Orientations and Core Competencies

Mrs. Brown wants a new kitchen table. She opens the phone book to find a list of local furniture companies and calls them to inquire if they have a 64" oval table.

1. A representative at the first company says, "We have state-of-the-art mill work equipment and produce more than 12,000 tables every month. Our equipment is set-up to make only square tables and I have 50 64" tables in stock right now. I can give you the best price in town and you can pick up your new table in 1 hour.
2. A sales associate from the second company says, "Our family has been making tables for more than 125 years. We have one 64" oval table right now - it's an Empire style mahogany pedestal table with a quadraform base and a rose colored Carrara marble top. My uncle is working on a new 64" oval table right now using a rare Brazilian walnut in the French style and it will be completed in about six weeks.

3. The manager at the third company says, "We 1,500 stores nationwide and are the leading retailer of furniture for more than sixty different manufacturers. We also have a fleet of trucks and can deliver your table to your home."

4. A sales person for the forth company says, "Before I tell you what we have, help me to understand what your requirements are. How do you plan to use this table? What style is your other furniture? How large is your dining area? How many people would you like to seat?

These responses represent the four different marketing orientations.

1. Production. The first response is indicative of a "production" orientation, because the company's marketing activities are limited by its manufacturing capabilities and capacity. It's difficult for production oriented companies to change their specifications and processes quickly, so marketers for these companies have to focus on availability and price. Establishing a large distribution network and achieving economies of scale are important for these companies, which include most large manufacturers and farmers. Once Ford sets up a production line, it's difficult for Ford to change the shape of a car. Likewise, if a farmer has 1,000 acres of Granny Smith apple trees, it cannot switch over to Fuji apples quickly.

2. Product. The second response indicates a "product" orientation, because the company's marketing efforts are limited by the skill of its workforce and the quality of its materials. Product oriented companies invest in expertise, which is expensive, and product development is usually time-consuming, so marketers for these companies have to focus on quality and set higher prices. Product oriented companies include luxury brands, pharmaceutical companies and engineering firms. At the Louis Vuitton workshop in Asnieres-sur-Siene, for example, artisans have to complete several years of apprenticeship before they graduate to the atelier and are allowed to build LV's famous steamer trunks. The wood for the trunks is okoume, a hard, lightweight wood from Africa. Each trunk takes several weeks to complete and sell for more than $10,000 each.

4. Sales. The third dialog above is typical of a "sales" orientation, because the company's advantage is its footprint, i.e. the number of locations or sales people it has. The customer advantage is convenience. Insurance companies like State Farm, financial service providers like AG Edwards, and retailers like the GAP are typical sales oriented companies. Marketers for

these companies invest mostly in the customer experience and training.

3. Marketing. The third response above represents a "marketing" orientation, because the company has the flexibility to change it's product line to match the customer's needs. The entertainment, fashion, and consumer electronics industries have to have a strong marketing focus, because their product life cycles are very short and if they do not have a good understanding of what customers want, they could easily miss a fad or trend. New technologies are enabling some manufacturers to be more marketing oriented. For example, digital printing presses and rapid prototyping equipment reduce set-up times and make the production of new products fast and affordable. Honda invested millions of dollars to convert one of its plants to a flex-plant. Whereas it used to take Honda 13 months to modify its production in response to sales trends, it now takes just minutes.

Academic literature will have you believe that a company has one

orientation. Actually all companies have a combination of orientations, which I call the "orientation mix." I use a mixing console akin to that you'd find a music studio to illustrate a company's orientations. Sam Adams prides itself foremost on the quality of its beer. It's brewing process, and the quality of its ingredients, which all speak to a product orientation. In recent years, Sam Adams has responded to the craft brew trend with an ever-growing line of specialty beers, thus indicating a marketing orientation. Sam Adams must have a small sales force and certainly has a brewery, but it's growth is not predicated on its capacity, price, or availability.

The academic literature will also have you believe that the marketing orientation is best or preferred. This is not true. Remember, it is our job as marketers to match the company's resources with the most profitable opportunities. If the company you work for has made enormous investments in machinery for manufacturing a specific part, that part is all you can market - for the time being. Naturally, you should constantly monitor the marketplace to identify new opportunities and threats, but understand that your company's ability to respond to changes in demand may be limited by it's core competency.

In addition to helping you understand how your company can grow, orientations determine the type of partnerships you seek. For example, if you have mass production capabilities, you need a partner that has a very strong sales orientation, i.e. a huge distribution network. See the posting titled "Partnerships and Channels."

Using Lifecycles to Predict Competitors' Actions

Humans start life as infants, then become toddlers who grow up to become adolescents, then teenagers who graduate and turn into college students, who become newlyweds then parents, etc... There are obvious characteristic of these various stages. If you hear someone talking about their son taking his first steps, you know the child is probably a toddler 1-2 years old. If someone tells you she got her driver's license, it's a good bet that she just turned 16 and is still in high school. When someone tells you they are retiring soon, they are probably around 60 years old. When you know what life stage someone is in today, you can also predict with some certainty their future behavior. A high school student is getting ready to go to college. Someone who just graduated college will buy a new car in 12 months and a new home within 36 months. And someone whose kids just went off to college will begin to travel and dine-out more.

Like people, companies and products progress through a series of easily identifiable stages: emerging, growth, mature, and decline. There are certain activities that are characteristic for these stages, and when you when you know what stage a company or product is in, you can predict what will happen next.

Emerging (aka early-stage, launch, and start-up). Companies or products in this stage are just entering the marketplace. The product is not known and is generating little or no revenue. The goal, therefore, is to penetrate the marketplace and build user acceptance. The best method for doing this is to give away free samples. It's often said in marketing, "we have to buy our first customer" because it's the fastest and easiest way to eliminate risk for the customer and start word-of-mouth. Free is not permanent. Sometimes free is only once. A new technology company might give its software free to a Fortune 100 company, a new fashion designer may give a free dress to a celebrity like Sandra Bullock, and a new energy drink company will give its product to a professional athlete like LT or a sports team like the Chargers. A single free tactic may be enough to create esteem around the product and fuel sales for a product.

Growth. Once a product has market momentum, the next goal is to drive revenue growth. This is expensive. It requires a lot of advertising. The company is not yet concerned with profitability, instead it is focused on the top line and most important - revenue NOW. Companies in this stage make trade-in offers, offer prepayment incentives (get 12 months for the price of 10), and provide third-party financing. They establish many partnerships and tend to outsource so they can focus on their core competency. It is common for companies in this stage to report double and triple-digit sales growth. When you start from $1, selling $2 represents 200% sales growth. Investors refer to this phase as "the hockey stick," because the sales chart looks like the sharp curve from the blade to the handle of a hockey stick. Investors are looking for companies entering the growth phase because they foresee the value of their investments doubling and tripling.

Mature. As revenue growth slows to single digit, the company's goal changes from revenue growth to profitability. To do this, the company will seek to achieve efficiencies. Mature companies will acquire competitors to achieve economies of scale and begin to focus on volume so watch out for mergers, acquisitions and consolidation. They'll vertically integrate to improve their gross margins and erect barriers-to-entry for new competitors, and are likely to implement cost-cutting measures like new technology. Frequently, they'll target partners and vendors for acquisition, and there are often lay-offfs when technology replaces workers and redundant departments are eliminated.

Decline. Soon the competition catches up, market trends change, or technology becomes obsolete and the product loses momentum. Sales growth becomes negative. The goal is now survival so the company switches attention to cutting its loses by discontinuing certain services, closing offices, divesting or shuttering under-performing products and divisions. The purpose is to free up capital to invest in the development or acquisition of new products.

Savvy marketers are constantly monitoring their stage in the life cycle. These stages can be short or very long. Fashion and technology products have short-life cycles. Airplanes and Christmas tree farmers have long cycles. Either way, by paying attention to life cycles, we can make sure that our companies continue to grow by constantly introducing new products and strategies when it is most appropriate. A savvy marketer repeats the emerging, growth, and mature cycles over and over, and avoids ever entering the decline phase.

Watching your competitors' stage in the life cycle is equally important to your strategy development.

• If you are an emerging company, watch for growing companies who may entice your customers with better financing and aggressive trade-in offers. Think about implementing a very concentrated segmentation or niche strategy to avoid retaliation from a stronger competitor. Watch for mature companies who will say your product is not proven or unsupported. Respond by emphasizing your ability to adapt or respond faster to customer's needs.
• If you are a growing company, watch out for emerging companies who will entice your customers with free offers and huge discounts. Protect your existing customer base with better service and focus on performance instead of price. Also watch for mature companies who may block your access to market or attempt to control your supply chain. Prevent being excluded from a market by establishing multiple suppliers and partners. Or partner with your larger competitors, aka "coopetition" and position your company for acquisition by focusing on a substantial niche that the competitors ignore.
• If you are a mature company, watch for new entrants in your market because they'll offer new exciting products for free and they'll make aggressive trade-in offers and focus on service quality, when you're focusing on quantity. Eliminate the competition by acquiring them, erecting obstacles for them, or under-cutting their price.

Clearly, there are exceptions. Established companies like Apple can launch new products without giving them away because they have excellent brand equity and huge cash reserves to invest in marketing. Some rapidly growing companies in certain industries reach profitability quickly and go on "buying sprees" or "acquisition binges." When companies do things that are atypical for their stage in the life cycle, warning flags should go up. For example, emerging companies should not be planning expansion or diversification until they can penetrate a market segment.

The Consumer Decison-Making Process

Every customer follows a subconscious, five-step process when making a decision to purchase and consume a product. The marketer cannot control these steps, but it is our ever-ending challenge to influence them. We're constantly looking for more effective or more efficient ways to motivate customer behavior, to shrink this process, and to optimize every interaction with the customer. To this end, we're constantly analyzing customer behavior to identify preferences, we're constantly testing new communications to uncover the best combination of message and challenge for steering behavior, we're studying every interaction with the customer at every step to identify and resolve obstacles and failure points, and we perpetually seek new ways to support the customer and foster positive word-of-mouth. We spend time and money researching, communicating, delivering, and managing because it is our job to guiding customers through the decision-making process so that they buy our products and are so delighted with their purchasing experiences that they tell their friends. The marketer is obsessed with this decision-maing process. Remember, when you're reading about these five steps that (a) they can happen very quickly or take a long time to complete and (b) they are sub-conscious.

1. Need Awareness. In order to motivate a customer to get up from the sofa, get in his car and drive to a store, we have to help the customer realize that he has an unmet need. This is the role of advertising in marketing - to jump start the decision-making process by alerting the customer that there is a difference between his status quo and the ideal state. The most common media for doing this are television, radio, and magazine, direct mail, email, billboards, and telemarketing, to name a few. Pay attention and you'll notice that every ad, postcard or billboard is trying to make you aware of food, safety, intimacy, esteem, or justice. These are the five basic needs according to Maslow. Advertising gets a lot of attention, because it plays this first role and so marketers use a lot of creativity to get their messages noticed. After all, consumers are exposed to more than 5,000 advertising messages every day. But getting noticed is only part of the challenge. As marketers, we're not just interested in awareness, recognition, views, listeners, readers. We want customers to do something. We want them to take the next step. Good advertising will provide a clear call-to-action like "visit us online to learn more" or "call our toll free number to speak with a product specialist" or "visit a store near you."

2. Information Gathering. When advertising is effective, the customer realizes he has a need and then searches for ways to satisfy his need. The customer conducts research. "Yes, I need a new truck. How much do they cost? What features are available? Where can I get a new truck?" This is the primary role websites play today in marketing. They are a 24/7 method for sharing information about your company and products with customers. More than 60% of all purchases in a store begin online. Other sources of information customers use include brochures, sales associates, customer service representatives, product demonstrations, packaging, and point-of-sale signage. As marketers, we're not just interested in luring customers to our website or the store to pick up brochures. We want customers to do something. We want them to take the next step.

3. Evaluate. Only after the customer has satisfied his need for information, will the customer take initiative to test and compare products. "So, I know how much trucks cost, what features I want and where I can get a truck., but which one should I pick and where should I buy it?" To facilitate this step, marketers offer free samples, set-up interactive displays, promote trial memberships, and allow test drives. If the product we market is intangible, i.e. it cannot be sensed prior to purchase, we provide the customer testimonials, awards, reviews, a list of prominent customers or donors, and reports from customers or third-party providers like JD Powers, Consumer Reports, Car&Driver, Charity Navigator, and the Better Business Bureau. The goal of all these investments is to help the customer understand how we're better than the alternative. As marketers, our goal is not to influence bus loads of people to test drive our cars or eat our free samples. We want customers to do something. We want them to take the next step.

4. Commit. If we did a good job of explaining or demonstrating our superiority over the competition, then the customer is ready to make a commitment. Depending on what you're marketing, the commit can be expressed in many different ways. Movie theaters sell tickets, website take orders, a nonprofit organization wants constituents to donate or volunteer, fitness clubs sell memberships, magazines sell subscriptions, landlords lease apartments, travel agents book vacations, hotels reserve rooms, etc... When the customer is ready to make a commitment, we marketers want to be ready to accept the commitment. So we make sure we have enough cash registers, we set-up self-service registers, we implement easy payment systems and accept all major credit cards, checks and cash, we offer trade-ins, establish lay-away programs and offer flexible financing. But we're not happy yet. Yes, we succeeded in motivating a customer to get from his LazyBoy at home, to the website, into the store, and all the way to the register, but that's we're still not done. We want the customer to do something. We want him to take the next step.

5. Use/Refer. We want to reduce or eliminate buyers remorse. We don't want the customer to regret his purchase and return to the store with an open box and a broken item. We want the customer to use the product correctly and experience the promised benefit. So we make sure the instruction manual is clear using the appropriate media for the target segment. We offer delivery, installation, and training services, have a technical support center, account management teams, and a toll-free customer service hotline. We schedule call-backs and conduct surveys to make sure the customer is satisfied. We create affinity programs, award clubs, and referral programs. We issue membership cards, send thank you and birthday cards, host appreciation events, and provide special discounts and services. Then we build online communities and use social media to engage customers. We make all of these investments to ensure the customer is satisfied with their commit and encourage the customer to spread positive word-of-mouth about our organization. We try to convert customers into enthusiastic sales people that some people call "advocates" or "evangelists."

Now we're happy. Almost. We look back at what we did. We measure and analyze everything we did. We fix the things that were broken. We stop doing the things that didn't work. We fine tune the experience and start all over again. Each time getting better, more efficient, more effective, faster, and shorter.