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Review & Discussion
Review & Discussion
 Too narrow definition of the market prevents from foreseeing threats from subsitution › Railroads
 Too narrow definition of the market
prevents from foreseeing threats from
subsitution
› Railroads didn’t think about transportation in
general but only about trains
› Hollywood film industry didn’t consider the
whole entertainment market but only films
 Porter’s 5 Forces: tool to list substitutes
direct & indirect competitors
 Product oriented businesses › Example: Railroads, Hollywood › Define the market in terms of
 Product oriented businesses
› Example: Railroads, Hollywood
› Define the market in terms of the product
 Customer oriented businesses
› Examples: DuPont; Cornings
› Key to success: « apply technical know-how
to create customer satisfying uses »
› Define the market in terms of the « need »
 Growth Dry-Cleaning Growth • Apparent customer need › Need driven by woolen clothes •
 Growth Dry-Cleaning
Growth
• Apparent
customer need
› Need driven by
woolen clothes
• No other
solutions = no
substitutes
› No other technical
solutions
 Decline Dry-Cleaning
Decline
• Other solutions
to the need are
available
› Synthetic fiber
replace wool = need
decreases!
• The « need »
decreases cuz’
new tech
› Ultrasound tech
replaces chemical =
new solution!
 When Market/Industry declines, companies must strive to EXIT it  EXIT barriers can be
 When Market/Industry declines, companies
must strive to EXIT it
 EXIT barriers can be Emotional:
› Example corner store groceries beaten by
supermarkets: the companies with « the courage
of their convictions » [
their shirts
]
kept their pride but lost
 Other exit barriers:
› When costs too high (layoffs cost)
› When equipement cannot be reconverted/sold
 Companies only capitalize on growth opportunities  Growing industries go into decay Assume Assume
 Companies only capitalize on growth opportunities
 Growing industries go into decay
Assume
Assume
Assume Growing demographics
Assume Growing demographics
No substitute possible for the
No substitute possible for the
= =
growing industry
growing industry
product
product
WhyWhy GrowthGrowth--DeclineDecline cycle?cycle?
Assume optimizing
Assume optimizing
manufacturing is sufficient
manufacturing is sufficient
FaithFaith inin economieseconomies ofof scalescale
(cost reduction, better quality)
(cost reduction, better quality)
 HYPOTHESIS: If the number of consumers grow, sales will also grow = growing industry
 HYPOTHESIS: If the number of consumers grow,
sales will also grow
= growing industry
 True only if no substitute for the need
 Example of Oil Industry
KeroseneKerosene lampslamps substitutedsubstituted byby lightlight bulbsbulbs
NaturalNatural gazgaz substitutingsubstituting oiloil forfor heatingheating,, eveneven carscars (diesel)(diesel)
InnovationsInnovations comecome fromfrom outsideoutside thethe industryindustry
FailFail toto recognizerecognize newnew opportunitiesopportunities:: plasticsplastics
 Focus on producing more at lower cost  Focus on selling more: market offering
 Focus on producing more at lower cost
 Focus on selling more: market offering is
just the generic product/service
 Neglect the marketing aspects:
› The role of marketing is to listen to the
customer
› Market Offering includes the 4Ps: Product,
Price but also Place & Promotion
 How the product is made available?
 When & under what conditions available?
• Focus:the selling SELLINGSELLING • Objective: convert the product into cash • Push strategy: salesmen
• Focus:the selling
SELLINGSELLING
• Objective: convert the
product into cash
• Push strategy: salesmen try
to sell as much as they can
• Focus: the customer
MARKETINGMARKETING
• Objective: satisfy at best
customer needs
• Pull strategy: salesmen
capture customer needs
 Symptom: new models sell better than the old ones  Problem: the producer doesn’t
 Symptom: new models sell better than
the old ones
 Problem: the producer doesn’t know
what the customer wants - WHY??
› Research of Customer Preferences limited
only to what already decided to offer
› No listen to customer concerns: no attention
paid to customer needs about point of sale
or repair&maintenance
 It is not the cost that sets the price It is the price at
 It is not the cost that sets the price
It is the price at which the product can be
sold profitably that drives the need to cut
costs
 Mass production results from marketing
strategy, dosn’t replace such
 First, determine price for level of demand
Last, cut cost to be profitable at this price
Improving the Product won’t save sales if another substitute satisfies customer needs much better •
Improving the Product won’t save sales if another
substitute satisfies customer needs much better
• Example: the buggy whip industry
• Example: oil vs electricity
Creative destruction: when a new (tech) solution
fits better customer needs, the old one must be
abandoned
• Example: gaz stations will become obsolete if new fuel last
much longer
 Illusion: superior product will sell itself  False Hypothese: continuous growth is a matter
 Illusion: superior product will sell itself
 False Hypothese: continuous growth is a
matter of product innovation
 Note that if u replace « product » by
« market offering » the statement is true
 Product Innovation focus: features of product
 Market Offering focus: satisfy customer needs
« « The organization The organization view itself as view itself as • Focus on
« «
The organization
The organization
view itself as
view itself as
• Focus on « how to do » the product
– R&D
making things,
making things,
• Neglect « how to sell » - marketing
not satisfying the
not satisfying the
customer needs »
customer needs »
• the customer comes to tell them
what they need (military)
SuccessSuccess factor:factor:
• No need to research customer
needs
Identify Identify consumer needs consumer needs Physical delivery of Physical delivery of customer customer
Identify
Identify
consumer needs
consumer needs
Physical delivery of
Physical delivery of
customer
customer
satisfaction
satisfaction
Creating the things
Creating the things
that achieve the
that achieve the
satisfaction
satisfaction
Find the raw
Find the raw
materials to make
materials to make
the products
the products
Attributes of a Leader Human organization •Will to succeed •Viewpoint: company is creating customer value
Attributes of a Leader
Human organization
•Will to succeed
•Viewpoint: company
is creating customer
value & satisfaction
•He knows where he’s
going – which road is
not important, only
the final destination
• Redefining the firm
from product to
customer oriented
• pays off (several
examples listed in
the conclusion)
« « marketing mania »: chasing marketing mania »: chasing Change organization from Change organization
« «
marketing mania »: chasing
marketing mania »: chasing
Change organization from
Change organization from
customer’s needs disregarding
customer’s needs disregarding
functional to customer-oriented
functional to customer-oriented
costs (segmentation)
costs (segmentation)
without consideration of
without consideration of
company culture
company culture
Expand to new segments
Expand to new segments
without effort to organize &
without effort to organize &
Create great product but being
Create great product but being
integrate new businesses
integrate new businesses
unable to educate the
unable to educate the
customer how to take
customer how to take
advantage of it
advantage of it
Bigger marketing department
Bigger marketing department
doesn’t automatically make
doesn’t automatically make
more results
more results
 Yes, definitely. However must understand the relationship between customer need, price, production, technical
 Yes, definitely. However must understand
the relationship between customer need,
price, production, technical solution
› The target is satisfy the need
› But can it be done at reasonable price/cost?
› Does it makes sense to produce in mass or not?
› What technical solution(s)?
 Must learn how to do SMART customer-
orientation
the product & the product & industry industry lifecycle, lifecycle, the needs of the needs
the product &
the product &
industry
industry
lifecycle,
lifecycle,
the needs of
the needs of
understand
understand
the customer
the customer
the market
the market
(value chain,
(value chain,
(Porter’s 5
(Porter’s 5
the 7s
the 7s
forces)
forces)
McKansey)
McKansey)
Today,
Today,
much
much
more
more
tools to:
tools to:
Slowing demographic Slowing demographic growth in the West – growth in the West – •markets
Slowing demographic
Slowing demographic
growth in the West –
growth in the West –
•markets don’t automatically expand with population
growth: growing demand vs sustanable development
ShorterShorter productproduct lifecycleslifecycles::
•ex. electronics
Marketing is more
Marketing is more
sophisticated :
sophisticated :
•deeper understanding,
•Models and derived tools
NewNew marketmarket rulesrules::
•ex. the internet
Not to forget, growing
Not to forget, growing
importance of external
importance of external
•climate change, global economy,
•scarce ressources, politics, culture&religion
factors like
factors like
 The big success stories recognize the need of customer orientation and take advantage of
 The big success stories recognize the need
of customer orientation and take
advantage of it: Starbucks, McDonalds,
Coca Cola, Festo, Toyta
 Example of Kodak: since they defined
themselves as being in the photo industry,
they didn’t have problems going digital
and remained a leader. Others like Fuji or
Konica we don’t hear about anymore!