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PART ONE AN OVERVIEW OF MARKETING MANAGEMENT Module 1 The Marketing Management Process 1/1

1.1 Why Are Marketing Decisions Important? 1/5 1.2 Marketing Creates Value by Facilitating Exchange Relationships 1/6 1.3 What Does Effective Marketing Practice Look Like? 1/14 1.4 Who Does What? 1/24 1.5 Some Recent Developments Affecting Marketing Management 1/27

Module 2 Corporate Strategies and Their Marketing Implications 2/1

2.1 What Is Marketing’s Role in Formulating and Implementing Strategies? 2/6 2.2 Three Levels of Strategy: Similar Components But Different Issues 2/13 2.3 The Marketing Implications of Corporate Strategy Decisions 2/16

Module 3 Business Strategies and Their Marketing Implications 3/1

3.1 Strategic Decisions at the Business-Unit Level 3/5 3.2 How Do Businesses Compete? 3/7 3.3 How Do Competitive Strategies Differ from One another? 3/14 3.4 Deciding When a Strategy Is Appropriate: The Fit between Business Strategies and the Environment 3/18 3.5 How Different Business Strategies Influence Marketing Decisions 3/22 3.6 What If the Best Marketing Programme for a Product Does Not Fit the Business’s Competitive Strategy? 3/26

PART TWO OPPORTUNITY ANALYSIS Module 4 Environmental Analysis: Tools to Identify Attractive Markets 4/1

4.1 Swimming Upstream or Downstream: An Important Strategic Choice 4/3 4.2 Macro Trend Analysis: A Framework for Assessing Market Attractiveness 4/4 4.3 Environmental Analysis Guides Marketing Decision Making 4/14

Module 5 Industry Analysis and Competitive Advantage 5/1

5.1 Markets and Industries: What’s the Difference? 5/3 5.2 The Market Is Attractive: What About the Industry? 5/6 5.3 Industry Analysis Locally: How Intense Is the Immediate Competition? 5/12 5.4 Rate of Diffusion of Innovations: Another Factor in Assessing Opportunity Attractiveness 5/13 5.5 Sustaining Competitive Advantage over the Product Life Cycle 5/17

Module 6 Understanding Consumer Buying Behaviour 6/1

6.1 The Psychological Importance of the Purchase Affects the Decision- Making Process 6/4 6.2 Why People Buy Different Things: Part 1 – the Marketing Implications of Psychological and Personal Influences 6/17 6.3 Why People Buy Different Things: Part 2 – The Marketing Implications of Social Influences 6/22

Module 7 Understanding Organisational Markets and Buying Behaviour 7/1

7.1 Who Is the Customer? 7/4 7.2 How Organisational Members Make Purchase Decisions 7/9 7.3 Selling Different Kinds of Goods and Services to Organisations Requires Different Marketing Programs 7/21

Module 8 Measuring Market Opportunities: Forecasting and Market Research 8/1

8.1 Every Forecast Is Wrong! 8/4 8.2 A Forecaster’s Toolkit: A Tool for Every Forecasting Setting 8/5 8.3 Cautions and Caveats in Forecasting 8/12 8.4 Why Data? Why Marketing Research? 8/13 8.5 Market Knowledge Systems: Charting a Path toward Competitive Advantage 8/14 8.6 Marketing Research Resolves Specific Marketing Challenges 8/20 8.7 What Users of Marketing Research Should Ask 8/29 8.8 Rudimentary Competence: Are We There Yet? 8/30

Module 9 Market Segmentation and Target Marketing 9/1

9.1 Why Do Market Segmentation and Target Marketing Make Sense? 9/4 9.2 How Are Market Segments Best Defined? 9/5 9.3 Choosing Attractive Market Segments: A Five-Step Process 9/13 9.4 Different Targeting Strategies Suit Different Opportunities 9/21 9.5 Global Market Segmentation and Target Marketing 9/22

Module 10 Positioning 10/1

10.1 Differentiation: The Key to Customer Preference and Competitive Advantage 10/3 10.2 Physical Positioning 10/5 10.3 Perceptual Positioning 10/6 10.4 Levers Marketers Can Use to Establish Positioning 10/7 10.5 Preparing the Foundation for Marketing Strategies: The Positioning Process 10/8 10.6 Analytical Tools for Positioning Decision Making 10/20

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PART THREE MARKETING PROGRAMME DECISIONS Module 11 Product Decisions 11/1

11.1 Product Design Decisions for Competitive Advantage 11/3 11.2 Managing Product Lines for Customer Appeal and Profit Performance 11/14 11.3 New Product Development Process Decisions 11/17

Module 12 Pricing Decisions 12/1

12.1 A Process for Making Pricing Decisions 12/3 12.2 Methods Managers Use to Determine an Appropriate Price Level 12/13 12.3 Deciding on a Price Structure: Adapting Prices to Market Variations 12/22

Module 13 Distribution Channel Decisions 13/1

13.1 Why Do Multi-firm Marketing Channels Exist? 13/4 13.2 Designing Distribution Channels: What Are the Objectives to Be Accomplished? 13/6 13.3 Designing Distribution Channels: What Kinds of Institutions Might Be Included? 13/9 13.4 Channel Design Alternatives 13/13 13.5 Which Alternative Is Best? It Depends on the Firm’s Objectives and Resources 13/16 13.6 Channel Design for Global Markets 13/23 13.7 Channel Design for Services 13/26 13.8 Channel Management Decisions 13/27

Module 14 Integrated Promotion Decisions 14/1

14.1 The Promotion Mix: A Communication Toolkit 14/3 14.2 Developing an Integrated Marketing Communications Plan 14/5 14.3 The Nitty-Gritty of Promotional Decision Making 14/11

PART FOUR STRATEGIC MARKETING PROGRAMMES FOR SELECTED SITUATIONS Module 15 Marketing Strategies for New Market Entries 15/1

15.1 How New Is New? 15/4 15.2 Objectives of New Product and Market Development 15/6 15.3 Market Entry Strategies: Is It Better to Be a Pioneer or a Follower? 15/7 15.4 Strategic Marketing Programs for Pioneers 15/14

Module 16 Marketing Strategies for Growth Markets 16/1

16.1 Opportunities and Risks in Growth Markets 16/4 16.2 Growth-Market Strategies for Market Leaders 16/8 16.3 Share-Growth Strategies for Followers 16/17

Module 17 Marketing Strategies for Mature and Declining Markets 17/1

17.1 Shakeout: The Transition from Market Growth to Maturity 17/4 17.2 Strategic Choices in Mature Markets 17/6 17.3 Marketing Strategies for Mature Markets 17/20 17.4 Strategies for Declining Markets 17/28

PART FIVE IMPLEMENTATION AND CONTROL Module 18 Organising and Planning for Effective Implementation 18/1

18.1 Designing Appropriate Administrative Relationships for the Implementation of Different Competitive Strategies 18/5 18.2 Designing Appropriate Organisational Structures and Processes for Implementing Different Strategies 18/10 18.3 Marketing Plans: The Foundation for Implementing Marketing Actions 18/22

Module 19 Measuring and Delivering Marketing Performance 19/1

19.1 Designing Control Systems Step by Step 19/4 19.2 Design Decisions for Strategic Control Systems 19/13 19.3 Design Decisions for Marketing Performance Measurement 19/15 19.4 A Tool for Periodic Assessment of Marketing Performance: The Marketing Audit

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1

1 - The Marketing Management Process 1.1 Why Are Marketing Decisions Important? 1/5

Marketing – measures and anticipates needs of customers and respond with need-satisfying goods and services

- Target customer groups with needs consistent with company resources - Develop products meet the needs better than competitors - Make products readily available - Develop customer awareness and appreciation - Obtain feedback from the market for continuing improvement - Build long-term relationships with loyal customers

1.1.1 The Importance of the Top Line 1/5

Internal work is cost centre – only profit centre is customer 1.2 Marketing Creates Value by Facilitating Exchange Relationships 1/6

Increased specialisation increases productivity but specialists are no longer self-sufficient. 1.2.1 What Factors Are Necessary for a Successful Exchange Relationship? 1/6

- Parties involved in exchange - Needs and wants satisfied - Product exchanged - Value created by exchange

1.2.2 Who Markets and Who Buys? The Parties in an Exchange 1/7 Ultimate customers – buy product for own personal use (or others in household) [Consumer goods and services] Organisational customers buy products [Industrial goods and services]

- Resale - As input to production of other goods and services - For use in day-to-day operations

1.2.3 Customer Needs and Wants 1/8 Need – gap between person’s actual and desired states on some physical or psychological dimension Want – individual’s desires or preference for specific ways of satisfying a basic need 1.2.4 What Gets Exchanged? Goods and Services 1/11 Products are goods and services that help satisfy a need when acquired used or consumed Good – tangible physical object that provide a benefit Service – less tangible, can be provided by physical objects or by people, institutions, places and activities. 1.2.5 How Exchanges Create Value 1/11 Customers buy benefits not products. Product benefits, service and price determine value.

- Customer satisfaction of benefits and value are not always accurate - Satisfaction depends on anticipated versus delivered benefits

Lifetime customer value – present value of revenue stream produced by a customer over time

- Increased by customer satisfaction and loyalty - Impact not only revenue but especially profit (costs more to win than to keep customer)

1.2.6 Defining A Market 1/13

Market consists of - Individuals and organisations who - Are interested and willing to buy a particular product and - Have resources (time, money) to engage in transaction

Segment – people who are relatively homogeneous in needs, wants and product benefits they seek. Strategic Marketing Management

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- Which needs not currently satisfied - What variation is there in benefits and choice criteria (identify segments) - Which segments to target and which products and marketing programmes appeal to those segments - How to position product to differentiate from competitors

1.2 What Does Effective Marketing Practice Look Like? 1/14

1.3.1 Marketing Management – A Definition 1/15 Process of analysing planning, implementing, coordination and controlling programs involving:

- Conception - Pricing - Promotion - Distribution of goods services and ideas to create and maintain beneficial exchanges with target markets

Framework has decision-making focus Four elements of environment influence strategy success (4Cs)

- Company’s internal resources, capabilities and strategies - Context – broad social, economic and technology trends - Customer needs, wants - Competitor strengths and weaknesses

1.3.2 Integrating Marketing Plans with the Company’s Strategies and Resources 1/16 Three levels of strategy: Corporate strategy – company mission, what businesses to pursue, resource allocation, growth policies Business-level (competitive) strategy – how business will compete in industry Marketing strategy – market segments, product line, advertising, prices, partnerships, fulfilment.. Must be consistent internally and consistent with the external market 1.3.3 Market Opportunity Analysis 1/18 Environmental analysis:

- Trends: demographic, economic, technological, political, social - Potential competitors

Industry analysis and competitive advantage Customer analysis

- Benefits sought - Selection criteria

Marketing research Market segmentation, targeting and positioning 1.3.4 Formulating Strategic Marketing Programs 1/20 Marketing programme components: Product

- Quality - Features - Style - Options - Packaging - Services

Place

- Number of middlemen - Locations/availability - Inventory levels - Transportation

Price

- List price - Discount - Credit terms

Promotion

- Advertising - Personal selling

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- Sales promotion - Publicity

1.3.5 Formulating Strategic Marketing Programs for Specific Situations 1/21 New markets, mature markets, declining markets 1.3.6 Implementation and Control of the Marketing Programme 1/21 Strategy must fit existing resources, competencies and procedures … or create new ones Evaluate performance and develop contingency plans 1.3.7 The Marketing Plan – A Blueprint for Action 1/21 Benchmark to judge performance Parts:

- Assessment of current situation o Environment, competition, trends o Key issues

- Details of strategy o Objectives o Marketing strategy o Action plans

- Financial and resource implications o Profit and loss o Controls o Contingency plans

1.4 Who Does What? 1/24

1.4.1 Marketing Institutions 1/24 Flow of:

- Physical goods - Payment - Information

Vertical integration --- integration of all activities Marketing channels or distribution channels – division of part of activities among several institutions

- Merchant wholesalers – take title to goods and sell primarily to other resellers - Agent middlemen – don’t take title to goods; specialise in selling function and represent manufacturers on commission - Retailers – sell product directly to final consumers - Facilitating agencies (advertising, marketing research ) specialise in one or more marketing functions on fee-for-service

basis 1.4.2 Who Pays the Cost of Marketing Activities – and Are They Worth It? 1/25 50%+ of retail price can be marketing and distribution costs However value in transactional and functional efficiency Transactional efficiency – customers can purchase variety of goods in one transaction Functional efficiency – specialised institutions can offer service (e.g. railroad for transportation) more efficiency Utility/price relationship.

- Possession utility – minimum of risk and shopping time - Place utility – convenient location - Time utility – when the customer is ready to use the product

1.4.3 Room for Improvement in Marketing Efficiency 1/26 Costs of manufacturing decline 50->30%; Management costs 30->20% since WW II Marketing costs have increased Potential to improve through:

- Telecommunications and information technologies - Cooperative alliances - New budgeting methods focused on improving

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1.4.4 The Role of the Marketing Decision Maker 1/26 No single decision maker; rarely has all the formal authority 1.5 Some Recent Developments Affecting Marketing Management 1/27

1.5.1 Globalisation 1/28 New opportunities tailored to local conditions 1.5.2 Increased Importance of Service 1/28 Increasing portion of economy. Crucial means of differentiation 1.5.3 Information Technology 1/28 New channels for communications and transactions with customers, suppliers and channel partners 1.5.4 Relationships across Functions and Firms 1/30

Long-term relationships with customers, suppliers and channel members

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2 - Corporate Strategies and Their Marketing Implications 2.1 What Is Marketing’s Role in Formulating and Implementing Strategies? 2/6

Strategic planning – identifying threats to avoid and opportunities to pursue Marketing usually more familiar with conditions and trends in market environment (due to boundary position they occupy) Wide-ranging influence on high-level strategic decisions. Also on cross-functional business-level strategy. Influence of sales executives greater than marketing managers on traditional marketing activities

2.1.1 Market-Oriented Management 2/8 Market-oriented firms

- Operating according to marketing concept o Holds that all planning and coordination have primary goal of satisfying customer needs

- Consistent focus by all employees on customer needs and competitive circumstances - Procedures/structures improve responsiveness

2.1.2 Does Being Market-Oriented Pay? 2/9 Marketing concept covers:

- Customer focus - Cross-functional coordination - Profitability

Marketing orientation has positive effect on:

- Return on assets - Sales growth - New product success

2.1.3 Factors That Mediate Marketing’s Strategic Role 2/10 Competitive conditions may allow success without customer sensitivity

- Production-oriented - Product-oriented - Sales-oriented

Influence of different states of economic development globally Strategic inertia – automatic continuation of successful past strategies in the face of changing market conditions 2.2 Three Levels of Strategy: Similar Components But Different Issues 2/13

2.2.1 Strategy: A Definition 2/13 Fundamental pattern of present and planned objectives, resource deployments and interactions of an organisation with markets, competitors and other environmental factors What (Objectives) Where (Industries and product markets of focus) How (resources, activities to allocate to meet opportunities and gain competitive advantage) 2.2.2 The Components of Strategy 2/13 Scope – industries, product lines, market segments it plans to enter Goals and objectives – e.g. volume growth, profit contribution, ROI Resource deployments – financial and human; how obtained and allocated across businesses, product-markets, etc Sustainable competitive advantage – distinctive competencies and strengths relative to competition Synergy – how businesses, resource deployments, competencies can reinforce one another 2.2.3 The Hierarchy of Strategies 2/14 Three Levels

- Corporate strategy - Business-level

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- Functional / Marketing (for particular product-market) Five components valid across all three 2.2.4 Corporate Strategy 2/14 Across business units. What businesses are we in? What portion of resources to devote to each business? 2.2.5 Business-Level Strategy 2/16 How to sustain competitive advantage? Scope: how many and which market segments? 2.2.6 Marketing Strategy 2/16 Specifying the target markets for particular product line. Synergy of marketing mix. 2.3 The Marketing Implications of Corporate Strategy Decisions 2/16

Six interrelated decisions:

- Scope and mission - Goals and objectives - Means of competitive advantage - Development strategy for future growth - Resource allocation - Synergy

2.3.1 Corporate Scope – Defining the Firm’s Mission 2/17 What is our business? Who are our customers? What value do we provide? Mission should be compatible with values, resources and competencies. Focus on markets where it can generate unique value and leverage synergy. Stating in terms of products, services and technologies can slow reactions to technological and customer-demand changes. Better to state in terms of:

- What customer needs are to be satisfied - Which functions of the firm will satisfy them

Trend to also define social and ethical boundaries. Ethics: Unethical practices damage trust between firm and suppliers/customer and disrupt long-term exchange relationships. Inconsistencies in external expectations lead to job stress and inconsistent behaviour Reduce problems with formal social policies and ethical standards Nonetheless there will be boundary cases which are not clearly definable or may vary by region 2.3.2 Corporate Objectives 2/20 Decision criteria and evaluative benchmarks

- Performance dimension - Measure or index - Target or hurdle - Time frame to accomplish

Need to prioritise Structure into subobjectives that can be delegated Trend to more customer-focused objectives (satisfaction, retention, loyalty)

- Increase total customer lifetime value - Leverage loyal customers of one product for another

2.3.3 Gaining a Competitive Advantage 2/23

- Developed information systems - Market research operations - Long-term relationships with customers - Brand name recognition

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- Cooperative alliances with suppliers or distributors - Body of satisfied and loyal customers

Unique resources not sufficient. Must be able to convert unique resources into customer value. Then communicate value to customers. 2.3.4 Corporate Growth Strategies 2/24 Expansion of current businesses and activities

- Increasing penetration of existing product-markets (cut prices, product improvements, increase promotions) - Developing new products cur current customers - Sell existing products to new segments or countries

Diversification into new businesses organically or through acquisition.

- Vertical integration (forward, backward) - Related (concentric) diversification (no products or customers in common but potential sharing of production, brand, R&D,

marketing, distribution) - Unrelated (conglomerate) diversification (motivated financially rather than operationally) --- riskiest growth strategy

- Organisational networks (keiretsu/chaebol) Market penetration – current market, current products Product development --- current market, new product Market development – new market, current product Diversification – new market, new product … forward/backward integration; unrelated … 2.3.5 Allocating Corporate Resources 2/27 Two tools:

- Portfolio models - Value-based planning

Portfolio models BCG Growthshare matrix

- Market growth rate (Y-axis) - Relative market share (ratio to largest competitor) (X-axis) - Unit sales volume (Circle size – indicative only) - Stars – high-share, high-growth – critical to success, firms must invest to maintain share, eventually become cash cows - Question marks – low-share, high-growth --- require large amounts of cash - Cash cows – high-share, low growth – generator of profits and cash - Dogs – low-share, low-growth – divest or harvest - Limitations

o Market growth insufficient predictor of attractiveness o Relative market share insufficient indicator of strength o Outcomes sensitive to metrics o No implementation advice o Assumes independence of business units

Alternative portfolio models - Multifactor, finer granularity (scale rather than low/high)

o Size, growth, margins, patents, marketing skills, price levels, profitability… - More detailed but measures can be subjective and ambiguous, depend on definition of industries and product markets

Value-based planning Discounted cash flow

- Valuation components o Cash flow from operations o Discount rate o Debt

- Value drivers o Rate of sales growth o Operating profit margin o Income tax rate o Investment in working capital o Fixed capital investment required o Duration of value growth

Limitations - Projections rest on forecasts which are difficult to make

o Tendency to underestimate some value (keeping current customers) o Can evaluate alternatives but cannot create them

2.3.6 Sources of Synergy 2/34 Knowledge-based synergy – transfer of competencies, knowledge and customer-related intangibles (name recognition, reputation)

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Efficiency of centralised R&D --- also more effective at finding potential applications across multiple BUs. Corporate identify – communicated image reflecting core values, competencies Branding strategy

- Corporate brand for all products - Dual branding (corporate identifier and product brand) (e.g. Microsoft Windows) - Unique product brand and identity. (P&G, Unilever)

Choice dependent on:

- Strength of corporate brand - Interrelationship of offerings

Strong corporate brands often have centralised decision-making structures (cause or effect unclear) Shared resources (facilities, sales force) – efficiency but can hinder business’s flexibility

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3 - Business Strategies and Their Marketing Implications 3.1 Strategic Decisions at the Business-Unit Level 3/5

Decisions made by SBU (strategic business unit) managers; reviewed by corporate managers. First step: --- decide on SBU breakdown. Each manager then decides on:

- Objectives - Scope of customers and offerings - Competitive strategy - Resource allocation between product-markets and functions

3.1.1 How Should Strategic Business Units Be Designed? 3/5 Ideal SBU design:

- Homogenous markets; limited technologies -> minimise diversity - Unique set of product markets (avoid duplication of effort with other SBUs.) - Control over critical factors (production, R&D, marketing, distribution (can still share) - Responsibility for own profitability

Dimensions

- Technical compatibility - Similarity in customer need - Similarity in personal characteristics of customers

3.1.2 Business-Unit Objectives 3/6 Break down corporate objectives to each SBU and further down to each product market considering attractiveness of industry and competitive position 3.1.3 Allocating Resources within the Business Unit 3/7

Value-based planning difficult because of common investment across product markets 3.2 How Do Businesses Compete? 3/7

Single competitive strategy. 3.2.1 Generic Business-Level Competitive Strategies 3/8 Three competitive positions (Porter)

- Overall cost leadership - Differentiation - Focus (Niche)

Four strategic types (Miles and Snow)

- Prospectors --- growth through new markets & products - Defenders – maintain position - Analyser – maintain strength in core business and expand into new (related businesses) - Reactors --- no strategy

Porter and Miles&Snow are complimentary; Prospector and Reactor homogenous but defenders and analysers break down on cost versus differentiation 3.2.2 Do the Same Competitive Strategies Work for Single-Business Firms and Start-ups? 3/10 Same set appropriate for both. However BU strategy and marketing strategy tend to blend. Most startups begin as prospectors and must then decide how to evolve. 3.2.3 Do the Same Competitive Strategies Work for Service Businesses? 3/11 Service intangible, good tangible. Service does not result in ownership. Can be tied to physical product. Competitive strategy equally valid for services. 3.2.4 Do the Same Competitive Strategies Work for Global Competitors? 3/13

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Businesses in global markets almost always analyser. Might be prospector/defender on country level. 3.2.5 Will the Internet Change Everything? 3/13

Reinforces price comparison. But not only: - Innovation will continue - Communications channel for other features too - Facilitates customisation (e.g. personalisation)

3.3 How Do Competitive Strategies Differ from One another? 3/14

Different competitive strategies mainly focus on competitive advantage. But other aspects important too: 3.3.1 Differences in Scope 3/15 Scope: Defender – narrow, stable domains Prospector: broad dynamic domains 3.3.2 Differences in Goals and Objectives 3/16 Effectiveness (sales growth/market share) ---- Prospector + Efficiency (ROI, profitability) --- Defender Adaptability (successful new products) ---- Prospector 3.3.3 Differences in Resource Deployment 3/17 Prospectors allocate resource to new product markets Defenders to established product-markets 3.3.4 Differences in Sources of Synergy 3/17

Sharing of facilities reduces adaptability More suitable for low-cost defenders than for prospectors 3.4 Deciding When a Strategy Is Appropriate: The Fit between Business Strategies and the Environment 3/18

3.4.1 Appropriate Conditions for a Prospector Strategy 3/18 Unstable environment, new technology, changing needs High investment in R&D and marketing 3.4.2 Appropriate Conditions for an Analyser Strategy 3/20 Well-developed industries still experiencing growth and change 3.4.3 Appropriate Conditions for a Defender Strategy 3/20

Profitable share of mature stable industry Differentiated Defender: marketing, process, quality control Low-cost defender: efficiency, standardization 3.5 How Different Business Strategies Influence Marketing Decisions 3/22

Success factors of product markets

- SBU strategy influences amount of resources - Strategy influences market and competitive situation

3.5.1 Product Policies 3/22 Breadth of product line (Prospector: high; Low-cost defender: Low) Level of technical sophistication Level of product quality 3.5.2 Pricing Policies 3/24 Cost higher for differentiated defender and prospector 3.5.3 Distribution Policies 3/25 Prospector pros and cons for forward vertical integration (market intelligence and sales force motivation vs. flexibility)

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Defender (especially differentiated) high degree of vertical integration Prospector more on: trade discount, quantity discount, credit terms 3.5.4 Promotion Policies 3/25

Extensive promotion for differentiated defender and prospector Prospector: advertising (new customers) Differentiated defender: well-trained sales force (existing customers) Low-cost defender: low expenditures 3.6 What If the Best Marketing Programme for a Product Does Not Fit the Business’s Competitive Strategy? 3/26

1 – change SBU strategy (difficult) 2 – New prospector SBU 3 – Move product-markets from prospector SBU to defender

4 – divest, license product (rather than defend)

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4 - Environmental Analysis: Tools to Identify Attractive Markets 4.1 Swimming Upstream or Downstream: An Important Strategic Choice 4/3

Macroeconomic trends:

- Sociocultural - Physical - Demographic - Political/legal - Economic - Technological

4.2 Macro Trend Analysis: A Framework for Assessing Market Attractiveness 4/4

4.2.1 The Demographic Environment 4/4 Population changes globally International import/export implications 4.2.2 The Sociocultural Environment 4/5

- Individual values - Family structure - Minority rights - Leisure-time activities - Attitudes on conservation

Impact diet, exercise 4.2.3 The Economic Environment 4/7 GDP, PPP – purchasing power parity International trade, national markets, exchange rates 4.2.4 The Political/Legal Environment 4/9 Regulatory environment Intellectual property Deregulation 4.2.5 The Technological Environment 4/11 Acceleration of technical innovation Media distribution (MP3) Implications:

- Attractive new markets - Impact on marketing - Communications - Distribution - Packaging - Market research

4.2.6 The Physical Environment 4/13 Global warming, desertification Green products – attractive opportunity based on global warming 4.3 Environmental Analysis Guides Marketing Decision Making 4/14

- Prioritize trend categories - Monitor sources of relevant information - Anticipate impact

4.3.1 Prioritising Trend Categories 4/14 Prioritisation depends on industry

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Ethical standards important to keep with customer expectations 4.3.2 Information Sources and Outputs of Macro Trend Analysis 4/15 Information sources:

- Popular / business press - Internet (e.g. demographic data) - Supplier/customer contacts

Quantitative and qualitative data 4.3.3 Anticipating and Responding to Environmental Change 4/16 Proactive versus reactive Opportunity/threat analysis

- X: probability - Y: Impact

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5 - Industry Analysis and Competitive Advantage 5.1 Markets and Industries: What’s the Difference? 5/3

Markets comprised of buyers Industries comprised of sellers 5.1.1 Defining Markets and Industries: Levels of Analysis 5/4 Markets often defined on:

- Demographic terms - Geographic terms - Terms of particular goods or services demanded

5.1.2 Challenges in Market and Industry Definition 5/4 Three levels of analysis

- Generic category (e.g. motor vehicle) - Products class (cars, convertibles) - Product type (cold cereals; subtypes: regular, natural, sweetened)

Selecting too broad leads to overlooking industry interactions Too narrow misses competitive developments Focus on consumer needs uncommon but avoids some problems. Best to consider market and industry; broad and narrow. 5.2 The Market Is Attractive: What About the Industry? 5/6

5.2.1 Driving Forces 5/6 Macroenvironmental trends shaping attractiveness:

- Changes in industry’s long-term growth rate - Changes in key buyer segments - Diffusion of proprietary knowledge - Changes in cost and efficiency - Changes in government regulations

5.2.2 Porter’s Five Competitive Forces 5/7 Rivalry among present competitors

- High investment intensity - Many small firms (e.g. restaurants) - Little product differentiation - High-switching cost on supplier side

Threat of new entrants (barriers are: )

- Strong economies of scale - Strong initial capital requirements - Strong product differentiation - Difficult to gain distribution

Bargaining power of suppliers

- Limited number of suppliers - Switching costs of substitute prices high - Forward integration threat - Supplier product large part of added value

Bargaining power of buyers

- Buyer concentration - Switching costs reduce buying power - Threat of backward integration - Products importance to performance of buyer product - Buyer profitability

Threat of substitutes 5.2.3 A Five Forces Analysis of the Cellular Phone Service Industry 5/10 5.2.4 Changing Competition and Industry Evolution 5/11

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Life-cycle stages: - Introduction - Growth - Shake-out - Maturity - Decline

Competition weakest in fast growth. Strongest in shakeout then reduced and resurges in decline 5.2.5 Critical Success Factors: Who Wins Within an Industry? 5/11 Critical success factors within industry

- Product - Price - Place - Promotion

5.3 Industry Analysis Locally: How Intense Is the Immediate Competition? 5/12

5.4 Rate of Diffusion of Innovations: Another Factor in Assessing Opportunity Attractiveness 5/13

Five stages of adoption:

- Awareness (insufficiently motivated for interest) - Interest - Evaluation (mental rehearsal) - Trial - Adoption

5.4.1 The Adoption Process 5/13 5.4.2 The Rate of Adoption 5/14 Speed factors:

- Risk - Relative advantage - Relative simplicity - Compatibility with previous adoption - Ease of small-scale trial - Ease of communication of central idea

5.4.3 Adopter Categories 5/14 Innovators Early adopters Early majority Late majority Laggards Commercial sources and legitimizing agents important at awareness stage. Personal influence more important at evaluation 5.4.4 Implications of Diffusion of Innovation Theory for Forecasting Sales of New Products and New Firms 5/16 5.5 Sustaining Competitive Advantage over the Product Life Cycle 5/17

5.5.1 Life Cycle Curves 5/17 S-shaped curve is prototype; many variations. 5.5.2 Market and Competitive Implications of Product Life Cycle Stages 5/18 Introductory stage

- Short product line - Pricing options

o Skimming o Penetration pricing o Factors

Value to end user Imitability Substitute presence Volume inelasticity

- Promotion o Advertising, sales force, communication of awareness

Growth

- Prices decline - Distribution channel to maximize product availability

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- Promotion selective (brand rather than need) - Cost high but decreases as sales percentage

Shake-out - Substantial price cuts - Rationalise product line - Creative promotional pricing - Strong channel relations

Maturity

- Significant breakthrough in product differentiation or cost cuts have major impact o Service can be differentiation

- Promotion and prices stable o Advertising decreases in favour of in-store promotions

Decline

- Marketing expenditures decline - Prices stable if decline is slow

o Aggressive cuts if: fast decline, high exit barriers, no strong segment - Marketing focus

o Consumer goods: on maintaining distributors o Industrial goods: on keeping interest of sales force

- Harvesting/withdrawal o Milking o Internal transfer of assets o Sale of business or assets

5.5.3 Strategic Implications of the Product Life Cycle 5/23

(A1/13) Product life cycle theory provides framework to signal opportunities and threats and investment requirements for success. Fails to account for major forces driving life cycle. Fad – rises/falls sharply --- price inelastic, maximise initial return (skimming) Fashion – cyclical recurring patterns

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6 - Understanding Consumer Buying Behaviour Consumer purchase is means to an end; potential solutions to unsatisfied needs and wants. Selection based on desirable benefits and superior value. Consumer decision making is a uniform problem-solving activity. Differences in choices reflect:

- Personal characteristics (needs, benefits sought, attitudes, values, experiences…) - Social influences (social class, reference groups, family situations)

6.1 The Psychological Importance of the Purchase Affects the Decision-Making Process 6/4

High-involvement derives from high-risk

- Social - Psychological - Financial

Extent of involvement independent of extent of decision making:

- Search for information, evaluation of alternative brands HI, HD: cars, homes, vacation (complex) HI, LD: brand loyalty LI HD: Variety seeking, impulse purchasing LI, LD: inertia (frozen vegetables, paper towels) 6.1.1 How Do Consumers Make High-Involvement Purchase Decisions? 6/5 Problem identification

- Derived from unsatisfied needs o Perceived difference between ideal and actual (physical, sociopsychological) state

- Triggered by (actual or ideal) state change o Natural deterioration in actual physical state (hunger…) o Depletion of current solution o Anticipation of decline in actual state o Desired state revised upward (new information, development of need)

Information search (factors influencing:)

- Product factors o Interpurchase time, price, alternative brands, variation in features

- Situational factors o Experience (first time, recurring…) o Social acceptability/visibility o Sources of conflicting information (family, ecological, undesirable consequences…)

- Personal factors o Demographic

Education, income… o Personality

Dogmatic vs. open-minded, Low-risk perceiver/broad categoriser. - Opportunity cost (time/money involved seeking information)

o Psychological cost (frustration…) - Sources

o Personal (family, friends) o Commercial (service providers, dealers, manufactures)

Informing function o Public (non-commercial/professional, e.g. doctors, lawyers, government, consumer-interest)

Legitimising function o Affect of Web:

Reduce opportunity cost Primarily commercial and public sources (Amazon) product reviews Absence of sensory evaluation

Evaluation of alternatives

- Focus on “evoked set” (not complete spectrum of options) - Limited number of criteria (product dimensions or attributes) - Relative weighting; result reflects “overall attitude” toward brand Therefore variations between consumers based on: - Sets of attributes - Weighting of attributes - Brand preference (based on experience and perceptions)

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Purchase

- Decision where to buy product - If retail store, customer may still be swayed to buy competitor

Postpurchase evaluation

- Satisfaction depends on: o Aspiration / expectation level

Shaped by information gathered for decision-making

Danger of exaggerated claims o Evaluation of performance

- Evaluation stored for subsequent decisions - Consistent positive experiences lead to brand loyalty

o Brand loyalty more frequent to service than goods due to difficult of prepurchase evaluation 6.1.2 Low-Involvement Purchase Decisions 6/12 Decision basis typically:

- Impulsively on basis of brand familiarity - In-store comparison of brands on shelf

Little to lose by switching brands for variety. Advertising has strong influence on initial purchase. Subsequent purchases based on postpurchase evaluation (little prepurchase evaluation) Two low-involvement buying decisions: Inertia – few differences between brands cause random buying behaviour. Distinction between repeat inertial purchasing and brand loyalty since Inert customers can be easily entices with special promotions/coupons etc. Impulse buying – impulse switching; choice often induced through passive advertising. Motivation is not dissatisfaction but wish for variety. 6.1.3 Understanding the Target Consumer’s Level of Involvement Enables Better Marketing Decisions 6/13 High-involvement:

- Active information seeking and evaluation - Seek maximum satisfaction - Strong personality and lifestyle influence - Reference groups have strong influence

Low-involvement

- Passive / subconscious information gathering - Seek low-risk of dissatisfaction - No connection with lifestyle, values, reference groups

Product – compelling benefit always necessary Price – important for low-involvement, less so for high-involvement Promotion – high-involvement: high information dissemination, low-involvement: frequent advertising highlighting single benefit Place/Distribution – high-involvement: relatively less extensive; low-involvement: relatively more extensive distribution Increasing customer involvement:

- Link to involving issue (diet) - Tie to personally involving situation (insomnia) - Add new feature to unimportant product

6.2 Why People Buy Different Things: Part 1 – the Marketing Implications of Psychological and Personal Influences 6/17

Decision making process includes:

- Perception - Memory - Needs - Attitudes

Influenced by demographic and lifestyle variables. 6.2.1 Perception and Memory 6/17 Perception – process of selecting, organising, interpreting information

- Exposure - Attention - Comprehension - Retention

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Differences in product perception

- Selectivity – screens useless information to conserve mental effort o Perceptual vigilance - obtain information necessary for choice o Perceptual defence – avoid discomfort of reassessing core beliefs, behaviours…

- Perceptual Organisation o Categorisation (which bucket do they put it in…) o Integration of multiple brand characteristics (price, retail outlets…) to one image

Memory:

- Short-term memory displaced after 30 seconds - Active rehearsal (5-10 seconds) to transfer chunk to long-term memory Therefore for advertising: - High-involvement: print media and interactive electronic media - Low-Involvement: television with few simple pieces of information repeated frequently

6.2.2 Needs and Attitudes 6/19 Attitude – positive/negative feeling about product that predisposes behaviour to it Fishbein model: Attitude is weighted sum of (ratings x importance) of each attribute Fishbein is compensatory model (one weak rating can be compensated by another strong attribute) Noncompensatory model --- one poor evaluation cannot be offset. Lexicographic (sequential) model --- evaluate highest priority item first. If no clearly superior option then move on to next item. Noncompensatory more applicable for low-involvement decisions. Marketing implications for compensatory and noncompensatory multi-attribute models similar: Identify:

- Attributes/decision criteria - Relative weighting - How brand compares to competition for each attribute

Potentially change consumer attitudes: - Change attitude to product class to increase total market - Change importance customer attaches to attribute - Add salient attribute to existing set - Improve consumer ratings of brand via advertising/promotion - Lower ratings of competition

6.2.3 Demographics and Lifestyle 6/21 Demographics influence:

- Nature of customer needs - Ability to buy - Perceive importance of attributes - Attitudes/preference for products/brands

Lifestyles

- Lifestyle typologies and psychographic profiles developed by advertising agencies o GlobalScan (Backer Spielvogel & Bates)

Strivers Achievers Pressured Adapters Traditionals

o VALS2 (SRI) - Indicate the number of consumers that fall into each segment for given geography/region

6.3 Why People Buy Different Things: Part 2 – The Marketing Implications of Social Influences 6/22

6.3.1 Culture 6/23 Culture – set of beliefs, attitudes, behaviour patterns shared by members of a society and transmitted generationally through socialisation Relatively stable over time but can change from one generation to the next

- E.g. percentage of women working outside the home Subculture – groups in common culture who share ethnic, racial, religious backgrounds.

- American culture: two family wage-earners common; Korean-American subculture: male-only predominant 6.3.2 Social Class 6/25

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- Upper, upper-middle, middle, working, lower - Higher-status more critical of advertising, react better to individualised messages, appreciate humour, sophistication - Lower-status respond to visual ads that show practical solutions to common problems

6.3.3 Reference Groups 6/25 Influence through:

- Normative compliance – normative pressures (fraternity); social acceptance (serving food to guests); conspicuous (fashion)

- Value-expressive influence – conforming to gain status in group - Informational influence – legitimizing purchase by providing opinion of merits (restaurants, entertainment…); young adults

more willing to seek referrals than older 6.3.4 The Family 6/26 Family is primary socialisation agents Preferences can be transferred to next generation (and handed up in some cases too) Family members tend to specialise (Wives: food, clothes, medication; joint: cars, homes…) Increase education tends to increase joint decision making. Family life cycle: Young singles – concentrate on nondurable items, clothing, entertainment Young married without children – more affluent; good market for durables: automobiles, furniture, appliances Young married with children – least disposable income; single family dwellings, infant products, child care services Middle-aged couples without children – have most discretionary income; luxury goods. Older – less disposable income; medical products, hobby/craft items

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7 - Understanding Organisational Markets and Buying Behaviour Organisational markets twice the dollar value of consumer markets 50% of manufactured goods, nearly al minerals, farm, forest products (raw materials) One difference: number of people in the purchase process 7.1 Who Is the Customer? 7/4

Crucial marketing difference:

- Motivation of buyer, sought benefits - Demographics - Purchasing process

Motives:

- Facilitate production - Operations - Resale

Organisational demand often derives from underlying consumer demand

- Erratic and cyclical implies difficult forecasting - Demand is inelastic

Demographics

- Fewer in number - Larger - Geographically concentrated

Processes

- Formally specified criteria - Professional buying specialists - Closer buyer-seller relationships

7.1.1 A Comparison of Organisational versus Consumer Markets 7/4 7.1.2 What Do the Unique Characteristics of Organisational Markets Imply for Marketing Programs? 7/5 Difficult to influence derived demand

- Can stimulate consumer demand Complexity of goods leads to direct selling Greater interdependency between buyers and sellers

- Integration of supply chain - Coordinated delivery schedules

7.1.3 The Organisational Customer Is Usually a Group of Individuals 7/6 Participants in purchasing process

- Users - Influencers (technical experts) - Gatekeepers (purchasing agents) - Buyers (purchasing agent/manager)

o Come firms automate part of role - Decider (sometimes buyers decide else just execute)

Buying Centre – individuals in decision making process

- Larger when greater value - Smaller when reordering - Larger when complex purchase

Marketing must determine which individuals to target for

- Identifying need - Setting specifications - Evaluate choices - Selection supplier

The process will vary between a new buy and a straight rebuy

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7.2 How Organisational Members Make Purchase Decisions 7/9

7.2.1 Types of Buying Situations 7/9 Buying tasks:

- Straight rebuy o Frequent repurchase o Phases typically short and routine (almost automatic) o For large quantities need sales force

Parity pricing Quality assurance On-time delivery to minimise inventory

- Modified rebuy o Need unchanged buying centre dissatisfied

Higher quality, lower prices, improved service o B2B auctions make comparisons possible

- New-task buying o New unique need o Big effort

7.2.2 The Purchase Decision-Making Process 7/11 Purchasing process for modified rebuy or new buy - corresponds to consumer high-involvement purchase but:

- More people involved - Capability of suppliers is more important - Post-purchase evaluation more formalised

Need recognition - Derived from demand for their products - May be automatic (inventory alert) - Identification of better process - Changes (e.g. new product) can create new needs - Forecasts help long-term contracts -> lower cost and better relations

Information search

- Value analysis – systematic appraisal of item’s design, quality and performance requirements – minimises procurement costs

- Cost analysis – estimate of supplier costs Make-or-buy decision

- Cost comparison - Overdependence on single supplier

Qualification of potential suppliers - Finances - Reputation - Quality standards Derived from personal (tradeshows) and non-personal (catalogue, advertising) sources

Evaluation and selection

- Choice criteria comparable to non-compensatory??? multi-attribute model - Not purely numeric (aesthetic importance of product to consumers)

Ethics - Reciprocity (illegal if it threatens competition) - Bribery

Purchase

- Long-term legal contract decreasing o Require elaborate detailed specification reducing agility

- Increase of spot-market contracts o Auction o Less formal long-term relationships

Auctions

- Seller’s auctions popular (metalsite…) - Buyer’s auctions have more potential but

o Require buyer to specify all details except price - Work against cooperative long-term relationship

Logistical alliance

- Share sales and inventory data for computerised reordering - Supply-chain management alliances

7.2.3 The Marketing Implications of Different Organisational Purchasing Situations 7/18 Benefit of long-term cooperative relationship is ability to influence specifications for new products New buy – opportunity for new supplier Straight rebuy – seller has major competitive advantage

- Important to cultivate relations with customer

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Long-term buyer-supplier relationship increase as proportion of purchases

- Logistical alliances - Computerised reorder systems

Trust develops person to person - Turnover reduces trust - Corporate policies and performance standards regarding service increase trust - Training programmes, succession planning - Foster and reward long-term customer orientation

Complex and uncertain environments not conducive to long-term orientation

- Customer keeps options open 7.2.4 Purchasing Processes in Government Markets 7/20 Require more documentation and public review Contract to lowest bidder that meets minimum standards

- Superior features and performance not helpful Dedicated government marketing/sales tries to influence specifications 7.3 Selling Different Kinds of Goods and Services to Organisations Requires Different Marketing Programs 7/21

7.3.1 Raw Materials 7/22 Limited supply, few producers Distribution important for agriculture, less for manufacturing Price critical Little promotion 7.3.2 Component Materials and Parts 7/22 (processed raw materials and manufactured items) High volume purchases Long-term contracts, good service Fierce competition Web auctions 7.3.3 Installations 7/23 (capital good used to produce) Large monetary outlays Capital budgeting committee Direct sale Personal selling and services important 7.3.4 Accessory Equipment 7/24 (finished goods used in production) Less costly, less complex buying Intermediaries may be involved Personal selling, advertising, brand-name promotion, company website 7.3.5 Operating Supplies 7/24 (finished goods for maintenance and ongoing operations

- Analogous to consumer convenience goods - Standardised - Heavy use of channel - Web-based wholesales and catalogue sites - Price critical

7.3.6 Business Services 7/24 (facilitate ongoing operations)

- E.g. legal, advertising - Long-term relationship - Experience and reputation critical - Purchase decision often top executives - Personal selling and negotiation

Summary (7/23) Internet encourages opposite trends:

- Growing use of short-term spot / web-based auctions - Strengthening long-term buyer supplier relations via sharing of sales and inventory data

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8 - Measuring Market Opportunities: Forecasting and Market Research 8.1 Every Forecast Is Wrong! 8/4

Forecast necessary – evidence-based forecast better than wild guess Market potential - likely demand from all actual / potential buyers 8.2 A Forecaster’s Toolkit: A Tool for Every Forecasting Setting 8/5

Size of target market Size of currently penetrated market Two approaches: top-town versus bottom-up Top-down: centrally using aggregate economic data, sales trends Bottom-up: each part of firm forecasts --- then aggregated

- Can base on market segments or product lines Benefits of bottom-up:

- Identify drivers of demand for each segment / product - Explicit assumptions - Facilitates “what if” planning

Six evidence-based methods

- Statistical methods - Observation - Survey - Analogy - Judgement - Market tests

8.2.1 Statistical and Other Quantitative Methods 8/6 Based on past history – multiple regression or time-series analysis

- Not useful for new products or new business - Conjoint analysis (based on different combinations of attributes) - Assume future will look like past

8.2.2 Observation 8/7 Direct observation of consumer behaviour Easier if secondary data available Often not possible for new-to-world products and no secondary data available 8.2.3 Surveys 8/7 Surveys of buyers’ intentions Surveys of salesforce opinions

- What people say not necessarily what they do - Respondents may provide opinion without being knowledgeable - What respondents imagine may not correspond to what is delivered

8.2.4 Analogy 8/9 Comparison with historical data of similar product

- Product never exactly the same - Market and competitive conditions may differ

8.2.5 Judgement 8/10 Intuitive decisions frequent

- Difficult to defend - May be in conjunction with evidence-based methods

8.2.6 Market Tests 8/10

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Experimental test markets – under controlled circumstances Live-test markets with real advertising and promotion in stores

- Expensive - Competitors can buy check-out data and learn results without bearing cost, can manipulate tests

Internet: direct offer on web, quick and cheap. 8.2.7 Mathematics Entailed in Forecasting 8/10 Chain ratio calculation; use of indices Chain ratio calculation:

- Number of households - % will try if aware - % will try if find in store - % will try the product

(Regional) Indices BPI – buying power index – weighted percentage of buying power for region CDI – category development index – ratio of consumption of category BDI – brand development index – ratio of brand (ratio of BDI to CDI indicator of how well brand is doing) 8.3 Cautions and Caveats in Forecasting 8/12

8.3.1 Keys to Good Forecasting 8/12 Explicit assumptions Use multiple methods 8.3.2 Biases in Forecasting 8/13 Anchoring bias – based on recent historical figures even though market conditions have changed Capacity constraints mistaken for forecasts Sandbagging – setting easily achievable targets Unstated but implicit assumptions (awareness, distribution coverage) 8.4 Why Data? Why Marketing Research? 8/13

Without market knowledge

- Poor product choice (no demand, competition/opportunities overlooked) - Inappropriate pricing - Poor allocation of advertising budget - Distribution channel suboptimal

8.5 Market Knowledge Systems: Charting a Path toward Competitive Advantage 8/14

- Internal records - Marketing databases - Competitive intelligence systems - Systems to organise client contact

8.5.1 Internal Records Systems 8/14 What is selling, how fast, where to whom Which ads, which station, which cities Which salespeople, how much, what margins, to whom Customer purchasing history 8.5.2 Marketing Databases 8/15 CRM systems failed on ROI but good source for marketing Cookies, frequent-flyer programmes, loyalty cards Most beneficial if coupled with demographic and lifestyle data

- Difficult to obtain Commercial marketing databases available

- Useful tools for targeting based on area customers live - Accuracy decreases as territory increases - Many commercially available customer databases

o More valuable the narrower they are targeted Ethical issue

- Harm to individuals through inclusion/exclusion - (improper disclosure of credit rating)

Data mining combines data from different sources

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8.5.3 Competitive Intelligence Systems 8/19 Competitive intelligence – systematical and ethical approach to analysis of competitor activities and business trends

- Annual financial reports - Public speeches - Government documents - Online databases - Trade organisations - Popular / business press

Questions

- Speed of change - Importance of CI - Objectives of CI

best internal clients - budget

8.5.4 Client Contact Management Systems 8/20 Sales force automation – capture customer intelligence, track it, transfer it 8.5.5 Other Kinds of Market Knowledge Systems 8/20 8.6 Marketing Research Resolves Specific Marketing Challenges 8/20

Marketing research: design, collection, analysis and reporting of research pertinent to particular marketing challenge 8.6.1 Step 1: Identify the Managerial Problem and Establish Research Objectives 8/21 What segments are attractive? How large is market? Who are competitors? Growth rate? Competitive advantage? 8.6.2 Step 2: Determine the Data Sources and Types of Data Required 8/22 Primary data – observations, surveys, interviews Secondary data – someone else’s primary data

- faster and less costly - typically based on performance rather than only questions - issue is availability

Qualitative – small samples, not quantifiable

- deeper insights - may not be representative – needs quantitative follow-up - techniques

o focus groups --- subject to distortion of dominant member o interviews

- difficult to interpret - good way to begin

Quantitative

- questionnaires o semantic differential – bipolar words (satisfied 1 2 3 … not satisfied) o Likert scale --- statement/agreement (strongly agree …. Strongly disagree) o Quality rating ---- (Poor …. Excellent) o Importance scale o Intention to buy

8.6.3 Step 3: Design the Research 8/26 Determine data collection method

- Observation - Survey - Experiment

Determine contact method

- Face to face (most costly, most responsive) - Telephone - Mail, email --- least costly, least responsive. - Nonresponse bias may distort

Design sampling plan

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- Who is population (target market in demographic or behavioural terms) - What is sample size - Method

o Probability sampling (random) o Non-probability sampling (convenience)

Check for any obvious source of bias 8.6.4 Step 4: Collect the Data 8/28 Potential issues:

- Collector bias - Selection errors – respondents non members of population - Interviewer interpretation - Anonymity of respondent (e.g. Internet)

8.6.5 Step 5: Analyse the Data 8/29 Check completeness, logical consistency Perform statistical analysis (totals, averages …) 8.6.6 Step 6: Report the Results to the Decision Maker 8/29 If clear objectives simply return answers 8.7 What Users of Marketing Research Should Ask 8/29

- Objectives of research - Data-sources appropriate?, cheaper, faster if secondary sources are available - Qualitative/quantitative approaches suitable to objectives? - Researched designed well?

o Appropriate scales o Questions biases? o Contact method / sampling biased o Sample size sufficient?

- Planned analysis appropriate? o Specify before/after research completion?

8.8 Rudimentary Competence: Are We There Yet? 8/30

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9 - Market Segmentation and Target Marketing 9.1 Why Do Market Segmentation and Target Marketing Make Sense? 9/4

Market segmentation – process by which market is subdivided into distinct subsets with similar needs that lead them to respond similarly to particular product offerings and marketing programmes Target marketing

- evaluation relative attractiveness of various segments - firm’s mission to choose which segments to serve

Positioning – designing product offerings that establish enduring competitive advantage in target market 9.1.1 Most Markets Are Heterogeneous 9/4 Markets are complex and can be segmented in many ways Need to find segmentation scheme that will facilitate target marketing and product positioning 9.1.2 Today’s Market Realities Often Make Segmentation Imperative 9/5 Importance of segmentation increasing because:

- population growth slowing - increased variation and sophistication of needs - trend towards microsegmentation accelerated by technology

o computer aided design o mass customization

- more focused marketing programmes available o special interest magazines …

9.2 How Are Market Segments Best Defined? 9/5

- identify homogenous segments - delineate with specific criteria - estimate size and potential

9.2.1 Demographic Descriptors 9/7 Consumer markets

- age - sex - income - occupation - education - geography - race and ethnic origin

Industrial markets

- macro-segmentation o age o size o industry affiliation (SIC/trade category code)

- micro-segmentation (employees influencing purchase) o age o sex o position

9.2.2 Geographic Descriptors 9/9 Locations vary by sales potential, growth rates, cultures, climates Trade area – distance/driving time to location (segmentation of retail market) 9.2.3 Geodemographic Descriptors 9/9 9.2.4 Behavioural Descriptors 9/9 Based on:

- what the do (e.g. athletes, runners…) - consumer needs (benefits sought)

o choice criteria - product usage, loyalty, purchase predisposition, purchase influence - lifestyle classifications available from Goodyear Tyre, Ogilvy and Mathes…

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- social class o international differences o purchasing structure (organisational)

degree to which purchasing is centralised (usually more focus on cost)

Goodyear Ogilvy and Mathes VALS 2

Prestige buyer Basic needs Actualiser

Comfortable conservative?? Traditional family Fulfiller

Value shopper Look-at-me Achiever

Pretender Real conservative Experiencer

Trusting patron Visible achiever Believer

Bargain hunter Fairer deal Striver

Conventional family Maker

Somebody better struggler

Young optimist

Socially aware

9.2.5 Innovative Segmentation: A Key to Marketing Breakthroughs 9/12 9.3 Choosing Attractive Market Segments: A Five-Step Process 9/13

9.3.1 Step 1: Select Market-Attractiveness and Competitive-Position Factors 9/16 Market attractiveness

- customer needs unmet? - Market potential - Growth rate - Target a potential for further expansion? - Macrotrends (demographic, sociocultural…)

Competitive position

- Opportunity o Differentiation o Timing

- Management strength - Financial and functional resources - Brand image - Relative market share

Industry attractiveness

- Threat of new entrants, substitutes - Buyer power, supplier power - Competitive rivalry

9.3.2 Step 2: Weight Each Factor 9/17 Subjective Multiple inputs add strength 9.3.3 Step 3: Rate Segments on Each Factor, Plot Results on Matrices 9/17 Weighted results plotted in market attractiveness / competitive position matrix 9.3.4 Step 4: Project Future Position for Each Segment 9/19 Consider

- Shifts in customer needs - Entry/exit of competitors - Changes in competitor strategies - Changes in technologies - Economic climate, social / political trends - Bargaining power, vertical integration

9.3.5 Step 5: Choose Segments to Target, Allocate Resources 9/19 Generally should be strong in market attractiveness or competitive position and at least medium in other Exceptions:

- Expectation of improvement in attractiveness or strength - Stepping stone for more attractive market

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- Shared cost benefits another entry 9.4 Different Targeting Strategies Suit Different Opportunities 9/21

Most startups begin with niche strategy 9.4.1 Niche-Market Strategy 9/21 Designed to avoid direct competitions with larger firms 9.4.2 Mass-Market Strategy 9/21 Two approaches

- Ignore segment differences with single product and marketing programme o Economy of scale o Requires substantial investment

- Separate product and marketing programmes o “Differentiated marketing” o More sales but also more costs

9.4.3 Growth-Market Strategy 9/21 Target smaller fast-growth segments Common for venture capitalists Strong R&D and marketing Problem: sustained fast growth attracts competition 9.5 Global Market Segmentation and Target Marketing 9/22

Historically, countries treated as single segment Trend to identify similar segments across countries Reason for expansion:

- Defend home position - Service global customers - Earn foreign exchange

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10 - Positioning

Positioning – place brand occupies in customer mind relative to needs and competing products

- Marketeer’s decision to create position - Basically concerned with differentiation - Services can be more difficult to understand and therefore to position

10.1 Differentiation: The Key to Customer Preference and Competitive Advantage 10/3

Must deliver greater value or Comparable value at lower cost or Both 10.1.1 Differentiation in Business Strategies 10/4 Porter’s three competitive strategies: Cost leadership (Broad scope) Differentiation (Broad scope) Focus (Cost or differentiation) (narrow scope) 10.1.2 Differentiation among Goods and Services 10/5 Differences can be physical or perceptual Can leverage differences in need of different segments 10.2 Physical Positioning 10/5

Physical product characteristics: KW, mileage… 10.2.1 Limitations of Physical Positioning 10/6 Design of physical characteristics can be intended for one position but result in another in customer’s mind Psychological attributes (aesthetic appeal) not amenable to objective comparison 10.3 Perceptual Positioning 10/6

Easier to evaluate what it does than what it is Evaluation subjective – similar products viewed differently due to experience, names and advertising 10.4 Levers Marketers Can Use to Establish Positioning 10/7

Simple physically-based attributes

- Quality, power, size - Value attached not linear

Complex physically-based attributes

- Summary indicators (subjective) - E.g. speed of computer, roominess of car, friendliness of services

Essential abstract attributes

- Influenced but not directly related to physical attributes - E.g. sexiness of perfume, quality of wine, prestige of car

Experienced customer rely more on physical characteristics Perceptual product positioning essential for nondurable consumer goods, less for durable and industrial goods Nonetheless: growing similarity of physical characteristics increases perceptual importance 10.5 Preparing the Foundation for Marketing Strategies: The Positioning Process 10/8

1. Select set of competing products 2. Identify determinant product attributes 3. Collect sample information on perception of attributes 4. Analyse to determine current position 5. Ascertain preferred combination of determinant attributes 6. Compare fit between ideal preferences and current position 7. Write concise statement of positioning decision

10.5.1 Step 1: Identify a Relevant Set of Competitive Products 10/8

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Positioning analyses useful at company, BU, product category, product line, brand levels 10.5.2 Step 2: Identify Determinant Attributes 10/10 Features Benefits Parentage Manufacturing process

Ingredients Comparison Pre-environment Price/quality

Simple position involves few attributes Not all attributes “determinant” relevant to choice 10.5.3 Step 3: Collect Data about Customer’s Perceptions for Products in the Competitive Set 10/11 First: qualitative research (e.g. focus groups) Then: quantitative (e.g. survey of consumers) 10.5.4 Step 4: Analyse the Current Positions of Products in the Competitive Set 10/11 Positioning grid / perceptual map

- In terms of two determinant attributes - Most brands not known by consumers therefore not position - Gaps in grid may represent opportunity or

o May be difficult attain due to technical constraints or o Undesirable due to lack of customers

Intense position generally desirable but leads to reduced flexibility: difficulty to reposition Over-exploitation dilutes brand image Product positioning analysis is different from market positioning analysis: not obvious what are most appealing positions for customer 10.5.5 Step 5: Determine Customers’ Most Preferred Combination of Attributes 10/14 Conjoint analysis

- Customer survey of attractiveness of hypothetical product configuration with attributes systematically varied - Results in cluster of ideal points - Caution: not all customers will always prefer ideal point

o Experiment with alternatives, other factors Using price on positioning grid not useful:

- Easily imitated - Claims of low-price not always credible

o Better to let it speak for itself 10.5.6 Step 6: Consider Fit of Possible Positions with Customer Needs and Segment Attractiveness 10/15 Clusters of ideal points may represent distinct market segments Examination leads to insight into

- Competitive strength of brands in segment - Intensity of rivalry between brands in segment - Opportunities for differentiated position in target segment

10.5.7 Step 7: Write Positioning Statement or Value Proposition to Guide Development of Marketing Strategy 10/17 Positioning should reflect future attractiveness of target market One (or at most two) attributes Two options:

- Positioning statement – identify target market, product category, unique benefits - Value proposition, target market, benefits, offered, relative price range

Fact-based and concise --- not written in catchy/hyped consumer-oriented language 10.6 Analytical Tools for Positioning Decision Making 10/20

Conjoint analysis Factor analysis

- Identify salient attributes - Collect ratings from sample customers - Correlate factors - build construct - Helps to identify aggregate dimensions of product space maps

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Discriminant analysis - Same input as factor analysis - Which attributes best discriminate

Multidimensional scaling

- Geometrically spaced maps - Customer judge similarity between brands - Most preferred brand shown near ideal point - Requires evaluation of many (8+) brands - Does not help for new brands - No real dimensions so scaling difficult to interpret

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11 - Product Decisions Product design:

- Attributes - Package - Branding - Services

Critical questions

- Competitive advantage - How to deliver promised benefits - Timely flow of new products

11.1 Product Design Decisions for Competitive Advantage 11/3

Product – anything that satisfies need/want through use, consumption or acquisition; “problem solver” Features – tangible/intangible attributes given by designers Benefits – solutions to customer problems Intangibles (services) can rarely be experienced before purchase Services 75% of non-agricultural jobs in US. 50% of GDP. 25% of international trade 11.1.1 Goods and Services: Are the Product Decisions the Same? 11/4 11.1.2 Product Quality and Features Decisions 11/5 Eight dimensions of quality goods:

- Performance – basic operating characteristics - Features – secondary product characteristics - Reliability – probability of acceptable long-term operation - Conformance – to specifications - Durability – replacement and repair costs - Serviceability – speed/ease of repair - Aesthetics – look, feel, taste, sounds, smell… - Perceived quality – derived from cues e.g. price, brand name, advertising, reputation, country of origin

Five dimensions of service quality

- Tangibles – physical characteristics associated with service - Reliability – dependability - Responsiveness – promptness and helpfulness - Assurance – competence, courtesy, credibility of service provider - Empathy – service provider understands needs and concerns

Empathic design – product design and marketing research technique

- Observation - Capturing data - Reflection and analysis - Brainstorming - Developing prototypes

(Exhibit 11.4) Consumer goods classification Convenience goods (toothpaste, haircuts) --- maximum distribution, consumer advertising, merchandising Shopping goods (colour TV, car, home) – selective distribution, personal selling, significant advertising, financing, warranties… Specialty goods (musical instruments, designer brands..) limited distribution, high price, strong advertising Unsought goods (medical, insurance, encyclopaedia…) - strong promotion, personal selling 11.1.3 Branding Decisions 11/9 Brand name – part that can be vocalised Brand mark – symbol, design, unique packaging Trademark – part of the brand that legally belongs to seller Branding benefits:

- (Buyer) simplified shopping - (Seller) increased marketing effectiveness - Brand loyalty increases profitability

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Four asset categories

- Brand-name awareness - Brand loyalty - Perceived quality - Brand association

Individual branding (each product e.g. P&G)

- Reduces risk

- Indicative approach (Pizza Hut, Burger King) o Cheaper but less flexible

- Distinctive name (Amazon, eBay) Family branding – reduced cost and transfer of customer satisfaction

- Increased impact of shelf-facings - Facilitates promotion of product line with many low-volume items

Cobranding (e.g. Smart - Mercedes/Swatch) increasing Global brands -- Scale effects dramatically improve sales and profit but

- Negative associations of name in some countries - Strong local brands compete - Heavy investment

Store brands

- Increase of private label 11.1.4 Packaging Decisions 11/12 Packaging function

- Protection (temperature, crushing, moisture…) - Facilitating use (aerosol cans);

o consumer safety (child-proof tops) - Promotion (impulse purchasers) - Providing information

Environmental sensitivity increasing 11.1.5 Services Decisions and Warranties 11/12 Warranty Repair and maintenance Complaint handling buyer personnel training

Claim settlement Fast order processing

Service – high impact on profitability (costs more to get that keep a customer) Warranties – reduce customer risk 11.2 Managing Product Lines for Customer Appeal and Profit Performance 11/14

Short product line desirable during early stages of product market. Comes under fire as competitors segment market with specialised products 11.2.1 Line Filling 11/15 Adding items within present range 11.2.2 Line Stretching 11/15 Adding items beyond current range on variables such as size and price (e.g. JC Penney, Aircraft) Upward – customer may be sceptical Downward – risk of damaging quality image and upsetting channel intermediaries Two-way – incremental stretching o mid-range offering 11.2.3 Line Extensions 11/15 Line extensions more than just size and price (Sports Illustrated for Kids)

- Greater cost and risks - Extends technological basis - Enables new market segments - New anchor point for line stretching and filling - Minimum danger of cannibalising new products

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11.2.4 Brand Extensions 11/16 Critical question – extent to which brand differentiates positively (e.g. Levi’s tailored suites failed) 11.2.5 Dropping Products 11/16 Regular audit can uncover opportunity costs and therefore benefit of refocusing 11.2.6 Product Systems 11/16 Selling product packaged with complimentary products and services (e.g. vacation packages, computer systems) Requires strong compatibility 11.3 New Product Development Process Decisions 11/17

New product strategy critical to profitability

- Long-term profitability - New product success rate

11.3.1 The Importance of New Products to Long-Term Profitability 11/17 Four classes

- New to world - New to firm - Product line extensions - Product improvements

11.3.2 New Product Success and Failure 11/17 Failure rate 25%-90% (after market introduction/from concept stage) 50% of money spent on new product development goes into products that fail or are abandoned Consumer goods fail more than industrial goods Biggest cause: me-too products with no performance improvements at the same price 11.3.3 Organising for New Product Development 11/18 Outsource or insource development (flexibility & lack of bureaucracy versus shared facilities) Bureaucratic structure better for line extension and product improvement Participative structure for highly innovative products Reduction in time to market strong effect on profitability 11.3.4 Key Decisions in the New Product Development Process 11/19 Stage-gate system from idea generation to product launch Simple ideas may skip gates (line extensions product improvements) Stages may run concurrently Backward loops when results not satisfactory Benefits:

- Milestones at each gate encourage speed and focus - Resource commitments reduce delays - Concurrent engineering

o Market and technical analyses proceed concurrently First mover advantage less important than bringing right product to market

- “Being best more important than being first” Selecting gatekeepers

- Marketing, R&D, production should be represented - Creativity important for speed and productivity

Gate 1: idea generation and initial screening for strategic fit

- Alignment with company mission - Strengthens competencies - Resource availability

Ethics (11/23)

- Me-too products produce waste - Failure to produce necessary products (too-tall, too-short, new drugs) - Innocent design, violent use

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- Environmental harm Gate 2: technical and marketing feasibility

- How large is market - Estimated Market potential

o Usually based on secondary data and resident market knowledge Gate 3: Business case

- Comprehensive customer, market and competitive analyses - Primary research

Gate 4: Analysis of product design and marketing plan Importance of product design

- Influences costs by choice of materials - Calls favourable attention in crowded market place - Creates impression of other attributes - Enhances aesthetic satisfaction Until recently major objectives of industrial design: - Compatible with manufacturing resources - Attractive Now also - Usability

o Over-functionalised products (VCR…) Gate 4 failures:

- Technical stumbling blocks - Costs - Marketability in light of market and competitive conditions

Gate 4: Test market

- Field test - Lab test - Internet pilot

Field test – small geographical area Lab test measures awareness, trial, repeat buying

- Benefits o Low cost ($70K), and confidentiality

- Disadvantages o Small range of products o No information on distribution

(Exhibit 11.13) Real-time product and market development

- Product category new o Obvious users and competitors cannot be found

- Market timing not critical - Little risk to brand - Development costs are low

Gate 5: commercialisation – how fast to roll out and when Strategies:

- Forego market testing and roll-out region-by-region o Where little risk (brand extensions)

- Different kind of test market o E.g. launch in 10% of country

- Tradeoffs o Risk, cashflow, speed with which competitors may react

Finally post implementation review

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12 - Pricing Decisions Price structure considers

- Geographical territories - National boundaries distribution channel levels - Distribution channel types (e.g. Internet) - Items in product line - Customer segment

Pricing strategy factors: - Business strategy - Competitive differentiation - Competitor costs and prices - Availability and prices of substitutes

12.1 A Process for Making Pricing Decisions 12/3

12.1.1 Strategic Pricing Objectives 12/4 Pricing derives from

- Business strategy - Target market - Positioning strategy

Penetration pricing

- Target customers are sensitive to price - Firm’s costs are low compared to competition - Production cost likely to fall with volume - Low prices may discourage potential competitors Low margin means high risk!

Premium price for differentiated offering covers:

- R&D - Production - Distribution - Advertising High quality decreases elasticity of demand (ratio of volume change to price change)

Maximise current profit: Skimming

- Maximise short-run profits - High price (for least price-sensitive customers) - Periodic discounting increases discount at end of period - Suitable for;

o Proprietary technology o High price reinforces image of superior quality o High entry barriers o Small market

Harvesting - Cutting marketing, production and operating costs - Maintain high price to maximise profits - Suitable if

o Absence of exit barriers - Risk: demand may decline even faster

Survival: - Keep product alive while adjusting strategy - Keep plant operating, maintain cash flow

12.1.2 Estimating Demand and Perceived Value 12/8 Demand curve

- Demand sets price ceiling - Degree of slope affected by reduced price sensitivity

o Unique value o High quality o No substitutes (or awareness) o Difficult comparison o Sunk investment (required to benefit previous purchases) o End-benefit (industrial: low percentage of total production cost

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o Shared cost with another party (insurance o Low inventory (cannot store)???

Price elasticity: e.g. 2% price increase

- Elastic: 6% demand reduction : -3 - Inelastic: 1% demand reduction: -.5 - Unitary: 2% demand reduction: -1

Risks:

- Response of competitors - Non-linear - Affect on other items in product line (cannibalisation, cross-elasticity) - Societal benefits

Estimation methods

- Lab/test market can show elasticity of demand o Ignores competitors o Effect of non-price factors (economic indicators)

- Better: Regression analysis of historical sales o Consumer panel data o In-store experiments (systematic price variations o Multiple test markets

12.1.3 Estimating Costs 12/11 Distribution channel markup typically greater than manufacturing costs Full-costing - allocates indirect costs Direct costing – only considers direct costs (aka “contribution margin approach”) Activity based costing

- Observes level of functional activities o Shipping, receiving, supervising, selling

- Reduces distortion of full costing Economy of scale

- Complete use of available capacity - More efficient facilities

Experience curve - Costs falls with experience

12.1.4 Analysing Competitors’ Costs and Prices 12/13 More difficult to measure competitor costs than prices 12.2 Methods Managers Use to Determine an Appropriate Price Level 12/13

12.2.1 Cost-Oriented Methods 12/13 Cost-plus aka markup pricing Convenient and easy: 30% markup means divide by 0.7! Rate of return or target-return pricing: Price = unit cost + (%return x capital investment) / unit sales Break-even analysis:

- Considers fixed and variable costs, no profit - Calculates break –even volume for given price

12.2.2 Competition-Oriented Methods 12/16 Typical in mature industries with little product differentiation and few strong competitors Little product differentiation and few strong competitors Going-rate, competition parity Based on price set by dominant supplier(s) -- price leader not necessarily largest but usually most efficient, history of making prices stick Usually stable until price leader decides price increase is necessary due to rising costs. Followers may usurp position by cutting faster in overcapacity and increasing faster in period of inflation Discounting or premium pricing reflects positioning strategy

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Sealed bidding (e.g. with government) Expected value = maximum of profit x profitability Also consider: follow-on work Capacity availability Keeping workforce intact 12.2.3 Customer-Oriented Methods 12/19

Estimating customer perceived value Value in use:

- Select comparison product - Calculate incremental benefits

o Improved performance o Additional features o Efficiency o TCO

Economic value = price of reference product + value of incremental benefits Perceived value = economic value – knowledge and risk gap Other methods:

- Industrial engineering o Internal engineering assessment indirect surveys.

- Overall estimates o Focus groups, direct survey

- Decomposition o Conjoint analysis o Benchmark

- Composition o Direct questions of value of components

- Importance – rank ordering of attributes Customer pricing e.g. 10c for candy bar --- reduce size rather than increase price Price lining – predefined price levels ($30, $40, $50…) for product line Psychological pricing – high price to indicate quality Odd pricing - $29.99 Promotional pricing – combines advertising, familiar sale 12.3 Deciding on a Price Structure: Adapting Prices to Market Variations 12/22

Price structure

- Geographical / national boundaries - Customer types - Items in product line

12.3.1 Geographic Adjustments 12/22 Variations in transportation costs

- FOB origin pricing o Fairest but competitive disadvantage in distant market

- Freight absorption pricing - Uniform delivered pricing

o Average freight cost charged to all - Zone pricing – compromise of FOB origin with uniform delivered pricing

12.3.2 Global Adjustments 12/23 Exchange rates Variation in competition Market demand Strategic objectives Tax policies Legal regulations Standardized global pricing (similar to FOB origin) Transfer price to national branches, complete discretion of local managers

- May lead to arbitrage Intermediate approach

- Transfer price and range of final price Counter trade:

- Barter – direct exchange of goods

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- Compensation – part barter part cash - Buyback - Offset – agreement of supplier to spend part of earned cash with customer rover agreed period

12.3.3 Discounts and Allowances 12/24 Reseller discounts and allowances

- Trade discounts – discount schedule 50/15 on $100 MSRP means o Wholesaler $42.50, Retailer $50

- Quantity discounts o Justified by savings else illegal discrimination o Order-processing o Transportation o Inventory o Move inventory closer to customers o Reduce probability of stockouts o Encourage impulse purchase

- Cash discount o Reduce accounts receivable o Lower collection cost

- Allowances o Trade-in allowance o Promotional allowance – cooperative advertising; shelf space

- Price-off promotion (2 for 1) o Temporary boost o Stockup (less long-term benefit) o Competition may copy

- Coupon: dominant form of price-oriented promotion in US o Counterfeiting risk o Targets price-sensitive households o Collects customer information

- (mail-in) rebates o Move excess inventory quickly

- Premiums o Price reduction to encourage use of another product

12.3.4 Differential Pricing 12/27 Differentiated pricing of discriminatory prices

- Sale of product at two or more prices not determined by proportional differences in cost o Time pricing (cinema) o Location pricing o Customer segment pricing (e.g. to senior citizens) Conditions o Identifiable segment with different price sensitivity o Physical separation of segments or control procedure

Prevent resale o Cost to manage and monitor no greater than extra revenue o Resentment of high price segment exposes risk of attacks from competition

Internet can differentiate

- High involvement, price sensitivity on clicking behaviour - Facilitates rapidly changing prices (airlines)

12.3.5 Product-Line Pricing Adjustments 12/29 Cross-elasticity

- Percentage change in sales of product is due to price change of product - Difficult to estimate

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13 - Distribution Channel Decisions Effective distribution channel makes

- Right quantities of - Right product available in - Right place at - Right time to satisfy customers

Reduces costs of marketing and acquiring the product Channel design – develop channel structure to link marketing strategy with need of target market

- How many levels - Types of institutions - How many of each at each level

Channel management – develop policies and procedures

- Recruit channel members - Motivate them to perform marketing functions - Coordinate efforts - Assess performance - Resolve conflicts

13.1 Why Do Multi-firm Marketing Channels Exist? 13/4

Transportation and storage Communications / advertising Personal selling / sales promotions Feedback Financing Installation / repair Marketing channel – set of interdependent organisations involved in process of making product available for consumption / use by consumers or industrial users Services don’t require transportation / storage but do need other marketing activities ??Average 50% or retail price goes to marketing, 50% of marketing to retail Functional efficiency – specialisation and economy of scale Scale efficiency

- manufacturers can produce larger scale (since selling more) - consumers can buy smaller quantities

Transactional efficiency

- customer can acquire variety of product from one single source 13.2 Designing Distribution Channels: What Are the Objectives to Be Accomplished? 13/6

Design objectives

- increased availability - customer satisfaction (high levels of service) - promotional effort - obtain timely detailed market information - increase cost effectiveness - maintain flexibility

13.2.1 Product Availability 13/6 Coverage at appropriate retail outlets % of ACV – all commodity volume – measure coverage of stores weighted by volume Positioning within store

- percentage of shelf space devoted to brand for industrial products

- frequency of sales calls to customers - time to fulfil order

Availability not equally critical for all products

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13.2.2 Meeting Customers’ Service Requirements 13/8

- order cycle time - dependability - communication - convenience - post-sale services

13.2.3 Promotional Effort 13/8 Strong promotional support

- local media - in-store displays - cooperation in promotion events

Strong selling support for

- complex and expensive durables and industrial goods - highly competitive market - differentiated defender based on quality of service

13.2.4 Market Information 13/9 Fast and accurate feedback Crucial for prospectors who depend on early identification of opportunities 13.2.5 Cost-Effectiveness 13/9 Trade-off between

- transportation and inventory costs versus - product availability and service requirements

13.2.6 Flexibility 13/9 Ease of switching channel structures or adding levels without costly economic and legal conflicts 13.3 Designing Distribution Channels: What Kinds of Institutions Might Be Included? 13/9

Merchant wholesalers Agent middlemen Retailers Facilitating agencies 13.3.1 Merchant Wholesalers 13/10 Take title and resell to other resellers or retailers or industrial buyers 13.3.2 Agent Middlemen 13/10 Do not take title or physical possession

- manufacturer’s agents o work for multiple manufacturers carrying non-competitive, complimentary merchandise

- sales agents o represent one manufacturer – responsible for range of marketing activities, larger commission

13.3.3 Retailers 13/11 Take title

- low margin / high turnover – standardised merchandise - high margin / low turnover – specialty goods

o differentiate on unique assortments quality merchandise good customer service

13.3.4 Nonstore Retailing 13/12 Direct selling (door-to-door) telemarketing Mail-order catalogues TV shopping Vending machines websites Often outsource inventory, storage and delivery

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13.4 Channel Design Alternatives 13/13

Choice depends on competitive strategy and resources 13.4.1 Alternative Consumer Goods Channels 13/13 Five channel designs for consumer goods A – producer-consumer (direct distribution) B – producer-retailer-consumer (large retailer, perform own wholesaling or logistical alliance with manufacturer; e.g. Walmart) (specialty goods) C – producer-wholesaler-retailer-consumer – most common for low-cost frequently purchased items D – producer-agent-wholesaler-retailer-consumer – small manufacturer uses agent E – producer-agent-retailer-consumer - small manufacturer sells to large retailer 13.4.2 Alternative Industrial Goods Channels 13/15 A – producer-industrial buyer

- large well-known buyers - complex expensive product - e.g. aircraft, computer systems

B – producer-wholesaler-industrial buyer - wholesaler improve distribution efficiency - product standardised - low value - many similar buyers - item easy to handle and store

C – producer – agent – industrial buyer D – producer – agent – wholesaler – industrial buyer 13.5 Which Alternative Is Best? It Depends on the Firm’s Objectives and Resources 13/16

13.5.1 Availability and the Satisfaction of Customer Service Requirements 13/16 Three strategies for consumer goods

- intensive distribution o maximise coverage/availability

product recognition impulse buying

o less retail support o low-involvement convenience goods

- exclusive distribution o single retailer in region o high involvement specialty or shopping goods o reliance on single retailer

- selective – compromise, few retailers per region o e.g. automobiles

importance of availability and retail coverage => use of wholesalers / agents industrial goods and services

- availability coincides with customer services - order cycle and dependability important - large number of distribution points

availability: search – identifying alternatives acquisitions – order cycle time 13.5.2 Promotional Effort, Market Information, and Postsale Service Objectives 13/19 Legal contracts Franchise agreements Advertising allowances Liberal service cost reimbursements Vertically integrated distribution channel 13.5.3 Cost-Effectiveness 13/20 Tradeoff: availability and order cycle time versus distribution costs Make-or-buy – are vertically integrated designs (e.g. B/A) more cost-effective Fixed cost of using agents, wholesalers lower but variable costs higher => variable integration as volume increases Supply chain management

- improved communication reduces cost and improves service

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o quicker order processing o seedier delivery o reduced inventory: less storage and damage costs

13.5.4 Flexibility 13/22 Vertically integrated systems difficult to alter quickly Volatile market – agents / wholesaler Stable markets increase control of vertical integration 13.5.5 Multichannel Distribution 13/22 Wholesaler to small accounts Own salesforce to large accounts More complete market coverage Conflict and control problems Hybrid system – multiple complimentary members of single channel

- e.g. demand generation, physical distribution, post-sale service 13.6 Channel Design for Global Markets 13/23

- middlemen in home market specialising in foreign markets - foreign middlemen

13.6.1 Market Entry Strategies 13/24 Three ways: export, contract, direct investment Exports

- easiest, least commitment and risk o indirect – domestic international middlemen

export merchants (buy and sell) export agents (sell on commission) cooperative organisation (exports for several producers)

o direct – foreign based distributors / agents / operating units Contractual Licensing

- right to use intangible assets in exchange for royalties - less flexible less control than export - licensee may become competitor - appropriate for unstable or impenetrable market

Franchising – right to use name, trademarks, technology

- penetrate foreign markets at low cost - local ownership (less national barriers)

Contract manufacturing Co-production Counter-trade Buy-back arrangement Overseas direct investment

- joint venture or sole ownership - joint venture avoids quotas, import taxes, satisfy government demands

o share investment costs - sole ownership

o retain control, less coordination / negotiation High risks 13.6.2 Channel Alternatives 13/25 Domestic middlemen

- convenient - lack of local knowledge - export merchant - export jobber: bulky and raw materials; no physical ??? - trading companies – sell manufactured goods to developing countries and buy back raw materials

Foreign middlemen

- shortens channel - more difficult to control

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the less developed the market, the smaller the wholesaler, wholesaler fragmentation worldwide trend of vertical integration 13.7 Channel Design for Services 13/26

Marketing channels for services tend to be short; exceptions: health-care, hotels 13.8 Channel Management Decisions 13/27

13.8.1 Vertical Marketing Systems 13/27 Corporate VMS

- corporate ownership, usually forward integration by manufacturer - also backward integration by large wholesaler or retailer - tight control which is needed for complex products - large capital investment - less flexibility

Contractual VMS

- greatest growth of any channel system - wholesaler sponsored voluntary channel - retailer cooperation - franchise system

o manufacturer-retailer (Toyota, BP…) o manufacturer-wholesaler (Coca-cola to franchised bottlers) o wholesaler-retailer o service sponsor- retailer benefits to customer o consistent quality o convenient location o reasonable price

Administered VMS - channels administrator (e.g. Walmart) has superior economic or expert power to provide incentives for cooperation Relational VMS

- open sharing of internal operating data - requires mutual trust and long-term commitments - economic incentives – long-term success of entire system

13.8.2 Sources of Channel Power 13/31 Economic power Coercive power (punishment by withholding economic rewards) Expert power Referent power (that benefits will continue) Legitimate power (ownership, contracts) In relational VMS exchanges are relatively symmetrical 13.8.3 Channel Control Strategies 13/32 Pull strategy – build selective demand and brand loyalty

- advertising, promotions, warranties, service - increase economic rewards New products: demonstrated marketing expertise, track record of new product success

Push strategy – direct inducement

- smaller firms, without reputations 13.8.4 Trade Promotions – Incentives for Motivating Channel Members 13/33 Consumer promotions Trade promotions

- increase reseller purchases and inventories - critical objective – convince wholesaler / retailer to stock item

o higher margins o introductory discount o exclusive rights

- once adequate distribution o quantity discount

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o buy-back allowance (discount on subsequent order) o free goods (for high volume)

Increase personal selling effort

- instruction manuals, training - push money, spiffs

Local promotional effort - cooperative advertising - promotional allowances - off-invoice discounts

Improve customer service

- guidelines / instruction - training

13.8.5 Channel Conflicts and Resolution Strategies 13/35 Reasons

- incompatible goals - unclear rights / responsibilities - poor communication

- resolve conflicts early - involve channel members in policy decisions - proactively adjust policy to diffuse conflict

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14 - Integrated Promotion Decisions 14.1 The Promotion Mix: A Communication Toolkit 14/3

IMC - Integrated marketing communications

- building and reinforcing relationships with employees and customers - stakeholders with strategic communications programme

Principal tools of promotion mix

- advertising – paid form of nonpersonal presentation - personal selling – person-to-person - sales promotion – incentives to stimulate purchase - public relations

o non-paid stimulation f demand by planting significant news 14.2 Developing an Integrated Marketing Communications Plan 14/5

Factors:

- objectives - target market - budget

14.2.1 Step 1: Define the Audience(s) to Be Targeted 14/6 Avoid miscommunication or waste Some times multiple audience (doctors, consumers) Ensure audience is target market 14.2.2 Step 2: Set the Promotional Objectives 14/6 SMART – specific, measurable, attainable, relevant, time-bound

- define audience - how audience’s perception, attitude, behaviour should change - how quickly change expected - degree of change

14.2.3 Step 3: Set the Promotion Budget 14/7 Percentage of sales Competitive parity – relative level with respect to market share Objective-and-task

- define objective - determine strategies/tasks to meet objectives - estimate costs

14.2.4 Step 4: Design the Promotion Mix 14/8 Design promotion mix

- decide promotion components o advertising, personal selling, sales promotion, public relations’

- choose activities o media, coupon, Internet, billboards…

- choose vehicle o specific TV programme, value, size /colour of coupons

in practice, either advertising or personal selling usually dominant

- advertising for pull strategy - personal selling for push strategy

Different elements may address different objectives Comparison: Amount of information:

- High: PR and personal selling - Low: sales promotion

Credibility: - High: PR

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Control over message: - Low: PR

Cost - High: Personal selling - Very Low: PR

Strategy: - Pull: advertising, PR, consumer promotions - Push: Personal selling, PR, trade promotions

14.2.5 Step 5: Evaluate the Results 14/10 Marketing research (e.g. telephone survey)

- Level or awareness - Tried brand - Multiple purchases

14.3 The Nitty-Gritty of Promotional Decision Making 14/11

Advertising objectives must relate to attitude and behaviour:

- Awareness, comprehension, conviction, action Reach – total number of households exposed to at least one ad in given period Frequency Difficulties

- Defining target audience - Defining exposure - Not all of equal value - Weighting successive exposures

GRP – gross rating points --- reach x frequency Media types TV – enormous reach Radio – less involving than TV, but cheaper and targeted, can reinforce TV Print media – more involving; effective for detailed information, special interest Out-of-home (billboards, terminal, taxis…) Exhibition – in-store displays, tradeshow Supplementary – directories, yellow pages Direct marketing Internet – measurable performance

- Banner ads - Search keywords - Portal deals - Email

Creative strategy

- Copy platform o Based issue o Objective o Target audience o Major selling idea – key benefit o Theme, appeal, technique

- Unique selling proposition - Source of message (e.g. celebrity) - Appeal (rational, emotional)

Measuring advertising results

- Before test and after test - Before test

o Recall test – simulated magazine, respondents recount ads they remember o Sales test – purchases are recorded

- After test o Recognition test o Recall tests

Challenges: rely on memory: when to test? Other approaches

- Increase in traffic, sales, market share - May be due to other factors

14.3.1 Making Advertising Decisions 14/11

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14.3.2 Making Personal Selling Decisions 14/22

- Sales force must be organised - Account management policies - Deployment and territory assignment - Quotas

Sales cycle – duration in calendar time and number of sales visits Global markets

- Rely on independent agents or - Hire own sales people - Horizontal structure

o Geographically, by product line Customer service – increasingly important personal selling function Recruiting training compensation of salesforce Evaluating sales performance

- Sales analysis – sales volume - Cost analysis (e.g. travel and entertainment - Behavioural analysis

o Monitor actual behaviour (e.g. if sales miss forecast) Non-price-related promotions

- Samples - Context and sweepstakes - Trade promotions

o Contest and incentives for sales personnel - Sales promotion less costly than advertising since self liquidating therefore less risky

14.3.3 Making Sales Promotion Decisions 14/28 14.3.4 Making Public Relations Decisions 14/29 PR reinforces advertising campaign by increasing awareness and credibility, low-cost

- Beyond company control.

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15 - Marketing Strategies for New Market Entries Profit improvement:

- Cost-cuts easiest in short-term - Revenue (particular through new product) bigger impact in long run

Products differ in newness

15.1 How New Is New? 15/4

New-to-the-world (10%) – greatest expenditure and greatest risk New product lines (20%) Additions to product lines (26%) Improvement in existing products (26%) Repositionings (7%) Cost reductions (11%) New to target customers but not new to firm - little technical risk but greater marketing uncertainty New to company but not to market fewer challenges to R&D, product engineering, but major challenge in process engineering 15.2 Objectives of New Product and Market Development 15/6

???? 15.3 Market Entry Strategies: Is It Better to Be a Pioneer or a Follower? 15/7

Primary objective: volume and profit growth External objectives:

- Defend market share - Establish foothold in new market - Pre-empt market segment

Internal objectives

- Maintain product innovation - Exploit new technologies - Capitalise on strengths

Prospector:

- Pioneer in many markets o Substantial R&D, production engineering, marketing

Defender

- Follower o Fewer investments in R&D, and production engineering, more investment in marketing and sales

15.3.1 Pioneer Strategy 15/7 Benefits of pioneer:

- First choice of segments and positions - Define rules of game (price, distribution, service…) - First choice of distribution - Channels - Economies of scale and experience

o Gain volume, especially for complex products - High switching cost for early adopters

o But initial switching cost may be disadvantage - Positive network effects (mobile phones, fax, email) - Pre-empt scarce resources and supplies

15.3.2 Not All Pioneers Capitalise on Their Potential Advantages 15/10 15.3.3 Follower Strategy 15/10

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Follower benefits: - Take advantage of pioneer mistakes

o Positioning o Products o Marketing (advertising, distribution)

- Exploit latest technology - Exploit pioneer’s limited resources

15.3.4 Determinants of Success for Pioneers and Followers 15/12 Pioneer success criteria:

- Product market insulated from competition entry o Patent o Proprietary technology o Investments required

- Firm has size, resources, competencies to exploit and preserve position Follower success criteria

- Few legal, technical, financial entry barriers - Sufficient resources to overwhelm pioneer

Successful Pioneer prerequisites:

- Large entry scale - Broad product line - High product quality - Heavy promotional expenditures

Successful Fast followers:

- Larger scale than pioneer - Leapfrogging pioneer

o Product technology o Product quality o Customer service

Successful late entrants

- Focus on peripheral target markets or niches 15.4 Strategic Marketing Programs for Pioneers 15/14

Mass-market penetration Niche penetration Skimming and early withdrawal 15.4.1 Mass-Market Penetration 15/14 Appropriate when:

- High entry barriers delay competition o Build volume o Lower costs o Established loyal customers

- Pioneer has resources/competencies that cannot be matched - Slow initial growth and adoption - Positive network effects expected - Market homogenous

15.4.2 Niche Penetration 15/16

- Small firm - Focus on single segment - Fast market growth expected - Fragmented market - Few entry barriers - Limited resources

15.4.3 Skimming and Early Withdrawal 15/16

- High price - Limited advertising and promotion - Develop new applications to cannibalise products - Good R&D and product development skills - Few entry barriers

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- Fast product growth - Limited resources - Strong promotion - Small market

15.4.4 Marketing Programme Components for a Mass-Market Penetration Strategy 15/17

- Aggressive building of market awareness and motivation to buy - Easy product trials - - Media advertising and personal selling - Sales promotion - Reduce risk: money back / satisfaction guarantee; trial version - Liberal financing - Information technologies

o Aggressive pricing facilitated by: Positive network effects Low variable costs High product availability

- Legacy compatibility can reduce initial switching costs Global markets

- Largely same - Cultural, legal, economic considerations

o More training might be necessary - Mode of entry

o Export agents, contractual agreements, direct investment 15.4.5 Marketing Programme Components for a Niche Penetration Strategy 15/22 Similar to mass-market penetration strategy

- Focused marketing o More selective media, call schedules, channel designs

15.4.6 Marketing Programme Components for a Skimming Strategy 15/22

- High pricing policy - Focus on least cost-sensitive segments

o Relatively upscale typically - Prepare avenue of escape

o Next generation of technology

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16 - Marketing Strategies for Growth Markets Retain repeat or replacement business Continue to capture large share of new customers Leader:

- Lower cost - New segments

Challenges: (goal expand share)

- Quality - Innovation - Lower prices - Line extensions

Growth stage short but critical 16.1 Opportunities and Risks in Growth Markets 16/4

Arguments for benefit:

- Share gain easier - Share gains worth more - Less price competition

16.1.1 Gaining Share Is Easier 16/5 Advantage:

- Easier to attract new customers than to convert existing customers - Competition less likely to retaliate

But: - Difficult to attract new users when leader has prior influence - Competition have high capital expenditures that require fast growth

16.1.2 Share Gains Are Worth More 16/6 Dependency on:

- Positive network effects - Future changes in technology - Future competitive structure (flowers, late entrants) - Future fragmentation of market

16.1.3 Price Competition Is Likely to Be Less Intense 16/7 Assumes demand exceeds supply

- Only if high entry barriers - Not if pioneers or followers adopting penetration strategy

16.1.4 Early Entry Is Necessary to Maintain Technical Expertise 16/8 Risk that new technology might replace current one 16.2 Growth-Market Strategies for Market Leaders 16/8

Goal: maintain market share or at least market lead

- Difficult due to increasing number of competitors, antitrust 16.2.1 Marketing Objectives for Share Leaders 16/8

- Retain current customers - Stimulate selective demand among later adopters - Stimulate primary demand (most critical at end of growth stage)

16.2.2 Marketing Actions and Strategies to Achieve Share-Maintenance Objectives 16/9

- Fortress (position defence) - Flanker - Confrontation - Market expansion - Contraction

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- Strategic withdrawal Factors:

- Market size and customer characteristics - Number and strength of competitors - Resources and competencies

16.2.3 Fortress, or Position Defence, Strategy 16/13

- Almost always at least part of strategy - Homogenous market - High awareness level and preference

- Quality control - Shift sales promotion from primary demand to selective demand - Encourage repeat purchases - Shift from prospecting to servicing existing customers - Maximise availability

o Reduce stockouts o Shorter delivery time o Inventory control

16.2.4 Flanker Strategy 16/14

- Market fragmented in segments - Threat of competition developing differentiated product offering - Develop second brand (e.g. high quality or low price) - In conjunction with fortress strategy

o Firm must be able to afford 2+ entries 16.2.5 Confrontation Strategy 16/15

- Usually reactive, but may be proactive - Product improvements - Increased promotion - Lower price

16.2.6 Market Expansion Strategy 16/16 Aggressive variation of flanker

- Expand into several segments - Line extensions, new brands - Less expensive: same basic product, marketing variations

16.2.7 Contraction, or Strategic Withdrawal, Strategy 16/17 16.3 Share-Growth Strategies for Followers 16/17

16.3.1 Marketing Objectives for Followers 16/17 Share growth 16.3.2 Marketing Actions and Strategies to Achieve Share Growth 16/18 Either steal existing customers or attract larger share of new customers Five strategies: Frontal attack:

- Better features, lower prices - Homogenous market, competitor has less resources, competency

Leapfrog - Superior offering for both new and existing customers - Homogenous market, not all needs met with competitor products - Stimulate primary demand for new products

Flanker - Needs of one segment not met - Target too strong for direct attack but firm strong enough to effectively defend one segment

Encirclement - Similar to flanker --- many segments

Guerrilla 16.3.3 Deciding Whom to Attack 16/21 Market-share leader (frontal or leapfrog)

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Another follower with strong position in one segment One or more smaller competitors with limited resources Avoid direct attack --- differentiated product offerings 16.3.4 Frontal Attack Strategy 16/22 Customers do not have strong preferences or loyalties No positive network effects Challenger’s resources greater than competitors 16.3.5 Leapfrog Strategy 16/23 Far superior offering inhibits retaliation Requires superior technology and marketing resources 16.3.6 Flanking and Encirclement Strategies 16/24 Appropriate when market can be segmented and Existing brands don’t satisfy all needs Need not be product features (e.g. can be distribution channel) 16.3.7 Guerrilla Attack 16/25 Challenger has limited resources Surprise raids

- Sporadic, geographically limited, competition not well entrenched Advertising blitzes, sales promotion, legal action 16.3.8 Supporting Evidence 16/26 Characteristics of businesses gaining share

- Increased quality -> greater share increases - Share gainers added more new products, extensions etc - Share gainers increased marketing expenditures faster than rate of growth - Relative Price differences had little impact

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17 - Marketing Strategies for Mature and Declining Markets Tend to overestimate sales leads to excess capacity Leads to shakeout; weaker businesses fail or withdraw Maturity – total volume stabilises Replacement purchases vast majority Success depends on sustained quality / price advantage Not all brands mature at some time Creative marketing strategy can revive. Decline:

- If few exit barriers, aggressive pricing can drive out weak competitors - Industry consolidation by acquiring weaker brands

17.1 Shakeout: The Transition from Market Growth to Maturity 17/4

17.1.1 Characteristics of the Transition Period 17/4

- Market still growing - Growth rate declining - Excess capacity - Decreased product differentiation - Intensity of competition - Pressure on cost and profit

17.1.2 Strategic Traps during the Transition 17/4

- Failure to anticipate transition o Consumer nondurables difficult to forecast

- No clear competitive advantage - Assumption early advantage insulates from competition - Sacrificing market share for short-run profit

17.2 Strategic Choices in Mature Markets 17/6

- Few changes in market share or prices - Stability can be threatened by:

o Shifts in customer needs o Product substitutes o Increased raw materials o Government regulations o Low-cost foreign producers o Mergers and acquisitions

- Also positive developments possible Success dependent on:

- Development of business strategy for competitive advantage - Flexible, creative marketing for growth/profit

17.2.1 Strategies for Maintaining Competitive Advantage 17/7 Analyser or defender strategy appropriate Analyser: still some technological change and opportunities

- Some product and market development Defender: basic technology not likely to change dramatically

- Little R&D, some product improvement, line extensions 17.2.2 Methods of Differentiation 17/8 Dimensions of product quality

- Performance - Durability - Conformance to specifications - Features

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- Reliability - Serviceability - Fit and finish - Brand name

Service quality criteria:

- Tangibles - Reliability (most important) - Responsiveness - Assurance - Empathy

Quality perception gaps

- Customer expectations versus marketer’s perceptions - Management perceptions versus service quality specifications - Service quality specifications – service quality delivery - Service delivery – external communications - Perceived service – expected service

17.2.3 Methods of Maintaining a Low-Cost Position 17/14 Large market share not critical for low-cost position Sustainable cost advantage:

- No-frills product - Innovative product design - Cheaper raw materials - Automating/ outsourcing production - Low-cost distribution channels - Reducing overhead

17.2.4 Customers’ Satisfaction and Loyalty Are Crucial for Maximising Their Lifetime Value 17/16 Analyser and especially Defender more interested in ROI/cash-flow than volume increase or new products Low-cost versus differentiation not critical success factor for mature market More important is continued value improvement either through cost-reduction or improvement in product/service quality. Customer-satisfaction: continuous measurement of

- Expectation and preferences - Perception of how well met

(Highlight gaps) Loyal customers become more profitable over time

- Concentrate purchases (larger volume, lower selling costs) - Provide positive referrals - May pay premiums

Satisfaction does not always imply loyalty Individually tailored service levels could lead to

- Stratification – segmentation based on service levels o Ethical considerations

Privacy Lack of transparency Basis for withholding services

o Strategic considerations Past behaviour not always predictor of future Ignores word-of-mouth effects Better to first attempt to convert

17.3 Marketing Strategies for Mature Markets 17/20

Maximises profit flow over remaining life

- Maintain and protect market share o Share leaders: fortress; flanker if market is fragmented o Small share: avoid prolonged direct confrontation; niche

- Increased penetration: product penetration of segment - Extended use: average frequency of consumption/purchase - Market expansion: Number of potential customers in segment

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Increased penetration: - Discover reason for non-users - Add features/benefits - Performance/ease-of-use - Sales incentives - Expand distribution: convenient/accessible channels

Extended use:

- Larger package sizes (may backfire) - Package design (increase frequency; single serving) - Quantity discounts -> larger volume - Advertising -> remind customer - Promoting new functional uses (jello-salad, pies)

Market expansion

- Under-developed geographical markets - New segment - Experience curve benefits - Risks retaliation - Acquisition of smaller producers

o If low profitability means cheap assets / capacity o Synergies

- Private label brands o Access to new segment without substantial marketing o Risk of cannibalisation o Risk of external dependency

Global expansion

- Japanese expansion path o Japan – developing countries – developed countries

Automotive, electronics, watches, cameras o Japan – developed countries

Computers, semiconductors (low demand in developing countries) 17.3.1 Strategies for Maintaining Current Market Share 17/20 17.3.2 Strategies for Extending Volume Growth 17/21 17.4 Strategies for Declining Markets 17/28

Divest or harvest 17.4.1 Relative Attractiveness of Declining Markets 17/28 Factors:

- Conditions of demand - Exit barriers - Intensity of future competitive rivalry

Demand

- Substitutes - Shrinking market (demographics) - Falling consumption (sociographic) - Cost of complement (petrol) rises Affect rate and predictability of decline - Fast decline leads to overcapacity – predator behaviour - Not all segments decline with same speed

High exit barriers – aggressive behaviour

- Amount of specialised assets - Intertwined assets with other businesses

o Shared production, sales force - Emotional factors

Intensity of competitive rivalry

- Size and bargaining power of customers - Ability to switch to substitute products

17.4.2 Divestment or Liquidation 17/31 Early movers attain higher liquidation value

- Risk that forecast may be excessively pessimistic

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17.4.3 Marketing Strategies for Remaining Competitors 17/31 Harvesting:

- Avoid additional investment - Reduce operating expenses - Potentially raise prices - Minimise share decline - Appropriate for strong competitive position

o Customer continues buying after marketing stops - Slow decline of market - Cuts in operating expenses for marketing; investments in plant, equipment, R&D - Reduce number of markets, package sizes to reduce inventory and manufacturing costs - Improve efficiency of sales distribution - Sales force -> telemarketing or agents

Maintenance

- Uncertain trends - Continue same strategy - Reduced margins in short term - Consider an interim strategy

Profitable survivor:

- Invest to increase share position - Encourage other competitors to leave market early

o Explicit about commitment o Introduce line extensions o Cut prices o Reduce competitor exit barriers

Take over long-term contracts Supply spare parts Purchase operations

- Once position is unchallenged can switch to harvesting Niche

- Stable pockets of demand – slow decline - Strong competitive position in segment

o Even smaller competitors can pursue - Focus assets and resources at segment

o Similar to niche strategy in mature market

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18 - Organising and Planning for Effective Implementation Strategic fit:

- Competitive and marketing strategies fit needs/desires of target customers - Organisational structures, policies, procedures fit strategy (“organisational fit”

Issues:

- BU autonomy from corporate - What organisational structures appropriate in Business Unit for competitive strategy - Adjustment for international markets

- Formal written marketing plans

o Timetables o Objectives o benchmarks

18.1 Designing Appropriate Administrative Relationships for the Implementation of Different Competitive Strategies 18/5

Aspects of corporate-BU relationship

- degree of autonomy - amount of sharing with other business units - evaluation and reward criteria of SBU by corporate

(Exhibit 18.1) Product:

- Prospector: broad, technically sophisticated, high quality - Differentiated defender: Narrow, high-quality - Low-cost defender: narrow, less sophistication, lower quality

Price:

- Prospector, Differentiated Defender: High - Low-cost defender: Low

Distribution

- Prospector: Little forward vertical integration, high trade-promotion - Differentiated defender: High forward vertical integration, low trade promotion - Low-cost defender: low trade promotion

Promotion:

- Prospector: high advertising, sales promotion, sales force - Differentiated defender: high sales force, low advertising, sales promotion - Low-cost defender: low advertising, sales-promotion and sales force.

Marketing strategies:

- Prospector: Mass-market penetration, niche, skimming/early withdrawal, market expansion, encirclement - Differentiated defender: Fortress-defence, confrontation, flanker, increased penetration, profitable survivor, niche - Low-cost defender: fortress defence, confrontation, profitable survivor, niche, harvesting

18.1.1 Business-Unit Autonomy 18/8 Prospector – high autonomy, quicker, more innovative

- can lead to coordination issues - redefine SBU to focus on customer/application rather than product

Low-cost defender – little autonomy Differential defender – focus on ROI rather than growth

- low autonomy => better performance, stable environment - high autonomy => better differentiation, unstable environment

18.1.2 Shared Programs and Facilities 18/9 Trade-off of size of BU: efficient scale versus flexibility

- balance as small with shared facilities

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Sharing is a problem for prospector

- some advantages of salesforce (who can sell into existing base) sharing optimal for low-cost defenders Differential defender

- functional independence in areas of differentiating position (R&D, marketing, sales) long-term ROI - sharing of less crucial areas (distribution, manufacturing) improve efficiency, short-term ROI

18.1.3 Evaluation and Reward Systems 18/10 Low-cost defender: efficiency -> short-term profits Prospector: more emphasis on sales volume, market share, percentage of volume generated by new products 18.2 Designing Appropriate Organisational Structures and Processes for Implementing Different Strategies 18/10

18.2.1 Functional Competencies and Resource Allocation 18/11 Prospector: marketing, sales, product R&D engineering, bottom-up strategic planning Low-cost defender: operating efficiency, financial management, production, process R&D, distribution or logistics 18.2.2 Additional Considerations for Service Organisations 18/11 Close coordination between operations, sales, marketing Production planning and standardisation, reduce quality variations Personnel management important

- communications skills - frequent retraining - performance feedback

Prospector service – employees often identify new opportunities 18.2.3 Organisational Structures 18/13 Formalisation – standard policies Centralisation Specialisation – division of task within business unit Prospectors need to be adaptive and innovative

- decentralised - informal coordination - more specialised

Differential defender – moderate levels attention to source of differentiation Organisation designs of SBU Functional (marketing, R&D, HR, production)

- centralised, hierarchical, efficient, centralised marketing - low-cost defender - startup (simplicity of design)

o small o single product o entrepreneur’s vision adequate source of innovation

Product Manager organisation

- marketing divided by products - less bureaucratic than functional - differentiated defender/analyser – complex and unstable market - quick reaction - improved coordination - increased attention to smaller market entries Short-coming - PM has little authority; cooperation difficult - Global competition, customer comparisons, increased private label, aggressive bargaining by distributors - Declining in favour of market management and matrix

Market management

- Market manager (assigned to market or segment) in addition to product managers Matrix

- least bureaucratic, most specialised - participative decision making inefficient but innovative - prospector and new products of analyser, differentiated defender

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18.2.4 Recent Trends in Organisational Design 18/18 Focus on business processes (new product development, supply chain management) staffed by individuals from multiple functions

- makes organisation flatter - emphasis on customer satisfaction - simultaneous rather than sequential work - information flows where it is used

increase of self-managed teams based on empowerment 18.2.5 Organisational Adjustments as Firms Grow and Markets Change 18/19 Key drivers of restructuring

- customer needs - information requirements of sales and marketing - coordination and motivation of activities - available competencies and resources - costs

??narrow range of goods/services for similar needs – single function/different uses – product or market focused multiple sales people for same customer not good 18.2.6 Organisational Designs for Selling in Global Markets 18/21

- treat foreign subsidiaries with respect - technology is making world smaller

International division

- houses all international activities related to marketing - single division lacks cultural sensitivity

Trend: global structures based on products or geography Global structures

- Functional – as before with worldwide scope - Products (as before: marketing typically localised) - Area structures

o Appropriate when considerable market variance - Hybrid

o Dual reporting conflicts o Centralised efficiency o Local responsiveness o Global matrix

Centralised decision making

- Decentralised – more responsive to local change - Centralised can respond better to strong global competition

18.3 Marketing Plans: The Foundation for Implementing Marketing Actions 18/22

Marketing plan – objectives, strategy and marketing actions based on 4Cs.

- Executive summary - Current situation and trends, macroenvironmental, market, competitive - Performance review - Key issues – threats, opportunities, strengths, weaknesses - Objectives – financial, marketing - Marketing strategy - Action plans - Projected P&L - Controls - Contingency plans

18.3.1 The Situational Analysis 18/26 Market situation

- Total market size and growth trends - Customer perception (e.g. of brand) - Buying behaviour (market penetration, repurchase rate

Competitive situation - Major competitors

o Size, market share, product quality, marketing strategies

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o Potential competitors - Macroenvironmental situation

o economic, technological, political/legal, social/cultural - Past product performance

o sales volume, marketing expenditures, profit contribution - Sales forecast, key assumptions

18.3.2 Key Issues 18/28 Threats, opportunities, strengths, weaknesses 18.3.3 Objectives 18/28 Financial objectives

- Goals/performance should effect SBU objectives Marketing objectives

- Changes in customer behaviour - Levels of performance of marketing programmes

18.3.4 Marketing Strategy 18/29 One of strategies from modules 15-17 Fit market and competitive conditions 18.3.5 Action Plans 18/29 Timelines, milestones, Gantt chart, stage-gate development processes, budget 18.3.6 Projected Profit-and-Loss Statement 18/30 Forecast of sales volume in units and dollars Manufacturing, distribution, marketing costs Basis for resource allocations 18.3.7 Contingency Plans 18/30 For specific threats / opportunities

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19 - Measuring and Delivering Marketing Performance Strategic control systems – strategy in sync with market and competitive environment Marketing metrics – delivery of planned results Process for evaluating and controlling performance on continuing basis Strategic control – monitor strategy to make sure it is viable Track performance of specific product-markets Marketing audits to periodically link control process with marketing planning 19.1 Designing Control Systems Step by Step 19/4

Five steps:

- Setting standards of performance - Specifying the necessary feedback data - Obtaining the needed data - Evaluating feedback data – explaining gaps - Taking corrective action

19.1.1 Setting Standards of Performance 19/6 Derive from objectives and strategies for SBU / product-market

- Profitability - Market-share - Sales Budget - Product development costs - Advertising - Promotional expenses

Historically, financial focus, now trend to Balanced Scorecard

- Customer satisfaction - Product quality - Market share - New product development

SMART

- Specific - Measurable - Achievable - Relevant - Time-bound (monthly, quarterly, annually)

Benchmarking (comparison with other companies) Profitability analysis

- Costs of specific marketing activities o Direct/full costing

Contribution accounting o Indirect costs

Profitability

- Single most important measure of performance, but with limitations o Many objectives non-financial o Short-term, can be manipulated with dysfunctional actions o Factors outside managerial control

19.1.2 Specifying and Obtaining Feedback Data 19/11 Sales invoice/transaction records --- basic internal source Marketing research Executives gather information from personal visits

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19.1.3 Evaluating Feedback Data 19/11 Assessing gaps; examples:

- Government source information (e.g. shift in personal disposable income) - Shift in demand for product type - Competitor price change - Impact of new brand on market share

19.1.4 Taking Corrective Action 19/12 Can be difficult to isolate cause of problem. Often interactive effect between several input variables and environment. Critical situations (e.g. 30% shipping lag time compared to competition) requires Radical changes such as redesign of business processes. Even if outcome is better than anticipated it is still useful to undertake evaluation. 19.2 Design Decisions for Strategic Control Systems 19/13

Objective: monitoring and evaluating SBU-level strategies Challenge: time lags between strategy formulation and execution and results

- Interim changes in internal and external environments 19.2.1 Identifying Key Variables 19/13

- External forces o Long-term demand o New technologies o Government legislation o Competitor action

- Effects of firm’s actions o Firm’s advertising o In-store merchandising

19.2.2 Tracking and Monitoring 19/14 E.g.:

- Market demand o monitor industry sales

- Advertising effect on attitudes o measure awareness, trial, repeat buying

19.2.3 Strategy Reassessment 19/15

- Periodic intervals (e.g. quarterly) - Strategic control system can issue alerts - Trend to more frequent reassessments

19.3 Design Decisions for Marketing Performance Measurement 19/15

- Who - When/how often - What media / levels of aggregation - Contingencies

19.3.1 Who Needs What Information? 19/16

- Top managers - Functional managers (manufacturing, procurement, finance …) - Marketing managers

Sales analysis. Break down into:

- Geographical areas o Compare actual to quota (based on market potential and last year’s actual…)

- Product, package size, grade o To eliminate weak products and concentrate on strong ones. Consider

Market-share trends Contributions margins Scale effects Complementary relationships with other items

- Customer (type and size) o Typically small percentage of customers account for large percentage of sales => shift sales effort

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- Channel intermediary (e.g. type/size of retailer) - Method of sale (mail, phone, channel, Internet, direct…) - Size of order (<$10, $10-25, …)

o May lead to minimum order size, charging extra for small orders, dropping accounts … Line-item margins and expense analysis. Monitor:

- Gross and net margins - Marketing expense ratios

Evaluate magnitude and patterns of deviations 19.3.2 When and How Often Is the Information Needed? 19/19 Examples:

- Fashion: hours - Payroll: weekly - Industrial sales: monthly - Strategic control indicators (e.g. market share) less frequent (less false alarms)

19.3.3 In What Media and in What Format(s) or Levels of Aggregation Should the Information Be Provided? 19/20 Alphabetical order of products not useful. Preferable in order of speed of sale

- Fast movers: candidates for reorder - Slow movers: candidates for markdown

Aggregation by vendor might be useful after end of season 19.3.4 What Contingencies Should Be Planned for? 19/21 Identify critical assumptions

- beyond control of firm but with strong impact are particularly important - include also upside not only downside

Assign probability of assumptions - Rank ordering based on importance, how controllable, confidence … confidence & impact

Tracking and monitoring - Which measures

o Relevancy, accuracy and cost Activating contingency plan

- Setting triggers: precise definition and responsibility assigned Specifying response options

- Optional responses - Build in intensity

19.3.5 Global Marketing Control 19/23 Similar to national but additional complexity

- Language, customs Ideally same control system

- Variations in frequency and detail of reports 19.4 A Tool for Periodic Assessment of Marketing Performance: The Marketing Audit 19/23

Both control and planning activity Review of marketing efforts Across SBU 19.4.1 Types of Audits 19/24 Marketing environment – identify significant macro trends and affect on customers, competitors, channels, suppliers Objectives and strategy – how appropriate are internal factors in light of macro trends and internal resource changes Planning and control system – adequacy of control and reappraisal process Organisation – firm’s overall structure, organisation of marketing, synergy between marketing units Marketing productivity – profitability of products, markets, key accounts Marketing functions – how adequately handles each marketing mix element Ethical audit – socially responsible marketing Product manager audit – (particularly consumer goods) best focus of their efforts

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Key Themes 4C - Environmental success factors (Company, Context, Customer, Competitors) 4P – Programme components (Product, Price, Place, Promotion) Strategy components: Scope, Goals, Resources, Competitive advantage, Growth strategy, Synergy Competitive advantage (IS, Market research, Customer relations, Brand, supplier relations…) Resources: Portfolio (BCG Growthshare, multifactor); Value-based (Discounted cash-flow) BU: Competitive positions (cost leadership, differentiation, focus/niche) Strategic types (prospector, analyser, defender, reactor) Environmental analysis: sociocultural, physical, demographic, political, economic, technological; Opportunity/threat: probability/impact Porter: Industry Attractiveness (Competitive rivalry, Entry barriers, Supplier power, Buyer bower, Substitute threat) Diffusion of Innovation (Awareness, Interest, Evaluation, Trial, Adoption) Adoption speed (risk, advantage, simplicity, compatibility, Trial-ease, communication) Adopter categories Consumer: High/low involvement, High/low decision-making combinations High-involvement (Problem Id, Information search, Alternative evaluation, Purchase, Postpurchase eval) Low-involvement (Impulse, Intertia) Decision-making: Perception, Memory, Needs, Attitudes Fishbein model: Attitude is weighted sum of (rating x importance) of each attribute Compensatory/Non-compensatory (e.g. lexicographic) Lifestyle topologies, Class, Reference groups, Family Organisation: Purchasing process (User, influencer, gatekeeper, buyer, decider); Buying centre Buying tasks: Straight rebuy, modified rebuy, new-task buying Kinds of goods (Raw materials, component materials, installations, accessory equipment, operating supplies, services) Forecasts (bottom-up better than top-down) Evidence-based methods (statistical, observation, survey, analogy, judgement, market test) Chain ratio calculation Indices: BPI-Buying power, CDI-Category development, BDI-Brand Development Bias: anchoring, capacity constraints, sandbagging, unstated assumptions Market Knowledge Systems (Internal records, marketing database, CI system, systems to organise client contact) Research steps: 1 – identify problem & objectives (market size, attractive segments, growth, competition) 2 - determine data sources (primary, secondary, qualitative, quantitative) 3 – design research (data collection, contact method, sampling) 4 – collect data (bias, selection errors) 5 – analyse data 6 – report results Market segmentation / Target Marketing / Positioning Descriptors: Demographic, Geographic, Geodemographic, Behavioural Step 1: Select market attractiveness, industry attractiveness, competitive position Step 2: Weight each factor Step 3: Rate segments, plot results Step 4: Project future position Step 5: Choose segments to target, allocate resources Strategies: Niche-market, mass-market, growth-market Positioning: physical vs. perceptual Attributes: simple physical, complex physical, essential abstract Step 1: select competing product Step 2: identify determinant attributes Step 3: collect sample on perception Step 4: determine current position Step 5: ascertain preferred combination of attributes Step 6: determine gap to ideal Step 7: summarize decision Analytical tools: conjoint analysis, factor/discriminant analysis/ multidimensional scaling Dimensions of quality goods (performance, features, reliability, conformance, durability, serviceability, aesthetics, perceived q)

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Service quality (tangibles, reliability, responsiveness, assurance empathy) Empathic design (observation, data capture, reflection, brainstorming, prototype) Consumer goods classification (convenience, shopping, specialty, unsought) Branding assets (awareness, loyalty, perceived quality, association) Product Line: Line filling, stretching, extensions, brand extension New product development (new-to-world, new-to-firm, line extension, product improvement) Stage-gate system: Gate 1: idea generation and initial screening (strategic fit) Gate 2: technical and marketing feasibility Gate 3: Business case Gate 4: product design / marketing plan / test market Gate 5: commercialisation Post-implementation review Pricing objectives (Penetration, skimming, harvesting, survival) Premium for differentiation (R&D, production, distribution, advertisting) Price sensitivity (uniqueness, quality, substitutes, sunk investment, end-benefit, shared cost, low inventory) Cost estimates (full costing, direct costing, activity-based costing) Cost-oriented methods (cost-plus/markup, target-return, break-even analysis) Competition-oriented (discounting or premum pricing) Customer-oriented (economic value, perceived value) Geographic adjustments (FOB origin, freight absorption, uniform delivered, zone) Distribution objectives (availability, satisfaction, promotional support, market information, cost effectiveness, flexibility) Channels (wholesalers, agent middlemen, retailers, non-store retailing, facilitating agencies) Global markets: export, licensing, direct investment Vertical Marketing System (Corporate, contractual, administered, relational) Channel power (economic, coercive, expert, referent, legitimate) Channel control: Pull/push strategy Channel conflict and resolution Promotion Step 1: define audience Step 2: set objective Step 3: set budget Step 4: design promotional mix (components, activities, vehicle) Step 5: evaluation result Media types: (TV-reach, Radio-reinforceTV, Print-detail, Out-of-home, exhibition, supplementary, direct/internet) Pioneer (first choice or segments, positions, channels, resources; economy of scale, network effects …) Follower (take advantage of mistakes, exploit newest technologies) Success determinants (entry barriers, size, resources…) Strategies Mass-market penetration – high barrier, homogenous market, unmatched resources/competencies Media advertising, reduce trial risk, liberal financing, aggressive pricing Niche penetration – low barriers, fragmented market, fast growth, small firm Focused marketing Skimming/withdrawal – low barriers, small market, limited resources, High pricing, focus on least cost-sensitive segments, prepare escape Growth Market Share Maintenance (Fortress, Flanker, Confrontation, Market expansion, Contraction, Withdrawal) Followers: (Frontal, Leapfrog, Flanker, Encirclement, Guerrilla) Mature Market Analyser – some technological change and opportunities --- some product and market development Defender – little change in basic technology – little R&D, some product improvements, line extensions Differentiation through quality; quality perception gaps Focus on customer satisfaction and loyalty Increase penetration, extend use, expand market Share leaders: fortress/flanker Small share: avoid prolonged confrontation, niche Declining market Divest or harvest (demand conditions, exit barriers, rivalry) Maintenance, profitable survivor, niche Product: P: Broad, HQ, DD: Narrow, HQ, LCD: Narrow, LQ Price: P, DD: H; LCD L Distribution: P: Little VI, High Trade-Promo; DD: High VI, Low Trade-Promo; LCD: Low Trade-Promo Promotion (Ad, Sales Promo, Sales Force: P: High All; DD: High SF, Low Ad, SP; LCD: Low All.

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Marketing Strategy: P: MM Penetration, Niche, Skimming, Market expansion, encirclement DD: Fortress-defence, Confrontation, increased penetration, profitable survivor, Niche LCD: Same as DD, also harvesting Autonomy: P: High, LCD Low, DD stable env: low, unstable env: high Sharing: P: SF, DD: non-crucial areas: MFG, Distr; LCD: Max Eval/Rewards: P: sales volume, market share, LCD: short-term profit Formalisation: P: Low Centralisation: P:Low Specialisation: P: High Global structures: Functional, products, area, Hybrid Marketing Plan: summary, situation, issues/objectives, strategy/plan, P&L, controls, contingency Control system: Step 1: setting standards Step 2: specifying feedback data Step 3: Obtaining data Step 4: Evaluating feedback Step 5: Taking corrective action Design decisions for control system: Key variables, tracking/monitoring, strategy reassessment Design decisions for marketing performance measurement: Who, When/how often, what aggregation level, contingencies Audits: Marketing env, objectives, control system, org, marketing productivity, mark functions, ethics, product manager