1. Market Driving Strategies
Markstrat Introduction 2

2. Engineers’ View
Prof. Markus Christen

3. Product Perceptions: Engineers vs. Customers
Technical quality
Brand A B C D
Brand C A B D ?
Consumers' perception of brands
You, as a manufacturer, can easily classify your and competing brands based on objective data like their technical attributes and their price.
When it comes to making a buying decision however, consumers are influenced by their 'perception' of the brands available on the market rather than by the actual features and properties of these brands. This perception is often based on subjective data and information and can easily be distorted from reality. The consumers' perception, for a given category of products, is primarily driven by their most important needs in this category.
Once consumers are aware of a brand, they typically analyse to what extent this brand meets their needs better than the competing brands that they already know.
Prof. Markus Christen

4. Customer Perceptions Perceptual map based on MDS study Key Need 2 +20
-20
SELF Pr Hi Bu Si Ot
SEMI
SONO
SOLD
SULI
SAMA
SUSI
SALT
SIBI
SIRO
Perceptual map
based on MDS study
Need 1
Key
Perceptual positioning
of brands
Segment ideal point Ot
Prof. Markus Christen

5. Two Ways to Reposition Perceived Performance Perceived R & D Economy
Advertising
Prof. Markus Christen

6. Advertising How do you do it? What is the effect?
Enter perceptual objectives with advertising decisions, either in terms of MDS dimensions or semantic scale dimensions (actual target, not a change)
What is the effect?
Immediate effect on customer perceptions, magnitude depends on advertising spending and strength of prior customer perceptions
There is a limit to changing customer perceptions with advertising
Prof. Markus Christen

7. Marketing’s Problem For R&D
Economy
Performance
Convenience
Customer Needs
SAMA
Price
Power
Max. Freq.
Design
Volume
Weight
Technical Specifications
Prof. Markus Christen

8. New Product Development
Give project a name (internal use only)
all projects start with a P
then S for Sonite project or V for Vodite project
remaining 3 characters can be freely chosen
Set product characteristics (5 technical attributes)
your call based on your objectives and interpretation of market research and market trends
Set base cost
based on your price/margin target and available R&D funds
Provide R&D budget
on-line query for immediate information (limited to 7 queries per period)
proceed with limited budget (100K) to obtain perfect feedback from R&D department but takes 1 period to obtain
Prof. Markus Christen

9. R&D Budget Depends On Technical specifications Base cost
budget required increases with design, power, frequency, autonomy
budget required decreases with volume, weight, diameter
Base cost
budget required increases with lower base cost
Past experience of R&D department
budget required decreases with number of completed projects
budget required decreases with similarity to completed projects
Prof. Markus Christen

10. R&D Budget and Base Cost
Do an ‘on-line query’ to obtain immediate feedback
R&D chief pads his estimates
limited to 7 queries per period
Submit project with limited R&D budget (minimum is $100K) to obtain perfect feedback
takes 1 year to obtain
Prof. Markus Christen

11. Outcomes of R&D Projects
weight
design
volume
max.
freq.
power 17 6 85 35 70
PSTOP
Minimum base cost: $110
Requested base cost = $80
below minimum, R&D uses the minimum feasible base cost of $110 as target
budget needed: $800K
Budget provided = $1,000K
project available at base cost of $110
Budget provided = $300K
project unsuccessful, R&D says it would need an additional $500K
Requested base cost = $130
above minimum, so R&D works with this target cost
budget needed: $550K
Budget provided = $1,000K
project available at base cost of $130
Budget provided = $300K
project unsuccessful, R&D says it would need an additional $250K
Prof. Markus Christen

12. Cumulative production
Base Cost
Transfer cost A
Base cost A
current product
(initial experience curve) A1
225 KU
Current
transfer cost A1
cost reduced product
(new experience curve)
100 KU
Cumulative production
Prof. Markus Christen

13. Transfer Costs & Base Cost
Experience Curve
C = C0(Q/Q0)b, b = (85%)
C0: Base Cost
Q0: 100K units
Q: Cumulative Production Volume
C: Average Production (Transfer) Cost
Prof. Markus Christen

14. Cost Reduction with R&D
Transfer cost A
Base cost A
current product
(initial experience curve) B
Base cost B A1
225 KU
Current
transfer cost A1
cost reduced product
(new experience curve)
100 KU
Cumulative production
Prof. Markus Christen

15. There is a beer on the line here!
IMPORTANT NOTE
When you enter the details of an R&D project, make sure that you click the box “Feasibility Study” only when you just want to learn how much it costs to complete.
There is a beer on the line here!
Prof. Markus Christen

16. Uses of an R&D Project Modify existing brand(s) Launch new brand
keep customer awareness and perceptions associated with brand name but brand has features of new project
Launch new brand
target new segment(s)
replace old brand
introduce second brand in same segment …
Shelf it for potential future use
Prof. Markus Christen

17. IMPORTANT NOTE
Whenever you change the project name associated with a particular brand, two things will happen:
the production experience effect will be lost and changed to the new project
existing inventory becomes obsolete – even in the case of cost reduction R&D
Prof. Markus Christen

18. Obsolete Inventory obsolete inventory inventory disposal brand
I'll buy any product
at 75% of its
transfer cost
brand
modification
(name kept)
SAMA
obsolete inventory
inventory
disposal
brand
withdrawal
TRADING COMPANY
Prof. Markus Christen

19. Things To Remember New product development requires time Brand name
think ahead
an R&D project cannot be changed once it is partially completed, but you do not have to complete it if it has no longer any use
Brand name
advertising helps build brand awareness and image
brand image may change slowly
there is no overall corporate image
Multiple brands
same R&D project can be used to launch multiple brands
these brands share production, but not inventory
Prof. Markus Christen

20. Good Luck!
Prof. Markus Christen