It's been suggested that innovation in marketing techniques has lagged during the last twenty years. If true, why? If not, what examples of marketing innovation can you identify?

DAVID NORTON: I'd say there's been a decent amount of innovation as it relates to marketing with increased knowledge of the customer, supported by database utilization. We've done a tremendous amount over the last four to five years to really customize our customer interactions.

Back in 1997, right before I started at Harrah's, the CEO and the CIO decided that they wanted to build a national loyalty program and a database to support it. And then when Gary Loveman came in -- and shortly thereafter I joined from American Express -- we had all of this wealth of data about our customers.

Over the last four years, we've been able to take that transactional data, understand who the customers are, understand what kind of share of wallet we are getting from these customers, and then tailor our messages and offers. Initially and primarily, we are still doing that through direct mail, but increasingly through telemarketing and email.

SPENCER HAPOIENU: There have been quite a few innovative marketing concepts that have been developed over the last twenty years, not the least of which is CRM, and the use of the Internet.

But none of these developments has become institutionalized because the business culture lacks confidence in making profound changes when it comes to marketing. There's a lack of understanding of consumer marketing and how it affects consumer behavior. And so it seems like most companies lurch from experimenting with each new idea, often driven by technology, or the pressures of quarterly earnings, which require that they drive sales for a particular period of time. But they never stick with anything long enough to learn the real ROI.

Meanwhile, if we look at other areas of business, where there have been significant innovations that have become institutionalized -- that's the best way to compare the lack of those occurring in marketing. For example, compared to the development of concepts like just-in-time delivery and many of the financial systems that have been developed, marketing really has lagged behind.

MICHAEL SCHRAGE: The question really surprises me. I think there's been an explosion of marketing techniques. Some have been brought forth by greater sophistication in the technology and some by greater sophistication -- or a greater awareness -- of how people respond in more conventional marketing contexts.

The problem is that the management of these innovations has been done in a very un-innovative way. That is to say, you should have the marketing department apply all of these innovations to other parts of the organization.

The real problem is the unwillingness or institutional inability for most organizations to integrate marketing innovations into the organization. That represents a triumph of functionalism, in that that the marketing departments have become "more innovative," but the ability of the rest of the organization to take advantage of those innovations has not increased at all. It's been more departmental innovation than an organizational innovation.

JOE DOBROW: Innovation hasn't lagged -- it's just that technology has emerged as a surrogate for innovation. We have become so reliant on technological innovation that we fail to recognize other kinds of innovation when they're happening.

"...'The freedom of tightly-defined strategies.' That's what's missing from most companies today." SPENCER HAPOIENU

For example, when most people are thinking about innovations in marketing, they're looking for a new medium for dissemination. We went from radio to television, from television to the VCR, from that to the Internet, and so on. So, people may be looking around now and saying, "Well, the personal computer has been with us now since the early 80's and the Internet has been in full sway now for a decade, what's next?" And that's because they're looking at technology as a surrogate for innovation.

There have been some marketing innovations during that time, such as viral marketing efforts. For example, you have cell phone marketers placing young people in public settings, just flashing the technology around. It's returning to a very basic marketing principle, but that's been a very innovative way to go about it. Even AOL's mass mailings of disks -- which a lot of us look at now as being a colossal contribution to land fills -- certainly was successful at spreading the brand name, and innovatively. The Mobil Speed Pass Program was another extremely effective and innovative marketing idea in an otherwise undifferentiated marketplace.

How do you make sure that a big innovative idea can also be implemented?

SCHRAGE: By starting it off as a small, innovative idea. Good marketing departments are excellent -- superb -- at running cost-effective experiments to determine the validity of an idea and to determine to what extent it may be scalable. Large organizations, as a rule, are terrible at running experiments. I have run across more organizations that would be more comfortable making a $40 million acquisition that has a less than 50 percent chance of success than to run five or six $250,000 experiments, each of which has a 75 percent to 80 percent chance of generating a 15:1 or 20:1 return in knowledge and insights into the marketplace and the customer.

Large organizations are terrible at running small experiments because the internal economics of large organizations are inherently skewed -- and for completely understandable reasons. It's not that these things happen because people are stupid -- although, indeed, often people are! It's because people aren't really certain what the real costs and benefits are. The response I would get from a CMO or a CEO to that statement would be, "Michael, you clearly don't understand large organizations. That's why we do departmental stuff, so we see what works in the department and then we scale it." But it doesn't work that way because that's not how you reward the departments.

And what's more, what do the departments do? They do what's best for the departments. Well, when you do what's best for the departments, it becomes very difficult to peddle it to other departments, because it's clearly not designed with their interests or concerns in mind. So you have a series of perverse incentives. There's nothing profound or shocking in what I'm saying. But organizations, when they see a good idea beginning to work at an early stage, they're so intent in "perfecting it" that they're not cognitively aware of the opportunity costs associated with perfecting it on the departmental level, as opposed to let's say an Strategic Business Unit level, or indeed on a corporate level.

DOBROW: I would answer that in two parts -- internally and externally. Internally, it involves and entails having a "Rabbi." You need somebody within the company who is going to get behind this idea, at the very senior level and support it through thick and thin. As a marketer, your task internally is make sure you sell in your concept first. If it's really going to be innovative, if it's going to have any chance at succeeding, you've got to sell it to very important people in your company and get their backing.

Externally, you want to test market, but under realistic conditions. About a year ago I was working as Vice President of Consumer Marketing for Discovery Channel. Discovery was trying to become a multi-channel marketer with retail stores, a big push in e-commerce, but really not succeeding. I created a program that was an extension of a weak, existing frequent shopper program. Instead of just offering people a discount for dollars spent within the company, Discovery tried to tie it back into the company's core asset, which is programming, by awarding points for watching particular television programs.

We chose to test the program in San Diego, where it would be hard to implement and track due to the fact that our partner (Cox Communications) only owned half the cable market there. Two of the four Discovery Channel stores in San Diego are in Cox zones, but two are not, creating some serious marketing challenges. We intentionally chose that market instead of ones like Phoenix or Las Vegas, where Cox owns the entire market, because we wanted to test the program under the most difficult of conditions - which are in fact the conditions Discovery would face in most markets upon rollout. I think marketers sometimes deceive themselves when they choose test markets that are cushy, unrealistic or simply not representative of the true marketing effort required. Everybody was intrigued by the audacity of the idea.

HAPOIENU: Yes, you have to have the "Rabbi" as a starting point, but unless you then execute the vision throughout the organization, you won't be successful. If the CEO and the leadership of the company have a vision and a point-of-view as to how they think the company should operate, and what the best strategy is for them, the only way they can make that innovation occur is to make believers out of everybody -- all the way from the most senior management down to the most junior people in the company.

What's missing is what was so evident in the period from about the 1950's through the 1980's, where successful companies all had a real point-of-view as to what their businesses were about. Procter & Gamble had a point of view that their products always had to be superior in terms of performance. They had a point-of-view that there was a certain way to manage their advertising to develop strategies. IBM had a point-of-view as to what Big Blue stood for. Even at the agencies -- David Ogilvy had written a book about what Ogilvy & Mather stood for.

All of those things seem to have been eliminated from the structure of the marketing business. As new technologies constantly come on board people don't apply the disciplines to the new technologies. So, there's a lack of structured innovation, if you will. One of my favorite quotes came from Norman Berry, a former creative director at Ogilvy, who said: "Give me the freedom of tightly defined strategies." That's what's missing from most companies today.

NORTON: First, hopefully, the idea is supported by a lot of analysis. At Harrah's, we'll do a lot of pre-work upfront on a new idea to try to prove that it makes sense from an analytical perspective. Then we get both top-down and bottom-up support. We'll first work with Gary Loveman to get his opinions and challenge our thinking.

Then, if he supports it, we'll generally go to two different forums. One is the operations committee, which is our divisional president and operational executives. The other one is the marketing council, where we have our regional marketing people involved to push the idea forward. So, it's a collaborative approach across the different organizations in the company.

This approach doesn't necessarily add bureaucracy, because we're able to launch projects rather quickly. We just feel that getting the input of people right out in the field who interact with the customers and are responsible for running their individual businesses is beneficial in terms of tweaking or challenging our thinking. Also, by getting them involved early on in the process, it makes the implementation that much easier, because they feel like they have some ownership.

"The real problem is the institutional inability to integrate marketing innovations into the organization." MICHAEL SCHRAGE

Is there a lack of marketing leadership today? If so, why? If not, who are today's marketing innovators?

HAPOIENU: There is a big vacuum in marketing. For a long period of time, the advertising agencies drove marketing and were the font of big ideas. However, as advertising has diminished in importance, senior marketing people on the client's side should be filling that vacuum, but for the most part they are not.

Up until twenty years ago, McDonalds stood out, Procter & Gamble stood out, IBM stood out, Coca-Cola stood out -- they had a point-of- view, and they were able to execute it in many different ways. Phil Knight at Nike and Steve Jobs at Apple are other good examples. You had people like Ray Kroc, David Ogilvy and Bill Bernbach.

Today, you have Michael Dell, for example, who is a brilliant businessman who found a niche in the marketplace, but I'm not sure it has much to do with marketing in the classic sense. Now, it could be that in this environment, what constitutes marketing innovation includes a lot more of the business -- versus just the communication -- side, and that identifying new channels of distribution and using the Internet to drive business is in itself a brilliant marketing idea.

DOBROW: Yes, there is a lack of leadership, and the reason is just that there's such a profusion of players out there. There are now so many avenues, so many channels, so many outlets, so many different ways to disseminate a message that it's very difficult to cut through all of that and figure out who are the leaders. One other component of that is the shift in the power of marketing. It used to reside with the product manufacturers; then it shifted to the agencies; then it shifted to the retailer and now it really has shifted in a lot of ways to the consumer.

That said, JetBlue has done a phenomenal job of marketing out of the box. It's been a little bit of advertising, a lot of mall appearances, a lot of good word of mouth. Some of the catalogers who have expanded to become multi-channel players -- Lands End with their inlet stores instead of their outlet stores. L.L. Bean, and others who have made that jump into retail, have stepped up to become leaders in the field.

Leaders like Jeff Bezos are, through execution, providing some leadership amidst all of the noise and the tumult. There are good examples of marketing out there that may not be applicable to everybody, but that do offer some degree of leadership. Even the Hollywood Studios -- which do big mass media marketing efforts -- some of them are doing an excellent job of it. They've adapted to the extent that they now know that they've got to create ads that work on PDAs, on billboards, and viral marketing. In my eyes that's very inspirational.

NORTON: I think there are some new things in the credit card industry, but maybe I'm a little biased because of where I've worked. MBNA took a lead about fifteen years ago in terms of affinity marketing. They signed up all of these endorsing organizations and then that really revolutionized the credit card industry.

Another alma mater of mine, American Express, is a strong marketer in terms of both their brand imaging and trying to extend the relationship that they have with customers with these different products. And then obviously I feel Harrah's has done some pretty neat things that are certainly cutting-edge in our industry.

SCHRAGE: I think all organizations are trying to become more adept marketers. In large companies, there are always smart people. If we have 25,000 marketing people at Procter & Gamble -- if only ten percent of them are really smart -- that's a lot of really smart marketing people. But then again, as we all know, you don't need a lot of dumb people -- or lazy people, or ineffective people -- to really get in the way of the effectiveness of that top ten percent. It's a little more complex with the mid-size companies, where you can get away with being mediocre for a longer period of time. But, either way, smarts aren't enough. There are lots of smart people who populate not-very-smart organizations.

Even worse, there are a lot of smart people in organizations who can't translate those smarts into operations. That's a key point: marketing is an operation. The whole notion that marketing is about strategy -- we clearly understand now that strategy is meaningless without a feedback mechanism. Marketing innovation should be about ideas that have feedback mechanisms. The advantage of marketing is that it does have feedback mechanisms, like lead generation. There are ways of doing these sorts of things, and that's key. Marketing needs to be treated and managed more as an operational art -- not as a strategic plan.

Do you believe that CRM falls into the category of marketing innovation? If not, why not? If so, why is it so hard to implement?

NORTON: I would definitely say that CRM falls into marketing innovation. I think the trap is that often it's encumbered by huge technology investments. And, with some of these CRM tools, people get wrapped up in the tools. Instead, they should be thinking about how to drive more value for their customers and their shareholders.

Harrah's has had a vision of what to do in terms of maximizing the relationship we have with our customers through traditional marketing channels, through operational delivery. We haven't tried to do everything at once. We started with direct mail and shortly thereafter we refocused our loyalty program. We built our Web site. We built a promotional capability. So, it's been a variety of things -- some of them in parallel -- but really to some degree separate initiatives that have had some linkage to really drive value.

"Innovation hasn't lagged -- it's just that technology has emerged as a surrogate for innovation." JOE DOBROW

DOBROW: If CRM could ever be done well it would be very innovative. CRM is really nothing more than common sense. If you could take today's complex companies and strip them down to their cores and rebuild them, obviously one of the things that you would do is make sure that all of your customer contacts were coordinated. It's common sense; any entrepreneur would do that. But of course, the reality is that there are very few companies that are stripped down to their cores.

There are lots of companies out there now that sell very expensive software, and that claim CRM is the solution to the problem. But the real solution is to get back into that mindset of making sure that every customer that touches you in some way is recorded and responded to. Your customers know that they shopped in your store or that they watched your television programming, and they expect that you're going to know that, too.

HAPOIENU: CRM definitely falls into the category of marketing innovation. The concept of Customer Relationship Management is just an extension of marketing as we used to know it. Because the world has become so complex, you no longer can persuade people about your brand simply by running a 30-second commercial or a print ad. To do what you used to do, you need to envelop the customer with all of the tools to learn more about them and to make the communications and the relationship with them relevant.

It seems like most companies do not see, do not understand, or do not believe, that you can do that. They do not understand that the entire structure of the organization has to be built around that idea. They're looking at CRM as just a tactic -- as an element of everything they do -- as opposed to a strategy that envelops the organization. So, instead, they're trying to manipulate the marketplace purely with price, or distribution, or inventory management, and less so with the ability to build a relationship with consumers.

SCHRAGE: The problem with Customer Relationship Management is that it's not about Customers, it's not about Relationships and it's not about Management. Other than that, it's fine! CRM, as currently marketed today, for the most part is technical systems designed to let companies do a better job of managing what is perceived to be "relevant data" about customers. That's it. It's value-added database management. It is sold and peddled by the technologists as value-added database management.

The reason CRM is under-performing is that most organizations have a horrible record of procurement and then adoption and implementation of "innovative" technologies. Horrible. And by most organizations, I mean the P&G's all the way down to the boutiques and what have you. You can point to little pockets of success, but ironically it goes right back to my main point, which is that on a focused level -- on a departmental level -- you'll have signs of success.

But on enterprise deployment levels, where the economics of the enterprise ultimately shape the quality and effectiveness of the investments, it doesn't work. Or, you certainly don't have a circumstance where the benefits consistently outweigh the costs.

And, by the way, what really needs to be understood about the CRM systems is that they have to be managed on an ongoing basis. It's not even like payroll systems where there are usually only minor modifications. How many organizations could run a payroll system if they treated their employees like customers? No one would get paid -- at least not every two weeks.

What should organizations be doing to create more marketing innovation?

DOBROW: One thing is to go out and shop a lot. I think we have to watch what everybody else is doing and add A and C together to come up with some kind of a new idea. Another thing that I've always liked to do -- which I would encourage the decision makers in companies to do -- is to really get down-and-dirty with customer feedback. Maybe the most important 90 minutes that I spent periodically at Discovery was when I went out to the call center and just listened in on customer calls coming into the 800-number.

You often say -- and this is particularly true when you run frequent shopper programs -- that you have to train yourself to think like a criminal. How can customers beat the system? Where are the loopholes? How can I close those off? To me, that's marketing 101 for people who are interested in improving and innovating their efforts. The customers have so much information now and they're so knowledgeable and they're out there shopping and watching. But, guess what -- they're not spending 100 percent of their dollars or their share-of-mind on you! So, the more contact you can have with them, the more you will learn,and the more you will be able to innovate.

SCHRAGE: Organizations need to be ruthlessly rigorous about the 80-20 principles that govern marketing effectiveness. That is, they need to know which 20 percent of the customers generate 80 percent of the revenues; which 20 percent of the customers generate 80 percent of the profits; which 20 percent of the customers generate 80 percent of the complaints; which 20 percent of the customers generate 80 percent of the learning; which 20 percent of the customers generate 80 percent of the investments.

They also need to know which 20 percent of the marketing systems functionality generates 80 percent of the usage and what 20 percent of the marketing systems inside of the organization generate 80 percent of the problems. We need to generate much greater awareness to create better alignment between those things that facilitate and empower the greatest returns and those that apparently consistently absorb the greatest portion of our management time in terms of problems.

"People get wrapped up in the tools when they should be thinking about how to drive more value for their customers and shareholders." DAVID NORTON

So, those are the things -- really a much greater awareness of the ruling 80-20 principles in the organization. That's the kind of market segmentation that really matters.

NORTON: We're pretty proud of what we've done at Harrah's, but we're not stopping. We have a number of new marketing innovations that are going on, so a lot of it for us is still "marketing/technology oriented" initiatives.

A lot of what we currently do occurs after the customer has left our property. So it's a question of how to leverage all those decision insights and knowledge of the customer while they're still at one of our casinos. Thinking about non-traditional marketing channels, like a slot machine, like a kiosk, for example. That's really the next wave for us. How can we conduct CRM within the operations while they are visiting us? That's part of what we're working on.

We have to challenge ourselves continually to push the envelope because customers are more demanding with regard to what they expect in terms of your knowledge of them. Having seamless interaction across channels is really critical. That's why the operational dimension is important to us. We customize a lot of our marketing communications with our customers, they appreciate that, and the results are positive.

HAPOIENU: It's mainly a process of education. Most people in most organizations -- whether you're talking about small companies or big companies -- understand what the vision of the company is and what it stands for. They don't understand what it wants to accomplish in the marketplace, what its importance is, why it's good for the company, the stake holders and the employees. They don't understand why it will be fun, rewarding or why it will build success with consumers.

In fact, you might say that the reason Wal-Mart has been so successful is because they have such fierce loyalty from the employees, who are fierce in their desire to execute the vision. When I was at Ogilvy, one of David's favorite sayings was, "First-class business in a first-class way." For the most part, for a long time, until the pressure to constantly improve the share price, he would only go after clients he really believed thought that way, and the entire organization understood what that was about.