Marketing is facing its worst crisis. And Nirmalya Kumar believes business schools are largely responsible for it. The professor of marketing at the London Business School (and the co-director of the Aditya Birla India Centre at LBS) believes that while business is increasingly becoming more cross functional and process led, B-schools continue to be mired in narrow functional specialisations with Ph.D. students encouraged to take up narrow niches that make little sense to practising managers. Kumar has just written a new book, Marketing as Strategy (published by HBS Press), on why marketing is losing its influence and how it needs to rethink its role. Excerpts from an exclusive interview.

• Isn't it ironic that at a time when every organisation is striving to be customer-focused, marketing suddenly finds itself mired in a mid-life crisis?
  
  The interesting thing is that the people in marketing were rising as sales grew dramatically, because marketing was delivering the goods. Now, most of the western developed countries like Europe, Japan and the US are slow growth economies, so it's much harder to get sales growth. Once the sales growth died down, the marketing department's importance went down - even in those companies that wanted to become more customer-focused - and the operations, re-engineering and finances, the cost cutting and cost optimisation became more important.
  
  The second reason was that pricing power declined dramatically. Companies can't grow if they can't hike prices. So the combination of the fact that the market was not growing and the pricing power was lost meant that sales growth was less than robust. So even though you'd assume that it's the marketers who interpret the customers for the company, in the end their fortunes are linked to sales and sales growth.
  
  In India, you might find that marketing managers have more power just because sales is growing very fast in the country. So you need to attract new customers, new users and new products. That's very much in the growth mode. So, whenever we are in the growth mode like in the 1950s and 1960s in the US, the power of the marketers is high.
  
  
• If marketing is now all-pervasive in the organisation and it is everybody's job to be customer focused, do we really need a marketing department?
  
  Yes, even if you think about the big 'M', which is marketing as a concept, where you interpret customers' needs and create value, that is everybody's job. The small 'M', which is decisions like product, place, price, and promotion, still has to be made. You need a marketing department for that. So the big M is increasing in importance and the small M is declining. That is where the diversification is taking place. Unfortunately, the marketing department is more addicted to the small 'M' than the big 'M'. I'm saying that marketing should be more concerned with the big 'M' too.
  
  
• So what should the new role be?
  
  The old role was to determine the kind of promotions one should have, what advertising one should have, how much advertising, etc. The new role would be more about the transformation that I'm talking about in my book: how do you go from a company that sells products to one that sells solutions - because you can't make money selling products anymore. How do you move from a company that looks at brand creation and acquisition to brand consolidation? In the end, that's not a decision for the marketing department alone, but for the entire organisation. How do you move from the channels of today to channels of tomorrow? How do you go from developing brands based on incremental innovation that is based on customer feedback to radical innovation based on creative leaps? Those are the kind of things that are really the big 'M' of the story, making the entire company customer focused, and then trying to do an organisational transformation. That is going to be the big challenge for marketers because marketing people generally don't have the skill. Business schools don't train marketers in those issues because these are cross-functional issues; these are more strategic issues, bottomline oriented, none of which are particularly considered marketing strengths. That is a huge challenge. The challenge is: how can we get the marketers to perform strategic and cross-functional roles, so that they can lead the big 'M' organisation transformation?
  
  Now if marketing is everyone's responsibility, then it can be nobody's responsibility. Even if it is everyone's responsibility, you still need to have someone co-ordinating in the organisation. Being market oriented, being customer oriented, we need to understand very clearly who the customer is. Define very clearly, across the organisation, how we can create customer value. If I have a value creation model which is based on price premiums and better service and say 'no' when a customer asks for a lower price, it means that I either don't have the right customer or the right value proposition. Being customer oriented means you have a very clear insight into who your customer is, and what the value proposition is that you have created for them.
  
  
• How are all these changes impacting the marketing director's position within the firm?
  
  

  End of an era If you want a striking example of how marketing power is shifting, look closely at the crisis facing the global consumer product goods (CPG) industry today. Kumar reckons that ever since P&G invented the brand management system in the 1930s, the CPG industry has never had to face the kind of dramatic changes it is undergoing now. For a long time, firms like P&G, Unilever and Nestle enjoyed huge pricing power because they could dictate terms to the mom-and-pop shops they sold to. But now, their customers - the retail chains - have consolidated and become global. For instance, the top 10 retailers today account for 40 per cent of P&G's revenues worldwide. In another 10 years, they will account for 65 per cent of revenues. "Now when 10 customers account for two-thirds of your revenue, they basically tell you what to do," says Kumar. P&G is no more capable of telling the retailer what to stock, what promotions to run, what prices to charge, and they are definitely not telling the retailer that they are going to increase prices. That's forcing them to re-organise the entire corporation. "They realise that the only thing on which Wal-Mart and Carrefour can't compare prices ,and haven't sent out for private labels, are new products," explains Kumar. So that's how innovation becomes priority number one. But then, driving radical innovation inside a 167-year old company is hard as hell. Also, if you can't increase prices, the CPG companies are realising that it is imperative to keep costs under control. And the costs are in administration. That means dismantling the huge country management structure and all the myriad divisions. These changes are also putting an end to their arrogance. Till now the CPG firms never looked at retailers as their intellectual or social equals. Says Kumar: "P&G managers would maintain that these aren't people you would sit down and have dinner with. We simply sell to them. Suddenly they find out that all their MBAs from the top schools were being run around by these retailers, who would suddenly turn around and say wait for us, we'll give you the appointment!"

  The current breed of marketing leaders, for the most part, don't have the CEO's ear. In board meetings, we don't spend that much time on marketing, compared to how much we spend on finance. If you go to any company today, you'll find that the amount of time spent on marketing is not enough, partially because marketing doesn't have the CEO's ear, and also because they do not have the same strategic orientation. CEOs are under a lot of pressure to deliver results. So the old spend mentality is not really appreciated much by the CEO. Every conversation that the CEO has with a marketing person is about the latter asking for more money and more resources. Then obviously, as a CEO, you avoid the conversation rather than seek it. Compare that with the finance guy who says: "Listen, I'll tell you how to increase profits." Unless, we can change our conversation to: "If you give me this much money, I can deliver these results for you and this enhanced profitability and this price premium..."
  
  
• But you also mention that the RoI (return on investment) approach to marketing isn't the way to go...
  
  While marketers have to be more bottomline oriented, it is true that you can't measure the RoI of every single marketing activity. If you start doing that, you cut out all the long-term investment activities like brand building. You will focus on short-term activities like promotions, for which you can show a RoI. So, while overall we need to be more RoI oriented, we need to explain to the CEO that there are two buckets of expenditure. There is one concentrated on getting the short-term results and another where the focus is on short-term indicators like brand awareness. The financial indicators will come 12-18 months from now.
  
  In brand building, here are my intermediate measures and here are my long-term measures. But you can't say that for brand building - you don't know what the RoI is, so you can't keep a track of that. Now since promotions you can track, let's do that. Then the CEO looks at that and says let's do more promotions and less brand building.
  
  In brand building, within 3-6 months, I should be able to see improvements in awareness, preference and liking. And in 8-9 months, I should see an improvement in market share. In 12-18 months, I should see a profitability increase and price increase. So that's how we should be able to do it. We have indicators for both activities, even though there won't be any immediate three-month RoI.
  
  
• Do you see any organisations moving over to this new way of working?
  
  We are starting to see companies like Diageo go along this kind of format.
  
  
• So what are the metrics they have worked out for themselves?
  
  There are three levels of metrics: brand measures, customer measures and financial measures. Brand measures relate to brand awareness, knowledge, instant recall, top-of-mind awareness, etc. Customer measures are all about customer loyalty, preference and liking. Financial measures involve market share and profitability.
  
  
• How does this way of working insulate the marketing person from the short-term quarterly pressures?
  
  It does insulate you from the financial pressures as financial measures are looked at 18 months from now, whereas customer measures will be looked at six months hence, and the brand measures three months from now. But the fact remains, you should not be insulated because you have to be accountable.
  
  
• Aren't you absolving CEOs who force marketers to go for short-term targets?
  
  CEOs are not absolved of any responsibility, because they have to buy into the first argument that the expenditure will bring financial results 12-18 months down the line. We have to explain to them why the intermediate indicators are important.
  
  
• But do you believe that CEOs are getting this message?
  
  I think the CEOs who have made it to this level are willing to buy it. But they will only buy it once or twice. If you can't show the long-term indicators, they will not buy it again. What they lack from marketing is the analytical thinking and detail oriented thinking. Marketers tend to say that this is brand building, and, therefore, we cannot show any indicators. That's the conversation CEOs don't want to have. But if you are willing to go in with a logic and the kind of measures that I outlined, then they are willing to buy it.
  
  
• Why did marketing go down that path in the first place and refuse to be accountable for results?
  
  To an extent, it is an outcome of our success. Because when there was growth, marketing could deliver the numbers all the time. People could justify spending more and more money as there was a clear connection between the two. Once that phase stopped, accountability increased and the connection dropped. That's when marketing's credibility also dropped. And CEOs began to fund short-term stuff. The challenge is to now re-educate the CEO. It may not be possible to educate some CEOs. Managing your employees is important, but managing your boss is more important!
  
  
• Leveraging the transformative power of marketing is easier said than done. Why are established companies so slow in developing and managing radical innovation?
  
  

  Sting attack The decline of mass marketing and the fragmentation of mass media is forcing marketers to seek other ways to get to the consumer. Kumar calls it 'guerilla marketing'. Last month, while consulting for a leading telecom firm in Europe, he worked out alternative forms of marketing for an event. A Sting concert was the testing ground. Usually at concerts, most spectators fish out their lighters and light them up during the last song. "So when the last song was being played at this Sting concert, some 200 of us stood together and put up our mobile phones, called up our best friends and told them to listen to the last song," says Kumar. Very soon everyone caught on. "Once everyone at the stadium began using their phones, imagine the kind of usage it would have triggered," says Kumar. That's the kind of creative thinking required - but for that, you simply got to know who your customers are, says the don.

  The process for new product development in an established company is such that to get funding for it, you have to show that there is a market and you have to show there is a technology.
  
  Now if there are 10 ideas competing for the same money/support, only five are going to be funded, the ones that are going to be able to show the market and technology feasibility the easiest, are the ones that are about incremental innovation, rather than about radical innovation. Every time incremental innovation wins out over radical innovation. The other more well-known reason why radical innovation stops in established companies is that launching it usually means cannibalising an existing innovation or existing markets. Most companies are too scared of cannibalising themselves. So, rather than keep all the cannibals in the family, they let someone else to cannibalise them.
  
  The companies that do it the best - like HP and Sony - allow new divisions to be set up which could well cannibalise existing businesses. Now, in any company, you need both incremental and radical innovation. But for an idea to be approved, you have to go through several layers and you have to get a 'yes' at each level. The more radical the idea, you will get one 'no' at any level, which means the idea is scrapped. But if you look at entrepreneurs, they get hundreds of 'nos', but only one 'yes' gets them to launch an idea. So how to convert the process from where one 'no' stops an idea to where one 'yes' makes the idea go through?
  
  3M's strategy is that if your boss does not give you approval for the idea, you can go to anyone else in the company for funding. So if someone else says 'yes', my idea will go forward.
  
  
• How do you ensure there is no chaos?
  
  Radical innovation is very chaotic. You fund hundreds of ideas, and one gets successful. But what you don't want to do is to bet the company on any one idea. Radical innovation is about giving a lot of people a little amount of money to try a new thing, like venture capital. But the worst thing you can do for radical ideas is you overfund them. When you overfund them, we tend to try to make them perfect the first time. Instead of launching a prototype, getting the feedback and improving it.
  
  
• Where should companies look for radical ideas?
  
  

  “The current breed of marketers don’t have the CEO’s ear”

  The thing with radical ideas is that they tend to be individualistic. Some individuals have those ideas. So we need to have competition within companies, where we allow these radical ideas to develop. We're not going to have radical ideas at the top of the organisation, they'll always be at the bottom. Companies like Nissan and Toyoto have set up systems where every year they have an entrepreneurial competition asking for radical ideas. They have a channel to funnel the most innovative ideas directly from the bottom to the top. Externally, you should look at small entrepreneurs and see what they're trying. Look at the fashion industry. If I'm looking at the men's fashion, it comes from the gay community. So I have to go to the gay bars and see what people are wearing, because that's really where fashion ideas come from. So every industry you have to find out the customer sniffers - those people who have a nose for the next big thing. Find them and talk to them.
  
  
• Any interesting examples?
  
  Consider Nokia. They came up with this entire 'ringtone' idea based on bars. They went to these hot discotheques and bars. The biggest problem in the bars was that the moment the phone rang, everyone ran to get it, simply because they didn't know whose phone it was! So, now everyone could design their own phone rings.
  
  
• What can marketing research (MR) do to bring in new knowledge about consumers?
  
  Marketing research has always been about testing whether an idea works or not. What MR is not very good at is trying to 'educate' them. This is why I call it 'market-driving' and not 'market-driven' because it's not so much learning from the customers as teaching them. It's not so much about being driven by the market as driving the market. With technology, customers can easily see the benefits of incremental innovation, but have a difficult time seeing the benefits of radical innovation. So the only way you can test radical innovation is by launching and learning. You have to launch in a small way, launch to who you think are going to be the customers, launch to who you think are at the bleeding edge of the marketplace. Launch and get feedback quickly. That's the only way to do it. So the MR process changes to one of 'plan and then launch' to 'launch and learn'.