marketing lecture revised

Marketing

Structure of Lecture

1. Importance of marketing to NPD

2. Strategic marketing frameworks

3. Marketing launch tools: 4Ps

R&D Based Versus Marketing Based Ideas

100% 100% 100% 100% 100% 100%

90%

10% 22%

78%

25%

75%

31%

69%

34%

66%

34%

61%

5%

Materials Computers, railway, housing

Instruments Winners of the Industrial Research Award

British innovators

Weapons systems

R&D Based

Marketing Based

Source: Utterbach

NPD Process: Marketing Input

Idea

Conception

Business

PlanDesign Manufacture Launch

Fit with marketing/ corporate strategy

Market research

Market testing

Implement marketing mix

Establish marketing mix

Approximate Costs of NPD: %

Industrial ChemicalsConsumer Goods

100100

5779

13

28

2

16

3

2

Stage

Opportunity Identification

Design

Testing

Launch

Total

100% = $12.6m $4.7m

Marketing Mix: The 4 Ps

Place

Promotion Product

Price

The Marketing Mix

Product

• Definition

• PLC

• Physical products versus services

Place

Promotion

Price

The Marketing

Mix

Product

Consistency in Marketing Mix

Premium Product (e.g. Jermyn St shirt)

Premium Price (+30% over average)

Premium Place (narrow distribution)

Premium Promotion (selective advertising)

Importance of 4Ps by Industry – examples of promotions

Advertising

Sales Promotion

Personal Selling

PR

Advertising

Sales Promotion

Personal Selling

PR

Consumer Goods Industrial Goods

Importance

High

Low

Push versus Pull

Push Strategy Manufacturer Intermediary End User

e.g Lever Brothers

Pull Strategy Manufacturer Intermediary End User

e.g. P & G

Demand Demand

Demand Demand

Marketing’s Definition of the Product

Any want - satisfying good or service that is considered

together with its perceived tangible and intangible

benefits

Product from Customer’s Viewpoint

A product is a “bundle of satisfactions or benefits”

i.e. The nature of the product lies in the consumer’s perception of it

This explains marketing’s obsession with the consumer

Product versus Benefit Definitions: Examples

Company Product-orientated Benefit-oriented definition definition

Lancome We sell cosmetics We sell beauty

Xerox We make photocopiers We improve office productivity

Disney We make films and We entertainassociated products you and provide

escapism

UCL-NPD We teach you a wide We prepare you forrange of skills/frameworks the outside world

SWOT Analysis

SWOT

Strengths Weaknesses Opportunities Threats

Internal External

BCG Growth Share Matrix

?High

Dog Cash CowLow

MarketGrowthRate

Low High

Relative Market Share

Star

1x10x0.1x

10%

0%

Product Life Cycle

IntroductoryStage

GrowthStage

MaturityStage

Decline Stage

TotalMarketSales

Time

Characteristics of “Introduction” Phase of PLC

1. High product failure rate

2. Relatively little competition

3. Limited distribution

4. Frequent product modification

5. Losses associated with the product

Characteristics of “Growth” Phase of PLC

1. More competitors

2. Less product distinctiveness

3. Profitable returns

4. Company or product acquisition by larger companies

Characteristics of ‘Maturity’ Phase of NPD

1. Sales continue to increase but at reduced rate

2. Attempts are made to differentiate or re-differentiate the product

3. Product line may be widened

4. Prices fall as competitiveness increases

5. Profits fall due to “double whammy” of falling price and need to promote the product

6. Brand rationalisation becomes common among retailers/dealers

7. Marginal producers drop out of the industry

Characteristics of “Decline” Phase of NPD

1. Falling sales for total industry

2. Price cutting may intensify

3. Many producers decide to abandon the market

PLC example: audio cassette tapes

Cassettes Sold 1974 to 2004

050

100150200250300350400450500

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

Years

Un

its

So

ld(i

n m

illio

ns)

units sold

Product Life Cycle Traditional With Variations

Introduction Growth Maturity Decline

Time

Sales

Growth, Slump, Maturity

Cycle recycle

Scalloped

Fashion

Fad

Cycle I Cycle II

Using the PLC Framework

Pros

- Different stages of a product’s life call for explicitly different strategies

- The framework prepares management for changes of strategy. (A useful spur given much management inertia)

Cons

- Time span of the curve varies enormously

- Rigid adherence to PLC means management can prematurely end the life of a product

- The curve is not always a curve - variations exist

Handle with Care!

As with all frameworks , use as a guide, not a bible

Strategic marketing -summary

Strategic marketing is critical to NPD both prior to embarking on a new project and as an ongoing process, eg

• SWOT analysis• BCG growth share matrix• Product life cycle

(PS Some of these can be quite useful outside the NPD process too!)

Service Products

Definition “A service is an intangible product involving a deed, a performance, or an effort that cannot be physically possessed”

Examples Education

Health care

R&D projects

Insurance

Transport

Hairdressing

Hotels

Differences Between Physical Products and Services

Difference Comment

Intangibility Services generally have no “physical” element

Inseparability Production and consumption occur simultaneously

Variability High ‘human’ contact leads to different service levels

Perishability Service products cannot be stored and ‘perish’ instantly

No ownership Service is experienced –it can’t be sold on

Implications for Marketing Service Products

Characteristic Issue Marketing Implication

Difficult for customers to compare services

Both provider and client affect quality of relationship

‘Tangibalise’ the product e.g. appearance of staff, promotional literature, etc

Periods of excess supply and demand

Difficult to ensure consistent quality

Intangibility

Perishability

Variability

Inseparability

Manage supply and demand explicitly (e.g. differential pricing, part time personnel)

Implement strict quality control. Develop customer care programmes

Selection and training of service provider’s personnel

Price

• Importance of Price

• Influences on Price

• Pricing Strategy

Place

Promotion Product

Price

The Marketing

Mix

Importance of price-theory

S

D

p

q

Price

Quantity

Importance of Price-Practice

“Which of the following would make you switch supermarket”

(% of respondents)

Lower price

Wider range

Closer to home

Convenient hours

Car parking

75%

66%

60%

45%

44%

Source: Questions asked of AGB Superpanel

Effect of 1% Rise on Price on Profits - e.g. Consumer Goods Manufacturing

Price rise of 1%

Rise in operating profit

10%

Phenomenon known as operating leverage

Effect of 1% rise in price - e.g. consumer goods manufacturing

Before After

Revenue 100 101 1% rise

Cost of goods sold 60 60

Gross margin 40 41

Sales and marketing 15 15

R&D 2 2

General & Admin 10 10

Depreciation 3 3

Operating Profit 10 11 10% rise

Inputs to Pricing Decisions

• Demand

• Costs

• Other factors

- company and marketing objectives

- competition/ market structure

- legal/ social constraints

Demand

Demand constrains the upper price limit (i.e. you cannot charge more than the customer will pay)

Some people are more price sensitive than others

Demand for some products is more price sensitive than for others

If you can identify the people and charge them separately, you will increase revenue

If you can identify price sensitive products and drop prices, you will increase revenue

Conditions for Price Discrimination

1. The firm can control what is offered to a particular buyer

2. It can prevent the resale of the item by one buyer to another

Industries with Price Discrimination

Industry Example

Theatres OAPs, students, etc charged less for same seats

Food manufacturing Large retailers with huge volumes are given lower prices than small corner shops with low volume

Airline transport Business and first class charged more than economy class

Private dentistry Many dentists have no ‘schedule of prices’ and will charge patients what they think they can afford

Price Sensitivity

Price Elasticity measures Price Sensitivity

e = percentage change in quantity demanded

percentage change in price

P P

p1

p2

Q Qq1 q2 q1 q2

Inelastic demand

e<1

Elastic demand

e>1

Factors Affecting Price Sensitivity

Customers are less price sensitive when:

1. The product is unique with few substitutes

2. Comparisons are difficult to make

3. The cost of the product is low relative to total expenditure

4. The product is perceived to be high value or prestigious

5. The product is required for assets previously bought

Cost- based Pricing

Price = Full cost of producing the item + x% profit margin

Pros

1. Simple method

2. Explicitly considers costs therefore unlikely to result in loss

3. Fair and transparent

Cons

1. Largely arbitrary method, depends how you allocate overhead

2. Prevents full usage of marketing tools as in short run pricing at less than full cost is feasible

3. Can lead to nonsensical vicious circle

Vicious Circle of cost based pricing

Full cost = Allocated fixed cost + variable cost

- sales and marketing - raw materials

- R&D - direct energy costs

- general overhead

- depreciation

Demand

Fixed cost per unit

Price Production

Range of Pricing Discretion

Price

To increase pricing discretion the firm can:

- increase perceived benefits (i.e. demand)

- reduce costs

Upper level determined by demand

Lower level determined by costs

Other Factors Affecting Pricing

Area Examples

Company and Marketing Objectives

- Overall goal (profit maximisation versus accessibility of service)

- Target market (mass or niche)

- Brand image (exclusive or commodity)

- Rest of marketing mix (product, promotion, place)

- No of firms (monopoly through to perfect competition)

- Degree of differentiation (one-off product through to commodity)

- Government legislation (e.g. closely controlled pharmaceutical pricing)

- Regulatory bodies (e.g. Oftel with RPI-7.5%)

- Social/political pressure (e.g. for bell-weathers of the economy)

Competition/ Market Structure

Legal/ Social

Popular Pricing Strategies

Strategy Description

Skimming Start with a high price for early adopters, then reduce the price progressively (good for inelastic demand)

Penetration Go for maximum market penetration by adopting a low price strategy to attract the largest number of new buyers early on

Promotion

• Types of Promotion

• Effects

• Promotion

strategy

Place

Promotion Product

Price

The Marketing

Mix

Promotion (Marketing Communication)Types:

Sales Promotion

Direct Marketing

Public Relations

Salesforce

Advertising

Objectives of Promotions (Marketing Communications)

To Customer

Raise awareness

Inform about new product

Correct misconceptions about product

Increase frequency of use

Present special offers

Educate consumers in how to use

Build image for brand/company

Build customer loyalty

To Trade

Provide information

Inform about promotions

Present trade offers

Avoid stockpiling

Educate the trade

Build patronage

Specific Objectives of Sales Promotions

For Consumer

Announce new product

Encourage product trial

Stimulate greater use

Encourage purchase of larger sizes

Attract non-users

Encourage brand switching

For Trade

Encourage stocking

Increase inventory levels

Encourage off-peak buying

Promote related products

Offset competitive marketing

Open up new outlets

Build retailer loyalty

Effect of Sales Promotion on Brand Share

6%

10%

5%

7%

Preparation period

Promotion period

Immediate post-promotion

Long-term post-promotion

Direct Marketing

Targeting customer directly without an intermediary

Examples of Methods

Phone

Internet

Letters

Catalogues

Direct response radio

Direct response TV

Loyalty cards

Trends in Direct Marketing

Increasingly focused on target group

- specific lists

- technology advances

Used frequently with multiple approaches

Changing to long-term “relationship marketing” rather than one-off mail-shots

Direct Marketing: Pros and Cons

Pros

- Measurable response

- Relatively cheap

- Communicate directly with customer (67% customers go elsewhere next time as no one keeps in touch)

Cons

- Can alienate potential customers

- Low hit rate if unfocused

Public Relations

How

Interviews

Articles

Exhibitions

Launches

Sponsorships

Publications

Videos

Training

Factory visits

Press releases

Community projects

Definition by IPR: “the deliberate, planned and sustained effort to establish and maintain mutual understanding

between an organisation and its public”

Whom to influence

Community

Employees

Government

The City

Distributors

Consumers

Opinion leaders

Advertising Objectives

Increases sales and profits through:

- Building awareness

- Building comprehension

- Reminding

- Generating leads

- Legitimising

- Reassuring

Stages in the Adoption Process

AwarenessInterest

Evaluation

Trial

Adoption

Source: K p342

Adopter Categorisation

Characteristics By Adopter Group

Group

Characteristics

Type of individual

Innovator Early adopter

Early majority

Late majority

Laggard

Willing to try new ideas at some risk

Ideas adopted early as sign to others

Deliberate steady adoption of new ideas

Sceptical: wait to see what world thinks before trying

Tradition bound: suspicious of change

Techno-freak(?) Youngish

Opinion leaders in community

Older, Conserv-ative

Most of Population

Innovation adoption - examples• INNOVATOR  Blu-ray

• EARLY ADOPTERMobile TV, (Sky service to deliver broadcasts to mobile phones), video i-pod

• EARLY MAJORITYHDTV, Skype, Podcasting; Sky + / PVRs

 • LATE MAJORITY

i-Pod; Broadband

• LAGGARDSDVD players, internet shopping, online banking VHS; mobile phones 

Influence of Product Characteristic on Adoption Rate

Product Characteristic

Description/ Rationale

Relative advantage The degree to which it outperforms existing

products

Compatibility How it matches experiences & values of the

target market

Complexity How difficult or simple it is to use

Divisibility Extent to which it can be tried on a limited basis

Communicability How easy it is to describe or communicate the

product attributes

Advertising

Types

- Subliminal

- Subtle

- Direct

- “Knocking copy”

Characteristics

- Public presentation

- Pervasive

- Amplified

- Impersonal

Advertising Management

Set objective

Decide budget

Choose message

Choose media

Evaluate effectiveness

- Communication objectives

- Sales objectives

- Affordable approach

- % sales

- competitive parity

- Message generation

- Message evaluation

- Message execution

- Type

- Impact

- Frequency

- Reach

- Timing

- Communication impact

- Sales impact

Place

• Types of channel

• Value of channel

• Choice of channel

Place

Promotion Product

Price

The Marketing

Mix

Place

Channels

Coverage

Location

Inventory

Transport

What do Distribution Channels Do?

- Provide information

- Promote

- Negotiable

- Take orders

- Hold inventory

- Take risk

- Assume title

- Distribute to final customer

Considerations in Choice of Channel

Consideration Example/ Comment

Company objectives Maximisation of market share suggests widespread distribution

Target customer

- numbers High numbers require mass market channels

- geographical dispersion Wide dispersion may suggest need for mail order

- customer needs Specialist channels if complex needs

Product Direct selling if high value complex product

Competition How do competitors distribute and do consumers like it?

Control How much control is relinquished by choosing a specific channel

Intermediaries: Pros and Cons

Pros

- Allows manufacturers to “stick to the knitting”

- Replaces inefficiency of multiple deliveries

- Enables consumers to minimise efforts

Cons

- Company loses some control

- Can add to costs

- Company loses touch with end user

Introduction Growth Maturity Decline

Promotion Create product awareness

- advertising

- personal selling

Promote the brand (rather than product awareness)

Reinforce the ‘message’ to:

- encourage regular repurchase

- build loyalty

Possibly withdraw promotions or target specific niches

Lower price prevents excessive erosion of demand

Place Resign yourself to narrow distribution strategy

Build the foothold by moving some promotional activity to the channel

Key focus on distribution to establish foothold prior to ‘maturity’

Distribution according to pricing strategy

Profits peak and start to decline

Losses as advertising can exceed revenues

Product becomes profitable

Profits

Price Skimming or penetration

Continue existing strategy

Price reductions frequent though not necessarily advisable

Firm emphasis on cost control to prevent huge fall in profits

PLC Strategies

Reasons to Understand Marketing

1. Ultimately your research/ new product is to benefit the customer/public (widely defined). Why else are you doing it?

2. Allows you to understand who the customer is and what elements of the product/ research they value

3. If other areas within the organisation can think like marketing (and vice versa) it reduces cultural conflict