Lecture 1

Chapter 1
Customer satisfaction
Keys to long term survival
o Managing product life cycle
o Proactively identifying needs
o Thinking customer first
Customer satisfaction and loyalty drive customer profitability

CSI (customer satisfaction index

o 72% happy?
Depends on
Industry average
Competition
Historical levels?
Incremental gains vs. philosophy of CS excellence
o Expanded view
72 is an average
80 satisfied/ 20 dissatisfied to some degree
Profit impact of customer retention
Retained customers are profit drivers
o Dissatisfied customers = loss in the short or long term
o New customers are less profitable in the short-term
To hold market share in a mature market a business must replace lost customers
The higher the CR rate the greater the profit impact
Higher CR = longer customer life and therefore lifetime value
o Approx. 5 times more expensive to gain a new customer than maintaining an old
one
Retained customers are real profit drivers
Customer Dissatisfaction and the Use of Social Media
Markstrat

10 week period (1 week = 1 year in Markstrat world)

Each decision Wednesday 6pm to Tuesday 6pm
Periods 5-8 will be double rounds
o Half a week to make decisions

A45247 Course ID
Sonites (microwaves)
Vodites (iphones)
o More advanced
Different channels
o Specialty stores
o Mass merchandisers
o Online stores
Rachel.kirby@mail.mcgill.ca

Lecture 2
Shoppers Drug Mart (Pharmaprix)
Drugs
24 Hours
Pharmacy
Expensive
Marketing Metrics and Marketing Profitability
Financial vs. market-based performance
Financial (Internal)
Market-based (external)
Performance
performance
How is it evaluated?
How is it evaluated?
o Sales revenues
o Market & sales growth
o Return on sales
o Market share
o Gross and net profit
o Customer retention &
o Assets
acquisition
o Customer satisfaction
o Return on assets
o Relative
product/service quality

Marketing performance metrics

o Market Metrics
Measure a market: current performance and profit impact
Market growth, market share
I.e.: relative market share M.S. vs. top 3 competitors
o Customer metrics
Measures customer evaluations and perceptions
Customer retention, satisfaction, Net promoter score (number of people
actively promoting your product vs. number of people detracting your
product)
o Competitiveness metrics
Performance metrics relative to benchmark competitors
Relative product performance, relative service quality, relative customer
value
o Importance of marketing performance metrics:
Provide measures of performance
They are correlated with long-term profitability
They are a barometer of future financial performance
o Forward vs. backward looking metics
Forward-looking metrics
Backwards-looking metrics
o Customer awareness
o Market share

o Perceived performance
o Relative market share
o Intent to Repurchase
o Revenue per customer
o Customer satisfaction

Customer retention
o
Profit impact of marketing performance metrics
Profit impact of marketing strategies
Benchmarking marketing profitability
o What is marketing profitability?
Net profit (before taxes)
Sales revenue COGS operating expenses
OR
Sales revenues * percent gross profit operating expenses
Net marketing contribution
Sales revenue x % gross profit marketing expenses
o Marketing ROS (return on sales)
Computes marketing profitability as a percent of sales
Net marketing contribution/sales revenue
o Marketing ROI (return on investment)
Computes marketing profitability as a percent of expenses
Net marketing contribution / marketing expenses
Marketing strategies & marketing profitability
Net marketing contribution = market demand x market share x average selling price x
channel discount x percent margin marketing budget
o Businesses have many potential strategies at their disposal
o The NMC of any strategy must exceed the current NMC in order to increase net
profits
Market growth strategy
o Bringing more customers into the market while maintaining market share
Market share strategy
o Market penetration is often used but it is dangerous and can hurt margins and
cost money (NMC must exceed current NMC)
Customer revenue strategy
o Usually used in a mature market; focus on current customers
o Offer them new product and services (Share of Wallet)
Cost reduction strategy
o Lower variable costs per unit (transport cost, sales commissions, new
distribution strategy)
Advertising strategy
o Using advertising to grow market share
o (See break-even MS calculations on page 65)
Channel strategy
o Bypass channel intermediaries; lower channel cost
Lecture 3
Market-based Management chapter 3
Market definition
o Market myopia: narrow focus on existing product markets
Problem oblivious to market changes
o Benefits of a broad market definition
Reveals new opportunities a broader set o f customer needs
Recognize potential substitutes and competitive threats
Provides management with understanding of client needs

o Broad vs. narrow market

Broad market
Coke vs. Coca Cola portfolio
Coke wars focus replaced by beverage diversification
Narrow Market by design
Can be a strength rather than a limitation
o Red Bull Today
0.7% of non alcoholic beverage market
But 50% of energy drink market
Market potential
o Market potential = maximum consuming units x buying ceiling x purchase rate x
purchase quantity x average price
Market development index
o MDI = current market demand / market potential x 100
Has the market been tapped?
o MDI interpreted
MDI below 33% = great mkt. growth potential
MDI between 33% and 67% = growth based on improving deficiencies and
lowering price
MDI above 67% more difficult to grow
Full market development is elusive
o Low MDI-untapped market potential
Awareness, availability, ability to use, lacks benefits, not affordable
o Forces affecting rate of market growth
Market potential
Max. That can be attracted
Market penetration
Current number of customers
Rate of entry
Percentage that enter in a given period
Managing market growth
o Major customer groups:
Innovators
Early adopters
Early majority
Late majority
Laggards
Product-market vs. product life cycle
o Customer adoption forces
Feel a need
Perception of risk
Buying decision process
Observable behavior
Trialability
o Product adoption forces
Relative benefits
Ease of use
Performance
Availability
Market share metrics

o Market share index = product awareness x product preference x price

acceptability x product availability x service experience
Helps identify causes of lost market share
Mechanism for assessing market share change
Estimate reasonable potential
o Share development index (SDI) = market share index/share index potential x
100
o MDI vs SDI
High MDI = hard to grow
Lecture 4
The total customer experience
Based on a combination of experiences
o Purchase
Information gathering
Prioritizing needs
Evaluating alternatives
Order placement & payment
o Usage
Delivery & installation
Product usage
Product maintenance
Product repair
o Replacement
Product upgrades
Returns and warranty
Product replacement
Product disposal
Empathetic design
Truly understanding and improving customer experiences and needs
o Grocery bag compartment example (surveillance taping)
Leveraging lead user experiences
Controversial line revisited
o Not all customers are created equal
Repeat customer is more valued than a new customer because of its life
time value and how its cheaper to keep an old customer
Lead users
o Highly knowledgeable
o Push product boundaries
o Provide ideas and insights
Identify KEY BENEFITS
o Features
Tangible and intangible characteristics
o Advantages
Performance results
o Benefits
Individuals value the advantage provided
How the product meets the needs
Customers buy BENEFITS (i.e. ultimate cost savings)
Reverse innovation invent to order
Listen
o Gather together lead users and probe for new insights

Identify
o Determine new product benefits that address unmeet customer needs
Choose
o Verify size of opportunity and select the most lucrative opportunities
Develop
o invent to order
Launch
o Value preposition built around competitive advantage
Usually associated with discontinuous innovations
o Learn what customers want but cannot get from current products
o If feasible the firm can invent to order
Product focused vs. market focused business
o Product vs. solution providers
Customer collaboration & ideation
Outsourcing R & D to people all over the world
o Partners-firms
o Supplies bombardier
o Employees etc.
Defining life-cycle cost & economic value
Life-cycle cost equals
o Price paid
o Acquisition cost
o Ownership cost
o Disposal cost
Economic value
o = Competing products life cycle cost our products life cycle cost
Reminder: GM vs. Honda
o Most Honda owners will say:
Reliability
o Traditional GM approach vs. Honda Approach
Measuring perceived product performance, example - TEXTBOOK
Compare a businesss rating and to each of its competitors (2 point difference =
advantage)
o Machine uptime
Relative importance: 40
Business rating: 8
Competitor
A: 7
B: 5
C: 6
Relative advantage: 0 (8-7=1) + 40 (8-5=2) + 40 (8-6=2) = 27
Customer value and relative performance, example
Relative perfomrnace
o Product rating/average rating * 100
Relative price
o Price/average price * 100
Customer value
o Relative performance relative price
Perceived Benefits and value creation
Types of perceived benefits

o Product benefits
o Service benefits
o Brand/company benefits
Conjoint analysis and value drivers
Hard to determine key drivers
Survey
o Ask customers to make choices
o Examine TRADEOFFS
Survey leads to the preference curves that help us determine optional CVI
Relative importance
o Variable A / variable A + variable B + variable C + variable D
Value drivers and positioning
Customer value index, pg. 146
o Varying results based on attribute cominations
CVI = labor saving s+ warranty + price + callbacks
CVI = none (.17) + none (.25) + comp (1) + often (.25) = 1.67
Market segmentation and segmentation strategies
Needs based market segmentation
1. What BENEFITS are customers seeking in solving a particular customer problem?
2. Group customers into NEEDS-BASED segments
3. Distinguish segments:
o Demographics
o Psychographics
o Usage behavior
Proper segmentation leads to the creation of an effective VALUE PROPOSITION
Beware: the demographic trap
Focusing too much or/solely on demographics
Income, age, education etc.
o Demographics selected may or may not affect customer needs
o Demographically identical does not necessarily translate to identical purchases
Start the market segmentation process on the basis of customer needs and then
group them based on similar needs
Steps in segmentation
1. Needs based segmentation
o Group clients based on needs and benefits sought
2. Segment identification
o Determine demographics, lifestyles + usage
o Distinct, identifiable and actionable
3. Segment attractiveness
o Access, market growth, competitive industry
4. Segment profitability
Segment positioning
How does positioning simplify promotional efforts?
VALUE PROPOSITION
o VP includes all the key elements of the situation +
o Benefits the target customer is looking for
Customized VP for each positioning strategy
o Deliver value to customers
Segment Acid Test
Present groups of target consumers with segment storyboards

 Do the target consumers identify with the intended message?

Modify the approach based on feedback from T.M.
Segmentation strategies
Mass market
o Generic value prop (coke)
Even coke has sub-products to reach different needs
Rarely effective
Large market
o Address one of the core customer needs (Chevy Truck)
Adjacent segment
o Move into the next closest market (slow build)
Multi-segment
o Various segments distinguish the overall market
Important markstrat
Small segment
o Focus on a small segment often ignored by big firms
Niche
o Highly defined marketing effort aimed at a small group
Sub segment strategy
o Sub segmenting allows for a business to add value

Chapter 6
Competitor analysis and sources of advantage
Competitive advantage & knowledge
o How does a firm establish a competitive advantage?
Scale effects
Scope effects
Learning effects
o How does a firm leverage knowledge as a competitive advantage?
o How does a competitive advantage relate to profit potential?
Cost advantages
o Variable cost advantage
Lower VC per unit
Volume is the key
Scale, Scope and Learning Effects
o Marketing cost advantage
o Operating cost advantage
Differentiation advantage
o Product advantage
Features, performance, reliability etc.
o Service advantage
Meaningful sustainable service advantage
o Reputation advantage
Superior brand equity
Leads to customer attraction and premium price
Marketing advantages
o Market share
Advantage based on market dominance rather than differentiation or cost
Logic or Habit (i.e. Milk)

Relative market share = companys market share / total share of three

largest competitors x 100
o Product line
Broad product line = more prospective customers
*Emerging and growing stages
o Channel
Build key relationship with distributors (control market access)
Competitive strategy based on a knowledge advantage
o Develop a knowledge advantage & then attack obliquely (Sun Tzu)
o Gain a competitive advantage without direct confrontation
o Gains without excessive losses (Pizza Wars)
Competitor intelligence
o Developing a strong competitive position is critical
o Perceptual maps
Based on surveys of customer ratings between the brand, sets of
competitors, & ideal product ratings
o Source of CI
Trade press, trade shows, financial reports, industry reports, customers,
suppliers

Chapter 7
Product Positioning, Branding and Product Line Strategies
Branding
o A BRAND is a name or symbol used to identify the source of a product
o Benefits of branding:
High brand awareness
Danger: focusing too much people may not like your product
Emotional connection
Brand loyalty
Price premiums
Product line extensions
Market share = product position x marketing efforts
Differentiation and product positioning
o Product differentiation
Quality, performance, reliability
o Service differentiation
Reliability, extended service, reputation
o Brand differentiation
Brand status
o Low cost of purchase
Low price or lower transaction cost
Branding and brand management strategies
o Brand identity
o Brand encoding
o Brand assets and liabilities
o Brand equity
Brand and Product Line strategies
o Umbrella and flanker brands
o Product line extensions
o Bundling and unbundling
o Product elimination

GEs Appliance Product Line Strategy

Brand differentiation
o What is brand identity?
Family branding
GE
o Using the name to sell other products, transfer equity
P&G
o Doesnt want to use the same name, to build clearer identity
and incase 1 fails it doesnt affect the other
o How do firms develop brand identity?
o What is brand encoding?
Brand Assets
o Brand awareness
o Emotional connection
o Brand loyalty
o Product line extensions
o Price premium
Brand Liabilities
o Customer dissatisfaction
o Product or service failures
o Questionable practices
o Poor record on social issues
Broad Product Line
o More selling opportunities for sales force and channel members
o Potential for higher share of wallet
o Upsell potential
o More profitable in emerging and growing markets
Narrow product line
o Must be more focused in marketing efforts
Product Line development
o How do firms expand their product line?
Umbrella brands
Family brand using a brand name for many products same
means of identification
E.g. Lays, Ruffles
o Owning different brands
Flanker brands
Extension of an existing brand to create another product or brand
with increased market share
New brands
E.g. Kudo owned by Telus
o Did not want Telus customers to switch, no association
o How do flanker brands benefit from umbrella brands?
Brand awareness
Known quality
Market reach
Product mix
Product line extensions and enhancements
o Vertical brand-line extensions
Same market, new flavors

 Kit Kat Extension overdose

o Horizontal brand-line extensions
Adding complimentary products
o New product-market brand extensions
Enter new markets to exploit brand reputation
Honda example
o Selling cars, motorcycles, engines, lawn equipment
o Co-branding
Leverage strong brand with another
Tide/Febreze
Chapter 8
Pricing Decisions
Cost-based pricing:
o Starts with cost and desired margin and is market up along the channel to a
customer selling price of $940
Market-based pricing:
o Price is set based on competitive advantage and value ($1000) and discounts
and costs deducted to arrive at a company margin
Value-based pricing
Value-in-use pricing
o Based on customer life cycle costs
o Acquiring, owning, using, maintaining, disposing
Perceived-value pricing
o Based on value provided when comparing price and benefits relative
competitors
o How much of a price premium can the business obtain and still deliver
meaningful customer value?
Performance-based pricing
o Based on customer preferences for different levels of price and performance
(positioning)
Customerization Value-Pricing
o Unbundle product features and price each one
o Customers then select features and price (value package savings)
Price-performance trade-offs
Quality-conscious customer:
o What are their performance drivers?
o How important is price?
Price-margin management
McKinsey Waterfall
o Costs that cut into the companys bottom line
Discounts, promotions, etc.
Pocket Price
o The amount the business receives
Pocket Price Bandwidth
o Different channels = different BW
o Look beyond avg. pocket price
o Identify needless price leakage
Skim pricing vs. Penetration Pricing
Skim pricing favorable conditions
o Considerable differentiation
o Quality-sensitive customers

o Sustainable advantage
o Few competitors
o Few substitutes
o Difficult competitor entry
Penetration pricing favorable conditions
o No/limited differentiation
o Price-sensitive customers
o No sustainable advantage
o Many competitors
o Many substitutes
o Easy competitor entry
Product life-cycle pricing strategies
Skim pricing vs. penetration pricing
Single segment pricing
o Value based strategy; total cost approach
o Attractive L-C savings at premium price
Low cost Leader pricing
o Volume advantage or superior technology
Multi-segment pricing
o Used during growth stage
o Maximize for multiple customer segments
Plus-one pricing
o Comparable to competition in every aspect
o + one i.e.: Volvo safety
Reduced focus pricing
Chapter 9
Channel map
A diagram of the types of purchase points a business uses
Each channel produces a different level of sales revenue and costs
Mapping channel pricing and pocket price
3 sections that give average purchase amount
o Direct sales force
Large accounts
Basic transaction costs
Order processing, handling + shipping
Keep key account costs in house
o Independent agent
Medium accounts
o Retail/distribution
Small buyers
Each channel to the market produces a different level of sales revenue and has its
onset of costs. The channel costs may include discounts to intermediaries, transaction
costs, and commissions
E.g. Zara real time aspect
o How quickly they make an idea into a product into the store
Dye their own stuff, know what color is selling
o Affordable luxury
o Very high product turnover
o Very IT based
o Dont believe in advertising

o Spend more money for manufacture but selling almost all products at full price
vs. those who have to have clearance sales from overstock
o Trained their customers
Want a shirt, doesnt buy it, gone the next day
Must buy the product now
o Getting real time market research
Marketing channels and channel strategy
How can marketing channels serve as a source of competitive advantage?
o Cost effectiveness
What is the primary objective of a marketing channel?
What are three areas of performance will the choice of channel impact?
o Customer value
o Sales revenues
o Profitability
Marketing channel performance
To achieve a desired level of profits, a channel must do well in all three of the following
areas:
o Customer Reach (Volume)
Chosen based on nature of business, PLC stage, target market etc.
o Operating Efficiency (Cost to Serve)
Direct channels higher margins, but the business absorbs the cost of
channel management and all marketing costs
Indirect lower margins, but lower channel management & marketing
costs
o Service Quality (Retention)
Direct = control of contact points
Indirect forces the business to depend on intermediaries
E.g. PharmaPrix
o Approached higher end brands and want to carry their
products, they denied them
We sell to you cheaper brands, we wont selling higher
brands unless you have services
Cosmetic counters
Direct Channel systems
Best option for sales communication and customer interaction but costs are high
and increasing
o Even when a firm uses a mixed approach they usually maintain their key
profitable customers under a direct system
Working with them directly
Cost efficient
Best possible service to key customers
Indirect Channel systems
Why do firms use indirect channels systems?
o Firms often cannot serve smaller customers with a direct approach profitably
When is it appropriate to use Mixed Channel Systems?
o When distinct target markets need to be served simultaneously
o Often used with specialized and technology products that require local
availability of service
Channels systems that build customer value
How does a channel system enhance customer value?
o Increase customer benefits

 E.g. Zara
o Lower customer cost
E.g. Bananas
o Both
Channel system and & competitive advantage
Sales force advantage
o Better, more informed, enough to properly service the market
Sales productivity
o Built when there are high quality products, broad line of products, and efficient
sales admin systems
Distribution advantage
o Share of distributor outlets
Chapter 10
What are the objectives of marketing communications?
Brand-image communications
o Establish an emotional connection
Impact attitude
Brand-information communications
o Interest arousing
o Motivate target to retain and acquire more information
Impact cognitive
Brand-action communications
o Seeking customer action (buy or try the product)
Impact behavioural
Digital and Social media
How have digital communications and social media altered the company-client
relationship?
o Provide 3 concrete examples:
2-way relationship
Social media marketing objectives and outcomes
Brand Building
o Deepen customer relationships
o Engage in community conversations
Information Exchange
o Share experiences
o Encourage word-of-mouth
o Understand product usage and benefits
Problem Solving
o Gather & provide customer feedback
o Resolve customer complaints
Advertising awareness & message frequency
Frequency
o The average number of times an audience is exposed to a message over a
period of time (usually a week)
Link awarenss and frequency
o 60% was already attained after 3 days
o Figure 10,7
Diminishing return after a certain point when there is a continuation of
exposure
Marketing communications and customer response index
Effective communications

o 1. Build awareness
o 2. Create comprehension among target market
o 3. Creating an intent to purchase among a good portion of the target
CRI
o = % exposed x % aware x %comprehension x % not interested
Causes of low levels of customer response
Poor media selection and/or limited exposure frequency
o Low ad exposure (target market does not see it)
Ineffective ad content and/or insufficient ad frequency
o Low ad comprehension
Insufficient ad frequency and/or ineffective ad content
o Low ad recall
Weak value proposition and or insufficient ad frequency
o Low intentions to take action
Insufficient ad frequency and or action not clearly specified
o Low levels of desired action (steps clearly indicated)
Building customer awareness and comprehension to target market
Media selection
o Reach - % of target market that will exposed to the message at least once in a
given period
o Which one fits? Golf Market..
Message Frequency
o Too many = irritation
o Too few = low awareness & comprehension
o Concentrated vs. distributed
Concentrated communications strategy
E.g. seasonal products
Distributed communications strategy
E.g. laundry detergent
Ad Copy
o Based on customer (TM) needs
o Familiar situations
o Integrated with benefits
Message reinforcement strategies
Text
o Pulsing
o Heavy up
Beyond The Text
o Even strategy
o Skip strategy
Cost effective
Less irritation
Distributive strategy
o Pulse
Skip with specific emphasis on specific times of year
o Seasonal strategy
o Build-up strategy
Movies
o Blitz strategy
Right from the beginning, with PR and coverage and then tailor off
Push vs. pull communications strategies

Push
o Directed at intermediaries
E.g. chicken nugget (frozen)
Not brand loyal
Costco taste testers to push consumers to buy
Pull
o Directed at customers
E.g. tickle me elmo
Customer demanding the product, forces intermediaries to ask for
them
Chapter 11
Factors shaping market attractiveness
Market forces
o Market size
o Growth rate
o Buyer power
Competitive environment
o Number of competitors
o Price rivalry
o Ease of entry
Market Access
o Customer familiarity
o Channel access
o Sales requirements
Factors that influence competitive position
Differentiation position
o Product quality
o Service quality
o Brand image
Cost position
o Unit cost
o Transaction cost
o Marketing expenses
Marketing position
o Market share
o Brand awareness
o Distribution
Portfolio analysis
A PORTOFLIO ANALYSIS is an evaluation of a business, product, or market with respect
to market attractiveness and competitive position as an aid in identifying strategic
plans
Offensive portfolio strategy
o Invest to grow
o Improve position
o New market entry
Defensive portfolio strategy
o Hold/protect share position
o Optimize/monetize position
o Harvest/invest share position
Offensive Core strategy 1: inetrest to Grow Sales

Sub strategy A
o Growing market share
Sub Strategy B
o Grow revenue per customer
o Share of wallet
Sub Strategy C
o Enter new market segment
Sub Strategy D
o Expand market demand
Offensive core strategy 2: invest to improve competitive position
Sub strategy A
o Improve customer loyalty
Sub strategy B
o Improve differentiation advantage
Sub strategy C
o Lower costs/improve marketing productivity
Sub strategy D
o Build marketing advantage
Offensive core strategy 3: invest to enter new markets
Sub strategy A
o Enter related new markets
Sub strategy B
o Enter unrelated new markets
Sub strategy C
o Enter new emerging markets
Sub strategy D
o Develop new markets