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(c) Paul Fifield 2006 ([email protected])1

MARKETING FOR THEFUTURE

Dr Paul Fifield

Visiting Professor of Marketing Strategy

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Agenda

A review of the role of DIFFERENTIATION in a robust marketingstrategy and how a unique market position can be used to protect thebusiness from global competition

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MARKETING

FOR THEFUTURE

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The purpose of a business is to

create and keep a customer

Levitt

The Business Purpose (Why are we in business?)

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What is Marketing?

Marketing is the management processresponsible for identifying, anticipating

and satisfying customer requirementsprofitably.

The Chartered Institute of Marketing

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What is Market Strategy?

Market Strategy is the process bywhich the organisation aligns

itself with the market(s) it wishes toserve

Paul Fifield

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So, Market Strategy =

TheCustomer

PreferenceAlignment

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MARKETING

FOR THEFUTURE

And, the

difficultquestion..

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What do Customers Want?

Years of research has shown that (B2C and B2B) customers want:

1. To hire products and services to get a job done (A product is what aproduct does Levitt)

2. Products and services that fit their lives (relevance)

3. Choice (different) but:1. Not too much choice2. Real choice not meaningless product/service features

3. An obvious Right Choice for them

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Differentiation is the basis of good marketing

Porters second generic strategy, differentiation , helps to achievecompetitive advantage when a company seeks to be unique inits industry along some dimensions that are widely valued bybuyers (Porter 1985).

If the three keys for selling real estate are location, location,location then the three keys of selling consumer products are

differentiation, differentiation, differentiation. Robert Goizueta former chairman, Coca Cola company

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But, is it worth it?..

Research of 6,000 companies worldwide (PA Consulting Group 2003)found:

1. 97% of CEOs believe their priority is to create long-term value forshareholders.

2. There are two ways that value can be created within companies1. Operating at a cost advantage compared to others2. Create a superior differentiation that supports a price premium over

others

3. The research found that:On average the latter is THREE TIMES more influentialthan the former in creating value.

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MARKETING

FOR THEFUTURE

But

we cantdo that

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Why do managers want to be lemmings?

1. In the (benchmarked) quest for 1) productivity , 2) quality and 3) speed ,companies imitate one another in a type of herd behaviour

2. Driven by desire to grow (sales and volume), this createsunnecessary hyper-competition

3. Operational Effectiveness is necessary, but it is not sufficient to winand it is not strategy [Source: Porter 1996]

4. Competitive strategy is about being DIFFERENT and either:(i) Performing different activities from rivals(ii) Performing similar activities in different ways

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Price

differences

High

Low

Product/imagedifferentiation

High Low

TIMETIME

BRANDEDMARKETS

COMMODITYMARKETS

How manywinners canthere be..1. Here?

2. Here?

(bland)

(brand)

The commodity slide

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Olympic Differentiation?

1. Ski Freestyle2. Ski Cross Country3. Ski Combined4. Ski Nordic Combined5. Ski Alpine6. Ski Jumping7. Biathlon8. Ice Hockey

9. Figure Skating10. Speed Skating11. Short Track 12. Snowboard Freestyle13. Snowboard Alpine

14. Luge15. Curling16. Bobsleigh17. Skeleton

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And a word about Price!

In any developed market,90% of customers would

prefer to buy on non-price reasons and paysome level of premiumprice for perceivedadditional value

10% will always buy thecheapest because theydont care about the

category

In an undeveloped market, aproportion of customers will

still prefer to pay premiumprice for some additionalvalue

A proportion appear to wantthe cheapest but have latentneeds that have not yet beenidentified and exploited

Still, 10% will always buy thecheapest

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Its never too late to Decommoditise

1. B2C tend to view themselves as differentiated producers:1. They regularly decommoditise standard products to capture customer

value

2. B2B tend to view themselves as commodity producers:1. Value operations and sales over marketing2. Strive to produce more, more cheaply to sell at the market price3. Often overlook the nonfunctional features of their products

4. Employ sales forces that are not representative of the customers theyserve and believe that price is the most important variable

3. Research (conjoint analysis) must drive a "needs analysis" ofcustomers to uncover value-based segments

For all practical reasons, the B2B market hasNO commodities

Forsyth, Gupta, Haldar and Marn, ( Shedding the commodity mindset , McKinsey Quarterly, 2000/4)

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MARKETING

FOR THEFUTURE

How to be

different?

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Analysing Differentiation (Source: Grant)

Supply sideDemand side

Successful differentiation is about matching customers demand fordifference with the organisations capacity to supply differentiation:

Reason for purchase

Motivation for purchase

Choice criteria used

Perception of available

offerings

Preferences

Perceptions of differentproduct/service attributes

Price/Value perceptions

Product features Product performance Complementary services (credit, delivery etc)

Intensity of marketing activities (ad spend etc) Technology embedded in design & manufacture Quality of purchased inputs Processes influencing conduct of each activity (quality

control, service procedures etc) Skill & experience of employees Location (with retail & service outlets etc) Degree of vertical integration (& process control)

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Inbound

logisticsOperations Outbound

logistics

Sales &

MarketingServices

Differentiation & the Value Chain (Grant)

Technology Development

Human Resources Management

Firm Infrastructure

MIS that supports fastresponse capabilities

Training to supportcustomer service ortechnical excellence

Unique productfeatures, fast

new product &

servicedevelopment

Quality ofcomponents

Defect free products &services. Wide variety

Fast delivery, efficientorder processing

Building brandreputation

Customer technicalsupport. Customercredit. Availability ofafter sales support,

spares etc

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* 1 typeaircraft* 2ndary

airports =rapid trnds

* Mixedaircraft

fleet* Primary

airports

* Shorthaul

* 1 class,seated atcheck-in

* Short &Long haul

* In-flightseating

logistics

* Global* Training

cabinservice &pilots

* Travelagents +

own sales* Complexpricing

* Gbl brandg

* Mostlydirectsales

* Simplepricing

* European* Low cost

cabin service* Trained

pilots

* Full in-flightservice

* Clublounges

* No movies* No frills* Food &drink sales

Inboundlogistics Operations

Outboundlogistics

Sales &Marketing

Service

BA and Multiple Segments

EasyJet and the Low Cost Segment

Two Differentiated Value Chains:

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Differentiate to your markets needs

Low HighDifferentiation

High

Relevance

Low

DRIVERSFeatures that are

important tocustomers and highly

differentiated from thecompetition

FOOLS GOLDFeatures that are

distinctive but do notdrive customers

loyalty to brand

NEUTRALSFeatures that are

irrelevant tocustomers

HYGIENESFeatures that are

important to customersbut are provided by allcompetitors at a similar

level

S o u r c e : A u

f r e

i t e r ,

E l z i n g a ,

a n

d .

G o r d o n , 2 0

0 3

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Differentiate to the target segments needs


High

Relevance

Low

DRIVERS

Features that areimportant tocustomers and highly

differentiated from thecompetition

FOOLS GOLDFeatures that are

distinctive but do notdrive customersloyalty to brand

NEUTRALSFeatures that are

irrelevant tocustomers

HYGIENESFeatures that are

important to customersbut are provided by allcompetitors at a similar

level

S o u r c e :

A d a p t e

d

f r o m :

A u

f r e

i t e r ,

E l z i n g a ,

a n d

.

G o r d o n , 2

0 0 3

Differentsegments

aremotivated

bydifferentdrivers

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Or, be Differentiated out of business


High

Relevance

Low

Winners

MediocreChina

Mediocre

S o u r c e :

A d a p t e

d f r o m :

A u

f r e

i t e r , E

l z i n g a ,

a n d

. G o r d o n , 2

0 0 3

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And in the long run


High

Relevance

Low

Winners

CHINA

S o u r c e :

A d a p t e

d f r o m :

A u

f r e

i t e r , E

l z i n g a ,

a n d

. G o r d o n , 2

0 0 3

China(Cheap)

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MARKETING

FOR THEFUTURE

Which

differencesare best?

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Some winning positions

Audi? Most advancedtechnology

Ford? Most convenient

Morgan? Most customised

Porsche? Fastest

Volvo? Safest

Volkswagen? Best value

Skoda? Lowest price

Mercedes? Best service

Rolls Royce? Best quality

Easyjet? Quality/price (eg best,most expensive, cheapest)

PS2? Product category (eg yoga

holiday, computer game)

Nokia? Competitor (eg better thanx, cheaper than y)

iPod? Saga? User (eg for young/old, forexperts, commuters)

Bollinger? Use/application (eg forholidays, for celebrations)

Porsche? Benefit (eg easiest, fastest,strongest)

Microsoft? Attribute (eg size, speed,colour, age, complexity)

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Which differences are best?

4

3

2

1

Look for gaps in the marketplace andexploit them. Only attack competitorspositions if there is no alternative

Where is most of yourcompetition concentrated?

Relate to (customer) perceivedstrengths & weaknesses.Aim for credible areas first

Where is your offer mostand/or least credible (tocustomers)?

Profit is key and differentiation can beexpensive. Balance cost (ease) againstvalue and defensibility

Where is the differentiationeasiest for your company toprotect/maintain?

Always work with the customers. Aimto target the greatest store ofperceived customer value

Where does the yourcustomer/prospect perceivethe most value?

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MARKETING

FOR THEFUTURE

Its all aboutCustomer

Value..

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Its all about CUSTOMER VALUE

Value = Benefit - Effort - Risk - Price

Value

Price

Perceivedby the

customer, notstandard to a

product orservice

Adapted from Osterwalder & Pigneur, 2003

Benefits fromuse providing

the perfectsolution to

MY problem

Using insight &change to make

the customerslife more

convenient

Perceiveddownside intime, utility,image, peerrecognition

etc.

Perceiveddownside in

cost/priceand

opportunitycost

More value = More profitLess?Less!Less!More!

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Summary Where is the cheese?

1. UnderstandCustomer Needs

2. Identify Customer Value

3. Choose the right value to extract4. Extract the value properly

5. Predict the value migration

I Prefer

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MARKETING FOR THEFUTURE

Dr Paul FifieldVisiting Professor of Marketing Strategy

Documents

Marine 2006