The Evolution of Modern Corporate Marketing Departments - Case Study Example

The Evolution of Modern Corporate Marketing Departments Marketing Tail Wagging the Business Dog The most recent list of Fortune Magazine’s Top 500 global corporations showed that their revenues increased 12.7 percent to $18.93 trillion while profits went up 30.3 percent to $1.21 trillion in 2005 (Lustgarten, 2006). These top corporations from 34 countries (the U.S. had 170 companies while Singapore had one) and 53 industry sectors (Apparel to Airlines) employed over 50 million people and accounted for a third of the world’s total output. We can make two observations about this highly diversified group: first, they sold products and services at a price their customers could afford, and second, majority of these companies were profitable, which was good for their managers and stockholders. In other words, we can say that last year at least, these top companies did a good job of marketing. What is marketing? The late management thinker Peter Drucker (1955) was one of the first to use the word “marketing” and point out its importance in the modern corporation: “Marketing is so basic that it is not just enough to have a strong sales department and entrust marketing to it. Marketing is not only much broader than selling; it is not a specialized activity at all. It encompasses the entire business. It is the whole business seen from the point of view of its final result, that is, from the customer’s point of view. Concern and responsibility for marketing must therefore permeate all areas of the enterprise” (p. 36). Drucker predated Levitt (1960) in defining how the marketing function involves understanding and anticipating future customer needs while satisfying today’s customers who determine what a business is, what they consider “value” for which they are willing to pay the right price, and what the business should produce. In the over half a century since, marketing has evolved to be a highly, if not the most, important component of running a business successfully. Every profitable and sustainable business, from small enterprises to charities, has a marketing component tasked with finding out what sells (Gummesson, 2002). The American Marketing Association (AMA, 2004) defines marketing as “an organizational function and a set of processes for creating, communicating, and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stakeholders.” That most of the companies in the Fortune 500 list (though some like GM decreased their revenues and suffered a $10 billion loss) were able to sell products and services profitably showed that the organizational function of marketing delivered on its promise, helped the business fulfill its purpose, and satisfied its stakeholders. Higher record sales and profits, of course, are not the sole accomplishment of the marketing department because every business is a team where each one, from the youngest temp to the oldest member of top management, work and pull together to satisfy and keep customers. Nevertheless, as the business organization’s interface with the market of current, future, and in many cases former customers, the corporate marketing department can be likened to the “departmental” tail that wags the whole “corporate” dog. By knowing what customers consider as value and are willing to buy and at what price, those who work in marketing have a tough job to do: satisfying the market, anticipating future needs that customers may not even know, and driving the whole corporation towards the same goals. This is not easy to do for several reasons, for example the lack of support from a CEO who is not marketing-oriented or a marketing group that commits a mistake in “reading” the market. As one example, the current problems of GM began twenty years ago when a finance executive became the CEO and pushed for satisfying Wall Street instead of GM customers. Compounding the problem was its marketing department’s failure to convince the design and engineering teams to come up with fuel-efficient cars (Loomis, 2006). These marketing errors – satisfying the wrong customers and not selling cars the customers wanted – threaten the company with bankruptcy twenty years after the mistakes were committed Another reason is that companies may find a conflict between what it sees as its business purpose and what its customers want and need. Besides the ear-splitting, at times asinine, distinction between a want and a need, efforts to give marketing departments “undue” importance are not easily acceptable by other parts of the corporation, resulting in the dissipation of management efforts and resources as they try to satisfy as many so-called “internal” customers as they can (Foster and Kaplan, 2001, 183-184). For the profitable companies, however, the rewards in higher revenues and profits just keep on coming. How they did it is a testament to their ability to adjust to the changing needs of customers as it aligns the whole business towards meeting the same goals. This is shown by how these companies made the difficult adjustments needed to accommodate an evolving marketplace. Their corporate organizational structure evolved (not an easy task) enabling them to keep pace with changes taking place in the business environment where they operate, resulting in satisfied customers, higher revenues, and consistent profits (Achrol, 1991). Six Stages of Marketing Department Evolution Businesses and markets once remained the same for hundreds of years. In recent decades, however, change has been rampant, and to succeed, companies must understand the logical foundations of market and business evolutions (Docters, Grim, and McGady, 1997). We can distinguish six stages in the evolution of corporate marketing departments, using as our guide the leading experts in marketing management. Kotler and Cunningham (2000) identified the following structural stages in this evolution: Stage One: Simple Trade Era and the Birth of the Simple Sales Department Stage Two: Sales Department with Ancillary Marketing Functions Stage Three: Separate Marketing Departments Stage Four: Modern Marketing Departments – Effective Marketing Company Stage Five: Process and Outcome based company Stage Six: The Internet Marketing Age Stage One: Simple Trade Era and the Sales Department The first stage was marked by what we can call an extension of the simple trade era, where the business owner was the craftsman who produced the goods. If someone in the town needed a piece of dress or furniture, the craftsman would produce and sell it. In the early stages of the industrial revolution, the craftsman (baker, clothier, blacksmith, shoe maker) would often produce more than was needed and sell the surplus, either on his own or by contracting other people to do the selling. The coming of the industrial revolution saw factories producing much more goods than were needed to satisfy local market demand. This led to the formation of teams of salesmen whose only job was to sell the products to a wider geographical area. The business owner trained these salesmen on the features of the product so they could convince customers to pay the right price that would guarantee a profit for the owner and an income to the salesman. In most cases, salesmen learned by trial and error, an experience that was not limited to this time period. As even recent events attest (e.g., the failure of the Apple Newton in the 1980s and the success of the Palm Personal Digital Assistant twenty years later), the marketing function is not any easier as customer tastes keep on changing. In this first stage, the owner got outside advisers to help him with “marketing” functions such as market identification and product design modifications. Stage Two: Sales Department with Ancillary Marketing Functions With the advent of the industrial revolution came mass production and the need for people whose sole job was to sell the products churned out by the factories. These products met a need and were produced in large numbers, making factory owners realize that they could earn higher profits with the lower cost of producing additional goods if they could only sell their products. Thus, companies established sales departments with ancillary marketing functions to sell products, giving rise to the era when salesmen by the thousands crisscrossed the U.S. and European continents selling anything from screws and widgets to factory machines. Friedman (2004) chronicled this stage of economic development and showed how the growth of effective selling and salesmanship helped in this era of mass production. This second stage, during what could be called the Age of Production, was marked by the discovery that the cost of production could be lowered to the point where almost the whole selling price was profit. The sales function grew in sophistication to include what came to be known as marketing functions: how to target customers, find out their needs and wants, know what price they are willing to pay, and anticipate future products for the same and new markets. This era lasted until the Great Depression and was marked by the development of Henry Ford’s mass production system and the spread of F.W. Taylor’s principles of scientific management (Chandler, 1962). In this second stage, the business hired workers to form part of an internal marketing group that worked closely with the sales force by providing training programs, conducting market research studies, and sharing product development ideas, looking for different ways to tweak the company’s products to drive down costs and sell as much of the product as it could to the market. Competition for customers was more intense, and the marketing function grew more in importance (Fullerton, 1988). Stage Three: Separate Marketing Department In the third stage, the marketing group formally became a separate department. This took place during what can be called the Era of Sales that lasted from the Great Depression to right after the Second World War. Levitt observed (1960) that companies were concerned more with selling the product than satisfying the customer, and that this orientation dominated business practice. Selling at all costs and at any price became the norm. Then the Depression happened, and the economic power of households was battered. Companies realized that they could not sell all their products even at a low price. Thus, their main priority was to get rid of excess production through sales. Since most companies were in the same predicament, selling became more professional and the marketing function more scientific to include functions like advertising and promotions (Keith, 1960). Stage Four: Modern Marketing Departments – Effective Marketing Company The next stage that started right after the War saw the rise of the modern marketing departments. The damage to the production capacity of other countries and the output from research and development (R&D) efforts during the war gave the U.S. a marked advantage over foreign competitors. Companies realized that they could produce new and better products that could satisfy market demand. The baby boom after the War became an opportunity to sell basic and newly developed goods to the market (Slater and Narver, 1995). This gave rise to the modern marketing department, which advised not only the sales teams on what and how to sell, but also gave important information to the production teams on what to produce. This saw the rise of the marketing department from being a sales-oriented support function into one that provided the company with a new orientation, and the object of support from all the other corporate functions (Balmer, 2001). By the 1960s, companies were managed with a total marketing orientation, where customer satisfaction and meeting customer needs became the norm, marking a shift from the previous production-oriented management of the business. Profits could be achieved if the business focuses on satisfying customer needs through product changes, pricing adjustments, increased customer service, and changes in distribution systems (Webster, 1992). Stage Five: Process and Outcome based Company As competition intensified, marketing departments evolved in sophistication to include the development of long-term relationships with customers. Kotler (1997) observed that companies began going after customer loyalty after they estimated that the cost of attracting a new customer was five times the cost of keeping one. The process and outcome-based company did not limit itself to advising the sales team on what and how to sell, but also provided important information on what the customer wanted, what the company should produce, and the price that customers are willing to pay. This stage saw companies oriented by a marketing department heavily backed by customer research in the face of competition in highly similar products and where customer loyalty could be enhanced by the buying experience. Importance was given to design, target selling, brand image, and sophisticated advertising. Others linked good environmental and ethical behavior with marketing success. Structurally, many companies designate product/brand managers to work in cross-disciplinary teams to manage the sales of a product or brand (Biggadike, 1981). Two factors in recent years led to this stage in the evolution of corporate marketing departments. The first, globalization, created competitors and markets from all over the world. An end result of globalization is the shift of production to developing countries that mass-produce goods for sale to domestic and global markets (Stiglitz, 2000). The second factor, linked to the first, is that companies began to compete based on the differentiation of services instead of products, leading to the development of global brands like Starbucks where the store, the customer, and coffee-drinking are “romanced to form part of a unique buying experience” (Schultz and Yang, 1997, p. 243). Stage Six: Internet Marketing The last decade saw the rise of direct marketing through the use of the Internet. This changed the fundamental principles of marketing, consumer behavior, advertising, pricing, distribution channels, intermediaries, strategy, and globalization (Barwise, Elberse, and Hammond, 2002). The Internet has emerged as a flexible, fast-growing advertising medium and as a significant direct channel in several markets from books to PCs, and cars to airplanes, leading to price reductions and bringing into the mainstream exotic business models such as auctions, e-markets, and brand communities. The dot-com bust, however, showed that companies with a strong market presence and a solid marketing experience are more successful than heavily funded businesses that never had a solid marketing experience. What’s Next? The models and structures of market-oriented companies are undergoing a revolution in the face of the growing sophistication of global customer needs. There is a fast-paced move from mass production to mass customization at a time when customers are demanding cheaper but higher quality goods, increasing marketing’s role in every company’s strategic supply chain management process (Webster, 2002). These developments challenge companies in the face of relentless cost pressures that force them to offshore production into cheaper countries while making the buying decision more special. This is expected to continue as long as companies treat customers as kings. Having a market-oriented genetic code “forces” them to find ways to give satisfaction and to adjust their organizational structure accordingly. Doing otherwise would be unthinkable if the business is to survive. Reference List Achrol, R.S. (1991). Evolution of the marketing organization: New forms for turbulent environments. Journal of Marketing, 55 (4), 77-93. AMA (American Marketing Association) (2004). Marketing redefined: What is the meaning of marketing? 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