“Too many companies are product-driven rather than customer-centered. They push their offerings to every conceivable customer and fail to notice customer differences and values. By starting with an understanding of customers, the company is in a much better position to develop appropriate channels, offerings, inputs and assets.”
Kellogg School Professor Philip Kotler, Author, Marketing Insights from A to Z
International Paper (IP), with annual sales over $20 billion, is a global enterprise specializing in paper, packaging, wood and distribution.
In 1998, the same year IP was celebrating its centennial, the company was facing challenges common to other companies and industries: significant consolidation, intensifying competition and increasing product commoditization. The chairman and CEO realized something needed to be done to strengthen IP’s market position, and thought marketing might be one lever that could be used to drive change and improve performance throughout the organization. IP approached Kellogg to begin discussing how a custom executive program could help achieve these objectives.
As initial program design meetings were conducted between IP senior management and senior Kellogg faculty, both parties agreed that strategic changes in the company’s marketing could be used to change the organization. IP management understood, as Kellogg faculty have taught for years, that marketing is not simply the responsibility of the marketing department. For companies to outperform their competition, they must become truly market-focused. Companies that understand and focus on the customer at all levels in the organization are in a much better position to deliver superior value to those customers than companies that do not. In order to become market-focused, companies must align all aspects of their business with their target market and their value proposition. All employees, regardless of function, need to understand the company’s customers and what value those customers derive from the company’s products or services that generate revenue, profit and productivity improvements. The organization and its strategy must be designed entirely around delivering superior value to the customer, at a profit, and all decisions must be consistent with this strategy.
The IP custom program was designed so that managers from throughout the organization could attend and gain an understanding of various marketing skills. Senior Kellogg marketing faculty were brought in to teach managers how to better understand the customer, determine product and customer profitability, and build customer offerings. Further, since market-focus often requires shifts in organizational culture, IP management and Kellogg strategy professors were also brought in to discuss leading strategic change.
The first session was delivered to the CEO and the top 50 executives from across the organization, including senior human resources executives and the heads of business units. This session allowed the CEO to communicate to senior management the importance of the company’s new initiative. It brought everyone to the common understanding that, in order to improve performance, IP needed to begin managing with a focus on the customer.
In subsequent sessions, the top executives who attended the first session returned with their direct reports; each session was attended by teams from across the organization. As groups of managers attended the program over time, the skills, shared learning and understanding of the initiative permeated the organization, from the executive suite to the workers on the plant floors. Over time, the program has been changed to include lessons learned at IP and success stories that illustrate that the desired results are, in fact, achievable. Each session was tweaked by the faculty to reflect feedback, each group’s specific needs and current developments in the company and industry.
With any change initiative, change takes time. IP continues every day to try to manage from the customer’s perspective. The custom program and IP’s corresponding strategy produced real and significant results in IP’s culture and bottom line. IP’s business is based on three key drivers: people, customers and operational excellence. IP firmly believes that all three are needed to achieve true market focus because all three add up to delivering superior value to customers. For IP, marketing is seen as a change lever that influences the three key drivers. As such, IP has implemented important strategies to reinforce the skills gained through the custom program.
Consider the following ways in which IP has changed its culture and operations to better understand, create, deliver and manage customer value:
Many companies continue to produce and sell the same products they’ve been producing for decades, regardless of demand, either because “it’s what they do” or because they think they know what the customer wants. IP has implemented processes for listening to the customer and providing solutions to meet customer needs. These processes have created new, customer-focused services, products and product improvements, all of which have improved IP’s bottom line. As an example, IP’s Coated Paper business worked with a global retailer to understand how its catalog could act as a “storefront,” driving order processing to the Internet, thus reducing the retailer’s sales costs. IP also studied how more efficient management of paper, flexibility in paper decisions and reducing catalog cycle time could bring quantifiable dollar value to the customer. Working with the customer and its catalogers, IP developed inventory management and order entry solutions that improved ordering flexibility. This led to reduced costs and more revenue-producing ad space for the retailer. Providing higher quality product with better aesthetics helped to increase response rates and improved the customer’s ability to handle online ordering in stores, thus increasing customer revenue and reducing their costs. For IP, the result was incremental revenue for existing lines of paper as well as incremental volume and revenue for two additional types of insert paper, creating a “win-win” relationship between IP and the customer.
Another example from a different IP business involved changes to a commodity product that has been around for decades: file folders. After researching and listening to customers’ needs, IP developed file folders that reduce paper cuts and resist spills. These were two improvements that customers valued, and the results have been an increase in IP’s revenue, profit and share of the file folder market.
Listening to customers and understanding customer value allows IP to demonstrate how they can provide differentiated value for their customers. Truly understanding what the customer values means moving the dialogue and negotiations away from price. Tailored offerings and menu pricing now allow IP’s customers to choose the products and services they value most for the benefit of their business.
People and cultural change
Employees in functions throughout the organization (marketing, technology, sales, finance, operations) are learning what their customers value and how their roles and responsibilities affect the customer value creation process. The Kellogg School’s custom program for IP has played a vital role in this cultural change initiative.
Being customer-focused also means that not all marketing decisions are made from corporate headquarters. IP’s corporate sales and marketing department views its role as supporting, encouraging, facilitating, educating and consulting the sales and marketing departments in each business unit. The employees in business unit departments are, in fact, closer to the customer. Since most decisions are made in those departments, employees provide product offerings and solutions to customers based on their understanding of the customers’ needs.
IP uses a market-based approach to strategic planning. Analysis of market trends, customer industry trends, the competitive landscape and customer and product profitability are all taken into consideration. This level of data analysis allows IP to explore strategic alternatives and opportunities. Instead of looking at just volume, production or sales, IP looks at profitability across customers, segments and products. The data they gather affects IP’s annual plans, budgets, facility plans, capital plans, people-related needs and customer initiatives.
IP is now working with Kellogg on its next custom program, which will focus on business marketing strategy. This program will provide additional tools to help support IP’s efforts toward becoming a truly market-focused organization.