Strategic Marketing 1. Imperatives for Market-Driven Strategy

Strategic Marketing 1. Imperatives for Market-Driven Strategy
2. Markets and Competitive Space 3. Strategic Market Segmentation 4. Strategic Customer Relationship Management 5. Capabilities for Learning about Customers and Markets 6. Market Targeting and Strategic Positioning 7. Strategic Relationships 8. Innovation and New Product Strategy 9. Strategic Brand Management 10. Value Chain Strategy 11. Pricing Strategy 12. Promotion, Advertising and Sales Promotion Strategies 13. Sales Force, Internet, and Direct Marketing Strategies 14. Designing Market-Driven Organizations 15. Marketing Strategy Implementation And Control

Imperatives for Market-Driven Strategy
Chapter 1 Imperatives for Market-Driven Strategy McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

Objectives Pivotal role of market-driven strategy in designing and implementing business/marketing strategies Links between business/marketing strategy and corporate strategy Challenges in the modern environment

Characteristics of a Market-Driven Strategy
Becoming Market- Orientation Achieving Superior Performance Determining Distinctive Capabilities Customer Value/ Capabilities Match

Market-Driven Strategy (1)
Becoming market-oriented Customer focus Competitor intelligence Cross-functional coordination Performance implications

BECOMING MARKET ORIENTED
Customer is the focal point of the organization Commitment to continuous creation of superior customer value Superior skills in understanding and satisfying customers Requires involvement and support of the entire workforce Monitor rapidly changing customer needs and wants

Determine the impact of changes on customer satisfaction
Increase the rate of product innovation Pursue strategies to create competitive advantage

Characteristics of Market Orientation
Customer Focus What are the customer’s value requirements? Competitive Intelligence Importance of understanding the competition as well as the customer Cross-Functional Coordination Remove the walls between business functions Performance Consequences Market orientation leads to superior organizational performances

Becoming a Market-Oriented Organization
Information Acquisition Cross-Functional Analysis of Information Shared Diagnosis and Coordinated Action Delivery of Superior Customer Value

Market Orientation Information Acquisition
Gather relevant information on customers, competition, and markets Involve all business function Inter-functional Assessment Share information and develop innovative products with people from different function Shared diagnosis and action Deliver superior customer value

Becoming market-oriented Customer focus Competitor intelligence Cross-functional coordination Performance implications Determining distinctive capabilities

DISTINCTIVE CAPABILITIES
“Capabilities are complex bundles of skills and accumulated knowledge, exercised through organizational processes, that enable firms to coordinate activities and make use of their assets.” George S. Day, Journal of Marketing, October 1994, p.38.

Southwest Airline’s Distinctive Capabilities
Organizational Processes Southwest uses a point-to-point route system rather than the hub-and-spoke design used by many airlines. The airline offers services to 57 cities in 29 states, with an average trip about 500 miles. The carrier’s value proposition consists of low fares and limited services (no meals). Nonetheless, major emphasis throughout the organization is placed on building a loyal customer base. Operating costs are kept low by using only Boeing 737 aircraft, minimizing the time span from landing to departure, and developing strong customer loyalty. The company continues to grow by expanding its point-to-point route network. Skills and Accumulated Knowledge The airline has developed impressive skills in operating its business model at very low cost levels. Accumulated knowledge has guided management in improving the business design over time. Coordination of Activities Coordination of activities across business functions is facilitated by the point-to-point business model. The high aircraft utilization, simplification of functions, and limited passenger services enable the airline to manage the activities very efficiently and to provide on-time point-to-point services offered on a frequent basis. Assets Southwest’s key assets are very low operating costs, loyal customer base, and high employee esprit de corps

Capabilities Disproportionate (higher) contribution to superior
customer value Compelling Logic of Distinctive Capabilities Provides value to customers on a more cost-effective basis Source: George S. Day, Journal of Marketing, October 1994, p. 38.

Capabilities Desirable Capabilities Applicable to Multiple
Competition Situations Superior to the Competition Difficult to Duplicate Source: George S. Day, Journal of Marketing, October 1994, 49.

Becoming market-oriented Customer focus Competitor intelligence Cross-functional coordination Performance implications Determining distinctive capabilities Types of capabilities

Types of Capabilities Outside-In Processes Spanning Processes
Inside-Out Processes

Organization’s Process
EXTERNAL EMPHASIS INTERNAL EMPHASIS Outside-In Processes Inside-Out Processes Spanning Processes Financial management Cost control Technology development Integrated logistics Manufacturing/ transformation processes Human resources management Environment health and safety Market sensing Customer linking Channel bonding Technology monitoring Customer order fulfillment Pricing Purchasing Customer service delivery New product/service development Strategy development Source: George S. Day, Journal of Marketing, October 1994, 41.

Becoming market-oriented Customer focus Competitor intelligence Cross-functional coordination Performance implications Determining distinctive capabilities Types of capabilities Creating value for customers

Matching Customer Value and Distinctive Capabilities
Value Requirements Distinctive Capabilities

CREATING VALUE FOR CUSTOMERS
Customer Value: Value for buyers consists of the benefits less the costs resulting from the purchase of products. Superior value: positive net benefits Creating Value: “Customer value is the outcome of a process that begins with a business strategy anchored in a deep understanding of customer needs.” Source: C. K. Troy, The Conference Board Inc., 1996, 5.

Creating Value for Customers
Benefits Costs

Psychic and physic costs
Value Composition Product Services Employees Image Benefits Value (gain/loss) Monetary costs Costs (sacrifices) Time Psychic and physic costs

Becoming market-driven Marketing sensing capabilities Customer linking capabilities Aligning structure and processes

Becoming Market Driven
Market Sensing Capabilities MARKET – DRIVEN STRATEGIES Customer Linking Capabilities

Market Driven Initiatives
Market Sensing Capabilities Effective processes for learning about markets Sensing: Collected information needs to be shared across functions and interpreted to determine proper actions. Customer Linking Capabilities Create and maintain close customer relationships

Aligning Structure and Processes
Potential change of organizational design Improve existing processes Process redesign Cross-functional coordination and involvement Primary targets for reengineering: Sales and marketing, customer relations, order fulfillment, and distribution

Corporate, Business and Marketing Strategy (1)
What is corporate strategy?

CORPORATE STRATEGY Deciding the Scope and Purpose of the Business
Objectives Actions and Resources for Achieving Objectives

CHARACTERISTICS OF SUCCESSFUL STRATEGY
Unique competitive position for the company. Activities tailored to strategy. Clear trade-offs and choices vis-à-vis competitors. Competitive advantage arises from fit across activities. Sustainability comes from the activity system not the parts. Operational effectiveness a given. Source: Michael E. Porter, “What Is Strategy,” Harvard Business Review, November-December 1996, 74.

What is corporate strategy? Corporate strategy framework Deciding corporate vision Objectives Resources Business composition Structure, systems and processes

CORPORATE STRATEGY COMPONENTS
Management’s long-term vision for the corporation Objectives Assets, skills, and capabilities Businesses in which the corporation competes Structure, systems, and processes Creation of value Source: David J. Collis and Cynthia A. Montgomery, Corporate Strategy, Chicago: Irwin, 1997, 7-12.

Business and marketing strategy relationships Strategic marketing

CORPORATE, BUSINESS AND MARKETING STRATEGY

The marketing strategy process Markets, segments and customer value Markets and competitive space Strategic market segmentation Strategic customer relationship management Capabilities for continuous learning about markets

Designing market-driven strategies Market targeting and strategic positioning Strategic relationships Innovation and new product strategy Market-driven program development Strategic brand management Value chain strategy Pricing strategy Promotion strategy

Implementing and managing market-driven strategy Designing market-driven organizations Marketing strategy implementation and control

MARKETING STRATEGY PROCESS
Markets, Segments And Value Implementing and Managing Market-Driven Strategy Designing Market-Driven Strategies Market-Driven Program Development

Challenges in the modern environment
Escalating globalization Technology diversity and uncertainty The Web 2.0 Ethical behavior and corporate social responsiveness

Strategic Marketing Planning
Developing the strategic plan for each business Preparing the marketing plan Planning relationships and frequency Planning considerations Responsibility for preparing plans Planning unit

MARKETING PLAN OUTLINE
I. Strategic Situation Summary Summarize the key points from your situation analysis (market analysis, segments, industry/competition) in order to recount the major events and provide information to better understand thestrategies outlined in the marketing plan. II. Market-Targets and Objectives The market target may be defined demographically (key characteristics only), geographically, or in social/economic terms. Each market target should have needs and wants that differ to some degree from other targets. These differences may be with respect to types of products purchased, use situation, frequency of purchase, and other variations that indicate a need to alter the positioning strategy to fit the needs and wants of each target. An objective is a quantified goal identifying what is expected when. It specifies the end results expected. The objectives should be written for each target market. Objectives should also be included for the following program components: (1) product, (2) price, (3) distribution, (4) promotion (salesforce, advertising, sales promotion, and public relations), and (5) technical services.

III. Positioning Statements Write statements that describe how you want each market target to perceive each product relative to competition. State the core concept used to position the product (brand) in the eyes and mind of the targeted buyer. The positioning statement should describe: (1) What criteria or benefits the customer considers when buying a product along with the level of importance, (2) What we offer that differentiates our product from competition, and (3) The limitations of competitive products.

IV. Market Mix Strategy for Each Market Target
A. Product Strategy Identify how each product fits the market target. Other issues that may be addressed would be new product suggestions, adjustments in the mix of existing products, and product deletion candidates. B. Price Strategy The overall pricing strategy (I.e., competitive, premium-priced, etc.) should be identified along with a cost/benefit analysis if applicable. Identify what role you want price to play, i.e., increase share, maintenance, etc. C. Distribution Strategy Describe specific distribution strategies for each market target. Issues to be addressed are intensity of distribution (market coverage), how distribution will be accomplished, and assistance provided to distributors. The role of the sales force in distribution strategy should also be considered. D. Promotion Strategy Promotion strategy is used to initiate and maintain a flow of communication between the company and the market target. To assist in developing the communications program, the attributes or benefits of our product should be identified for each market target. How our product differs from competition (competitive advantage) should be listed. The sales force’s responsibilities in fulfilling the market plan must be integrated into the promotion strategy. Strategies should be listed for (1) personal selling, (2) advertising, (3) sales promotion, and (4) public relations.

E. Marketing Research Describe the market research problem and the kind of information needed. Include a statement which addresses why this information is needed. The specific market research strategies can be written once the above two steps have been followed. V. Coordination with Other Business Functions Indicate other departments/functions that have responsibilities for implementing the marketing plan. VI. Sales Forecasts and Budgets VII. Contingency Plans Indicate how your plans should be modified if events should occur that are different from those assumed in the plan.

Strategic Plans Lose Favor Slump Showed Bosses Value of Flexibility, Quick Decisions
By JOANN S. LUBLIN and DANA MATTIOLI During the recession, as business forecasts based on seemingly plausible swings in sales smacked up against reality, executives discovered that strategic planning doesn't always work. Some business leaders came away convinced that the new priority was to be able to shift course on the fly. Office Depot Inc., for example, began updating its annual budget every month, starting in early Other companies started to factor more extreme scenarios into their thinking. A few even set up "situation rooms,'' where staffers glued to computer screens monitored developments affecting sales and finances.

Coke Bottle Is Part Plant But It Feels and Functions Like a Regular Plastic Container
By CHRIS HERRING Coca-Cola Co., under fire from environmentalists for using plastic bottles, has introduced a new packaging material made partly from plants. The container has "the same weight, the same feel, the same chemistry, and functions exactly the same way" as a regular plastic bottle, a Coke spokeswoman says. Coke isn't the only beverage concern trying to reduce its carbon footprint. Rival PepsiCo Inc. has introduced a compostable bag made from plants for its SunChips snacks. But Coke is the world's biggest drink maker, and Coke Chairman and Chief Executive Muhtar Kent calls the new container, which uses material derived from sugar cane, "the first generation of the bottle of the future." Coke touted its "plantbottle" at the Climate Change Summit in Copenhagen last month, and it plans another push next month at the Winter Olympics in Vancouver, where all the sodas and water it provides will be packaged in the plantbottle. "Preliminary research" shows the new container leaves a smaller carbon footprint than regular plastic bottles, Coke says.

Chapter 2 Markets and Competitive Space
McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

MARKETS AND STRATEGIES
The Challenges ― Markets are increasingly complex, turbulent, and interrelated. Importance of a broad view of the market. Essential to develop a vision about how the market is likely to change in the future. Continuous Monitoring is Necessary to: Find promising opportunities Identify shifts in value requirements Understand competitors’ positioning Guide targeting and positioning decisions

OPPORTUNITIES OUTSIDE THE COMPETITIVE BOX
New Types of Competition Traditional Competitors New Business Models New Customers New Customers Conventional Value Propositions Existing Customer Base New Customer Base(s)

Markets Impact Strategies
Market changes often require altering strategies Forces of change create both market opportunities and threats Inherent danger in faulty market sensing

DEFINING AND ANALYZING PRODUCT-MARKETS
Determine the Boundaries and Structure of the Product-Market Form the Product-Market Describe and Analyze End-Users Analyze Competition Forecast Market Size and Rate of Change

Matching Needs with Product Benefits
A product – market matches people with needs to the product benefits that satisfy those needs “A product – market is the set of products judged to be substitutes within those usage situations in which similar patterns of benefits are sought by groups of customers.”* *Srivastava, et al. (1984) Journal of Marketing, Spring, 32.

INNOVATION FEATURE Progressive Insurance:
Customer Needs at the Center of Strategy In the period 1994 to 2004, Progressive Insurance increased sales from $1.3 billion to $9.5 billion, and ranks high in the Business Week Top 50 U.S. companies for shareholder value creation. The company invents new ways of providing services to save customers time, money and irritation, while often lowering costs at the same time. Loss adjusters are sent to the road accidents rather than working at head office, and they have the power to write checks on the spot. Progressive reduced the time needed to see a damaged automobile from seven days to nine hours. Policy holders’ cars are repaired quicker, and the focus on this central customer need has won much automobile insurance business for Progressive. These initiatives also enable Progressive to reduce its own costs – the cost of storing a damaged automobile for a day is $28, about the same as the profit from a six-month policy. Source: Adapted from Mitchell, Adrian (2004)”Heart of the Matter,” The Marketer, June 12, 14.

Product – Market Boundaries and Structure
Determining Product-Market Structure Start with the generic need satisfied by the product category of interest to management Identify the product categories (types) that can satisfy the generic need Form the specific product – markets within the generic product – market

Illustrative Fast-Food Product-Market Structure
SUPER MARKETS MICROWAVE OVENS CONVENIENCE STORES TRADITIONAL RESTAURANTS FAST-FOOD MARKET

Extent of Market Complexity
Three characteristics of markets: 1. Functions or uses of the product 2. The enabling technology of the product 3. Customer segments in the product-market

Illustrative Product – Market Structure
Food and beverages for breakfast meal Generic Product Class Cereals Product Type Ready to eat Variant A Regular Natural Variant B Pre-sweetened Nutritional Life Product 19 Special K Brands

Identifying and Describing End-Users
Illustrative buyer characteristics in consumer markets: Family size, age, income, geographical location, sex, and occupation Illustrative factors in organizational markets: Type of industry Company size Location Type of products

How Buyers Make Choices
BUYING DECISION PROCESS: Problem recognition Information search Alternative evaluation Purchase decision Post-purchase behavior

Environmental Influences
External factors influencing buyers’ needs and wants: Government, social change, economic shifts, technology etc. These factors are often non-controllable but can have a major impact on purchasing decisions

Building Customer Profiles
Start with generic product – market Move next to product- type and variant profiles >> increasingly more specific Customer profiles guide decision making (e.g. targeting, positioning, market segmentation etc.)

ANALYZING COMPETITION
1. Define the Competitive Arena for the Generic, Specific, and Variant Product Markets PRODUCT- MARKET STRUCTURE AND SEGMENTS 4. Identify and Evaluate Potential Competitors 2. Identify and Describe Key Competitors 3. Evaluate Key Competitors

Examples of Levels of Competition
Baseball cards Bottle water Video Games Fast Food Regular colas Diet lemon limes Ice Cream Beer Diet-Rite Cola Fruit flavored colas Diet Coke Diet Pepsi Wine Product from competition: diet colas Lemon limes Product category competition: soft drinks Juices Coffee Generic competition: beverages Budget competition: food & entertainment

Key Competitor Analysis
Business scope and objectives Management experience, capabilities, and weaknesses Market position and trends Market target(s) and customer base Marketing program positioning strategy Financial, technical, and operating capabilities Key competitive advantages (e.g., access to resources, patents)

Competitor Evaluation Extent of Market Coverage Current Capabilities
Customer Satisfaction Past Performance

MARKET SIZE ESTIMATION
Product-Market Forecast Relationships (area denotes sales in $’s) Market Potential Estimate Unrealized Potential Company Sales Forecast Industry Sales Forecast

Product-Market Forecast Relationships for Industrial Painting Units
Sales (in 1000s of units) 900 800 Market Potential 700 600 Sales Forecast 500 400 300 200 Company XYZ Sales Forecast 100 2003 2004 2005 2006 2007 2008 2009 2010

DEVELOPING A STRATEGIC VISION ABOUT THE FUTURE
Industry Boundaries Blurring and Evolving Competitive Structure and Players Changing Value Migration Paths Product Versus Business Design Competition Firms are Collaborating to Influence Industry Standards Source: C. K. Prahalad, Journal of Marketing, Aug. 1995, vi.

Chapter 3 Strategic Market Segmentation

Strategic market segmentation (1)
Levels and types of market segmentation

Levels and types of market segmentation
Vision Strategic intent Product benefits Strategic Segmentation Resource allocation Alignment Planning Managerial Segmentation Marketing programs - Advertising - Sales - Distribution Operational Segmentation

Best Buy segmentation strategy
Jill’s - “soccer moms” Barry’s - wealthy professionals Buzz’s - “tech enthusiasts” Ray’s - the family man Mr Storefront - the small business customer Carrie’s - young, single females Helen and Charlie’s - older couples whose children have left home Gov. Palin’s “_________________” moms

From Mass Markets to Micro Markets
OLD NEW CONSUMERS Passively receive Empowered media users whatever TV control and shape content networks thanks to TiVo, iPod and broadcast Internet ASPIRATIONS To keep up with To standout from the the crowd crowd TV CHOICE Three networks Hundreds of channels plus maybe a plus video on demand PBS station MAGAZINES Age of the big Age of the special interest glossies: Time, magazine for every age Life, Newsweek and affinity group ADS Everyone hums Talking to a group of the Alka-Seltzer one, ads go ever jingle narrower BRANDS Rise of the big, Niche brands, product ubiquitous brands extensions and mass from Coca-Cola customization mean many to Tide product variations Source: Anthony Bianco, “The Vanishing Mass Market”, Business Week, July , 58-62

Market-driven strategy and segmentation Market segmentation, value opportunities and new market space Market targeting and strategic positioning

Segmentation and Market-Driven Strategy
SEGMENTS VALUE OPPORTUNITIES CAPABILITIES/ SEGMENT MATCH TARGET(S) POSITIONING STRATEGY

Market-driven strategy and segmentation Market segmentation, value opportunities and new market space Market targeting and strategic positioning Activities and decisions in market segmentation

Market Segmentation Activities and Decisions
Market to be Segmented Strategic Analysis of Segments Decide How to Segment Finer Segmentation Strategies Form Segments

Market-driven strategy and segmentation Market segmentation, value opportunities and new market space Market targeting and strategic positioning Activities and decisions in market segmentation Defining the market to be segmented

Identifying market segments Segmentation variables Characteristics of people and organizations Consumer markets Organizational markets Product use situation segmentation Buyers’ needs and preferences Consumer needs Attitudes Perceptions Purchase behavior

Segmentation Variables
Purchase Behavior Characteristics of People/ Organizations Buyers’ Needs/ Preferences Use Situation

Illustrative Segmentation Variables
Consumer Markets Industrial/ Organizational Markets Characteristics of people/ organizations Age, gender, income, family size, lifecycle stage, geographic location, lifestyle Type of industry, size, geographic location, corporate culture, stage of development, producer/ intermediary Use situation Occasion, importance of purchase, prior experience with product, user status Application, purchasing Procedure (new task, modified rebuy, straight rebuy Buyers’ needs/ preferences Brand loyalty status, brand preference, benefits sought, quality, proneness to make a deal Performance requirements, brand preferences, desired features, service requirements Purchase behavior Size of purchase, frequency of purchase Volume, frequency of purchase

Forming market segments Requirements for segmentation Response differences Identifiable segments Actionable segments Cost/benefits Stability Approaches to segment identification Customer group identification Forming groups based on response differences

Miller Brewing’s beer brand targets
Miller Genuine Draft - “mainstream sophisticates” Milwaukee’s Best Light - “hardworking men” Pilsner Urquell - “beer afficionados” Miller Icehouse - for “drinking buddies”

Requirements for Segmentation
Identifiable segments Response differences Actionable segments Segmentation Requirements Stability over time Favorable cost/benefit

Approaches to Segment Identification
CUSTOMER RESPONSE PROFILE IDENTIFIERS OF CUSTOMER GROUPS Use Situation Buyers Needs and Preferences Purchase Behavior and Loyalty Characteristics of People and Organizations

Segment Dimensions for Hotel Lodging Services

Illustrative Example: Gasoline Buyers
Higher-income, middle-aged men, drive miles a year… buy premium with a credit card … purchase sandwiches and drinks from the convenience store… will sometimes use carwash Road Warriors 16% of buyers Men and women with moderate to high incomes, loyal to a brand and sometimes a particular station … frequently buy premium, pay in cash True Blues 16% of buyers Upwardly mobile men and women - half under 25 years of age - constantly on the go … drive a lot snack heavily from the convenience store Generation F3 (Fuel, Food & Fast) 27% of buyers Usually housewives who shuttle children around during the day and use whatever gas station is based on town or on route of travel Homebodies 21% of buyers Not loyal to brand or station and rarely buy premium … frequently on tight budgets. Price Shoppers 20% of buyers

Selecting the segmentation strategy Deciding how to segment Strategic analysis of market segments Customer analysis Competitor analysis Positioning analysis Estimating segment attractiveness Segmentation “fit” and implementation

Strategic Analysis of Market Segments
Customer Analysis Financial and Market Attractiveness Competitor Analysis Positioning Analysis

Segmentation “Fit” for Implementation
Segment Attractiveness and Internal Compatibility Internal Compatibility High Low Attractive segments that match with company capabilities Attractive segments but with poor match with company capabilities High Market Segment Attractiveness Unattractive segments but with match to company capabilities Unattractive segments that do not match with company capabilities Low

Strategic Market Segmentation
Chapter 3 Strategic Market Segmentation

Levels and types of market segmentation

Levels and types of market segmentation
Vision Strategic intent Product benefits Strategic Segmentation Resource allocation Alignment Planning Managerial Segmentation Marketing programs - Advertising - Sales - Distribution Operational Segmentation

Best Buy segmentation strategy
Jill’s - “soccer moms” Barry’s - wealthy professionals Buzz’s - “tech enthusiasts” Ray’s - the family man Mr Storefront - the small business customer Carrie’s - young, single females Helen and Charlie’s - older couples whose children have left home

From Mass Markets to Micro Markets
OLD NEW CONSUMERS Passively receive Empowered media users whatever TV control and shape content networks thanks to TiVo, iPod and broadcast Internet ASPIRATIONS To keep up with To standout from the the crowd crowd TV CHOICE Three networks Hundreds of channels plus maybe a plus video on demand PBS station MAGAZINES Age of the big Age of the special interest glossies: Time, magazine for every age Life, Newsweek and affinity group ADS Everyone hums Talking to a group of the Alka-Seltzer one, ads go ever jingle narrower BRANDS Rise of the big, Niche brands, product ubiquitous brands extensions and mass from Coca-Cola customization mean many to Tide product variations Source: Anthony Bianco, “The Vanishing Mass Market”, Business Week, July , 58-62

Market-driven strategy and segmentation Market segmentation, value opportunities and new market space Market targeting and strategic positioning

Segmentation and Market-Driven Strategy
SEGMENTS VALUE OPPORTUNITIES CAPABILITIES/ SEGMENT MATCH TARGET(S) POSITIONING STRATEGY

Market-driven strategy and segmentation Market segmentation, value opportunities and new market space Market targeting and strategic positioning Activities and decisions in market segmentation

Market Segmentation Activities and Decisions
Market to be Segmented Strategic Analysis of Segments Decide How to Segment Finer Segmentation Strategies Form Segments

Market-driven strategy and segmentation Market segmentation, value opportunities and new market space Market targeting and strategic positioning Activities and decisions in market segmentation Defining the market to be segmented

Product Variant Segmentation
Product Type Segmentation Generic Segmentation

Identifying market segments Segmentation variables Characteristics of people and organizations Consumer markets Organizational markets Product use situation segmentation Buyers’ needs and preferences Consumer needs Attitudes Perceptions Purchase behavior

Segmentation Variables
Purchase Behavior Characteristics of People/ Organizations Buyers’ Needs/ Preferences Use Situation

Illustrative Segmentation Variables
Consumer Markets Industrial/ Organizational Markets Characteristics of people/ organizations Age, gender, income, family size, lifecycle stage, geographic location, lifestyle Type of industry, size, geographic location, corporate culture, stage of development, producer/ intermediary Use situation Occasion, importance of purchase, prior experience with product, user status Application, purchasing Procedure (new task, modified rebuy, straight rebuy Buyers’ needs/ preferences Brand loyalty status, brand preference, benefits sought, quality, proneness to make a deal Performance requirements, brand preferences, desired features, service requirements Purchase behavior Size of purchase, frequency of purchase Volume, frequency of purchase

Forming market segments Requirements for segmentation Response differences Identifiable segments Actionable segments Cost/benefits Stability Approaches to segment identification Customer group identification Forming groups based on response differences

Miller Brewing’s beer brand targets
Miller genuine draft - “mainstream sophisticates” Milwaukee’s Best Light - “hardworking men” Pilsner Urquell - “beer afficionados” Miller Icehouse - for “drinking buddies”

Requirements for Segmentation
Identifiable segments Response differences Actionable segments Segmentation Requirements Stability over time Favorable cost/benefit

Approaches to Segment Identification
CUSTOMER RESPONSE PROFILE IDENTIFIERS OF CUSTOMER GROUPS Use Situation Buyers Needs and Preferences Purchase Behavior and Loyalty Characteristics of People and Organizations

Segment Dimensions for Hotel Lodging Services

Illustrative Example: Gasoline Buyers
Higher-income, middle-aged men, drive miles a year… buy premium with a credit card … purchase sandwiches and drinks from the convenience store… will sometimes use carwash Road Warriors 16% of buyers Men and women with moderate to high incomes, loyal to a brand and sometimes a particular station … frequently buy premium, pay in cash True Blues 16% of buyers Upwardly mobile men and women - half under 25 years of age - constantly on the go … drive a lot snack heavily from the convenience store Generation F3 (Fuel, Food & Fast) 27% of buyers Usually housewives who shuttle children around during the day and use whatever gas station is based on town or on route of travel Homebodies 21% of buyers Not loyal to brand or station and rarely buy premium … frequently on tight budgets. Price Shoppers 20% of buyers

Illustrative Consumer Perception Map
Expensive GROUP II Brand A Brand E Brand B GROUP V Low Quality High Quality GROUP I GROUP III Brand C Brand D GROUP IV Inexpensive

Finer segmentation strategies Logic Customized offerings Diverse customer base Close customer relationships Micro-segmentation Mass customization Variety-seeking strategy

Selecting the segmentation strategy Deciding how to segment Strategic analysis of market segments Customer analysis Competitor analysis Positioning analysis Estimating segment attractiveness Segmentation “fit” and implementation

Strategic Analysis of Market Segments
Customer Analysis Financial and Market Attractiveness Competitor Analysis Positioning Analysis

Segmentation “Fit” for Implementation
Segment Attractiveness and Internal Compatibility Internal Compatibility High Low Attractive segments that match with company capabilities Attractive segments but with poor match with company capabilities High Market Segment Attractiveness Unattractive segments but with match to company capabilities Unattractive segments that do not match with company capabilities Low

STRATEGIC CUSTOMER RELATIONSHIP MANAGEMENT
CHAPTER 4 STRATEGIC CUSTOMER RELATIONSHIP MANAGEMENT McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

PIVOTAL ROLE OF CUSTOMER RELATIONSHIP MANAGEMENT
DEVELOPING A CRM STRATEGY CRM Levels CRM Strategy Development CRM Implementation VALUE CREATION PROCESS Customer Value Value Received by the Organization CRM and Value Chain Strategy CRM AND STRATEGIC MARKETING Implementation Performance Metrics Short-Term Versus Long-Term Value Competitive Differentiation

CUSTOMER RELATIONSHIP MANAGEMENT
CRM is a cross-functional core business process concerned with achieving improved shareholder value through the development of effective relationships with key customers and customer segments. CRM Recognizes That Customers: Vary in their economic value to the company Differ in their expectations toward the firm

CUSTOMER LIFETIME VALUE
4-3 CUSTOMER LIFETIME VALUE Customer lifetime value (CLV) calculates past profit produced by the customer for the firm – the sum of all the margins of all the products purchased over time, less the cost of reaching that customer To this is added a forecast of margins on future purchases (under different assumptions for different customers), discounted back to their present value. This process provides an estimate of the profitability of a customer during the time span of the relationship. The CLV calculation is a powerful tool for focusing marketing and promotional efforts where they will be most productive.

PERSPECTIVES TOWARD CRM
4-4 PERSPECTIVES TOWARD CRM STRATEGIC- THE ENTIRE COMPANY REQUIRED MARKETING FUNCTIONS THE CUSTOMER

THE STEPS IN DEVELOPING A CRM STRATEGY
4-5 THE STEPS IN DEVELOPING A CRM STRATEGY Gain enterprise commitment Build a CRM project team Business needs analysis Define the CRM strategy Source: V. Kumar and Werner J. Reinartz, Customer Relationship Management (Hoboken, NJ: John Wiley & Sons, Inc.), 2006, 39.

DEFINE THE CRM STRATEGY
4-6 DEFINE THE CRM STRATEGY Value Proposition 1 5 Other Stakeholders 2 Business Case CRM STRATEGY 4 3 Enterprise Transformation Plan Customer Strategy Source: V. Kumar and Werner J. Reinartz, Customer Relationship Management (Hoboken, NJ: John Wiley & sons, Inc.), 2006, 42.

IMPLEMENTATION DANGERS
4-7 IMPLEMENTATION DANGERS Implementing Without Developing a Customer Strategy Failing to Initiate Necessary Organizational Change Allowing Technology to Dominate the CRM Process Focusing on the Wrong Customers

VALUE CREATION PROCESS
4-8 VALUE CREATION PROCESS Value Received by the Customer Value Received by the Organization THE VALUE EXCHANGE Successful Value Exchange

Happy (And Not-So-Happy) Customers
4-9 METRICS FEATURE How General Electric Co. Measures Customers’ Experience Happy (And Not-So-Happy) Customers General Electric is a big user of the “Net Promoter” concept of customer satisfaction, popularized by Fred Reichheld of Bain & Co. Below, questions similar to those on which GE’s Capital Solutions unit asks customers to rate the unit’s performance on a 0 – 10 scale. How willing are you to recommend us to a friend or associate? How would you rate our ability to meet your needs? How would you rate our people? How would you rate our processes? What is your impression of our market reputation? How would you rate the cost of doing business with us? How would you rate the overall value of our product or service as being worth what you paid? Source: Kathryn Kranhold, “Client-Satisfaction Tool Takes Root,” The Wall Street Journal, July 10, 2006, B3.

CRM AND VALUE CHAIN STRATEGY
4-10 CRM AND VALUE CHAIN STRATEGY The Perfect Customer Experience “The perfect customer experience, which must be affordable for the company in the context of the segments in which it operates and its competition, is a relatively new concept. This concept is now being embraced in industry by companies such as TNT, Toyota’s Lexus, Oce, and Guinness Breweries, but it has yet to receive much attention in the academic literature. Therefore, multi-channel integration is a critical process in CRM because it represents the point of co-creation of customer value. However, a company’s ability to execute multi-channel integration successfully is heavily dependent on the organization’s ability to gather and deploy customer information, from all channels and to integrate it with other relevant information.” Adrian Payne and Pennie Frow, “A Strategic Framework for Customer Relationship Management,” Journal of Marketing (October 2005), 173.

CRM AND STRATEGIC MARKETING
4-11 CRM AND STRATEGIC MARKETING STRATEGIC MARKETING CRM From the perspective of strategic marketing, there are several reasons why CRM is important and why there should be extensive marketing involvement in decisions about CRM. Importantly, an organizational perspective is needed in guiding the CRM strategy.

Capabilities for Learning About Customers and
Chapter 5 Capabilities for Learning About Customers and Markets McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

Capabilities for learning about customers and markets
Market-driven strategy, market sensing and learning processes Marketing information and knowledge resources Marketing intelligence and knowledge management Ethical issues in collecting and using information

Learning capabilities at P&G
Competitive strength from superior customer knowledge To deliver a customer experience, less formal research, more one-to-one communication Consumer Village Online virtual reality Cave Watch people clean baths Understand what it is like to live on $50/month Social networking sites

Market Sensing and Learning Processes
Market sensing processes Learning organization Learning and competitive advantage Learning about markets Barriers to market learning processes

Market sensing at Tesco International
Retailer entry to U.S. grocery market, not with existing format Discovering what U.S. consumers want: Senior managers live with U.S. families Probe lifestyles of families Prototype store Developing a new retail format and targeting the “grocery gap”

Market sensing processes
Open-minded inquiry processes Analyzing competitors’ actions Listening to front-line employees Searching for latent customer needs Scanning the peripherary of the market Encouraging experimentation

Marketing information and knowledge resources
Scanning processes Specific marketing research studies Internal and external marketing information resources Relationships with external marketing research providers

Screening A New Research Supplier
1. Client ® Would you recommend this supplier? 2. Supplier ® Do you have sufficient funds for this project? 3. What parts of the project will be subcontracted, and how do you manage subcontractors? 4. May I see your interviewer’s manual and data entry manual? 5. How do you train and supervise interviewers?

Screening A New Research Supplier
6. What percentage of interviews are validated? 7. May I see a typical questionnaire? 8. Who draws your samples? 9. What percentage of your data entry is verified? 10. Managers - What do you think about this supplier? Source: Seymour Sudman and Edward Blair, Marketing Research, A Problem-Solving Approach, Irwin/McGraw-Hill, 1998, 67.

A Framework for Market Sensing
Probability of the Event Occurring High Medium Low 7 Field of Utopia 6 Dreams Effect of the Event on the Company 5 Things to 4 Watch 3 Future 2 Danger Risks 1 * 1=Disaster, 2=Very bad, 3=Bad, 4=Neutral, 5=Good, 6=Very good, 7=Ideal

Learning About Markets
Objective Inquiry Keeping and Gaining Access to Prior Learning Synergistic Information Distribution Mutually Informed Interpretations Source: George S. Day, Journal of Marketing, October 1994.

Barriers to market learning
Managers reject new insights/information Rigid organizational structures and inflexible information systems Politics favour the status quo Overwhelming pressure of existing business operations Tendency to “active inertia”

Best Buy’s customer knowledge strategy
Strategy treats customers as individual, develops solutions for needs and engages employees to serve them New ideas from listening more closely to customers and employees Knowledge shared with manufacturers and product developers Core innovation competency is gathering and synthesizing customer intelligence

Customers and design at Xerox
“Customer-led innovation” - “dreaming with the customer” Not just building prototype and getting feedback Focus groups as first step in commercial printer design Changing designs in response to customer insights Investment in understanding what customers think about the “bright ideas”

Marketing research project
Defining the problem Understanding the limitations of the research Quality of the research Costs Evaluating and selecting suppliers Research methods

Existing marketing information resources
In-company resources Open source resources Research agency resources

Creating new marketing information
Observation and ethnographic studies Marriott - rethink hotel experience for “road warriors” GE - developing plastic fibers position Intel - use of computers by children in China Research surveys Internet-based research

Problem definition to guide marketing research studies
Project and Scope Describe the topic for the study and the background. Research Objectives Set specific goals for the study - why is it being undertaken? Identify the specific pieces of information required and the questions that need to be asked to obtain that information Research Questions Planned Outcomes When completed how should the results be presented for management use?

Impact of the Internet on Marketing Costs and Availability
Online Surveys Fast Inexpensive Limitations in population coverage Resistance to excessive Web communications Customer feedback and peer-to-peer Web communications Monitoring customer Web behavior

Marketing and management information systems
Marketing information systems Management information systems Marketing decision support systems

Marketing Decision-Support System Components
Database Display Analysis Capabilities Models

Marketing intelligence and knowledge management
Role of the chief knowledge officer Leveraging customer knowledge

Ethical issues in collecting and using information
Invasion of customer privacy Information and ethics Information collection Research subjects Information sharing

Magnetic resonance imaging (MRI) Pictures response of brain to stimuli
Neuromarketing Magnetic resonance imaging (MRI) Pictures response of brain to stimuli Probing consumer preferences is controversial Invasive Privacy issues Information sharing Insurance companies Employers Law enforcement

CHAPTER 6 Market Targeting and Strategic Positioning
Market Targeting Strategy Targeting in Different Market Environments Positioning Strategy Developing the Positioning Strategy Determining Positioning Effectiveness McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

MARKET TARGETING STRATEGY
The Marketing Targeting Decision Identities the People or Organizations in a Product-Market Toward Which a Firm Directs Its Positioning Strategy Guided by an understanding of: •The product-market •Its buyers •Firm’s capabilities resources •Competition

Market Targeting and Strategic Positioning
Core dimensions of market-driven strategy: deciding which buyer’s to target and how to position the firm’s products Effective targeting and positioning strategies are essential in gaining and sustaining superior performance

SEGMENTS VALUE OPPORTUNITES CAPABILITIES/ SEGMENT MATCH TARGET(S) POSTIONING FOR EACH TARGET

Identify segments within the product-market
TARGETING AND POSTIONING Decide and implement a positioning strategy for each targeted segment Decide which segment(s) to target

Market Targeting Alternatives
Segments Clearly Defined Target Selected Niche(s) Target Multiple Segments Selective Targeting Extensive Targeting Product Specialization Product Variety Differentiated But Segments Not Clearly Defined

Factors Influencing Targeting Decisions
Stage of product – market maturity Extent of diversity in preferences Industry structure Capabilities and resources Opportunities to gain competitive advantage

TARGETING IN DIFFERENT MARKET ENVIRONMENTS
Emerging Growing Mature Declining Global

Emerging Market Buyer Diversity
Segmentation limited due to similarity of buyers’ preferences Industry Structure Typically small new organizations Limited access to resources Capabilities and Resources Unique benefit (differentiation) strategy rather than low-cost First-mover advantage Targeting Strategy Single target or a few broad segments

Growth Market Buyer Diversity Segments should exist Industry Structure
Numerous competitors Capabilities and Resources Survival requires aggressive actions by firms that seek large market positions Otherwise select one or a few market segments Targeting Strategy Three possible strategies Extensive market coverage by firms with established businesses in related markets Selective targeting by firms with diversified product portfolios Very focused targeting strategies by small organizations serving one or a few market segments.

Mature Markets Buyer Diversity Industry Structure
Segmentation essential for competitive advantage Industry Structure Intense competition for market share Emphasis on cost and service, and pressures on profits Capabilities and Resources Management’s objectives: cost reduction, selective targeting, product differentiation Targeting Strategy Deciding which segment to serve Firms pursuing extensive targeting strategies may decide to exit from certain segments

Global Markets Global Reach and Standardization
Identify market segments that span global markets and serve these needs with global positioning strategies Local Adaptation Consider requirements of domestic buyers Buyers’ needs and preferences affected by social, political, cultural, economic, and language differences Industry Structure Restructuring, acquisitions, mergers, and strategic alliances altering industries and competition Targeting Strategy Targeting a single country, regional (multinational) targeting, or global targeting

GLOBAL FEATURE Successful British Retailer Tesco Enters the U.S. Market Tesco announced plans to open a chain of convenience stores on the U.S. West Coast in 2007, spending an estimated $453 M. The very successful retailer has four types of stores, including the convenience chain, Tesco Express. This initiative is being launched even though the U.S. retail grocery market is experiencing intense competition, and some chains are cutting back or selling out. Tesco’s decision to enter the U.S. convenience market is bold and risky. Some authorities consider the action questionable. However, Tesco has a very impressive success record in Britain. With its Tesco Express, Tesco Metro, Superstore, and Extra hypermarkets, the giant retailer has dulled Wal-Mart’s drive to dominate the retail scene. Tesco has no brand awareness in the U.S. so building brand identity will be challenging. Yet the retailer has global buying power, powerful information technology, and strong supply chain capabilities. The stores will offer groceries, produce, and private-label ready-to-eat meals. Some observers think Tesco is planning to compete with Wal-Mart in its home market. Source: Kerry Capell, “Tesco: California Dreaming?” BusinessWeek, February 27, 2006, 38.

POSITIONING STRATEGY Deciding the desired perception/ association of an organization/ brand by market target buyers…and designing the marketing program to meet (and exceed) buyers’ value requirements.

STRATEGIC POSITIONING INITIATIVES POSITIONING EFFECTIVENESS
POSITIONING CONCEPT The desired positioning of the product (brand) by targeted buyers MARKET TARGET POSITIONING EFFECTIVENESS POSITIONING STRATEGY How well management’s positioning objectives are achieved for the market target The combination of marketing actions used to communicate the positioning concept to targeted buyers

How Positioning Works Objective Desired result
Match the organization’s distinctive capabilities with the customer value requirements for the market target (How do we want to be perceived by targeted buyers?) Desired result Gain a relevant, distinct, and enduring position by the targeted buyers that they consider important. Actions by the organization Design and implement the positioning strategy (marketing program) for the market target.

INNOVATION FEATURE Spotting Shifts in Demand in designing Hennes & Mauritz (H&M) Apparel It’s 1:30 p.m. on a Monday in the bustling H&M store on Manhattan’s fifth Avenue, and Alma Saldana, a 28-year-old makeup artist from Houston, is stuffing three tiny vests into her black Y&M shopping bag. That’s on top of blouses, jackets, and pants. Saldana is in a buying frenzy. This is her first visit to H&M, the Stockholm-based fashion retailer, and it’s everything she had hoped for. “Somebody told me you find great fashion at a very cheap price, and it’s true!” she exclaims. Such enthusiasm has made H&M one of the hottest fashion companies around. Central to its success is its ability to spot shifts in demand and respond with lightning speed. While traditional clothing retailers design their wares at least six months ahead of time, H&M can rush items into stores in as little as three weeks. Most of the work is done ahead, too. But when it sees consumers scooping up something like vests, it speeds a slew of new variations into stores within the same season, to the delight of shoppers like Saldana. “Speed is important. You need to have system where you can react in a short lead time with the right products,” says Chief Executive Rolf Eriksen.

How does it work? H&M designers had included a couple of cropped vests in their autumn/winter collections. In august, shortly after the vests went on sales, they started “flying out of the stores,” say Margareta van den Bosch, H&M’s head of design. H&M’s designers in Stockholm (it has more than 100) spotted the trend in the company’s worldwide sales reports, published internally every Monday. About half of them immediately started sketching new styles. As quickly as designs came off their desks, pattern makers snipped and pinned, pressing employees into service as live models. At the same time, buyers ordered fabrics. The designs were zoomed electronically to workers at H&M’s production offices in Europe and Asia, which then selected manufacturers that could handle the jobs quickly. In less than two months most H&M stores had 5 to 10 new vest styles in stock. One of the secrets to H&M’s speed is decisiveness. The people in charge of each collection can dream up and produce new fashions on their own authority. Only huge orders require approval from higher ups. “We have a flat organization. We have a shorter way to a decision,” says Sanna Lindberg, president of H&M Hennes & Mauritz USA. That makes H&M fashionable in more ways than one. Source: Steve Hamm, “SPEEDDEMONS,” BusinessWeek, March 27, 2006,

SELECTING THE POSITIONING CONCEPT
The Perception or Association that Management Wants Buyers to Have Concerning the Brand Symbolic Functional SELECTING THE POSITIONING CONCEPT Experiential

DEVELOPING THE POSITIONING STRATEGY
The Positioning Strategy Places the Marketing Program (mix) Components into a Coordinated Set of Actions Designed to Deliver Superior Customer Value PRODUCT VALUE CHAIN PROMOTION PRICE

Positioning Issues The positioning concept applies to a specific brand rather than all the competing brands that compose a product classification The concept is used to guide positioning decisions over the life of the brand Multiple concepts are likely to confuse buyers and may weaken the effectiveness of positioning actions

The positioning strategy indicates how (and why) the product mix, line, or brand is to be positioned for each market target. This strategy includes: The product strategy, indicating how the product(s) will be positioned against the competition in the product-market. The value chain (distribution) strategy to be used. The pricing strategy, including the role and positioning of price relative to competition. The advertising and sales promotion strategy and the objectives these promotion components are expected to achieve. The sales force strategy, direct marketing strategy, and the Internet strategy, indicating how they are used in the positioning strategy.

DETERMINING POSITIONING EFFECTIVENESS
The marketing offer (product, distribution, price, and promotion) is both distinct and valued in the minds of the customers in the market target.

Analytical Positioning Models Test Marketing
Customer and Competitor Research Methods for Determining Positioning Effectiveness Analytical Positioning Models Test Marketing

Customer and Competitor Research
Research Studies Preference Maps Test Marketing Generates information about commercial feasibility and marketing program Provides market (sales forecasts) and effectiveness measures Positioning Models Incorporates research data into formal models of decision analysis

Positioning Errors Under-positioning – customers have only vague ideas about the company and do not perceive anything distinctive about it Over-positioning – Customers have too narrow an understanding of the company, product, or brand Confused positioning – Frequent changes and contradictory messages confuse customers Doubtful positioning – claims made for the product or brand are not regarded as credible

Positioning in Perspective
Positioning is a central part of business strategy Positioning analysis starts with an understanding of the value proposition for the target segment Value-driven positioning is the objective Positioning seeks to differentiate the organization’s offer from the competition Positioning seeks to create a unique perception in buyers’ minds of the target market segment Positioning is the unifying dimension of market-driven strategy

Positioning usually means that an overt decision is being made to concentrate only on certain segments. Such an approach requires commitment and discipline because it’s not easy to turn your back on potential buyers. Yet, the effect of generating a distinct, meaningful position is to focus on the target segments and not to be constrained by the reaction of other segments. Source: Aaker and Shansby, Business Horizons, May-June 1982, 61.

Illustrative Impacts of Changes in Business Strategy on Targeting and Positioning Strategies
Market Targeting Impact Positioning Impact Rapid Growth/ Retrenchment Market scope may not change although targets may be increased or reduced. Substantial changes in resource allocation, (e.g. advertising expenditures Changing the Product Mix No change is necessary unless increase in product scope creates opportunities in new segments. Changes in product strategy, methods of distribution, and promotional strategies may be necessary. Changing the Market Scope Targeting is likely to change to include new targets. Positioning strategy must be developed for each new target. Repositioning Should not have a major effect on targeting strategy. Product, distribution, price, and promotion strategies may be affected. Value Chain Integration Should have no effect on targeting strategy. Primary impact on channel, pricing and promotion strategies. Diversification Targeting strategies must be selected in new business areas. Positioning strategies must be developed (or acquired for the new business areas. Strategic Alliance Targeting strategy may be affected based on the nature and scope of the alliance. Operating relationships and assignment or responsibilities must be established.

Targeting and Positioning
Product Strategy Positioning Strategy Promotion Strategy Distribution Strategy Market Target Price Strategy

Strategic Relationships
Chapter 7 Strategic Relationships McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

Strategic relationships at IBM
Collaborative projects across all major parts of business services Funding universities in services science Partnership with Sony and Toshiba to produce new processor Computer code shared with Apache open-source web-server IBM programmers work on Linux projects Collaborating with customers and competitors to invent new technologies Strategy of openess

Strategic relationships
End-User Customers Intermediate Customers Suppliers Joint Ventures Strategic Relationships Competitors Strategic Alliances Internal Partners External Partners

Strategic Relationships
The rationale for interorganizational relationships Forms of organizational relationships Managing interorganizational relationships Global relationships among organizations

The rationale for interorganizational relationships
Value-enhancing opportunities Rationale for Forming Strategic Relationships Skills and resource gaps Environmental complexity Competitive strategy

The rationale for interorganizational relationships (1)
Opportunities to enhance value Environmental complexity Competitive strategy Skills and resource gaps Technology constraints Financial constraints Market access Information technology

Collaborations in open-source software
IBM and Sun aggressive supporters of Linux open-source software Technology sharing and partnerships Rebuilding the technology “ecosystem” Reducing dependence on Microsoft

Airline Alliances Major global alliances Oneworld Skyteam
Star Alliance Contain 18 of the world’s largest airline Account for 60% of total world airline capacity But a history of alliance failures and desertions

The rationale for interorganizational relationships (2)
Evaluating the potential for collaboration What is the strategy? The costs of collaboration Is relationship strategy essential? Are good candidates available? Do relationships fit our culture?

Mapping the Path to Market Leadership
Market-Oriented Culture and Process Superior Customer Value Proposition Organizational Change Relationship Strategies Positioning with Distinctive Competencies

Forms of organizational relationships
Supplier relationships Internal partnerships Lateral partnerships Firm Customer relationships

Illustrative interorganizational relationships
Strategic Alliance M M M Supplier/ Manufacturer Collaboration M JV Joint Venture W Distribution Channel Relationship R EU

Forms of organizational relationships (1)
Supplier relationships Strategic suppliers Outsourcing Intermediate customer relationships End-user customer relationships Strategic customers Dominant customers Strategic account management

Forms of organizational relationships (2)
Strategic alliances Alliance success Alliance weaknesses Types of alliance Requirements for alliance success Alliance vulnerabilities Joint ventures Internal partnering

CostCo Versus Wal-Mart
CostCo has achieved major position in U.S. warehouse club business against strong competitors Success based on customer choice and constant innovation and productivity improvement CostCo compensates employees more generously than competitors - to motivate and retain good workers - they get lower staff turnover and higher productivity

Managing interorganizational relationships (1)
Objective of the relationship New technologies and competencies Developing new markets and building market position Market selectivity Restructuring and cost reduction

Relationship management Planning Trust and self-interest Conflicts Leadership structure Flexibility Cultural differences Technology transfer Learning from partner’s strengths

Partnering capabilities Control, evaluation and review Exiting from alliance Identify/agree what triggers exit Detail rights of each partner to assets/products Design disengagement process Communication plan for all involved parties

Managing Interorganizational relationships
Objective of the Relationship Control and Evaluation Relationship Management Managing Inter-Organizational Relationships Exiting from Alliance Partnering Capabilities

Global relationships among organizations
The Global Integrated Enterprise Inter-nation collaborations The strategic role of government Government interventions Competing with state-owned enterprises Collaborating with state-owned enterprises Government regulation

Innovation and New Product Strategy The Innovation Mandate
CHAPTER 8 Innovation and New Product Strategy The Innovation Mandate McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

INNOVATION AND NEW PRODUCT STRATEGY
Innovation as a Customer Driven Process New Product Planning Idea Generation Screening, Evaluating, and Business Analysis Product and Process Development Marketing Strategy and Market Testing Commercialization Variation in the Generic New Product Planning Process

INNOVATION FEATURE Managing Google’s Idea Factory
As director of consumer Web products Marissa Mayer is a champion of innovation. She favors new product launches that are early and often. She joined Google in early 1999 as a programmer when the workforce totaled 20. By 2007 Google had 5,700 employees with expected sales of $16 billion. How Google Innovates The search leader has earned a reputation as one of the most innovative companies in the world of technology. A few of the ways Google hatches new ideas: FREE (THINKING) TIME Google gives all engineers one day a week to develop their own pet projects, no matter how far from the company’s central mission. If work gets in the way of free days for a few weeks, they accumulate. Google News came out of this process.

THE IDEAS LIST OPEN OFFICE HOURS BIG BRAINSTORMS ACQUIRE GOOD IDEAS
Anyone at Google can post thoughts for new technologies of businesses on an ideas mailing list, available companywide for input and vetting. But beware: Newbies who suggest familiar or poorly thought-out ideas can face an intellectual pummeling. OPEN OFFICE HOURS Think back to your professors’ office hours in college. That’s pretty much what key managers, including Mayer, do two or three times a week, to discuss new ideas. One success born of this approach was Google’s personalized home page. BIG BRAINSTORMS As it has grown, Google has cut back on brainstorming sessions. Mayer still has them eight times a year, but limits hers to 100 engineers. Six concepts are pitched and discussed for 10 minutes each. The goal: to build on the initial idea with at least one complementary idea per minute. ACQUIRE GOOD IDEAS Although Google strongly prefers to develop technology in-house, it has also been willing to snap up small companies with interesting initiatives. In 2004 it bought Keyhole, including the technology that let Google offer sophisticated maps with satellite imagery. Source: “Managing Google’s Idea Factory,” BusinessWeek, October 3, 2005,

FINDING CUSTOMER VALUE OPPORTUNITIES
Customer value analysis Objective is to identify needs for: New products Improvements to existing products Improvements in production processes Improvements in supporting services

OPPORTUNITIES Customer Expectations Customer Satisfaction Gap Actual
(1) New Products (2) Improvements (3) New and Improved Processes Actual Product Performance

TRANSFORMATIONAL Break-through innovation Digital photography NEW PRODUCT CATEGORY Dell Printers Nike Apparel Golf clubs LINE EXTENSION New color/package/style INCREMENTAL IMPROVEMENTS Software updates

The Evolution of the Creative Company
STEP 1 Technology and information become commoditized and globalized. Suddenly, the advantage of making things “faster, cheaper, better” diminishes, and profit margins decline. STEP 2 With commoditization, core advantages can be shipped abroad. Outsourcing to India, China, and Eastern Europe sends a growing share of manufacturing and even the Knowledge Economy overseas. STEP 3 Design Strategy begins to replace Six Sigma as a key organizing principle. Design plays a key role in product differentiation, decision-making, and understanding the consumer experience. Source: Bruce Nussbaum, “How to Build Innovation Companies,” BusinessWeek, August 1, 2005,

STEP 4 Creative innovation becomes the key driver of growth. Companies master new design thinking and metrics and create products that address consumers’ unmet, and often unarticulated, desires. STEP 5 The successful Creative Corporation emerges, with new Innovation DNA. Winners build a fast-moving culture that routinely beats competitors because of a high success rate for innovation.

Characteristics of Successful Innovators
Creating an Innovative Culture Selecting the Right Innovation Strategy Leveraging Capabilities STRATEGIC INITIATIVES Making Resource Commitments Developing and Implementing Effective New Product Processes

Creating an Innovation Culture
Innovation Workshop for top executives to develop an innovation plan. Innovation Statement highlighting objectives and senior management’s role and responsibilities. Training programs for employees and managers. Communicate the priority of innovation. Speakers to expose employees to innovation authorities. Source: Thomas D. Kuczmarski et al., “The Breakthrough Mindset,” Marketing Management, March/April 2003, 43.

Set specific New Product Objectives.
The Innovation Strategy Spells Out Management’s Priorities for New Product Opportunities Set specific New Product Objectives. Communicate the role of New Products throughout the organization. Define the areas of strategic focus: Product Scope Markets Technologies Include longer term discontinuous projects in the portfolio along with incremental projects. Source: Robert Cooper, “Benchmarking New Product Performance,” European Management Journal, Feb. 1998, 1-7.

NEW PRODUCT PLANNING PROCESS
Customer Needs Analysis Screening and Evaluation Business Analysis Idea Generation Marketing Strategy Development Product Development Testing Commercialization

Achieving Cross-Functional Interaction and Coordination
Operations Marketing Finance

Responsibility for New Product Planning
Coordination of new product activities by a high-level general manager Inter-functional coordination by a team of new product planning representatives Creation of a project task force responsible for new product planning Designation of a new products manager to coordinate planning between departments Formation of matrix structure for integration new product planning with business functions Creation of a permanent design center

IDEA GENERATION Idea search: targeted or open-ended? How extensive and aggressive? What specific sources are best for generating a regular flow of new product ideas? How can new ideas be obtained from customers? Where will responsibility for the new product ideas search be placed? What are potential threats from alternative (or disruptive) technologies?

METHODS OF GENERATING IDEAS Direct Search Linking Marketing and Technology Facilitating Lead User Analysis Creative Methods National Policy Exploratory Customer Studies Alliances/ Acquisition/ Licensing Technological Innovation

An Innovation Champion in Action at GE
Beth Comstock calls herself “a little bit of the crazy, wacky one” at corporate headquarters. And it’s an apt description when you realize she works at General Electric Co. Comstock, 44, is charged with transforming GE’s culture, famously devoted to process, engineering, and financial controls, to one that’s more agile and creative. Chairman and CEO Jeffrey R. Immelt tapped the former communications chief to become GE’s first-ever chief marketing officer almost three years ago. The job came with a critical twist: the goal of driving innovation through the company’s 300,000 plus ranks. “Creativity is still a word we’re wrestling with,” Comstock concedes. “It seems a bit undisciplined, a bit chaotic for a place like GE.” More comfortable territory is the term “imaginative problem-solving” – encouraging people to think “what if” – yet always with the aim of driving growth. One of Comstock’s first moves was to bring in anthropologists to audit GE’s culture. They came back with praise for GE’s famous work ethic but noted that employees wanted more “wow” – more discoveries from the company founded by Thomas Edison.

Comstock has a role whose importance is spreading throughout Big Business – that of innovation champion. She began by studying the best practices at companies such as Procter & Gamble, FedEx, and 3M. She brought in a raft of creativity consultants, futurists, and design gurus to lead sessions with different operations. Their names were jolting for GE types: Play, a Richmond (VA.) group that helps execs think differently, and Jump, based in San Mateo, CA., which researches how people use things. GE is expanding its army of designers to bring businesses closer to customers. And Comstock is staging “dreaming sessions” where Immelt, senior execs, and customers debate future market trends. Comstock concedes some managers view the workshops as a waste of time. “We have a long way to go,” she says. But for GE, there’s no turning back. Source: Bruce Hussbaum, “How to Build Creative Companies,” BusinessWeek, August, 2005, 77.

SCREENING, EVALUATING, AND BUSINESS ANALYSIS
IDEA GENERATION SCREENING (fit/feasibility) CONCEPT EVALUATION BUSINESS ANALYSIS

Business Analysis Revenue Forecasts Preliminary Marketing Plan Cost Estimation Profit Projections Other Considerations

PRODUCT AND PROCESS DEVELOPMENT
NEW PRODUCT CONCEPT PRODUCT DEVELOPMENT AND USE TESTING MARKETING STRATEGY DEVELOPMENT MARKET TESTING LAUNCH

Product and Process Development
Development of the new product includes: Product design Packaging design Decisions to make or purchase product components Product Development Process: Product Specifications Industrial Design Prototype Use Tests Process Development Collaborative Development

Does it have the required attributes? PURPOSE OF USE TESTS Verify claims Ideas for improvements Identify use situations

MARKETING STRATEGY AND MARKET TESTING
Marketing Strategy Decisions Market Targeting Positioning Strategy Market Testing Options Simulated Test Marketing Scanner – Based Test Marketing Conventional Test Marketing Testing Industrial Products Selecting Test Sites Length of the Test External Influences

Scanner-based Test Marketing
Less artificial than simulated testing Costs less than full-scale market test Test is controlled by using IRI’s 2300 panel members in each test city Cable TV enables use of controlled ad testing Tests take about 12 months

COMMERCIALIZATION The Marketing Plan Complete marketing strategy
Responsibilities for execution Cross – functional approach Monitoring and Control Real – time tracking Role of the Internet Include product performance metrics with performance targets

Marketing Strategy Market Target(s) Marketing Program(s) Objectives

VARIATIONS IN THE GENERIC NEW PRODUCT PLANNING
Technology Push Processes Platform Products Process – Intensive Products Customized Products

Chapter 9 Strategic Brand Management

STRATEGIC BRAND MANAGEMENT
Strategic Brand Analysis Brand Equity Measurement and Management Brand Identity Strategy Managing Brand Strategy Managing the Brand Portfolio Brand Leveraging Strategy

STRATEGIC BRAND MANAGEMENT
A product is anything that is potentially valued by a target market for the benefits or satisfaction it provides, including objects, services, organizations, places, people, and ideas

American Marketing Association
A brand is a name, term, design, symbol, or any other feature that identifies one seller’s good or service as distinct from those of other sellers. American Marketing Association A compelling logic has been proposed that the distinction between goods and services should be replaced by a view that services are the dominant perspective in the 21st century, consisting of both tangible and intangible components.* *Stephen LVargo and Robert F. Lusch, “Evolving to a New Dominant Logic for Marketing,” Journal of Marketing, January 2004, 1-17.

Strategic Role of Brands
A strategic brand perspective requires managers to be clear about what role brands play for the company in creating customer value and share-holder value. FOR BUYERS, BRANDS CAN: reduce customer search costs by identifying products quickly and accurately, reduce the buyer’s perceived risk by providing an assurance of quality and consistency (which may then be transferred to new products), reduce the social and psychological risks associated with owning and using the “wrong” product by providing psychological rewards for purchasing brands that symbolize status and prestige.

FOR SELLERS, BRANDS CAN FACILITATE:
repeat purchases that enhance the company’s financial performance because the brand enables the customer to identify and re-identify the product compared to alternatives, the introduction of new products, because the customer is familiar with the brand from previous buying experience, promotional effectiveness by providing a point of focus, premium pricing by creating a basic level of differentiation compared to competitors, market segmentation by communicating a coherent message to the target audience, telling them for whom the brand is intended and for whom it is not, brand loyalty, of particular importance in product categories where loyal buying is an important feature of buying behavior. Source: Marketing Science Institute Report No , 1997

Brand Management Challenges*
Internal and external forces create hurdles for product brand managers in their brand building initiatives: Intense Price and Other Competitive Pressures Fragmentation of Markets and Media Complex Brand Strategies and Relationships Bias Against Innovation Pressure to Invest Elsewhere Short-Term Pressures *David A. Aaker, Building Strong Brands, 1996,

Responsibility for Managing Products
Product/Brand Management Planning, managing, and coordinating the strategy for a specific product or brand Product Group/Marketing Management Product director, group manager, or marketing manager Product Portfolio Management Chief executive at SBU Team of top executives TM 5-1

Strategic Brand Management
Brand Identity Strategy BRAND EQUITY MANAGEMENT Identity Implementation Brand Strategy Over Time STRATEGIC BRAND ANALYSIS Managing the Brand Portfolio Leveraging the Brand

GLOBAL FEATURE Recharging Sony’s Strategy Brand Management
Sir Howard Stringer, a Welsh-born American citizen, was appointed CEO of Sony, the troubled Japanese electronics giant in Sony’s past strategic brand management initiatives had failed to close the digital gap between software/services/content/ devices. During the CEO’s first year several cost reduction and portfolio initiatives were implemented to launch the turnaround strategy: The Aibo, a beloved robotic pet, was put to sleep. They shut down the Qualia line of boutique electronics that included a $4,000 digital camera and a $13, inch television. They eliminated 5,700 jobs and closed nine factories, including one in south Wales. (He took some flak back home for that). They have sold $705 million worth of assets. You probably don’t know that Sony owned a chain of 1,221 cosmetics salons and the 18 Japanese outlets of the Maxim’s de Paris restaurant chain. They’re gone. Gone, too, is a group of salary-men in their 60s, 70s, and 80s who, after retiring from senior management positions, were given the title of “advisor,” a tradition established by Sony’s founders. “That was very symbolic,” says Hideki (Dick) Komivama, a Sony executive and key ally of Stringer’s. The 45 advisors each had a secretary, a car and driver, and worst of all, the ability to gum up decision-making and second-guess people doing real jobs. No more. Source: Marc Gunther, “The Welshman, the Walkman, and the Salary Men,” Fortune, June 12, 2006, 72.

STRATEGIC BRAND ANALYSIS
Analyses Product Product Line Portfolio of Product Lines □ Market and Customer □ Competition □ Brand(s)

Tracking Brand Performance
Objectives Select Method(s) for Evaluation Identify Problem Products Decide How to Resolve the Problem

Analyzing Brand Performance
Product life cycle analysis Product performance analysis Financial analysis Analyzing Brand Performance Brand positioning analysis Research studies Standardized information services

Product Life Cycle Analysis
Relevant issues in PLC analysis include: Determining the length and rate of change of the PLC Identifying the current PLC stage and selecting the product strategy that corresponds to that stage Anticipating threats and finding opportunities for altering and extending the PLC

Product Performance Analysis
Management’s performance criteria Strengths and weaknesses relative to portfolio Brand Positioning Analysis Perceptual maps for brand comparison Buyer preferences Other Product Analysis Methods Information Services Research studies Financial analysis

BRAND EQUITY Company/Customer Value of Brand Name and Symbol of
a Product Determined by the brand’s set of assets (and liabilities)

“Brand equity is a set of brand assets
Effective strategic brand management requires that we understand brand equity and evaluate its impact when making brand management decisions: “Brand equity is a set of brand assets and liability linked to a brand, its name, and symbol, that add to or subtract from the value provided by a product or service to a firm and/or to that firm’s customers.* * David A. Aaker, Managing Brand Equity, The Free Press, 1991, 15. **Ibid,

Measuring Brand Equity
Measuring Brand Equity. Several measures are needed to capture all relevant aspects of brand equity.** loyalty (price premium, satisfaction/loyalty), perceived quality/leadership measures (perceived quality, leadership/popularity), associations/differentiation (perceived value, brand personality, organizational associations), awareness (brand awareness), and market behavior (market share, price and distribution indices). These components provide the basis for developing operational measures of brand equity.

BRAND IDENTITY STRATEGY Four Brand Identity Perspectives
Brand identity is a unique set of brand associations that the brand strategist aspires to create or maintain. These associations represent what the brand stands for and imply a promise to customers from the organization members.* Four Brand Identity Perspectives Product Organization Person Symbol * David A. Aaker, Building Strong Brands, 1996, 68.

Specific Product Line of Products Private Branding BRAND FOCUS Combination Branding Corporate Branding

MANAGING BRAND STRATEGY
Proactive efforts should be devoted to managing each brand over time.

Strategies for Improving Product Performance
improvement Cost reduction Alter marketing strategy Product line Strategy Add new product(s) Eliminate specific product(s)

MANAGING THE BRAND PORTFOLIO
Leverage Commonalities to Generate Synergy Allocate Resources Reduce Brand Identity Damage BRAND PORTFOLIO OBJECTIVES Facilitate Change and Adaptation Achieve Clarity of Product Offerings Source: David A. Aaker, Building Strong Brands, New York: The Free Press, 1996,

Strategies for Brand Strength
Brand-Building Strategies Developing the brand identification strategy Coordinate identity across the organization Brand Revitalization Find new uses for mature brands Add products related to heritage Strategic Brand Vulnerabilities Brand equity can be negative Retailer private brands compete with manufacturer brands Major shifts in consumer tastes Competitive actions Unexpected events

Product Mix Modifications
Motivation for changing the product mix: Increase the growth rate of the business Offer a more complete range of products to wholesalers and retailers Gain marketing strength and economies in distribution, advertising, and personal selling Leverage an existing brand position Avoid dependence on one product line or category

STRATEGY FEATURE Limited Brands Shifts its Focus from Apparel to Accessories Ten years ago apparel represented 70% of Limited’s sales. By % of sales were from skin-care products, cosmetics, and lingerie Clothes are increasingly out of fashion—after declines for 3 years, U.S. apparel sales increased only 4% in 2004 to $172.8 billion. Apparel $ sales declines are due to discount pricing and households spending more on electronics, home improvement, and spa services. Limited is trying to make itself over as a high-end Procter & Gamble. Victoria’s Secret is adding hair and cosmetics lines to its beauty business (has 3 of the top 10 selling fragrances in the U.S.). Sources: Limited Brands 2005 Annual Report; Value Line; and Amy Merrick, “For Limited Brands Clothes Become the Accessories,” The Wall Street Journal, March 8, 2005, A1 and A14.

One new product is “Tutti Dolci” (all sweets), food inspired scents-lotion and lip gloss in fragrances like lemon meringue, angel-food cake, and chocolate fondue. Victoria’s Secret has also accelerated new product development. From 2003 through 2005 Intimate Brands (lingerie and beauty products) accounted for all the corporation’s operating income. Limited is also partnering with other companies to sell its brands and develop new products. Limited has three business groups: • Beauty and Personal Care • Lingerie • Apparel Apparel is a continuing challenge with 2004 operating 1.4% compared to over 19% for Bath & Body Works and Victoria’s Secret. Limited has about 3700 stores sales were nearly $9.7 billion with net profits at $51 million.

BRAND LEVERAGING STRATEGY
LINE EXTENSION Minor variants of a single product are marketed under the same brand name BRAND EXTENSION Extensions of the brand name to other product categories --Similar --Dissimilar

LEVERAGING ALTERNATIVES
LINE EXTENSIONS BRAND EXTENSIONS Horizontal Extension Vertical Extension Another Product Class Range Brand Co- Branding Up from Core Brand Down from Core Brand

BRAND LEVERAGING IN UPSCALE AND VALUE MARKETS
Vertical Brand Extensions* New Up-Market Brand Core Brand New Down-Market Brand Core Brand * ONE OF THE MOST DIFFICULT BRAND PORTFOLIO CHALLENGES

MOVING DOWN IS EASY BUT RISKY
Affects perceptions of the brand –perhaps even more significantly than other brand management options. We are influenced more by unfavorable information than by favorable information. The brand’s ability to deliver self-expressive benefits may be reduced. Potential cannibalization problem. Potential failure risk. Problem when the value entry is perceived to be inconsistent with the quality expected from the brand.

•Enhanced Margins at the High End
MOVING A BRAND UP THE DRIVERS •Enhanced Margins at the High End •Energy & Vitality •Enhance Credibility and Prestige of the Brand THE RISKS OF DAMAGING THE CORE BRAND •Lacks Credibility •Lacks Self-Expressive Benefits •Falls Short of Expectations

BRAND EXTENSION DECISIONS
Extending into Different Product Classes THE PROCESS ◊Identify product categories for which the product fits and adds value. Determine existing brand associations and the brand identity. ◊Identify related product category opportunities Screening should be limited ◊Evaluate each category Attractive Growing Good margins Competition Assets/Capabilities ◊Select the most promising extension concept ◊Develop a viable Brand Strategy

CO-BRANDING Co-branding (dual branding) involves two or more established brands making a joint offer of their product brands — The participant’s brand names are identified on the good or service. Several different forms – Component co-branding (Volvo and Michelin) Same company co-branding Alliance co-branding (Delta and American Express) Ingredient co-branding

BRAND LEVERAGING EVALUATION CRITERIA
Brand Relevance/Differentiation Capabilities/Perceived Value Match Market/Segment Opportunity Cannibalization Risks Potential for Core Brand Damage Clarity of Product Offerings Estimated Financial Performance Brand Equity Impact

SEVEN DEADLY SINS OF BRAND MANAGEMENT*
Failure to fully understand the meaning of the brand. Failure to live up to the brand promise. Failure to adequately support the brand. Failure to be patient with the brand. Failure to adequately control the brand. Failure to properly balance consistency and change with the brand. Failure to understand the complexity of brand equity measurement and management. *Kevin Lane Keller, Strategic Brand Management, Prentice Hall, 2003, 736.

Chapter 10 Value Chain Strategy

Value Chain Strategy Strategic role of value chain Channel strategy
Managing the channel International channels

Dell’s dilemma Business built around powerful direct business model
Direct model poor fit with customer preferences in new target markets and weak on service Dell is braodening business model Targeting computer re-sellers Global retail strategy (including Wal-Mart, Dell-branded stores, kiosks in malls) Redesigning value chain is critical strategic move

Strategic role of value chain (1)
Distribution functions Buying and selling Assembly Transportation Financing Processing and storage Advertising and sales promotion Pricing Reduction of risk Personal selling Communications Servicing and repairs

Value chain structures - consumer products
Producers Supply Chains Sales Agents Direct Channel Wholesalers Wholesalers Retailers Retailers Retailers Consumers

Value chain structures - organizational products
Producers Supply Chains Sales Agents Sales Agents Direct Channel Distributors Distributors Distributors Re-sellers Organizational Customers

Strategic role of value chain (2)
Channels for services Direct distribution by manufacturers Buyer considerations Competitive considerations Product characteristics Financial and control considerations

Factors Favoring Distribution by Manufacturer
Opportunity for competitive advantage Profit margins adequate to support distribution organization Rapidly changing market environment Complete line of products Early stages of product life cycle Distribution by the manufacturer Purchases are large and infrequent Complex product application Extensive purchasing process Small number of geographically concentrated buyers Supporting services are required

Branded manufacturers enter retail
Nespresso (Nestle) “coffee boutiques” to establish lifestyle brand Heineken branded beer bars in airports and retail Strategic logic is to avoid control of third-party retailers over brand Move from selling “A product in a box” to offering a superior service experience for the brand

Channel strategy (1) Types of channel Conventional channel
Vertical marketing systems Ownership VMS Contractual VMS Administered VMS Relationship VMS Horizontal marketing systems Digital channels Product digitization Channel digitization

Channel strategy selection
1. Type of distribution channel Horizontal marketing system Conventional Vertical marketing system Administered/ Relationship Ownership Contractual 2. Intensity of distribution Intensive Selective Exclusive 3. Channel configuration

Channel strategy (2) Distribution intensity Intensive Exclusive
Selective Channel configuration End-user considerations Product characteristics Manufacturer's capabilities and resources Required functions Availability and skills of intermediaries

Selecting the channel strategy
Channel maps Selecting the channel strategy Market access Value-added competencies Financial considerations Flexibility and control considerations Channel strategy evaluation

Illustrative channel map for heating units
Production = 100,000 units Consumption = 100,000 units Direct sales = 10,000 units Commercial Construction Companies (85,000 units) Construction Sub- Contractors 84,000 units Independent Distributors 42,000 units 75,000 units 42,000 units 7,000 units Production Of Central Heating Boilers Small Hardware Retailers 40,000 units 2,000 units Large Hardware Retailers 5,000 units 5,000 units Domestic Customers (15,000 units) Direct sales = 1,000 units

Changing channel strategy
Channel strategy modification Channel migration Channel audit

Illustrative Channel Strategy Evaluation
Evaluation Manufacturer’s Company Criteria Representatives Salesforce Market access Rapid to 3 year development Value-added competencies Medium High Sales forecast (2 years) $20 million $30 million Forecast accuracy High Medium to low Estimated costs $2 million* $3.6 million** Selling Expense (cost/sales) % % Flexibility Good Limited Control Limited Good * Includes 8% commission plus management time for recruiting and training representatives. ** Includes $150,000 for 10 salespeople, plus management time.

Managing the Channel (1)
Channel leadership Management structure and systems Physical distribution management Supply chain strategy The impact of supply chain management on marketing E-procurement

Efficient Consumer Response
Traditional channel problems Forward buying and diverting Excessive inventories Damages and unsaleable goods Complex deals and deductions Too many promotions and coupons Too many new products Efficient Consumer Response Category management “Value” pricing replaces promotions Continuous replenishment and cross-docking Electronic data interchange New performance measures New organizational processes and structures Internet-based network for supplier-buyer trading

Lean Supply Chain Elements
1. Definition of Value 2. Identification of Value Streams and Removal of Muda (Waste) 3. Organizing Around Flow, Instead of “Batch and Queue” 4. Responding to Pull Through the Supply Chain 5. The Pursuit of Perfection

Marketing/supply chain relationship
Focus on real drivers of customer value not just technical Do not create inflexibility and inability to respond to change Protect brands and competitive strength over short-term cost savings Do not confuse supply chain strategy with competitive advantage

Managing the channel (2)
Channel relationships Degree of collaboration Commitment and trust among channel members Power and dependence Channel globalization Multichanneling Conflict resolution Channel performance Legal and ethical considerations

Channel metrics Performance Possible Measures Applicable Product and
Objective Channel Level PRODUCT AVAILABILITY Coverage of relevant Percent of effective Consumer products at retailers distribution retail level In-store positioning Percent of shelf Consumer products at facings or display retail level space gained by product, weighted by store importance Coverage of Frequency of sales Industrial products; geographic markets calls by customer consumer goods at type; average wholesale level delivery time

Objective Channel Level PROMOTIONAL EFFORT Effective point-of- Percent of stores Consumer products purchase (POP) using special at retail level promotion displays and POP materials, weighted by importance of store Effective personal Percent of Industrial products; selling support salespeople’s time consumer durables at all devoted to product; channel levels; consumer number of salespeople convenience goods at receiving training on wholesale level product’s characteristics and applications

Objective Channel Level CUSTOMER SERVICE Installation, Number of service Industrial products, training and technicians receiving particularly those involving repair technical training; high technology; consumer monitoring of durables at retail level customer complaints MARKET INFORM,ATION Monitoring sales Quality and All levels of trends, inventory timeliness of distribution levels, competitors’ information actions obtained COST-EFFECTIVENESS Cost of channel Middleman margins All levels of Functions relative and marketing costs distrbution To sales volume as percent of sales

Value chain ethics Retailers’ Global Social Compliance Program Growing “green consumer” pressure B2B suppliers increasingly mandated to meet customer’s values in employment practices, environmental standards, ethical behavior

International channels
Examining international distribution patterns Factors affecting global channel selection Global issues regarding multichannel strategies

International Channel of Distribution Alternatives
Home country Foreign country The foreign marketer or producer sells to or through Domestic producer or marketer sells to or through Open distribution via domestic wholesale middlemen Exporter Importer Foreign agent or merchant wholesalers Foreign retailer Foreign consumer Export management company or company sales force Source: Philip R. Cateora, International Marketing, 7th ed., Homewood, Ill.: Richard D. Irwin, Inc., 1990, 572.

CHAPTER 11 PRICING STRATEGY Strategic Role of Price
Analyzing the Pricing Situation Selecting the Pricing Strategy Determining Specific Prices and Policies McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

Pricing Decisions are Creating Major Challenges for Many Companies
Examples Include: Threats to major airlines by discount carriers. Pressures on drug companies to reduce prices. Intense price competition on supermarket chains by Wal-Mart and Costco. Aggressive discounting by U.S. automobile producers to retain market share. Threats to strong brands by counterfeit products.

STRATEGIC ROLE OF PRICE
…requires that we put pricing at the beginning of the process. For example, a multi-part marketing strategy usually is required in value-based pricing. Airlines’ complicated service packages with arcane restrictions, and their multiple channels of distribution must support pricing that reflects different values of the service to different segments. Without such a strategy, airlines would capture a much smaller portion of the value they have the potential to create. T. Nagle, Marketing News, 11/9/98, 4.

Price in the Positioning Strategy
Product strategy Target market and objectives Value-Chain Pricing Promotion strategy

Pricing Situations New product pricing Life cycle pricing Changing positioning strategy Countering competitive threats

Various Roles of Pricing
Signal to the Buyer Marketing Program Considerations Instrument of Competition Improving Financial Performance

Pricing Strategy for New and Existing Products
Set Pricing Objectives Analyze the Pricing Situation Select Pricing Strategy Determine Specific Prices and Policies

Examples of Pricing Objectives
Gain market position Achieve financial performance Product positioning Stimulate demand Influence competition

ANALYZING THE PRICING SITUATION
Customer Price Sensitivity Pricing Objectives Competitors’ Likely Responses Analyzing the Pricing Situation Product Costs

Customer Price Sensitivity
How large is the product-market in terms of buying potential? What are the market segments and what market target strategy is to be used? How sensitive is demand in the segment(s) to changes in price? How important are nonprice factors, such as features and performance? What are the estimated sales at different price levels?

Buyers’ Perceptions of Value Offerings of Brands A-E
Perceived Value Superior Value Zone D A B E C Inferior Value Zone Perceived Price

Cost Analysis for Pricing Decisions
Determine the components of the cost of the product. Estimate how cost varies with the volume of sales. Analyze the cost competitive advantage of the product. Decide how experience in producing the product affects costs. Estimate how much control management has over costs.

Competitor Analysis Which firms represent the most direct competition
Competitor’s positioning on a relative price basis Competitors’ success with their pricing strategies Competitors’ probable responses to alternative price strategies

SELECTING THE PRICING STRATEGY
How much flexibility exists? How to position price relative to costs? How visible to make the price of the product?

Determinants of Pricing Flexibility
Demand Costs Demand-Cost Gap Competition Pricing Objectives

Determining Feasible Prices
Price too high; little or no demand Price Floor Price Ceiling Nature of demand in target market Business and marketing strategy Product differentiation Competitors’ prices Prices of substitutes Product costs Range of feasible prices Price too low; no profit possible

Skim strategy Neutral strategy (same as competition)
Penetration strategy Above Competition Below Competition

Competitive Pricing Issues
Diplomacy rather than force Competitive Pricing Issues Target segments instead of volume Select competitive confrontations Signaling Source: Thomas T. Nagle, “Price Competition,” Marketing Management, Vol. 2, No. 1,

Illustrative Price Strategies
Active strategy Low- active strategy High- active strategy Low relative price High relative price Low- passive strategy High- passive strategy Passive strategy

DETERMINING SPECIFIC PRICES AND POLICIES
Selecting Specific Prices Policies to Manage Pricing Strategy Special Pricing Issues

Basis of Determining Specific Prices
Cost Competition Demand

Establishing Pricing Policy and Structure
Discounts, allowances, returns, and other operating guidelines Pricing Structure Product mix and line pricing relationships How individual items in the line are priced in relation to one another

Managing Pricing Strategy
The more that the competitors and customers know about your pricing, the better off you are. In an information age, it is necessary to be transparent about prices and the value of a firm’s offerings. In highly competitive markets, the focus should be on those market segments that provide opportunities to gain competitive advantage. Such a focus leads to a value-oriented pricing approach. Pricing decisions should be made within the context of an overall marketing strategy that is embedded within a business or corporate strategy. Successful pricing decisions are profit oriented, not sales volume or market share oriented. Source: Adapted from Kent B. Monroe, Pricing, 3rd ed. (Burr Ridge, IL.: McGraw-Hill/Irwin, 2003)

Managing Pricing Strategy
Prices should be set according to customers’ perceptions of value. Pricing for new products should start as soon as product development begins. The relevant costs for pricing are the incremental avoidable costs. A price may be profitable when it provides for incremental revenues in excess of incremental costs. A central organizing unit should administer the pricing function. Generally, it is better to avoid letting salespeople set price, especially without access to profitability information and specific training in pricing and revenue management. Pricing management should be viewed as a process and price setting as a daily management activity, not a once-a-year activity.

Special Pricing Situations
Price Segmentation Value Chain (Distribution Channel) Pricing Price Flexibility Product Life Cycle Pricing

Promotion, Advertising, and Sales Promotion Strategies
CHAPTER 12 Promotion, Advertising, and Sales Promotion Strategies Promotion Strategy Advertising Strategy Sales Promotion Strategy McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

PROMOTION STRATEGY The Composition of Promotion Strategy
Developing Promotion Strategy Communications Objectives Deciding the Role of the Promotion Components Determining the Promotion Budget Promotion Component Strategies Integrating and Implementing the Promotion Strategy Effectiveness of Promotion Strategy

Promotion Strategy: planning, implementing, and
controlling an organization’s communications to its customers And other target audiences.

Composition of Promotion Strategy Interactive/Internet Marketing
Direct Marketing Advertising Promotion Components Personal Selling Sales Promotion Public Relations

U. S. Annual Expenditures (billions)
$200 $400 $600 Sales Promotion Personal Selling Advertising

Brand Advertising On-Line Has Taken Off
INTERNET FEATURE Brand Advertising On-Line Has Taken Off SEARCH WORKS Google and Yahoo! Have demonstrated the power of the Web by using customers’ search queries to connect them with advertisers. CUSTOMERS ARE ONLINE More than half of American households have always-on Net connections. And the Web reaches millions at the office. The Big Three portals—Yahoo, AOL, and MSN—reach a combined 50 million a day–-twice the TV audience of a World Series game. VIDEO ROCKS The adoption of broadband, which can handle videos, lets advertisers put TV-like ads online. Longer spots by BMW and Adidas have reached cult status. As demand for video soars, portals sell choice slots in advance, much like TV’s up-front sales. FEEDBACK IS INSTANT Marketers and online publishers have tools to track an ad’s performance in real time allowing them to make quick adjustments if customers aren’t clicking. This turns the Net into a vast marketing lab. And as video grows, it becomes a test bed for TV ads. CUSTOMERS LEAVE TRAILS It was an empty promise during the dot-com days, but now advertisers have the technology to follow customers, click by click, and to hit them with relevant ads. The upshot? No wasted money peddling dog food to cat owners. Source: Stephen Baker, “The On-Line Ad Surge,” BusinessWeek, November 22, 2004, 79.

DESIGNING THE PROMOTION STRATEGY
MARKET TARGETING AND POSITIONING STRATEGIES COMMUNICATION OBJECTIVES ROLE OF PROMOTION COMPONENTS Advertising Sales Promotion Public Relations Personal Selling Direct Marketing Interactive/ Internet Marketing PROMOTION BUDGET Coordination with Product, Distribution, and Price Strategies PROMOTION COMPONENT STRATEGIES INTEGRATE AND IMPLEMENT PROMOTION COMPONENT STRATEGIES EVALUATE EFFECTIVENESS OF PROMOTION STRATEGY

Illustrative Communications Objectives
Need Recognition Finding Buyers Brand Building Evaluation of Alternatives Decision to Purchase Customer Retention

Deciding the Role of the Promotion Components
Expected contribution for each of the promotion components. Which communication objective(s) will be the responsibility of each component? What part of the budget will go to each component?

Factors Guiding the Role Assigned to Each Component
Market Target(s) Desired Positioning Role of Promotion in Positioning Product Characteristics Stage of Life Cycle Situation Specific Factors

Determining the Promotion Budget Follow the Competition
Objective and Task All You Can Afford Budgeting Approaches Percent of Sales Follow the Competition

Budgeting Methods Features Limitations Percent of Sales
Fixed percent of sales, often based on past expenditure patterns. Comparative Parity Budget is based largely upon what competition is doing. Objective and Task Set objectives and then determine tasks (and costs) necessary to meet the objectives. Percent of Sales The method is very arbitrary. Budget may be too high when sales are high and too low when sales are low. Comparative Parity Differences in marketing strategy may require different budget levels. Objective and Task The major issue in using this method is deciding the right objectives so measurement of results is important.

Integrating and Implementing Promotion Strategy
Avoiding fragmentation Difficulty in evaluating productivity Differences in priorities Separate organizational units Assigning integration responsibility

Illustrative Factors Affecting Promotion Strategy
Advertising/ sales promotion driven Balanced Personal selling driven Number and dispersion of buyers Buyers’ information needs Size and importance of purchase Distribution Product Complexity Post-purchase contact required Small High Large Direct Yes Low Channel No

Promotion Strategy Issues
Expense/Response Relationships Allocation Impact on Brand Equity Integration of Promotion Components Effectiveness of the Strategy

Setting Objectives and Budgeting Creative Strategy
ADVERTISING STRATEGY Setting Objectives and Budgeting Creative Strategy Media/Scheduling Decisions Role of the Advertising Agency Program Implementation and Measuring Effectiveness

The Internet is Shifting the Power Position to the Customer
How the Money is Spent is Changing. The Amount Spent on Internet Advertising is a Small Fraction of the Total, but Very Powerful and Growth is Accelerating. Consumers Spend 10 hrs/person/day with Media of all Kinds—How Much is Media Multi-Tasking? Ad Spending Versus Consumers’ Time Allocations. Advertising Agency Consolidation and Reorganization—the Big 4. Do Companies Recognize the Revolutionary Implications of Newly Empowered Consumers? The Internet Will be the Most Prominent Medium in the Lives of the Age Group. Source: The Economist, “Crowned at Last: A Survey of Consumer Power,” April 2, 2005, 1-16.

Advertising Strategy Target Audience Advertising Objectives
Advertising Budget Creative Strategy Advertising Media and Programming Schedules Evaluate the Effectiveness of the Strategy

Advertising Objectives
Expose communication to target audience Create awareness Change attitude(s) Increase Sales Generate profits

Alternative Levels for Setting Advertising Objectives
Increasing Uncertainty About Impact on Purchasing Behavior Type of Objective Exposure Awareness Attitude Change Sales Profit Increasing Difficulty of Measurement

Budget Determination Media/ Scheduling Decisions Creative Strategy
OBJECTIVE AND TASK METHOD HAS THE MOST SUPPORT Budget Determination Media/ Scheduling Decisions Creative Strategy

Inside the world’s biggest, most profitable luxury brand
The Vuitton Machine* Inside the world’s biggest, most profitable luxury brand BENCHMARKING VUITTON Brand Sales Percent Operating Billions Change* Margin Louis Vuitton $ % % Prada Gucci** Hermès Coach *At constant rate of exchange **Gucci division of Gucci Group Data: Company reports. BW Vuitton increased advertising 20% in 2003—spends only 5% of revenues on advertising—about half the industry average *BusinessWeek, March 22, 2004,

CREATIVE STRATEGY Product Distribution Price Promotion Advertising
The creative strategy is guided by the market target and the positioning strategy. Product Distribution Price Promotion Advertising (How to communicate intended positioning to buyers and others influencing the purchase.) Provide a unifying concept that binds together the various parts of the advertising campaign. Creative Strategy

Media/Scheduling Decision
Television Radio Magazines Online Website Outdoor

Relative access to the target audience
Favorable zone Unfavorable zone Relative cost of reaching the target group(s)

Advertising Agencies in Perspective
Fast change has come to the advertising industry. Huge, integrated agencies face a challenging future. Do clients want a full-service agency? The business model is in need of change. The basis of compensation continues to be debated and altered. Specialists (e.g. media buying services) are being used. Importantly, the core of the creative process is the agency. Several methods are available to evaluate advertising results.

Role of the Advertising Agency
Target Audience Advertising Objectives Advertising Budget Creative Strategy Advertising Agency Advertising Media and Programming Evaluate the Effectiveness of the Strategy

Advertising Strategy Implementation and Effectiveness
Decide how to measure effectiveness before implementing the strategy. Assign responsibility for tracking performance. Assessing the quality of advertising is important. Exposure to advertising is not a very sensitive measure of effectiveness. Several methods are available to evaluate advertising results.

MEASURING ADVERTISING EFFECTIVENESS
Rating Services Sales and Expense Analysis Test Marketing MEASURING ADVERTISING EFFECTIVENESS Controlled Tests Recall Tests

SALES PROMOTION STRATEGY
consists of various incentives, mostly short term, intended to stimulate quicker and/or greater purchase of particular goods/services by consumers or the trade.

The Realities of Mail-in Rebates
STRATEGY FEATURE The Realities of Mail-in Rebates Consumers hate the hassles, companies love unredeemed rebates, and regulators are investigating the consumer complaints. As much as 40% of rebates never get redeemed. Some 400 million rebates are offered each year with a total value of $6 billion. Unclaimed rebates translate into more than $2 billion of extra revenue for retailers and their suppliers each year. Complex filing rules and long delays discourage consumers. Companies emphasize the filing processes are intended to discourage fraud. The largest rebate processor monitors 10,000 addresses suspected of submitting bogus rebates. Rebates offer companies an opportunity to promote small discounts without marking the products down. Rebates have become very popular with computer and consumer-electronics companies.

The value of rebates has also increased.
Regulators are intensifying their scrutiny of the companies offering rebates. The developing back-lash against rebates is pushing some companies to halt rebate strategies. Others are encouraging online filing. Fulfillment houses are revising their processing systems, using computer technology to validate claims. Consumers would like mail-in rebates to go away but want the best price they can get. Source: Brian Grow, “The Great Rebate Runaround,” BusinessWeek, December 5, 2005, 34, 36, and 37.

Sales Promotion Activities and Targets
Activities include trade shows, specialty advertising, contests, displays, coupons, recognition programs, and free samples. SALES PROMOTION TARGETS Consumer Buyers Salespeople Business Buyers Value Chain

SALES FORCE, INTERNET, AND DIRECT MARKETING STRATEGIES
CHAPTER 13 SALES FORCE, INTERNET, AND DIRECT MARKETING STRATEGIES Sales Force Strategy Internet Strategy Direct Marketing Strategies McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

SALES FORCE STRATEGY A company’s sales force strategy determines how the organization will use the personal selling function to maintain contact with customers and develop the relationships that management wants in order to achieve marketing and promotion objectives.

RELATIONSHIP FEATURE: The Vital Role of Selling at the Boeing Co.
During the 2000s Boeing experienced an intense competitive battle against Airbus for control of the commercial jetliner market. Airbus was winning the battle until 2005 when Boeing’s Asia-Pacific jet sales were $26 billion compared to Airbus’ $9 billion. Under a new CEO management gave salespeople much more control over selling strategy compared to previous tight and rigid control by top management. Boeing lost many sales to Airbus because of top management’s unwillingness to give competent professionals flexibility in negotiating sales. Salespeople like Larry Dickenson, Boeing’s top salesman who covers the Asia-Pacific market, builds on over 18 years of relationships with airlines like Cathay Pacific, Quantas Airways Ltd., and Singapore Airlines, Ltd., to negotiate winning contracts. Importantly, Dickenson carefully plans and executes each sales campaign, overseeing every detail in the process that may span several years. The strategy is a combination of attractive pricing, financing, and leasing arrangements in combinations with training and service packages. Source: Stanley Holmes, “Boeing’s Jet Propellant,” BusinessWeek, December 26, 2005, 40.

Determine the role of the sales force in promotion strategy
Sales Force Strategy Define the selling process (how selling will be accomplished) Decide if and how alternative sales channels will be utilized Design the sales organization Recruit, train, and manage salespeople Evaluate performance and make adjustments where necessary

Challenges in Selling and Sales Management
Two sets of ethical dilemmas are of particular concern to sales managers. The first set is embedded in the manager’s dealings with the salespeople. Ethical issues involved in relationships between a sales manager and the sales force include such things as fairness and equal treatment of all social groups in hiring and promotion, respect for the individual in supervisory practices and training programs, and fairness and integrity in the design of sales territories, assignment of quotas, and determination of compensation and incentive rewards. Ethical issues pervade nearly all aspects of sales force management. The second set of ethical issues arises from the interactions between salespeople and their customers. These issues only indirectly involve the sales manager because the manager cannot always directly observe or control the actions of every member of the sales force. But managers have a responsibility to establish standards of ethical behavior for their subordinates, communicate them clearly, and enforce them vigorously. Source: Mark W. Johnston and Greg W. Marshall, Sales Force Management, 7th ed., Burr Ridge, IL: McGraw-Hill/Irwin, 2003, 21.

Business and Marketing Strategy Influences on Sales Strategy
Business Strategy Promotion Strategy Market Target(s) Strategy SALES STRATEGY Pricing Strategy Product Strategy Distribution Strategy

SALES FORCE CHALLENGES
Escalating customer expectations Marketing productivity crisis Intense global competition SALES FORCE CHALLENGES Mergers and acquisitions Blurring of industry boundaries Technology Advances

Range of Selling Roles Transactional Selling Consulting-Type
Relationships

Defining the Selling Process
Finding Prospects Opening the Relationship Qualifying the Prospect Presenting the Sales Message Closing the Sale Servicing the Account Source: Mark W. Johnston and Greg W. Marshall, Sales Force Management, McGraw-Hill/Irwin, 2003,

The Selling Process Guides
Recruiting Training Effort Allocation Organizational Design Selling Support Activities

Selecting Sales Channels to End Users
Major Account Management Field Sales Force Telemarketing Electronic/Mail Contact

Deployment of Selling Effort
DESIGNING THE SALES ORGANIZATION Organizational Structure Deployment of Selling Effort

Sales Force Deployment
Size of the Sales Force Allocation of Selling Effort Salesperson skills and effort PLUS Market potential Number and location of customers Intensity of competition Market (brand) position of the company

Designing the Sales Organization
Customer needs different Market-Driven design Product/ Market-Driven design Simple product offering Complex range of products Geography-Driven design Product- Driven design Customer needs similar

Selecting an Organizational Design
What is the selling job? How much customer/product specialization is necessary? Role of value chain (channel) relationships? How many sales management levels (hierarchy versus process)? Will sales teams be used? Sales channels in addition to the field sales force? Are there any sales structure danger signals (high costs, turnover, large sales variations across territory?

Salesforce.com Makes People More Productive
INTERNET FEATURE: Salesforce.com Makes People More Productive Salesforce.com is an interesting example of a dot-com start-up which has developed a successful business model supplying customer management software over the Net for use by salespeople. A key feature of the software is that it is sold as a service to customers at a monthly charge for each individual user. Salesforce.com has nearly 450,000 22,700 companies worldwide. Salesforce.com illustrates how Internet information technology can enhance the capabilities and efforts of salespeople. By replacing large up-front software purchases with monthly service charges, Salesforce.com offers customers a compelling value opportunity. Since this feature can be duplicated by software competitors such as Siebel Systems, Oracle, and PeopleSoft, Salesforce.com may have difficulty sustaining its competitive edge. CEO Marc Benioff launched a new product initiative in 2005 intended to strengthen Salesforce.com’s competitive edge. AppExchange is an online market place enabling software firms and customers to trade and sell applications they develop. There will be no charge for the eBay like service but Benioff expects to expand demand for the firm’s software. Source: Salesforce.com website and “An eBay for Business Software,” BusinessWeek, September 19, 2005,

Sales Force Size Example
40 35 30 25 20 15 10 5 Sales Current level Maximum profit contribution level $ millions Gross profit contribution Selling expense Number of salespeople

Managing the Salesforce
Finding and Selecting Salespeople Training/Development Management Control Monitoring Directing Evaluating Rewarding

Wyeth Reorganizes the Sales Force to Improve Productivity
STRATEGY FEATURE: Wyeth Reorganizes the Sales Force to Improve Productivity Wyeth’s changes in the sales organization are driven by concerns of physicians about duplicated sales coverage and the need to improve salesforce productivity. The prior approach of multiple salespeople calling on doctors to market the same drugs is being changed. Out of Wyeth’s salesforce of 5000, about half call on primary-care doctors. As many as 750 nay be cut or reassigned. The selling strategy is to reduce the frequency of sales calls, while making each more worthwhile. Initiatives include assigning each salesforce responsibility for more drugs, reducing sales calls on the doctors who write the fewest prescriptions, and utilizing a part-time sales force for coverage of selected accounts, and use of Internet-based seminars. Source: Scott Hensley, “Wyeth to Revamp, Cut Its Sales Force,” The Wall Street Journal, June 20, 2005, A3, A6.

Sales Force Evaluation and Control Performance Standards
Performance Measures Focus on Management Control and/or Outcomes? Performance Standards

Reinventing the Sales Organization
Customer Relationships Applying Technology Coaching SALES MANAGER CHALLENGES Performance Huddles Sales Structure Internal Relationships Customer Channels Keeping Score

Deciding Internet Objectives E-Commerce Strategy
INTERNET STRATEGY Strategy Development Deciding Internet Objectives E-Commerce Strategy Value Opportunities and Risks Measuring Internet Effectiveness The Future of the Internet

Internet Strategy Alternatives
Promotional Medium Communication Tool Value-Chain Channel Separate Business Model

Deciding Internet Objectives
Creating Awareness and Interest Information Dissemination Obtaining Research Information Brand Building Improving Customer Service

Designing Internet Strategy
Customer Groups Targeted Value Proposition Communications Strategy Designing the Website Structure of the Organization Alliance Partners Shareholder Value Tracking Performance

Measuring Internet Effectiveness
Challenging but capabilities are developing. What should be measured and how? Major changes are likely through trial and error. Alternative measures: Ad impressions, clicks, unique visitors, total visits, page impressions

E-Tailing Finally Hits Its Stride
The E-tail Effect How e-commerce is shaking up the retail landscape: THE BIG GUNS ARRIVE After early struggles, online sales at brick-and-mortar giants such as Wal-Mart, Sears, and Gap are soaring. These chains are also using the Web to test new products and move into new markets. NICHES GO NATIONAL More and more niche players are succeeding by offering variety rivals can’t match. Luggage seller eBags, for example, is able to stock 12,000 styles, compared with 250 in a typical store. SEARCH LENDS A HAND Using Google and similar Websites, consumers can search far and wide for specialized products – say, stainless-steel farm sinks. That’s creating markets for lesser known brands and new merchants. MORE PRICING PRESSURES Shoppers are increasingly using price-comparison sites such as Shopping.com and Shopzilla. The result: Ever more cutthroat competition for brick-and-mortar and online stores alike. Source: “E-Tailing Finaly Hits Its Stride,“ BusinessWeek, December 20, 2004,

The Future of the Internet
Revolutionary for certain industries and incremental for others.

DIRECT MARKETING Kiosk Shopping Catalogs Electronic Shopping
Direct Mail Radio/Magazine/ Newspaper Telemarketing Television

Advantages of Direct Marketing
Socio-economic Trends Time constraints/ convenience Low Access Costs Much lower than face-to-face contact Data Base Management Facilitates direct marketing initiatives Value An attractive bundle of value

Designing market-driven organizations
Trends in organization design Organizing for market-driven strategy Marketing departments Structuring marketing resources Organizing for global marketing and global customers

Designing market-driven organizations
Procter and Gamble Global restructuring to improve innovation and competitiveness Global business units for products and market development units to tackle local market issues Change agents appointed to work across business units Virtual innovation teams work through intranet Organization design supports clear strategies so all business disciplines can work together

Trends in organization design (1)
The New Organization Traditional structures Centralized, vertical, “command and control” Organizational design shifts Innovation The knowledge-based worker Managing culture Collaborative working Informal networks Organizational diversity and external relationships

Organization costs Cadbury Schweppes - world’s largest confectionery business Restructuring at cost of $900 million Organizational structure has become too complex with too many overlaps Organizational costs account for 20% of turnover - compared to 12% at competitors Reorganization is central to regaining competitiveness

Trends in organization design (2)
Managing organizational processes Organizational agility and flexibility Zara Toyota Employee motivation “MySpace Generation”

Alternative Organizational Structures
Traditional Hierarchy Process Overlay Functional Structure Process Structure Functional Overlay Horizontal Structure

Process-based organizational structure
Processes that define value e.g. knowledge management, CRM Processes that create value e.g. new product development, innovation Process Leadership Processes that deliver value e.g. logistics, customer service, value chain relationships Coordination mechanisms to link process and resource leadership Specialist resource groups support process Managers e.g. functional departments, business units, external collaborators Resource Group Leadership

The Toyota way Pillar I Challenge Kaizen - continuous improvement
Genchi Genbutsu - go and see for yourself Pillar II Respect Teamwork EM2 - Everything Matters Exponentially

The MySpace Generation
Lives online - social networking sites are a way of life Children of the babyboomers Ambitious, demanding and question everything Work/life balance is very important Expected to be the highest maintenance workforce in history and the most high-performing “You raised them, now manage them”

Organizing for market-driven strategy (1)
Strategic marketing and organization structure Aligning the organization with the market Informal lateral integration Integrating mechanisms Full customer alignment

Customer-based front-end organization
Senior Management Mediation from the center Shared planning and metrics Customer-based Front-end Units Back-end Units Internal linkages Product customers Solutions customers

Organizing for market-driven strategy (2)
Marketing functions versus marketing processes Marketing as cross-functional process The challenge of integration Marketing’s links to other functions Finance/accounting Operations Sales R&D Customer service Human resource management Approaches to achieving effective integration

Marketing departments
Centralization versus decentralization Integration or diffusion Contingencies for organizing Evaluating organizational designs

Organizing Concepts BUREAUCRATIC TRANSACTIONAL ORGANIC RELATIONAL
Centralized Formalized Nonspecialized BUREAUCRATIC TRANSACTIONAL Internal (hierarchical) Organization of Activity External (market) Organization of Activity ORGANIC RELATIONAL Decentralized Nonformalized Specialized

Structuring marketing resources (1)
Structuring issues Functional organizational design Product-focused design Product/brand management Category management Venture teams New product teams Market-focused design Matrix design

Traditional Marketing Organization Designs
Functional TRADITIONAL DESIGNS Product- Focused Matrix Market- Focused

Product-Focused Structure

Marketing Organization Based on a Combination of Functions and Products

Structuring marketing resources (2)
New marketing roles New marketing specializations Venture marketing organizations Partnering with other organizations Networked organizations

New organizational structure for marketing
Vice President of Marketing Director of Product Management Chief Customer Officer Customer Service Customer Database Marketing Research

The Marketing Coalition Company
Source: Ravi S Achrol, “Evolution of the Marketing Organization: New Forms for Turbulent Environments”, Journal of Marketing, October 1991, 88.

Organizing for global marketing and global customers
Organizing for global marketing strategies Business functions Organizational issues Coordination and communication Organizing for global customers The growth in global retailers Global account management structures

Global account management at Microsoft
Single executive/team in charge of single customer and all global needs Restricted to customers by revenue size but also willingness/ability to partner Senior managers encouraged to develop relationships with senior managers at global accounts Global business managers work across business units, functions and organizations

Marketing strategy implementation and control
The strategic marketing planning process Implementing the strategic marketing plan Strategic marketing evaluation and control Marketing performance measurement Global issues for planning, implementation and control

Marketing strategy implementation and control
Fiat - strategic turnaround in auto industry Debts, losses, market share falling, reputation for low quality, diversification Recovery strategy of radical restructuring, dismantling management and bureaucracy Marketing, operations and R&D overhauled - small car focus Range of strategic relationships established

The strategic marketing planning process
The marketing plan guides implementation Contents of the marketing plan Managing the planning process

Strategy and planning relationships
MARKETING STRATEGY Annual Marketing Planning Annual Marketing Planning Annual Marketing Planning Implementation Control and Evaluation Revision Implementation Control and Evaluation Revision

I. Strategic Situation Summary Summarize the key points from your situation analysis (market analysis, segments, industry/competition) in order to recount the major events and provide information to better understand the strategies outlined in the marketing plan. II. Market-Targets and Objectives The market target may be defined demographically (key characteristics only), geographically, or in social/economic terms. Each market target should have needs and wants that differ to some degree from other targets. These differences may be with respect to types of products purchased, use situation, frequency of purchase, and other variations that indicate a need to alter the positioning strategy to fit the needs and wants of each target. An objective is a quantified goal identifying what is expected when. It specifies the end results expected. The objectives should be written for each target market. Objectives should also be included for the following program components: (1) product, (2) price, (3) distribution, (4) promotion (salesforce, advertising, sales promotion, and public relations), and (5) technical services.

III. Positioning Statements Write statements that describe how you want each market target to perceive each product relative to competition. State the core concept used to position the product (brand) in the eyes and mind of the targeted buyer. The positioning statement should describe: (1) What criteria or benefits the customer considers when buying a product along with the level of importance, (2) What we offer that differentiates our product from competition, and (3) The limitations of competitive products.

A. Product Strategy Identify how each product fits the market target. Other issues that may be addressed would be new product suggestions, adjustments in the mix of existing products, and product deletion candidates. B. Price Strategy The overall pricing strategy (I.e., competitive, premium-priced, etc.) should be identified along with a cost/benefit analysis if applicable. Identify what role you want price to play, i.e., increase share, maintenance, etc.

C. Distribution Strategy Describe specific distribution strategies for each market target. Issues to be addressed are intensity of distribution (market coverage), how distribution will be accomplished, and assistance provided to distributors. The role of the sales force in distribution strategy should also be considered. D. Promotion Strategy Promotion strategy is used to initiate and maintain a flow of communication between the company and the market target. To assist in developing the communications program, the attributes or benefits of our product should be identified for each market target. How our product differs from competition (competitive advantage) should be listed. The sales force’s responsibilities in fulfilling the market plan must be integrated into the promotion strategy. Strategies should be listed for (1) personal selling, (2) advertising, (3) sales promotion, and (4) public relations.

E. Marketing Research Describe the market research problem and the kind of information needed. Include a statement which addresses why this information is needed. The specific market research strategies can be written once the above two steps have been followed. V. Coordination with Other Business Functions Indicate other departments/functions that have responsibilities for implementing the marketing plan. VI. Sales Forecasts and Budgets VII. Contingency Plans Indicate how your plans should be modified if events should occur that are different from those assumed in the plan.

Dimensions of Planning Process
Analytical Process Dimension Techniques Procedures Systems Planning Models Marketing Planning Process Behavioral Process Dimension Managerial perceptions Participation Strategic assumptions Process Consistency Organizational Process Dimension Structure Information Culture

Implementing the strategic marketing plan (1)
Implementation process Structural issues Behavioral issues Building implementation effectiveness Organizational design Incentives Communications Internal marketing Comprehensive approach to improving implementation

Implementation process
Activities to be implemented Responsibility for implementation How implementation will be done IMPLEMENTATION PROCESS Time and location of implementation

Improving Implementation
Skilled Implementers Effective Communications Organizational Design Improving Implementation Internal Marketing Incentives

Internal Marketing Strategy Plan Internal Marketing Program External
Targeted at key groups in the company, alliance partner companies, and other influencers External Marketing Program Targeted at key customers, segments and niches, and other external influencers

Comprehensive Approach to Improving Implementation
Financial Measures BALANCED SCORECARD MANAGEMENT CONTROL SYSTEM Learning and Innovation Measures Customer Measures Internal Business Process Measures

Implementing the strategic marketing plan (2)
Internal strategy-organization fit Organizational stretch The role of external organization

Strategic marketing evaluation and control (1)
Customer relationship management Overview of control and evaluation activities Find new opportunities/avoid threats Keep performance in line with expectations Solve specific problems

Evaluation Activities
Find New Opportunities or Avoid Threats Solve Specific Problems Keep Performance on Target

Evaluation and control
Conduct strategic marketing audit Select performance criteria and choose relevant marketing metrics Obtain and analyze information Assess performance and take necessary action

Strategic marketing evaluation and control (2)
The strategic marketing audit Results provide basis for selecting performance criteria to assess actual performance against lans

Strategic Marketing Audit
Corporate Mission and Objectives Business Composition and Strategies Marketing Strategy (for each planning unit) Marketing Program Activities Implementation and Management

Marketing performance assessment (1)
The importance of marketing metrics The use of marketing metrics Types of marketing metrics Selecting relevant metrics Designing a management dashboard

Marketing metrics (A) Marketing metrics focusing on operations
Competitive and customer metrics Profitability metrics Product and portfolio metrics Customer profitability metrics Sales and channel metrics Pricing metrics Promotion metrics Advertising, media and web metrics Financial metrics

Marketing metrics (B) Brand equity metrics Familiarity Penetration
What they think about the brand What they feel Loyalty Availability Innovation metrics Strategy Culture Outcomes

Marketing metrics (C) Internal market metrics
Awareness of corporate goals Perceived caliber of employer Relative employee satisfaction Commitment to corporate goals Employee retention Perceived resource adequacy Appetite for learning Freedom to fail Customer-brand empathy Internal process metrics E.g., internal communications

Marketing performance assessment (2)
Interpreting performance measurement results Opportunities and performance gaps Problem/opportunity definition Interpreting information Determining normal and abnormal variability Deciding what actions to take

Global issues for planning, implementation and control
Global marketing planning Additional complexity Simplifying assumptions Limited information availability Accommodate international strategy variability Implementation globally Importance of relationships between domestic and international executives Performance measurement and control globally International markets may require different metrics

Strategic Marketing 1. Imperatives for Market-Driven Strategy

Similar presentations

Presentation on theme: "Strategic Marketing 1. Imperatives for Market-Driven Strategy"— Presentation transcript:

Similar presentations

About project

Feedback

Log in

Auth with social network:

Strategic Marketing 1. Imperatives for Market-Driven Strategy

Similar presentations

Presentation on theme: "Strategic Marketing 1. Imperatives for Market-Driven Strategy"— Presentation transcript:

Similar presentations

About project

Feedback