TiVo is killing television commercials, while the Internet is making newspaper ads obsolete. Marketing budgets are shrinking, yet marketers are being asked to accomplish more than ever. These changes are reshaping the field of marketing at a fundamental level, says Philip Kotler, S.C. Johnson & Son Professor of International Marketing at the Kellogg School of Management, Northwestern University. What does he see in this new age of marketing 3.0? Connection and co-creation.

Paradigm shift

“Marketers are prisoners of an old paradigm,” says Kotler. That old paradigm says that companies need to maximize profits and please shareholders above all else, that customers are rational, and that they are informed by sellers, not by other customers, about purchases.

2010 Dean's Distinguished Scholar Philip Kotler says that marketing has transitioned from being a monologue to a dialogue.
2010 Dean’s Distinguished Scholar Philip Kotler says that marketing has transitioned from being a monologue to a dialogue. (view more photos)

Communication in the old marketing paradigm was one-way, marketer to consumer. Now, it’s a multichannel, circular, dynamic process that involves rapid communication between marketers, consumers, and retailers. No longer do marketers have all the power. Increasingly, the power lies with consumers and middlemen.

Companies cannot simply transmit “buy this!” to consumers and expect success. Consumers now demand two-way communication and input into the product and services they consume. It’s a dialogue, not a monologue, says Kotler.

“You don’t want marketers to operate in a time warp,” he says. “It would be a mistake not to acknowledge the growing power of consumers and of middlemen…The middlemen are kings now.” As the liaison between a product and a consumer, middlemen/retailers are flexing their muscles as never before, expecting a bigger cut of the profit, and withholding shelf space when it is not given. One example is when big box chain Costco pulled Coca-Cola products from its shelves nationwide in late 2009 when the beverage company wouldn’t come down on their price.

In that light, marketers must be experts in listening and predicting. Instead of convincing consumers to buy the widget they are already making, they must ask consumers, “What kind of widget do you need?” and create products that are directly aligned with demand. They must ask retailers, “How can this widget make a profit for you AND for us?”

Kotler calls this community building, as opposed to brand building. Marketers should continue to build the brand but recognize that consumers control the brand. It’s up to marketers to serve the community that builds their brand. To that end, Kotler recommends practicing brand journalism: creating many brand messages that speak to different groups in the target audience.

Business with values: No bad companies

Thanks to the new age of instant information, you can’t be a bad company anymore, says Kotler. If you mistreat your employees, create a shoddy product, or leave a carbon footprint too large, your customers will know about it and demand better performance—or become someone else’s customer.

This is good news for everyone. It is the opportunity to combine profit, passion, and purpose in the marketplace, so that you can create goods and services that are not only different but that make a difference. This is leading to a new kind of capitalism in the U.S., the capitalism of caring.

“You don’t want marketers to operate in a time warp,” said Kotler, seen here talking to MBA students. “It would be a mistake not to acknowledge the growing power of consumers and of middlemen…The middlemen are kings now.” (view more photos)

Kotler discussed a recent book on this topic, Firms of Endearment, which asks the public which companies they love (like Apple, Amazon, or Southwest Airlines) about their business practices. The common denominator they found was an upside-down approach to stakeholders: instead of a pyramid of power with the investors on top, these companies place greater emphasis on employees, customers, and the communities where they do business. This is reflected in modest salaries for these top CEOs and better than average salaries for all other employees; an open door policy with top management; and a belief that corporate culture is the company’s greatest asset.

The recession has shaped more than marketing budgets–it has reshaped consumer values. People are less likely to pay higher prices for top brands when they perceive quality differences are minimal, leading to an increase in sales of store brands. People want to spend less, be more satisfied with less, and place more value on social and environmental consciousness.

This is what’s behind marketing 3.0, value-driven marketing that focuses on the triple bottom line: profits, people, and planet. It strives to make the world a better place. It utilizes new technology. Its key marketing concept is values. It engages and speaks to the whole person: heart, mind, and spirit. Its value propositions are products that are both functional and carry emotional and spiritual weight. More than ever before, people feel defined by and connected to the brands that they consume, and so they demand those brands deliver more.

Three primary forces shape marketing 3.0, says Kotler: the age of participation, the globalization paradox, and the age of creative society.

  • Participation: computers, cell phones, low-cost Internet, open source software, and social media make it simple to communicate and collaborate. While marketing 2.0 focused on listening to consumer voices to learn customer insight, in marketing 3.0 consumers are co-creators of the products. R&D has become C&D (connect and develop).
  • Globalization paradox: Never before has it been easier to connect to the whole world. While globalization connects many nations, it also hurts others (note the loss of blue collar jobs in the U.S.). In that way, globalization often provokes nationalism and protectionism. Buying local is increasingly important to consumers.
  • Creative society: Humanity is moving into an age of creativity, where reliance on muscles is giving way to reliance on brainpower. Consumers are now not only looking for products and services that satisfy their needs but also searching for experiences and business models that touch their human spirit. Supplying meaning is the new value proposition in marketing.

Kotler used Starbucks as an example of a company that is utilizing marketing 3.0 concepts. They treat their employees well, offering greater training than most food service outlets, plus stock options and health benefits. They are involved in the communities where they are located. They are globally conscious, purchasing fair-trade products. And they offer a total sensory experience, with the highest quality ingredients, that connects with customers on a meaningful level. With these methods, they can beat out competitors while charging significantly more.

Kotler summarized this way: “The difference between marketing 1.0, 2.0, and 3.0, is whether you’re emphasizing reaching the customers mind or heart or spirit; whether you’re product-centered, customer-oriented, or values-driven; whether you only see yourself as creating economic value, or creating people value…or environmental value; and whether all you’re concerned with is profits, or social progress and sustainability.”

Kotler has shaped marketing thought for more than 50 years, and has helped industry move through marketing paradigm shifts before. So, according to this expert, while simply appealing to the customer’s mind may have worked on consumers of the past, successful companies have to touch the consumer’s emotions and human spirit. With this in mind, whether one is a marketer, retailer or candlestick maker, business people, according to Kotler, would be wise to move marketing efforts in the direction of connectivity and co-creation.

Philip Kotler visited Mays to present the Dean’s Distinguished Scholar Lecture on Friday, September 24. The Dean’s Distinguished Scholar Lecture Series is an annual forum to present the best in scholarly thought from an array of business disciplines.