Marketing 101 Cracking the Marketing Code Training Session Columbia Business School October 29, 2010 Objectives • Look smart and knowledgeable in CPG interviews • Actually learn something – Basic marketing concepts – Some clever tools to crack the code • Have a global view Basic marketing concepts 3C´s • Corporation • Customer • Competitors STP • Segmentation • Targeting • Positioning 4P´s • Product • Price • Place • Promotion How they relate Corporation Marketing Mix 4P´s by segment Competition Customer Customer Target Segments Segments Customer Segments A simple example…us 1st. yr. Columbia MBA´s AM Inc. Marketing Mix Product – CPG marketing tutorial Place – here Promotion – email invites Price ??? Value proposition – 25% increased chances of getting CPG summer offer How much would you pay? How much should I charge? Add a competitor 1st. yr. Columbia MBA´s AM Inc. RK Inc. What do I do? Offers same product at 20% discount across the hall Lower my price ? Differentiate product and promote it? Segment and target? A segmented strategy 1st yr. Columbia MBA´s 35% 65% Analitics Leave to RK AM target More likely to succeed Better fit with my capabilities Tailored marketing mix Product CPG analytical marketing Pricing premium Promotion to analytical “elite” Place here plus “web tutorial” Basic marketing concepts 3C´s • Corporation • Customer • Competitors STP • Segmentation • Targeting • Positioning 4P´s • Product • Price • Place • Promotion Customer segmentation What is Segmentation? Why is Segmentation Useful? “The science of finding, within a heterogeneous customer universe, homogeneous groupings of customers which meet segmentation criteria defined by us” Allows us to assign people and limited resources more efficiently and effectively “Segment quality improves dramatically to the extent that we utilize both subjective and objective criteria to define the segments” Helps orient the design of products and services for specific sub-groupings of customers, shoppers, and consumers Facilitates the uncovering of needs and opportunities not exploited by our current approach Results in significant improvement in the impact of marketing initiatives (programs and promotions) and in-store execution Usually results in better balance between benefits and the costs required to generate them Segmented value propositions Intensive use of market research tools – e.g., Choice analysis, Conjoint analysis, cluster analysis, etc. Cost to Serve Direct cost to serve – sales, transportation, warehousing, etc. Commercial terms – channel margins, credit terms CTS optimization opportunities must be considered Customer Requirements and Satisfaction Value Proposition Economic Benefit to Customers Impact on ROI vs. competition and other product categories Include a holistic assessment including all elements of the value equation Service levels Product portfolio Service offering Commercial offering Channels Sales and distribution model Competing Value Propositions Brand and product portfolio strength Value proposition Client satisfaction with competing value propositions Segmentation and targeting process B Assess Market Structure & C Trends Define Market A Overall Overall Market Market Set Define Strategic Market Objectives F Overall Market Select Target Market Segments Identify Attractive Right Market Segments Analyze Perform Right-toCompetitor win Analysis E D Target Segments Define market B Market Definition: Aquafina Bottled Water What does PepsiCo aspire to be in long-term? How can the aspiration be translated into a competitive goal for Aquafina? What else can the company potentially sell with its current capabilities? Options 1 Share of Water 2 Share of Beverage 3 Share of Stomach Substitute products – Other brands of bottled water – Tap water – Filtered water Substitute products – Carbonated drinks – New age drinks – Nectar – Coffee and tea Substitute products – Non-alcoholic beverages – Salty snacks – Sweet snacks – Fruits and vegetables Market of drinking water Market of non-alcoholic beverages Market of snack food and beverage C Asses market structure and trends Non-alcoholic beverages value added path CSD B Brands CSD A Brands Rural Brazil Rural China Fruit Nectars/Drin ks B brands Rural Brazil Juice B Brands Fruit Nectars/Drin ks A brands Rural Russia Rural Russia Juice A Brands Urban China D Identify attractive market segments Sugar confectionery consumer need diagram Expressive ENJOYMENT Pleasure Kick Candy Sharing Individual Social Conscious Pastilles Stimulus Relaxation Chewing Functional Refreshment gum REFRESHMENT Controlling E Analyze “Right to win” Examples of capabilities led extension into adjacencies Level of Confidence Regarding Benefits Example Description Advantaged Distribution System Built a cost advantaged DSD delivery capability that was initially leveraged with existing products to out-execute competition Further leveraged scale with innovative new products and finally geographic expansion Advantaged Innovation Leveraged R&D technology and consumer insights to introduce “Crest Whitestrips” and now own 70% of that category Leveraged “Crest Whitestrips” technology to create a Joint Venture with Clorox to launch new Glad products Advantaged Ethnic Marketing Advantaged Customer Capabilities Leveraged strong consumer insights capability and position in Latin America to create an ethnic marketing capability in the US – First used this capability to attract new consumers in key markets (e.g. Miami, Los Angeles) – Later adapted the value proposition for these consumers with new products and marketing approaches Traditionally had the one of the strongest “in-house” sales organizations Built a comprehensive “retail execution” capability with its sales organization – improving revenue execution through merchandising effectiveness and greatly reducing retail out-ofstocks F Identify attractive market segments "Sportler" Emotional "Techniker" "Yuppies" "Sparer" Price Top Image "Statusbewußte" "Rationalisten" Rational Position with different look and feel Sextuplets Piech´s common components strategy: a few token gimmicks and the same products Basic marketing concepts 3C´s • Corporation • Customer • Competitors STP • Segmentation • Targeting • Positioning 4P´s • Product • Price • Place • Promotion Price and product attributes Vegetable oil in China COST ~50 RMB / 5 L ~10 RMB / L 20% premium QUALITY CONVENIENCE 60 RMB / 5 L 12 RMB / L 24 RMB / 1.8 L 13.33 RMB / L 11% premium Snacks value added path Extruded B Rural Brazil Extruded A Urban China Chips B Chips A Rural Brazil Urban Russia Price points and premiums Extruded B Large Size, Small Size Chips A Large Size Small Size Rural Urban Extruded B, Large Extruded B, Small Chips A, Large Chips A, Small 21 Price points…”affordability” Place…retail channels evolve Retail channels evolution 100 % Growing convenience stores & Discounters for Low Income Consumers Traditional Trade Small Format Modern Trade Large Formats stalled Low penetration among Low Income Consumers 50 % Large Format Modern Trade 0% India China Brazil & Mexico US & Europe From traditional to modern trade Traditional trade in Anhui Hypermarket in Shanghai ”Go to Market” model Guidelines for a Successful Go to Market Model Upgrade Go-to-Market and Organizational Capabilities Redefine sales force activities and call standards Improve effectiveness of key processes – Market execution/OTC – Account planning – Business review and control Define optimal sizing, routing, profiles and skills Improve tools Align measurement and rewards Understand Business and Customer Requirements Understand product dynamics and requirements Understand customer requirements/satisfaction Understand competitors offering Segment customers based on needs Successful Go-to-Market Model Crack the Economics to Serve Each Channel Craft an Optimal Value Proposition for Each Channel Define optimal channel mix and number of WH’s/Distributors Define WH/Distributors roles Balance service levels – call content, call frequency, fill rates, leadtimes – vs. cost-to-serve Reengineer commercial terms and service policies Understand cost-to-serve and profitability drivers Understand true cost of indirect channels vs. direct service Balance and control commercial terms and discounts vs. direct service needs Reengineer go-to-market and supporting organization infrastructure to improve cost-toserve Crack the economics to serve “Profit-to-Serve” Equation Volume (reach and lift) Revenues Profit to Serve less Costs 26 Net Price Realization – Number of accounts reached – Consumer price – Shelf and cold space – Trade margins – Categories and # of SKUs carried – Trading terms – Out of Stocks and Service Levels Direct GTM and Sales Costs – Sales force – Merchandising – Sales supervision – Delivery/secondary transportation – Custom products and packaging – Supply chain and DC requirements Shopper and Customer Marketing – In-store advertising – Shopper marketing – Customer activation Trade Promotion Asset Amortization Working Capital “Modern Trade” economics $ Per Stat Case Route-To-Market – Variability Among Retailers in Cost to Serve Customer Costs as a 36% 37% 29% Percent of Sales Dollars 27 Source: BAH Analyses 25% 24% 26% 22% 22% 21% 22% 18% 15% 19% 17% 15% “Traditional trade” economics Varied Customer Contribution 40% % Customer Profitability 20% Mean Customer Profitability 0 (-20%) (40%) (60%) (80%) 100 1,000 10,000 Client Size 100,000 1,000,000 (kg) Channel Categories Customer 1 Customer 5 28 Customer 2 Customer 6 Customer 3 Customer 4 Customer 7 Customer 8 Channel definition Break-Even Point of Direct Service Additional Go-to-Market Benefits Due to Additional Wholesalers Leading Products 8 Complementary Products $120 7 5 Go-to-Market ($MM) If a customer buys less than 4 - 5 units, it cost less to use distributors 6 US$ Volume New Products 4 3 $100 Benefits of direct service $80 Better coverage of total portfolio Better service levels $60 $40 Distributors and WH´s margin 2 $20 1 Direct Service Cost $0 0 0 1 2 3 4 5 6 7 8 1 2 3 4 Order Size (Units) Source: BA&H Analysis RPMX-JGB-Feb23-06 5 6 7 SKUs Go-to-Market using Current WH´s Incremental revenues due To additional customer base 8 Value offering by channel Survey / Conjoint Analysis Segments Value Offering Bonificaciones 0.6 Product Offering Bonificaciones 0.8 0.4 Promociones / Activaciones 0.6 Promociones / Activaciones 0.4 Licencia 0.2 Licencia 0.2 0 0 Imagen Imagen Crédito Maximize value/ Minimize Cost Crédito Refrigeración Refrigeración Bonificaciones 0.6 0.4 Promociones / Activaciones Licencia 0.2 12.0 0 Imagen Crédito 10.0 Refrigeración 8.0 6.0 Optimized Cost to Serve 4.0 2.0 % CTS / Revenue 0.0 4.6 1.1 1.2 1.7 C 1.3 1.4 5.3 1.4 6.0 0.5 1.6 0.4 0.5 2.2 2.9 3.3 3.9 1.9 M G C M G Negotiation Oriented Service Levels Delivery Model Finance Oriented Segments Trade Terms/ Support volume Promotions…”ROI Marketing” Marketing Investments Purchase Behavior Market Results Television Brand and Product Awareness Billboards (OOH) Print Consideration affects … SOM $ Spend … which in turn affects … Intent Promotions Market share Consumer Events Purchase Unit sales Price premium Relationship Marketing Sponsorships Loyal-ty Penetration of key segments Etc. Allocation of funds across marketing levers Optimization of spending within each lever Allocation across levers Effectiveness: Awareness / GRP – Relative to TV(1) 1428% 1028% Media Effectiveness x Efficiency (Relative to TV – 100%) 12.9x 3569% 10.7x 19% 34% 1% 3% 12.9x 100% 25.0x 2.5x Efficiency: Cost per GRP’s (US$) 69,204 41,522 4.4x 173,010 179 0 319 40 10 0 4.0x 1.0x 682 (1) Relative effectiveness to TV = (Media awareness /Media GRPs) / (TV awareness / TV GRPs) Source: Economic Model; Booz Allen analysis Optimization within levers ROI Over All Events and Products (Four Account Sample) Sample Trade Promotion Event ROI -63% median event ROI. -48% average ROI Event ROI 91% of events yield a negative ROI Event ROI Kmart Events Event ROI Product 1 Events Notes: (1) Assumptions made on list price, feature cost, and that retailers retain their base margin (2) ROI=(Revenue-Cost)/Cost Source: IRI Scanner Data; Manufacturer Cost Data; Booz Allen analysis -43% median event Events ROI -63% median event ROI Competitive impact Share of Spend vs. Market Share (2004 to 2006) 2004 to 2006 Change in Spend vs. Change in Market Share LG Kenmore Whirlpool GE LG Whirlpool 2004 to 2006 Point Increase in Share of Media Spend Share of Media Spend Kenmore GE KitchenAid Kitchen Aid Maytag Share of Market – Value All Appliances Source: TNS Data, AHAM, Traqline, Booz Allen Analysis Maytag 2004 to 2006 Point Increase in Share of Market Scale impact Beer Brands Marketing investment by hectoliter 25 Amstel Light USD/HL 20 Coors 15 Michelob Light Heineken 10 Miller Genuine Draft Corona Extra 5 2 R = 89% Miller Lite Co Coors ors Light Budweiser Bud Light 0 5 10 15 Fuente: Morgan Stanley Quarterly Report. Beverages US. Análisis BAH 20 25 30 Millions of HL/year 35 40 45 Consumer purchase funnel Brand A Brand B 99% Awareness -73% 27% Preference Potential Problem 99% -44% Positioning not unique, meaningful? Product, service offering does not deliver positioning? 55% 0% 27% Intent -16% Identified Issue: 19% Product positioning is not truly differentiated or compelling Source: Client Data; Booz Allen analysis Perceived pricing overrides benefit of positioning? Perceived availability (channels) doesn’t support positioning? 46% -30% Purchase Inadequate advertising/PR support? Positioning not unique, meaningful? -65% 16% Retail outlets steer customers to competitive products on which the outlet earns superior returns Actual price/value is different from perceived price/value? Actual availability (channels) does not support positioning? Not easy to find in channels? Other benefits, products are advertised in channel? Marketing vehicles mix and purpose Consumer Purchase Funnel Marketing Vehicles Conventional Awareness Consideration Trial Occasional Buyer Regular Buyer Retention Pene -tration Alternative Mass Media Outdoor advertising Product placement Unconventional print Internet marketing Graffiti advertising Mass Media Outdoor advertising Event marketing Buzz marketing Guerrilla marketing Viral marketing Event marketing One-to-one sampling Direct marketing Lifestyle shop placement Switch Selling Broad market sampling Mass Media Outdoor advertising Promotions Pricing Direct marketing Event marketing Lifestyle shop placement Search for long term value value Incremental Spending on Marketing Levers and Impact on EBITDA, SOM and Enterprise Value Managing Trade-off’s 380 4.5 Enterprise Value 375 4.0 370 3.5 365 3.0 360 2.5 355 2.0 350 1.5 345 1 0 $10M $20M $30M $45M 0 $65M Incre. Share 0 2% 4% 6% 8% 10% Base Vol Trend 0 (2%) (1%) 0% 1% 2% Source: Client Data; Booz Allen analysis Enterprise Value ($B) EBITDA (US$ MM) EBITDA (Annual) 340 Incre. Spending Marketing investments drive share growth, but profitability tends to decline as incremental share becomes more expensive In the short-term, the right decision is to maximize profits which requires incremental investments until they begin producing negative returns However, in the long-term, the more profitable decision may be to grow share, even at a loss, if this enables superior market power / sustainable competitive advantage However, getting this right is an iterative process and the trade-offs need to be clearly understood and carefully managed This process provides significant insights into the dynamic impact of marketing investments on share and earnings In summary 3C´s • Corporation • Customer • Competitors Grab the big picture STP • Segmentation • Targeting • Positioning Pick your fights 4P´s • Product • Price • Place • Promotion Strive for top value