basic drivers while wants are expressions of needs.

Using the model that Maslow proposed, I believe that the very basic motivating factors driving a person are just two: food and security. These are primal needs. Without them no one can survive for very long. Food is a need. Without it there is no survival. What kind of food to eat is a want. Similarly security is a need. What kind of security is a want. If we go up the hierarchy of needs a little, there is the need for sex. This group of three: food, security and sex are basic needs. I have not put sex as a primal need. The reason for that is that sex is not necessary for the survival of the individual unlike food and security. However it is a very strong motivating factor - so strong that it has to be categorized as a basic need. This troika is also expressed colloquially as wine, women and song.

We have identified two level of needs. Primary needs: food and shelter and basic needs: food, sex and shelter. These needs are expressed in many different ways. The ways in which they are expressed are called wants. The ways in which these basic needs are expressed have resulted in some of the oldest economic activities that people have engaged in. Going up the needs hierarchy a little more, once the primary needs (and hopefully the basic needs as well) are met, a person starts thinking about meeting the higher level of needs.

What are these higher level needs? Humans are material, social and spiritual creatures. The basic needs are essential material needs. But there are other needs that need to be met if a person is not to be a one-dimensional being. Being social creatures, humans have an inherent need to develop emotional attachments. These bonds are primarily towards family; then acquaintances (including friends), then clan and/or religious community members and finally all others. It has been shown that these emotional attachments are literally necessary for a long and healthy life. No man is an island unto himself - atleast not for long. The need for emotional attachment is expressed in different ways. Along with the need for emotional attachment is the need to communicate. These two needs - the need for emotional attachment and the need to communicate are fundamental needs.

So now we can understand that there is a needs hierarchy and its shape also becomes a little clearer. First there are the primary needs: food and security. Without them, survival is not possible. Then there is the basic need: sex. Food, security and sex are extremely powerful driving factors.Then there are the fundamental needs: emotional attachment and the need to communicate. Fundamental needs have to be met at some level and different people have different levels at which they satisfy these needs.

Going up the needs hierarchy further, we enter the realm of higher needs. These are spiritual in nature. They nourish the nebulous entity known as the human spirit. At the root of these needs lies the need to learn/explore. Learning and exploration are in may respects two sides of the same coin. Learning anything inherently has strong aspects of exploration while exploration inherently strongly involves aspect of learning. Learning/exploration can be either internal or external or both. If it is internal, then it can lead to the highest level of Maslow's hierarchy - self actualization.  So there we have it. A complete hierarchy of needs (or atleast as complete as I can think of).

To recap:

Primary needs

      Food

      Security

Basic needs (all of the above and)

      Sex

Fundamental needs (all of the above and)

      Emotional attachment

      Communicate

Spiritual needs (all of the above and)

      Learning

      Exploration

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Why Does Marketing Fail?

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Why do products and services fail? Hundred of thousands of products and services are introduced every year. The vast majority fail within 2 - 5 years. Even seemingly successful ones fail within ten years. Yet all of these are backed by a huge effort in terms of time and money. Highly intelligent people have spent careers trying to make a success of their products with little to show for it.There are literally hundred of thousands who have learnt the basics of marketing over the years. Many of them have gone on to major in the subject and become marketers. So what is the problem?

What do people need? What do they want? What is the difference between the two? There is a great deal of confusion between a need and a want. The two words are used interchangeably in normal everyday language. From a marketing perspective, this is a problem. There is actually a clear difference between a need and a want and if we do not distinguish between the two, then we will fail in our marketing efforts.

Students of management science are taught the difference between needs and wants in introductory marketing courses. These lessons unfortunately do not seem to stick. This matters because Marketing is supposed to have an unrelenting focus on the consumer. Ignoring the distinction between needs and wants is akin to trying to drive a car without adequate supplies of gas. We may go some distance but will come to a juddering halt at some point. Of course, there are other factors that go into the success or failure of a product (or service). My contention is that knowing the distinction between needs and wants is fundamental to the ultimate success of a product. This knowledge may not guarantee success but lack of it will definitely guarantee failure.

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The Why of Marketing

Marketing suffers from many stereotypes, many of  them negative. It is perceived by most people to be easy and glamorous. Everyone has an opinion about how to market something. Not too much thought is given as to the why of marketing. Why is marketing needed? What purpose does it serve? What, if you will, is the philosophy of marketing?

Questions like these seem to serve no practical purpose. Nearly all marketing practitioners and theorists have a much more practical bent. They address the how of marketing as indeed they should. Since marketing is ultimately concerned with consumers and since consumers come with an infinite variety of opinions, thoughts, views, experiences etc. and these opinins, thoughts, views, experiences etc. also change with time and circumstance, just trying to answer the how of marketing poses many interesting and difficult questions and conundrums. The how of marketing is so interesting that the why of marketing seems largely irrelevant.

Neglecting the why of marketing however is fraught with peril. This questions concerns the legitimacy of marketing in the eyes of both consumers and practitioners. There is a tendency amongst the former to equate marketing with a form of coercion. The major concern here is that marketing creates false demand i.e. it creates a demand for goods and services that otherwise would not exist. All for the sake of a few more dollars. This obviously generates resistance amongst consumers to marketing's blandishments. Practitioners in turn try to overcome this resistance which only generates more resistance.

Another major area of concern is attempts by businesses to commercialize culture spaces and marketing's role in these attempts. It is in the inherent nature of capitalism to commercialize all aspects of private and social life. Marketing is often used as a tool in this regard. Since people tend to resist commercialization of treasured cultural spaces, marketing, being the most visible of the tools used to do so, becomes highly suspect and leads to greater resistance which of course needs to be overcome by practitioners.

If marketing is to continue being effective and not alienate its putative constituency, it needs to address the issues raised by the questions above. I will try to address some of these issues later but there needs to be a consistent effort to address them by all practitioners at their local level. These are not irrelevant, unnecessary questions. They go into the very heart of marketing. How these issues are debated and acted upon will determine the ultimate effectiveness of marketing.

Themes - II

Data mining is also one aspect of a broader area that marketers need to be aware of: the intelligent use of a spectrum of data, specifically the intelligent use of relevant marketing metrics to drive the decision making process. All too often, marketing is driven through gut instinct and feel. These are actually important in marketing. Sometimes the value of a product or a campaign cannot be captured through traditional marketing research methods. The IPod, IPhone and the IPad are all examples of products which would have almost certainly been rejected by traditional marketing research methods. In such cases, the instincts of the managers can prove invaluable. However, a situation like this does not arrive often and certainly does not negate the intelligent use of relevant marketing metrics. It is not often realized that marketing involves a large amount of creativity. In many respects, marketers are like artists. Unlike the latter however, marketers also need to be rigorous in their approach. A marketing campaign can be highly creative; it also needs to deliver results.

One of the first things that students of marketing learn is the Product Life-cycle Curve (PLC) which tells about the stages of demand that a product or service goes through over time assuming that it succeeds in the marketplace. The PLC tells marketers that over time, growth in demand for their product or service will flatten out and then start declining. Armed with this insight, we can ask what can be done to rejuvenate a product whose growth has started to flatten or even decline? The key to finding the answer lies in understanding the difference between needs and wants and applying that understanding in data mining to reveal hidden patterns of consumption that even consumers may not be aware of. The difference between needs and wants is also one of the first things taught to students of marketing. Unfortunately, most people then seem to promptly forget about this. The result is that all too frequently, marketing efforts are wasted simply because of a failure to understand what is a need, what is a want and what is the difference between the two.

It can be said that marketing is all about the consumer. Wrong! Marketing is all about the mind of the consumer. There is a difference. It is subtle but it is important. Almost all marketers fall victim to the better mousetrap fallacy even while acknowledging the existence of said fallacy and denying that they are affected by it. Products and services have always had to meet and maintain minimum standards of quality and performance in order to have a chance (not a guarantee mind you) of success in the market. Usually, these standards need to be considerably higher than the minimum. What is ignored is that objective quality is not very relevant. What is of far greater importance is the perception of quality. In other words, the mind of the consumer is more important. When we start talking about mindsets, we start delving into the realm of psychology. Thus marketers need to be aware of the basics of the science of psychology in order to be successful.

Themes

Marketing is a vast discipline but in my view it has definite themes. Marketing starts with the consumer. This however is a vague statement. What does it mean? The key to starting with the consumer is to remember that the task of marketing is to inform and thus persuade. It is certainly not to bludgeon the hapless consumer into submission. We have to remember that by buying things from us, consumers are doing us a huge favor. This favor is strictly conditional and can be withdrawn at an instant's notice without any previous warning.

What do marketers need in order to inform and persuade? In a word, knowledge. Notice I did not say information. Most marketers demand information but this is stupid. The problem is not lack of information. There is usually far too much information. The problem is a lack of structured information i.e. information that has been analyzed in some fashion. In other words, knowledge.

Having said the above, it needs to be emphasized that the starting point for knowledge is information which means data. So marketers need to collect data but not just any data. They need to collect data on consumers. Specifically data is needed on consumer's needs and wants. This however is not enough. Data by itself is useless. It needs to be put into a structured format i.e. it needs to be converted into knowledge. In other words, the data needs to be analyzed and converted into something useful and usable.

This leads to one inescapable conclusion. Marketers need to be data miners. Marketers need to be actively involved in the data mining process. And the data needs to be collected from all possible sources. This is necessary in order to provide a holistic view of the consumer. We have to keep in mind that consumers do not lead compartmentalized lives. How then can we break up the consumer into discrete portions and declare some portions fit for finance and some for marketing? For too long, data mining has been the domain of computer scientists and IT people. This is stupid. The computer and IT people are more concerned with specific algorithms that try to find patterns in data sets. They don't really understand what the patterns reveal. That is the task of marketers. Sadly, marketers have been neglecting this area till now which also means that their efforts have been less than optimal simply because they have lacked knowledge regarding their consumers.

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