Customers Define Value 

(and other basic marketing truths)

  by Dr. Gary Lundquist The Scientist-Marketer

Preface:  Language defines how we think, and how we think determines what we believe to be possible. When it comes to marketing, language and concepts are scattered like straw in the wind.  Everyone has his or her own definition of marketing and sales.  Every situation puts a different spin on words and ideas. We canít work together this way.  Assumptions about the meaning of statements lead to errors in judgment and expectation.  People go different directions thinking they are on the same track. We need a coherent, consistent view of marketing if we are to successfully use marketing.  And marketing is a key to surviving and thriving in todayís complex, ever-changing world. We need a view consistent with the real world of business-to-business marketing of high technology.  The language of big company consumer marketing doesnít work in our world. When I began doing workshops in marketing, I quickly realized that I needed to align all of my terms and assumptions into a coherent picture.  This essay is a defining document for my work. I think what I learned will help you.  Best of luck with marketing in your real world situations.

The Problem:  Have you noticed?  Our world is changing fast!  The Cold War is won; the information age has started; competition is global.  Organizational structures are flatter; middle management is vanishing; technology has replaced many human functions. This isn't just a brief storm, but a major climate change.  If we don't adapt, we won't survive.  If we don't learn key skills, we will fall behind.  This isnít just an incremental change, but a permanent change that demands new ways of thinking.  If we can't conceive of the problems we face, then we certainly can't be effective at solving them.

Thus a basic barrier to progress is our mindset.  We think in our own language and see the world from personal perspectives.  The same scenario seems very different when described by a scientist than by an attorney. Language determines how we define our problems, and how we try to solve them.  Imagine a carpenter doing plumbing or electrical wiring with only a hammer and nails mentality.  Changing language changes the tools sought and the methods used. Language affects what we believe to be possible.  It puts the reality of meaning in place of assumptions.  It helps us make sense of what might otherwise be rejected as incomprehensible.

I must admit; Iíve been guilty of working without knowing the meaning of my words. In 1984, a reorganization of the software company I worked for moved me from managing product development into a classic marketing position.  It was a tremendous opportunity, but I couldnít spell "marketing."  I languished in that job rather than used my energy effectively.  I did lots of hard work, but I had no concept of the larger picture and greater impact that I could have made.

Language affects what we believe to be possible. I needed a language of marketing just to be able to define the tasks to be done and the methods to be used.  I needed a coherent set of definitions and concepts for the marketing of the products, services, technologies, and expertise we offered.

When that company was sold and I started my consulting business, I took the time to develop that language.  For the next few minutes, I want to join your team and share with you what Iíve learned about the language of marketing. The terms and concepts presented here are very general.  They are designed for business-to-business marketing of high technology, yet also applies to any situation in which an exchange of value is made, including:
 


To simplify discussion, we will use the term "team" to apply to companies, organizations, R&D labs, and other departments or groups within organizations. If you learn nothing more about marketing than what is presented here, you will do better marketing than most people and organizations ever manage.  It isnít difficult.  It just takes a little time and a willingness to rethink what you already know.

The Basic Language of Marketing

 These terms will be defined and interrelated:
 


When we define marketing, we set context for definition of all of the other words.  Over the years, Iíve found dozens of definitions of marketing, and Market Engineeringís Dictionary of Marketing still holds 16 of them.

I settled on a composite definition that drew parts from several authorsí work.

Marketing:  The science of making and keeping satisfied customers, at a profit, over time, in a competitive environment
First, note that marketing is conceived as a process ( as an effort made over time.  Marketing is not an event. Good marketing keeps track of changes in customers, needs, competitors, and other market forces.  Good marketing uses that knowledge to build and maintain relationships.

Making and keeping satisfied customers is a process that logically begins early.  We logically do marketing to discover customer needs before we begin building our products.  That is, marketing is a strategy for product design as well as for attracting customers.  Second, marketing is defined as a science, not a craft.  Marketing is a logical, manageable, repeat-able process.  With appropriate tools, marketing can be engineered just like a good technology. Data is gathered through market research; analysis is done; and information is developed.  Goals are set, and strategies are developed and tested.  Plans are made and executed.  Messages of value are created and delivered.  Products are distributed to customers, and services are provided to assure satisfaction.

Thus marketing is not a threat to the credentials of scientists and engineers, but is a natural extension and application of their technical perspectives and skills.  Marketing is the business discipline best suited to the natural talents of technical professionals.
Marketing is a natural extension of the skills of technical professionals.

Third, marketing is a strategy for dealing with complexity and change.  Marketing provides a structure of ideas and processes for gathering and absorbing information and for using it to guide decisions and actions.  Marketing is an essential tool for managing change caused by economic, political, technological, cultural, and market forces.

Fourth, marketing applies to all exchange relationships.  We all do marketing every day.  Even R&D scientists must convince their companies or funding agencies to support new work.  Even technical papers are designed to convince the reader of the validity and value of results. Marketing is often confused with sales.  A differentiation written by Theodore Levitt in 1960 still applies today.  "Selling focuses on the needs of the seller, marketing on the needs of the buyer.  Selling is preoccupied with the seller's need to convert his product into cash, marketing with the idea of satisfying the needs of the customer."

Good salespeople today are a far cry from Levitt's worst case scenario.  They are customer oriented, take a consultative approach, and feed back market information to product developers and customer service staff.  Sellers, however, work after a product exists, while good marketing starts before product development begins and continues long after sales take place.  Sales is focused on the exchange step, marketing on achieving customer satisfaction at a profit.

And fifth, marketing is a mindset.  Marketing is a way of looking at the world ( companies, customers, products, competition.  Implementing the definition takes time, commitment, the right tools, and belief that we are doing the right thing.
Marketing is both a superior tool for achieving customer satisfaction, and a better way to perceive and approach markets.  Marketing is both a suite of processes for accomplishing results and a way to envision what results should be sought.
Marketing isnít an option at the practical level.  We all do marketing every day, whether we know it or not.  Yet marketing is an option at the mindset level.  We can choose to see our companies and markets through marketing-colored glasses or through glasses tinted with management, manufacturing, financial, or technical pigments.

The choice of a marketing perspective delivers a more useful picture of markets, customers, and our interactions with them.  Marketing is essential.  We canít get along without marketing, so we need to do it as well as possible.

Value:  Value is at once the most fundamental concept of marketing and the most misunderstood concept in marketing.  How we think about and deal with value determines, in large part, how we organize and run our team.
Value:  The sum of benefits received in exchange for payment
Benefit:  The result of satisfying a need
Value is what satisfies customers.  Value is what happens when a product or service is used to meet needs.  Value is about the perceptions in customersí minds when they receive the benefits they want.
Miller and Heiman offer a key bit of advice.
"No one buys a product per se.  What is bought is what the customer thinks the product will do for him or her."
What customers buy are the benefits the product delivers, and value is the sum of benefits.
Not drill bits, but round holes.  Not pencils, but ideas captured on paper.  Not loudspeakers, but sound.  Not cars, but transportation and image.
Not the product, but the value of the product.  Not what the product is or does (features), but the results of using the product (benefits).

Not the science, engineering, management, marketing, hard work, sweat, inventiveness, creativity, or visibility in the marketplace.  These are ways to create and distribute the product, not the results of product use.
Not the price of the product, because that is the value to the seller, not to the buyer.  Not the quality of the product, because high quality that meets no need has no value.
These distinctions are important, because they determine how we do marketing and what messages we emphasize.  Knowing that customers buy value means that marketing products misses the point.
Another key distinction about value is this.  Value is defined and owned by customers.  We own our products; we own the price we get; we own our knowledge and expertise; but customers define and own the value of what we offer.  Customers use the product, and value only happens when products are used to meet needs.
If we base marketing on the product itself, then we waste our time and energy.  To attract, excite, and convince customers, we need to learn how to work with their purchase decision processes rather than against them.  We need to learn how to translate features into benefits, then communicate value in language they can understand.
We make and keep satisfied customers by creating value and delivering it to them under win-win conditions.
There really is no other way.
Customers define
and own value.
Customers and Needs:  After value, customer need is the second most fundamental concept of marketing.  Without need, there is no customer, no reason to offer a product, no purchase, and no return on investment.
Consider these definitions:
Need:  A requirement for something essential that is lacking
Customer:  Someone with a need
Product:  Something that meets a need
Company:  An entity which develops and offers products
Four corollaries make these definitions truly useful.
1.  Customers own needs.  Customers own their problems and their frustrations.  They own requirements for products that will solve their problems and reduce their frustrations.
As developers with a strong focus on our own products and our own needs, we tend to see the product as filling our needs (as opposed to customer needs).  Indeed, many companies build products they want to build, then push them out to customers who donít recognize a need for those products.
In win-win relationships, we meet our own needs by satisfying the needs of our customers at a profit.  Customers only pay to have their own needs met.
Thus our job is to clearly and thoroughly understand what customers need.  If we donít know those needs, we must learn.  Fast!  Many companies have failed by assuming they knew what their customers needed.
2.  Customers may not know they have a need.  Hamel and Prahalad note that "customers are notoriously lacking in foresight."  Ten or fifteen years ago, "none of us were asking for cellular telephones, multi-valve automobile engines, compact disk players, hand-held global satellite positioning receivers, automated teller machines, or the Home Shopping Network."
We only discovered our wants for these products after we learned of their existence. Companies with technical leadership developed these solutions before their future customers could fully articulate the problems.
Visionary leaders see both new needs and new ways of meeting old needs.  Visionaries focus on producing new products that customers will want as soon as they know such a thing is possible.  Since customers donít yet know they want such products, we own the responsibility prove the value and relevance of the vision.
R&D holds a special place in this scenario because they always look beyond the horizon.
To win the future, then, we fight both a technical battle to be the best in our chosen technical area, and a communications battle to be the best at conveying value to customers.  We meet needs for both products and product awareness.
3.  Customers define value.  Customers define needs, and value is the result of meeting needs.  Therefore customers define value.
Again, the definition may be unconscious at first, a wish or a want not attached to a product.  Yet when customers make a purchase decision, they decide whether the product delivers value in excess of price.  They define value.
We donít.  Get used to the idea.
4.  Customers come in many shapes and in many sizes for each shape.  Every customer defines value differently, and most teams need to market to different types of customers at the same time.
Basic types of customers include:
Commercial customer:  Purchases market-ready products from a company either directly or through distributors.  Business-to-business customers are companies themselves.  Consumers are individual people.
Internal customer:  Acquires and uses technology, technical services, and products within the same organization.
Ally, joint developer, cooperative marketer, etc.:  Shares risks and profits in ventures of potential value to both sides.
Investor:  Puts money, time, and/or other resources into a business or business concept
Customers are notoriously lacking in foresight.
Technology adopter:  Acquires products not yet ready for market from a source of technologies.  "Technology transfer" is the science of designing, initiating, and implementing win-win value exchanges between sources and adopters of technologies.  Adopters are typically companies motivated by needs to complete market-ready products or improve company operations.  Adopters may acquire technologies from internal resources such as an R&D group or from external entities such as a university or a private inventor.
Transition Partner:  The next step along the product development value chain from concept to complete product.  The one to whom technologies are transferred in a product development flow.
Management:  Acquires the capabilities of individuals and teams in exchange for salaries and funding.  We only see management as a customer when we are seeking funding, raises, or promotions.  In that sense, management is a customer for our abilities to help further corporate goals.
Weíve introduced a lot of concepts without linking them to a real-world situation.  Let's use a "value chain" in the automotive industry to help visualize the definitions in this section
Consumers need transportation and image.
Manufacturers of cars need, for example, automated welding systems.
Developers of robot welders need leading-edge welding technologies.
A government lab specializing in precision welding needs proven theories on properties of materials.
The university department working on materials science needs ongoing funding.
To serve customers at any point in this flow, we will naturally offer what that particular customer needs.  Academic theories are of little interest to car manufacturers unless theyíve been implemented into welders that can perform specific, required jobs better than alternatives.
As a team, we typically organize ourselves around the needs we intend to meet.  We naturally design our team (company, R&D group, etc.) to develop and offer products that serve our chosen customers.
Levitt showed the way in his classic article, "Marketing Myopia."  We could think of industries made of companies building products and delivering them to customers, but this view is backwards.
Consumer needs justify development of products to meet the needs.  Products justify finding raw materials, theories, and processes for making the products, which justify companies to create and deliver those products, which eventually results in an industry.
In Levitt's words, "An industry is a customer-satisfying process, not a goods-producing process."
Customer need not only drives all of marketing, but drives companies and whole industries.  Need is the second most fundamental concept in marketing.
Customers define needs;
needs define the product; and
the product defines the team.
Products:  We've already defined the term "product," yet we haven't explored the meaning behind the definition.  If we are not explicit, we may still work from weak assumptions, and poor assumptions can kill business.
In the auto-industry example above, the "products" were proven theories, welding technologies, robot welders, and automobiles.  Let's consider what manufacturers actually offer when they sell cars.
Integrated technologies:  A car is a massive integration of technologies from steel-working to computer chips, all coordinated to achieve a specific functionality.  Because the function meets basic customer needs, the sum of technologies can mistakenly be seen as the "product."
Packaging:  Henry Ford got away with "any color, so long as it is black," but that doesn't work today.  Manufacturers design physical appearance, size, shape, speed, power, and an extensive list of additional features to attract a specific set of customers by meeting specific sets of needs.
Service:  The auto industry offered after-sale service long before service become a movement in commerce.  Service creates both customers and customer loyalty by meeting needs the cars themselves don't meet.
Marketing and distribution:  Car buyers need both information and access to the product.  They need to be aware that a particular car is available; they need to test drive it and to visualize themselves in it.  They need to be able to compare one car to another.
Exchange mechanism:  The term "sale" implies that cash changes hands, yet this is rarely the case for the sale of a car.  Most sales involve negotiating a price, applying for a loan, involving the loan company as a third party, and making monthly payments.  This complexity exists to meet customer needs for deferred payments.
The point is that a complete product meets a wide range of needs.  In the auto industry, it isnít enough to meet the need for transportation; in the welding industry, it isnít enough to join pieces of metal.  Every industry serves its customers by learning about and satisfying a complex cluster of needs .
Thus we have a more complete definition of a product.
Product:  Something that satisfies a complex cluster of needs
A commercial product is not complete until it meets that complex cluster of customer needs.  A product wonít survive over time unless it evolves to meet changing clusters of customer needs over time.  Products in todayís world are as dynamic as customers.
Stop and think for a minute.  What complex cluster of needs does your product meet?  What complex cluster of needs do you and your team meet for your management?  Have you designed your products and your team to best meet those needs?
Though not obvious at first, this logic applies to all types of products.  Whether tangible or intangible, anything that meets a need is best viewed in terms of complex clusters of value satisfactions.
This logic even applies to technologies, something coming out of R&D as a raw idea just barely proven.  When thinking in the context of commercial products, we define a technology as:
Technology:  A physical invention or service without packaging
A product is a complex cluster
of values that satisfies
a complex cluster
of needs.
In the words of Davidow, "A product is a (technology) which has been properly augmented so that it can be easily sold to and used by a customer."  In that sense, a product meets a larger cluster of needs than a technology does, because of the value added to serve commercial customers.
A corporate R&D group, however, doesnít serve commercial markets, but other parts of its own company.  Government R&D labs, university inventors, and engineering companies market technologies, not commercial products.
Products come in many forms.
        Technology
        Commercial-quality product
        Expertise
        Commercial-quality service
        Investment opportunity
Products can be characterized as:
       Tangible or intangible
       Business-to-business product
       Consumer product
       Commodity product
In these cases, must technologies also meet a complex cluster of needs?
Yes, they must!  For the purposes of marketing, technologies can be treated exactly like products.  We can even use the same language after substituting "adopter" for "customer."
Packaging:  A fully demonstrated technology is the result of science, engineering, lab testing, field testing, scaled down pilot testing, and/or full-scale testing.  Field-tested technologies are more valuable because they are proven in real world conditions.  Patented technologies are more attractive because of their intellectual property protection.  Packaging with joint investment, expertise sharing, or cooperative development lowers the risk and increases the value of the technology to an adopter.
Service:  Good transfer of technology is not just a matter of the source handing a prototype to an adopter.  Technology transfer may include knowledge sharing, personnel sharing, installation, training, cooperative development, and more.  Each process meets specific needs beyond those met by the technology itself.
Marketing and distribution:  Sources and adopters of technologies must be able to find each other, discover each othersí needs and how to meet them, and convince each other that the technology transfer is in their best interests.  Sources without their own marketing may use intermediaries and brokers in much the same way that commercial companies use sales staffs or distributors.
Exchange mechanism:  Technologies vary widely, so various mechanisms are used to meet the needs of each situation.  Licensing is the best known, but numerous other contractual relationships have been developed in industrial, federal, and university technology-transfer offices.
We can conclude that a technology is a form of product, and that valuable technologies always satisfy complex clusters of adopter needs.  We can apply fundamental marketing principles to the marketing (technology transfer) of technologies.
The same truth applies to investment opportunities and to every other form of product listed in the box above.  Products come in many forms, and all can be treated in the same way for marketing purposes, because all forms deliver value to specific groups of customers by meeting their needs.  All are complex clusters of value satisfactions.
Depending upon the product, the team may be a company, business, department, lab, university, group, individual, agent, or broker.  Each satisfies its customers with products that meet needs.
To be adopted, technologies must also meet a complex cluster
of needs.
Customers define needs;
a complex cluster of needs
defines the product;
and the product defines
the team.
Competition:  In any market, there are always several ways to meet customer needs.  Our products and our team almost always compete with other ways of meeting needs.
Competitor:  Someone meeting the same needs by serving the same customers with similar products
To compete:  To strive to outperform others in terms of technical excellence, quality, timing, communication of value to customers, price, and financial performance
Not all competitors are obvious.  The status quo can be treated as a competitor, since customers reluctant to change won't seek new ways to meet their needs.  Lack of awareness can be seen as a competitor, since those unaware of needs are unlikely to meet them, and those unaware of our products are unlikely to buy from us.
For our purposes here, however, a competitor is another team seeking sales, funding, resources, and/or commitments from the same sources that we target.
Those competitors drive our investment in both new and improved products.  Competition makes it much more difficult to make satisfied customers and to keep them over time.
Competition also drives marketing.  It forces us to use product-development and communication strategies specifically designed to create advantage over others.  For instance:
Differentiation:  The process of establishing preference by perceiving, developing, and expressing product or company uniqueness
Positioning:  The process of image development through consistent, systematic, and visible reinforcement of desired marketplace perceptions
That is, competition is ultimately fought in customersí minds.  We always need to offer unique value, and in Davidowís words, "If uniqueness doesnít exist in customersí minds, it doesnít exist in the marketplace."
Differentiation is a matter of marketing as much as technology, as much a matter of winning customersí minds as doing better engineering.  Clear, visible communications of value can be the differentiator, creating preference even when little real value difference exists.
The best differentiators relate to customers, not to products.  The best way to create uniqueness is to connect the product to the needs, wants, and wishes of customers, not to delve into features, science, and engineering.
Price is a key differentiator.  Customers compare price with their perceptions of value, to the cost of doing things the old way, and to the cost of alternatives.  Every decision to purchase, adopt, or invest is based in part on cost-effectiveness.
Image is a powerful differentiator.  The science of positioning uses communications to build market image by reinforcing an identity that is carefully chosen for its uniqueness and impact within its market.  Achieving uniqueness through image is a long-term, ongoing process that requires great consistency.
Positioning requires that we know ourselves and how we want to be perceived.  Again, it isnít enough to build good products; we need the extra leverage of marketable identities.  Customers need reasons to remember us and associate us with products that meet their needs.  Customers need memory devices such as names and slogans to help connect our messages to their needs.
Competition forces us to be better, unique, and memorable.  The need to outperform competitors directly impacts our choices of products and product characteristics we choose to offer.  The need for uniqueness forces design decisions in both products and communications.  The need to be memorable forces clarity, brevity, and novelty into the messages we deliver.
It isnít enough to build good products; we must also build marketable identities.
Competition forces us to do more than just satisfy customers.
Customers define needs;
a complex cluster of needs
and competitive alternatives
define the product;
and the product defines
the team.
Markets:  We oversimplified above.  Customers don't define commercially important needs; markets do.
Market:  A large and distinct group of customers with similar needs
Market segment:  A portion of a market with common economic, application, and usage characteristics
Niche:  A segment in which a team has a competitive advantage.  Also, a distinct market or segment into which a technology may be licensed
We justify products, product development, companies, and entire industries by finding market segments large enough to offer a profitable return on our investment.  Market segmentation is the process of choosing, specifically, which customers to serve and which customer needs to meet.
Continuing our auto-industry example, the U.S market for automobiles is distinct from markets in Europe or Japan.  A specific market segment might be described as "affluent, highly image-conscious people over 50 in major metropolitan areas of the Northeastern U.S."
The value of market segmentation is focus. The best companies focus product-development by clearly defining needs of consciously targeted market segments, then developing products that meet those needs better than any alternative.
In a competitive environment, we rarely make all sales within a segment, but share the market with other companies.
Market share:  The percent of total sales achieved by one company when selling a specific class of products within a specific market
Ries and Trout classify competitors within a market segment based on their market share.
Market leader:  Number one in a market segment.  Holds a dominant market share (>50%).
Strong contender:  Number two or 3 in a market segment.  One or two per market.  Share is roughly 25%.
Weak contender:  Big enough to take and hold a niche.  One to four companies per market.  Share is typically less than 20%.
Non-contender:  The rest, often 95% of companies in a market.  Share is typically less than 5%.  These are sometimes called "guerrillas."
Market share is complex.  In the auto-industry, one company may lead in luxury cars, yet trail the pack in minivans or sports utility vehicles.  Leadership may vary with geography; a leader in Europe may be a guerilla in the United States.
Entire competitive strategies can be based upon the amount of market share.  Market leaders, for instance, can choose to defend their market share, a strategy no other competitor can use effectively.  While strong contenders can attack the leader, weak contenders do best with flanking attacks to occupy a niche.  Guerrillas canít sustain a heavy competitive battle and must always be ready to jump if a larger company moves in.
The concepts of markets and market share change the nature of product development.  It isnít enough to build products with value to a customer unless that customer is big enough to be a market.
It isnít enough to meet the needs of just one customer; products need enough features and feature flexibility to meet the needs of a range of customers.  In particular, distribution methods need to provide product access throughout the market to the range of customers we choose to serve.
It isnít enough to speak to just one customer; we need to create messages of value that reach the minds of whole markets of customers.  We canít rely on jargon or inside humor in marketing; we need to connect to many ways of thinking.
Markets are created, not just served.  Some new products serve new needs, creating a market for a range of products meeting those needs.  Chrysler created the market for minivans.  Some new distribution makes products available in new geographic areas or new ways.  Some areas of the world have yet to be served by sellers of minivans.
Markets are created by marketing.  Product availability is rarely enough to open and sustain a new market.  Markets are created by developing awareness of needs, perception of the value of meeting the needs, and willingness to invest in need satisfaction.
Indeed, the best perspective is that markets exist, but may not be tapped.  Recognition of market potential justifies product development which, in turn, justifies companies and industries.  Recognition of opportunity justifies investment in the potential for return on investment.
Markets of customers define needs;
a complex cluster of needs and competitive alternatives
define the product;
and the product defines the team.
The Larger Marketplace:  Customers, competition, our company, and our team are not the only forces with an impact on marketing and team/product success.
Market force:  An entity or factor that affects abilities to create, develop, communicate, and/or deliver value to customers at a profit  (See the box on the next page.)
Marketplace:  A real or figurative place where business is done under the influence of market forces
Justify products with market segments large enough to generate profits.
Market research:  The process of discovering and verifying customer needs, abilities, intentions, and perceptions, and of defining the competitive environment
The marketplace is a hyperspace with dimensions associated with every market force.  The primary forces for a company are the company itself, customers, and competition.  The primary forces for a team within a company are company management, internal users of the teamís products, and competitors.
Market Forces
Change:  Evolution or transition in one or more market forces over time.  Change ensures dynamic markets.
Company:  An entity which develops and offers products.  An entity which meets customer needs by offering products, including allies and stakeholders
Customer:  Someone with a need.  Businesses, consumers, end users, internal users, adopters, licensees, transition partners, brokers, investors, and management.  Includes wholesalers, retailers, and other distribution channels
Competitor:  Someone meeting the same needs by serving the same customers with similar products
Time:  Amount, usage, windows of opportunity, development time, conflicts, deadlines, sales cycles, and more
Money:  Cash, funding, receivables, equity, debt, working capital, assets, and more
Infrastructure:  In any industry, the source of required services, funding, information, analysis, advice, and inspiration.  Suppliers, manufacturers, consultants, other teams, analysts, educators, distributors, the press, venture capitalists, other funders, advertising/PR firms, lawyers, accountants, and more
Perceptions:  Identity, image, reputation, credibility, customer loyalty, customer perceptions, market-place perceptions, references, and more
STEEP factors:  Sociological, technological, economic, environmental, and political factors, including regulatory factors worldwide
Luck:  Not manageable, but definitely a factor!
Integrated forces:  Market forces interact with each other to create, in effect, new forces.  Complexity and change are greater than might at first appear.
Every market force changes over time.  Change is perhaps the most important element of context for business today.  Managing for success within a changing hyperspace is no trivial problem.
The key to control is market research.  "Primary" market research directly asks specific, relevant questions of both customers and the market infrastructure (as defined in the box).  Secondary market research studies databases and library materials compiled by others.
Logically, we learn about both the larger marketplace and chosen market segments before product design begins.  Cost, time to market, and product development efficiency all depend upon early and accurate knowledge of current market realities and market trends.
Market complexity and change force us to stay closely connected to our markets throughout R&D, product engineering, manufacturing, sales, and customer service.  We cannot afford to lose touch.
Delays add complexity.  Most of the time, our market knowledge lags changes in customer needs, so our products donít fully satisfy.  Speed is almost as valuable as accuracy in knowing our markets.
Ideally, we know each market entity well enough to leverage it to our advantage.  Relationships with customers are not enough.  Our strengths are enhanced through relationships with major shareholders, bankers, market opinion leaders and anyone else who can deliver advance warning of trends and competitor actions.
Knowledge of articulated needs
will never
be enough
to keep us ahead of aggressive competition.
This is also true when we think of management as a customer.  Though management is logically part of our team, they are still a force in our success.  To best serve them, we need to know their vision, goals, strategic directions, and motivations, then design our team to support those directions.  We canít afford to lose touch with management.
In short, success requires finding a large enough group of customers with needs we can meet over time in a competitive environment.  We need markets of customers, and we can use market research to fully understand both those customers and their environment.
Markets of customers define needs;
a complex cluster of needs and competitive alternatives
define the product; and
the product and market forces
define the team.
Invention and Innovation:  Again, we oversimplified above.  Needs don't define all products; customer "wishes and wants" define many attractive new products.  Further, not all customers are aware of their needs, and many donít think of their frustrations in terms of needed solutions.
Our best choice is to look beyond articulated needs to what customers will want as soon as they know it is possible.  If we wait for customers to recognize and state their needs, we may miss key windows of opportunity.
Hamel and Prahalad argue that we need to "create fundamentally new competitive spaceÖ by dramatically rewriting the rules of engagement."  That is, we need to be aggressive about creating new markets on the basis of wants not yet articulated into needs.  Indeed, we must go further by satisfying wishes that wonít exist until our product does.
Todayís most aggressive companies discover untapped markets and build products to serve them.  These visionaries learn about unarticulated needs by asking customers about frustrations and wish lists rather than about solutions.  Customers know their problems, yet may not believe a solution will ever be possible.
In the same sense, those who bring products to market differ from those who create solutions.
Invention:  The discovery or creation of something new
Innovation:  The introduction of a new product into the marketplace
That is, innovators make practical, marketable products from the results of invention.  Innovators are involved with full commercialization while inventors may not care about or understand the commercialization process.  Innovators connect perceived wants of customers to the technical possibilities of invention, then drive technical development to enable customer satisfaction.
Innovators of new products accept both the technical challenge of creating something custo-mers will want, and the marketing challenge of educating the marketplace about the want and how it can be satisfied.  Such companies create markets, not just products.
Innovation turns invention into value.  Without invention, commercialization is all smoke and mirrors.  Yet without innovation, a solution sits on the inventorís shelf, solving no problems, meeting no needs, creating no value.
Innovation is not an option, but a core suite of processes necessary to make and keep satisfied customers at a profit in today's competitive environment.
Marketing drives innovation.  Marketing identifies the wants customers canít yet articulate, directs R&D toward results that will be desired, assures that design engineering packages invention with the right product features, and pushes manufacturing to deliver final products with the right quality and serviceability.  If invention is about science and engineering, innovation is about marketing.
Time to market is a measure of innovation performance.  To shorten the time from invention to product on the shelf, companies manage the whole value chain from product conception through R&D and product design to manufacturing and distribution.  Competition allows no less.
Change accelerates the need for efficient innova-tion.  As change itself accelerates, knowledge of articulated needs will never be enough.  Market leadership requires knowing markets and customers well enough to consistently and successfully envision what will be articulated.
Marketing
is a
suite of interrelated processes, not a series of isolated events.
This mentality is especially critical in R&D which, by its nature, is always looking beyond what is known.  R&D combines both invention (basic R&D), and the first step toward innovation (applied R&D).  Any company that wants to maintain a competitive edge must do both.
The true power of both technology and marketing lie in the ability to build competitive advantage and strong revenue streams through the marriage of invention and innovation.
Markets of customers have wants not yet articulated into needs.
A complex cluster of wants, needs, and alternatives defines the product, and the product and market forces define the team.
A Marketing Scenario:  As we move on, remember that every team has its own type of product and its own suite of customers.  Since our definitions are general, the concepts in this essay apply equally to commercial marketing, internal marketing, technology transfer, and the offering of investment opportunities.
We have almost enough language to map out the interrelated steps for good marketing.  The steps will make more sense, however, if we first introduce the disciplines of marketing.
Strategic marketing:  The science of creating a context of long-term decisions that direct product development and communications.  Decisions include strategic identity (who we are), strategic directions (where we want to go), and strategic decisions (how we intend to get there).
Product marketing:  The science of assuring product value, where "value" is not complete until it exists in customer minds.  Product marketing defines value to individual customers, demonstrates market existence, designs products, manages product development, sets prices, acts as customer advocate, and performs product introductions and promotions using tactical marketing.
Tactical marketing:  The science of conveying the value in what is offered.  Tactics include marketing events (sales programs, trade shows, press conferences, etc.), marketing communications (ads, brochures, press releases, personal contact, etc.), and integrated suites of these.
Sales:  The process of convincing potential customers to exchange money for products via win-win agreements.  Sales learns about and leverages customer needs, abilities, intentions, organization, and motivations, playing a significant role in management of customer expectations and relationships.
Tactical marketing is the visible and audible part of marketing, so tactics are marketing to many people.  Product marketing is the discipline that assures product value and defines the messages to be delivered by tactical marketing.  Strategic marketing sets directions and goals for product and tactical marketing.
Think of the disciplines this way:
Strategic marketing:  The corporate compass
Product marketing:  The value center
Tactical marketing:  The mouthpiece
We need all three working together.
In a simplistic scenario, marketing is done in order of strategic marketing, product marketing, and tactical marketing with sales.  In reality, nothing is linear, and the disciplines overlap and interact.  For example, feedback from salespeople and customer service commonly results in new marketing strategies, new markets, and new products.
The three marketing disciplines break out into seven clusters of marketing activities, as shown in the "Marketing Roadmap" on page 14.  Each cluster of activities affects all others and is an ongoing marketing practice that simply has greater emphasis at some times than at others.  Marketing is a suite of interrelated processes, not a series of isolated events.
Letís clarify each cluster of activities:
Define the corporate identity:  Define who the company or business is, what it does, and for whom.  Decide where we want to go and generally how we will get there.  Decide how we will compete and choose our mission, vision, and definition of success.  Note that this scales from companies down to teams.
Define markets and characterize customers:  Enable rational, informed team decisions with clear market research.  Decide exactly whom we will serve and what needs or wants will be met.  Discover the abilities and intentions of customers in our target markets.  Learn about competitive alternatives.  Monitor market forces and market trends.
A Marketing Roadmap

  Strategic Marketing
  Product Marketing
   Tactical Marketing
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Market Research
Customer Relationship Building
Positioning
Differentiation
Sales / Licensing
Define the strategic identity:  Define the benefits and uniqueness we will provide with each product and learn how to state that value in language used by our customers.  Set prices based upon value, competitive situations, and customer abilities and intentions.
Develop goals, strategies, and plans:  Choose durable goals to guide all of our actions, then identify both product strategies and communication strategies needed to reach those goals.  Once product strategies are defined, we typically implement them with the tools of science, engineering, project management, and manufacturing.  Communication strategies, on the other hand, are all implemented with marketing tools.
Create communications:  Engineer messages of value into appropriate communications, then design, develop, and produce them.  We need to treat everything we and our company say and do as forms of marketing communications, then manage those communications for consistency and support of our desired image.
Stage marketing events:  Implement our chosen communication strategies.  That is, execute our trade shows, open houses, direct mail campaigns, formal product introductions, press conferences, sales campaigns, and other marketing actions.  We leverage each action to gather names, qualify leads, do needs analyses, do competitive analyses, follow up on leads, and in every other way leverage the investment in the action.
Make personal contact:  Up to this point, our marketing has been impersonal ( back-room planning, designing, writing, producing, and interacting with customers as groups.  Now we call or visit potential customers and invite them to come to our facilities.  We meet them at events and learn their needs, situations, expectations, budgets, and who the decision makers are.  We talk persuasively to connect their needs to our product values.  We do our best to convince customers to buy, then negotiate agreements with win-win positions that enable positive long-term relationships.
The team cluster is the core of strategic marketing and depends critically on results of market research to define markets.  Remember, markets define products and companies, not the reverse.
The products cluster is a homework step often forgotten.  Every team needs to define the focus, value, and image of its products and itself before writing brochures or calling on customers.
The strategies cluster is the core of being strategic.  Every action in the whole scenario needs to be connected to the teamís high level goals, mission, and vision.  All too often, though, companies and teams within companies donít know how to be strategic.  As with other steps in the scenario, proven marketing processes make a huge difference.
Companies
Markets
Products
Strategies
Communi-cations
Events
Sales
The last three clusters comprise tactical marketing, the most expensive marketing discipline.  Strategic and product marketing are always minor expenses compared to advertising campaigns, trade-show presence, and sales programs.
Three processes are noted at the bottom of the figure.  Positioning and differentiation were defined with competition.
Relationship Development:  Consistent and systematic nurturing of mutually beneficial connections to individuals and organizations.  The process of establishing trust through consistent technical performance, consistent marketing communications, and consistent attention to customer opinions and needs
Positioning, differentiation, and relationship development are ongoing processes that entail elements of strategic, product, and tactical marketing.  In the eyes of some authors, positioning is marketing.  Indeed, all three processes are competitive strategies that logically begin early and continue throughout the lifetime of a product or company.
We can restate the whole scenario in a simple, linear fashion as:  Decide whom to serve and what value to offer; put statements of value into customer language; attract and convince customers by communicating the value offered; and maintain those relationships.
A less linear restatement in the language of this book is:  Choose customers; identify the complex cluster of needs that will be met; define the complex cluster of products and features to meet the needs; structure and guide the team to best develop, deliver, and communicate the value of the products; and keep the customer involved at all times.
Real-world marketing is non-linear and full of feedback loops.  Nothing is static; everything changes all of the time.  Successful marketers are amongst the most dynamic and adaptable people in business.
Marketing defines markets
and identifies complex clusters of wants, needs, and alternatives.
Those in turn define the product,
and the product and market forces define the team.
Style:  Image isnít an option.  We all have images in every market we enter and with every person we know.  Image isnít an option, yet our choice of style in the marketplace is.
We can present widely differing faces to our customers and market infrastructure.  We can be outgoing or private, involved or isolated.  We can balance technical and marketing efforts, or focus primarily on one.
The way we present ourselves can be thought of as our "style".  Style is rarely a conscious choice, but the outward reflection of internal motivations.  In a very real sense, our customers see us as we truly are.
Whether explicitly recognized or ad-hoc, our style results from what drives us.
Driving factor:  That which focuses and fundamentally motivates the efforts of an organization or individual
Most teams have a number of motivations ( products, technologies, sales, customer satisfaction, ego, market dominance ( reflecting the fact that the team is driven by a mix of factors.  The dominant factor in the mix often creates the strongest first impression and is seen by the marketplace as the style of the team.
That is, style can be a choice, not a fact.  We can choose how we want to be perceived, and then we can structure our team and its communications to reflect that choice.
Product-driven teams appear inwardly focused, paying attention to their development projects.  Sales-driven teams are very outward, but we know theyíre after our wallets.  Customer-driven teams are cooperative, wanting to know how to help us, wanting to be our best corporate friends.
Market-driven teams have a sense of sophistica-tion.  They pay attention to every force in the market, including competition and sources of financing.  They work well with customers, like doing joint ventures, and manage their distribution channels for ongoing win-win.
Value-driven teams
focus on increasing the
durable value
of every marketplace relationship.
Ames and Hlavacek describe market-driven teams this way:  A market-driven organization "is structured to serve markets rather than to manage functions and sell products.  Market-driven management is a cross-functional process that begins with a complete understanding of specific customer needs, competitive offerings, company capabilities, and costs.  It starts outside with customers and competition and moves into the business to structure internal capabilities and costs in a way that leads to distinct competitive advantage."
If market-driven teams have a weakness, it is that they can become process oriented.  They can seem mechanical, doing all the steps right, but without feeling.  They can lose track of what it really means to satisfy customers.
There is another level that combines the sophistication and expertise of the market-driven teams with a focus on value, the result of meeting needs.
Value driven: Consciously structured and managed to constantly increase the value received and perceived by customers and
other relationship partners
Value-driven teams have an explicit focus on increasing the durable value of each relationship.  In particular, these teams structure and manage themselves to increase the value received and perceived by their customers.  As customers recognize value received, relationships with other market elements improve, and competitive advantage is gained.
Value-driven teams are results driven, not process driven.  Most importantly, though, they focus on understanding value as defined by customers, then conceiving, defining, developing, producing, and delivering that value better, faster, and more cost-effectively than the competition.  They look beyond all of these tasks to value as the result of meeting needs through product use.
Value-driven organizations are built on leadership.  They are not driven by technologies or customers, but by visions of how technologies and team strengths can be integrated to meet a specific cluster of customer needs better than any other way.  They are driven by visions of win-win relationships with customers in which the bottom-line goals of both organizations are reached.
Value-driven teams are built upon proactive decisions based upon knowledge of markets.
The benefits of becoming value-driven can be stated from our perspective as:
Confidence:  We are less frustrated, more effective, and more confident in our interactions with customers.
Results:  We are more likely to get what we want from customers and from our investment in both products and marketing.
Realism:  We are better in touch with reality.
Science and engineering:  By creating revenues and funding, we enable underlying processes such as science and engineering from which we gain great satisfaction.
Customer value:  Our science and engineering is more useful.
Visibility:  We are recognized for our good work.
The edge:  We gain distinct competitive advantage.
Bottom line:  We are more profitable.
Survival:  We are more likely to survive and to maintain positive control over our own future.
The choice of style is a basic strategic decision.  It is not a choice to be taken lightly, and changing styles is not trivial.
The choice to be value-driven is, however, critical to the success of every organization that serves customers.

Marketing defines markets
and identifies complex clusters of wants, needs, and alternatives.
Those in turn define the product,
and the product, market forces,
and proactive team decisions
define the team.
Taking Control:  Weíve talked about becoming more competitive in todayís changing marketplace by learning essential marketing language and concepts.
In a nutshell, marketing is about meeting a complex cluster of customer needs with a complex cluster of value satisfactions, and doing so in a win-win fashion in a complex environment.
Choice of style is a fundamental strategic decision,
not to
be taken lightly.
To do any less is to give up control to the competition, and competition is everywhere.  To do any less is to be swamped by change, and change happens all the time.
Introduction of new language and concepts to your team members will change their perceptions and therefore will begin to change team culture.  With guidance, your team will move toward a value-driven style.
This is just a first step toward true competitive advantage.  Make it have an impact.  Keep on learning, and keep applying what you learn.
Your survival depends on it!

 Dr. Gary Lundquist defines, designs, and  develops businesses,  products, and market- place image.  He  leads and manages  change with the tools  of strategic marketing.  He is a Ph.D. scientist, Certified Management  Consultant, profes-sional speaker, and business author.
 
 
 
 

 References:
Ames, Charles B. and James D. Hlavacek, Market Driven Management, Dow Jones Irwin, 1989
Davidow, William H., Marketing High Technology, The Free Press, 1986
Hamel, Gary, and C. K. Prahalad, Competing for the Future, Harvard Business School Press, 1994
Levitt, Theodore, "Marketing Myopia", Harvard Business Review, 1960.  Also in The Marketing Imagination, The Free Press, 1986
Lundquist, Gary, Market Engineeringís Dictionary of Marketing, The Market Engineering Press, 1996.
Miller, Robert S. and Stephen E. Heiman, Conceptual Selling, Warner Books, 1987
Ries, Al, and Jack Trout, Marketing Warfare, New American Library, 1986

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© Copyright Market Engineering International, Inc., 1997-1999.  All rights reserved.  Permission to reprint quotes and excerpts is given, and use is encouraged.  Please include the following credit line:  "Reprinted from Customers Define Value by Dr. Gary Lundquist, 1-877-841-1411."

Reprinted with permission of Gary Lundquist 5/23/00



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