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Quiz!
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Diff btwn MANAGEMENT & MARKETING |
Mgmt- manage organization Mktg- manage market |
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Status quo of mktg |
Identify, understand then satisfy customer needs |
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3 factors stifling full implementation of mktg |
1. Market not fully deregulated |
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Diff btwn MKTG orientation and MARKET orientation |
Mktg- Design/produce product w/o consulting mktg MARKET*- Coordinate mktg info into design/production of product |
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DRAW MODEL OF MARKET ORIENTATION |
Week 1 pg 4 |
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Implication of customer orientation |
Take on perspective of customer + internal knowledge of firm's staff. to be innovative in a business model/product sense. |
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How does a customer orientation view define the other 3 P's? (Place, Price, Promotion) |
Place- convenient & easy access to a solution Price- Total cost customer is WTP Promotion- communication of the solution |
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Implication of competitor orientation |
Take on perspective of competitor (pretend) & enter competitor's premises |
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Implication of a collaborator orientation |
Take on supplier's perspective to evaluate basis of r'ship: trading regulations, pricing contracts, loyalty |
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Firms should run from 'outside-in' or 'inside-out' perspective? |
OUTSIDE-IN (1 extreme to another) |
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What drives corporate value? |
THE MARKET (customer needs) |
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What must marketing do to maximise corporate value? |
Recognise then LINK marketing decisions to the true indicators of corporate value. |
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Indicator of corporate value is... |
CASH FLOW (not profits!) |
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Qualities of cash flow |
- calculable metric of mktg strategies' impact |
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Why discounted future cash flow? |
To compare cash flow expectations on same grounds b/c discounting cash flow brings 2 different future expectations back to present day. |
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Where is discounted cash flow reflected? |
Stock Xchange: |
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Why not focus on traditional acct measures? (i.e. profits) |
- Profits does NOT reflect firm's value (share price) - Acct = rear-view mirror (reflection of past) but mktg needs a forward-viewing measure! |
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HOW does marketing link itself to indicators? (how to create shareholder value?) |
1. Shift business towards MOST ATTRACTIVE market 2. To build a sustainable competitive advantage in those markets |
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Basic principle of Shareholder Value Analysis (SVA)? |
** Cash flow analysis ** |
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4 factors that affect cash flow |
1. Level (want high) |
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What influences LEVEL of cash flow |
Product development |
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What influences TIMING of cash flow |
WHEN modified/new products are introduced to market |
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What influences SUSTAINABILITY of cash flow |
LOYALTY of customers |
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What influences RISKINESS of cash flow |
Level of customer satisfaction |
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What is cash flow, exactly? |
Operating inflows - operating outflows earnings less the amount reinvested in business |
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Central concept of financial performance |
Decisions yielding cash flow to be greater than cost of capital will create shareholder value (and vice versa) |
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Fundamentals of shifting business towards attractive markets (2) |
1. View markets DYNAMICALLY, not statically. 2. Determine which customers to serve. |
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Implications of dynamic market view (3) |
Today's & tomorrow's business, and market options - invest generously in future! |
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Implications of customer selection |
Firm cannot desire ALL customers, must focus on those that are: -Strategic |
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Definition of sustainable competitive advantage |
A value proposition that matches the needs of customers in the long term |
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A value proposition explains to customers why... (2) |
- they should buy from your firm |
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Must firms be competent in delivering ALL types of competitive advantage? |
NO. must focus on 1 and sustain firm's capability in t hat competitive advantage. |
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What is a brand? |
A strategic market position |
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2 components of a brand |
1. Awareness |
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What is brand equity? |
Value of the strategic market position: how much people would pay to buy brand of company. |
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What drives brand equity? |
brand knowledge level |
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Depiction of how brand knowledge level is raised in simple web |
week 3, pg. 18 |
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Awareness of brand is developed through...(2) |
Depth and breadth |
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Image of brand must have 3 attributes |
Strength |
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What drives brand knowledge level and its components? |
1. Capability of firm to develop a brand identity |
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Process of how the brand organizes marketing behavior |
capability --> BRAND --> knowledge |
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Brand articulates itself through the 4.... |
4 P's! |
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The 4 P's is the medium in which translates... |
the firm's capability into consumer's knowledge of the brand |
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Which 'P' is the most important aspect of the brand? |
Product: the brand that good products create can sustain for the long run |
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What are the most important brand benefits? (2) |
Negotiate risks (quality & time) |
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4 risk categories that brands can provide comfort for |
1. Quality risk |
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Brand benefits to seller |
1. Less legal risk: brand brings security and protection |
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Why do firms need a marketing plan? |
So entire organization has a mutual and concrete understanding of its strategic objective |
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How can a mktg plan be defined? |
A strategic document |
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Mktg plan focuses on.. (5) |
1. Firm's mission (what business are we in?) |
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What is the UNIT of analysis for a mktg plan? |
The products under the brand |
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3 objections to using a mktg plan |
1. Lack of needed info. |
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2 principle sections in a mktg plan |
1. AUDIT |
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What is regarded in the AUDIT section? |
SWOT analysis |
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What is regarded in the ACTION section? |
How to work the 4 P's |
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5 major components of mktg plan |
1. Executive summary |
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Opportunities and Threats analysis: which factors are reviewed to determine attractiveness of market? |
- Size of market |
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5 forces of market's competitive structure |
1. Intensity of competition |
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Define cyclicality of market |
Fluctuation of sales in market (less = better) |
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Review market attractiveness now and in the _____ |
FUTURE (based on same factors) |
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Strengths and weaknesses include 2 categories of factors: |
1. Cost Factors |
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Cost advantage determinants (2) |
Fixed and variable costs |
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Differentiation advantage exists if a customer is _____ and when firm gains ____ |
- willing to pay a PRICE PREMIUM. |
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3 strategies if differentiation advantage exists |
1. Charge full price premium by increasing price to a point where it offsets the improvement in customer benefits 2. Keep price at level of competitors and use advantage to gain market shares 3. Price ABOVE competitors but below full premium to gain a combo of unit margin improvement and market share gain. |
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Organization's competitive advantage projected in the... |
FUUTURE |
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What has a greater impact on corporate value-- competitive advantage or market attractiveness? |
Competitive advantage b/c own abilities can bring in more cash flow (cost structure & differential factors) |
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Which competitive advantage (cost or differential) is more vulnerable? |
Differential advantage b/c cost structure is highly difficult to achieve and replicate (eg ALDI's) |
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5 strategic objectives |
1. Divest (exit) |
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Which market attractiveness/ competitive position in matrix is most problematic? |
DIVEST/GROW: implies few strategies: bulk up or quit. |
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2 principle strategic market focuses in order to realise strategic objective |
1. Increase sales volume |
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How should strategic market focus be selected? |
Sales volume if: GROW/ENTER Productivity if: MAINTAIN |
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4 marketing tasks involved with a sales volume focus |
1. Convert non-users |
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Enter new segments meaning... |
divide market into segments |
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How to incr. usage rate? |
Implement new differentiating factors (new, upgraded functions) |
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Describe cycle associated with sales volumes task |
1. New product introduced to first adopters. 2. Innovator segment becomes saturated 3. Knowledge of product spreads: new competitors enter market, prices fall, firm moves into new segments to maintain growth 4. Incr. usage rate per customer, competition's customers convert. 5. Customers become price sensitive, products become similar. |
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3 marketing tasks involved with productivity focus |
1. Reduce costs (FC & VC) |
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Why is market segmentation important? |
Provides structure to implement strategic market objective(s). |
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Describe market segmentation |
To identify groups/companies that are homogenous to a particular behaviour |
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Objective of market segmentation |
Trying to identify alternative customer groups (diff options) |
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2 needs that is driving the increasing importance of segmentation capability |
1. increasing need to EXPLOIT existing product concepts to full potential 2. need to explore NEW product concepts |
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Which variables are used to segment consumer market? |
Demographics- ethic groups, marital status, geographic location Psychographics: interests, opinions, lifestyles |
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Which variables are used to segment industrial markets? |
Demographics: size, technology, structure Psychographics: culture, organizational climate, strategic orientation |
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Which variables to WORLD CLASS ORGANIZATIONS use to segment the market? |
Behavioural and descriptor variables |
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How do behavioural variables segment market? |
Segment on basis of benefits needed by customers |
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How do descriptor variables segment market? |
By demographics and psychographics |
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Behavioural approach: 4 steps |
1. Identify benefits needed or the behaviour that reflects the needed benefits 2. Measure benefits/behaviours for a SAMPLE of consumers 3. Cluster sample into segments 4. Find descriptors that are appropriate for each segment |
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Why favor behavioural approach? |
Guaranteed divergent behaviours among segments Less risk of obtaining a useless result (customers of diff demographic&psychographics may want same quality of product) |
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Classification of benefits needed |
1. Recognized by customers 2. Yet to be recognized by customers |
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How can needs recognized by customers be identified as potential business opportunity? |
Need exists = business opportunity |
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How can needs NOT YET recognized by customers be identified as potential business opp? |
Go after benefits that match firm's resources best |
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Sources of benefits needed |
1. Manifest or latent problems w/ current products 2. Changes in environment that incur changes in consumption habits |
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To uncover problems w/ current product, name the 4 general aspects of consumption process must be analyzed.... |
1. How customers evaluate existing ALTERNATIVES 2. Problems customers experience during actual buying transaction 3. Difficulties customers experience with disposing of products 4. How well satisfied customers are with product's performance |
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To uncover changes in consumption habits, name the 5 general environmental factors to review: |
1. Demographic trends |
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3 principle steps involved in electing market segments |
1. Determine value of potential customers 2. Determine competitive potential of competitors 3. Determine dynamic potential of external environment |
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4 critieria of determining value of potential customers |
1. Strategic |
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2 procedures in determining competitive potential of competitors |
1. Identification of competitors |
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How can competition be identified? |
- Degree of keen-ness to compete against each other - Customer decids on who firm's competitors are (firm is powerless in identification) |
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How can degree of competition be categorized? |
- Direct competition (offered & considered) - Indirect competition (offered but not considered) - Potential (not offered but considered) - Incipient (not offered nor considered) |
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2 factors that govern the 4 categories of competition |
1. Technological viability |
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Technological viability drives product into which degree of competition? |
Direct |
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How can competitors be analyzed? |
Identify then predict strategies (cost or differential?) |
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Surrogates of a low cost strategy |
High market share and low prices |
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Surrogate of a differentiation strategy |
high promotion-to-sales ratio |
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Basic principle in predicting strategy of existing and fture competitors |
Put yourself in competitors' shoes |
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How else can competitor behavior be predicted? (4) |
1. Let them tell u (recruit their managers, research, etc) 2. Infer from past behaviors 3. Determine competitors' objectives if strategy not visible 4. SWOT analysis on competitor |
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External environment categorised into 4 groups |
Political |
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Combo of 4 methods to monitor and evaluate PEST factors are: |
1. Public opinion poll |
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How does market grow to maturity? |
By adding more segments (often thru difficult changes in its positioning strategy) |
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2 positions of brand in target market segment |
brand STRENGTH and STATURE |
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4 factors that build the brand strength and stature |
Brand... |
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Draw out brand life cycle in a strength-stature matrix of unfocused, emerging potential, leadership and eroding potential |
week 8 pg 66 |
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Promotion focus of unfocused (new) brand |
- billboards, high frequency & visibility |
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Brand with emerging potential means? and what promotional tactics? |
means YOUNG but SUCCESSFUL brand (not mainstream but underground faves) - Same tactics as new brand |
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Brand with eroding potential (faded) needs revival: promotion focus? |
- diagrams, text to build product uniqueness |
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Product is not just an item produced or sold by firm why? (3) |
- Products increasingly customised (no more 'standard' product) - Products are increasingly defined - Products are augmented with MORE products&services (upgrades, after-sale services) |
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Current understanding of what a product is |
Anything that is intended to meet a customer need (eg. idea, organizations, celebrities) |
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2 fundamental decisions made before product is launched |
1. Volume of production offered t a target segment 2. How much should be invested into product development |
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Starting point in making product decisions..customer need vs. sales |
- Customers attach value to product (WTP |
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Product mix determined in terms of...(3) |
Breadth |
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Define the breadth, length and depth |
Breadth: how many product lines available Length: How many products in each line Depth: How many variations of products in each line |
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Differentiate between length and depth |
length (additional product) vs. depth (variation of product) |
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Determinant of product mix decision: business' core strategy (2) |
- COST (simple mix) |
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Determinant of product mix decision: business' strategic objective |
- divest: reduce mix |
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Determinant of product mix decision: strategic focus (2) |
incr. volume: Complex mix improve productivity: simple mix |
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Determinant of product mix decision: define NEED FOCUS |
Needs of targeted segments to determine complexity of mix |
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Determinant of product mix decision: competitors and PEST |
May need to reflect competitior's mix to evaluate own's mix |
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To prevent competitiors from threatening core business: define downward/upward stretching |
downward: go to a lower value segment than firm typically targets to capture more benefits upward: go to higher value segment (more difficult, usually must buy a new brand) |
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Define fighter products (describe role) |
Products addedto the line and targeted at price-sensitive accounts most at risk from new competition - to segment market and limit as far as possible the overall decline in margins caused by price competition |
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Price = most important 'P' for corp. value, why? |
no price = no cash flow |
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Implication of price importance |
- Intense competition b/c it can change market so quickly - PRICE WAR: price spiral can put infrastructure spending on the line |
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How internet influences management of price |
- High price transparency |
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Define traditional pricing concepts (2) |
1. Mark-up pricing: consists of production cost + % profits desired 2. Target-return pricing: Price desired for selling expected # of products w/ returns ad production cost included |
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Problems with traditional pricing concepts (4) |
1. Ignore demand |
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4 principles that underlie effective pricing for corp. value maximisation |
1. Based on value that product offers to customers 2. Prices should be customised so that these value differences are capitalized on. 3. Prices should anticipate reactions of competitors and their long run objectives in market 4. Pricing should be integrated with firm's broad strategic positioning |
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2 issues with price decisions surrounding competitors that must be considered |
1. How will competition react and what are the subsequent effects on profits? 2. Way of influencing competitors towards LESS damaging responses |
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Industry characteristics that affect ability to shape competitor reactions (4) |
1. # of competitors (more is better) |
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Price cooperation is the best way to avoid pitfalls what are the 2 ways: |
1. Price signalling (warn competitors of change) |
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Strategic approach to pricing (4 steps) |
1. Set parameter of price range according to strategic position 2. Set price (no product designed yet) 3. Determine cost level (to ensure positive cash flow) 4. Design product on these grounds |
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Three-tier value segmentation of most markets in terms of typical brand positions are... |
economy, business, first-class |
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How do price variations within and across value segments impact buying behaviour? |
- Price elasticity within a value segment is usually HIGHER than between brands in different value segments - More switches from high to low value segments (not symmetrical) |
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2 price positions |
skimming or penetration |
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Define skimming price and when it should be selected |
- Price set to maximise UNIT MARGINS (high price range) Selected when: |
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Define penetration price and when it's selected |
- Price set to maximise SALES VOLUME (low price range) Selected when: |
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New way of pricing: INDIVIDUAL PRICING. define |
- same product priced differently for different people |
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Decide on price variation: PROMOTIONAL PRICING: what are the tools? (2) |
1. Trade promotions - discounts & allowances |
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Rule for promotional pricing |
must be CONSISTENT since market&competition react aggressively to price changes |
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Sales effects of promotional pricing |
Powerful driver for sales! |
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Policies for price variations with promotional pricing |
BEST: no price variation (no sales, discounts) If must vary: low prices everyday - Seasonal sales |
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4 functions of a channel |
1. Information generation |
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Basic channel designs available |
1. Direct |
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What are direct channels? |
Manufacturer owns entire channel from origin to consumption |
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What are indirect channels? |
When aspects of channel not owned by manufacturer |
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When are direct channels preferable? (5) |
1. When needs for info. are high |
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When are indirect channels preferable? (3) |
1. Product relies on one-stop shopping (eg. grocery in supermarket) 2. Need availability (geographic spread) to distribute products 3. After-sales service is important |
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What are multi-channel systems? |
Combo of direct and indirect: deliver product to different segments thru different channels |
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Disadvantages of multi-channel systems (2) |
1. Complex (maintenance of all channels) |
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What are hybrid-channel systems? |
Combo of direct & indirect channels but with MULTIPLE pathways to SAME segment |
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Disadvantages of hybrid-channel systems (2) |
1. Complexity |
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6 factors that influence the design of an optimal channel structure |
1. Stage of market |
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Define 'stage' of market |
the MATURITY of market: high service or low cost? |
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For strategic objectives 'enter/grow' & 'divest', what are the optimal channel choices? |
'enter/grow': MULTIPLE channels to drive in more customers 'divest': INDIRECT channel to strip out costs and eventually sell business |
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For strategic focus- incr. volume or improve productivity; what are the optimal channel choices? |
Volume- MULTIPLE channel with large # of retailers Productivity: Indirect, strip out costs |
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Benefits needed: suitable channel structure? eg. Airline companies |
Usually hybrid for airline companies as they sell to individual/groups (unis, companies) |
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Core strategy (cost/differentiation advantage) : suitable channel structure? |
1. Cost: Indirect, cheaper using 3rd parties 2. Differentiation: prefer direct |
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Typical sources of conflict in marketing channels (4) |
1. Goal divergence |
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4 sources of channel power to resolve channel conflict |
1. Coercive power |
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Which indirect channel members have the greatest effect of brand equity? |
the RETAILER: aspect of channel that faces customer, thus most influencial |
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How can manufacturers manage retailers? |
Push & pull strategy |
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Define push strategy |
To push product thru retailer into market |
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Define pull strategy |
To pull customers to product thru retailers (i.e. advertise to customers, then they go ask for product from retailer) |
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How can manufacturers support retailers? (2) |
Retail segmentation |
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Define retail segmentation |
To provide differentiated products to different retailers |
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Define cooperative advertising |
To pay for a portion of the advertising that a retailer runs |
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What direct channel member have greatest effect on brand equity? |
The company owned store |
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What are the primary motivations for company-owned stores? (3) |
- To serve as displays |
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How the internet is influencing market channels |
Permits separation of products from economies of info, selling, delivery and financing. Companies and customers can interact at almost zero cost. |
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What makes direct model attractive to customers? Potential for benefits? (4) |
Potential for.. |
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What makes direct model attractive to suppliers? Potentials for benefits? (3) |
Potential for... |
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Components of promotion function (4) |
1. Advertising |
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Traditional accountant view of promotions |
1. Promotion = Cost, not investment |
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Weaknesses of 'promotions=costs' view |
1. Long term effects of mktg are ignored |
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Responsible view of promotion: what should it be evaluated upon? |
Its effects on shareholder value (impact on NPV of cash flow) |
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2 high involvement promotions models |
1. rational persuasion model (make aware-think-feel-do) 2. Image persuasion model (make aware-feel-think-do) |
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Advertisement tactics in the 2 models |
1. think-feel-do: ad w/ more text, information, facts 2. feel-think-do: ad w/ main focus on a graphic image |
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1st step in developing promotions strategy? |
Understand the brand |
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Aim in understanding brand thru promotion: |
Manages how other 3 P's are consolidated in a meaningful brand story so customers are satisfied (draw out diagram) |
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2nd step in developing promotions strategy? |
Understand the brand audience |
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2 factors in determining communication objectives |
1. Degree of customer involvement in buying decision |
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High involvement + high rational: what should promtions strategy focus on? |
The benefits and value attributes brand offers (emotional, exclusive) |
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High involvement + low rational, what should promotions strategy focus on? |
Value attributes brand offer (emotions- e.g. vintage mustang) |
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Low involvement + high rational: what should promo strategy focus on? |
Benefits brand offer (information, facts) |
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3rd & 4th step in developing promo strategy |
Design the msg |
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Budgeting is the most difficult task, what's the goal (1) and rules of thumb? (4) |
*Select a budget that maximises NPV of all future cash flows* - overall effect of promotion on sales is usually small - promotion has DIMINISHING effects in terms of sale results (reach soon > frequency of ads) - Critical for new brands - Promotion elasticities are normally low for mature brands |
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Final step of developing promo strategy? |
Allocating budget across promo mix |
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To allocate budget efficiently must assess ____ & ____ of each promo variable |
strengths and weaknesses |
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S&W: Advertising |
S: Reach out |
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S&W: Sales promotion |
S: Provides trial |
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S&W: Public relations |
S: Increases credibility |
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S&W: Personal selling |
S: Personal, direct feedback |
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S&W: Direct marketing |
S: Target specifics |
