Marketing Final Notes PDF

Final Notes | Marketing | Leonor Ramalho WEEK 1 What is Marketing? What Marketing is not: 1. Advertising: we only think this because this is the part of Marketing that we see. Þ However, it’s n...

Final Notes | Marketing | Leonor Ramalho WEEK 1 What is Marketing? What Marketing is not: 1. Advertising: we only think this because this is the part of Marketing that we see. Þ However, it’s not completely incorrect: advertising is a small part of Marketing Þ You can have a Marketing plan that doesn’t include Advertising (e.g.: Zara – their strategy is location close to luxury brands: Zara comes as affordable luxury) 2. Very expensive: dangerous misconception, sometimes the ones that need more Marketing are the ones with a lower budget (e.g.: beer stickers) 3. Evil: people tend to associate Marketing with negative values such as materialism and consumerism Þ Marketing is a tool: you can use it in an ethical or in an unethical way What is marketing? A complex process that is a set of activities that includes both strategic planning and an implementation plan that is meant to bring a marketing offer to a consumer Marketing as a process: Is a value-exchange process The goal of this process is to create value for a target costumer, and get value in return Marketing Process and Marketing Value Core Marketing Process: 1. Pre-requisites: analysing costumers and markets Market analysis Consumer Behaviour 2. Marketing Strategy: aspiration decisions Segmentation Targeting Positioning 3. Marketing Plan: action plan decisions Product Price Promotion Place 1 Final Notes | Marketing | Leonor Ramalho What is value? Value = Benefits – Costs Benefits can be: - Tangible This, because each consumer - Functional value recognizes their own - Social benefits - Intangible benefits in a product - Psychological benefits Brand equity à the increase of value of a product due to the fact that it’s from a specific brand (e.g.: normal bag, but when you realize it’s from Prada, then it’s expensive) Costs include: - Costs of acquiring - Costs of use (not only monetary): psychological and social costs Ikea effect à some consumers value products that you need to assemble or to do something to consume it (e.g.: cake powder and eggs) Maslow’s hierarchy of needs: Surviving needs: physiological and safety (food, water, shelter) Medium needs: love and belonging Intangible needs: self-esteem and self-actualization Sales, Product and Market Orientation Marketing role depends on the organizational culture Shared values and beliefs that shape management styles and operations 3 types of management styles: 1. Sales orientation à sales maximization Typical approach in the 50’s and 60’s: Aggressive sales tactics and promotions Advantages of this approach: Þ Makes sense for unsought goods or if you have unsold inventory Disadvantages of this approach: Þ If consumers aren’t satisfied with the product after sales, this might have a negative consequences for the company (e.g.: negative word of mouth) 2 Final Notes | Marketing | Leonor Ramalho 2. Product orientation à product quality Focus of the company is to innovate Typical of technology companies It believes that costumer will want the products for their special quality 3. Market orientation à costumer-satisfaction Companies see marketing as a value Most modern approach to marketing: costumer-centred approach, and the other management styles it more inside-out approach Advantages of this approach: Þ More confidence that there are consumers in the market that need and value the product Þ Can lead to (radical) innovation Disadvantages of this approach: Þ Hard to understand consumer’s needs Þ The product might have good quality, but nobody needs it WEEK 2 3 Final Notes | Marketing | Leonor Ramalho Microenvironment and Internal Analysis Microenvironment Microenvironment goal: analysing the environment in which the company operates is very important for the success of our marketing plan. Microenvironment includes all players and forces that have the direct ability to influence the way in which you conduct your business and the ability that you have to satisfy consumer’s needs. 1. Supply-chain: includes all players that are involved in bringing your product to your final consumer, including raw materials 1.1. Suppliers: the vendors that supply the firm materials that are essential to manufacture the product. Relationship with suppliers is critical for a product’s success, in terms of: - Accountability: the firm is held responsible for the product’s quality, even if the defect is caused by raw material lack of quality - Availability: any shortage of the material (or strikes) that you need to produce your product will affect the firm and the final costumers - Price: suppliers gives a firms material, products and services essential for the firm’s products – they have a great power and define the firm’s flexibility in defining the price for the consumers 1.2. Intermediaries: they allow the product to go from the firm to the final consumer. These relationships are critical, we have the example of the distributors 2. Competition: level of competition in the industry – a firm needs to assess the advantages of their product for the consumer, relative to its competitors à know the competition inside-out Porter’s 5 forces analyses 5 competitive forces and allow us to analyse the level of competition in an industry. There are 4 forces that contribute to the intensity of competition: a. Threat of new entrants: how easy it is for new competitors to enter the market? – The easiest, the highest competitive intensity Barriers to entry: it makes the companies that are already in the market safer – e.g.: firms need substantive money to enter the market so it’s harder to enter it b. Threat of substitutes: the alternatives that consumers have to satisfy the same need that the firm’s product is addressing It doesn’t need to be in the same product category, it can be any alternative product that consumers use for the same purpose (e.g.: Uber drives and public transports) c. Supplier power: very important to the positioning in the market by defining the extent to which you must rely on your suppliers 4 Final Notes | Marketing | Leonor Ramalho If there is only one supplier of a material that a firm needs, then this firm has a low bargaining power: it gives this firm less ability to compete in the market because it can’t control prices as they want d. Buyer power: it’s the reverse situation of the supplier power If the firm only has one or two major clients, then the survival of the company is dependent on the sales to these two clients à they might drive the firm’s prices down If the firm has many big clients, than it can control the price in a more flexible way The intensity of competition can also be exacerbated by: - Many competitors already in the market with similar size and power - The economic cycle in which the firm’s market is in: e.g.: when there is no growth is natural that the intensity of competition rises Competitor Analysis: comparative analysis with a firm’s competitors 1. Identify and assess key competitors 2. What are competitor’s strengths and weaknesses: how can a firm do better? How can a firm satisfy the same needs in a better way? 3. What are the firm’s strengths and weaknesses: to be able to improve relative to what the competitors are offering 4. Firm’s competitive advantage Internal Analysis Internal Analysis goal: to know the firm inside out through the following elements: 1. Values and culture: marketing plan has to be aligned with this 2. Resources: a look into firm’s unique sources that guarantee success in the market that represents the firm’s competitive advantage (e.g.: firm’s know-how, financial skills, etc.) 3. Current strategy and success: a firm need to consider what was its past and to see what they achieved with that strategy, if it was successful SWOT Analysis and TOWS matrix 5 Final Notes | Marketing | Leonor Ramalho The information that we obtained with the external and internal environment analysis can help us derive strategic recommendation for the firm through SWOT analysis and TOWS matrix SWOT Analysis With the Internal Analysis + Micro-environment Analysis we can define as firm’s internal factors (the firm has control over them) o Strengths: the characteristics that are unique to a firm and that give an advantage compared to other o Weaknesses: unique characteristics of a firm that represent a disadvantage in the market, compared to other With the PESTLE Analysis + Micro-environment and Industry Analysis we can define as firm’s external factors (the firm has no control over them, but they have an impact on firm’s performance) o Opportunities: elements in the environment that a firm can exploit to its advantage o Threats: elements in the environment that can cause trouble to a firm TOWS Matrix Goal: a firm can take the insights from the SWOT Analysis and transform them into an actual strategic recommendation for the firm. This, by: - Matching the internal factors (Strengths and Weaknesses) to the external factors (Opportunities and Threats) to identify relevant strategic options that a firm can pursue When doing this “matching”, a firm can reach 4 different basic strategies: 1. SO: Maxi-maxi Strategy: which internal strengths would allow a firm to maximize and take advantage of the opportunities that it has 2. ST: Maxi-mini Strategy: using internal strengths to minimize threats 3. WO: Mini-maxi Strategy: which weaknesses must be minimize so that a firm is capable of taking advantage of opportunities 4. WT: Mini-mini Strategy: minimizing weaknesses so that a firm can minimize or avoid threats, and what threats should be avoided to not make a weakness particularly critical WEEK 3 Market analysis: can help a firm to understand what are the obstacles that prevent the firm to reach its absolute potential Market potential 6 Final Notes | Marketing | Leonor Ramalho Market potential (absolute primary demand): hypothetical maximum quantity of product that can be sold in the whole market at time t - Independent of marketing investments - Dependent on the quantity that consumers buy Types of goods: Durable goods: goods that aren’t purchased frequently and that are typically used over a long period of time, such as washing machines, fridges, etc. Þ Potential Market Formula for durable goods) Fast moving goods: deliver the utility in the short-term for consumers and they purchase it often Current demand or primary demand: current, actual quantity sold in the market at time t - With this information, we can do gap analysis - It gives us the potential intensity of competition There are several reasons for the market potential gap: 1. Non-user gap: consumers don’t use the product because of 2. Light user gap: consumers use the product rarely 3. Light usage gap: consumers use less than full dose (that is way there’s a “recommended portion” on packaging) For these 3 reasons, there are 4 specific reasons: a. Some characteristics of the product à product gap b. The price of the product is not accessible to the market à price gap c. The firm is not having a good communication à promotion gap d. The product is not reaching the costumers, distributions improvements are needed à place gap 7 Final Notes | Marketing | Leonor Ramalho Secondary demand: this the demand for a specific product or brand Competitive gap: distance between a firm’s sales and all its competitors in the market Market Share Market Share: it’s the company’s sales relative to total market sales MSx = Sx / Total Sales MSx – Market share of firm x Sx – total sales of firm x Note: be aware of external factors that may influence sales We must also take into account the: PC: total purchases of company’s x customers in the product category (from firm x and from its competitors) N: total number of costumers in the market n: total number of company x customers So: MS = (Sx / PC) x (PC / Total Sales) When the (Sx / PC) value is low à there’s a loyalty issue with costumers, it means that most of the purchase of the costumers are from competitors o What are my competitors doing to attract costumers: product features, repositioning the product with promotions, etc. When the (PC / Total Sales) is low à out of the total sales, the firm x costumers (that can be loyal) represent a small percentage of the total market, firm x is not reaching enough customers or the ones they reached aren’t big spenders o Small number of firm x customers Growth Strategies There are 4 types: post here the slide with the 4-growth strategies table 1. Market penetration: Sales potential available 8 Final Notes | Marketing | Leonor Ramalho Current segment/market likes the product Þ E.g.: the “2 by 3” promotion: to increased the amount of product a costumer buys from you; Þ E.g.: when the product packing comes with a recipe to increase product’s consumption 2. Product development: Current product at end of lifecycle Complementary additional products possible Þ When you’re already the supplier of a costumer you can try do diversify and sell different products 3. Market development: Current market saturated / unattractive New markets are attractive and might like product Þ E.g.: firms that decide to expand internationality Þ E.g.: baby oils, the firm can start a similar product for the babies’ mothers 4. Diversification Changing both the market and the product: current market and product combination have slow or negative opportunity for growth Is the most risky strategy: typically this work well with strong brands (e.g.: Disney and Barbie) WEEK 4 Consumer behaviour Consumer decision process: 1. Need recognition: it’s what motivates the search for a product Creating value: understanding consumer’s needs and providing benefits (less costs) that meet those needs Needs can be: functional, social, symbolic, psychological E.g.: the laddering technique, you ask the consumer: - What are the attributes they value the most 9 Final Notes | Marketing | Leonor Ramalho - What is the functional value of the product - Why do you benefit (psychological consequence) from the usage of the product - You try to understand the means-end chain This need can be: a. Internal: felt deprivation, memory, habit b. External stimuli: word-of-mouth, vicarious learning, advertising 2. Information search: the products that seem suitable to solve their problem/ need First source of information is memory E.g.: when we choose a restaurant through awareness set: - Evoked set: restaurants of which I have a good opinion - Inept set: restaurants that come to our mind and we exclude them - Inert set: restaurants that come to our mind and we have a neutral opinion about it If we’re not satisfied with memory, we can go beyond and go to external sources (Google, TripAdvisor) - Common when searching for really expensive or personal: cars, houses, etc. 3. Evaluation and choice/ purchase: which products do they choose among the several options Rational evaluation: takes into account physical characteristics and tangible attributes that deliver the benefits the consumer want - Compensatory rules - Non compensatory rules Affect/ Heuristic evaluation: role of emotions - E.g.: Coca-Cola advertisements “Open happiness” – the Coca-Cola preference is based on liking the brand (when people don’t know what they’re drinking, they usually prefer Pepsi) 4. Post-choice evaluation: after they purchased and used it, their opinion on the product The goal is to satisfy costumer: when the product meets or exceeds the expectation of the consumer Evaluation models 10 Final Notes | Marketing | Leonor Ramalho Rational evaluation: consumers evaluate the performance of the product There are 2 rational evaluations models: 1. Compensatory rules: allow a positive evaluation of a brand on one attribute to balance out a negative evaluation on some other attribute They look at all the tangible attributes of the product and they choose the one with the highest evaluation Expectancy value model: - How important is the product as a whole - How important is the x attribute of the product 2. Non compensatory rules: a. Conjunctive model: the consumer look at all the attributes and decide the minimum level for each attribute, a minimum performance of the product à as soon as we have one negative attribute (below the minimum level) the product is excluded à non compensatory model b. Disjunctive model: if a brand meets or exceeds the minimum cut of level the consumer defined the choice is included in the consideration set à it takes one attribute to be meet or be above the minimum level that the product it taken into consideration c. Lexicographic model: the consumers takes into account the importance of each attribute, making a ranking from most important attribute to least important attribute à the top-ranked attribute is selected WEEK 5 Segmentation What is segmentation? Segmentation: the process through which you look at the market and try to identify groups of costumers that share a similar profile, especially in terms of what they look for in a certain product o Consumer groups à “Segments” o Next step is to make your product the most attractive specifically for the segment Marketing’s most important insight à not all consumers are the same 11 Final Notes | Marketing | Leonor Ramalho Different groups of customers desire different benefits (tangible and intangible) and react differently to your marketing (4 P’s) E.g.: hotel target – business, family friendly, relaxing experience Why to segment? 1. Different needs - Difficult or costly to satisfy with one product/ service - It helps to avoid aggregation bias: misleading information (you can’t have a product that satisfies everybody… customer’s looking for 6m trees and other customer’s looking for 2m trees – if you offer a 4m trees to the market, then no one will be satisfied) 2. Competition - Competing organizations may be better able to attract certain groups of customers (segments) in the market 3. Limited resources - Invest in potential customers with highest return on marketing investment - Organization should identify the most attractive parts of the market that it could effectively serve à Target Market How do we segment a market? Very often companies do this segmentation trough a very superficial analysis that takes into account: age, sex, geography, income level and other demographic traits. Þ This doesn’t always work, is too superficial (e.g.: Ozzy Osborne and Prince Charles) We should identify criteria that allow us to uncover different consumer groups in terms of needs (and non-demographic ways): - Which tangible/ intangible benefits are consumers looking for? - Consumers want to fulfil which functional/ psychological needs? - Which costs are they looking to minimize? To be useful, market segments must be: a. Measurable: size (volume), value and purchasing power b. Substantial: not marginal, large and profitable enough c. Accessible: you can reach them (communication + distribution) d. Differentiable: conceptually distinguishable and respond different to different marketing mix elements 12 Final Notes | Marketing | Leonor Ramalho e. Actionable: you need to have resources to serve the segment and you need to be able to create an implementation plan to attract and to serve the segment How to segment in practice Consumers within a segment have the same needs and react similarly to the marketing mix (product, price, place and promotion). There are 2 strategies of segmentation: a. Ex ante segmentation à criteria to define segments is made a priori, they don’t rely on criteria, but on intuition o Advantage: there’s no need of data, it’s cheaper o Disadvantage: the segments a firm comes up with has no market resonance b. Ex post segmentation à criteria is chosen a posteriori, based on a market analysis o Advantage: more reliable, assuming that it’s based on good quality data about the market o Disadvantage: constrained by the data Steps to do segmentation: 1. Assess consumers’ needs 2. Define the unique observable characteristics that consumers belonging to a segment have à might be demographic, psychographic (social class, lifestyle, personality) and behavioural (loyalty status, user status) 3. Make differentiation between segments based on steps 1 and 2 Targeting After defining the segments, a firm should target the ones that: 1. Have a strong need for the product 2. For whom the firm has the ability to satisfy the need to a great extent Then define the segment attractiveness, by looking at: o Competitors o Company resources: the right strength to compete (SWOT analysis) o Segment size: the sales potential of the segment o Segment growth rate: find one segment that is growing o Segment profitability: how profitable it is? o Segment accessibility: is there a way to reach it? o Segment differentiation: is the segment unique? Concentrated Marketing à focus on just one specific segment and specialize on it Differentiated Marketing à target on more than one segment by defining different Marketing mix for each one of them to fulfil each one of their needs (prevents cannibalization) 13 Final Notes | Marketing | Leonor Ramalho Undifferentiated Marketing à the company has one marketing mix for all segments in the market (usually more basic products such as gasoline) WEEK 6 Positioning Positioning: deciding on a unique “position” in the minds of consumers in the target segments Þ Goal: to make your product occupy a very distinct position (more attractive) in the minds of consumer relative to competitors Subsequent decisions while positioning: 1. Value proposition: promise of value that will be delivered 2. Unique selling proposition: why is your value proposition better than your competitors’ 3. Positioning statement: it combines the previous 2 while specifying your target: to which segments (in terms of needs) are you offering superior value and what is this superior value? Within positioning statement, you must define your Brand / Product X: a. For/ to à Target b. Brand X is a à Product concept and value proposition (product’s benefits) c. That à Point of difference & competitive frame; unique selling position d. Because à reason to believe / single most important support; e.g. product attributes Conclusion: it’s a formal statement for the purpose of planning, and it will inform the subsequent decisions at the marketing mix level Targeting and Positioning Possible problems: 1. Missing the target: the “Bic for Her” example 2. Unplanned segments: when we reach a target that we weren’t counting on attracting à typical of fashion brands Þ Problem: if the consumers aren’t aligned to the image that we want to keep on our brand à it can make the original target segment lose interest because they don’t like the people that is wearing them How to fix this: Abandon the current customers and move on to a new type of consumer: but you need to make sure that they’ll keep buying the brand 14 Final Notes | Marketing | Leonor Ramalho Abercrombie case: They didn’t offer large sizes on their stores – they didn’t want larger people target segment They were involved with the show “Jersey Shore”: their cast is not known for their good taste – they ended up paying them to not wear their clothes Brand hijacking: consumers take the logo and the visual identity, and use the brand as they please Burberry case: the English hooligans painted their cars with the famous Burberry chequered pattern à the brand distanced themselves from this pattern Positioning Strategies Vertical differentiation: trying to communicate to consumers that they’re doing better than their competitors on attributes both have. Just being objective better from competitors. Þ To prove that you’re better than your competitors objectively through objective attributes and with objective superiority Examples: - Mobile companies: one company offers the best coverage, other offers the best internet connection Horizontal differentiation: they don’t focus on attributes that they have in common with their competitors, but they focus their consumers’ attention on attributes that they have and their competitors don’t. Just being different from the competitors. Þ You’re not “the best”, but you are different à subjective Examples: - Renova: they didn’t claim they were the best in a specific attribute, they just claimed they were different from other à they created coloured toilet paper to decorate your bathroom - GoPro: they don’t have the best image or battery, they’re a different type of camera à for outdoor action Perceptual maps and repositioning Positioning: how we want to be perceived by consumers relative to competitors and how to implement the positioning strategies But it may happen that we don’t reach our goal à when there’s a gap between the expected and aimed position and the perceptions that consumers have of the brand / product Perceptual maps are used to measure this gap and to study consumers’ ideal products 15 Final Notes | Marketing | Leonor Ramalho Sometimes companies need to Reposition – to change or reassess the strategy, which can mean 2 things: 1. Complete change of target 2. Change of the positioning for the current target: highlight other benefits to be perceived different by the same target Example: - Old Spice: prior to 2010 it had an older generation brand position, but when Axe entered the market they started to lose share in the market à they needed to reposition à they did it by investing heavily in communication to create a younger image to the brand - McDonald’s: they had to reposition because of external threats à they were seen as an unhealthy food chain à they made changes to their menu: included salads, change their image (to green) and implemented new products with less calories WEEK 7 Marketing plan mix, the 4 P’s: 1. Product 2. Price 3. Place 4. Promotion Notice that: Product + promotion + place à related to value creation for the consumer Price à related to value capturing for the company Product What is Product: Definition: anything, (physical objects, services, persons, places, organizations, ideas) that is offered to a market (for attention, acquisition, use or consumption) that might satisfy a buyer’s need. – The “needs part” is very important and cannot be forgotten by companies. What are the consumers really buying à Consumers are not only buying a product, but also an idea (intangibles) This means that when deciding a product, a company needs to think about: 1. Functional benefits that are superior to the competition à e.g.: chemical ingredients of a shampoo that will have a desired effect on hair). 2. Emotional benefits 16 Final Notes | Marketing | Leonor Ramalho Concerning the product, it’s important to remember that consumers’ needs are always evolving à products must meet them! E.g.: of some pandemic reactions: perfume makers started to make hand sanitizer, Disney stores started selling hand sanitizers with Disney characters two days after the pandemic started, Amazon started having audio books for children (because schools were closed), many fashion brands made masks. There are many levels of understanding and managing a product, but one must start by understanding the product benefits (that you offer and that consumers need): Benefits can be: o Functional and symbolic: functional benefits are related to objective problem/needs response and are usually related to the technical attributes of the product. Symbolic benefits are more related to psychological or social needs (e.g.: need of belonging, need of uniqueness, need of socialization). o Explicit or implicit: sometimes, costumers’ needs are explicit, so the benefits offered in response are also explicit. Other times, a company can identify implicit customers’ needs that they are not aware of, and therefore offer implicit benefits. What can be an e.g. of a symbolic implicit benefit? – Technology. Very important: Notice that marketing does not create needs. It only explores existing ones (that are already there, however implicit). After defining the product benefits, it is useful to look at different product levels: o Core benefit: benefit the customer is really buying (ex. of a hotel: rest, experience). o Basic product: elements that deliver the benefit (ex. of a hotel: bed, bathroom, towels, desk, dresser, and closet). o Expected product: attributes customers usually expect from the product (ex. of a hotel: clean bed, fresh towels, working lamps, and relative degree of quiet). o Augmented product: attributes that exceed customers’ expectations (ex. of a hotel: freshly baked cookies). 17 Final Notes | Marketing | Leonor Ramalho o Potential product: all possible augmentations the product might undergo. Branding Definition: a name, term, sign, symbol, design, or a combination of them, intended to identify the goods and services of sellers and to differentiate them from those of the competition. Benefit of having a strong brand: customers keep coming (become loyal). They buy the brand over and over again because they can ensure about its quality and consistency. Þ Good branding is a tool of differentiation and competitor advantage. 3 aspects to consider in branding: o Brand name à it should suggest your product and its use/benefits (ex.: Airbnb) and it should be easy to spell, remember, and distinctive (ex.: 7UP). o Brand values à Includes the distinctive tangible and intangible benefits of a product. o Brand image à it’s the perception about the brand that consumers hold in their minds. This perception (image) comes from information they see/hear (from advertisement, people, salespeople, etc.) and from their own consumer process. It can be positive negative, or neutral. The marketers’ goal is for it to be very positive, of course. Brands are much more than names and symbols: they represent consumers’ perceptions about a product, company, its performance, and the associated feelings and emotions. The main importance of brands: they show what an offering means to a consumer, incarnating a certain positioning (with functional and symbolic benefits). When symbolic benefits become associated with a brand, they become common to all the brand’s products. Þ Coca Cola VS. Pepsi example: the preference for Coca Cola is not relative to the taste (people actually prefer Pepsi’s taste through blind test), but to the brand. People prefer Coca Cola because the brand is associated with good memories and experiences à Brand value is huge here, making people prefer Coca Cola due to a certain brand image. Brand association map: o A brand association map represents a network association that consumers have in their mind when they think about a brand. The marketers’ goal is for the map to have more positive associations. o Through a brand association map, the company can see if the network association that consumers have in their mind corresponds to the intended positioning. o Example: 18 Final Notes | Marketing | Leonor Ramalho Customer-based brand equity (CBBE) model (by Keller): CBBE’s goal: to be a strong brand, we have to shape how consumers feel and think about the brand. It has 4 levels: 1. Identification– the company’s goal is to create awareness to make consumers know about you 2. Meaning – Identify and communicate the brand’s meaning (what does it stand for). This includes performance (which defines how well the product/brand meets consumers’ functional needs) and imagery (which defines how well the product/brand meets consumers’ needs at a social/psychological level). 3. Response – evaluate how customers respond to the brand/product. This includes judgments (ex.: about quality, etc. when compared to competitors) and feelings (telling how the product/brand makes them feel). 4. Resonance – brand resonance means establishing a deep and strong psychological bond between you and the customer, achieving loyalty in terms of purchases and in terms of community building (with engagement through social media, participation in marketing events, etc.). – This is the most difficult and the most desirable to reach. 19 Final Notes | Marketing | Leonor Ramalho Brand strategies (decisions to make): o Family umbrella branding – when a company uses its name as the brand for all product lines (ex.: Philips, Heinz). Advantage: incurring in less of costs when introducing new brands, less marketing costs in creating brand awareness. Disadvantage: a product failure will affect the brand in general terms. o Combination branding – when a company uses its company name as a brand, but creates different names for each product line (ex.: Kellogg’s Coco Pops, Kellogg’s Special K, etc.). Same advantages and disadvantages as in the “Family umbrella branding”. o Individual branding – when a company creates new different brand names for each product line (ex. of Unilever: Dove, Pears, Lux, etc.). This makes sense when a company has very different products in terms of quality, price, use, and intended targeted segment. Advantage: a product failure does not affect the other brands. Disadvantage: heavy promotion investment for each brand. Product Policy We’ll now focus on how a company decides the types of products/services it will sell: how many product lines and how many items in each line. 3 definitions: 1. Product mix breadth – this refers to the variety and number of product lines offered. – To decide about it, a company has to think about how many product lines (columns in the image) it wants to offer and what is the relationship (if any) between the lines. 2. Product line depth – this refers to the number of items offered within each line. – To decide about it, a company has to think about how many items there will be per line, and how different items will serve the different segments (different needs, tastes, willingness to pay, etc.). 3. Product item design – this refers to the product design specification. – To decide about it, a company needs to think about what the design/specifications of each element within a product line will be. When there is more than one item in a line, the decision about an item’s design should be made in light of the design of the other items to create an optimal overall offering to the market. To decide about it, it can be useful to look at the product levels seen before. Þ Over time, as market conditions and consumer needs change, these decisions have to be revised and the lines have to be adapted through addition, deletion, or modification of your product There are some products that can be seen as substitutes in consumption à but they are different, the goal is to serve different segments by offering different products that match different needs (shampoos example) Product mix breadth expansion (expansion of the number of product lines): 20 Final Notes | Marketing | Leonor Ramalho o When to expand the number of product lines à When there is a specific favourable economic opportunity to leverage the company’s existing skills (so that the new line connects with the current existing products). o Approaches when expanding the number of product lines: 1. Decline in profit situation – when an existing business has a decline in profit in a certain market category (ex.: a beverage company sees there is a profit decline risk in soda market because consumers habits are changing more to water) it can develop a new product line focused on another market (ex.: water) category to offset the risk of profit decline in the other category market. 2. Leverage key asset – a company can leverage a key asset that underlies the current product offerings. – Ex.: because it has a variety of products that share common aspects (beauty, hair, feminine and family care, etc.) who share the same distribution system, P&G can leverage its established retailer relationships to market and sell its products 3. Consider the complementary-in-use products – a company can consider complementary-in-use products and become a total solution supplier. – Ex.: Adobe acquired Omniture to develop a software line that measures the effectiveness of marketing content. This product line complements its content development software. Product line depth expansion (adding new items to a product line): o Product lines can be vertically differentiated (with different prices, quality, etc.), or horizontally differentiated (same price and quality level to accommodate varying tastes). o 3 strategy options when adding a new item to a product line: Inside vertically differentiated product line 1. Upward line stretching – a company can add an item (to a line) at a higher price and performance level, capable of meeting the performance requirements of more demanding applications. Here, the company has to identify a profitable segment willing to pay a higher price for a superior product. The main challenge is to make it believable (go make consumers trust that you are capable of offering something at a higher performance and thus with a higher price). 2. Downward line stretching – a company can add a lower-priced item that is still capable of satisfying the needs of some applications. – Ex.: many luxury brands offer a lower line of products to consumers who can’t afford the luxury options. – This can be a way to respond to competition on the upper end (by trying to fill a hole at the lower end). The main challenge is diluting brand image. 21 Final Notes | Marketing | Leonor Ramalho Inside horizontally differentiated product line 3. Product line fill – a company can keep the present range in terms of price and quality but have more versions withing the current range. However, there is a cannibalization risk (main challenge) if the differentiation between products is not clear to the consumer. Thus, communication is essential in this sense. The 3 strategies are summarized in this graph: Individual Product Decisions (“item design”) Product decisions can be decisions on: 1. Product attributes 2. Branding 3. Packaging & labelling Þ There’s no defined order for these 3, but they must be consistent with each other and convey the company’s positioning 2 things to keep in mind when making individual product decisions: a. Target segment b. Positioning: what is the superior value offered Example – “Maki-San” sushi: They offer a service through which the customer can design its sushi detailly. Their target are foodie instagrammers who value self-expression, creativity, and pop culture. All of this can be seen through the way the product is designed: 22 Final Notes | Marketing | Leonor Ramalho o Brand name à “san” means “mister” and “maki” is the sushi roll, which means each roll can be uniquely personified. o Operations à customers can name their own rolls however they choose to. o Logo à it’s made up of emoticons commonly used in Japanese pop culture. o Packaging à following the concept. Many customers actually keep them as collectibles after eating. o Ingredients à customers can pick from a variety of fresh ingredients (the store experiments different ingredients by adding and dropping based on demand). The importance of packaging: Packaging involves the design and production of the container or wrapper for a product, serving several objectives: 1. Protection: a good package can prolong the product life on a shelf at a store 2. Legal requirement (in labelling): the product content is disclosed in labelling, and it must be in some languages. 3. Promotion: creates an impulse to purchase and persuade customers to buy the product at shops. 4. Positioning: packaging helps achieving a certain positioning. Benefit of packaging à creating value for consumers: packaging also creates value to consumers, having certain benefits. New product development 4 types of new product development (from the less radical innovation to the most): 1. Incremental improvements of existing product à when little improvements are added to an existing product that might be critical to the firm’s competitive position and costs levels. E.g..: When Samsung refrigerator added an automatic sparkling water dispenser. 2. Expansion of existing product line à when there is an expansion of the current product lines. E.g.: when Coca Cola added Coke Zero. 3. New product to firm, but not to world à when a company produces a product that it has never produced before, but it is not the first in the market (someone has already produced it). 23 Final Notes | Marketing | Leonor Ramalho E.g.: when Zantac (who produces heartburn pills) started producing pills to cure ulcers (already existent in the market). 4. New-to-world product/radical innovation à the most radical type of innovation, thus involving a high degree of uncertainty and risk. Here, it’s even more important to think about consumers’ needs and how to fulfil them. E.g.: Segway human transporter. 6 steps in a new product development: 1. Idea generation: a pool of ideas is created for possible new products and refine those into specific concepts to come up with a specific design later It’s a continuous brainstorming process where one has to continuously search for new ideas and opportunities for a new product. 2. Idea screening: one screens the best idea and determines which product ideas justify further examination (“go” vs. “no go” decision). 3. Feasibility analysis: one estimates the potential profit of the proposed new products in the long run (when it gets real), thinking about the superior value relative to competitors. 4. Product (or prototype development): one develops a prototype with actual attributes of the product, detecting any potential production problems and see if it is practical to manufacture it or not. Lab tests are also taken to make sure the product meets performance and safety standards. 5. Market testing :one brings the test to the market on small scale to ask customers what they think about the product. This information can be gathered (and analysed) through: - Sales - Buying behaviour - Price sensitivity. Then, the prototype and budget can be adjusted accordingly. Þ A disadvantage of market testing is that it can make competitors learn about the new products and prepare themselves to potential battle. 6. Commercialization: one plans to launch the product. There are some strategic issues that one has to think about: o Timing: do we want to be the first to launch the product and have the first mover advantage, or to be a follower in the market? o Number of markets: how many markets do we want to enter in? 24 Final Notes | Marketing | Leonor Ramalho Failure vs. Success in product launches: o Success: related to the application of consumer needs, fulfilling them better than competitors. o Failure: product development is not an easy task and thus many product launches end up in failures. Many reasons (flaws) can be associated with failure: Flaw 1: when a company cannot support a fast growth of the new product - E.g.: Mosquito magnet: the company “American Biophysics” was not able to keep up with the production of this new product when it became a top-selling. When it tried to expand the production to a mass-production plant in China, the quality dropped, and consumers became angry. – Lesson: need to have a plan to ramp up quickly in case the product takes off. Flaw 2: when the product falls short of claims (stays behind the intended) an gets bashed (“esmagado”). - E.g. of Microsoft Vista: this new software launched had many compatibility and performance issues. – Lesson: delay your launch until the product is really ready! Flaw 3: when the new item exists in a “product limbo” - E.g. of Coca Cola C2: after “Diet Coke”, Coca Cola identified a new market (20- 40 years old men who liked the taste of classic Coke but not the calories aspect, and who liked the no calories aspect of “Diet Coke” but not its feminine image). Due to this, Coca Cola launched “Coca Cola C2” with half calories, same taste, and men image. This was a failure because, in fact, men wanted absolutely no calories (not just a half). A year later, Coca Cola launched “Coke Zero”, with full flavour and no calories, finally a success. – Lesson: test the product to make sure its differences will sway buyers. Flaw 4: when consumers don’t get the product (the product defines a new category and requires substantial consumer education) - Ex.: P&G launched a smell/perfume product with a CD shape that emitted (played) perfume every 30 minutes. P&G hired a singer to endorse the product for its launch and commercials. This confused the consumers because many thought the product involved both music and perfume. – Lesson: when consumers can’t understand how to use a product quickly (and don’t get the value of an offering), there is chance of failing. Flaw 5: when the product is revolutionary/amazing, but there is no market for it. - Lesson: need to make sure there is market for a certain product! 25 Final Notes | Marketing | Leonor Ramalho 2 main conclusions: it’s essential to pay attention to needs (1) and test (2) a new product, to make sure the product is right for the market and to make sure there is even a market for it What is new product development: o It can be related to radical/big world innovation: e.g.: Uber, Airbnb, Amazon o It can start with small ideas that lead to important incremental improvements for businesses: e.g. Ipod and Itunes (not disruptive in the music industry, but complement the Mac). Open innovation & Co-creation: o The "open innovation” trend makes everyone responsible for it: not only sales, marketing, finances, and operations collaborate with R&D, but also partners, suppliers, and customers. o “Co-creation”: the involvement of customers in the production process is essential to get input from customers when producing a product, and not after. Managing Product’s life cycle: Most products follow a pattern of 4 stages: 1. Introduction of the product to the market Requires continuous research and development to reduce imperfections Main effort is brand awareness 2. Growth of the product’s performance Sales are the key factor for success The success can mean the entry of new competitors à need of investment in promotion to enhance the value of the product Possibility of product line expansion to stimulate this growth 3. Maturity: intense competition All possible market segments and distribution channels have been built up Need of improvement of the quality of the product à fight for loyalty To attract new customers, one can also modify the product or think of new uses for it 4. Decline 26 Final Notes | Marketing | Leonor Ramalho It’s the last stage of the product life cycle and a really challenging one. The rate of decline varies Need of relying on loyal customers who will make an effort to buy even at high prices and limited distribution. Need of rationality and only keep the most competitive product lines. Might be a need of eliminating product lines or phasing out the whole product can be necessary, even if hard (due to attaching to the developed products over time). WEEK 8 Considerations in setting prices: 1. Customer perceptions of value à Price ceiling (above this price there is no demand) 2. Other internal and external considerations: marketing strategy, objectives, nature of market and demand, competitors’ strategies and prices 3. Product costs à Price floor (no profit under this price) Price and profits Drivers of profitability Profit = Total Revenue – Total Costs o Total Revenue = price per unit x quantity sold o Total Costs = fixed costs + (unit variable costs x quantity produced) o Unit margin = per unit revenue – per unit variable cost Pricing approaches a. Cost-based pricing: setting prices based on the costs of producing, distributing and selling the product plus a fair rate of return for the company’s effort and risk 27 Final Notes | Marketing | Leonor Ramalho More popular: it is easy to estimate the cost of production so it simply the complex pricing process But it might limit a company’s ability to really capture the full price that consumers might be willing to pay for the product Cost-based pricing (or mark-up pricing) can be calculated based on: - Mark-up price = unit cost / (1 – desired return on sales) - Mark-up price = unit cost x (1 + desired return on costs) Unit cost = (variable cost + fixed cost) / unit sales b. Value-based pricing: uses buyers’ perceptions of value as the key to pricing To use the value-pricing thermometer, we need to take into account: 1. True Economic Value (TEV): the value that a full informed customer would attribute to the product à it is subjective TEV = cost of the next best alternative + value of the performance differential o Cost of the next best alternative: costs of competing product that the customer views as the best substitute for the product o Value of the performance differential: differential value of product benefit (superior or inferior) as compared to best substitute Positive is benefit is superior Negative if benefit is inferior 2. Perceived value for customers: maximum price that a customer is WTP Þ For any price equal or lower than this perceived value, the consumer will have an incentive to buy Both TEV and PV of a product can be influenced by the price of competing products or substitutes How to assess perceived value To assess perceived value there are 3 quantitative market research methods: 1. Customer surveys: define customers WTP 2. Price experimentation: how customers behave relative to price 3. Historic pricing data: with advanced scanner-based tracking technology information companies track prices, sales and market shares à data to determine the effect of price on overall customer demand 28 Final Notes | Marketing | Leonor Ramalho One way of assessing: Another way of assessing: Perceived value may be different for different customers: - Taste - Nature of use - Ability to pay - Intensity of use - Competition Pricing mistakes 29 Final Notes | Marketing | Leonor Ramalho Þ To assume that low price is a way to increase market share: sometimes low price is a sign of low quality Break-even Analysis Break-even analysis: a useful tool to assess the economic impact of various prices and sales volumes for the firm o Break-even point: Total Revenues = Total Costs o Break-even volume: the point at which the revenues cover the costs Break-even volume = Fixed Costs / (Price – Variable costs) o Target profit volume: to obtain more than break-even, to obtain profit Target profit volume = (Fixed costs + Target) / (Price – Variable costs) o Price elasticity demand: measures the percentage of change in the demanded quantity in response to the percentage of change in price E Value >1: elastic demand à small changes in price lead to big changes in demand E Value