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Philip Kotler talks to Techronicle about ‘Values-based Business’

Philip Kotler (M.A., University of Chicago, Ph.D., M.I.T.) is the S. C. Johnson Distinguished Professor of International Marketing at the Kellogg School of Management, Northwestern University. He has published Marketing Management, 14th edition, and 45 other books. His research covers strategic marketing and innovation. He has consulted a number of major companies such as GE, IBM, Apple and his advice obviously didn’t hurt them.  He also consults for nonprofit and government organizations.  Professor Kotler is the recipient of 12 honorary degrees from abroad.


Techronicle: What are the fundamentals of a values-driven economy?

Kotler: A values-driven economy is one that is driven to produce a variety of goods and services that are affordable, accessible, satisfying, and available to as many citizens as possible.  Companies compete to deliver good quality products and services.  A growing number of companies go further and lend support to good causes.  And government has set up regulatory agencies to insure the quality of food, drugs, toys, and other items to minimize the chance of unsafe or harmful products.

Techronicle: How do you feel that the recent recession and desperation economy have changed consumer preferences?

Kotler: The recent recession could have been shortened if the U.S. did not get bogged down in the austerity vs. stimulus controversy.  Austerity means cutting government jobs—teachers, firemen, police—and cutting welfare payments to save money so that the U.S. debt does not increase.  But the very act of austerity reduces incomes and, therefore, reduces spending, which ultimately reduces company income and leads to more job cuts.  It is an illusion that debt is the major problem right now. The major problem is job creation. When consumers don’t spend and businesses don’t spend, the government is the only one who can spend.  And we need to spend to repair our worsening infrastructure of bridges, highways, ports, airports, and the like.  My answer is that we need to spend more money on useful projects.  The little that we spent saved many jobs, and we need to spend more.  During a recession, it is the economic responsibility of government to spend on worthwhile needed projects to put people back to work.

Techronicle: Please tell us about the ‘shift to the human spirit’ paradigm.

Kotler: Marketers have long thought of consumers as just consumers, not full human beings with aspirations, concerns, and problems. Marketers usually only talk about how their brand of soap or soup will be better for you.  In earlier days, marketers would only emphasize the superiority of their brand.  I call this stage Marketing  1.0.  Later, marketers started to recognize that a lot of buying is emotional, not just mental.  I called this stage Marketing  2.0. The good thing about today is that some marketers—Patagonia, Timberland, Body Shop, Zappos, and others—are taking a fuller view of their customers and sharing their concerns about the messy problems  of the world. I call this stage Marketing 3.0.  These companies want to contribute to a triple bottom line:  their profits, their people, and the planet.  They want to appeal to the human spirit and make a difference in issues affecting all of our lives.

Techronicle: What is a company supposed to do to become human-centric?

Kotler: Most companies engage in some philanthropy.  Frequently, they respond to miscellaneous requests to help some medical cause, or children’s cause, or a cause about poverty or hunger.  I would prefer it if each company would adopt a specific cause and make it their “badge” cause.  In this way, they can make a difference by concentrating on that cause.  Avon’s “badge” cause is to support research that will reduce the incidence or improve the treatment of breast cancer.  Motorola’s cause is to lend support to engineering schools to keep improving their training of engineers.  Coca Cola is highly involved in the problem of water shortage and water quality because their drinks depend on a supply of good water.

Techronicle: Generally speaking, there seems to be a tradeoff between a company’s profitability and social responsibility. What motivates companies to think society?

Kotler: There is a built-in bias in this assumption.  The word “tradeoff” implies that social responsibility will mean lower profitability.  It depends on whether charitable giving is classified as a business expense or an allocation after earnings.  Also, it implies that the good is only experienced by the receiver and not the giver.  One can cite many examples, where the charitable behavior of a company has led to higher long run profits.  For example, Petsmart owns 1,200 stores selling products and accessories for all kinds of pets.  They don’t sell pets, but they let the local animal welfare society use their premises to sell dogs and cats that are homeless, with all the money going to the welfare society.  For contributing this space freely to the welfare society, over 5 million dogs have been saved by adoption.  Petsmart gains by being the preferred place for dog and cat owners to buy their pet supplies and accessories.

Techronicle: Does a company need to change its core business model to become human-centric?

Kotler: A company has to make a sharper distinction between its short-term and long-term profitability planning.  It needs two marketing departments.  The larger one (tactical marketing) works hard to sell as much of the company’s current output as possible.  The smaller one (strategic marketing) is not engaged in selling today’s products but rather in imagining and researching what the company should be selling two to three years from now.  This small department is developing a larger picture of what the company can be and create.  It sees the larger context.  For example, a small Cleveland company called Euclid was basically in the business of office cleaning.  It could have stayed specialized in this business, but its strategic marketers started to look for new opportunities and ventured into carpet cleaning, wall washing, floor maintenance, acoustic ceiling cleaning, construction cleanup, duct cleaning, kitchen cleaning, and so on.  Now Euclid operates service centers in many new cities, which wouldn’t have happened if it only focused on Cleveland and a narrow view of cleaning an office.

Techronicle: What is the collaborative value creation model and what is the driving force behind it?

Kotler: Value is in the mind of the consumer.  A company can say that it is creating value but if the customer doesn’t see it that way, then value hasn’t been created.  The customer’s impression of receiving value is not only coming from the producer but also from everyone who the customer meets and greets in the process of obtaining the product.  Therefore, the supplier has to describe a promise of value and has to get everyone working for the company including its employees, salespeople, wholesalers, and retailers to deliver on that promise.  That’s what I would mean by collaborative value creation.  It is not enough for the producer to “produce” value.  It must be delivered “collaboratively.”

Techronicle: How can the goals of a company be aligned with those of its network partners to establishing an end-to-end values-based business model?

Kotler: It is a network that wins in the marketplace, not a single company.  The skill in building an aligned network of employees, suppliers, and distributors into a highly motivated team will make all the difference.  The answer lies in making them all winners.  They will be compensated differently but they all must feel that they are being compensated fairly and even better than if they were in another commercial relationship.

Techronicle: What are the macroeconomic challenges in building a values-based business system (shift from Marketing 2.0 concepts to Marketing 3.0)?

Kotler: A company should not shift from Marketing 2.0 to Marketing 3.0 unless they operate in a country that has educated people, who care for caring companies.  Marketing 3.0 makes sense for Swedish companies to adopt because Swedish citizens expect their companies to exhibit social responsibility.  Marketing 3.0 won’t make sense in a poor African country where people only care about the lowest prices and not the company’s record of social responsibility.

Techronicle: Does the values-driven system directly impact people/communities at the bottom of the pyramid?

Kotler: I co-authored with Nancy Lee, our book Up and Out of Poverty.  The book starts with the basic premise that all people should have the chance to live a good life.  Yet we know of the terrible conditions at the bottom of the pyramid such as diseases, starvation, high mortality, crime, and  suffering.  The book describes how marketing can help communicate and deliver better ways to live and help improve education and health conditions.

Techronicle: How does shared value creation impact the profitability of firms?

Kotler: Michael Porter co-authored a recent article on Creating Shared Value in the Harvard Business Review, where he argued that corporate social responsibility must go further.  It shouldn’t go up and down depending on the current profits of the business.  It should be a commitment and part of the company’s DNA.  He asserts that companies that see it this way, will gain a better reputation and a stronger following and this will ultimately enhance the long run profit performance of the company.

Techronicle: What is the role of innovation in creating value for the company, its customers, and the society at large?

Kotler: Every company should strive to continuously improve its offerings; otherwise it will lose to its more innovative competitors.  The Korean company Samsung has a group continuously working to improve Samsung’s television sets and another group continuously working to improve Samsung’s cell phones.  In other words, these groups aim to obsolete Samsung’s current offerings.  Some improvements are minor and Samsung also hopes for a major breakthrough that gives them leadership in the industry.

Techronicle: How important is technology in creating collaborative value?

Kotler: General Electric deserves credit for enlarging its R&D base from only its own scientists to encompass scientists from around the world.  GE can easily locate the right scientific talent to solve a problem.  P&G has also done this.  P&G wanted to figure out how to put written messages on its Pringle potato chips.  By reviewing its scientific connections around the world, they identified an Italian baker who had already been writing messages on cookies.

Techronicle: How can civil society enable local cluster development to create shared value?

Kotler: An industry usually thrives in a place when many supplier and distributor resources are also located at or near that place.  This is what made Detroit successful in the past. It’s what makes Silicon Valley in California successful today. Silicon Valley is full of people with software talent, others with capital, and still others with good management skills.

Techronicle: What role should governments and regulatory bodies play for cultivating a socially responsible corporate environment?

Kotler: The government should make sure that companies can treat charitable contributions as a legitimate expense.  However, the regulatory bodies must make sure that these are truly charitable contributions and not gifts to family and friends, nor are political contributions or contributions to fund religious proselytizing.

Techronicle: Considering the dynamic market forces, companies have to adjust their strategies very frequently. In such circumstances, how can long-term shareholder value be created through the values-based principles?

Kotler: The best way to create shareholder value is to create stakeholder value.  U.S. business people made a mistake when they said that companies should maximize shareholder value.  That led to very short run gains.  Shareholders are not that loyal to a company.  Many just buy and sell stock.  The company that wins long run profits does it by building a set of loyal stakeholders, who all gain from the performance of the company.  By rewarding the stakeholders fairly, the company will be able to maximize long-term shareholder value.

Techronicle: Are there any tools and frameworks for companies to practically implement the shared value concept and balance their profit-society perspective?

Kotler: The first point is that the CEO and senior managers must buy into a cause that they want to support, a cause that partly defines the company’s purpose and personality.  Some high-level officer must be given the responsibility of proposing how money and resources should be given to support the cause and should have a system of measuring, evaluating, and reporting on the good that is being achieved with the company’s social responsibility.  The company needs to track a measure of “return on social responsibility.”

Techronicle: What is social marketing and how does it transform philanthropy to socio-cultural behavior changing solutions?

Kotler: Social marketing is a separate initiative than corporate social responsibility.  Social marketing can be done by individuals, groups, companies, NGOs, and government units.  Social marketing is an effort to change behaviors for the better.  Social marketers use marketing theory and develop marketing plans to help persons stop smoking, avoid hard drugs and  overconsumption of alcohol, stop littering, conserve on water usage, exercise daily, eat more nutritious food, and a hundred other behaviors.  Notice that the issues are those that command high agreement as to being desirable behaviors.

 Techronicle: What are the prospects of social entrepreneurship?

Kotler: We should applaud the thousands of social entrepreneurs around the world who chose some human condition that needs fixing and apply themselves and hopefully make a decent living doing good.  I love the organization Ashoka whose motto is ‘Innovators for the public.’

Techronicle: In addition to the environmental protection agencies, what are the major actors in sustaining the environment?

Kotler: Everyone; individuals, companies, NGOs, and governments need to pitch in to save nature and the planet.  The world is threatened by a fresh water shortage, which will lead to fewer fish (overfishing), less rainfall, rising temperatures, melting ice caps, higher food prices, and many other calamities.  Adding to this is air and water pollution due to burning of fossil fuels and agriculture rain runoffs of nitrates into the water system.  We covered many of the threats to the environment in our book Social Marketing to Protect the Environment: What Works  (Sage Publications, 2011).

Techronicle: It is generally assumed that environmental protection applies only to the manufacturing industries. How can the services sector contribute toward protecting environment?

Kotler: Two service industries in particular must monitor their impact on the environment, namely airlines and hotels.  Airline flying is increasing over time and our hope is that planes can be designed to use less fuel per mile or that less polluting fuels can be developed.  Hotels have to do a lot of cleaning and need efficient systems to manage water and energy.

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