True Marketing Doesn't Just Sell the Story

To Achieve Top-Line Growth, CMOs Must Design New Businesses

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Robert C. Wolcott
Robert C. Wolcott
As the global economy emerges from recession, regardless of when or how quickly, the focus in the executive suite is already shifting from cost cutting to recovering top-line growth. What role can the CMO play? If CMOs are truly to be growth champions for their corporations, they can't simply rely on traditional marketing and brand-building techniques.

In nearly a decade of research, my colleagues and I have found that established companies increasingly are successfully building new businesses on a repeated basis, a process we call corporate entrepreneurship. Marketing -- true marketing, not just selling the story but helping create it -- must play a central role. True marketing is about understanding current and potential customers better than anyone else, translating those insights into powerful new offerings and experiences, and creating ever more effective and efficient paths to market.

In other words, marketers must design new businesses, rather than just launch new products.

Business design is the essence of marketing. It is also the most vital component for successful, game-changing innovation. Apple understands this. It doesn't just create new products. Marketing prowess played a much greater role in the iPod and iPhone's success than technology, and I don't just mean great ad campaigns. With the iPod, Apple showed it understood better than competitors what customers would demand. It created an exceptional (and legal!) music-downloading experience and built the marketplace infrastructure, such as iTunes and Apple retail locations.

Our research shows that innovation can apply to any aspect of how a company does business. While that's not surprising, what should be most impressive to marketing professionals is the range of factors marketing organizations can affect when it comes to creating new businesses.

Obviously one of the most commonly thought of types of innovation is a breakthrough new product or service. P&G's Crest SpinBrush was introduced in 2001 and became the world's best-selling electric toothbrush by 2002 based on its ease of use, portability and affordability. New products and services are still fundamental.

But there are other, perhaps more subtle and equally powerful ways companies can create new value. Starbucks, of course, convinced Americans to pay $4 for coffee, and it didn't invent anything, at least not in terms of technology. Its innovation was about an exceptional customer experience, for which customers paid a premium. It was a whole new mission that changed American culture.

Here are types of innovation where marketing should play a central role:

  1. Customer experience
    Customer-experience innovation isn't limited to consumer companies. If you have customers, you have a customer experience, whether you know it or not. Global cement behemoth Cemex created a satellite GPS dispatch system to radically enhance its responsiveness to customer orders, taking the industry standard from more than 24 hours down to 30 minutes in many markets.
  2. Customers
    Customer innovation involves discovering new customer segments and/or uncovering unmet or unarticulated needs. Virgin Mobile became a successful late entrant into the U.S. cellular market by focusing on the underserved segment of Americans under 30. Within three years of its launch, it had attracted more than 4 million subscribers in very competitive markets.
  3. Value capture
    Value-capture innovation involves discovering new revenue streams, innovative pricing mechanisms and new ways to get paid by customers or partners. Google's paid search and Allstate's accident-forgiveness feature on auto-insurance policies are innovative ways in which companies have captured value in unique ways. (Allstate charges more for the original policy, while consumers no longer feel victimized when accidents send their rates skyward.)
  4. Presence
    Presence innovation creates new distribution channels or innovative points of presence. Health clinics in Walmarts and pop-up retail stores are current examples of innovating presence.
  5. Networking
    Networking innovation entails the enhancement of intelligence, flexibility or effectiveness through technology-supported networking. McDonald's Moms' Quality Correspondents community offers selected mothers the opportunity to communicate with the fast-food giant and each other both online and in person.
  6. Brand
    Brand innovation leverages or extends the brand in creative ways. Virgin is probably the most-recognized example.

One of the most interesting examples we have seen of innovation outside of new products and services is Zara, the Spanish apparel retailer. Unlike its competitors, Zara does not fully outsource its production, retaining over half of its production in-house to cut sourcing lead times. Zara also owns most of its retail stores, allowing it to maintain direct customer contact. Zara eschews economies of scale by making small lots and launching myriad designs, allowing it to refresh garments weekly and ship clothes on hangers so they can be displayed more quickly. These decisions enable Zara to shorten the design-to-retail cycle to as little as 15 days.

Though Zara offers a lower retail price for goods that often cost it more to produce, it ends up with better performance. At other retailers, consumers wait for sales. At Zara, they know that if they wait, the items will disappear, so customers are more likely to pay full price. Zara's business design has changed the basis of competition.

These examples involve much more than traditional marketing activities. Without exceptional, creative marketing, innovative products often fail in the market.

So how can marketing teams more effectively contribute to innovation-led growth and new-business creation? The best companies bring marketing expertise in early to help define customer needs and opportunities before substantial development has taken place. R&D professionals might be masters of the art of the possible, but marketing professionals should be masters of the art of the valuable. Together, they build differentiated marketplace success.

Few companies lack enough great ideas, but many are challenged at integrating the complementary capabilities of marketing and development. At successful companies, we have found that CMOs and their teams engage with R&D and business units in a process that can generally be portrayed as incorporating six steps:

  1. Define your target audience and value hypotheses
    Everything should start with the customer. Understand what value the customer is truly trying to achieve by buying what you're offering. Think about these questions from the customer's perspective: What's in it for me? Why is your solution better? Why should I believe you? What does it cost? What might go wrong? What are my costs of making it useful?
  2. Explore the overall business system to make it happen
    Spend the time upfront, when it's cheap, exploring the possibilities, such as channels to market, new ways to leverage your brands and nontraditional approaches to getting paid or sharing risk with your customers.
  3. Build and test prototype business systems
    While still at an early stage, you have the luxury of selecting more than one business design.
  4. Prioritize the uncertainties
    Will it work? Will people buy it? What will we have at risk? What internal organizational uncertainties at my company might mitigate success?
  5. Design simple experiments and build your action plan
    Risk increases as you spend money on a project, so try to resolve the simple, high-value uncertainties early on.
  6. Iterate
    Experiment, socialize, gather information and learn about your concept. You will find your perspective changes.

Few companies will succeed at new-business creation without a vital role for the perspectives and capabilities of marketing. The CMOs who play that central role will truly become growth leaders for their companies' futures.

Robert C. Wolcott is the founder and executive director of the Kellogg Innovation Network at the Kellogg School of Management, where he teaches innovation management and strategy. His book, with Michael J. Lippitz, "Grow From Within: Mastering Corporate Entrepreneurship and Innovation" (McGraw-Hill), will be available this fall.
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