Company Strengths Weaknesses Capabilities 1. 2. Resources Opportunities Threats Customers Collaborators Competitors Context

Characteristics of well-written objectives: Lists a quantified standard of performance. States goal in measurable terms. Should be challenging but realistic. Designates a clear time frame.

Revenue Objective: 2,000,000 monthly packs at $125: $250,000,000 Forecast Method 3: Ideal target (overweight females, 35-65, college-educated) 4,300,000 % who might purchase Metabical in Year 1 & after 30% 5% 1,290,000 1,505,000 1,720,000 1,935,000 2,150,000 % who will buy a second package 60% 774,000 903,000 1,032,000 1,161,000 % of these who will buy a third package 20% 154,800 180,600 206,400 232,200 258,000 Sales 2,218,800 2,588,600 2,958,400 3,328,200 3,698,000 Year 1: Revenue Objective: 2,000,000 monthly packs at $125: $250,000,000 Current Market Size = $3,740,000,000 Market Share Objective: ~7%

Metabical Takeaways Economic Value Analysis, Price Elasticity of Demand, and Positioning are intimately related. Identifying a company’s competitive advantage and external opportunities simplifies marketing mix decisions. Clear Objectives and Positioning Statements simplify marketing mix decisions, especially price.

Marketing Channels (Place & Promotion) Key Learning Points Marketing Channel Functions & Push vs. Pull Key factors affecting channel structure & distribution intensity decisions. Channel leadership, complexity & conflict. Channel margin arithmetic – revisited. Any intelligent fool can make things bigger, more complex, and more violent. It takes a touch of genius -- and a lot of courage -- to move in the opposite direction. Albert Einstein

Natureview Case Key Issues: What type of product-market growth strategy do the options represent? Do they require pull versus push strategies? Are competitors, retailers and customers the same? What are or should be the objectives for each option? How do the three options compare with respect to those possible objectives – e.g., revenue, gross margin, required investment, and potential profit? What are the critical marketing mix capabilities required for each option? Does Natureview possess these capabilities? How realistic are the sales forecasts for the three options? What are the strategic pros & cons for each option? What channel management & conflict issues are involved?

Marketing Channel Functions Communication, Transaction, Distribution, Service Communication Relationship Management Marketing Research Assortment Matching/ Customizing Negotiation Financing Physical Distribution Product Assembly/ Installation Service

Company One-to-one marketing Market segmentation Mass marketing Customer-centric Marketing Differentiation Direct Distribution Brand-centric Marketing Differentiation Selective-Intensive Distribution Product Differentiation Exclusive-Selective Distribution Cost Leadership Intensive Distribution Company Retailers Consumers

Push Strategy Persuade wholesalers and retailers to carry brands (sales force). Give brand shelf space & end of aisle displays. Promote brand in coop advertising with trade promotion & allowances Producer Wholesaler Retailer End Customer At the extreme, Producer has little or no contact with end customer; wholesalers &/or retailers are the target customers who then manage the channel functions. Most consistent with Product Differentiation (Exclusive Distribution) or Cost Leadership (Intensive Distribution) advantage. Tablet makers will also have a tough sell differentiating brands at stores such as Best Buy, where devices sit on shelves with similar models…

Pull Strategy Entice customers to try/prefer your product. Lure customers from competitive products (e.g., promotional messages & coupons). Hold & reward loyal customers through advertising reminders, price & quantity discounts, coupons and rebates Producer Wholesaler Retailer End Customer Producer attempts to establish “relationship” with end customer and wholesalers & retailers are collaborators who manage some channel functions. Consistent with Brand-centric Marketing Differentiation (Selective-Intensive Distribution) advantage. Firms pursuing Customer-Centric Marketing Differentiation use direct channels. If you go into an Apple Store, the tablets are front and center, and it's an exciting environment …

Discussion Question Why do you think such a large proportion of the promotional budget is spent on trade promotion? What are the implications for Natureview… Flare?

Trade Relations, Channel Leadership & Conflict A channel leader is required to coordinate activities in a channel system. Relative resources, value-added & capability complexity determine which channel member manages & has power in the channel relationship.

Complex Channels & Channel Power R&D Lab1 FDA R&D Lab2 Ad Agency TV, Web… GSK Physician Patient R&D Lab3 Insurance Co. R&D Labn Distributor Pharmacy Who Manages the Greatest Complexity & Assumes the Most Valuable Channel Functions?

Supermarket Channel Natural Foods Channel Sales Brokers Natureview Distributor Supermarkets Consumer Natureview Natural Foods Wholesaler Natural Foods Distributor Natural Foods Retailer Consumer Conflict?

Multiple Channels? Conflict?

Trade Relations, Channel Leadership & Conflict A channel leader is required to coordinate activities in a channel system. Relative resources, value-added & capability complexity determine which channel member manages & has power in the channel relationship. Mega-retailers and category killers have enormous channel power due to: Industry consolidation. Limited shelf space is a key resource. Scanner data and technology provide a secondary resource and capability  category management (ECR, CRP). Technology can create new channels. Conflict hurts everyone in the channel but especially those with little power.

Planned Prices and Margins for a Software Product Collaborators -- Channel Margin Analysis Cases May Require Price-Setting to Intermediaries Planned Prices and Margins for a Software Product Retail Price $500 What if you wanted a $400 MSRP? $400 Cost of Goods Sold Manufacturer Price Wholesale Price Retail Price RM 40% Wholesale Price $300 $120 $192 $240 GM goes to 72/192 = 37.5% Or reduce COGS 20% to $96 WM 20% Manufacturer Price $240 GM 50% Start with a retail price for an illustrative product, e.g., a software product that sells at retail for $500. Then calculate the margin retailers receive for retailing the product; for example, software specialty stores would likely receive 40 percent margins for this type of software product. Therefore, to accommodate a 40 percent retail margin the product must have a wholesale price of $300. If wholesale distributors were involved in the channel they would also receive a margin, say 20 percent. Consequently, to accommodate the wholesale margin the manufacturer’s price would have to be $240. If the manufacturer wanted a 50 percent margin, then the target cost of goods sold for the manufacturer would have to be $120. Cost of Goods Sold $120 COGS 50%

Final Exam Sample Problem: Channel Pricing (K&P, Ch 2, Ex #4) After spending $300,000 for research and development, chemists at Diversified Citrus Industries have developed a new breakfast drink, called Zap, which provides the consumer with twice the amount of vitamin C currently available in breakfast drinks using all natural ingredients. Zap will be packaged in an 8-ounce container and will be introduced to the breakfast drink market, which is estimated at 21 million 8-ounce servings nationally. A major management concern is the lack of funds available for marketing. Accordingly, management has decided to use newspapers (rather than television) to promote Zap in the introductory year and distribute Zap in major metropolitan areas that account for 65 percent of U.S. breakfast drink volume. Newspaper advertising will carry a coupon that will entitle the consumer to receive $0.20 off the price of the first can purchased. The retailer will receive the regular margin and be reimbursed for redeemed coupons by Diversified Citrus Industries. Past experience indicates that for every five cans sold during the introductory year, one coupon will be returned. The cost of the newspaper advertising campaign (excluding coupon returns) will be $250,000. Other fixed overhead costs are expected to be $90,000 per year. Management has decided that the suggested retail price to the consumer for the 8-ounce can should be $0.50. The only unit variable costs for the product are $0.18 for materials and $0.06 for labor. Retailers demand a margin of 20 percent of the suggested retail price and wholesalers a margin of 10 percent of the retailers’ cost. At what price will Diversified Citrus Industries be selling its product to wholesalers?  What is the contribution per unit for Zap? What is the break-even unit volume in the first year?  What is the first-year break-even share of market?

Review Questions Identify key channel functions associated with communications, transaction, distribution & service. What factors affect distribution intensity & channel structure decisions? Identify 3 distinguishing characteristics of a push versus a pull strategy. What are the challenges associated with using multiple channels? What determines which channel partner will lead the channel?