Copyright 2018: H. Christian Kim
Marketing
Prof
H. Christian Kim
Where business is taught with humanity in mind.
An Example
Rational vs Marketing Man
Two identical TVs (X & Y)
36 inch flat screen, stereo, HDTV-ready.
TV Y has an additional feature.
TV X - $510, TV Y - $530
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Copyright 2018: H. Christian Kim
Loss Aversion
Losses loom larger than gains.
The impact of a $100 loss is larger than that of a
$100 gain.
A ship with 600 passengers was sinking. The
captain took certain action.
The captain’s action led to 400 survivors.
The captain’s action led to 200 deaths.
Another implication
Limited time offer
WHY STUDY MARKETING ?
2/3’s of CEOs and senior executives believe
marketing is the most important
management area of the firm.
Marketing is often the route to the top
Observation: Most of the CEOs in
Fortune 500 companies have been in a
Marketing or Finance career for a large
part of their professional lives.
Marketing concepts and techniques apply to
nonprofit organization
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Copyright 2018: H. Christian Kim
Course Objectives
Learn basic marketing concepts &
techniques (i.e. principles).
Develop critical thinking necessary to
solve marketing problems (systematic
approach).
Learn strategic tools.
Apply all of those to the project.
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Historical views of marketing
In well-ordered states, storekeepers and salesmen are
commonly those who are weakest in bodily strength
and, therefore, of little use for any other purpose.
--- Plato
Merchants are to be accounted vulgar; for they
can make no profit except by a certain amount
of falsehood.
--- Cicero
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Copyright 2018: H. Christian Kim
More Modern View
Corporate leaders nationwide are discovering
that their most powerful competitive weapon is
marketing … the development, pricing,
distribution and promotion of products.
--- Newsweek
Marketing is now central to success at any
company in any business, and it is going to make
the difference between winners and losers.
--- Stephen Greyser, HBS
Practice Problem
A major American financial institution has asked
you to help improve its credit card business.
The credit card, known as Buy for Pet, has
experienced a great deal of success in the
United States by offering special discounts at
selected pet stores and by waiving the annual
fee. The company is now considering an
expansion to S. America and has targeted
Brazil, due to its size and regional importance,
as a potential entry point. You are a marketing
consultant helping the client assess the
feasibility of entering the Brazilian market.
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Copyright 2018: H. Christian Kim
5 Step Strategic Approach to a
Business Problem
1. Understand the underlying problem and
the question.
2. Break the problem down into a logical
structure.
3. Address important issues
4. Request additional information.
5. Reach a conclusion & formulate a
strategy.
Why Learn Marketing?
•X
Y
–Physics vs. Social sciences
•X
Y
Moderators
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Course Structure
The Marketing Concept
Market Environment and Opportunity Analysis
4 C’s: Company, Customers, Competitors, Collaborators
SWOT Analysis, PEST Analysis
Marketing Strategy
Marketing
Research
Segmentation, Targeting, and Positioning
Strategy Implementation: Marketing Mix
4 P’s: Product, Place, Promotion, Pricing
The Four Ps of the Marketing Mix
Product
Place
C
Price
Promotion
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The Evolution of Marketing
Different Kinds of Management
Philosophy:
The Production Concept
The Product Concept
The Sales Concept
The Marketing Concept
The Marketing Concept
An organization should aim all its efforts at
satisfying its customers at a profit.
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Find wants and fill them
Make what will sell instead of trying to sell what you
can make.
Love the customer and not the product.
Have it your way (Burger King)
You’re the boss (United Airlines)
To do all in our power to pack the customer’s dollar
full of value, quality and satisfaction (J.C.Penney).
Marketing Strategy
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What is a strategy?
A strategy is a fundamental
pattern of present and planned
objectives, resource deployments,
and interactions of an
organization with markets,
competitors, and other
environmental factors.
Vague?
What, Where, How
The Hierarchy of Strategies
Three major levels of strategy are:
Corporate strategy (Mission)
Business-level strategy (Competitive
Strategy)
Marketing strategy (Real action)
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Components of Strategy
Scope (where)
Goals and objectives (What)
Resource deployments (How)
Identification of sustainable
competitive advantage
Synergy
Analysis of the four “Cs”
Market opportunity analysis
Understanding Market Opportunities
Measuring Market Opportunities
Market Segmentation, Targeting, and Positioning
Decisions
Formulating strategies for specific market situations
Implementation and control
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Market-Oriented Management
Follows a business philosophy commonly
called the marketing concept = creating
customer satisfaction at a profit.
Potential Drawbacks?
Seek to satisfy all customers – disaster
Do customers know what they want? (hightech)
Too much research
HDTV aspect ratio 16:9
Guidelines for Market-Oriented
Management
Create customer focus throughout the
business
Listen to the customer
Define and nurture your distinctive
competence
Target customers precisely
Measure and manage customer
expectations
Build customer relationships and
loyalty
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Factors that Mediate
Marketing’s Strategic Role
Competitive factors affect a firm’s
market orientation
(early in PLC vs. mature markets)
Influence of different development
stages across industries and global
markets
LG HDTV?
Strategic inertia
Citi
Ask “why?” 10 times a day
Quantify goals
Customer Satisfaction
Quality driven
Price driven
Price manipulation (e.g., sales promotion)
Price drop
Short-term CS
various factors
Long-term CS = Quality
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ACSI Model
CS vs. S&P500
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CS vs. S&P500
CS & Consumer Spending
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Overall Scope
What Business Are We
In???
Characteristics of Effective
Corporate Mission Statements
Broad
Functional
Based on
customer needs
Specific
Transportation Long-distance
business
transportation for
large-volume
producers of lowvalue, low-density
products
Physical
Railroad
business
Based on
existing products
or technology
Long-haul, coal
carrying railroad
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Nike
Broad
Specific
Customer
Benefits
Excitement
Customers experience
excitement when
wearing Nike products.
Physical
Sporting
goods
We sell Sneakers &
Sports Apparel
Growth rate (cash use)
Cash Flows across Businesses
in BCG Portfolio Model
High
Question
marks
Stars
Cash
Flows
Low
Cash cows
High
Relative market share
Dogs
Low
Desired direction of business development
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Business’s
competitive position
The Industry AttractivenessBusiness Position Matrix
Industry attractiveness
High
Medium
Low
High
1
1
2
Medium
1
2
3
2
3
3
Low
1 Invest/grow
2 Selective investment/ maintain position
3 Harvest/divest
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Business Strategy
Corporate Strategy
Mission
General Philosophy (What business are we in?)
Corporate Goal: Growth or Profit?
BCG/GE Models
Business/Marketing Strategy
How do we compete?
How do we achieve competitive edge?
More complex GE model
Market (X-axis)
H
M
L
Company (Y-axis)
H
1
2
3
M
4
5
6
L
7
8
9
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9 General Directions for Corporate
Strategy
1. Protect position and invest to grow at max rate. (BH, MH)
2. Invest heavily in most attractive segments. Emphasize
profitability. (BH, MM)
3. Defend strengths. (BH, ML)
4. Invest to build strengths. Challenge leader. (BM, MH)
5. Focus on segments where profitability is still good.
Protect existing programs. (BM, MM)
6. Manage earnings. Minimize investment. (BM, ML)
7. Specialize. Withdraw if sustainable growth is not possible.
(BL, MH)
8. Limit expansion. Harvest. (BL, MM)
9. Divest. Cut fixed costs. (BL, ML)
Examples of Complex GE model
Computer graphic card:
AMD (Ati) vs Matrox
Retailing:
Costco vs BJ’s
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Copyright 2018: H. Christian Kim
Generic Business-Level Competitive
Strategies
Michael Porter distinguishes three
strategies
Overall cost leadership
Differentiation
Focus (niche)
Robert Miles and Charles Snow classify
business units into four strategic types:
Prospectors
Defenders
Analyzers
Reactors
Definitions of Miles and Snow’s Four
Business Strategies
Prospector
Focus on growth through the development of new
products and markets.
Defender
Concentrate on maintaining positions in established
product-markets while paying less attention to new
product development.
Analyzer
Attempt to maintain a strong position in its core productmarket(s)
Seek to expand into new product-markets.
Reactors
Businesses with no clearly defined strategy.
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Combined Typology of Competitive
Strategies
Heavy emphasis
Differentiation
Cost leadership
Competitive strategy
Prospector
Units primarily
concerned with
attaining growth
through aggressive
pursuit of new
product-market
opportunities
Emphasis on new product-market growth
Analyzer
Units with strong core
bus.; actively seeking
to expand into rel.
prod-mkts with
differentiated
offerings
Units with strong
core bus.; actively
seeking to expand
into rel. prod-mkts
with low-cost
offerings
Defender
Units primarily
concerned with
maintaining a
differentiated
position in mature
markets
No emphasis
Reactor
Units with no
clearly defined
product-market
development or
competitive strategy
Units primarily
concerned with
maintaining a lowcost position in
mature markets
The Marketing Implications of
Corporate Objectives
Consistent customer-focused
objectives are:
Satisfaction
Retention
Loyalty
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Copyright 2018: H. Christian Kim
What is Loyalty?
Loyalty is a deeply held commitment to re-buy
or re-patronize a preferred product or service in
the future despite situational influences and
marketing efforts having the potential to cause
switching behavior.
Are loyal customers really loyal?
Active vs. Passive Loyalty
Marketing Debate
Can we really distinguish between active
loyalty and passive loyalty?
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Top Brands in Customer Loyalty
Avis
Google
L.L. Bean
Samsung (mobile
phones)
Yahoo!
Canon (office
copiers)
Land’s End
Coors
Hyatt
Marriott
Verizon
KeySpan Energy
Miller Genuine Draft
Amazon
Estimating Lifetime Value
T
CLV
t
( Pt Ct )rt
t
(
1
i
)
0
AC
T = time horizon
P = price at t
C = direct cost of serving customer at t
r = retention rate at t
i = capital discount rate
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Estimating Lifetime Value
T
CLV
t 0
( P t C t ) rt
(1 i ) t
AC
At the time of acquisition
# of customers = 100, AC per customer = 40, CLV = $-4,000
When they make the first purchase
# of customers = 100, P = 100, C = 70, Margin per customer = 30
CLV = [(100 – 70) ]/(1 + .1) = $27.27 x 100 - 4,000 = -1.272.72
Estimating Lifetime Value
T
CLV
t 0
CLV
m
( P t C t ) rt
(1 i ) t
(1
r
i
AC
r)
# of customers = 100, m = 30, r = 90%, i = 10%, CLV = 100 x 30 x
4.5 = $13,500.
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Don’t Build a Database When
The product is a once-in-a-lifetime purchase
Customers do not show loyalty
The unit sale is very small
The cost of gathering information is too high
SWOT Analysis Example:
APPLE
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The Company
Market share down to less than 3 %.
Revenues declining.
Company products no longer seem
innovative.
Traditional buyer base - schools, small
businesses and managers
Retailer were reluctant to stock the product.
To increase shelf space at retail level, they
need a new sales organization to boost
distribution.
Management Problem
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Its Customers
Small and medium sized businesses.
Students in schools, colleges and universities
Home consumers
Publishers, Musicians & Graphic Artists
Buyers who want quality, performance, and ability to
“surf the net”.
Don’t want to spend 20-40 hours learning Windows and
how to use a PC.
Success depends on reaching these non-computer
experts.
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The Competitors
Competition very fierce. Dell and IBM are well
managed companies.
Dell and Compaq are juggernaut of the industry.
Dell has innovative sales model of “selling direct”.
Extremely aggressive competitors. Price wars
frequent.
The Microsoft Windows platform effectively mirrors the
original Macintosh user interface.
Clones focus on IBM PC compatibility and serve price
sensitive segment.
High-end and powerful servers also available.
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Strengths and Weaknesses of Apple
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Strengths of Apple
High brand awareness and image of high quality,
innovativeness and user friendliness
Big enough to enjoy economies of scale yet small
enough to react well to market changes
No diversified product line like IBM - so efforts can be
focused on the personal computer line
Strong engineering who can develop highly innovative
products
Accessible to new computer users
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Its Weaknesses
Software applications limited compared to IBM
compatibles “Wintel” machines - especially
business applications.
No clear positioning strategy against IBM
- (IBM Business Machine, Dell
Customized PCs,
Mac
?)
Vulnerable to IBM clone attacks.
Financial Constraints
Apple name not well known in overseas markets
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Opportunities
Business consumers showing interest in
computers and software with networking
capabilities. Apple can make network servers.
- (new product, new market)
Consumers want easy-to-use computers.
Improve Macs and attract more customers
- (new product, present market)
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Opportunities (continued)
Lucrative overseas markets - Annual market growth
in China 80%, Brazil 60%
- (present product, new market)
IBM-PC and MS-Windows are dominant standard.
Produce PC compatible machines (improved Power
PC’s).
- (new product, new market)
Promote present Macs
- (existing product, present market)
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Threats
Continuing image of Apple as a weak
business standard.
Low priced PCs from Compaq and Dell attract
price-sensitive customers.
A price war initiated by PC manufacturers
might hurt Apple very badly.
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Ansoff’s Opportunity Grid
Four Basic Types of Opportunities
Existing
Products
New
Products
Existing
Markets
Market
Penetration
Product
Development
New
Markets
Market
Development
Diversification
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Intensive growth
New product development
Market penetration
Market development
Integrative growth
Backward integration
Forward integration
Diversification growth
Concentric diversification
Horizontal diversification
The Major Forces that Determine
Industry Attractiveness
Threat of new
entrants
Bargaining
power
of suppliers
Rivalry among
existing industry
Bargaining
power
firms
of buyers
Threat of substitute
products
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Porter’s Five Competitive
Forces
Rivalry among present competitors
Rivalry is greater under the following conditions:
There is high investment intensity
There are many small firms in an industry or no
dominant firms exist
There is little product differentiation
It is easy for customers to switch from one seller’s
products to those of others
Porter’s Five Competitive
Forces (continued)
Threat of new entrants
Entry is more difficult under the
following conditions:
When strong economies of scale and
learning effects are present
When strong product differentiation
exists among current players
If gaining distribution is particularly
difficult
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Porter’s Five Competitive
Forces (continued)
Bargaining power of suppliers
Their power is increased under the
following conditions:
If the cost of switching suppliers is
high
If prices of substitutes are high
If suppliers can realistically threaten
forward integration
When the supplier’s product is a large
part of the buyer’s value added
Porter’s Five Competitive
Forces (continued)
Bargaining power of buyers:
The extent to which buyers succeed
in their bargaining efforts depends
on several factors:
The extent of buyer concentration
Switching costs that reduce the buyer’s
bargaining power
The threat of backward integration
The product’s importance to the
performance of the buyer’s product
Buyer profitability
Threat of substitute products
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Internal Factor Evaluation
1. List key internal factors
2. Assign a weight to each factor ranging from
0 (not important at all) to 1 (extremely
important).
3. Assign a 1-4 rating to each factor.
1.
2.
3.
4.
Major weakness
Minor weakness
Minor strength
Major strength
4. Calculate
Factors
Weight
Rating
Weighted Score
Largest Casino
.05
4
.20
Good room occupancy rates
.05
4
.20
Huge increase in cash flow
.05
3
.15
Owns 1 mile on LV strip
.15
4
.60
Mgt team has MBA degrees
.05
3
.15
24 hour buffet
.10
4
.40
Family-friendly
.10
3
.30
Strong financial ratios
.10
4
.40
Little diversification
.10
2
.20
Recent loss of joint venture
.10
1
.10
Mgt turnover
.05
2
.10
No partnership
.05
1
.05
Family owned
.05
2
.10
TOTAL
1.0
Strengths
Weaknesses
2.95
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External Factor Evaluation
1. List key opportunities & threats based on
seriousness & probability of occurrence.
2. Assign a weight to each factor ranging from
0 (not important at all) to 1 (extremely
important).
3. Assign a 1-4 rating to each factor.
1.
2.
3.
4.
Poor response
Average response
Above average response
Superior response
4. Calculate
Opportunities
Smokeless tobacco .15
1
.15
Increased demand
.05
3
.15
Advertising growth
.15
4
.60
Social pressure
.10
3
.30
Legislation against .10
all forms of tobacco
2
.20
Production limits
.10
2
.20
Isolated market
.10
2
.20
Bad media
exposure
.10
1
.10
Decreasing # of
users
.15
1
.15
TOTAL
1.00
Threats
2.05
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Some interesting psych effects
Assimilation
Contrast/Comparison Standard
BMW 1 series/McDonald’s Yuppie Burger.
Choice: Wall Street Journal Subscription
Web only $29
Print only $99
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Utility Function
utility
loss
v(x)
-x
x
gain
lv(-x)l > v(x)
v(-x)
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Mental Accounting
How do people evaluate a joint
outcome?
Two outcomes x, y
(x, y) can be jointly valued:
v(x+y)
(x, y) can be separately valued:
v(x) + v(y)
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Account 1
Account 2
Account 3
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Mental Accounting Examples
Suppose that Mr. X buys a PC for $2,000 & sells
it for $2,500.
If stored in a single mental account
net gain of
$500.
If stored in 2 mental accounts
a loss of $2,000
and a gain of $2,500.
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An Example of Losses
Mr. A received a letter from IRS saying that
he made a mistake on his tax return and
owed $100. He received a similar letter the
same day from his state tax authority saying
he owed $50.
v(-100) + v(-50)
Mr. B received a letter from IRS saying that
he made a mistake on his tax return and
owed $150.
v(-150)
Would you prefer to be Mr. A or Mr. B?
Integration-of-losses principle
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Integration vs. Segregation
value
loss
-x-y
-y
gain
-x
v(-x-y) > v(-x)+v(-y)
v(-x)
v(-y)
v(-x-y)
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Mental Accounting
Consumers tend to…
Segregate gains
Integrate losses
Integrate smaller losses with larger gains
Segregate small gains from large losses
STP
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Ford’s Model T Followed a Mass Market
Approach
Value Proposition for Café De Coral
Target: working adults in HK
Benefits:+100 menu items designed to meet
tastes & budgets of ‘our’ customers, +100 selfservice fast food restaurants, warm ambiance
Value proposition: place for best taste & value
meals; meeting place for all walks of life
Chinese Fast Food
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WHAT IS MARKET SEGMENTATION?
Process of dividing large, heterogeneous
markets into smaller subsets of people or
businesses with similar needs and
responsiveness to marketing mix offerings
People are different
Heterogeneity in
* Preferences
* Response to marketing actions
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Segment B
Segment A
Market
Segment C
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Segments
E.g. in leisure market
Passive homebody
Active sports enthusiast
Culture patron
Active homebody
Socially active
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Segmenting Consumer Markets
Geographic
Demographic
Psychographic
Behavioral
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Possible Bases for Segmenting Consumer
Markets
Geographic
region, city/county size, density, climate
Demographic
age, sex, family size, family life cycle, income,
occupation, education, nationality
Psychographic
social class, lifestyle, personality
Behavioral
occasions, benefits sought, user status, usage
rate, loyalty status, readiness stage, attitude
toward product
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Mobil Oil’s Actual Segmentation
Road Warriors (18%)
• Middle-aged men, drive a lot, use credit card, use
carwash, buy premium gas
True Blue (16%)
• Use cash, sometimes buy premium
Generation F3 (27%) : fuel, food, fast
• Young people, always on the go, buy snacks a lot
Homebodies (21%)
• Use car for shopping and children
Price Shoppers (20%)
• Don’t buy premium gas, compare prices
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Targeting
It is the process of evaluating segments and selecting
one or more segments as the focus of certain marketing
mix offerings.
Three targeting strategies:
Undifferentiated marketing (mass marketing)
Differentiated marketing (target selected segments)
Use different marketing mixes for each segment
Offer specialized products/services to each
segment
Is a higher cost operation: Product modification
costs, manufacturing costs, promotion costs,
inventory costs etc.
Concentrated marketing (targeting a single market
90
segment)
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Positioning
A product’s positioning: the place that the product
occupies in consumers’ minds relative to competing
products. It is the “big idea” associated with the
product in consumers’ minds.
e.g., Volvo positions on safety.
A company needs to decide where it wants to place
the product in the target consumers’ minds, i.e., how
to position the product.
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Figure 1: Actual consumer perceptions of GM
cars in 1982
High Price
Cadillac
Buick
Family/
Conservative
Oldsmobile
Pontiac
Personal/
Expressive
Chevrolet
Low Price
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Figure 2: GM’s goals set for 1990
High Price
Buick
Family/
Conservative
Cadillac
Oldsmobile
Pontiac
Chevrolet
Personal/
Expressive
Saturn
Low Price
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A perceptual map to suggest a strategy for
positioning chocolate milk to reach adults
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Product & Brand Positioning
(a) Product-positioning
map
(breakfast market)
Bacon
and
eggs
Cold
cereal
Pancakes
Hot
cereal
Quick
Slow
Expensive
Inexpensive
Selecting an Overall Positioning
Strategy
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Heavy taste
o Budweiser
O MILLER BEER
Light color
Dark Color
O GUINESS STOUT
O MILLER LITE
Light taste
Positioning Errors
Under-positioning – customers have only vague
ideas about the company and do not perceive
anything distinctive about it (Crystal Pepsi)
Over-positioning – Customers have too narrow an
understanding of the company, product, or brand
(Tiffany)
Confused positioning – Frequent changes and
contradictory messages confuse customers
(Sears)
Doubtful positioning – claims made for the
product or brand are not regarded as credible
(Cadillac Cimarron)
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SWOT/TOWS
4 key factor cells: labeled S, W, O, T
TOWS: goes beyond SWOT. Come up with 4
strategies
4 strategy cells
SO: match strengths with opportunities (maxi-maxi)
WO: match weaknesses with opportunities (maxi-mini)
ST: match strengths with threats (mini-maxi)
WT: match weaknesses with threats (mini-mini)
Example: Telemarketing Co.
Strengths
-ability to convert pledges to
$$
-good success rate
-2 large clients
-high efficiency due to new
tech
Weaknesses
-lack of budgeting
-lack of long-term planning
-work force too expanded
-bad leadership
Opportunities
-industry is growing
-can get more clients
-non-profits need teleMKT
-teleMKT is cheap
SO (maxi-maxi)
WO (maxi-mini)
*Expand offerings to more
clients
*Take advantage of growing
industry thru careful
planning
Threats
-more people hate teleMKT
-eMarketing
-industry competitive
-cell phones
ST (mini-maxi)
WT (mini-mini)
*invest in new tech
*Merge with or be acquired
by a larger Co.
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Example: eBay
Strengths
-high brand equity
-leader in e-auction
-giant marketplace
-massive data
Weaknesses
-fraud
-illegal goods
Opportunities
-new markets
-acquisitions (e.g., Skype)
SO (maxi-maxi)
WO (maxi-mini)
Threats
-criticism
-criticism
-criticism
-more criticism
-Craig’s
ST (mini-maxi)
WT (mini-mini)
Example: Toys “R” Us
Strengths
-well-known
-many stores (+1,500)
-large selection, low prices
Weaknesses
-no clear image
-demand seasonal
Opportunities
-alliance (Amazon)
-Kids need toys
-Big overseas markets
SO (maxi-maxi)
WO (maxi-mini)
Threats
-fierce competition (Walmart, Target, EB games,
Gamestop, etc).
ST (mini-maxi)
WT (mini-mini)
.
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Space Matrix
Decision tool to indicate whether a firm
should pursue “aggressive”,
“conservative”, “defensive”, or
“competitive” strategy.
2 internal dimensions: Financial strength
(FS), Competitive advantage (CA)
2 external dimensions: Environmental
stability (ES), Industry strength (IS)
Steps
1.
2.
3.
4.
5.
6.
Select a set of variables for FS,CA,ES & IS.
Assign a numerical value: For FS & IS
+1 (worst) +6 (best).
For CA & ES
-1 (best) -6 (worst)
Compute the average scores for FS,CA,ES & IS.
Plot the average scores on the SPACE matrix
x-axis (CA &
IS), y-axis (FS & ES).
Add the two scores on the x-axis and plot the resultant point
on the x-axis. Add the two scores on the y-axis and plot the
resultant point on the y-axis.
Draw a vector from the origin through the new intersection
point.
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Real Example
Financial Strength (FS)
Capital low
Return on asset low
Net income down 9%
Revenue increased 7%
Industry Strength (IS)
Deregulation provides freedom
Deregulation increases competition
Penn law favorable for banks
Environmental Stability (ES)
International market not good
Local clients are depressed (Pittsburgh companies)
Other financial Co’s not doing well
Competitive Advantage (CA)
Has operations in 38 states.
Banking industry competitive
Has many clients.
1 worst 6 best
1.0
1.0
3.0
4.0
(9.0)
1 worst 6 best
4.0
2.0
4.0
(10.0)
-1 best -6 worst
-4.0
-5.0
-4.0
(-13.0)
-1 best -6 worst
-2.0
-5.0
-2.0
(-9.0)
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Conclusion
ES average is -13.0 / 3 = -4.33
IS average is +10.0 / 3 = 3.33
CA average is -9.0 / 3 = -3.0
FS average is +9.0 / 4 = 2.25
Directional vector coordinates
X-axis: -3.00 + (+3.33) = +0.33
Y-axis: -4.33 + (+2.25) = -2.08
So, the bank should pursue….
Grand Matrix
IE seems complex.
Let’s keep it simple – Use only two
factors.
Market Growth Potential & Current
Positioning
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Strong potential
II
I
Weak
position
Strong
position
III
IV
Weak potential
Grand Matrix
Quadrant I Awesome
Quadrant II
Get New CEO
Quadrant III
Be Quick or Be Dead
Quadrant IV
Create New Market
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Demand Forecast
Why Demand Forecast?
Drives all plans
Allows operating levels to be set to respond to demand
variations
Allows managers to plan (personnel, purchasing, finance)
better
Reduces the need for slack resources (inventory, staffing)
to meet uncertain demand
Effective forecasting helps stabilize an operation.
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Naive Forecasts
Uh, give me a minute....
We sold 250 wheels last
week.... Now, next week
we should sell....
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Judgment
Sales Force Composites
Aggregation of sales personnel estimates
Jury of Executive Opinion
Combines views of key executives to obtain a sounder
sales forecast than might be made by a single estimator.
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Customer/Industry Surveys
Survey customers to ask them how much
they intend to buy in a future period.
Analogy
Use demand for a similar product to
forecast
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117
The Adoption Process
Involves the attitudinal changes
experienced by individuals from
the time they first hear about a
new product, until they adopt it
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Diffusion of Innovation Curve
Bass’ Innovation Diffusion Equation
Frank Bass (1969) forecast size of durable goods market, modeling gross
innovator & imitators effects, without knowledge of their network relations:
Qt
p Q Nt
1
Innovation Effect
r
Nt 1
Q Nt
Q
1
p r
Nt 1
Q Nt
Q
1
Imitation Effect
Qt = # of adopters during time t
Q = ultimate # of adopters
(market size)
Nt-1 = cumulative number of adopters at the beginning of time t
r = effect of each adopter on each non-adopter (coefficient of
imitation), between 0.3 and 0.5
p = individual conversion rate absent adopters’ influence
(coefficient of innovation), between 0.02 and 0.03
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SOURCE: D.S. Ironmonger, C.W. Lloyd-Smith and F. Soupourmas. “New Products of the 80s and 90s:
The Diffusion of Household Technology in the Decade 1985-1995.” University of Melbourne.
Time Series Methods
A time series is just collection of past values of the
variable being predicted. Also known as naïve
methods. Goal is to isolate patterns in past data.
(See Figures on following pages)
Trend
Seasonality
Cycles
Randomness
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Time Series Forecasts
Seasonal variation
Trend
Level
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125
Blue Ocean
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Competing in overcrowded industries is
no way to sustain high performance.
The real opportunity is to create blue
oceans of uncontested market space.
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Cirque du Soleil
Alternatives:
• Sporting events
•TV
•Video Games
PEST
• Animal rights groups
• Star performers demand
high salaries
Challenges:
Cirque
• Decreasing
Audiences
• Increasing
Costs
Rivals
•Ringling Bros
•Barnum & Bailey
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Cirque Revenues up 22 times in 10 yearshow?
Cirque created
uncontested market
space that made
competition irrelevant
New customer focus
– adults & corporate
clients- pull them from
theatre, opera , ballet
129
(Blue)
(Red)
130
(Red)
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Raise
Create
Eliminate
Reduce
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Four Action Framework
The Case of Cirque du Soleil (A Circus Company)
Reduce
Eliminate
•
•
•
•
Star performers
Animal shows
Aisle concession sales
Multiple show arenas
•
Raise
Create
•
•
•
•
Theme
Refined environment
Multiple productions
Artistic music and dance
Thrill and danger
•
Unique venue
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Business Universe
Red Ocean
Blue Ocean
New Industry
Ex: eBay
On line auction
From red
ocean
By altering
boundaries
133
Look back 100
years…
These were not there:
Automobiles
Music recording
Aviation
Petrochemicals
Pharmaceuticals
Look back 30 years..
These did not exist:
Mutual funds
Cell phones
Home videos
Bio technology
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People assume that everything that is going to be invented
must have been invented already. But it hasn’t.
If you believe human wants and needs are infinite, then
there are infinite industries to be created, infinite
businesses to be started, and the only limiting factor is
human imagination.
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Red vs Blue Ocean – The
Imperatives/ Defining
Characteristics
Red Ocean Strategy
Blue Ocean Strategy
Compete in existing market
space
Create uncontested market
space
Beat the competition
Make the competition
irrelevant
Exploit existing demand
Create and capture new
demand
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Core Product
Expected Product
Augmented Product
Ritz Carlton
Inn
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What is a Brand?
A brand can convey the following types of
meanings, or a combination of them: (BMW as
an example)
Attributes
Benefits
Values
Culture
Personality
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Advantages of Strong Brands
Improved
perceptions of
product
performance
Greater loyalty
Less vulnerability
to competitive
marketing actions
Less vulnerability
to crises
Larger margins
More inelastic
consumer response
Greater trade
cooperation
Increased marketing
communications
effectiveness
Possible licensing
opportunities
What is a Brand Promise?
A brand promise is the marketer’s vision of
what the brand must be and do for consumers.
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Brand Image/Identity
It all comes down to ASSOCIATIONS.
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Brand Identity…contd.,
Brands gain strategic position by association with:
Use or application
(e.g.. Gatorade is for football games or for after
tough workouts)
Product class
(Kellogg is a breakfast food)
Product user
(Miller is for the blue-collar, heavy beer drinker)
Brand Identity via Associations ...
Lifestyle and feelings
(the Pepsi Generation)
Personality
(Harley is a macho, male, free spirit)
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Value Propositions
Perdue Chicken
More tender golden chicken at a moderate premium
price
Domino’s
A good hot pizza, delivered to your door within 30
minutes of ordering, at a moderate price
Defining Associations
Points-of-parity
Points-of-difference
(PODs)
(POPs)
Attributes or benefits
Associations that
consumers strongly
are not necessarily
associate with a
unique to the brand
brand, positively
but may be shared
evaluate, and believe
with other brands
they could not find to
the same extent with
a competitive brand
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PODs and POPs
Examples of Negatively Correlated Attributes
and Benefits
Low-price vs.
High quality
Taste vs. Low
calories
Nutritious vs.
Good tasting
Efficacious vs.
Mild
Powerful vs. Safe
Strong vs.
Refined
Ubiquitous vs.
Exclusive
Varied vs. Simple
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Differentiation Strategies
Product
Personnel
Channel
Image
Product Differentiation
Product form
Features
Performance
Conformance
Durability
Reliability
Reparability
Style
Design
Ordering ease
Delivery
Installation
Customer training
Customer consulting
Maintenance
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Personnel Differentiation:
Singapore Airlines
Channel Differentiation
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Image Differentiation
Brand Extensions: Types
Same product, different form
Distinctive taste/ingredient/component
Companion products
Same customer franchise
Expertise
Attribute/benefit(s)/lifestyle “owned” or “reflected” by
core brand
Designer image/status
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Brand Extensions: Advantages
Instant recognition
Facilitate new product acceptance
Reduce perceived risk
Increase odds of gaining distribution
Reduce marketing costs
Increase efficiency of promotional expenditures
Provide feedback benefits to parent brand
Enhance brand image
Revitalize brand
Bring new customers to brand franchise
Brand Extensions: Disadvantages
Confuse customer
Hurt parent brand image
Dilute brand meaning
Forgo chance to develop a successful new
brand
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Brand Extension
Quality
Q of original brand
Transfer
Does the company have skills?
Complement
Does the new category complement?
Substitute
Does the new category substitute?
Hypothetical examples
McDonald’s photo processing
McDonald’s theme park
Heineken popcorn
Heineken wine
Vidal Sassoon sportswear
Vidal Sassoon skin cream
Crest shaving cream
Crest chewing gum
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Stages of the Product Life Cycle
Sales
Introduction
Growth
Maturity
Decline
Time
Stages of the Product Life Cycle
Sales
Introduction
Decline
Time
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Stages of the Product Life Cycle
Sales
Introduction
Growth
Maturity
Time
Factors Determining Rate of Adoption
Relative advantage of the product
Relative complexity
Possibility of trial use
Observability: ease with which adoption pattern is
observed by consumers
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Product Life Cycle
Sales and Profits Over the Product’s Life From
Introduction to Decline
Sales and
Profits ($)
Sales
Profits
Time
Product
Development
Introduction
Growth
Maturity
Decline
Losses/
Investments ($)
Introduction Stage of the PLC
Summary of Characteristics, Objectives, & Strategies
Sales
Low sales
Costs
High cost per customer
Profits
Negative or low
Marketing Objectives
Create product awareness and trial
Product
Offer a basic product
Price
Usually is high; use cost-plus formula
Distribution
High distribution expenses
Advertising
Build product awareness among early
adopters and dealers
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Growth Stage of the PLC
Summary of Characteristics, Objectives, & Strategies
Sales
Rapidly rising sales
Costs
Average cost per customer
Profits
Rising profits
Marketing Objectives
Maximize market share
Product
Offer new product features, extensions,
service, and warranty
Price
Price to penetrate market
Distribution
Increase number of distribution outlets
Advertising
Build awareness and interest in the mass
market
Maturity Stage of the PLC
Summary of Characteristics, Objectives, & Strategies
Sales
Peak sales
Costs
Low cost per customer
Profits
High profits, then lower profits
Marketing Objectives
Maximize profits while defending market
share
Product
Diversify brand and models
Price
Price to match or best competitors
Distribution
Build more intensive distribution
Advertising
Stress brand differences and benefits
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Pricing
Pricing = the art of translating into quantity
terms the value of the product to consumers.
Price…..
Classic economics assumes a rational man.
Price represents an economic loss.
$29.99
$29.99
In marketing……
Price perceptions are not objective. (Reference
Price)
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Inelastic and Elastic Demand
Factors Leading to Less Price Sensitivity
The product is more distinctive
Buyers are less aware of substitutes
Buyers cannot easily compare the quality of substitutes
The expenditure is a smaller part of buyer’s total income
The expenditure is small compared to the total cost of
the end product
Part of the cost is paid by another party
The product is used with previously purchased assets
The product is assumed to have high quality and
prestige
Buyers cannot store the product
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When to Use Price Cues
Customers
purchase item
infrequently
Customers are new
Product designs
vary over time
Prices vary
seasonally
Quality or sizes vary
across stores
Pricing Objectives
Profit-Oriented Objectives
Target return objective: sets a specific level of
profit.
Boeing aims 16.5% Return On Investment (ROI)
if invest $10B
profit of $1.65B
Meijer aims 1.8% Return On Sales (ROS)
if
sales $10B
profit of $180M
Profit maximization objective: seeks to get as
much profit as possible
“Charge all the traffic
will bear”
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Pricing Objectives
Sales-Oriented Objectives
Seeks some level of unit sales, dollar sales, or
market share, without referring to profit.
“Growth is Everything”
Netscape used the market share objective in the
early days of the Internet.
Market share objectives are popular, but they
may lead to profitless “success”.
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Pricing Objectives (continued)
Status Quo Pricing Objectives
Seeks to stabilize prices
Most common when the total market is not
growing. (e.g. Cola market)
Advantage: discourage price competition
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Cost-Oriented Pricing
Markup Pricing
Setting price by using a markup (e.g., many retailers
and wholesalers)
Markup (percentage): percentage of selling price
that is added to the cost to get the selling price.
Markup on cost (percentage): percentage of cost
that is added to get the selling price.
Note: Sometimes a markup is also in terms of dollar
amount.
177
Cost per Unit as a Function of Accumulated
Production
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Competition-Oriented Pricing
Based on competitors’ prices rather than costs and
revenue.
Price war
Implicit collusion
e.g. loyalty programs which soften price
competitions by artificially increasing
switching costs (Mileage)
179
Perceived value pricing
Firms see the buyer’s perception of value, not
the seller’s cost, as the key to pricing.
They use non-price variables to determine the
price.
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Pricing of Really New Products
Skimming pricing: starts at the highest
possible price in the introduction stage of a
product, and lowers the price later.
An Example: IBM’s PC was introduced at a
skimming price of $4,500 in 1981.
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Skimming pricing
Advantages:
Keeps demand consistent with limited
production capacity
Covers high initial costs of R&D and
product introduction
High profit margin, so high profit and cash
flow (since competition is usually low in
the introduction stage).
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Skimming pricing
Limitations:
Attracts competitors to enter the market
(e.g. Dell & Compaq)
Will lose market share if consumer loyalty
does not build up
Not desirable if the objective is to achieve
high market share
183
Penetration pricing: starts at low price to get
large unit sales volume and faster diffusion.
An Example: Apple’s Newton PDA at a
skimming price of $1,000
failure.
3Com
PalmPilot at a penetration price of
$250
Success
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Penetration pricing
Advantages:
Lowers chance of competitive entry
Faster diffusion may help build image and loyalty
Selling larger quantities may result in lower costs
because of economies of scale.
Limitations:
Low profit margin. Not good unless the unit sale
volume is high enough.
The firm needs enough capacity to serve high
demand.
Later entrant may have better product.
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Legal Issues of Pricing
Selling below cost is illegal.
Dumping: pricing a product sold in a foreign market
below the cost of producing it or at a price lower
than in its domestic market.
Many countries have anti-dumping laws.
Price fixing is illegal.
Price fixing: competitors getting together to raise,
lower, or stabilize prices. (Sherman Act, FTC Act)
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Legal Issues of Pricing
Price discrimination: Manufacturers cannot sell the
same product to different customers at different
prices, unless the differences can be justifies based
on (1) cost differences or (2) the need to meet
competition.
Trade promotions should be made available to all
customers on “proportionately equal” terms.
Manufacturers cannot dictate other channel
members’ selling prices.
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