Marketing Strategy Summary PDF

**Marketing Strategy Summary** **Lecture 1- Introduction to Marketing Strategy** [Marketing as tactics:] - Sales promotions and coupons - Advertising, logos, brochures Marketing involves strategic efforts to understand and meet customer needs, but in many businesses, it is often viewed in a...

**Marketing Strategy Summary** **Lecture 1- Introduction to Marketing Strategy** [Marketing as tactics:] - Sales promotions and coupons - Advertising, logos, brochures Marketing involves strategic efforts to understand and meet customer needs, but in many businesses, it is often viewed in a limited way, focusing mainly on tactical aspects. This \"4 Ps\" approach (product, price, place, promotion) emphasizes short-term activities like sales promotions, coupons, advertising, and branding, which can reduce marketing to a series of actions rather than a cohesive strategy. [Marketing as cost (vs. investment)] - [The accountability problem]: Did sales really increase because of marketing or just because more people walked by and bought the product? - [The accounting problem]: Marketing campaigns are classified in accounting as costs, while they actually also bring in revenue. Businesses also frequently treat marketing as a cost, not an investment, making it harder to account for its long-term value. This perspective can lead to accountability challenges, as marketing\'s impact is often gradual and harder to quantify. Many key marketing functions-like pricing and customer relationship management-are delegated to other departments, further diminishing marketing\'s role in strategic decision-making. A more integrated view of marketing is essential for businesses to unlock its potential as a driver of growth and customer value. [Marketing as a Philosophy] - Marketing is bigger than the marketing department - Marketing is putting the customer at the centre of all you do. It is not only much broader than selling, it is not a specialized activity at all. It influences the entire business. It\'s the whole business seen from the point of view of the final result, that is, from the customer\'s point of view Peter Drucker [Marketing vs Strategy] Marketing and strategy are integral yet distinct elements within a business framework. Marketing is the process of identifying and profitably satisfying customers' wants and needs emphasizing a customer-centric approach to deliver value efficiently Business strategy is a clear set of plans, actions and goals that outline how a business will compete in a particular market, or markets, with a product or number of products or services. provides a competitive roadmap, guiding the company's overarching direction & positioning If companies are bundles of processes designed to deliver customer value, Marketing *=* Strategy CMO Perspective (Chief Marketing Officer): Market Forces Change Management Profitable Growth **The goal of a company from marketing perspective should be profitable growth (in market share).** Marketing managers main focus: **Change management= Focus on adapting to the** **changes in the market** → **Changing market forces**, which are affected by the 5 Cs and Porter's 5 Forces. **5 Cs:** Customers, Competitors, Company, Collaborators, Context **Porter's 5 Forces:** -  Competition in the industry - Potential of new entrants into the industry - Power of suppliers - Power of customers - Threat of substitute products [Marketing is Changing] **1 From Product-Orientation (1960s)** Marketing is the execution of business activities aimed at navigating a stream of products and services from the manufacturers to the customer this perspective focused on efficient production & distribution, often at the expense of understanding customer needs **2 Over Customer Orientation (1990s)** Marketing is the process of identifying and profitably satisfying customer wants and needs the shift cantered on the benefits and value delivered to the customers, making customer satisfaction a core priority - Does the need explain the sales? Often no, there is some deeper meaning behind it. EG: A drill. People do not own a drill because they really need it often. Still, everyone has a drill. People buy it when they move in their first house because it gives a feeling of growing up and masculinity, not because they really need it focus on the benefits of the customer **3 Where are we heading? Beyond customer needs** Marketing is moving toward a more holistic and responsible approach integrating broader social and environmental concerns. This shift, sometimes referred to as the \"**new marketing myopia**,\" acknowledges that focusing solely on customer needs can overlook the wider impacts of business activities. The **sustainability** imperative is guiding marketing, encouraging companies to balance profitability with social responsibility and environmental stewardship. **4 System Orientation and the Shift Toward Shared Value** - In modern marketing, there is a fundamental shift in system orientation from merely responding to market forces to actively engaging in change management and creating shared value. This perspective emphasizes that businesses not only compete within their markets but also hold responsibilities toward social and environmental outcomes, aiming to create value that benefits both society and the company. - This approach is evident in practices such as **product** and **packaging innovation**, which now increasingly focus on sustainability and social impact. Businesses are moving toward a model of \"doing well by doing good,\" where financial success aligns with social contributions. - Creating shared value has distinct benefits for financial performance, including enhanced firm reputation, greater stakeholder endorsement (both internal and external), risk mitigation, and improved capacity for innovation. Access to new knowledge and enhanced internal capabilities are key drivers of this innovative capacity, allowing firms to stay competitive while upholding ethical values. - While a purpose-driven approach may require upfront investment, companies see this as a pathway to long-term success. Purposeful practices can strengthen brand equity, attract loyal customers, and contribute to sustained shareholder value, reflecting the belief that investing in social good ultimately supports financial performance. [Implicit assumption at the heart of traditional marketing thought ] - Assumption traditional marketing: As long as consumption creates value for both consumers and companies, we should encourage unlimited consumption. → We need to rethink this assumption: Now with climate change, this consumption should change into a more sustainable consumption → System-orientation. - Primary focus should change from profitable growth to shared value. Still, you should manage the market changes better than the competition and therefore understand the same market forces. - The change should come from governments and companies and innovations. Thus, change management could be replaced by \'innovation\'. - *Example financial innovation by Danone: Introduced earnings per share adjusted for the costs of carbon emissions.* - *Example packaging innovation by Evian: Imprinting the logo into the bottle so you don\'t need the plastic wrapper.* - A mission statement should give purpose to the company, identity to the brand and act as a catalyst for innovation at all levels. - Most important for brands is consistent communication. - Purpose can build appeal, but only if it is done well. If the purpose is strong, brand trust, commitment and fame increase. But if the purpose is unsuccessful all of these factors decrease. - *EG: In the example of Gilette\'s \'The Best a Man Can Be\', the commercial is clearly purpose-driven, trying to explain the purpose of Gilette. But not done well; about sexism while women\'s razors are more expensive. Whole commercial is undermined.* [Doing well by doing good ] Financial performance benefits of shared value: 1\. Enhanced firm reputation 2\. Stakeholder endorsement Both internal and external 3\. Risk mitigation 4\. Improved innovative capacity via access to knowledge and internal capabilities BUT: Creating shared value or purpose for a company will cost lots of money. Still, it can be worth it. **Business Cases and Case Solving Skills** A business case presents a scenario in which a company faces a current or potential problem. The role of the case analyst is to diagnose these issues, analyze the situation, and answer specific questions by proposing well-reasoned solutions. Case solving involves thoroughly understanding the case, considering the issue, and formulating a targeted solution. [Why Study and Discuss Cases?] Studying business cases builds essential problem-solving skills, which are best acquired through practice. This approach trains students to handle complexity and ambiguity while gaining insights into real organizational contexts. Case-solving skills are also highly valued in recruitment across sectors like consulting, consumer goods, and technology. Approach to Case Solving To effectively tackle a business case, begin by clarifying what needs to be done and what should be avoided: 1. Structure Your Thinking: a. Develop a logical chain of arguments for clarity and coherence. b. Focus on in-depth analysis, not personal opinion. c. Use frameworks (e.g., SWOT, PESTLE) to guide recommendations but remain flexible; adapt your approach based on the specifics of the case. d. Ensure your recommendations are specific and actionable, taking a clear stance. 2. Organize Your Output: e. Plan how to present your findings logically and comprehensively. f. Use visual aids such as figures, tables, and structured sections to enhance understanding. 3. State Your Assumptions: g. Base assumptions on the information provided, especially numerical data, and foundational business knowledge. 4. Acknowledge Complexity and Ambiguity: h. Recognize potential data limitations, misleading information, or irrelevant details that might complicate the case. 5. Practice Regularly: i. Repeated practice is crucial, especially under time constraints. [What to Avoid] Avoid looking up external information about the company or asking Al for solutions. Cases are designed with specific, sometimes simplified information to foster analytical skills and allow you to practice problem-solving within set constraints. Searching externally bypasses this learning process and provides answers that might not fit the case\'s intended focus, limiting the opportunity to develop these skills for real-world application. **Lecture 2 -- Principles of Resource Allocation** [Resource Allocations and Actions] Resource allocation in marketing strategy encompasses both portfolio management and actionable tactics. Strategic resource allocation involves determining the most effective ways to segment, target, and position (STP) products and brands. Marketing actions are carried out through the 4 Ps: product, price, place, and promotion. Entry-level marketing roles typically focus on analysis (the foundational level) or on implementing specific actions (the advanced level). [Two Dimensions of Resource Allocation] 1 Horizontal Resource Allocation (Brand Portfolio Management) Horizontal resource allocation involves three primary decisions: whether to invest, determining the priority order, and deciding on the investment amount. This approach is often associated with brand portfolio management → strategic dimension - Divide resources between different brands 2 Vertical Resource Allocation p. 7 After deciding to allocate money and effort into each brand you need to make secondary decisions on investments in price, promotion, place or product → The more tactical dimension. **Brand Portfolio Management** [1 The Branded House] - The branded house strategy involves putting a single brand name on a wide range of products. This approach requires constant review due to the broad scope of activities associated with a single brand. - Companies may choose this strategy for advantages like **brand recognition** and **lower marketing** **costs**. However, the approach can lead to **brand dilution**, where the brand\'s identity becomes unclear due to its presence across too many product categories. There is a risk of appearing weak in all categories if the brand lacks specialization. - All brands are related to one main brand. Such as with Virgin. [2 The House of Brands] Alternatively, a house of brands strategy treats each brand as an independent entity, as seen in companies like Procter & Gamble (P&G), Unilever. All brands are separate but are in one portfolio. Some brands may not work across different product categories (e.g., Duracell for batteries would not work well as a toothpaste brand). Over the past 15 years, companies like P&G and Unilever have been streamlining their brand portfolios to focus on high-performance brands due to the high cost of maintaining multiple identities. they have been cutting off brands since the process is expensive (build, maintain, differentiate) [Advantages of House of Brands:] - **You can have multiple brands within a product category**. EG: A luxury shampoo but also a more value-driven shampoo. - **Allows you to pick those brand associations for each brand that are most valuable within its category**. Ex: Duracell has the association of 'keeps going' while this association does not apply to any other products within the brand portfolio of P&G. - **Allows each brand to serve distinct markets** with **individual identities**. - **Risk containment**; if one brand performs poorly, it does not impact others. [Disadvantages of Large Brand Portfolios with Different Brands] - Having an extensive brand portfolio can **fragment marketing resources**, opportunity costs You have to create a whole brand around each product. A company like Virgin (all brands are related to the brand Virgin) does not have to do this. - Lead to **management attention dilution**, - **Reduce economies of scale**. - This fragmentation may result in **brand blurring**, where customers lose a clear sense of each brand\'s identity too many brands, undermining the value of brand [The Boston Consulting Group (BCG) Growth-Share Matrix] Two dimensions: 1. [Relative market share] (from high to low) 1 is the mid-point. You are here when your market share is the same as that of the biggest competitor. When you are a monopoly, you are at the left of the x-axis. When you are a duopoly, you are in the middle. 2. [Market growth rate] (from low to high) This is a more subjective dimension. You must compare the growth rates between different markets that you operate. *EX: In FMCG the products are already well-settled, people know they have to brush their teeth, and they are already converted or cannot be converted. Therefore, the growth in this sector is lower.* The BCG Growth-Share Matrix categorizes brands by their market growth and market share into four quadrants: a. Cash cows: High share, low growth; these brands generate funds with minimal investment. b. Stars: High growth, high share; require substantial investment but have high potential. c. Question marks: Low share, high growth; these brands need investment with the hope of becoming stars. d. Dogs: Low share, low growth; these brands should typically be divested as they have limited future value. Stars require more resources due to their growth potential, while cash cows generate the funds needed to support other brands. Question marks can become stars with adequate investment, and stars may turn into cash cows over time. Brands categorized as dogs usually lack strategic value and are candidates for removal from the portfolio. - The [money stream] should go like this: The cash cows fund the question marks so they can turn into stars. The stars also need a lot of investment from the profits of the cash cows. When the market of the stars start maturing, the market growth rate slows down and the stars also become cash cows. The dogs are the brands you retire over time. - **Often the cash cows' profit is higher than that of the stars because the costs for the stars are much higher as this market is still growing and very competitive. It is very costly to keep the market share high**. The cash cows are much more settled in within the stable market with stable market shares. When the market starts maturing the profits also always start to rise. - **It is possible for dogs to become question marks when the market grows. But often markets grow a lot only when they are launched and not suddenly halfway**. After the peak the market growth often decreases slowly. - **The most important to do is to always protect the cash cows.** **Vertical axis: How much the market that the brand is in is growing**. **So, if you have two toothpastes and TP1 is doing well and gaining more market share each year and TP2 is not, then they will still have the same position on the vertical axis, although their position on the horizontal axis is different (because they have a different market share).** If TP1 goes more to the left, then TP2 gets a lower market share and thus the distance between them horizontally becomes bigger. [Advantages ] - **Easy to perform** - **Quick overview** of strategic positions of business portfolio - **Good starting point** for more thorough analysis - **Everyone knows it** - **Clients expect it** [Disadvantages] - What about business units / brands on the boundaries? most products are in the middle / subjective - Huge impact on 'market definition' - No **dynamic** information -- crucial for RA it's a snapshot in time, you don't see the changes - Market share and industry growth [≠]{.math.inline} profitability - Synergies between units are unaccounted for - Does not account for the complexity of real-world factors like market synergies or fluctuating profitability across business units. - The matrix makes the assumption that all resources generated from the cash cows goes into start or question mark but in real-life the most important thing would be to protecting the cash cow. Defend the cash cow / dot.com mentality - The model doesn\'t tell us anything about the dogs and about what to do with them **The Brand Renewal Matrix** This matrix assists in brand portfolio evaluation with attention to both prominent brands and those that may be older, underused, or in niche categories. Recognizing attentional blindness--- the tendency to focus on high-visibility brands while neglecting others---is critical to maximizing portfolio potential.  [1 Identifying Brand Portfolio Watch out for attention blindness] Not as straightforward Focus on prominent brands risks neglecting: - Older brands - Underexploited brand equities - Struggling brands - Quasi brands / nicknames - Partner brands Attentional Blindness**:** When you only focus on several brands, you will miss a lot of the other information. [2 Access Brand Contribution: Hidden Costs and Benefits] Understanding the contribution of each brand on the list; financial data but also hidden costs and benefits Hidden Costs: - Senior management time sink - Overly complex product line - Customer/trade complaints → lawsuits - Bad public relations - High management turnover... Hidden Benefits: - Leverage with trade partners - Platform for line extensions [3 Assessing Market Position (Two dimensions: Static & Dynamic): Brands as Vectors] Assessing each brand's market position by looking at the force and direction in which it is headed - Brand Traction: Measure how strong is the brand today (Static). Current strength indicators like awareness, purchase intentions, loyalty, and Net Promoter Score, Market (Segment) Share - Brand Momentum: Where is it heading (Dynamic)? The brand\'s future trajectory based on market position. Ask internal and external stakeholders a number of questions to get a good feel for a brand's true momentum (status at the moment). [4 Sorting Brands by Strategic Imperative] - **Power**: Brand that needs to be defended thoroughly and deployed judiciously. - **Sleeper**: Brand that with a little fast tracking can grow into a power brand - **Slider**: A valuable brand that has lost momentum, is slipping backwards and needs immediate intervention to prevent meltdown - **Soldier** (a lot of brands are under this category): A solid brand that contributes quietly without the need for much management attention. - Stable brands often warranting limited investment rather than continuous support. Brands tend to spend money on these, but they shouldn't - **Black hole**: A brand that sucks up resources and may or may not ever pay out. - **Rocket**: A brand that is on its way to power-brand status High-risk, high-reward brands requiring rapid evaluation. - **Wallflower**: A small, underappreciated brand with very loyal customers, often under-priced and undermarketed Niche brands offering reliable revenue. Ex: gardening related magazines - **Discard**= Brand that should have been retired years ago. Managers should grade each brand against the same criteria at the same time by looking at a brand's contribution, traction and momentum. A screenshot of a computer Description automatically generated [5 Developing a plan for the portfolio]: Goal is for the portfolio to make the entire range of brands perform collectively in an optimal manner. Different brands require different marketing strategies at various points in the brand life cycle, so any misjudgements of brand potential can make a difference in successfulness. Options within brand portfolio: - Cut or sell brands - Reposition or extend brands - Promote or demote a brand - Split or consolidate brands\ → Create a watch list with brands that require close observation over the coming months (eg is the brand a black hole or a rocket?) [Vertical Resource Allocation] Vertical allocation is more tactical than horizontal allocation, aligning resources with specific stages in the customer journey or marketing funnel. - Where and when: Match marketing actions with steps in buying process that need to be influenced (marketing mix) - How and how much: Allocate resources to support actions (implementation and execution) - For what: Quantify cost and return for different marketing instruments by product and segments (marketing control) [The Buying Process: The Customer Journey] Commonly depicted as a marketing funnel, the customer journey includes stages from awareness to purchase. Resource allocation at each stage addresses specific problems: Awareness issues: Addressed with advertising. Consideration challenges: Can be resolved by product improvements or discounts. Purchase intention obstacles: Addressed through unique selling points (e.g., sustainability). Availability problems: Solved by increasing production. [The Generic Funnel of Marketing (aka Marketing Funnel, The Customer Journey, The Buying Process)] When you buy a TV, you first need to know the brand. Of the brands you know, a few will end up in the consideration set which comply with your criteria for a TV and they are very close together within the consideration set because they have the same attributes. Then when you intend to purchase the product and it is available, you buy it.  The 4Ps from the marketing mix come into play here to make sure that a product ends up at the sales stage. By deciding on the spending of the 4Ps you can look at two dimensions: 1. **What is the impact on the awareness after your spending compared to before your spending.** 2. **Advertising spending** A graph on a white board Description automatically generated - **Advertising spending has an s-shape: You need to spend a certain amount until you see any returns (awareness increases), but then also you shouldn't overdo it.** People often think you will get very good returns until at a certain point people have seen your advertisement enough and then the awareness impact doesn't increase as much anymore → Actually, it has an S-shape - The whole first part where your spendings do not give any returns is caused by the fact that the competition is already in the minds of the consumer and therefore it takes time to take place as a brand in their minds as well, related to share of voice. - The concept of advertising spending should thus not be taken literally in this model. It is better to look at share of voice. - **Share of Voice = My ad spending / Total amount of spending (including competition).** - *EG SOV: When 4 firms each spend 1 million dollars, firm's A share of voice is 25%, but firm B's SOV is also 25%, C's is 25% and D's is 25%. This means that in the mind of the consumer the memory of the ad of firm A is overwritten by firm B when that is launched and that of firm B is overwritten by firm C when their ad is launched. When firm A then increases their spending by 20%, their SOV will increase to 27%, but in the mind of the consumer there is no difference. You should start spending 3 million to gain a share of voice of 50% in order to really have an impact. In this way firm A is overwriting every ad by the competition.* → This is why power brands have a very strong position in the consumer's mind. When you are not a power brand, but a soldier brand, you need to save up on your marketing budget and then spend it all at once so that your expenses increase enormously and thus your share of voice increases enormously as well. - Return on Investment (ROI): A calculation of the monetary value of an investment versus its cost. - Elasticity: Percentual increase in your brand's awareness / your percentual increase in advertising spending. Indicates the responsiveness of consumer demand to marketing actions. - Elasticity is the best in the middle of the graph because here you get a good return for a 1% increase in spending. *On ROI* Byron Sharp\'s insight on ROl highlights the risk of underspending in critical areas, emphasizing that effective resource allocation involves continuous investment to maintain market position. **Optimal Resource Allocation: Benchmark**  Highest ROI is not the optimal point [Marketing Mix Elasticities] - Price elasticities for non-durable consumer products are around -2 to -4. - Advertising elasticity for consumer goods is around 0.3 short-term (0.4 with carryover effect included) - But there are large variations: - By stage of product life-cycle - By strategy (pioneer vs follower) - By type of product, country etc. - And many complexities - Non-linearities - Interactions (e.g. price elasticity is influenced by advertising) - Competitive effects [Summary of Optimal Resource Allocation Principles] [Rule \#1: Plug the Gaps First] Since marketing actions are multiplicative, addressing gaps in the customer journey (such as low awareness or availability) maximizes impact. It is best if everything in the funnel is equal. - Marketing actions are MULTIPLICATIVE (not additive) - Consider 20% interest \* 80% availability - Vs. 50% interest \* 50% availability [Rule \#2: Spend Proportionally to Elasticities] Resource allocation should match the responsiveness (elasticity) of each marketing instrument to optimize ROl. In essence, effective resource allocation prioritizes critical areas first, follows elasticity-based spending, and considers opportunity costs. By carefully managing both brand portfolios and customer journey stages, companies can maximize the impact of limited marketing resources. [Summary] A green and white table with text Description automatically generated **Article: Growth-Share Matrix** The **growth-share matrix** (or BCG matrix) is a strategic tool developed by the Boston Consulting Group to guide resource allocation across a company\'s product lines or business units based on two dimensions: market growth rate and relative market share. These two variables position products or units into four quadrants, each suggesting specific strategies based on cash flow and investment needs: **Cash Cows** represent high-market-share products in low-growth markets. They generate substantial cash with minimal investment, funding other units. Due to their stable but low-growth environment, Cash Cows should be maintained and \"milked\" without heavy reinvestment. **Dogs** hold low market share in low-growth markets, often breaking even in revenue. Although they may offer indirect benefits, such as job stability or synergy with other units, they generally have limited growth potential and profitability. Consequently, Dogs are often considered for divestment unless they fulfill a strategic role within the company. **Question Marks** (or Problem Children) are low-market-share units in high-growth sectors. They are uncertain investments that require careful analysis: with the right investment, they might evolve into Stars, but they can also become unprofitable Dogs if market conditions or competitive advantages are not realized. **Stars** occupy high-growth, high-share sectors. These units are crucial to the future growth of a business, often needing significant reinvestment to maintain their leading position. The goal is for Stars to eventually become Cash Cows as their markets mature, generating high returns. This matrix helps create a balanced portfolio by identifying where to invest, divest, or sustain assets. It assumes that businesses evolve over time, often starting as Question Marks, then potentially becoming Stars, and eventually turning into Cash Cows before declining into Dogs as the market matures. However, the model has limitations and criticisms: it oversimplifies complex market conditions, and not all businesses fit neatly into its framework, as industry-specific and dynamic changes can make long-term planning unpredictable. **Article: Hill et al. (2005) - Achieving the ideal brand portfolio** [Five steps of optimizing brand portfolio]  1\. The first step is **understanding the portfolio** by creating an inclusive inventory that includes core brands, **quasi-brands**, and **partner brands**. Once assembled, this list is streamlined to about 50 brands for in-depth analysis. This ensures a holistic view of all brand assets, even those that may not be highly visible in daily operations. 2\. The second step, **assessing brand contribution**, involves a financial review, examining annual revenues and direct marketing costs while also recognizing **hidden costs** (like executive time) and **hidden benefits** (such as brand leverage with trade partners). This step ensures that both direct and indirect contributions are factored into decision-making. 3\. **Assessing market position** is the third step, in which each **brand\'s traction** and **momentum** are evaluated. Traction assesses the brand\'s present market strength by examining competitive position, customer loyalty, and product differentiation, while momentum considers future growth potential. Insights from customer service, the sales force, and advertising agencies are used to gauge each brand\'s awareness and perceived value, with attention to issues like pricing and distribution. 4\. The fourth step involves **addressing problems and identifying opportunities** by categorizing brands into eight strategic types, such as \"Power\" brands that require intense support and \"Sleepers\" that hold untapped potential. Other categories include \"Sliders,\" brands that have lost momentum and need intervention, and \"Soldiers,\" reliable brands requiring minimal resources. Additional classifications, such as \"Rockets\" on the rise and \"Wallflowers\" with niche loyalty, provide clarity on each brand\'s role and needs, guiding targeted management strategies. 5\. Finally, a **renewal strategy** is developed to integrate each brand\'s objectives into a unified portfolio plan. This strategy includes creating **watch lists** with specific performance milestones for underperforming brands, helping determine whether they should be supported, repositioned, or divested. In conclusion, this structured approach to brand portfolio management offers companies a systematic way to maximize portfolio value, preventing resource waste and aligning each brand with corporate goals. By ensuring the brand portfolio remains dynamic and strategically focused, this framework fosters a **balanced, efficient, and competitive brand portfolio** suitable for today\'s market conditions. **Lecture 3 -- Positioning Strategy -- Breaks or makes your business** **Positioning: What?** Positioning is the attempt to influence the mental position of the product/brand/company in the mind of target customers - A strategic approach that focuses on shaping the perception of a product, brand, or company in the minds of target customers. - This approach, often aligned with the company\'s unique selling proposition (USP) or value proposition, serves as a \"strategic lighthouse,\" guiding all marketing activities to ensure a distinct mental position in the consumer\'s mind. - Systematic approach: - From description (market sensing, being market driven) - To prescription (strategy formulation, becoming market driving) - Market driven: When you\'re engaging into your strategy you consider your competitors and consider external forces. - Market driving: You are the starter of changes and new creations within the market, it\'s when others follow you. When you are market driver you start changing the behaviour of key players in the market and what the market looks like Companies often apply both. - The bigger players in the market want to be driving changes in the market, not only be market driven. [Market driven strategy process: ] 1. Segmentation: Dividing the market into different groups of customers (based on consumer preferences, demographics etc.) 2. Targeting: Dividing the market into different groups of customers (based on consumer preferences, demographics etc.) 3. Positioning *[Positioning Case \#1: Quidel (leading firm in pregnancy tests)]* - Segmentation research identified two primary customer segments: \"Hopefuls\" and \"Fearfuls.\" The \"Hopefuls\" are possibly pregnant women aged 16-42 with varying income levels, who desire a positive test result and see the test as potentially marking a new phase in life. The \"Fearfuls,\" also aged 16-42 with diverse income backgrounds, are hoping for a negative result and view the test to alleviate their anxiety and uncertainty. important to identify the fundamental difference between the groups here. Here we do need-based segmentation. - To further explore positioning for Quidel, marketing strategies could consider how to target these segments effectively. - Decisions about brand name, packaging, SKU (Stock Keeping Unit) position, brand extensions, and pricing could be tailored to align with each group\'s unique expectations and emotions toward the product. *Positioning Lessons from Quidel* - You cannot be all things. If you are in the middle trying to attract all segments, you do not attract to anyone and you always lose from companies who do target a specific segment. - You must have completed segmentation [clear segmentation] - Segmentation can be done in different ways: - Demographic, geographic, psychographic, behavioural or\... - Needs-based segmentation can be very powerful, but difficult → The job of marketeers is to figure out what customers are going to want before they know it themselves. EG: When Ford asked people what they wanted they said a faster horse, but when they were shown a car they actually wanted that. - You must have targeted segments. - The Customers in positioning strategy are important element. - Successful positioning requires both precise segmentation and a strong customer orientation. *[Positioning Case \#2: Dairylea Dunkers (UK Kids cheese brand for in the lunchbox)]* - Through focus groups, the company identified an opportunity to create \"the third thing\" in packed lunches, adding value to the experience for both children and parents. - Here, needs-based segmentation revealed insights into the dual target audience: children, who enjoy fun and engaging snacks, and parents, who seek nutritious options. This dual-focus approach allowed Dairylea to position the product as both fun for children and a healthy choice for parents. Positioning statement Dairylea Dunkers: Dairylea is a fun and active way to provide daily nutrition for children who eat packed lunches and the parents who pack them. *Positioning Lessons from Dairylea* - This case emphasizes the importance of understanding diverse customer - It is always about **customer needs** but who is the 'customer' isn't always clear - Often decision-making power and need analysis is **split** between stakeholders consider all stakeholders, even when decision-making power is divided among them. - Analyzing their sometimes-conflicting priorities can: - Enhance your understanding of your '**frame of reference**' - What are the goals that the customers are serving with my product? Why would they buy me? - Help you define '**Competition**' (essential part of positioning)--\> competitive frame reference - Reveal new opportunities for differentiation from competition *Positioning lessons from PS5 and XboxSX* - Example of the unavailability of PS5 and XboxSX because they made a product that is too expensive to make. → Pricing is an essential aspect of positioning. **Positioning: Why?** [The Three C's] Positioning strategy is deeply rooted in three critical areas, or \"Three Cs\": the customer, the competition, and the company. Strategic positioning demands a holistic view of these factors to avoid common pitfalls in marketing strategy. Forgetting one of the C's can be detrimental, see the examples below *[Forgetting the Customer]* One of the most significant risks in positioning is neglecting the customer, as illustrated by Coca-Cola\'s infamous \"New Coke\" blunder. This product-focused approach neglected customer needs and resulted in one of the largest marketing failures in recent history The taste change nobody wanted, it had a medicinal ingredient because Pepsi started to do better in blind tastes. In small tastes, sweet taste will do better when it was too sweet. Other examples: - Google Glass - The Metaverse = Microsoft Teams stimulations for meetings Root Causes of Forgetting the Customer? - Product-focused vs. Customer-focused thinking - Engineering vs. Marketing? - How would a company know all the needs of its customers, let alone the unmet ones? - The problem of market research (limited market research) - You get answers to the questions you ask *[Forgetting the Competition]* Companies can also lose sight of the competition, which may lead to what\'s known as \"Boiling Frog Syndrome\" or the construction of an overly narrow frame of reference. Both can lead to a misunderstanding of the broader competitive landscape and inhibit strategic responses to market shifts Boiling Frog Syndrome: Humans inability to detect small changes climate change - Kodak did not see that digital cameras were coming - Nokia went from biggest phone producers to bankruptcy - Narrow Frame of Reference: Volkswagen just saw themselves in the car business, but China saw it as people want to get transported to a place with comfortable and with entertainment *[Forgetting the Company]* Finally, companies may overlook their own capabilities due to hubris or overconfidence. A successful positioning strategy requires a realistic understanding of what the company can and cannot achieve within its current resources and competencies. - BP changing their branding to greener and eco-friendlier then having one of the worst pollution reasons in the ocean -- oil tank explosion Root Causes of Forgetting Company Capabilities - New leadership they think they know it best - Twitter to X **Positioning: How?** *Tool \#1: The 3 Cs Model* The 3 Cs Model is a tool for integrating insights about the customer, competition, and company to craft a comprehensive positioning strategy. The process begins with an analysis of each element individually, followed by identifying an idea that resonates with all three. This unified approach helps clarify the brand\'s unique place in the market. *Expressing the Position: Positioning Statement* A positioning statement is a concise way to communicate a brand\'s unique value. The template often follows this format: \"To \[target segment\] who \[need\], \[brand\] is \[frame of reference\] that \[point-of-difference\].\" For example, a statement for Blackberry might be, \"To [busy mobile professionals] who need to [stay connected], [Blackberry] is a wireless connectivity solution that allows you to stay connected to people and resources while on the [go more easily] and [reliably] than the competing technologies.\" Adding \"reasons to believe\" strengthens the positioning statement by explaining why the brand\'s claim is credible. (DHL Example) The choice of the target segment can dictate the frame of reference and influence the rest of the positioning statement. - For instance, Miller Lite\'s positioning for \"young working-class consumers\" emphasizes a low-calorie, light beer for relaxation, while Budweiser Light is positioned as a premium option with a heritage of great taste. [Strategic Positioning: Summary]  *Tool 2\#: The Three Questions Framework* The \"Three Questions Framework\" provides a structured approach to developing a positioning strategy: a. What is our frame of reference? This question identifies the category or purpose the brand serves for the customer. Newer brands often adopt a narrower frame of reference to gain a foothold in the market, whereas mature brands may adopt a broader frame to support growth and defend against competitors. - Ex: IBM started in computers but changed their frame of reference to business services. Apple's breadth for frame of reference is very wide; tools for online creativity. Priorities for newer brands - **Attack**: Gaining a foothold in the little thing you do - **Defend**: Gaining legitimacy - Often **narrower FoR** Priorities for mature brands - **Attack**: Further growth - **Defend**: Monitoring competitive threats - Often **broader FoR More abstract + Laddering** Laddering: Always keep on asking 'Why is it that people care about this frame of reference in the first place' Way of growing your frame of reference into something abstract while still staying grounded.\ *EG: Volvo started out first with seatbelts. Then when the brand got bigger over time, it became more abstract as Volvo became the car for families. This is the deeper reason behind why people need seatbelts or the safest car. It is not just for safety for them, but they care because it means safety for your friends and family.* b. What are the crucial points of parity? Points of parity are essential attributes that brands must meet to be credible in their category. These are the minimum requirements to \"play the game\" and remain competitive. c. What are the crucial points of difference? Points of difference represent the attributes that make the brand unique and compelling to the target audience. Effective differentiation requires the offering to be both desirable and believable for customers, sustainable against competitive threats, and profitable for the company. [Conceptualizing \"Difference\"] Differentiation can be achieved through two approaches: [vertical and horizontal]. Vertical differentiation refers to positioning based on **quality or price**, where a brand can claim to be \"better\" than competitors. However, such claims require a clear standard of comparison. Challenge: "Better"? How? Against whom? Dangers? *Ex: If you as juice compete on the horizontal differentiation and say you are the best juice, you have two problems: 1) is it healthy? Is it as healthy as when I make it myself? 2) is it tasty? Is it tastier than when I make it myself? You can squeeze juice in the shop yourself, makes it impossible to differentiate vertically for juices.* Horizontal differentiation focuses on creating a unique appeal based on **taste** or **preference** rather than superiority, making the brand distinct without a direct quality comparison. - Very powerful because there are endless options - Challenges: If there are too many options it can lead to choice paralysis. Where do you stop? - Companies do this to grow market share (to attract different groups of customers) and because people are willing to pay more for something unique. *Mini case: Renova Toilet Paper* - Market research on customer needs in toilet paper: Strong, soft, cheap/long → most toilet papers focus on these needs and market themselves with this. - But Renova went for needs beyond that list from the market research to differentiate from all the big companies → **A frame-of-reference shift revealed many new opportunities for horizontal differentiation.** - *Antibacterial toilet paper (they noticed there is a group that worries about germs)* - *Sustainable toilet paper (there is also a group that care about this)* - *Black toilet paper* →Helped them compete against the big companies [Applying the Three Questions to the Sales Funnel] The Three Questions Framework aligns with stages of the sales funnel, guiding customer conversion from awareness to purchase: - The frame of reference (Question 1) plays a crucial role at the awareness stage. - Points of parity (Question 2) are essential at the consideration stage. - Points of difference (Question 3) drive customer choice at the purchase stage. [Sales Funnel] [Conclusion: The 3Q Framework and the 3 Cs] The strategic positioning process, supported by the 3 Cs and the Three Questions Framework, enables marketers to clearly define their brand\'s place in the market. By integrating customer needs, competitive analysis, and internal capabilities, brands can create a sustainable and distinct position that resonates throughout the customer journey and stands resilient against market changes. [3 Q\'s Framework and the 3C\'s]  **Article: Keller et al. (2002) - Three questions you need to ask about your brand** The article by Keller et al. (2002), \"Three Questions You Need to Ask About Your Brand,\" delves into the critical elements of **brand positioning**, emphasizing the need for companies to thoroughly understand and address three key questions: What is the frame of reference? What are the points of parity (POPs)? And are the points of difference (PODs) compelling? The article outlines a structured approach to brand positioning that integrates these three components to ensure that a brand is not only distinct but also relevant and credible in the consumer\'s mind. **Brand positioning** begins with establishing a **frame of reference**, which defines the context within which the brand operates. This step signals to consumers the type of benefit they can expect from the brand, helping them to contextualize its purpose in their lives. The choice of frame can vary depending on the product\'s life cycle. For **new products**, the **frame of reference** may often be defined by similar existing products, while for **established brands**, it may require reassessing and refining to stay competitive. Once the frame is set, companies must identify the **points of parity (POPs)** - the minimum thresholds or shared attributes that brands must meet to be perceived as legitimate competitors in the chosen frame. Following the **frame of reference** and **points of parity**, the article stresses the importance of differentiating the brand. To do this effectively, brands must focus on compelling **points of difference** that resonate with consumers. Keller categorizes brand differences into three types: **brand performance associations**, **brand imagery associations**, and **consumer insight associations**. **Performance associations**, which are based on the product\'s functional attributes such as **reliability** or **value**, are the most powerful form of differentiation because they meet the tangible needs of the consumer. However, when performance differences are minimal, **brand imagery** or **consumer insight**, which ties the brand to a deeper understanding of consumer goals or aspirations, can provide differentiation - albeit less compelling than performance-based differences. For **points of difference** to be effective, they must be both **desirable** and **deliverable**. **Desirability** refers to the benefits being relevant to the consumer and believable, meaning the claims made by the brand must be credible and verifiable. **Deliverability** involves ensuring that the brand can realistically provide the promised benefits, and that the positioning strategy is sustainable and difficult for competitors to replicate. **Consistency** across the **frame of reference**, **points of parity**, and **points of difference** is essential for long-term brand equity, as contradictions can confuse the consumer and dilute the brand\'s message. Keller also discusses strategies for sustaining brand differentiation, such as the **laddering-up process**, where brands build on concrete attributes before progressing to more abstract and emotional associations, or leveraging **big ideas** that consistently reinforce a differentiating benefit. Additionally, he highlights several pitfalls companies face in **brand positioning**, including the tendency to focus on **brand awareness** before a clear position is established, the promotion of irrelevant attributes, and the overemphasis on easily replicable **points of difference**. The article warns that **repositioning** a brand is often difficult and can lead to lost equity, underscoring the importance of maintaining a consistent **brand position** over time. Brand positioning A diagram of a company Description automatically generated **Article: Porter (1996) - What is strategy** [I. Operational Effectiveness Is Not Strategy] **Operational effectiveness**, which includes activities such as benchmarking, outsourcing, and quality improvement, is commonly used as a tool for achieving competitiveness. However, this emphasis on operational effectiveness often overshadows the importance of strategic positioning in the market. Many businesses mistakenly assume that competitive advantages are temporary due to rapid imitation. The article underscores the need for a clear distinction between operational effectiveness and strategy, both of which are critical for superior performance. A firm\'s competitive advantage arises from delivering greater value to customers or providing comparable value at lower costs, which results in higher unit prices and lower unit costs. **Operational effectiveness** involves performing activities more efficiently than competitors, while **strategic positioning** is about taking a distinctive approach to performing those activities. Variations in operational effectiveness directly affect profitability, influencing cost positions and differentiation levels. The productivity frontier, which represents the maximum value a company can achieve at a given cost, constantly shifts due to advances in technology and management practices. Therefore, continuously improving operational effectiveness is necessary for maintaining superior profitability. However, relying solely on operational effectiveness can lead to zero-sum competition, where price cuts and imitation reduce profits, eventually resulting in industry consolidation as companies engage in destructive competition without a clear strategic advantage. [Il. Strategy Rests on Unique Activities] **Competitive strategy** is about choosing a unique combination of activities that create a distinct value proposition for customers. Strategic positioning requires companies to perform activities differently from their competitors or engage in entirely different activities, rather than simply responding to customer preferences. For example, Southwest Airlines focuses on providing low-cost, no-frills short-haul services with quick turnarounds and point-to-point routes. Ikea targets cost-conscious young furniture buyers through a self-service model that offers affordable, ready-to-assemble products with in-store displays and clear layouts. Vanguard Group\'s strategy, meanwhile, emphasizes low-cost, predictable performance and index funds, prioritizing consistent returns over exceptional performance. Companies can also differentiate themselves by adopting needs-based positioning, which tailors activities to meet the varying needs of different customer segments, or access-based positioning, which segments customers based on how they can be reached through distinct channels. Strategic positioning requires companies to adopt a customized set of activities that will allow them to establish a unique and valuable market position, separate from that of competitors. If there were only one ideal position, strategy would become redundant, as companies would only need to pre-empt that position. In contrast, strategic positioning involves making deliberate choices about which activities to focus on in order to differentiate the company from its competitors, while operational effectiveness drives performance in all areas where activities are not differentiated. [Operational effectiveness vs. strategic positioning]  [Japanese Companies Rarely Have Strategies] Japanese companies were early pioneers in operational effectiveness during the 1970s and 1980s, excelling in practices like total quality management and continuous improvement, which provided them with significant cost and quality advantages. However, most Japanese firms did not develop unique strategic positions, with notable exceptions such as Sony, Canon, and Sega. Many Japanese competitors tended to imitate each other, offering similar products, features, and services, and matching each other\'s operational practices. The dangers of this approach became apparent as the gap in operational effectiveness narrowed, leading to destructive competition that resulted in declining profits. Porter argues that Japanese companies must develop to avoid these competitive dynamics. However, they may face cultural barriers, including a consensus-oriented corporate culture and a strong service tradition that blurs their ability to differentiate strategically. [Finding New Positions: The Entrepreneurial Edge] Strategic competition involves identifying and pursuing new market positions that either attract customers away from established competitors or bring new customers into the market. Both new entrants and incumbents face the challenge of discovering new strategic positions, but newcomers often have an advantage due to their ability to recognize opportunities overlooked by established players. New entrants can succeed by taking over positions that were once held by competitors who have become complacent or diluted their offerings through imitation. In some cases, newcomers can create entirely new market positions by leveraging unique activities from other industries. New positions typically emerge due to changes such as new customer groups, evolving customer needs, innovations in distribution channels, or advances in technology and machinery. New entrants can more readily identify these changes because they are less burdened by the established practices and history of existing competitors. [III. A Sustainable Strategic Position Requires Trade-offs] Simply choosing a unique position is not enough to ensure a sustainable competitive advantage because competitors can replicate it through repositioning or straddling. **Repositioning** involves a competitor changing its position to match the benefits of a successful strategy. For example, J.C. Penney shifted from being a discount retailer to a more upscale, fashion-oriented retailer to emulate its competitors. **Straddling**, a more common imitation strategy, occurs when competitors try to capture the benefits of a successful position while maintaining their existing position by adding new features, services, or technologies. The airline industry illustrates how competitors can mostly imitate each other's activities, including matching planes, gates, menus, ticketing, and baggage handling services. Trade-offs arise because certain activities are incompatible, and making choices is essential for protecting a firm\'s strategic position against repositioning and straddling. These trade-offs result from inconsistencies in image or reputation, differences in product configurations, and limits on internal coordination and control. Without making clear choices about what to focus on, a company risks confusing its customers and failing to achieve a coherent strategic position. Porter argues that trade-offs are essential to ensure a sustainable advantage, as they prevent companies from trying to do everything and thus losing their strategic clarity. [IV. Fit Drives Both Competitive Advantage and Sustainability] The choices a company makes in its positioning determine how it combines its activities, with strategy being about the integration of those activities, not just excellence in individual functions. Successful strategies involve the interaction of various activities, where each one reinforces the others. For example, Southwest Airlines\' rapid gate turnarounds depend on the company\'s ability to avoid activities that would slow down other airlines. The success of its strategy comes from the interlocking system of activities that complement each other. Porter explains that fit-the alignment among activities-is critical for both competitive advantage and sustainability. There are three types of fit: 1. First-order fit, which ensures consistency between activities and the overall strategy. 2. Second-order fit, which reinforces activities that work together, reducing total costs. 3. Third-order fit, which maximizes efficiency by optimizing coordination and minimizing redundancy across activities. A company with a strong fit among its activities is better able to defend its position against imitation, as copying the entire system of activities would be difficult for competitors. Frequent changes in positioning or failure to choose a distinct position often lead to disjointed activity configurations, organizational confusion, and hindered progress. [Activity system] A diagram of a flight system Description automatically generated [V. Rediscovering Strategy] Many companies lack a clear strategy because of internal factors such as misguided views of competition, organizational failures, or a desire to grow. Managers often believe that trade-offs are unnecessary and that a well-run company can excel in multiple areas at the same time. However, this misconception leads them away from focusing on strategy and toward a focus on operational effectiveness, which emphasizes performance improvements without making clear strategic choices. The pressure to grow can also drive companies to chase easy growth through product line extensions, imitation of competitors, or acquisitions, which can undermine their unique position. Porter argues that companies should focus on deepening their strategic position and pursue growth by extending their existing activity systems. By concentrating on specific customer segments where the company is distinctive, firms can achieve more profitable growth than by attempting to serve broader markets where they lack uniqueness. Leadership plays a critical role in shaping and maintaining strategy, as it is up to leaders to make tough choices, set boundaries, and ensure that everyone in the company understands and adheres to the strategy. Changing a company\'s strategy should only occur when there are significant structural changes in the industry, and the new position should be driven by the ability to find new trade-offs and leverage a new system of complementary activities to sustain the company\'s competitive advantage. [Reconnecting With Strategy] Many companies that initially succeed with a clear strategic position often lose their way as they grow. They begin to match their competitors\' offerings, target multiple customer groups, and imitate rivals\' activities. This dilution of their unique position leads to mediocre performance. To reconnect with their strategy, companies must examine their existing activities and identify their core uniqueness. They should focus on the most distinctive and profitable aspects of their operations, as well as the most satisfied customer segments. By aligning their activities around this core, firms can re-establish their strategic position and ensure sustainable growth. **Article: Urbany & Davis (2007) - Strategic insight in three circles** The article discusses a framework for gaining strategic insights using three circles, which represent different perspectives on customer value and competitive positioning. The first circle reflects the team\'s understanding of the most important needs and wants of the company\'s target customers or customer segments. This circle represents everything the company believes its customers value. The second circle represents the team\'s view of how customers perceive the company\'s offerings, assessing the company\'s current product or service positioning in the market. The overlap between the first and second circles indicates how well the company\'s offerings meet customer needs. The third circle represents how customers perceive the offerings of competitors, providing insight into the competitive landscape. The area where all three circles intersect reveals the company\'s ability to fulfill customer needs better than its competitors, highlighting areas of competitive advantage. The framework emphasizes several key strategic considerations: 1. A: Evaluating how big and sustainable the company\'s advantages are. 2. B: Ensuring the company is delivering effectively in areas where it has parity with competitors. 3. C: Identifying ways to counter competitors\' advantages. 4. E: Exploring opportunities for growth in areas of unmet customer needs, represented as white space. 5. D, F, or G: Assessing the value created by both the company and its competitors that consumers do not highly value. This model helps companies refine their strategies by focusing on areas that offer the most potential for differentiation and growth. [The three C\'s]  **Lecture 4 -- Andradas Case** Positioning is important for a business and the most difficult task. It is not very straightforward.\ Crucial for creating a good positioning: - Use the tools for it - Use wisdom of the crowd= Get different perspectives from different people and look at all of them critically to bring them together and come to a conclusion. - Gain experience by just trying and learning from it. The case, centered in Andradas, Brazil, documents a collaborative effort by Rosana Fraga, head of the Andradas rural cooperative, and agronomist Rafael Alberto Souza e Silva, to map the unique flavor profiles of coffee in the region. The Andradas Flavour Map project aims to promote local high-quality Arabica coffee while improving the livelihoods of coffee farmers in Andradas. The project reflects goals aligned with Sustainable Development Goal (SDG) 12: Responsible Consumption and Production. - Coffee is seen as a commodity so people think coffee is just coffee and the brand cannot really make a difference here. **When markets with these products mature and the prices continuously go down,** the products become less differentiated, and it becomes hard for producers to still get a sustainable living out of the product. → **Branding can be solution.** - **Andradas: Coffee that is sustainable for the environment, for the community and of a very high quality.** - How can farmers of Andradas get better prices?→ Use the strategy of segmentation, targeting and then positioning. - The framework that can help us here is the 3 Cs framework. **A good positioning statement is one that is relevant (for your customers), differentiated (compared to the competition) and deliverable (in line with your capabilities). If it fails in any of the three Cs, your whole positioning is failed.** [Key Project Goals and Challenges] The project\'s primary goals are to: 1. [Highlight and differentiate] Andradas coffee based on unique terroir characteristics (e.g., volcanic soil, high altitude by creating a comprehensive flavor map. 2. [Enhance market access] and [improve prices] for local farmers by establishing the coffee as a specialty product that appeals to consumers seeking quality and sustainability. The initiative is challenged by farmer reluctance to adopt new practices amid the financial strain of the COVID-19 pandemic. Most farmers traditionally rely on bulk sales through distributors at low prices, making it difficult to compete in higher-value specialty markets. [Branding and Marketing Strategy] Fraga and Souza e Silva devised the Flavour Map to build brand identity through quality and cultural heritage. This strategy involves creating a terroir-driven narrative, focusing on attributes like flavor, aroma, and the heritage of Andradas\' Italian immigrant farming families. By targeting high-quality and sustainably minded consumers in both domestic and international markets, they aim to position Andradas coffee as a premium product. Key branding considerations include: 1. [Segmentation] based on consumer behaviors and attitudes toward coffee. Behavioural segmentation (it describes how people currently use or behave among the coffee, divides consumers into: a. **Pragmatic drinkers**: Routine consumers who see coffee as a source of energy. Biggest group b. **Laypeople**: Social drinkers for whom convenience (e.g., coffee pods) is a priority. c. **Enthusiasts**: Quality-focused consumers who value uniqueness and authenticity in their coffee experiences. d. What other ways could we use to segment the market? Geography: People drink coffee in different ways around the world. i. Based on the consumer preferences in Europe, we can see that some countries prefer more a full coffee bean while others prefer filtered coffee. ii. The pod market is in the middle between the premium brands and the filter brands. iii. The orange is clearly the most attractive for Andradas as a premium coffee brand. But the green (the pods) also are an opportunity, which should be a market for them in which they can still develop a new product, such as producing a premium capsule. This also greatly increases your potential market. But on the other hand, if you are a specialty coffee brand and you also engage in pods, you are decreasing your quality image. iv. Another problem with targeting the green market is the problem of supply. The Andradas coffee makers are small suppliers so it would be difficult to partner with a brand such as Nestle to make pods for them, because these brands sell at a high number. Also, they have different tastes on different small farms while the pods would require big farms with an overall uniform taste. A close-up of a graph Description automatically generated 2. [Targeting]: The project primarily focuses on enthusiasts and laypeople, who are likely to value and appreciate the unique terroir and sustainable practices associated with Andradas coffee. 3. [Positioning]: The 3C framework guides the positioning strategy: e. **Customer**: Focusing on what consumers want most-authentic and high-quality coffee. (see segmentation) f. **Competition**: Differentiating Andradas coffee without reducing it to a simple \"high score.\" A purely score-based approach risks creating an \"unnatural competition\" that could diminish the richness of the coffee\'s unique profile. The project avoids vertical differentiation (ranking based solely on score) in favor of a more holistic approach that emphasizes cultural and sensory uniqueness. v. **Horizontal differentiation**: about differences in tastes If you have too many differentiations, the idea of the typical Andradas coffee is diluted. Also, where do you stop? It leads to huge fragmentation. vi. **Vertical differentiation**: about differences in quality and price Potential problem: As this a smaller producer, it will be hard to keep up with the big brands who are already really competitive in this aspect. It is hard to win this, because you can say \'we are the best coffee\' but you only win with this when your coffee is really the best and there will always be someone overruling you. g. **Company**: Emphasizing Andradas coffee\'s unique strengths, such as its distinct flavor profiles and heritage. (see strengths and weaknesses) Decommoditization Example of horizontal idfferentiation - Many consumer categories have recently seen an increase in differentiation and average quality - Driven by growth in consumer interest and quest for authenticity - And by retailers' assortment decisions and private label strategy Ex: 20 years ago there was one beer with one taste, now there is unlimited amount of different flavoured beer same thing with chocolate, toilet paper achieved through horizontal integration Happened with craft beers when the beer was commoditized. Commoditization: The market is maturing, which means all coffee is good even that of cheap brands, there is not much differentiation in the market and prices go down. [Production and Sustainability] The project focuses on sustainable practices, encouraged by Eduardo Sampaio of the Global Coffee Platform, which emphasizes the environmental and social aspects of production. Farmers are guided to use sustainable methods like selective harvesting and terroir-based flavor mapping. These efforts align with SDG goals on clean water, community well-being, and responsible production. [Strengths of Andradas] - **Quality** of the product - Arrabica coffee targets **specialty coffee drinkers** - Highlighting value **contributing to local communities** and attention to **sustainability** attractive to consumers but the company is not there yet so better be careful regarding the claim that they make - Unique flavour profiles - **Heritage and history** (can\'t be copied by others) - Minos Gerais region is known as a region good for coffee - The farmers are of Italian heritage - **Small scale** so people really feel like they support your brand, makes more attractive They are doing for themselves and not for a company, so it gives ownership to the farmers - Collective makes them use **each other\'s strength** - Important value proposition: Volcanic soil and altitude are features that not every - coffee region has, which really enables them to make people belief the company that this coffee will be special If this region becomes famous in tourism for the coffee that they make, the whole region can get a positive image which makes coffee from the region also more attractive and the community can benefit from this (a two way street) - **Gender equality** (a lot of women work at Andradas) you can look at both ends, their current farms are mostly run by woman, but the labour-intensive work is also done by woman - Highly rated by Q-graders Why would they be able to deliver this? Those are the reasons to believe for the customer. [Weaknesses]: Limited marketing expertise and fragmented production hinder the community\'s ability to scale and compete. Many farmers resist change (conservative), and sustainability efforts are still in early stages. Additionally, labour-intensive processes and limited economies of scale challenge productivity and cost management. Financial constraints (can they pull necessary investments?). Education & Language. They don't have right distribution channel. Lack of business knowledge. Lack of brand awareness (you have to go against big corporations). Power of intermediaries (a lot of money goes into the middleman while farmers don't). Climate change. The case took place during pandemic so it might have hindered progress. Time (it takes long for the beans to mature). [4 Themes that the Positioning Strategies can be around:] 1. **Quality & Flavours**: exclusivity, small scale; drawback: the coffee is not the best, so price cannot be too high 2. **Sustainability**: drawback: it is important to actually do it, which can be difficult with middlemen who connect you to the coffee roasters and there\'s no control! 3. **Social aspect** -- the community: Gender equality, support farmer community, fair prices; drawback: you really need to deliver here, what do you do with your profits 4. **Heritage** (Italian): many generations, Italian heritage; drawback: the people are not innovative and do not like changes, focusing on the Italians in the region here may lead to indigenous population feeling offended These are all connected. Each positioning point has its pros and cons. Which of these positioning strategies do we choose → Combine a few of them. Do not go all-in on one of them, your chances to not succeed are bigger. Strong brands are always a network of associations that fit together. Example Positioning Statement about Quality: - To coffee roasters and coffee enthusiasts who appreciate single-origin, sustainable, high quality coffee, the Coffee of Andradas is a cοoperative of local farmers with a century of experience in coffee, to provide you exactly that. - Its not concrete enough. Reasons to believe and point of difference is missing. - To target coffee enthusiasts who truly appreciate high quality coffee, andradas is serving one of the highest quality coffee beans that offers notes of vanilla and peach because of utilising volcanic soil in order to grow the plants and the slow but thorough maturing of coffee beans. - No point of difference what sets them apart from the competition - To specialty coffee enthusiasts who value higher quality and authenticity, Andradas\' coffee is a premium coffee brand that offers a sophisticated palette of unique flavours and naturally sweet notes because our beans are carefully cultivated at high altitudes in volcanic soils, using traditional sustainable practices rooted in the Italian heritage of the region and passed down through generations of dedicated farming families. - They are targeting: coffee enthusiasts who value higher quality and authenticity - Point of parity is there - Point of difference is there Example Positioning Statement about Social: To coffee lovers who need their habit of drinking coffee to mean something, Andradas is unique specialty coffee from the mountains of Minas Gerais in Brazil that ensures the experience of a one of a kind coffee flavour while supporting and providing fair working conditions for its producers. - "to mean something" is too vague people cannot understand who you are targeting - Clarify fair working conditions Example Positioning Statement about Environmental: To sustainability-focused passionate coffee drinkers who want to experience a taste of Brazil\'s hidden gem, Andradas is a specialty coffee from which consumers can get a taste of local volcanic terrains directly from the farmer. - "sustainability-focused passionate coffee drinkers" target audience - They don't have any sustainability aspect in the statement. There is a mismatch Example Positioning Statement about Heritage: To coffee enthusiasts who are passionate about the flavour experience of coffee, Andradas Coffee is specialty\ coffee, that has a unique well defined sugarcane flavourprofile that tastes amazing, because the Andradas\ region has an Italian heritage and Italians know a thing or two about coffee ;). - Italian heritage is a bit vague Overall: If you only focus on quality, it doesn't really differenciate you and its limiting. [Economic and Cultural Impact] By fostering direct sales and reducing reliance on middlemen, the initiative aims to increase farmers\' earnings and reinvigorate the rural cooperative. The project also promotes local empowerment and cultural preservation by celebrating Andradas\' Italian heritage and integrating women\'s roles in coffee production, supporting broader social equity goals within the SDG framework. Their Solution: Leveraging the Andradas Flavour Map Quality and taste is the main positioning angle **Theme of quality: Came up with Mapa dos sabores**. A QR on the back of the box identifies the origin of the coffee, with a brief history and a sensorial analysis of the drink. Merchandise around this idea was also created. **Theme of heritage: De volta as origens** (cafes especiales). The symbol refers to the graphics of a water tile with traces of Italian baroque. Still the back label represents the origin of the coffee with a brief history and a sensorial analysis of the drink. Still there is main focus on heritage. **Social theme: Mulher** (meaning women). Focus on female empowerment with a women's face in the logo. Still the quality is also highlighted and the region is there. Packaging: **Lecture 5 -- Innovation** *Peter Drucker:* Because the **purpose of business is to create and keep a customer**, the business enterprise has two---and only two--- basic functions: **marketing** and **innovation**. Marketing and innovation produce results; all the rest are costs. Marketing is the distinguishing, unique function of the business Marketing cannot be successful without innovation and the other way around. What goes into estimate of value of a brand? - Brand name important in B2C; in B2B companies the innovation is hard because for example if a bank creates a fund, another bank can instantly copy so uniqueness is hard (lack of point of differentiation) - Willingness to pay [Brand Value and Consumer Willingness to Pay] Brands add substantial value to companies by enhancing consumers\' willingness to pay more for products associated with a recognizable brand name, even when the product itself is identical to others. Branding influences purchase decisions and establishes company reputation. Positioning serves as the core of a brand\'s identity and directs how the brand is perceived. However, in industries like finance, innovation is easily copied, making it challenging for brands like banks to maintain uniqueness. Thus, innovation plays an essential role in establishing brand differentiation and value. [Virtuous Cycle of Branding] Brands operate in a self-reinforcing cycle that yields both consumer and organizational benefits: 1\. Consumer Benefits: The brand provides objective and subjective advantages: a. [Objective] benefits include **reducing search costs** (making it easier to find trusted products) and acting as a **reliable** (trust) **signal of quality**. b. **Risk** **management** c. [Subjective] benefits include signalling **status**, aligning with **consumer identity**, and enhancing self-knowledge self enhancement & self expression 2\. Organizational Benefits: Brands enable companies to achieve: - Higher **willingness to pay** - **Inelastic demand** - **Customer retention** (repeat buyers)\] - **Loyalty** from consumers who repeatedly choose the brand. - **Bargaining power increases** when talking with suppliers - **Investing value increases**, as people tend to invest in strong brands - **Competitive advantage**: attracting new customers - **Extension opportunities** to broaden the product category and offer complementary items economies of scale - **Word of mouth** promotion from satisfied consumers. - **Brand equity**: value given to the brands name - **Higher profit margins**, as brands reduce demand elasticity by raising customers\' willingness to pay and cost goes down inelasticity of demand - **Human resources** **advantages** because prominent brands attract talent and may **reduce salary costs**. Together, these benefits lead to increased overall profits which leads to innovation to consumer benefits  [What is marketing from innovation lens] - Marketing is a process that leads you to creating shared value. It can also be seen as a philosophy, as the customer-perspective that you take on everything you do. Marketing is also an organizational function. connects firms with external audiences - Marketing from innovation lens: Traditionally, marketing is seen as the [nexus between supply and demand (]which economics often explains as price). Marketing plays a key role in this connection by communicating brand value, addressing customer needs, and enhancing willingness to pay. - It is like a value chain: value is created and extracted at every chain: [Value Chain and Marketing\'s Role] Value creation occurs at each step of the [value chain]. Marketing operates at every level, from suppliers to companies, companies to retailers, and retailers to customers. Modern innovations have altered this dynamic by allowing some companies to bypass traditional chains and sell directly to customers, as seen with brands like Dell and Amazon. This shift has turned the value chain into a two-way dialogue, where customers actively provide feedback, allowing brands to tailor offerings to customer preferences. - It used to be a one-way communication [Marketing and Open-Source Innovation] Marketing serves as an organizational function that [connects a firm with its external environment]. - Traditionally creating a frontier between the company and its surroundings. - Now it's a two way road where customers give feedback and talk to the companies and this alone creates value too due to better connections, social media - Communication has changed and with that innovation has also changed, This boundary has shifted to a two-way street due to open-source marketing and the rise of open innovation. Open-source marketing uses customer insights to shape brand offerings, allowing companies to \"harvest the power of the customer.\". When the customer creates the product themselves for themselves: - R - Firefox - Wikipedia You can also harvest the power of the competition - You can copy the competition, which is a very simple way of harvesting the power of the competition. - You can also ask competition if they want to work together with you; such as with Tony Chocolonely and Ben and Jerry\'s where Tony\'s delivered the sustainable chocolate and Ben and Jerry\'s was already well-known in marketing. - Platform economies such as Amazon and bol.com can break down competitive barriers, create a shared space for rival brands and boos overall brand visibility by making the competitors work for them. Open innovation, **customers play a central role in product development**. This approach reduces innovation costs and ensures products resonate with consumer desires. Customers can do the innovation for you. For example, Lego allows users to submit product ideas and vote on them, with highly rated suggestions moving into review for potential production. Becomes cheaper and more targeted - Beware of the wisdom of the crowd: One time the crowd could vote for a boat, they wanted to name it Boaty McBoatface, which was a terrible name for a Navy ship. [Shift from Pipeline to Platform Business Models] Many companies are shifting from pipeline models-where they control resources, optimize internal processes, and deliver value directly to customers---to platform models that focus on coordinating resources and facilitating interactions between suppliers and consumers. +-----------------------------------+-----------------------------------+ | Pipeline Business | Platform Business | | | | | (Buy materials, make it, sell it) | (Coordinate Markets) | +===================================+===================================+ | - Controlling resources | - Coordinating resources | | | | | - Optimizing internal processes | - Facilitating external | | | interactions | | - Increasing customer value | | | | - Maximizing ecosystem value | +-----------------------------------+-----------------------------------+ This shift maximizes the value of an ecosystem, as seen in two-sided markets like Uber, where the platform connects drivers with riders. - The platform is in the middle (see the picture below) - **Problem 1:** platform models face challenges, particularly with the \"chicken-and-egg\" problem, where it\'s difficult to attract one user group without the other. You only attract suppliers if you have buyers and the other way around. - **Problem 2**: Additionally, monetizing a platform is complex: charging too much risks losing users on either side, making profitability elusive You get money from the people you supply to or from those who buy from you, or both? - **Problem** **3**: You can\'t guarantee quality and if you do it is very costly. [Example platform business model] A yellow and black sign with a black square and white logo Description automatically generated [Market-Driven vs. Market-Driving Innovation] Market-Driven Innovation is commonly understood as adapting to existing and changing customer preferences. While this approach helps meet current demands, it can be limiting, reactive, and lead to **creeping incrementalism**-a situation where brands make only minor improvements based on what customers say they want, which may fall short of breakthrough innovation. Potential Dangers of Market-driven innovation: - The tyranny of customers - Difficult to divert resources away from current segments/products - The danger of creeping incrementalism - The reference point of today's customer is today's product customers don't know what they want or might not be reading for the change - You can\'t guarantee quality and if you do it is very costly. Market-Driving Innovation: Shape or restructure markets rather than respond to them. This proactive approach might involve: a. **Functional Modification**: Changing market structure by altering the role or behaviour of key players (changing function / behavior of players in the market) a. Ex: Suppliers, consumers, competition b. *WalMart was the first supermarket that decided they wouldn\'t put products on sale, but always offered the lowest price. IKEA was the first to let people construct their furniture at home at much lower prices.* b. **Deconstruction** by eliminating intermediaries (players) in the value chain c. *Dell started directly selling their computers to customers and let them put the functions they wanted together directly at Dell instead of through retailers.* d. *Amazon when it was still a bookstore made sure publishers could sell directly to customers instead of through bookstore.* c. **Construction** by adding complementary players to enhance the brand\'s ecosystem e. *When Microsoft became an open environment in which everyone could develop, which led to an increase of applications* f. *Apple\'s App Store only Apple could develop apps which thus had less apps.* [Blue Ocean vs. Red Ocean Strategy Framework] Blue ocean strategy exemplifies **market-driving tactics** (but not all market driving strategies are blue ocean), aiming to create new, uncontested markets. It focuses on capturing new demand, making competition irrelevant, and avoiding direct competition in existing markets (red ocean). not about competing in existing markets In a traditional strategy, increasing value generally raises costs (why companies are trapped in red ocean); in contrast, blue ocean strategies aim to increase value while reducing costs (**Breaks the trade-off between costs and value)**. This mindset shift is illustrated by **Cirque du Soleil**, which successfully combined theatre with circus elements to create a new market. Ikea is also an example - Red Ocean: There is hardly any money to be made - Competition is intense - Customers willingness to pay is low - Customers are leaving - Example: Circus, so Cirque du Soleil found a new profitable market which combines theatre and circus. Theatres have a story, music, experience, emotions +-----------------------------------+-----------------------------------+ | Red Ocean Strategy | Blue Ocean Strategy | +===================================+===================================+ | - Compete in existing markets | - Create uncontested market | | | space | | - Beat the competition | | | | - Make the competition | | - Exploit existing demand | irrelevant | | | | | | - Create and capture new demand | +-----------------------------------+-----------------------------------+ [Tools for Market-Driving Strategies] The strategy canvas and four actions framework (raise, create, reduce, eliminate) are tools to identify and pursue blue ocean opportunities. An example is Netflix, which disrupted cable TV by eliminating the need for set-top boxes and commercial breaks, while adding a vast on-demand library. These tools enable companies to focus on transformative innovations rather than incremental improvements, often redefining industry standards. +-----------------------------------+-----------------------------------+ | Eliminate | Raise | | | | | - Three rings | - Clowns | | | | | - Star performance | - Acrobats | | | | | - Animals | - Circus tent Setting | +===================================+===================================+ | Reduce | Create | | | | | - Humor | - Story line | | | | | - Danger | - Original music | +-----------------------------------+-----------------------------------+ [Four actions framework] A white rectangular box with yellow text Description automatically generated [**Case study: LG Electronics Inc.** Both market-driven and market-driving innovations at the same time] LGE, initially known for supplying low-cost OEM products to brands like GE and Zenith, aimed to reposition itself as a premium brand in North America, where it was largely unknown until the early 2000s. [LGE in US before 2002] - They had a brand called "Goldstar" and "Zenith" cheap consumer electronics - Technology-focused - Product development for Korean market exported to US - Low price positioning based on low-cost manufacturing capability - Little integration between functions (silos) - No clear product development process - Marketing actions in the funnel are all equally imported. EG: If you have a great product but you mess up in the distribution, the end result will not succeed. - LG had two goals: - Position LG as a **premium brand** - **Top 3 electronics firm** in the world by 2010 [LGE: Mindset Shift in 2002] - Creating local team and shifting responsibility to US (local) market - Multi-functional product development team; process driven by deep customer insights and strategic goals - Using LG brand and articulating brand identity: "Tangible innovations to enrich lives of our customers" [Consumer Insights and Market Research] Extensive research revealed that North American consumers increasingly viewed their homes as sanctuaries, desiring high-quality, private experiences at home. Following 9/11, interest in East Asian aesthetics also grew, with consumers favoring simplicity and sleekness. LGE identified four primary consumer segments: a. Environment-Driven: Older consumers focused on energy and water conservation. b. Fashion-Conscious: Young, affluent individuals seeking style and modern design. c. Homemakers: Middle-aged, family-oriented consumers prioritizing convenience and cleanliness. d. Convenience & Budget-Conscious: Young families seeking affordable and reliable appliances. Younger consumers preferred transparent doors, modern LCD displays, and combination washer-dryer units, while older consumers prioritized durability and ease of use. - To communicate experience attributes, a firm needs to be credible and have good customer access (distribution) - Not possible at the time of market entry in 2002 - Focus on "search attributes" -- attributes that one can apprehend through a search process -- rather than "experience attributes" -- attributes that one can only apprehend through experience - Positioning relative to key competitors on key functional attributes - Capacity, energy efficiency - Focus on front-loader because it is less competitive [How did LG achieve 11% M/S in 3 years from 2002 to 2005?] Strategy was product focused **1 Product**: TROMM washing machines-high-capacity, front-loading models inspired by European design - Segment - High income - Tech savy - Younger people - European - Quality association (Asian products are seem as cheap) - Naming the product "TROMM" sounds German - 3 price levels: always below the competition - Key innovation strategy: Direct Drive System (machines don't need belt anymore less noise, energy, and water consumption. Increase in capacity & more reliable pain points - Investment in steam cleaning technology provided advanced fabric care and additional benefits like hypoallergenic treatment and wrinkle reduction. - A history of \"world\'s firsts\" and rapid innovation further reinforced LGE\'s identity as a premium, cutting-edge brand. They didn't spend money on advertising, consumers understand products through search, experience of yourself or others (WOM) or learning At this point they do not have what it takes to advertise themselves as a premium brand, because premium brands need to ask premium prices **2 Distribution**: LG had a very clear roadmap LGE initially struggled to break into the U.S. market, as powerful distributors like Sears and Home Depot were cautious about unfamiliar brands. solution: Regional stores - Regional Stores: Open to foreign brands. Why? - Need to set themselves apart from the big chains competition - People expect to find better quality and service at these stores - Try to find something unique relates to the competition - Best Buy: match with tech savvy consumers - sales personnel training and co-branded marketing to enhance customer trust and visibility. - Home Depot: Going from best buy to Home Depot the main aim is to expand upscale consumer - among younger consumers who valued style and efficiency - Sears did not let them in because they had their own product The 11% market share is the result of the push strategy Since LG was creating machines that had smaller differences (better) compared to its customers advertising LG could mainly differentiate the brand based on price and LG wanted to have the "premium" image which then would not have been possible. Pull Strategy: When you try to pull the customers in mostly works through advertising LG did not use this strategy Q: It's 2005. Now What? What product would you go for? Washer-Dryer Combo or the new Steam Technology? +------------