After the dot-com crash, marketing isn't easier

May 21, 2001

BY MICHAEL KRAUSS

Remember Sisyphus? That guy was condemned by the Greek gods to spend eternity in the underworld pushing a stone to the top of a hill, only to have it roll down when he reached the summit. Then he had to push it to the top again.

If you’re a vice president of marketing at a global 2000 company, you might feel a bit like Sisyphus. For years, you’ve probably been playing catch-up against the dot-coms. Finally, you have your interactive marketing strategy and infrastructure in place, and now, there’s a new challenge on the horizon, something even more daunting than the business cycle: the threat that comes from your competitive peers.

According to Fred Wiersema, author of The New Market Leaders: Who’s Winning and How in the Battle for Customers (to be published in June), in category after category, market leaders are pulling away from their former peers.

For his book, Wiersema tracked a group of 5,009 companies over six years, updating his data regularly in light of the highly volatile times. The market leaders he identifies are companies you know and would expect to see, including Wal-Mart, Sony, Home Depot, UPS, GE, Microsoft and a host of others. On the basis of relative sales revenue growth, Wiersema found that market leaders are, on average, growing 3.1 times faster than their peers. On a relative market value basis, Wall Street values market leaders at a level 2.1 times their peers.

Even with the stock market falling, the market leaders are suffering less, relative to their peer group.

On top of this, BusinessWeek reports what many marketers already suspect: There’s too much capacity out there. In a recent feature, the magazine noted, “After years of frantically investing to build up the human and physical capacity to keep up with soaring growth, the U.S. economy is struggling with over capacity as far as the eye can see.”

What this meansfor marketers is that the dot-com revolution was just a warm-up. The rock is rolling down the hill, and it’s going to be heavier to push back up. To succeed, marketers have to pay more attention to business strategy, customers and technology than ever.

Integrated marketing programs will be key, and isolated tactical efforts, even those capitalizing on new, lower cost interactive techniques won’t make a difference. Consider Oldsmobile: The company pulled off a remarkable online marketing coup when its interactive marketing initiatives began delivering the youthful target audience to Oldsmobile dealers. Furthermore, online marketing techniques reportedly cut the cost of delivering a prospect to the showroom by 60%, compared with traditional offline methods. Even so, the Oldsmobile brand is being phased out; GM can’t achieve market leadership supporting so many brands.

Market leaders do at least two things right compared with other organizations, Wiersema said in a conversation. They invest in the right customers, and they invest in the right technology.

McDonald’s and UPS are good illustrations. Both are market leaders, but even market leaders need to be vigilant to maintain their position. If you’re McDonald’s in fast food or UPSin shipping, you already have much of the marketshare, and so the challenge is to achieve continuous rapid sales and revenue growth in order to keep the pedal to the metal and earn market value ahead of your peers. McDonald’s investment in the U.K.-based Pret A Mange chain may provide a clue on how to do that. Pret’s, as it’s known in the United Kingdom, appeals to the urban sophisticate because it’s to a quick lunch what Starbuck’s is to coffee: an experience.

McDonald’s bought 33% of Pret’s in February, and through that investment, McDonald’s execs likely will learn about a different type of customer: the urban sophisticate, who typically buys a sandwich at Pret’s but may be hard to please with a Big Mac. Other marketers might simply write off a hard-to-serve segment no matter what the upside, and so McDonald’s approach to this valuable but difficult-to-serve customer is impressive.

As Wiersema reports, that’s typical of market leaders. They’re not complacent; they go after the so-called “stretch customer” who may not be easy to please. Market leaders know that these challenging customers will help them find the keys to incremental growth and market value. No way should McDonald’s walk away from its core kid franchise, but absolutely it can learn something from the stretch customers.

Market leaders also make significant investments in systems, tending to house technology that’s massive in scale yet flexible in delivery. UPS reportedly invested more than $11 billion dollars on technology in the 1990s, which helped reposition UPS from the stiff, “Tightest ship in the Shipping Business” brand image to a nimble solutions provider. UPS now tracks packages in real time, as do its competitors, but it also offers a set of flexible software tools to support larger and small users. The company also had created business partnerships with its customers.

Or, in commercial banking, look at Citibank’s investment in flexible, global systems. As one of the top capital markets players serving large businesses, the company can instantaneously clear a currency trade for a business client electronically in any currency around the world. It takes flexible, large-scale technology investments to achieve that capability, but such investments attract the biggest, most profitable clients and help Citibank maintain market leadership.

While costly, the global breadth and the functional nimbleness of these technology solutions can create barriers to competition, build customer loyalty and impress Wall Street. They can also bankrupt a company if the money is spent chasing the wrong stretch customer. The easy answers don’t exist, but indecision will only lead to further losses to the competition. Marketers have no choice but to keep pushing that stone up the hill.

The difference between the myth and the reality, though, is that a dual focus on customers and technology might make it easier to get to the top and stay there, if only for a while.

Michael Krauss is a partner with DiamondCluster International in Chicago.
He can be reached at news@ama.org.