Following the end of the Korean War, economic scarcity waned into the mid-1950s. Compe- tition intensified, and the proliferation of consumer goods and emerging services necessitated paying greater attention to the specific needs of customers (Assael, 1993; Sheth, Sisodia and Sharma, 2000). Marketing became accepted as a new business philosophy, as a prescription for successful business built around three key management principles: customer focus, an inte- grated organisation-wide marketing effort, and responsibility and profit direction (Bell and Emory, 1971; Raymond and Barksdale, 1989). This shift laid the foundation for modern marketing management. Management’s realisation of the need to look to the customer as being a critical input for the organisation resulted in increased management devotion to mar- keting (market and consumer) research, market segmentation and product positioning, as well as product planning. In particular, marketing research, as a means to connect market needs to the organisation’s production capability, gained increased attention (Webster, 1992). The emergent management thinking at the time can be best described as ‘we will produce what consumers need’, in contrast to ‘we will sell what we produce’, to convert the good into cash (Levitt, 1960).
Ideas from economics, psychology, social psychology, sociology, mathematics, statistics and operations research were applied to aid marketing planning and decision making through the use of analytical marketing tools and techniques. ‘Marketing activities’ came to be man- aged in a more systematic manner around ‘the idea of integrated marketing mix, blending product, pricing, promotion, distribution policies, and conscious strategic analysis of the inter- actions among them’ (Webster, 1994, p. 6). The growing recognition of marketing manage- ment as a distinctive business function prompted many organisations to set up a marketing department as an extension of the sales department (Webster, 1992). With this background, marketing’s strategic responsibilities were expanded into the corporate level with the creation of chief marketing executive posts (McNamara, 1972). By the mid-1960s the management function had established a strong status as a strategic function at the corporate level (Day and Wensley, 1983).
Notably, the organisational arrangement of the marketing department to emerge was, in fact, contradictory to the management philosophy behind Peter Drucker’s marketing concept – that is, marketing is not a specialised business function, but involves the whole organisation. Behind this controversial organisational arrangement was the management fear that if marketing is everyone’s job, then no one will be responsible for ‘market information, market analysis, and integrated marketing – coordination of the parts of the marketing mix and of marketing with other functions, especially manufacturing and distribution’ (Webster, 1994, p. 24). And the marketing department assumed the responsibility.
Management’s customer orientation and the rise of consumerism led to the creation of a dynamic, competitive marketplace. In an intensifying competitive market context, it was soon learned that market success rarely failed to attract competitors (that is, ‘me-too’ products and/or ‘second-but-better’ products) (Buzzell and Gale, 1987). Market pioneering organisations, or so-called first-movers, are commonly believed to enjoy sustainable compet- itive advantages. In fact, these advantages are not something to be taken for granted. Their sustainability is largely dependent on management’s efforts and competence (Lieberman and Montgomery, 1988). (See this challenge in the following illustrative case on Singapore Airlines.) This highly competitive reality necessitated a more rigorous approach to the eval- uation and re-evaluation of the market, product and brand management through aggressive positioning strategies (Urban and Hauser, 1980). Many organisations experienced deterio- rating financial performance under overly enthusiastic market segmentation and the diver- sification of market offerings, which, in turn, added substantial costs and complexity to the value creation processes. Unfortunately for the marketing department, these deteriorating outcomes contributed to scepticism about customer-centric management, especially in the absence of clear evidence of marketing’s financial business contribution. Thus, during the 1970s, at the corporate level, strategic planning departments began to replace the marketing department’s key role and status (Clayclamp, 1985) and the marketing concept was somewhat overshadowed by a new management emphasis on strategic and financial planning (Webster, 1988).
Box 5.1 Singapore International Airlines (SIA): Rigorous service design and development
Twenty years ago Lyn Shostack complained that service design and development was usually characterised by trial and error. Unlike manufacturing organisations, where R&D departments and product engineers were routine, systematic testing of ser- vices, or service engineering, was not the norm. Things appear to have changed little since then. SIA, however, has always regarded product design and development as a serious, structured, scientific issue.
SIA has a service development department that hones and tests any change before it is introduced. This department undertakes research, trials, time-and-motion studies, mock-ups, assessment of customer reactions – whatever is necessary to ensure that a service innovation is supported by the right procedures. Underpinning contin- uous innovation and development is a culture that accepts change as a way of life. A trial that fails or an implemented innovation that is removed after a few months, is not seen as a problem. In some organisations personal reputations can be at stake and so pilot tests ‘have to work’. At SIA a failed pilot test damages no one’s reputation.
In some organisations, service – and, indeed, product – innovations live beyond their useful date because of political pressure or the lack of resource investment. SIA, however, expects that any innovation is likely to have a short shelf-life. The airline recognises that, to sustain its differentiation, it must maintain continuous improve- ment and be able to kill programs or services that no longer provide competitive differentiation.
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According to Yap Kim Wah, senior vice-president, product and services, ‘It is getting more and more difficult to differentiate ourselves because the airline is doing the same thing . . . the crucial fact is that we continue to say that we want to improve. That we have the will to do so, And that every time we reach a goal, we always say that [we’ve] got to find a new mountain, or hill, to climb . . . you must be able to give up what you love.’ ‘Customers adjust their expectations according to the brand image. When you fly on a good brand, like SIA, your expectations are already sky-high. And if SIA gives anything that is just OK, it is just not good enough,’ says Sim Kay Wee, senior vice president, cabin crew.
SIA treats this as a fundamental resource for innovative ideas. Weak signals are amplified. Not only written comments, but also verbal comments to the crew, are taken seriously and reported back to the relevant sections of the airline. An additional source of intelligence is SIA’s ‘spy flights’, where advisers travel with com- petitors and report on their offerings. Finally, SIA recognises that its competition does not just come from within the industry. As a rule, SIA sets its sights high; instead of aiming to be the best airline, its intention is to be the best service organisation. To achieve that, SIA employs broad benchmarking, not just against its main competi- tors, but against the best services companies.
(Source: L. Heracleous, J. Wirtz and R. Johnston, ‘Cost-effective service excellence: Lessons from Singapore Airlines’, Business
Strategy Review, vol. 15, no. 1, 2004, pp. 34–35)
During the early 1970s, US businesses, predominantly manufacturing organisations, began to experience intense competitive pressure from foreign competitors. The Japanese, in particular, proved to be a real threat as they continued to erode the market share of US businesses in both domestic and international markets through superior manufacturing and, more notably, marketing skills (Kotler and Fahey, 1982). (See Box 5.2 for an account of the Japanese approach to marketing.) In some cases, it was not just organisations, but entire sectors, that were in jeopardy. Nonetheless, in hindsight, the painful experience was a catalyst for change in American businesses. The problems inherited in the conventional US manufacturing management model were evident when, for example, US-manufactured auto and electronics products were compared to those produced by their Japanese counterparts, who had trans- formed themselves from producers of ‘cheap and shoddy’ products to ones capable of offering superior ‘customer value’ (that is, better product quality at a lower price).
Box 5.2 Classic Japanese marketing in action
Ironically, Japanese marketing strategy is not based on the discovery of new and fresh marketing principles. Japan’s secret is that the Japanese thoroughly understood and applied the existing textbook principles. They came to the United States to study marketing, and went home with a better understanding of the principles than most US companies had.
Japanese companies place a heavy weight on two variables in selling to new buyers – quality and service. They design and produce products of high quality (reliability). Japanese cars, for example, need substantially fewer repairs than American cars. The Japanese use more automated methods of production (to reduce human error), and they implement more quality assurance systems, to the point where the rejection rate in a typical Japanese factory is substantially lower than in comparable US factories. The Japanese also establish an adequate number of service centres, so that their products can be quickly repaired. American buyers have found service from Japanese manufacturers to be at least as good as that provided by American manufacturers. The Japanese are highly service-minded and go out of their way to accommodate customers who have a service problem. At the same time, by building better products, they don’t have to invest as much in service centres.
Having established a good product, service, and price, the Japanese carefully work on the other marketing mix variables. They place a heavy emphasis on inte- grating distribution into the marketing mix. They develop markets region-by-region, lining up strong distributors in each location. They will help the distributors sell to the first few customers. They will pick the largest customer and offer a low price to get his business. They will give him excellent service, and then sell to other cus- tomers on the strength of their reputation with the first customer, rather than price. They frequently offer higher middleman commissions than competitors to generate product push. They encourage joint promotional efforts with distributors/dealers and typically support their products with heavy regional advertising.
(Source: Adapted from P. Kotler and L. Fahey, ‘The world’s champion marketers: The Japanese’, Journal of Business Strategy, vol. 3, no. 1, 1982, pp. 3–13)
As Japanese companies achieved enviable market successes in the United States, stories emerged about the substantial early investment that the Japanese companies made in R&D. Japanese company representatives spent significant time in major American cities painstak- ingly observing, for example, the local cultural behavioural patterns associated with car usage. Observations such as how women get in and out of car doors with stiletto-heeled shoes had implications for door design. Similarly, the fashion of painted and long nails had implications for window opening design. This deeper consumer knowledge was then applied innovatively to product design and engineering under the unique Japanese quality management philosophy of ‘market in’, which will be discussed in the following section.