Marketing Strategy Chapter 4 PDF

Marketing Strategy Chapter 4: Marketing Principle #3 Odile Guinot Learning Objectives § Apply MP# 1 all clients are different MP#2 All clients change. in creating and assessing marketbased Sustainable Competitive Advantages § Recognize the criteria of a “good” SCA § Describe the components of the BO...

Marketing Strategy Chapter 4: Marketing Principle #3 Odile Guinot Learning Objectives § Apply MP# 1 all clients are different MP#2 All clients change. in creating and assessing marketbased Sustainable Competitive Advantages § Recognize the criteria of a “good” SCA § Describe the components of the BOR Equity Stack and how they apply to your Marketing strategy Marketing Principle #3: All Competitors React è Managing Sustainable Competitive Advantage Competitive Reaction: A Fundamental Assumption of Marketing Strategy § Competitors can displace firms in many different ways, including: 1. Technical innovations that provide competitors with a platform to launch a disruptive offering 2. Exploiting changes in customers’ desires due to cultural, environmental, or other factors 3. Individual entrepreneurship that constantly seeks a better way to solve a problem 4. “Me-too” copycats that improve the efficiency or effectiveness of an existing execution § Managers need to anticipate competitors’ reactions, now and in the future, by building barriers or sustainable competitive advantages that can withstand competitive assaults Competitive Reaction: A Fundamental Assumption of Marketing Strategy Marketing Principle #3: because all competitors react, an effective marketing strategy must manage the firm’s sustainable competitive advantage (SCA) BUT you need to know your customers and be good at what you do no matter what! Sustainable Competitive Advantages (SCA) A good SCA meets three criteria: 1. Customers care about what this SCA offers 2. The firm does it better than competitors, which generates a relative advantage 3. The SCA must be hard to duplicate or substitute, even with significant resources Additional points: § First to market may not lead to an advantage (copycats) § Use market-based sources of SCAs Market-based Sources of SCAs Best when you get all 3 right! Differences between BOR and SCA § BOR: distinct strategies that you undertake, which guide your decisions § SCA(s) is the result of these strategies § SCA is sometimes referred to as BOR Equity Stack Customer Equity Perspective § Customer equity = “the total of the discounted lifetime values of all its customers” At the individual level, customer equity is similar to the customer’s lifetime value (CLV) each customer’s equity added together generates the firm’s overall customer equity § BOR equities constitute the firm’s customer equity and often is the best barrier (SCA) to competitive assault § BOR equities are similar to tangible assets: they generate a return on assets (ROA), can be built through investments, and depreciate over time if not maintained Customer Equity Perspective: Brand, Offering, Relationship Equity Stack Marketing Principle #3: All Competitors React è Managing Sustainable Competitive Advantage Inputs to the Sustainable Competitive Advantage Framework § (MP#1) Positioning statements – answers three key questions: Who customers are What set of needs the product or service fulfills Why this product/service is the best option to satisfy customer needs (relative to competition) § (MP#2) AER strategies – provide key guidance into how a firm should invest to acquire, expand, and keep customers § Future trends – long-term technology, regulatory, and socioeconomic trends, which clearly can disrupt any organization’s SCAs § If you don’t do the above well, your competition doesn’t matter!!! Example of Embracing Future Trends https://adage.com/article/marketing-news-strategy/coca-colaembraces-chatgpt-ai-tools-deal-bain/2475366 Example of Embracing Future Trends https://www.cnbc.com/2023/09/12/aicreated-coca-colas-newest-flavor-they300-soda-from-the-future.html The soft drink giant today launched a limited edition soda created using AI technology. Coca-Cola Y3000 is billed as “the first futuristic flavor co-created with human and artificial intelligence.” The taste of the Y3000 beverage was a two-step process. First, researchers at Coca-Cola collected “key flavor preferences and trends to understand what consumers imagine and think the future tastes like,” a representative for the company told CNBC Make It. Then, that information was crunched by Coke’s artificial intelligence system to “help develop flavor profiles and pairings.” AI was also used to develop the slim can’s futuristic packaging, which features a pixelated logo, clean chrome colors, as well as pops of purple, pink and blue. Marketing Principle #3: All Competitors React è Managing Sustainable Competitive Advantage NEXT 3 CHAPTERS Natural Sequence for Using Brands, Offerings, and Relationships to Build an SCA 1. A firm should make brand decisions, which are influenced by the firm’s overall positioning objectives from MP#1 and MP#2 and largely determine how the firm will be positioned in the overall marketplace and in existing customers’ minds – WHY DO YOU EXIST (RAISON D’ÊTRE) 2. The firm can then focus on its offering decisions; product and service innovation and R&D efforts need to support both brand strategies and the firm’s positioning objectives – WHAT ARE YOU SELLING 3. Relationship strategies normally are determined last, because they involved the delivery and experiential aspect because in this case, boundary spanners are critical to the customer experience and the firm’s overall value proposition – HOW DO YOU SELL IT Marketing Principle #3: All Competitors React è Managing Sustainable Competitive Advantage End of Lecture Takeaways: Book Summary of Chapter 4 § All competitors react. Firms must address competitive attacks by building and maintaining sustainable competitive advantages (SCA). § Customers generate sales and profits; firms must protect them from constant attacks by competitors. Although SCA are critical, firms must first establish their differentiated position with a targeted customer group before building SCA around this position. § All SCA must meet three conditions: (1) customers must care about what it offers, (2) the firm must do it better than competitors, and (3) it must be hard to duplicate. § In marketing domains, the primary sources of SCA are brands, offerings (innovative products or services), and relationships (BOR). The strongest SCA use all three strategies in combination to reinforce the differentiated and targeted appeal of a firm to customers. Takeaways § Experiments can reveal the causality of BOR investments, by randomly assigning customers to multiple groups with different BOR investment levels/designs, including both treatment and control groups, to minimize potential confounds. § Competitors have many ways to undermine a firm’s SCA, including technical innovations, exploiting customers’ changed desires, finding better solutions to a problem, and introducing “me-too” offerings with greater efficiency. § A customer equity perspective implies that customers should be considered assets, managed and tracked that way, to improve firm performance. Investments in brands, offerings, and relationships represent important sources of customer equity. § There are three inputs to the SCA framework: the output of MP#1 about what customers want and how the firm should position itself, the output of MP#2 about the most effective AER strategies as customers change, and long-term environmental trends. Takeaways § The two outputs of the SCA framework are: a description of a firm’s SCA now and in the future and a description of the BOR strategies needed to achieve it. § The three-step process for managing SCA includes an AER Strategy Grid, an analysis of key environmental trends, and a BOR Equity Grid. § Technology, regulatory, and socioeconomic trends constantly change; a firm’s competitors constantly try to find new ways to satisfy customers’ needs and desires. These changes all have the potential to disrupt any firm’s market position. Marketing Strategy Chapter 5: Managing Brand-Based SCA Odile Guinot Marketing Principle #3: All Competitors React è Managing Sustainable Competitive Advantage Learning Objectives § Articulate what “brand” means and recognize its various elements § Define Brand Equity and identify the steps to build it § Assess the strength of a brand and the advantages it offers Marketing Principle #3: All Competitors React è Managing Sustainable Competitive Advantage Marketing Strategy Chapter 6 Managing Offering-Based SCA Odile Guinot Learning Objectives § Differentiate between Offering and Innovation (but understand the link) § Examine the various mechanisms of Innovation § Explain how marketers are involved in the Innovation process and Offering Equity § Describe the Blue Ocean (vs Red Ocean) strategy and how to “Cross the Chasm” Marketing Strategy Chapter 6 Managing Offering-Based SCA Odile Guinot Learning Objectives § Differentiate between Offering and Innovation (but understand the link) § Examine the various mechanisms of Innovation § Explain how marketers are involved in the Innovation process and Offering Equity § Describe the Blue Ocean (vs Red Ocean) strategy and how to “Cross the Chasm” Red vs. Blue Ocean Innovation Approach § Classic STP focuses on red ocean strategies and incremental innovation Known market space, competitive rules, and industry boundaries (lifecycle mindset) Product mature and become commodities Can be managed, tested, and analyzed § Disruptive positioning focuses on the blue ocean Market space does not exist (unknown boundaries) Demand is created rather than fought over (often no direct competition) Hard to test, more of an art, often requires intuition, high risk (Kim and Mauborgne) 3 Marketing Strategy Principle #4 – All Resources Are Limited Odile Guinot Learning Objectives § Identify various sources of trade-offs § Describe the approaches of resource trade-offs decision making § Explain the metrics that can be used and their own pros and cons Marketing Principle #4: All Resources Are Limited à Managing Resource Trade-Offs All Resources Are Limited § Need to balance marketing resources across: 1. Available Resources 2. Customer segments (needs): targeting & positioning (STP) 3. Lifecycle stages: acquisition, expansion, and retention (AER) + Product & Industry Lifecycle 4. Customer equity and marketing mix elements: brand, offering, and relationships + 4 P’s of Mktg 5. Other: SCAs now and for the future, Competition, Technological advances, product categories, R&D projects, geographies, sales territories, changing trends, etc. Inputs to the Managing Resource Trade-Offs Framework § The outputs of the three previous Marketing Principles serve as the key inputs to the resource trade-off framework, such that each MP requires some initial trade-off decisions § The positioning statement attained through MP#1 answers key questions about who customers are, what needs the product or service can fulfill, and why this product or service is the best option to satisfy those customers’ needs § The AER positioning statements, the output from MP#2, also are key inputs for the resource trade-off framework § Finally, the input derived from MP#3, which builds on MP#1 and MP#2, describes how to use BOR strategies to build SCA and erect strong barriers against competitive attacks Evolution of Approaches for Managing Resource Trade-Offs § The evolution of approaches for managing resource allocation suggests two main and overlapping eras § Heuristics Era – firms constantly decide how to allocate resources across different customer segments, different customer stages, different offerings, different regions, and different marketing communication formats § No hard data about resource allocation options Managers used simple rules of thumb for allocating resources Data Era – firms started using historical data that revealed the link between their past resource trade-off decisions and outcomes, such that they could determine the actual effects of certain resources on specific outcomes Scientific approaches, based on data and empirical models, reveal whether firm should continue its level of resource commitments or adjust them No “Perfect System” for Allocating Resources § Problem: Needs to be simple enough so it is transparent to managers (believed and understood) while being sophisticated enough to account for the interdependencies across multiple time-varying inputs each with different elasticities § “Best” method Iterative approach which attempts to make optimal allocations across nested levels of decisions Each level can be understood (bounded rationality of managers) while allocation decision criteria and approach can be selected based on characteristics of that level Can learn and improve at each level overtime (short feedback loop with targeted metrics at each level; build specific expertise) 7 Outputs of the Managing Resource Trade-Offs Framework § A fundamental problem for effective resource allocation is identifying and measuring the best or most appropriate metrics § As a popular saying holds, a firm is only likely to achieve what it measures § For most marketing resource investments, both financial and marketing metrics are necessary to capture the different aspects of the benefits earned from the investment Types of Marketing Metrics Loyalty is Better than Accounting Metrics, but… Offering Net-Promoter Score (NPS): Popular Loyalty Measure § Net-promoters: % of customers who are promoters - % who are detractors (i.e., removes people in zone of tolerance) § Promoters answer 9 or 10 and distractor 0 to 6 to question, “How likely is it that you would recommend [firm] to a friend or colleague?” § Scores are linked to profitable growth § Scores of 75% and above are world class § Mixed support in academic research § Pros: simple and good “single item” measure § Cons: not very diagnostic, may not be true loyalty since no actual behaviors 11 Many Marketing Metrics, But Two Main Approaches: Pros and Cons? 1. 2. Use specific metric for what you want to control (narrow, fast, and domain specific) – Brand (awareness, quality, strength) – Offering (innovativeness, adoption rates, price premium, value) – Relationship (loyalty to salesperson, trust, relationship quality, velocity) – Acquisition (# new customers, CLV, duration) – Retention (churn, lost customer, share) Use aggregate financial metrics and analyze using chain ratios (uses accounting measures, can be decomposed) – Net marketing contribution (NMC) tells us profit after sales and marketing costs – Marketing ROS tells us what portion of our sales is profit (MROS =NMC/sales * 100%) – Marketing ROI tells us our earnings for every 1$ invested in sales and marketing (MROI=NMC/Sales and marketing costs *100%) 12 Outputs of the Managing Resource Trade-Offs Framework § Another set of outputs pertains to the three components of each resource allocation decision: Budget per marketing activity, or the size of the commitment the firm makes to the marketing activity Allocation across categories, which reflects the percentage split of the marketing budget for a specific activity across categories Time horizon of the budget, involving the timespan for which the firm commits to this marketing budget § Thus when choosing its advertising budget for example, a firm would determine how many total dollars to spend (budget) on different forms of advertising (e.g., print and online), as well as how long to run the advertising campaigns (e.g., two months) Marketing Principle #4: All Resources Are Limited à Managing Resource Trade-Offs End of Lecture Takeaways: Book Summary of Chapter 8 1. All resources are limited. Managers must manage resource trade-offs to develop an effective marketing strategy. Most marketing decisions require trade-offs across multiple objectives, because resources are constrained and often interdependent. 2. Several factors increase the need for ongoing resource trade-offs, including limited resources (resource slack), changes in the composition of consumer segments, changes in the lifecycle stages of the product portfolio, changes in the market landscape due to competitive actions, and changes in the effectiveness of marketing activities. 3. Approaches to managing resource trade-offs have evolved from an exclusively heuristicbased era, in which managers solved resource allocation problems using simple rules of thumb, intuition, and judgment, to a data-based era, in which managers rely on statistical models and detailed information. 4. The heuristics approach relies on anchors, often related to spending in the previous period, which managers use to make marketing resource allocation decisions. Then managers may adjust their decisions every period, after observing the prior outcomes. Takeaways 5. An attribution approach asks, How does a specific (e.g., 1 percent) increase in a resource option affect a particular outcome, keeping all else constant? The model integrates past decisions and past outcomes, then produces a mathematical assessment of how much impact each resource trade-off truly has for generating outcomes. 6. A response model-based attribution approach captures the relationship between past marketing resources and past outcomes. A basic assumption is that past outcomes relate to future outcomes, which is usually reasonable. The use of past data then can uncover the relationship between marketing resources and performance. 7. There are three key inputs and two key outputs of the framework for managing resource trade-offs. The inputs are the outputs of the previous three principles. The outputs are a description of the firm’s resource plans and budgets and the use of key marketing metrics that can effectively validate these resource outlays. Takeaways § While most approaches to marketing strategy take a functional perspective to update readers about the latest tools, we take a simplifying customer-centric perspective that aims at providing an overarching framework to marketing strategy, that possess a portable, generalized input-process-output approach for all marketing problems. § Firms are moving from mass-marketing to one-on-one marketing, and thus serving the needs of smaller and smaller groups of customers. Firms are managing dynamics by moving from lifecycle approaches to dynamic customer segmentation approaches, again managing and responding to anticipated changes at the customer-level. Managers now have more data and techniques than ever, necessitating prioritization of what technique matter, for what problem in what situation. Managing these three trends requires managers to developed core skill and processes, which is why we develop an overarching generalized framework. § The first Marketing Principle is motivated by the fact that all customers differ. The main challenge in this principle is in managing customer heterogeneity, which is done though segmentation, targeting, and positioning. Cluster analysis is used to perform segmentation while positioning analyses is achieved using techniques such as multidimensional scaling. Takeaways § § § The second Marketing Principle stems from the fact that all customers change. The main challenge in the second principle is in managing customer dynamics, which is done through an AER (acquisition, expansion and retention) strategy. Methods that help with AER include lost customer analysis, dynamic segmentation, and Hidden Markov Models. The third Marketing Principle is due to the fact that all competitors react. The main challenge in the third Marketing Principle is in managing competitor reaction and building sustainable competitive advantage, which is done by building brand, offering, and relationship (BOR) equities. We discuss surveys as a tool to conduct brand audits, which help understand a brand’s positioning, architecture and extension strategies, conjoint analysis as a way for a firm to redesign its product offerings, and regression analysis as a way for a firm to gauge the effectiveness of its relationship marketing efforts. The fourth and final Marketing Principle results from the fact that all resources are limited. The main challenge in the fourth principle is in managing resource tradeoffs, which is done by ensuring that allocations to marketing activities are based on a scientific analysis of their benefits and costs. We discuss the use of response models using historical data and measure the impacts of various marketing using marketing and financial metrics. Takeaways § We outline implementation tips to successfully implement the four Marketing Principles: each of the four principles are temporally inter-connected, it is important to take advantage of the micro-macro duality of each principle, firms need to develop data and methodological capabilities and finally, the firm should not solve all principles simultaneously, but rather attempt to do so iteratively. § An analytical approach is important to successfully implement our framework. Data capabilities and methodological capabilities that contribute to competence in analytics. A firm can build data capabilities by collecting data pertaining to customer intelligence, economic intelligence, and competitive intelligence. A firm can build methodological capabilities by mastering techniques to perform data reduction, linking, and optimization functions. Defining Characteristics of Blue Ocean Initiatives § § § § § Don’t use competitors as the benchmark Rejects tradeoff of value versus cost Redefines value proposition Example: Cirque du Soleil – Reduced cost: animals and stars – Added value: theater like production with theme, original musical – Customer: adults instead of children Often first Blue Ocean mover develops barrier to imitation Economies of scale (Wal-Mart, Fed-Ex) Brand (Cirque du Soleil, Starbucks) Switching costs (Quicken, Operating Systems) But eventually, even a Blue Ocean turns Red! 4 Why do Market Leaders Fall into Red Ocean Trap? § Companies find it difficult to invest in disruptive innovations – lower-margin opportunities that their customers don’t want § Growth targets bias toward larger markets § Markets for disruptive innovations cannot be quantified, which biases decision making § “This is what we do” mentality 5 Solution: Manage Portfolio of Red Ocean /Sustaining and Blue Ocean/Disruptive Innovations Ensure business is conducting classical STP and stage-gate innovation Constant flow of new products (incremental) Need uncompromised customer/competitive input § Develop a forum/process to enable/manage radical and disruptive innovation Challenge managers to change the game: make the time and mental space – Radical changes to offering and exploration of new markets – Disgruntled customers (lost customers): they may be on to something! Outsource, partners, alliances, acquisitions Hire outsiders from different industries (Diversity of thoughts) Track potentially disruptive technologies, use internal “start ups” § 6 Crossing the Chasm: Adoption Lifecycle Crossing the Chasm New product launches fail if the firm has not prepared to sell to early majority customers by the time it runs out of early adopters. Categories of Product Adopters Innovators First to adopt a new offering; actively seek new technologies Early Adopters Perceive the benefits of the new technology and are willing to buy with just a few references Chasm Gap between early adopters and early majority Early Majority More pragmatic, such that they must be convinced that the new product really works Adapted from Moore, G.A. (2006), Crossing the Chasm: Marketing and Selling Disruptive Products to Mainstream Customers, 1st rev. ed., (New York: Collins Business Essentials) Late Majority Demands even more evidence of the product’s functionality and are harder to persuade Laggards Need the most evidence to persuade Failing to “Cross The Chasm” is a Common Barrier to Success § Firm takes on more visionaries than it can handle § Cannot take on more custom projects, but no pragmatists ready to buy § Early market becomes saturated, and revenue growth tapers off or declines Key personnel become disillusioned Venture capital well begins to run dry § Marketing strategies that lead to success in selling to visionaries actually hinder success in selling to pragmatists § The adoption lifecycle approach clearly and systematically integrates aspects of both MP#1 and MP#2 8 Marketing Strategy Principle #3 – All Competitors React SCA: Relationship-Based SCA Odile Guinot Learning Objectives § Describe the concept of relationship equity and the impact it has on outcomes § Realize that different countries/cultures have different expectations § Examine relationship best practices Relationship Equity § Relationship equity is a set of relational assets and liabilities linked to boundary spanning employees and the social network associated with the offering or experience that add to or subtract from the value provided by a firm’s offering § Relationships affect behavior Relational-based decision making is ingrained in our psyche (20 to 30% of brain) Many psychological processes are engaged in relational or pseudo-relational contexts § Key for B2B, services, and complex selling cycles § Can target and adapt more easily than brands Effects of Relationship Marketing (Palmatier, Jarvis, Bechkoff, and Kardes 2009) 12 Highest Impact Relationship Marketing Activities 13 Maintaining Relationships: Preventing the “Bad” is More Important than Adding More “Good” § Negative behaviors impact relationships more than positive behaviors Meta of 38,000 relationship shows negative activities have twice the effect of positive activities Conflict and opportunism have strong negative effects § People seek explanation for negative more than positive events; unfairness judgments provide insight into motivation for bad events § Unfairness plays a large role in undermining relationships since individuals feel an emotional need to punish unfair behaviors, even at a cost to themselves Be aware when designing a loyalty program (Emmons and McCullough 2004) (Palmatier et al. 2007; Samaha, Palmatier, and Dant 2011) 14 Trade-offs: Conflict and Collaboration High degree of conflict Low degree of conflict High degree of collaboration Well-developed relationship, probably highly productive and highly creative in solving mutual problems. Pleasant, easy relationship with no exciting synergies. Low-risk, low-return environment. Low degree of collaboration Poor environment for achieving anything: a relationship which is probably short-lived. Hardly a relationship at all. Not productive in any sense, this relationship is also unlikely to last. RM Payoff Varies Across Different Countries § On average, RM 11% more effective outside the US § Relationships have the largest payoff in China: 100% larger than in US § Relationships have the smallest payoff in Norway and Netherlands: 37% smaller than in US (Samaha, Beck, and Palmatier 2014) 16 Relationship Marketing Best Practices 17 Relationship Selling A “Relationship Selling” approach is exemplified by a salesperson who… § Listens § Expresses genuine concern § Keeps promises § Uses knowledge to meet customer needs My Personal Experience: Tools I Leveraged § Contract / Master Supply Agreement § CRM (now even more powerful with AI) § Sales Operations Team (not in all industries) § Various Functional Teams § Field Team (“eyes and ears”) Marketing Principle #3: All Competitors React è Managing Sustainable Competitive Advantage End of Lecture Takeaways: Book Summary of Chapter 6 1. Most firms rank innovation as a top strategic priority. Innovation involves more than new technologies or products; it can reflect changes in business processes or go-to-market strategies 2. Firms can innovate in four primary ways: changing their offering, changing who the customer is, changing how they sell to customers, or changing where they sell 3. Offering equity captures the core value that the customer obtains from a new offering, absent any brand or relationship equity 4. A first-mover advantage is often short-lived, so firms must continually develop new offerings to build their SCA, in terms of offering equity Takeaways New and innovative offerings increase firm value by providing more value to customers (through enhanced performance or better performance for the price), motivating customers to switch, expanding customers and markets, and establishing a brand image as a leading, innovative company 6. A stage-gate development process improves the speed of product development, the success likelihood, and the development costs 7. Two strategies for developing an innovative offering are repositioning strategies (i.e., Blue Ocean) and technology-based strategies 8. People-based factors influence innovation diffusion, according to the adoption lifecycle, which describes differences in people’s propensity to adopt new products (innovators, early adopters, early majority, late majority, and laggards). Firms must bridge the chasm between early adopters and the early majority to succeed 5. Takeaways 9. Product-based factors influence innovation diffusion. Marketers need to evaluate the relative advantage, compatibility, complexity, trialability, and observability of new offerings, then develop ways to leverage them to encourage adoption 10. Three key steps to building offering equity are developing an offering portfolio that provides customers with the best relative advantage among competitors; segmenting, targeting, and positioning the new offering to account for people- and product-based factors to speed up diffusion; and managing customer migration from innovators and early adopters to early majority stages 11. Conjoint analysis can facilitate the design and launch of new offerings by helping managers define the optimal product, according to the value assigned to various product attributes by consumers. Bass models also are helpful, because they use historical data related to the coefficients of innovation and imitation to predict adoption rates Takeaways: Book Summary of Chapter 7 § Relationship marketing’s (RM) influence on decision making is supported by the underlying psychological emotion of gratitude, which leads to a desire to repay § The linkages between relationships and financial performance operate through four mechanisms, including increased cooperation, loyalty, word-of-mouth, and empathetic behaviors § The most effective RM strategies emphasize positive factors such as seller expertise, communication, relationship investment, and similarity while minimizing negative factors such as unfairness and conflict § The effect of negative activities on relationships is twice as strong as positive activities; it is important to prevent negative events while continuing positive RM Takeaways § Bystanders of loyalty programs often perceive their treatment as unfair; this is why loyalty program preferential treatment should be invisible to bystanders § To optimize RM effectiveness, sellers must match the level of RM activities to the customer’s relationship orientation. Some of the factors that determine a customer’s relationship orientation are relationship proneness, exchange and product uncertainty, product category involvement or dependence, relational norms, relation-centric reward systems, services, business-to-business markets, and emerging markets § Because RM is not effective for all customers, sellers must determine where to allocate RM resources across their customer portfolios Takeaways § Factors that help leverage the effectiveness of RM delivery include free will, motive, risk, and value § Relationships operate through a typical lifecycle with four phases: exploration, growth, maturity, and decline/recovery. Each phase requires different RM strategies § There are two steps to building relationship equity: developing a strong relationship foundation and implementing targeted RM and loyalty programs § To understand the effectiveness of RM efforts, firms should measure their relational equity on an ongoing basis and link it to customer lifetime value Offering § Offering is a purposely broad term that captures both tangible products and intangible services provided by firms § Commodity § Good (Product) § Service § Experience https://www.researchgate.net/figure/Price-of-coffee-offerings_fig2_307649670 Offering § Offering answers the call of the “Customers’ Job to be Done” § 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 § Most offerings must be augmented by and linked to brands and relationships to ensure a firm’s SCA, because it generally is relatively easy for competitors to copy offerings, given enough time and money (often, offering is just not “good enough” but necessary: ”keeps the engine running”) § Offering, as an SCA, can be augmented through the process of innovation Innovation is Critical to Many Firms’ SCA https://www.bcg.com/press/23may2023-companies-rank-innovation-as-top-three-priority-2023 6 Innovation is Critical to Many Firms’ SCA § “Innovation is the only way that Microsoft can keep customers happy and competition at bay” (Ballmer) § 86% of senior managers believe that “innovation is more important than cost reduction for long-term success” (Bain) Yet, short-term business pressures often undermines innovation 7 What Is Innovation? § Innovation is the “creation of substantial new value for customers and the firm by creatively changing one or more dimensions of the business” § Key Aspects of Innovation Broader than product or technology innovation (though often associated with it: most products need to evolve) Must generate new value for customer and seller Involves change leading to differentiation and SCA How did Starbucks and Dell create value and SCAs? (Sawhney, Wolcott, and Arroniz) Many Aspects of the Offering Can be Innovated § There are many different ways a firm can innovate; it helps define the innovation space according to what, who, how, and where aspects Change what the firm offers, in line with a traditional view of new product or service innovation Changing who the customer is represents another route that involves innovations related to customers, experiences, and value capture Changing how you sell to customers pertains to the processes, organizations, and supply chains that a firm uses Changing where to sell to customers comprises presence, networking, and brand innovations Innovation Radar Adapted from Sawhney, M., Wolcott, R.C., & Arroniz, I. (2006), “The 12 Different Ways for Companies to Innovate,” MIT Sloan Management Review, Vol. 47 (3), p. 75. Benefits of Innovation and Offering’s Equity § By building offering equity, an innovative firm can make it more difficult for competitors to encroach on its business § New offerings often motivate customers to switch from competitors to the innovative firm, to gain access to the new product Tesla § Offering new and innovative products tends to enhance the firm’s brand, even if customers don’t buy the new offering Apple But, Remember That Being First is Not a Guarantee of Success § 65-year historical study on impact of market entry Failure rate of pioneers is 47% Pioneers are ultimate leaders in only 11% of categories (10 years later) § First mover advantage is trumped by followers who are better § Best beats first § Being a pioneer without the basis for sustainable competitive advantage is a trap! (Tellis and Golder) Offering and Innovation Strategies § Marketing contributes to and defines offering and innovation strategies in two main ways: 1. It helps the firm develop innovative offerings by collecting customer input and forecasting customer and market trends, so that the firm can understand the trade-offs among potential product attributes: Market Research, Product Planning – It takes MANY ideas to get one that can eventually be launched (stage-gate design review, or innovation funnel) 2. Marketing is responsible for launching the new offering to customers to generate sales with acceptable profit levels Promotion “P”: IMC, GTM, Sales Sustaining Versus Disruptive “Technological” Innovation § Sustaining technologies improve performance of established products along dimensions valued by mainstream customers in major markets Many iPhone releases § Companies doing everything well can lose their leadership position due to failing to manage disruptive innovations § Disruptive technologies result in “worse” product performance, at least in the near term (Christensen) Tesla 14 Crossing the Chasm: Adoption Lifecycle Crossing the Chasm New product launches fail if the firm has not prepared to sell to early majority customers by the time it runs out of early adopters. Categories of Product Adopters Innovators First to adopt a new offering; actively seek new technologies Early Adopters Perceive the benefits of the new technology and are willing to buy with just a few references Chasm Gap between early adopters and early majority Early Majority More pragmatic, such that they must be convinced that the new product really works Adapted from Moore, G.A. (2006), Crossing the Chasm: Marketing and Selling Disruptive Products to Mainstream Customers, 1st rev. ed., (New York: Collins Business Essentials) Late Majority Demands even more evidence of the product’s functionality and are harder to persuade Laggards Need the most evidence to persuade Failing to “Cross The Chasm” is Common Barrier to Success § Firm takes on more visionaries than it can handle § Cannot take on more custom projects, but no pragmatists ready to buy § Early market becomes saturated, and revenue growth tapers off or declines Key personnel become disillusioned Venture capital well begins to run dry § Marketing strategies that lead to success in selling to visionaries actually hinder success in selling to pragmatists § The adoption lifecycle approach clearly and systematically integrates aspects of both MP#1 and MP#2 16 Brand Strategy throughout PLC Brand Goal: Gain Stress Awareness Differentiation Maintain Loyalty Harvest & Delete Extending the PLC’s: How do you deal with Maturity phase (or even decline) § Market Penetration § Market Development § Product Modification (Sustaining Innovation) § Product Repositioning End of Lecture Takeaways: Book Summary of Chapter 6 1. Most firms rank innovation as a top strategic priority. Innovation involves more than new technologies or products; it can reflect changes in business processes or go-to-market strategies 2. Firms can innovate in four primary ways: changing their offering, changing who the customer is, changing how they sell to customers, or changing where they sell 3. Offering equity captures the core value that the customer obtains from a new offering, absent any brand or relationship equity 4. A first-mover advantage is often short-lived, so firms must continually develop new offerings to build their SCA, in terms of offering equity Takeaways New and innovative offerings increase firm value by providing more value to customers (through enhanced performance or better performance for the price), motivating customers to switch, expanding customers and markets, and establishing a brand image as a leading, innovative company 6. A stage-gate development process improves the speed of product development, the success likelihood, and the development costs 7. Two strategies for developing an innovative offering are repositioning strategies (i.e., Blue Ocean) and technology-based strategies 8. People-based factors influence innovation diffusion, according to the adoption lifecycle, which describes differences in people’s propensity to adopt new products (innovators, early adopters, early majority, late majority, and laggards). Firms must bridge the chasm between early adopters and the early majority to succeed 5. Takeaways 9. Product-based factors influence innovation diffusion. Marketers need to evaluate the relative advantage, compatibility, complexity, trialability, and observability of new offerings, then develop ways to leverage them to encourage adoption 10. Three key steps to building offering equity are developing an offering portfolio that provides customers with the best relative advantage among competitors; segmenting, targeting, and positioning the new offering to account for people- and product-based factors to speed up diffusion; and managing customer migration from innovators and early adopters to early majority stages 11. Conjoint analysis can facilitate the design and launch of new offerings by helping managers define the optimal product, according to the value assigned to various product attributes by consumers. Bass models also are helpful, because they use historical data related to the coefficients of innovation and imitation to predict adoption rates History of Branding § Earliest form: 2000BC (marking on cattle, crafts, buildings, etc.) § From word “brandr” (ancient Norse, Scandinavian language)= to burn (a brand was a burning piece of wood, later described as a torch) § Gutenberg Printing Press invention § Industrial Revolution > more competition need to stand out / take ”ownership” 1881: Congress passed 1st Trademark Act (brand = IP) § 20th Century: rise of mass media (newspaper, radio, then TV) & graphic design High demand leads to more competition leads to more need to differentiate § Today: branding is everywhere (products, services, ideas, people, “personal branding”) What is a Brand? American Marketing Associate (AMA) Definition: A brand is a “name, term, sign, symbol, or design, or a combination of them, intended to identify the goods and services of one seller or group of sellers and to differentiate them from those of competition.” Usually, a collection of all the brand elements, including its name (e.g., Apple), symbol (e.g., silhouette of an apple with a bite removed), package design (e.g., sleek white box), and any other features that serve to differentiate that brand’s offering from competitors’. Nike vs. Adidas Criteria for Choosing Brand Elements 1. Memorability 4. Transferability Easily recognized Within and across product categories Easily recalled Across geographic boundaries and cultures 2. Meaningfulness 5. Adaptability Descriptive Flexible Persuasive Updatable 3. Likability 6. Protectability Fun and interesting Legally Rich visual and verbal imagery Competitively Aesthetically pleasing The Brand Equity Concept Brand equity is the set of assets and liabilities linked to a brand, its name, and its symbol, which add to or subtract from the value provided by the firm’s offering and relationships § Brand equity “lies in the mind of the customer,” which means that it is difficult for competitors to copy it, adding to the sustainability of brand-based barriers This also makes it hard for firms to adapt or change their brand identity Associative Network Memory Model of Brand Equity Brand Operates at Subconscious Level Colt 45 Pabst Pabst Guinness Coors Budweiser Miller Lite Miller Lite Guinness Colt 45 Coors Budweiser A. Taste perceptions of six beer brands when the drinker knows what (s)he is drinking B. Taste perceptions of six beer brands when the drinker does NOT know what (s)he is drinking Russia’s version of Starbucks reopens with a new name and logo Source: https://www.cnn.com/2022/0 8/19/business-food/starcoffee-starbucksrussia/index.html Steps to Building Brand Equity Brand Building Activities Key Objectives 1st Step Build a high level of brand awareness Provide an anchor point for linking meaning to the brand in later steps 2nd Step Link the brand name to its points of parity and difference Define the brand’s relative advantage(s) 3rd Step Build a deep emotional connection or “relationship” between brand and targeted customers Generate powerful, long-lasting barriers to competitors (i.e., SCA) Brand Awareness 1st Step § Build a high level of brand awareness Provide an anchor point for linking meaning to the brand in later steps Brand awareness consists of brand recognition and brand recall performance: Brand recognition: – Consumer’s ability to confirm prior exposure to the brand when given the brand as a cue Brand recall: – Consumers’ ability to retrieve the brand from memory when given: The product category The needs fulfilled by the category, or A purchase or usage situation as a cue Which 3 car brands come to the top of your mind? Brand Image § Once a sufficient level of brand awareness is created: Marketers can put more emphasis on crafting a brand image § Creating a positive brand image: Takes marketing programs that link strong, favorable, and unique associations to the brand in memory § Brand associations may be either brand attributes or benefits Brand Persuasion 3rd Step Build a deep emotional connection or “relationship” between brand and targeted customers Generate powerful, long-lasting barriers to competitors (i.e., SCA) § Integrated marketing communications (IMC) refers to the process of designing and delivering marketing messages to customers while ensuring that they are relevant and consistent over time and channels § To execute the three brand building steps and effectively implement the firm’s brand strategy, a firm typically uses multiple marketing communication formats, each of which has different strengths and weaknesses that define when each will be most effective, as well as the optimal combination of different formats The Importance of Customer-Centricity § Brand equity can be vulnerable to destruction if product and service claims are not verified by actual experience: Review forums Reviews from peers Online word-of-mouth Integrated Marketing Communications (IMC) § Some of the most commonly used marketing communication formats are: Advertising Sales promotion Public relations (PR) (tiger Woods) Events and experiential marketing Each have their own purpose but need to be consistent Direct and interactive marketing (personalized email) Word-of-mouth (WOM) (Massarati) Personal selling Source: https://www.smartcompany.com.au /marketing/advertising/threebrands-taking-advertising-risks/ Marketing Advantages of Strong Brands § Improved perceptions of product performance § Greater loyalty § Less vulnerability to competitive marketing actions § Less vulnerability to marketing crises § Larger margins § More inelastic consumer/customer response to price increases § More elastic consumer/customer response to price decreases § Greater trade cooperation and support § Increased marketing communication effectiveness § Possible licensing opportunities § Additional brand extension opportunities End of Lecture Takeaways: Chapter 5 § Investments in building a firm’s brand awareness and image in customers’ minds represent a strong barrier to competitive attacks and often provide the initial market-based SCA for a firm. § The associative network memory model argues that the mind is a network of nodes and connecting links. The key characteristics of a brand that influence brand equity can be captured as nodes and linkages. § Brands change how people think, often below a conscious level. Perceptions of brands even can change customers’ actual experiences (e.g., making beer taste better). § Benefits from strong brand equity include sales, profit enhancement, and loyalty effects. § Key branding elements include the brand objective, brand awareness, brand relative advantage, brand sustainability, brand image, and brand identity. 21 Takeaways § Brand architecture defines the rationale and structure that link the firm, its products, and its product and/or brand extensions. It defines how the brand is used at different levels across the organization. Noting the range of brand architecture structures available, firms must make strategic decisions, based on their branding strategy. § Brand extensions can leverage existing brands as line or category extensions. § The three steps to building brand equity are: building a high level of brand awareness, linking the brand name to the brand’s points of parity and difference, and building a deep emotional connection or “relationship” between the brand and targeted customers. § Integrated marketing communication (IMC) is a process for sharing relevant, consistent marketing messages with consumers, across a variety of formats, including advertising, sales promotion, public relations, events and experiential marketing, direct and interactive marketing, word of mouth, and personal selling. § To understand and measure brand equity, firms use qualitative and quantitative assessments of their brand’s health, which helps them identify areas for improvement. 22 Marketing Strategy Chapter 5: Managing Brand-Based SCA Odile Guinot Marketing Principle #3: All Competitors React è Managing Sustainable Competitive Advantage Learning Objectives § Articulate what “brand” means and recognize its various elements § Define Brand Equity and identify the steps to build it § Assess the strength of a brand and the advantages it offers History of Branding § Earliest form: 2000BC (marking on cattle, crafts, buildings, etc.) § From word “brandr” (ancient Norse, Scandinavian language)= to burn (a brand was a burning piece of wood, later described as a torch) § Gutenberg Printing Press invention § Industrial Revolution > more competition need to stand out / take ”ownership” 1881: Congress passed 1st Trademark Act (brand = IP) § 20th Century: rise of mass media (newspaper, radio, then TV) & graphic design High demand leads to more competition leads to more need to differentiate § Today: branding is everywhere (products, services, ideas, people, “personal branding”) What is a Brand? American Marketing Associate (AMA) Definition: A brand is a “name, term, sign, symbol, or design, or a combination of them, intended to identify the goods and services of one seller or group of sellers and to differentiate them from those of competition.” Usually, a collection of all the brand elements, including its name (e.g., Apple), symbol (e.g., silhouette of an apple with a bite removed), package design (e.g., sleek white box), and any other features that serve to differentiate that brand’s offering from competitors’. Nike vs. Adidas Criteria for Choosing Brand Elements 1. Memorability 4. Transferability Easily recognized Within and across product categories Easily recalled Across geographic boundaries and cultures 2. Meaningfulness 5. Adaptability Descriptive Flexible Persuasive Updatable 3. Likability 6. Protectability Fun and interesting Legally Rich visual and verbal imagery Competitively Aesthetically pleasing The Brand Equity Concept Brand equity is the set of assets and liabilities linked to a brand, its name, and its symbol, which add to or subtract from the value provided by the firm’s offering and relationships § Brand equity “lies in the mind of the customer,” which means that it is difficult for competitors to copy it, adding to the sustainability of brand-based barriers This also makes it hard for firms to adapt or change their brand identity Associative Network Memory Model of Brand Equity Brand Operates at Subconscious Level Colt 45 Pabst Pabst Guinness Coors Budweiser Miller Lite Miller Lite Guinness Colt 45 Coors Budweiser A. Taste perceptions of six beer brands when the drinker knows what (s)he is drinking B. Taste perceptions of six beer brands when the drinker does NOT know what (s)he is drinking Russia’s version of Starbucks reopens with a new name and logo Source: https://www.cnn.com/2022/0 8/19/business-food/starcoffee-starbucksrussia/index.html Steps to Building Brand Equity Brand Building Activities Key Objectives 1st Step Build a high level of brand awareness Provide an anchor point for linking meaning to the brand in later steps 2nd Step Link the brand name to its points of parity and difference Define the brand’s relative advantage(s) 3rd Step Build a deep emotional connection or “relationship” between brand and targeted customers Generate powerful, long-lasting barriers to competitors (i.e., SCA) Brand Awareness 1st Step § Build a high level of brand awareness Provide an anchor point for linking meaning to the brand in later steps Brand awareness consists of brand recognition and brand recall performance: Brand recognition: – Consumer’s ability to confirm prior exposure to the brand when given the brand as a cue Brand recall: – Consumers’ ability to retrieve the brand from memory when given: The product category The needs fulfilled by the category, or A purchase or usage situation as a cue Which 3 car brands come to the top of your mind? Brand Image § Once a sufficient level of brand awareness is created: Marketers can put more emphasis on crafting a brand image § Creating a positive brand image: Takes marketing programs that link strong, favorable, and unique associations to the brand in memory § Brand associations may be either brand attributes or benefits Brand Persuasion 3rd Step Build a deep emotional connection or “relationship” between brand and targeted customers Generate powerful, long-lasting barriers to competitors (i.e., SCA) § Integrated marketing communications (IMC) refers to the process of designing and delivering marketing messages to customers while ensuring that they are relevant and consistent over time and channels § To execute the three brand building steps and effectively implement the firm’s brand strategy, a firm typically uses multiple marketing communication formats, each of which has different strengths and weaknesses that define when each will be most effective, as well as the optimal combination of different formats The Importance of Customer-Centricity § Brand equity can be vulnerable to destruction if product and service claims are not verified by actual experience: Review forums Reviews from peers Online word-of-mouth Integrated Marketing Communications (IMC) § Some of the most commonly used marketing communication formats are: Advertising Sales promotion Public relations (PR) (tiger Woods) Events and experiential marketing Each have their own purpose but need to be consistent Direct and interactive marketing (personalized email) Word-of-mouth (WOM) (Massarati) Personal selling Source: https://www.smartcompany.com.au /marketing/advertising/threebrands-taking-advertising-risks/ Marketing Advantages of Strong Brands § Improved perceptions of product performance § Greater loyalty § Less vulnerability to competitive marketing actions § Less vulnerability to marketing crises § Larger margins § More inelastic consumer/customer response to price increases § More elastic consumer/customer response to price decreases § Greater trade cooperation and support § Increased marketing communication effectiveness § Possible licensing opportunities § Additional brand extension opportunities End of Lecture Takeaways: Chapter 5 § Investments in building a firm’s brand awareness and image in customers’ minds represent a strong barrier to competitive attacks and often provide the initial market-based SCA for a firm. § The associative network memory model argues that the mind is a network of nodes and connecting links. The key characteristics of a brand that influence brand equity can be captured as nodes and linkages. § Brands change how people think, often below a conscious level. Perceptions of brands even can change customers’ actual experiences (e.g., making beer taste better). § Benefits from strong brand equity include sales, profit enhancement, and loyalty effects. § Key branding elements include the brand objective, brand awareness, brand relative advantage, brand sustainability, brand image, and brand identity. 21 Takeaways § Brand architecture defines the rationale and structure that link the firm, its products, and its product and/or brand extensions. It defines how the brand is used at different levels across the organization. Noting the range of brand architecture structures available, firms must make strategic decisions, based on their branding strategy. § Brand extensions can leverage existing brands as line or category extensions. § The three steps to building brand equity are: building a high level of brand awareness, linking the brand name to the brand’s points of parity and difference, and building a deep emotional connection or “relationship” between the brand and targeted customers. § Integrated marketing communication (IMC) is a process for sharing relevant, consistent marketing messages with consumers, across a variety of formats, including advertising, sales promotion, public relations, events and experiential marketing, direct and interactive marketing, word of mouth, and personal selling. § To understand and measure brand equity, firms use qualitative and quantitative assessments of their brand’s health, which helps them identify areas for improvement. 22 Marketing Principle #3: All Competitors React è Managing Sustainable Competitive Advantage Marketing Strategy Chapter 6 Managing Offering-Based SCA Odile Guinot Learning Objectives § Differentiate between Offering and Innovation (but understand the link) § Examine the various mechanisms of Innovation § Explain how marketers are involved in the Innovation process and Offering Equity § Describe the Blue Ocean (vs Red Ocean) strategy and how to “Cross the Chasm” Offering § Offering is a purposely broad term that captures both tangible products and intangible services provided by firms § Commodity § Good (Product) § Service § Experience https://www.researchgate.net/figure/Price-of-coffee-offerings_fig2_307649670 Offering § Offering answers the call of the “Customers’ Job to be Done” § 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 § Most offerings must be augmented by and linked to brands and relationships to ensure a firm’s SCA, because it generally is relatively easy for competitors to copy offerings, given enough time and money (often, offering is just not “good enough” but necessary: ”keeps the engine running”) § Offering, as an SCA, can be augmented through the process of innovation Innovation is Critical to Many Firms’ SCA https://www.bcg.com/press/23may2023-companies-rank-innovation-as-top-three-priority-2023 6 Innovation is Critical to Many Firms’ SCA § “Innovation is the only way that Microsoft can keep customers happy and competition at bay” (Ballmer) § 86% of senior managers believe that “innovation is more important than cost reduction for long-term success” (Bain) Yet, short-term business pressures often undermines innovation 7 What Is Innovation? § Innovation is the “creation of substantial new value for customers and the firm by creatively changing one or more dimensions of the business” § Key Aspects of Innovation Broader than product or technology innovation (though often associated with it: most products need to evolve) Must generate new value for customer and seller Involves change leading to differentiation and SCA How did Starbucks and Dell create value and SCAs? (Sawhney, Wolcott, and Arroniz) Many Aspects of the Offering Can be Innovated § There are many different ways a firm can innovate; it helps define the innovation space according to what, who, how, and where aspects Change what the firm offers, in line with a traditional view of new product or service innovation Changing who the customer is represents another route that involves innovations related to customers, experiences, and value capture Changing how you sell to customers pertains to the processes, organizations, and supply chains that a firm uses Changing where to sell to customers comprises presence, networking, and brand innovations Innovation Radar Adapted from Sawhney, M., Wolcott, R.C., & Arroniz, I. (2006), “The 12 Different Ways for Companies to Innovate,” MIT Sloan Management Review, Vol. 47 (3), p. 75. Benefits of Innovation and Offering’s Equity § By building offering equity, an innovative firm can make it more difficult for competitors to encroach on its business § New offerings often motivate customers to switch from competitors to the innovative firm, to gain access to the new product Tesla § Offering new and innovative products tends to enhance the firm’s brand, even if customers don’t buy the new offering Apple But, Remember That Being First is Not a Guarantee of Success § 65-year historical study on impact of market entry Failure rate of pioneers is 47% Pioneers are ultimate leaders in only 11% of categories (10 years later) § First mover advantage is trumped by followers who are better § Best beats first § Being a pioneer without the basis for sustainable competitive advantage is a trap! (Tellis and Golder) Offering and Innovation Strategies § Marketing contributes to and defines offering and innovation strategies in two main ways: 1. It helps the firm develop innovative offerings by collecting customer input and forecasting customer and market trends, so that the firm can understand the trade-offs among potential product attributes: Market Research, Product Planning – It takes MANY ideas to get one that can eventually be launched (stage-gate design review, or innovation funnel) 2. Marketing is responsible for launching the new offering to customers to generate sales with acceptable profit levels Promotion “P”: IMC, GTM, Sales Sustaining Versus Disruptive “Technological” Innovation § Sustaining technologies improve performance of established products along dimensions valued by mainstream customers in major markets Many iPhone releases § Companies doing everything well can lose their leadership position due to failing to manage disruptive innovations § Disruptive technologies result in “worse” product performance, at least in the near term (Christensen) Tesla 14 Crossing the Chasm: Adoption Lifecycle Crossing the Chasm New product launches fail if the firm has not prepared to sell to early majority customers by the time it runs out of early adopters. Categories of Product Adopters Innovators First to adopt a new offering; actively seek new technologies Early Adopters Perceive the benefits of the new technology and are willing to buy with just a few references Chasm Gap between early adopters and early majority Early Majority More pragmatic, such that they must be convinced that the new product really works Adapted from Moore, G.A. (2006), Crossing the Chasm: Marketing and Selling Disruptive Products to Mainstream Customers, 1st rev. ed., (New York: Collins Business Essentials) Late Majority Demands even more evidence of the product’s functionality and are harder to persuade Laggards Need the most evidence to persuade Failing to “Cross The Chasm” is Common Barrier to Success § Firm takes on more visionaries than it can handle § Cannot take on more custom projects, but no pragmatists ready to buy § Early market becomes saturated, and revenue growth tapers off or declines Key personnel become disillusioned Venture capital well begins to run dry § Marketing strategies that lead to success in selling to visionaries actually hinder success in selling to pragmatists § The adoption lifecycle approach clearly and systematically integrates aspects of both MP#1 and MP#2 16 Brand Strategy throughout PLC Brand Goal: Gain Stress Awareness Differentiation Maintain Loyalty Harvest & Delete Extending the PLC’s: How do you deal with Maturity phase (or even decline) § Market Penetration § Market Development § Product Modification (Sustaining Innovation) § Product Repositioning End of Lecture Takeaways: Book Summary of Chapter 6 1. Most firms rank innovation as a top strategic priority. Innovation involves more than new technologies or products; it can reflect changes in business processes or go-to-market strategies 2. Firms can innovate in four primary ways: changing their offering, changing who the customer is, changing how they sell to customers, or changing where they sell 3. Offering equity captures the core value that the customer obtains from a new offering, absent any brand or relationship equity 4. A first-mover advantage is often short-lived, so firms must continually develop new offerings to build their SCA, in terms of offering equity Takeaways New and innovative offerings increase firm value by providing more value to customers (through enhanced performance or better performance for the price), motivating customers to switch, expanding customers and markets, and establishing a brand image as a leading, innovative company 6. A stage-gate development process improves the speed of product development, the success likelihood, and the development costs 7. Two strategies for developing an innovative offering are repositioning strategies (i.e., Blue Ocean) and technology-based strategies 8. People-based factors influence innovation diffusion, according to the adoption lifecycle, which describes differences in people’s propensity to adopt new products (innovators, early adopters, early majority, late majority, and laggards). Firms must bridge the chasm between early adopters and the early majority to succeed 5. Takeaways 9. Product-based factors influence innovation diffusion. Marketers need to evaluate the relative advantage, compatibility, complexity, trialability, and observability of new offerings, then develop ways to leverage them to encourage adoption 10. Three key steps to building offering equity are developing an offering portfolio that provides customers with the best relative advantage among competitors; segmenting, targeting, and positioning the new offering to account for people- and product-based factors to speed up diffusion; and managing customer migration from innovators and early adopters to early majority stages 11. Conjoint analysis can facilitate the design and launch of new offerings by helping managers define the optimal product, according to the value assigned to various product attributes by consumers. Bass models also are helpful, because they use historical data related to the coefficients of innovation and imitation to predict adoption rates Marketing Strategy Chapter 6 Managing Offering-Based SCA Odile Guinot Learning Objectives § Differentiate between Offering and Innovation (but understand the link) § Examine the various mechanisms of Innovation § Explain how marketers are involved in the Innovation process and Offering Equity § Describe the Blue Ocean (vs Red Ocean) strategy and how to “Cross the Chasm” Red vs. Blue Ocean Innovation Approach § Classic STP focuses on red ocean strategies and incremental innovation Known market space, competitive rules, and industry boundaries (lifecycle mindset) Product mature and become commodities Can be managed, tested, and analyzed § Disruptive positioning focuses on the blue ocean Market space does not exist (unknown boundaries) Demand is created rather than fought over (often no direct competition) Hard to test, more of an art, often requires intuition, high risk (Kim and Mauborgne) 3 Defining Characteristics of Blue Ocean Initiatives § § § § § Don’t use competitors as the benchmark Rejects tradeoff of value versus cost Redefines value proposition Example: Cirque du Soleil – Reduced cost: animals and stars – Added value: theater like production with theme, original musical – Customer: adults instead of children Often first Blue Ocean mover develops barrier to imitation Economies of scale (Wal-Mart, Fed-Ex) Brand (Cirque du Soleil, Starbucks) Switching costs (Quicken, Operating Systems) But eventually, even a Blue Ocean turns Red! 4 Why do Market Leaders Fall into Red Ocean Trap? § Companies find it difficult to invest in disruptive innovations – lower-margin opportunities that their customers don’t want § Growth targets bias toward larger markets § Markets for disruptive innovations cannot be quantified, which biases decision making § “This is what we do” mentality 5 Solution: Manage Portfolio of Red Ocean /Sustaining and Blue Ocean/Disruptive Innovations Ensure business is conducting classical STP and stage-gate innovation Constant flow of new products (incremental) Need uncompromised customer/competitive input § Develop a forum/process to enable/manage radical and disruptive innovation Challenge managers to change the game: make the time and mental space – Radical changes to offering and exploration of new markets – Disgruntled customers (lost customers): they may be on to something! Outsource, partners, alliances, acquisitions Hire outsiders from different industries (Diversity of thoughts) Track potentially disruptive technologies, use internal “start ups” § 6 Crossing the Chasm: Adoption Lifecycle Crossing the Chasm New product launches fail if the firm has not prepared to sell to early majority customers by the time it runs out of early adopters. Categories of Product Adopters Innovators First to adopt a new offering; actively seek new technologies Early Adopters Perceive the benefits of the new technology and are willing to buy with just a few references Chasm Gap between early adopters and early majority Early Majority More pragmatic, such that they must be convinced that the new product really works Adapted from Moore, G.A. (2006), Crossing the Chasm: Marketing and Selling Disruptive Products to Mainstream Customers, 1st rev. ed., (New York: Collins Business Essentials) Late Majority Demands even more evidence of the product’s functionality and are harder to persuade Laggards Need the most evidence to persuade Failing to “Cross The Chasm” is a Common Barrier to Success § Firm takes on more visionaries than it can handle § Cannot take on more custom projects, but no pragmatists ready to buy § Early market becomes saturated, and revenue growth tapers off or declines Key personnel become disillusioned Venture capital well begins to run dry § Marketing strategies that lead to success in selling to visionaries actually hinder success in selling to pragmatists § The adoption lifecycle approach clearly and systematically integrates aspects of both MP#1 and MP#2 8 Marketing Strategy Principle #3 – All Competitors React SCA: Relationship-Based SCA Odile Guinot Learning Objectives § Describe the concept of relationship equity and the impact it has on outcomes § Realize that different countries/cultures have different expectations § Examine relationship best practices Relationship Equity § Relationship equity is a set of relational assets and liabilities linked to boundary spanning employees and the social network associated with the offering or experience that add to or subtract from the value provided by a firm’s offering § Relationships affect behavior Relational-based decision making is ingrained in our psyche (20 to 30% of brain) Many psychological processes are engaged in relational or pseudo-relational contexts § Key for B2B, services, and complex selling cycles § Can target and adapt more easily than brands Effects of Relationship Marketing (Palmatier, Jarvis, Bechkoff, and Kardes 2009) 12 Highest Impact Relationship Marketing Activities 13 Maintaining Relationships: Preventing the “Bad” is More Important than Adding More “Good” § Negative behaviors impact relationships more than positive behaviors Meta of 38,000 relationship shows negative activities have twice the effect of positive activities Conflict and opportunism have strong negative effects § People seek explanation for negative more than positive events; unfairness judgments provide insight into motivation for bad events § Unfairness plays a large role in undermining relationships since individuals feel an emotional need to punish unfair behaviors, even at a cost to themselves Be aware when designing a loyalty program (Emmons and McCullough 2004) (Palmatier et al. 2007; Samaha, Palmatier, and Dant 2011) 14 Trade-offs: Conflict and Collaboration High degree of conflict Low degree of conflict High degree of collaboration Well-developed relationship, probably highly productive and highly creative in solving mutual problems. Pleasant, easy relationship with no exciting synergies. Low-risk, low-return environment. Low degree of collaboration Poor environment for achieving anything: a relationship which is probably short-lived. Hardly a relationship at all. Not productive in any sense, this relationship is also unlikely to last. RM Payoff Varies Across Different Countries § On average, RM 11% more effective outside the US § Relationships have the largest payoff in China: 100% larger than in US § Relationships have the smallest payoff in Norway and Netherlands: 37% smaller than in US (Samaha, Beck, and Palmatier 2014) 16 Relationship Marketing Best Practices 17 Relationship Selling A “Relationship Selling” approach is exemplified by a salesperson who… § Listens § Expresses genuine concern § Keeps promises § Uses knowledge to meet customer needs My Personal Experience: Tools I Leveraged § Contract / Master Supply Agreement § CRM (now even more powerful with AI) § Sales Operations Team (not in all industries) § Various Functional Teams § Field Team (“eyes and ears”) Marketing Principle #3: All Competitors React è Managing Sustainable Competitive Advantage End of Lecture Takeaways: Book Summary of Chapter 6 1. Most firms rank innovation as a top strategic priority. Innovation involves more than new technologies or products; it can reflect changes in business processes or go-to-market strategies 2. Firms can innovate in four primary ways: changing their offering, changing who the customer is, changing how they sell to customers, or changing where they sell 3. Offering equity captures the core value that the customer obtains from a new offering, absent any brand or relationship equity 4. A first-mover advantage is often short-lived, so firms must continually develop new offerings to build their SCA, in terms of offering equity Takeaways New and innovative offerings increase firm value by providing more value to customers (through enhanced performance or better performance for the price), motivating customers to switch, expanding customers and markets, and establishing a brand image as a leading, innovative company 6. A stage-gate development process improves the speed of product development, the success likelihood, and the development costs 7. Two strategies for developing an innovative offering are repositioning strategies (i.e., Blue Ocean) and technology-based strategies 8. People-based factors influence innovation diffusion, according to the adoption lifecycle, which describes differences in people’s propensity to adopt new products (innovators, early adopters, early majority, late majority, and laggards). Firms must bridge the chasm between early adopters and the early majority to succeed 5. Takeaways 9. Product-based factors influence innovation diffusion. Marketers need to evaluate the relative advantage, compatibility, complexity, trialability, and observability of new offerings, then develop ways to leverage them to encourage adoption 10. Three key steps to building offering equity are developing an offering portfolio that provides customers with the best relative advantage among competitors; segmenting, targeting, and positioning the new offering to account for people- and product-based factors to speed up diffusion; and managing customer migration from innovators and early adopters to early majority stages 11. Conjoint analysis can facilitate the design and launch of new offerings by helping managers define the optimal product, according to the value assigned to various product attributes by consumers. Bass models also are helpful, because they use historical data related to the coefficients of innovation and imitation to predict adoption rates Takeaways: Book Summary of Chapter 7 § Relationship marketing’s (RM) influence on decision making is supported by the underlying psychological emotion of gratitude, which leads to a desire to repay § The linkages between relationships and financial performance operate through four mechanisms, including increased cooperation, loyalty, word-of-mouth, and empathetic behaviors § The most effective RM strategies emphasize positive factors such as seller expertise, communication, relationship investment, and similarity while minimizing negative factors such as unfairness and conflict § The effect of negative activities on relationships is twice as strong as positive activities; it is important to prevent negative events while continuing positive RM Takeaways § Bystanders of loyalty programs often perceive their treatment as unfair; this is why loyalty program preferential treatment should be invisible to bystanders § To optimize RM effectiveness, sellers must match the level of RM activities to the customer’s relationship orientation. Some of the factors that determine a customer’s relationship orientation are relationship proneness, exchange and product uncertainty, product category involvement or dependence, relational norms, relation-centric reward systems, services, business-to-business markets, and emerging markets § Because RM is not effective for all customers, sellers must determine where to allocate RM resources across their customer portfolios Takeaways § Factors that help leverage the effectiveness of RM delivery include free will, motive, risk, and value § Relationships operate through a typical lifecycle with four phases: exploration, growth, maturity, and decline/recovery. Each phase requires different RM strategies § There are two steps to building relationship equity: developing a strong relationship foundation and implementing targeted RM and loyalty programs § To understand the effectiveness of RM efforts, firms should measure their relational equity on an ongoing basis and link it to customer lifetime value Marketing Strategy Principle #4 – All Resources Are Limited Odile Guinot Learning Objectives § Identify various sources of trade-offs § Describe the approaches of resource trade-offs decision making § Explain the metrics that can be used and their own pros and cons Marketing Principle #4: All Resources Are Limited à Managing Resource Trade-Offs All Resources Are Limited § Need to balance marketing resources across: 1. Available Resources 2. Customer segments (needs): targeting & positioning (STP) 3. Lifecycle stages: acquisition, expansion, and retention (AER) + Product & Industry Lifecycle 4. Customer equity and marketing mix elements: brand, offering, and relationships + 4 P’s of Mktg 5. Other: SCAs now and for the future, Competition, Technological advances, product categories, R&D projects, geographies, sales territories, changing trends, etc. Inputs to the Managing Resource Trade-Offs Framework § The outputs of the three previous Marketing Principles serve as the key inputs to the resource trade-off framework, such that each MP requires some initial trade-off decisions § The positioning statement attained through MP#1 answers key questions about who customers are, what needs the product or service can fulfill, and why this product or service is the best option to satisfy those customers’ needs § The AER positioning statements, the output from MP#2, also are key inputs for the resource trade-off framework § Finally, the input derived from MP#3, which builds on MP#1 and MP#2, describes how to use BOR strategies to build SCA and erect strong barriers against competitive attacks Evolution of Approaches for Managing Resource Trade-Offs § The evolution of approaches for managing resource allocation suggests two main and overlapping eras § Heuristics Era – firms constantly decide how to allocate resources across different customer segments, different customer stages, different offerings, different regions, and different marketing communication formats § No hard data about resource allocation options Managers used simple rules of thumb for allocating resources Data Era – firms started using historical data that revealed the link between their past resource trade-off decisions and outcomes, such that they could determine the actual effects of certain resources on specific outcomes Scientific approaches, based on data and empirical models, reveal whether firm should continue its level of resource commitments or adjust them No “Perfect System” for Allocating Resources § Problem: Needs to be simple enough so it is transparent to managers (believed and understood) while being sophisticated enough to account for the interdependencies across multiple time-varying inputs each with different elasticities § “Best” method Iterative approach which attempts to make optimal allocations across nested levels of decisions Each level can be understood (bounded rationality of managers) while allocation decision criteria and approach can be selected based on characteristics of that level Can learn and improve at each level overtime (short feedback loop with targeted metrics at each level; build specific expertise) 7 Outputs of the Managing Resource Trade-Offs Framework § A fundamental problem for effective resource allocation is identifying and measuring the best or most appropriate metrics § As a popular saying holds, a firm is only likely to achieve what it measures § For most marketing resource investments, both financial and marketing metrics are necessary to capture the different aspects of the benefits earned from the investment Types of Marketing Metrics Loyalty is Better than Accounting Metrics, but… Offering Net-Promoter Score (NPS): Popular Loyalty Measure § Net-promoters: % of customers who are promoters - % who are detractors (i.e., removes people in zone of tolerance) § Promoters answer 9 or 10 and distractor 0 to 6 to question, “How likely is it that you would recommend [firm] to a friend or colleague?” § Scores are linked to profitable growth § Scores of 75% and above are world class § Mixed support in academic research § Pros: simple and good “single item” measure § Cons: not very diagnostic, may not be true loyalty since no actual behaviors 11 Many Marketing Metrics, But Two Main Approaches: Pros and Cons? 1. 2. Use specific metric for what you want to control (narrow, fast, and domain specific) – Brand (awareness, quality, strength) – Offering (innovativeness, adoption rates, price premium, value) – Relationship (loyalty to salesperson, trust, relationship quality, velocity) – Acquisition (# new customers, CLV, duration) – Retention (churn, lost customer, share) Use aggregate financial metrics and analyze using chain ratios (uses accounting measures, can be decomposed) – Net marketing contribution (NMC) tells us profit after sales and marketing costs – Marketing ROS tells us what portion of our sales is profit (MROS =NMC/sales * 100%) – Marketing ROI tells us our earnings for every 1$ invested in sales and marketing (MROI=NMC/Sales and marketing costs *100%) 12 Outputs of the Managing Resource Trade-Offs Framework § Another set of outputs pertains to the three components of each resource allocation decision: Budget per marketing activity, or the size of the commitment the firm makes to the marketing activity Allocation across categories, which reflects the percentage split of the marketing budget for a specific activity across categories Time horizon of the budget, involving the timespan for which the firm commits to this marketing budget § Thus when choosing its advertising budget for example, a firm would determine how many total dollars to spend (budget) on different forms of advertising (e.g., print and online), as well as how long to run the advertising campaigns (e.g., two months) Marketing Principle #4: All Resources Are Limited à Managing Resource Trade-Offs End of Lecture Takeaways: Book Summary of Chapter 8 1. All resources are limited. Managers must manage resource trade-offs to develop an effective marketing strategy. Most marketing decisions require trade-offs across multiple objectives, because resources are constrained and often interdependent. 2. Several factors increase the need for ongoing resource trade-offs, including limited resources (resource slack), changes in the composition of consumer segments, changes in the lifecycle stages of the product portfolio, changes in the market landscape due to competitive actions, and changes in the effectiveness of marketing activities. 3. Approaches to managing resource trade-offs have evolved from an exclusively heuristicbased era, in which managers solved resource allocation problems using simple rules of thumb, intuition, and judgment, to a data-based era, in which managers rely on statistical models and detailed information. 4. The heuristics approach relies on anchors, often related to spending in the previous period, which managers use to make marketing resource allocation decisions. Then managers may adjust their decisions every period, after observing the prior outcomes. Takeaways 5. An attribution approach asks, How does a specific (e.g., 1 percent) increase in a resource option affect a particular outcome, keeping all else constant? The model integrates past decisions and past outcomes, then produces a mathematical assessment of how much impact each resource trade-off truly has for generating outcomes. 6. A response model-based attribution approach captures the relationship between past marketing resources and past outcomes. A basic assumption is that past outcomes relate to future outcomes, which is usually reasonable. The use of past data then can uncover the relationship between marketing resources and performance. 7. There are three key inputs and two key outputs of the framework for managing resource trade-offs. The inputs are the outputs of the previous three principles. The outputs are a description of the firm’s resource plans and budgets and the use of key marketing metrics that can effectively validate these resource outlays. Takeaways § While most approaches to marketing strategy take a functional perspective to update readers about the latest tools, we take a simplifying customer-centric perspective that aims at providing an overarching framework to marketing strategy, that possess a portable, generalized input-process-output approach for all marketing problems. § Firms are moving from mass-marketing to one-on-one marketing, and thus serving the needs of smaller and smaller groups of customers. Firms are managing dynamics by moving from lifecycle approaches to dynamic customer segmentation approaches, again managing and responding to anticipated changes at the customer-level. Managers now have more data and techniques than ever, necessitating prioritization of what technique matter, for what problem in what situation. Managing these three trends requires managers to developed core skill and processes, which is why we develop an overarching generalized framework. § The first Marketing Principle is motivated by the fact that all customers differ. The main challenge in this principle is in managing customer heterogeneity, which is done though segmentation, targeting, and positioning. Cluster analysis is used to perform segmentation while positioning analyses is achieved using techniques such as multidimensional scaling. Takeaways § § § The second Marketing Principle stems from the fact that all customers change. The main challenge in the second principle is in managing customer dynamics, which is done through an AER (acquisition, expansion and retention) strategy. Methods that help with AER include lost customer analysis, dynamic segmentation, and Hidden Markov Models. The third Marketing Principle is due to the fact that all competitors react. The main challenge in the third Marketing Principle is in managing competitor reaction and building sustainable competitive advantage, which is done by building brand, offering, and relationship (BOR) equities. We discuss surveys as a tool to conduct brand audits, which help understand a brand’s positioning, architecture and extension strategies, conjoint analysis as a way for a firm to redesign its product offerings, and regression analysis as a way for a firm to gauge the effectiveness of its relationship marketing efforts. The fourth and final Marketing Principle results from the fact that all resources are limited. The main challenge in the fourth principle is in managing resource tradeoffs, which is done by ensuring that allocations to marketing activities are based on a scientific analysis of their benefits and costs. We discuss the use of response models using historical data and measure the impacts of various marketing using marketing and financial metrics. Takeaways § We outline implementation tips to successfully implement the four Marketing Principles: each of the four principles are temporally inter-connected, it is important to take advantage of the micro-macro duality of each principle, firms need to develop data and methodological capabilities and finally, the firm should not solve all principles simultaneously, but rather attempt to do so iteratively. § An analytical approach is important to successfully implement our framework. Data capabilities and methodological capabilities that contribute to competence in analytics. A firm can build data capabilities by collecting data pertaining to customer intelligence, economic intelligence, and competitive intelligence. A firm can build methodological capabilities by mastering techniques to perform data reduction, linking, and optimization functions.