Author of the 1967 classic ‘Marketing Management’, Dr Philip Kotler shares space with Bill Gates, Peter Drucker and Jack Welch as the world’s most influential management thinkers. Currently the SC Johnson & Son Distinguished Professor of International Marketing at the JL Kellogg Graduate School of Management, Northwestern University, USA, Dr Kotler is a consultant on marketing strategy to companies such as Microsoft, IBM, General Electric, Ford, Apple, Motorola, AT&T;, and Merrill Lynch.
Dr Bala V Balachandran is the JL Kellogg Distinguished Professor of Accounting and Information Systems at the JL Kellogg Graduate School of Management. He is also the Founder and Honorary Dean of the Great Lakes Institute of Management, Chennai.
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The Interview
Allwin: Dr Kotler, what brings you to India?
Dr Kotler: Bala! (laughs) I love coming back to India, Ive been here a lot and I think India is now at a tipping point where it is becoming a major force. It continues to grow in its influence and impact, starting of course with the BPO and outsourcing work. Many other things like medical tourism are going to take off and so on and so forth. I wanted to spend a week here and be in three cities, two of which I hadnt been in before and Bala arranged a lot of programmes for meeting a lot of people who are interested in the Great Lakes Institute of Management and also from different companies. We met the CEOs of two of the biggest companies today, Wipro and Infosys.
Dr Bala: I tried to tell Phil that he should be in India. Phil was here in 1956 for nine months for a PhD in labour economics. That time he was in Mumbai, Delhi but never in Chennai and Bangalore. So I convinced him to come to Bangalore and Chennai this time.
Allwin: Dr Kotler, when you are looking at marketing in the 21st Century, what is it that you foresee in the future?
Dr Kotler: I think this is going to be a contrast between the companies that are trying to use the old marketing techniques and slowly declining as a result and companies that are practising new marketing techniques, spend less time in advertisement to the mass market and spend more time utilizing new technologies like mobile phones, Internet, blogs, podcasts and a whole bunch of other things that are now necessary to reach your message to the target audience. And also companies are going to focus more on choosing the niches and segments they are going to hold onto. Another big chance for companies is moving from transaction thinking to relationship thinking. But even thats not enough, because smarter companies are going beyond relationship thinking to co-creation with the customer. When a company organizes a workshop for the customers to draw from it what they want, it is closely aligned to the idea of customization. Because we want to actually do more than sales, we want to delight customers and astonish them!
Allwin: How do think the Internet affects new age marketing and how will old marketers who dont understand the concept of Internet, blogs, and various other techniques cope in the future?
Dr Kotler: We never thought that the Internet would become an advertising medium and in fact an early statement by the head of P&G; said that CEOs would change and shift half of their money to the Internet if it werent an advertising media. What has happened of course, is it has become an advertising medium and a direct marketing tool and emails are a cheaper way to send messages to a lot of people if you have their names and its easy to get clicks measured. I think that any company that fails to prepare a good website for itself and utilize Google and Yahoo and the others to reach and influence target audience is making a huge mistake.
Allwin: When you talk about companies moving from the transaction model to the relationship model, how many companies do you see doing that or building it into their DNA so that they can sustain it?
Dr Kotler: I think that there is more talk than action and right now its not as much about relationship marketing as it is about becoming a customer centric organization. That is to say that you build from the outside in and build from the choice of the customer whose needs you want to meet to developing the engine for doing three things. Creating value, communicating value and delivering value. Letting the marketing department run the company is another way of putting the same thing. To let marketing department lead and put the CFO of the company under marketing is something that hasnt really yet been done. So every company needing the two functions (needs) two leaders Chief Revenue Officer CRO and Chief Financial Officer CFO and then you have a good bottom line.
Allwin: How do you (and Dr Bala) both get along? The marketing guru and the finance wizard. Its tough for the company to figure out the effect of marketing on the bottomline, and here is a person who says I know my figures.
Dr Bala: We are on the same wavelength. I have a firm belief that no one can achieve greatness by simply shrinking or by just cutting costs. However if you know the costs, the revenue can be more than the costs. Its no point in having a huge market share if you sell more and lose more. I think the CFO has to closely work with the CMO and CRO.
Dr Kotler: We think they should be located near each others offices and work on joint matrixes. It is asked, how marketing can make that headway when marketers can measure the ROI of the component parts of the marketing programme. Well, the fact is that we are making some progress there especially when we move away from mass unfocussed advertising towards direct mail or direct telemarketing and further when we go into predictive analytics where you can actually say based on data what the probability is for each customer making a specific purchase. So we dont waste the money on people that have a zero probability of purchase.
Dr Bala: Because of this closeness, we can also understand what is called as customers lifetime value. Just like ROI, we can also have RMI the Return on Marketing Investment.
Dr Kotler: We are able to, in some ways measure a return on customer. It is sort of activity based, wherein we consider sales calls, phone calls, the customer taking your time, etc.
Dr Bala: There is also the question of opportunity cost. If there is so much of marketing dollars available and not so much sales dollars available, by spending on the wrong customer you are really destroying value rather than creating value. So I will talk about customer profitability where you constantly watch and help your core customers.
Allwin: With the new techniques of marketing, how would huge monolith companies compete with newer companies that are much more accustomed and tuned to the new age marketing techniques?
Dr Kotler: The landscape would change slowly. In every company there will be rebels who will get together to say you know our competitor just beat us and do you know how they beat us? They just got onto the Internet and are doing e-sampling, e-discounting and we dont even know what the e means and so lets start a new company that understands this.” I think the pressure from others to succeed using the new tools will work.
Allwin: What do you think are the biggest challenges for these companies to move onto the next level?
Dr Kotler: Budgets have to be kept the same year after year and its a terrible thing. There are politics to budgeting. Everyone who you budget expects at least the same amount they got last year plus 10 pc to cover for rising costs. Suddenly saying that we are reducing our advertising budget by half, you are also saying that you will be firing a lot of people or the advertising agency. If you are a kind company, you go a little slower on the inevitable.
Allwin: I think today an average customer knows a lot more about the product than the salesman does.
Dr Kotler: Right! And this is the main thing that the companies have not assimilated, that there is so much talk going on in the market place. In C2C Customer to Customer you cannot be a bad company anymore without getting your head shot. The word travels that fast. In fact individuals have started talk sites like ‘untiedairlies’ for United Airlines, where they are inviting in one place all the criticisms to be collected with respect to United Airlines. So then as you said, the other thing the information asymmetry that used to exist between the buyers and the sellers has been now rectified and as you said customers are now even more aware than the sales people. That makes price much more transparent. So not only are people going to chose their brands more carefully, but they are also going to have higher expectations from these brands and those better be met.
Dr Bala: Bad reviews travel extremely fast and you can now today feel the power of the customer with the advent of the Internet.
Allwin: Does the ability to track the advertising dollar, clicks and impact in an advertising campaign on the Internet, coupled with a not so complete understanding of new-age marketing techniques, lead companies to over-track their spending on the Internet without an appropriate understanding of the bigger picture?
Dr Kotler: Myopia is always a problem. There are what I say the two big pressures of marketing. One is that marketing should be more financial and secondly more technological and behind all that, more scientific. By financial, I mean we will see marketing move towards more measurable techniques because the CEO demands what the ROI is. By the way, the ROI is misleading. That is because it may be an indicator of the profit impact, but not necessarily of the profitability impact, which might be too short term sometimes. The technological thing is that each marketing group should have a guy with a proper understanding of IT so that they can talk to the IT guys and receive. We need the ability to model our market and model our marketing mix. You need some people in the marketing department who can think about the future and scan changes for opportunities and pose questions like what will the kitchen look like three years from now? Or what will be the main desire of people who buy cars three years from now? And then start plugging for innovation at this point based on the gambles you are going to take about the future. Now marketing isnt being used that way, much god knows how strategy evolves, if there is any strategy and as Dr Michael Porter said, it isnt a strategy because you are doing things better than the others, its only a strategy because you have done it differently.
Dr Bala: The new marketing is moving from mass marketing to micro marketing to an individual. I can follow one individual for a lifetime and custom provide an offering to his requirement. Even a commodity can be customized due to this kind of marketing and this is an extremely powerful way of using information.
Allwin: Companies like Skype and Amazon have built communities and have leveraged them to grow faster. They have also gone down the path of co-creation with the customer. How can older companies match up with the phenomenal growth rates and new age understanding of clients?
Dr Kotler: I gave a talk in London at the Annual Customer Management Conference on the subject of how do you draw free ideas from your customers. I had six takeaways to do that. The most common ones are Observe them in your homes, stores and youll see things that suggest things you can build. Get a list of their complaints about products and services and to get ideas of new projects.
Companies need to use focus groups and customer panels to use them as starting points and then refine the products or services. For example, kids are invited by Lego to give ideas for building new products and also to comment on the design pages. All this is co-creation.
Allwin: Dr Bala, using the co-creation model, how do you intend to take Great Lakes Institute of Management to the next level?
Dr Bala: Looking at our current model, we have received many offers to start multiple branches of the Great Lakes Management Institute in places like Noida, Gurgaon and Mumbai. I have made it clear (to the offer makers) that I will share the model and the learning, but they need to make sure that their attempt should never be a profit oriented venture.
I may even take PhDs in engineering, computer science and other set of areas and who are amazing researchers in various organizations, be it profit, non profit or government and then create an executive MBA programme specifically for them tailored as to how they can take an research concept they have created in lab to a commercially viable product. So therefore I can have a science group, a tech group and a management group combined together and use the co-creation model to build to greater heights.
Dr Kotler: You could define a Great Lakes brand which covers a no of things. For example, you could have a Great Lakes social marketing group which goes on to freely consult difficult poverty problems, or a Great Lakes group of consultants for small businesses. All this while you keep the quality of the consulting intact.
Allwin: Dr Kotler, are you in India because of Dr Bala or Great Lakes?
Dr Kotler: (Laughs) I would say both. I have great faith in the change agent quality of what he is doing. I also think that Uncle Bala (chuckles) and yes, I do call him Uncle Bala, is a force to be reckoned with. He seems to know everyone in India, all the one billion people, all within one phone call! I normally take a trip to India every few years anyway. This is the form I would like to do it in and I would like to do it similarly in the future as well.
Allwin: How different is it teaching students at Kellogg to the students at Great Lakes?
Dr Kotler: I havent been involved as much in the teaching at Great Lakes, but I know that the model is the same. Remember that Dr Bala and I have been influenced by the things that made Kellogg so successful, which consisted of the Dean of the school who created a culture that centered around the students, their development and their needs. The Dean used to be accessible and so friendly that he used to be pouring the tea for students and faculty himself.
Dr Bala: The Dean also used to carve the turkey during Thanksgiving and celebrate it with all the students. That kind of culture has completely gone into us. We mingle freely with students and there is a tremendous amount of exchange amongst the students.
Allwin: If you had to stay back in India and teach, which school would you choose to teach at?
Dr Kotler: (Laughs) Great Lakes! The students are extremely impressive. The enthusiasm and passion they seem to have for the school and for Bala and for the possibilities with their life is amazing.
Dr Bala: Today as I was sitting with Nandan Nilekani, I was informed that out of the 196 MBAs recruited this year, they had an orientation and testing and so forth, two of Great Lakes student graduates topped the whole event and they are going to be sent to the US. So Infosys now knows that if they need some great students, they need to go to Great Lakes.
Kotler: Let me add this to your question of whether and where I would teach, I would not come to India to be teaching. I would be coming to India to work on two problems the poverty problem I am writing a book on helping people escaping poverty. The other thing I am working on is to help each of Indias major cities develop a character unto itself, that is place branding and place marketing. Because every city would need to buy stuff and services from other cities and it needs to create value when it exchanges goods and services. Cities like Chennai and Bangalore need to figure out how to get more tourists, how to gain more businesses, how to attract investment, build headquarters and that is a marketing problem because you have to first define your marketing opportunities. I would be doing a lot more work with the government with respect to place marketing and poverty.
Allwin: How important is building a community of customers by companies?
Kotler: Companies need to learn to build a live, organic and passionate community of users. Apple Computers has succeeded, Harley Davidson has succeeded and so has Starbucks. If you really trust your community, you can build chatrooms so that they can do C2C (Customer to Customer) and help each other. I think clubbing is a great metaphor because clubs have fans and fan is a short form for fanatics and they help constantly build the brand.
Allwin: What drives you Dr Kotler?
Kotler: What drives me is continuous learning. I just always have had interest in understanding things and I chose a field that keeps changing and growing and challenging and keeps me intellectually stimulated. I know exactly what each new edition (of Marketing Management) has to tackle. The 12th edition moved the concept of branding from a mere chapter to become the basis of the whole book. The theme for the next edition will be the whole technological and financial revolution and will talk more about the Internet, mobile phones and new age marketing techniques.
Allwin: If you had to take your first edition and the latest edition of your marketing bible
Kotler: Well I would throw away the first one (chuckles) and burn it in public. The book had a page or two on branding, a page or two on segmentation and so now I even refuse to sign that book (chuckles again). The fact is that it is an evolving discipline and is half art, half science and more than just selling products.
Allwin: Dr Kotler and Dr Bala, thank you for the interview.
Dr Kotler: Youre welcome.
Dr Bala: Youre welcome.