Listening: A Strategy and Change Blog | Hosfeld & Associates

This article is one in a series of reports about the Spring 2010 Journal of Public Policy and Marketing special edition on Stakeholder Marketing. See an introduction to and a summary of our coverage of this edition here.

By Kathleen Hosfeld

It’s virtually impossible to be a Triple Bottom Line business without practicing stakeholder marketing.  Adding social and environmental outcomes to the traditional financial bottom line almost invariably involves engagement with stakeholders other than customers, employees and owners.  As a result, Triple Bottom Line firms are a source of insight concerning what stakeholder marketing looks like.

Hosfeld & Associates’ academic partner, Jennifer Mish, Ph.D., a professor of marketing at Notre Dame, contributed the article “Principle Based Stakeholder Marketing: Insights from Triple Bottom Line Firms,” with co-author Debra Scammon to the special edition of the Journal of Public Policy and Marketing. The article is based on her doctoral research of firms who had operated with at least two bottom lines for at least 15 years and three bottom lines for at least 5 years (some had done so for more than 30 years).

Such firms inherently recognize the interconnectedness of stakeholders, what we call “taking a systems perspective.” Moreover they are committed to acting in service of the well being of the system as a whole. This translates to a commitment to transform industries and institutional norms, reinventing how business in their industry gets done, and tending to the needs of the weakest or most vulnerable members of the system.

The firms Jenny interviewed use value propositions in a unique way. In traditional settings, a value proposition is used to clarify the benefit created for a target customer.  The value propositions adopted by these Triple Bottom Line firms however define how the company and its customers together will create benefit for other stakeholders in the system (for example, offering a recycling program that helps them co-create benefit for the community and the environment).

Jenny’s article describes three elements of a Principle-Based Stakeholder Marketing Model:  1) a set of principles which support  2) the organizational culture which then in turn supports 3) specific stakeholder marketing practices.  The practices include 1) generating stakeholder-related intelligence,  2) disseminating the intelligence, and 3) responding to the intelligence.

Her article includes implications for public firms, some of which apply to many organizations – public, private or non-profit — that may be seeking to adopt a stakeholder perspective. A stakeholder orientation will increase the complexity of decision-making, may be difficult to measure, may unsettle single-bottom-line expectations, may expose the firm to reputation risks, and may challenge perceived legal constraints.

This article brought me back to another in the Special Edition, an essay by Gregory T. Gundlach and William L. Wilkie on why the term “stakeholder” was omitted from the latest iteration of the American Marketing Association’s definition of marketing in 2007. The essay makes the point that stakeholder marketing is less a set of specific tactical practices – like green marketing – and more a marketing management perspective or a marketing philosophy.   Jenny’s article may leave the practitioner hungry for answers to the question “How do I do stakeholder marketing?” Yet, it rightfully sets the context for how marketing and other executives should think about marketing from a stakeholder perspective.

This article is one in a series of reports about the Spring 2010 Journal of Public Policy and Marketing special edition on Stakeholder Marketing. See an introduction to and a summary of our coverage of this edition here.

By Kathleen Hosfeld

Bhaskar Chakravorti, a senior lecturer at Harvard University and a partner of McKinsey & Co. writes in his article “Stakeholder Marketing 2.0” about one contribution that social media marketing can make to stakeholder commitments in marketing.  Marketing with customers rather than at them is one of the paradigm shifts that occur in the movement to a stakeholder perspective.

In a traditional setting, he writes that “the intended targets (customers) did not have the opportunity to interact with decision makers; provide feedback; and influence the product, the experience or the brand in an ongoing manner ….Consumers were downstream participants and suppliers, partners or employees played their respective roles upstream.”

What social media marketing tools allow companies to do is to create manageable forums for interaction – what Chakravorti calls “harnessing distributed intelligence.”  Specific examples of “crowd sourcing” that he cites are Dell’s Idea Storm for external stakeholders and EmployeeStorm for internal stakeholders, Starbucks’ MyStarbucksIdea.com, Mujii Awards and Staples Invention Quest.

Chakravorti describes five characteristics of desirable social network solutions for stakeholders – by which he means primarily customer and employee stakeholders. Chief among them is an emphasis on encouraging diversity of participation, making the decision-making model for the company clear in the design of the system, and preventing the potential for manipulation such as minority coalitions campaigning to create greater weight for their ideas in the system.

Chakravorti notes that research has not yet proven that utilization of these ideas results in better financial performance or enhanced stakeholder marketing outcomes. Given the overwhelming curiosity that business has in social media networking, I doubt that this caveat will deter any company of a size from investing – and perhaps considerably — in designing social media programs like Starbucks’, Dells’ and Staples’.

By Kathleen Hosfeld

I’m a fan of perspectives that make sense of seemingly conflicting points of view. This is why I love PEAK: How Great Companies Get Their Mojo From Maslow by Chip Conley.

Conley, owner of the Joie de Vivre boutique hotel chain in California, writes about his own and others’ experiences in cultivating deeply satisfying relationships with employees, customers and investors (this book is a very readable compendium of stakeholder marketing ideas). His stakeholder strategies ultimately contributed to the survival of his company in the travel industry meltdown following 9/11. He based his methods on the teachings of psychologist Abraham Maslow.

“Maslow believed that human beings seek to meet base needs for sleep, water and food (physiological)” Conley writes, and that we focus on the lowest unmet need at a time. “As those needs are partially fulfilled we move up … to higher needs for physical safety, affiliation or social connection, and esteem.” Finally, we aspire to the top of the pyramid which is self-actualization.

Conley used Maslow’s hierachy to map out how his company satisfied these needs for employees, customers and investors (his key stakeholders). His book provides a wealth of detail on how his firm did this, how others have done it and how to apply this to your own firm.

So what conflicting points of view does he brings together?  Depending on your own view of human nature, as a marketer you may find yourself believing one of the following views about how to win customers: 1) customers act from their most base needs (bottom of hierarchy) or 2) customers act (or should) from their highest motivations (top of the hierarchy) and values.  This dichotomy shows up starkly in branding and advertising models, many of which assume we make all our purchase decisions with the most primitive part of our brain. There’s a tension between these and the strategies that try to sell products based on “doing the right thing,” assuming green or social criteria will make a difference. (They can and do, but sometimes not enough).

The truth that Conley articulates so well is that good marketing and good relationships address both of these polarized views and all the needs in between.

Take customer relationships for example. The most basic need a customer has, according to Conley, is that we meet their expectations. Our products and services have to do what they expect them to do. He points out, however, that this alone rarely creates loyalty or the more-coveted evangelism.  Fostering loyalty means identifying the desires customers have, which are typically desires for social connection/belonging and esteem. Evangelism comes when we offer customers the opportunity for transformation and self-actualization – to be more fully themselves, or the self they long to be.

This is solid advice for any firm that thinks it’s not tapping the full potential of its customer relationships. Start with the basics: Are we clear about what our clients expectations are for our product or service?  Are we meeting their survival and safety needs? Second, how are our relationships and interactions – do we provide warm customer service? Do we make our clients feel important and valued? Finally, do we offer our clients an opportunity to be more than just a consumer?

At Joie de Vivre, they meet the top of the pyramid by offering what Conley calls “identity refreshment.”  You stay at a hip hotel and you feel like the hipster you want to be. Through examples such as Harley Davidson, Whole Foods, Apple Computer, the high tech service group Geek Squad, as well as his own company, Conley provides numerous creativity-sparking stories and examples.  The book is packed with tips for how to apply these ideas in your own firm.  Equally valuable are his suggestions for building strong partnerships with employees and investors.

Can companies do reasonably well at the bottom or the middle of the hierarchy? Certainly. If you aspire, however, to levels of relationship that create evangelists for your brand, and resilient companies that can withstand volatile economic cycles, says Conley, you need to deliver value at all the points along the hierarchy: survival, success and transformation.

An emerging model from high-integrity organizations

By Kathleen M. Hosfeld

The phone rings at our house on any given evening. A member of our family looks at the caller ID. “It’s Evans Glass,” he or she calls out to the rest of the house. The call goes unanswered. This is one of between four to 10 calls we receive from Evans Glass each week. We made the mistake once of talking to someone going door to door offering estimates for window replacements. When we found out that the estimate process would take two hours, we said, “No, this isn’t what we want.” We asked that they not contact us again. They have continued to call. And call. And call.

This is one of the practices that have led to another kind of call – a call to “reform” marketing. These and other common marketing practices “work” for companies – they do result in sales. However, research shows that there’s a long-term consequence associated with intrusive and coercive tactics: cynicism and resistance on the part of consumers. Studies by the American Association of Advertising Agencies and Yankelovich show that from 1964 to 2004, the number of people who say their feelings about advertising have become negative grew from 15% to 60%. Forty-five percent of consumers say that the amount of advertising they are exposed to every day detracts from their experience of everyday life (Yankelovich). Yet, companies are spending more to overcome resistance, doing more of that which created the resistance in the first place. This is a vicious, self-perpetuating cycle.

What’s to stop it? Some believe that more regulation is the answer. While regulation and public policy always play an important role in systems change, a change from within – a transformation – will ultimately reach parts of the system that regulation can’t touch. Pioneering firms have been blazing this trail for almost two decades and research is starting to show that companies that take a higher road are achieving higher returns as a result (Studies by Sisodia, Raj, Jag Sheth, and David B. Wolfe in 2007; Sully de Luque et al. in 2008; Kearney in 2009).

The Emerging Model

Consider this article an introduction to a much wider conversation about how pioneering firms are transforming marketing. To start that conversation, I’m offering a 50,000 foot level management perspective of the model of marketing that is emerging as an alternative to the vicious cycle described above. This includes sustainability and the triple-bottom-line, but this is not a model of sustainability marketing per se. It’s meant to suggest a model of marketing that is emerging in companies who have made sustainability a way of life and are continuing to evolve. I have avoided references to tactical execution and, for now, case histories. I’ve avoided elements that might be more appropriate for specific industries (hard goods manufacturers), and tried to synthesize elements that are universal to all firms.

In working with clients, I often translate assessments into “Key Issues” for the sake of simplifying what must be addressed to accomplish their objectives. Key Issues are sheltering wings under which a variety of other issues or factors can find a home. In the following diagram and text, I frame three “Key Issues” for transforming marketing, and some (but not all) of the factors they represent.

A Fundamental Assumption: The most important difference between companies that are transforming their marketing practice is their interpretation of the purpose of marketing. In traditional practice marketing is about “selling stuff.” This follows the perception of the purpose of the business, which is to create profit. In firms that are transforming or have transformed marketing, marketing is about creating value for stakeholders – not as a means to an end (profit) but rather as the end in itself. Within this shift, profit is the measurement of how well the organization is achieving that end.

Embracing a Systems Perspective – A competence required for this emerging model is the ability to navigate complexity and engage with diverse, complex, adaptive systems. In transforming marketing, this includes issues such as:

Adopting a Multi-Stakeholder Orientation – In transformed marketing, the organization enlarges its focus from stockholders to stakeholders who include investors, employees, customers, partners and society. The intent is not to “manage” stakeholders but to serve them.

Cross-Functional Collaboration – In the traditional paradigm, marketing is frequently siloed and given increasingly tactical focus. In transformed marketing, value creation for stakeholders (marketing) is everyone’s job and requires cross-functional collaboration across departments – finance, human resources, manufacturing.

Industry Collaboration and Partnerships – Organizations transforming marketing are not isolated competitors seeking dominance and hoarding information. Rather they participate in industry collaborations to advance standards or other initiatives for the benefit of stakeholders.

Reclaiming the Marketing Mix – In traditional practice, marketing has increasingly focused on sales and promotion due to an emphasis on measurement. Organizations that are transforming marketing seek to maximize stakeholder benefit through all aspects of the marketing mix (product, price, promotion, distribution/sales). These marketing decisions may not take place in the marketing department per se but through cross-functional collaboration.

Creating Social Good – A radical departure from serving simply the profit motive, to one that says profit is the measure of how much value or benefit the firm creates for stakeholders. This includes issues such as:

Purpose and Culture Founded on Ethics and Responsibility – There’s a constant focus in these organizations around “doing the right thing,” which begins with purpose and a culture that supports ethical action.

Defining Success Beyond Profit – Financial measures are insufficient determinants of success for many organizations who care deeply about their impacts on the environment, on customers, on employees, vendors and more. Whether it’s two, three, four or more “bottomlines” – transformed marketing evaluates success in more than financial terms.

Organizational “Calling” – Those practicing transformed marketing are guided by goals that serve a shared understanding of the organization’s “calling” or intent to create stakeholder (or world) benefit.

Sharing Power in Exchange Relationships – Transformed marketing seeks to create partnerships with stakeholders in which power is shared. This capacity separates these organizations from those that are merely well intentioned, yet feel entitled to cajole customers into decisions that are “good for them” or to “sell what we make” without meaningful input from the customer or market.

Living the Brand – From one perspective brands are “perceptions” that are created to influence purchase decisions. In organizations practicing transformed marketing, however, the brand IS the company, and the company lives the brand. It’s not perception. It’s reality. Branding campaigns seek to create awareness of that reality, not to create it virtually. Elements of this include:

Brand Rooted in Clear Differentiation Strategy – In transformed marketing the brand is rooted in a solid business model that articulates a long-term strategy for creating value for stakeholders distinct from that of other firms. By contrast, head-to-head competition or competition on perception alone reinforces the vicious cycle of promotion to compete, leading to ethical “trade-offs”, and a firm-centric view.

Operations Aligned to Fulfill Brand Promises – The “operational side of branding” means taking the brand deeply into every aspect of the organization. This requires translating the implications of the brand for the day-to-day functions of departments. Representative questions to ask in this process include: What type of person should we hire to reflect the brand values? How does the brand change what our office looks like? How do I need to share information with other departments in order to help them live the brand?

Commitment to Stakeholder Benefit – The “right thing to do” in a transformed marketing environment is a radical commitment to making sure all aspects of brand execution translate into benefit for stakeholders. This includes ongoing reflection and action concerning methods of creating products/services, their features and benefits, the materials they use and the transparency with which the supply chain is managed.

Continuing The Conversation

Although the era of sustainability shines a brighter light on companies who practice marketing in this way, many companies – including ours and our clients’ – have been marketing in the spirit of the emerging model for years if not decades – long before frameworks for sustainability or the triple bottom line were as accessible as they are today. As more organizations adopt social enterprise models and similar forms that blend mission and revenue creation, transformed marketing offers an approach that better fits their values.

Many of the companies who have been pioneering in this model have done so based on the intuitive conviction that it was simply “the right thing to do.” We are fortunate in this time that research, including the studies referenced above, is confirming their collective hunch that a seemingly radical commitment to marketing that works for all also turns out to be a good way to make money. Many today are trying to approach the triple bottom line from a single-bottom-line perspective. Perhaps now there’s enough empirical research to encourage such firms to explore this emerging model more deeply.

There are many stories to tell and many interrelated ideas to unpack as we continue our own exploration. We’d love to hear from you about your experiences, ideas and questions.