The Four New Ps of Marketing That CMOs and CIOs Should Consider

G00227185 The Four New Ps of Marketing That CMOs and CIOs Should Consider Published: 18 May 2012 Analyst(s): Kimberly Collins Four new Ps of marketing align people and processes across the marketing ecosystem, measure marketing performance, and transform marketing to a profit center. To ensure longevity, CMOs will need to adopt these four Ps during the next three years, working with CIOs to implement enabling technologies. Key Challenges Marketing organizations must continue to manage the original four Ps of marketing product, price, placement and promotion. Growing complexity makes it imperative that CMOs align people and automate processes. CMO longevity will be dependent on the ability to manage the four new Ps: people, processes, performance and profit. A focus on accountability emphasizes the need to measure and optimize performance, ultimately transforming marketing to a profit center. Recommendations Understand what the four new Ps mean to your marketing organization for collaboration, knowledge management, process re-engineering, marketing optimization, and increased accountability and clout. Determine and document the impact of aligning people, automating processes, measuring performance and analyzing return on marketing investment (ROMI). CMOs should work with the CIO and the IT organization to select integrated marketing management (IMM), marketing resource management (MRM) and analytical technologies that will support the four new Ps.

Analysis In 1960, E. Jerome McCarthy proposed the four Ps of marketing: product, price, promotion and placement. In 1993, Robert F. Lauterborn transformed the four Ps into a more consumer-oriented model that emphasized consumer, cost, communication and convenience as the four Cs. Today, these still remain a large part of the educational curriculum for marketing-related business degrees at leading business schools and M.B.A. programs. The four Ps are still important and continue to be the core of what defines a marketing organization. However, to be successful in the new age of marketing, CMOs must add four new Ps to the list: people, processes, performance and profit. These four Ps enable marketing organizations to manage increasing complexity (people and processes) and to optimize marketing outcomes (performance and profit). The complexity of marketing has grown tremendously during the past 20 years, with new channels (Web, email), new media (social), new devices (mobile, via smartphones and tablets), new marketing techniques (event-triggered marketing, real-time offer management/inbound marketing), the widening impact of marketing on customer service (next-best offer, voice of the customer) and sales (lead management), and the rise of customer power due to technical sophistication and social media. The advent of each of these new areas typically means a new function or silo in the marketing organization, often with new participants external to the company (e.g., interactive agencies, marketing service providers) broadening the scope of the marketing ecosystem. At the same time, CMOs and marketing leaders are under increasing pressure to be more accountable, reduce marketing waste, optimize resources for the marketing mix and prove ROMI. New software capabilities that support MRM and performance management have come into existence during the past decade, enabling CMOs to transform marketing through the four new Ps that, in turn, allow them to effectively and efficiently manage the increasing complexity of the marketing ecosystem and mix, while demonstrating ROMI. Following, we describe the four new Ps that an IMM strategy can support (see Figure 1). Page 2 of 12 Gartner, Inc. G00227185

Figure 1. Four New Ps of Marketing Align People Make Marketing a Profit Center Automate Processes Measure and Optimize Performance Source: Gartner (May 2012) People The number of participants in the marketing ecosystem continues to grow as the complexity of marketing continues to increase (see Figure 2). Internally, marketing is a complex organization with multiple roles and functions that support database marketing (campaign planners, business analysts and channels, as well as acquisitions, retentions, cross-selling, customer segments and product teams). The creative side of marketing includes marketing operations directors, brand managers, creative planners, marketing communications/pr, advertising and media planners. To further complicate marketing, processes are often not solely contained within the confines of the marketing department, but reach into other parts of the organization, such as e-commerce, sales, field marketing, the contact center and compliance. Marketing processes also extend beyond the enterprise to marketing service providers, third-party data providers, market research firms, creative and interactive agencies, PR agencies, and print shops. Globalization and central versus local marketing initiatives have further isolated marketers from working effectively together and sharing knowledge. Customers are also becoming a powerful voice in the ecosystem via social networking and media. Gartner, Inc. G00227185 Page 3 of 12

Figure 2. The Growing and Complex Marketing Ecosystem Partners Customers Creative Agency Contact Center Sales E-Commerce Marketing Services Providers Interactive Agency Field Marketing ERP/ Supply Chain CMOs/Marketing Ops Database Marketing Creative Advertising Product Mgmt. Brand Owners Third-Party Data Vendors PR Agency Finance Compliance Procurement Market Research Firms Print Shop Source: Gartner (May 2012) Aligning people across the marketing ecosystem is important to strategic marketing and planning of the marketing mix, and allocation of resources (people and budgets) to programs, segments, campaigns and channels/media. It is also important to ensure the consistency of marketing messages and to avoid overcontact with the customer, thus strengthening the customer experience. Sourcing the right skills and utilizing the best agencies and vendors to support marketing initiatives is critical to driving highly effective marketing campaigns and programs. Virtual collaboration in an efficient and effective manner is becoming increasingly important to reduce cycle times. Knowledge sharing enables marketers to learn from one another what works and what doesn't, and to improve marketing techniques. IT provides support and technology enablement, with marketing operations directors and marketing IT project leaders becoming key foundational components of this ecosystem. Many IMM solutions enable people alignment across the marketing ecosystem by providing workspaces as well as collaboration and knowledge management capabilities. IMM also enables companies to manage communication across multiple channels and media. This should include not only employees within the marketing organization, but also participants in other essential business units or those external to the company (e.g., agencies). Page 4 of 12 Gartner, Inc. G00227185

Many MRM solutions enable the assignment of team members based on skills. Some MRM solutions can help manage, measure and ensure agency effectiveness. Action Item: Determine how to best align people and support collaboration across the marketing ecosystem. Evaluate marketing solutions on their ability to provide alignment, workspaces, and collaboration and knowledge management capabilities across the marketing ecosystems. This should include not only employees within the marketing organization, but also participants in other essential business units or those external to the company (e.g., agencies). Extend IMM globally across all regions. Processes Aligning people for collaboration and knowledge sharing is important, but documenting and automating processes is essential to ensuring effective and efficient alignment. As the complexity of marketing increases, process becomes important to align the appropriate people with the right marketing activities, to achieve faster times to market, to allocate human resources effectively and to perform closed-loop marketing. Without well-defined processes for marketing, it is impossible to manage the complexity, measure marketing outcomes and plan strategically. Marketing must define and document processes by each process step for automation, identifying the people and data required to support each phase of the process. Marketing processes are often complex when defined from an end-to-end, closed-loop process perspective that spans executional, operational and analytical subprocesses, but they can be defined more tactically (such as lead management that aligns marketing and salespeople). Most marketing solutions only support a specific set of marketing processes, such as campaign management, creative production management and lead management. Ideally, workflow can be extended to integrate microprocesses into macroprocesses that blend executional, operational and analytical processes. IMM represents the business strategy, process automation and technologies required to integrate people, processes and technologies across the marketing ecosystem. It aligns executional, operational and analytical processes (see Figure 3). IMM supports closed-loop marketing by integrating operational, executional and analytical marketing processes from concept/ idea to planning to resource allocation to creation/project management to piloting to full-scale execution, through to evaluation and analysis. Gartner, Inc. G00227185 Page 5 of 12

Figure 3. Marketing Processes Are Abundant, and Support Execution, Operations and Analytics Outbound marketing Financial management Calendaring Marketing fulfillment Inbound marketing Creative production management Customer feedback Lead management Asset/content management Executional Processes (Campaign Mgmt.) Operational Processes (MRM) Brand management Digital marketing Campaign and offer Budgeting optimization Event-triggered marketing Strategic and tactical planning Media planning Customer value analysis Web analysis Media optimization Propensity modeling Lead analysis Operational performance Campaign/channel performance Simulation/scenario Segmentation Analytical Processes planning Marketing mix optimization Marketing performance management Marketing ROI analysis Market intelligence Competitive intelligence Source: Gartner (May 2012) Action Item: Document and prioritize marketing processes. Look for IMM solutions with robust business process management (workflow and business rules capabilities) that can be extended across the marketing ecosystem and a diverse set of marketing processes. Evaluate visual drag-anddrop capabilities for workflow creation that can empower marketing managers to create and change processes as needed. Performance CMOs and marketing leaders are under pressure to measure the results of marketing campaigns and to demonstrate ROMI. Targeted marketing campaigns, particularly digital ones, have been highly measured, but areas of marketing around creative advertising and traditional media have not been well measured, if at all. CMOs must understand marketing performance across all marketing activities, programs, campaigns and promotions, as well as the interrelationships among them. Too often, performance is not measured in a timely fashion to make changes that will influence positive business outcomes. Performance should be evaluated on an ongoing basis and changes should be made as needed, rather than waiting on annual cycles. Marketing performance management (MPM) is a critical element of an IMM platform, providing visibility into performance, an understanding of that performance and the ability to take action based on that knowledge. Dashboards are becoming increasingly sought after by CMOs (see Figure 4). MPM also enables enterprises to make predictions about customers, markets and competitors, as well as to run simulations on future Page 6 of 12 Gartner, Inc. G00227185

marketing scenarios and scenario planning. Sourcing of data can be difficult for MPM in the areas of marketing that are not automated or where information is maintained with third-party providers, such as agencies or marketing service providers. Gartner, Inc. G00227185 Page 7 of 12

Figure 4. A CMO Dashboard Provides Performance Insights KPIs: Customer Retention: 85% Goal: 90% Budget: Allocated Versus Spent Allocated Budget (millions) Amount Spent (millions) Customer Value by Customer Segment Platnium Gold Silver Net Promoter Score: 2.6 Goal: 3.8 $18.0 $15.7 Segment 5 35% 10% 10% Products/Customer: 3 Goal: 3 Cycle Time: 16 weeks Goal: 8 weeks Cost to Acquire: $22.43 Goal: $18.50 $10.5 $8.5 Mass Media $4.3 $4.5 Digital Media $2.7 $2.5 Targeted Marketing $0.5 $0.2 Promotions Total Segment 4 Segment 3 Segment 2 Segment 1 30% 5% 25% 35% 30% 25% 10% 5% 5% 30% Market Share 10% 5% 15% 45% 25% Company Competitor A Competitor B Competitor C Competitor D Average Response Rates to Campaigns and Promotions Direct Mail Call Center Web Store 45.0% 30.0% 30.0% 30.0% 25.0% 20.0% 20.0% 15.0% 15.0% 8.0% 7.0% 2.0% 3.0% 0.0% 0.0% 5.0% Outbound Inbound Event-triggered Promotions Source: Gartner (May 2012) Page 8 of 12 Gartner, Inc. G00227185

Vendor offerings have been much slower to evolve, although more marketing software vendors have dashboards and plans for MPM in their future road maps. Although more vendors are providing preconfigured dashboards and key performance indicators (KPIs), few vendors offer a comprehensive MPM solution, and most are focused tactically on providing insights into the use of the software application, not into the functional performance of the marketing organization and its processes. System integrators, professional services providers, marketing service providers and agencies are also showing interest in partnering with technology providers to build solutions around MPM, or in enhancing their consulting offerings to focus on key MPM objectives. In addition, there is a growing market of specialty vendors focused on MPM. Many of the smaller, niche vendors in the market have a strong wrapper of professional services around their software solutions. Action Item: Marketing should work with finance and business intelligence (BI), as well as with the IT organization. Determine marketing's strategic objectives, and set KPIs for each. Ensure that people and processes are aligned appropriately toward the objectives and KPIs. Measure performance and make changes as needed on an ongoing basis. Evolve toward more sophisticated simulation, forecasting and constraint-based optimization to support strategic planning of the marketing mix. Profit Marketing has historically been a cost center but, increasingly, it has been challenged to prove that its campaigns and initiatives are driving revenue, and to identify which ones have the highest ROMI (e.g., for all the money that marketing is spending, where is its biggest return or profit?). Once CMOs understand performance and can measure it using KPIs, they must calculate ROMI to determine profit contributions. There are two components essential to calculating ROMI (see Figure 5). First, CMOs must understand the costs of different marketing programs and campaigns, versus their outcomes, to calculate ROMI. Cost data for ROMI analysis can be difficult to obtain if the company has not implemented an MRM solution for financial management. The second component essential to calculating ROMI is attribution analysis or modeling. Some measures of effectiveness have required advanced modeling and attribution of revenue to different channels or marketing steps. Some marketing programs and campaigns provide only softer benefits, such as raising brand awareness or increasing customer satisfaction and loyalty. Gartner, Inc. G00227185 Page 9 of 12

Figure 5. ROMI Equals Benefits Minus Costs Minus Revenue/Benefits Revenue conversion Revenue attribution Revenue retention Customer profitability Media and advertising campaign impact Brand value Customer satisfaction and loyalty Costs Human resources Agency costs Marketing materials Print and vendor costs Media spending/channel costs (execution) Operational costs Source: Gartner (May 2012) Today, ROMI solutions are provided by MPM solutions with a heavy service focus. As MPM solutions mature, these calculations are more likely to mature as well. Action Item: Treat marketing as a profit center. Ensure a good working relationship with the CFO. Establish attribution models to align revenue appropriately across campaigns, channels and media. Implement MRM for financial management to be able to collect and aggregate cost data. Calculate ROMI. Share results with other corporate objectives. Use the results to model the optimal marketing mix. Bottom Line Marketing technology can be a key enabler of the four new Ps. Through IMM, companies can now align and integrate executional, operational and analytical processes across the marketing ecosystem. MRM, campaign management and marketing performance management solutions all support elements of the four Ps. Recommended Reading Some documents may not be available as part of your current Gartner subscription. "Integrated Marketing Management Aligns Executional, Operational and Analytical Processes in a Closed-Loop Process" "Focus on Integrated (Rather Than Enterprise) Marketing Management" Page 10 of 12 Gartner, Inc. G00227185

"A Marketing Analytics Framework for CMOs" "Applying Pace Layers to Marketing Processes and Applications" "Twenty-Two CRM Marketing Insights to Consider for the CMO Dashboard" "Role and Responsibilities of the Marketing Operations Director" "Six Types of Providers for Marketing Performance Management" "Four Technology Design and Deployment Options for Creating an Integrated Marketing Management Solution" "Findings for the Marketing Performance Management Workshop at Gartner's Customer 360 Event" "Top 10 Marketing Processes for 2012" "How to Establish Key KPIs for the Top CRM Marketing Processes" "Marketing Performance Management: A Hierarchy of Analytic Applications and Tools" "Marketing Performance Management Applications: From Reporting to Optimization" Gartner, Inc. G00227185 Page 11 of 12

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