HKU Business School MKTG3531 Strategic Marketing Management PDF

MKTG3531 Strategic Marketing Management Marketing Program Design Faculty of Business and Economics Semester 1, 2024/2025 1 Learning Objectives 22  Value Creation and New Product Development...

MKTG3531 Strategic Marketing Management Marketing Program Design Faculty of Business and Economics Semester 1, 2024/2025 1 Learning Objectives 22  Value Creation and New Product Development 33 Learning Objectives 1. Innovation Strategy 2. New Product Development Process 44 Levels or Types of Innovations 5 Levels or Types of Innovations Transformational: Radically new and the value created is substantial; “game changer”; rewrites model 6 Levels or Types of Innovations Substantial: Substantially new and create important value for customers; new category; segment focus 7 Levels or Types of Innovations Incremental: New products that provide improved performance or greater perceived value (or lower cost) 8  Finding New Product Opportunities ❖ Difference between expectations and use experience indicates a new product opportunity. ❖ Consider how to match capabilities to value opportunities ❖ Normally have the capabilities needed for product line extensions and incremental improvements 9 ❖ May consider partnering with a company for developing a new product category New-Product-Planning Process 10 Idea Sources New-product ideas come from many sources, including: – R&D laboratories – Employees/Customers/Competitors – Outside inventors – Value chain members 11 Idea Generation Tool: Kano Modeling Assumption: The relationship between the performance of a product attribute and satisfaction/dissatisfaction level is not necessarily linear. Objective – Classify attributes to optimize products and improve innovation – Discover attractive attributes to create opportunities for product differentiation in the target market 12 Idea Generation Tool: Kano Modeling 13  Kano Modeling – Five Types of Attributes Attractive attribute: Consumers will be satisfied when this attribute is fully provided; however, the non-fulfillment of this attribute does not cause dissatisfaction (e.g., autopilot function in a car) One-dimensional attribute: Consumers will be satisfied if this attribute is implemented; dissatisfaction will result if the attribute is non-fulfilled (e.g., fuel economy) Must-be attribute: Dissatisfaction results from the attribute not being fulfilled. However, fulfillment of the attribute does not increase satisfaction for the product (e.g., four wheels in a car) Indifferent attribute: Consumer satisfaction/dissatisfaction will not be affected by this attribute’s performance (i.e., not important; e.g., free stickers with purchase of a car) Reversal attribute: Consumers will be dissatisfied when this attribute is fulfilled and satisfied when it is not (e.g., for some people, they don’t like too many 14 features) 15  Kano Modeling - Implications In your new product: – Have all the must-be attributes – Maximize performance of the one-dimensional attributes – Incorporate attractive attributes if possible Time has a big influence on attractive attributes – Over time, an attractive attribute will become a must-be attribute 16  Kano Modeling - Procedure 1. Gather the list of attributes/features you would like to test 2. Ask two questions for each attribute The first question (positive question) is to determine how customers would feel if a product’s performance on this attribute is good The second question (negative question) is to determine how customers would feel if a product’s performance on this attribute is poor 17 Kano Modeling - Procedure 1. I like it that way. 2. It must be that way. (It’s Positive Question expected) e.g., If the gas mileage of a car 3. I am neutral. is good, how would you feel? 4. I can live with it that way. 5. I dislike it that way. 1. I like it that way. Negative Question 2. It must be that way. (It’s e.g., If the gas mileage of a car expected) is poor, how would you feel? 3. I am neutral. 4. I can live with it that way. 5. I dislike it that way. 18  Kano Modeling - Procedure 3. Based on responses to the two questions, identify the categories for the attributes A: Attractive M: Must-be Negative Question O: One-dimensional I: Indifferent R: Reversal Like Must-be Neutral Live with Dislike Q: Questionable Like Q A A A O Must-be R I I I M Positive Neutral R I I I M Question Live with R I I I M Dislike R R R R Q 19 Screening and Evaluation Screening – Process to determine the strategic fit of idea: – Is the idea compatible with the firm’s mission and objectives? – Is the product initiative commercially feasible? – Compatibility of the idea considered in terms of internal capabilities, financial needs, competitive factors Concept evaluation – Extension to the market and technical assessments 20 Tool: Concept Test To obtain a reaction to the new-product concept from a sample of potential buyers before the product is developed To compare two or more concepts Typical questions: – Overall reaction (acceptability, desirability, interest, etc.) – Likelihood of purchase – Likes and dislikes about the product – Likelihood of use in specified situations – Estimate product value 21 Tool: Concept Test 22 Tool: Concept Test Percentage of consumers rating the product as excellent Compare possible reconfigurations against the baseline configuration 23 Business Analysis and Product Development Estimates the commercial feasibility of the new- product concept – Revenue forecasts – Preliminary marketing plan – Cost estimation – Profit projections Development of the new product includes: – Product specifications – Industrial design – Prototype – User test 24 Marketing Strategy Decisions Marketing strategy planning begins at the concept evaluation stage and continues during product development Following activities should be decided: – Packaging – Name selection – Environmental considerations – Product information – Colors – Materials – Product safety 25 Marketing Strategy Decisions Market targeting: Selection ranges from offering a new product to an existing target to identifying an entirely new group of potential users Positioning strategy: The core of this strategy is how the new product should be positioned in the eyes and minds of the targeted buyers 26 Test Marketing To test a new configuration of a new or existing product and/or to test any combination of other marketing program elements either singly or in combination with each other To test product configuration variations as well as launching currently non-active brands 27  Test Marketing Advertising Experiment The results of the study are used to project the level of awareness and the market share that would have been achieved nationwide by each brand with the same increase in advertising (20%) and if competitive actions had remained unchanged. The impact on brand contribution is provided as well. An increase in contribution for a given brand shows that you would have benefited from advertising for this brand. 28  Test Marketing Commercial Team Experiment The results of the study are used to project the additional number of distributors and the market share that would have been achieved nationwide by each brand with the same increase in commercial budget (10 in each channel) and if competitive actions have remained unchanged. The impact on brand contribution is provided as well. An increase in contribution for a given brand shows that you would have benefited from allocating more people to this brand. 29 Commercialization When to launch the new product Where to launch the new product Market rollout (i.e., launching the new product in one market first, then another market…) Helps control scope of introduction Enables management to adjust marketing strategy based on experience gained in the early markets 30 Value Extraction (Pricing) 31 31 Learning Objectives 1. Break Even Pricing 2. Market Level Pricing 3. Value Map 4. Price Sensitivity 5. Price Competition Management 6. Price Perception Management 32 33 Internal Focus Consideration – Break-Even Pricing  Sum of variable and fixed costs  Vary with production volume  Unaffected by production volume 34 Internal Focus Consideration – Break-Even Pricing Calculation of break-even price (P*) Total Revenue = Total Costs  (Contribution per unit) = FC / Q  (P* – VC) × Q = FC  P* = FC/Q + VC 35 Break Even Price Suppose the fixed cost is $50,000, expected sales volume is 10,000, and variable cost each unit is $20, how much is the break-even price? Price = $50,000/10,000+$20 = $25 36 Internal Focus Consideration – Cost-Based Pricing Popular in retailing Retailer price: Price = Cost per unit*(1 + Target markup percent) Cost is the manufacturer price E.g., If for a retailer, the cost of a product is $90, and its target markup percent is 10%, then what is the retail price? Price = $90*(1+10%)=$99 37 Internal Focus Pricing Pros Simple Cons Ignores demand and competition 38 External Focus - Market Level Pricing Perceived Value = Perceived Benefits - Perceived Price 39 Tool: Value Map Value equivalence line is defined by products which offer improvements in benefits commensurate with an increase in price. 40 Value Map Value-disadvantage area → Share loss position Value-advantage area → Share gain position 41 Improving the Value Proposition Firms are motivated to improve their value proposition moving away from the value-disadvantage area and towards the value-advantage area. 42 Value Map Example: Laptop Dell Inspiron 8600 Samsung P30 Fujitsu AMILO P4 HP Pavilion zt3020 Toshiba Satellite ThinkPad P10-554 43  MAM of Laptops Product: Laptops Segment: Middle-class, all round usage Performance Buying criteria (non- Weight Dell HP Toshiba Samsung ThinkPad Fujitsu price) Performance 25 6 6 8 8 10 8 Handling 20 6 8 8 6 8 8 Screen 15 8 8 8 10 8 6 Versatility in use 10 6 8 6 6 4 8 Workmanship 5 8 8 8 8 10 10 Battery 10 8 8 6 4 8 4 Brand image 15 2 6 2 6 10 8 Weighted Scores 600 720 670 700 850 740 Price 1,100 1,000 1,300 1,100 1,300 1,350 44 Value Map of Laptops 1400 Fujitsu 1350 Toshiba 1300 ThinkPad 1250 1200 Price 1150 Dell 1100 Samsung 1050 1000 HP 950 900 500 600 700 800 900 Benefits 45 Value Map of Laptops Value Equivalence Line 1400 Fujitsu 1350 Toshiba 1300 ThinkPad 1250 1200 Price 1150 Dell 1100 Samsung 1050 1000 HP 950 900 500 600 700 800 900 Benefits 46 Value Map of Laptops Value Equivalence Line 1400 Share loss position Fujitsu 1350 Toshiba Share loss Share gain 1300 position position ThinkPad 1250 1200 Price 1150 Share loss Dell Share gain 1100 position position Samsung 1050 Share gain 1000 position HP 950 900 500 600 700 800 900 Benefits 47 Improving Dell’s Value Proposition Value Equivalence Line 1400 Fujitsu 1350 Toshiba 1300 ThinkPad 1250 1200 Price 1150 Dell 1100 Samsung 1050 1000 HP 950 900 500 600 700 800 900 Benefits 48  Improving Dell’s Value Proposition Product: Laptops Segment: Middle-class, all round usage Performance Buying criteria (non- Weight Dell HP Toshiba Samsung ThinkPad Fujitsu price) Performance 25 6 6 8 8 10 8 Handling 20 6 8 8 6 8 8 Screen 15 8 8 8 10 8 6 Versatility in use 10 6 8 6 6 4 8 Workmanship 5 8 8 8 8 10 10 Battery 10 8 8 6 4 8 4 Brand image 15 2 6 2 6 10 8 Weighted Scores 600 720 670 700 850 740 Price 1,100 1,000 1,300 1,100 1,300 1,350 49  Improving Dell’s Value Proposition Product: Laptops Segment: Middle-class, all round usage Performance Buying criteria (non- Weight Dell HP Toshiba Samsung ThinkPad Fujitsu price) Performance 25 6 6 8 8 10 8 Handling 20 6 8 8 6 8 8 Screen 15 8 8 8 10 8 6 Versatility in use 10 6 8 6 6 4 8 Workmanship 5 8 8 8 8 10 10 Battery 10 8 8 6 4 8 4 Brand image 15 2 6 2 6 10 8 Weighted Scores 600 720 670 700 850 740 Price 1,100 1,000 1,300 1,100 1,300 1,350 50 Analyzing Moves: Price Drops off VEL D' What will happen if D drops price and moves to D’? 51 Analyzing Moves: Benefits Increase off VEL E' 52 Possible Competitor Responses New E' Value Equivalence Line D' C' B' A' 53 Implications for Competition 1. Value map is not static; it’s dynamic 2. Consider possible competitor responses Especially when planning price decreases (very easy to identify) When planning benefits increases Both may result in value/price wars and shifts of perceived fair value 3. When to move off value equilibrium When the market is very price/value sensitive When your price advantage is truly sustainable When your benefit value advantage is truly sustainable 54 Analyzing Moves: Benefits Increase off VEL If all the brands are along the VEL, does it mean that they have the same market share? → There may be subsegments in this market based on price attitudes, and the sizes of entry, mid, and premium markets may be different. 55 Analyzing Moves: Repositioning up along VEL C' Towards premium market 56 Analyzing Moves: Repositioning down along VEL Towards economy market D' 57 Analyzing Moves: Repositioning towards VEL F’ Improved profitability but F’ F lower growth 58 What if you move away from VEL? Commercial suicide F’ Decreased profitability but F faster growth 59 Analyzing Moves: Repositioning within Tolerance Zone Tolerance Zone C' Low-risk increase in profitability 60 Analyzing Moves: Repositioning within Tolerance Zone Tolerance Zone C' Unnecessary decrease in profitability 61 Value Map Research Study Output 62 Setting Price Using Value Map and Taking Internal Focus into Account Steps 1. Estimate the perceived benefits of your product 2. Estimate your cost 3. Set a goal for minimum profit 4. Cost + minimum profit → price floor Up to VEL → price ceiling 63 Setting Price Using Value Map and Taking Internal Focus into Account Suppose you are setting price for a laptop with perceived benefits of 800 Value Equivalence Line 1400 Fujitsu 1350 Toshiba 1300 ThinkPad Price Ceiling 1250 Price 1200 Range Price 1150 Dell Price Floor Min. 1100 Profit Samsung Target 1050 1000 HP Cost 950 900 500 600 700 800 900 Benefits 64 Setting Price Using Value Map What if cost exceeds VEL? 1. Streamline your business to cut down cost or 2. Create more benefits with the same resources (by increasing efficiency) or 3. Unlaunch this product 1400 Fujitsu 1350 Value Equivalence Line Toshiba 1300 1250 1200 Price 1150 Dell Cost 1100 Samsung 1050 1000 HP 950 900 500 600 700 800 900 65 Benefits Managing Price Competition Why should we avoid price competition? 1. Damage to profitability 2. Price advantages are easy to copy and disappear quickly 3. Increase consumers’ expectations of low price 4. Makes consumers even more price-sensitive 66 Managing Price Competition How to avoid price wars: 1. Don’t be too greedy about market share 2. Consider moving to market niches 3. Differentiation 67 Price Sensitivity Price sensitivity = % change in quantity demanded / % change in price 68 Price Sensitivity 69 Price Sensitivity Analysis 70 Price Sensitivity Analysis Price Sensitivity 35000 30000 25000 Sales 20000 15000 10000 5000 351 373 395 417 438 459 481 503 525 Price 71 Price Sensitivity Analysis Price Sensitivity 35000 30000 25000 Sales 20000 15000 10000 5000 351 373 395 417 438 459 481 503 525 Price Estimating the relationship between price and sales as a straight line: Sales = 67979.817 – 114.032*price 72 Price Sensitivity Analysis But this is actually not a linear relationship. The line is curved. What can we do to improve estimation precision? → Log-transform the data 73 Price Sensitivity Analysis Price Sensitivity 35000 30000 25000 Sales 20000 15000 10000 5000 351 373 395 417 438 459 481 503 525 Price Alternatively, we may also use polynomial regression: Sales = 170913.913 – 591.846*Price + 0.545*Price*Price But the model using log-transformed data may be easier to understand 74 New Product Pricing Market-skimming pricing: Setting a high price for a new product to skim maximum profits When the product value justifies the high price When you can’t produce many products initially Market-penetration pricing: Setting a low initial price in order to penetrate the market quickly and deeply to attract a large number of buyers quickly to gain market share When the market is price sensitive When you have sufficient production capacity 75 Value Communication 76 76 Learning Objectives 1. Promotion strategy & communication process 2. Communication objectives 3. FCB Grid 77 Promotion Strategy & Communication Process Definition: Planning, Implementing, and Controlling a company’s communications to its customers and other target audiences (prospects) Communication Process Noise from the Environment Receiver Transmitter Communication (Consumer) Sender (Firm) Encodes Channel Decodes Message (Media) Message 78 Feedback Communication Objectives Clearly setting the goals that determine how the promotion strategy components are used in the marketing program. Different communication objectives: 79 Common Mistakes in Planning Communication Attempt to achieve all goals at once Attempt to achieve the latter objectives before the earlier ones are attained How would you respond to a call about insurance discount? Or for a free trial of make-up service? 80 Communication Deficit Diagnosis Objective: To identify weak spots in communication and guide IMC efforts Method: Assess response (about awareness, knowledge, liking, trial, repurchase intention, etc.) of target audience 81 Communication Deficit Diagnosis Response % of total target audience Aware 30 80 80 80 80 Knowledge 25 30 65 70 70 Like 20 25 30 65 65 Tried 15 15 20 60 60 Repurchased 10 10 15 20 40 Before After After After After Campaign 1 Campaign 1 Campaign 2 Campaign 3 Campaign 4 82 Communication Deficit Diagnosis Start communication planning by performing a communication deficit diagnosis Use it to guide your communication process Plan campaigns along the hierarchy of objectives Provide specific objectives designed to address particular deficits Note: Sometimes there may be inconsistencies with the classic communication hierarchy (see FCB Grid) 83 FCB Grid Developed by Foote, Cone & Belding, one of the largest global advertising agency networks Helps guide general communication strategy Categorize various product domains based on two dimensions Involvement Think vs. feel 84 FCB Grid 85 Informative Classic hierarchy of communication Type of purchase: Learn→Feel→Do Goal: Provide enough information to customers to help them make choices Creative strategy: Detailed information, product demonstrations 86 Informative 87 Affective Imagery-driven purchases; fulfilling self-esteem, subconscious, ego-related impulses Type of purchase: Feel→Learn→Do Goal: Create desire image or affective association Creative strategy: Strong, impactful visuals 88 Affective 89 Habitual Mundane, household items that are regularly purchased Type of purchase: Do→Learn→Feel Goal: Remind consumers of the brand; Develop top- of-mind loyalty Creative strategy: Reminder ads, repetition, catchy slogan 90 Habitual 91 Satisfaction Impulse purchases that are less important Type of purchase: Do→Feel→Learn Goal: Induce and satisfy impulses based on taste, smell, flavor, etc. Creative strategy: Imagery featuring impulses, right at the point of sale 92 Satisfaction 93 Value Delivery (Value Chain) 94 Learning Objectives 1. Channel of Distribution/Value Chain 2. Value Chain Structures 3. Industry Channel Strategy 1) Types of channels 2) Distribution intensity 4. Internal Value Chain Analysis 95 The Value Chain Value chain (channel of distribution): A network of value-chain organizations performing functions that connect goods and services with end-users Industry level (external) Firm level (internal) 96 The Value Chain ▪ Value-added activities: ▪ Buying and selling ▪ Assembly of products ▪ Transportation ▪ Processing and storage of goods ▪ Advertising, sales promotion, personal selling, & communications ▪ Servicing and repairs ▪ Financing 97 Industry Value Chain Suppliers’ Suppliers Firm Distributors Customers Suppliers 98 Industry Value Chain Members/Types Suppliers — provide raw materials for production Manufacturers — make products and sell them to wholesalers or retailers Distributors Wholesalers — buy products from manufacturers and resell them to retailers Retailers — sell products directly to consumers Types of channel — Direct/indirect/both (consideration criteria: Consumers’ channel preferences, competition) 99 Advantages and Disadvantages of Channel Intermediaries Advantages Cost saving Customer convenience Intermediaries’ help in boosting sales Disadvantages Revenue loss Loss of communication control Loss of product importance 100 Structure of Distribution System 101  Distribution Intensity Best examined as how many retail stores carry a particular brand in a geographical area Major issues in deciding distribution intensity: — Identifying what is feasible, taking into account the size and characteristics of the market target (e.g., Toyota Lexus) — Selecting the alternatives that are compatible with the proposed market target and marketing program positioning strategy (e.g., Estee Lauder avoids meeting Revlon head-on, focusing on stores that carry quality products) 16  Conflicts in Distribution System Strategic conflicts initiated by downstream customers End users grow and desire direct-to-supplier relationships (Why?: To secure lower prices) Distributors become large and change the power balance (When does this occur?: When the distributors sell huge volumes from several producers) Distributors supply private-label products (Why?: To increase margins and to gain a greater power in the market) 16  Conflicts in Distribution System Strategic conflicts initiated by upstream suppliers The supplier goes direct (Why?: To reach end users more efficiently) The supplier adds new distributors and/or distributor types (Why?: For better market penetration) 16 Internal Value Chain 105 Internal Value Chain ▪ Primary activities are concerned with the creation or delivery of a product or service ▪ Inbound logistics ▪ Receiving, storing, and distributing inputs internally ▪ Operations ▪ Changing inputs into outputs that are sold to customers ▪ Outbound logistics ▪ Delivering your product or service to your customer ▪ Marketing and sales ▪ Persuading clients to purchase from you instead of your competitors ▪ Service ▪ Maintaining the value of your product or service to your customers 106 Internal Value Chain ▪ Support activities are needed to perform the primary activities and contribute to their effectiveness and efficiency ▪ Firm infrastructure ▪ Support systems (e.g., accounting, legal, administrative departments) ▪ Human resource management ▪ Recruiting, hiring, training, motivating, and retaining employees ▪ Technology development ▪ Managing and processing information, as well as protecting a company's knowledge base (e.g., R&D) ▪ Procurement ▪ Finding vendors and negotiating best prices 107 Value Chain Analysis ▪ Purpose of value chain analysis: ▪ To identify what activities can lead to advantage ▪ To identify what activities can be improved Types of competitive advantage ▪ Cost advantage: Compete on costs → Understand costs and squeeze them out of the value chain ▪ Differentiation advantage: Create superior products or services → Understand what factors can improve customer value 108 ENJOY LEARNING!! 109