MARKETING MANAGEMENT

Dr. Ahmed A Shalaby 2012

Learning Levels
Cognitive Knowledge Application Diagnosis / Trouble-shooting Creating new knowledge / Theory

Course Objectives
y Determine the role of marketing in various organizations. y Analyze the marketing environment to identify opportunities and threats relevant to the design and implementation of the marketing effort. y Analyze the market, design market segments and target those segments which help to achieve corporate objectives and strategies. y Formulate marketing strategies and plans, including positioning and designing the marketing mix. y Develop implementation plans and evaluation systems for the firms marketing effort. 3

Marketers F.A.Q.s
1. 2. 3. 4. 5. 6. 7. 8. Which market (segment's) to serve? How can we differentiate our product / service? How can we compete against lower-price competitors? How far should we go in customizing our offering for each customer? How can we grow our business, profitably? How can we maximize the value from our customer relationship? How can we maximize the effectiveness of our marketing expenditures? How can we create / enhance customer orientation throughout the company?
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Course Outline
I. II. III. IV. V. VI. VII. VIII. IX. Introduction From corporate strategy to marketing strategy and plan Creating customer satisfaction and loyalty Buying behavior and the marketing information system Competitive analysis and competitive strategy Market segmentation and targeting Market positioning Branding Marketing mix decisions
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1. How does marketing create, deliver and communicate

value to target customers?

2.

What are the key marketing processes:? (what marketers do)

3. What is the role of core competencies in creating

sustainable competitive advantage?

4.

What are Mega trends? Are they threats and/or opportunities? Predicting relevant trends, managing our response to them.
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What is Marketed?
Goods Services Events Customer experiences Persons Places Properties Organizations Information Ideas
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Competitive Advantage
Competitive advantage/edge: A company's ability to perform in one or more ways that competitors cannot or will not match. Marketing focuses on advantages relevant to customers. How to create and sustain it? By fitting a companys core competencies and distinctive capabilities into operational systems for value exploration, creation and delivery in ways that are hard to imitate by competitors. Absolute sustainability is impossible in a competitive market; you need to continuously leverage and augment your present advantages 8

Core Competencies
A core competence is a combination of complementary skills and knowledge bases embedded in a group or team that results in the ability to execute one or more critical processes to a world-class standard.

What is Marketing Management?

Marketing management is the art and science of: choosing target markets, getting, keeping, and growing customers through Creating, communicating, and delivering superior customer value
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Value Creation Processes

1. Value exploration: understanding the relationships and interaction among three spaces: Target customers needs and preferences (This is largely a creative process. Often consumers cant express their needs and wants) Companys competencies Channel collaborators resources
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Value Creation Processes (cont.)

2. Defining the business concept / big idea 3. Translating the concept into a specific line(s) of business 4. Creating a brand identity and positioning it.

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Value Delivery Processes

Internal resources mobilization & management Business partner management Customer relationship management (CRM)

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Value Communication Processes

Advertising
Personal selling Sales promotion Public relations

Marketing Processes Deliver Value to Customers: examples

Market sensing processes New product development Customer acquisition Customer relationship management Order fulfillment Managing distribution channels

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Key Marketing Management Competencies

STRATEGIC SKILLS
y Discovering and assessing needs y Managing customer relations y Matching customer needs with business competencies & resources y Managing sales effort y Leading individuals and teams y Influencing and persuading y Analyzing the interaction between internal and external factors y Distribution & logistics operational skills

OPERATIONAL SKILLS

y Analyzing competitive behavior

y Creating strategic options, evaluating them and selecting best option y

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 Globalization Deregulation

Accelerated change in technology Mass Customization

Privatization Industry Convergence

Dis-intermediation Dis-

Do they represent opportunities and/or threats? How should 17 we face these trends?

 Needs, wants, and demands Market segmentation, targeting, positioning. Offering, product, service and brands Customer delivered value, expectations, satisfaction

Distribution channels Competition Marketing environment Task (markets & competitors) Broad (PESTLE) Marketing planning and plans
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The Four Cs Marketing Mix Product

Customer Solution Place Convenience Price Customer Cost Promotion Communication
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The Role of Marketing in the Company

Production Marketing
Customer

The customer is the focal point Marketing is the integrative function

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II- FROM CORPORATE TO MARKETING STRATEGY

1. 2. 3. 4.

What is Strategy: examples. What is strategic management? Define strategic and operational plans. How are they related? What are the levels of strategic management? (Corporate, business unit, functional , product or market) What are the tools for strategic analysis? (e.g. portfolio models, Porters five forces model, growth models, SWOT analysis). How can we use them to formulate strategies? What are the steps for strategic marketing? How do we measure marketing performance?

5. 6.

In preparing for battle I have always found that plans are useless but planning is indispensable Dwight Eisenhower Why?
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What Business Are We In? Product-Oriented versus Market-Oriented

Company
Railroad Company Xerox Standard Oil Columbia Pictures Encyclopedia

Product Definition
We run a railroad We make copying equipment We sell gasoline We make movies We sell encyclopedias

Market Definition
We are a people-andpeople-andgoods mover We help improve office productivity We supply energy We market entertainment We distribute Information
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Market-Oriented Strategic Planning Integrating Intuition & analysis

When is strategic analysis relevant? Uncertainty, including competition Flexibility is necessary Objectives Resources

Strategic Fit Core Competencies

Opportunities

What is the relationship between strategic planning and operational planning?

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What is strategy
Long term choices to achieve long term objectives/goals Strategy is:
Company specific time/situation specific Value adding only after implementation

Strategy is not:
Business principles / best practices Static One optimum / best solution

Levels of Strategic Planning

Corporate Strategic business unit (SBU). * Pros and cons Functional (e.g. Marketing strategies) Product / Market
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Strategic vs Operational Competence

Strong Strong

Weak

1. Thrive

2. Die slowly

Weak

3. Survive

4.Die quickly
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Planning Process

External Audit Vision & Mission SWOT Goals Strategies Operational Planning Feedback & Control

Internal Audit

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Planning as a process
Business Mission /Vision. E.g. Google mission: To organize the worlds information and make it universally accessible and useful; Accenture: Innovation delivered. Strategic Analysis (e.g. competitive forces analysis, portfolio analysis, SWOT analysis, Product/market growth modeling) Goal Formulation (SMART) Corporate strategy Formulation (e.g. cost leadership, differentiation, focus, strategic alliances, growth strategies). Marketing strategy formulation (segmentation, targeting and positioning, marketing mix) Program formulation / operational planning Implementation Feedback, Control and Corrective Action.

Need for continuous scanning of key environmental variables and maintaining flexibility in strategic planning.

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Porters Generic Strategic Approaches to Competitive Advantage

Overall cost/efficiency leadership. How? (economies of scale, modify supply chain, lean manufacturing..) Differentiation. How? (Strong branding, in-depth understanding of customers, unique quality)

But how well do you implement the selected strategy?!

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Marketing Alliance Strategies

Product or Service Alliances. Promotional Alliances. Logistical Alliances.

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Marketing strategic and operational planning processes

I. Define relevant market boundaries

II. Analyze the situation: 1. Product/portfolio analysis 2. Competitive analysis 3. Sources of growth 4. SWOT analysis III. Segmentation, targeting and positioning IV. Marketing mix formulation
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V.

Designing tools for monitoring and control

Portfolio Models: How healthy is your portfolio of SBUs or Products?

THE MODELS HELP TO:
DIAGNOSE THE HEALTH OF THE PORTFOLIO GUIDE RESOURCE ALLOCATION (build, hold, harvest or divest) IMPROVE CASH FLOW MANAGEMENT

FOCUS ON TWO DIMENSIONS

Market attractiveness (market size, market growth, profitability, competition etc.) Business strength (market share, share of growth, product quality, unit costetc.)

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Portfolio Models: Boston Consulting Group Growth-Share Model

Stars
Market Growth Rate

Question Marks

4 5
Cash Cow

2 1
Dogs

High

>1

1 Relative Market Share

<1

Low
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This analysis covers the past, what about the future?

STRATEGIC ALTERNATIVES
Build :
Here the objective is to increase the SBU's market share, even foregoing short-term earnings to achieve this objective. "Building" is appropriate for question marks whose shares have to grow if they are to become stars.

Hold :
Here the objective is to preserve the SBU's market share. This objective is appropriate for strong cash cows if they are to continue to yield a large positive cash flow.
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STRATEGIC ALTERNATIVES (cont.)

Divest : Here the objective is to sell or liquidate the business because resources can be better used elsewhere. That is appropriate for dogs and question marks that are acting as a drag on the company's profits.

Harvest :
Here the objective is to increase the SBU's short-term cash flow regardless of the long-term effect. This strategy is appropriate for weak cash cows whose future is dim and from whom more cash flow is needed. Harvesting can also be used with question marks and dogs.
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Growth Strategies: Ansoffs Product/Market Expansion Grid

A) Intensive Growth: within current business)

Existing products 1. Market penetration

New products 3. Product development

Existing markets

New markets

2. Market development

4. Diversification

B) Other Strategies for growth: Integrative growth (vertical, horizontal) Diversification growth

Sequence depends on expected moves by 36 competitors

SWOT analysis
External Analysis
Opportunities Threats

Internal Analysis
Strengths Weaknesses Use check-lists (e.g. PESTLE analysis: political, economic, social, technological, legal, ecological; Management audits). Look for interactions among internal and external factors.
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Opportunity Matrix
Success Probability
High Low

Attractiveness

High

Low

4
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Threat Matrix
Probability of Occurrence
High Low

Seriousness

High

Low

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Internal Analysis: Strengths & Weaknesses

(actual and potential)

Marketing and customer equity Finance Manufacturing / operations Organization Focus on those S&Ws that: are critical to achieving company vision / long term goals have the greatest interaction with O&T. Describe those 40 interactions.

Translating SWOT issues into actions

Strengths (maintain, build and leverage) Opportunities (prioritize and optimize) Weaknesses (remedy or exit) Threats (counter) Do TOWS analysis (next page)
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SWOT/TOWS ANALYSIS (Interactions)

Internal External
STRENGTHS S1 .. S2 .. S/O WEAKNESSES W1 . W2 . .

OPPORTUNITIES O1 .. O2 ..

W/O ACTION STRATEGIES ACTION STRATEGIES to overcome weaknesses to to use strengths to exploit enable the organization to exploit opportunities (e.g. opportunities (e.g. S1/O2) W2/O1) S/T W/T STRATEGIES to overcome weaknesses to enable the organization to 42 deal with threats

THREATS T1 . T2 .

ACTION STRATEGIES to use strengths to deal

Prioritizing Strategies
Attractiveness (1-5) Strategies/Strategic Initiatives Cost Implement Revenue ability potential Market share Total score

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The Marketing Plan: Outline

Executive Summary & Table of Contents Describe Current Marketing Situation (market, product, competition, distribution, macro environment) SWOT Analysis, strategic issues/opportunities

Objectives
Marketing Strategy (segmentation, targeting, Positioning, 4 PS) Operational plan and budget Projected Profit-and-loss
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Controls

The Control Process

Goal setting
What do we want to achieve?

Performance measurement
What is happening?

Performance diagnosis
Why is it happening?

Corrective action
What should we do about it?

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Measuring Marketing Performance

Defining marketing metrics / KPIs (e.g., awareness, market share) Measuring marketing plan performance Sales analysis Market share analysis Marketing productivity Profitability analysis: Prepare a profit and loss statement for each marketing entity. Determining corrective action.
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Additional Marketing Metrics

New customers/Average no. of customers % Lost customers/Average no. of customers % Win-back customers/ lost customers% Customers willing to recommend product/Average no. of customers % Percentage of customers who correctly identify product intended positioning %

III. Creating Customer Value, Satisfaction And Loyalty

1. 2. 3. 4.

Define customer satisfaction and customer loyalty. What are the drivers of customer satisfaction and loyalty? How do we measure and track customer satisfaction? How do we use the data? How do we use value delivery networks to achieve customer satisfaction and compete effectively? How should we manage relationships with different types of customers for maximum customer equity and marketing productivity? What are the dangers and challenges facing CRM implementation?
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Determinants of Customer Delivered Value

Image value Personnel value Services value Product value Monetary cost Time cost
Energy cost

Total customer value Customer perceived value Total customer cost

Psychological cost
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Which competitor delivers the highest perceived value as perceived by customers?

Satisfaction and Loyalty

Satisfaction is a persons feelings of pleasure or
disappointment resulting from comparing a products perceived performance with his or her expectations (based on the value proposition).
Need to manage expectations. Satisfaction is multi-dimensional

Loyalty is a deeply held commitment to re-buy or re-patronize a preferred brand in the future despite situational influences that may cause switching behavior. One o the strongest indicators of brand loyalty is the readiness to pay a premium price.
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Satisfaction and Loyalty

The link between customer satisfaction and customer loyalty is not proportional (straight line). Xerox found out that its completely satisfied customers were six times more likely to re-purchase Xerox products than its very satisfied customers. Can the marketer influence perceived performance?

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Satisfied Customers
Are loyal longer. Buy more (new products & upgrades). Spread favorable word-of-mouth. Are more brand loyal (less price sensitive). Offer feedback. Reduce transaction costs.
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TOOLS FOR TRACKING CUSTOMER SATISFACTION

Customer satisfaction surveys / customer satisfaction indexes.

Complaint and suggestion system Mystery shoppers Lost customer analysis and recovery effort. Monitoring competitors customer satisfaction
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Customer Development
Potentials

Prospects

First-time customers

Repeat customers

Clients

Advocates

Partners

Disqualified prospects

Inactive or ex-customers

CAN YOU MEASURE THE LIFETIME VALUE OF YOUR CUSTOMERS? 54

Estimating Lifetime Value

Annual customer revenue: $500 Average number of loyal years: 20 Company profit margin: 10% Customer lifetime value: $1000

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Tools to improve loyalty

Interaction with customers: dialogues and trialogues (three way communication)

Developing loyalty programs

Personalizing marketing (e.g. Dell customized computer ordering)

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Customer Relationship Management (CRM): Concept & Technology

Building relationships with valued customers to maximize their long term value and profitability (customer differentiation?)

CRM as a planning tool CRM as a tool for efficient execution

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The Concept of CRM

All businesses, when they first start, focus on the needs of their customers. As businesses get larger and more complex, they often lose customer focus. With CRM, the individual customer becomes important once more at an acceptable cost to the company. Through information technology, we can obtain the right information at the right time. The marketing effort becomes more focused and productive. 58

Objectives OF Customer Relationship Management (CRM)

Maximize the value of the companys customer base through: Increasing longevity of customer relationship Enhancing growth potential of each customer through crossselling and up-selling Making low profit or unprofitable customers more profitable or terminating them. More focus on high value customers. REMEMBER THAT CUSTOMER VALUE AND PROFITABILITY OFTEN CHANGE OVERTIME
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CRM: The Basic Process

1. Identify your customers and prospects 2. Differentiate them; their needs, their value 3. Interact with them to strengthen and deepen relationships. 4. Customize your products, services and messages to customers What is included in the customers data base, other than names, addresses and telephone numbers? From where do we get this info? Touch points. Under what conditions does CRM investment makes economic sense?
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Customer/Product Profitability Analysis (A banking example)

Customers
C1 C2 C3

P r o d u c t s

P1 P2 P3 P4

+ + +
High profit customers

Highly profitable product

- MixedMixed-bag customers Losing customers

Profitable product Losing product Mixed-bag product

WHAT SHOULD WE DO WITH UNPROFITABLE CUSTOMRS? ( RAISE FEES, CHANGE SERVICE, SUPPORT TO REDUCE COST, ELIMINATE?)
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IS PAST OR FUTURE PROFITABILITY MORE IMPORTANT?

CRM Check List

 Do you help your employees to fulfill customer needs regardless of where in your company they are working?  Do your customers receive a high level of service no matter which channel they decide to use?  Do you proactively and intelligently inform customers about products and services they will be interested in, and still keep your marketing costs under control?  Do you know who your most profitable customers are? Do you have the strategy and tactics in place to keep them?  Is the value added by CRM worth the large investment?
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Downside of data base marketing and CRM

1) High investment cost 2) Staff failure to utilize the system fully; failure to align with other internal systems 3) Customers privacy concerns 4) Closer relationship doesnt always translate into higher profitability

AN ONGOING PROCESS
 Customer Relationship Management is a ongoing, dynamic learning process for an organization  No organization has perfect information on its customers. Knowledge of customers is continuously enhanced through the CRM dynamics.  Make sure that your customers dont feel a threat to their privacy.
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IV. Understanding Buying Behavior

1. How do we learn about buying behavior? (theory vs.

empirical research) How rational is buyer behavior?

2.

What are the different roles played during the buying process? What are the managerial implications?

3. What are the steps in the buying process? 4.

Do all buying processes involve the same degree of complexity?

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Overall Conceptual Model of Consumer Behavior

Buying Roles Initiator Influencer Decider Buyer User

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Four Types of Buying Behavior

High Involvement Significant differences between brands Few differences between brands Low Involvement

Complex
(criteria, beliefs, attitudes, choice)

Switching to seek variety-

Attempts for dissonance Reduction

Habitual

What is the strategy of the market leader and market challenge in each case?
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Consumer Buying Process

Need recognition Information Search
Sources: personal, commercial, Public, experiential

Evaluation of alternatives Purchase decision Post-purchase behavior

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Decision Making Sets

Total sets
IBM Apple Dell HewlettPackard Toshiba Compaq NEC Tandy -

Awareness set
IBM Apple Dell Hewlett-Packard Toshiba Compaq

Consideration set

Decision

IBM Apple Dell

But, dont forget that this is an open system

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Evaluation of alternatives

Which attributes (criteria) are important? Beliefs about brand attributes (brand image) Attitudes / preferences toward brands (formed partly through the evaluation of brand attributes) How can the marketer influence these processes to his companys benefit? Does the purchase decision influence the buyers attitude towards the product ?

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Post-purchase behavior
Need to understand the customers total experience with the product (buying, using, maintaining, disposing). Satisfaction or dissonance is a function of the gap between buyer expectation and perceived performance Post-purchase actions. How to influence them to your favor?
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MIS Components
A marketing information system (MIS) consists of people, equipment, and procedures to gather, sort, analyze, evaluate, and distribute needed, timely, and accurate information to marketing decision makers.
Components: Internal records Marketing intelligence system Marketing research system Marketing decision support system

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Internal Records
y Sales Information Systems (on-line reporting and classification of sales by product, channel, regionetc help monitor the effectiveness of marketing actions) y Order To Payment Cycle (measuring cycle time, monitoring the efficiency and effectiveness of the supply chain) y Data bases, data warehousing and data-mining to enable focused marketing action. 74

MARKETING INTELLIGENCE SYSTEM

A set of procedures and sources used by managers to obtain everyday information about developments in the marketing environment.
Sources: salesmen, distributors and other intermediaries, examining competitors` products and services, literature about competitors, customer advisory panels, information sold by marketing research firms.
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MARKETING DECISION SUPPORT SYSTEM / MODELS Building models of marketing sub-systems. Simulation / What if analysis. Which parts of the marketing system are more suitable for modeling?

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The Marketing Research Process

Define research problem, objectives, scope and decision Implications.

Develop the research plan

Collect the information

Need for active dialogue between managers and researchers

Present the findings

Analyze the information

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Problem Formulation
Decision Problem What should the decision maker do? do?
GENERAL SPECIFIC

Research Problem What information is needed, & how to obtain information?

Examples of Problem Formulation

Decision Problems
1. Develop package for a new product 2. Allocate newspaper space for various topics. 3. Increase store traffic.

Research Problems
1. Evaluate effectiveness of alternative package design 2. Measure readers interests in these topics. 3. Measure current store image & store choice

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DEVELOPING THE RESEARCH PLAN (Data sources, research methods, instruments, sampling plan, contact method)
1)Data sources Secondary Primary 2)Research approaches: Observation Focus groups Survey Behavioral data Experimental research
3)Research instruments: Questionnaires Qualitative techniques (focus groups, depth interviews, projective techniques(e.g. word associations) Technological devices (e.g. Audiometer, Eye camera, Neurological research)

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DEVELOPING THE RESEARCH PLAN (CONT.)

4)Sampling plan
Sampling unit & frame
Telephone

5)Contact methods
Mail

Sample size
Personal interview

Sampling procedure (probability vs. nonprobability samples)

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On-line interviewing

Good Marketing Research

Is scientific Is creative Uses multiple methods Acknowledges the cost & value of information Maintains healthy skepticism Is ethical
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Measuring and Forecasting Demand

Company Demand/ potential Company sales/forecast Market Demand/ potential Industry sales/ forecast

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Estimating Current Demand

Market Demand Function
Demand is affected by the level of marketing effort/ expenditure; as well as price, income and other factors.

Market Potential
Maximum demand for a particular marketing environment (e.g. level of economic growth) Total Market Potential: no. of potential buyers x av. purchase chain ratio method Area Market Potential market build-up for business markets multiple-factor index for consumer markets

Sales
Industry Sales (actual) Market Share (%)
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Estimating Future Demand

 Uses of Demand/Sales Forecasts  Forecasting Methods: Survey of Buyers Intentions Composite of Sales Force Opinion Expert Opinion (e.g. Delphi method) Past Sales Analysis (time-series, statistical analysis) Market Test Method

What people: say, do, have done

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V. COMPETITIVE STRATEGY
1. Wide vs. narrow definition of competition; industry vs. market definition. What are the sources of competitive threats? Porter s five forces model 2. What do you need to know about your key competitors? Why? How do you build a competitive intelligence system? 3. Should you attack, defend or follow and how? 4. Why is it important to balance customer and competitor orientation?

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Porters Five Forces Model: a Tool for Formulating Competitive strategy

Suppliers Bargaining Power
Power of suppliers relative to buyers is similar to relationship between producers and buyers see below

Industry Rivalry Entry Threat

Entry barriers Access to customers / distribution channels No / size / concentration Diversity of competition Excess capacity Exit barriers Cost structure

Threat of Substitutes
Buyer propensity to substitute Relative price performance of substitutes

Price Sensitivity: Product cost vs. total cost Buyer Bargaining Power Product differentiation Competition between buyers

Bargaining Power No./ size / concentration of buyers & suppliers 87 Switching costs Ability to integrate backward

Analyzing Competitors
Identify competitors (present & potential; direct & indirect; industry & market) and investigate their: Objectives Strategies (similar vs. different strategies) Strengths & Weaknesses (share of market, mind, heart) Reaction Patterns (laid-back, selective, tiger),

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Customers Ratings of Competitors on Key Success Factors

Product Quality Competitor A Competitor B Competitor C 9 8 5 Product Availability 5 9 8 After Sale Service 6 8 7 Selling Staff 8 6 7

Scores are out of ten Can you calculate a summary figure for each competitor?
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Market Share, Mind Share, and Heart Share (%)

Market Share
Year 1 Year 2 Year 3

Mind Share
Year 1 Year 2 Year 3

Heart Share
Year 1 Year 2 Year 3

Competitor A

50

47

44

60

58

54

45

42

39

Competitor B

30

34

37

30

31

35

44

47

53

Competitor C

20

19

19

10

11

11

11

11
90

Customer value analysis for three brands

A Price Acquisition costs Usage costs Maintenance costs Ownership costs Disposal costs Total costs to the customer $100 15 4 2 3 6 $130 B $ 90 25 7 3 3 5 $135 C $ 80 30 10 7 5 8 $140

Compare these customer costs to customer perceived value 91

Market Structure & Competitive Strategies

Market leader

challenger

Follower

Nicher

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Alternative Strategies for Market Leaders

 Expand Market (creative interaction with present and potential customers)  new users  new uses  more usage  Defend Market Share  Expand Market Share

Six Types of Defense Strategies

I. Position defense

II. Flank defense III. Preemptive defense IV. Counteroffensive defense V. Mobile defense (Market broadening & market diversification) VI. Contraction defense

Five General Attack Strategies

I. Frontal attack (Cola wars)

II. Flank attack on a weakness area (e.g., human guided search algorithms as a substitute for Google search) III. Encirclement blitz attack on many fronts IV. Bypass attack (diversification into unrelated products, geographies, technologies) V. Guerilla warfare

Specific Attack Strategies

Price discounts Lower-priced goods Value-priced goods Prestige goods Product proliferation Product innovation Improved services Distribution innovation Manufacturing-cost reduction Intensive advertising promotion

Market follower strategies

These strategies dont eliminate the need for creativity in implementation !! I. Counterfeiter II. Cloner (slight variation) III. Imitator (of some things while maintaining differentiation from leader) IV. Adapter / improver (S&S motor cycle)
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Market-Nicher Strategies
End-use specialist Specific-customer specialist Product or product-line specialist Job-shop specialist Are all market nichers small companies? Can you jump from a niche strategy to overtake the leader in the core market? Do market nichers usually achieve a higher return on investment? Multiple niching strategies
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VI. SEGMENTATION AND TARGETING

1. Why segment? What are the uses of segmentation? 2. What are segmentation approaches, procedures? 3. 4. 5.

Segmentation criteria Targeting criteria Niche marketing

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Basic Market-Preference Patterns

(a) Homogeneous preferences

(b) Diffused preferences

(c) Clustered preferences

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Uses of Segmentation
Appraising competitive strengths, Planning product / product line, Determining advertising and selling strategy, Channel design strategy Setting precise marketing objectives
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Market Segmentation, Targeting, and Positioning (STP): Pillars of Marketing Strategy

Segmentation
1. Identify segmentation variables and segment the market 2. Develop profiles of resulting segments

Targeting
3. Evaluate attractiveness of each segment 4. Select the target segment(s)

Positioning
5. Identify possible Positioning/ differentiation concepts for each target Segment 6. Select, develop, and communicate the chosen positioning concept

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Levels Of Market Segmentation

 Mass marketing (shotgun)  Segment marketing; different marketing programs for different segments (rifle)  Niche marketing  Individual marketing; or mass customization: To prepare on a mass basis individually designed products or services; e.g. Dell; Mini cars) **********  The key is to weigh the costs and benefits of segmentation.  Segmentation involves both division and aggregation processes. How?
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Research-Based Market-Segmentation Procedure

I. Survey of actual & potential customers (informal, formal) Motivations / needs Attitudes / preferences Explicit behavior Demographic characteristics II. Analysis Factor analysis (every factor represents several highly correlated variables) Discover clusters (maximally different segments) III. Profiling segments / clusters (attitudes, behavior, demographics, psychographics, media patterns). Remember: Segmentation should be reviewed regularly CRM data as a source of segmentation
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Two Approaches To Segmentation

a) segment on the basis of customers characteristics, then examine possible differences in market response; b) segment on the basis of market response or customer needs, then examine possible differences in customer characteristics. An example of this approach: segment on he basis of light or heavy use of the product; then research the characteristics of each group (segment) Most segmentation schemes combine the two approaches Q: Can we get the members of a targeted segment to select themselves?
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Illustrative Segmentation Variables

Characteristics of people/ organizations Consumer Markets Age, gender, income, family size, lifecycle stage, geographic location, lifestyle Occasion, importance of purchase, prior experience with product, user status Brand loyalty status, brand preference, benefits sought, quality, proneness to make a deal Size of purchase, frequency of purchase Industrial/ Organizational Markets Type of industry, size, geographic location, corporate culture, stage of development, producer/ intermediary Application, purchasing Procedure (new task, modified re-buy, straight Re-buy Performance requirements, brand preferences, desired features, service requirements Volume, frequency of purchase

Use situation

Buyers needs/ preferences

Purchase behavior

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Segmenting the smart phone market (I phone)

Target Segment Professionals Consumer Need y Stay in touch while on the go y Record information while on the go y Perform many functions without carrying multiple gadgets y Style and individuality y Input and access critical data on the go Corresponding Feature/Benefit y E-mail, instant messaging, and phone y Application forms Mac OS X for notes and record-keeping y iPod, phone, video, TV shows, Internet, PDA y Apple branding as fashion statement y Applications from Mac OS X for notes and record-keeping y Compatible with widely available software y Wireless access to calendar and address book to easily check appointments and contracts y Wireless access to calendar and address book to easily check appointments and contracts
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Students

Corporate Users

Entrepreneurs

Medical Users

y Organize contracts, access contracts, and schedule details y Update, access, and exchange medical records

EXAMPLE: Tooth paste market

Worrier Profile Demograp hic Psychogra phic 20-40 Large families Conservati ves Sociable Teens Young smokers High sociability Sensory Children Independe nt 35-40 Male

High self High involvemen autonomy, t value oriented Colgate Aquafresh Private label

What is bought,

Product Examples

Signal Mentadent P

Macleans Ultrabrite

Why is it bought % of market

Benefits sought

Stop decay Attract attention %50% 30%

Taste 15%

Functionali ty 5%
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Example: Gasoline Buyers

Road Warriors Higher-income, middle-aged men, drive 2550000 miles a year buy premium with a credit card purchase sandwiches and drinks from the convenience store will sometimes use carwash Men and women with moderate to high incomes, loyal to a brand and sometimes a particular station frequently buy premium, pay in cash Upwardly mobile men and women half under 25 years of age constantly on the go drive a lot snack heavily from the convenience store Usually housewives who shuttle children around during the day and use whatever gas station is based on town or on route of travel Not loyal to brand or station and rarely buy premium frequently on tight budgets. 16% of buyers

True Blues Generation F3 (Fuel, Food & Fast)

16% of buyers

27% of buyers

Homebodies

21% of buyers 20% of buyers

Price Shoppers

WHAT ARE THE IMPLICATIONS FOR PRICING GASOLINE?

EXAMPLE: Watches
Segmentation by Value Concept: 1. People who want to pay the lowest possible price for any that works well. (23%) 2. People who value watches for their long life and willing to pay for the product qualities. (46%) 3. People who look for useful product features and meaningful emotional qualities. (31%)
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EXAMPLE: Automobiles
1.Value segmentation: a) People who buy car for economy. b) People who want to buy the best product they can find for their money. c) People interested in personal enhancement.

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EXAMPLE: Automobiles
2. Susceptibility to change brands: People whose brand loyalty is so solidly entrenched that no competitor can get to them. They are closed off to change. The open-minded and unprejudiced buyers Between them, people who are predisposed to a particular brand to a greater or lesser degree.
114

EXAMPLE: Computers
Degree of self confidence 20% believed they knew how to evaluate a computer. 80% did not have confidence in their own ability to evaluate a computer

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Niche Marketing Conditions for Success

A small market not well served Distinctive needs Will pay a premium if satisfied Not likely to attract many competitors Profit and growth potential Strategy of targeting multiple niches as a business model? Conditions for using this strategy.
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Bases for Segmenting Business Markets

Demographic (industry, size, location) Operating Variables (technology, capabilities, usage) Purchasing Approaches (Degree of centralization, Purchasing criteria) Purchasing criteria (price, solution, or strategic orientation) Situational Factors (urgency, nature & size of order) Personal Characteristics (risk aptitude, personal relations)
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Effective Segmentation
Measurable Substantial Accessible Differential Actionable
Size, purchasing power, profiles of segments can be measured. Segments must be large or profitable enough to serve. Segments can be effectively reached and served.

Segments must respond differently to different marketing mix elements & actions.

Action can be taken to attract and 118 serve the segment

Criteria for Targeting

Contribution to profitability and growth Fit with companys competencies Degree of competition
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Five Patterns of Target Market Selection

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FOOD FOR THOUGHT

SEGMENTATION IS NOT A SUBSTITUTE FOR CREATIVITY In traditional segmentation, the market is considered as a given. What about creating a whole new market? Segment attractiveness may change over time. Income maybe a tricky segmentation criterion: consumers may trade up in some categories and trade down in others. Consider your strategic choices for segment by segment invasion
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VII. POSITIONING

1. Points of difference vs. points of parity,

perceptual mapping
2. Alternative positioning strategies 3. Differentiation as a tool for positioning 4. Product life cycle: marketing strategy

implications

122

Positioning Strategy
Positioning: is the act of designing the companys offering and image to occupy a distinctive place in the target markets mind within a certain competitive frame of reference. Successful positioning strategy involves the total marketing mix. Result of positioning: a customer focused value proposition.

123

Communicating a Position
Format of a positioning statement To: target group and need Our brand is: concept That: point of difference Example: To busy professionals who need to stay organized Palm Pilot is an electronic organizer that allows you to back up files on your pc more easily and reliably than competitive products. Once you have a clear position communicate and reinforce it through all possible means. 124

Differences vs. Parity

Points-of-difference (PODs)
Attributes or benefits consumers strongly necessarily unique to the brand associate with a brand, positively evaluate, and believe they could not find to the same extent with a competitive brand b)Competitive POP
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Points-of-parity (POPs)
Associations that are not

but may be shared with other brands: a)Category POP

Consumer Desirability Criteria for PODs

Relevance Feasibility

Distinctiveness

Communicability

Believability

Sustainability

Your competitors will often challenge both your claims for PODs and POPs
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Bases For Positioning (Examples)

Attributes / features Benefits Use / application Quality / price

Choice should be based upon: Customer priorities Cost to the company Potential competitor response
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Illustrative Perceptual Map

Expensive
Brand E

Brand B

Brand A

High Quality

Low Quality
Brand D

Inexpensive

Brand C

Locations and dimensions are based on consumers perception of brands. `

Alternative Positioning Strategies

Strengthen own current position in the consumer's mind. Grab an unoccupied position (unsatisfied need). Deposition or reposition the competition (e.g. where is
the beef?)

Identify one's self as a member of an exclusive club. Is positioning a question of communication only? Is there an ideal position ?
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How Many Differences to promote?

Don't lose focus. If your positioning is out of focus, so will be your marketing mix and probably your whole operation !!. Try to be number one in one or two benefits. Avoid these positioning errors:

Under-positioning (lack of clarity). Over positioning (narrow positioning). Confused positioning (inconsistent or multiple images). Doubtful positioning (non-credible claims).
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How To Differentiate: A Three Step Process

Define the customer value model (according to his perception of value) Build the customer value hierarchy (basic, expected, desired, unanticipated) Decide the customer value package which outperforms competitors, wins customers` loyalty, and achieves profit. Must differentiation and segmentation go together? Does differentiation add to cost?
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Sony's Approach To Continuous Differentiation: Pre-empting Competition

For every new product, the company forms three teams with the following assignments (assuming the product belongs to a competitor):
Minor improvements Major improvements Ways to make it obsolete. Being first doesnt guarantee the first mover advantage
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1.Product Differentiation

Form

Features

Performance quality

Conformance Quality

Durability

Reliability

Ease of repair

Style/ Mode of expression

Design (The integrating Force: looks & function)

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2.Services Differentiation
Ordering Ease Customer Consulting

Installation

Miscellaneous Services

Delivery

Customer Training

Maintenance & Repair

Compare customer value to company cost

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3. Personnel differentiation: Unique personnel that add value (competence, responsiveness, communication)

4. Channel differentiation: Unique Channels that add value (coverage, expertise, performance)

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5.Image Differentiation: How?

Media Atmosphere

Symbols

Events

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Important Profitable

Distinctive

Differences Worth Establishing

Affordable Superior

Hard to copy

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Product Life Cycle: implications for mktg strategy Sales & profits ($)

Introduction Growth

Maturity

Decline

Time

Why this pattern? Any other possible patterns? Why? How do you know the stage you are in?; Can you influence the PLC?; Curves for fashions, fads? What are the 138 marketing implications?

Introduction Stage Marketing Strategies

High High

Promotion

Low

Price

Rapidskimming strategy Rapidpenetration strategy

Slowskimming strategy Slowpenetration strategy

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Low

What are the factors that govern the choice of a particular strategy? Your resources, expected competitive moves, etc.

Introduction Stage
1. Rapid skimming: Products of which the market is not aware yet. Possibility to build brand preference, potential competition expected. 2. Slow skimming: For a limited market. Market is aware of the product. Potential competition is not imminent 3. Rapid penetration: For a large market, unaware of the product with price-sensitive buyers and strong potential competition. 4. Slow penetration: For a large market, highly aware of the product, price-sensitive buyers, with limited potential competition.
140

Growth Stage Strategies: sustaining growth while facing emerging competition

Improve quality and features

Add new models and flanker products

Enter new market segments

Increase distribution coverage

Emphasize product preference advertising

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Lower prices to win new segments.

Maturity Stage Strategies Survival of the fittest?

Longest and most challenging and most common stage. Options: Market Modification (new users, more usage, new segments, win competitors` customers) Product Modification (quality, features and style improvement) Marketing-Mix Modification (e.g. more emphasis on sales promotion) Dont forget that each strategy has risks related to consumer and competitors reactions. 142

Decline Stage Strategies

Maintain investment until uncertainties are resolved Selective dropping and niching Harvesting / milking to improve cash flow Divesting on best terms. Don't Get Emotionally Involved !!
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VIII. BRANDING
1. Definition of Brands, Branding
a) Brand Equity

Dimensions c) Measurement d) Drivers

b)

2. Brand naming, Brand extension and brand portfolio 3. Role of Branding in Competitive Strategy
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Brand: Who Are You?

A name, term, sign, symbol or design, or a combination of them. Intended to identify the goods or services of one seller or group of sellers and to differentiate them from those of competitors. Branding is endowing a product or service with the power of a brand.
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The Role of Brands: bridge to the future !

Identify the maker Simplify product handling Offer legal protection Secure price premium Signify quality Create barriers to entry Serve as a competitive advantage

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Marketing Advantages of Strong Brands

Greater loyalty Less vulnerable to competition Larger margins Inelastic consumer response to price increases Elastic consumer response to price decreases Greater trade cooperation Increase in effectiveness of IMC Licensing opportunities Brand extension opportunities
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Criteria for Choosing Brand Elements

Memorable Meaningful Likeability

Transferable Adaptable Legal viability

Role of slogans: expressing unique brand essence (e.g. We try harder).

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Slogans
Just do it Imagination at work Innovation delivered We try harder

What is a Brand Promise?

A brand promise is the marketers vision of what the brand must be and do for consumers.

Customer Based Brand Equity

The differential effect that brand knowledge has on consumer response to the marketing of that brand (perceptions, preferences, behavior). Marketers invest in customer brand knowledge

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Sources of Brand Equity

Brand loyalty Brand awareness Perceived quality Brand associations Other proprietary assets (patents, trademarks, etc.)

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Building Brand Equity: BRANDZ MODEL

Move them up the pyramid !

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Dimensions of brand knowledge

Brand awareness: Brand recall (aided, unaided) Brand recognition Brand image / associations:
Type of brand associations: Attributes (product, price, packaging, use imagery) Benefits (functional, experiential, symbolic) Uses/users Attitudes Secondary associations (e.g. country of origin, sponsorships)

A sussessful brand should have a unique identity / essence

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Dimensions of brand knowledge

How brand associations create value: Help recall Differentiate Give reason to buy Create positive attitude Brand strength Favorability of association Strength of associations Uniqueness of associations

A sussessful brand should have a unique identity / essence

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Measuring Brand Equity

I. Measuring knowledge structures
Brand audits (to identify and measure sources of brand equity/brand knowledge).

II. Measuring customer response to marketing activities

Brand tracking (measuring the impact of marketing activities on brand equity over time).

III. Brand valuation (financial estimates of brand equity)

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Interbrands Steps in Calculating Brand Equity

Market segmentation Financial analysis Role of branding Brand strength Brand value calculation

The 10 Most Valuable Brands (2010)

1 2 3 4 5 6 7 8 9 10

Coca-Cola IBM Microsoft Google GE McDonald's Intel Nokia Disney Hewlett-Packard

70,452 ($m) 64,727 ($m) 60,895 ($m) 43,557 ($m) 42,808 ($m) 33,578 ($m) 32,015 ($m) 29,495 ($m) 28,731 ($m) 26,867 ($m)

Drivers of Brand Equity

I. Choice of brand elements.
Name, logo, symbols, slogan, character, etc

II. The product, services and supporting marketing activities (contacts/touch points). III. Inducing meaning transference.
Favorable associations with people, places, things, other brands
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Managing Brand Equity

Brand reinforcement (without boredom!)
Volvo, Home Depot, Kellogg

Brand revitalization
Harley Davidson, Mountain Dew

Brand crises management (need for swift and sincere response

Ford/Firestone, Perrier, Tylenol
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Brand Naming
Individual names (lower risk, high cost). Blanket family name (economy). Separate family names (for different categories). Corporate name / individual name combo.
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Brand Extension
80 90% of new products are brand extensions 90% Line extension vs. category extension ADVANTAGE New product success (Parent brand leverage, reduced cost, less risk of failure) Strengthening parent brand
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DISADVANTAGES Brand dilution Cannibalization

Brand Portfolio
A brand Portfolio is the set of all brands a particular firm offers in a particular category.
WHY MULTIPLE BRANDS? To maximize brand equity by: Increasing shelf space Cover different market segments Attracting customers seeking variety Enhancing competition within the firm Criteria: Maximum market coverage AND minimum overlap

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Brand Roles in a Brand Portfolio

Flankers / Fighters. Cash cows. Low-end entry-level. High-end prestige.
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IX. MAJOR MARKETING MIX DECISIONS: PRODUCT, PRICE, PLACE, PROMOTION (4 Ps)
1. How is every element of the marketing mix tailored to the target market and strategic positioning? 2. What are the interdependencies among the elements of the marketing mix? 3. Strategic product mix decisions 4. Strategic price mix decisions 5. Strategic channel decisions 6. Strategic marketing communication decisions

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PRODUCT: Product Augmentation over time / Value hierarchy

Potential product Augmented product Expected product
Basic product

Core benefit + Expected benefits

+ Unexpected benefits + Possible future benefits

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PRODUCT MIX
Dont forget: Sense &Sensibility!!
Line A Line B Etc

Width : number of different product lines Length: number of products within each line Depth : number of versions of each product
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Line A Product (x) Product (Y) Etc

Product Mix all the products offered

Product (X) Version 1 Version 2 Etc

PRODUCT: PRODUCT LINE DECISIONS

Bases for product-line decisions (e.g. extension, pruning): Contribution to sales and profits (80-20 rule?) Interaction among items in the mix Market profile (product map shows positions of all products that belong to the company and its competitors on relevant attributes)
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PRODUCT: Example: Two-Way ProductLine Stretch: Marriott Hotels

Another success case: BMW

Quality
Marriott Marquis (Top executives)
Marriott

Price

(Middle managers)

Average

Courtyard (Salespeople)

Fairfield Inn (Vacationers)

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PRICE: Setting Pricing Policy : Six Steps

1. Selecting the pricing objective 2. Determining demand Response to price: How? 3. Estimating costs 4. Analyzing competitors costs, prices, and offers 5. Selecting a pricing method 6. Selecting final price
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In a study covering 2400 companies, McKinsey concluded that a 1 percent improvement in price created an improvement in operating profits of 11.1 percent.

PRICE: Step 1: Selecting the Pricing Objective

Maximum current profit or long term profit Maximum market share or profitability Challenging competitors or avoiding price wars
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PRICE: Step 2: Determining Demand

Estimating demand curves

Price sensitivity

Price elasticity of demand

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PRICE: Types of Costs

Fixed Costs (Overhead)
Costs that dont vary with sales or production levels. e.g. Executive Salaries Rent

Variable Costs
Costs that do vary directly with the level of production. e.g. Raw materials

Total Costs
Sum of the Fixed and Variable Costs for a Given Level of Production
173

PRICE: Cost Implication for Pricing

Variable-fixed cost structure (High fixed cost/high operating leverage make profit very sensitive to changes in volume) Learning curve effect Different customers may represent different cost burdens (activity-based costing) Target costing / pricing
174

PRICE: Step 5: Selecting a Pricing Method

Markup Pricing
Selling price = unit cost / (1- desired mark-up on selling price)

Target Return on investment Pricing

Selling price = unit cost* + (% target return x invested capital / unit sales)

Perceived Value Pricing (standard plus premium values) * UNIT COST= V.C.+ F.C./SALES VOLUME
175

PRICE: Perceived Value Pricing

Example: Caterpillar tractor Caterpillar price: $100 000 Normal market price: $90 000
Extra values by Caterpillar: 7,000 durability 6,000 reliability 5,000 service 2,000 warranty 20,000 $110,000 in benefits $10,000 discount!
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PRICE: Step 5: Selecting a Pricing Method

Value Pricing (relatively low price for high quality). Going-Rate Pricing. Sealed-Bid Pricing.
177

PRICE: Step 6: Selecting the Final Price

Check impact of other marketing activities. Check company pricing policies. Product mix pricing: product line, optional feature, captive price, two part, by-product, bundling

Check impact of price on other parties. Make sure that you know the real price you receive , net of discounts, rebates, concessions etc.

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PRICE: Consumer Psychology and Pricing

Reference prices. Price-quality inferences. Price endings. Price cues.
179

PLACE: Channel Design Decisions

Analyzing the service levels desired by customers (Lot size, Waiting time, Spatial convenience, Product variety, Service backup) Establishing channel objectives and constraints (vary by market segment, product type) Identifying major channel alternatives (types, number*, terms and responsibilities) Evaluating major alternatives (economic, control and adaptive criteria) *exclusive, selective, intensive

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Value-Delivery Network: A strategic alliance Ex: Levi Strauss

Order
Du Pont (Fibers) Milliken (Fabric)

Order
Levis (Apparel)

Order
Sears (Retail)

Order

Customer

Delivery

Delivery

Delivery

Delivery

Competition is among networks, not separate companies. networks, The winner is the better network. Relationship among network members is a strategic alliance that needs careful design, monitoring and management
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PLACE: Types of Vertical Marketing Systems

Sources Of Channel Power
Coercive Reward  Legitimate Expert
182

Corporate Common Ownership at Different Levels of the Channel Administered Leadership is Assumed by One or a Few Dominant Members

Contractual Contractual Agreement Among Channel Members

PLACE: Channel Management Decisions

Selecting Training Motivating Evaluating

183

PROMOTION: Communication: Dialogue Not Monologue Maximize opportunities for interactive dialogue with customers before, during and after purchase.

Main purpose: reinforce strategic positioning.

184

Elements in the Communication Process

Message

SENDER

Encoding
Media

Decoding

RECEIVER

NOISE

Feedback

Response
185

Message Problems

Selective Attention Selective Distortion Selective Retention

186

Effective Communication Process

1. Identify & analyze target audience 2. Determine communication objectives 3. Design the message 4. Select channels 5. Decide on communications mix 6. Establish budget 7. Measure and evaluate results
187

Stimulating Personal Influence Channels

Identify influential individuals and devote extra attention to them Create opinion leaders Use community influentials in testimonial advertising Develop advertising with high conversation value Develop WOM referral channels Establish an electronic forum Use viral marketing
188

6. Establish the Budget

Affordable

% Of Sales

Competitive Parity

Objective & Task

189