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Chapter 2 – Company & Marketing Strategy: Partnering to Build Customer Relationships
Companywide Strategic Planning: Defining Marketing’s Role (Pg 35)
- Strategic Planning (Developing and maintaining a strategic fit between organization’s goals and capabilities and its changing marketing opportunities)
- Defining a Market-‐Oriented Mission o Mission Statement (Statement of the organization’s purpose)
! Should be market-‐oriented ! Defined in terms of customer needs ! Should not be too narrow/broad ! Should be realistic ! Should be specific ! Should fit market environment ! Should base on distinctive competencies ! Should be motivating
- Setting Company Objectives & Goals o Mission needs to be turned into detailed supporting objectives for each level of
management
- Designing the Business Portfolio o Business Portfolio (Collection of businesses and products that make up the company) o Analyze current business portfolio
! Portfolio Analysis (Evaluates products and businesses making up the company)
! Strategic Business Unit (SBU) (Unit of company having separate mission and objectives and can be planned independently from other company businesses)
! Attractiveness of SBU’s market or industry ! Strength of SBU’s position in that market or industry
• Invest more to build share • Invest just enough to hold at current level • Harvest to milk short-‐term cash flow regardless of long-‐term effect • Divest by selling or phasing it out
o Shape future portfolio ! Objective must be “profitable growth”, not growth itself ! Market Penetration (Making more sales to current customers without
changing products)-‐ existing markets, existing products ! Market Development (Identifying and developing new markets for
current products)-‐ new markets, existing products ! Product Development (Offering modified or new products to current
markets)-‐ existing markets, new products ! Diversification (Starting up or buying businesses outside of current
products and markets)-‐ new markets, new products • Careful not to lose market focus
! Downsizing • Market environment has changed, making some products or
markets less profitable • Firm has grown too fast and entered areas where it lacks
experience • Firm enters too many foreign markets without proper research • Introduces new products that do not offer superior customer
value
Planning Marketing: Partnering to Build Customer Relationships (Pg 42)
- Partnering with Other Company Departments o Value Chain (Series of departments that carry out value-‐creating activities to design,
produce, market, deliver and support a firm’s products) o Success depends on how well each department performs its work and how well activities of
various departments are coordinated
- Partnering with Others in the Marketing System o Value-‐Delivery Network (Network made up of the company, suppliers, distributors and
ultimately customers who “partner” each other to improve performance of entire system) o Competition no longer takes place between individuals. Rather, it takes place between the
entire value-‐delivery networks created by competitors.
Marketing Strategy & the Marketing Mix (Pg 45)
- Customer-‐Centered Marketing Strategy o Market Segmentation (Dividing a market into distinct groups of buyers who have distinct
needs, characteristics or behavior and who might require separate products or marketing mixes)
o Target Marketing (Evaluating each market segment’s attractiveness and selecting one or more segments to enter)
o Market Positioning (Arranging for a product to occupy a clear, distinctive and desirable place relative to competing products in minds of target consumers)
! Distinguish from competing brands ! Give greatest strategic advantage in their target markets
- Developing the Marketing Mix o Four Ps/Four Cs
! Product/Customer Solution (Goods-‐and-‐services combination company offers to target market)
! Price/Customer Cost (Amount customers pay to obtain product) ! Place/Convenience (Company activities that make product available to
target consumers) ! Promotion/Communication (Activities communicating merits of product
and persuading target customers to buy)
- Managing the Marketing Effort (Pg 50) - Marketing Analysis (SWOT)
o Find attractive opportunities o Avoid environmental threats o Analyze company strengths and weaknesses o Analyze current and possible marketing actions
- Marketing Planning (addresses “What” & “Why” of marketing activities) o Executive Summary o Current Marketing Situation o Threats & Opportunities Analysis o Objectives & Issues o Marketing Strategy o Action Programs o Budgets o Controls
- Marketing Implementation (addresses “Who”, “Where”, “When” & “How”) o Depends on how well the company blends its people, organizational structure, decision and
reward systems and company culture into a cohesive action program that supports its strategies
- Marketing Department Organization o Functional Organization (Different marketing activities headed by a functional specialist) o Geographic Organization (Sales and marketing people assigned to specific countries,
regions and districts) o Product Management Organization (Product manager develops and implements a complete
strategy and marketing program for a specific product or brand) o Market or Customer Management Organization (Market managers develop marketing
strategies and plans for their specific markets or customers)
- Marketing Control (Measuring and evaluating results of marketing strategies and plans and taking corrective action to ensure objectives are achieved) o Operating Control (Checking ongoing performance against annual plan and taking
corrective action when necessary) o Strategic Control (Looking at whether company’s basic strategies are well matched to its
opportunities)
- The Marketing Environment
Measuring & Managing Return on Marketing (Pg 54)
- Return on Marketing/Marketing ROI (Net return divided by costs of the marketing investment) o Standard Marketing Performance
! Brand Awareness ! Sales ! Market Share
o Customer-‐Centered Measures ! Customer Acquisition ! Customer Retention ! Customer Lifetime Value
Chapter 3 – The Marketing Environment
The Company’s Microenvironment (Actors close to the company affecting its ability to serve its customers) (Pg 60)
- The Company o All departments must “think customer” and work in harmony to provide superior customer
value and satisfaction
- Suppliers o Marketing managers must watch supply availability (e.g. supply shortages or delays, labor
strikes) o Marketing managers must monitor price trends of their key inputs
- Marketing Intermediaries (Firms helping company to promote, sell and distribute goods to final buyers) o Large and growing reseller organizations have enough power to dictate terms or even shut
manufacturer out of large markets o Physical distribution firms stock and move goods o Marketing services agencies target and promote products to the right markets o Financial intermediaries finance transactions or insure against risks
- Customers o Consumer Markets (Individuals and households buy goods and services for personal
consumption) o Business Markets (Buy goods and services for further processing or for use in production) o Reseller Markets (Buy goods and services to resell at a profit) o Government Markets (Government agencies buy goods and services to produce public
services or transfer to others who need them) o International Markets (Buyers in other countries)
- Competitors
- Publics (Any group having an actual or potential interest in or impact on an organization’s ability to achieve its objectives) o Financial Publics (Influence company’s ability to obtain funds)
o Media Publics (Carry news, features and editorial opinion) o Government Publics o Citizen-‐Action Publics o Local Publics (Neighborhood residents and community organizations) o General Public o Internal Publics (Workers, managers, volunteers and board of directors)
The Company’s Macroenvironment (Larger societal forces affecting microenvironment) (Pg 63)
- Demographic Environment o Demography (Study of human populations in terms of size, density, location, age, gender,
race, occupation and other statistics)
o Changing Age Structure of the Population ! Baby Boomers (Born following World War II until early 1960s)
• Lucrative market for new housing and home remodeling, financial services, travel and entertainment, eating out, health and fitness products and high-‐priced cars and other luxuries
! Generation X (Born between 1965 and 1976 in “baby dearth” following baby boom)
• More cautious economic outlook • Care about environment • Less materialistic • More skeptical • Family-‐oriented • Increasing divorce rates
! Generation Y (Born between 1977 and 1994) • Large teen and young adult market • Utter fluency and comfort with computer, digital and information
technology ! Generation Z (Born between early 1990s and 2010)
• Highly connected • Media technology era
! Generational Marketing • Marketers need to form more precise age-‐specific segments • Segment by their lifestyle or life stage
• Try to be broadly inclusive and offer each generation something specifically designed for it at the same time
o The Changing American Family ! Special needs of nontraditional households ! Child day care business and increased consumption of convenience foods
and services, career-‐oriented women’s clothing and financial services
o Geographic Shifts in Population ! Created a booming SOHO market
o A Better-‐Educated and More White-‐Collar Population ! Demand for quality products, books, magazines, travel, PCs and internet
services
o Increasing Diversity ! Ethnic, racial and cultural diversity ! Gay and lesbian consumers ! People with disabilities
• Market for online grocery shopping, home delivery, travel, sports and other leisure-‐oriented products and services
- Economic Environment (Factors affecting consumer buying power and spending patterns)
o Changes in Income ! Marketers try to offer greater value (Right combination of product quality
and good service at a fair price) ! Marketers should pay attention to income distribution as well as average
income • Upper-‐Class Consumers – Market for luxury goods • Middle Class Consumers – Market for good quality goods • Working Class Consumers – Market for basics of food, clothing and
shelter • Underclass Consumers – Market for most basic purchases
o Changing Consumer Spending Patterns ! Different income levels have different spending patterns
o Value marketing involves wats to offer financially conscious buyers greater value-‐ the
right combination of quality and service at a fair price.
- Natural Environment (Natural resources are needed as inputs by marketers or are affected by marketing activities) o Growing shortages of raw materials
! Firms making products required raw materials face large cost increases even if the materials remain available
o Increased pollution
o Increased government intervention ! Marketers should develop solutions to the material and energy problems ! Consumer demands with ecologically safer products, recyclable or
biodegradable packaging, recycled materials and components, better pollution controls and more energy-‐efficient operations
o Environmentally sustainable strategies
- Technological Environment (Forces that create new technologies, creating new product and market opportunities) o Most dramatic force o Create new markets and opportunities o Every new technology replaces an older technology o Fantasy products must not only be technical, but also commercial (practical and affordable)
- Political Environment (Laws, government agencies and pressure groups influencing and limiting various organizations and individuals in a given society) o Legislation Regulating Business (public policies to guide commerce-‐ limit business for
the good of society) ! Increasing Legislation
• To protect companies from each other by defining and preventing unfair competition
• To protect consumers from unfair business practices by defining and enforcing unfair business practices
• To protect interests of society against unrestrained business behavior by ensuring firms take responsibility for societal costs of their production or products
! Changing Government Agency Enforcement
o Increased Emphasis on Ethics & Socially Responsible Actions
! Socially Responsible Behavior • Enlightened companies look beyond what the regulatory system
allows and simply “do the right thing” to protect long-‐run interests of consumers and environment
! Cause-‐Related Marketing • To exercise social responsibility and build more positive images,
companies link themselves to worthwhile causes
- Cultural Environment (Institutions and other forces affecting society’s basic values, perceptions, preferences and behaviors) o Persistence of Cultural Values
! Marketers have some chance of changing secondary values, but little chance of changing core values
o Shifts in Secondary Cultural Values ! Marketers want to predict cultural shifts in order to spot new
opportunities or threats
! People’s Views of Themselves • People use products, brands and services as a means of self-‐
expression and matching their views of themselves
! People’s Views of Others • People want to be with and serve others • Greater demand for “social support” products and services that
improve communication between people such as health clubs
! People’s Views of Organizations • People today see work not as a source of satisfaction, but as a
required chore to earn money to enjoy nonwork hours • Organizations need to find new ways to win consumer and
employee confidence
! People’s Views of Society • People’s orientation to their society influences their consumption
patterns and attitudes toward the marketplace
! People’s Views of Nature • People recognized nature is finite and fragile and can be destroyed
or spoiled by human activities • Created a sizable “lifestyles of health and sustainability” (LOHAS)
market for everything from natural, organic and nutritional products to renewable energy and alternative medicine
! People’s Views of the Universe • Some futurists have noted a renewed interest in spirituality • Presents a unique marketing opportunity for brands
Responding to the Marketing Environment (Pg 85)
- Smart marketing managers will take a proactive rather than reactive approach to marketing environment
Chapter 4 – Managing Marketing Information
- Marketing Information System (MIS) (People, equipment and procedures to gather, sort, analyze, evaluate and distribute needed, timely and accurate information to marketing decision makers)
Assessing Marketing Information Needs (Pg 91)
- MIS should monitor marketing environment in order to provide decision makers with necessary information to make key marketing decisions
- Company must decide whether benefits of having additional information are worth the costs of providing it
Developing Marketing Information (Pg 92)
- Marketers can obtain information from [1] internal data, [2] marketing intelligence and [3] marketing research
- Internal Data o Internal databases (Electronic collections of information obtained from data sources within
company) ! Sources include
• Accounting department prepares financial statements and keeps detailed records of sales, costs and cash flows
• Operation reports on production schedules, shipments and inventories
• Sales force reports on reseller reactions and competitor activities • Marketing department furnishes information on customer
demographics, psychographics and buying behavior • Customer service department keeps records of customer
satisfaction or service problems ! Can be accessed more quickly and cheaply ! May be incomplete or in wrong form ! Requires major effort to be kept updated ! Must be well integrated and readily accessible
- Marketing Intelligence (Systematic collection and analysis of publicly available information
about competitors and developments in marketing environment) o Techniques range from quizzing company’s own employees and benchmarking
competitors’ products to researching internet, lurking around industry trade shows and rooting through rivals’ trash bins
o Most companies are taking steps to protect their own information
o With availability of legitimate intelligence sources, company does not have to break law or accepted codes of ethics to get good intelligence
- Marketing Research (Systematic design, collection, analysis and reporting of data relevant to a specific marketing situation facing an organization) (Pg 92)
- Companies can have [1] own research departments working with marketing managers, [2] hire outside research specialists or [3] purchase data collected by outside firms
- Defining the Problem & Research Objectives o Exploratory research is to gather preliminary information to help define problem and
suggest hypothesis o Descriptive research is to describe marketing problems, situations or markets o Casual research is to test hypotheses about cause-‐and-‐effect relationships
- Developing the Research Plan o Research plan outlines sources of existing data and spells out specific research approaches,
contact methods, sampling plans and instruments researchers will need to gather new data
o Research objectives must be translated into specific information needs o To meet information needs, research plan can call for gathering secondary data, primary
data or both - Gathering Secondary Data (Information that already exists somewhere, collected for another
purpose) o Company can use [1] own internal database, [2] buy secondary data reports from outside
suppliers and [3] use commercial online databases of industry association, government agency, business publication and news medium
o Advantages ! Quicker at lower cost ! Can collect data an individual company cannot collect on its own
o Disadvantages ! May not exist ! May not be very usable ! May not be relevant ! May not be accurate ! May not be current ! May not be impartial
- Primary Data Collection o Research Approaches
! Observational Research (Observing relevant people, actions and situations)
• Can obtain information people are unwilling or unable to provide • Ethnographic research involves sending trained observers to
watch ! Survey Research (Asking people questions about their knowledge,
attitudes, preferences and buying behavior) • Can obtain descriptive information • Single-‐source data systems electronically monitor survey
respondents’ purchases and exposure to various marketing activities
• Advantages o Flexible
• Disadvantages o People are unable to answer survey questions sometimes o People may be unwilling to respond o People may give pleasing answers o Busy people may not take the time o People may resent the intrusion into privacy ! Experimental Research (Selecting matched groups of subjects, giving
them different treatments, controlling related factors and checking for differences in group responses)
• Tries to explain cause-‐and-‐effect relationships o Contact Methods
! Mail, Telephone & Personal Interviewing • Mail questionnaires can collect [1] large amounts of information at
low cost per respondent, [2] more honest and [3] unbiased answers
• Mail questionnaires are [1] not flexible, [2] take longer to complete, [3] response rate is often low and [4] it is hard to control who at mailing address fills out questionnaire
• Telephone interviewing is [1] quick, [2] more flexible and [3] respond rates tend to be higher
• Telephone interviewing’s [1] cost per respondent is higher, [2] introduces interviewer bias, [3] different interviewers may interpret and record responses differently and [4] some may cheat under time pressures
• Individual interviewing is [1] flexible and [2] actual products, advertisements or packages can be shown to observe reactions and behavior
• Individual interviewing’s [1] cost is high
• Focus group interviewing [1] encourages free and easy discussion and [2] brings out actual feelings and thoughts
• Focus group interviewing [1] takes time and cost, [2] hard to generalize from results and [3] interviewer bias is greater
! Online Marketing Research (Through internet surveys and online focus groups)
• [1] Results are instantaneous, [2] low in cost and [3] excellent for reaching the hard-‐to-‐reach
• [1] Internet access is restricted, [2] cannot control who is in sample, [3] lacks dynamics of more personal approaches and [4] concerns consumer privacy
o Sampling Plan (Selecting segment of population to represent whole population) ! Who is to be surveyed ! How many should be surveyed ! How should people be chosen
• Probability Sample (Each population member has known chance of being included and researchers can calculate confidence limits for sampling error), e.g. simple random sample, stratified random sample and cluster (area) sample
• Nonprobability Sample (Sampling error cannot be measured), e.g. convenience sample, judgment sample and quota sample
o Research Instruments ! Questionnaires are very flexible, but researchers should use simple,
direct, unbiased wording and arrange questions in logical order ! Mechanical instruments monitor consumer behavior
- Implementing the Research Plan o Involves collecting, processing and analyzing information
- Interpreting & Reporting the Findings o Managers and researchers must work together closely when interpreting research results
Analyzing Marketing Information (Pg 105)
- Customer Relationship Management (CRM) (Building and maintaining profitable customer relationships by delivering superior customer value and satisfaction) o CRM manages detailed information about individual customers and carefully manages
customer touch points to maximize customer loyalty o CRM analysts develop data warehouses and use sophisticated date mining techniques to
dig out interesting findings about customers o CRM is part of an effective overall CRM strategy, not only a technology and software
solution
Distributing & Using Marketing Information (Pg 107)
- Information distribution involves entering information into databases and making it available in user-‐friendly and timely way through intranet and extranet
Other Marketing Information Considerations (Pg 107)
- Marketing Research in Small Businesses & Nonprofit Organizations o Managers of small businesses and nonprofit organizations can [1] observe things around
them, [2] conduct informal surveys using small convenience sample, [3] conduct simple experiments and [4] obtain most secondary data available
- International Marketing Research o Difficult to find good secondary data because many countries have almost no research
services at all o Difficult to collect primary data because of difficulty in developing good samples o Reaching respondents is not easy due to [1] not everyone has phones or personal
computers, [2] poor roads and transportation systems and [3] language obstacle in some countries
o Consumers vary in attitudes toward marketing research in different countries due to customs
o Some respondents may be unable to respond due to high functional illiteracy rates - Public Policy & Ethics in Marketing Research
o Intrusions on Consumer Privacy ! Some consumers resent marketing research because [1] previous
“research surveys” turned out to be attempts to sell something or [2] they thought it was not really needed or too personal
! Organizations can educate consumers about benefits of marketing research and to distinguish it from telephone selling and database building
! Companies can appoint “chief privacy officer” (CPO) to safeguard privacy of consumers
! Researchers can provide value in exchange for information o Misuse of Research Findings
! Few advertisers openly rig their research designs or blatantly misrepresent findings
! Each company must accept responsibility for policing the conduct and reporting of own marketing research to protect consumers’ and own best interests
Chapter 5 – Consumer Markets & Consumer Buyer Behavior
- Consumer Buying Behavior (Buying behavior of final consumers – individuals and households who buy goods and services for personal consumption)
- Consumer Market (All individuals and households who buy or acquire goods and services for personal consumption)
Model of Consumer Behavior (Pg 122)
- Marketing & Other Stimuli o Four Ps – Product, Price, Place & Promotion o Buyer’s Environment – Economic, Technological, Political & Cultural
- Buyer’s Black Box o Buyer’s characteristics influence perceptions and reactions to stimuli o Buyer’s decision process affects buyer’s behavior
- Buyer Responses o Product Choice, Brand Choice, Dealer Choice, Purchase Timing & Purchase Amount
Characteristics Affecting Consumer Behavior (Pg 123)
- Cultural Factors o Culture (Set of basic values, perceptions, wants and behaviors learned by member of
society from family and other important institutions) ! Cultural influences vary greatly from country to country ! Cultural shifts, e.g. toward greater concern about health and fitness,
toward informality o Subculture (Group of people with shared value systems based on common life experiences
and situations) ! Includes nationalities, religions, racial groups and geographic regions ! Hispanic consumers [1] buy more branded and higher-‐quality products,
[2] make shopping a family affair, [3] children have big say, [4] are brand loyal and [5] favor companies who show special interest in them
! African American consumers [1] are more price conscious, [2] strongly motivated by quality and selection, [3] brands are important, [4] enjoy shopping and [5] most fashion-‐conscious
! Asian Americans [1] are most tech-‐savvy, [2] shop frequently, [3] most brand-‐conscious and [4] least brand loyal
! Mature consumers [1] are better off financially and [2] have more time o Social Class (Relatively permanent and ordered divisions in society whose members share
similar values, interests and behaviors)
! Measured as combination of occupation, income, education, wealth and other variables
- Social Factors o Groups (Two or more people who interact to accomplish individual or mutual goals)
! Membership groups, which a person belongs, have direct influence ! Reference groups, which people don’t belong, have direct (face-‐to-‐face) or
indirect influence ! Marketers try to identify reference groups of target markets ! Marketers try to identify opinion leaders (people within reference group
who, because of special skills, knowledge, personality or other characteristics, exerts influence) and direct marketing efforts toward them
o Family ! Buying roles of husband and wife changes with evolving consumer
lifestyles ! Children may have strong influence on family buying decisions
o Roles & Status ! People usually choose products appropriate to their roles (activities) and
status (esteem) - Personal Factors
o Age & Life-‐Cycle Stage ! People change goods and services they buy over their lifetimes ! Buying is shaped by stage of family life cycle ! However, alternative and nontraditional stages are increasing, e.g.
unmarried couples, singles marrying later in life, childless couples, same-‐sex couples, single parents and extended parents
o Occupation ! Occupation affects goods and services bought
o Economic Situation ! Economic situation affects product choice
o Lifestyle (Pattern of living as expressed in activities, interests and opinions) ! Most widely used lifestyle classification is SRI Consulting’s Values and
Lifestyles (VALS) typology, which divides consumers based on primary motivation (ideals, achievement or self-‐expression) and resources (high or low)
o Personality (Unique psychological characteristics leading to relatively consistent and lasting responses to one’s own environment) & Self-‐Concept
! Brands have personalities and consumers are likely to choose brands whose personalities match their own
! Brand personality is specific mix of human traits that may be attributed to particular brand
! Self-‐concept/self-‐image means people’s possessions contribute to and reflect their identities
- Psychological Factors o Motivation
! Motive/Drive (Need that is sufficiently pressing to direct person to seek satisfaction of need)
! Sigmund Freud suggests person’s buying decisions are affected by subconscious motives that even buyer may not fully understand
! Abraham Maslow suggests person tries to satisfy needs in order of physiological needs, safety needs, social needs, esteem needs and self-‐actualization needs
o Perception (Process by which people select, organize and interpret information to form meaningful picture of the world)
! Perception influences how person acts ! People form different perceptions because of three perceptual processes
• Selective Attention – Tendency to screen out most of exposed information
• Selective Distortion – Tendency to interpret information that will support what is already believed
• Selective Retention – Tendency to remember good points made about favored brand and forget good points made about competing brands
o Learning (Changes in individual’s behavior arising from experience) ! Occurs through interplay of drives, stimuli, cues, responses and
reinforcement o Beliefs (Descriptive thoughts a person holds about something) & Attitudes (Person’s
consistently favorable or unfavorable evaluations, feelings and tendencies toward object or idea)
! Beliefs make up product and brand images that affect buying behavior ! Company should fit products into existing attitudes rather than attempt
to change attitudes
Types of Buying Decision Behavior (Pg 137)
- Complex Buying Behavior – high involvement, significant differences o Occurs under conditions of high consumer involvement and significant perceived brand
differences o Highly involved because product is expensive, risky, purchased infrequently and highly
self-‐expressive o Marketers need to [1] help buyers learn about product-‐class attributes and relative
importance and [2] differentiate brand’s features (e.g. computers) - Dissonance-‐Reducing Buying Behavior – high involvement, few differences
o Occurs under conditions of high consumer involvement, but few perceived brand differences
o To counter postpurchase dissonance (after-‐sale discomfort) consumers may experience, marketers after-‐sale communications should provide evidence and support to help consumers feel good (e.g. carpets)
- Habitual Buying Behavior – low involvement, few differences o Occurs under conditions of low consumer involvement and few significant perceived brand
differences o Lowly involved because product is low-‐cost and purchased frequently o Marketers often use price and sales promotion, visual symbols and imagery for association
(e.g. salt) - Variety-‐Seeking Buying Behavior – low involvement, significant differences
o Occurs under conditions of low consumer involvement, but significant perceived brand differences
o Market leader will encourage habitual buying behavior by dominating shelf space, keeping shelves fully stocked and running frequent reminder advertising
o Challenger firms will encourage variety seeking by offering lower prices, special deals, coupons, free samples and advertising that presents reasons for trying something new (e.g. cookies)
The Buyer Decision Process (Pg 139)
- Need Recognition (Consumer recognizes problem or need) o Can be triggered by internal or external stimuli
- Information Search (Consumer is aroused to search for more information and may simply heightened attention or may go into active information search) o Sources include personal sources (family, friends, neighbors, acquaintances), commercial
sources (advertising, sales-‐people, dealers, packaging, displays), public sources (mass media, consumer-‐rating organizations) and experiential sources (handling, examining, using product)
o Commercial sources inform buyer, but personal sources legitimize or evaluate products for buyer
- Evaluation of Alternatives (Consumer uses information to evaluate alternative brands in choice set)
- Purchase Decision (Buyer’s decision about which brand to purchase) o Two factors that can come between purchase intention and purchase decision are [1]
attitudes of others and [2] unexpected situational factors - Postpurchase Behavior (Consumers take further action after purchase, based on satisfaction
or dissatisfaction) o Satisfaction or dissatisfaction lies in relationship between consumer’s expectations and
product’s perceived performance o Sellers should promise only what their brands can deliver o Cognitive dissonance (buyer discomfort caused by postpurchase conflict) resulted from
consumers feeling uneasy about acquiring drawbacks of chosen brand and losing benefits of brands not purchased
Customer satisfaction is the key to building profitable relationships with consumers-‐ to keeping and growing consumer base and reaping their lifetime value.
Chapter 6 – Business Markets & Business Buyer Behavior
- Business Buyer Behavior (Buying behavior of organizations that buy goods and services for use in production of other products and services or for purpose of reselling or renting them to others at a profit)
- Business Buying Process (Decision process by which business buyers determine which products and services their organizations need to purchase and then find, evaluate and choose among alternative suppliers and brands)
Business Markets (Pg 150)
- Characteristics of Business Markets o Market Structure & Demand
! Business markets contain fewer but larger buyers ! Business customers are more geographically concentrated ! Business buyer demand is derived from final consumer demand – B-‐to-‐B
marketers sometimes promote their products directly to final consumers to increase business demand
! Demand in business markets is more inelastic – Demand is not affected much in short run by price changes
! Demand in business markets fluctuates more and more quickly o Nature of the Buying Unit
! Business purchases involve more decision participants ! Business buying involves a more professionally purchasing effort
o Types of Decisions & the Decision Process ! Business buyers usually face more complex buying decisions ! Business buying process is more formalized ! In business buying, buyers and sellers are more dependent on each other,
so they work more closely together and build close long-‐run relationships – Supplier Development (Systematic development of networks of supplier-‐partners to ensure appropriate and dependable supply of products and materials used in marking own products or resell to others)
- A Model of Business Buyer Behavior o Marketing stimuli (four Ps – product, price, place and promotion) and other stimuli
(economic, technological, political, cultural and competitive) affect buying organization (buying center and buying-‐decision process) and produce buyer responses (product or service choice, supplier choice, order quantities, delivery terms and times, service terms and payment)
Business Buyer Behavior (Pg 152)
- Major Types of Buying Situations o In straight rebuy, a routine purchase where buyer reorders without any modifications o In modified rebuy, buyer wants to modify product specifications, prices, terms or suppliers
-‐ Usually involves more decision participants o In new task, buyer purchases product or service for first time – The greater cost or risk, the
more decision participants and greater the efforts to collect information o Systems Selling (Buying packaged solution to problem from single seller, avoiding all
separate decisions in complex buying situation)
- Participants in the Business Buying Process o Buying Center (All individuals and units participating in business buying-‐decision process)
! Users will use product or service, initiate buying process and help define product specifications
! Influencers help define specifications and provide information for evaluating alternatives – Technical personnel
! Buyers have formal authority to select supplier and arrange terms of purchase – High-‐level officers
! Deciders have formal or informal power to select or approve final suppliers
! Gatekeepers control flow of information to others, e.g. secretaries
- Major Influences on Business Buyers o When suppliers’ offers are similar, business buyers have little basis for strictly rational
choice, so they allow influence of personal factors o When competing products differ, business buyers are more accountable for choice, so they
pay more attention to economic factors o Environment Factors
! [1] Economic developments, [2] supply conditions, [3] technological change, [4] political and regulatory developments, [5] competitive developments, [6] culture and customs, [7] demand for product, [8] cost of money
o Organizational Factors ! [1] Objectives, [2] policies, [3] procedures, [4] organizational structure
and [5] systems o Interpersonal Factors
! [1] Authority, [2] status, [3] empathy and [4] persuasiveness
o Individual Factors ! [1] Age, [2] education, [3] job position, [4] personality, [5] risk attitudes,
[6] income, [7] motives/ perceptions
- The Business Buying Process o Problem Recognition (Someone in company recognizes problem or need that can be met
by acquiring good or service) ! Can result from internal (need for new product/equipment) or external
stimuli (idea from trade show, advertising or competitors) ! Business marketers should alert customers to potential problems and
show how their products provide solutions o General Need Description (Company describes general characteristics and quantity of
needed item) ! Business marketers should help buyers define their needs and provide
value of different product characteristics o Product Specification (Buying organization decides on and specifies best technical
product characteristics for needed item) ! Sellers should use value analysis (approach to cost reduction by studying
components to determine if they can be redesigned, standardized or produced less costly) to [1] secure new account and [2] turn straight rebuy into new-‐task situations
o Supplier Search (Buyer tries to find best vendors) ! Supplier should get listed in major directories and build good reputation ! Salespeople should watch for companies searching for suppliers and
make certain their firm is considered o Proposal Solicitation (Buyer invites qualified suppliers to submit proposals) o Supplier Selection (Buyer reviews proposals and selects supplier or suppliers, negotiate
for favourable terms and conditions) ! Supplier development managers want to develop full network of
supplier-‐partners to [1] avoid being totally dependent on one supplier and to [2] allow price and performance comparisons
o Order-‐Routine Specification (Buyer writes final order with chosen supplier or suppliers) o Performance Review (Buyer assess supplier performance and decides to continue, modify
or drop arrangement) ! Seller should monitor same factors used by buyers to make sure seller is
giving expected satisfaction
- Business Buying on the Internet o E-‐procurement [1] gives buyers access to new suppliers, [2] lowers purchasing costs and [3]
hastens order processing and delivery o Business marketers can connect with customers online to [1] share marketing information,
[2] sell products and services, [3] provide customer support services and [4] maintain ongoing customer relationships
o Benefits ! Shaves transaction costs and results in more efficient purchasing for both
buyers and sellers ! Eliminates paperwork ! Reduces time between order and delivery ! Frees purchasing people to focus on more strategic issues
o Problems ! Can erode decades-‐old customer-‐supplier relationships as firms can
search for better suppliers online ! Creates potential security disasters
Institutional & Government Markets (Pg 164)
- Institutional Markets (Schools, hospitals, nursing homes, prisons and other institutions providing goods and services to people in their care) o Have low budgets and captive patrons
- Government Markets (Government units – federal, state and local – purchasing or renting
goods and services for carrying out main functions of government) o Require suppliers to submit bids o Favour domestic suppliers over foreign suppliers o Favour depressed business firms and areas, small business firms, minority-‐owned firms
and business firms that avoid race, gender and age discrimination o Carefully watched by outside publics o Good credit o Require considerable paperwork from suppliers
Market Segmentation (Chapter 7) (Dividing heterogenous market into smaller groups of buyers with distinct needs, characteristics or behaviors who might require separate products or marketing mixes) (Pg 173)
Segmenting Consumer Markets
o Geographic Segmentation (Dividing market into different geographical units such as nations, states, regions, countries, cities or neighborhoods)
! Companies are localizing their products, advertising, promotion and sales efforts to fit needs of individual geographical units
! Companies are seeking to cultivate as-‐yet untapped geographic territory ! Retailers are developing new store concepts to give them access to higher-‐density
urban areas
o Demographic Segmentation (Dividing market into groups based on demographic variables such as age, sex, family size, family life cycle, income, occupation, education, religion, race and nationality)
! Consumer needs, wants and usage rates often vary closely with demographic variables ! Demographic variables are easier to measure (e.g. to assess size of target market) ! Age & Life-‐Cycle Stage
• Age & Life-‐Cycle Segmentation (Dividing market into different age and life-‐cycle groups)
• Marketers must guard against stereotypes • Age is often a poor predictor of a person’s life cycle, health, work or family status,
needs and buying power ! Gender
• Gender Segmentation (Dividing market into different groups based on gender)
! Income • Income Segmentation (Dividing market into different income groups)
o Psychographic Segmentation (Dividing market into different groups based on social class,
lifestyle or personality characteristics)
o Behavioral Segmentation (Dividing market into groups based on consumer knowledge, attitude, use or response to a product)
! Occasions • Occasion Segmentation (Dividing market into groups according to occasions
when buyers get the idea to buy, actually make their purchase or use the purchased item)
! Benefits Sought • Benefit Segmentation (Dividing market into groups according to different
benefits that consumers seek from the product) • Finding major benefits people look for in the product class • Finding kinds of people who look for each benefit • Finding major brands that deliver each benefit
! User Status • Markets can be segmented into groups of nonusers, ex-‐users, potential users,
first-‐time users and regular users ! Usage Rate
• Markets can be segmented into light, medium and heavy product users • Marketers usually prefer to attract one heavy user to several light users • Companies often target light users with their ads and promotions
! Loyalty Status • Buyers can be divided into groups according to degree of loyalty • By studying its less loyal buyers, company can detect which brands are most
competitive with its own o Using Multiple Segmentation Bases
! Identify smaller, better-‐defined target groups ! PRIZM “You Are Where You Live” (One of the leading lifestyle segmentation systems by
Claritas) classifies everyone into one 62 unique neighborhood types or “clusters”
- Segmenting Business Markets o Business marketers use variables, mainly buyer behaviour and benefits sought by customers,
others such as customer operating characteristics, purchasing approaches, situational factors and personal characteristics
- Segmenting International Markets o Few companies have either resources or will to operate in all, or even most, countries
o Different countries, even those that are close together, can vary greatly in economic, cultural
and political makeup
o Geographic Location ! Assuming nations close to one another will have many common traits and behaviors,
but there are many exceptions
o Economic Factors ! Population income levels or overall level of economic development
o Political & Legal Factors
! Type and stability of government, receptivity to foreign firms, monetary regulations and amount of bureaucracy
o Cultural Factors ! Common languages, religions, values and attitudes, customs and behavioral patterns
o Intermarket Segmentation (Forming segments of consumers having similar needs and buying
behavior even though they are located in different countries)
- Requirements for Effective Segmentation o Measurable – Segmentation variables should be able to be measured o Accessible – Market segments should be able to be effectively reached and served o Substantial – Market segments should be large or profitable enough to serve o Differentiable – Segments should be conceptually distinguishable and respond differently to
different marketing mix elements and programs o Actionable – Effective programs should be designed for attracting and serving the segments
Target Marketing (Process of evaluating each market segment’s attractiveness and selecting one or more segments to enter) (Pg 183)
- Evaluating Market Segments o Segment Size & Growth
! Right size and growth characteristics
o Segment Structural Attractiveness ! Strong and aggressive competitors, actual or potential substitute products, powerful
buyers and powerful suppliers can decrease segment attractiveness
o Company Objectives & Resources
- Selecting Target Market Segments o Target Market (A set of buyers sharing common needs or characteristics that company
decides to serve)
o Undifferentiated (Mass) Marketing (Market-‐coverage strategy in which firm decides to ignore market segment differences and go after whole market with one offer) ! Focuses on what is common in needs of consumers rather than differences
o Differentiated (Segmented) Marketing (Market-‐coverage strategy in which firm decides
to target several market segments and designs separate offers for each) ! Creates more total sales than undifferentiated marketing across all segments ! Increases costs of doing business ! Company must weigh increased sales against increased costs
o Concentrated (Niche) Marketing (Market-‐coverage strategy in which firm goes after a
large share of one or a few segments or niches) ! Appealing when company resources are limited ! Greater knowledge of consumer needs in niches company serves ! Special reputation ! Company can market more effectively and efficiently ! Involves higher-‐than-‐normal risks – Company will suffer greatly if segment turns
sour or if larger competitors decide to enter same segment with greater resources
o Micromarketing (Practice of tailoring products and marketing programs to needs and wants of specific individuals and local customer groups)
! Local Marketing (Tailoring brands and promotions to needs and wants of local customer groups – cities, neighborhoods and even specific stores) • Drive up manufacturing and marketing costs by reducing economics of scale • Create logistics problems • Brand’s overall image might be diluted • Helps company to market more effectively in face of pronounced regional and
local differences ! Meets needs of company’s first-‐line customers – retailers ! Individual Marketing (Tailoring products and marketing programs to needs and
preferences of individual customers – also labeled “markets-‐of-‐one marketing”, “customized marketing” and “one-‐to-‐one marketing”) • Mass Customization (Process though which firms interact one-‐to-‐one with
masses of customers to design products and services tailor-‐made to individual needs)
• Companies need to involve customers more in all phases of product development and buying process, increasing opportunities for buyers to practice self-‐marketing (individual customers taking more responsibility to determine which products and brands to buy)
o Choosing a Target Marketing Strategy ! Company Resources
• When firm’s resources are limited, concentrated marketing makes more sense
! Degree of Product Variability • Undifferentiated marketing is more suited for uniform products • Products varying in design are more suited to differentiation or concentration
! Product’s Life-‐Cycle Stage
• When firm introduces a new product, undifferentiated marketing or concentrated marketing may make more sense
• In mature stage of product life cycle, differentiated marketing makes more sense
! Market Variability • If most buyers have same tastes, buy same amounts and react the same to
marketing efforts, undifferentiated marketing is appropriate
! Competitor’s Marketing Strategies • Differentiated or concentrated marketing is more advantageous
- Socially Responsible Target Marketing
o Biggest issues usually involve targeting of vulnerable or disadvantaged consumers with controversial or potentially harmful products
Chapter 9 – New-‐Product Development & Product Life-‐Cycle Strategies
- Firms must [1] develop new products to replace aging ones and [2] adapt its marketing strategies in face of changing tastes, technologies and competition
New-‐Product Development Strategy (Pg 237)
- Firms can obtain new products through [1] acquisition or [2] new-‐product development (Development of original products, product improvements, product modifications and new brands through firm’s own R&D efforts)
- New products fail because [1] market size has been overestimated, [2] actual product is not designed as well as it should have been, [3] incorrectly positioned in market, priced too high or advertised poorly, [4] pushed despite poor marketing research findings, [5] costs of product development are higher than expected or [6] competitors fight back harder than expected
- Step 1 – Idea Generation (Systematic search for new-‐product ideas) o Internal Idea Sources
! Formal research and development ! Brains of employees, e.g. “intrapreneurial” programs ! Creative innovation approaches, e.g. Eureka! Ranch
o External Idea Sources ! Customers
• Company can analyze customer questions and complaints • Company can meet with and work alongside customers • Company can conduct surveys or focus groups • Company can put new products and uses created by consumers on
market • Crowdsourcing: invite broad communities of people into the
innovation process-‐ company can give customers tools and resources to design products
! Competitors • Company can buy competing new products, take them apart to see
how they work, analyze their sales and decide ! Distributors & Suppliers
• Company can obtain information about consumer problems and new-‐product possibilities from resellers
• Company can obtain new concepts, techniques and materials from suppliers
! Trade magazines, shows and seminars, government agencies, new-‐product consultants, advertising agencies, marketing research firms, university and commercial laboratories and inventors
- Step 2 – Idea Screening (Screening new-‐product ideas to spot good and drop poor ones) - Step 3 – Concept Development & Testing
o Product idea is idea for possible product that company can see itself offering to market o Product concept is detailed version of idea stated in meaningful consumer terms o Product image is the way consumers perceive actual or potential product o Concept Testing (Testing new-‐product concepts with group of target consumers to find
out consumer appeal) - Step 4 – Marketing Strategy Development (Designing initial marketing strategy for new
product based on product concept) o First part describes [1] target market, [2] planned product positioning and [3] sales,
market share and profit goals for first few years o Second part outlines [1] planned price, [2] distribution and [3] marketing budget for first
year o Third part describes [1] planned long-‐run sales, [2] profit goals and [3] marketing mix
strategy - Step 5 – Business Analysis (Review of sales, costs and profit projections to find out whether
they satisfy company’s objectives) - Step 6 – Product Development (Developing product concept into physical product to ensure
product idea can turn into workable product) o R&D department will develop and test one or more physical versions of product concept o Products undergo rigorous tests to ensure [1] safe and effective performance or [2]
consumers find value in them o New-‐product must [1] have required functional features and [2] convey intended
psychological characteristics - Step 7 – Test Marketing (Product and marketing program are tested in more realistic market
settings) o Test marketing [1] costs can be high and [2] takes time that may allow competitors to gain
advantages o However, test marketing costs are often small compared to costs of major mistake o When [1] costs of developing and introducing product are low or [2] management is
already confident, company may do little or no test marketing o Approach 1 – Standard Test Markets o Approach 2 – Controlled Test Markets o Approach 3 – Simulated Test Markets
- Step 8 – Commercialization (Introducing new product into market) o Company must decide [1] introduction timing and [2] where to launch new product o Can develop [1] planned market rollout over time or [2] global rollouts
- Managing New-‐Product Development o Customer-‐centered: find new ways to solve customer problems and create more customer-‐
satisfying experiences
o Team-‐based: departments work closely together, overlap and save time and increase effectiveness
o Systematic: install an innovation management system to collect, review, evaluate and manage new ideas
The Product Life Cycle model can help to analyze maturity stages of products and industries.
Any company is constantly seeking ways to grow future cash flows by maximizing revenue from the sale of products and services. Cash Flow allows a company to maintain its viability, invest in new product development and improve its workforce. All this in an effort to acquire additional market share and become a leader in its respective industry. A constant and sustainable cash flow (revenue) stream from product sales is key to any long-‐term investment, and the best way to attain a stable revenue stream is to have one or more Cash Cows. Cash Cows are strong products that have achieved a large market share in mature markets.
Also, the modern Product Life Cycle is becoming shorter and shorter. Many products in mature industries are revitalized by product differentiation and market segmentation. Organizations increasingly reassess product life cycle costs and revenues, because the time available to sell a product and recover the investment shrinks. Although the product life cycle shrinks, the operating life of many products is lengthening. For example, the operating life of some durable goods, such as automobiles and appliances, has increased substantially. As a result, the companies that produce these products must take their market life and service life into account when they are planning. Increasingly, companies are attempting to optimize revenue and profits over the entire life cycle. They do this through the consideration of product warranties, spare parts, and the ability to upgrade existing products. It is clear that the Product Life Cycle concept has significant impact upon business strategy and corporate performance. The Product Life Cycle method identifies the distinct stages affecting sales of a product. From the product's inception until its retirement.
The stages in the Product Life Cycle
• Product development begins when the company finds and develops a new-‐product idea. Sales are zero, investment costs mount (negative)
• Introduction stage. The product is introduced in the market through a focused and intense marketing effort designed to establish a clear identity and promote maximum awareness. Launch strategy must be consistent with product positioning. Many trial or impulse purchases will occur at this stage. Slow sales growth, no profit because of high distribution and promotion expense
o Growth stage. Can be recognized by rapid acceptance (consumer education), increasing sales and the emergence of competitors. It is also characterized by sustained marketing activities to gain economies of scale. Some customers make repeat purchases. To sustain rapid market growth, firm can [1] improve product quality and add new features and models, [2] enter new market segments and distribution channels, [3] shift advertising from building product awareness to product conviction and purchase and [4] lower prices at right time
o Maturity stage. This phase can be recognized when competitors beginning to leave the market. Also, sales velocity is dramatically reduced, and sales volume reaches a steady level. At this point in time, typically loyal customers purchase the product. Profit level off/decline because of increased marketing outlays to defend product against competition (many substitutes, overcapacity leads to competition). Increased promotion and R&D. Should consider modifying market, product and marketing mix
♦ To modify market, company can [1] look for new users and market segments, [2] reposition brand to appeal to larger or faster-‐growing segment, [3] increase usage among present customers and [4] find new uses
♦ To modify product, company can [1] improve product’s quality and performance and [2] product’s styling and attractiveness
♦ To modify marketing mix, company can [1] cut prices and [2] launch better advertising campaign or use aggressive sales promotion
• Decline stage. The lingering effects of competition, unfavorable economic conditions, new trends, etc, often explain the decline in sales. Profits drop; can decide to maintain, harvest or drop product
Introduction Growth Maturity Decline
Characteristics
Sales Low sales Rapidly rising sales
Peak sales Declining sales
Costs High cost per customer
Average cost per customer
Low cost per customer
Low cost per customer
Profits Negative Rising profits High profits Declining profits
Customers Innovators Early adopters Middle majority
Laggards
Competitors Few Growing number
Stable number
beginning to decline
Declining number
Marketing Objectives
Create product awareness and
trial
Maximize market share
Maximize profit while defending
market share
Reduce expenditures and milk the
brand
Introduction Growth Maturity Decline
Strategies
Product Offer basic product
Offer product extensions, service, warranty
Diversify brand and models
Phase out weak items
Price Use cost-‐plus Price to penetrate market
Price to match or beat
competitors Cut price
Distribution Build selective distribution
Build intensive distribution
Build more intensive distribution
Go selective, phase out unprofitable outlets
Advertising
Build product awareness among early adopters and dealers
Build awareness
and interest in mass market
Stress brand differences and benefits
Reduce to level needed to retain hard-‐core loyals
Sales Promotion
Use heavy sales promotion to entice trial
Reduce to take advantage of
heavy consumer demand
Increase to encourage brand
switching
Reduce to minimal level
The Buyer Decision Process for New Products Chapter 5 (Pg 142)
- New Product (Good, service or idea perceived by some potential consumers as new) - Stages in the Adoption Process (Mental process through which individual passes from first
hearing about innovation to final adoption) o [1] Awareness, [2] Interest, [3] Evaluation, [4] Trial & [5] Adoption
- Individual Differences in Innovativeness o Five adopter groups in chronological order are [1] innovators, [2] early adopters, [3] early
majority, [4] late majority and [5] laggards o Innovative firm should direct marketing efforts toward innovators and early adopters
- Influence of Product Characteristics on Rate of Adoption o Relative Advantage – If innovation appears superior to existing products, rate increases o Compatibility – If innovation fits values and experiences of potential consumers, rate
increases o Complexity – If innovation is difficult to understand or use, rate decreases o Divisibility – If innovation may be tried on limited basis, rate increases o Communicability – If results of using innovation can be observed or described to others,
rate increases o Other characteristics include initial and ongoing costs, risk and uncertainty and social
approval - Consumer Behavior Across International Borders
o International markets must understand differences and adjust products and marketing programs accordingly
o Differences include [1] obvious differences, [2] physical differences in consumers and environments, [3] differences in customs and behaviors and [4] unique cultures
Innovation Adoption Curve
The adoption curve is useful to remember it is useless to try to quickly and massively convince the mass of a new controversial idea. It is better to start first with convincing the innovators and the early adopters. Also the categories and percentages can be used as a first draft to estimate target groups for communication purposes.
Five elements:
1. Characteristics of an innovation which may influence its adoption; 2. Decision-‐making process that occurs when individuals consider to adopt a new idea,
product or practice; 3. Characteristics of individuals that make them likely to adopt an innovation; 4. Consequences for individuals and society of adopting an innovation; and
5. Communication channels used in the adoption process.
Innovation Adoption Curve categories
• Innovators. Brave people, pulling the change. Innovators are very important communication mechanisms.
• Early Adopters. Respectable people, opinion leaders, try out new ideas, but in a careful way. • Early Majority. Thoughtful people, careful but accept change more quickly than average
people do. • Late Majority. Skeptic people, will use new ideas or products only when the majority is using
it. • Laggards. Traditional people, love to stick to the "old ways", are critical about new ideas and
will only accept it if the new idea has become mainstream or even tradition.
4P – Product Chapter 8 What is a Product? (Pg 204)
- Product (Anything that can be offered to market for attention, acquisition, use or consumption, satisfying want or need) includes more than just tangible goods
- Service (Any activity or benefit one party can offer to another that is essentially intangible and not resulting in ownership of anything)
- Experience (represent what buying the product/service will do for the customer)
- Levels of Product & Services o Level 1 – Core Benefit
! Core, problem-‐solving benefits or services consumers seek o Level 2 – Actual Product
! [1] Features, [2] design, [3] quality level, [4] brand name and [5] packaging o Level 3 – Augmented Product
! Additional consumer services and benefits, e.g. after-‐sales service, warranty, installation and delivery and credit
- Product & Service Classifications o Consumer Products (Products bought by consumer for personal consumption)
Convenience Product
Shopping Product Specialty Product Unsought Product
Customer Buying Behavior
♦ Frequent purchase
♦ Little planning and shopping effort
♦ Little comparison
♦ Low customer involvement
♦ Less frequent purchase
♦ Much planning and shopping effort
♦ Brand comparison on price, quality, style
♦ Strong brand preference and loyalty
♦ Special purchase effort
♦ Little brand comparison
♦ Low price sensitivity
♦ Little product awareness, knowledge (If aware, little or even negative interest)
Price Low Higher High Varies
Distribution Widespread, convenient locations
Selective, fewer outlets
Exclusive, one or few outlets per market area
Varies
Promotion Mass promotion by producer
Advertising and personal selling by producer and resellers
More carefully targeted promotion by producer and resellers
Aggressive advertising and personal selling by producer and resellers
Examples
Toothpaste, magazines, laundry detergent
Major appliances, televisions, furniture, clothing
Luxury goods Life insurance, Red Cross blood donations
o Industrial Products (Products bought by individuals and organizations for further processing or for use in conducting business) ! Materials & Parts
• Include [1] raw materials and [2] manufactured materials and parts • Price and service are major marketing factors
! Capital Items • Aid in buyer’s production or operations • Include [1] installations and [2] accessory equipment
! Supplies & Services • Supplies include [1] operating supplies and [2] repair and maintenance items • Services include [1] maintenance and repair services and [2] business advisory services
Product & Service Decisions (Pg 209)
- Level 1 – Individual Product & Service Decisions o Product & Service Attributes
! Product Quality (Ability of product to perform its functions, includes overall durability, reliability, precision, ease of operation and repair) • Creates customer value and satisfaction
• Companies should [1] choose performance quality level matching target market needs and competing products and [2] strive for high conformance quality (consistency)
! Product Features • Competitive tool to differentiate product from competitors’ • Companies should [1] drop features customers value little in relation to costs and [2] add features customers value highly in relation to costs
! Product Style & Design • Style describes product appearance, but design contributes to product’s usefulness as well as looks • Shapes customers’ product or service experience • Product designers should think [1] less about product attributes and technical specifications and [2] more about how customers use and benefit from product
o Branding ! Brand (Name, term, sign, symbol, design or combination to identify and differentiate goods or services)
! [1] Helps consumers identify products that might benefit them and [2] tells buyer about product quality
! [1] Basis on which whole story can be built about product’s special qualities, [2] provides legal protection for unique product features and [3] helps segment markets
! Brand equity: differential effect that the brand name has on customer response to the product and its marketing
o Packaging (Activities of designing and producing container or wrapper for product) ! [1] Contains and protects product, [2] attracts attention, [3] describes product, [4] makes sale, [5] consider product safety
! Many companies reduce packaging and use environmentally responsible packaging material
o Labeling ! [1] Identifies product or brand, [2] describes “who”, “where”, “when”, “what” and “how” about product and [3] promotes product through attractive graphics
o Product Support Services ! Companies [1] survey customers periodically to assess current services’ value and obtain ideas for new ones, [2] assess cost of providing these services and [3] develop package of services delighting customers and yielding profits to company
- Level 2 – Product Line Decisions (Group of products closely related because of similar functions, same customer groups, same types of marketing outlets or similar price ranges) o Product line length is the number of items in the product line, influenced by [1] company
objectives, e.g. allow for upselling, allow cross-‐selling and protect against economic swings, and [2] resources
o Company can perform line stretching by lengthening product line beyond current range ! Stretch downward to [1] plug market hole, [2] respond to competitor’s attack on upper end, [3] grow faster in low-‐end
! Stretch upward to [1] add prestige to current products, [2] grow faster or earn higher margins at higher end
! Companies at upper end can stretch downward, middle range in both directions and lower end can stretch upward
o Company can perform line filling by adding more items within present range ! To [1] reach for extra profits, [2] satisfy dealers, [3] use excess capacity, [4] be leading full-‐line company and [5] plug holes to keep out competitors
! Overdone if it results in cannibalization and customer confusion ! Companies should ensure new items are noticeably different from existing ones
- Level 3 – Product Mix Decisions (Set of all product lines and items) o Product mix width: number of different product lines o Product mix length: total number of items within the lines o Product line depth: number of versions offered of each product in line o Product mix consistency: how closely related various product lines are in end use,
production requirements, distribution channels or other ways
Services Marketing (Pg 225)
- Nature & Characteristics of a Service o Service Intangibility (Cannot be seen, tasted, felt, heard or smelled before they are bought)
! Service provider should [1] make service tangible in one or more ways and [2] send right signals about quality
o Service Inseparability (Produced and consumed at same time and cannot be separated from providers)
o Service Variability (Quality may vary greatly, depending on who provides them, when, where and how)
o Service Perishability (Cannot be stored for later sale or use) ! Service firms should design strategies for producing better match between demand
and supply
- Marketing Strategies for Service Firms o The Service-‐Profit Chain (Chain linking service firm profits with employee and customer
satisfaction) ! Internal service quality " Satisfied and productive service employees " Greater
service value " Satisfied and loyal customers " Healthy service profits and growth Company
Internal
Marketing
External
Marketing
Employees Interactive
Marketing Customers
! Internal Marketing (Marketing to train and effectively motivate customer-‐contact employees and all supporting service people to work as team to provide customer satisfaction)
! Interactive Marketing (Marketing that recognizes perceived service quality depends heavily on quality of buyer-‐seller interaction) ♦ Managing Service Differentiation
o Can differentiate service offer by including innovative features o Can differentiate service delivery by [1] more able and reliable customer-‐
contact people, [2] superior physical environment or [3] superior delivery process
o Can differentiate service image by [1] symbols and [2] branding ♦ Managing Service Quality
o Should not only provide good service every time, but also recover from service mistakes, i.e. service recovery, by empowering front-‐line service employees
♦ Managing Service Productivity • To increase service productivity, [1] train current employees better or hire
new ones, [2] increase quantity of service by giving up some quality, [3] “industrialize service” by adding equipment and standardizing production and [4] harness power of technology
! However, may reduce longer-‐run ability to [1] innovate, [2] maintain service quality or [3] respond to consumer needs and desires
4P -‐ Price - Companies should sell value, not price, i.e. higher price for company’s brand is justified by
greater value it delivers
What is a Price? (Pg 266)
- Price ([1] Amount of money charged for product or service or [2] sum of values consumers exchange for benefits of having or using product or service)
- Today’s New Pricing Environment o Dynamic Pricing (Charging different prices depending on individual customers and
situations) o Advantages for marketers include ability to [1] price tailored products accordingly and [2]
change prices on the fly o Advantages for buyers include ability to [1] compare product and price instantly on
websites and [2] negotiate lower prices - Pricing: An Important but Difficult Decision
o In marketing mix, price is [1] only element producing revenue and [2] one of most flexible element
o Mistakes include [1] reducing prices too quickly to get sale rather than convincing product’s worth, [2] pricing that is too cost oriented rather than customer-‐value oriented and [3] price that does not take rest of marketing mix into account
Factors to Consider when Setting Prices (Pg 267)
- Internal Factors Affecting Pricing Decisions o Marketing Objectives
! Pricing strategy is largely determined by market positioning and also by general objectives, e.g. [1] survival, [2] current profit maximization, [3] market share leadership and [4] product quality leadership
! Pricing strategy for not-‐for-‐profit and public organizations depends on objectives, e.g. [1] partial cost recovery or [2] full cost recovery
o Marketing Mix Strategy ! Many firms support target costing (Pricing that starts with ideal selling price, then targets costs that will ensure price is met)
! Other firms create non-‐price positions, i.e. not charging lowest price, but differentiating marketing offer to make product worth higher price
! Some firms even feature high prices as part of positioning
o Costs ! Company wants price to [1] cover all costs and [2] deliver fair rate of return for effort and risk
! Types of Costs • Fixed Costs (Costs not varying with production or sales level) • Variable Costs (Costs varying directly with level of production) • Total Costs (Sum of fixed and variable costs for any level of production) • If costs are more than competitors’, company have to [1] charge higher price or [2] make less profit, putting it at competitive disadvantage
! Costs at Different Levels of Production • To price wisely, management needs to know how costs vary with different level of production and choose optimal level
! Costs as a Function of Production Experience • Experience/Learning Curve (Drop in average per-‐unit production cost that comes with accumulated production experience) • For downward-‐sloping experience curve, company must get large market share early in product’s life cycle by following strategy, i.e. low initial price " sales increase " costs will decrease " lower prices further • However, [1] it may give product a cheap image, [2] competitors may fight it out to meet price cuts and [3] competitors may find lower-‐cost technology that allows starting at lower prices than market leader’s
o Organizational Considerations ! Management must decide who within organization should set prices
- External Factors Affecting Pricing Decisions (Pg 276) o The Market & Demand
! Costs set lower limit of prices while market and demand set upper limit ! Pricing in Different Types of Markets
• Pure Competition o Seller cannot charge more and will not charge less than market price
• Monopolistic Competition o Sellers differentiate by price, branding, advertising and personal selling
• Oligopolistic Competition o Each seller is alert and responds to competitors’ strategies and moves
• Pure Monopoly o In regulated monopoly, the seller set rates permitted by government o In non-‐regulated monopoly, the seller prices at what market will bear
! Consumer Perceptions of Price & Value
• Companies must [1] understand how much value consumers place on benefits received from product and [2] set price that fits this value
! Analyzing the Price-‐Demand Relationship • [1] Demand curve (Curve showing number of units market will buy at different prices) slopes downwards normally, but [2] sometimes upwards for prestige goods because consumers think higher prices mean more quality • When measuring demand curves by estimating demand at different prices, companies must not allow other factors affecting demand to vary
! Price Elasticity (Sensitivity of demand to price change) of Demand • Buyers are less price sensitive when [1] product is unique or high in quality, prestige or exclusiveness, [2] substitute is hard to find or substitute’s quality is hard to compare with, [3] total expenditure is low relative to income or is shared • If demand is elastic, sellers can increase revenue by [1] lowering prices as long as extra costs do not exceed extra revenue, but must avoid pricing that turns products into commodities, or [2] differentiate their offerings
o Competitors’ Costs, Prices & Offers ! Company must consider [1] competitors’ costs and prices, [2] possible competitor reactions and [3] nature of competition affected by pricing strategy
o Other External Factors ! Company must consider [1] economic conditions, [2] prices’ impact on other parties in its environment, e.g. resellers, [3] government and [4] social concerns
General Pricing Approaches (Pg 272)
- Cost-‐Based Pricing o Cost-‐Plus Pricing (Adding standard markup to product cost)
! Unlikely to lead to best price because it ignores demand and competitor prices ! Works only if assigned price brings in expected sales level ! Popular because [1] pricing is simplified as sellers are more certain about costs than demand, [2] when all firms in industry use this pricing method, prices tend to be similar and price competition is minimized and [3] fairer to both buyers and sellers
- Break-‐Even Analysis & Target Profit Pricing o Break-‐Even/Target Profit Pricing (Setting price to [1] break even on costs of making and
marketing product or [2] make target profit)
Cost-‐Based Pricing
Product " Cost " Price " Value " Customers
o Cost-‐based pricing is product driven ! Company designs what it considers to be good product ! Company totals costs of making product ! Company sets price covering costs plus target profit ! Company convinces buyers value at that price justifies purchase
- Value-‐Based Pricing (Setting price based on buyers’ perceptions of value rather than on seller’s cost)
Value-‐Based Pricing
Customers " Value " Price " Cost " Product
o Value-‐based pricing is customer driven ! Company sets target price based on customer perceptions of product value ! Targeted value and price drive decisions about product design and what costs can be incurred
o Value Pricing (Offering just right combination of quality and good service at fair price) ! Involves [1] introducing less versions of established, brand name products or [2] redesigning existing brands to offer more quality for given price or same quality for less
! Everyday low pricing (EDLP) involves charging constant, everyday low price, but few or no temporary price discounts
! High-‐low pricing involves higher prices on everyday basis, but frequent promotions to lower prices temporarily on selected items
o Value-‐Added Pricing ! Rather than cutting prices to match competitors, companies attach value-‐added services to differentiate offers and thus, support higher margins
- Competition-‐Based Pricing (Setting price based on prices that competitors charge for similar
products) o Going-‐rate pricing involves basing price largely on competitors’ prices, with less attention
paid to own costs or demand
! Popular because [1] when demand elasticity is hard to measure, going price represents collective wisdom of industry concerning price that will yield fair return and [2] it prevents harmful price wars
o Sealed-‐bid pricing when firms bid for jobs
New-‐Product Pricing Strategies (Pg 286)
- Pricing strategies usually change as product passes through its life cycle - Market-‐Skimming Pricing (Setting high price for new product to skim maximum revenues
layer by layer from segments willing to pay high price) o Company makes fewer, but more profitable sales o [1] Product’s quality and image must support higher price and enough buyers must want
product at that price, [2] costs of producing smaller volume cannot be so high that advantage of charging more is cancelled and [3] competitors should not be able to enter market easily and undercut high price
- Market-‐Penetration Pricing (Setting low price for new product to attract large number of buyers and large market share) o High sales volume results in falling costs, allowing company to cut price even further o [1] Market must be highly price sensitive so that low price produces more market growth,
[2] production and distribution costs must fall as sales volume increases and [3] low price must help keep out competition and low price position must be maintained
Product Mix Pricing Strategies (Pg 287) - Product Line Pricing (Setting price steps between various products in product line based on
[1] cost differences between products, [2] customer evaluations of different features and [3] competitors’ prices) o Seller’s task is to establish perceived quality differences that support price differences
- Optional-‐Product Pricing (Pricing of optional or accessory products along with main product) o Seller have to decide which items to include in base price and which to offer as options
- Captive-‐Product Pricing (Setting price for products that must be used along with main product) o Producers often price main product low and set high markups on supplies o Two-‐part pricing, i.e. fixed fee plus variable usage rate, in the case of services
- By-‐Product Pricing (Setting price for by-‐products to make main product’s price more competitive) o Manufacturer seek market for by-‐products and should accept any price covering more
than cost of storing and delivering them
- Product Bundle Pricing (Combining several products and offering bundle at reduced price) Price bundling can promote sales of products consumers might not otherwise buy, but combined price must be low enough to get them to buy bundle
- Price Adjustment strategies
o Discount and Allowance Pricing reduces prices to reward customer responses such as paying early or promoting the product.
! Discount is a straight reduction in price on purchases during stated period of time or of larger quantities.
! Allowance is promotional money paid by manufacturers to retailers in return for an agreement to feature the manufacturers’ products in some ways. E.g. trade ins
- Segmented Pricing is selling a product or service at two or more prices, where the difference in prices is not based on difference in costs. It can take the form of customer segment, product form, or location pricing. For it to be effective:
o Market must be able to be segmented
o Segments must show different degree of demand or respond to segment pricing.
o Cost incurred cannot exceed the extra revenue obtained from price difference.
o Must be legal
- Psychological Pricing occurs when sellers consider the psychology of prices and not simply the economies.
o Reference Prices are prices that buyers carry in their minds and refer to when looking at a given product. For example, noting current prices, remembering past prices, and assessing the buying situations.
- Promotional Pricing occurs when prices are temporarily reduced below list price or cost to increase demand. They come in the forms of:
o Loss leaders o Special event pricing o Cash rebates o Low-‐interest financing o Longer Warranties o Free Maintenance o The risk of it would be that it is used too frequently and copied by competitors can create “deal-‐prone”
customers who will wait for promotions and avoid buying at regular prices. It also reduces brand’s value in customers’ eyes and creates prices wars.
- Geographical Pricing is used for customers in different parts of the country or the world. o FOB-‐origin Pricing – Which goods are placed free on board a carrier; the customer pays the freight from the
factory to destination. o Uniform-‐delivered Pricing – Which company charges the same price plus freight to all customers, regardless
of their location. o Zone Pricing – is when the company sets two or more zones. All customers within the same zone pays the
same total price; the more distant the zone, the higher the price.
o Basing-‐Point Pricing – the seller designates some city as the basing point and charges all customers the freighting cost from that city to the customers.
o Freighting-‐Absorption Pricing – the seller absorbs all or part of the freight charges to get the desired businesses.
- Dynamic Pricing occurs when prices are adjusted continually to meet the characteristics and needs of the individual customer and situations. Sometimes called real-‐time pricing.
- International Pricing occurs when prices are set in a specific country based on country specific factors such as economic conditions, competitive conditions, laws and regulations, infrastructure, and company marketing objective.
8.2.3 Price Changes
In order to initiate a price cut or price increase, a company must anticipate possible buyer and competitor reactions.
Price cuts may occur due to:
- Excess Capacity - Failing demand from price competition - Desired to increase market share – increased volume likely to reduce cost
Price Increase may occur due to:
- Cost inflation - Increased Demand - Lack of Supply
Buyers’ Reaction to Pricing Changes
Competitors’ reactions must also be taken into considerations as well, whether they behave alike or not. The differences can be due to differences in size, market share, or policies.
Responding to Price Changes
Solutions that can be taken –
1. Reduce price to match competition 2. Maintain prices but raise the perceived value through communications 3. Improve quality and increase price 4. Launch a lower-‐priced “fighting” brand
8.2.4 Public Policy and Marketing
Federal Legislation on price-‐fixing states that sellers must set prices without talking to competitors. If not, price collusion is committed.
Sellers are also prohibited from using predatory pricing – selling below cost with the intention of punishing a competitor or gaining higher long-‐run profits by putting competitors out of business.
The Robinson-‐Patman Act seeks to prevent unfair price discrimination by ensuring sellers offer the same price terms to customers at a given level of trade.
- Laws also prohibit retail (resale) price maintenance; manufacturers cannot require dealers to charge a specific retail price for its product. - Deceptive pricing occurs when a seller states prices or price savings that mislead customers or are not actually available to consumers. It also
includes scanner fraud and price confusion.
4P -‐ Place
Place strategies Refers to how an organisation will distribute the product or service they are offering to the end user.
! Right place at the right time. ! Meet its overall marketing objectives. ! If organisation underestimate demand and customers cannot purchase products because of
it profitability will be affected. Channel of distribution Indirect distribution involves distributing your product by the use of an intermediary. Direct distribution involves distributing direct from a manufacturer to the consumer e.g. For example Dell Computers. Clearly direct distribution gives a manufacturer complete control over their product. Indirect Distribution Direct Distribution
Distribution Strategies
1. Intensive distribution: Used commonly to distribute low priced or impulse purchase products. Stock in as many outlets as possible. E.g. chocolates, soft drinks.
2. Exclusive distribution: Involves limiting distribution to certain outlets. The product is usually highly priced, and requires the intermediary to place much detail in its sell. An example of would be the sale of vehicles through exclusive dealers.
3. Selective Distribution: A small number of retail outlets are chosen to distribute the product. Selective distribution is common with products such as computers, televisions household
appliances, where consumers are willing to shop around and where manufacturers want a large geographical spread.
4P -‐ Promotion
Advertising: any non-‐personal paid form of communication using any form of mass media.
Public relations: Involves developing positive relationships with the organisation media public. The art of good public relations is not only to obtain favorable publicity within the media, but it is also involves being able to handle successfully negative attention.
Sales promotion: Commonly used to obtain an increase in sales short term. Could involve using money off coupons or special offers.
Personal selling: Selling a product service one to one.
Direct Mail: Is the sending of publicity material to a named person within an organisation.
New Marketing Communications Landscape (e.g. Facebook, Twitter): ♦ Consumers are better informed ♦ More communication ♦ Less mass marketing ♦ Changing communications technology
Integrated marketing communications is the integration by the company of its communication channels to deliver a clear, consistent, and compelling message about its organisation and its brands. The Promotion Mix
Setting the total promotion budget Affordable budget method
♦ Sets the budget at an affordable level ♦ Ignores the effects of promotion on sales
Percentage of sales method
♦ Sets the budget at a certain percentage of current of forecasted sales or unit sales price ♦ Easy to use ♦ Helps management think about the relationship between promotion, selling price and profit
per unit ♦ Wrongly views sales as the cause rather than the result of promotion
Competitive-‐parity method
♦ Sets the budget to match competitor outlays ♦ Represents industry standards ♦ Avoids promotion wars
Objective-‐and-‐task method Sets the budget based on what the firm wants to accomplish with promotion and includes: defining promotion objectives, determining tasks to achieve the objectives, estimating costs Promotion Mix Strategies Push strategy: Producer -‐> Retailers and wholesalers -‐> Consumers
♦ Producer and reseller marketing activities
Pull strategy: Consumers -‐> Retailers and wholesalers -‐> Producer ♦ Demand and producer marketing activities to consumers
Advertising
♦ Any paid form of non-‐personal presentation and promotion of ideas, goods or services by an identified sponsor
♦ Reaches masses of geographically dispersed buyers at a low cost per exposure ♦ Allows seller to repeat a message many times ♦ Types: Broadcast, print, internet, outdoor
o Newspapers, television, radio, magazines, direct mail, outdoor, internet etc
Advertising Budget:
♦ Product life-‐cycle stage o New products require larger budgets o Mature brands require lower budgets
♦ Market share
o Larger budgets when: ! Building or taking market share ! Markets with heavy competition ! Markets with high advertising clutter ! Undifferentiated brands
Public Relations ♦ Involves building good relations with the company’s various publics by obtaining favourable
publicity ♦ Building up a good corporate image ♦ Handling and heading off unfavourable stories and events ♦ A very believable form of promotion to promote product, people, ideas and activities
Types:
Role and impact:
♦ Lower cost than advertising ♦ Stronger impact on public awareness as it appears more credible ♦ Powerful brand building tool
Personal Selling (Pg 420) - The Nature of Personal Selling
o Salesperson may be order taker, e.g. standing behind counter, or order getter, e.g. positions demand creative selling and relationship building
- The Role of the Sales Force o Personal selling is interpersonal arm of promotion mix, involving two-‐way (personal
communication between salespeople and individual customers) o Advertising is one-‐way (nonpersonal communication with target consumer groups) o Personal selling can be more effective because salespeople can probe to learn about
customers’ problems and adjust marketing offer and presentation to fit each needs o Sales force represent [1] company to customers and [2] customers to company
Managing the Sales Force (Pg 458)
- Sales Force Management (Analysis, planning, implementation and control of sales force activities, includes [1] setting and designing sales force strategy and [2] recruiting, selecting, training, supervising, compensating and evaluating firm’s salespeople)
- Step 1 -‐ Designing Sales Force Strategy & Structure o Sales Force Structure
! Territorial Sales Force Structure (Assigns each salesperson to exclusive geographic territory selling company’s full line)
• Defines each salesperson’s job and fixes accountability • Improves selling effectiveness due to desire to build local business
relationships • Travel expenses are small
! Product Sales Force Structure (Salespeople specialize in selling only portion of company’s products or lines)
! Customer Sales Force Structure (Salespeople specialize in selling only to certain customers or industries)
! Complex Sales Force Structures (Combines several types of sales force structures)
! Team Selling (Teams of people from sales, marketing, engineering, finance, technical support and even upper management servicing large, complex accounts)
• Serves complete needs of each important customer • Problems for customers and salespeople used to one-‐salesperson concept • Sticky compensation issues due to difficulties in evaluating individual
contributions
- Step 2 – Recruiting & Selecting Salespeople o Most productive and expensive asset o Careful selection increases overall sales force performance and avoids costly turnover o Salespeople should be [1] motivated from within, [2] disciplined in work style, [3]
persistent and [4] customer problem solvers and relationship builders o Companies should analyze sales job itself and characteristics of its most successful
salespeople to identify traits needed - Step 3 – Training Salespeople
o Training programs are expensive but yield strong returns o Today, companies add in web-‐based training
- Step 4 – Compensating Salespeople
o Fixed Amount – Salary gives stable income o Variable Amount – Commissions or bonuses rewards for greater effort and success o Expense Allowances – Repaying for job-‐related expenses allows undertaking of needed
and desirable selling efforts
o Fringe Benefits – Paid vacations, sickness or accident benefits, pensions and life insurance provide job security and satisfaction
To Gain Market Share Rapidly
To Solidify Market Leadership
To Maximize Profitability
Ideal Salesperson
-‐ Independent self-‐starter
-‐ Competitive Problem Solver
-‐ Team Player
-‐ Relationship Manager
Sales Focus -‐ Deal Making
-‐ Sustained High Effort -‐ Consultative Selling -‐ Account Penetration
Compensation Role
-‐ To capture accounts
-‐ To reward high performance
-‐ To reward new and existing account sales
-‐ To manage product mix
-‐ To encourage team selling
-‐ To reward account management
o Companies should reward for building customer relationships and growing long-‐run value of each customer instead of driving salespeople to make short-‐term grabs
- Step 5 – Supervising Salespeople o Companies can help to identify customer targets and set call norms o Companies can help to set time management priorities, e.g. annual call plan and time-‐and-‐
duty analysis o Companies can adopt sales force automation systems o Salespeople must be motivated by sales managers and through organizational climate,
sales quotas and positive incentives
- Step 6 – Evaluating Salespeople o By [1] sales reports, [2] call reports, [3] expense reports, [4] personal observation, [5]
customer surveys and [6] talks with other salespeople
The Personal Selling Process (Pg 434)
- Personal Selling & Customer Relationship Management o Company wants profitable customer relationships, not simply transaction-‐oriented
personal selling
Direct Marketing (Pg 446)
- The New Direct-‐Marketing (Direct communications with carefully targeted individual consumers using telephone, mail, fax, e-‐mail, internet and other tools) Model o Changing from being supplementary channel or medium to being the only approach
- Benefits & Growth of Direct Marketing o For buyers, it is [1] convenient, easy to use and private, [2] ready access to wealth of
products and comparative information and [3] immediate and interactive o For sellers, it [1] targets small groups or individual consumers, [2] tailors offers to
individual needs, [3] promotes through personalized communications, [4] reaches prospects at right moments, [5] gives access to buyers unreachable through other channels, [6] is low-‐cost and efficient, [7] tool to build customer relationships, [8] elxible
- Customer Databases (Organized collection of comprehensive data about individual customers or prospects) & Direct Marketing o Database can help to [1] identify prospects and generate sales leads, [2] deepen customer
loyalty, [3] profile customers based on previous purchasing and [4] decide which customers should receive particular offers
- Forms of Direct Marketing o Telephone Marketing
! [1] Purchase convenience and [2] increased product and service information ! However, unsolicited telephone marketing annoys consumers
o Direct-‐Mail Marketing ! Paper based, fax mail, e-‐mail and voice mail ! [1] Direct, one-‐to-‐one communication, [2] permits high target-‐market selectivity, [3]
can be personalized, [4] flexible, [5] allows easy measurement of results and [6] people reached are better prospects
! However, [1] cost is higher and [2] may be resented as “junk mail” o Catalog Marketing
! Printed and web-‐based ! Web-‐based catalogues [1] save on production, printing and mailing costs, [2] offer
almost unlimited amount of merchandise, [3] allow real-‐time merchandising and [4] can be spiced up with interactive entertainment and promotional features
! However, web-‐based catalogues lack emotional appeal of paper version, passive and must be marketed
o Direct-‐Response Television Marketing ! Direct response advertising and infomercials on home shopping channels ! Direct response TV commercials are [1] cheaper to make, [2] media purchase is less
costly and [3] results are easily measured o Kiosk Marketing (e.g. photo printing) o Digital direct marketing technology
! Mobile phone marketing (games etc) ! Podcasts, vodcasts ! Interactive tv
o Online marketing ! Business to consumer, business to business, consumer to business, consumer to
consumer ! Website:
• Design attractive website to attract consumers to visit, remain and revisit • 7Cs: Context, content, community, customization, communication,
connection, commerce ! Social networks:
• Allow members to congregate online and exchange views on issues of common interest
• Facebook, Twitter, Tumblr, Youtube, Instagram ! Email:
• Permission-‐based marketing makes it optional • Develop enriched messages with animation, interactivity, audio, video • Compete with cluttered email environment
! Viral marketing ! Search-‐related advertisements (Google, Yahoo) ! Display advertisements (banners, pop-‐ups etc)
- Integrated Direct Marketing
o Using carefully coordinated multiple-‐media, multiple-‐stage campaigns o Improve response rates and profits
Branding Strategy: Building Strong Brands (Pg 216)
- Brand: customer's perceptions and feelings about a product and its performance. Company’s promise to deliver consistently to customer.
- Brand Equity (Positive differential effect that knowing the brand name has on customer response to product or service) o A measure of brand’s equity is extent to which customers are willing to pay more for brand o Powerful brand [1] enjoys high level of consumer brand awareness and loyalty, [2] has
more leverage in bargaining with resellers, [3] can more easily launch line and brand extensions, [4] offers company defense against fierce price competition and [5] most importantly, builds strong and profitable customer relationships, i.e. customer equity
- Building Strong Brands o Brand Positioning
! At lowest level, position brand on product attributes, but [1] attributes can be easily copied and [2] customers are not interested in attributes as such, but what they can do for them
! At higher level, position brand on product benefits ! At highest level, position brand on strong beliefs and values ! When positioning, marketer should establish mission for brand and vision of what
brand must be and do o Brand Name Selection
! Brand name should [1] suggest about product’s benefits and qualities, [2] easy to pronounce, recognize and remember, [3] distinctive, [4] extendable, [5] translate easily into foreign languages and [6] capable of registration and legal protection
! Firms protect and try to build brand name that will eventually become identified with product category, but risk brand name becoming generic name any seller can use
o Brand Sponsorship ! Manufacturer’s Brands versus Private Brands
• Manufacturers’ brands have long dominated retail scene, but more retailers and wholesalers have created their own private/store brands
• Retailers can [1] control what products to stock, [2] where products go on shelf, [3] what prices to charge, [4] which products to feature in local circulars and [5] charge manufacturers slotting fees
• Private brands [1] yield higher profit margins for reseller, [2] give resellers exclusive products that cannot be bought from competitors and [3] greater store traffic and loyalty
• However, private brands are [1] hard to establish and [2] costly to stock and promote
• Leading brand marketers have to [1] invest in R&D, [2] design strong advertising programs and [3] “partner” with major distributors
! Licensing • Provides instant and proven brand name • Includes name, character and corporate brand licensing
! Co-‐Branding (Using established brand names of two different companies on same product)
• Combined brands [1] create broader consumer appeal and greater brand equity, [2] allow expansion of existing brand into category that is difficult to enter alone
• However, co-‐branding involves [1] complex legal contracts and licenses, [2] careful coordination of advertising, sales promotion and other marketing efforts and [3] trust between partners
o Brand Development
Existing Product Category New Product Category
Existing Brand Name Line Extension Brand Extension
New Brand Name Multibrands New Brands
! Line Extensions • [1] Low-‐cost, low-‐risk way to introduce new products, [2] meet consumer
desires for variety, [3] use excess capacity and [4] commands more shelf space from resellers
• However, overextended brand name may [1] lose specific meaning, [2] cause consumer confusion or frustration and [3] “cannibalize” company’s other items
! Brand Extensions • [1] Gives new product instant recognition and faster acceptance and [2]
saves high advertising costs • However, extension may [1] confuse image of main brand, [2] harm
consumer attitudes toward other products carrying same brand name if brand extension fails and [3] not be appropriate to new product
! Multibrands • [1] Establishes different features and appeal to different buying motives and
[2] locks up more reseller shelf space
• However, each brand may [1] obtain only small market share and [2] not be very profitable
! New Brands • [1] Power of existing brand name is waning and [2] none of current brand
names is appropriate • However, offering too many brands may [1] result in spreading resources
too thin and [2] too few differences between brands - Managing Brands
o Brand’s positioning must be continuously communicated to consumers o Everyone in company must live the brand o Companies need to periodically audit brands’ strengths and weaknesses, i.e. brand audit
Customer Relationship Management (CRM)
CRM is a business strategy and is more than a functional strategy. It touches the organization as a whole: marketing, sales, IT, logistics, finance, production, R&D, HR, management, etcetera. If we thus define CRM, it is immediately clear that implementing full-‐size CRM is a daunting challenge.
Creating profitable and very efficient (client-‐facing) processes is not enough. For true Customer Relationship Management a customer intimacy strategy, a relation marketing philosophy rather than a transaction marketing philosophy, as well as a client-‐orientation of the whole organization are required.
Usage of Customer Relationship Management. Applications
• Companies that want to realize a customer intimacy strategy. • Companies that want to accomplish a customer friendly image.
Steps in Customer Relationship Management. Process
The following things make up the main elements to create a customer relation oriented organization:
1. Strong customer-‐oriented leadership. 2. The mission to be a relation-‐oriented organization aimed at long-‐term interaction. 3. The corporate purpose is aimed at the customer. 4. The main strategy is to win by customer intimacy. 5. Company values and employee values focus on caring for customers. 6. Behavioral standards reflect customer empathy and the wish to build long-‐term
relationships and commitment. 7. A relation-‐oriented organizational culture. 8. An organization that is putting customer contacts in the center. Compare: Co-‐Creation,
Business Process Reengineering. 9. People: empathic communication skills, caring for customers. 10. Systems that can help to connect and manage hard values with soft values, such as the
Value Profit Chain and the Balanced Scorecard.
Strengths of Customer Relationship Management. Benefits
• Strong relations with clients offer a degree of protection against actions of competitors. • Loyal customers can be more profitable. Winning new customers is expensive, satisfied
customers may buy more, happy customers can bring additional customers, etc.
Limitations of Customer Relationship Management. Disadvantages
• Implementing CRM in a holistic way is no sinecure. • Making large CRM investments profitable is difficult. • Achieving a Sustainable Competitive Advantage with CRM is even more difficult.
Assumptions of Customer Relationship Management. Conditions
• If we are good to customers, they will be good to us. • Changing from the current strategic discipline towards a customer intimate discipline is
possible.
SWOT analysis
Strengths and weaknesses are internal factors that create value or destroy value. They can include assets, skills, or resources that a company has at its disposal, compared to its competitors. They can be measured using internal assessments or external benchmarking.
Opportunities and threats are external factors that create value or destroy value. A company cannot control them. But they emerge from either the competitive dynamics of the industry/market or from demographic, economic, political, technical, social, legal or cultural factors (PEST).
Any organization must try to create a fit with its external environment. The SWOT diagram is a very good tool for analyzing the (internal) strengths and weaknesses of a corporation and the (external) opportunities and threats. However, this analysis is just the first step. To really create the fit with the external environment is often the most difficult work.
Strengths
• Specialist marketing expertise • Exclusive access to natural resources • Patents • New, innovative product or service • Location of your business • Cost advantage through proprietary
know-‐how • Quality processes and procedures • Strong brand or reputation
Weaknesses
• Lack of marketing expertise • Undifferentiated products and
service (i.e. in relation to your competitors)
• Location of your company • Competitors have superior access to
distribution channels • Poor quality of goods or services • Damaged reputation
Opportunities
• Developing market (China, the Internet)
• Mergers, joint ventures or strategic alliances
• Moving into new attractive market segments
• A new international market • Loosening of regulations • Removal of international trade barriers
• A market that is led by a weak competitor
Threats
• A new competitor in your home market
• Price war • Competitor has a new, innovative
substitute product or service • New regulations • Increased trade barriers • A potential new taxation on your
product or service
PEST analysis Used to scan the external macro-‐environment in which a firm operates
• Political • Economic • Social • Technological
PEST factors play an important role in the value creation opportunities of a strategy. However they are usually outside the control of the corporation and must normally be considered as either threats or opportunities. Remember macro-‐economical factors can differ per continent, country or even region, so normally a PEST analysis should be performed per country.
In the table below you find examples of each of these factors.
Political (incl. Legal)
Economic
Social
Technological
Environmental regulations
and protection Economic growth Income distribution
Government research spending
Tax policies Interest rates & monetary policies
Demographics, Population growth rates,
Age distribution
Industry focus on technological effort
International trade regulations and restrictions
Government spending Labor / social mobility New inventions and
development Contract enforcement law Consumer protection
Unemployment policy Lifestyle changes Rate of technology
transfer
Employment laws Taxation Work/career and leisure
attitudes Entrepreneurial spirit
Life cycle and speed of technological obsolescence
Government organization / attitude
Exchange rates Education Energy use and costs
Competition regulation Inflation rates Fashion, hypes (Changes in) Information
Technology
Political Stability Stage of the business
cycle Health consciousness & welfare, feelings on safety
(Changes in) Internet
Safety regulations Consumer confidence Living conditions (Changes in) Mobile
Technology
Competitive Advantage (Competition) Page 478
(Advantage over competitors by offering consumers greater value through lowering prices or providing more benefits that justify higher prices) - Step 1 – Competitor Analysis ([1] Identify key competitors, [2] assess their objectives,
strategies, strengths, weaknesses and reaction patterns and [3] select which competitors to attack or avoid)
- Step 2 – Competitive Marketing Strategies (Strongly position company against competitors and give company strongest possible strategic advantage)
Competitor Analysis (Pg 495)
- Step 1 – Identifying Competitors o At narrowest level of definition, competitors offer similar products and services at similar
prices o Next, competitors make same product or class of products o Next, competitors make products that supply same service o At widest level of definition, competitors compete for same consumer dollars o Companies must avoid “competitor myopia” and identify current as well as latent/future
competitors o Companies can identify competitors from [1] industry or [2] market point of view
- Step 2 – Assessing Competitors o Determining Competitors’ Objectives
! Competitor’s mix of objectives reveals [1] whether competitor is satisfied with current situation, [2] how it may react to different competitive actions, [3] opportunity if competitor discovers new segment, [4] warning if competitor plans new moves into segments now served by company
! Profitability, market share growth, cash flow, technological leadership, service leadership
o Identifying Competitors’ Strategies ! Strategic Group (Firms in industry following same or similar strategy) ! Competition is most intense within strategic group, but also among groups because [1]
some strategic groups appeal to overlapping customer segments, [2] customers may not see difference and [3] companies may expand into new strategic segments
o Assessing Competitors’ Strengths & Weaknesses ! Companies learn about competitors’ strengths and weakness through [1] secondary
data, [2] personal experience, [3] word of mouth and [4] conducting marketing research
! Benchmarking (Comparing products and processes to find ways to improve quality and performance)
o Estimating Competitors’ Reactions ! Gives clues on how to [1] attack competitors or [2] defend company’s current
positions - Step 3 – Selecting Competitors to Attack & Avoid
o Customer Value Analysis: to determine what benefits target customers value and how they rate the relative values of various competitor’s offers
o Strong or Weak Competitors ! Competing against weak competitors requires less resources and time, but may gain
little ! Competing with strong competitors sharpens abilities and provides greater returns
o Close or Distant Competitors ! Companies compete with close rather than distant competitors ! Companies should avoid “destroying” close competitors because this may force weak
competitors to sell out to larger firms, resulting in larger competitors o “Good” or “Bad Competitors
! Good competitors [1] help increase total demand, [2] share market and product development costs, [3] help legitimize new technology, [4] serve less-‐attractive segments or lead to more product differentiation, [5] lower antitrust risk and [6] improve bargaining power versus labor or regulators
! Bad competitors shake up industry by [1] buying share rather than earning it and [2] taking large risks
- Designing a Competitive Intelligence System o System should be cost-‐effective as cost in money and time of gathering competitive
intelligence is high Competitive Strategies (Pg 486) - Approaches to Marketing Strategy
o Stage 1 – Entrepreneurial Marketing ! Visualize opportunity, construct flexible strategies and knock on every door to gain
attention o Stage 2 – Formulated Marketing
! Develop formal marketing strategies and adhere to them closely o Stage 3 – Intrepreneurial Marketing
! Reestablish within company entrepreneurial spirit and actions that made them successful in the first place
- Basic Competitive Strategies o Porter’s o Companies should pursue a clear strategy and not to be middle-‐of-‐the-‐roaders
! Overall Cost Leadership • Low production and distribution costs allow lower price and win large
market share ! Differentiation
• Highly differentiated product line and marketing program makes company class leader in industry
! Focus • Focus on serving few market segments well instead of going after whole
market
o Companies can pursue one or more value disciplines to deliver superior customer value ! Treacy and Wiserma’s ! Operational Excellence
• Reduce costs, increase convenience and create lean and efficient value-‐delivery system to provide reliable, good-‐quality products or services
! Customer Intimacy • Specialise in satisfying unique customer needs through segmentation and
close relationship with and intimate knowledge of the customers, tailor products or services to match needs of target customers exactly
! Product Leadership • Provide superior value by offering a continuous stream of leading-‐edge
products or services
- Competitive Positions o Market Leader (Firm with largest market share) o Market Challenger (Runner-‐up firm fighting hard to increase market share) o Market Follower (Runner-‐up firm wanting to hold its share without rocking the boat) o Market Nicher (Firm serving small segments overlooked or ignored by other firms) o Classifications do not apply to whole company, but only to position in specific industry
- Market Leader Strategies o Expanding the Total Demand
! Develop [1] new users, e.g. in current markets, new demographic segments or new geographic segments, [2] new uses and [3] more usage of its products, e.g. use product more often or more per occasion
o Protecting Market Share ! Prevent or fix weaknesses that provide opportunities for competitors ! Always fulfill value promise ! Prices must remain consistent with value customers see in brand ! Keep strong relationships with valued customers
! “Plug holes” so competitors do not jump in ! Continuous innovation ! Increase competitive effectiveness and value to customers
o Expanding Market Share ! Produce high quality products, create good service experiences, build close
relationships ! Profitability rises with increasing market share only when [1] unit costs fall with
increased market share or [2] premium price is charged for superior-‐quality product that more than covers cost of offering higher quality
- Market Challenger Strategies o Fight aggressively to increase market share o Challenger defines which competitors to challenge and its strategic objective o Challenger can attack market leader to take over market leadership or to wrest more
market share, second-‐mover advantage by observing what has made the leader successful and improves upon it
o Challenger can avoid the leader and attack similar or smaller local and regional firms to put them out of business
o Full Frontal Attack-‐ matching competitor’s product, price, advertising, distribution effort ! Attacks competitor’s strengths rather than weaknesses ! When company has more resources than competitor ! Largely depends on who has greater strength and endurance
o Indirect Attack ! Attacks competitor’s weaknesses or on gaps in competitor’s market coverage ! When company has fewer resources than competitor
- Market Follower Strategies
o Want to hold onto market share o Advantages are [1] avoiding huge expenses of developing new products and markets,
expanding distribution and educating market (already done by market leader), [2] learning from leader’s experience and [3] copying or improving leader’s products and programs with less investment
o Follow Closely ! To win customers from market leader
o Follow at a Distance ! To avoid retaliation
o Second-‐mover advantage by observing what has made the leader successful and improves upon it
o Play along with competitors, challenge firms its own size or smaller o Follower must keep manufacturing costs low and product quality and services high
o Bring distinctive advantages to target market-‐ location, services, financing - Market Nicher Strategies
o Advantages are [1] knowing target customer group so well that needs are met better and so [2] can charge substantial markup over costs, [3] safe and profitable
o Target subsegments o Safe and profitable-‐ little interest to major competitors but big enough to have growth
potential and be profitable o Specialization
! Customer, geographic market, quality-‐price and service, marketing mix o Multiple Niching
! Niche may dry up ! Attract large competitors after growth ! Therefore, multiple niching-‐ Increases chances for survival
Balancing Customer & Competitor Orientations (Pg 488)
- Competitor-‐Centered Company (Moves mainly based on competitors’ actions and reactions) o Develops fighter orientation, but becomes too reactive o May end up simply matching or extending industry practices rather than seeking
innovative new ways to create more value for customers
- Customer-‐Centered Company (Focuses on customer developments in designing marketing strategies and on delivering superior value to target customers) o Better position to identify new opportunities and set long-‐run strategies
- Market-‐Centered Company (Pays balanced attention to both customers and competitors in
designing marketing strategies)
Not Customer-‐Centered Customer-‐Centered
Not Competitor-‐Centered
Stage 1 -‐ Product Orientation Stage 2 -‐ Customer Orientation
Competitor-‐Centered Stage 3 -‐ Competitor Orientation
Stage 4 (Today) -‐ Market Orientation
Positioning for Competitive Advantage (Arranging for product to occupy a clear, distinctive and desirable place relative to competing products in minds of target consumers) (Pg 191)
- Consumers position products with or without the help of marketers, but marketers do not want to leave their products’ positions to chance
- Positioning Maps o Perceptual positioning maps show consumer perceptions of company’s brands versus
competing products on important buying dimensions
- Choosing a Positioning Strategy DIFFERENTIATION o Identifying Possible Competitive Advantages (Advantage over competitors gained by
offering consumers greater value, either through lower prices or by providing more benefits that justify higher prices) ! Product Differentiation
• Products can be differentiated on features, performances or style and design • Can differentiate products on attributes as consistency, durability, reliability or reparability
! Services Differentiation • Speedy, convenient or careful delivery • Repair Services • Providing customer training service or consulting services
! Channel Differentiation • The way companies design its channel’s coverage, expertise and performance
! People Differentiation • Hiring and training better people than competitors do
! Image Differentiation • Company or brand image should convey product’s distinctive benefits and positioning • Symbols, famous characters, colors and other image elements
o Choosing the Right Competitive Advantage ! How Many Differences to Promote?
• Develop a unique selling proposition (USP) as buyers tend to remember number one better, especially in an over communicated society • Position on more than one differentiator if two or more firms are claiming to be best on same attribute • As companies increase number of claims, they risk disbelief and loss of clear positioning
! Which Differences to Promote?
• Important – Difference delivers a highly valued benefit to target buyers • Distinctive – Competitors do not offer the difference or company can offer it more distinctively • Superior – Difference is superior to other ways that customers might obtain the same benefit • Communicable – Difference is communicable and visible to buyers • Preemptive – Competitors cannot easily copy the difference • Affordable – Buyers can afford to pay for difference • Profitable – Company can introduce difference profitably
o Selecting an Overall Positioning Strategy
! Value Proposition (Full positioning of brand – Full mix of benefits upon which it is positioned)
! More for More • Providing most upscale product or service and charging a higher price to cover the higher costs • Often invite imitators who claim the same quality but at a lower price
! More for the Same • Introducing a brand offering comparable quality to more-‐for-‐more positioned competitors but at a lower price
! The Same for Less • Offering brands same as department stores and specialty stores but at deep discounts based on superior purchasing power and lower-‐cost operations
! Less for Much Less • Products that offer less and therefore cost less • Involves meeting consumers’ lower performance or quality requirements at a much lower price
! More for Less • In the short run, some companies can actually achieve such lofty positions • In the long run, companies will find it very difficult to sustain such best-‐of-‐both positioning • Companies that try to deliver both may lose out to more focused competitors
o Developing a Positioning Statement (Statement that summarizes company or brand positioning – To (target segment and need) our (brand) is (concept) that (point-‐of-‐difference))
! Placing a brand in a specific category suggests similarities, but brand’s superiority is made on its points of difference
! Sometimes, marketers put a brand in a surprisingly different category before indicating points of difference
- Communicating & Delivering the Chosen Position o All the company’s marketing mix (4 Ps) efforts must support the positioning strategy o Company must take care to maintain the desired position through consistent performance
and communication o Product’s position should evolve gradually as it adapts to ever-‐changing marketing
environment
Porter’s Five Forces The Five Forces model of Porter is an Outside-‐in business unit strategy tool that is used to make an analysis of the attractiveness (value) of an industry structure. The Competitive Forces analysis is made by the identification of 5 fundamental competitive forces:
1. Entry of competitors. How easy or difficult is it for new entrants to start competing, which barriers do exist.
2. Threat of substitutes. How easy can a product or service be substituted, especially made cheaper.
3. Bargaining power of buyers. How strong is the position of buyers. Can they work together in ordering large volumes.
4. Bargaining power of suppliers. How strong is the position of sellers. Do many potential suppliers exist or only few potential suppliers, monopoly?
5. Rivalry among the existing players. Does a strong competition between the existing players exist? Is one player very dominant or are all equal in strength and size.
Threat of New Entrants depends on:
• Economies of scale. • Capital / investment requirements. • Customer switching costs. • Access to industry distribution channels. • Access to technology. • Brand loyalty. Are customers loyal? • The likelihood of retaliation from existing
industry players. • Government regulations. Can new entrants
get subsidies?
Bargaining Power of Suppliers depends on:
• Concentration of suppliers. Are there many buyers and few dominant suppliers?
• Branding. Is the brand of the supplier strong? • Profitability of suppliers. Are suppliers forced
to raise prices? • Suppliers threaten to integrate forward into
the industry (for example: brand manufacturers threatening to set up their own retail outlets).
• Buyers do not threaten to integrate backwards into supply.
• Role of quality and service. • The industry is not a key customer group to
the suppliers. • Switching costs. Is it easy for suppliers to find
new customers?
Threat of Substitutes depends on:
• Quality. Is a substitute better? • Buyers' willingness to substitute. • The relative price and performance of
substitutes. • The costs of switching to substitutes. Is it
easy to change to another product? Intensity of Rivalry depends on:
• The structure of competition. Rivalry will be more intense if there are lots of small or
Bargaining Power of Buyers depends on:
• Concentration of buyers. Are there a few dominant buyers and many sellers in the industry?
• Differentiation. Are products standardized? • Profitability of buyers. Are buyers forced to
be tough? • Role of quality and service. • Threat of backward and forward integration
into the industry. • Switching costs. Is it easy for buyers to switch
their supplier?
equally sized competitors; rivalry will be less if an industry has a clear market leader.
• The structure of industry costs. Industries with high fixed costs encourage competitors to manufacture at full capacity by cutting prices if needed.
• Degree of product differentiation. Industries where products are commodities (e.g. steel, coal) typically have greater rivalry.
• Switching costs. Rivalry is reduced when buyers have high switching costs.
• Strategic objectives. If competitors pursue aggressive growth strategies, rivalry will be more intense. If competitors are merely "milking" profits in a mature industry, the degree of rivalry is typically low.
• Exit barriers. When barriers to leaving an industry are high, competitors tend to exhibit greater rivalry.
Strengths of the Five Competitive Forces Model. Benefits The model is a strong tool for competitive analysis at industry level. Compare: PEST Analysis It provides useful input for performing a SWOT Analysis.
Ansoff’s Expansion Grid
Determine growth opportunities. The Product/Market Grid has two dimensions: products and markets.
Over these 2 dimensions, four growth strategies can be formed.
Four growth strategies in the Product/Market Grid
1. Market Penetration. Sell more of the same products or services in current markets. These strategies normally try to change incidental clients to regular clients, and regular client into heavy clients. Typical systems are volume discounts, bonus cards and Customer Relationship Management. Strategy is often to achieve economies of scale through more efficient manufacturing, more efficient distribution, more purchasing power, overhead sharing.
2. Market Development. Sell more of the same products or services in new markets. These strategies often try to lure clients away from competitors or introduce existing products in foreign markets or introduce new brand names in a market. New markets can be geographic or functional, such as when we sell the same product for another purpose. Small modifications may be necessary. Beware of cultural differences.
3. Product Development. Sell new products or services in current markets. These strategies often try to sell other products to (regular) clients. These can be accessories, add-‐ons, or completely new products. Cross-‐selling. Often, existing communication channels are used.
4. Diversification. Sell new products or services in new markets. These strategies are the most risky type of strategies. Often there is a credibility focus in the communication to explain why the company enters new markets with new products. On the other hand diversification strategies also can decrease risk, because a large corporation can spread certain risks if it operates on more than one market. Diversification can be done in four ways:
o Horizontal diversification. This occurs when the company acquires or develops new products that could appeal to its current customer groups even though those new products may be technologically unrelated to the existing product lines.
o Vertical diversification. The company moves into the business of its suppliers or into the business of its customers.
o Concentric diversification. This results in new product lines or services that have technological and/or marketing synergies with existing product lines, even though the products may appeal to a new customer group.
o Conglomerate diversification. This occurs when there is neither technological nor marketing synergy and this requires reaching new customer groups. Sometimes used by large companies seeking ways to balance a cyclical portfolio with a non-‐cyclical one.
The BCG Matrix method is the most well-‐known portfolio management tool. The BCG Matrix can be used to determine what priorities should be given in the product portfolio of a business unit. To ensure long-‐term value creation, a company should have a portfolio of products that contains both high-‐growth products in need of cash inputs and low-‐growth products that generate a lot of cash. The Boston Consulting Group Matrix has 2 dimensions: market share and market growth.
The basic idea behind it is: if a product has a bigger market share, or if the product's market grows faster, it is better for the company.
The four segments of the BCG Matrix
Placing products in the BCG matrix provides 4 categories in a portfolio of a company:
• Stars (high growth, high market share) o Stars are using large amounts of cash. Stars are leaders in the business. Therefore they
should also generate large amounts of cash. o Stars are frequently roughly in balance on net cash flow. However if needed any attempt
should be made to hold your market share in Stars, because the rewards will be Cash Cows if market share is kept.
• Cash Cows (low growth, high market share) o Profits and cash generation should be high. Because of the low growth, investments which
are needed should be low. o Cash Cows are often the stars of yesterday and they are the foundation of a company.
• Dogs (low growth, low market share) o Avoid and minimize the number of Dogs in a company. o Watch out for expensive ‘rescue plans’. o Dogs must deliver cash, otherwise they must be liquidated.
• Question Marks (high growth, low market share) o Question Marks have the worst cash characteristics of all, because they have high cash
demands and generate low returns, because of their low market share. o If the market share remains unchanged, Question Marks will simply absorb great amounts
of cash. o Either invest heavily, or sell off, or invest nothing and generate any cash that you can.
Increase market share or deliver cash.
The BCG Matrix and one size fits all strategies
The BCG Matrix method can help to understand a frequently made strategy mistake: having a one size fits all strategy approach, such as a generic growth target (9 percent per year) or a generic return on capital of say 9,5% for an entire corporation. In such a scenario:
• Cash Cows Business Units will reach their profit target easily. Their management have an easy job. The executives are often praised anyhow. Even worse, they are often allowed to reinvest substantial cash amounts in their mature businesses.
• Dogs Business Units are fighting an impossible battle and, even worse, now and then investments are made. These are hopeless attempts to "turn the business around".
• As a result all Question Marks and Stars receive only mediocre investment funds. In this way they can never become Cash Cows. These inadequate invested sums of money are a waste of money. Either these SBUs should receive enough investment funds to enable them to achieve a real market dominance and become Cash Cows (or Stars), or otherwise companies are advised to disinvest. They can then try to get any possible cash from the Question Marks that were not selected.
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