Course Introduction

- Week 1 -
Marketing Strategy 37000
Christopher Krohn

Copyright 2016
Christopher E. Krohn.
June 24/25, 2016 All rights reserved.

Agenda
Introduction
Customer Needs and Value
STP Process
3Cs Analysis
Course Framework
Course Mechanics
Case Analysis
Wrap-Up

1
 What is Marketing?

Common Misconceptions
Marketing Advertising Marketings scope is much broader,
although these are indeed tools
Marketing PR marketers use for promotional
Marketing Branding purposes

Marketing Sales Although good marketing should sell,

and your sales force is one key
marketing asset

Marketing A Department In many companies, the Marketing

department handles only a small
Marketing A Cost center subset of marketing tasks.

Marketing Soft Stuff Done professionally, marketing requires

both highly analytic and quantitative skills
Marketing Creative as well as intuitive and creative skills

2
Definitions of Marketing
Profitably influencing customer behavior Marketing is about
> Customers understanding
> Behaviors customers (needs,
behaviors), and
> Profits
taking actions
based on that
Profitably meeting customer needs understanding to
> Customers make a profit.
> Needs
> Profits

Fundamentally, what do businesses do?

Find and keep customers. Without customers,
there is no revenue, and therefore no profit --
the end goal of most businesses.

Without customers, all the assets, capabilities,

people and financial resources of the business
are useless.

Because its purpose is to find and keep customers, the business enterprise
has two and only two basic functions: marketing and innovation.
Marketing and innovation produce results; all the rest are costs.
-- Peter Drucker, management guru

3
Business: Conceptual Evolution
The Marketing Concept of running a business is relatively new.
The The The The
Production Product Selling Marketing
Concept Concept Concept Concept
Make products widely Make a better product Customers wont buy Understanding what
available and and people will buy it enough of our customers need and
inexpensive and products unless we then meeting those
Engineering-driven;
people will buy them aggressively sell and needs is the best way

create the better

Focus on efficiency
with limited regard for
service levels or
customer preferences
Example: Model T
Ford: Any color they
want as long as its
black
promote them to generate sustained
mousetrap or
profitability
interesting innovation Focus on selling what
you make rather than Focus on creating,
Internally focused with
on making what
delivering, and
limited regard for what
customers want to buy communicating value
the market might
to the customer
actually need Examples: Pre-rescue
GM, Gym Examples: Apple,
Example: Iridium from
memberships Dunkin Donuts
Motorola

Selling Concept vs. Marketing Concept

The difference between selling and marketing is that selling is getting
rid of what you have, while marketing is having what people want.
-- Theodore Levitt

The Selling Concept The Marketing Concept

Starting Factory / Capacity / Cost base Customers: Your target market

Point

Approach Inside-out: selling and promoting Outside-in: Integrated Marketing

(3Cs / 4Ps framework)

Key Sellers need to convert products Target customers needs for

Focus into cash / make a revenue number products and services

4
Scope of Marketing
The scope of Marketing includes any function or process necessary
to understand customer needs and then design, deliver, and
communicate products and services that meet those needs profitably.

Customer research Product / service management

Customer segmentation and R&D, new product
targeting development
Competitive intelligence Sales and sales management
Differentiation and Distribution channels
positioning Advertising, PR, Social media
Pricing Customer service
E-commerce Etc.

Marketing: Whos Responsible?

Marketing is the responsibility of every employee in the firm.
-- Jim Kilts, former CEO of Gillette

Marketing is too important to be left to the Marketing

department.
-- David Packard, co-founder of Hewlett-Packard

5
The Marketing-Driven Firm
The customer Marketing serves
is the central as the integrating
focus of the Marketing and coordinating
business. function for the
business. (This
may or may not be
Customer run by the

Others
Fina

Marketing
department.)
nce

All other functions

HR ns
ratio
support the
Ope Marketing function.

Agenda
Introduction
Customer Needs and Value
STP Process
3Cs Analysis
Course Framework
Course Mechanics
Case Analysis
Wrap-Up

6
Start With the Customer
The aim of marketing is to make selling superfluous. The aim of
Marketing is to know and understand the customer so well that the
product or service fits him and sells itself.
-- Peter Drucker

Everything starts with the customer.

-- Lou Gerstner, former CEO of IBM

Our purpose [as a company] is to improve the everyday lives of

the consumers we serve.
-- A.G. Lafley, former CEO of Procter & Gamble

Key Concept: Customer Needs

Every human being has needs. The psychologist Abraham
Maslow organized these into a hierarchy:

Self-Actualization Needs
(Self-development and realization)

Esteem Needs
(Self-esteem, recognition, status)

Social Needs
(Sense of belonging, love)

Safety Needs
(Security, protection)

Physiological Needs
(Food, water, shelter)

7
More About Customer Needs
Expressed within the context of a specific culture,
needs become wants.
Example: To satisfy his need for food a Thai might decide
he wants some Tom Yum soup, whereas a Mexican might
decide he wants an Enchilada.
Marketers tend to use the term Customer Needs to
describe both generic needs and culturally-specific wants.

Businesses have needs too, which vary by industry

and a variety of other factors.
In either case, needs often manifest themselves as
problems to be solved.
Example: A business might have a problem keeping
accurate counts of its inventory in a cost-efficient manner.

Solving Customer Problems

Marketers try to design solutions (i.e. products and
services) to solve customer problems and then sell these
to customers.

To do so, they add features to their products that provide

benefits to the customer by solving their problems.

A group of complementary features together may

strengthen a particular attribute of the product or service.
Example: A Ferrari has a powerful engine, aerodynamic design,
light body weight, and other features designed to give it a high
rating on the Speed attribute.

8
10 Basic Types of Products
1. Goods Equipment, materials, food, appliances, etc.
2. Services Transportation, consulting, legal advice, etc.
3. Experiences Travel, amusement parks, movies, etc.
4. Events Trade shows, sports events, state fairs, etc.
5. Persons Celebrities, politicians, job applicants, CEOs, etc.
6. Places Cities, countries, buildings, neighborhoods, etc.
7. Properties Real estate, IPOs, corporate bonds, etc.
8. Organizations Companies, NGOs, universities, political parties, etc.
9. Information News, data, analysis, research, stock picks, etc.
10. Ideas Political ideas, values, commercial concepts, etc.

Features, Attributes, Benefits and Needs

Needs / Wants Benefits Sought Feature / Attribute
I want to be Softer, smoother Contains aloe and
comfortable skin lanolin
Moisturizing
I want to feel sexy Healthy glow
attribute

I dont want a Keep safe from SPF 30

sunburn or skin suns harmful UV Protection
cancer rays attribute

9
Customer needs are multi-layered
I am looking for sunblock with SPF 15 (Feature/Attribute)
Why? So that I can be safe from the suns ultraviolet rays (Benefit)
Why? Because I want to picnic with my family and dont want to
get a sunburn (Need / Want) (Problem)

Why? Because I like Because we will Because we will

being with my eat yummy food fly a kite together
family

Why? I need to be I want to enjoy I want to feel

loved and to lifes simple carefree and be
love others pleasures a fun person

Key Concept: Customer Value

Value = Benefits - Costs
Acquisition, Installation,
Functional Usage, Ownership,
Benefits Maintenance, Disposal

Emotional Monetary Costs

Benefits

Time Costs
Energy Costs
Psychic Costs

10
 The Traditional Value Chain
Supplier Industry Buyer

Industries
Industries
Competition

Service
Inbound Mfg/ Outbound Marketing
and
Logistics Ops Logistics and Sales
Support
HR
IT
Finance & Accounting
Legal
Admin, Purchasing, Other

Key Concept: Differentiation

It is not enough to simply deliver value. The value you deliver must be
differentiated (i.e. better than) the competition on one or more key
dimensions that drive customer purchase behavior.

Product Services Personnel Channel Image

Form Ordering ease Competence Coverage Symbols
Features Delivery Courtesy Expertise Media
Performance Installation Credibility Performance Atmosphere
Conformance Customer Reliability Events
Durability training Responsive-
Reliability Consulting ness
Repairability Repair / Communication
Style Maint.
Design
Source: Kotler, P. Marketing Management, 10th Ed. (Prentice Hall, 2000)

11
Why Differentiate? Marketers:
Differentiate
Or Die!
Differentiation = --Jack Trout

Market Power, especially Pricing Power

In other words, Profits

How profitable is a customer?

One-time transaction model vs.
a series of transactions over time.
One-time transaction: Must make a profit on every transaction
Series of transactions: Must make a profit over the lifetime of the
customer: Customer Lifetime Value
$

Key Concept:
Relationship
Marketing
1 2 3 4 5

1 2 3 4 5

12
Marketing is About
Understanding customer needs and
problems
and then forming a relationship to deliver
solutions for those problems that provide
benefits greater than their costs in a
differentiated way.

In other words, delivering value to customers

and generating profits for the firm.

Agenda
Introduction
Customer Needs and Value
STP
Process
3Cs Analysis
Course Framework
Course Mechanics
Case Analysis
Wrap-Up

13
 Are All Customers Equal?
Customers may not have homogenous needs and
preferences
Some customers are worth more than others
Competitors may be better positioned than you to
serve certain customers
At some level, businesses face capacity constraints

Businesses choose which customers to serve

(and / or customers choose for them)

The Everybody Trap

How well would you be likely to do if you tried to market
the same brand of beer to every potential customer?
Some want a beer that is light and easy-drinking Companies:
Some want a beer that is complex, hoppy and bitter
Choose
or
Some want a beer that is low in calories
Lose!
Some want a beer that is dark, sweet, and malty
Some want a beer that is powerful (i.e. high in alcohol)
Some want an alcohol-free beer
Some want a beer with a fancy image to impress their friends
Some just want the cheapest beer they can buy
Etc.

14
The Practical Essence of Strategy
Making choices

Managing trade-offs

Influencing the environment

Proprietary, Competitive Results

How to Choose the Right Customers?

Usually not practical to make an upfront decision regarding every
potential customer individually, so marketers divide up customers
into groupings referred to as
> Customer Segments
The process of analyzing the market and creating these customer
groupings is called
> Customer (or Market) Segmentation
Marketers then pick and choose from these groupings to identify
> Target Segments

15
Segmentation Variables (Example)
There are many ways to group the market into segments. For
example, here are just a few variables that a manufacturing firm might
consider when determining which customers to target:

Geography: Are they close enough to one of our

distributors to serve economically?
Sales Potential: What is the total value of their annual
purchases of equipment, services and parts?

Purchase Process: Is their purchase decision made at the plant

or at headquarters?

Customer Needs: Are they more concerned about initial price

or lifetime cost of ownership?

After Segmentation, Then What?

After selecting target segments, marketers determine how they
ideally want to be perceived by their customers -- in a manner
that is positively differentiated from the competition. This process
is called
> Positioning
Marketers then attempt to create this perception in the targets
mind and deliver value in a manner consistent with the chosen
positioning. This leads marketers to tactical implementation of a
marketing mix, traditionally represented as the
> 4Ps (product, price, place, promotion)

16
Marketing Strategy: High-Level Process

1. Segmentation 2. Targeting 3. Positioning

Identify Evaluate the Identify possible

segmentation attractiveness of positioning
variables and each segment concepts for each
segment the market target segment
Select target
Develop profiles of segment(s) based on Select and develop
resulting segments your firms ability to your positioning,
(needs, attitudes, meet their needs and then deliver on it
behaviors, beat the competition (4Ps)
demographics, etc.) profitably

Agenda
Introduction
Customer Needs and Value
STP Process
3Cs Analysis
Course Framework
Course Mechanics
Case Analysis
Wrap-Up

17
Marketing Strategy: High-Level Process

1. Segmentation 2. Targeting 3. Positioning

Identify Evaluate the Identify possible

segmentation attractiveness of positioning
variables and each segment concepts for each
segment the market target segment
Select target
Develop profiles of segment(s) based on Select and develop

resulting segments your firms ability to your positioning,

(needs, attitudes, meet their needs and then deliver on it
behaviors, beat Requires
the competitionAnalysis (4Ps)
of the
demographics, etc.) profitably
Customer

Segment Profiling
Size and Growth Behaviors
current size, growth rate by buying patterns
segment (CAGR) decision process
revenue and profit potential brand loyalty
customer concentration use of substitute / competitive products
geographical, industry breakdowns channel preferences
category and product knowledge
Needs media use
benefits sought
underlying needs drivers Goal:
customer ideal points Develop a deep
price sensitivity
understanding of each
segment for targeting,
psychographic profiles
positioning, 4Ps

18
 Understanding Customer Needs
Effective marketing relies on a clear understanding
of customer needs.
1) The product benefits each segment is seeking
2) The underlying needs that drive the targets behavior

In most cases, market research is a must!

Marketing While Blind

(Or what can happen when you dont understand customer needs)
Scene: 1976; The General Motors Building, Detroit Michigan
Market Research Consultant:
[With insights regarding key trends in the market] Small cars. You gotta get ready. Small cars
are coming.
Top GM Marketing Executive:
[Walks over to window, looks out at parking lot.] I dont know what youre talking about. I dont
see any small cars.
Researcher:
You dont see any small cars because were in the GM Building in Detroit, Michigan, in the
Midwest. People out here are all driving big iron.
GM Executive:
[Gives researcher scornful look.] I dont believe it. I dont see any small cars.

END OF DISCUSSION. END OF GMs DOMINATION OF THE U.S. CAR MARKET.

Source: K. Clancy and P. Krieg, Counterintuitive Marketing (The Free Press: 2000)

19
The Product Lifecycle
$ Sales

Profits

Intro Growth Maturity Decline

A concept / framework, not a rule that all products must follow

Some products follow different patterns, especially fashion-oriented
products, or those products for which new uses are found (such as a
blood pressure drug that is found to help prevent hair loss)

Can be applied to a product category (data communications), a product

form (leased lines), a product (T1 line), or a brand (AT&T)

Customer Insight is the Key

Customer Effective
Research, Customer Marketing
Analysis, Insight Competitive
Feedback Advantage

20
Generating Customer Insights
Anecdotal Feedback Qualitative Research Quantitative Research
Obtained from sales Obtained from focus Obtained from surveys,
force, customer service, groups and behavioral data,
user groups, and observational studies experimental research
customer meetings and secondary sources
Useful for helping form
Can be leading indicator hypotheses to test in Allows for systematic
of emerging issues (e.g. quantitative research testing of hypotheses
customer complaints) segmentation generated by other
variables research methods (or by
May produce insights
customer wants and managements intuition)
regarding a specific
needs
customers needs If done right, gives you
positioning concepts
numbers you can bank on
Dangerous to new product ideas or
for targeting, budgeting
extrapolate usage opportunities
and forecasting

Marketing Strategy:
Requires Analysis of your High-Level Process
Company and
Competitors
1. Segmentation 2. Targeting 3. Positioning

Identify Evaluate the Identify possible

segmentation attractiveness of positioning
variables and each segment concepts for each
segment the market target segment
Select target
Develop profiles of segment(s) based on Select and develop
resulting segments your firms ability to your positioning,
(needs, attitudes, meet their needs and then deliver on it
behaviors, beat the competition (4Ps)
demographics, etc.) profitably

21
Top 10 Facts for Strategy
Customers
1. Customer segmentation
and profiles (size, growth,
needs, behaviors,
profitability)
2. Channel / sales
breakdowns (size, growth,
profitability, effectiveness)
Competitors / Context
3. Relative profitability of
each value chain activity
4. Relative market shares,
profitability of top
competitors
5. Competitor sources of
differentiation, profit and
reinvestment
Company
7. Relative cost position
(company vs.
competitors)
8. Current profitability (by
product, by customer, by
channel)
9. Price and cost
experience curves

6. Key start-ups / new 10. Core competencies /

entrants / substitutes capabilities vs.
competitors
Source: Bain & Company

Agenda
Introduction
Customer Needs and Value
STP Process
3Cs Analysis
Course Framework
Course Mechanics
Case Analysis
Wrap-Up

22
Course Framework
3Cs Customer, Company and
Competitor Analysis

STP Segmentation, Targeting and

Positioning Strategy

4Ps Product, Price, Promotion

and Place Marketing Mix

4Ps: Traditional Marketing Mix

Marketing Mix
Product Place /
Product variety Channel
Quality Direct sales
Design Distributors
Features E-Commerce
Price Promotion
Brand name Market Coverage
List price Sales promotion
Image Assortments
Discounts Trade promotion
Packaging Locations
Allowances Advertising
Sizes Inventory
Add-ons Sales force
Experience Transport
Payment terms Public relations
Services Channel services
Credit terms Direct marketing
Warranties
Web site
Returns

23
Marketing is Everything
Marketing today is not a function; it is a way of doing business.
Marketing is not a new ad campaign or this months promotion.
Marketing has to be all-pervasive, part of everyones job description,
from the receptionists to the board of directors. Its job is neither to
fool the customer nor to falsify the companys image. It is to integrate
the customer into the design of the product and to design a
systematic process for interaction that will create substance in the
relationship. Marketing is everything, and everything is Marketing.

-- Regis McKenna in Harvard Business Review Jan/Feb 1991

Agenda
Introduction
Customer Needs and Value
STP Process
3Cs Analysis
Course Framework
Course Mechanics
Case Analysis
Wrap-Up

24
Course Schedule Section 81
Week 1: 6/24 Course Introduction Week 6: 7/29 Product Management
New York Times Paywall
Week 2: 7/1 Customer Analysis and
Segmentation Week 7: 8/5 Pricing
Hart, Schaffner & Marx Optical Distortion, Inc.

Week 3: 7/8 Company and Competitor Week 8: 8/12 Promotion

Analysis Pepsi - Lipton Brisk
Barco Projection Systems
Week 9: 8/19 Course Review
Week 4: 7/15 Targeting and Positioning Group Case Write-up Due:
Colgate-Palmolive Precision Biopure Corp.

Week 5: 7/22 Sales and Distribution Channels: Week 10: 8/26 No Class: Final Exam Due
Place (Individual Case Write-up)
Group Case Write-up Due:
Calyx & Corolla

Course Schedule Section 85

Week 1: 6/25 Course Introduction Week 6: 7/30 Product Management
New York Times Paywall
Week 2: 7/2 Customer Analysis and
Segmentation Week 7: 8/6 Pricing
Hart, Schaffner & Marx Optical Distortion, Inc.

Week 3: 7/9 Company and Competitor Week 8: 8/13 Promotion

Analysis Pepsi - Lipton Brisk
Barco Projection Systems
Week 9: 8/20 Course Review
Week 4: 7/16 Targeting and Positioning Group Case Write-up Due:
Colgate-Palmolive Precision Biopure Corp.

Week 5: 7/23 Sales and Distribution Channels: Week 10: 8/27 No Class: Final Exam Due
Place (Individual Case Write-up)
Group Case Write-up Due:
Calyx & Corolla

25
Grading
Individual Performance 60%
Class Participation: 15%
Final Case Exam: 45%

Group Work (written case analyses) 40%

Calyx & Corolla: 20%
Biopure 20%

A minimum attendance of 80% is mandatory to receive a passing

grade unless otherwise authorized by the instructor. This class
cannot be taken for a pass/fail grade.
Note: Please refer to the Syllabus for detailed information regarding grading and other course policies

Agenda
Introduction
Customer Needs and Value
STP Process
3Cs Analysis
Course Framework
Course Mechanics
Case Analysis
Wrap-Up

26
4Ps of Case Discussions
Preparation The Syllabus provides detailed instructions on how to
prepare a case for class. The most important factor,
however, is to allow yourself enough time to prepare!

Presence Attendance is critical, both for your own learning and for
the contributions you can make to our learning community
in class.

Promptness Please do not disrupt the class by being late (or with cell
phones, pagers, etc.)

Participation Your participation is crucial. Participating actively forces

you to make clear, persuasive arguments for your
position, improves your analysis and decision-making
skills and enhances the experience of your classmates.

Analyzing Cases
Your high-level goals should be:
1) Identify the key issues in the case
2) Formulate a plan of action to address the key issues

After your first or second run-through of the case, try to formulate

a hypothesis regarding the best course of action.

Then, try to prove (or disprove) your hypothesis correct. Do the

facts in the case support your hypothesis? If not, revise your
hypothesis accordingly.

Finally, consider how you will persuade your colleagues that your
approach is the best way to address the key issues in the case.

27
 Hypothesis-Driven Approach
Company should launch the
Your Hypothesis anti-heartworm dog food
Heartfuls
nationwide
Assertions that,
if true, prove Market is attractive, growing, Company is well-positioned to Results of test market highly
and profitable succeed with this product encouraging
your hypothesis
correct Dog ownership growing (8% Consumers rated Company the 85% participation rate in trial by
CAGR 2011-2015) #1 brand on health-related pet stores in test market, 93%
63% of dog owners cite attributes for seven straight participation by vets
Facts and heartworm as #1 or #2 health years (high brand credibility) Strong consumer response to
analysis that concern Company also rated #1 by Companys $2.50 coupon trial
Only 18% of dog owners veterinarians for best line of offer for Heartfuls 10lb. bag
prove the satisfied or very satisfied therapeutic pet products Repeat purchase rate of 32%;
assertions to with current heartworm Company owns patents on best among high-income
be accurate prevention options Heartfuls production technology
and therapeutic formulation
frequent buyers of premium
brand pet foods
Premium, health-oriented dog
foods generate on average a Company has strong nationwide 96% endorsement rate for
29% gross profit margin distribution in both pet store and veterinarians in trial program
vet channels

After Each Case

Debrief with yourself and your study group
regarding what you learned:
Key marketing issues facing the firm
Marketing concepts, frameworks and analytic
techniques for addressing these issues
Pros and cons of various approaches

Consider how these lessons might be used to

improve the performance of your business.

28
 CAGR Calculations
CAGR = Compound Annual Growth Rate (%)
1
Vn n
CAGR = V1
- 1
Where:
V1 = Starting value in period 1
Vn = Ending value in period n
n = number of periods over which growth rate is being measured

Regression Analysis
An analytic technique that in simple linear regression attempts to find the
line that is the best fit to indicate the relationship between two variables.
300
Y = 6.6X 275.5 Height: Independent
R2 = 0.56 Variable (X-axis)
250
Weight (Pounds)

Weight: Dependent
200 Variable (Y-axis)
Blue line: Regression Line
150
Y = 6.6X 275.5
100 Regression Equation
R2: A statistic that indicates
50
the % of variance in Y that
55 60 65 70 75 80
can be explained by the
Height (Inches) variance in X (0.56 = 56%)

29
Break-Even Analysis
An analytical approach used to determine how much unit
volume is required to break even on a given initiative
1. Break even occurs when Total Revenue = Total Cost
Total Revenue at break even = Unit Price * BEV (Break Even Volume)
Total Cost = Fixed Cost + Total Variable Costs
Total Variable Costs at break even = Unit Variable Cost * BEV
2. Therefore, break even occurs when:
Unit Price * BEV = Fixed Cost + Unit Variable Cost * BEV
3. Solving for BEV:
Fixed Cost
BEV =
Price Variable Cost

Key Term: Margin

Margin Loosely used as a synonym for profit, sometimes in $ terms,
sometimes in % terms. When used in % terms, there are two
different approaches to calculating margin:
1. Margin on Cost (or Markup*): (Price Cost) / Cost
2. Margin on Price: (Price Cost) / Price

Gross Margin Net Sales Cost of Goods Sold

Contribution Units contribution against fixed costs (Revenue Variable

Margin Costs). Although not correct from an accounting standpoint,
sometimes used interchangeably with Gross Margin.

Net Margin An imprecise term used to indicate the profit of an item after
subtracting both variable costs and some allocation of fixed costs.
* More correctly but less commonly referred to as Mark-on. Technically the term Markup should be used to
refer only to an increase in an items selling price relative to its initial selling price. Yet the term Markup is
commonly misused in the context given here as a synonym for Mark-on.

30
 Cannibalization and Relative Margins
When introducing a new product, companies are often concerned with
cannibalization of sales of their existing products.

If the new product has higher margins than the existing product,
cannibalized sales will result in higher profits.

If the new product has lower margins than the old product, the company
will have to sell more of the new product than the old to make up for the
lost margins.

So, if the incremental margins from sales of the new product are greater
than the cannibalization loss of old sales, the companys overall profits
will increase. If not, the companys overall profits will be lower.

In some cases, even if overall profits will be lower, the firm will still go
ahead with the new product if it believes that the sales of the old product
would be lost to competitors in any case.

Relative Contribution Analysis

Cannibalization Loss A: Old Product
MA B: New Product
QA:
$ Margin

Sales of A before
QB introduction of B
MB Incremental QA*: Sales of A after
Gain introduction of B
QB: Sales of B
MA: $ Margin of A
Q A* QA Q A* + QB MB: $ Margin of B
Unit Sales

Goal: Total margins on sales of B > Total lost margins on cannibalized sales of A
QB x MB > (QA QA*) x MA
QB One approach: Work to achieve a target
MA
> ratio based on expected unit sales of B
QA QA* MB vs. expected unit cannibalization of A

31
Sensitivity Analysis
Most marketing analyses rely on imperfect information, and marketers must therefore make
assumptions regarding any number of factors.

Often, these assumptions involve predicting future outcomes

Examples: What percentage of customers will adopt a new product and how quickly will they
do so? What actions are competitors are likely to take in response?

In some cases, getting an assumption wrong has little effect on the final answer.
Example: If a purchased part is estimated to cost $50, but the total manufacturing cost of the
product is $50,000, an error on your cost estimate for that part of 100% or even 200% is
unlikely to make much difference in your decision on whether to proceed with the product.

For other estimates, even minor fluctuations can have a significant impact.
Example: In a highly price-sensitive market, the actual sales of the product may be highly
dependent on how much independent distributors markup the price of the product. Small
changes in your estimate on this markup may result in large fluctuations in estimated revenue.

Testing your assumptions to identify those to which your answer / recommendation is particularly
sensitive is an important analytic technique in choosing a course of action and for identifying the
risks of your recommended approach.

Agenda
Introduction
Customer Needs and Value
STP Process
3Cs Analysis
Course Framework
Course Mechanics
Case Analysis
Wrap-Up

32
Course Introduction: Summary
There are many common misconceptions about Marketing. In fact, Marketing
encompasses all functions and processes necessary to find and keep
customers and deliver customer value. Marketing is Everything.

The Marketing Concept of the firm is relatively new and states that businesses
should focus primarily on understanding and meeting customer needs.

To meet customer needs profitably, firms must choose the target segments
they intend to serve and do so in a manner that is differentiated from the
competition. Often, customer profitability increases over time as the
relationship with the customer grows.

Marketers employ an Integrated Marketing framework to organize their

activities. This framework traditionally begins with the 3Cs (Customer, Company
and Competitor analysis), which inform decisions regarding Segmentation,
Targeting, and Positioning. Marketers then implement their strategy using the
four elements of the marketing mix: Product, Pricing, Place, and Promotion
(the 4Ps).

Course Introduction:
Questions for Your Business
Which concept does our business operate under Production, Product,
Selling, or Marketing?

Which Marketing functions (pricing, competitive intelligence, product

development, sales, customer service, etc.) are actually managed by
the marketing department in our business? Who handles the others?

How well are these functions coordinated / integrated? Who, if anyone,

is responsible for keeping the entire firm focused on customer needs?

Does our company have a specific target market it is attempting to

serve? What are our key points of competitive differentiation in serving
this market? What benefits do our products and services provide in
terms of meeting customer needs?

33