marketing and business models (cont.) lecture 7 tuesday jan 27, 2009
TRANSCRIPT
Marketing and Business Models (cont.)
Lecture 7Tuesday Jan 27, 2009
Marketing 101
The 4 Ps
What is Marketing?4 Ps of Marketing
• Product • Promotion• Pricing• Place (or distribution system)
What follows is necessary for Business Plan but not for Tuesday Homework
Product• What is your product? Describe in
terms of benefit to the customer• Product packaging (is this
relevant?)– Discuss form-factor, pricing, look,
strategy– Summarize Cost of Goods and high-
level Bill of Materials– Shipping issues– Customs issues
Promotion• Direct marketing
– Overview of strategy, vehicles & timing– Overview of response targets, goals &
budget
• Third-party marketing– Co-marketing arrangements with other
companies
• Marketing programs– Other promotional programs
Promotion
• Branding– Concept of Brand Equity– What value do you get from
Branding?– How do you build a brand?– Is it worth it?
Pricing• Pricing
– Summarize specific pricing or pricing strategies
– Compare to similar products or compare to doing nothing
• Strategy– Summarize strategy relevant to
understanding key pricing issues
Placement (Distribution)• Distribution strategy • Channels of distribution
– Summarize channels of distribution
• Distribution by channel– Show plan of what percent share of
distribution will be contributed by each channel -- a pie chart might be helpful
• Discuss fulfillment issues
Vertical Markets/Segments
• Vertical market opportunities– Discuss specific market segment
opportunities– Address distribution strategies for
those markets or segments– Address use of third-party partner
role in distribution to vertical markets
Placement (International)
• International distribution– Address distribution strategies– Discuss issues specific to international
distribution
• International pricing strategy• Localization issues
– Highlight requirements for local product variations
Business Models continued
• How do you build a profitable company?– Make the right strategic Choices
• Solve customer problem• Differentiation• Pricing
– Create Value• Processes• Resources
– Value Network• Customer relationships • Suppliers• Information Flows
– Capture Value• Cost• Profit
• How do you build a profitable company?Consider Capturing Value- - It is not enough
to bring a terrific product to the market place, that your customer loves, if he won’t pay enough for it so that you can make a profit.
- Lesson of e-commerce- Lesson of third world charities
There are often many ways of making money on the same product or service. Limited by ingenuity
Some thoughts on how to increase profitsP=SP-C
1. Increase Selling Price
Increase Customer Value • Put extra features in product which require little marginal cost• Provide extra service• Target less competitive segment of the market• Get to market before competition• Price at the maximum the customer is willing to pay
Price models should reflect customer value- not cost (except in government contracts if you wish to avoid jail)
• Why?
Some thoughts on how to increase profitsP=SP-C
2. Decrease Selling Price
• Don’t commit to detailed design until you have customers specs firm
- then don’t change• Build a manufacturable product. Bring manufacturing in
early• Don’t overload with features that the customer doesn’t
want that are costly to develop• Manage tightly to schedule with appropriate risk and
risk reduction plans• Use rigid phase exit criteria
Some thoughts on how to increase profitsP=SP-C
3. Decrease Product Development (NRE) and Manufacturing (RE) costs
• Effect on product price in being first to market?
• Effect on total revenue of turning out products faster?
• Effect on Cost?
Some thoughts on how to increase profitsP=SP-C
4. Decrease Cycle Time for Product Development
Increase profits
Consider multiple business models. . .
Suggestions:
• The after-market Service ModelLarge complex equipment
• Aerospace• Medical
• Periodic updates (e.g. software “support”)• Equipment with consumables (the razor
blade model)• Printers (low margin) coupled with ink (high margin) • Video Games
• Brokerage• Intermediary• Market makers• Arbitrage • Ex: Trader Ben
Business Models
• Merchant•Virtual Merchant e.g., Amazon•Catalog Merchant -- mail-order business
with a web-based catalog. Combines mail, telephone and online ordering e.g., Land’s End
•Click and Mortar -- traditional brick-and-mortar retail establishment with web storefront. Barnes and Noble
•Bit Vendor –Apple I-tunes (plus I-pod)Which has the highest Gross Margin?
Business Models cont.
Business Models cont.
•DistributionExamples
•Services•Design house•Software development (not shrink-wrapped)
•Sales including VAR (Value Added Reseller)
•Outsourcing•Consultancy•R&D House (SRI, Battelle, Caltech research, etc.)
Business Models cont.
Businesss Models cont.• Manufacturer- - Make stuff and sell it to
another business• License - - IP, software or complete business
– Mixed model: Can license to markets you can’t address
• Community – Build and advertise/subscription• Pure Subscription• Advertising
• Clicks• Can be combined with others
• Infomediary• Audience Measurement Services • Incentive Marketing
Businesss Models cont.• Integrated Information Businesses-
Opportunity to “slice and dice”– Consider NY Times– Print– Web– Reprints
•Articles•Significant pages (e.g., date of your birth)
– Archival photographs– Classified– Delivery Inserts– News Service
– See Hal Varian “Information Rules”
Knowing your model, you have a decision to make. Where should you invest?
Investment efficiency
Each of these brings some value to the customer. Challenge is to decide which one(s) should get your investmentWhat should you be really good at? What should you outsource?
•Investment decision is based on Business Model
•Competencies required to support that model
•Cost of Competency vs cash generated by Business Model
It gets worse. . .
As Bill Collins discussed• How will you deliver
continuously increasing value over time?
• Competition doesn’t stand still. • The bar is raised Perceived Product Value/Cost
increases with time