In your new book, The Marketing Mavens, you argue that there’s been a shift in the marketplace, from “scarcity of supply” to “scarcity of demand” today. Can you talk about that shift?
If you look at the history of business since the Second World War, with all the rebuilding of national economies that were mostly destroyed, from a very broad-scale perspective, the marketplace for many industries could be defined by a shortage of supply. It was a matter of companies manufacturing enough products to supply people’s needs. Over time, as companies have become more effective and efficient at producing goods and services, and as many new players have emerged in different parts of the world — just think of the increased competition from Japan, Korea, and now China — marketplaces are increasingly being defined by scarcity of demand.
Just ask any senior executive whether it’s easier to win customers today versus 10 or 20 years ago. I guarantee that in virtually every case, he or she will tell you that it’s getting tougher and tougher. Michael Hines from Prudential Financial made a very telling comment in the very first interview I conducted as part of this study. He said, “There is lot of supply and a lack of demand,” and that what Prudential bases its strategy on is that “people don’t need to do business with us.”
It’s not just that competitors are producing large volumes of products, it’s that those products and services are getting better and better. The core challenges for all firms are how to deliver more value than the other guys and how to secure differential advantage over them. Firms are only going to succeed if they develop a visceral sense of the critical importance of customers.
You studied all kinds of industries and found that, across the board, the most successful ones all shared what you call the “capital M mentality.” What does it mean for a company to operate with a capital M mentality?
Capital M companies are those where everybody in the organization knows that the only reason that their firm exists is because they have paying customers. Hence, marketing is not just a job for the marketing department; at some level marketing is the job of everyone in the company. No matter where you sit in the organization, even — or especially — if you’re physically removed from customers, they only reason you get a paycheck is because your company sells a product or service that customers pay for.
In a small company, like the local grocery store or dry cleaner or garage, the owner takes care of all of the functions. That person serves customers, is closely involved with manufacturing or service delivery, does the finances, organizes its human resources and so on. The owner is connected to every part of the business and really understands the job that each function has to do to serve customers.
When companies get bigger they typically specialize their functions, and a lot of those functional departments develop their own visions and missions. Some of the functions may never see a single customer, and ultimately customers take a back seat to the important jobs they have to do day by day. There’s a real danger of growing firms losing a customer focus.
That’s what happened at IBM in the 1980s. In the 1960s and 1970s, IBM did a great job of providing customers with value through their mainframe computers. Remember “You never got fired for buying IBM!”? But IBM lost sight of what it’s customers wanted. Over a three- or four-year time frame in the early 1990s, IBM went from being highly profitable — and probably the most highly admired company in the world — to almost going bankrupt. There were a lot of reasons for that negative transition, but at root, IBM lost touch with its customers and needed Lou Gerstner to come in and restore that customer focus.
Bloomberg is a great example of a firm with a capital M mentality. The only thing that matters inside Bloomberg is selling terminals. Everyone in the organization from the top guy to the janitor gets equity equivalency certificates based on terminal sales. The more terminals customers buy, the more equivalency certificates everyone gets. No matter where you sit in Bloomberg, you know that, at the end of the day, the only thing that really matters is customers buying Bloomberg terminals.
Did these companies all find their way to embrace this kind of customer-obsessive focus in the same way? Is there a formula?
Generally, these companies embrace the capital M philosophy at a very deep level. Now, where did it come from? It may have come from a visionary CEO. Certainly someone like Howard Schultz [of Starbucks] lives and breathes that philosophy. It may have come from a strategic change. For example, Samsung used to be a highly manufacturing-focused company; what was core at Samsung was efficient production and low costs. Then Samsung shifted its strategic direction; it pulled its products out of Wal-Mart and sought a different kind of customer that desired high quality and design. And the marketing people we talked to were strongly supported from the top of the organization.
In many companies, the job of marketing is essentially a communications function: we know the customers, we’ve figured out our product and how to price it, and all that really matters now is communication — through traditional advertisements, the Web, sales brochures and so on. These marketing departments essentially focus all of their energies on communications.
In The Marketing Mavens, I argue that marketing is much bigger than that. We’ve already talked about marketing at the philosophical level, but marketing also embraces five imperatives — these are the set of jobs that must be done.
ExxonMobil and ESPN are two excellent examples of firms that understand each of these imperatives. Let’s just take the first imperative: Pick markets that matter. ExxonMobil has embraced this by shifting its focus from servicing cars with oil and gas; it figured that what’s important today is servicing drivers. It understands that as automobiles have become more and more reliable, they don’t need so much servicing. So ExxonMobil focuses on serving drivers with the Speedpass for paying at the pump and with its convenience stores.
ESPN decided to focus on sports, and then narrowed down into different sports where there were small groups of fanatically interested fans, as with extreme sports. ESPN is also a great example of acting on another imperative: Design the market offer to create customer value and secure differential advantage.
It’s surprising to learn that this zoom in on customers doesn’t necessarily mean that customers always get what they want, or what they think they want.
Right! And, of course, it’s also the case that there are some customers you don’t want. Although my underlying argument is for a visceral focus on customers, customers do not always know best.
UnitedHealthcare is an especially interesting example to look at. This HMO essentially decided that its mission, as well as the way to increase its profitability, was to become a facilitator of its customers’ healthcare. It set out to do away with the adversarial relationship between HMOs and their customers. But one of the things they ended up doing was getting rid of a lot of variations in coverage. Those variations, addressing customers’ fine-grained concerns, were great for closing sales, but UnitedHealthcare found that special features made for significant relationship problems later on. Then the firm would end up with unhappy customers, and would ultimately lose them. Instead, UnitedHealthcare focused on providing manageable variation in their policies. But they also improved call centers to move people more quickly through the system, eliminated referrals approval and took all sorts of other actions to embrace their role as a facilitator. Just look at its financials; it’s clearly paid off.
Why do you say that it’s okay for a company to make mistakes?
Before this study, I hadn’t really thought about this issue too much, although, of course, any risk-taking firm must expect to have some failures. The fact of the matter is that with the environment becoming ever more complex and changing ever faster, it’s almost impossible to be at the top of your game all the time. Stuff happens! Even with the best planning in the world, things are going to go wrong. The best companies are going to do well most of the time, but they will also probably make missteps and have problems, and they will bounce back.
A couple of the companies I talked to are in that situation right now. Both Dell and Sony have seen better days, and each is going through some tough times. But when you look at their past performance over an extended time horizon, you see that they have both had spectacular success. Maybe their stock price will not do so well in the short run, but I wouldn’t bet against either firm over the long run.
If you want a couple of contemporary examples, just look at Apple and IBM. It’s not so long ago that many people were writing their obituaries, but I believe that most people would agree that both firms are a long way from being dead and buried.
Noel Capon is the R. C. Kopf Professor of International Marketing at Columbia Business School.
Capon, Noel. The Marketing Mavens. New York: Crown Publishing, 2007.