7 Principles of Marketing
If it weren’t for lawyers, marketers would probably be the most reviled professional class. Rodney Dangerfield has nothing on us.
Lately, the criticism has gotten unusually shrill. One prominent ad agency executive recently said that marketing is dead. Somebody else wrote the same in Harvard Business Review. A prominent VC says that marketing is just for companies with sucky products. It seems like we never get any respect.
I think that part of the problem stems from the fact that other professions have qualifications. Doctors go to medical school, engineers build things, financiers make money and even lawyers need to get admitted to the bar. Meanwhile, any jackass off the street can call himself a marketer. What we need are concrete principles. Here are seven.
1. More than Half the Value of a Typical Business is Intangible
Many financial types want little to do with marketing. They want to see hard assets, dollars and cents. The last thing they want to hear about is any softheaded notions of brand image. They want us to show them the money. Plain and simple.
Unfortunately, many financial types know little about finance. The fact is that, for most companies, intangible value makes up more than half of the total market value. Take a look at the chart below:
The chart compares market capitalization (i.e. the value of a company alive) with book value (the value of a company dead). What’s left over is intangible value. If a business was merely a balance sheet, nobody would ever pay more for one than its assets minus its liabilities. Even a casual examination quickly reveals that’s not how the real world works.
A few things that I want to point out initially. First, intangible value is enormous, making up the majority of the worth of a successful business. Second, the ratio of intangible value does not depend on the industry (I’ve color coded competitors to make comparisons easier), the size of the company or even the age of the business.
So what does intangible value depend on? As I’ve argued before, brands are promises and the value of a business is the value of the promises kept.
2. Marketing is not Advertising or even Promotion, but Identifying “Jobs to be Done”
Another interesting fact borne out of the chart above is that intangible value is not a matter of mere promotion. Wal-Mart has a higher intangible ratio than the more promotionally oriented Target, for example. Even in industries that require enormous capital investment, such as telecom and oil, intangible value is huge.
While effective promotion is obviously a very important part of marketing, it is certainly not the only, nor even the primary task. An effective marketing program identifies consumer needs and preferences, helps determine how those needs can best be met and how much people will be willing to pay for them.
In other words, successful marketing is mostly about finding profitable opportunities for value exchange. Often, those opportunities are product related, but they don’t need to be. For instance Zynga has unlocked value in people’s social relationships while American Express Open Forum has profited by giving their consumers valuable content.
In a nutshell, people need jobs done for them. The main task of marketing is to identify which jobs their organization can do most profitably and make sure people know about it.
3. Owned and Earned Media are More Influential
Watching Mad Men, you get the idea that promotion is all about snappy taglines and slick TV commercials. In the past, that was mostly true, but digital media and the data that came with it, has changed a lot of what we thought we knew. Clearly, we now live in a post-promotional paradigm.
We were always aware that word of mouth existed, but had no idea how powerful it was. The new social era shed light on the fact that recommendations from people we know are more influential than anything else. Further, the digital nature of those recommendations means that they can go viral and get picked up by mainstream media as well.
Owned media, such as websites, Facebook pages and storefronts have the additional advantages of allowing for deep product information, customer service and conversion to purchase. Not surprisingly, publishing has become an increasingly important marketing skill.
4. Paid Media is Easier to Activate
The rise of owned and earned media has caused many to believe that there is no reason to pay for media anymore. That’s a mistake. While owned and earned media certainly have some advantages, they don’t guarantee that you will reach anybody. There’s no use having a party if nobody shows up.
TV is still the best way to reach a majority of your consumers in a short period of time. Want to reach 60% or 70% of your target this week? No problem. Banner ads, while much maligned because of low CTR’s, offer more sophisticated forms of targeting and can guarantee you the audience you want.
Most of all, advertising messages are effective. While some believe that they are impervious to brand messages, abundant empirical research says otherwise. Highly sophisticated, profit driven enterprises will spend over $400 billion on paid advertising this year, with good reason.
5. Evaluate the Path to Purchase
One of the most important innovations in recent years is the rise of path to purchase models. They have, in fact, become so pervasive that even consulting giant Mckinsey has gotten into the act. The wide array of different approaches can be confusing, but they all rest on three pillars:
While different brands in different categories might want to add more detail in different places, if you perform in these three areas, chances are that you’re doing pretty well. Awareness, sales and advocacy should be considered the three core tasks of any brand and marketers need to continually track those indicators of brand health.
While marketing is still very much alive, promotional strategy needs to embrace new realities and new paradigms. Competitive path to purchase analysis plays an increasingly important role in evaluating opportunities and pointing the way toward effective strategies.
6. Seed, Share and Convert
While the concept of paid, owned and earned media has become pervasive, it really isn’t all that useful. It merely provides us with a taxonomy, not a basis for action. What really need to do is to seed, share and convert.
Seeding: When social media first appeared, its advocates claimed that it would mean the end of traditional media. That never happened and it doesn’t look like it every will. It soon became clear that marketing without paid media simply doesn’t work. Nothing can replace the speed, efficiency and consistency of mass media.
Regular readers of this blog know that I’ve long advocated a big seed strategy along the lines formulated by network theorist Duncan Watts. The fact that most popular brands on Facebook and Twitter invest heavily in traditional media bears this out.
Sharing: Promoting sharing is problematic because we it’s not something we can directly control. Social media strategy is still in its infancy and we are still learning how to do it. My experience is that common sense usually goes a long way. Compelling content, along with respect for the consumer and ample sharing opportunities are good, basic policies.
Converting: Turning prospects into paying customers is another thing marketers generally know how to do well (albeit some better than others). Couponing, website optimization and in-store promotions are all areas of considerable expertise. Shopper marketing has also come a long way in the last decade.
However, recently become an area of vigorous innovation, especially at the point of sale. E-commerce and physical retail are converging with screens technology to create a new digital battlefield and new, mobile marketing technologies such as near field communication will revolutionize how we buy products and services.
7. Marketing is not a Science
As I noted in the beginning, one of the great frustrations of marketing is that we don’t really do anything on our own. We don’t build things like engineers or argue cases in court like lawyers or even create financial returns like Wall Street traders. We are not successful on our own, but enable others to be. Often, our efforts go unrecognized.
That’s led some to focus on what we can quantify and optimize. That’s a mistake. Marketing is not a science, but a business function. Much like other worthy endeavors, it is best practiced when it is informed by science and adopts some of its methods, but that is not the same thing.
One person who deeply understood this was Steve Jobs. As I’ve explained before, he had little talent as an engineer, but had a knack for understanding what kind of jobs consumers wanted done (i.e. 1000 songs in your pocket), a flair for promotion and a deep devotion to building a community of like minded people.
Most of all, he understood that creating efficiency is not the same as creating value. Marketing will live on as long as dreams do. Identifying and fulfilling those dreams is the essence of good marketing and good business.