Marketing 4.0 in the digital economy: Moving from traditional to digital marketing

From segmentation and targeting to customer community confirmation

Traditionally, marketing always starts with segmentation—a practice of dividing the market into homogenous groups based on their geographic, demographic, psychographic, and behavioral profiles. Segmentation is typically followed by targeting—a practice of selecting one or more segments that a brand is committed to pursue based on their attractiveness and fit with the brand. Segmentation and targeting are both fundamental aspects of a brand’s strategy. They allow for efficient resource allocation and sharper positioning. They also help marketers to serve multiple segments, each with differentiated offerings.

However, segmentation and targeting also exemplify the vertical relationship between a brand and its customers, analogous to hunter and prey. Segmentation and targeting are unilateral decisions made by marketers without the consent of their customers. Marketers determine the variables that define the segments. The involvement of customers is limited to their inputs in market research, which usually precede segmentation and targeting exercises. Being “targets,” customers often feel intruded upon and annoyed by irrelevant messages aimed toward them. Many consider one-way messages from brands to be spam.

By having countless logo adaptations, MTV and Google remain solid yet flexible as brands

In the digital economy, customers are socially connected with one another in horizontal webs of communities. Today, communities are the new segments. Unlike segments, communities are naturally formed by customers within the boundaries that they themselves define. Customer communities are immune to spamming and irrelevant advertising. In fact, they will reject a company’s attempt to force its way into these webs of relationship.

To effectively engage with a community of customers, brands must ask for permission. Permission marketing, introduced by Seth Godin, revolves around this idea of asking for customers’ consent prior to delivering marketing messages. However, when asking for permission, brands must act as friends with sincere desires to help, not hunters with bait. Similar to the mechanism on Facebook, customers will have the decision to either “confirm” or “ignore” the friend requests. This demonstrates the horizontal relationship between brands and customers. However, companies may continue to use segmentation, targeting, and positioning as long as it is made transparent to customers.

From brand positioning and differentiation to brand clarification of characters and codes

In a traditional sense, a brand is a set of images—most often a name, a logo, and a tagline—that distinguishes a company’s product or service offering from its competitors’. It also serves as a reservoir that stores all the value generated by the company’s brand campaigns. In recent years, a brand has also become the representation of the overall customer experience that a company delivers to its customers. Therefore, a brand may serve as a platform for a company’s strategy since any activities that the company engages in will be associated with the brand.

The concept of brand is closely linked with brand positioning. Since the 1980s, brand positioning has been recognized as the battle for the customer’s mind. To establish strong equity, a brand must have a clear and consistent positioning as well as an authentic set of differentiation to support the positioning. Brand positioning is essentially a compelling promise that marketers convey to win the customers’ minds and hearts. To exhibit true brand integrity and win customers’ trust, marketers must fulfill this promise with a solid and concrete differentiation through its marketing mix.

In the digital economy, customers are now facilitated and empowered to evaluate and even scrutinize any company’s brand-positioning promise. With this transparency (due to the rise of social media) brands can no longer make false, unverifiable promises. Companies can position themselves as anything, but unless there is essentially a community-driven consensus the positioning amounts to nothing more than corporate posturing.

Today, consistently communicating brand identity and positioning in a repetitive manner—a key success factor in traditional marketing—may no longer be enough. With disruptive technologies, shorter product life cycles, and rapidly changing trends, a brand must be dynamic enough to behave in certain ways in certain situations. What should remain consistent, however, are the brand characters and codes. The character is the brand’s raison d’être, its authentic reason for being. When the core of the brand remains true to its roots, the outer imagery can be flexible. Think of it this way: by having countless logo adaptations—Google calls them doodles—MTV and Google remain solid yet flexible as brands.

From selling the ‘four Ps’ to commercialising the ‘four Cs’

The marketing mix is a classic tool to help plan what to offer and how to offer to the customers. Essentially, there are four P’s: product, price, place, and promotion. Product is often developed based on customers’ needs and wants, captured through market research. Companies control the majority of product decisions from conception to production. To establish a selling price for the product, companies use a combination of cost-based, competition-based, and customer value–based pricing methods. Customers’ willingness to pay, estimated in consumer value–based pricing, is the most important input that customers have in connection with pricing.

Once companies decide what to offer (product and price), they need to decide how to offer (place and promotion). Companies need to determine where to distribute the product with the objective of making it conveniently available and accessible to customers. Companies also need to communicate the information about the product to the target audience through various methods such as advertising, public relations, and sales promotions. When the four P’s of the marketing mix are optimally designed and aligned, selling becomes less challenging as customers are attracted to the value propositions.

In a connected world, the concept of marketing mix has evolved to accommodate more customer participation. Marketing mix (the four P’s) should be redefined as the four C’s (co-creation, currency, communal activation, and conversation).

In the digital economy, co-creation is the new product development strategy. Through co-creation and involving customers early in the ideation stage, companies can improve the success rate of new product development. Co-creation also allows customers to customize and personalize products and services, thereby creating superior value propositions.

The concept of pricing is also evolving in the digital era from standardized to dynamic pricing. Dynamic pricing—setting flexible prices based on market demand and capacity utilization—is not new in some industries such as hospitality and airlines. But advancement in technology has brought the practice to other industries. Online retailers, for instance, collect a massive amount of data, which allows them to perform big-data analytics and in turn to offer a unique pricing for each customer. With dynamic pricing, companies can optimize profitability by charging different customers differently based on historical purchase patterns, proximity to store locations, and other customer-profile aspects. In the digital economy, price is similar to currency, which fluctuates depending on market demand.

The concept of channel is also changing. In the sharing economy, the most potent distribution concept is peer-to-peer distribution. Players such as Airbnb, Uber, Zipcar, and Lending Club are disrupting the hotel, taxi, auto rental, and banking industries, respectively. They provide customers easy access to the products and services not owned by them but by other customers. The rise of 3-D printing will spur this peer-to-peer distribution even more in the near future. Imagine customers wanting a product and in a matter of minutes receiving the product printed in front of them. In a connected world, customers demand access to products and services almost instantly, which can only be served with their peers in close proximity. This is the essence of communal activation.

With a connected marketing mix – the four C’s – companies have a high likelihood of surviving in the digital economy

The concept of promotion has also evolved in recent years. Traditionally, promotion has always been a one-sided affair, with companies sending messages to customers as audiences. Today, the proliferation of social media enables customers to respond to those messages. It also allows customers to converse about the messages with other customers. The rise of customer-rating systems such as TripAdvisor and Yelp provide a platform for customers to have conversations about and offer evaluations of brands they have interacted with.

With a connected marketing mix (the four C’s) companies have a high likelihood of surviving in the digital economy. However, the paradigm of selling needs to change as well. Traditionally, customers are passive objects of selling techniques. In a connected world, the idea is to have both sides actively obtain commercial value. With increased customer participation, companies are engaging customers in transparent commercialization.

From customer service processes to collaborative customer care

Prior to purchase, customers are treated as targets. Once they decide to buy, they are considered kings in a traditional customer-service perspective. Shifting to the customer-care approach, companies view customers as equals. Instead of serving customers, a company demonstrates its genuine concern for the customer by listening, responding, and consistently following through on terms dictated by both the company and the customer.

In traditional customer-service, personnel are responsible for performing specific roles and processes according to strict guidelines and standard operating procedures. This situation often puts service personnel in a dilemma over conflicting objectives. In a connected world, collaboration is the key to customer-care success. Collaboration happens when companies invite customers to participate in the process by using self-service facilities.

This is an edited extract from Marketing 4.0: Moving from Traditional to Digital, by Philip Kotler, Hermawan Kartajaya and Iwan Setiawan (Wiley, 2017)

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