Marketing Management and Organization
XMBA 206.1
Summer 2008
Professor Ganesh Iyer
Edgar F. Kaiser Professor of Business Administration
Ganesh Iyer
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Agenda

Introductions

What is Marketing?
» Marketing Concept
» A Framework for Marketing Analysis and Planning

Caselets.

Bombardier

Preview of the Course
» Syllabus (What to expect?...And what is expected?)
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Some Perspective

What does Marketing mean in your company?

When you think of industries traditionally associated with marketing
which industries come to mind?

8 Ads on CNN, Sunday morning…
»
»
»
»
»
»
»
»
Geico … lizard
Country-wide
Head-on
Cialis
Lunesta
Boeing
Avodart
Pillsbury
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Some Perspective
A Historical Perspective
“In well-ordered states, storekeepers and salesmen are
commonly those who are weakest in bodily strength
and, therefore, of little use for any other purpose.” Plato
“Advertising ... is a meretricious endeavor in which
psychological appeals to ‘fear’ and ‘shame’ are
developed to bamboozle the public into purchasing
essentially worthless packaged goods at bloated
prices.” - Thorstein Veblen
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Some Perspective (cont…)
A modern view
Marketing Philosophy: “Customer Orientation”
“I came here with a view that you start the day with customers, that
you start thinking about a company around its customers” - Lou
Gerstner, Chairman IBM.
“Why does the customer want to buy from me?” - Charles Schwab.
“Stop being a company with its face towards the CEO and ass
towards the customer” - Jack Welch, ex-CEO, G.E.
Reaction to TQM--Reengineering--Competing for Future.
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The Marketing Concept
Two Components
C: Customer Orientation
 The Marketing concept is to make profits through creating and
keeping customers.
» “Connection (Emotional Identification)”
C: Competitive Advantage
 The marketing concept is about satisfying the needs and wants
of consumers more effectively than competitors.
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Caselet: New Coke
Cola Category Share of Soft Drinks
From 57% to 67%
100
90
80
70
60
50
share
40
30
20
10
0
1970
1975
1981
1985
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Cola Category (Sales Volume)
Almost tripling
4500
4000
3500
3000
2500
2000
1500
1000
500
0
1970
1975
1981
1985
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Coke’s Declining Performance
From a 12% lead to a 3% lead
30
25
20
Coke
Pepsi
15
10
5
0
1966
1975
1980
1984
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Competitive Comparisons
» Advertising
– Coke: $34.4 million (1975) to $211.5 million (1993)
– Pepsi: $25.3 million (1975) to $147.3 million (1993)
» Distribution
– Coke stronger in fountain. But Pepsi growing in
supermarkets.
» Pricing
– no differences
» Why the decline??
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Market Facts

Baby Boomers respond to the “Pepsi Generation” and boost
Pepsi sales.

Pepsi sales surpass Coke in supermarkets by 1975.
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Market Facts

Pepsi had Diet Pepsi and Mountain Dew since the 60’s. Coke
had Sprite and Tab.

In 1982 made a departure in extending the “Coke” brand name
for the first time - Diet Coke.
» Runaway success and becomes 3rd largest soft drink and
had 5.2% m.s by 1984 (versus 22.5% for Coke and 19.1%
for Pepsi).
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US Soft Drink Industry

Coca Cola
» Coke had
nostalgic home
town image in
early 60’s.

Pepsi Cola
» 1960s “Pepsi Generation”
» 1974 “Pepsi Challenge”
(based on taste test)
» “Real Thing”
response to Pepsi
Generation
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The Pepsi Challenge

Integrated Advertising/Promotion Campaign (1975 to 1984)
» a majority of consumers prefer Pepsi in blind taste tests
» Advertising hammered away on this
» promotion had booths in malls across U.S.
» by 79, Pepsi share in overall grocery was bigger than Coke
– In supermarkets and convenience store where the two brands
were available side-by-side.
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Testimonials

The company is obsessed about Coke losing the No.1 slot.

Concern: “Over the last ten years we moved by barely 3 tenths of a
percent, the competition gained 4 points on us.” Brian Dyson, CocaCola 1979

Confusion: “If we have twice as many vending machines, dominate
fountain, have more shelf space, spend more on advertising, and are
competitively priced, why are we losing share?” Roy Stout, Coca-Cola
1980

“I am not going to sit on my ass and watch that. To do nothing means I
am forever condemned to not touching my product even though I know
I can make a better product and move with consumer tastes.” Brian
Dyson, Coca-Cola 1981
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Change to New Coke

1983 go-ahead to explore possibilities of reformulation.

September 1984 found a formula that beat Pepsi in nationwide
blind tests by 8 points.
» Even Pepsi exclusive drinkers preferred it.

Decision to not introduce the new formula as a line extension.

January 1985: Secret mission to introduce New Coke (after
200,000 taste tests).
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Change to New Coke

Taste Tests
»
»
»
»

blind taste tests
“what if this were a new Coke taste?” test
Direct test against branded and unbranded Pepsi
But did not disclose that the product that they were testing would
replace Old Coke.
Once again overwhelming preference for new formulation over
Pepsi in blind taste tests.
» A small minority (about 6%) will not get over the change. This loss
will be more than compensated by Pepsi consumers switching to
New Coke.
» In focus groups when participants knew that it was new coke about
one in ten participants get upset.
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Change to New Coke

April 23, 1985: Launch Press Conference in New York City.

Coke PR line: Product improvement, necessary change to follow
trends in consumer preferences.
» “the best just got better.”

Absolutely no mention that New Coke beat Pepsi in taste tests.
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Pepsi’s Response

Responded aggressively to Coke through advertising, public
media

Re-framed the change as a product withdrawal.

Gave reporters list of questions to ask
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Pepsi’s Message

... After 87 years of going at it eyeball to eyeball, the other guy
just blinked. Coca-Cola is withdrawing their product from the
marketplace, and is reformulating brand Coke to be more like
Pepsi. ...

There is no question the long-term market success of Pepsi has
forced this move. ... Maybe they finally realized what most of us
have known for years. Pepsi tastes better than Coke.”
Letter by Roger Enrico, CEO Pepsi-Cola USA, to employees
and published as full page ad on the morning of the New
Coke introduction.
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Consumer Reactions
A Surprise

Many consumers did not perceive the introduction of New Coke as a
“product improvement,” but as a loss of Coca Cola, a sentiment that
was reinforced by the media coverage.

Coca Cola’s toll-free number was flooded with calls from angry and
deeply saddened consumers.
» “Dear Chief Dodo: What ignoramus decided to change the formula
of Coke?”
» It was nice knowing you. You were my friend for most of 35 years.
Yesterday I had my first taste of the new Coke and to tell the truth,
if I had wanted a Pepsi, I would have ordered a Pepsi.

Some hard-core drinkers stocked up Coke worth hundreds or even
thousands of dollars.
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Consumer Reactions

Organized groups of consumers that resisted the change
received extensive news coverage.
» “Old Coke Drinkers of America” laid plans to file a class
action lawsuit.

Many bottlers also resisted the change.

What was the problem? Why was this happening?
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Coke’s Retraction

July 1985: Comeback of original formula as “Coke Classic”
announced.
» Hype actually did the overall Coke brand good
» “love you more if harder to get” syndrome.
» Emphasis from brands to category (megabrand strategy).

January 1986: Coke Classic becomes flagship brand.
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What can we learn from this?

Even a marketer as experienced as Coke can misread its
customers.
Two Questions
 When people consume Coke what do they really consume?

Did Coke really have a problem?
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Corporate Shares
A constant 8 point lead
40
35
30
25
Coke
Pepsi
20
15
10
5
0
1980
1982
1984
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Total Cola Shares
Goes up from a 5 point to a 6 point lead
35
30
25
20
Coke
Pepsi
15
10
5
0
1980
1982
1984
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How was Coke actually doing?

Diet Coke was the main reason for the decline in regular Coke
» Coke is lighter than Pepsi
» Pepsi is sweeter than Coke

Should we be surprised that Coke drinkers converted more
enthusiastically to the diet version?

Obsession on the Coke vs. Pepsi rivalry blinded management
on the real reason for Coke’s decline.

It wasn’t taste----it was Diet Coke.
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The Pepsi Challenge

Despite the Pepsi taste tests...did Coke really have a taste
problem?
»
»
»
»
consumers in mall prefer the taste of Pepsi (58%).
only 67% of ALL consumers are cola drinkers
Pepsi was stronger than Coke but with non-cola drinkers.
depending on who you sample you can get very different results.

There is a market research lesson here.

Form of Marketing Myopia: Obsession about competition
leading to a misreading of consumer behavior
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Homework

What if Coca-Cola made the product change gradually and did
not announce the change?
» The Canadian new coke experience
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Connection…1984

"There is a twist to this story which will probably keep professors
puzzled for years…”

“The simple fact is that all the time and money and skill poured
into consumer research on the new Coca-Cola could not
measure or reveal the deep and abiding emotional attachment
(connection) to original Coca-Cola felt by so many people."
…Don Keough, President Coca-Cola.
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Connection…2004
Neuromarketing evidence
(Neural Correlates of Behavioral Preference for Culturally Familiar Drinks, Neuron 2004, v.44, October)
Effect of Brand Knowledge on Brain Activation
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Connection

More than four million of children under five die in sub-Saharan
Africa every year.

In sub-Saharan Africa, child mortality rates are running at an
average rate of 172 deaths per 1000 babies born, compared
with 9 per 1000 in developed regions.

Please donate to the red cross.
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Connection
Emotional Identification
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Caselet: Apple Computers
Identifying the competitor

Apple 1980s - a tremendous success story:
» Introduced computers that anybody could learn to use
» had a stranglehold on the US educational market, so kids got
exposed to Apple much earlier than competitive products
» Better products and better advertising
» price premium reflecting the product advantage and the stronger
loyalty of its customers

Where did they go wrong?
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What can we learn from this?

Apple didn’t understand who their competition was
» Who did Apple think was their competition?

In fact, competition changed over time
» Apple’s perceived vs. actual competition

Apple’s strengths
» good at designing customer interfaces
» Apple was superior because of its operating system and
software.

What was the best way to leverage Apple’s strength?
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Key Takeaways

What do these two caselets tell us?

Coke misread their customers “emotional” value for the product.
» Mis-read the emotional connection that customers had with
Coke.

Coke executives did not make the Coke brand versus Coke
corporate distinction.

Marketing Myopia: Obsession about competition leading to a
misreading of consumer behavior.
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Key Takeaways

Understanding the market and customer needs is a
firm’s most difficult task.
» Using relevant quantitative and qualititative
customer analysis tools is a critical skill.

Consumers often consume more than the physical
product.
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Key Takeaways
Apple

Weren’t really sure who the competition was.
» licensed their system for the first time very late.
– the horse already bolted

Technically superior
» operating system
» the hardware/software interface

Microsoft which was technically behind
» understood the market and the need for an open Windows
platform.
– network effects
– icon-based
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Summary
Successful marketing strategy entails two principles. Designing
products, services, and programs that emphasize attributes
which:
» which customers value and connect to.
» provide a sustainable differential advantage over
competitors.
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Analysis Framework
Competitor
Analysis
Company Analysis
Customer
Analysis
Marketing Strategy
Product
Price
Promotion
Place
Market
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Course Summary

Use a consistent analysis framework so you see the link
between different sessions.

Cases which involve integrating more than one of the four
elements of the Marketing Strategy Mix

Expose you to through cases to decision situations which
involve the application of the specific marketing strategies.

Analytical decision tools (MDS, conjoint analysis, product line
design etc.)
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Course Summary

Each session = case + lecture / in class activity

Go through case prep notes in syllabus or given to you prior to
class.
Performance Evaluation
» Class participation
» Please display name cards.
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Course Summary
Written Case Report (Individual Assignment)
 Session 5, Optical Distortion.
Written Case Report (Group Assignment)
 Session 7, Calyx and Corolla.
Group assignment
 Groups by the end of Block 1.
Final Exam
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Administrative Details

Course Information
» Course pack available at: https://www.study.net/default.asp
» Course website:
» http://groups.haas.berkeley.edu/marketing/COURSES/xmba206.html

Contact Details
» Office Room F699, 510-643-4328
» email= giyer@haas.berkeley.edu
» Cell 925-788-1769
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Expectations

“Please” prepare the case and readings.

Please stick to a constant seat in the class as far as feasible.
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