MM SLIM Litterature PDF 2020-2021

## Marketing Management 2020-2021 ### Table of Contents - Preface - Table of Contents - Information about the course - Week 1 - Marketing Strategy - Marketing Myopia - Strategic Insight in Three Circles - Week 2 - The Coherence Premium - Are You Ignoring Trends? - Week 3 - S...

## Marketing Management 2020-2021 ### Table of Contents - Preface - Table of Contents - Information about the course - Week 1 - Marketing Strategy - Marketing Myopia - Strategic Insight in Three Circles - Week 2 - The Coherence Premium - Are You Ignoring Trends? - Week 3 - Strategies to Fight Low-Cost Rivals - Branding in The Digital Age - Consumer Market Segmentation - Segmenting the Base of The Pyramid - Rediscovering Market Segmentation - Customer Value Propositions in Business Markets - Week 4 - Analysing Consumer Perceptions - Principles of Product Policy - Strategic Brand Valuation: A Cross-Functional Perspective - The Case Method of Instruction & Working with Cases - Week 9 - How to Stop Customers from Fixating on Price - Pricing to Create Shared Value - Strategic Channel Design - The Future of Shopping - Week 10 - The One Thing You Must Do Right When Building a Brand - For Mobile Devices, Think Apps, Not Ads - Consumer Neuroscience - Practice Exam - Answers Practice Exam - Epilogue ### Information about the course This summary contains the mandatory readings for each week. Please note that during weeks 5 to 8 there are no required articles. We summarized the literature in order to help you through this course. Several top students, who have recently taken this course, have shared their expertise and worked on this summary to help you. #### The exam Your final mark of this course consists of two parts: - Written test: 60% - Group case write-ups: 40% Your exam will consist of open-ended questions on all subjects covered in the articles and lectures, weighing approximately one-third and two-thirds of the final exam grade. The exam assesses your knowledge of the basic principles, strategies, and tools developed in the course. This booklet will help you study for the written test. In order to pass the course, the grade for the written exam needs to be at least a 4.5. #### What is the best way to study? It is highly recommended to preparation for all the classes through reading all the articles, watching the lectures, and active participation in the case discussions and write-ups. Everything discussed during the lectures, everything talked about in class including case discussions, and all the readings are used for the exam. #### Layout of the course In weeks 1 to 4 and 9 to 10, lectures will be posted on Canvas once a week on Thursdays. In weeks 6 and 8, there will be no lectures of any sorts. Moreover, in week 5, there will be a session in which the case is reviewed. #### Format of the summary We will publish two Marketing Management summaries this year - literature and lecture. The summary before you is the literature based on the readers. The lecture summary is going to be published later. We have divided the summaries into weeks according to the order determined by the lecturer to avoid confusion. Good luck with studying! ### Week 1 #### Marketing Strategy This article serves as an introduction to **marketing strategy**. It defines strategy as a plan of action that is specifically created to achieve certain objectives. Objectives could be defined in terms such as sales volume, growth rate, return on investment (ROI), and many more. The importance of defining objectives is to give purpose and direction to strategies. Strategies are developed at multiple levels in the organisation: corporate, divisional, business unit and departmental. Marketing strategy is essential to any business plan and other components of a business unit strategy (e.g. finance, R&D) must support the business' marketing mission. Marketing strategies should consider a firm's limitations as well as its core competencies. #### The Elements of Marketing Strategy A marketing strategy is made up of a number of interrelated elements. The most important element is the **product/market selection**, that decides what markets will be served and with what product lines. Other critical elements include **price**. This element determines what price will be set for individual products, and what price relative to other products, offer quantity discounts, deferred payment plans or rental option. One other critical element are **distribution systems**. Distribution systems are channels through which products and services move to the end-users e.g. sales force, independent distributors, agents, franchised outlets. Finally, **market communications** are yet another critical element and include but are not limited to direct mail, trade shows, telemarketing, etc. Other elements of the marketing strategy vary by industry and company. A company whose products need repair and maintenance after being bought must have programs for **product service**. These programs are often business units themselves with extensive repair shops, service personnel, and spare parts inventories. For some businesses, **technical service** is important as it helps in supporting customers' manufacturing and product development operations. Another critical component is the **plant location**, as this defines the geographic market boundaries (e.g. the location of a plant is critical when the shipping of products is expensive or due to government regulations). **Brand strategies** for consumer goods companies can be divided into **family brand** and **product-specific brand strategies**. All these elements form a **marketing mix**, which can vary considerably across different markets, growth stages, or products, and even among competitors selling the same products in the same markets. The next section will talk about the four main components of the marketing mix; **product/market selection**, **pricing**, **distribution**, and **market communications** (also known as product, price, place, promotion). #### Product/Market Selection (Product) **Product/market selection** is concerned with choosing the right target market, the right product and the right production technology. This is often seen as the most important choice made by any organisation. A product can be defined as "the total package of attributes the customer obtains when making the purchase". This definition is rather wide and should include the full range of benefits (e.g. repair service or convenience), risks, and disadvantages the buyer obtains with purchase and use, including the buyer's experience. For strategic planning purposes, the prospective purchaser's opinion and the value placed on the seller's product versus competitive offerings is most important. The challenge for a company is to distinguish the **perceived value** from the **potential value**. Perceived value resembles the value customers already see in the product, whereas realizing the potential value requires educating the customer about the product benefits. This can be achieved through market communications. The term "market" can be defined in several ways, for example, the place where buyers and sellers meet or a set of potential customers. This article defines the market as "a pocket of latent demand". This means that several variables, such as consumer incomes, trends, new technologies and many others, affect the market demand. There are many sources of new market opportunities, such as the emergence of new technologies (electronics, aerospace, medical sciences, etc.), population growth, increase in national and personal income, societal needs (e.g. crime prevention), shifts in culture, style and taste, and many more. The market is usually divided along several **segment dimensions**. A **market segment** is a set of potential customers that are alike in the way they perceive and value the product, in their buying behaviour, and in the way they use the product. The purpose of market segmentation is to delineate groups of potential buyers according to their needs, market potential, and buying behaviour. There are several ways to segment the market, and companies try to pick the right segmentation variables that are suitable for them. The market can be segmented by the following variables: - **Demographic segmentation**: - For consumer markets: income, age, sex, ethnicity, and educational background; - For industrial markets: size, nature (profit or non-profit) of business, and type of industry; - **Geographic segmentation**: Segmentation through market potential, competitive intensity, product-form preferences, trade regulations, economical shipping distance (plant location), and customers' source-proximity needs. - **Psychographic segmentation**: Market segmentation according to lifestyle decisions and attitudes toward self, work, home, family, and peer-group identity. E.g. "Couch Potatoes" vs "Exercise Freaks". And segmentation according to corporate culture toward risk-taking, buyer/supplier relationship values. - **Segmentation through product use/application**: Segmentation based on how the product will be used/applied by consumers/industrial purchasers. One customer may exhibit different purchasing behaviour in buying comparable products if they are intended for different purposes. Note: It is important to recognize that the market segmentation scheme is appropriate at the development stage of a market, but may become obsolete with market growth and maturity. #### Factors influencing product/market selection: - **Price** - **Value of the product**: - Focus on segments valuing the product the most; - Choose the applications in which the product or service makes the greatest contribution. - **Long-run growth potential**: - Ultimately, market size and profit potential is key; - Take the future market opportunities into account, not only current ones. - **Resource commitments**: - High investments needed in R&D, marketing and production facilities; - Return On Assets (ROA) estimates must justify the investments. - **Competitive positioning**: - A helpful analogy is to see the market as a chessboard, where the spaces are the different market segments. Some spaces filled with weak competitors, some with strong, some spaces might be empty. - The **first-mover** often has advantages when acquiring market segments like to develop market recognition, gain customer access, lead technology and economies of scale. - New entrants usually succeed to the extent that their products and services are differentiated. - **Company-product/market fit**: - New product/market opportunities are assessed in the context of existing business operations; - Are the firm's current operations suitable for particular markets? #### Pricing decisions are affected by five factors: - **Supply/Demand** - **Production and Overhead Costs** - **Competition** - **Buyer Bargaining Power** - **Product Value to Potential Customers** #### Factor 1: Supply/Demand High levels of supply drive the price down, whereas high demand puts upward pressure on the price level. The basic levels of supply and demand are beyond the control of individual players. The problem for supply is often one of excess production and how to bring supply in line with demand, as to maintain prices. Attempts to control supply are often made by monopolizing supply sources, forming cartels, competitive signalling, and lobbying for trade barriers or subsidies. #### Factor 2: Production and Overhead Costs Production and overhead costs set the floor in pricing decisions because a company cannot survive when the costs are higher than potential revenues, as this will result in losses instead of profits. Furthermore, when the fixed costs are high compared to variable costs, maximizing the sales volume is usually seen as important. When the variable costs are high relative to the total costs, it is more important to focus on the unit margins. In all cases, low-cost producers have a competitive edge. Efficient manufacturing and distribution processes and achieving scale economies are often the foundation for market success. #### Factor 3: Competition Competition usually sets the ceiling for price levels. In the early stages, price competitiveness is often moderate or non-existent, but it intensifies when more and more firms enter the market. There are three types of responses to price pressures: - **Product differentiation**; - **Dampen intrabrand competition** among resellers; - **Exercising price leadership**. By differentiation, products with unique features get a 'monopoly-status' when there is a demand and comparable competitive offerings are not available. Some degree of freedom in pricing exists as any unique benefit of the product is translatable into price premiums. **Intrabrand competition** tends to put pressure on price levels as resellers of the same brand compete for market share in the regions they serve. Therefore, the higher the number of resellers, the more competition. Price competition at this level soon generates **interbrand competition**, and market prices decline. The price leader is usually the industry's largest firm with cutting-edge technology. The price leader has the strongest distribution, and low production costs. They also have the power to set price levels in response to changes in supply and demand, product cost factors, and perhaps the intensification of competition. Moreover, most industries express conscious **price parallelism**. Similarity of prices is legal as long as it is not reached through a collusive agreement. In other words, the similar prices must be found without direct communication and negotiation. #### Factor 4: Buyer Bargaining Power Buyer bargaining power is able to put downward pressures on prices if the buyer group either forms a major amount of the company's sales or if the buyer has several options to choose from, meaning other suppliers to buy from or self-manufacturing. The first creates a high degree of dependency on the firm's largest buyers and leads to the seller's willingness to offer price reductions rather than lose sales volume. Sellers can improve their negotiating position by differentiating their products. Sellers can create power if they offer differentiated products, if customers are satisfied, and if switching to other suppliers is costly to the customers. #### Factor 5: Product Value to Potential Customers At the core, the pricing strategy should be about the value potential customers see in the product. If the seller wants to maximize his/her profits, it is essential to price the product according to the value of the product or service given by customers. Often, the perceived consumer value differs across market segments. Companies can differentiate their prices across various segments, but this is only successful in the long run when combined with functional product differentiation. If the low-priced products sold in one market will make their way across segments into markets where higher prices would normally prevail, it is called the **black-market phenomenon**. Lastly, when entering new markets, companies have an option to choose between **skimming** and **penetration pricing**. Skimming is usually considered as a more low-risk strategy and involves introducing the product first with a high price tag and eventually bringing the price down. A skimming approach is used to maximize unit profits in the early stages and to gain market experience at low market volume levels. **Penetration pricing** is based on the idea of quickly invading the market by setting low prices and thus usually involves higher risks. Penetration pricing replaces competition and allows the firm to gain a quick learning curve experience in order to quickly achieve scale economies. For penetration strategies to succeed, the following conditions have to be met: - The product must be defect-free; - The company must have sufficient production capacity to fill the demand; - Distribution channels must be available for potential buyers; - Product adoption should be quick (no testing periods or lags). There are different factors affecting firm price levels. First, we have **factors lifting the price**: such as price leadership, high switching costs, high buyer dependency, differentiated products, high product value, and controlled supply. Second, we have **factors reducing the price**: high buyer bargaining power, intra-brand competition, brand competition, high levels of supply, flexible costing and black market-trade. #### Distribution Channels (Place) Leading firms have very strong distribution systems as well as a wide installed base; in other words, the volume of a brand's product currently used by the customers. The installed base is the strongest driver of replacement sales. Traditional distribution systems include companies having their own sales force, with independent wholesalers and retail outlets helping to create market coverage. More recently, there has been a shift to the use of **electronic commerce channels**, in particular, the Internet and Electronic Data Interchange (EDI). This has added new dimensions to the distribution infrastructure. Channel support is essential to successful distribution. It is important for the supplier to make sure the retail prices and margins do not decline. Moreover, it is essential that retailers actively promote and display the products and that the products are widely available in retail outlets The figure represents the key market success factors. [Insert Picture of Key market success factors here] Firms face many options when structuring sales channels; for example if the company relies on middlemen, or if it sells its products through a sales force direct to its user-customers. Most distribution systems are made up of a mix of intermediaries that are largely based on the nature of the product, market demographics and buyer behaviour. The most important components of a distribution system include **direct sales reps**, **sales agents**, **distributors** and **retail dealers**. **Direct sales reps** are employees that call directly on its customers, and thus, away from a fixed retail location. They are particularly effective in serving accounts that buy large quantities and need extensive product service, technical support and product customization. **Sales agents** are independent operators who generally carry the lines of several suppliers. Their customer profile is a lot like the direct sales reps, but since they work on commission, sales agents represent a variable cost. They are often used as first-stage intermediaries when entering new markets. **Distributors** are those who buy from many suppliers and have differentiated product lines. They serve customers who purchase relatively small amounts of a number of different items at any one time and want ready and reliable availability. Finally, **retail outlets** are made up of a large infrastructure that supplies end-products and services to consumers and business buyers (e.g. Wal-Mart). In some product areas, retail outlets are franchised. The franchises are required to purchase supplies from the franchisor and conform to certain standards of store design, service quality and product presentation (e.g. McDonald's). By means of **electronic commerce channels**, customers can gain product information, place and pay orders. However, there are some drawbacks, as the accessible market is limited. Next to this, there are security concerns when sellers face problems in qualifying buyers and verifying the legitimacy of orders. Successful distribution depends on how effectively suppliers support the channels through which their products move to markets. When working with intermediaries, three factors are important that suppliers need to assure that products are stocked and available at the resale level; that resellers display, advertise and promote the product properly; and that resale prices and margins do not deteriorate. There are several factors that help the supplier gain strength in between the channels: - **Selective distribution instead of intensive distribution**: - With fewer resellers there is less incentive to cut down retail prices and there is more interest in promoting the product line to build sales volume; - The intensity of the supplier's resale representation depends on the nature of the product and buyers' behaviour. - **Superior quality and breadth of the product line**; - **High supplier-reseller-interdependency**: - The greater the share of the dealers' sales the suppliers' line accounts for, the more dependent each is on the other, and the greater the pressure becomes to work together to maximize sales volume and profits. - Supplier's own sales force present in resale level; - **End-market demand development**: - Heavy advertising and promotion usually generates a brand pull in the market. Note: Of all the elements of the marketing mix, distribution is the hardest to build and change. Nevertheless, change is often essential as markets grow and evolve. #### Market Communications (Promotion) The usual communication channels available for a company include telemarketing (e.g. phone calls), personal sales force, third-party influencers (e.g. doctors), trade shows, direct marketing, television, point-of-sale displays and print media. A successful use of these channels needs an understanding of the **decision-making-unit (DMU)** and the **decision-making-process (DMP)**. The DMP typically includes several stages: - An awareness of a need; - Search for information; - Identification of options; - Source qualification and shortlisting; - Selection; - Post-purchase affirmation of the buy decision The process will be determined by the nature of the product, the buyer's previous buying and product use experience, and the number of people involved in the buy decision. For each stage, different communication vehicles are needed. Television and print advertising create awareness, whereas visiting stores and talking to friends serve better in gathering info, and the final selection is often strongly influenced by a salesperson. The DMU itself might include a combination of actors; often, a family can be seen as a DMU. The different actors in the DMU often have different concerns and give different priorities to the product's attributes. Thus, it is the marketer's task to treat these individual needs and address all of the actors' interests. To do this effectively, marketers need to understand the influences on which prospective buyers are most likely to respond. The influences could vary from word of mouth (from friends and neighbours) to more authoritative sources such as doctors, product testing organisations, or store personnel. Different channels of communication are suitable for different situations. **Media advertising** might be an efficient way to provide information about the product and the price, inform prospective purchasers where to buy, suggest ideas for how to use the product, identify the brand with its target market segment, build brand support and establish brand familiarity. **Personal selling**, on the other hand, is often useful to tailor solutions to individual customer needs, identify prospective customers, deal with customer problems, and provide market feedback. When relevant information is difficult to communicate through mass media, or when the number of prospective buyers is too few to justify the costs, personal selling is preferred over media advertising. When formulating the communication's strategy there is often a need to choose between a **push- and a pull-strategy**. Push-strategies involve pushing the product to end-users, for example through encouraging the resellers to promote the product. **Pull-strategies** focus on creating end-market demand. It is more costly, due to advertising, and because end users will be pulled to the company, for example when a company shows expertise in a certain area. Knowing how to balance the two strategies is key to reaching cost-effectiveness. Pull elements in the marketing program are effective if the brand name is meaningful to the buyer and if product benefits can be effectively communicated through mass media. Push elements are needed if the way the product is presented at the point-of-sales is important, if clerks' recommendations are meaningful to buyers and if buyers count on reseller after-sale service. #### A Model for Formulating the Marketing Strategy - **Corporate goals**: set the main guidelines for strategic planning and bottom-up planning conducted by the strategic business units. They set the limits of what can actually be achieved; - **External environment**: intends an examination of the exogenous factors which create a favourable climate; - **Business unit strengths and weaknesses**; - **Product/market opportunities**: come from internal and external factors. - Market analysis; - Economic and risk analysis: using break-even, contingency and impact analysis; - Ethical analysis; - **Product/market strategies**: the purpose is to assess feasibility and fit, and given limited resources, to prioritize new opportunities in terms of long-term revenue and profit potential. #### Marketing Myopia Business managers often make the mistake of incorrectly defining the industry they are operating in. Defining an industry too narrow sets restrictions to managerial thinking and strategy formulation, which can lead to the loss of customers or even the extinction of the company. A perfect example of this would be the U.S. Railroad Industry. The railroads businesses are in shambles, not because the demand for passenger and freight transportation declined, if anything, the demand has risen significantly. They simply allowed customers to be taken away by other transportation means (cars, trucks, airplanes, etc.), as they assumed themselves to be in the railroad business instead of the transportation business. The reason they identified their industry incorrectly was that they were **product oriented (railroad instead of transportation)** instead of **customer oriented**. If the railroad executives and managers had seen themselves being in a transportation business instead of specifically focusing on railroads, they would have seen the changing needs and wants of the customers and thus, could have fought the emerging competition from companies using alternative modes of transport. Another example is Hollywood. It once thought it was in the movie industry, while it was actually in the entertainment industry. So instead of being customer oriented (focus on entertainment), it was more product oriented (focus on movies), and thus initially rejecting to embrace the opportunity provided by the emerging television industry. Hollywood almost disappeared as a whole due to its initial failure to define its business correctly. When a company is customer oriented, it is constantly looking for opportunities to apply their technical know-how to the creation of customer-satisfying uses that account for the output of successful new products. #### Shadow of Obsolescence Almost every industry has, at some point, been considered a growth industry, in the sense that the expected future growth looks practically never-ending. Usually, the belief in the industry comes from the absence of obvious substitutes. Still, almost all of these industries have come to a decline at some point. Few people remember that many industries used to be admired growth industries. For example, in the dry-cleaning industry, people could not imagine getting clothes cleaned another way, until after 30 years, when clothes had synthetic fibres and chemical additives that cut the need for dry cleaning. In truth, actual growth industries do not exist, only companies organized and operated to create and capitalize on different growth opportunities. Perceived growth industries are actually industries in a phase of growth, but inevitably heading to decline. History shows a self-deceiving cycle of bountiful expansion and undetected decay. These four conditions guarantee the cycle, so they are usually causing the decline of former growth industries: 1. An assumption that the expanding population will assure future growth; 2. Lack of perceived and credible substitutes for the industry's major product; 3. Too much faith in mass production and the advantages of reducing unit costs as output rises; 4. Preoccupation with a product that lends itself to carefully controlled scientific experimentation, improvement and manufacturing cost reduction. These four points will now be discussed in more detail on the next page. #### Condition 1: Population Myth Referring to the article, every industry prefers to think that profits are secured by the population growth. This is only natural as it is a comforting thought, removing uncertainties and anxiety towards the future. Moreover, if the market is constantly expanding, it seemingly solves the growth problem and lifts the responsibility to generate growth from management's shoulders. This will most likely lead to a lack of innovation and (creative) thinking, as "An absence of a problem leads to the absence of thinking". If the product has an automatically expanding market, the firm will not pay much attention on how to expand it. The petroleum industry's efforts, as an example of an industry, have focused on improving the efficiency of getting and making its product, not really on improving the generic product or its marketing. This has led to a false sense of indispensability, in which the petroleum industry is convinced that there is no competitive alternative to its major product - gasoline. The reality is that the survival of the oil industry is largely dependent on the succession of different businesses and innovations, such as the combustion engine. Moreover, the industry has defined its product in the narrowest possible way, namely gasoline and not energy, fuel or transportation, and is relying on the growing population as a source of industry growth. This is a recipe for disaster as it is simply inviting outsiders to create a successful substitute or threat. #### Condition 2: The Idea of Indispensability The petroleum industry firmly believes in the indispensability of their product and that there is no competitive substitute. Although gasoline is still an excellent business 50 years after the publishing of the article, the point is still valid: the oil industry got run over already twice, first when the electric bulb made kerosene lamps obsolete and the second time when coal-based central heating replaced the space heaters. Only the constant innovation of new products using oil has saved the industry from extinction. More specifically, had it not been for the growing use of kerosene in space heaters, the electric bulb would have ended the oil industry. Similarly, the increase in aviation, the use of diesel in railroads and the increased demand for cars and trucks once again saved the oil industry. This idea of indispensability has also blinded the oil businesses from accepting other alternative products. This is particularly evident during the prominence of natural gas. Oil companies had the resources and the capabilities to become major players in the natural gas industry. However, since the executives were unable to persuade their own companies to go into the natural gas industry and so limited themselves to a specific product (oil), executives who believed in the natural gas industry decided to form their own firms, producing multibillion businesses that could have been part of the oil businesses. Although most people see oil as a wonderful growth industry, it has never been a continuously strong growth industry, but it has grown by fits and starts, always saved by innovations started by outsiders. The point is that there is no guarantee against product obsolescence. If a company's own research does not make a product obsolete, another's will. In order for a firm to be lucky they need to make its own luck. Therefore, a firm needs the knowledge of what makes a firm successful. The biggest enemy of this knowledge is mass production. #### Condition 3: Faith in Mass Production Mass production industries are impelled by a great drive to produce all they can as the profit possibilities look spectacular. Focusing on mass production and driving down unit production costs is attractive for companies operating in various industries. There are risks involved in focusing on production processes and unit costs, though. Focus on mass production usually leads to an emphasis on selling the product instead of marketing it. The difference between marketing and selling a product is that marketing is interested in fulfilling the needs of a customer, while selling is focused on the needs of the seller. Selling is more concerned with generating cash flows whereas marketing is more concerned with satisfying customer needs through the product itself and all things associated with it (creating, delivering and consuming it). Marketing-minded firms focus on creating value-satisfying goods and services that consumers will want to buy. The Detroit problem, as an example of a car industry, honoured mass production but was more product than customer focused. Detroit spent millions of dollars on consumer research but only asked them about car preferences that Detroit already offered, rather than researching customer wants. This led them to lag behind more innovative companies. This kind of focus usually prevents the product from adapting to changing consumer tastes. This is exactly what happened to the American auto industry when it got run over by the Japanese. Firms should be ready to reinvent their products and their industries, even if it means they are destroying the old ones. This is the only way to avoid future decline. With product provincialism, the tantalizing profit possibilities of low unit production cost is the most self-deceiving attitude that can afflict a company, especially a growth one, where an apparently assured expansion of demand already tends to undermine a proper concern for the importance of marketing and the customer. The result of this narrow preoccupation is that the industry declines as the product fails to adapt to the constantly changing patterns of customers' needs and tastes, new marketing practices and product developments. Since the firm only focuses on its own specific product, it fails to see how it is being made obsolete. #### Condition 4: Risks Involved in Research & Development Focusing too much on R&D (being too focused on product/price reductions) can also be dangerous. After succeeding in creating a superior product, companies often assume that ongoing and extensive investment secures future success. Once again, the actual customers are left without attention. A big problem in technologically oriented firms is that the managers are often engineers, not actual businesspeople. This kind of orientation leads to selective bias as management will favour handling controllable variables and things they are aware of, like research instead of marketing. Furthermore, this leads the company's attempt to fill rather than find markets. Often the study of customers gets a stepchild treatment. The customer is studied, however, the focus is on getting information that is designed to help companies improve what they are already doing. This article reaches the conclusion that the main focus should always be on the customers and filling their needs. The company as a whole must exist in order to create value for customers, not to create products as such. Given the customers' needs, the industry develops backwards, first concerning itself with the physical delivery of customer satisfaction. Then create the things by which these satisfactions are achieved. Finally, move back to finding the necessary raw materials. Moreover, chief executives must believe in this model and support it. The whole company should be about satisfying customer needs rather than selling products. This is the only way to succeed in the long run. If the consumer sees the price as fair, he/she is usually more willing to pay a premium. #### Strategic Insight in Three Circles This article highlights the fact that companies often acknowledge that they must build a distinct competitive advantage, but that they do not truly know what this actually means. To visualize what strategy (both internal and external) means, it provides three circles for acquiring strategic insights that lead to competitive advantages. The diagram below shows where the company's offerings stand relative to competitor's offerings and customer needs. Each one of these elements is represented by one of the circles and thus, forming a representation showing unfilled customer needs (E) and points of parity (B) between the company's and its competitor's offerings. The three main circles represent the following: - **Customer needs**: the team's view of what the most important customers' wants or needs are; - **Company's offerings**: the team's view of how customers perceive what the company offers; - **Competitive offerings**: the team's view of how customers perceive what competitors offer. A, B, and C are critical to building competitive advantages. A indicates the companies' competitive advantage, B indicates the points of parity between the company and competitors, while C indicates the competitive advantages offered by competitors. The overlap (A and B) indicates how well the company's offerings are fulfilling customers' needs. Moreover, the figure shows which part of customer needs are filled solely by the company as well as the needs competitors can fill, and the company cannot. Another insight might be what value the company or its competitors create that customers do not need (D, F, or G). [Insert Picture of Three Circles here] #### Week 2 #### The Coherence Premium The "coherence premium" refers to the superior returns achieved through a strategy that matches the company's core competencies with the right market opportunities. The main message of this short article is that companies should focus more on what they do best and match these capabilities with market opportunities. This because right now, they pay too much attention to external positioning and not enough to internal capabilities. #### What is Coherence? A coherent company is a company that successfully aligns its internal capabilities with correct market positioning. A capability is something you do well that customers value and competitors cannot beat. Most companies, however, are not coherent. Actually, it is rare for a strategy to even mention the internal capabilities. Although reading market signals and identifying market opportunities is critical, the marketing strategy should be in correlation with internal capabilities. However, individual capabilities cannot generate the coherence premium. In order to become coherent a company needs to choose its system of capabilities, implement these capabilities to support the strategy, and align the systems with a suitable product and service portfolio. Coherency can provide clear answers to the following questions: - How to face the market? - In a coherent company, executives, managers, and employees at every level understand how the company creates value for its customers. They are broad enough to allow flexibility and growth and narrow enough to focus strategy and decision-making. - What capabilities are needed? - The value creation system should have 3-6 key capabilities; - Mutually reinforcing capabilities are desirable. - What to sell and to whom? - Product/service offerings, capabilities and the strategic purpose, also known as "the way to play", are aligned; - Products that require different capabilities are terminated; - The external market is continually scanned for new opportunities that leverage the capabilities system; - In-depth expertise in just a few areas is supported by everyday decision-making. #### Coherence Leading to High Profits According to the article there is a clear correlation between company coherence and financial performance. Coherent companies earn higher profits and the effect is magnified when we look at mature, post-consolidation markets. A widely known example is Coca-Cola, one of the most profitable companies in the consumer packaged goods industry. Coca-Cola achieved this success through its focus on beverage creation, brand proposition, and global consumer insight. The article lists four different ways in which coherence helps to enhance profits: 1. Coherence helps to build competitive advantage. 2. Coherence focuses strategic investments on the right target and reduces waste. 3. Coherence builds efficiencies of scale. This means that companies can spend more wisely and grow more easily when they deploy the same capabilities across a larger array of products and services. 4. Coherence helps to align daily decision-making processes with the strategic intent, causing companies to execute better and faster during chaotic times as everyone understands what is important. The problem is that organisations often have a natural propensity to become incoherent, so it takes extraordinary leadership to pursue a capabilities-driven strategy. The firm needs to be able to make tough business decisions such as divesting businesses, streamlining non-essential functions, pairing product and service lines, and resisting the temptation to enter a "hot new market" which do not suit the firm's capabilities. A strategy that is focused on core capabilities is extremely hard to apply and requires sharp leadership. Often, single divisions inside companies are able to achieve coherence more easily than the whole organisation itself. Coherence does not only shape the leadership agenda, it enables leadership. It aligns the organisation at every level and gives employees the tools to make the right decisions every day. #### Week 3 #### Are You Ignoring Trends? This article claims that managers are able to articulate major trends in their businesses, but fail to recognize the less obvious but profound trends towards consumers' aspirations, attitudes, and behaviours. The article wants to get managers to think more creatively and aggressively about how trends can give ideas for new value propositions in core markets, as well as to discuss ways how product development and marketing research can exploit trends effectively. #### Three Strategies for Dealing with Trends The biggest and most obvious trends are easy to recognize. However, it is common that mistakes in management lead to a failure in recognizing the more sophisticated and less obvious trends, especially when these trends occur in markets that are relatively unimportant for the