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January 18 - January 23, 2020
James Collins’ How the Mighty Fall explained this phenomenon of falling companies. It described the stages that a company experiences as it falls. Collins argued that successful companies often get arrogant and think they can do many things (stage 1), and therefore pursue aggressively wild growth (stage 2). When they find early warning signs of failure, they ignore them (stage 3), until their failure becomes very public (stage 4), and if they don’t reform, they finally go bankrupt (stage 5).3 The stages show that aggressiveness and a lack of realistic goal setting triggers the fall of
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According to Alfred Rappaport, managing earnings in the short run to meet shareholder expectations destroys shareholder value.
Shareholders must go back to basics and realize that the value of a company is mostly derived from its long-term future cash flows and that the future vision will determine the performance of the company.
A new view is emerging that the job of management is to earn a return for more than the shareholders; smart companies will focus on all the stakeholders—consumers, employees, channel partners, government, nonprofits, and the public at large—not just the shareholders. A successful company is never successful by itself. It is successful because it has built a superior network of stakeholders, all of whom have a stake in the business and its outcome. Satisfying the stakeholders—ensuring that they all feel rewarded—will often lead to higher long-run profitability than when the company just focuses
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LONG-TERM SHAREHOLDER VALUE = VISION OF SUSTAINABILITY
We believe along with Collins and Porras that corporate vision is a result of tying corporate mission and values to the company’s vision of the future.8 The mental model of the future is the corporate vision. We believe that the strongest future trend for corporations, especially in the capital market, is the issue of sustainability. Sustainability is a highly relevant challenge for corporations in creating shareholder value in the long run. But sustainability has two definitions. According to Kunreuther, companies view sustainability as long-term survival of the company in the business
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Polarization: Mature Market or Impoverished Market
The market is increasingly polarized into a top and bottom end where the middle market is disappearing. In T reasure Hunt, Silverstein and Butman argued that their survey found middle-market consumers in the United States who earn between $50,000 and $150,000 are either trading up or trading down.
This has important implications for the structure of the market and how competition works. Companies have to either pursue the top-end market or pursue the low-end market. In either case, companies cannot avoid the imperative to care more about social and environmental conditions. Social and environmental conditions profoundly affect the low-end market, and this is becoming a concern of the top end of the market.
We argue that the top-end market is maturing and that high-end consumers are also becoming concerned about sustainability. When marketers decide to move up the market with top-end products, they should seriously consider the concept of sustainability. They need to touch the consumers’ human spirit with a sustainable business model. Early examples of these practices are found in companies such as Whole Foods, Patagonia, and Herman Miller. They charge higher prices but maintain a very loyal consumer base that is willing to pay more for the sustainable practices of the companies.
On the other hand, a much larger consumer base is also available at the bottom end. And that is where high growth will come from in the future. Poor people are the new market opportunity,
Poor people have been longing for some products previously not available to them not only because of income limitations but also because of access problems. Companies that want to target these consumers will need to provide solutions that overcome these barriers to consumption.
Scarce Resources: The Earth Has a Limit
One can begin to appreciate the dilemma of sustainability: poverty should be alleviated but with limited resources.
SUSTAINABILITY AND SHAREHOLDER VALUE
The two trends—polarization and resource scarcity—will strengthen the movement toward sustainability. Companies are increasingly aware of the competitive advantage they can get if they ride the wave of sustainability.
MARKETING VISIONARY STRATEGY
According to Willard, there are three main reasons why companies choose the path of sustainable business practices.28 One reason is that the founders have personal passion.
A second reason is that companies experience a public relations crisis as a result of public backlash or activist movement.
Finally, companies can opt for sustainable practices because of regulatory pressures.
However, these reasons do not guarantee continued sustainability.
The number one consideration for shareholders is to make a return on their investment. Yet the shareholders are the ones responsible for guarding the sustainability of a business.
When shareholders think about performance, they think about profitability and returnability. Profitability is a short-term goal while returnability is a long-term goal.
The issue is to find linkage between sustainability, profitability, and returnability.
Marketing the vision to the shareholders requires building a sound business case.
We compiled three important metrics that can be quantified financially. They are improved cost productivity, higher revenue from new market opportunities, and higher corporate brand value. The first metric can directly influence profitability while the last metric can influence returnability in the long run. The second metric is in the middle because it can influence both profitability and returnability.
Improved Cost Productivity
A good mission will gain support from empowered consumers. The cost will be lower because companies will benefit from the power of networks.
In businesses where costs are rising, higher productivity can be a significant competitive advantage.
Higher Revenue from New Market Opportunities
From a corporate perspective, companies with a good mission, vision, and values can enter new markets more easily. They are more welcome.
Higher Corporate Brand Value
But the concept of corporate reputation is intangible and therefore sometimes difficult for shareholders to accept. Fortunately, many consulting firms such as Interbrand and Brand Finance offer services to valuate corporate brand reputation and brand equity. The brand equity metrics can be interpreted financially and thus are more relevant for shareholders.
SUMMARY: BUSINESS CASE FOR MARKETING 3.0 To convince shareholders, a company’s management needs to formulate and communicate the corporate vision in addition to its mission and values. In Marketing 3.0, the corporate vision should embrace the concept of sustainability as it will determine competitive advantage in the long run. The changes in the business landscape, particularly the market polarization and the scarce resources, contribute significantly to the increasing importance of sustainability. The company needs to communicate to its shareholders that adoption of sustainable practices will
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6 Alfred Rappaport, “10 Ways to Create Shareholder Value,” Harvard Business Review, September 2006.
8 Jim C. Collins and Jerry I. Porras, “Organizational Vision and Visionary Organization,” California Management Review, Fall 1991.
PART III APPLICATION CHAPTER SEVEN Delivering Socio-Cultural Transformation MARKETING TO THE POST-GROWTH MARKET
Companies need to address the challenges in society and participate in finding solutions. In the United States, profound social issues include wellness, privacy, and job losses due to offshoring. The challenges have been around for years. Everyone knows them and yet no one would expect any corporation to be able to solve them overnight. Being a marketer in the 3.0 era is not about single-handedly creating change but about collaborating with other companies to find creative ways to solve problems.
Two forces oblige companies in a mature market to support a transformation. These are the need for future growth and the call for strong differentiation.
Need for Future Growth: Disney on Children’s Nutrition
The company’s move is a strategy to anticipate the emerging trends of health conscious consumers. The best strategy is to engage the future consumers: the children. Connecting with them early in their lives will help Disney capture future growth in the mature market.
Call for Strong Differentiation: Wegmans on Healthy Living
Wegmans has popularized the concept of “home meal replacement” by providing healthy and tasty prepared foods. It promotes the “eat well, live well” principle, which is a combination of eating fruits and vegetables, doing physical exercise, tracking calories, and measuring progress on a health index.
FROM PHILANTHROPY TO TRANSFORMATION
Education is known to be the favorite object for philanthropy in which 75 percent of companies are participating.
But philanthropy does not stimulate transformation in the society. Transformation in the society drives philanthropy. That is why addressing social issues with philanthropic activities will have a rather short-term impact.
A more advanced form of addressing social challenges is cause marketing—a practice where companies support a specific cause through their marketing activities.
In cause marketing, companies direct their energy, not just their money, to address the cause.
Corporate executives still see social causes as a responsibility instead of an opportunity to create growth and differentiation.
Another issue is that company philanthropy may lead to some consumer involvement but doesn’t tend to empower or transform them. Their lifestyles stay the same. Empowerment means self-actualization. It is about allowing your consumers to move up the Maslow pyramid and fulfill their higher needs. Creating transformation is the ultimate form of marketing to the mature market.
