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+++ S P E C I A L R E P O R T +++
"Selling Is Dead: The Theory And Practice Of Demand Marketing"
By Ed F. Paxton , Marketing Strategist
Chimborazo Light & Power Company
August 16, 1999
 
Moderator's Comments


Hi All:

I want to thank Ed Paxton for writing this report. Ed is an expert marketing strategist, with whom I have had the pleasure of working. And, to be sure we all know him, I did an interview with Ed. I am certain you will gain something from this report. I did. We are honored to have such talent available on E-Tailer's Digest.


George Matyjewicz, C.M.O.
Moderator, E-Tailer's Digest

-------------

 

C O N T E N T S



The following is an introduction to "Selling Is Dead: The Theory And Practice Of Demand Marketing," a work in progress by Ed F. Paxton with Anne Greer and may not be copied in part or in whole without the permission of Ed F. Paxton.

Selling Is Dead: Demand Marketing is Born

The Way It Was

Back in the 70s, writers, art directors, and designers wore wide ties to work, and Nixon was president of the United States. A technological shift was taking hold of the advertising industry at that time, as offset printing, photo-typography, photo-engraving, and videotape began to replace letterpress, not type, copperplates and film - the tools that advertising and promotional professionals had been using for more than half a century.

Ad executives were reared on the pronouncements of two of the great marketing minds of the period -- David Ogilvy and Leo Burnett - Ogilvy´s philosophy/Burnett´s process.

Advertising folk were not much bothered by database management or marketing plans.

In those primitive days of T-squares, gluepots and typewriters, before FAX machines, cellular phones, desktop publishing, and personal fitness programs, ad folks just sat down in front of a drawing board or a blank piece of paper, and worked their magic. The client wanted only one thing: Sell product! Sell it to as many people as possible - as fast as possible.

A Shift

The system worked pretty well and without much self examination until a team of advertising archaeologists, Jack Trout and Al Reis, dug up 10 years worth of the world's best ads and discovered "positioning."

Imagine Trout and Reis, dressed in khaki shorts, wearing pith helmets, gazing at an ancient cave painting of a Volkswagen with the words, "Think small," scratched in the rock. We were all ready for a discovery. And, we got one.

The Trout/Reis discovery introduced the "positioning" concept. These words were first published in a series of articles in Ad Age and then published in their landmark book, "Positioning: The Battle For Your Mind." In the introduction of their book, they say clearly, their theory was shocking. "Positioning has nothing to do with the product, . . . [it] is what you do to the mind of the prospect." And, Trout and Reis give us formulas to work with still good reading. This way of looking at the marketing process caused all advertising and marketing professionals to stop and ask, "Does some kind of 'science' actually lie behind all this magic we've been doing for (or to) our clients?"

One aspect to "positioning," as well as a key to the "marketing warfare" methodologies that came out of "positioning," is the notion that there IS, in fact, a science behind the development of marketing strategies that facilitates the directing of marketing programs at specific target audiences.

A few veterans fought hard to maintain the magical "good old days," but increasingly, Account Executives and even Creative Directors began to come to presentations with "marketing warfare" slides in their carousels and the philosophies of Sun Tzu in their hearts, his words on their lips. For those unfamiliar with Sun Tzu, he was a 5th-century BC, Chinese poet and military strategist whose "The Art of War", has been taught in military schools all over the world for centuries (first translated by James Clavell while he was researching King Rat). "The Art of War" inspired an entire system of marketing metaphors, and has shown up in a Hollywood movie.

In the late 80s marketing and ad folks were again reminded of some basics when marketing strategists began to re-focus on "brand image" and "brand management." Neither methodology had disappeared, but they had not been closely examined in decades.

However, the message of all of these different approaches - "positioning," "marketing warfare," "brand management" -was, nevertheless, always the same simply put: "Sell something."

But change was on the way.

Another Shift

Beginning in the mid-80s and continuing through to the 90s, advertising went through a technological revolution (re-tooling, and trying to avoid, re-training). Desktop Macs replaced type houses, printers, and mailing services.

And then, Don Pepper wrote "The One-To-One Future," which challenged ALL methods.

The "one-to-one" approach asked the marketing strategist to stop thinking about buyers as a group with geo-demographic characteristics, and instead, to view the buyer as an individual -- an individual looking for a relationship. The "One-To-One" marketer establishes a relationship with the customer first, and then provides goods or services to the individual as the relationship grows. The concept of the "life-time" customer comes out of this approach.

In the meantime, however, many marketing professionals had begun to lose patience with all of these theories about marketing. They began to observe a disturbing phenomenon.

NO ONE WAS PAYING ATTENTION TO ADS.

This had nothing to do with the quality of the creative or the production values. It was instead a symptom of a change in the way individuals made purchasing decisions.

For example, a spokesperson for one large buying segment (the demographic group usually referred to by everyone except themselves as "Gen-X") claimed on NBC news that as a group, they were "immune" to advertising. And their parents (Boomers) were refusing to act their age.

How could this happen?

Worldwide economic and political uncertainty played a role, but those factors have always been with us. The real effects were media driven.

Docu-dramas, soft news, infomercials, advertorials, the long-distance phone wars, telemarketing, and film makers like Oliver Stone made the truth so illusive that today, some media critics seriously doubt individuals really believe anything presented in the media, in the mail, or over the phone.

With caller-ID, call screening, TV remote control, web-based newsreaders, and the delete button on the e-mail browser, many modern consumers can virtually eliminate even the opportunity to be sold to. But that's not all. There are 4 powerful changes in the way markets work: * Re-tribalization * Disintermediation * Media proliferation * Mass personalization

In this context, creators of marketing and advertising messages face a crisis. What message will persuade consumers to buy products and services? Worse yet...what messages will get through to the consumer?

What will sell?

My answer? Not much!

What Next?

To find a solution to the problem of the death of selling, I decided to go back to basics. Not marketing and advertising basics, but the basics upon which economics and commerce were founded. It was through that process that I began to develop a process.

Selling was dead, but Demand Marketing¨ was born.

What is Demand Marketing¨?

Demand Marketing¨ relies on the validity of three assumptions: 1. In a business transaction of any kind, the individual at the purchasing end of the transaction is in control of the decision to purchase. 2. The purchase decision is based upon the purchaser's belief that the benefit to the purchaser is greater than the cost of goods or services being purchased. 3. Demand precedes supply.

A Demand Marketer offers products and services ONLY to individuals or decision- makers who have been identified to be ready and willing to purchase a product or service - now.

This is not a new concept. In fact, it might better be described as natural law -- part of the dynamics of socialization that formed the way earliest mankind engaged in commerce. However, it was not until relatively recent times that these principals were first examined and documented.

Back to the basics

Adam Smith, political economist and moral philosopher, after spending nearly three years among the intellectuals and scholars of France, returned to Britain in 1766, and began working on his Wealth of Nations, which was published in 1776.

Smith theorized that the basic value of goods or services was tied to the amount of labor required to produce those goods or to deliver those services. He further observed that because no one has the time to produce everything that is needed, members of a society tend to specialize in the production of goods or the delivery of services for which they are specifically suited. They then barter the surplus results of their labor with other individuals who provide different essential goods or services.

Corollary to Smith's theory, therefore, is the observation that one must find someone to barter with, who has something of value to the bartering initiator. The concept suggests that if no one wants what you make, you will not be able to get what you need in exchange.

Demand Precedes Supply

Based on this 18th-century theory of how commerce happens, "Demand Marketing¨" may at first appear as an alternative way to express "target marketing." Demand Marketing¨, however, goes a step beyond. Not only does the Demand Marketing¨ approach "target" an audience, it requires a further commitment to narrow the audience exclusively to purchasers who are predisposed to buy now. This commitment is grounded in the fundamental principles of Smith's laissez-faire economics.

If no demand exists, supply is irrelevant.

If a marketing professional closely examines the implications of the theory that "demand precedes supply," it becomes clear that unless an individual wants (demands) a product or service, it is a waste of labor and marketing resources to try to sell (supply) it to him or her. Traditional advertising professionals attempt to convince buyers that they cannot live without a particular product or service. By contrast, the Demand Marketer applies the concept, "demand precedes supply" and offers a product or service only to those individuals who are predisposed to buy.

What are the consequences of Demand Marketing¨?

Persuasion as a selling technique becomes obsolete.

The demanding customer identified by the Demand Marketer has no need to be convinced that the product or service is desirable; persuasion is no longer required. On the purchase side of the transaction the customer is proactive, and because he or she already has the need and the resources to purchase, it is this customer who sets the rules of the transaction.

Mass media becomes irrelevant.

The traditional "shotgun" approach to advertising begins to look very wasteful. Demand Marketers seek to narrow the scope of media activity and to direct marketing messages exclusively to those who are willing to buy at the present time (or very soon).

Both buyers and sellers benefit from diminished selling activity.

With Demand Marketing¨ the cost of delivered goods may be reduced to reflect any net savings as a result of cutting back the selling activity. In the presence of excess (or reasonable) demand the marketplace sets the value or price of the product. No discounts or rebates are required to drive sales.

Communications reflect a more intimate tone.

The creative messages that marketing, advertising, and promotional agents have typically used to build awareness and to provoke a response to products and services may be softer in nature. Because in Demand Marketing¨, the audience for the message is already inclined to purchase, the content of the advertising and promotional materials is more personalized and feature-oriented.

Information becomes critically important.

In Demand Marketing¨ the responsibility to "sell" (on the supply side of the transaction) is replaced with the responsibility to provide adequate information and mechanisms to the purchaser to facilitate the consummation of barter (the purchase). While the rules for engaging customer attention remain the same (find the most appropriate medium for letting them know you have exactly what they want and are prepared to pay for, and then dominate the media), the purpose is different. Demand Marketers seek access to the customer solely to provide information, not to make sales. The "sale" is already made; only the transaction remains to be completed.

Customers are more likely to learn what they need to know.

Ironically, advertisers have always wanted to talk about the features of their products or services, while marketers have insisted that they concentrate on benefits. In the world of Demand Marketing¨ the purchaser already knows the benefits, and seeks only the assurance that specific features are in place that can deliver those benefits.

Demand Marketing causes a shift in where money is spent.

Money is no longer spent blindly on mass media; much of the advertising investment is instead directed to market research and analysis. The Demand Marketing¨ process requires much more up-front intelligence-gathering than traditional marketing approaches. It begins with the commitment to find complete information about the individuals who already want your product or service. You need their names, addresses, and telephone numbers; you need to know what they read, where they shop, how old they are, what they drive, where they eat, what they do for fun, their number of family members. Primary and secondary research, as well as highly-managed customer databases becomes the driving force. But not behind successfully marketing a product, but behind establishing a relationship with the person who wants to buy the product.

Becoming a Demand Marketer

Look for patterns of behavior.

The old way was to use research to discover the purchasing patterns of geo-demographics sub-sets and then market (sell) into those groups through media aimed at the group.

The NEW way is to use research to discover where DEMAND may be now or in the future. With that information you can then, using secondary techniques like NICHES, identify the individuals who demand the product.

How do you know what patterns indicate demand? HINT: Don't look at what people do, look for evidence that there is a CHANGE in what people are doing.

And you better be ready to find trouble and pain.

And no demand exists when everything is OK. Remember the old joke about the parents with the child who seems to be the perfect baby. Never cries. Smiles at everyone. Sleeps through the night. As the child grows older, his quiet ways become a source of worry. No attempts to say "Mama" or "Dada" and, in fact, at two years of age, when most children are experimenting with rudimentary attempts at language, the perfect child has yet to speak a single word. Doctors of all kinds are consulted, and each concludes that nothing is physically wrong with the child - nothing to explain his lack of speech.

Finally one day as the parents pass the nursery, a voice screams, "COOKIES. I WANT SOME FUCKING COOKIES." The parents rush into the room, tears of joy streaming down their faces. "You can speak!" As their excitement passes, their curiosity takes hold, and the mother asks, "After all these years, what inspired you to begin to talk?"

The child replies, "Well, up until now, everything was OK."

A change in the pattern of behavior indicates the presence of demand - demand inspired by the fact that something is NOT OK.

In Demand Marketing, when looking for patterns of behavior that could indicate the presence of demand, it is important to look for evidence that something is broken, something is wrong, something is missing, people are angry, there has been failure, there is loss of share, loss of power, lack of money, presence of stress, feelings of disenchantment and/or loss of influence. Human beings react defensively when threatened by change in physical, emotional, or spiritual environment. And, when there is a new pattern of human behavior, involving statistically significant numbers to indicate a divergence from typical behavior, it is likely that a current, leading to the discovery of significant demand of some kind has surfaced.

Methodology

Understanding of the importance of finding patterns of behavior as indicators of where demand may exist, you (or the professional responsible for developing your plan) must get to the business of revealing those patterns.

Inquiries and information processing may be conducted in any number of ways, but we believe that one of the ways to ensure demand analysis and deliver marketing recommendations in a consistent and reliable manner, is to establish a fixed procedure for gathering and analyzing information, regardless of the client or the problems.

It is true that each marketing dilemma presents a different set of challenges and opportunities, and that more emphasis can be placed on one technique than another in any specific situation. By sticking to an established methodology, however, the full potential for investigation (and conclusion) is established.

The following are the eight steps that we employ in all our marketing assignments.

1. Define the problem.
2. Investigate the environment.
3. Analyze the data.
4. Re-define the problem.
5. Project the ramifications within various scenarios.
6. Recommend the most promising strategies.
7. Implement the strategies. 8. Verify the results of recommendations against
the objectives of the original assignment.

Examples of Demand Marketing:

Most target marketing approaches use primary and/or secondary research to narrow the target to the "most probable" audience, within which there are likely to be customers.

In a Demand Marketing¨ environment, the market strategist integrates the use of statistical data (quantitative data about the market at large) with actual household information. The result is the identification of individual customer households who are already ready, willing and able to purchase your product or service.

1.    The Jefferson Hotel/American Express
2.    Pulse Fitness Centers

1. The Jefferson Hotel/American Express

The case study that I most often use is the one for The Jefferson Hotel -- a 5-diamond, historic hotel in downtown Richmond.

Using the American Express database of card use, we asked for the names and addresses of persons who had 1) traveled by air to Richmond more than twice in the last 18 months, 2) arrival and depart date in Richmond on any day other than a Friday or Saturday, 3) had charges of at least $250 each day for more than two days and 3) had NO charges in The Jefferson Hotel. The subsequent list contained only business travelers to Richmond who spend a lot of money but not at the Jefferson -- the perfect Demand Marketing¨ target audience because they are currently already buying what we sell, but not from us. We did a direct mail program into the audience where we got a 10% response without using an incentive.

2. Pulse Fitness Centers

Another that I use is for Pulse, a chain of fitness centers in North Carolina, one location near you. Our assignment was to identify additional, not-dues/fee profit center potential for the centers.

In this study, we examined their 6000 person database of members and compared it to the information in SmartMarket (the Steve Toler connection). The results was a very detailed customer profile of the kind of people who are members and a ranking of other products and services that they also buy. Then we went into a database of homes within a 5-mail radius of each center identifying only the households that fit the "customer profile." Using Primary research, we tested various new product ideas with actual customer types and prioritized the options. Then we took iMarket (list of business) and identified the businesses who offered these non-fitness products and services for the purpose of creating strategic alliances and affinity products with them. Unfortunately, the client has dropped the ball. Nothing has been done since the study.

###

An Interview With Ed F. Paxton

Today we have an interview with Ed F. Paxton, Marketing Strategist. and author of today's special report. I have known and worked with Ed for three years, and can attest to his ability.

1. What is your name and title?

Ed F. Paxton, Marketing Strategist.

2. What is your organizations name?

I have two organizations, Chimborazo Light & Power company is my Demand Marketing consultancy. We empower and enlighten our companies. My DC based partnership called Cantus Firmus Marketing targets the executive suite with marketing and PR planning, products, training, and services.

3. What does your company do? (Elevator speech: "You are about to enter an elevator in the Empire State Building going to the 62nd floor. On steps a prospect you have been trying to sell for months. You have approximately 90 seconds. What are you going to say?")

By starting with Demand Analysis -- "who already wants to buy what you want to sell," we guide our clients into a marketing planning process that ignores mass marketing tradition in favor of ROI based planning. If you love the way your ad agency works, you'll hate us.

4. What is the benefit of using your products or service?, i.e., what can I hope to accomplish if I use your company?

Fresh creative approaches that abandon traditional and wasteful use of marketing and PR investments.

5. Tell me three things that differentiates you from your competition?

Because we come out of Creative and PR backgrounds with our projectable data planning processes, we can understand "both sides of the brain."

6. Who is your typical customer? (i.e., single store retailer, businesses doing $75-$300 million, etc.)

Although we started with B to B clients, we have extensive connections in consumer oriented enterprises like nutraceuticals, organic coffees, shopping destinations, travel and tourism destinations, financial products, health care, imported furniture, high-concept furniture manufacturing, and web-delivered services.

7. Where do you sell your products or services (territories)?

Most of our clients are located between DC and Miami -- some in Denver and Texas. We have specific business activity with East African companies and some South African companies, as well.

8. Who started this business and why?

Ed Paxton started this business because he got tired of working with bad creative briefs that had no knowledge of basic marketing theory and practice.

9. How long has the business been in existence?

30 years in marketing, this business for the past 10 years.

10. How large is the business (either annual sales volume or number of employees)?

This is a consultancy that keeps me comfortable and pays the bills. I'm in it for the action, not the bucks.

11. How do you market your products or services? Word of mouth? Newsletter (subscribers)? Affiliates? Ads?

Networking through associations, strategic alliances and heavy activity in on-line communities.

12. What is the cost range of your products or services? Please give us some typical examples, i.e., for a business doing $10 million annually, it would cost $x.

A typical business plan may cost from $15,000 to $80,000, depending on the scope of the project and the amount of research expenses associated with it. Some a la carte services cost as little as $1500, with training retreats of several flavors as low as $5,000.

13. How do I sign up?

E-mail works for me. Check http://www.chimborazo.com for product details.

14. Other comments.

Whether selling directly to consumers, or part of the service/manufacturing chain, the single most important advice that I can give any business person is to look at who (and where) the next generation's new consumers will be, and adjust your marketing plan with them in mind. This means a major adjustment for US companies -- the rest of the world is ahead of us.

Ed F. Paxton <mailto:epaxton(at)chimborazo.com>
Chimborazo Light & Power Company
A Marketing Research and Analysis Utility Firm
Check out our Marketing and Advertising Books
http://www.chimborazo.com/page/books.html
202 North 32nd Street * Richmond VA 23223-7512 US
804-226-6901 or toll free at 800-761-9059
FAX 804-226-6458 * cellular at 804-513-5227
http://www.chimborazo.com

###


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