Marketing Management Articles Week 1 PDF

Marketing Management Articles Week 1 Marketing Strategy: An Overvie Strategies : to have objectives to have grow and pro t, taking account on the rm’s core competencies and resource limits. Objectives : sales volume, growth rate, return on investment (ROI), and many more D...

Marketing Management Articles Week 1 Marketing Strategy: An Overvie Strategies : to have objectives to have grow and pro t, taking account on the rm’s core competencies and resource limits. Objectives : sales volume, growth rate, return on investment (ROI), and many more De ning objectives is to give purpose and direction to strategies. Elements of Marketing Strategy (explained more later -Product/market selection that decides what markets will be served and with what product lines. -Price : individual products, quantity discounts, deferred payment plans, rental options, promotions -Distribution systems : how can we distribute the goods, company’s salesforce, independent distributors, agents, and franchised outlet -Market communications : print and television advertising, mail, shows, telemarketing, sampling ->Marketing mix : varies from one another, some rely on some elements more than others. (TV more than mail), especially when they are selling the same thing. But also, not explained after -product service : repair and maintenance, repair shops, service personnel, spare parts inventories. -technical service : support customer’s manufacturing and product dev operations -plant location : limited distance, gov regulations on local manufacturing -brand strategy : family brand name, product speci c name ->Product/Market Selectio -choosing the right target market, product and production technology. -product : total package of attributes the costumer obtains when making a purchase -product bene ts : what the product does, manufacturer, warranties, repair service, value of the brand name with quality and reliability. -negative factors : repair can cost a lot, poor product performance -perceived value/potential value : costumer’s existing perception of the product. whereas realizing the potential value requires educating the customer about the product bene ts. Potential realized through market communication -Market : where buyers and sellers meet, set of potential customers. A pocket of latent demand. several variables, such as consumer incomes, trends, new technologies and many others, affect the market demand -new market opportunities : with new technologies, electronics, aerospace, medical sciences, pop growth, increase in national and personal incomes, societal needs such as crime, prevention health care, and pop control, shifts in culture, style, public tastes in food, clothing, entertainment fi ? fi. : s w   s n fi fi.  . fi ) fi.....  Market segmentatio -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 -DEMOGRAPHY Family income, age, sex, ethnicity, educational behavior Industrial markets: size, nature of business (pro t or non-pro t), and type of industry; -GEOGRAPHY Government trade regulations, product form preferences, competitive intensity, market potential, economical shipping distance. -PSYCHOGRAPHIC VARIABLES Peer group identity, teenagers, senior citizens… consumer lifestyle, attitudes toward self. -PRODUCT APPLICATION AND US Consumer : purchase purpos Industrial : application technolog 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. Product/market selection criteri Value of the product: -Focus on segments valuing the product the most; -Choose the applications in which the product makes the greatest contribution. Long-run growth potential: -Market size and pro t potential are key; -Take 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 lled with weak competitors, some with strong competitors. -The rst-mover often has advantages as it can develop market recognition, gain fast 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 t: -New product/market opportunities are assessed in the context of existing business operations; -Are the rm’s current operations suitable for particular markets? fi fi fi n fi e fi y a E. fi. fi  ->Price Pricing decisions are affected by ve factors 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. Ex: Rockefeller Standard Oil Company 1870s Factor 2: Production and Overhead Costs -set the oor in pricing decisions because a company cannot survive when the costs are higher than potential revenues, as this will result in losses instead of pro ts. Furthermore, when the xed 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. Ef cient manufacturing and distribution processes and achieving scale economies are often the foundation for market success. Ex : airlines & hotels off season pric Competition usually sets the ceiling for price levels. In the early stages, price competitiveness is often moderate or non-existent, but it intensi es when more and more rms enter the market. There are three types of responses to price pressures: °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 bene t of the product is translatable into price premiums, in terms of functions, services, availability Ex : Cheerios and General Mills cereal °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. fi fl   fi fi e fi s : fi fi fi.  °The price leader is usually the industry’s largest rm 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 intensi cation of competition. Ex : American air line Moreover, most industries express conscious price parallelism. Similarity of prices is legal as long as it is not reached through a collusive agreement: 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 rst creates a high degree of dependency on the rm’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 satis ed, and if switching to other suppliers is costly to the customers. Ex : Crown Cork & Seal, manufacturer of metal containers, were constrained about their consumers such as Budweiser and Campbell Soup, bc they were beginning to think about making their own cans, so they targeted the smaller con ner-users, less powerful and not able to be independent. If they change to aonother supplier it would be disruptive and costly Factor 5: Product Value to Potential Customers “The worth of a living is the price it will bring At the core, the pricing strategy should be about the value potential customers see in the product. If the seller wants to maximize their pro ts, it is essential to price the product according to the value of the product 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. Ex: packaging may not be the same to attract different segments, prices also Ex = heavy duty detergent, can include cleaners of different strengths for different uses. 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. fi   fi fi s ”. fi fi fi fi. 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 rst with a high price tag and eventually bringing the price down. °A skimming approach is used to maximize unit pro ts in the early stages and to gain market experience at low market volume levels. Also to recoup heavy product development costs New books, new electronic devices °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 rm to gain a quick learning curve experience to quickly achieve scale economies. + gain market experience, gain leaning curve experience ( to quickly achieve scale economies in manufacturing and marketing). Ex: USA Today journals 0.25$ then 0.50 For penetration strategies to succeed, the following conditions have to be met: The product must be defect-free; such as repair, recall or retro tting. The company must have suf cient production capacity to ll the demand; Distribution channels must be available for potential buyers; Product adoption should be quick (no testing periods or lags), it would give competitors time to reac Most pro table rms -low cost structure -successfully exercise price leader shi -Price differentiates among market segment -timely prices change and monitor price level There are different factors affecting rm price levels: Factors lifting the price: such as price leadership, high switching costs, high buyer dependency, differentiated products, high product value, and controlled supply; Factors reducing the price: high buyer bargaining power, intra-brand competition, brand competition, high levels of supply, exible costing and black market-trade. fi fi s : t. fi. fi fi $ p s s fl fi fi fi fi  ->Distribution Channels (Place) Leading rms have very strong distribution systems as well as a wide installed base, and the constant product innovation also strong product lines 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 gure represents the key market success factors. Source: HBS 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 fi fi.  distribution system include direct sales reps, sales agents, distributors and retail dealers. Direct sales reps are employees that directly call customers, away from a xed 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 carry the lines of several suppliers. Their customer pro le is similar to direct sales reps, but since they work on commission, sales agents represent a variable cost. They are often rst-stage intermediaries when entering new markets. They are the channel of choice if the rm does not have the resources to support an in- house sales organization. Distributors are those who buy from many suppliers and have differentiated product lines. They serve customers who purchase relatively small amounts of different items at any time and want ready and reliable availability. Ex: W.W Grainger, GESCO Retail outlets are made up of a large infrastructure that supplies end- products and services to consumers and business buyers (e.g. Walmart). Ex : pharmacies, restaurants, gas stations, hardware stores, supermarkets In some product areas, retail outlets are franchised. The franchises must purchase supplies from the franchisor and conform to 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. It also delivers digital projects with publication graphs pictures and video tapes. It can be also a source of after sale product support 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 (EDI was created). The elderly also do not have access to buy some thing on the Internet because they do not have electronic channels. 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: 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. fi fi. ` fi. fi. 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 Ex : toothpastes can be sold everywhere and in a lot of places of a town but however for cars one dealer in the community is likely to suf ce. 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 pro ts. Supplier's own sales force present in resale level -role in training dealer personnel in product presentation, monitoring inventory levels, after sale service, calling on key and customers, gathering market intelligence, discouraging resale price cutting. End-market demand development: ◦ Heavy advertising and promotion usually generates a brand pull in the market. Ex: Du Pont carpets. They worked with carpet meals to ensure carpet quality. Add the retail level, they supplied dealers with product training manuals in-store displays and carpet identi cation medallions. They also supplied their dealers with corporative advertising materials and funding through print media television and radio. Consumers could also call in with questions 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. But it is also a pressure because projects can be redesigned prices can be raised or lowered overnights and also very could be changes in distribution. Also with new product technologies, advancing market education, intensi cation of competition. fi. ; fi. fi fi  ->Market Communications (Promotion) The usual communication channels available for a company include telemarketing (e.g. phone calls), personal sales force, third-party in uencers (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; Identi cation of options; Source quali cation and shortlisting; Selection; Post-purchase af rmation 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 nal selection is often strongly in uenced by a salesperson. The DMU itself might include a combination of actors. 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 the actors’ interests. To do this effectively, marketers need to understand the in uences on which prospective buyers are most likely to respond. The in uences could vary from word of mouth (from friends and neighbours) to more authoritative sources such as doctors, product testing organisations, or store personnel. Ex : different POV on birth control in Bengladesh, women by doctors and social workers, men on TV and radio. Different channels of communication are suitable for different situations. Media advertising might be an ef cient 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 fi fl fi fl fi fl fi   fi fl relevant information is dif cult 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, without communications strategy designed primarily. 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. to attract people, for them to buy more by having better conditions. 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 bene ts 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; to have corporate growth and a maximization of stockholder value. Maintaining employment, providing a safe work environment and serving national interests. External environment: intends an examination of the exogenous factors which create a favourable climate; fi fi  Business unit strengths and weaknesses; Product/market opportunities: come from internal and external factors; Market analysis; market segmentation with the more attractive segments for market potential, competitive intensity, regulatory conditions. Also an analysis of the buyers needs. Economic and risk analysis: using break-even, contingency and impact analysis; Ethical analysis; Product/market strategies: the purpose is to assess feasibility and t, and given limited resources, to prioritize new opportunities in terms of long-term revenue and pro t potential. fi fi Marketing Myopi “Sustained growth depends on how broadly you de ne your business-and how carefully you gauge your customers’needs. Marketing Myopi -growth is threatened = failure of management Business managers often make the mistake of incorrectly de ning the industry they are operating in. De ning an industry too narrowly sets restrictions to managerial thinking and strategy formulation, which can lead to the loss of customers or even the extinction of the company. Example 1: U.S. Railroad Industry The railroad businesses in the U.S. are in shambles, simply because they 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. They identi ed their industry incorrectly, because they were product oriented (railroad instead of transportation) instead of customer oriented. The railroad rms saw themselves being in a transportation business and did not see the changing needs of the customers in the railroad industry. Thus, they could not ght the emerging competition from companies using alternative modes of transport. Example 2: Hollywood Hollywood 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 rejected to embrace the opportunity provided by the emerging television industry. Hollywood almost disappeared due to its initial failure to de ne 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. Have to have -costumer satisfying use -sophisticated eye on the costumer -not focusing only on their product but also other options (ex train not only trains but also airplanes Ex : DuPont, Cornings : ) a a s fi ” fi fi s fi fi   fi fi  Shadow of Obsolescence Almost every industry has, at some point, been considered a growth industry, as 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, although many industries used to be admired as growth industries. Ex : dry-cleaning industry, people could not imagine getting clothes cleaned another way, until clothes had synthetic bres and chemical additives that cut the need for dry cleaning. Electric utilities, steam engine + waterwheel replaced by electric motors (more exible, reliable, simple grocery stores -> super markets 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. These four conditions guarantee the cycle of expansion and growth, so they are usually causing the decline of former growth industries: 1. An assumption that the expanding population will assure future growth The belief that growth is assured by an expanding and more af uent population 2. Lack of perceived and credible substitutes for the industry’s major product,The belief that there is no competitive substitute forthe 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 scienti c experimentation, improvement and manufacturing cost reduction. These four points will now be discussed in more detail on the next page. Condition 1: Population Myth Every industry prefers to think that pro ts are secured by population growth. 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. fi fl   ) fi fi fl ;  If the product has an automatically expanding market, the rm will not pay much attention on how to expand it. For example, the petroleum industry has focused on improving the ef ciency of making its product, not on improving the generic product or its marketing. It is a growth industry that may actually be a declining one. Relative to other businesses. This has led to a false sense of indispensability: the petroleum industry is convinced that there is no alternative to its major product –namely, gasoline, not energy, fuel, or transportation. However, 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 de ned its product in the narrowest possible way, namely gasoline and not energy/fuel/transportation, and is relying on the growing population as a source of industry growth. This can easily lead to a decline. Condition 2: The Idea of Indispensability The petroleum industry rmly believes in the indispensability of their product and that there is no competitive substitute. However, the oil industry got run over already twice: rst 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. For example, the increase in aviation, the use of diesel in railroads and the increased demand for cars saved the oil industry. This idea of indispensability has also blinded the oil businesses from accepting other alternative products. For instance, oil companies had the resources and the capabilities to become major players in the natural gas industry. However, many executives decided not to go into the industry and limited themselves to a speci c product (oil). Those who did believe in the natural gas industry decided to form their own rms, producing multibillion businesses that could have been part of the oil businesses As in the past, the industry was blinded by its narrow preoccupation with a speci c product and the value of its reserves. It paid little or no attention to its customers'basic needs and preferences. Although most people see oil as a growth industry, it has never been a continuously strong growth industry, but it has grown by ts 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. Condition 3: Faith in Mass Production Mass production industries are impelled by a great drive to produce all they can, because of pro t possibilities. 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. fi fi fi. fi fi fi fi fi fi fi 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 ful lling the needs of a customer, while selling is focused on the needs of the seller. Selling is preoccupied with the seller’s need to convert the product into cash, marketing with the idea of satisfying the needs of the customer by means of the product and the whole cluster of things associated with creating, delivering, and, nally, consuming it Marketing-minded rms focus on creating value-satisfying goods and services that consumers will want to buy. Example: Detroit Problem 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. Firms should be ready to reinvent their products and their industries, even if it means destroying old ones. Ex : Ford. Hard thinking about the customer. Actually, he invented the assembly line because he had concluded that at $500 he could sell millions of cars. Mass production was the result, not the cause, of his low prices The sole focus on pro t possibilities leads to self-deceit among growth companies, which rest reassured about demand expansion. However, this can undermine a proper concern for the importance of the customer. The result 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 rm only focuses on its own product, it fails to see how it is becoming obsolete. Condition 4: Risks Involved in Research & Development Focusing too much on R&D (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. In technologically oriented rms the managers are often engineers, not businesspeople. This leads to selective bias as management will favour handling those controllable variables which they are aware of, like research instead of marketing. Furthermore, this leads companies. fi fi fi fi  . fi. fi  to attempt to ll markets rather than nd markets. They think that they are going to continue to grow by product innovation and improvements This article reaches the conclusion that the main focus should always be on the customers and lling 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, rst concerning itself with the physical delivery of customer satisfaction. Then create the things by which these satisfactions are achieved. Finally, move back to nding 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 un lled 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 fi fi fi fi. fi fi  are ful lling customers’ needs. Moreover, the gure shows which part of customer needs are lled solely by the company as well as the needs competitors can ll, 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). fi fi fi fi