forumforfuturemarketing

by Sarah Brecht, Marc Vogelsang and Adrian Saile

Marketing 3.0: From Products to Customers to the Human Spirit.
Marketing the Vision to the Shareholders (Chapter 6)
Philip Kotler (et. al.)

In Order to look inside a possibility to change the goals of companies and the way they are presented, it is important to show the status quo of thinking in many companies: the alignment of goals according to the profit of shareholders.
In most cases, the purpose of a company is to fulfill short term expectations of shareholders, even if this happens at the expense of value-adding investments.

Thesis 1: Short-term thinking is damaging the economy

But shareholders need to realize, that the value of a company is being determined by long term future cash flows, which makes a vision of the future essential. Short term thinking, which frequently serves as a motive for hazardous strategies today is more and more replaced by long range adding of economic value.

The second important factor within this change of economic thinking besides long-term orientation is to emphasize the importance of the surroundings of a company – a change from shareholder- to stakeholder orientation. The success of a company is the result of a superior network of stakeholders, that are involved with the company in some way. Their contentment is increasing the profitability of the company in the long term.

Thesis 2: Sustainability can be the key to economical success

The long term orientation can be connected to another economical and social trend of recent years: sustainability. This term can be defined in two basic ways. Sustainability for companies means the long range survival of a company in the economy. Sustainability for society means the long range existence of the environment and of social welfare. The crucial factor for companies, that want to emphasize sustainability in their activities, is to find synergies between those two basic drifts.

But the first question is, why do companies need to focus on sustainability? The main economic reason is, that the markets are polarizing into a top and bottom end. Consumers are either seeking luxury or bargains, while products from the center of the market are losing importance. This is affecting the market structure as companies have to choose one end of the market to focus on.

The related thesis of Marketing 3.0 is that companies have to emphasize sustainability regardless of their operating place on the market.  At the top end consumers on mature markets can be approached at the level of their human spirit by sustainable business models. This way companies are able to create a loyal customer base, that is willing to pay higher prices.

At the lower market end sustainability can be even more important for economical success, because social and ecological problems can be directly interrelated with the market. A large consumer base will trigger large expansion rates in the future. Those consumers can be triggered with social marketing methods rather than with traditional marketing.

Ecological reasons can be as important as a reason to focus on sustainability. Natural resources are becoming scarce and might not suffice to carry a high growth of consumption, which will increase the financial strain on companies and customers. This is why companies have to spare resources and economize energy. The secure supply of resources is becoming a competitive advantage.

The advantage, that is created by sustainable behavior can be measured directly. According to a study by the consultancy A.T. Kearney sustainable companies have been performing much better than others during the recent financial crisis, because they were more resistant and adaptable.

Thesis 3: Sustainability has to be sold to the shareholders

Not only sustainable behavior itself is important, but also to market those activities to the shareholders to ensure their long term continuity. Because of this, the concept of sustainability has to be incorporated in the company’s vision, which means the connection of a company’s mission and values to the future. If sustainable behavior is to endure on a long term, it has to become the strategy of the company and has to be marketed to the shareholders.

To sell a vision to shareholders solid economical reasons are needed, since short term profitability and long term earning power of the company are important to them.

According to this, sustainability has to be presented as a source of competitive advantage, which can be quantified financially in different standards: cost efficiency, market chances and brand value.

A sustainable mission and values can have certain results for the cost management of a company. The creation of consumer networks which result from a replicable sustainable mission, can increase profit, since personal recommendations lower advertising costs as well as service costs. In the context of employees and channel partners costs can be lowered as well, since demands of higher rewards become less likely with the contentment of those groups. Finally, waste disposal and energy consumption, which are both increasing costs are controlled more efficiently under a sustainable mission.

The market chances of a company are increasing as well. Companies with replicable values can gain access to new markets easier. Governments of emerging countries support companies, which change the life of their people, while NGOs support companies with sustainable values as well.

The chances on established markets increase as well, since new market segments can be accessed. 73 percent of consumers are attracted by sustainable products and 44 percent are willingly buying ecofriendly products, even during a financial crisis. This way, sustainability offers access to new markets and market segments, which leads to an increase of sales and revenue.

The third and most important quantifiable standard to market a sustainable mission to shareholders is interrelated to both of the aforementioned and leads to our third thesis.

Thesis 4: Sustainability can increase brand value

Besides the direct financial results, the vision of a company is contributing in interaction with its image and culture to its brand development. An acknowledgement of sustainability can affect brand and image positively. The financial standard to quantify reputation is the brand capital. The standards for its assessment can be interpreted financially, which is how they become relevant for shareholders.

Wrap Up: Economical reasons for Marketing 3.0

The mission of a company should incorporate the concept of sustainability, since it provides competitive advantages on a long term. It increases the cost efficiency, sales growth and brand value. In relation to this, major changes of the economic situation like the polarization of markets and the shortage of resources, contribute to the importance of sustainability.

Critical evaluation

Kotler is using the concept of high end customers, who are thinking about sustainability and need to be approached with premium products, so companies can build a loyal customer base while lifting prices. In this case it is important to question if sensitivity towards sustainability is actually connected to the valuability of a product. Sustainability can be a sales factor in this area, but it does not have to be. There are consumer groups in other market areas who focus on sustainability and environmental issues as much, as well as high end purchases, that are not connected to this line of thinking at all, like expensive sports cars.

Some sustainable products might be comparatively expensive, but again they do not have to be, since ecofriendly production does not necesseraliy lead to higher costs.

Kotlers arguments toward the importance of sustainability on the lower market end can be questioned as well. Sustainability does not necessarily equal innovation. There is a certain probability that those products make more use of innovation, since new solutions have to be found because of the market situation, but again it is not an equation. The main difference between sustainable products and others lies within the production process.

To a certain level both of those arguments disprove the theory, that sustainable companies can automatically access both ends of the market.

An aspect of Kotler’s concept, that definitely should be supported is that sustainability should be practiced out of economic reason. The concept  might be useful for many companies, but not for every company. In this context it is important to state, that many companies still do not implement a strategy of sustainability because of a mission or values but because of their profit.

One aspect of the concept that needs to be questioned is why a company has to communicate a sustainable approach of operations and should not be taking it as self-evident. A company like for example „Globetrotter Ausrüstung“ is selling products for a life within nature. Therefore it is self-evident, that this certain company is protecting nature and environment, and it is self-evident from the view of customers, that the company is involved in social and ecological matters. In other branches this kind of sustainable behavior can be misplaced and give no economical value, i.e. the weapons industry.

Again, this proves that Kotler’s concept can not be universally applied and strongly depends on the respective business of a company.

Unfortunately, the crucial argument towards the marketing of sustainability to the shareholders is also questionable. If you expect sustainability to be an actual source for competitive advantage, it means that the competitors will eventually follow and also implement this strategy. Thus, the competitive advantage is diminuished, sustainability becomes self-evident and can not be communicated on a long-term basis.

In total, Kotler does not explain properly, how to implement his idea practically. He  suggests to sell the vision to the shareholders and underlines the importance of this approach, but does not give any insights on how to gain their understanding. In addition to this, he is always generalzing, even though his ideas may only be applicable to certain economic sectors. Our thesis is that the idea of human spirit marketing in this context only works for certain companies (e.g. high-end products, natural products, etc.).

Furthermore it needs to be stated again, that a concept of sustainability does not only have to be sold to the shareholders, but has to be sold in a way they understand. This means emphasizing the economical benefits of sustainability and human spirit marketing: increase innovation, which will lead to better financial results in the future, minimize risks and long-term security of revenues of the company – sustainability pays off.

Advancement to Kotler’s Concept

So Kotler’s approach offers a lot of interesting ideas, though their implementation is crucial to their success. Therefore we would like to offer two different thought-provoking impulses at the end of this evaluation,: While it is true that most shareholders are looking at the profit from their shares, it is also true, that a company can influence the structure of their group of shareholders, e.g. via quotation, preference stocks, dividend policy, etc., and therefore influence their way of thinking.

Additionally, companies often can influence the framework they are working in by themselves and are not just dependent on their environment or their shareholders.

In the 1990s, chairman Wendelin Wiedeking of „Porsche“ dropped the shareholder orientation (meaning short-term thinking) in order to rehabilitate the company, which was suffering financially. Instead of reporting financial data every quarter year, he decided to deliver only yearly reports, to support economically sustainable thinking with the management and shareholders. Even through the company seemed to suffer from this on a short term, even losing part of its status and being dropped from the share index M-DAX, this kind of thinking payed off for the company in the long run.

Our second impulse is another restructuring of Kotler’s basic idea. In this chapter Kotler suggests replacing the approach of most companies, which puts the shareholders‘ needs first, by a concept of putting every stakeholder at the same level. We think this will not work sufficiently and are suggesting to take this one step further:

As the illustration shows, our approach means to turn the existing structure upside down. If you take the customers as the most relevant factor, every other stakeholder in the company will benefit. Satisfied customers equal satisfied employees, satisfied employees equal satisfied business partners. If all those groups‘ needs are fulfilled, the company will be successful economically, thus fulfilling the shareholders‘ expectations.

Source:

Kotler, Philip et al. (2010): Marketing 3.0: from products to customers to the human spirit. Hoboken: Wiley.