UK: MARKETING'S NEW MODEL ARMY. - Across the globe, marketing's classic model is being overthrown. The brand is no longer king and the search for a new paradigm has begun.

by Alan Mitchell.
Last Updated: 31 Aug 2010

Across the globe, marketing's classic model is being overthrown. The brand is no longer king and the search for a new paradigm has begun.

If you ring up the toiletries company Elida Gibbs and ask to speak to the marketing director, chances are there'll be a blank silence at the other end of the line. Elida Gibbs is a classic branded-goods company, manufacturing household names such as Harmony hair spray, Lynx deodorants, Brut fragrances, Sunsilk and Timotei. But since January last year it has operated without a marketing director or a 'marketing department'.

A few years back this would have been like running a pub with nobody behind the bar. Not any more. A spate of UK marketing reorganisations over the past few years - Abbey National, Bass, Courage, Del Monte, Electrolux, Elida Gibbs, Hasbro, Harrods, Hertz, IBM, SC Johnson, NatWest bank, Norwich Union, Panasonic, Philips, Saab, Sara Lee, Thomson Holidays, United Distillers, VAG, Lever Brothers, Unipart, to name just a few - is a sign that a fundamental rethink is under way.

Marketers outside the consumer-goods arena are moving beyond the 'classic' model, established by consumer-product firms such as Procter and Gamble in the United States during the late '50s and '60s. Packaged-goods firms are beginning to question the model's relevance to today's conditions. The brand-management ideal that has dominated marketing thinking for so long is under critical scrutiny. The role of marketing departments, how they are organised and how they relate to the rest of the organisation - even if it's worth having one in the first place - is being thrown open to question. The search for a new paradigm has begun.

For decades the classic model has reigned supreme, resting securely on four organisational pillars. First, marketing was geographically centred, based on business units defined by the nation state. National differences were also product differences: Germany had its VW Beetle, Britain the Morris Minor, France Citroen's Deux Chevaux.

Second, the marketing department was a hierarchical organisation within a functionally divided company. At the top of the pyramid towered the marketing director. Below, a few exalted marketing managers beavered away overseeing a layer of group product managers, who supervised a broad base of brand managers and assistant brand managers. This pyramid was snug in its position next to the other vertically defined departments, such as manufacturing, finance, sales and personnel.

Third, the brand, and brand management, was king. The brand was the means of meeting consumers' needs and desires: different brands were created to meet different consumer needs and different market segments. Brand management, which encompasses everything from researching consumer attitudes and desires, through conceiving new products to developing advertising, packaging and promotions, was the linchpin of the marketing department. Fourth, in marketing-led companies, the marketing department was the voice of the consumer within the organisation - and what the consumer said, went.

There were exceptions to the rule, of course, like Coca-Cola and Ford - at root, single-brand companies. But so prevalent and successful was this model that any departure from it demanded explanation. And as other sectors such as financial services, retail, leisure and transport 'woke up' to marketing, it was to this model they turned.

Suddenly this well-ordered world is being shaken to its foundations. Recession and intensifying competition have done their bit. But the tidal wave of challenges to the status quo comes from something deeper: the culmination - and combination - of at least four separate, long-maturing, but revolutionary developments.

First, globalisation. The days when the local operation was king are over. Spurred especially by the single European market, companies have been reorganising their marketing on a European, if not global basis. National marketing departments based on geography are ceding control and influence to new regional centres usually based on products.

For instance, 3M has moved from a European structure based on 17 national subsidiaries to one with 19 core 'European business centres' (EBCs) each responsible for a particular product grouping. At 3M's Bracknell offices in the UK, three EBCs, for abrasive technologies, personal and environmental protection systems, and photo-colour systems, formulate marketing strategies for the whole of Europe. For medical imaging systems, Bracknell follows Milan; for aerospace products, it's Neuss, Germany - and so on. 'We now have relatively small, centralised marketing departments which are able to handle a lot of work that is common to the whole of Europe, such as communications style, literature, and pricing. That leaves local subsidiaries getting closer to the customer, implementing marketing strategy rather than creating it,' says Stuart Lane, general sales and marketing manager for abrasives.

Unilever, the Anglo-Dutch consumer-goods giant has developed a similar structure. It has created innovation centres to lead the marketing of certain products across a whole region: Milan for toothpaste, Paris for hair products, Hamburg for skin products, London (Elida Gibbs) for deodorants. Globally, development of skin products in Hamburg is shared with a similar centre in New York. Says Unilever chairman Sir Michael Perry: 'Those two innovation centres focus research, development and marketing into those specific marketplaces with a brief to generate things for the whole world. It is a very exciting model that enables you to work much more effectively and much more responsibly.' IDV, the world-leading spirits producer, has gone one step further, completely separating the management of key global brands such as Baileys, J and B, Cinzano, Smirnoff and Malibu from national marketing units. Separate legal and accounting entities called 'international brand companies' (IBCs) are responsible for marketing these brands across the globe. Each one is led by an international brand director - what IDV chief executive John McGrath calls 'the ultimate custodian of the brand's worldwide equity and consumer franchise'. The international brand director co-ordinates with separate 'national marketing companies' to build distribution, merchandising and promotion in geographic units. This 'unique' organisational structure enables the company to face the dilemma of seeking worldwide co-ordination with local autonomy, says McGrath. It is 'a fundamental part of our marketing approach'.

Net effect of such decisions? To lop the strategic head off once mighty national marketing structures and to trigger a transformation of brand management. Says Theo Koenders, a senior marketing manager within recently formed regional detergent marketing organisation, Lever Europe: 'Nowadays you may be investing £200 million in a brand. If you let junior people mess around with it, it is very dangerous. The brand manager's role is going to change. They can still have an influence, but it is not going to be in the sexy bits of marketing, like advertising, any more, but at an operational level.' Second, the media revolution. When the 'classic' marketing model was emerging, a handful of TV stations commanded vast, receptive audiences, and retailers were weak. Today, it couldn't be more different. Media fragmentation means it is often prohibitively expensive to reach mass audiences through TV advertising. The rising power of the retailer is, meanwhile, transforming marketing priorities: if its own needs are not scrutinised, 'the trade', once arrogantly seen as a mere distribution channel, turns itself into a positive barrier between the manufacturer and consumer.

In response, companies are shaking up both sales and marketing. Stripped of many of their strategic brand decision-making functions and under pressure to be financially accountable, local marketing departments are being merged with, or moving much closer to, sales. At Colgate Palmolive, for example, a once powerful marketing department has found its status equalised with a formerly lowly sales department, whose sole function was 'to shift as many boxes as possible'. To match the rising sophistication of the trade, an upgraded breed of sales person replete with such attributes as 'strategic business understanding, creativity, flexibility, commercial and financial understanding' has been taken on, says personnel manager Lawrence Moss. And the marketing department has been told to listen to what the trade tells the new super sales force. Once, 'the marketing function thought they were the jewel in the crown. Now it is no longer king,' says Moss.

Similar reorganisations are taking place in all sectors. Hertz, the car-hire company, for example, has reorganised to shift its focus from 'products' for different consumers, such as business and leisure, to distribution channels instead. Before, key sales channels - a sales force, a branch network, and a set of partnerships with other companies such as BA or British Rail - 'washed horizontally across the product sectors,' says UK marketing director Steve Jones. With sales, marketing and operations focused on these distribution channels, products are moulded to meet their needs. Now Jones feels he can start paring back his advertising budget. 'We could spend a small fortune shouting at the universe at large,' he says. But why bother, when the sales channel does targeted communicating for you?

Key to making the new links between marketing and sales bear fruit is information technology, the third of marketing's revolutionary forces. As advertising expenses soar and information processing costs plummet, exploiting databases to reach existing and potential customers becomes increasingly cost effective.

And as the computer opens up mines of detailed information, for the first time, the finance director's holy grail - measuring marketing's effectiveness - is becoming a possibility. One example: when PA Consulting delved deep into a group of clients' accounting systems to discover the true costs and profits of their brands, it discovered that half of all their product lines produced 150% of profits. The other half ate up the 'excess' 50%, mostly because over-enthusiastic marketers, struggling to boost their market share, were throwing unprofitable line extensions on to the market. PA's food and drink director, Clive Wilson, says: 'Nobody has done an awful lot of measuring how well marketing departments are performing. Now they are in top management's sights, and marketers are going to have to smarten up their act.' But 'smartening up' is not just a matter of doing the same old things better. The challenge is more fundamental. 'One of the problems with brand management is that you implicitly tell every brand manager to grow share. The way to do that is not take any wild risks with anything new but to get a variant and push it out there and put some money behind it,' says John Brady, head of McKinsey's consumer-goods and retail practice. 'But if you think about how you would optimise the value of the total set of brands, you wouldn't try to maximise every single one. You would take a portfolio view, with some high risk, and some good steady ones.' Another problem is that newly powerful retailers are fed up with traditional brand-share wars. These may be the stuff of marketing mythology, but if all that happens is that brand A increases its market share at the expense of brand B, what does that do for retailer C's sales or margins? 'We are interested in selling more of a category rather than individual products within a category,' says Sainsbury's director of marketing, Anthony Rees. 'That is what brand marketing is about, but clearly it is not what retail marketing is about.' Now retailers are flexing their muscles, forcing marketers to rethink their priorities. Says Elida Gibbs' chairman, Helmut Ganser: 'The starting point is the category and the customer (retailer). Then we say: "Ah, how does the brand come in?" It is a complete shift of perspective.' At Elida Gibbs, that 'complete shift of perspective' has seen the disappearance of the old marketing department, and its reincarnation as a brand development department focused on the consumer, and a customer development department focused on the retailer. The shift didn't come easily. It was just one result of the fourth great revolution sweeping business - the challenge to traditional, functionally divided, hierarchical corporate structures that's coming from the apostles of concepts such as total quality management and process re-engineering (see box on page 48). Such ideas may now be old hat in manufacturing. But they are only beginning to hit marketing - and chief executives are seizing the opportunity to 'delayer' expensive marketing management pyramids, to outsource once core tasks and, using information technology and PC networks, to encourage cross-departmental team working to accelerate innovation and speed to market.

Beheaded by the creation of European or global strategic market units, split top to bottom by the need to face two masters (consumer and retailer), 'downsized' and 'delayered', and struggling to come to terms with a revolution in media, it is not surprising that the classic marketing model is under strain.

If that were all that was happening, however, stable new structures could still emerge - after the usual period of dislocation. But in marketing there's something else going on. Companies are realising there is more to marketing than can be encompassed by the marketing department; that brands are too important to be left to brand managers.

When customer service and order handling become as important as packaging or advertising, when staff training and attitudes, computer systems, and logistics all become key parts of promise delivery, other departments become inextricably involved in what was once termed marketing. The problem is that marketing departments have no say over personnel, training, computer systems or warehousing. A new paradigm is needed.

One suggestion: the marketing of 'companies' is taking precedence over the marketing of a portfolio of separate brands/products. The classical consumer-goods paradigm, including its structures, priorities and methods of working, will, increasingly, be seen as the exception rather the rule. Whether it's Ford or Honda, Sony or Philips, Sainsbury or Marks and Spencer, IBM or Apple, BT or Mercury, it's the guarantee of quality, value for money and service that comes with the company name that really matters to customers. Even consumer-goods companies such as Cadbury are beginning to realise that corporate endorsement can mean as much as, or more than, the stand-alone brand in its own right. Marketing guru Stephen King says: 'This is a really revolutionary change in marketing.' Speaking at a seminar organised by WPP-subsidiary Sampson Tyrrell last year, King criticised established marketing literature for missing the significance of the subterranean changes that are about to 'burst upon us'. Marketing literature is still full of case studies of classic brands, he said. But as companies realise that service, not product, is the centre of most modern marketing; that what customers buy is not so much the functional attributes of products but the skills of the people that deliver them; that staff are often the most important medium of communication - in future 'the company brand will be the main marketing mode'.

This, in turn, raises new challenges for management, not least resolving the many conflicts about turf and budget setting that follow any attempt to integrate marketing into a unity of messages from all company departments. Says King: 'This is a bigger revolution than appears at first sight.' Nick Spindler, managing director of marketing communications firm PML Grey, part of the Grey network of advertising agencies, agrees: 'Whereas the brand was a concept that was left to marketers traditionally, increasingly the chief executive is realising that branding is actually running the business. That realisation is dragging the concept of the brand to very senior levels.' The implication for marketing departments? They are caught between a rock and a hard place. The rock: being sidelined as a specialist producer of advertising and corporate brochures with no real influence on business strategy. The hard place: being subsumed into something greater. 'My problem isn't with marketing, it's with the marketing department,' the managing director of a high-street multiple retailer told Coopers and Lybrand in a recent survey, Marketing at the Crossroads. 'One of the most exciting ideas around is getting the rest of the company to do marketing,' says marketing guru Philip Kottler, whose textbooks have reared generations of marketers. 'But when you get every department to think customer, what's the role of the marketer?' Whether the classical marketing model is disintegrating and the company brand is moving stage remains a moot point. For each of these developments - process re-engineering, internationalisation of brands, merging of sales with marketing departments, a new quest for measurability and accountability through the exploitation of IT - there are plenty of vociferous critics.

But that only adds to the growing sense of crisis. 'Doubts are surfacing about the very basis of contemporary marketing,' wrote consultants John Brady and Ian Davis in The McKinsey Quarterly last summer.

'The marketing department is critically ill; urgent treatment is needed,' says Coopers and Lybrand consultant Robert Smith, after his study of 105 blue-chip companies in consumer goods, services and retail. Every marketing department used to be structured in exactly the same way, adds Lindsay Leslie-Miller, of marketing executive search specialists Hunter Miller. 'But now they all look completely different. Nobody thinks they have got it right. They all keep asking each other whether theirs is working.' They won't know for a while. If McKinsey's Brady is right, we are in the midst of a paradigm shift and piecemeal solutions are bound to fail. 'Lots of people are talking about parts of the problem, but most are nowhere near a solution. The chief executive has to accept that there is no guaranteed answer. You have to have enough faith to start a journey from A to B, given that you don't know where B is, yet.'

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