Lecture 1: Introduction to Marketing Strategy PDF

STRATEGIC MARKETING MK42009E - MK42025E Lecture 1: Introduction to Marketing Strategy ASST. PROF. ISMAIL ERZURUMLU AGENDA 1. What is a marketing strategy? 2. Defining and building a marketing orientation 3. Challenges and shift in marketing 2 What is a marketing strategy? Strategy  …is a fundamenta...

STRATEGIC MARKETING MK42009E - MK42025E Lecture 1: Introduction to Marketing Strategy ASST. PROF. ISMAIL ERZURUMLU AGENDA 1. What is a marketing strategy? 2. Defining and building a marketing orientation 3. Challenges and shift in marketing 2 What is a marketing strategy? Strategy  …is a fundamental pattern of present and planned objectives, resource deployments, and interactions of an organization with markets, competitors, and other environmental factors.  Corporate, business, functional strategies 4 Market …all actual and potential buyers of a product -- who share a particular need or want Any product that satisfies the same need could be a competitor  What are the differences between an industry and a market? 5 What Motivates a Consumer to Take Action? Needs: state of felt deprivation for basic items, such as food and clothing, and complex needs such as for belonging (e.g., I am thirsty). Wants: desires to obtain more satisfaction than is absolutely necessary to improve the unsatisfactory condition (e.g., I want a CocaCola). Demands: human wants backed by buying power. (e.g., I have money to buy a Coca-Cola). 6 Marketing Strategy  an organization strategy which effectively focuses on allocating and coordinating marketing resources and activities to accomplish the organization’s objectives within a specific product-market.  the set of decisions and actions focused on building a sustainable differential advantage, relative to competitors, in the minds of customers, to create value for stakeholders.  What differences/similarities do you note between these two views of marketing strategy? 7 History of Marketing Strategy Strategy arose from a military context: “The forces available must be employed with such skill that even in the absence of absolute superiority, relative superiority is attained at the decisive point” -Karl von Clausewitz, On War (1832) Management scholars added two elements to apply the strategy concept to business: the need to make the differential advantage sustainable and the idea that the objective of any business strategy is to enhance firm performance (60 and 70s) Marketers argue that it must be from the perspective of the customer (90s) All the organization should be aligned and motivated to serve the customer (2000s) 8 Hierarchy  Who determines the marketing strategy? Corporate Strategy The overall scope and direction of a firm and the way in which its various business operations work together to achieve particular goals. Tax & Legal Finance HR “Marketing isn’t somebody’s responsibility; marketing is everybody’s responsibility.” Jack Welch, Chairman and CEO of GE Strategic Business Unit strategy R&D Marketing Strategy Sales & Marketing 9 ? IN MANY ORGANIZATIONS, MARKETING DOES NOT HAVE A PLACE OF IMPORTANCE IN THE ORGANIZATIONAL HIERARCHY. WHY DO YOU THINK THIS HAPPENS? WHAT ARE THE POTENTIAL CONSEQUENCES? Designing a Marketing Strategy Marketing management is the art and science of choosing target markets and building profitable relationships with them.  Value is delivered via a plan (which includes the 4P’s).  Your firm’s orientation will guide its marketing strategy. 1 2 3 Who is my target market? What is my value proposition? What is my orientation? 11 Marketing Strategy - STP Approach  Market Segmentation: dividing the market into distinct groups of buyers (segments) with different needs, characteristics, behaviors.  Market Targeting: evaluating each segment’s attractiveness and selecting one or more segments to enter.  Positioning: placing product(s) at a distinctive and desirable place in the minds of target buyers compared to competing products. 12 What is a value proposition? Red Bull gives you wings 13 Defining and building a marketing orientation Selling orientation Focus on convincing/ pressuring the customers Maximize sales of present product by whatever means needed (e.g., price cuts, aggressive sales) “Selling what we make” Little communication from the customer 15 Market orientation Determine and satisfy consumer need whether this is consistent with the existing product line “Make what we can sell” Focus on information: gathering marketing intelligence Bilateral communication between the firm & customer 16 Types of market orientation MARKET DRIVING ORIENTATION PROACTIVE consists of behaviors that address the latent needs of customers MARKET DRIVEN ORIENTATION RESPONSIVE consists of behaviors that address the expressed needs of customers 17.. I prefer a man who lives and gives expensive jewels. “Diamonds are a girl’s best friend” Difference between latent and expressed needs 18 19 A balanced orientation Product orientation: Focus on developing products that offer the most in quality, performance, and innovative features. We build the best!” And “the best” is defined by the producer, not the consumer. BUT, it has pros &cons: (-) Other people may not share your taste (-) It can lead to “marketing myopia:” the undue focus on the product rather than the need it is meeting (+) innovation -- It is not tied to consumer’s current wants – Market-Driving Orientation (example: iPad) 20 Research that supports orientation Responsive Market Orientation Proactive Market Orientation Empathic Research Entirely Latent Needs Lead Users Focus Groups, Interviews Customer Feedback, Sales Data, Product Returns, Warranty Claims Entirely Expressed Needs 21 22 23 Chain effects Market Orientation Research shows a correlation between market orientation and firm performance of 0.25. Customer Satisfaction Customer Retention Higher Profits Kirca, A. H., Jayachandran, S., & Bearden, W. O. (2005). Market orientation: A meta-analytic review and assessment of its antecedents and impact on performance. Journal of marketing, 69(2), 24-41. 24 Customer Satisfaction Measuring Customer Satisfaction – Customer Satisfaction Index (CSI): Compute the average of the customers’ satisfaction ratings. Why is important? – Customer satisfaction is a forecast of future revenues and profits. Very Satisfied 100 Satisfied 80 Somewhat Satisfied 60 Somewhat Dissatisfied 40 Dissatisfied 20 Very Dissatisfied 0 25 Why is retention important?  Acquiring new customers can cost five times more than retaining existing customers.  It takes considerable effort to induce satisfied customers to switch away from their current suppliers.  A 5% increase in customer retention can increase profits by 25-85%, depending on the industry.  Satisfied customers typically buy more, pay their bills on time, and require less of a firm’s marketing resources.  The customer profit rate tends to increase over the life of the retained customer.  Retained customers purchase more, often at higher margins, and require very little incremental marketing and sales expense. Frederick F. Reichheld and Thomas Teal, The Loyalty Effect, Boston: Harvard Business School Press, 1996. 26 The price of dissatisfaction An unhappy customer will on average tell 13 people about his or her dissatisfaction Frederick F. Reichheld and Thomas Teal, The Loyalty Effect, Boston: Harvard Business School Press, 1996. 27 Why is Marketing Strategy Key to LongTerm Financial Performance? Large amount of research documents its impact on financial performance, but many people don’t realize the scope of influences on sales and profits Grow market size (new products and services, lower prices) Grow share (better products and services than competition, higher loyalty to retain, and/or steal customers with acquisition strategies) Better prices and margins (improve loyalty, brand image, relationships, products, targeting of high margin customers) Reduce costs (WOM, brand, relationships, retain with loyalty) Firm’s Sales Revenue = $500,000 Firm’s Profit $30,000 Market Demand x 1,000,000 = Firm’s Sales Revenue $500,000 Firm’s Market Share x 10% x Firm’s Gross Margin 20% Firm’s Average Selling Price $5 - Firm’s Sales & Marketing Expenses $50,000 - Firm’s G&A Expenses $20,000 28 Challenges and shifts in marketing The Challenges and Opportunities of Marketing in Today’s Economy  Power shift to customers / Customer resistance  Massive increase in product selection / Changing value propositions  Audience and media fragmentation  Privacy, security, and ethical concerns / Supply chain complexity  Unclear legal jurisdiction / Political instability 30