Marketing strategy Teacher: Ana Polo Course: 2010 Lesson 1. Marketing strategy scope Setting the framework 1. Is Marketing everywhere? It’s obvious that people and organitzations engage in a vast number of activities that we could call marketing. And it’s obvious that marketing profoundly affects our daily lives. But, are there limits? Marketing is everywhere? Where should we set the limits? Obviously, there’s an ethical compound, a boundary that marketing can not surpass. 2. Second major question: marketing can also be a problem? Marketing is tricky and it has been the Achilles’ heel of many formerly prosperous companies. Large and well-known companies, such Levi’s, have confronted many problems because they have failed at their Marketing strategy. 3. Another question: Philip Kotler used to say that “simply giving the customers what they want isn’t enough anymore”, Is he right? Consumers did not know much about cellular phones when they were first introduced and both Nokia and Eriksson fought hard to shape consumer perceptions of them. Another example was Tamagotchi. This is because there are not only stated needs or expressed needs (needs that the customer express clearly and verbally). There are also other types of needs: - - Real needs: what he/she really needs, and can reveal or not. For example: The customer wants a cheap car (stated need), the customer wants a car whose operating cost, not its initial price, is low (real) Unstated needs: the customers expect good service from the dealer. - Delight needs: the customer would like the dealer to include an onboard navigation system. Secret needs: the customer wants friends to see him a s a savvy customer. Latent needs: those that even the customer is not aware himself. 4. Fourth question: Peter Drucker, leading management theorist, said that “the aim of marketing is to make selling superfluous”. Was he right? The traditional view of marketing is that a company makes something and then sells it. But the really aim of marketing is to know and understand the customer so well that the product or service fits him and sells himself. Ideally, marketing should result in a customer who is ready to buy. The job is not to find the right customers for your products, but the right products for your customers. So, marketing means identifying and meeting human and social needs: - Choosing target markets that have a need or a talent need. Offering them a product or service that cover that need. Getting, keeping and growing customers through creating, delivering and communicating superior customer value. 5. Fifth statement: Not 4 P’s anymore! Due to the fact that we must focus all our attention in the customer, the 4 P’s framework is of questioned usefulness. Because it represents the seller’s view of the marketing tools available for influencing buyers. Another model that focuses on customers: SIVA: - Solution: How can I solve my problem? Information: Where can I learn more about it? Value: What is my total sacrifice to get this solution? Access: Where can I find it? 6. Last statement: David Packard, from Hewlett-Packard, said “Marketing is far too important to leave it to the Marketing Department”. Due to the fact that the focus must be put on the customer, companies now know that every employee has an impact on the customer and must see the customer as the source of the company’s prosperity. So, the new mantra is: “Love the customer, not the product”. Traditionally, marketing was seen as the function of the CMO, the Chief Marketing Officer. And everybody described the job as: - Strengthening the brands Measuring marketing effectiveness. Driving new product development based on customer needs. Gathering meaningful customer insights. Utilizing new marketing technology. But this definition has been broadened, and now everybody has a role to play in marketing, basically because now we have added a new function: guarantee customer satisfaction and translate it into customer devotion. Obviously the traditional way marketing operates is till useful. And that’s the main reason to keep alive the Marketing Plan. This is the single central instrument for directing and coordinating the marketing effort. And all marketing plan is based on two pillars: - The strategic par_ it lays out the target markets and the value proposition that will be offered, based on an analysis of the best marketing opportunities. The tactical part: specifies the marketing tactics, including product features, promotion, merchandising pricing, sales channels and service. To make all the of these work, first you must provide a framework: a reason for existing. That’s why we must provide a mission, vision, core values and goals. Mission, Vision, Core values and Goals Mission: an organization exists to accomplish something (to make cars, to lend money…) So, What is your business? What is our reason to exist? The mission is providing a meaning to your business. Guy Kawasaki recommends that you should only start a business if you are going to accomplish: - Make the world a better place. Increase the quality of life. Right a terrible wrong. Prevent the end of something good. So, he recommends to describe your mission as the result of the sentence: “If your organization never existed, the world would be worse off because…” The problem here is that companies often describe their mission statement in a boring way. For example: Motorola’s mission is: “We honorably serve the needs of the community by providing products and services of superior quality at a fair price to our customers”. Providing a mission statement is not describing the product or service you provide but giving a good reason to exist, something that really moves you. For example, Encyclopedia Britannica’s product definition is: “We sell encyclopedias”. Its mission is “We distribute information”. Also, it’s important not to confuse a mission statement with tag lines. Missions are for your employees. It’s a guideline for what they do in their jobs. Tag lines, on the contrary, it’s for customers. It’s a guideline for how to use your product or service. Vision: apart from the mission statement, we have the vision. What do we want to achieve? What should we become in five or ten years? This is an “almost impossible dream” that provides direction for the company. For example, Sony’s former President, Akio Morita, wanted everyone to have access to “personal portable sound”. So his company created the Walkman and portable CD player. But this dream, this direction can not be too much general. Today we think it’s better that a vision should include: - a quantified success indicator. A definition of “niche”: in which sector you would like to play or specialize. A time lime to play for execution: we want our vision achieved in a period of time. So, visions statements must be not only aspirational and inspirational, they must be also measurable. A good example is Toyota’s mission and vision: - Mission: “provide safe and sound journey” Vision: “to be the most respected and successful vehicle enterprise in the next five years with a wide range of products and solutions in the automobile industry and the best technology”. Core values: Well, apart from the mission and vision, to define what kind of business we are we have to set up our core values, the philosophy of a company, the organizational culture: For example: Stanford values: - Believing in the power of ideas and intellect - Striving for excellence in what Stanford does. Acting with integrity Exhibiting compassion and respect to others. Taking ownership of one’s actions. Goals: How to get from the mission to vision? The route is carved out with the strategic goals. But remember that all goals must be SMART: - Specific - Measurable - Attainable - Realistic - Time-Phased PESTEL and SWOT Apart from setting the Mission, Vision, Core values and Goals, We must also pay attention to the environment we are playing in. PESTEL scans macro-environmental factors. PESTEL stands for: Political, Environmental and Legal. Economic, Social, Technological, A good PESTEL analysis can enable an organization to anticiape future business threats and take action to avoid or minimize their impact. It can enable an organization to spot business opportunities and exploit them fully. SWOT, on the contrary, analyzes the market you are playing in. It stands for: Strengths, Weakeness, Opportunities and Threads. Lesson 2. Segmenting, Targeting and Positioning Customers in a market are never homogeneous. A market segment is a customer group within the market that has special characteristics which are significant for marketing strategy. Segmenting Segmenting is dividing the market so we can find “homogenous” submarkets. To segment a market we can use different variables: a) Geographic variables: city, density, climate. b) Demographic variables: age, sex, family type, legal status, income, occupation, education, nationality… c) Psycographic variables: social class, lifestyles, personality… d) Behavioral variables: level of use, frequency of use, loyalty level… From all of them, psycographics variables are now more in vogue than ever because they study a person’s pattern of living. The most famous psycographics types are stored up in SRI Consulting’s Values and Lifestyles (VALS) typologies. VALS classifies people according to how they spend their time and money. It divides consumers into 8 groups based on 2 major dimensions: - primary motivations resources Innovators: they are successful, sophisticates, take-charge people with a lot of self-esteem. The are most resceptive to new ideas and technologies. Thinkers: they are motivated by ideals. They are mature and value order, knowledge and responsibility. They are well educated and seek out information in the decision-making process. They look for durability, functionality and value in the products. Believers: also motivated by ideals. Traditional, their lives are moved by established codes (family, religion…) They choose familiar products and established brands. Achievers: they are motivated by the desire of achievement. Deep commitment to career and family. Image is important to them: they favor established prestige products and prestige. Strivers: they are trendy and fun-loving. They are concerned abour the opinions and approval of others. They are active consumers and are very impulsive. Experiencers: they are motivated by self-expression. They are young, enthusiastic about new possibilities. They seek variety and excitement. They spend a lot of money on fashion, entertainment and socializing. Makers: they are practical people who have constructive skills and value self-sufficiency. They are suspicious of new ideas, they are unimpressed by material possessions other than those with a practical or functional purpose. They prefer value to luxury, they buy basic products. A variation of the “VALS” scheme is the technographics. VALS proved to be great except for technological products. In the techie field is better to use Forrester’s “Technographics” scheme: Fast forwards: the biggest spenders in technology. They are careefocused, time-strapped, very driven and competitive. New Age nurturers: also big spenders but focused on technology for home uses, such as family education and entertainment. Mouse Potatoes: dedicated to interactive entertainment and willing to spend for the latest in “technotainment”. Techno-strivers: up-amd-coming believers in technology for career advancement. Traditionalists: suspicious of technology beyond the basics. Targeting Once you have segmented your market, you have to choose that segment that fits better for you. This process is called targeting. You find your “target”, that segment that you want to attract. Advanced questions in segmenting Ok. You already know what segmenting and targeting is. Let’s face some questions: 1. What happens if you don’t have customers to segment? Well you have to generate customers, them. And to do so, you have to change behaviours, attitudes and perceptions in the people’s minds. Psychologists have determined that public are generally passive and you must persuade them to do something. You can persuade through facts, emotions…. The fact is that people tend to respond more to something that affects them personally. You must always appeal to the selfinterest. And the key here is: Sell the benefit!!!!!! For example: the “Got Milk? campaign”. This campaign aimed at educating consumers on the benefit of mil. The campaign was launched 10 years ago at a time when mil was considered outdated, only for kids and only good as an accompaniment for high-fat foods like cookies. In fact, during the 30 years previous to this campaign, milk consumption had declined sharply. The campaign wanted to target 20-30 years old women and, thanks to the “celebrity moustaches” women began to associate milk with the celebrities endorsing the ads. So they generate new consumers. The campaign was so successful that they widened the targets and aimed to reach men. They use fictional characters like Superman to portray the image that drinking milk was also manly. Another example: Cosmetic targets men. Another example of generating new customers is cosmetics for men. In 1991 Carolina Herrera launched the “Carolina Herrera for Men” parfum but they were targeting men with a feminine approach. Really men cosmetics has been targeting gay public and, more recently, the “metrosexual” man. But all these attempts were too narrow. The main problem was that the vast majority of men found these products to be extremely feminine. So the cosmetics firms began to change the strategy and changed the packages to appear more masculine. In fact, they wanted to generate the idea that it was not cosmetic, it was something for your health, like going to the gym. The best at this has been LabSeries. Now the problem is to reach the aged men. Whereas there are thousand of antiaging products for women, cosmetics firms have begun to target men over 45 years old. For example, L’Oreal is using James Bond. Do remember some tips to target “difficult targets”: a) Sell the benefit and find something people can be interested in. b) You must use graphical images as much as possible but always add a “call to action”: tell people to do something. c) Never use too “dramatism”: people can be scared and avoid put attention. d) Use a positive tone. Also do remember that you have an important problem to overcome when targeting difficult targets: the cognitive dissonance (Leon Festinger). We avoid all the information that opposes our desires and needs. To change the attitude of a “dissonanced person” you must use “fear”. If you want to avoid this situation, don’t do that: for example, traffic deaths. 2. What happens if your segments and your targets change? This hypothesis always happens. You have to redefine the segments and the targets. For example: Cacharel Parfums de l’Oréal Anaïs Anaïs was launched in 1978 to “give the new younger consumer what they wanted”. The aim was create a fresh, floral fragrance for a youth market, a perfume that was tender but sexy. It was priced 30% below classic brands thereby putting it within easy reach of the younger consumer. After 2 years on the market, Anaïs Anaïs became the leading perfume in Europe. But in 1994 the arrival of one particular product began to challenge Cacharel’s long-standing status: CKOne. It was aimed for 15 to 25 years old and portrayed a different kind of young women: androgynous, uninhibited, with no regard for traditional glamour. There had been changes in consumer needs and wants and they had been unable to understand them. So they had to reshape their segmenting and targeting strategy. They found four kinds of consumers among the young women public: - The The The The androgynous one uninhibited one innocent one romantic sensual one. They decided to target the last two segments and they launched an ad campaign featuring Kate Moss (who is already very androgynous) in a very innocent but sensual fashion. The idea: the “uninhibited women also want to be princesses” Another example: Harley-Davidson, which is the classic example of segmenting. Few brands have such intense loyalty as that found in the hearts of Harley-Davidson owners. Basically, you don’t see people tattooing Yamaha on their bodies. Harley has the 56% of the heavyweight motorbike market share and partly that’s why Harley-Davidson’s marketers spend a great deal of time thinking about who customers are, what they think and how they feel, and why they buy a Harley rather than a Yamaha or a Kawasaki. They sent 16.000 surveys containing a typical battery of psychological, sociological and demographic questions and found that they had seven core customer types: - Adventure-loving traditionalists Sensitive pragmatists Stylish status seekers Laid-Back campers Classy capitalists Cool-headed loners Cocky misfits Their traditional target was the first one (adventure-loving traditionalists: the so-called “Hell’s Angels”with black-leatherjackets) but they are moving towards a news breed of riders: the “rubbies” (rich urban bikers): they are younger, more affluent, and better educated. Positioning Ok. So we have already understood what segmenting and positioning is. Now the other part of the marketing strategy: Positioning. Positioning refers to all the strategies we develop to attract our desire targets. That means making sure our product or service is visible and well-considered and also, and foremost, positioning implies dealing with our competence. Always remember that our own attractiveness is the result of ourselves and the attractiveness of our competitor. Today, competition is not only rife but growing more intense every year. And because markets have become so competitive, understanding customers is no longer enough. Companies must start paying attention to their competitors. So, the first stage is: Who our competitors are? It would seem a simple task for a company to identify its competitors. McDonald’s would name Burger King. Perhaps, they would include Pizza Hut and even supermarkets that have added prepared food. But remember: a company is more likely to be hurt by emerging competitors, or new technologies, that by current competitors. For example, when you can get free news content online, why should you buy a newspaper? And also remember that sometimes our competitors seem not to be our competitors. Example: Coca Cola Coca-Cola states that its number one competitor is tap water, not Pepsi. So you must be always aware of what is happening in your market segment. There’s a new kind of marketing called the Guerrilla Marketing that recommends few pieces of advice: 1. Watch the small companies in your industry and related industries. True innovation often comes from small companies. (Ex: Google) 2. Follow patent applications: Not all applications lead to products, but patent filling indicate a company’s direction. 3. Track the job changes and other activities of industry experts. Who have the competitors hired? If a company hires a marketing directo with significant experience in Eastern Europe, the company could be looking toward that market. 4. Be aware of licensing agreements. And monitor the formation of business contracts and alliances. And also try to learn what are your competitors doing and what they are doing better than you. The art of learning from companies that perform certain tasks better than other companies is called “Benchmarking”. It’s like spying but with ethics and good purposes. Ok. We know who our competitors are. What can we do in front of them? We must position ourselves The first thing is generate a reason to buy our products and to avoid people buy our competitor’s products. This reason is called “valued proposition”. For example. Volvo. Target customers: safety-conscious “upscale” families that seek durability and safety. Value proposition: “The safest, most durable wagon in which your family can ride”. The objective here is that when people think about Volvo they might think about “safety, durability”. In fact, positioning a product is generating a thought in people’s mind. Al Ries and Jack Trout are two of the best authors regarding positioning. They have a good book called “Positioning: the battle for your mind” that is worth-reading. They argue that well-know products generally hold a distinctive position in consumer’s minds. For example: Coca Cola: the world’s largest soft-drink company Porsche: one of the world’s best sports cars. And, also, in an overadvertised society, the mind often knows brands in the form of product ladders, such as: Coke – Pepsi – RC Cola The top firm is remembered best and that’s why companies fight for the number-one position. So, what can you do to position your product in the top position? 1. Get there the first and remain. In other to be the first, you must discover something new. This is the easiest thing. But you can also redesign something that already exists. There’s a concept called the “Blue Ocean Strategy”. A blue ocean denotes all the industries not in existence today (the unknown market space, untained by competition). There are two ways to create blue oceans: a) In a few cases, companies can give rise to completely new industries, as eBay did with the online action industry. b) In most cases, a blue ocean is created from within a red ocean when a company alters the boundaries of an existing industry. That’s the case of the “Cirque de Soleil”. The Cirque de Soleil was founded in 1984 by a group of street performers but today it has staged dozens of productions seen by some 40 millon people in 90 cities around the world. And, more surprisingly, Cirque’s rapid growth occurred in an unlikely setting: the circus business was (and still is) in long-term decline. Alternative forms of entertainment-sporting events, such as video games are casting a growing shadow. And children, the mainstay of the circus audience, preferred PlayStations to circus acts. What did Cirque du Soleil do? They reinvented the circus. It created uncontested market space that made competition irrelevant. It pulled in a whole new group of customers who were traditionally noncustomers of the industry. There are three different types of “first” (due that generally you can excel at three different levels, the “three value disciplines”): a) Product leadership: some customers favor the form that is advancing on the technological frontier. Google b) Operational excellence: other customers want highly realible performance. Example: Ritz Carlton hotels signal high quality by training employees to answers calls within 3 rings, to answer with a genuine “smile” in their voices, and to be extremely knowledgeable about all hotel services. c) Customer intimacy: still other customers want high responsiveness in meeting their individual needs. A firm can not normally be best in all three ways, or even in two ways. For example. McDonald’s excels at operational excellence, but could not afford to slow down its service to prepare hamburgers differently for each customer. So try to become the best at one of the three value disciplines and achieve an adequate performance level in the other two disciplines. Get only one good value proposition (people only remember one thing about you). Many marketers advocate promoting only one central benefit. This is called the “unique selling proposition” and makes for easier communication to the target market. Mercedes: promotes its great engineering Let’s have in mind that not everybody agrees on the single-benefit positioning. For example: today people believe that most cars are safe and that most cars have pretty good quality. Volvo: double-positions its automobile as “safest” and “most durable”. 2. Differenciate yourself (competitive advantage) Add as much possible differences to distinguish your company’s offering from competitor’s offerings. Example: IKEA: it is positioned as a company offering “good quality furniture at a low price”. But IKEA has spun further differences to distinguish itself from normal furniture stores. It operates a restaurant in each store, it offers child care services while the parents shop… You can differenciate yourself in several points: style, design, quality… Example: Absolut vodka decided to opt for style, as Montblanc pens and Apple Computers. Style has the advantatge of creating distinctiveness that is difficult to copy. Apple computers: iMac features a sleek, curvy monitor. Braun (division of Gilette) has elevated design to a high art in its electronic shavers, hair dryers. Another example : Sephora Sephora is the hottest beauty retail chain. It opened in France in 1969 (appeared in the US in 1998). The idea: treat you like Nefertiti, an empress, a goddess. Sephora sells the “Sephora experience” with is implied in its beauty statement: “Step in and enter a whole new dimension of shopping for beauty”. They offer attentive (but not stifling) customer service, a generous sampling program: customers are afforded full license to handle the goods without the high-pressure sales environment of a department store. 3. Avoid the common mistakes. Whatever you decide to choose, you must avoid four major positioning mistakes: - underpositioning. Some companies discover that buyers have only a vague idea of the brand. The brand is seen as just another entry in a crowded marketplace. Crystal Pepsi in 1993: People didn’t see “clarity” as an important benefit in a soft drink. - Overpositioning: a customer might think that diamonds rings at Tiffany start at $5000, when in fact it has more affordable rings starting at $1000 - Confused positioning: the company is making too many claims or changing the brand’s positioning too frequently. - Doubtful positioning: buyers may find it hard to believe the brand claims in view of the product’s features, price or manufacturer. Lesson 3. Strategies to survive in a market In the last lesson we have studied how to “be the first” and how to differentiate yourself from your competitors. Apart from these invaluable lessons, you must learn how to survive in a market. Here it is useful to use the techniques of the “Judo Strategy”. The first technique is to survive when you appear in the market. Follow the rules: 1. Don’t invite attack. When you are relative weak, you should avoid provoking stronger competitors into delivering a potentially fatal blow. Instead, you need to focus on reducing your rivals’ temptation to attack. It’s playing the “puppy dog syndrome”. Remember Ryanair’s initial failures when it failed to play the puppy dog and attacked the British airways head-on. RyanAir had to reposition the company to survive. 2. Define the competitive space. Smaller size does not have to be a disadvantage if you can move quickly to define the competitive space. Use your freedom to maneuver to drive the competition in a direction that makes it hard for rivals to do what they do best. For example: Capital One Financial Corporation targeted specific customers to offer them special premiums in a moment when others financial corporations where offering the same services to all customers despite customer’s different characteristics. 3. Follow Through Fast. By defining –or redefining- the competitive space, you may secure a lead over potential rivals, but eventually they’ll start to catch on. Once you have secured an space with this rules, you have already survived. Now it’s time to compete through different strategies: 1. Grip your opponent. By partnering with opponents, you can strengthen you position and limit their room to maneuver while postponing, diverting, or event preemptive efforts to attack you head-on. This is the strategy that e-Bay followed. Through early alliances with AOl, he was able to face the repeated attacks by Yahoo!, Amazon and even Microsoft. 2. Avoid Tit-for-That. When competing with stronger players, meeting force with force is a quick route to defeat. Resisting every move will wear you down, put you on the defensive, and recast the competition as a trial of strength – the game that you are at least likely to win. So rather that get dragged into a war of attrition, stay on the offensive and respond to attackers on your own terms. 3. Push when pulled. If you are up against an irresistible force, first give way – and then harness that force to your own ends. Look for ways to capture your opponent’s momentum and ride it where you want to go. Build on your competitors’ products, services or technology and embrace their moves. Lesson 4. Branding Ok. Now that we know some of the basics of segmenting, targeting and positioning, and also about strategy, it’s time to enter the wonderful world of brands. Branding is one of the best strategies to position yourself and you further develop your competitive advantage. But, at the same time, it’s the part when most campaigns fail. 1. What is the value of a brand? While many consumers are happy to shop around, they are unwilling to risk their money on a product which they fear may not deliver. Consumers are looking for something to help them decide between an increasingly bewildering set of alternatives. That is what makes brand a critical part of all marketing strategy, People don’t drink a sweet-tasting brown liquid: they drink Coca-Cola, with all the connotations surrounding that Brand. When we talk about brands, we normally talk about brand equity. Brand equity is how your customers recognizes why you are different and better than an alternative. We have already talked about the “value proposition”. The value proposition is something we, as companies, try to sell, try to convey, to portray. It is how we present ourselves to the customers. The brand equity is how consumers perceive us and what do they think about us, and how much importance they put to us. It’s the quality that motivates your customers to recommend their friends or colleagues to you. Brand equity is not static. It’s build on a period of time. You can use advertisements and publicity to make your brand know. And it’s also important to pay great attention to our customer’s direct experience with your product or service. This is extremely important, because from the brand equity depends the customer loyalty and customer loyalty is what gives us economic benefits. So, the value of a brand resides in the minds of those who use them. They are much more than logos and names. A brand is a mix of rational, sensual and emotional reward to the customer. There are rational aspects: What the product does for me? How would I describe the product? But, foremost, they are emotional aspects: How the brand makes me feel? How the brand makes me look? People use brands to make statements about themselves: Rolex: I am a high achiever Armani: I am on my way to the top British Airways: I am a world citizen Body Shop: I care for the environment. So the most important part of every brand is the emotional quality. The Kleenex brand is the perfect example. Kleenex began its production in 1924 and now it is the number one tissue name. Kleenex claim that its brand its build around four items: - originality - regular innovation - quality control - heavy promotion But, above all, Kleenex has wanted to explode the emotional approach, specially through very intelligent ads. Kleenex has positioned itself as your most valuable asset when having a good time and also at the bad times. One of the most classical examples of emotional connection is also Levi’s. Levi’s was first manufactured for the gold miners in California in the 1850’s and quicly established a brand reputation for producing tough, hard-working miners, and they grow slowly along the American West Coast throughout the Depression and into the World War II. But in 1950s there was an explosion of a new generation of people looking to rebel themselves against convention. Levi’s then became the symbol for “rebels”. It was worn by roch stars, actors and the “cool”. It was so much identified as the “rebel brand” that when they tried to pursue a brief flirtation with baby clothing in 1970’s and 1980’s it failed. So they went back to their origins and they relaunched the 501 jean (Levi’s went back on the original values). But during the last decades, Levi’s has been forced to rebrand itself to adapt to a new generation of young people and the modifications in the market. That’s why they launched the Engineered denim in 2000 and tried to adapt to the new kind of rebel. Another classical: Nike. Nike was established in 1960s in Oregon (it comes form the greek word “victory”). What is important about Nike is that it began with very limited resources but unlimited confidence. Nike has undertaken many failures: - failure to recognize the aerobics boom (women- a major target) - they were late in getting onboard with extreme sports - Child labor But they did one thing very well: they persuaded top athletes to become their symbol. The classic one: Michael Jordan (Air Jordan). 2. Can everything be branded? Tipically, it was supposed that commodities could not be branded. A commodity is a product that is so basic that it cannot be physically differentiated in the minds of customers (mineral water, potatoes…) But, over the years, a number of products that at one time were seen as essentially commodities have become highly differentiated as strong brands have emerged in the category. Examples: salt, bananas, chickens, pineapple and even water (Perrier). Typical example: Diamonds (De Beers) Is it not supposed that all diamonds are equal? The Beers Groups thinks not. The Beers was founded in 1888 and currently sells about 60% of the world’s rough diamonds. The Beers launched a campaign in 1948 to state that “A Diamond is Forever”. It aimed to attach more emotion and symbolic meaning o the purchase of diamond jewelry. Thanks to this campaign, nearly all women who get engaged receive a diamond ring and it was supposed this would be the only diamond they would adquire in their whole life. But in 2001 De Beers thought it was time to target new customers. They launched another campaign: “For your past, present and future”. The goal was to turn engagement ring buyers into repeat customers: that sales of rings rose 74% in 2002. Now De Beers wants customers to start thinking about the right hand, as well as their left. The company is succeeding in changing the perception of diamond rings as limited to engagement rings and wedding bands. Aimed at 30 to 54-years old women with household incomes of more than $100.000, the right-hand rings are usually platinum, with multiple diamonds and open space in the design. The slogan is “ Your left hand says “we”; Your right hand says “me”. 3. Can high-tech products be branded? Many technology companies see branding as simply naming their products. They think the importance must be placed in innovation and technological features. And that is true, as much as they also depend upon brands, because that speed and brevity of technology product life cycles causes unique branding challenges: trust is critical, and customers often buy into companies as much as their products. This is also the case for online products. Example: Google. Founded in 1998 by two Stanford Ph.D. students, Google’s stated mission is “To organize the world’s information and make it universally accessible and useful”. Its home page focuses on searches alone and it is not cluttered with other services, as are many other portals. Example: Amazon.com Amazon.com was founded in 1994. Within a year of opening, it offered a selection of more than one million book titles, which made it the world’s largest book broker. In addition, it provides a unique shopping experience and the highest level of customer service. Jeffrey Bezons, the founder of Amazon, wants his company to be “the world’s most customer-centric company: we want the Amazon.com to be the right store for you as an individual. If we have 4.5 million customers, we should have 4.5 million stores”. 4. First steps to generate a brand: Key concepts To create a brand the first thing you have to do is to generate: mental maps, competitive frames of reference, points of parity and points of differentiation and core brand values (brand mantra). - Brand Concept brands. When consumers think of a brand, they are likely to bring to mind a set of associations linked to it. Many methods are available for eliciting brand associations from consumers. For example, you have free associations. These are the responses to questions such as: “When you think of Disney, what comes to mind?” Free associations allow us to generate “attribute rating scaling”. The problem is that many of this methods don’t elicit the structure of the brand associations: First-order associations (linked directly to the brand) and second-order associations (indirectly). Thus, now is more useful to use a new technique: the Brand Concept Maps (BCM). The BCM responds to three different questions: “Which brands associations are more or less important?”, “Which brands associations are directly linked to the brand and which indirectly?”, “How can stronger associations and inter-connections between associations be built?” The Brand Concept Maps follow a three-stage process: 4. Elicitation: open-ended responses. We only retain those stated at least by 50% of respondents. 5. Mapping: Consumers use a set of brand associations to make a network map of how they see the brand. 6. Aggregation: aggregate individual brand maps to produce a “consensus map”. For example: The Mayo Clinic Brand. A Mayo clinic study was conducted via 1-1 interviews with both patients (n=90) and non-patients (n=75) in Chicago. The Elicitation stage got responses as: “leader in medical research”, “best doctors in the world”, “known worldwide”, “caring and compassionate”… One example if the individual mapping was: The aggregated map was as follows: - Competitive frame of reference. This is a fancy way to saying “the market you compete in”. Sometimes is obvious. But sometimes is not. For example, Starbucks should say that it competes in the coffee market but Starbucks always says that is competing to “be your third place”, after your home and your work. So it is competing with all sorts of different places (bookstores, bars, restaurants, parks, libraries…) - Points of difference and parity. Points of difference refer to all those differences that we have in relation to our competitors. Points of parity are those features in which your competitors are over you and you need to check. You have to ensure that you are “good enough” so you can still win on the merits of your points of difference. - Brand mantra. It’s a 3-5 word shorthand encapsulation of your brand position. It’s not an advertising slogan and it won’t be something you use publicly. Perhaps the most famous brand mantra is Nike’s: “Authentic Athletic Performance”. How to generate a good brand mantra? You must use an emotional modifier descriptive modifier (“athletic”) and a (“performance”). (“authentic”), a brand function 5. Brand equity After having in mind these basics issues, you must begin to build a strong brands. The most important thing here is to create a strong “Brand equity” (how you are perceived by people). Brand equity is the result of four steps, four “group of questions” that customers invariably ask themselves about brands, at least implicitly: - Who are you? (brand identity) What are you? (brand meaning) What do I think or feel about you? (brand responses) What kind of association and how much of a connection would I like to have with you? (brand relationships). To provide some structure to his ladder, let’s establish six “brand building blocks” with customers that we can assemble in a pyramid. The brand equity is the result to reaching to the top of the pyramid. - Brand salience: It measures awareness of the brand, for example, how often and how easily the brand is invoked under various situations or recognized? Brand salience is the result of “needs satisfied” and “category identification”. Needs satisfied: measures the range of purchase and usage situations in which the brand and product knowledge comes to mind. For example: Tropicana wanted its customers to think of them whenever they think of orange juice. Originally it focused on breakfast but, afterwards, they wanted to link the product usage situations beyond the traditional one of breakfast. Category identification: how product categories are organized in memory. Marketers assume that products can be organized in a hierarchical fashion. The thing is that sometimes, the best route for improving sales is not improving consumer attitudes towards the brand but, instead, increasing the breadth of brand awareness ans situations in which consumers would consider using the brand. - Brand performance. It describes how well the product or service meets customer’s more functional needs. How well does the brand rate on objective assessments of quality? To what extends does the brand satisfy customer needs and wants in the product or service category? Brand performance transcends the product’s ingredients and features to include dimensions that differentiate the brand. Five important types of attributes and benefits often underlie brand performance: o o o o o - Primary ingredients and supplementary features. Product reliability, durability and serviceability. Service effectiveness, efficiency and empathy. Style and design. Price. Brand imagery. It is the way people think about a brand abstractly. It refers to more intangible aspects of the brand (including the ways in which the brand attempts to meet customer’s psychological or social needs). The four main intangibles are: user profiles, purchase and usage situations, personality and values, history and heritage. - Brand judgments. Customer’s personal opinions about and evaluations of the brand, which consumers form by putting together all the different brand performance and imagery associations. Four types of judgments are particularly important: o Judgments about quality: brand attitudes generally depend on specific attributes and benefits. For example: Sheraton Hotels stand for location, room comfort, design, appearance. o Credibility: whether you can trust them or you like them. o Consideration: if they give the brand serious consideration. o Superiority: do you view the brand as superior, unique or better than other brands. - Brand feelings. Are customers’ emotional responses to the brand. These feelings can be mild or intense and be positive or negative. We can undertake transformational advertising to change consumer’s perceptions. For example: Hallmark Brand. - Brand resonance. The nature of this relationship and the extend to which customers feel that they are “in sync” with the brand. It’s the intensity of the bond that customers have with the brand. How to measure it? We have two methods: o Behavioral loyalty: repeat purchases and the amount or share of categories volume attributed to the brand. How often ho customers purchase a brand and how much do they purchase? o Personal attachment: viewing the brand as something special. Its seeing the brand as a “love brand”. 5. Brand image It involves the name, the logo, the packaging… We are going to spend some time studying the brand image. Tipically, naming has been treated as an afterthought, when in fact is one of the most important variables. Naming is not only creative, it’s strategic. Some tips to put names to the brands: 1. Begin with a “plosive” sound (b, c, d, g, k, p, t). It a strong first sound and it resembles more important. It is believed that brands whose names begin with one of this sounds are easily recognized and recalled. But, if you want to portray and image of romanticism, serenity, charm… you better begin with a “sibilant” sound (s, soft c). For example: Chanel. 2. Other phonetics devices: Alliteration: Consonant repetition (Coca-Cola) Assonance : Vowel repetition (Dodotis) Slant rhyme : vowels differ or consonants similar, not identical (Black&Decker) Unusual or incorrect spellings: Kool Aid Abbreviations: 7 Up for Seven Up. Affixations: Jell-O Appart from names, we must play a lot of attention to URL’s (domain names). Brand recall is critical for URLs because, at least initially, consumers must remember the URL to be able to get to the site. And, of course, a lot of importance must be put to logos. Visual elements tipically also play a typical role in building brand awareness as they play a central role in ad campaigns and package designs. Some are animated like Ronald McDonald or the Budweiser frogs. To create great characters for a logo, always remember: - Human traits are appealing. M&M’s characters were given more human traits to get more brand appeal - Make characters vulnerable. Even superheros have flaws. Another element is slogans. Short phrases that communicate descriptive or persuasive information about the brand. They often appear in advertising but can play an important role on packaging and in other aspects of the marketing program. They help consumers grasp the meaning of a brand and help to reinforce the brand positioning and desired point of difference, as in: “Life Takes Visa” “Gillette’s. The Best a man Can Get”. De Beers: “A Diamond is Forever”. “Maybe she’s born with it, Maybe it’s Maybelline”. 6. Private labels strategies Private labels can be defined as products marketed by retailers and other members of the distribution chain. Although the growth of private labels has been interpreted by some as a sign of the decline of brands, the opposite conclusion may in fact be more valid: private label growth could be seen in some ways as a consequence of cleverly designed branding strategies: - Their key Point of Difference is “good value”. To create a Point of Parity, private labels have been improving quality, and as a result are now aggressively positioning against manufacturers brands. How to respond to private labels? - Procter and Gamble’s value-pricing program was one strategy to combat competitive inroads from private labels and other brands. It cut prices by 12% to 33%, shifting them into the mid-tier level of pricing. - Increase R+D expenditures to improve products and identify new product innovations. 7. Building brands without Mass Media In the US alone, mass-media advertising has long been the cornerstone of most brand-building efforts. But fragmentation and rising costs are already inhibiting marketing through traditional mass media. The irony lays in the fact that Europe is most advanced than the US in this field. Many European-based companies have long relied on alternative communication channels to create product awareness. For example: Häagen-Dazs. 8. Co-branding Another way to promote brands is co-branding. It is when an existing brand can also leverage associations by linking itself to other brands from the same or different company. Co-branding is also called brand building or brand alliances. Advantages: - Borrowing needed expertise. Leveraging equity you don’t have Reducing cost of product introduction. Expanding brand meaning into related categories, broadening meaning and increasing access points. by Disadvantages: - Loss of control Risking of brand equity dilution. Lacking of brand focus and clarity. A good example of co-branding is the Smart Car: Mercedes+Swatch. An special case of co-branding is ingredient branding, which creates brand equity for materials, components or parts that are necessarily contained within other brand products (Dolby noise reduction, Gore-Tex water-resistant fibers). Ingredient brands attempt to create enough awareness and preference for their products that consumers will not buy a host product that does not contain the ingredient. For example: Singapore Airlines has many ingredients brands that help to improve passengers in-flight experiences, such as Givenchy-designed cabins or a “World Gourmet Cuisine” created by an international panel of acclaimed chefs. 9. Licensing Licensing creates contractual arrangements whereby firms can use the names, logos, characters, and so forth ot other brands to market their own brands for some fixed fee. Essentially, a firm is “renting” another brand to contribute to the brand equity of its own product. Successful licensors include movie titles and logos like Harry Potter, Star Wars and Spider-Man. 10. Branding strategies Now that we have studied how to promote a brand, how to build it, we must now understand how to structure different brands. How to maximize brand equity across all the different brands and products the firm might sell? We have to devise a brand architecture. It is a way to tell marketers which brand names, logos, symbols and so forth to apply to which new and existing products. For example, should a firm be employing an umbrella corporate or family brand for all its products (“branded house”) or a collection of individual brands with different names (“house of brands”). Which different products should share the same brand name? How many variations of that brand name should we employ? One useful tool here is the “brand-product matrix”. It’s a graphical representation of all the brands and products sold by the firm. The rows represent the “brand extension strategy” (how many and which products are sold under the firm’s different brands). A “brand line” consists of all products sold under a particular brand (it is one row of the matrix). The columns represent the “product-brand relationships”: this is the “brand portfolio”, the set of brands and brand lines that a particular firm offers to sale buyers in a particular category. Knowing your brand portfolio is highly important to strategize about your brands, as we studied in class with the case of GAP. You have to decide appropriate product categories and markets in which to compete, and then you have to choose the optimal product line strategy: you have to decide the length of the product line, sometimes by adding new variants or items typically expands market coverage. But always keep in mind that, from a branding perspective, longer product lines may decrease the consistency of the associated brand image. Another important question here is: why having multiple brands in the same product category? Procter and Gamble is widely recognized as popularising this practive. For example, it introduced its Cheer detergent brand as an alternative to its already successful Tide detergent. The reason: market coverage. Actually, this overlapping resulted in higher combined product category sales for P&G. The basic principle is to maximize market coverage so that no potential customers are being ignored, but minimize brand overlap to that brands aren’t competing among themselves to gain the same customer’s approval. 11. Different brands, different importance When devising your brand portfolio, you must take into account that not all the brands have the same importance nor relevance withing the general framework. We can distinguish between: - “Flankers brands”: these are the “fighter brands” and its purpose is to create stronger points of parity with competitors brands so that the more important and the more profitable flagship brands can retain their desired position. This is not a very good strategy to implement because they can become attractive enough to take sales awasy from their higher-priced comparison brands or referents. - “Cash cows brands”. Some brands may be kept around despite low or even dwindling sales because they still manage to hold on to a sufficient number of customers and maintain their profitability with virtually no marketing support. Cash cows generate more than is invested in them. So its main role is to generate resources that can be invested in other brands for future growth. The classic example is Nivea. - 12. “Low-end Entry-level or high-end prestige brands”. Many brands introduce line extensions or brand variants in a certain product category that vary in price and quality. o Low-priced brand attracts customers to the brand franchise. o High-priced brand adds prestige and credibility to the entire brand portfolio. For example, Chevrolet introduced the Corvette. What name? Now, we know how to organize our brands, hot to organize a portfolio. But keep in mind that one of the most important decisions when branding still remains ahead: how to call the products? Using the same corporate name? Using different names? This process is called “brand hierarchy” and consists in four different strategies: - “Corporate brand”. The highest level of hierarchy always consists in one brand, the corporate brand (For example, General Motors or Hewlett Packard). Here the corporate brand is virtually the only brand, sot it’s used as an umbrella brand. Corporate branding can result in significant “economies of scope” since one advertising campaign can be used for several products. It also facilitates new product acceptance because potential buyers are already familiar with the brand. The thing is that using this strategy is only recommended when the perceived image of the company (its vision, its organizational culture) is well regarded. - “Family Brand Level”. It is used in more than one product category but is not necessarily the same of the company or the corporation. It is useful to link common associations to multiple, but distinct products. The cost of introducing a new product can be lower and the likehood of acceptance is higher. For example, the Pepsico’s Gatorade Sports drinks: it’s a brand of flavoured sports drinks intended for consumption during physically active occasions. For example: Original Gatorade, Gatorade Rain, Gatorade Am, Gatorade X-Factor, Gatorade Fierce… - “Individual brand”. A brand restricted to essentially one product category. For example, in the salty snacks products, Frito-Lay offers Fritos, Doritos, Lays, Ruffles… The main advantage of creating individual brands is that we can customize the brand and all its supporting marketing activity to meet the needs of a specific customer group. Moreover, if the brand runs into difficulty or fails, the risk to other brands and the company itself is minimal. - 13. “Modifier level”. It’s a means to designate a specific item or model type or a particular version or configuration of the product. For example, Yoplait yogurt comes as “light”, “original”…. How to rebrand? Generating a good brand is a challenge as it is to revitalize it. Even the most important brands, such as McDonald’s, have faced major brand problems. Normally you have to embark your company in a “brand audit”. A brand audit is a comprehensive examination of a brand to assess its health, uncover its sources of equity, and suggest ways to improve and leverage that equity. For example: The American Army (Promotion and Advertising case) For example, McDonalds in 2003 was portrait as a product not to trust. And only two years after, it increased its sales by 12%. How did they do that? They revitalize the brand. For all revitalization strategies you need the “3R” process: Restore, Reinvent, Rebuild. a. How did McDonald’s restore the relevance to the brand? Its customers just grew up and many grew out of its brand. Customers had changed but McDonalds had remained the same. Some people adviced to “go Back to the origins of the McDonald’s Brand” (mainly, promoting Happy Meals and Playplaces). But they instead looked ahead. They changed the brand personality from “the child in every one of us” to “the young adult every one of us aspires to be”. Why? Because those who are younger want to be older… and those who are older don’t want to be older. So they changed the brand image sweet sport from 7-years old to 22-years old. And they defined the essential spirit of McDonald’s Brand as “Forever Young”. Being Forever Young is an attitude, it isn’t an age. It’s being energetic, positive, hopeful. They dramatically communicate that they had dramatically changed. They advertised heavily, and they also re-imaged their restaurants to communicate a more contemporary brand image. And also they changed the menu to include products like salads. They expressed the new brand attitude with “I am loving it” slogan. Another slogans they mulled over: “You deserve a break today”, “You, you’re the one” “we love you to smile” “Wr do it all for you”. The problem with these slogans is that today’s customers don’t believe that big business does it all for you. Before June 2003, the leading candidate them was: “MCDonald’s, we love it when you love it”. But focus groups said that “it was just a bunch of we-we”, B) Reinvent The main idea is that there are not out-of-date brands, there are only out-of-date ideas. C) Rebuild trust In today’s uncertain world, truth is a must. Customers are not only more knowledgeable, more demanding, more quality conscious, more value conscious… they are also more sckeptical, more questioning, and less trusting. So McDonald’s focused on rebuiling trust. And to deserve trust, you must be trustworthy. Just saying “trust me” doesn’t track with today’s customers. We need to create a consistent pattern of trustworthy behaviour. They for example created the “World Children’s Day”, raising millions for children’s charities. And, above all, they didn’t hide the debate: obesity. Obesity is a major societal priority, The wedge issue is childhood obesity. The McDonald’s case highlightes one critical issue: trust. People want to trust in their brands, and they want to trust in their motives. But there cases in which trust can be undermined. Unilever is the firm which has both Dove and Axe products. Dove launched the “Real Beauty campaign” in 2005 to challenge women to “stand firm to celebrate their curves” by showing 6 women of different ages, shapes and sizes photographed in their underwear. This campaign was based in research conducted by Dove in which they have found that: - only 2% of women feel comfortable describing themselves as beautiful, while 31% describe themselves as natural and 29% as average. But, women were more willing to rate their looks higher than their beauty. 79% wished a women could be considered beautiful if she’s not “physically perfect”. In 2007 they launched even the “onslaught” video. But at the same time, the same company was launching the Axe campaign “Bom Chicka Wah Wah” campaign, which was a reference to a musical sound popular in 1970s pornographic videos. What do you think? You can trust in Dove again? Lesson 5. Marketing of services Until now we have dealt with products and not with services. Services is the offer one party can give another party. It is intangible, and does not result in the ownership of anything. Goods can be differentiated according to “search qualities” (that is, characteristics the buyer can evaluate before purchase). But services can only be differentiated according to “experience qualities” characteristics the buyer can evaluate after purchase, eg: vacations, haircuts…) or “credence qualities” (characteristics the buyer normally finds hard to evaluate even after consumption: legal services, medical diagnosis…) Due to this fact, there is more risk in purchase. When purchasing services customers fear: a) About reliability and failure frequency b) Downtime. c) Out-of-pockets costs. People try to reduce risk-taking in purchasing a service by: a) Relying more on word of mouth than advertising. b) Relying heavily on price, personnel and physical cues to judge quality. Therefore, the service provider’s task is to “tangibilize the intangible” (demonstrate their service quality through physical evidence and presentation). For example: Place: the exterior and interior should have clean lines. Waiting lines should not get long. People: personnel should be busy, but there should be a sufficient number of employees to manage the workload. Equipment: computers, copying machines and desks should look like “state of the art” Communication efficiency. material (printed material): should suggest a) Offering loyalty to service providers who really satisfy them. So, to differentiate services, firms rely heavily on providing value-added services and excellence customer service. In fact, they want to portray a service-quality image that is the result of: 1. Reliability. The ability to perform the promised service dependably and accurately. 2. Responsiveness. The willingness to help customers and to provide prompt service. 3. Assurance. The knowledge and courtesy of employees and their ability to convey trust and confidence. 4. Empathy. The provision of caring, individualized attention to customers. 5. Tangibles. The appearance of physical personnel, and communication materials. facilities, equipment, Service blueprint A first step to improve your service is through designing a “service blueprint” (that maps out the service process). Customer satisfaction Here we must take into account that customer satisfaction has dropped in recent years: customers complain about inaccurate information; unresponsive, rude or poorly trained personnel; and long wait times. Even worse, many customers find their complaints never reached because of bad phone or online customer service. In fact, examples of good service are rare. Why? Customers are not longer the kings! According to the Pareto’s rule, 80% of profits come from only the 20% of customers. The rest of your customers can nag you, call you, bother you, but don’t add much revenue. In fact, it has been calculated that the bottom 30% of customers eats up 50% of the profits the others produce. Having reckoned this situation, firms have decided to focus on the 20% of those customers who really suppose benefits and they are trying to make them loyal to their service. Customers in highprofit tiers get special discounts, promotional offers, and lots of special service; customers in lower profit tiers many get more fees, stripped down service, and voice messages to process their inquiries. Now, for the first time, companies can truly measure exactly what such service costs on an individual level and assess the return on each dollar. They can know exactly how much business someone generates and that allows them to deliver a level of service based on each person’s potential to produce a profit. We use the Customer Lifetime Value (CLV) to calculate this potential. Broadly spoken, the Customer Lifetime Value is the result of: Customer’s expected number of visits time x The average amount of money spent per visit – your cost of acquiring and servicing. We also use the share of customer: Estimated potential lifetime value / current estimated lifetime value = percentage The problem here is that the CLV is only an estimation, and further elements should be taken into account. For example: • The grumpy customers. Those customers that spend great amount of money on our service but that are difficult to please (we must invest a lot of time trying to please them) • The cost to attract the client for the first time (and, on the contrary, the no cost of attracting customers due to the possibility that these customers come to us by “referrals”, people who have told them our service is very good). • The potential economic benefit of each customer is difficult to seize because we can introduce cross-selling or up-selling methods. Cross-selling means that we can sell other products of the same level to this customer. Up-selling means that we can sell products of a higher quality (and pricier) to this customer. Ok, let’s imagine we have really decided who are “most-profitable customers are”. What should we do with them? The easiest answer is “satisfy them”, but always remember: SATISFACTION IS NOT ENOUGH! According to recent studies to 50 major US firms, 60%-80% of customers they have lost were actually satisfied with the service. In fact, only 30% who liked the service were likely to repeat the purchase, but…. 90% of those customers who “loved” the service were likely to repeat. So, the key here is not “trying to satisfy customers” but “make them loyal” to our services. That’s why many firms are embarked on “loyalty programs” for their “most profitable customers”. Loyalty schemes Loyalty programmes or schemes are programmes established by companies to provide added value to the regular purchaser as opposed to the irregular consumer. The basis is to build up points or credits for purchases, which allow consumer to get rewards like discounts off a series of special products, or announcements about new offerings that no other receive. Example: frequent flyer miles programmes for airlines. Problems with loyalty schemes 1. Are such schemes really about loyalty? Loyalty is often understood as keeping the customer coming back for purchase the products or services of the company. In theory, the aim of a loyalty scheme is to move the consumer from being a supporter to being an advocate. 2. Is this loyalty scheme better than price cuts or expanded advertising programmes? 3. People are really “loyal”? The fact is that most loyal customers are “polygamous”. In other words, they tend to have two or three favourite brands and are rarely focus on one single brand. Due to this problems, the best is not carrying out a “loyalty scheme” but to embrace the CRM approach. CRM (Customer Relationship Management) CRM means gathering information about the wants and needs of your customers to enable you to adjust your offerings to better fit those wants and needs. In other words, CRM is learning about your individual buyers and tailoring your products and services to suit their needs. CRM recognizes that keeping customers over the long term is the road to profitability. As Seth Godin (author of “Permission Marketing”) puts it: “Instead of trying to find new customers for the products you’ve already got, you find new products for the customers you’ve got” So, in this sense, CRM really does represent a break with the past marketing strategies. The core of CRM is a four-step process: 1. Identify your customers 2. Differenciate them in both their needs and their value to your company. You have to know the “customer purchase history”, the “customer contact histories” (records of all customer contacts with company personnel) and “Customer response information” (records of customer reactions and responses to various marketing promotions) 3. Interact with them in ways that improve cost efficiency and the effectiveness of your interaction. 4. Customize some aspect of the products or services you offer that customer. The goal of the CRM: Customer love CRM strives for “customer love”: make your most profitable customers “loyals” to your company. To achieve this “love” you can use the “7 e” model: 1. Enlistment: customers care when they share. 2. Engagement: The power of straight talk (customers who have a problem and complain spend twice as much as customers who have a problem and do not complain) 3. Enlightement: educating and keeping customers up to date helps to build their loyalty and commitment. 4. Entrustment: you must be seen as caring for them to get them to care for you. 5. Empowerment: customer control through consistency (keep the core offering intact). 6. Enchantment: surprise your customers. 7. Endearment: show generosity to customers. Can everyone use it? (Who needs CRM?) The best bets for the CRM are those companies that can accumulate lots of data on each customer’s buying patterns in the course of their business (for example, financial companies and telecommunications companies). But, there are also business that may not benefit from the CRM: a) Monopolies and oligopolies. b) Business where the lifetime value of customers is low. Business with huge churn. Problems with CRM CRM came in vogue in the mid 1990’s. In 1999, Deloitte Consulting conducted an study with the following results: • 28% of respondents said their CRM investments yielded significant improvements • 72% of respondents received little or no benefits from their CRM initiatives. What happened? Thanks to other study conducted in 2002 we know that: • Most CRM plans were highly fragmented and lacked customer focus. • They relied heavily on the technological aspects of CRM and not on the strategic process. CRM is a shift from product-focused marketing to a consumer-focused approach. But many firms only has focused on the computer implications of CRM. CRM calls for a different mindset! Lesson 6. New Product Development One of the most critical steps in a marketing stratgey is launching new products into the market. The general process is called “New product development”. What are the main challenges here? - - Only a small percentage of new product development efforts succeed: • Only 1 in 4000 ideas achieve commercialization. • Only about 4% of new product launches succeed. An estimated 46% of the resources that companies devote to the conception, development and launch of new products go to projects that not succeed. Why is innovation and change so difficult to achieve? - Service organization silos are designed to support operational efficiency rather than rapid change. There are many competing agendas within the organization, all fighting for the same resources. Lack of consistent team to champion for the long time period between idea generation and bringing those ideas to market. Measures of success (and accountability) that are ill-defined. The fact that change is expensive. 1. Why a new product? All products have a life and this life follows a cycle. The “Kondratieff cycles” show us that all products have a “prosperity momentum” followed by a recession, depression and recovery. The problem now is that product life cycles are shorter. And we have ans S-curve-concept to complement the Kondratieff cycles: Also, to draw the product life we use the return map. This is a twodimensional graph displaying time and money. 2. How to assess if a new product is needed? To assess it, we use the conjoint analysis. This is an statistical technique used in market research to determine how people value different features that make up an individual product or service. For example, to determine a new television, people can say the most important feature is: screen size, or the screen format, or the brand , or the overall size… Combining these different attributes we can make permutations and then, we can extract different products types (for instance, a good screen size with a good brand, or a great screen format with and overall size…) Making a conjoint analysis is very important, but always remember that you muct complement this analysis with a good value proposition, a good value chain and a good strategy to deal with the competence. A value chain is a concept first described to Michael Porter. It is a chain of activities that add value to the final product. A value chain in the New Development Process is also a list of all the major actors involved in the process: investor, financers, developer, manufacturer, distributor, seller, servicer, customer… The golden rule here is that the product must provide value and be meaningful to all in the chain. 3. Which kind of products? Sometimes we launch a product that is completely new and, thus, we create a market (do you remember the “Blue Ocean Strategy?). This is the case for the Apple iPod. But apart from creating new markets, we can also: - - - - Diversificate (generate new product lines): for example, Microsoft is a software company, not a video game company. But it entered the videogaming system with the Xbox. Modification (we introduce some major improvements): Microsoft integrated the Netflix streaming service into its Xbox Live network last November. Differentiation (we are in the same market, but we generate new brands and products). For example, Chanel created Bourjois for the young people. Market penetrations (we introduce ourselves into new targets thanks to a cost reduction strategy). For example, Carrefour has launched a new discount brand. 4.How to create a new product? There is not a single process to develop an idea. But there are some steps to take into account: a) Develop as much insight about the market as possible. Markets insights must be understood properly. Many firms only take the customer insights and start brainstorming service solution that solve only specific issues. This tend to result in incremental service improvements rather than the more substantial leaps the team is looking for. b) Create radical value propositions. You will have to help your customers recognize the value of trying something new. c) Create prototype. Also, in order to get a more detailed view of the first stage (creation) it’s also useful the Stage-Gate Process. It is a road map for moving a new-product project from idea to launch. It is based on activities (or stages) and decision points (or gates). This method is very helpful to introduce discipline intro an ordinarily chaotic process. And also reduces re-work. It is believed that 85% of leading US companies now use stage-gate process to drive new products into markets. As you can imagine, the most critical stage is the business case. This stage really makes or breaks a project. A good business case has 3 components: a) Product and project definition b) Project justification (and the expected business benefits). Here you also must talk about options considered, expected costs, expected risks… c) Project plan. Also remember that to make a really good business case you must use the “Real/Win/Worth-it framework”. This consists on asking three questions: a) Is it real? (Is the market real? What is the potential of the target market? What will the product life cycle be? Is the product real? Can it be manufactured?) b) Can we win? (Can our company be competitive? Is our advantage sustainable?) c) Is it worth doing? (will it make money? Are ther other benefits?) 5.How does it take to innovation to catch up? Once we have a product, we have to know that not necessarily people will fight to buy it at the beginning. Thanks to Everett Rodgers’s model of innovation adoption we know that markets are formed by different types of people that respond different to the new products, to the innovation (Rodgers called the “categories of innovativeness”): • • • • • innovators – venturesome, educated, multiple info sources, greater propensity to take risk early adopters – social leaders, popular, educated early majority – deliberate, many informal social contacts late majority – skeptical, traditional, lower socio-economic status laggards – neighbours and friends are main info sources, fear of debt Everett Rodger’s model has been improved by Greoffrey Moore’s recent analysis: Between the early adopters and the early majority, Moore talked about “the chasm”. This is a time of great despair, when the early market’s interest wanes but the mainstream market is still not comfortable with the immadurity of the solutions available. In order to overcome this situation, Moore suggested a “bowling alley” (a period of niche-based adoption). 6. Why people adopt innovation? Related to Rodgers’ and Moore’s models, there is another question: Why people adopt innovation? A book of Malcom Gladwell called “The Tipping Point: how little thing can make a big difference” talks about the fact that there are “tipping points”, levels at which the momentum for change becomes unstoppable. There are some ideas and products that spread like viruses do. To generate these “tipping points” you need three different “agents of change”, three different groups pf people: a) Connectors. These have social networks of over one hundred people. b) Mavens: are “information specialists” or “people we rely upon to connect us with new information”. c) Salesmen: are “persuaders”, charismatic people with powerful negotiation skills. Lesson 7. Pricing strategies Price is the only element of the marketing mix that produces revenue; the other elements only produce costs. Traditionally, price has operated as the major determinant of buyer choice, but pricing practices have changed significantly in recent years because Internet is partially reversing the fixed pricing trend. Internet has changed the rules, by: 1. Get instant price comparison from thousands of vendors: 2. Name their price and have it met. On Priceline.com, for instance, the customer states the price he wants to pay for an airline ticket, hotel or rental car, and Priceline checks whether any seller is willing to meet that price. 3. Get products free. There are typical manufacturers, as Gillette and HP, that have built their business model around selling the host product essentially at cost and making money on the sale of necessary supplies, such as razor blades and priter ink. Software companies have adopted similar practices. 1. The “freemium strategy” A freemium strategy is offering free online services but gaining money with the premium component (an up-selling technique) To have a successful “freemium strategy”: 1. Have a product or service that truly stands out (should be superior to those of current offerings). 2. Know your up-selling plan from the beginning. Make sure you have at least one paid, adding premium service up your sleeve. Better yet, have more than one. 3. Once you have decided that a product will be given away for free, don’t change your mind. If you make changes, you risk alienating customers accustomed to getting your product for free. 4. Access to your product should be just one click away. 5. Keep improving the product to give users more reasons to stick with it. 6. Identify a source of revenue sources. 7. Timing is everything, Make sure that revenue from your premium service soon covers the cost of your free service. Example: Ryanair 1. A quarter of Ryanair’s seats are free. Passengers pay only taxes and fees. 2. Passengers pay extra for basically everything eles on the flight: checked luggage, snacks, and bus or train transportation into town from the far-flung airports that Ryanair uses. 3. Seats don’t decline, window shades and seat pockets have been removed. Seat-back trays now carry ads. 4. More than 98% of tickets are sold online. The Web site also offers travel insurance, hotels, ski packages and car rentals. 2. How to price? To determine a price, we must firstly realize that purchase decisions are based on how consumers perceive prices and what their consider the current actual price to be. People use “reference prices” (comparison between the observed price and an internal reference price they remember). There are several reference prices: - “Fair price” (what the product should cost) Typical price Last price paid Upper-bound price (what most consumers would play) Lower-bound price (the least consumers would play) Competitors Prices Expected future price Usual discounted price So, everything is about psychology! Marketers is “scarcity” and “exclusivity” references to put a higher price. And we can also use other methods, for example the “price endings”: - many sellers believe process should end in an odd number (because customers see an item priced at $299 in the $200 rather than the $300 range). Research hav shown that consumers tend to process prices in a “left to right” manner rather than by rounding. - Prices that end with 0 and 5 are thought to be easier for consumers to process and retrieve from memory. 3. Setting the price. a) Selecting the price objective The company first decides where it wants to position its market offering. To determine this position, you must have in mind five objectives: a.1. Survival a.2. Maximum current profit: many companies try to set a price that will maximize current profits (they estimate the demand and costs associated with alternative prices and choose the price that produces maximum current profit, cash flow or rate of return on investment). a.3. Maximum market share: some companies set the lowest price (assuming the market is price sensitive) believing that higher sales volume will lead to lower unit costs and higher long run profits. This is called a “market penetration pricing strategy”. Example: IKEA in China. a.4. Maximum Market Skimming: companies unveiling a new technology favour setting high prices to maximize market skimming. Example: Sony when launching the first highdefinition television in Japan ($43.000) b) Product quality leadership. Many brands strive to be “affordable luxuries” (high levels of perceived quality with a price just high enough not to be out of consumer’s reach. c) Other objectives. For example, partial cost recovery in the case of universities or museums. 3. Determining demand. Each price will lead to a different level of demand and will therefore have a different impact on a company’s marketing objectives. Here we have to take into account the “price sensitivity” and “elasticity” in demand. For example, there will be little “price sensitivity” if: - The product is more distinctive - Buyers is less aware of substitutes - The product is assumed to have exclusiveness. more quality, prestige or To determine which price sensitivity we are facing we can conduct surveys, statistical analysis and also “price experiments”. Elasticity. How responsive, or elastic, demand would be to a change in price. If demand hardly changes with a small change in price, we say the demand is inelastic. If demand changes considerably, demand is elastic. If demand is elastic, sellers will consider lowering the price. 4. Estimating costs The company wants to charge a price that covers its cost of producing, distributing and selling the product and, also, they want to generate benefits! So, in order to determine a price, it’s crucially important to estimate the costs. There are several types of costs: Fixed costs (also known as overhead) are costs that do not vary with production levels (the bills the company must pay, the salaries...) Variable costs: the costs that vary directly with the level of production. Depending of the total units produced, the variable costs may increase or not. Total costs: fixed costs + variable costs. Average costs: total costs/production level (number of units) These are all costs associated with manufacturing. But there are also costs associated with selling, distributing... These are the Activity based cost (ABC) accounting. ABC accounting tries to identify the real costs associated with serving each customer. It allocates indirect costs like clerical costs, office expenses, supplies, and so on. Apart from determining the costs, keep always in mind that costs can be reduced if experience is introduced (for example, if you improve your production line). The average cost of producing one single unit will decrease if total production increases (the accumulated production experience). This decline is called the experience curve or learning curve. Some firms invest heavily to gain this experience curve so can decrease the price. But, keep in mind that “experience curve pricing” can also carry risks. Aggressive pricing might give the product a cheap image. And your competitors can also follow a “experience curve pricing”. Currently there’s also the fashion of cutting costs or “target costing” in order to gain this “experience curve pricing”. 4. Analyze your competitor’s costs, prices and offers. 5. Selecting a pricing method Given the customer’s demand schedule, the cost function and competitor’s prices, the company is now ready to select a price. There are six price setting methods: a) Markup pricing. This is the most elementary pricing method. It’s just add a standard markup (expected benefit) to the product’s cost. Markup price: unit cost /(1-desired return on sales) This only works if the market up price actually brings in the expected level of sales. Also, it doesn’t take into account the demand. b) Target-return pricing: The firm determines the price that would yield its target rate of return on investment (ROI) You have invested €1 millon in the business and wants to set a price to earn a 20% ROI (€200.000) Target- return price: unit cost + (desired return x invested capital)/unit sales = price The problem here is the unit sales we intend to sale. What if we expect to sell X but we sell Y units? Here it’s critical to determine the “break even point or volume”: Break-even volume: fixed cost / (price – variable cost) = total quantity to sell c) Perceived-value pricing. An increasing number of companies now base their price on the customer’s perceived value. d) Value pricing: setting lower prices without sacrificing quality in order to attract a large number of value conscious customers. Examples: IKEA; Target, Southwest Airlines. An important type of value pricing is “everyday low pricing” (EDLP), which takes place at the retail level. You charge a product at a constant low price with little or no price promotions and special sales. Another type of value pricing is “the high low pricing”: the retailer charges higher prices on an everyday basis but then runs frequent promotions in which prices are temporarily lowered below the EDLP level. Recently, companies tend to adopt an EDLP strategy rather than a “high low pricing strategy” because it’s been shown that constant promotions are costly and erode consumer confidence in the credibility of everyday shelf prices. e) Going rate pricing. The firm bases its price largely on competitor’s price, charging the same, more or less than major competitors. This happens normally in olipolistic industries (the smaller firms “follow the leader”) f) Auction type pricing (e Bay). There are three types: English auctions (ascending bids): the highest bidder gets the item. Dutch auctions (descending bids) Sealed bid auctions (suppliers can submit only one bid and cannot know the other bids). 6. Selecting the Final Prices. Pricing methods narrow the range from which the company must select its final price. But keep always in mind the impact of other marketing activities (such advertising). It is considered that brands with average relative quality but high relative advertising budgets were able to charge premium prices. Lesson 8. Distribution strategies All marketing mix consists of: product, price, promotion, place (and people!) The importance of placement is sometimes undervaluated but the case of Good Year tires shows that is very important to take care of this aspect. Good Year has a major problem: it was dealing good with industrial sales to auto assemblers, but retail sales of replacement tires was doing poorly. Apart from that, it was facing a growing competition from Bridgestone and Michelin (both companies were selling at a low price to increase North America market share). The solution Good Year found was: Placement! They began selling replacement tires where people were buying it (like Sears) and they kept on selling higher quality tire through dealerships so dealers can still bring in high-end customers. Thus, distribution and placement are critical in the process, as they get the product, from where it is made to where the people are going to buy it. Also, here is very important to notice that you have to deliver at the right time (time utility) and the right place (place utility). Also, you must know that all products are different, so different products classes have different place situations. For example, convenience products are better sold in small stores and vending machines. But shopping products are better sold where shoppers go (malls, superstores…) And speciality products are sold where people want to buy them. Related to this point, it is worth-noticing that producers of convenience products and all sorts of common raw materials typically seek intensive distribution (they stock their products in as many outlets as possible so they can be available where and when customers want them). On the other hand, there’s the exclusive distribution (ex. Luxury automobiles, prestige’s women clothing). And between them, there’s the selective distribution (the use of more than one, but fewer than all distribution channels: examples, most television, furniture and home appliances brands) 7. 1. Distribution and product life cycles Place must be considered in terms of the product life cycle. At the growth stage, product must be sold at a certain location and then, in the maturity and decline stage, you you have to use more localtions to make it better for customers who are no longer so strongly interested in buying, 7. 2. How to distribute? We can have a direct-marketing channel (no intermediary level: the manufacturer sells directly to customers). This is the case of a factory outlet store. Also, this is the case of Dell Computers. The “Dell Direct” business model has no inventory, no middlemen to eat into profits, no agenda other than giving the customer what he or she wants. That is why operating costs in Dell soaked up just 10% of Dell’s $35 billion in revenue in 2007 (compared with 21% of revenue at Hewlett-Packard). On the other hand, we have an “indirect-marketing channel”: here we use intermediaries, typically a retailer. Within the indirect-marketing channel, we can have a “conventional distribution channel” or also a “vertical marketing system” (VMS). On the conventional distribution channel, we have one or more independent producers, wholesalers and retailers. Each is a separate business seeking to maximize its own profits: no channel member has much control over the other members. On the vertical marketing system(VMS) , instead, producers, wholesalers and retailers act as a unified system. We have two types of VMS: a) The corporate VMS: integrates successive stages of production and distribution under single ownership. This is the case of Zara (it controls almost every aspect of the supply chain, from design and production to its own worldwide distribution network). b) Contractual VMS: independent firms at different levels of production and distribution who join together through contracts to obtain more sales impact than each could achieve alone. This is the form of the franchise organization.