Wharton@Work

August 2023 | Marketing

The One Trend Non-Marketing Executives Need to Know

If you believe marketing is synonymous with advertising, or the mention of marketing has you picturing Don Draper and the rest of the Mad Men, there’s been a comprehensive change that you should know about. We asked Wharton marketing professor Barbara Kahn to help non-marketers understand what’s new and how the transformation affects the rest of the organization.

Wharton@Work: You’ve said that marketing is undergoing a transformation. Some changes, like influencer marketing and retail loyalty programs, are easy to spot. But it sounds like there is something more pervasive going on. What should non-marketers understand about these developments?

Barbara Kahn: The incremental changes are part of an overall move from a product focus to a customer focus. The shift has been a gradual one over the past couple of decades, but it got supercharged post-COVID, because to be truly customer-focused you need customer data. The digital acceleration that happened during COVID meant a lot more decisions and purchases were being made online, which generated more customer data that companies could collect. And the more customer data you have, the more customer-focused you can be.

Customer focus means you're looking at individual customer behavior over time. Before the online shopping explosion, you could see, for example, what products moved in a grocery store, and understand what customers liked. But you didn't know specifically what each customer bought or how people searched. COVID changed that, giving us access to much more nuanced, individual customer data.

W@W: Does that mean the end of product-focused marketing?

BK: No, it’s not either/or. The product is clearly still important, and businesses need to attend to both even though the overall focus is shifting. A product focus is about trying to make products people want and then selling what you have. That means your growth strategy is to sell more, which then allows you to create efficiencies that give you better margins because your costs go down. But typically, as your costs go down you lower your price to grow more. So that focus requires managing price and margins as you increase sales.

The other way to grow when you’re product-focused is through innovation, constantly bringing out new fashion or innovating new technologies and hopefully commanding a premium price and developing customers’ desire for something new or fashionable. Both of these strategies constitute traditional product-centered marketing.

W@W: What does strategy look like when you’re customer-focused?

BK: Your goals are different, because you’re trying to maximize customer loyalty and retention. You're not just interested in selling a product — you want to sell a product to a customer over time and learn what different customer segments want. Then, you look for the kinds of products or services that they want or need and develop new ones based on those insights. Unlike the product-focused goal of making what you’re good at, the products your customers want might be in a different product category, or be something you don’t currently have the expertise in making.

W@W: You mentioned loyalty and retention, which are different than aiming for individual sales. How do those goals change marketers’ strategies?

BK: If your goal is to acquire profitable customers and keep them loyal over time, my research shows that you have to shift your focus to the customer experience. Sometimes the customer wants more than just the product. The whole shopping experience matters to them, whether it’s making the in-store experience pleasurable, providing the lowest prices, or making shopping easier.

My Success Matrix helps to explain how that experience differs in four key ways. Understanding what’s important to your customers allows you to focus your efforts and deliver what is most important to them — you’re not trying to succeed in each area. What I argue is post-COVID, you need to be the best at any two of those boxes. Costco offers the lowest price and they give you a fun experience. Amazon and Walmart offer you low prices, but also they make shopping really easy. Luxury has very cool brands and a very cool customer experience.

Those in the top left quadrant offer branded products that provide more differentiation, more value, and more pleasure, and ultimately provide more confidence to a customer segment compared with other products on the market. Retailers in the top right quadrant offer an omni-channel customer experience that provides more pleasure, more excitement, and more fun than other retailers can provide. Shopping at these stores can be a high-touch, social experience. In the bottom left are retailers whose customers prioritize the best value. They consistently offer the lowest prices and have developed operating models that can efficiently manage inventory, keep overhead costs down, eliminate unnecessary intermediary steps, and reduce transaction costs at every step.

Finally, those in the bottom right quadrant provide a frictionless customer experience that eliminates all pain points and offers the customer the easiest and most convenient way to shop. The key deliverable is a seamless integration of the shopping experience across all touchpoints. This requires the collection, capture, and constant analysis of all customer data, which allows for customization and personalization.

W@W: The matrix makes it clear that the role of marketing has gone well beyond selling what you make or innovating new products. But you said there is a balance between product and customer focus, so what does that look like? What is the overlap in strategies?

BK: You still need to innovate and sell what you make, but the ways you do that change. When you’re trying to maximize customer experience, you are collecting and analyzing customer data and your goals become customer acquisition, customer retention, and building up the customer spend or “share of wallet.”

The shift affects all four of the traditional marketing Ps: product, price, place, and promotion. You now develop products for customers rather than developing them based only on your expertise. Pricing changes because you're also looking to build loyalty, so you might offer subscriptions or a loyalty program that rewards repeat purchases. Place is now in stores, online, or a mix of the two. Promotion, the way you get news about your brand out there, has also changed. Marketers need to be thinking about so many new channels when they spend their advertising dollars — social media, influencers, retail media networks, and the ways they offer an opportunity to spread the word and bring data in at the same time are all relatively new.