mktg mgmt 2012
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MARKETINGMARKETING
MANAGEMENTMANAGEMENT
Dr. Ahmed A Shalaby
1
2012
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Learning LevelsLearning Levels
Cognitive Knowledge
Application
Diagnosis / Trouble-shooting
Creating new knowledge / Theory
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Course Objectives
y Determine the role of marketing in various organizations.
y Analyze the marketing environment to identify
opportunities and threats relevant to the design and
implementation of the marketing effort.y Analyze the market, design market segments and target
those segments which help to achieve corporate objectives
and strategies.
y Formulate marketing strategies and plans, including
positioning and designing the marketing mix.
y Develop implementation plans and evaluation systems for
the firms marketing effort.3
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Marketers F.A.Q.s
1. Which market (segment's) to serve?
2. How can we differentiate our product / service?
3. How can we compete against lower-price competitors?
4. How far should we go in customizing our offering for
each customer?
5. How can we grow our business, profitably?
6. How can we maximize the value from our customer
relationship?
7. How can we maximize the effectiveness of our marketing
expenditures?
8. How can we create / enhance customer orientation
throughout the company?
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Course OutlineCourse Outline
I. Introduction
II. From corporate strategy to marketing strategy and plan
III. Creating customer satisfaction and loyalty
IV. Buying behavior and the marketing information systemV. Competitive analysis and competitive strategy
VI. Market segmentation and targeting
VII. Market positioningVIII. Branding
IX. Marketing mix decisions
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1. How does marketing create, deliver and communicate
value to target customers?
2. What are the key marketing processes:? (what marketers
do)
3. What is the role of core competencies in creating
sustainable competitive advantage?
4. What are Mega trends? Are they threats and/or
opportunities? Predicting relevant trends, managing our
response to them. 6
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What is Marketed?What is Marketed?
Goods
Services
Events
Customer experiences
Persons
Places
Properties
Organizations
Information
Ideas
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Competitive AdvantageCompetitive Advantage
Competitive advantage/edge:Competitive advantage/edge:A company's ability to perform in one or more ways that
competitors cannot or will not match.
Marketing focuses on advantages relevant to customers.
How to create and sustain it?How to create and sustain it?
By fitting a companys core competencies and distinctive
capabilities into operational systems for value exploration,
creation and delivery in ways that are hard to imitate by
competitors.
Absolute sustainability is impossible in a competitive market;
you need to continuously leverage and augment your present
advantages8
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Core CompetenciesCore Competencies
A core competence is a combination of
complementary skills and knowledge bases
embedded in a group or team that results in
the ability to execute one or more critical
processes to a world-class standard.
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What is Marketing Management?What is Marketing Management?
Marketing management is the art and science of:
choosing target markets, getting, keeping, andgrowing customers
through
Creating, communicating, and delivering superior
customer value
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Value Creation ProcessesValue Creation Processes
1. Value exploration: understanding the relationships and
interaction among three spaces:
Target customers needs and preferences (This is largely a
creative process. Often consumers cant express their needs
and wants)
Companys competencies
Channel collaborators resources
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Value Creation Processes (cont.)Value Creation Processes (cont.)
2. Defining the business concept / big idea2. Defining the business concept / big idea
3. Translating the concept into a specific line(s) of3. Translating the concept into a specific line(s) of
businessbusiness
4. Creating a brand identity and positioning it.4. Creating a brand identity and positioning it.
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Value Delivery ProcessesValue Delivery Processes
Internal resources mobilization &Internal resources mobilization &
managementmanagement
Business partner managementBusiness partner management
Customer relationship management (CRM)Customer relationship management (CRM)
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Advertising
Personal selling
Sales promotion
Public relations
Value Communication ProcessesValue Communication Processes
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Marketing Processes Deliver Valueto Customers: examples
Market sensing processes
New product development
Customer acquisition
Customer relationship management
Order fulfillment
Managing distribution channels15
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STRATEGIC SKILLSy Discovering and assessing needs
y Matching customer needs withbusiness competencies &
resources
y Analyzing competitive behavior
y Analyzing the interaction
between internal and externalfactors
y Creating strategic options,evaluating them and selectingbest option
y
Key Marketing Management CompetenciesKey Marketing Management Competencies
OPERATIONAL SKILLS
y Managing customer relations
y Managing sales effort
y Leading individuals and teams
y Influencing and persuading
y
Distribution & logisticsoperational skills
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GlobalizationGlobalization
DeregulationDeregulation
PrivatizationPrivatization
Industry ConvergenceIndustry Convergence
Accelerated changeAccelerated changein technologyin technology
Mass CustomizationMass Customization
DisDis--intermediationintermediation
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Do they represent opportunities and/or threats? How should
we face these trends?
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Needs, wants, andNeeds, wants, and
demandsdemands
Market segmentation,Market segmentation,
targeting, positioning.targeting, positioning.
Offering, product,Offering, product,
service and brandsservice and brands
Customer deliveredCustomer delivered
value, expectations,value, expectations,
satisfactionsatisfaction
Distribution channelsDistribution channels
CompetitionCompetition
Marketing environmentMarketing environment
Task (markets &Task (markets &
competitors)competitors)
Broad (PESTLE)Broad (PESTLE)
Marketing planning andMarketing planning and
plansplans
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Marketing
Mix
ProductProduct
Price Promotion
Place
CustomerCustomer
SolutionSolution
CustomerCustomerCostCost CommunicationCommunication
ConvenienceConvenience
The Four CsThe Four Cs
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The Role of Marketing in the CompanyThe Role of Marketing in the Company
Customer
Marketing
Production
The customer is the focal pointThe customer is the focal point Marketing is the integrative functionMarketing is the integrative function
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II- FROM CORPORATE TO MARKETING
STRATEGY
1. What is Strategy: examples. What is strategic management?
2. Define strategic and operational plans. How are they related?
3. What are the levels of strategic management? (Corporate, businessunit, functional , product or market)
4. What are the tools for strategic analysis? (e.g. portfolio models,
Porters five forces model, growth models, SWOT analysis). How can
we use them to formulate strategies?
5. What are the steps for strategic marketing?
6. How do we measure marketing performance?
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Inpreparingforbattle Ihavealways foundthatplansareuseless butplanning
isindispensable Dwight EisenhowerDwight Eisenhower
Why?Why?
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What Business Are We In?
Product-Oriented versus Market-Oriented
CompanyCompany ProductProduct
DefinitionDefinition
Market DefinitionMarket Definition
Railroad CompanyRailroad Company We run a railroadWe run a railroad We are a peopleWe are a people--andand--goods movergoods mover
XeroxXerox We make copyingWe make copying
equipmentequipment
We help improve officeWe help improve office
productivityproductivity
Standard OilStandard Oil We sell gasolineWe sell gasoline We supply energyWe supply energy
Columbia PicturesColumbia Pictures We make moviesWe make movies We marketWe market
entertainmententertainment
EncyclopediaEncyclopedia We sell encyclopediasWe sell encyclopedias We distributeWe distribute
InformationInformation22
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Market-Oriented Strategic Planning
Integrating Intuition & analysis
Opportunities
Objectives
CoreCompetencies
Resources
Strategic
Fit
When is strategic analysis
relevant?
Uncertainty, includingcompetition
Flexibility is necessary
What is the relationship between strategic planning and
operational planning? 23
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What is strategy
Long term choices to achieve long termobjectives/goals
Strategy is:
Company specific time/situation specific
Value adding only after implementation
Strategy is not: Business principles / best practices
Static
One optimum / best solution
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Levels of Strategic Planning
Corporate
Strategic business unit (SBU).
* Pros and cons
Functional (e.g. Marketing strategies)
Product / Market 25
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Strategic vs Operational Competence
4.Die quickly
Strong
Strong Weak
3. Survive
1. Thrive 2. Die slowly
Weak
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Planning Process
Internal
Audit
External
Audit
SWOT Goals
Operational
PlanningFeedback &
ControlStrategies
Vision
&
Mission
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Planning as a process
Business Mission /Vision. E.g. Google mission: To organize the worldsinformation and make it universally accessible and useful; Accenture:
Innovation delivered.
Strategic Analysis (e.g. competitive forces analysis, portfolio analysis,
SWOT analysis, Product/market growth modeling)
Goal Formulation (SMART) Corporate strategy Formulation (e.g. cost leadership, differentiation,
focus, strategic alliances, growth strategies).
Marketing strategy formulation (segmentation, targeting and
positioning, marketing mix)
Program formulation / operational planning Implementation
Feedback, Control and Corrective Action.
Need for continuous scanning of key environmental variables and
maintaining flexibility in strategic planning. 28
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Porters Generic Strategic Approaches
to Competitive Advantage
Overall cost/efficiency leadership. How?
(economies of scale, modify supply chain, lean
manufacturing..)
Differentiation. How?
(Strong branding, in-depth understanding of customers,
unique quality)
But how well do you implement the selected strategy?! 29
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Marketing Alliance Strategies
Product or Service Alliances.
Promotional Alliances.
Logistical Alliances.
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Marketing strategic and operational
planning processes
I. Define relevant market boundaries
II. Analyze the situation:
1. Product/portfolio analysis2. Competitive analysis
3. Sources of growth
4. SWOT analysis
III. Segmentation, targeting and positioning
IV. Marketing mix formulation
V. Designing tools for monitoring and control31
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Portfolio Models: How healthy is your
portfolio of SBUs or Products?
THE MODELS HELP TO:THE MODELS HELP TO:
DIAGNOSE THE HEALTH OF THE PORTFOLIO
GUIDE RESOURCE ALLOCATION (build, hold, harvest
or divest)
IMPROVE CASH FLOW MANAGEMENT
FOCUS ON TWO DIMENSIONS
Market attractiveness (market size, market growth,profitability, competition etc.)
Business strength (market share, share of growth,
product quality, unit costetc.)32
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Portfolio Models: Boston Consulting Group
Growth-Share Model
This analysis covers the past, what about the future?
Question Marks
1
2 3
Cash Cow
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44
66
Stars
Dogs
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Relative Market ShareHigh Low
MarketGrowth
Rate
1 < 1>1
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STRATEGIC ALTERNATIVES
BuildBuild :
Here the objective is to increase the SBU's market share,
even foregoing short-term earnings to achieve this
objective.
"Building" is appropriate for question marks whose
shares have to grow if they are to become stars.
HoldHold ::
Here the objective is to preserve the SBU's market share.
This objective is appropriate for strong cash cows if they
are to continue to yield a large positive cash flow.
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DivestDivest :
Here the objective is to sell or liquidate the businessbecause resources can be better used elsewhere.
That is appropriate for dogs and question marks thatare acting as a drag on the company's profits.
HarvestHarvest :
Here the objective is to increase the SBU's short-termcash flow regardless of the long-term effect.
This strategy is appropriate for weak cash cows whosefuture is dim and from whommore cash flow is needed.
Harvesting can also be used with question marks anddogs.
STRATEGIC ALTERNATIVES (cont.)
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Growth Strategies: Ansoffs Product/Market
Expansion Grid
Newmarkets
2. Market
development
1. Market
penetration
4. Diversification
3. Product
developmentExistingmarkets
Existingproducts
Newproducts
B) Other Strategies for growth:
Integrative growth (vertical, horizontal)
Diversification growth36
A) IntensiveGrowth: within
current business)
Sequence depends on
expected moves by
competitors
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SWOT analysis
External Analysis
Opportunities
ThreatsInternal Analysis
Strengths
Weaknesses
Use check-lists (e.g. PESTLE analysis: political, economic,
social, technological, legal, ecological; Management audits).
Look for interactions among internal and external factors. 37
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Opportunity Matrix
HighHigh
HighHigh
LowLow
LowLow
11
44
22
33
Success ProbabilitySuccess Probability
Attractiveness
Attractiveness
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Threat Matrix
HighHigh
HighHigh
LowLow
LowLow
11
44
22
33Seri
ousness
Seri
ousness
Probability of OccurrenceProbability of Occurrence
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Internal Analysis: Strengths & Weaknesses(actual and potential)
Marketing and customer equity
Finance
Manufacturing / operations
Organization
Focus on those S&Ws that:
are critical to achieving company vision / long term goals
have the greatest interaction with O&T. Describe those
interactions.40
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Translating SWOT issues into actions
Strengths (maintain, build and leverage)
Opportunities (prioritize and optimize)
Weaknesses (remedy or exit)
Threats (counter)
Do TOWS analysis (next page)41
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SWOT/TOWS ANALYSIS
(Interactions)
STRENGTHS
S1 ..
S2 ..
WEAKNESSES
W1 .
W2 .
.
OPPORTUNITIES
O1 ..
O2 ..
S/O
ACTION STRATEGIES
to use strengths to exploit
opportunities (e.g. S1/O2)
W/O
ACTION STRATEGIES
to overcome weaknesses to
enable the organization to
exploit opportunities (e.g.W2/O1)
THREATS
T1 .
T2 .
S/T
ACTION STRATEGIES
to use strengths to deal
W/T STRATEGIES to
overcome weaknesses to
enable the organization to
deal with threats
InternalInternal
ExternalExternal
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Prioritizing Strategies
Strategies/Strategic
Initiatives
Attractiveness (1-5)
Cost Implementability
Revenuepotential
Marketshare
Totalscore
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The Marketing Plan: Outline
Executive Summary & Table of Contents
Describe Current Marketing Situation (market, product,
competition, distribution, macro environment)
SWOT Analysis, strategic issues/opportunities
Objectives
Marketing Strategy (segmentation, targeting,
Positioning, 4 PS)
Operational plan and budget
Projected Profit-and-loss
Controls44
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The Control Process
What do
we want
to achieve?
Why
is it
happening?
What should
we do about
it?
What is
happening?
CorrectiveCorrective
actionactionPerformancePerformance
diagnosisdiagnosis
PerformancePerformance
measurementmeasurement
GoalGoalsettingsetting
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Measuring Marketing Performance
Defining marketing metrics / KPIs (e.g., awareness, market
share)
Measuring marketing plan performance Sales analysis
Market share analysis
Marketing productivity
Profitability analysis: Prepare a profit and loss statement for
each marketing entity.
Determining corrective action.46
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Additional Marketing Metrics
New customers/Average no. of customers %
Lost customers/Average no. of customers %
W
in-back customers/ lost customers%
Customers willing to recommend product/Average no. ofcustomers %
Percentage of customers who correctly identify productintended positioning %
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III. Creating CustomerValue, Satisfaction
AndLoyalty
1. Define customer satisfaction and customer loyalty. What
are the drivers of customer satisfaction and loyalty?
2. How do we measure and track customer satisfaction?How do we use the data?
3. How do we use value delivery networks to achieve
customer satisfaction and compete effectively?
4. How should we manage relationships with different typesof customers for maximum customer equity and
marketing productivity? What are the dangers and
challenges facing CRM implementation?
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Determinants of Customer Delivered Value
Image value
Personnel value
Services value
Product value
Totalcustomer
value
Totalcustomercost
Monetary cost
Time costEnergy cost
Psychological cost
Customerperceived
value
Which competitor delivers the highest perceived value as perceivedby customers?49
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Satisfaction and Loyalty
Satisfaction is a persons feelings of pleasure or
disappointment resulting from comparing a products
perceived performance with his or her expectations (based on
the value proposition).
Needtomanageexpectations.
Satisfaction ismulti-dimensional
Loyalty is a deeply held commitment to re-buy or re-patronize
a preferred brand in the future despite situational influencesthat may cause switching behavior. One o the strongest
indicators of brand loyalty is the readiness to pay a premium
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Satisfaction and Loyalty
The link between customer satisfaction and customer
loyalty is not proportional (straight line). Xerox found out
that its completely satisfied customers were six times
more likely to re-purchase Xerox products than its very
satisfied customers.
Can the marketer influence perceived performance?
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Satisfied Customers
Are loyal longer.
Buy more (new products & upgrades).
Spread favorable word-of-mouth.
Are more brand loyal (less price sensitive).
Offer feedback.
Reduce transaction costs.
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TOOLS FOR TRACKING CUSTOMER
SATISFACTION
Customer satisfaction surveys / customer satisfaction indexes.
Complaint and suggestion system
Mystery shoppers
Lost customer analysis and recovery effort.
Monitoring competitors customer satisfaction53
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Customer Development
Inactive or
ex-customers
PartnersAdvocatesClientsRepeatcustomers
First-timecustomers
Potentials
Prospects
Disqualifiedprospects
CAN YOU MEASURE THE LIFETIMEVALUE OF YOUR CUSTOMERS?54
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Estimating LifetimeValue
Annual customer revenue: $500
Average number of loyal years: 20
Company profit margin: 10%
Customer lifetime value: $1000
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Tools to improve loyalty
Interaction with customers: dialogues and trialogues (three
way communication)
Developing loyalty programs
Personalizing marketing (e.g. Dell customized computer
ordering)
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Customer Relationship Management (CRM):
Concept & Technology
Building relationships with valued customers to
maximize their long term value and profitability (customer
differentiation?)
CRM as a planning tool
CRM as a tool for efficient execution
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The Concept of CRM
All businesses, when they first start, focus on the
needs of their customers. As businesses get larger
and more complex, they often lose customer focus.
With CRM, the individual customer becomes
important once more at an acceptable cost to the
company. Through information technology, we
can obtain the right information at the right time.
The marketing effort becomes more focused and
productive.58
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Objectives OF Customer Relationship
Management (CRM)
Maximize the value of the companys customer base through:
Increasing longevity of customer relationship
Enhancing growth potential of each customer through cross-
selling and up-selling
Making low profit or unprofitable customers more profitable or
terminating them.
More focus on high value customers.
REMEMBER THAT CUSTOMERVALUE AND
PROFITABILITY OFTEN CHANGE OVERTIME59
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CRM: The Basic Process
1. Identify your customers and prospects2. Differentiate them; their needs, their value
3. Interact with them to strengthen and deepen
relationships.
4. Customize your products, services and messages to
customers
What is included in the customers data base, other than names,
addresses and telephone numbers? From where do we get this
info? Touch points.
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Under what conditions does CRM investment makes economic
sense?
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Customer/Product Profitability Analysis (A
banking example)
P1HighlyHighly profitable
product
P2Profitable
product
P3Losing
product
P4Mixed-bag
product
P
r
od
u
c
ts
+
+
+High profit
customers
+
-MixedMixed--bagbag
customerscustomers
+
--
Losing
customers
C1 C2 C3
Customers
WHAT SHOULD WE DO WITH UNPROFITABLE CUSTOMRS? ( RAISE FEES,
CHANGE SERVICE, SUPPORT TO REDUCE COST, ELIMINATE?)
IS PAST OR FUTURE PROFITABILITY MORE IMPORTANT?
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CRM CheckList
Do you help your employees to fulfill customer needs
regardless of where in your company they are working?
Do your customers receive a high level ofservice no
matter which channel they decide to use?
Do you proactively and intelligently inform customers
about products and services they will be interested in, and
still keep your marketing costs under control?
Do you know who your most profitable customers are?
Do you have the strategy and tactics in place to keep them?
Is the value added by CRM worth the large investment?62
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Downside of data base marketingand CRM
1) High investment cost
2) Staff failure to utilize the system fully; failure to
align with
oth
er internal systems
3) Customers privacy concerns
4) Closer relationship doesnt always translate intohigher profitability
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AN ONGOING PROCESS
Customer Relationship Management is a ongoing,
dynamic learning process for an organization
No organization has perfect information on its
customers. Knowledge of customers is continuously
enhanced through the CRM dynamics.
Make sure that your customers dont feel a threat to
their privacy.
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IV. Understanding
BuyingBehavior
1. How do we learn about buying behavior? (theory vs.
empirical research) How rational is buyer behavior?2. What are the different roles played during the buying
process? What are the managerial implications?
3. What are the steps in the buying process?
4. Do all buying processes involve the same degree of
complexity?
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Overall Conceptual Model ofOverall Conceptual Model of
Consumer BehaviorConsumer Behavior
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Buying Roles
Initiator
Influencer
Decider
Buyer
User67
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Four Types ofBuying Behavior
Complex(criteria, beliefs, attitudes, choice)
Attempts for dissonance
Reduction
Switching to seek
variety-
Habitual
Significantdifferences
betweenbrands
Fewdifferences
betweenbrands
HighInvolvement
LowInvolvement
What is the strategy of the market leader and market challenge
in each case?
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Consumer Buying Process
Needrecognition
Information
Search
Evaluation ofalternatives
Purchasedecision
Post-purchasebehavior
Sources: personal, commercial,
Public, experiential
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Decision Making Sets
Total sets Awareness set Consideration set Decision
IBM
Apple
Dell
Hewlett-Packard
Toshiba
Compaq
NECTandy
-
-
-
IB
MApple
Dell
Hewlett-Packard
Toshiba
Compaq
IBMApple
Dell
??
70
But, dont forget that this is an open
system
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Evaluation of alternatives
Which attributes (criteria) are important?
Beliefs about brand attributes (brand image)
Attitudes / preferences toward brands (formed partly throughthe evaluation of brand attributes)
How can the marketer influence these processes to hiscompanys benefit?
Does the purchase decision influence the buyers attitudetowards the product ? 71
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Post-purchase behavior
Need to understand the customers total
experience with the product (buying, using,
maintaining, disposing).
Satisfaction or dissonance is a function of the gap
between buyer expectation and perceived
performance
Post-purchase actions. How to influence them to
your favor?72
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MIS Components
A marketing information system (MIS)marketing information system (MIS) consists
of people, equipment, and procedures to
gather, sort, analyze, evaluate, and distribute
needed, timely, and accurate information to
marketing decision makers.Components:
Internal recordsMarketing intelligence system
Marketing research system
Marketing decision support system 73
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Internal Records
y Sales Information Systems (on-line reporting andclassification of sales by product, channel,
regionetc help monitor the effectiveness of
marketing actions)
y Order To Payment Cycle (measuring cycle time,
monitoring the efficiency and effectiveness of the
supply chain)
y Data bases, data warehousing and data-mining to
enable focused marketing action.74
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MARKETING INTELLIGENCE SYSTEM
A set of procedures and sources used by
managers to obtain everyday information about
developments in the marketing environment.
Sources: salesmen, distributors and other
intermediaries, examining competitors` products and
services, literature about competitors, customer
advisory panels, information sold by marketing research
firms.75
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MARKETING DECISION SUPPORT
SYSTEM / MODELS
Building models of marketing sub-systems.
Simulation / What if analysis.
Which parts of the marketing system are
more suitable for modeling?
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The Marketing Research Process
Define researchproblem, objectives,scope and decision
Implications.
Develop
the research
plan
Collect theinformation
Analyze theinformation
Present thefindings
Need for active
dialogue betweenmanagers and
researchers
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Problem Formulation
Decision ProblemDecision Problem Research ProblemResearch Problem
What should the WhatWhat should the What informationinformation isis
decision makerdecision makerdodo? needed, & how to? needed, & how to
obtain information?obtain information?
GENERAL
SPECIFIC
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Examples of Problem Formulation
Decision Problems
1. Develop package for a new
product
2. Allocate newspaper space
for various topics.
3. Increase store traffic.
Research Problems
1. Evaluate effectiveness of
alternative package design
2. Measure readers interests
in these topics.
3. Measure current store
image & store choice
79
DEVELOPING THE RESEARCH PLAN (Data so rces
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DEVELOPING THE RESEARCH PLAN (Data sources,
research methods, instruments, sampling plan, contact
method)
1)Data sources
Secondary
Primary
2)Research approaches:
Observation
Focus groups
Survey
Behavioral data Experimental research
3)Research instruments:
Questionnaires
Qualitative techniques (focus
groups, depth interviews, projective
techniques(e.g. word associations)
Technological devices (e.g.
Audiometer, Eye camera,
Neurological research)
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DEVELOPING THE RESEARCH PLAN
(CONT.)
4)Sampling plan
Sampling unit & frame
Sample size
Sampling procedure
(probability vs. non-
probability samples)
5)Contact methods
Mail
Telephone
Personal interview
On-line interviewing
81
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Good Marketing Research
Is scientific
Is creative
Uses multiple methods
Acknowledges the cost & value of
information Maintains healthy skepticism
Is ethical82
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Measuring and Forecasting Demand
Market
Demand/
potential
Company
Demand/
potential
Industry sales/
forecast
Company
sales/forecast
83
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Estimating Current Demand
Market Demand Function
Demand is affected by the level of marketing effort/ expenditure; as wellas price, income and other factors.
Market Potential
Maximum demand for a particular marketing environment (e.g. level ofeconomic growth)
Total Market Potential:
no. of potential buyers x av. purchase
chain ratio method
Area Market Potential
market build-up for business markets
multiple-factor index for consumer markets
Sales
Industry Sales (actual) Market Share (%)84
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Estimating Future Demand
Uses of Demand/Sales Forecasts
Forecasting Methods:
Survey ofBuyers Intentions
Composite of Sales Force Opinion
Expert Opinion (e.g. Delphi method)
Past Sales Analysis (time-series, statistical analysis)
Market Test Method
What people: say, do, have done85
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V. COMPETITIVE STRATEGY
1. Wide vs. narrow definition of competition; industryvs. market definition. What are the sources ofcompetitive threats? Porters five forces model
2. What do you need to know about your keycompetitors? Why? How do you build a competitiveintelligence system?
3. Should you attack, defend or follow and how?
4. Why is it important to balance customer andcompetitor orientation?
86
Porters Five Forces Model: a Tool for
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Formulating Competitive strategy
No / size / concentrationDiversity of competitionExcess capacityExit barriersCost structure
Industry Rivalry
Entry Threat Threat of Substitutes
BuyerBargaining
Power
PriceSensitivity:
Product cost vs. total cost Product differentiation
Competition between buyers
BargainingPower
No./ size / concentration of buyers &suppliers
Switching costs
Ability to integrate backward
Buyer propensity tosubstitute
Relative price performance ofsubstitutes
Entry barriers Access to customers /distribution channels
Power of suppliers relative to
buyers is similar to relationship
between producers and buyers -
see below
87
SuppliersBargaining
Power
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Analyzing Competitors
Identify competitors (present & potential; direct & indirect;
industry & market) and investigate their:
Objectives
Strategies (similar vs. different strategies)
Strengths & Weaknesses (share of market, mind, heart)
Reaction Patterns (laid-back, selective, tiger),
88
C t R ti f C tit K
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Customers Ratings of Competitors on Key
Success Factors
ProductQuality
ProductAvailability
AfterSaleService
SellingStaff
CompetitorA 9 5 6 8
Competitor B 8 9 8 6
Competitor C 5 8 7 7
Scores are out of tenCan you calculate a summary figure for each competitor?
89
M k t Sh Mi d Sh d H t Sh
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Market Share, Mind Share, and Heart Share
(%)
Market Share Mind Share Heart Share
Year1
Year2
Year3
Year1
Year2
Year3
Year1
Year2
Year3
CompetitorA 50 47 44 60 58 54 45 42 39
Competitor B 30 34 37 30 31 35 44 47 53
Competitor C 20 19 19 10 11 11 11 11 8
90
C t l l i f th b d
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Customer value analysis for three brands
A B C
Price $100 $ 90 $ 80
Acquisition costs 15 25 30
Usage costs
4 71
0
Maintenance costs 2 3 7
Ownership costs 3 3 5
Disposal costs 6 5 8
Total costs to thecustomer
$130 $135 $140
Compare these customer costs to customer perceived value91
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Market Structure & Competitive Strategies
Market
leader challenger Follower Nicher
92
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Alternative Strategies for Market Leaders
Expand Market (creative interaction with present andpotential customers)
new users
new uses
more usage
Defend Market Share
Expand Market Share
Six Types of
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Six Types ofDefense Strategies
I. Position defense
II. Flank defense
III. Preemptive defense
IV. Counteroffensive defense
V. Mobile defense (Market broadening & market diversification)
VI. Contraction defense
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Five General Attack Strategies
I. Frontal attack (Cola wars)
II. Flank attack on a weakness area (e.g., human guidedsearch algorithms as a substitute for Google search)
III. Encirclement blitz attack on many fronts
IV. Bypass attack (diversification into unrelated products,geographies, technologies)
V. Guerilla warfare
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Specific Attack Strategies
Price discounts
Lower-priced goods
Value-priced goods Prestige goods
Product proliferation
Product innovation
Improved services
Distributioninnovation
Manufacturing-costreduction
Intensive advertising
promotion
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Market follower strategies
These strategies dont eliminate the need for creativity in
implementation !!
I. Counterfeiter
II. Cloner (slight variation)
III. Imitator (of some things while maintaining differentiation
from leader)
IV. Adapter / improver (S&S motor cycle)
97
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Market-Nicher Strategies
End-use specialist
Specific-customer specialist
Product or product-line specialist
Job-shop specialist
Are all market nichers small companies?
Can you jump from a niche strategy to overtake the leader in
the core market?
Do market nichers usually achieve a higher return on
investment?
Multiple niching strategies 98
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VI. SEGMENTATION AND TARGETING
1. Why segment? What are the uses of segmentation?
2. What are segmentation approaches, procedures?
3. Segmentation criteria
4. Targeting criteria
5. Niche marketing
99
Basic Market-Preference Patterns
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Basic Market Preference Patterns
(c) Clustered(c) Clusteredpreferencespreferences
(a) Homogeneous(a) Homogeneouspreferencespreferences
(b) Diffused(b) Diffusedpreferencespreferences
100
U f S t ti
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Uses of Segmentation
Appraising competitive strengths,
Planning product / product line,
Determining advertising and selling strategy,
Channel design strategy
Setting precise marketing objectives101
Market Segmentation Targeting and
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Market Segmentation, Targeting, and
Positioning (STP): Pillars of Marketing Strategy
1. Identify
segmentation
variables and
segment the
market
2. Developprofiles of
resulting
segments
SegmentationSegmentation
3. Evaluate
attractiveness
of each
segment
4. Select the
targetsegment(s)
TargetingTargeting
5. IdentifypossiblePositioning/differentiationconcepts foreach targetSegment
6. Select,develop, andcommunicatethe chosenpositioningconcept
PositioningPositioning
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Levels Of Market Segmentation
Mass marketing (shotgun)
Segment marketing; different marketing programs fordifferent segments (rifle)
Niche marketing
Individual marketing; or mass customization: To prepareon a mass basis individually designed products or services;e.g. Dell; Mini cars)
**********
The key is to weigh the costs and benefits of segmentation.
Segmentation involves both division and aggregationprocesses. How?
103
Research-Based Market-Segmentation
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Research Based Market Segmentation
Procedure
I. Survey of actual & potential customers (informal, formal) Motivations / needs
Attitudes / preferences
Explicit behavior
Demographic characteristics
II. Analysis Factor analysis (every factor represents several highly
correlated variables)
Discover clusters (maximally different segments)
III. Profiling segments / clusters (attitudes, behavior,demographics, psychographics, media patterns).
Remember: Segmentation should be reviewed regularly
CRM data as a source of segmentation104
T A h T S t ti
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Two Approaches To Segmentation
a) segment on the basis ofcustomers characteristics, then
examine possible differences in market response;
b) segment on the basis ofmarket response or customerneeds, then examine possible differences in customer
characteristics. An example of this approach: segment on
he basis of light or heavy use of the product; then research
the characteristics of each group (segment)
Most segmentation schemes combine the two approaches
Q: Can we get the members of a targeted segment to select
themselves?
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Illustrative Segmentation Variables
Characteristicsof people/organizations
ConsumerMarkets
Industrial/Organizational Markets
Age, gender, income,family size, lifecyclestage, geographiclocation,lifestyle
Type of industry, size,geographic location,corporate culture, stage ofdevelopment, producer/intermediary
Use situation Occasion, importance ofpurchase, priorexperience with product,user status
Application, purchasingProcedure (new task,modified re-buy, straightRe-buy
Buyers needs/
preferences
Brand loyalty status, brand
preference,benefits sought
,
quality, proneness to makea deal
Performance requirements,
brand preferences,
desiredfeatures, servicerequirements
Purchasebehavior
Size of purchase,frequency of purchase
Volume, frequencyof purchase
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107
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108
Segmenting the smart phone market (I phone)
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109
Target Segment Consumer Need Corresponding
Feature/Benefit
Professionals yStay in touch while on the goyRecord information while on
the go
yE-mail, instant messaging, andphone
yApplication forms Mac OS X fornotes and record-keeping
Students yPerform many functionswithout carrying multiple
gadgets
yStyle and individualityyiPod, phone, video, TV shows,
Internet, PDA
yApple branding as fashionstatement
Corporate Users yInput and access critical dataon the go
yApplications from Mac OS X fornotes and record-keeping
yCompatible with widelyavailable software
Entrepreneurs yOrganize contracts, accesscontracts, and schedule
details
yWireless access to calendar andaddress book to easily checkappointments and contracts
Medical Users yUpdate, access, andexchange medical records
yWireless access to calendar andaddress book to easily check
appointments and contracts
Segmenting the smart phone market (I phone)
EXAMPLE: Tooth paste market
Worrier Sociable Sensory Independe
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110
Worrier Sociable Sensory Independent
Profile Demograp
hic
20-40
Largefamilies
Teens
Youngsmokers
Children 35-40
Male
Psychographic
Conservatives
Highsociability
High selfinvolvement
Highautonomy,value
orientedWhat isbought,
ProductExamples
SignalMentadentP
MacleansUltrabrite
ColgateAquafresh
Privatelabel
Why is itbought
Benefitssought
Stop decay Attractattention
Taste Functionality
% ofmarket
%50% 30% 15% 5%
Example: Gasoline Buyers
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Example: Gasoline Buyers
RoadWarriors
True
Blues
GenerationF3 (Fuel,Food & Fast)
Homebodies
PriceShoppers
Higher-income, middle-aged men, drive 25-50000 miles a year buy premium with acredit card purchase sandwiches and drinksfrom the convenience store will sometimesuse carwash
16% ofbuyers
Men and women with moderate tohigh incomes, loyal to a brand and
sometimes a particular station frequently buy premium, pay in cash
16
% ofbuyers
Upwardly mobile men and women -half under25 years of age -constantly on the go drive a lotsnack heavily from the convenience store
27% ofbuyers
Usually housewives who shuttle
children around during the day anduse whatever gas station is based ontown or on route of travel
21% ofbuyers
Not loyal to brand or station andrarely buy premium frequently ontight budgets.
20% ofbuyers
WHAT ARE THE IMPLICATIONS FOR PRICING GASOLINE?
EXAMPLE: Watches
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EXAMPLE: Watches
Segmentation by Value Concept:
1. People who want to pay the lowest possible price
for any that works well. (23%)
2. People who value watches for their long life and
willing to pay for the product qualities. (46%)
3. People who look for useful product features and
meaningful emotional qualities. (31%)
112
EXAMPLE: Automobiles
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EXAMPLE: Automobiles
1.V
alue segmentation:a) People who buy car for economy.
b) People who want to buy the best product they can
find for their money.
c) People interested in personal enhancement.
113
EXAMPLE: Automobiles
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2. Susceptibility to change brands:
People whose brand loyalty is so solidly entrenchedthat no competitor can get to them. They are closedoff to change.
The open-minded and unprejudiced buyers
B
etween them, people who are predisposed to aparticular brand to a greater or lesser degree.
114
EXAMPLE: Computers
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Degree of self confidence
20% believed they knew how to evaluate a computer.
80% did not have confidence in their own ability toevaluate a computer
EXAMPLE: Computers
115
Niche Marketing
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g
Conditions for Success
A small market not well served
Distinctive needs
Will pay a premium if satisfied
Not likely to attract many competitors
Profit and growth potential
Strategy of targeting multiple niches as a business model?
Conditions for using this strategy.116
Bases for Segmenting Business Markets
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Bases for Segmenting Business Markets
Demographic (industry, size, location)
Operating Variables (technology, capabilities, usage)
Purchasing Approaches (Degree of centralization,
Purchasing criteria)
Purchasing criteria (price, solution, or strategic
orientation)
Situational Factors (urgency, nature & size of order)
Personal Characteristics (risk aptitude, personal
relations)117
Effective Segmentation
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Effective Segmentation
Measurable
Accessible
Substantial
Differential
Segments must be large orprofitable enough to serve.
Segments can be effectivelyreached and served.
Size, purchasing power, profilesof segments can be measured.
Segments must responddifferently to different marketingmix elements & actions.
Differential
118Actionable Action can be taken to attract and
serve the segment
Criteria for Targeting
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Criteria for Targeting
Contribution to profitability and
growth
Fit with companys competencies
Degree of competition
119
Five Patterns of Target Market Selection
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g
120
FOOD FOR THOUGHT
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FOOD FOR THOUGHT
SEGMENTATION IS NOT A SUBSTITUTE FOR
CREATIVITY
In traditional segmentation, the market is considered as a
given. What about creating a whole new market?
Segment attractiveness may change over time.
Income maybe a tricky segmentation criterion: consumers
may trade up in some categories and trade down in others.
Consider your strategic choices for segment by segment
invasion121
VII. POSITIONING
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1. Points of difference vs. points of parity,
perceptual mapping
2. Alternative positioning strategies
3. Differentiation as a tool for positioning
4. Product life cycle: marketing strategy
implications122
Positioning Strategy
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Positioning Strategy
Positioning:Positioning: istheactof designingthecompanysofferingandistheactof designingthecompanysofferingand
imagetooccupya distinctiveplaceimagetooccupya distinctiveplacein thetargetmarketsin thetargetmarketsmindmind
within acertain competitive frameofreference.within acertain competitive frameofreference.
SuccessfulpositioningstrategyinvolvesthetotalmarketingSuccessfulpositioningstrategyinvolvesthetotalmarketing
mix.mix.
Resultof positioning:acustomerfocusedvalueproposition.Resultof positioning:acustomerfocusedvalueproposition.
123
Communicating a Position
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Communicating a Position
Format of a positioning statement
To: target group and need
Our brand is: concept
That: point of difference
Example:Example: To busyprofessionalswho needtostayorganized
Palm Pilot is an electronicorganizer that allowsyouto back
up fileson yourpcmoreeasilyandreliablythan competitive
products.
Once you have a clear position communicate and reinforce it
through all possible means. 124
Differences vs. Parity
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Points-of-difference
(PODs)
Attributes or benefits
consumers strongly
associate with a brand,
positively evaluate, and
believe they could not find
to the same extent with a
competitive brand
Points-of-parity
(POPs)
Associations that are not
necessarily unique to the brand
but may be shared with other
brands: a)Category POP
b)Competitive POP125
Consumer Desirability Criteria for
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PODs
Relevance
Distinctiveness
Believability
Feasibility
Communicability
Sustainability
126
Your competitors will often challenge both your claims for PODs
and POPs
Bases For Positioning (Examples)
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Bases For Positioning (Examples)
Attributes / features
Benefits
Use / application
Quality / price
Choice should be based upon:
Customer priorities
Cost to the company
Potential competitor response
127
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Alternative Positioning Strategies
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Strengthen own current position in the consumer'smind.
Grab an unoccupied position (unsatisfied need).
Deposition or reposition the competition (e.g. where isthe beef?)
Identify one's self as a member of an exclusive
club.
Is positioning a question of communication only?
Is there an ideal position ?
129
How Many Differences to promote?
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y p
Don't lose focus. If your positioning is out of focus, so will be your
marketing mix and probably your whole operation !!. Try to be
number one in one or two benefits. Avoid these positioning
errors:
Under-positioning (lack of clarity).
Over positioning (narrow positioning).
Confused positioning (inconsistent or multiple images).
Doubtful positioning (non-credible claims).130
How To Differentiate: A Three Step Process
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p
Define the customer value model (according to hisperception of value)
Build the customer value hierarchy (basic, expected,
desired, unanticipated)
Decide the customer value package which outperformscompetitors, wins customers` loyalty, and achieves profit.
Must differentiation and segmentation go together?
Does differentiation add to cost?
131
Sony's Approach To Continuous
Differentiation: Pre empting Competition
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Differentiation: Pre-empting Competition
For every new product, the company forms three
teams with the following assignments (assuming
the product belongs to a competitor):
Minor improvements
Major improvements
Ways to make it obsolete.
Being first doesnt guarantee the first mover advantage
132
1.Product Differentiation
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Conformance
Quality
DurabilityPerformance
quality
FeaturesForm
Design
(The integratingForce: looks &
function)
Style/Mode of
expression
Ease of repairReliability
133
2 Services Differentiation
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2.Services Differentiation
Delivery
Ordering
Ease
Maintenance
& Repair
Customer
Training
InstallationCustomer
Consulting
Misc
ellaneous
Services
Compare customer value to company cost134
33. Personnel differentiation:. Personnel differentiation:
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Unique personnel that add value (competence,responsiveness, communication)
44. Channel differentiation:. Channel differentiation:
Unique Channels that add value (coverage,
expertise, performance)
135
5.Image Differentiation: How?
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g
Media Atmosphere
Symbols
Events
136
I t t
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Differences Worth
Establishing
Affordable Superior
Profitable
Hard to copy
Distinctive
Important
137
Product Life Cycle: implications for
mktg strategy
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mktg strategy
IntroductionIntroduction GrowthGrowth MaturityMaturity DeclineDecline
TimeTimeS
ales
S
ales&&
profits
profits($)
($)
Why this pattern? Any other possible patterns? Why? How do you know the
stage you are in?;
Can you influence the PLC?; Curves for fashions, fads? What are the
marketing implications? 138
Introduction Stage
Marketing Strategies
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Marketing Strategies
Slow-skimmingstrategy
Rapid-skimmingstrategy
Slow-
penetrationstrategy
Rapid-
penetrationstrategy
HighHigh LowLow
LowLow
HighHigh
PromotionPromotion
Price
Price
What are the factors that govern the choice of a particular strategy?
Your resources, expected competitive moves, etc.
139
Introduction Stage
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g
1.Rapidskimming: Products of which the market is not aware yet.
Possibility to build brand preference, potential competition expected.
2.S
lowskimming: For a limited market. Market is aware of theproduct. Potential competition is not imminent
3.Rapidpenetration: For a large market, unaware of the product with
price-sensitive buyers and strong potential competition.
4.Slowpenetration: For a large market, highly aware of the product,
price-sensitive buyers, with limited potential competition.
140
Growth Stage Strategies: sustaining
growth while facing emerging competition
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g g g g p
Improve quality and features
Add new models and flanker products
Enter new market segments
Increase distribution coverage
Emphasize product preference advertising
Lower prices to win new segments.141
Maturity Stage Strategies
Survival of the fittest?
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Survival of the fittest?
Longest and most challenging and most common stage.
Options:
Market Modification
(new users, more usage, new segments, win competitors`customers)
Product Modification
(quality, features and style improvement)
Marketing-Mix Modification (e.g. more emphasis on sales
promotion)Dont forget that each strategy has risks related to consumer and
competitors reactions. 142
Decline Stage Strategies
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Maintain investment until uncertainties are resolved
Selective dropping and niching
Harvesting / milking to improve cash flow
Divesting on best terms.
Don't Get Emotionally Involved !!
143
VIII. BRANDING
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VIII. BRANDING
1. Definition of Brands, Branding
a) Brand Equity
b) Dimensions
c) Measurement
d) Drivers
2. Brand naming, Brand extension and brand
portfolio3. Role of Branding in Competitive Strategy
144
Brand: Who Are You?
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A name, term, sign, symbol or design, or a
combination of them.
Intended to identify the goods or services of one
seller or group of sellers and to differentiate them
from those of competitors.
Branding is endowing a product or service with
the power of a brand.145
The Role ofBrands: bridge to the future !
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Identify the maker
Simplify producthandling
Offer legal protection
Secure pricepremium
Signify quality
Create barriers toentry
Serve as acompetitiveadvantage
146
Marketing Advantages of Strong Brands
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Greater loyalty
Less vulnerable to
competition
Larger margins
Inelastic consumer
response to price
increases
Elastic consumer
response to price
decreases
Greater trade
cooperation
Increase in effectiveness
of IMC
Licensing opportunities
Brand extension
opportunities
147
Criteria for Choosing Brand Elements
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Memorable
Meaningful
Likeability
Transferable
Adaptable
Legal viability
148Role of slogans: expressing unique brand essence (e.g.
We try harder).
Slogans
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g
Just do it
Imagination at work
Innovation delivered
We try harder
What is a Brand Promise?
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A brand promise is the marketers visionof what the brand must be and do forconsumers.
Customer Based Brand Equity
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The differential effect that brand knowledge has
on consumer response to the marketing of that
brand (perceptions, preferences, behavior).
Marketers invest in customer brandknowledge
151
Sources ofBrand Equity
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Brand loyalty
Brand awareness
Perceived quality
Brand associations
Other proprietary assets (patents, trademarks, etc.)
152
Building Brand Equity: BRANDZ
MODEL
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MODEL
153
Move them up the
pyramid !
Dimensions of brand knowledge
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Brand awareness:
Brand recall (aided,unaided)
Brand recognition
Brand image / associations:
Type of brand associations:
Attributes (product, price,packaging, use imagery)
Benefits (functional,experiential, symbolic)
Uses/users
Attitudes
Secondary associations (e.g.
country of origin, sponsorships)
154A sussessful brand should have a unique identity / essence
Dimensions of brand knowledge
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How brand associations create value:
Help recall
Differentiate
Give reason to buy
Create positive attitude
Brand strength
Favorability of association
Strength of associations
Uniqueness of associations
155A sussessful brand should have a unique identity / essence
Measuring Brand Equity
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I. Measuring knowledge structures
Brand audits (to identify and measure sources of brand
equity/brand knowledge).
II. Measuring customer response to marketing activities
Brand tracking (measuring the impact of marketing
activities on brand equity over time).
III. Brand valuation (financial estimates of brand equity)
156
Interbrands Steps in Calculating BrandEquity
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Equity
Market segmentation
Financial analysis
Role of branding
Brand strength
Brand value calculation
The 10 Most Valuable Brands (2010)
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1Coca-Cola 70,452 ($m)
2 IBM 64,727 ($m)
3 Microsoft 60,895 ($m)
4 Google 43,557 ($m)
5 GE 42,808 ($m)
6 McDonald's 33,578 ($m)
7 Intel 32,015 ($m)
8 Nokia 29,495 ($m)
9 Disney 28,731 ($m)
10 Hewlett-Packard 26,867 ($m)
Drivers ofBrand Equity
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I. Choice of brand elements.
Name, logo, symbols, slogan, character, etc
II. The product, services and supporting
marketing activities (contacts/touch points).
III. Inducing meaning transference.
Favorable associations with people, places, things, other brands
159
Managing Brand Equity
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Brand reinforcement (without boredom!) Volvo, Home Depot, Kellogg
Brand revitalization Harley Davidson, Mountain Dew
Brand crises management (need for swift and
sincere response Ford/Firestone, Perrier, Tylenol
160
Brand Naming
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Individual names (lower risk, high cost).
Blanket family name (economy).
Separate family names (for different categories).
Corporate name / individual name combo.
161
Brand Extension
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80809090% of new products are brand extensions% of new products are brand extensions Line extension vs. category extension
ADVANTAGE
New product success
(Parent brand leverage,
reduced cost, less risk of
failure)
Strengthening parent
brand
DISADVANTAGES
Brand dilution
Cannibalization
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Brand Portfolio
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A brand Portfolio is the set of all brands a particular firm
offers in a particular category.
WHY MULTIPLE BRANDS?
To maximize brand equity by:
Increasing shelf space
Cover different market segments
Attracting customers seeking variety
Enhancing competition within the firm
Criteria: Maximum market coverage AND minimum overlap163
Brand Roles in a Brand Portfolio
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Flankers / Fighters.
Cash cows.
Low-end entry-level.
High-end prestige.
164
IX. MAJOR MARKETING MIX
DECISIONS PRODUCT PRICE
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DECISIONS: PRODUCT, PRICE,
PLACE, PROMOTION (4 Ps)
165
1. How is every element of the marketing mix tailored to the target
market and strategic positioning?
2. What are the interdependencies among the elements of themarketing mix?
3. Strategic product mix decisions
4. Strategic price mix decisions
5. Strategic channel decisions
6. Strategic marketing communication decisions
PRODUCT: Product Augmentation over
time / Value hierarchy
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y
Basic product
Core benefit
Expected product
+Expected benefits
+ Unexpected benefits
+ Possible future benefits
Augmented product
Potential product
166
PRODUCT MIX
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Width : numberof
differentproduct
lines
Length: numberof
products
within eachline
Depth : numberof
versionsofeach
product
Product Mix -
all the products
offered
167
LineA
Line B
Etc
LineA
Product (x)
Product (Y)
Etc
Product (X)
Version 1
Version 2
Etc
Dont forget: Sense &Sensibility!!
PRODUCT: PRODUCT LINE DECISIONS
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Bases for product-line decisions (e.g. extension,
pruning):
Contribution to sales and profits (80-20 rule?)
Interaction among items in the mix
Market profile (product map shows positions of all
products that belong to the company and itscompetitors on relevant attributes)
168
PRODUCT: Example: Two-Way Product-
Line Stretch: Marriott Hotels
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Marriott Marquis
(Top executives)
Marriott
(Middle managers)
Courtyard
(Salespeople)
Fairfield Inn
(Vacationers)
Average
Price
Quality
169
Another success case:B
MW
PRICE: Setting Pricing Policy : Six
Steps
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S eps
1. Selecting the pricingobjective
2. Determining demandResponse to price: How?
3. Estimating costs
4. Analyzing competitorscosts, prices, and offers
5. Selecting a pricingmethod
6. Selecting final price
In a study covering 2400companies, McKinsey concluded
that a 1 percent improvement in
price created an improvement in
operating profits of 11.1 percent.
170
PRICE: Step 1: Selecting the Pricing
Objective
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j
Maximum current profit or long term profit
Maximum market share or profitability
Challenging competitors or avoiding pricewars
171
PRICE: Step 2: Determining Demand
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Estimating demand curves
Price sensitivity
Price elasticity of demand
172
PRICE: Types of Costs
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Total CostsSum of the Fixed and Variable Costs for a Given
Level of Production
Fixed Costs(Overhead)
Costs that dontvary with sales orproduction levels.
e.g. Executive SalariesRent
Variable Costs
Costs that do varydirectly with the
level of production.
e.g. Raw materials
173
PRICE: Cost Implication for Pricing
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Variable-fixed cost structure (High fixed cost/highoperating leverage make profit very sensitive to
changes in volume)
Learning curve effect
Different customers may represent different cost
burdens (activity-based costing)
Target costing / pricing 174
PRICE: Step 5: Selecting a Pricing
Method
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Markup Pricing
Selling price = unit cost / (1- desired mark-up on selling price)
Target Return on investment Pricing
Selling price = unit cost* + (% target return x invested capital / unit sales)
PerceivedValue Pricing (standard plus premium values)
* UNIT COST= V.C.+ F.C./SALESVOLUME
175
PRICE: Perceived Value Pricing
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Example:
Caterpillar tractor
Caterpillar price:
$100 000
Normal market price:
$90 000
Extra values by Caterpillar:
7,000 durability
6,000 reliability
5,000 service2,000 warranty
20,000
$110,000 in benefits
$10,000 discount!
176
PRICE: Step 5: Selecting a Pricing
Method
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Value Pricing (relatively low price for high
quality).
Going-Rate Pricing.
Sealed-Bid Pricing.
177
PRICE: Step 6: Selecting the Final Price
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Check impact of other marketing activities.
Check company pricing policies.
Product mix pricing: product line, optional feature, captive price,
two part, by-product, bundling
Check impact of price on other parties.
Make sure that you know the real price you receive , net of
discounts, rebates, concessions etc.178
PRICE: Consumer Psychology and
Pricing
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g
Reference prices.
Price-quality inferences.
Price endings.
Price cues.
179
PLACE: Channel Design Decisions
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Analyzing the service levels desired by customers (Lot size,Waiting time, Spatial convenience, Product variety,Service backup)
Establishing channel objectives and constraints (vary bymarket segment, product type)
Identifying major channel alternatives (types, number*,terms and responsibilities)
Evaluating major alternatives (economic, control andadaptive criteria)
*exclusive, selective, intensive180
Value-Delivery Network: A strategic alliance
Ex: Levi Strauss
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Du Pont(Fibers)
Milliken(Fabric)
Levis(Apparel)
Sears(Retail)
Customer
OrderOrder OrderOrderOrderOrder OrderOrder
Delivery DeliveryDelivery Delivery
Competition is amongCompetition is among networksnetworks, not separate companies., not separate companies. The winner is the better network.The winner is the better network. Relationship among network members is a strategic allianceRelationship among network members is a strategic alliance
that needs careful design, monitoring and managementthat needs careful design, monitoring and management181
PLACE: Types ofVertical Marketing
Systems
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Sources Of
Channel
Power
Coercive
Reward
Legitimate
Expert
Corporate
Common Ownership at Different
Levels of the Channel
AdministeredLeadership is Assumed byOne or
a Few Dominant Members
ContractualContractual Agreement Among
Channel Members
182
PLACE: Channel Management
Decisions
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Selecting
Motivating
Training
Evaluating183
PROMOTION: Communication: Dialogue
Not Monologue
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Maximize opportunities for interactive
dialogue with customers before, during and
after purchase.
Main purpose: reinforce strategic
positioning.
184
Elements in the Communication
Process
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SENDERRECEIVER
Encoding Decoding
Message
Media
Feedback Response
NOISE
185
Message Problems
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Selective Attention
Selective Distortion
Selective Retention186
Effective Communication Process
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1. Identify & analyze target audience
2. Determine communication objectives
3. Design the message4. Select channels
5. Decide on communications mix
6. Establish budget
7. Measure and evaluate results187
Stimulating Personal Influence Channels
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Identify influential individuals and devote extra
attention to them
Create opinion leaders
Use community influentials in testimonialadvertising
Develop advertising with high conversation value
Develop WOM referral channels Establish an electronic forum
Use viral marketing188
6. Establish the Budget
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CompetitiveP it Objective& Task
Affordable % OfSales