We determine who the best customers are and what products and services the organization should create to solve specific customer needs.

The best sources of the organization's money will be clear to the CEO when marketing asks and answers the following questions about customers and the competition³:

1. How can we give value to the customer? What customer problems are solved by our products/services? How can we help customers solve these problems more easily or efficiently, with more gain for the organization? 
   
   
2. Are all customers alike or should they be clustered into separate segments? 
   
   
3. Which customer groups produce the greatest profit? Why do they buy from us? 
   
   
4. What are the purchasing frequencies and amounts, and why? 
   
   
5. How do current customers differ from potential customers? 
   
   
6. What aspects of our products, and competitors' products, satisfy and dissatisfy customers? 
   
   
7. How are our products perceived by customers? How do they differ from the perceptions of competitor's products? What improvements do customers want? 
   
   
8. What is our strategy on pricing for the trade and for end users? Do we understand the impact of price changes? 
   
   
9. What is the competition likely to do if we do _________? 
   
   
10. Exactly how is the customer changing?

We marketers are uniquely qualified to provide reliable answers to these questions. Using our expertise in customer research, competitive analysis, environmental scans, target segmentation and positioning, we provide critical insight and establish professional credibility within our organizations.

Then the CEO will look to marketing as the most important voice in the process of identifying current and future sources of money for the organization. Ultimately, the CEO will recognize that marketing's insight into customers and competition is the catalyst in building the foundation of the business strategy.

“Marketing Upstream” describes marketing's ability to focus on customers to determine how the organization makes money now and how it can make money in the future, i.e., all the work marketing does “upstream” to guide decisions about who to sell to and what to sell.

It's the work required before marketing is unleashed to sell products and services “downstream.” Indeed, the success of “downstream” efforts to get consumers to buy depends on the quality of work “upstream.” Using expertise to translate customer focus into sustainable sources of cash, upstream marketing is at the center of the organization's efforts to meet its financial objectives, and, therefore, of critical importance to the CEO.

Consider the following two examples of how upstream marketing provides the critical insight leading to profitable growth⁴:

• GE Plastics uses technology to create products that address needs of individual customers. In an industry undergoing significant structural change, including low-cost competition from China and dramatic price reductions due to excess supply, GE uses its technology expertise to convert applications to the needs of individual customers. According to Dr. Charan: “For example, in the automotive industry, GE Plastics could show a manufacturer like Ford how applications of its technology could reduce the weight of a car, improve gas consumption, reduce cost, or otherwise improve the customer's differentiation against the competition.” GE Plastics has shown that customer-needs segmentation, along with a pricing structure that supports the positioning of the attributes customers prefer, makes up the upstream marketing work that is so critical for profitable growth.
  
  
• Prometric identifies growth segments. Thomson Corporation CEO Dick Harrington asked the Prometric unit (the division that provides technology-based assessment and testing services) to describe customers and their needs. In addition to its current customer segments, Prometric identified the growing, but highly fragmented, corporate market as a source with great potential. Again, according to Dr. Charan: “They're placing the tools of upstream marketing at the center of their organization so they can understand the needs of major customers and create attractive value propositions for them…. Premetric's marketing segmentation…found that pre-employment testing is not limited to relatively lower-level positions in businesses like retailing [in such companies as Home Depot, Wal-Mart and Lowe's] but extends to the needs of sophisticated financial services firms like Capital One…. Once a new segment has been discovered, it designs the right product with the right pricing structure….Prometric's value proposition would show companies like Capital One how it can help them select people with the requisite analytical skills that lead to the development and introduction of the right new credit-card offerings.”

And consider this third example from Disney—with CEO Michael Eisner in the driver's seat—illustrating how the work of upstream marketing is critical to identify and realize profitable growth opportunities⁵:

• Disney—Share of Vacation Dollar. In his early years as CEO of Disney, Michael Eisner asked, “How much did a family spend on a vacation and what percentage of that amount could Disney capture?” To answer that question, Disney had to move from using a product focus to a customer focus. Even though its theme parks were quite profitable, Disney was capturing only 25% of visitors' vacation spending. This customer-focused metric, the share of vacationers' total expenditure, generated business insights that helped Disney to formulate its growth strategies. From then on, Disney built hotels and teamed up with airlines to offer travel packages to tourists, streamlining the hassle of family vacation planning. The result: Disney's share of Orlando vacation dollars increased from 25% to 75%.

Finally, consider the success in profitable growth by American Express as a result of detailed customer insight⁶:

• American Express—the growth express. After a wave of failed acquisitions in the 1980s, American Express identified opportunities and realized significant growth from its existing customers. The Travel-Related Services business segmented its customers more and more finely to offer tailored products, services and rewards programs. Revenues grew from $12 billion in 1996 to $18 billion in 2002, with earnings growth from $1.1 billion to $2.1 billion.

Identifying sources of money with upstream marketing techniques is not easy.7 That is why it's the key to our professional credibility with the CEO. Ultimately, producing answers to questions about customers and the competition is the road to demonstrating marketing's critical role in the financial performance of the organization.

Now, armed with knowledge about profitable growth opportunities, we must lead by taking effective action to make money for the organization through marketing downstream and monitor our results with marketing metrics. I will cover both in Part 2.

Notes:

¹ Adapted from definitions by Tim Ambler in Marketing and the Bottom Line, Financial Times Prentice Hall, second edition, 2003, and Peter Doyle in Value-Based Marketing, John Wiley & Sons, 2000.

² Ram Charan coined the terms “Upstream Marketing” and “Downstream Marketing” in Profitable Growth is Everyone's Business, Crown Business, 2004. The terminology is useful, in part, because it eliminates the need to use the word “strategy.” Strategy is the most overused and inconsistently used word in business (planned and executed at all levels and functions of the enterprise), and, consequently, does a poor job of communicating meaning and motivating action. See the MarketingProfs.com Premium Story by Allen Weiss, “One Sure Way to Kill Your Marketing Strategy,” at https://marketingprofs.com/4/weiss3.asp. In addition, the word “Upstream,” connotes source, exactly our intent.

³ Marketing and the Bottom Line.

⁴ Profitable Growth is Everyone's Business.

⁵ “When Art Meets Science: The Challenge of ROI Marketing,” Strategy + Business, 2003.

⁶ “CEO Agenda 2004,” Chief Executive magazine, December 2003.

⁷ For detailed discussions of techniques marketers use to identify profitable growth opportunities, see Lateral Marketing, Philip Kotler and Fernando Trias de Bes, John Wiley & Sons, 2003 and Every Business is a Growth Business: How Your Company Can Prosper Year After Year, by Ram Charan and Noel Tichy, Three River Press, 2000.