lecture slides for printing.final

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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

Strategic Marketing

Imperatives forMarket-Driven

Strategy

Chapter 1

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

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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

Achieving SuperiorPerformance

DeterminingDistinctive

Capabilities

CustomerValue/

CapabilitiesMatch

Becoming Market-Orientation

Characteristics of a Market-Driven Strategy

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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

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• 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

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Information Acquisition

Cross-FunctionalAnalysis of Information

Shared Diagnosisand CoordinatedAction

Delivery ofSuperior CustomerValue

Becoming a Market-Oriented Organization

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

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– Customer focus




• 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.

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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

CompellingLogic of Distinctive

Capabilities

Disproportionate (higher)contribution to superiorcustomer value

Provides value tocustomers on a morecost-effective basis

Capabilities

Source: George S. Day, Journal of Marketing, October 1994, p. 38.

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Capabilities

DesirableCapabilities

Applicable to Multiple

Competition Situations

Difficult toDuplicate

Superior to the Competition

Source: George S. Day, Journal of Marketing, October 1994, 49.



– Customer focus





• Types of capabilities

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Types of Capabilities

Outside-InProcesses

Inside-OutProcesses

SpanningProcesses

Organization’s Process

Source: George S. Day, Journal of Marketing, October 1994, 41.

Spanning Processes

Outside-In Processes

Inside-Out Processes

EXTERNAL EMPHASIS

INTERNAL EMPHASIS

� Market sensing

� Customer linking

� Channel bonding

� Technology monitoring

� Customer order fulfillment

� Pricing

� Purchasing

� Customer service delivery

� New product/service development

� Strategy development

� Financial management

� Cost control

� Technology development

� Integrated logistics

� Manufacturing/ transformation processes

� Human resources management

� Environment health and safety

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– Customer focus





• Types of capabilities

• Creating value for customers

Value Requirements

Distinctive Capabilities

Matching Customer Value and Distinctive Capabilities

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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

CustomerValue

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Value Composition

Monetary costs

Time

Psychic and physic costs

Product

Services

Employees

Image

Benefits

Costs(sacrifices)

Value(gain/loss)


• Becoming market-driven

– Marketing sensing capabilities

– Customer linking capabilities

– Aligning structure and processes

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Becoming Market Driven

MARKET –DRIVEN

STRATEGIES

Market Sensing Capabilities

Customer LinkingCapabilities

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

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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?

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CORPORATE STRATEGY

Deciding the Scopeand Purpose ofthe Business

BusinessObjectives

Actions andResources forAchieving

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.

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• What is corporate strategy?

• Corporate strategy framework

– Deciding corporate vision

– Objectives

– Resources

– Business composition

– Structure, systems and processes

CORPORATE STRATEGYCOMPONENTS

�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 valueSource: David J. Collis and Cynthia A. Montgomery, Corporate Strategy, Chicago: Irwin, 1997, 7-12.

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• Business and marketing strategy

– Business and marketing strategy relationships

– Strategic marketing

CORPORATE, BUSINESS AND MARKETING

STRATEGY

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• 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

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• Implementing and managing market-driven strategy

– Designing market-driven organizations

– Marketing strategy implementation and control

MARKETING STRATEGY PROCESS

Markets,SegmentsAnd Value

Market-DrivenProgram

Development

Implementingand ManagingMarket-Driven

Strategy

DesigningMarket-Driven

Strategies

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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

• Preparing the marketing plan

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MARKETING PLANOUTLINE

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 withrespect 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 markettarget to perceive each product relative to competition. State thecore concept used to position the product (brand) in the eyes and

mind of the targeted buyer. The positioning statement shoulddescribe: (1) What criteria or benefits the customer considers when

buying a product along with the level of importance, (2) What weoffer that differentiates our product from competition, and (3) The

limitations of competitive products.


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A. Product StrategyIdentify 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 productdeletion candidates.

B. Price StrategyThe 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 StrategyDescribe specific distribution strategies for each market target. Issues to be addressed are intensity of distribution (market coverage), how distribution will be accomplished, andassistance provided to distributors. The role of the sales force in distribution strategy should also be considered.

D. Promotion StrategyPromotion 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, theattributes 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’sresponsibilities 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.

IV. Market Mix Strategy for Each Market Target

E. Marketing ResearchDescribe the market research problem and the kind of information needed. Include a statement which addresseswhy this information is needed. The specific marketresearch strategies can be written once the above twosteps have been followed.

V. Coordination with Other Business FunctionsIndicate other departments/functions that haveresponsibilities for implementing the marketing plan.

VI. Sales Forecasts and Budgets

VII. Contingency PlansIndicate how your plans should be modified if eventsshould occur that are different from those assumedin the plan.

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Strategies




Strategic Marketing

Chapter 2

Markets andCompetitive

Space


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MARKETS AND COMPETITIVE SPACE

� Markets and Strategies

� Defining and Analyzing Product-Markets

� Describing and Analyzing End-Users

� Analyzing Competition

� Market Size Estimation

� Developing a Strategic Vision about the Future

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

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OPPORTUNITIES OUTSIDE THE COMPETITIVE BOX

The Competitive Box

Traditional CompetitorsNew Types of

CompetitionNew

Business

Models

New

Customers

New

CustomersConventional Value

Propositions

Existing Customer

Base

New Customer

Base(s)

AN ARRAY OF CHALLENGES

Disruptive Innovation

Creating New Market Space

Fast Changing

Markets

Commoditization

ThreatsDrivers of Changes

in Markets

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• Market changes often require altering strategies

• Forces of change create both market opportunities and threats

• Inherent danger in faulty market sensing

Markets Impact Strategies

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

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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

• 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.

Progressive Insurance: Customer Needs at the Center of Strategy

Source: Adapted from Mitchell, Adrian (2004)”Heart of the Matter,” The Marketer, June 12, 14.

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Product – Market Boundaries and Structure

• Determining Product-Market Structure

1. Start with the generic need satisfied by the product category of interest to management

2. Identify the product categories (types) that can satisfy the generic need

3. Form the specific product – markets within the generic product – market

SUPER

MARKETS

MICROWAVE

OVENS

CONVENIENCE

STORES

TRADITIONAL

RESTAURANTS

Illustrative Fast-Food Product-Market Structure

FAST-FOOD

MARKET

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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

•Generic Product

Class

•Product Type

•Variant A

Regular

•Variant B

•Brands

Food and beverages

for breakfast meal

Cereals

Ready to eat

Natural

Pre-sweetened

Life

Nutritional

Special KProduct 19

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DEFINING AND ANALYZING MARKETS

Define Product-Market Boundaries and Structures

Identify and Describe End-Users

Analyze Industry and Value Added Chain

Evaluate Key Competitors

Forecast Market Size and Growth Trends

Identifying andDescribing Buyers

HowBuyersMakeChoices

BuildingCustomerProfiles

EnvironmentalInfluences

DESCRIBINGAND

ANALYZINGEND-USERS

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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

How Buyers Make Choices

� BUYING DECISION PROCESS:

1. Problem recognition

2. Information search

3. Alternative evaluation

4. Purchase decision

5. Post-purchase behavior

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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.)

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ANALYZING COMPETITION

1.1. Define the Competitive

Arena for the Generic,Specific, and VariantProduct Markets

2. Identify

and DescribeKey

Competitors

4. Identify

and Evaluate Potential Competitors

3. Evaluate

Key Competitors

PRODUCT-MARKET

STRUCTUREAND

MARKETSEGMENTS

Examples of Levels of Competition

Diet-RiteCola

Diet PepsiDiet Coke

Product from competition:

diet colas

Regular colas Diet lemon

limes

Lemon limes

Fruitflavored

colas

Product categorycompetition:soft drinks

Bottlewater

Wine

Beer

Coffee

Juices

Generic competition:beverages

Baseballcards

FastFood

VideoGames

IceCream

Budget competition:food & entertainment

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Industry Analysis

• Industry size, growth, and composition

• Typical marketing practices

• Industry changes that are anticipated (e.g. consolidation trends)

• Industry strengths and weaknesses

• Strategic alliances among competitors

Defining Industry Structure & Characteristics

�Industry Form�Industry

Environment�Competitive

ForcesValueAddedChain

SUPPLIERS

PRODUCERS

WHOLESALERS/

DISTRIBUTORS

RETAILERS/DEALERS

CONSUMER/

ORGANIZATIONAL END

USERS

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Competitive Forces

1. Rivalry among existing firms.

2. Threat of new entrants.

3. Threat of substitute products.

4. Bargaining power of suppliers.

5. Bargaining power of buyers.

Source: Michael E. Porter, Competitive Advantage, Free Press, 1985, 5.

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)

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Extent of Market Coverage

CustomerSatisfaction

CurrentCapabilities

PastPerformance

Competitor Evaluation

MARKET SIZE ESTIMATION

UnrealizedPotential

CompanySales

Forecast

IndustrySales

Forecast

Market PotentialEstimate

Product-Market Forecast Relationships(area denotes sales in $’s)

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0

100

200

300

400

500

600

700

800

900

Sales (in 1000s

of units)

2003 2004 2005 2006 2007 2008 2009 2010

Market

Potential

Sales Forecast

Company XYZ

Sales Forecast

Product-Market Forecast Relationships for Industrial

Painting Units

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.

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Strategies




Strategic Marketing

StrategicMarket

Segmentation

Chapter 3

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Strategic market segmentation (1)

• Levels and types of market segmentation

Levels and types of market segmentation

OperationalSegmentation

ManagerialSegmentation

StrategicSegmentation

Vision

Strategic intent

Product benefitsResource allocation

Alignment

Planning

Marketing programs

- Advertising

- Sales

- Distribution

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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 MarketsOLD 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 variationsSource: Anthony Bianco, “The Vanishing Mass Market”, Business Week, July 12 2004, 58-62

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• 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

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• Activities and decisions in market segmentation

Market Segmentation Activities and Decisions

Market to beSegmented

Decide Howto Segment

FormSegments

FinerSegmentation

Strategies

StrategicAnalysis

of Segments

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• Defining the market to be segmented

Product Variant Segmentation

Product Type Segmentation

Generic Segmentation

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• 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

PurchaseBehavior

Characteristicsof People/

Organizations

UseSituation

Buyers’ Needs/Preferences

Segmentation Variables

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Illustrative Segmentation Variables

Characteristicsof people/organizations

ConsumerMarkets

Industrial/Organizational Markets

Age, gender, income,family size, lifecycle stage, geographiclocation,lifestyle

Type of industry, size, geographic location, corporate culture, stage ofdevelopment, producer/intermediary

Use situation Occasion, importance ofpurchase, prior experience with product, user status

Application, purchasingProcedure (new task, modified rebuy, straightrebuy

Buyers’ needs/preferences

Brand loyalty status, brandpreference, benefits sought,quality, proneness to make a deal

Performance requirements, brand preferences, desiredfeatures, servicerequirements

Purchasebehavior

Size of purchase,frequency of purchase

Volume, frequencyof 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

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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

SegmentationRequirements

Responsedifferences

Identifiablesegments

Actionablesegments

Favorablecost/benefit

Stabilityover time

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Approaches to Segment Identification

IDENTIFIERS

OF CUSTOMER

GROUPS

CUSTOMER

RESPONSE

PROFILE

�Characteristics

of People and

Organizations

�Use Situation

�Buyers Needs

and Preferences

�Purchase

Behavior and

Loyalty

Segment Dimensions for Hotel Lodging Services

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Illustrative Example: Gasoline Buyers

RoadWarriors

TrueBlues

GenerationF3 (Fuel,Food & Fast)

Homebodies

PriceShoppers

Higher-income, middle-aged men, drive 25-50000 miles a year… buy premium with a credit card … purchase sandwiches and drinks from the convenience store… will sometimes use carwash

16% ofbuyers

Men and women with moderate tohigh incomes, loyal to a brand andsometimes a particular station …frequently buy premium, pay in cash

16% ofbuyers

Upwardly mobile men and women -half under 25 years of age -constantly on the go … drive a lotsnack heavily from the convenience store

27% ofbuyers

Usually housewives who shuttlechildren around during the day anduse whatever gas station is based ontown or on route of travel

21% ofbuyers

Not loyal to brand or station andrarely buy premium … frequently ontight budgets.

20% ofbuyers

Illustrative Consumer Perception Map

Low

Quality

High

Quality

Expensive

Inexpensive

GROUP

I

GROUP

V

GROUP

III

GROUP

II

GROUP

IV

• Brand E

• Brand D

• Brand C

• Brand B

• Brand A

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• Finer segmentation strategies

– Logic

• Customized offerings

• Diverse customer base

• Close customer relationships

– Finer segmentation strategies

• 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

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Customer

Analysis

Positioning

Analysis

Financial and

Market

Attractiveness

Competitor

Analysis

Strategic Analysis of Market Segments

Segmentation “Fit” for Implementation

Segment Attractivenessand Internal Compatibility

Internal Compatibility

Market SegmentAttractiveness

High Low

High

Low

Attractive segmentsthat match with

companycapabilities

Attractive segmentsbut with poor match

with companycapabilities

Unattractive segmentsthat do not match withcompany capabilities

Unattractive segmentsbut with match to

companycapabilities

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Strategies




Strategic Marketing

StrategicMarket

Segmentation

Chapter 3

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• Levels and types of market segmentation

Levels and types of market segmentation

OperationalSegmentation

ManagerialSegmentation

StrategicSegmentation

Vision

Strategic intent

Product benefitsResource allocation

Alignment

Planning

Marketing programs

- Advertising

- Sales

- Distribution

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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 MarketsOLD 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 variationsSource: Anthony Bianco, “The Vanishing Mass Market”, Business Week, July 12 2004, 58-62

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Segmentation and Market-Driven Strategy

SEGMENTS

VALUE

OPPORTUNITIES

CAPABILITIES/

SEGMENT

MATCH

TARGET(S)

POSITIONING

STRATEGY

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Market Segmentation Activities and Decisions

Market to beSegmented

Decide Howto Segment

FormSegments

FinerSegmentation

Strategies

StrategicAnalysis

of Segments

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• Defining the market to be segmented

Product Variant Segmentation

Product Type Segmentation

Generic Segmentation

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• 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

PurchaseBehavior

Characteristicsof People/

Organizations

UseSituation

Buyers’ Needs/Preferences

Segmentation Variables

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Illustrative Segmentation Variables

Characteristicsof people/organizations

ConsumerMarkets

Industrial/Organizational Markets

Age, gender, income,family size, lifecycle stage, geographiclocation,lifestyle

Type of industry, size, geographic location, corporate culture, stage ofdevelopment, producer/intermediary

Use situation Occasion, importance ofpurchase, prior experience with product, user status

Application, purchasingProcedure (new task, modified rebuy, straightrebuy

Buyers’ needs/preferences

Brand loyalty status, brandpreference, benefits sought,quality, proneness to make a deal

Performance requirements, brand preferences, desiredfeatures, servicerequirements

Purchasebehavior

Size of purchase,frequency of purchase

Volume, frequencyof 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

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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

SegmentationRequirements

Responsedifferences

Identifiablesegments

Actionablesegments

Favorablecost/benefit

Stabilityover time

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Approaches to Segment Identification

IDENTIFIERS

OF CUSTOMER

GROUPS

CUSTOMER

RESPONSE

PROFILE

�Characteristics

of People and

Organizations

�Use Situation

�Buyers Needs

and Preferences

�Purchase

Behavior and

Loyalty

Segment Dimensions for Hotel Lodging Services

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Illustrative Example: Gasoline Buyers

RoadWarriors

TrueBlues

GenerationF3 (Fuel,Food & Fast)

Homebodies

PriceShoppers

Higher-income, middle-aged men, drive 25-50000 miles a year… buy premium with a credit card … purchase sandwiches and drinks from the convenience store… will sometimes use carwash

16% ofbuyers

Men and women with moderate tohigh incomes, loyal to a brand andsometimes a particular station …frequently buy premium, pay in cash

16% ofbuyers

Upwardly mobile men and women -half under 25 years of age -constantly on the go … drive a lotsnack heavily from the convenience store

27% ofbuyers

Usually housewives who shuttlechildren around during the day anduse whatever gas station is based ontown or on route of travel

21% ofbuyers

Not loyal to brand or station andrarely buy premium … frequently ontight budgets.

20% ofbuyers

Illustrative Consumer Perception Map

Low

Quality

High

Quality

Expensive

Inexpensive

GROUP

I

GROUP

V

GROUP

III

GROUP

II

GROUP

IV

• Brand E

• Brand D

• Brand C

• Brand B

• Brand A

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• Finer segmentation strategies

– Logic

• Customized offerings

• Diverse customer base

• Close customer relationships

– Finer segmentation strategies

• 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

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Customer

Analysis

Positioning

Analysis

Financial and

Market

Attractiveness

Competitor

Analysis

Strategic Analysis of Market Segments

Segmentation “Fit” for Implementation

Segment Attractivenessand Internal Compatibility

Internal Compatibility

Market SegmentAttractiveness

High Low

High

Low

Attractive segmentsthat match with

companycapabilities

Attractive segmentsbut with poor match

with companycapabilities

Unattractive segmentsthat do not match withcompany capabilities

Unattractive segmentsbut with match to

companycapabilities

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Strategies




Strategic Marketing

CHAPTER 4

STRATEGIC CUSTOMER RELATIONSHIP MANAGEMENT


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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 ThatCustomers:

� Vary in their economic value to the company

� Differ in their expectations toward the firm

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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 assumptionsfor 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 forfocusing marketing and promotional effortswhere they will be most productive.

4-3

PERSPECTIVES TOWARD CRM

STRATEGIC-THE ENTIRE COMPANY

REQUIRED MARKETING FUNCTIONS

THE CUSTOMER

4-4

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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.

4-5

DEFINE THE CRM STRATEGY

CRM STRATEGY

Value Proposition

BusinessCase

Other Stakeholders

Enterprise Transformation Plan

Customer Strategy

Source: V. Kumar and Werner J. Reinartz, Customer Relationship Management (Hoboken, NJ: John Wiley & sons, Inc.), 2006, 42.

1

2

34

5

4-6

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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

4-7

VALUE CREATION PROCESS

THE VALUE EXCHANGE

Value Received by the Customer

Value Received by the Organization

Successful Value Exchange

4-8

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METRICS FEATURE

How General Electric Co. Measures Customers’ Experience

Happy (And Not-So-Happy) CustomersGeneral 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 orservice as being worth what you paid?

Source: Kathryn Kranhold, “Client-Satisfaction Tool Takes Root,” The Wall Street Journal, July 10, 2006, B3.

4-9

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.

4-10

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CRM AND STRATEGIC MARKETING

CRM STRATEGIC MARKETING

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.

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Strategic Marketing

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Chapter 5

Capabilities forLearning AboutCustomers and

Markets


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

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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

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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

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Marketing information and knowledge resources

• Scanning processes

• Specific marketing research studies

• Internal and external marketing information resources

– Relationships with external marketing research providers

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 NewResearch Supplier

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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.

Screening A NewResearch Supplier

A Framework for Market Sensing

Probability of the Event Occurring

Effect of the Event on the Company

High LowMedium

1

2

3

4

5

6

7

* 1=Disaster, 2=Very bad, 3=Bad, 4=Neutral, 5=Good, 6=Very good, 7=Ideal

Utopia Field ofDreams

Things toWatch

Danger FutureRisks

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Learning About Markets

ObjectiveInquiry

Keeping andGaining Access

to PriorLearning

SynergisticInformationDistribution

MutuallyInformed

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”

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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”

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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

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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

ResearchProject and Scope

ResearchObjectives

ResearchQuestions

PlannedOutcomes

Describe the topic

for the study and

the background.

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

When completed how

should the results be

presented for management

use?

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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

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Marketing Decision-SupportSystem Components

Database

AnalysisCapabilities

Display

Models

Marketing intelligence and knowledge management

• Marketing intelligence

• Knowledge management

• Role of the chief knowledge officer

• Leveraging customer knowledge

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Ethical issues in collecting and using information

• Invasion of customer privacy

• Information and ethics

– Information collection

– Research subjects

– Information sharing

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

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Strategies




Strategic Marketing

CHAPTER 6

Market Targeting and Strategic Positioning

Market Targeting Strategy

Targeting in Different Market Environments

Positioning Strategy

Developing the Positioning Strategy

Determining Positioning Effectiveness


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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

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SEGMENTS

VALUEOPPORTUNITES

CAPABILITIES/SEGMENTMATCH

TARGET(S)

POSTIONINGFOR EACHTARGET

TARGETING

AND

POSTIONING

Identify segments within theproduct-market

Decide whichsegment(s) to

target

Decide and implement a positioning

strategy for each targeted segment

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Market Targeting Alternatives

SelectiveTargeting

ExtensiveTargeting

Segments Clearly Defined

Differentiated But SegmentsNot Clearly Defined

TargetSelectedNiche(s)

TargetMultipleSegmentsProductVariety

ProductSpecialization

Factors Influencing Targeting Decisions

• Stage of product – market maturity

• Extent of diversity in preferences

• Industry structure

• Capabilities and resources

• Opportunities to gain competitive advantage

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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

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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

1. Extensive market coverage by firms with established businesses in related markets

2. Selective targeting by firms with diversified product portfolios

3. Very focused targeting strategies by small organizations serving one or a few market segments.

Mature Markets

Buyer Diversity– 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

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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.

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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.

MARKET

TARGETPOSITIONING EFFECTIVENESS

POSITIONING STRATEGY

How well management’s

positioning objectives are achieved for the

market target

POSITIONING CONCEPT

The desired positioning of the product (brand) by targeted buyers

The combination of marketing actions

used to communicate the positioning concept

to targeted buyers

STRATEGIC POSITIONING INITIATIVES

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How Positioning Works

• Objective

– 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.

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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, 70-71.

SELECTING THE POSITIONINGCONCEPT

Symbolic Functional

Experiential

The Perception or Association that Management Wants Buyers to Have

Concerning the Brand

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DEVELOPING THE POSITIONING STRATEGY

The Positioning Strategy Places the Marketing Program (mix) Components into a CoordinatedSet of Actions Designed toDeliver Superior CustomerValue

PRODUCT

PROMOTION

PRICE

VALUE CHAIN

1. The positioning concept applies to a specific brand rather than all the competing brands that compose a product classification

2. The concept is used to guide positioning decisions over the life of the brand

3. Multiple concepts are likely to confuse buyers and may weaken the effectiveness of positioning actions

Positioning Issues

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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 thecompetition 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.

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Methods for Determining Positioning Effectiveness

Analytical Positioning

Models

Test Marketing

Customer and Competitor Research

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

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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

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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

StrategiesChanges in Business Strategy

Market Targeting ImpactPositioning 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.

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Product Strategy

Promotion Strategy

Price Strategy

Distribution StrategyMarket Target

Positioning Strategy

Targeting and Positioning













Strategies




Strategic Marketing

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StrategicRelationships

Chapter 7


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

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Strategic relationships

StrategicRelationships

Suppliers

End-UserCustomers Intermediate

Customers

InternalPartners

StrategicAlliances

CompetitorsJointVentures

ExternalPartners

Strategic Relationships

• The rationale for interorganizational relationships

• Forms of organizational relationships

• Managing interorganizational relationships

• Global relationships among organizations

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Rationale forForming Strategic

Relationships

Value-enhancingopportunities

Competitivestrategy

Skills andresourcegaps

Environmentalcomplexity

The rationale for interorganizational relationships

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

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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

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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-OrientedCulture and

Process

SuperiorCustomer

ValueProposition

Positioningwith DistinctiveCompetencies

RelationshipStrategies

OrganizationalChange

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Firm

Supplierrelationships

Customerrelationships

Internalpartnerships

Lateralpartnerships

Forms of organizational relationships

Illustrative interorganizational relationships

Strategic Alliance

Joint Venture

Supplier/ManufacturerCollaboration

DistributionChannelRelationship

MM

W

R

EU

M

M JV

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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

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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

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• 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

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ManagingInter-Organizational

Relationships

Objectiveof theRelationship

RelationshipManagement

PartneringCapabilities

Control andEvaluation

Exiting fromAlliance

Managing Interorganizational relationships

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

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Strategies




Strategic Marketing

CHAPTER 8

Innovation and New Product Strategy

The Innovation Mandate


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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 FEATUREManaging 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.

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� THE IDEAS LISTAnyone 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 HOURSThink 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 BRAINSTORMSAs 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 IDEASAlthough 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, 88-90.

FINDING CUSTOMER VALUE OPPORTUNITIES

Customer value analysis

Objective is to identify needs for:

1. New products

2. Improvements to existing products

3. Improvements in production processes

4. Improvements in supporting services

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CustomerExpectations

CustomerSatisfaction Gap

ActualProductPerformance

OPPORTUNITIES

(1) New Products(2) Improvements(3) New and Improved

Processes

TRANSFORMATIONALBreak-through innovation

Digital photographyNEW PRODUCT CATEGORY

Dell Printers

Nike Apparel Golf clubs

LINE EXTENSIONNew color/package/style

INCREMENTAL IMPROVEMENTSSoftware updates

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The Evolution of the Creative Company

STEP 1Technology and information become commoditized and globalized. Suddenly, the advantage of making things “faster, cheaper, better” diminishes, and profit margins decline.

STEP 2With 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 3Design 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, 62-63.

STEP 4Creative 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 5The 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.

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Characteristics of Successful Innovators

STRATEGIC INITIATIVES

Creating an Innovative Culture

Leveraging Capabilities

Selecting the Right

Innovation Strategy

Developing and Implementing Effective New Product Processes

Making Resource Commitments

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.

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The Innovation Strategy Spells Out Management’s Priorities for New Product

Opportunities1. Set specific New Product Objectives.2. Communicate the role of New Products

throughout the organization.3. Define the areas of strategic focus:

Product ScopeMarketsTechnologies

4. 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.

CustomerNeeds

Analysis

BusinessAnalysis

Screeningand

EvaluationIdea

Generation

MarketingStrategy

Development

ProductDevelopment

Testing

Commercialization

NEW PRODUCT PLANNING PROCESS

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Achieving Cross-Functional Interaction and Coordination

R & D

Operations Marketing

Finance

• 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

Responsibility for New Product Planning

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• 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?

IDEA GENERATION

METHODSOF

GENERATINGIDEAS

DirectSearch

LinkingMarketing

and Technology

FacilitatingLead UserAnalysis

CreativeMethods

NationalPolicy

ExploratoryCustomerStudies

Alliances/Acquisition/Licensing

TechnologicalInnovation

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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.

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IDEA GENERATION

SCREENING(fit/feasibility)

CONCEPT EVALUATION

BUSINESS ANALYSIS

SCREENING, EVALUATING, AND BUSINESS ANALYSIS

Business Analysis

• Revenue Forecasts

• Preliminary Marketing Plan

• Cost Estimation

• Profit Projections

• Other Considerations

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NEWPRODUCTCONCEPT

PRODUCTDEVELOPMENT

AND USETESTING

MARKETINGSTRATEGY

DEVELOPMENT

MARKETTESTING

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

Product and Process Development

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PURPOSE OFUSE TESTS

Does it have therequired attributes?

Verifyclaims

Ideas forimprovements

Identify usesituations

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

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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

Scanner-based Test Marketing

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

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Market Target(s)

Marketing Program(s)

Objectives

Marketing Strategy

• Technology Push Processes

• Platform Products

• Process – Intensive Products

• Customized Products

VARIATIONS IN THE GENERIC NEW PRODUCT PLANNING

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Strategies




Strategic Marketing

Chapter 9

Strategic BrandManagement


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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

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

STRATEGIC BRAND MANAGEMENT

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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 andaccurately,

• reduce the buyer’s perceived risk byproviding an assurance of quality and consistency (which may then be transferred to new products),

• reduce the social and psychological risks associated with owning and usingthe “wrong” product by providing psychological rewards for purchasing brands that symbolize status and prestige.

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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. 97-422, 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, 26-35.

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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

Responsibility for Managing Products

Strategic Brand Management

Brand Identity Strategy

Identity Implementation

Brand Strategy Over Time

Managing the Brand Portfolio

Leveraging the Brand

BRAND EQUITY

MANAGEMENT

STRATEGIC BRAND

ANALYSIS

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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 2005. 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 $13,000 70-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)

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Tracking Brand Performance

PerformanceObjectives

Select Method(s) forEvaluation

Identify ProblemProducts

Decide How toResolve the

Problem

Analyzing Brand Performance

Product life cycleanalysis

Financialanalysis

Product performance

analysis

Researchstudies Standardized

informationservices

Brandpositioninganalysis

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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 Life Cycle Analysis

• 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

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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

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 orservice to a firm and/or to that firm’scustomers.*

* David A. Aaker, Managing Brand Equity, The Free Press, 1991, 15.**Ibid, 102-120.

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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

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.

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SpecificProduct

Lineof

Products

PrivateBranding

CorporateBranding

BRAND FOCUS

CombinationBranding

MANAGING BRAND STRATEGY

Proactive efforts should be devoted to managing each brand

over time.

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Strategies for Improving Product Performance

Product lineStrategy

Addnew

product(s)

Costreduction

Productimprovement Alter

marketingstrategy

Eliminatespecific

product(s)

MANAGING THE BRAND PORTFOLIO

LeverageCommonalities to Generate Synergy

Allocate Resources

Reduce Brand

Identity Damage

Facilitate Change and Adaptation

Achieve Clarity of Product Offerings

Source: David A. Aaker, Building Strong Brands, New York: The Free Press, 1996, 241-242.

BRAND PORTFOLIO OBJECTIVES

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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

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

Product Mix Modifications

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STRATEGY FEATURE

Limited Brands Shifts its Focus from Apparel to Accessories

� Ten years ago apparel represented 70% of Limited’s sales.

By 2005 70% 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 margins @ 1.4% compared to over 19% for Bath & Body Works and Victoria’s Secret.

� Limited has about 3700 stores. 2005 sales were nearly $9.7 billion with net profits at $51 million.

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BRAND EXTENSION

LINE EXTENSION

Extensions of the brand name to other product categories

--Similar

--Dissimilar

Minor variants of a single product are marketed under the same brand name

BRAND LEVERAGING STRATEGY

LINE EXTENSIONS BRAND EXTENSIONS

HorizontalExtension

VerticalExtension

AnotherProductClass

RangeBrand

Co-Branding

Up fromCore

Brand

Down fromCore

Brand

LEVERAGING ALTERNATIVES

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BRAND LEVERAGING IN UPSCALE AND VALUE MARKETS

Vertical Brand Extensions*

Core Brand

NewUp-Market Brand

NewDown-Market

Brand

CoreBrand

* 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.

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MOVING A BRAND UP

THE DRIVERS•Enhanced Margins at the High End

•Energy & Vitality

•Enhance Credibility and Prestige ofthe 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 opportunitiesScreening should be limited

◊Evaluate each categoryAttractiveGrowingGood marginsCompetitionAssets/Capabilities

◊Select the most promising extension concept◊Develop a viable Brand Strategy

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CO-BRANDING

Co-branding (dual branding) involves two or more established brands making a joint offer of their product brands —

The participant’s brand namesare identified on the good orservice.

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

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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.













Strategies




Strategic Marketing

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Chapter 10

ValueChain

Strategy


Value Chain Strategy

• Strategic role of value chain

• Channel strategy

• Managing the channel

• International channels

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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

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Value chain structures - consumer productsConsumer Products

Producers

SalesAgents

Wholesalers

Retailers

Consumers

Wholesalers

RetailersRetailers

DirectChannel

Supply Chains

Value chain structures - organizational products

Organizational Products

Producers

Organizational Customers

SalesAgents

Distributors

Re-sellers

SalesAgents

DistributorsDistributorsDirectChannel

Supply Chains

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Strategic role of value chain (2)

• Channels for services

• Direct distribution by manufacturers

– Buyer considerations

– Competitive considerations

– Product characteristics

– Financial and control considerations

Distributionby the

manufacturer

Opportunity forcompetitiveadvantage

Supportingservices arerequired

Rapidly changingmarket environment

Extensivepurchasingprocess

Early stages ofproduct life cycle

Complex productapplication

Profit marginsadequate to supportdistributionorganization

Complete lineof products

Purchases arelarge and infrequent

Small number ofgeographicallyconcentratedbuyers

Factors Favoring Distribution by Manufacturer

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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

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Channel strategy selection

1. Type of distribution channel

2. Intensity of distribution

3. Channel configuration

Conventional Vertical marketing system Horizontalmarketing system

Ownership Contractual

Intensive Selective Exclusive

Administered/Relationship


• Distribution intensity

– Intensive

– Exclusive

– Selective

• Channel configuration

– End-user considerations

– Product characteristics

– Manufacturer's capabilities and resources

– Required functions

– Availability and skills of intermediaries

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• 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

ProductionOf CentralHeatingBoilers

IndependentDistributors

ConstructionSub-

Contractors

SmallHardwareRetailers

LargeHardwareRetailers

CommercialConstructionCompanies

(85,000 units)

DomesticCustomers

(15,000 units)Direct sales = 1,000 units

Direct sales = 10,000 units

84,000 units

5,000 units

42,000 units

42,000 units

40,000units

2,000units

7,000units

75,000 units

Production =100,000 units

Consumption =100,000 units

5,000 units

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• Changing channel strategy

– Channel strategy modification

– Channel migration

– Channel audit

Illustrative Channel Strategy Evaluation

Evaluation Manufacturer’s CompanyCriteria Representatives Salesforce

Market access Rapid 1 to 3 yeardevelopment

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) 10% 12%

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.

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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

4 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

4 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

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Lean Supply Chain Elements

1. Definition of Value

2. Identification of Value Streams andRemoval of Muda (Waste)

3. Organizing Around Flow, Insteadof “Batch and Queue”

4. Responding to Pull Throughthe 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

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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 atretailers distribution retail level

In-store positioning Percent of shelf Consumer products atfacings or display retail levelspace gainedby product,weighted by storeimportance

Coverage of Frequency of sales Industrial products;geographic markets calls by customer consumer goods at

type; average wholesale leveldelivery time

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Channel metrics


PROMOTIONAL EFFORT

Effective point-of- Percent of stores Consumer productspurchase (POP) using special at retail levelpromotion displays and POP

materials, weightedby importance of store

Effective personal Percent of Industrial products;selling support salespeople’s time consumer durables at all

devoted to product; channel levels; consumernumber of salespeople convenience goods atreceiving training on wholesale levelproduct’s characteristicsand applications

Channel metrics


CUSTOMER SERVICE

Installation, Number of service Industrial products,training and technicians receiving particularly those involvingrepair technical training; high technology; consumer

monitoring of durables at retail levelcustomer complaints

MARKET INFORM,ATION

Monitoring sales Quality and All levels oftrends, inventory timeliness of distributionlevels, competitors’ informationactions obtained

COST-EFFECTIVENESS

Cost of channel Middleman margins All levels ofFunctions relative and marketing costs distrbutionTo sales volume as percent of sales

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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

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International Channel ofDistribution Alternatives

Home country Foreign country

The foreign marketer orproducer sells to or through

Domesticproducer ormarketer sellsto or through

Opendistributionvia domesticwholesalemiddlemen

Exporter Foreignagent ormerchantwholesalers

Foreignretailer

Importer Foreignconsumer

Export management companyor companysales force

Source: Philip R. Cateora, International Marketing, 7th ed., Homewood, Ill.: Richard D. Irwin, Inc., 1990, 572.













Strategies




Strategic Marketing

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� Strategic Role of Price

� Analyzing the Pricing Situation

� Selecting the Pricing Strategy

� Determining Specific Prices and Policies

CHAPTER 11PRICING STRATEGY


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.

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…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.

STRATEGIC ROLE OF PRICE

Price in the Positioning Strategy

Positioning StrategyProductstrategy

Targetmarket andobjectives

Value-Chainstrategy

Pricingstrategy

Promotionstrategy

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Pricing Situations

� New product pricing

� Life cycle pricing

� Changing positioning strategy

� Countering competitive threats

Various Roles of Pricing

Signal to the Buyer

Instrument of Competition

Improving Financial Performance

Marketing Program Considerations

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Pricing Strategy for New and Existing Products

Set PricingObjectives

Analyze thePricing Situation

Select PricingStrategy

Determine SpecificPrices and Policies

Examples of Pricing Objectives

� Gain market position

� Achieve financial performance

� Product positioning

� Stimulate demand

� Influence competition

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Customer Price Sensitivity

Pricing

Objectives

Competitors’ Likely Responses

Analyzing the Pricing Situation Product

Costs

ANALYZING THE PRICING SITUATION

Customer Price Sensitivity

1. How large is the product-market in terms of buying potential?

2. What are the market segments and what market target strategy is to be used?

3. How sensitive is demand in the segment(s) to changes in price?

4. How important are nonprice factors, such as features and performance?

5. What are the estimated sales at different price levels?

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Buyers’ Perceptions of Value Offeringsof Brands A-E

PerceivedValue

Perceived Price

Superior Value Zone

D A

C

EB

Inferior Value Zone

Cost Analysis for Pricing Decisions

• Determine the componentsof 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 inproducing the product affects costs.

• Estimate how much control management has over costs.

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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?

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Determinants of Pricing Flexibility

Demand

Costs

Demand-Cost GapCompetitionPricing Objectives

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 costsRange of feasible prices

Price too low; no profit possible

Determining Feasible Prices

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AboveCompetition

BelowCompetition

Skim strategy

Neutral strategy(same as competition)

Penetration strategy

Diplomacy rather than force

Select competitive confrontations

Signaling

Competitive Pricing Issues

Target segments instead of

volume

Source: Thomas T. Nagle, “Price Competition,” Marketing Management, Vol. 2, No. 1, 38-45.

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Low-active

strategy

High-active

strategy

Low-passivestrategy

High-passivestrategy

Activestrategy

Passivestrategy

Highrelativeprice

Lowrelativeprice

Illustrative Price Strategies

DETERMINING SPECIFIC PRICES AND POLICIES

� Selecting Specific Prices

� Policies to Manage Pricing Strategy

� Special Pricing Issues

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Basis of DeterminingSpecific Prices

Cost CompetitionDemand

Establishing Pricing Policy and Structure

Policy

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

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Managing Pricing Strategy

1. 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.

2. 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.

3. Pricing decisions should be made within the context of an overall marketing strategy that is embedded within a business or corporate strategy.

4. 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) 624-6.

5. Prices should be set according to customers’ perceptions of value.

6. Pricing for new products should start as soon as product development begins.

7. The relevant costs for pricing are the incremental avoidable costs.8. A price may be profitable when it provides for incremental

revenues in excess of incremental costs.9. 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.

10. Pricing management should be viewed as a process and price setting as a daily management activity, not a once-a-year activity.

Managing Pricing Strategy

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Special Pricing Situations

Price Segmentation

Value Chain (Distribution Channel) Pricing

Price Flexibility

Product Life Cycle Pricing













Strategies




Strategic Marketing

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CHAPTER 12

Promotion, Advertising, and Sales Promotion Strategies

� Promotion Strategy

� Advertising Strategy

� Sales Promotion Strategy


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

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Promotion Strategy:

planning, implementing, and

controlling an organization’s

communications to its customers

And other target audiences.

PromotionComponents

PublicRelations

DirectMarketing

SalesPromotion

PersonalSelling

Advertising

Interactive/Internet Marketing

Composition of Promotion Strategy

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U. S. Annual Expenditures (billions)

0

$200

$400

$600

Personal Selling

Advertising

Sales Promotion

INTERNET FEATURE

Brand Advertising On-Line Has Taken Off

SEARCH WORKSGoogle and Yahoo! Have demonstrated the power of the Web by using customers’ search queries to connect them with advertisers.CUSTOMERS ARE ONLINEMore 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 ROCKSThe 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 INSTANTMarketers 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 TRAILSIt 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.

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COMMUNICATIONOBJECTIVES

ROLE OF PROMOTIONCOMPONENTS

PROMOTIONBUDGET

PROMOTION COMPONENTSTRATEGIES

Coordinationwith Product,Distribution,and PriceStrategies

DESIGNING THE PROMOTION STRATEGY

Advertising Sales Promotion

Public Relations

Personal Selling

Direct Marketing Interactive/ Internet Marketing

MARKET TARGETING AND POSITIONING 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

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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

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Determining the Promotion Budget

Percent of Sales

Follow the Competition

Objective and Task

All You Can Afford

Budgeting Approaches

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.

Features Limitations

Budgeting Methods

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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

Number and dispersion of buyers

Buyers’ information needs

Size and importance of purchase

Distribution

Product Complexity

Post-purchase contact required

Small

High

Large

Direct

High

Yes

Large

Low

Small

Channel

Low

No

Advertising/ sales promotion driven

Balanced Personal selling driven

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Promotion Strategy Issues

� Expense/Response Relationships

� Allocation

� Impact on Brand Equity

� Integration of Promotion Components

� Effectiveness of the Strategy

ADVERTISING STRATEGY

� Setting Objectives and Budgeting

� Creative Strategy

� Media/Scheduling Decisions

� Role of the Advertising Agency

� Program Implementation and Measuring Effectiveness

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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 18-34 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

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Expose communication to target audience

Create awareness

Change attitude(s)

Increase Sales

Generate profits


Increasing UncertaintyAbout Impact onPurchasing Behavior

Increasing Difficultyof Measurement

Type of Objective

• Exposure

• Awareness

• AttitudeChange

• Sales

• Profit

Alternative Levels for Setting Advertising Objectives

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Budget Determination

OBJECTIVE AND TASK METHOD HAS THE MOST SUPPORT

Media/ Scheduling Decisions

Creative Strategy

Budget Determination

The Vuitton Machine*Inside the world’s biggest, most profitable luxury

brand

BENCHMARKING VUITTONBrand 2003 Sales Percent Operating

Billions Change* Margin

Louis Vuitton $3.80 +16% 45.0%

Prada 1.95 0.0 13.0Gucci** 1.85 -1.0 27.0

Hermès 1.57 +7.7 25.4Coach 1.20 +34.0 29.9

*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, 98-102.

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Product Distribution Price Promotion

Advertising(How to communicate intended positioning to buyers and others influencing the purchase.)

Creative Strategy

CREATIVE STRATEGYThe creative strategy is guided by the market

target and the positioning strategy.

Provide a unifying concept that binds together the various parts of the advertising campaign.

Media/Scheduling Decision

� Television

� Radio

� Magazines

� Online

� Website

� Outdoor

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Relative access to the target audience

Relative cost of reaching the target group(s)

Favorable zone

Unfavorable zone

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.

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Advertising Agency

Role of the Advertising Agency

Target Audience


Advertising Budget

Creative Strategy

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.

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MEASURINGADVERTISING

EFFECTIVENESS

RatingServices

Sales andExpense AnalysisTest

Marketing

ControlledTests

RecallTests

SALES PROMOTION

consists of various incentives, mostly short

term, intended to stimulate quicker and/or

greater purchase of particular goods/services

by consumers or the trade.

SALES PROMOTION STRATEGY

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STRATEGYFEATURE

• 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 Realities of Mail-in Rebates

• 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.

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SALESPROMOTIONTARGETS

ConsumerBuyers

Salespeople

BusinessBuyers

Value Chain

Sales Promotion Activities and Targets

Activities include trade shows, specialty advertising, contests, displays, coupons, recognition programs, and free samples.













Strategies




Strategic Marketing

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� Sales Force Strategy

� Internet Strategy

� Direct Marketing Strategies

CHAPTER 13

SALES FORCE, INTERNET, AND DIRECT MARKETING STRATEGIES


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.

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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.

Sales Force StrategyDetermine the role of the sales force in promotion 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

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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

SALESSTRATEGY

Business Strategy

Market Target(s) Strategy

Promotion Strategy

Distribution Strategy

Pricing Strategy

Product Strategy

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Blurring of industry boundaries

Technology Advances

Mergers and acquisitions

Marketing productivity crisis

Escalating customer expectations

Intense global competition

SALES FORCE CHALLENGES

Range of Selling Roles

Transactional Selling

Consulting-TypeRelationships

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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, 51-56.

The Selling Process Guides

� Recruiting

� Training

� Effort Allocation

� Organizational Design

� Selling Support Activities

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Selecting Sales Channels to End Users

� Major Account Management

� Field Sales Force

� Telemarketing

� Electronic/Mail Contact

DESIGNING THE SALES ORGANIZATION

Organizational Structure

Deployment of Selling Effort

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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

Customer needsdifferent

Product/ Market-Driven design

Market-Driven design

Simpleproductoffering

Complexrange ofproducts

Product-Driven design

Geography-Driven design

Customer needssimilar

Designing the Sales Organization

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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?

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 subscribers @ 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, 78-79.

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40

35

30

25

20

15

10 60 70 80 90 100 110

Sales

Number of salespeople

Sellingexpense

Gross profitcontribution

Current level

Maximum profitcontribution level

Sales Force Size Example

Managing the Salesforce

� Finding and Selecting Salespeople

� Training/Development

� Management Control

Monitoring

Directing

Evaluating

Rewarding

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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 salesforceproductivity.

� The prior approach of multiple salespeople calling ondoctors to market the same drugs is being changed.

� Out of Wyeth’s salesforce of 5000, about half call onprimary-care doctors. As many as 750 nay be cut orreassigned.

� The selling strategy is to reduce the frequency of sales calls, while making each more worthwhile.

� Initiatives include assigning each salesforceresponsibility 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-basedseminars.

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 Measures

Performance Standards

Focus on Management Control and/or Outcomes?

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Reinventing the Sales Organization

SALES MANAGER CHALLENGES

Customer Relationships

Performance Huddles

Keeping Score

Sales Structure

INTERNET STRATEGY

� Strategy Development

� Deciding Internet Objectives

� E-Commerce Strategy

� Value Opportunities and Risks

� Measuring Internet Effectiveness

� The Future of the Internet

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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

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Designing Internet Strategy

1. Customer Groups Targeted

2. Value Proposition

3. Communications Strategy

4. Designing the Website

5. Structure of the Organization

6. Alliance Partners

7. Shareholder Value

8. 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

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E-Tailing Finally Hits Its Stride

The E-tail EffectHow e-commerce is shaking up the retail landscape:

THE BIG GUNS ARRIVEAfter 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 NATIONALMore 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 HANDUsing 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 PRESSURESShoppers 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, 36-37.

The Future of the Internet

Revolutionary for certain

industries and incremental for

others.

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DIRECT MARKETING

KioskShopping

Catalogs

Direct MailElectronicShopping

Radio/Magazine/Newspaper

Television

Telemarketing

DIRECT MARKETING

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

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Strategies




Strategic Marketing

Chapter 14

DesigningMarket-DrivenOrganizations


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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

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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

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Trends in organization design (2)

• Managing organizational processes

• Organizational agility and flexibility

– Zara

– Toyota

• Employee motivation

– “MySpace Generation”

Alternative Organizational Structures

TraditionalHierarchy

FunctionalStructure

ProcessOverlay

FunctionalOverlay

ProcessStructure

HorizontalStructure

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Process-based organizational structure

Processes that define valuee.g. knowledge management, CRM

Processes that create valuee.g. new product development,innovation

Processes that deliver valuee.g. logistics, customer service,value chain relationships

Specialist resource groups support processManagers e.g. functional departments,business units, external collaborators

ProcessLeadership

Resource Group Leadership

Coordinationmechanismsto linkprocess andresourceleadership

The Toyota way

• Pillar I

– Challenge

– Kaizen - continuous improvement

– Genchi Genbutsu - go and see for yourself

• Pillar II

– Respect

– Teamwork

• EM2 - Everything Matters Exponentially

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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

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Customer-based front-end organization

Senior Management

Back-end Units Customer-basedFront-end Units

Product customers Solutions customers

Internal linkages

Shared planning and metrics

Mediationfrom thecenter

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

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Marketing departments

• Centralization versus decentralization

• Integration or diffusion

• Contingencies for organizing

• Evaluating organizational designs

TRANSACTIONALBUREAUCRATIC

ORGANIC RELATIONAL

Centralized FormalizedNonspecialized

Internal(hierarchical)Organizationof Activity

External(market)Organizationof Activity

DecentralizedNonformalizedSpecialized

Organizing Concepts

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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

TRADITIONALDESIGNS

Functional

Matrix Product-Focused

Market-Focused

Traditional Marketing Organization Designs

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Product-Focused Structure

Marketing Organization Based on a Combination of Functions and

Products

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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 Presidentof Marketing

Director ofProduct

Management

ChiefCustomer

Officer

CustomerService

CustomerDatabase

MarketingResearch

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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

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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













Strategies




Strategic Marketing

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Chapter 15

Marketing StrategyImplementationand Control


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

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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

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Strategy and planning relationships

MARKETING STRATEGY

AnnualMarketingPlanning

ImplementationControl and Evaluation

Revision



ImplementationControl and Evaluation

Revision


I. Strategic Situation Summary

Summarize the key points from your situation analysis (marketanalysis, segments, industry/competition) in order to recount themajor events and provide information to better understand the

strategies outlined in the marketing plan.

II. Market-Targets and ObjectivesThe 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 withrespect to types of products purchased, use situation, frequencyof 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 shouldbe written for each target market. Objectives should also beincluded for the following program components: (1) product,

(2) price, (3) distribution, (4) promotion (salesforce, advertising,sales promotion, and public relations), and (5) technical services.

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III. Positioning Statements

Write statements that describe how you want each markettarget to perceive each product relative to competition. State thecore concept used to position the product (brand) in the eyes and

mind of the targeted buyer. The positioning statement shoulddescribe: (1) What criteria or benefits the customer considers when

buying a product along with the level of importance, (2) What weoffer that differentiates our product from competition, and (3) The

limitations of competitive products.


A. Product StrategyIdentify 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 productdeletion candidates.

B. Price StrategyThe overall pricing strategy (I.e., competitive, premium-priced,etc.) should be identified along with a cost/benefit analysis ifapplicable. Identify what role you want price to play, i.e.,increase share, maintenance, etc.


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C. Distribution StrategyDescribe specific distribution strategies for each market target. Issues to be addressed are intensity of distribution(market coverage), how distribution will be accomplished, andassistance provided to distributors. The role of the sales forcein distribution strategy should also be considered.

D. Promotion StrategyPromotion strategy is used to initiate and maintain a flow ofcommunication between the company and the market target.To assist in developing the communications program, theattributes or benefits of our product should be identified foreach market target. How our product differs from competition(competitive advantage) should be listed. The sales force’sresponsibilities in fulfilling the market plan must be integratedinto 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 addresseswhy this information is needed. The specific marketresearch strategies can be written once the above twosteps have been followed.

V. Coordination with Other Business Functions

Indicate other departments/functions that haveresponsibilities for implementing the marketing plan.

VI. Sales Forecasts and Budgets

VII. Contingency Plans

Indicate how your plans should be modified if eventsshould occur that are different from those assumedin the plan.

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Dimensions of Planning Process

MarketingPlanningProcess

AnalyticalProcess

Dimension

BehavioralProcess

Dimension

OrganizationalProcess

Dimension

TechniquesProceduresSystemsPlanning Models

ManagerialperceptionsParticipationStrategic assumptions

StructureInformationCulture

ProcessConsistency

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

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Implementation process

IMPLEMENTATIONPROCESS

Activities to be implemented

How implementationwill be done

Responsibility forimplementation

Time and locationof implementation

ImprovingImplementation

SkilledImplementers

Incentives

OrganizationalDesign

EffectiveCommunications

Improving Implementation

InternalMarketing

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Internal Marketing

Strategy

Plan

ExternalMarketingProgram

InternalMarketingProgram

Internal MarketingProgram:Targeted at keygroups in thecompany, alliancepartner companies,and other influencers

External MarketingProgramTargeted at keycustomers, segmentsand niches, and otherexternal influencers

BALANCEDSCORECARD

MANAGEMENTCONTROLSYSTEM

FinancialMeasures

InternalBusinessProcessMeasures

CustomerMeasures

LearningandInnovationMeasures

Comprehensive Approach to Improving Implementation

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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

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Find NewOpportunities

or AvoidThreats

SolveSpecific

Problems

KeepPerformance

on Target

Evaluation Activities

Evaluation and control

Conductstrategic

marketingaudit

Select performancecriteria and

choose relevantmarketing metrics

Obtain andanalyze

information

Assessperformance andtake necessary

action

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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

4Corporate Mission and Objectives

4Business Composition and Strategies

4Marketing Strategy (for each planning unit)

4Marketing Program Activities

4Implementation and Management

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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

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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

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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

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