Marketing Strategy and Practice PDF

MARKETING STRATEGY AND PRACTICE SESSION 1 CHAPTER 1: AMRKETING STRATEGY: A 1ST PRINCIPLES APPROACH 1 2 3...

MARKETING STRATEGY AND PRACTICE SESSION 1 CHAPTER 1: AMRKETING STRATEGY: A 1ST PRINCIPLES APPROACH 1 2 3 Y First Principles: the fundamental concepts or assumptions of which a theory, system, or method is based. Unanswered questions: 1. When should I use each specific approach? 2. How does each new marketing approach improve my firm’s performance? 3. Which approaches are worth my firm’s time and investment to implement? 4 Marketing principles: 1. All customers differ 2. All customers change 3. All competitors react 4. All resources are limited Marketing Strategy (History + Definition) Marketing Strategy: consists of decisions & actions focused on building a sustainable differential advantage, relative to competitors, in the minds of customers, to create value for stakeholders. à Customers represent the fundamental unit of analysis for marketing strategy, because each individual customer is an independent, decision-making entity. 5 key elements: 1. Decisions and actions 2. Differential advantages over competitors 3. Sustainability 4. Ability to enhance firm performance 5. Customer perspective C.H. Marketing Strategy vs. Corporate Strategy Importance of an effective marketing strategy: Strong links btw marketing actions & firm’s financial performance Understanding when, how, & where brand advertising pays off Strong brand, channel, or customer relationships are more difficult to duplicate than any tangible product Nowadays CRM & brand building very important Marketing capabilities greater impact on improving firm performance than R&D or operations capabilities MS affects all 3 components of the sales revenue chain ration equation Building powerful brand image can affect selling price Effective MS: reduce sales, marketing expenses, & customer acquisition costs 1st Principle approach to Marketing Strategy No single marketing strategy is ever going to be consistently effective in all conditions or for all firms. Marketing Principle (MP) Approach: involves grouping or aligning key marketing decisions with the four assumptions, in such a way that managers can understand & account for their interdependencies & temporal ordering when making decisions. à Effectiveness of a marketing strategy depends on a multitude of underlying customer, competitor, and contextual factors that are both interdependent and time varying Key requirement: identify underlying factors on which the decisions depend. à Each 1st Principle or underlying assumption, when matched with its associated marketing decisions, is a Marketing Principle (MP). MP#1: All customer Differ à Managing Customer Heterogeneity Customer heterogeneity: variation among customers in terms of their needs, desires, & subsequent behaviors. C.H. How should each firm manage customer heterogeneity? Ignore customer heterogeneity & provide an offering that matches the average customers’ needs Offer a range of products/services to satisfy the need of many different customer segments Embrace the notion that customers will sacrifice desired product attributes if the price is low enough à low-cost strategy Select a specified segment of customers & target them by positioning its offering as the best solution, compared with competitors for that segment (STP) STP approach: (= segmentation, targeting, & positioning) select a specific segment of customers & target them by positioning its offering as the best solution, compared with those available from any competitors; Result in strong brand that customers in the segment know & respect. Customer-centric approach: the firm recognizes the long-term value of its core customer segment & puts it at the center of all major internal processes & decisions. à The process of converting customer, company & competitor (3Cs) into representation of the firm ́s environment through industry segmentation, target segments, & positioning statement (STP) outputs is a critical 1st step in developing a Marketing Strategy. MP#2: All customer change à managing Customer dynamics Customer dynamics: processes by which customers’ desires and needs change over time. Different sources & drivers of customer dynamics: 1. Seminal events (process of needs changing over time) 2. Life stages 3. Knowledge & expertise 4. Product category maturity (learning effect) 5. Regular exposure to relevant information à Because all customers change over time, unless a firm’s time horizon is extremely short, a failure to understand & address customer dynamics ultimately will undermine virtually any marketing strategy. C.H. How should a firm manage Customer Dynamics? Customer Lifecycle: refers to the average change or migration among customers as they age, independent of any product or industry differences. Product/industry Lifecycle: captures typical user experiences & industry developmental effects that can be observed as the product category matures. (!!this approach assumes all costumers and products evolve the same way!!) AER Approach (acquisition, expansion, retention): grouping existing customers into 3 stages à (1)those recently acquired (2) long-term customers (3) those lost or at risk of being lost. Customer Lifetime Value (CLV): approach attempts to capture the financial contribution of each customer by determining the discounted value of the sales and costs associated with them, according to their expected migration path over the entire relationship with the firm. MP#3: All competitors react à managing sustainable Competitive advantage The more successful a firm, as reflected in its sales, profits & stock prices, the more effort its competitors expend to attack its financially successful position. How to manage Sustainable competitive Advantage? Sustainable Competitive Advantage (SCA): a firm should develop SCAs that are relevant for a specific target segment, if those customer needs change then the firm has to adapt its SCA to protect that segment or evaluate moving to a different customer segment. 3 key marketing-based sources of SCA: 1. Brand à most effective in large consumer markets 2. Offering à new & innovative products/services have the potential to disrupt most market segments 3. Relationship à effective in B2B, service & complex business settings Customer equity perspective: customers should be treated like other important assets à measured, managed & maximized. Customer equity: the total of the discounted lifetime values of all of its customers. Brand, offering, Relationship (BOR) equity Stack: if summed across all the firm ́s customers, this stack represents the firm ́s overall customer equity. C.H. à The micro–macro duality is critical to a successful marketing strategy, because true customer understanding occurs at micro levels (which avoid aggregation bias), but most strategic & resource- oriented decisions occur at macro levels (advertising, R&D, sales force strategies and expenditures). MP# 4: All resources are limited à managing resources trade-offs Firm has only limited resources therefore, most marketing decisions require trade-offs. Trading-off among multiple marketing options is inevitable in a dynamic business environment where multiple factors simultaneously influence firm performance. Multiple factors impact these complex resource trade-off (5): 1. Resource slack à the usable resources a firm has; depends heavily on the economy and the firms’ financial performance. 2. Changes in customer needs à can cause the firm to reallocate resources. 3. The lifecycle stage of a firm’s product portfolio à try to balance its product portfolio by including various products in different lifecycle stages & target different segments. 4. Changes in the product market landscape à entry & exit of competitors; competitive actions often require resource allocations to be revised 5. The effectiveness of marketing activities à customer segments, values, and tastes changes as products age; constantly vary their allocations over different planning horizons. How to manage Resource trade-offs? Heuristic-based processes: make resource trade-offs when they lack hard data about the attractiveness of each resource option Solve resource trade-off problem by using simple rules of thumb, driven by intuition & judgment Continually adjusting heuristics Attribution-based process: making resource trade-off decisions; especially as modern managers capitalize on their improved computing power & advances in statistics & data management. Review historical data & measures impacts of various marketing resource allocations C.H. à All resources are limited, & a firm’s marketing strategy must effectively allocate resources to maximize its business performance over time. Implementing & integrating the 4 MPs 3 Conditions: 1. Customers must care about what the SCAA offers 2. The firm must do “it” better than competitors 3. The SCA must be hard to duplicate SESSION 2 CHAPTER 2: MP#1: ALL CUSTOMER DIFFER: MANAGING CUSTOMER HETEROGENIETY All Customer Differ Identifying & exploiting customer heterogeneity is key to developing effective marketing strategies. Big 5 personality traits: Openness Conscientiousness Extraversion Agreeableness neuroticism C.H. Sources of customer heterogeneity: Customer Heterogeneity: A fundamental Assumption of Marketing Strategy à The assumption that all customers differ and that an effective marketing strategy must manage ever-present customer heterogeneity is MP#1. Latent customer heterogeneity: defined as potential differences in desires that are unobserved & have not yet become manifest in customer purchase preferences or behaviors, may stem from legal, economic, technological, or innovative constraints. à Customers all differ in their preferences, & even when customer heterogeneity remains latent, in the long term, changes in the legal, economic, technological, or innovation land- scape allow customers to find the products and services that best match their underlying preferences Approaches for managing customer heterogeneity 1. Evolution of approaches for managing customer heterogeneity C.H. Mass Marketing (undifferentiated marketing): uses mass media to appeal to an entire market with a single message, is a marketing strategy in which a firm mostly ignores customer heterogeneity, with the assumption that reaching the largest audience possible will lead to the largest sales revenue. Relatively lower profit margin & response rates & is often accompanied by high competitive intensity Niche Marketing: focuses marketing efforts on well-defined, narrow segments of consumers, and by specializing, this method seeks to give the firm a competitive advantage. One-to-one Marketing: tailors one or more aspects of the firm’s marketing mix to the individual customer, which is an extreme form of segmentation, with a single customer in the target segment. Customer-centric structure: firm consists of business units, each of which is focused on one customer segment; the business unit is further subdivided into multiple product market groups focused on a narrow customer group à By focusing on a subsample of the overall market with mostly homogeneous customers, firms can better anticipate future needs & detect emerging trends, which allows them to respond with well-targeted solutions before their more broadly focused competitors do. 2. STP approach STP Approach = Segmentation, Targeting, & Positioning a. Segmenting Segmenting: process of dividing the overall market into groups, such that potential customers in each group have similar needs & desires for a particular product/service category; the differences across groups are maximal. à The core goal of segmentation is to identify groups of customers who have similar needs, desires, and subsequent behaviors. Segmentation process: 1. Start with a random sample of potential customers in the market 2. Divide customers in groups according to their needs & desires in product category 3. Ensure that customer in one group have similar preferences (=homogeneous) & maximize the differences btw the segments (homogeneous within & heterogeneous btw) Cluster analysis: refers to the primary, data-driven partitioning technique that can identify and classify a large set of heterogeneous consumers or companies into a few homogeneous segments. Factor analysis: reducing potential customer preferences into smaller sets of independent factors to remove a potential source of bias by combining similar questions. C.H. The multiple discriminant analysis (MDA): reducing potential customer preferences into smaller sets of independent factors to remove a potential source of bias by combining similar questions. b. Targeting Targeting: After segmenting potential customers into homogeneous groups on the basis of their purchase preferences for a specific product or service category, a marketer needs to select segments to target If segmenting is like cutting the market into slices of pie, then targeting is deciding which slice you want to eat. Market attractiveness: captures external market characteristics that make a given segment strategically and financially valuable to serve, such as size, growth rate, and price sensitivity. Competitive strength: captures the relative strength of a firm, versus competitors, at securing and maintaining market share in a given segment. An ideal target segment should meet 6 criteria: 1. Based on customer needs – customer care 2. Different than other segments – little crossover competition 3. Differences match firm’s competencies – firm can execute within resource constraints 4. Sustainable – can keep customers from switching to the competition 5. Customers are identifiable – can find targeted customers 6. Financially valuable – in long-term GE matrix: analysis tool designed to help managers visualize & select target segments. c. Positioning Positioning: entails changing both the actual offering (innovating products or reducing manufacturing costs) & the perceived offering (building a new brand image) à Nearly every marketing mix decision, including product, price, place (channel), & product activities (often termed the 4Ps), that managers make affects the positioning of the firm’s offering in customers’ minds. Perceptual maps: depict customer segments, competitors, & a firm’s own position in a C.H. multidimensional space, defined by the purchase attributes identified during the segmentation process. Repositioning: process by which a firm shifts its target market. Positioning Statement: capture the key marketing decisions to appeal to customers in the firm’s target segment. 3 questions should be addressed by it: Who are the customers? What is the set of needs that the product or service fulfills? Why is this product/service the best option to satisfy customer needs? 3. Customer-centric Approach Customer-centric approach: a company-wide philosophy that places customers’ needs at the center of an organization’s strategic process & uses the insights to make decisions. Aligns each business entity with specific customer group à increases knowledge & commitment to each customer group Helps to identify unmet needs & enables to adapt quickly & effectively to trends Promotes internal alignment after STP approach has established external alignment Market orientation: the organization-wide generation of market intelligence, dissemination of the intelligence across departments & organization-wide responsiveness to it. 3 dimensions: 1. Intelligence generation 2. Intelligence dissemination à high level of communication among employees about customers 3. Responsiveness Framework for customer heterogeneity C.H. Process for managing Customer Heterogeneity 1. Segmentation – identify key purchase attributes; group similar people 2. Targeting – choose which segment you want to sell to 3. Positioning – adjust firm offering to match target segment preferences 4. Building Customer centricity – different from STP approach; requires top-down, enduring commitment from senior leaders to institute customer-centric philosophy across the whole organization CUSTOMER VALUE PROPOSITIONS IN BUSINESS MARKETS Customer value proposition Under pressure to keep costs down, customers may only look at price and listen to your sales pitch. Help them understand – and believe in – the superior value of your offerings. No agreement as to what constitutes a customer value proposition – or what makes one persuasive. Companies should focus on what their offerings are really worth to their customers. Make smarter choices on where to allocate scarce company resources. It is exceptionally difficult to find examples of value propositions that resonate with customers. 3 kinds of value propositions Classified value proposition into 3 types: All benefits Favorable points of difference o Value presumption: assuming that favorable points of difference must be valuable to the customer Resonating focus o Supplier assertion: customer believe that competitors offerings are superior but the supplier believes the offering are comparable o Distinctive Value proposition (DVP): emphasizing 1 point of parity & 2 points of difference C.H. Sustainable Customer value Value word equation: enable supplier to show points of difference & points of contention relative to the next alternative, so that customer managers can easily grasp them & find them persuasive. Demonstrate Customer value in advance Prospective customers must see convincingly the cost savings or added value they can expect from using the supplier ́s offering instead of the next best alternative. Value case histories: document the cost savings or added value that reference customers have actually received from their use of the supplier’s market offering. Document Customer value Suppliers must document cost savings & incremental profits (from additional revenue generated) their offerings deliver to the companies that have purchased them à Suppliers become knowledgeable about how their offerings deliver superior value to customers & how the value delivered differs btw kinds of customer. Superior business performance Customer value propositions make a significant contribution to business strategy & performance REDISCOVERING MARKET SEGMENTATION Market segmentation: properly applied, it would guide companies in tailoring their product and service offerings to the groups most likely to purchase them – the undeserved, the dissatisfied and first-time purchasers Traditional demographic traits such as age, sex, education levels, and income no longer said enough to serve as a basis for marketing strategy. Non-demographic traits such as values, tastes, and preferences were more likely to influence consumers’ purchases than their demographic traits were. C.H.  Sound marketing strategy depend on identifying segments that were potentially receptive to a particular brand and product category The psychographic profiling that passes for market segmentation these days is a mostly wasteful diversion from its original & true purpose à discovering customers whose behavior can be changed or whose needs are not being met. Psychographics: captures some truth about real people ́s lifestyle, attitudes, self- image, and aspirations. à Weak in predicting what any of these people is likely to purchase in any given product category. The Drift into Nebulousness After WWII, advertising did not have much to do than announce their existence & describe the product. In the 1960s, consumers were becoming less predictable in their buying habits. Value & lifestyle Program (VALS): commercial research service, retained by scores of consumer products & advertising agencies. Classified individuals according to 9 enduring psychological types Psychographics are effective at brand reinforcement & positioning à but are not drivers of commercial activity Different segmentation for different purpose The Gravity of Decision Spectrum Focus on the form of consumer behavior that should be of greatest interest to marketers à the relationship of a consumer to a product category What is at stake? Knowing how important a product or service is to your customers will help you decide which of their expectations are most likely to reveal their willingness to purchase your product. C.H.  SESSION 4 CHAPTER 3: MP#2: ALL CUSTOMERS CHANGE: MANAGING CUSTOMER DYNAMICS All customers change The first principle that all customer change can be a threat or an opportunity Firms developing Marketing Strategies need to account for: Static Variation in needs, due to inherent differences à MP#1 Dynamic Variation in needs, change over time à MP#2 Even when a customer is assigned to a segment, their needs will continue to evolve, at different rates and different directions, so at some point in the near future, the customers in a once homogeneous segment will develop very different preferences. à MP#2: All customers change & an effective marketing strategy must manage customer dynamics Customer dynamics: changes in customer preferences that occur over time. Sources of Customer Dynamics Individual customers change due to: o Discrete life events (graduation, …) § Small events in customer’s life (change in eating, …) o People progress through a typical lifecycle as they mature o Customers learning effect à is the process by which customers become more familiar with the product by using it, which changes their weighting of the relative importance of different attributes due to their enhanced knowledge & experience Product market level C.H.  o Product lifecycle à a well- organized phenomenon that captures prototypical changes in customers’ purchase criteria and marketers’ actions as the product category matures Environmental level o Consumer decision takes place in a constant changing environmental context (ex: changes in economy, industry, …) Approaches to Managing Customer Dynamics The fast pace of technology turbulence increases in the speed & breadth of communication. The entry barriers to starting a new business that targets an emerging customer segment or need have decreased. 1. Lifecycle approach Customer lifecycle à attempts to capture how individuals typically change as they age and reach common age-related milestones Product lifecycle à captures typical user experience & industry developmental effects as the product category matures (introduction, growth, maturity, decline) Industry lifecycle à early establishment, innovation stage, maturity, decline stage Each lifecycle deals with customer dynamics in a similar way bit at different level of aggregation. Advantages: are that it is simple & easy to use. 2. Customer dynamic-based segmentation approach C.H.  Known as AER model à customer entering the firm’s portfolio & accumulating over time, even as the customers slowly leave (“bathtub model”) 3 stages o Acquisition stage à 1st contact occurs typically before the 1st purchase occurs, when prospects & early customers have similar needs. § Customer relatively homogeneous § Customer onboarding: the planned process of introducing new customers to a firm to improve their long-term satisfaction & loyalty. First interaction up to 3 to 6 months Successful onboarding lower costs, enhances cross-selling & increases retention rates Onboarding research suggest that good customer service during the initial evaluation phase has a more significant effect on customer future trajectory, whereas its less effective later when customer has already chosen their course of action o Expansion stage à firms are trying to upsell or cross-sell to expand their sales & engagement with existing customers. § Need to adapt & anticipate customers’ future migration path § Can help prevent a maturing customer from considering a competitor’s offering o Retention stage à deals with customers who migrate because of a mismatch in the core offering or a life event or just because they have a basic propensity to switch in pursue of better alternatives. § Some strategies aim to increase switching cost required to move to a competitor § Enhancing brand loyalty that links a product to a person’s self- identity § Or building relational ties btw customers & firm’s employees to make the interaction seem like more than a business exchange o This approach represents a natural second-order approximation of the lifecycle perspective à applies segmentation solution for MP#1 & MP#2 o Lost customer Analysis § Is a powerful, after-the-fact diagnostic tool § Simplest form a firm contacts customer who migrated away to identify the cause for this change, then works back to fix the problem & ensure others don’t leave for the same reason § 3 step process Firms set regular intervals for contacting customers to identify the cause of their transition If lost customer is not the firm’s main target segment o Change acquisition criteria C.H.  o Evaluate expansion strategy to address new subsegment If lost customer is the main target segment o Fix the problem o Implement retention strategies to build brand & relationship loyalty o Choice model: can benefit the lost customer analysis & inform analysis across all AER stages; predict likelihood of observed customer choices/responses using data about characteristics & past behavior & firm’s marketing interventions. 3. Customer lifetime value approach CLV à Attempts to capture the true contribution of each customer, by determining the discounted value of the sales and costs associated with this customer across the expected migration paths followed throughout the relationship with the firm o CLV accounts for customer heterogeneity (MP#1) calculates at individual customer or segment level o Accounts for customer dynamics (MP#2) discounts CF (sales & costs) in acquisition & expansion stages & integrates cross-selling & retention expectations for customer/segment Determining CLV requires good insights into probable future migration paths, based on the individual customer or segment characteristics, as well as extensive financial data at the customer or segment level When to use it? o To identify which customer are worth acquiring & retaining o Determine where to target marketing programs to max the firm’s return on marketing investments o Understand the “true” value of a customer to a firm, including revenues & costs CLV calculation: Increasing margins & retention rates while decreasing acquisition and annual marketing costs & discount rates all improve the ith customer's lifetime value C.H.  Advantages of CLV o Input to make trade-off & resource allocation decisions among different AER stages at customer level o Provides all the information required for the manager to make optimal acquisition, expansion, & retention decisions o Encourages thinking about & accounting for a firm’s profits as the sum of each customer’s overall value, rather than thinking that a profit is the sum of product line revenue or income from different operating regions à customer central o The firm is faster to detect & respond to customer & market changes Simplified version of the CLV uses 3 readily available customer behavior (RFM): o Recency – time elapsed since last purchase o Frequency of purchase o Monetary – purchases in last period Framework for Managing Customer Dynamics Process for Managing Customer Dynamics Step 1 à Dynamic segmentation o Existing customers should be divided into AER stages based on how long they have been customers & other relevant data o Cluster analysis applied to existing customers Step 2 à Migration Paths & Triggers o Segments in AER need to be linked together to model how customer migrate over time o Qualitative data can help identify triggering event – cause of the change o Learn if migration is due to a specific event, learning or experience effect, or if the customer is just bored & ready to experiment with other offerings? Step 3 à Customer Lifetime Value of Segments & migrations o Determine the CLV of customers in each segment and estimate the change in CLV due to each customer’s migration, so that it can prioritize its AER investments Step 4 à AER positioning Statements o AER positioning statements à internally focused on existing customers, rather than outwardly focused on all customers in the market category C.H.  o More concerned with meeting customers' needs than with beating competitors o Addresses "when" questions, detailing triggers & migration mechanisms Step 5 à AER Strategies o AER positioning statements define the objectives; the AER strategies describe the process or how to reach these objectives à Understanding and managing customer dynamics is an iterative process that must become part of the firm’s ongoing marketing practice. New insights or findings often emerge “off cycle” and should be integrated into the customer dynamics framework regularly. CHAPTER 7: MP #3: MAANAGING RELATIONSHIP-BASED SUSTAINABLE COMPETITIVE ADVANTAGE Relationship Marketing basics Relationship Marketing (RM): identify, develop, maintain, & terminate relational exchanges to improve performance. It can produce relationship equity. In combination with brand & offerings, this equity can lead to sustainable competitive advantage. à managing relationships is key focus for marketing. The role of relationships is a set of processes for creating, communicating, & delivering value to customers & for managing relationships in ways that benefit the organization & its stakeholders Customer equity = Relationship equity + Brand equity + Value equity Based on prices that firms pay when acquiring firms, customer relationship value has exceeded brand value as a % of total enterprise value Customer relationship management: managerially relevant, organization-wide, customer-focused application of RM, using IT to achieve performance objectives. Relationship as SCA: building and maintaining barriers, or sustainable competitive advantages (SCAs), to competitive attacks, based on the premise that competitors react continually to a firm’s success. Relationship Equity: refers to the aggregation of relational assets and liabilities, associated with the firm’s boundary-spanning employees and social networks linked to the offering or experience, that add to or subtract from the value provided by the firm’s offering. Relationship Marketing Theory Social exchange theory: commitment & trust are central to strong business relationships. Relationship dimensions Commitment à enduring desire to maintain a valued relationship C.H.  Trust à confidence in a relationship partner’s reliability & integrity Gratitude à prompts need for reciprocation Reciprocation à generates feelings of pleasure à Gratitude & reciprocity, together with trust & commitment, largely capture the effects of interpersonal relationship marketing & explain the strong empirical support for the impact of interpersonal relationships on customer decision making. Model of interpersonal Relationships Relationship theory: needs to encompass elements of interfirm relationships, involve groups of employees on both sides of business exchange. Network theory: describe the effects of the structure of an interaction among multiple entities in a network. Relationship quality: the 4 facets that compose Relationship quality are Commitment, Trust, Gratitude, & Reciprocation Relationship breadth: measures number of relationship bonds with exchange partner. Relationship composition: diversity; attractiveness of contacts; confirm information across different perspectives & gain access to critical decision makers. Benefits from relationship equity RM doesn’t affect financial performance directly, but builds relationship equity àinfluences customer behavior à improves seller’s financial performance 4 mechanism o Corporative benefits § Complementary actions btw partners to achieve a mutual goal C.H.  Cooperation increases customers’ flexibility & adaptiveness to sellers’ requests for changes, information, or reciprocation o Relational Loyalty § Defined as the likelihood that the customer provides the seller benefits in the exchange process due to their relational attitudes and ties § Relationships positively influence this loyalty Customer perceive less risk when dealing with partners they trust act on relationally generated belonging minimize costs by buying from valued sellers o WOM § Reflecting the likelihood that a customer comments positively about a seller to others § Provides effective indicator of customer loyalty o Empathic behaviors § Greater likelihood of being influenced by perceptions of the seller’s position Relationship marketing 1. Building a relationship The table summarizes several RM factors that influence relationships & relational equity – conflict & unfairness have the greatest impact as they hurt all aspects of relationship quality. Most effective strategies: Minimize conflict Improve seller expertise, bilateral communication, & relationship investments & benefits Match boundary spanner’s & organization’s characteristics to targeted customers 2. Maintaining a relationship Long-term RM often depends on preventing the bad instead of promoting the good Negative activities generally have twice as string an effect as positive activities Bystanders: the customers not targeted by the program – despise the unfair treatment they receive. à difficult if not impossible to build a strong relationship solely on the foundation of a contract. C.H. Targeting that affect Customer’s desire for Relationships Relationship marketing should succeed best among customers that require a relational governance structure to address their uncertainty or dependence, that cannot predict or address their challenges in advance, or that lack other governance or institutional protections. Optimal RM effectiveness: matching RM activities to customer’s relationship orientation. Relationship orientation: desire to engage in a strong relationship. Determinants of customer’s relationship orientation includes: Relationship proneness à basic tendency of an individual to engage in relationships Exchange & product uncertainty à captures volatility, monitoring difficulty, & speed of technological changes Product category involvement/dependence à importance of & customer need for a particular product category Relational norms à reflect the value placed on customer-seller relationships in an industry or shopping context Relationship-centric reward system à encourage strong customer-seller relationships through evaluation systems, compensation programs, & policies Services à demand more customer & boundary spanner involvement Business-to-business markets à require adaption and strong relational governance structures Emerging markets à fewer institutional protections to business exchange make RM more effective than in developed markets à According to one study, customers with a low relationship orientation would shift 21% of their business to another supplier that offered automated transactions. Factors that leverage RM delivery effectiveness Free will à higher levels of gratitude result from RM investments when the customer perceives the investments as acts of free will rather than contractual fulfillments or duties Motives à desire or need that incites action; customers experience gratitude when the favor implies benevolent intentions rather than an ulterior, marketing motive Risk à higher risk generally induces higher levels of gratitude Need à condition in which a person requires or desires something Relationship dynamics and lifecycle stages Exploratory/Early stage: limited confidence in partner’s ability & trustworthiness; willingness to explore relationship; determine if potential benefits exceed those available from alternative options Developing stage: escalation of reciprocated transactions & increased affective attachment produce trust, commitment, & satisfaction C.H.  Maturity/Maintaining stage: calculative trust gets replaced by knowledge- & affective-based trust, communication, & other relational norms that reinforce common goals Decline/Recovery stage: in response to specific events or passive neglect (failure investments) Managing Relationship based SCA 1. Building Relationship Equity o Step 1 à developing a strong Relationship foundation § Culture of the selling is important & all elements must encourage the seller’s representatives to pursue & maintain good relationships with customers § Counterproductive to increase RM budgets without well- designed process for dealing with customer problems, service failures, or trust violations § Strong foundation to support relationship building & maintenance § Employee systems that support positive relational interfaces with customers § Fundamental processes conductive to positive relational exchange o Step 2 à implementing targeted relationship Marketing and loyalty Programs § Implement relationship marketing & loyalty programs targeted at specific customer groups, designed to generate specific relational outcomes across the firm’s customer portfolio § Different RM programs build different ties that generate varying returns from different types of customers: Social RM programs: use social engagements like meals and sporting events to convey the customer’s special status. Structural RM programs: provide investments that customers might not make themselves; generally, increase customer’s efficiency, convenience, or productivity, creating a hard-to-quantify but substantial customer benefit. Financial RM programs: provide economic benefits, in the form of special discounts, giveaways, free shipping, or extended payment terms that ultimately tend to offer little relative advantage, because competitors can easily match them. 2. Measuring Relationship Equity o Central measure of the effectiveness of RM efforts is relational equity, which should be assessed on an ongoing basis to support learning and refinement over time (similar to brand equity) C.H. o Strong relationships likely influence financial performance in ways that financial metrics cannot reveal C.H.  THE CUSTOMER PYRAMID Groups of customers differ widely in their behavior, desires, & responsiveness to marketing. à Understanding needs of customers at different levels of profitability & adjusting service based on those differences is critical to the enterprise. Relationship btw service Quality & Profitability Quality improvement & customer satisfaction have been linked to stock price shifts, the market value of the firm, and overall corporate performance. Improved service quality leads to an increase in profitability: service improvement efforts à increased levels of customer satisfaction increased customer satisfaction à increased overall customer satisfaction higher overall service quality or customer satisfaction à increased behavioral intentions (greater repurchase intention) increased behavioral intentions à behavioral impact (+ word-of-mouth) behavioral impact à improved profitability Limits of traditional segmentation Traditional segmentation is most effective when it leads to more precise targeting that results in higher revenues or responsiveness to marketing programs. à To improve this, businesses have to identify profitability tiers of customer Profitability Tiers of customers – Conditions 1. Tiers have different & identifiable profiles 2. Customer in different tiers view service quality differently 3. Different factors drive incidence & volume of new business across tiers 4. Profitability impact of improving service quality varies greatly in different customer tiers 80/20 Rule: 20% of the customer produce 80% of sales or value of the company. The customer Pyramid = Rich & robust concept across most industries & categories (ex: airline companies) Platinum = most profitable; committed to the firm; willing to invest in & try new offerings; not overly price sensitive Gold = not as profitable as Platinum; price discounts that limit margin; not as loyal; min. risk by going to multiple vendors Iron = provide volume needed to utilize the firm's capacity; but spending levels, loyalty, & profitability are not substantial enough for special treatment Lead = costing the company money; demand more attention than they are profitability C.H. When should a company use the Pyramid? The Customer Pyramid is desirable whenever the company has customers that differ in profitability but is delivering the same levels of service to all customers: 1. When service resources, including employee time, are limited 2. When customers want different services or service level 3. When customers are willing to pay for different levels of service 4. When customers define value in different ways 5. When customers can be separated from each other 6. When service differentials can lead to upgrading customers to another level 7. When they can be assessed either as a group or individually Customer alchemy: is the art of turning less profitable customers into more profitable customers. Turning Gold into Platinum Most important requirement: need to fully understand them & their individual needs. à develop offerings that fully satisfy the client’s needs, identify existing ways to serve the client better & communicate in the right way at the right times to the client. 1. Become a full-service provider 2. Provide outsourcing 3. Increase brand impact by line extensions 4. Create structural bonds 5. Offer service guarantees Turning Iron into gold Foundation: need to find out what is important to the Iron customers, not assuming that it is the same thing that is important to gold customers. 1. Reduce the customer’s nonmonetary Costs of doing business 2. Add meaningful brand names 3. Become a customer expert through technology 4. Become a customer expert by leveraging intermediaries 5. Develop frequency programs 6. Create strong service recovery programs Getting the Lead out à Allocating more effort to customers that are more valuable Implies allocating less effort to customers that are less valuable Moving lead customers to a higher tier is not an easy task & not always recommended. (can be college student; people don’t pay; trouble customers). Firms can attempt to make these customers more profitable; it can be accomplished in 2 ways: 1. Raise prices 2. Reduce costs of serving the lead C.H.  HOW TO DATE YOUR CLIENT IN THE 21ST CENTURY: CHALLENGES IN MANAGING CUSTOMER RELATIONSHIP IN TODAY’S WORLD What academics believed to be true about Customer relationship management in the 80s & 90s is, to a large extend, not sufficient anymore. However, many firms still rely on outdated rules. Old Customer relationship management assumptions 1. Customer relationships are stand-alone investments that increase in revenue & profit over time 2. Customer relationships are like loving marriages in which both parties live happily ever after 3. Customer relationship valuation is easy & linear, accounting for acquisition, development, & retention New Customer relationship management assumptions 1. Customer relationships are not independent but interact on firm & customer level 2. The cost of relationship maintenance can be significant and not all customers are profitable 3. Marriage is just one form of relationship & sometimes divorce is the better option 4. Customer relationship management is a 2-way street with strategic behavior on both sided 5. Customer relationship valuation is multifaceted, complex, & difficult to perform 6. Churn prevention might not be optimal, especially within a product portfolio 6 steps customers pass through to be persuaded by different communication formats (= Think-Feel-Act Model) 1. Customer must be exposed to the communications strategy 2. The message needs to capture customers’ attention 3. The customer must understand the desired marketing message 4. The customer needs to develop favorable attitudes towards the message 5. The customer must generate intentions to act 6. The person then must actually behave in the desired way C.H. The ultimate goal of any CRM strategy is to increase customer equity, as there is a close relationship btw. Customer equity & market capitalization. SESSION 6 CHAPTER 5 (162 – 164): MP #3: MANAGING BRAND-BASED SUSTAINABLE COMPETITIVE ADVANTAGE Integrated Marketing Communications: refers to the process of designing & delivering marketing message to customers while ensuring that they are relevant & consistent over time & channels. Marketing communication formats: Advertising o Business use this to persuade the customer to act, think, or recognize o Implementation à print, audio, or visual media o Goal: § Increase customer awareness § Increase perception of the firm § Gain access to new customers § Improve company’s standing o Very effective strategy in consumer markets, especially when firm targets a large number of customers Sales Promotion o Action firm takes to promote sales, usage, or recognition of its products & services o Includes add-on benefits, deals, or other pitches o Goal: § Increase tangible consumption of firm’s offering § Old & new customers should become more engaged with the firm Public Relations (PR) o “strategic communication process that builds mutually beneficial relationships btw organisations & their publics” o Requires dynamic interactions btw firms & customer à for brand image o Need to anticipate, plan, and evaluate customer reactions to important company decisions o Strength of PR team can determine the public opinion of key company decisions o PR has the ability to affect the image & goals of the company in public sphere Events & experiential marketing o Creating positive experiences for customers through events that support face-to-face contacts btw companies & customers o Offers most effectiveness when the focal event grabs attention & provides value to the customers (free samples, bonus, …) o A successful event ties a positive experience to the company o Goal: C.H.  § Creating long-lasting relationship that is based on good impression & sense of involvement or togetherness (ex: Red Bull’s sponsorships) Direct & interactive marketing (Amazon) o Direct marketing: funnels information about goods & services straight to customers § Channels à Mail, television, & telemarketing § Most simple & direct way to approach customers & to establish personal relationships with potential customers o Interactive marketing: attempts to overcome the one-sided limitations of direct marketing by incorporating feedback from & decisions by a customer into what is being advertised Word of mouth (WOM) o The dissemination of information by individual customers to build a firm’s or product’s reputation & generate sales o Very effective, but customer need to be satisfied with the company o Difficult to manage o Rise of social media à moved WOM into digital realm à easier to track Personal selling o Occurs when members of the firm or agents engage with customers to advance the firm’s interests o Overall process of finding à securing à closing the sale o Effective in B2B markets à few customers, so longer & more complex sales process; need a customized & solution-oriented approach à using brand as an SCA is often most effective in large consumer markets, such as those for soft-drinks, beer, fashion, … 6 steps process that customer must pass through to be persuaded by different communication formats: Customer must be exposed to the communication message Message needs to capture attention Customer must understand the desired marketing message Customer needs to develop favorable attitudes toward message Customer must generate attentions to act Customer then must behave in desired way à can be helpful to understand how customers process information & are persuaded to change their behavior. à 6 step process simplified as the “think – feel – act” model à goal: to build brand equity The intuition behind integrated marketing communications (IMC) à super-additive benefits accrue across communication vehicles Consumers view multiple media bits & pieces Frequently see advertising from the same firm across multiple media channels o Memory reinforcement effects à consumer remembers previous advertisement because the see the 2nd one § both together more powerful than the individual message C.H.  key characteristics of effective IMC à consistency of the message across formats & time HOW TO STOP CUSTOMERS FROM FIXATING ON PRICE In mature markets, the heavy competition has a commoditizing effect & customer become increasingly fixated on price, they fall into a mindset that makes them less respective to innovation & marketing campaigns. The customer treat company’s products as commodities. “Commoditizing” referring to the diminishing differences among offerings The constant price undercutting can damage brand equity & erode profit margins, meanwhile customer become disengaged To revive customers interest, managers can use the price. There are 4 pricing moves (strategies) that can jolt customers into considering the value of your offering in terms of quality & personal relevance & see how an offering is different: 1. Use price Structure to clarify your Advantage Goal: Call attention to the value your product/service delivers, ideally to the one dimension that most meaningfully differentiates it from those of competitors You need to revise your pricing structure o Normally focus on determining optimal price point for given product § Market research à see how much demand would be generated at different prices, under different support conditions, & from which customer segment à does little to set them apart from their competitors & it promotes price comparison o Many benefits form restructuring pricing to align with value § Customer will be charged according to the value delivered § This suggest that they reassess their preferences in line with that value & sends a powerful message that the seller stands behind its offering à pricing change compelled customers to pay attention to a certain form of value à key to succeeding is to vary price according to what’s most distinctive about your offering rather than the makeup of the product/service itself 2. Willfully Overprice to stimulate curiosity (ex: Apple or Starbucks) The logic behind it is intuitive & counterintuitive o With the higher price, the firms are trying to get the customers attention & wants them to have a closer look at the product & their different features o Product priced at 80% premium à customers recalled twice as much information & were more passionate about it then when the product C.H.  was priced at 20% premium à they were willing to pay much more then intended o But when product was priced at a premium close to their price expectation (10%) or way higher (190%), customer chose the lower price without giving much thought into buying decision à for every purchase decision, there is a price range above what potential customers say that they are willing to pay that will provoke them to ask, “Do I need this benefit or not?”. 3. Partition Prices to highlight overlooked Benefits (ex: cable TV or cheap airlines) Breaking the price into its component charges Presenting a cost as a set of smaller mandatory charges invites closer analysis & therefore increases the likelihood that a customer will revise a routine consumption behavior Downside: customer can get annoyed by price partitioning, since it is not always straightforward about the total cost o Cheap airlines often only tell you at the end of the buying procedure what other costs you must pay à makes it difficult to compare different prices of different airlines à partitioning only succeeds when it primes customers to see a real benefit they would otherwise have overlooked. 4. Equalize Price Points to crystallize personal relevance (itunes) Asking customers to choose among several options designed to appeal to different tastes, while all variants should be priced the same o since the customer then has to discover which option best suits their needs o this is an atypical approach to pricing à Usually different prices are set for different options Problem when pricing all variants differently à in most mature market customers are unresponsive to marginal changes in value & they default to price minimization Example of equalizing price: itunes; while charging a uniform price for the music offers, customers did not focus on saving as much as possible, but actually thought about the huge selection itunes was offering Most marketing books claim that a price tag does 2 things (1) It names the terms of the exchange& (2) It signals quality. A price tag can actually shape the value of the product/service by motivating customers to better understand what they’re being offered. fight customer’s disengagement with the one marketing variable that still penetrates their consciousness à price o Customers are fixated on price & the best strategy is to turn that to your advantage C.H.  IMC – AN INTEGRATIVE REVIEW Acceptance of IMC was driven by fundamental changes in the marketplace such as market & media fragmentation, technological shifts, reduced faith in the effectiveness of mass advertising, & the emergence of relationship as a central marketing paradigm. Problem: researches have struggled to develop a relevant theory base around which all the tools & techniques used in the practice of IMC can be aligned & applied. IMC (= integrated marketing communication) is understood as a holistic management approach for building customer relationship & brand value by integrating messages, stakeholders, & interactivity processes. IMC thinking & practice include coordination of multiple media disciplines, cross-functional communication planning, and customer centricity & interactivity Summary of theoretical intersections of the 3 frameworks IMC outcome captures the organizational benefits arising from planning & implementing IMC. The various IMC outcomes can be categorized into 3 levels, which can be interrelated: o Tactical § Consumers’ responses with a behavioral, image, cognitive, or affective component § stem from short-term transactions & media exposure à Short-term impact on the organization C.H.  o Intermediate § Customer information, knowledge, & satisfaction § Can be acted upon long-term, profitable relationship with customers à midrange organizational impact o Strategic § Brand value, brand equity, market share, & profitability (ROI) § Constitute a source of organization wide competitive advantage à organization-wide impact Integration scope represents the scale with which IMC programs are planned & implemented inside organizations. Whether IMC program are planned & implemented at: o Marketing communication level o Marketing function level o Cross-functionally throughout the organization The particular integration scope adopted by an organization depends on the organization’s specific market/competitive priorities. 3 integration scopes can be inferred o Tactical § implemented primarily at the marketing communication level § it involves planning & implementing a one-time media campaign by combining different message & execution elements for reaching a specific short-term goal o Functional § Implemented primarily at marketing function level § Planning and implementing marketing campaigns based on multiple media channels & a longer time horizon § Customer centric scope o Strategic § Implemented cross-functionally by mobilizing organizational processes beyond the marketing function § Resonates throughout the organization § is geared towards achieving long-term results Integration scope of IMC influences outcome of IMC Proposition: Integration scope will have a direct effect on IMC outcome, such that: 1. tactical IMC programs mainly generate tactical IMC outcomes 2. functional IMC programs mainly generate intermediate IMC outcome 3. strategic IMC programs mainly generate strategic IMC outcome Integration strategy establishes direction & context for implementing IMC plans. Integration strategy offers a broad guideline for interpreting IMC programs & taking concrete executional steps. C.H.  The components of integration strategy: o Audience type & relationship episodes § Important to clearly define & understand target market § Audience goes beyond customers to other stakeholders § 3 types of relationships identified: transactional, ongoing, & combi of the 2 o Message sources & media channels § 3levels of organizational messages Corporate level: corporate philosophies and cultures Marketing level: product design, customer service etc. Marketing communication level: advertising, PR, sales promotions § Channels Early stages of integration: regular marketing media channels Later: marketing function and external ad agencies Integration modes: after the integration strategy is defined, it has to be translated into concrete execution plans. Communication consistency à logic of synergy in which a coherent message is delivered to the audience as a holistic unit o Coordinate message across media channels Communication customization à relies on logic segmentation; where messages & media channels are tailored to narrower segments of the audience Communication interactivity à relies on the logic of co-creating meaning, in which marketers & the audience work toward a shared meaning via 2-way exchange of messages o dialogue e.g. internet, events or personalization Organizational support processes capture the various mechanism mobilized by organizations to create a favorable condition for planning & implementing IMC. mechanisms to create favorable environment for implementing IMC A culture of cross-functional cooperation, a clear brand & customer focus, & strong organizational commitment are some of the conditions considered essential for speeding up IMC planning & implementation Main organizational support process à update customer database Feedback the final point of theoretical intersection. ELEMENTS OF STRATEGIC SOCIAL MEDIA MARKETING: A HOLISTIC FRAMEWORK Understanding the role of social media is critical for both researchers & managers. This research attempts to define the continua on which critical strategic social media marketing decisions lie & to integrate them into a holistic framework. Research explores 2 research questions: o How is strategic social media marketing defined & conceptualized? C.H.  o What factors demand consideration when constructing an organisation’s social media marketing strategy? The theoretical contribution that the research provides: o A comprehensive definition & conceptualization of strategic social media marketing o Current research defines a theoretical framework outlining the crucial dimensions on which strategic social media marketing decisions are made & trade-offs involved in positioning a firm along each of the key continua o Integrates social media marketing into a more strategic marketing & management context à provides an advanced theoretical understanding of social media marketing that can guide manager’s decision making when developing & improving their strategic social media marketing activities Theoretical framework Social media marketing objectives & outcomes o Proactive objectives à stimulating sales, increasing brand awareness, improving brand image, generating traffic to online traffic, stimulating users to post & share content o Reactive way à monitor & analyze conversations & understand how consumers view a firm or its action Boundary conditions of effective social media marketing o 7 functional building blocks common to all form of social media § Identity, conversation, sharing, presence, relationship, reputation, & groups o The effectiveness of social media may depend on the specific role consumers assign to companies & brands within the social media sphere o Many users expect firms to participate in social media conversation by either mentioning or “hashtagging” the brand o type of industry & product influences the impact of social media marketing The need for a holistic social media marketing approach o “holistic” refers to the notion that the components of the overall construct cannot be divorced from the whole; configuration of components that ultimately determine a response to a setting, situation or concept o “The linear, relational, exchange-based relationship” à how firms explained their relationships with consumers is no longer valid o Relational orientation focuses on one-to-one communication o Interactional orientation emphasizes multifaceted relationship based on sharing within & between digitally enabled communities C.H.  o Marketing literature does not address the responsibilities of social media, and other challenges à need for a holistic & interdisciplinary framework Findings Social media marketing scope: defenders to explorers o Question: Whether companies use social media marketing predominantly for communication with one or a few stakeholders or comprehensively as a genuine tool for collaboration o Use social media as one-way communication tool to entertain consumers or to inform stakeholders o Defenders: Use Social Media Marketing primarily as one-way communication tool to entertain customers or to inform stakeholders (push content to them – bespassungsfunktion) § E.g. receive standardized or no answer when trying to approach company o Explorers: Authentic Social Media Marketing collaboration based on reciprocal interactions. Take advantage of interactive SM technology with two-way communication that is completely open Implications § Explorers need to build real relationships Social media marketing culture: conservatism to modernism o Conservatism: represented by an encapsulated, traditional, mass- advertising approach to SMM § Internally focused & risk-averse view of SM o Modernism: which is characterized by a more permeable, open & flexible SMM culture § Believe in SM & take risk that someone may talk negatively o Implications § Acknowledge that stakeholders can take control and manipulate content § Conservatism provides more control against this Social media marketing structure: hierarchies to networks o Addresses the organization & departmentalization of the SMM assignment in the firm o Hierarchy: stand for centralized approach with a clearly defined SMM assignee o Network: represent an organizational structure in which all employees are responsible for SMM § All employees responsible for SMM à control decentralized § Marketing director only takes role of directing efforts § Preference for networks à importance of “flat hierarchies” C.H.  § Believe that SM works best as a cross-departmental structure o Implications § Structure: focus on who has responsibility to post and interact in media Social media marketing governance: autocracy to anarchy o Autocracy: a single department centralizes & administers control of SM communication. § Precise regulations on who is allowed to interact on SM platforms o Anarchy: is represented by a “laissez-faire” mentality in which no such rules exist & departments/employees are free to communicate at will on SM platforms. § Employees free to communicate on platforms § Importance of training employees to enhance effectiveness o Implications § Governance: focus on who can or should say what in SM § Emerging movement called “employee activism” New definition of SMM Social media marketing is an interdisciplinary & cross-functional concept that uses SM to achieve organizational goals by creating value for stakeholders. Social media, in practice, is too complex to be managed & executed exclusively by a single individual or even department. Cross-functional collaborations along the 4 dimensions of SMM are necessary to successfully navigate in the dynamic arena. SESSION 8 CHAPTER 6: MP#3: MANAGING OFFERING-BASED SUSTAINABLE COMPETITIVE ADVANTAGE Offering: broad term that captures both tangible products & intangible services provided by firms. Innovation: creation of substantial new value for customers and the firm by creatively changing one or more dimensions of the business. à Brands & relationships might add other benefits & affect the user experience, but they cannot function without the foundation of a suitable core offering. Innovation as SCA Innovation Radar 1. Change what the firm offers 2. Change who the customer is 3. Change how you sell to customers 4. Change where to sell to customers C.H. à A first-mover advantage is nearly always trumped by early followers who are not just quick but also better. The lesson? Best beats first. Benefits from offering Equity Offering equity: refers to the core value that the performance of the product or service offers the customer, absent any brand or relationship equity effects. When a product/service is not different from competitors’ offerings (me-too offerings), it generates little offering equity or SCA. Therefore, most firms attempt to develop innovative offerings, differentiated from competitors’ products, to generate at least some relative advantage. 1. New offering provides more value to customers, in the form of enhanced performance 2. New offerings often motivate customers to switch from competitors to the innovative firm, to gain access to the new product 3. New offerings also can help the firm acquire new customers or enter new markets when they offer similar performance but at a lower price 4. Whether the innovation is radically new or represents an incrementally new offering, its arrival in the market sparks benefits for other divisions and departments in the firm too. 5. Offering new & innovative products tends to enhance the firm’s brand à We must remember that SCAs solely based on new products tend to be short- lived. Before competitors react & copy an innovation, the firm should build other, more lasting SCA. Offering & innovations Strategies Developing Innovative offerings 1. The Stage-gate Approach Stage-gate development process: divides development process into several steps; increase the speed of their offering development & enhance their likelihood of success, while also reducing development costs. C.H. Method helps ensure effective development approaches through several elements People naturally evaluate alternatives according to the value they perceive which is relative to some reference point. 1. Feasibility of the new development projects is evaluated from multiple perspectives 2. Evaluates who determine if the project will receive continued support must be external to the project team The designers’ curse: often means that once developers or designers accept some new feature, they perceive its great value – far more than would be assigned the feature by non-users. Endowment effect: to include a new feature leads people to overestimate the value of that feature, were they to lose it. 3. The stage gate method gives firms plenty of opportunity to cancel projects at early stages 4. Key resources constantly get reallocated according to the new information available at each stage, to lead to better resource trade-off decisions Incremental innovation à often pass each stage-gate review more easily, because they involve less risk and are easier to evaluate Radical innovation à might struggle to pass through the stages, especially if they are difficult to understand Jugaad: is a Hindi word referring to an innovative fix or simple work-around, so these innovation practices seek creative, quick, unconventional, and frugal solutions to problems. 2. Repositioning Strategies An innovative offering can result from dramatically repositioning an existing offering, such as removing some features or adding others, so that the total offering appeals to a different customer segment with a “new” value proposition. C.H. Red Ocean: reflect the metaphor of blood in the water – very competitive and populated by “sharks” fighting over the same customers. Blue Ocean: redefine the market space, introduce unexpected features, and fundamentally change the entire value proposition. 3. New technology-based innovation strategies A technological innovation can undermine a firm’s leadership position in a market, even if that firm is doing everything else well. Sustaining Technologies: well understood and typically exploited by market leaders, and produce continuous, incremental improvements over time. Improve performance of established products along familiar dimensions valued by mainstream customers Disruptive technologies: present highly different price & performance characteristics or value propositions. Usually underperforms establishes products for mainstream customers (at least initially) Various factors cause market leaders to fail to anticipate the threats or opportunities of emerging, potentially disruptive technologies: Appear to appeal only to small, niche customer segments Markets are hard to evaluate Status quo bias Firms may believe that disruptive technologies, that offer less on some dimensions will be insufficiently viable Firms fail to appreciate the steep performance trajectory of new technologies Launching & diffusing Innovative offerings à An estimated 40% of new offerings launched on the market fail to meet business objectives. C.H.  1. People based factors that influence Innovation Diffusion Innovators: first to adopt; actively seek new technologies in a specific domain. Early adopters: see the benefits of the new technology & are willing to adopt it after just a few references. Early majority: need to be convinced that the new product really works. Late majority& laggards: want more evidence & are especially hard to persuade. Crossing the chasm: many new offerings fail to survive the jump from the early adopter to the early majority groups. 2. Product based factors that influence Innovation Diffusion 5 factors can alter the rate of product diffusion: Relative advantage à customer perceives higher relative adv. of product, such that it appears better than an existing offering (speeds up product's diffusion). Comparability à how consistent the products are with their existing values, uses, & experiences Complexity à complex products, which are difficult to understand/use suffer from low diffusion Trialability à more opportunities to try an offering speed up diffusion Observability à an offering's benefits are highly visible to others; it speeds up new product diffusion à If the firm can optimize the people-based & product-based factors associated with its new offering, it will greatly increase the likelihood of its launch success, as well as its offering equity. Managing Offering-based sustainable Competitive Advantage Steps for building equity 1. Develop an offering or offering portfolio that provides customers with the largest relative advantage among all competitors in the market 2. Offering equity requires a firm to segment, target, & position that new offering in a way that accounts for both people- & product-based diffusion factors 3. Firms need to manage the customer migrations from innovators & early adopters to early majority stages Research Approaches Conjoint analysis: marketers can design & develop new products by thinking of products as bundles of attributes, then determining which combination of attributes is best suited to meet the preferences of customers. Where: R(P) is the rating associated with product P ßij à part-worth utility associated with jth level of the ith attribute C.H.  kj à is the number of levels of attribute m is the number of attributes xij = 1 if the jth level of the ith attribute is present in product P, & 0 otherwise When to use it? To identify product attribute trade-offs that customers are willing to make for a new product To predict the market share & impact of a proposed new product (bundle of attributes) To determine the amount that customers are willing to pay for a new product Bass model: Captures many of the people- & product- based factors but also integrates pricing & advertising levels to predict adoption rates. Coefficient of innovation (p) à which reflects a person’s propensity to adopt a product independent of the number of previous adopters Coefficient of imitation (q)à or the propensity to adopt as a function of the number of existing adopters & the size of the market Assumptions: 1st-time purchases, without accounting for multiple purchases of a product Features only a binary diffusion process (innovators vs imitators) Does not include other marketing mix variables It imposes the restriction that each innovation is independent, without any competitive effects COMPETING IN THE AGE OF OMNICHANNEL RETAILING How is technology changing the retail landscape? The distinctions btw physical & online retailing are vanishing. Advanced technologies on smartphones and other devices are merging touch- &-feel information in the physical world with online content, creating an omnichannel environment. Online & offline retailers may need to compete in new & innovative ways. Opportunities & challenges Mobile technology is changing consumer behavior & expectations. The retail industry is shifting towards a concierge model geared toward helping customers, rather than focusing only on transactions & deliveries. Technology can help retailers to reach new customers & expand their markets. Retailers used to rely on barriers such as geography & customer ignorance to advance their positions in traditional markets. However, technology removes those barriers. Successful Strategies for omnichannel Retailing C.H.  1. Provide attractive pricing & curated content 2. Harness the power of data & analytics (opportunity to understand customer transactions & interactions) 3. Avoid direct price comparison (distinctive features, exclusivity) 4. Learn to sell niche products 5. Emphasize product knowledge (channel integration) 6. Establish switching costs (loyalty programs) 7. Embrace competition Understanding the Impacts As retailers adapt their selling strategies to an omnichannel environment, the changes will be felt by players both upstream and downstream: 1. Manufacturers may no longer be able to produce large volumes of the same product for different retailers 2. Boundaries btw manufacturer & retailer blur 3. The quest for distinctive products may reduce the number & importance of superstar products 4. Retailers may decide to backward integrate into manufacturing 5. Omnichannel retailing gives consumers more channels from which they can obtain information during the purchase decision process Omnichannel retailing expands the overall by extending market reach & introducing consumers to before unknown products. Supply-chains that generate increased consumer value are likely to win in the long- run. à Transparency speeds up the process, leading to a “winner-take-all” effect à Marketing firms will become more data-driven and analytic- oriented to design campaigns that deliver advertising messages with surgical accuracy to consumers FIRST-MOVER ADVANTAGE: A SYNTHESIS, CONCEPTUAL FRAMEWORK, AND RESEARCH PROPOSITIONS It is believed that order of entry into a market & market share are causally related. 1st movers have higher market share than early followers, who have a higher market share than later entrants. A firm can achieve 1st mover status in numerous ways, the 1st firm to: Produce a new product Use a new process Enter a new market C.H. à A head start alone is not sufficient to achieve cost and differentiation advantages over rivals that result in dominant and enduring market shares & abnormal financial returns. Perspectives on 1st-mover advantage 1. Economic-analytical perspective Economist generally approach this phenomenon from the perspective of sequential market entry. The 1st mover can benefit in 2 ways: 1. When there is no competition, the 1st mover is by definition a monopolist, & may use this position to gain higher profits than would be possible in a competitive marketplace/increase the size of the total market 2. After the entry of competitors, the 1st mover has established market position & learning curve economies, which may allow them to retain a dominant market share & higher margins than imitators Barrier to entry: a cost of producing which must be borne by a firm which seeks to enter an industry but is not borne by firms already in the industry. Scale effects Experience effects Asymmetric information about product quality & risk averse buyers Reputational effects Differences in marginal effects of advertising btw 1st & late entrants Uncertain imitability Communication good effect 2. The behavioral perspective The behavioral perspective explains 1st-mover advantage at the product or brand level. 1st movers will find less resistance among potential customers The process by which consumers learn about brands & form preferences plays an important role in creating a 1st mover advantage 1st movers may be able to influence how attributes are valued Define the ideal attribute combinations and influence consumers preferences being 1st in the market suggest a higher degree of consumer awareness à product trial à ongoing purchase behavior to minimize risk & information costs 1st movers are assumed to: 1. offer higher quality products 2. choose correct positioning 3. pursue right competitive strategy C.H. A conceptual framework of 1st-mover advantage Encompasses the elements of competitive advantage & focuses on factors likely to affect 1st-mover advantage – a special case of competitive advantage includes the fit btw environmental opportunity & organizational skills & resources that affords a feasible market opportunity from the firm ́s standpoint the competitive strategies of the 1st mover & later entrant are addresses 1st mover advantages are fundamentally positional advantages (cost & differentiation) Environmental opportunity & organizational skills & resources: fit considerations Attractiveness of the market opportunity resulting from environmental change is a necessary condition for profitable entry into a product- market. Results of efforts to convert favorable trends into commercially successful ventures depend on a host of external and internal variables. Strategic windows: limited period of time during which the “fit” between key market requirements and the particular competencies of a firm competing in the market is optimal Likelihood of firm benefiting from being a first mover depend on the degree of fit between: Skills & resources necessary to capitalize on an environmental opportunity & the skill & resources possessed by the firm Skills & resources necessary to capitalize on mechanisms for enhancing 1st- mover advantage & skills & resources possessed by the firm to convert these mechanisms into a 1st-mover advantage à The ultimate net impact of pioneering generally depends on the firm’s skills & positions, competitors & changes in the environment. Typology of strategic types: Prospectors à excel in new product & market development Defenders à engage little or no new product & market development Analyzers àintermediate type with fewer & slower product & market changes Fit between environmental attractiveness and organizational skills & resource conditions: C.H.  Greater degree of fit btw organizational skills & resources necessary to capitalize on an environmental opportunity & skilsl & resources possessed by a firm à greater SCA Greater degree of fit btw organizational skills & resources necessary to achieve SCA through market pioneering & skills & resources possessed by the firm that chooses to be a market pioneers à greater order of entry-related CA of 1st mover à The financial & non-financial resources at a firm ́s disposal play an instrumental role in achieving positional advantages Positional advantages: cost & differentiation 3 Conditions for sustainable Positioning advantage: Customer must continue to perceive a consistent difference in important attributes Differentiation should be the direct consequence of a capability gap (entry barriers) that separates the pioneer from later entrants The durability of competitive advantage is contingent upon + attributes of the 1st mover’s offering Factors underlying cost & differentiation advantages: Economic factors à cost advantages o Scale & experience economies o Marketing cost asymmetries Preemption factors à provide basis to achieve absolute cost advantage o Cost asymmetries in factor inputs o Spatial preemption Technological factors à cost/ differentiation advantage o Product & process innovations o Organizational innovations Behavioral factors à differentiation advantage o Switching costs o Prototypicality & product specific reputational advantages o Communication good effects o Information ad consumption experience asymmetries Product-Market Contingencies & positional Advantages: A propositional Inventory 1. Moderators of economic factors Demand uncertainty & entry scale Proposition 1 à Indirect inverse relationship btw demand uncertainty & the scale- dependent cost adv. of the 1st mover Ratio of minimum efficient scale to size market Proposition 2 à lower the ratio of MES to the size of the market, smaller the 1st mover’s scale-dependent cost adv. C.H. Advertising intensity Proposition 3 à 1st mover’s ability to achieve a cost adv. due to marketing cost asymmetries is less in advertising-non-intensive than advertising-intensive industries Response time Proposition 4 à Shorter the response time needed by later entrants to enter a market, the lesser the first mover’s Scope economies Proposition 5 à The greater the degree of interrelationship (marketing, manufacturing, & technological) btw the 1st mover’s new business venture & the other businesses in its portfolio, the greater its scope-dependent cost adv. 2. Moderators of preemption factors Demand uncertainty & preemptive investment Proposition 6 à There is an indirect inverse relationship btw demand uncertainty & the 1st mover preemptive-investment cost advantage (both absolute & dynamic) Product characteristics Proposition 7 à Differentiation advantage accruing to the 1st mover is greater when: Products are technically complex, bulky, or require complementary products and/or spare parts A product category is created than when a product form is introduced The depth and breadth of a product line are large 3. Moderator of technological factors 2 factors govern a firms’ ability to benefit from technological innovation: 1. The efficacy of legal instruments of protection (patents & copyrights) 2. The nature of technology underlying the innovation Characteristics of technological innovation Proposition 8 à The greater the rate o