When do Chief Marketing Officers Matter? -- A Marketing Manifesto

The plight of marketers from a political and organizational standpoint is significant and includes: 

• Everyone in the organization thinks they are a marketer.
• Few take marketing seriously or understand what it is--but are "pretty sure it consists of making catchy jingles."
• Most organizations view marketing purely as an expense and when the going gets tough, apparently the tough start slashing marketing budget and laying off marketing staff before they touch anything else.
• In smaller companies, marketing is held in such low esteem that marketing duties are often given to <>. . . secretaries who are told to "make a brochure. . . or something." 

And we marketers weather these indignities despite everyone being confonted with a constant tidal wave of evidence that marketing makes all the difference:

1. The companies we admire most (Apple, Nike, Starbucks, etc.) are--without exception--monster marketers.
2. Generally, the first thing we decry about companies we don't like--cigarette, alcohol, pharmaceutical companies and so on--is the fact that their marketing is so effective it appears to turn people into zombies walking the Earth in search of Camels Lights, Michelob and Viagra.

Well, the good people of marketing academia are trying to aid our plight. Dr. Eric Boyd has written a paper analyzing when Chief Marketing Officers make a difference which is slated to be published in the Journal of Marketing Research in 2010. The paper looked at, and found, the following:

1. The effectiveness of a CMO can be greatly diminished in the face of extraordinary customer power. Company sales are becoming more concentrated in a few large clients. With that comes a large influence of that customer over policy and a risk aversion that can hamstring the marketing function (as well as other functions). For instance, if WalMart accounts for 20% of your company's business, as nice as it would be to pull in a Target or Lowe's as client, Job #1 is going to be to keep WalMart happy. And that perspective can be suffocating to marketing and business development.

"So, CMO, what is it you would say that you do here. . . exactly?"

2. CMOs can provide the largest effect on firm value (for better or worse) if that executive is brought in from outside the firm, is given a broad mandate and has the seniority and experience to gain internal credibility. Some of this sounds like commonsense, but it really comes down to commitment. Many companies who do not have a history of marketing and then decide to hire a marketing "guru" often hamstring that professional through an aversion to change and risk. But, to hire a CMO and then not utilize that person's talents is like getting engaged with the idea that you can still date--it's not going to work and besides, what's the point? Organizations need to decide what they want to be and then own that decision. The firms studied that did this, on average, achieved a significant ROI for their marketing investment and a resulting increase in share price.
As we have seen in other articles, when it comes to business strategy & marketing, doing nothing is better than taking half-measures. If you are going to be a bear, be a grizzly. Don't get Fred the office manager to make a brochure in his spare time and pretend you are "ramping up" marketing. That's like asking Paris Hilton to fix your car or Terrell Owens to do your taxes. Activity does not equal results. Firms need to hire skilled professionals and then let them do their job, otherwise you are just wasting everyone's time, money and energy.

The Power of Gratitude

"And in the end, all that remains is our friendship." So says consoliere Tom Hagan as he reassures a bewildered US Senator that the murdered prositute in the Senator's bed would "disappear. . . as if she never even existed" in in the cinema classic Godfather II.

I thought about the Godfather movies while reading the latest research on customer gratitude and it's effects on business relationships. After all, nearly all of Vito Corleone's business was based on gratitude--doing favors for people who would not only repay the favor but also spread word of The Don's generosity and. . . um. . . capabilities. Prostitutes, horse heads and the like notwidthstanding, it's the model most businesses--especially service businesses--use.

First authored by Robert Palmatier of University of Washington with an assist from others including consumer behavior guru Frank Kardes, the article examines how feelings of gratitude strengthen business relationships as well as the key components to engendering that feeling within customers. They performed a big market survey plus extensive experiments with a large number of subjects. Here's what they found:

Four Factors in Creating Gratitude with Customers/Prospects
1. Doing something that is perceived as being of your own freewill--not something either contractually required or perceived to be "part of the deal." Those of you who have read the negotiating bible "Getting To Yes" will recognize this, where they advise you to "throw something in at the end" to make the customer feel like they have won something. So, even if the customer was already going to get the "Hannah Montana Back-To-School Commemorative Place Mats", make it seem like a spontaneous act of generosity.

2. Perceived Motives: The customer must perceive your motive as being earnest--or at the very least not malevolent. This is a hard one to break down, but I would liken it two very different experiences getting your car serviced. When you get your oil changed and the Jiffy Lube guy says "Would you come out here for a moment?", you prepare yourself for the shakedown ($3,000 tune-up) that is about to happen--you knew it was going to happen, but you still walk away from the experience thinking less of the Jiffy Lube and the guy. Conversely, if you hear a knock in your engine and the mechanic tells you, "We can completely fix it for $1,500 or do a six month band-aid for $200" you are likely going to tell all your friends to come to this mechanic because you do not question his motives.

3. Risk Undertaken By Seller: Without exception, doctors, lawyers, consultants and brokers have nightmare stories about prospects who sap every fiber of their being trying to get free services and advice. While those people represent A Bottomless Hole of Time, Money & Energy (aholes, for short), spending time off the clock with a prospect or customer is builds gratitude and trust. The trick is distinguishing the aholes from the prospects with potential to protect your own resources and sanity.

4. Meeting "The Customer's Perceived Need For the Received Benefit": The quotes represent the authors words. I would merely call it thoughfulness. If you take the time to really consider your client's needs and help, research showed it made a big difference. For instance, if you receive a holiday business gift of, say, Godiva Chocolates, you might very well think, "Nice chocolates--either all the other clients got this or this is a re-gift." However, if your contracts attorney calls you out of the blue and says, "I remember you mentioned a problem with your property taxes, so I asked a buddy of mine who is a real estate attorney and he said..." That's big and, more importantly, it provides value to the client's specific situation.

Lastly, the authors conducted a large survey to see what effect gratitude had on relationships and purchasing intentions and the effect was hugely significant. In short, for a customer, gratitude and the trust & obligations it generates, an offer they can't refuse.

Zen And The Art of Business Execution

When you launch a business or a product, one of the hardest things to do is set boundaries for yourself or your company. As an entrepreneur, your job--and your nature--dictates that you constantly be on the lookout for opportunities to exploit. And, it seems logical that the more opportunities you research, the more likely you are to strike gold. Sooner or later, something has got to work out if you just play the averages. . . right?

In the words of Lee Corso: Not so fast, my friend.

A team of professors, led by Rajesh Chandy (currently at the London Business School) published a study in the Journal of Marketing Research focusing on the Pharmaceutical Industry and companies' ability to get products from the conceptual stage, through the epic FDA process, all the way to market. In other words, they wanted to see who could execute and why.

Given how highly regulated the pharmaceutical industry is--thereby generating a ton of documentation--it provides what might be the only opportunity to be able to document most companies' journeys from concept to market. Here's the breakdown of the study:

What they did and how they did it
Chandry and his associates looked at all 1,573 drug patents filed between 1980 and 1985 and followed them to market. Of those, 18.30% (@ 285) made it to market.

They filtered further by weeding out companies that either were acquired or that acquired the drugs from other companies so as to only look at groups that could take an idea from start to finish. So, in all, 654 drug ideas from 88 companies represented "the field."

What they found: 

"Focus Power": Many pharma companies are known for a particular expertise (cardio, neurologic, cancer, etc.) Those companies which stayed within their primary field of expertise had the highest rate of success. So, in pharma, as with any endeavor, you have to pick what you want to be and stick to it. That's especially hard in new ventures and expecially service industries--where you want to explore any and all opportunities for revenue, but likely at the expense of fully exploiting your core business.

There are those companies which can branch out into new endeavors (ala iPhones, X-Boxes, Britney Spears' acting career--wait, scratch the last one), but they represent the exception, not the rule. And for every iPhone and X-box, these same companies have also attempted the Zune and Apple TV. These moves are best tried by strong brands from well-established companies as they involve risk and brand dilution.

Focused Company

Unfocused Company

Additionally, Chandry et al looked at the number of ideas firms tried to develop. Many in industry and research had postulated that the more ideas you generate or pursue, the greater your chance of achieving success. The study found that the opposite was true. All ideas, even bad ones, put a drain on a company's finite resources and hurt the progress of good ideas with real potential. So, make choices--thoughtful, well-considered choices--then own those choices and move forward. Otherwise, you (and your company) spin in circles like a five year old having had six Cokes and a box of pop rocks.

"Speed Kills...Slowness Kills More":Probably a poor choice of words when discussing medications, but those companies that attempted to move the fastest from concept to market had a much higher failure rate. Further complicating matters was that being the slowest represented an even higher failure rate (in addition to potential massive loss of revenue in terms of development expenses and lost patent protection time.) So, focused, deliberate progress is key.

"Experience and Expertise in Management Matters": Yes, yes, this seems obvious. But remember that people had been getting beaned with apples for centuries before it happened to Isaac Newton who then developed the law of universal gravitation. Documenting and proving what may appear to be common sense is important and necessary. Too often, entrepreneurs either think that it's enough just to be smart & aggressive, or that if they have succeeded in one thing, they can succeed at anything--only to find out that they deeply, desperately suck at their new venture (prime example).

The average cost to take a drug from concept to market is $802 million. Yes, the regulatory environment for drug approval is stiff and capital intensive. But, the two greatest contributors to that number are the quantity of failed ideas and time to market with the successful drug. And in that $802 million number, there is a tremendous amount of variability from firm to firm. The range in time for market ran from three to fourteen years. In other words, lackluster, unfocused management appears to drive the high cost of drug approval more than anything else.

Freezing and Starving: The Pioneer Experience

"If you're not first, you're last"

--Will Ferrell in Talladega Nights

The experience of being either an entrepreneur or a product manager is emotionally wrenching. You are awash in uncertainty and feel the crush of expectations. When launching a business or introducing a product, despite whatever research, analysis or reports, the entire endeavor hinges on a belief--a belief in yourself, your product and/or your judgement. Nothing is for certain until the product hits the shelves or the business opens its doors.





To minimize the uncertainty, many cling to trying to be the first to pioneer a product, service or idea. And, over the years, there has been a lot of research by some very smart people saying that being first makes all the difference. In fact, some of these very smart people have even said that they could not find any instances of pioneers that have failed.

There is some wonderful research by the very talented tandem of NYU's Peter Golder and USC's Gerard Tellis on new product introductions that shows that the "pioneer" advantage is overblown at best. Specifically, they say that the race does not go to the swift--the pioneers--but instead to "early entrants" who aren't the first to market, but rather, the first to get it right. And in their extensive analysis of companies from the late 19th century forward, it turns out that pioneers failed at about the same rate as other businesses while early entrants have a lower failure rate and a much higher instance of market leadership.

So, what determines, "getting it right"? The criteria identified by Golder & Tellis include:

1. a vision of the mass market
2. managerial persistence
3. financial commitment
4. relentless innovation
5. asset leverage

The "Vision" Thing: Pioneers obviously have some amount of vision in order to be ahead of the pack, but where their vision has failed them in many instances is not being able to see beyond their product to their customer. A great example they cite is the video recorder market and the product pioneer Ampex. If you have never heard of Ampex, chances are that you have also never paid $50,000 for a video recorder. Their technology in 1956 was revolutionary and they were able to sell products commercially. However, given their monopoly on the market at the time, they set forth on the ambitious mission of making an even better $50,000 video recorder. That, at the time, likely seemed like a wise decision. After all, if it ain't broke. . . At that same time, a couple of start-ups, Sony & JVC, set their sites on making video recorders house hold items at about $500 a unit. I am told that both Sony and JVC became successful companies.


So, while Ampex had a great vision for the technology, their vision for the market? Eh, not so much.



Managerial Persistence & Financial Commitment: This is probably the most difficult aspect of success. New products often take several years--in some cases a generation--to become mainstream. And in the meantime, stake holders in that product have to be convinced to stay the course. This is no small task when shareholders, financiers and leadership are demanding compelling returns and you have to stake your job and reputation on asking them to wait to see the fruits of their investment. Further complicating the analysis is that companies often have a bad strategy or product and in those instances, the right decision is to pull the plug.

Golder & Tellis offer a few examples of companies jumping ship too early, including Rheingold Brewery which introduced the concept of light beer in 1967. In the face of sluggish sales, Rheingold not only abandoned the light beer product, they fired the managers who had championed the concept. Lite Beer from Miller was introduced eight years later, advertised heavily and has been wildly successful ever since.

With business, as with any of life's greatest endeavors, there comes a gut check--a point where trust and commitment are all you have. And at that time, if you believe in what you are doing, you must press forward and accept risk and uncertainty. As Golder & Tellis point out, the great companies are the ones that can do this.
Relentless Innovation: One of the hardest things to do in business is to knowingly cannabilize your own revenue. But, it is always better to eat your own lunch, than have someone else eat it for you. They point to Gillette's cannibalization of their razor businesses over the years in order to renew its market leadership. I like to also point to The Dayton Company--an owner of department stores--which saw that traditional department stores were giving way to large scale discounters, so they founded one of their own, called Target.


Asset Leverage: What Golder & Tellis call "Asset Leverage", I might call "dropping the hammer." It's using your most compelling tools to the utmost. Large, successful companies have tremendous assets at their disposal--brand recognition, complementary products, financial resources, distribution networks and more. And in enterring a market, these companies can utilize those assets in a forceful way. There are a large number examples of this we can all cite. Golder & Tellis reference "Diet Coke" crushing the pioneer in diet sodas, Royal Crown. (My favorite is Microsoft's Internet Explorer, though their asset leverage aroused the interest of regulators worldwide.)


Given all of these examples, Golder & Tellis would seem like they are saying that an untried trail is a fool's path. Not so. They are merely saying that it's better to do it best, than to do it first.

They did a couple of articles on this topic, one in the Journal of Marketing Research, which is more technical and theoretically oriented, and the other in MIT's Sloan Management Review (article found here, subscription required). I would highly recommend that any entrepreneur or manager read the Sloan article. It is well researched, powerfully written and reads like a strategic manifesto. Perhaps most importantly, it gives perspective on the patience, hard work and (to quote the professional wrestler Gorilla Monsoon) "intestinal fortitude" it takes perservere in the market.