Professional Documents
Culture Documents
MARKETING
STRATEGY
Victor Ong
Project Directors:
Module Writer:
Victor Ong
Moderator:
Developed by:
Printed by:
Table of Contents
Course Guide
Course Assignment
Topic 1
ix - xvii
xxi - xxv
Market-Driven Strategy
1.1 The Study of Strategic Marketing
1.2 Market-driven Strategy
1.3 Market Orientation as a Philosophy
1.3.1 The Three Dimensions of Market Orientation
1.3.2 Becoming a Market-oriented Organisation
1.3.3 Market-orientation Is it Beneficial?
1.4 Distinction Between Market Orientation and Marketing
Orientation
1.5 Strategic Orientation as a Second Concept
1.6 Why Strategy Development is Important
1.7 What is Strategy?
1.7.1 The Components of Strategy
1.8 Marketing Strategy
1.9 Marketing Strategy Process
Summary
Key Terms
References
1
2
3
5
5
5
6
7
8
8
9
10
11
12
15
16
17
Topic 2
Understanding Customers
2.1 Customer Focus
2.2 Customer Satisfaction or Customer Delight?
2.3 Customer Acquisition
2.4 Customer Retention
2.5 Customer Acquisition or Customer Retention?
2.6 Customer Loyalty
2.7 Relationship Marketing
Summary
Key Terms
References
19
23
25
27
28
29
30
34
36
37
38
Topic 3
Understanding Competitors
3.1 Who are Your Competitors?
3.2 Porters Five Forces
40
41
42
iv
TABLE OF CONTENT
3.2.1
3.2.2
3.2.3
3.2.4
3.2.5
Summary
Key Terms
References
43
45
48
49
50
52
52
53
Topic 4
Understanding Markets
4.1 Markets and Strategies
4.1.1 Markets Impact Strategy
4.1.2 Value Migration
4.2 Product-market Scope and Structure
Summary
Key Terms
References
55
56
57
59
61
64
64
66
Topic 5
68
68
69
70
72
73
73
75
77
78
80
82
82
84
Topic 6
85
86
87
88
89
92
93
TABLE OF CONTENT
94
97
99
101
102
103
103
104
106
Topic 7
107
108
108
110
110
115
115
117
120
123
125
126
128
Topic 8
130
132
132
133
133
134
135
137
140
143
145
Topic 9
Value-Chain Strategy
9.1 Strategic Role of Distribution
9.2 The Distribution Function
9.3 Direct Distribution by Manufacturers
146
147
149
150
vi
Topic 10
TABLE OF CONTENT
9.4
152
153
155
156
157
161
161
162
164
Communications Strategies
10.1 Communications Objectives
10.2 The Elements of the Communications Mix
10.3 Determining the Communications Budget
10.4 Communications Strategies
10.4.1 Message and Media Strategy
10.4.2 The Product Life Cycle Strategy
10.4.3 The Push and Pull Strategies
10.4.4 The Internet Promotional Strategy
10.5 Integrating and Implementing the Communications Strategy
Summary
Key Terms
References
165
166
167
170
171
172
175
176
176
178
180
181
184
COURSE GUIDE
viii
COURSE GUIDE
COURSE GUIDE
ix
Table of Contents
Welcome to BMMS5103
xi
xv
xvi
xvii
COURSE GUIDE
COURSE GUIDE
xi
2.
3.
4.
5.
Learning Package
In this Learning Package you are provided with THREE kinds of course materials:
1.
2.
3.
xii
COURSE GUIDE
Table of Content
Topic 1
Market-Driven Strategy
Topic 2
Understanding Customers
Topic 3
Understanding Competitors
Topic 4
Understanding Markets
Topic 5
Topic 6
Topic 7
Topic 8
Topic 9
Value-Chain Strategy
Topic 10
Communication Strategies
Course Content
This course is divided into ten integrated topics.
Topic 1:
Topic 2:
Topic 3:
Topic 4:
Discusses the product markets and examines the nature and scope of
defining product-market structure.
Topic 5:
Topic 6:
Topic 7:
Topic 8:
COURSE GUIDE
Topic 9:
xiii
Topic 10: Discusses the concepts and strategies in marketing promotion that
relate to marketing communications.
ACTIVITY
These are situations drawn from situations to show how knowledge of
the principles of learning may be applied to real-world situations. The
activities illustrate key points and concepts dealt with in each topic.
SELF-CHECK
Questions are interspersed at strategic points in the topic to encourage
review of what you have just read and retention of recently learned
material. The answers to these questions are found in the paragraphs
before the questions. This is to test immediately whether you
understand the few paragraphs of text you have read. Working
through these tests will help you determine whether you understand
the topic and prepare you for the assignments and the examination.
xiv
COURSE GUIDE
The main ideas of each topic are listed in brief sentences to provide a review of
the content. You should ensure that you understand every statement listed. If
you do not, go back to the topic and find out what you do not know.
Key terms discussed in the topics are placed at the end of each topic to make you
aware of the main ideas. If you are unable to explain these terms, you should go
back to the topic to clarify.
At the end of each topic, a list of articles and topics of books is provided that is
directly related to the contents of the topic. As far as possible, the articles and
books suggested for further reading will be available in OUMs Digital Library
which you can access and OUMs Library. Also, relevant Internet resources are
available to enhance your understanding of selected curriculum concepts and
principles as applied in real-world situations.
COURSE GUIDE
xv
Assessment Format
Please refer to myVLE.
Facilitator
Your facilitator will mark your assignment. Do not hesitate to discuss during the
seminar session or online if:
You do not understand any part of the course content or the assigned
readings.
Library Resources
The Digital Library has a large collection of books, journals, thesis, news and
references which you can access using your student ID.
xvi
COURSE GUIDE
Learner Connexxions
This is an online bulletin which provides interesting and relevant information to
help you along the programme. There are many useful study hints and you can
read about the experiences of other distant learners.
2.
The most important step is to read the contents of this Course Guide
thoroughly.
(b)
Organise a study schedule. Note the time you are expected to spend
on each topic and the date for submission of assignments as well as
seminar and examination dates. These are stated in your Course
Assessment Guide. Put all this information in one place, such as your
diary or a wall calendar. Whatever method you choose to use, you
should decide on and jot down your own dates for working on each
topic. You have some flexibility as there are 10 topics spread over a
period of 14 weeks.
(c)
Once you have created your own study schedule, make every effort to
stick to it. The main reason students are unable to cope is because
they get behind in their coursework.
(d)
COURSE GUIDE
xvii
(f)
When you have completed the topic, review the learning outcomes to
confirm that you have achieved them and are able to do what is
required.
(g)
If you are confident, you can proceed to the next topic. Proceed topic
by topic through the course and try to pace your study so that you
keep yourself on schedule.
(h)
After completing all topics, review the course and prepare yourself for
the final examination. Check that you have achieved all topic learning
outcomes and the course objectives (listed in this Course Guide).
FINAL REMARKS
Once again, welcome to the course. To maximise your gain from this course you
should try at all times to relate what you are studying to the real world. Look at
the environment in your institution and ask yourself whether the ideas discussed
apply. Most of the ideas, concepts and principles you learn in this course have
practical applications. It is important to realise that much of what we do in
education and training has to be based on sound theoretical foundations. The
contents of this course provide the principles and theories explaining human
learning whether it be in a school, college, university or training organisation.
We wish you success with the course and hope that you will find it interesting,
useful and relevant in your development as a professional. We hope you will
enjoy your experience with OUM and we would like to end with a saying by
Confucius Education without thinking is labour lost.
xx X
COURSE GUIDE
COURSE ASSIGNMENT
GUIDE
xx
xxi
Table of Contents
Introduction
xxiv
Academic Writing
(a) Plagiarism?
(b) Documenting Sources
(i)
What is Plagiarism?
(ii) How Can I Avoid Plagiarism?
Direct Citation
Indirect Citation
Third-party Citation
(c) Referencing
Journal Articles
Online Journal
Webpage
Book
Article in Book
Printed Newspaper
xxiv
xxvi
xxii
INTRODUCTION
This guide explains the basis on which you will be assessed in this course during
the semester. It contains details of the facilitator-marked assignments, final
examination and participation required for the course.
One element in the assessment strategy of the course is that all students should
have the same information as facilitators about the answers to be assessed.
Therefore, this guide also contains the marking criteria that facilitators will use in
assessing your work.
Please read through the whole guide at the beginning of the course.
ACADEMIC WRITING
(a)
Plagiarism
(i)
What Is Plagiarism?
Any written assignment (essays, project, take-home exams, etc)
submitted by a student must not be deceptive regarding the abilities,
knowledge or amount of work contributed by the student. There are
many ways that this rule can be violated. Among them are:
Other
sources:
Works by
others:
Duplication
The student submits the same essay for two or more courses.
(ii)
(b)
xxiii
Documenting Sources
Whenever you quote, paraphrase, summarise, or otherwise refer to the
work of another, you are required to cite its original source documentation.
Offered here are some of the most commonly cited forms of material.
Direct Citattion
Indirect Citation
xxiv
(c)
Referencing
All sources that you cite in your paper should be listed in the Reference
section at the end of your paper. Heres how you should do your Reference.
Journal Article
Online Journal
Webpage
Book
Article in a
Book
Printed
Newspaper
xxv
17
Topic X Market-Driven
Strategy
LEARNING OBJECTIVES
By the end of this topic, you should be able to:
1.
2.
3.
4.
X INTRODUCTION
X TOPIC 1
MARKET-DRIVEN STRATEGY
The performance of companies like Proton, MAS and DiGi are always duly
reported in our newspapers, and we become fascinated and intrigued by their
success or failure. All of these companies will surely claim to be supporters of
market-driven strategy. However, at the end of the day, their performance will
indicate the truth because market-driven strategy can indeed bring success, while
the lack of it will be detrimental to the companies.
1.1
These and other companies are all part of a business landscape that is changing
very quickly. Globalisation and technology are just two of the many drivers that
are transforming the business world as we know it. As such, companies must
always be alert and be more than ready to respond to an ever-changing
environment that is filled with constant uncertainty.
In this consumer-directed environment, you, as a consumer are constantly
searching for new products, always looking for wider product choice in this daily
quest to satisfy your own needs and wants, and on top of this, also expecting
superior value. Therefore, marketing plays a very important role in this
consumer-centric environment.
On the other hand, companies are finding themselves competing in an
increasingly crowded marketplace with many competitors vying to sell similartype products to the same consumers. Therefore, the search for the right strategy
or strategies to use, in order that they can get consumers to choose their product
over their competitors products is becoming very important. In fact, the
companies prosperity and even survival depends on them finding the correct
strategy or strategies.
As such, the study of strategic marketing will essentially embrace the marketdriven strategy that is being planned for and developed by a market-oriented
organisation.
Strategic marketing is a market-driven process of strategy development,
taking into account a constantly changing business environment and the need
to deliver superior customer value (Cravens and Piercy, 2006, p 30).
The focus of strategic marketing is on organisational performance.
TOPIC 1
MARKET-DRIVEN STRATEGY W
ACTIVITY 1.1
Research a Malaysian company that you believe has been adopting
market-driven strategies. Identify those strategies. Why do you consider
this company to be successful?
SELF-CHECK 1.1
In your own words, define strategic marketing.
1.2
MARKET-DRIVEN STRATEGY
Market-driven strategy has, as its starting point, the market and its customers
and is driven to deliver superior customer value. Ramly Burgers successful
market-driven strategy is illustrative. Ramly Burgers marketing-mix strategy
profitably caters to its customers. It is able to whip up very tasty burgers at very
affordable prices, available through word-of-mouth promotion, and found at
strategic locations, mostly near 7-Eleven stores in residential neighbourhoods
throughout the country.
X TOPIC 1
MARKET-DRIVEN STRATEGY
SELF-CHECK 1.2
1.
2.
TOPIC 1
1.3
MARKET-DRIVEN STRATEGY W
MARKET ORIENTATION AS A
PHILOSOPHY
1.3.1
(b)
(c)
1.3.2
X TOPIC 1
Every function (not just sales and marketing) will most definitely, assist in
information acquisition.
MARKET-DRIVEN STRATEGY
Cross-Functional Assessment
Beyond this obvious need for information, is deciding what actions are to be
taken.
From the above, it becomes obvious that for an organisation to embrace market
orientation, management must make use of superior organisational skills to help
them understand and satisfy customers.
1.3.3
Market-orientation Is It Beneficial?
Similar results were found by Narver and Slater (1990) who concluded that a
market orientation has, in some cases, a substantial positive effect on
profitability.
TOPIC 1
MARKET-DRIVEN STRATEGY W
SELF-CHECK 1.3
1.
2.
3.
1.4
X TOPIC 1
MARKET-DRIVEN STRATEGY
SELF-CHECK 1.4
Identify the two main distinctions between market orientation and
marketing orientation.
1.5
1.6
Porter (1996) states, that through the years, managers have been focusing too
much on operational effectiveness rather than strategy development.
Management tools such as Total Quality Management (TQM), benchmarking and
outsourcing have taken the limelight away from strategy. Granted that both
operational effectiveness and strategy are important for superior organisational
performance both play different roles.
Operational effectiveness is performing similar activities better than competitors,
while strategy requires us to perform different activities from competitors or
performing similar activities in different ways.
Companies are mainly interested in always pushing productivity as high as
possible and although this is admittedly necessary for superior performance it
is surely not adequate for overall competitiveness.
TOPIC 1
MARKET-DRIVEN STRATEGY W
ACTIVITY 1.2
Do you agree with Porters contention that managers have forsaken
strategy in favour of operational effectiveness? Provide an example of a
company to illustrate your agreement or disagreement.
1.7
WHY STRATEGY?
Grant (1995) defines strategy as the overall plan for deploying resources to
establish a favourable position.
The task of strategy, in Grants view, is to determine how the organisation will
deploy resources within its environment and satisfy its long-term goals and how
it will organise itself to implement that strategy.
Adding a competitive dimension, Fifield and Gilligan (1998) define strategy as
the broad statement of the way in which the organisation sets out to achieve its
objectives. Included within this would be a series of decisions on the markets in
which the organisation will operate, the type of products/services it will offer
and the basis of the competitive stance. To put it simply, a strategy is a roadmap
that directs the organisation towards the attainment of its long-term goals and
objectives.
Strategic planning involves examining and evaluating the conditions prevailing
in the marketplace and planning accordingly toward operationalising the
strategy.
SELF-CHECK 1.5
In your own words, define strategy.
10 X TOPIC 1
1.7.1
MARKET-DRIVEN STRATEGY
Scope
The scope of an organisation refers to the breadth of its strategic domain the
number and types of industries (e.g. tourism, hospitality, health, education
industries), product lines (e.g. processed food, pet food, dairy products,
frozen meals), and market segments (e.g. tweens, teens, young adults, senior
citizens) it competes in or plans to enter.
This common thread among its various activities and product markets
defines the essential nature of what its business is and what it should be.
reflect
TOPIC 1
MARKET-DRIVEN STRATEGY W
11
years, 5 years) for each of those businesses and product-markets and for the
organisation as a whole.
Resource Deployments
How can it position itself to develop and sustain a differential advantage over
current and potential customers?
Synergy
1.8
MARKETING STRATEGY
12 X TOPIC 1
MARKET-DRIVEN STRATEGY
SELF-CHECK 1.6
Marketing strategy is a combination of what type of decisions?
ACTIVITY 1.3
Research one Malaysian company that you are familiar with, and
identify its target markets and the marketing mix strategies that it uses
to further its organisational goals.
1.9
TOPIC 1
MARKET-DRIVEN STRATEGY W
13
The strategic situation analysis examines market and competitor analysis, market
segmentation and continuous learning about markets. Designing marketing
strategy allows us to look at customer targeting and positioning strategies,
marketing relationship strategies and planning for new products.
Marketing programme development consists of product, price, distribution, and
promotion strategies designed and executed to meet the value requirements of
targeted customers. Strategy implementation and management look at
organisational design and marketing strategy implementation and control.
From the above (Figure 1.5), we can see that the marketing strategy process
involves strategic planning for the marketing activities of the organisation.
Marketing has a key role to play in strategy planning, because it is the job of
marketing management to understand and manage the links between the
business and its environment.
A good way of looking at marketing strategy planning is as a narrowing-down
process. This marketing strategy process is illustrated below:
14 X TOPIC 1
MARKET-DRIVEN STRATEGY
SELF-CHECK 1.7
What are the four main steps outlined in a marketing strategy process?
TOPIC 1
MARKET-DRIVEN STRATEGY W
15
16 X TOPIC 1
MARKET-DRIVEN STRATEGY
We re-acquaint you with the concept of strategy and talk about the
components of a strategy: scope, goals and objectives, resource deployments,
identification of a sustainable competitive advantage and synergy.
The challenge is in finding the correct strategy that can actually deliver
superior customer value.
Market orientation
Marketing strategy
Strategic orientation
TOPIC 1
MARKET-DRIVEN STRATEGY W
17
18 X TOPIC 1
MARKET-DRIVEN STRATEGY
Morgan, Robert, & Strong, Carolyn (1998). Market orientation and dimensions of
strategic orientation. European Journal of Marketing, Volume 32, Number
11/12, pp 1051-1073.
Narver, J.C., & Slater, S.F., (1990). The effect of a market orientation on business
profitability. Journal of Marketing, Volume 54, Number 4, pp 20-35.
Narver, J.C., & Slater, S.F., (1994). Does competitive environment moderate the
market orientation-performance relationship? Journal of Marketing,
Volume 58, pp 46-55.
Narver, J.C., & Slater, S.F., (1994). Market Orientation, Customer Value, and
Superior performance. Business Horizons, March/April, pp 22-27.
Porter, Michael (1996), What is strategy?, Harvard Business Review, pp 61-78.
West, Douglas; Ford, John & Essam, Ibrahim (2006). Strategic marketing. Oxford
University Press, Chapter 2.
Topic X Understanding
Customers
LEARNING OBJECTIVES
By the end of this chapter, you should be able to:
1.
2.
3.
4.
5.
X INTRODUCTION
WHY IS THE CUSTOMER IMPORTANT
Companies spend millions trying to understand and influence customers to get
their attention, to retain them and to encourage them to spend more.
A good understanding of your customers is one of the keys to running a
successful business. Understanding your customers can surely help you make
your product or service better.
Let us start by addressing the fundamental question: Why is the customer so
important?
1.
20 X TOPIC 2
UNDERSTANDING CUSTOMERS
2.
3.
And one brand, Coca-Cola can offer plentiful choices it has created so many
line extensions, that even buying a Coke is no longer that simple (Figure 2.2).
TOPIC 2
UNDERSTANDING CUSTOMERS W
21
22 X TOPIC 2
UNDERSTANDING CUSTOMERS
understand how your customer feels about your product or company, that's
additional information to help you market the product better.
Understand your customer. Identify ways to understand not only how the
customer buys but why he or she buys. Learn not only how satisfied the
customer is but why. Understand what types of marketing efforts the customer
responds to and why. It's one step closer to marketing the right product at the
right price through the right channel and using the right method that the
customer is most likely to accept and buy it.
To embark on this journey to understand the customer we will introduce
concepts such as:
(a)
Customer focus;
(b)
(c)
Customer acquisition,
(d)
Customer retention,
(e)
(f)
Relationship marketing.
To achieve this, we must be aware that it is more than just focusing on quality
offerings it is equally important to work on interacting with customers through
personalised and intelligent transactions. As I have said earlier it is about
focusing on the customer.
SELF-CHECK 2.1
1.
2.
ACTIVITY 2.1
Conduct a research on a Malaysian company that is struggling and that
the primary cause of this, is its inability to properly understand
customers needs and therefore, unable to meet customers expectations.
Identify the customer issues and make recommendations on how to
reverse the companys fortune.
TOPIC 2
2.1
UNDERSTANDING CUSTOMERS W
23
CUSTOMER FOCUS
24 X TOPIC 2
UNDERSTANDING CUSTOMERS
Apples iPod (figure 2.4) is a great example of the power of customer focus. By
being in tune with its customers, and by sensing an unmet need, Apple could
assemble its creative people to work towards meeting consumers desire for an
electronic device that produces personal, portable and flexible music (Hassan,
2006).
Why is customer focus becoming so important?
It is necessary to be customer-focused to keep an organisation close to its market.
In this world you have to understand your customers better not just to listen to
their needs but often to anticipate them.
Another good example of a customer-focused organisation is Unipart, a UK
logistics company. This company was born out of the old motor industry, where
customers were not the prime concern in the average employees thinking.
However, Unipart changed and became a leader in embedding customer-focus
throughout the business. It gives awards each month to staff who have excelled
in this area, and is not shy about giving them to individuals who have exceeded
their authority to solve customer problems. Probably most significantly, the chief
executive regularly talks on the subject on the staff induction programme (Cox,
1997).
Therefore, we acknowledge that an organisation practising the marketing
concept will indeed practise customer focus.
Customer focus will surely produce customer satisfaction the question we wish
to address below is: Is this enough?
TOPIC 2
UNDERSTANDING CUSTOMERS W
25
SELF-CHECK 2.2
Restate customer focus in your own words.
2.2
26 X TOPIC 2
UNDERSTANDING CUSTOMERS
an excitement and in sum, they want consumer delight (Keiningham et al, 1999;
Keiningham & Vavra, 2002; Schneider & Bowden, 1999).
Customer delight, in simple language, really means total customer satisfaction
it is not about meeting consumers expectations, but exceeding those
expectations.
Customer delight is the reaction of customers when they receive a product that
provides unexpected value or unanticipated satisfaction (Chandler, 1989).
Customer delight is a strong, positive and emotional reaction to a product or
service (Schlossberg, 1990).
It is the key to the more evasive goals of loyalty, positive referrals, and loyaltydriven profit (Oliver et al, 1997).
Over 20,000 customer surveys conducted in 40 countries by InfoQuest (Refer to
website http://wiki.ittoolbox.com/index.php/What_is_the_process_for_ measuri
ng_customer_relationships_and_customer_satisfaction%3F, retrieved 18 September
2007)drew these interesting conclusions:
1.
2.
3.
So from the above, we can say that whether a customer is totally satisfied or not,
does have a bearing on the companys business performance.
We repeat:
Customers are the critical component for business success.
SELF-CHECK 2.3
Distinguish between customer satisfaction and customer delight.
TOPIC 2
2.3
UNDERSTANDING CUSTOMERS W
27
CUSTOMER ACQUISITION
28 X TOPIC 2
UNDERSTANDING CUSTOMERS
http://searchcrm.techtarget.com/sDefinition/0,,sid11_gci942906,00.html, retrieved
25 September 2007).
Obviously, it makes sense to spend money on customers who are most likely to
keep buying the same firms products and services this is where the concept of
customer retention comes in. If new customers are just one-off buyers or if there
aren't any follow-on products to sell, upfront acquisition costs can be terribly
expensive and this is something we would want to avoid in the first place.
SELF-CHECK 2.4
Under what conditions would customer acquisition be considered a
primary source of corporate growth?
2.4
CUSTOMER RETENTION
TOPIC 2
UNDERSTANDING CUSTOMERS W
29
retention to work, the company must look at its total operation to ensure that
every aspect of its business is targeted at keeping the customers they already
have. Perhaps the receptionist takes his own sweet time to attend to you. Or the
salesperson is abrupt and easily angry. Every single contact with your customer
has to be positive for customer retention to work.
SELF-CHECK 2.5
1.
2.
ACTIVITY 2.2
1.
2.
2.5
Customers are assets that need to be acquired before they can be managed for
profit (Levitt, 1986).
Customer retention is clearly an important objective in competitive and mature
markets. But customer acquisition is still hugely important to companies in many
contexts:
30 X TOPIC 2
UNDERSTANDING CUSTOMERS
Also, when markets show growth potential it is strategically important for all
players to grow the aggregate market size rather than protect their own customer
base, through customer retention efforts. There are some businesses in which the
constant acquisition of new customers is the only way to survive. Examples
include funeral parlours, private hospitals dedicated to procedures such as
hernia repairs or cataract removal, and MBA programmes.
Customer acquisition is important even when customer retention is a well-used
strategy. Studies have shown that 25 percent or more of customers will need
replacing yearly (Sellers 1989; Hanan 2003; Buttle 2004).
In a B2C (business-to-consumer) context, this may be due to customers shifting
out of a targeted demographic, or their personal circumstances have changed
such that they no longer find value in an offering. In a B2B (business-to-business)
context, corporate customers may be lost due to acquisition by a hungrier
organisation. It is clear that without a well-developed and successful customer
acquisition strategy, customer retention and development loses its importance.
Against this inclination towards a retention bias, there has been good support for
customer acquisition as a valid strategy. Dowling (2002) suggested that
customers have little time, energy or interest in establishing strong brand
relationships. Some customers are serious brand switchers while others are
simply fanatical about need fulfilment, rather than on continuity. Goodwin &
Ball (2003) indicated that there may be considerable economic gain from focusing
on customer acquisition. They demonstrated that a firm having a 16.7 percent
share of market enjoys five times the revenue impact from a 1 percent increase in
acquisition than from a 1 percent increase in retention.
SELF-CHECK 2.6
Even though customer retention is a well-used strategy, under what
conditions are customer acquisition still important to a company?
2.6
CUSTOMER LOYALTY
TOPIC 2
UNDERSTANDING CUSTOMERS W
31
I saw this definition that I believe comes closest to what customer loyalty is.
Customer loyalty refers to the degree to which customers are predisposed to
stay with one company and resist competitive offers (Refer to website
http://www.bitpipe.com/tlist/Customer-Loyalty.html, retrieved 24 September,
2007).
If we can recall from the previous chapter, we would remember the consumer as
being the focal point of all marketing activities. Once this customer-centric vision
has truly been established, the individual customer can truly begin to be
understood and valued, and loyalty can therefore, be earned.
For us to develop loyalty, we will need to pinpoint what it is that your customers
define as value, understanding what is important to them and making sure that
their expectations are met and even exceeded.
The path to customer loyalty is not as easy and simple. When your customers
dont really care about their relationship with you then you will soon realise
that loyalty is short-lived. They may want to be recognised and appreciated, but
they will never be loyal in the true sense of the word. They are not loyal to you
as they may be to a life partner, or their political party or even their employer.
Just ask yourself: Are you really loyal to your bank (Figure 2.5) or your petrol
station (Figure 2.6)?
Still it doesnt really matter. We still have to focus on the customer. Even though
your customers dont want a relationship with you, they do want you to
remember who they are. They want you to communicate to them that their
business means something to you and they want you to do it in a relevant way.
32 X TOPIC 2
UNDERSTANDING CUSTOMERS
TOPIC 2
UNDERSTANDING CUSTOMERS W
33
What is obvious is the fact that both groups demonstrated very similar patterns
of behavioural loyalty and very similar levels of satisfaction. The functionally
loyal customers, however, reflect a much more vulnerable form of loyalty. They
are likely to switch as soon as a competitor offers a more functionally-attractive
option this can be a more rewarding promotion, e.g. Carrefour giving out RM5
vouchers for every RM50 worth of purchases, will see these same Giant patrons
making a beeline for Carrefour. The emotionally loyal customer, on the other
hand, has an attachment to the organisation or the brand that transcends
functional attributes. This is a loyalty that is likely to be sustainable, even in the
face of competition that offers a more functionally-attractive alternative.
Furthermore, customer loyalty implies an emotional commitment to a brand,
over and above customer retention (CIM, 2005). In short, we can easily get
emotional about a brand, but not so for a product.
When we say tea, we automatically think of Lipton (Figure 2.8). Likewise,
when we say toothpaste, we think of Colgate (Figure 2.9). These reflect our
own emotional commitments.
34 X TOPIC 2
UNDERSTANDING CUSTOMERS
SELF-CHECK 2.7
Customer loyalty is seen in both behavioural and emotional contexts.
Explain.
2.7
RELATIONSHIP MARKETING
TOPIC 2
UNDERSTANDING CUSTOMERS W
35
Figure 2.10: Cindy Crawford and Halle Berry appear in Revlon's ads
That the focus is on the customer how to attract, develop and keep
customers
2.
36 X TOPIC 2
UNDERSTANDING CUSTOMERS
SELF-CHECK 2.8
1.
Distinguish between
marketing.
transaction
marketing
and
relationship
2.
3.
ACTIVITY 2.3
Identify and research two companies: one company that practises
transaction marketing and another that practises relationship
marketing.
Compare their performances in respect to market share and
profitability.
TOPIC 2
UNDERSTANDING CUSTOMERS W
Customer acquisition
Customer retention
Customer delight
Customer satisfaction
Customer focus
Relationship marketing
37
Customer loyalty
AirAsias Tony Fernandes expects to fly four million passengers this year,
twice as many as in 2003. His success heralds a revolution in the airline
industry in Asia. Although Americans and Europeans have benefited from
low-cost air travel for years, tight regulation, powerful national-flag carriers
and a dearth of airports have kept budget airlines at bay in Asia. But finally
the region's long-suffering travellers are able to join in. Five years ago, Asia
had only one low-cost airline; today there are 13 either already in the air or
due to launch later this year. The boom is lowering airfares across the region,
increasing competition for major airlines and making air travel accessible to
tens of millions who otherwise could never have afforded to fly. Boasts
Fernandes: "We have transformed the way people think about flying."
He's not exaggerating. The cheap fares are luring Asians away from rickety
buses, inefficient trains and traffic-choked highways. Laykha Boonlerd, 26, a
bank employee in Kuala Lumpur, could never before afford to fly to Bangkok
to see her family and instead made an excruciating 24-hour pilgrimage by bus
and train. But with a one-way ticket on AirAsia costing only $26, she took
wing in July for the first time. "I will travel much more with AirAsia," she
says. Indeed, about half the travellers on Asia's budget airlines are first-time
flyers like Boonlerd.
Source: Schuman, Michael (2004), Air Raiders Time, October 17.
QUESTIONS
1.
AirAsia has earned the loyalty of many flyers. What type of loyalty
would this be?
2.
38 X TOPIC 2
UNDERSTANDING CUSTOMERS
Books
Cravens, D. & Piercy, N. (2006). Strategic marketing, (8th ed.). New York:
McGraw-Hill/Irwin, Chapter 2.
Journals
Ang, L., & Buttle, F. (2004), Managing for Successful Customer Acquisition: An
Exploration, Journal of Marketing Management, October.
Cox, G. (1997), Customer focus a commercial imperative, Managing Service
Quality, Volume 7, Number 1, pp 27-30.
CRMUK & SECOR Consulting (n.d.), Customer Relationship Management:
Creating Customer Loyalty White Paper.
Goodwin, R & Ball, B. (2003), What marketing wants the CEO to know,
Marketing Management, Volume 12(5), pp 18-23.
Hansemark, O., & Albinsson (2004), Customer satisfaction and retention: the
experiences of individual employees, Managing Service Quality, Volume
14, Number 1, pp 40-57.
Macdonald, J. (1995), Customer care is not good enough, The TQM Magazine,
Volume 7, Number 4, pp 5-8.
Mascarenhas, O., Kesavan, R., & Bernacchi, M. (2004), Customer value-chain
involvement for co-creating customer delight, Journal of Consumer
Marketing, Volume 21, Number 7, pp 486-496.
Rao, S. & Perry, C. (2002), Thinking about relationship marketing: Where are we
now? Journal of Business & Industrial Marketing, Volume 17, Number 7,
pp 598-614.
Online
Beaudoin, T. (2004-2005), How to Keep Your Customers Coming Back
Understanding Customer Retention at website http://www.advancing
women.com/customerservice/28032.php, retrieved 14 September 2007.
Hassan, F. (2006), Customer Focus A Prescription for Driving Innovation
Remarks for inaugural CEO Innovation Lecture Series, 23 February, at
website http://view.fdu.edu/files/ceoinnovationfhscript2.pdf, retrieved
27 September 2007.
TOPIC 2
UNDERSTANDING CUSTOMERS W
39
Topic Understanding
Competitors
LEARNING OBJECTIVES
By the end of this chapter, you should be able to:
1.
2.
3.
4.
Examine the five forces individually and describe how they may
impact the firm; and
5.
INTRODUCTION
UNDERSTAND YOUR COMPETITION
Any business plan that aims to be successful must consider the competition. Who
competes with you for the same customers? Are they directly selling competitive
products and services, substitutes, or possible substitutes? What are their
strengths and weaknesses? How are they positioned in the market?
Lets return to the Coke example. A 14 October 2005 Time report had highlighted
Cokes continued slide in regular-cola consumption, which is falling by more
than 6 percent annually.
Coke is also losing momentum because consumers are turning not only to other
competitive products (e.g. according to an 8 March 2007 Beverage Marketing
report, Cadbury Schweppes saw growth in carbonated soft drink volume all
together, its 7Up, Dr Pepper and other soft drink brands experienced growth of
1.3 percent in 2006), but more to the alternative beverage market (dominated by a
TOPIC 3
UNDERSTANDING COMPETITORS
41
vast array of products from energy drinks, bottled water, and flavoured teas to
fruity milk, canned coffee, and yoghurt drinks as shown in Figure 3.1).
Figure 3.1: A sample of beverage products that are in competition with Coke
It is no wonder that for Coke to remain relevant it has to take into account all
forms of competition, in order that it can devise strategies to respond to this
threat.
Understanding the business's competitors and developing ways to differentiate it
from them, is an important driver that influences the development of the
business's competitive strategy. Understanding the competitive market in which
the business operates will help managers make informed decisions about
business development.
3.1
From the Coke example above we can see that your competitors are not always
who you think they are.
We have seen previously that if you are a manufacturer of cola drinks; then your
direct competitors are likely to be other brands of cola in the market. But what
about other carbonated drinks with their many different flavours? And what
about water, juices, herbal drinks and other beverages identified above? What
42 TOPIC 3
UNDERSTANDING COMPETITORS
about cendol, tau foo-fah, ais kacang, ice-cream and other desserts? The target
customer may be making a choice among all these items for a "drink" purchase,
including cola! Or this target customer may even be considering buying a soup
as an alternative to a "drink".
Therefore, understanding the dynamics of competitors within an industry is
important for two reasons:
1.
It can help us to assess the potential opportunities for your new business,
especially when you are entering this industry as a fresh player.
2.
It can also be a critical step to better differentiate you from others that offer
similar products and services.
One well-known framework that assists with this analysis is Porters Five Forces
Model. This model, created by Michael Porter and described in his 1980 book
Competitive Strategy: Techniques for Analyzing Industries and Competitors,
has proven to be useful for both business and marketing-based planning.
SELF-CHECK 3.1
Why is it important to understand the dynamics of competitors
within an industry?
3.2
Porters Five Forces (Figure 3.2) refers to the five competitive forces that shape
every industry and every market. These forces determine the intensity of
competition and hence the profitability and attractiveness of an industry.
These five forces are rivalry among present competitors, threat of new entrants
into the industry, the bargaining power of suppliers, the bargaining power of
buyers, and the threat of substitute products.
TOPIC 3
UNDERSTANDING COMPETITORS
43
SELF-CHECK 3.2
Sketch Porters 1980 model and briefly describes the five competitive
forces outlined in this model.
3.2.1
Rivalry takes place among firms that create products that are approximate
substitutes to each other and this is especially when one rival firm acts to
advance its standing or safeguard its position.
Therefore, firms are mutually dependent that is, when one firm does
something, it will affect the others, and vice versa.
The following are conditions under which we will witness greater rivalry (see
table 3.1):
44 TOPIC 3
UNDERSTANDING COMPETITORS
High cost per sale When the cost of capital required to produce a ringgit
of sales is higher, firms will operate at or near capacity as much as possible,
in order to be cost-efficient and cost-effective. This in turn, will cause
downward pressure on prices when market demand slows. This makes
these businesses less profitable when compared to those businesses with
lower capital outlay.
(b)
(c)
(d)
(e)
(f)
Pre-emptive action When one firm behaves in a manner that will result in
retaliation from other firms. E.g. Singapores Tiger Airways fired the first
shot by offering one-way tickets to three Thai destinations, including
Bangkok for 59 cents, and Thai Air Asia retaliated with a 29-cent one-way
ticket to Bangkok (USA Today, 13 September 2004).
TOPIC 3
UNDERSTANDING COMPETITORS
45
These conditions will make competing within the industry more challenging,
often leading to frequent price wars, advertising wars (Figure 3.3), and new
products flooding the market.
We can conclude that the greater the competitive rivalry in an industry, the less
attractive it is to existing firms or would-be entrants. In terms of profitability, it
will decrease as rivalry increases.
SELF-CHECK 3.3
Select and explain any three conditions that promote rivalry among
existing firms.
3.2.2
New competitors add capacity to the industry and along with them is the need to
earn market share, thereby making competition very intense.
When the threat of new entrants is greater, the industrys attractiveness
diminishes.
46 TOPIC 3
UNDERSTANDING COMPETITORS
The key is to assess how easy it is for a new player to enter an industry. The most
attractive segment has high entry barriers and low exit barriers. Although any
firm should be able to enter and exit a market, every industry usually presents
varying levels of difficulty, commonly driven by economics. For instance,
manufacturing-based industries are more difficult to enter than many servicebased industries.
The definable conditions present in each industry help protect the firms
profitability as well as restrain new players from entering the market. Therefore,
the key concept in analysing the threat of new entrants is the inhibitive
characteristics that we commonly refer to as barriers to entry.
Barriers to entry are created to stop potential entrants from entering a market
profitably. They seek to defend the dominant power of existing firms in an
industry and therefore maintain superior profits in the long run. Barriers to entry
have the effect of making a market less contestable.
Entry is difficult under the following conditions:
(a)
Cost factor When learning and economies of scale have not yet
materialised, and it takes some time to obtain the volume and learning
required to yield a low relative cost per unit this can easily discourage
any would-be entrants. Furthermore, if existing firms are vertically
integrated, entry becomes even more expensive. Also, if the existing firms
share their output with their related businesses, the issue of reversing the
cost disadvantage is made even more difficult.
(b)
High capital investment If the industry itself requires huge capital outlays
to set up shop, this can become a big disincentive for aspiring new entrants.
(c)
(d)
Other factors that will dissuade new entrants are falling prices, future
expectations of price declines, prices being kept artificially low, huge or
unpredictable start-up spending, and other extreme uncertainties.
TOPIC 3
UNDERSTANDING COMPETITORS
47
Fallingprices
Futureexpectationofpricesdecline
Priceskeptartificiallylow
Huge/unpredictablestartupspending
Barriers to entry arise from several sources:
Economies of scale
Government.
SELF-CHECK 3.4
Identify four sources of barriers to entry and provide an example
each.
48 TOPIC 3
3.2.3
UNDERSTANDING COMPETITORS
The extent of buyer concentration, as when a few large buyers can obtain
concessions because they account for a large portion of industry sales.
(b)
(c)
(d)
The threat of backward integration, thereby eliminating the need for the
supplier.
Figure 3.4: Singapore Airlines is a leading customer for new aircraft for both Airbus and
Boeing (Annual Report 2006-07, p 16).
Source: www.rianlloyd.com
The greater the power of the high-volume customers served by an industry, the
less attractive will be that industry.
TOPIC 3
UNDERSTANDING COMPETITORS
49
To mitigate the power of buyers, sellers can opt to select buyers with less power
to negotiate, switch suppliers, or develop superior offers that even strong buyers
cannot refuse.
SELF-CHECK 3.5
Discuss the three approaches that help to mitigate the bargaining
power of buyers.
3.2.4
An industry that produces goods will need suppliers. Depending on where the
power lies, suppliers may be able to impose their influence on the producing
industry. They may be able to dictate price and influence availability.
E.g. DeBeers (Figure 3.5) ability to wield influence within the diamond industry
means it has a high level of control over some of the most productive diamond
mines in the world giving them great power within the industry.
50 TOPIC 3
UNDERSTANDING COMPETITORS
(b)
(c)
(d)
(e)
(f)
(g)
The greater the bargaining power of the key suppliers to an industry, the less will
be the overall attractiveness of the industry.
The best defence in mitigating the power of suppliers is to build win-win
relationships with suppliers or arrange to use multiple suppliers.
SELF-CHECK 3.6
Discuss the two approaches that help to mitigate the bargaining power
of suppliers.
3.2.5
Substitutes are alternative product types (not brands) that perform essentially the
same functions, as plastic bottles versus aluminium cans, margarine versus
butter, and the faxing of documents versus overnight express delivery.
As more substitute products avail themselves and become affordable, the
demand becomes more elastic because customers have more alternatives. These
substitutes may limit the ability of firms within an industry to raise prices and
improve margins.
E.g. the price of aluminium cans is constrained by the price of glass bottles, steel
cans, and plastic containers. These containers are substitutes, yet they do not
compete in the same industries.
TOPIC 3
UNDERSTANDING COMPETITORS
51
Your product doesnt really offer any real benefit compared to other
products.
(b)
(c)
Figure 3.6: Hotlink like the other telco providers use price to lure customers
Source: http://www.kennysia.com/archives/2005/03/kuching_is_owne.php
Porters Five Forces can help us to better understand these dynamics in a more
objective manner and hopefully from this, we can make better strategic decisions.
This framework is based on the idea of competition. It makes the assumption that
a firm tries to strive for competitive advantage over other firms in the market as
well as over customers and suppliers. As a result of this focus, it does not really
take into account strategies such as strategic alliances, electronic linking of
information systems of all firms along a value chain and others.
Other weaknesses of this framework include:
(a)
(b)
The framework works best for analysing simple market structures. When
an industry becomes complex, with multiple interrelations, product groups,
by-products and segments analysis of all five forces becomes similarly
problematic.
52 TOPIC 3
UNDERSTANDING COMPETITORS
SELF-CHECK 3.7
Under what conditions do substitutes become a bigger threat?
ACTIVITY 3.1
Identify a Malaysian company that you are familiar with. Describe the
five forces that belong to Porters 1980 framework by relating each of
these forces to the firm and its products and/or services.
We introduced the Porters Five Forces model and discuss at length the five
forces that impact the competitive space in an industry.
Barriers to entry
Porters Five Forces
Substitutes
TOPIC 3
UNDERSTANDING COMPETITORS
53
Chewing gum is at the centre of a retail battle between Wrigley, the dominant
player in Britain for decades, and Cadbury, the world's biggest confectionary
company. At stake is the 250m a year the British spends on gum.
Cadbury launched four Trident products in Britain in February. They
appeared on newsagents shelves alongside the 32 gum products sold by
Wrigley. Wrigley says it anticipated Cadbury's move into its territory. "We've
been expecting it for a number of years, since they've been buying gum
companies around the world," says Gharry Eccles, managing director of
Wrigley UK.
And Mr Eccles says he would relish the prospect of increased competition.
"If you're running a race, running it on your own is actually no fun," he says.
"When you're running against someone it becomes a whole new ball game,
and a lot more fun."
Source: Miller, Charles, The chewing gum war, BBC News, 24 May 2007.
QUESTIONS
1.
2.
The entry of Cadbury into the gum market reflects the ease by which
new entrants can enter this market. Do you agree? Justify your answer.
Books
Cravens, D., & Piercy, N. (2006). Strategic marketing. (8th ed.). New York:
McGraw-hill/Irwin, Chapter 3.
Walker, O., Mullins, J., Boyd Jr., H., & Larreche, J. C. (2006). Marketing strategy.
(5th ed.). NY: McGraw-Hill/Irwin.
54 TOPIC 3
UNDERSTANDING COMPETITORS
Journals
Karagiannopoulos, G. D., Georgopoulos, N., and Nikolopoulos, K (2005),
Fathoming Porters five forces model in the internet era, info, Volume 7,
Number 6, pp 66-76.
Online
Website http://www.bplans.com/ma/article.cfm/156, retrieved 26 September
2007.
Business Owners Toolkit (2007) at website http://www.toolkit.com
/small_business_guide/sbg.aspx?nid=P03_2011, retrieved 26 September 2007.
Topic Understanding
Markets
LEARNING OBJECTIVES
By the end of this chapter, you should be able to:
1.
2.
3.
4.
5.
marketing
decisions
come
from
INTRODUCTION
DEFINING THE MARKET
All businesses operate in markets.
But what is a market? How do we start to define it?
A market is a set of all actual and potential customers of any product or
service.
This definition suggests that a market represents the total value and/or volume
of products that satisfy the same customer need.
E.g. If the customer needs is to have breakfast, then the market which we are
going to refer to, could be defined as the breakfast food market. Many
products would be relevant to measuring and analysing such a market, as
illustrated below (Figure 4.1):
56 TOPIC 4
UNDERSTANDING MARKETS
4.1
TOPIC 4
4.1.1
UNDERSTANDING MARKETS
57
58 TOPIC 4
UNDERSTANDING MARKETS
A second example is the idea behind the creation of herbal energy drinks (such as
Power Root, Alicafe, Pearl and Nnergy) from Power Root (M) Sdn. Bhd. the
realisation that lifestyles were changing towards more instant drinks that came
with health benefits (Figure 4.3).
TOPIC 4
UNDERSTANDING MARKETS
59
SELF-CHECK 4.1
The market is changing and industries are being transformed.
Identify one driver behind this massive change. Explain and illustrate
with an example.
4.1.2
Value Migration
Secondly, we shall look at the concept of value migration, and how it affects
market opportunities.
Value migration describes the process of customers shifting their purchase
away from the products generated by outmoded business designs to new ones
that offer superior value (Slywotzky, 1996).
Examples include value migration from conventional typewriters to word
processing and computers, fixed-line phones to cell phones, full service airlines
to budget airlines and petrol-guzzling cars to environmentally-friendly cars.
A critical aspect of any market-driven strategy is in anticipating value migration
threats. Sadly, many companies still do not see beyond their own productmarkets.
60 TOPIC 4
UNDERSTANDING MARKETS
As far back as 1960, Levitt had already started to talk about it: Every major
industry was once a growth industry. But some that are now riding a wave of
growth enthusiasm are very much in the shadow of decline. Others, which are
thought of as seasoned growth industries, have actually stopped growing. In
every case, the reason growth is threatened, slowed or stopped is not because the
market is saturated. It is because there has been a failure of management.
This, he referred to as Marketing myopia this illustrated the product focus
that many companies adopted, rather than being customer-focused. This was his
way of alerting the marketing profession to the dangers of a limited, blinkered
view of the market and its future potential.
For example, a button manufacturer who believed that its market was the
button market would likely to have drawn up poor strategies, unless this
producer had seen the arrival of products such as zips and Velcro which also
satisfy the same need to fasten clothes.
A good example of a company that has avoided falling into this trap is HarleyDavidson (Figure 4.4). They saw that being in the motorcycle industry was far
too limiting, and opted to be in the brand image industry while still focusing
on the motorcycles. They sell their bikes through the image the bike portrays so
as to differentiate themselves from regular motorcycles and competition from
Japan and elsewhere.
TOPIC 4
UNDERSTANDING MARKETS
61
SELF-CHECK 4.2
In your own words, explain the concept of value migration.
4.2
As we have defined in figure 4.5, markets are groups of qualified people who
have the ability and willingness to buy something because they have a need for
it. A product-market essentially matches people with the desired needs.
In determining the scope of the product-market, it is helpful to identify:
(a)
(b)
62 TOPIC 4
(c)
UNDERSTANDING MARKETS
The brand and/or product categories competing for the needs and wants of
the buyers included in the product-market.
A simplified example of the product-market structure that includes the fast food
market is shown below (Figure 4.6):
A fast food chain such as 1901 should consider more than just regular customers
and direct competitors in its market opportunity analysis. The consumption need
being satisfied is fast and convenient preparation of food. The buyer has many
ways of meeting this need not only purchasing fast foods, but also buying
prepared food from supermarkets, microwaving preparation at home,
patronising coffee shops and food stalls, and even ordering take away.
After the product-market boundaries and structure have been determined, the
next step involves developing end user buyer profiles. Here, buyers are
identified, described, their value requirements indicated and external
environmental influences (e.g. interest rate trends) determined.
TOPIC 4
UNDERSTANDING MARKETS W
63
SELF-CHECK 4.3
1.
2.
ACTIVITY 4.1
Suppose your company is competing in a rapid growth market. What
recommendations can you make to your company management to help
it identify new competitive threats early enough so that counterstrategies can be properly developed?
64 TOPIC 4
UNDERSTANDING MARKETS
This chapter examines the meaning of a market because knowledge about the
market is important in guiding business and marketing strategies.
We look at how markets change and how strategies are developed to respond
to these changes.
Market
Marketing myopia
Value migration
TOPIC 4
UNDERSTANDING MARKETS
HP, which supplanted Dell Inc. last year as the No. 1 seller of PCs
worldwide, is better known for its PCs and extremely profitable
printer ink than its handheld devices.
Still, HP is a major player in the PDA world, ranking second behind
market-leader Palm Inc. in worldwide PDA sales for the first half of
2007, according to market research firm IDC. More than 22 percent of
the 1.6 billion PDAs sold in that period were HP products, according
to IDC.
But the rise of smart phones has pressured PDA makers. The success
of gadgets like Research In Motion Ltd.'s BlackBerry and Palm's Treo
and now Apple Inc.'s iPhone is prodding handheld device makers
to beef up their offerings in an increasingly Internet-connected world.
PDAs are increasingly seen as companions to cell phones and smart
phones instead of the all-in-one device they were once were, said
Gene Wang, vice president of marketing for HP's handhelds unit.
When it comes to smart phones, HP is clearly still the newcomer. Less
than one percent of the 53 million smart phones shipped during the
first six months of the year were HP products, according to IDC.
Analysts said the company is facing an uphill battle as it fights
entrenched competitors in the market of mobile devices sold to
businesses.
But it also has deep pockets and tight relationships with customers
who for years have relied on HP servers, PCs and services, analysts
said.
Source: Robertson, Jordan (2007), HP Deepens Push Into Cell Phone
Market Red Orbit, September 05.
QUESTION
Discuss the important issues that should be considered in defining the
product-market for HPs smart phones.
65
66 TOPIC 4
UNDERSTANDING MARKETS
Books
Cravens, D., & Piercy, N. (2006). Strategic marketing. (8th ed.). New York:
McGraw-Hill/Irwin, Chapter 3.
Journals
Levitt, T. (1960), Marketing Myopia Harvard Business Review, 38, July-August,
pp 24-47.
Topic
Strategic
Market
Segmentation,
Targeting and
Positioning
LEARNING OUTCOMES
By end of this topic, you should be able to:
1.
2.
3.
4.
5.
6.
7.
8.
9.
68
TOPIC 5
INTRODUCTION
Customers are increasingly demanding and discriminating in their product
choices. When we consider the worlds population, we become aware that every
one of them is a customer in the real sense of the word, and that these customers
have needs and buying practices are as different as they are varied.
On the other hand, companies are already recognising that they cannot appeal to
all customers in the marketplace or at least not to all customers in the same way.
These companies do not serve their markets in an equitable manner and they are
likely to end up serving different segments of their markets. By just focusing on
one or more segments, these companies can then focus their efforts on targeting
those segments where they can change customer perception or meet unmet
needs.
Therefore the idea of treating all customers equally is really a myth. It contradicts
modern business principles such as customer orientation and customer
intimacy. We can put it that customers are not a homogeneous mass, but that
they are really individuals.
And there is this realisation that to do that, they must first understand customers
needs and wants. Only then can they design the right kind of strategies.
Therefore, segmenting markets is indeed very important to developing and
implementing market-driven strategy. Segmenting markets sets the foundation
for superior company performance.
5.1
MARKET SEGMENTATION
Just as you can divide an orange into slices or segments you can divide the
marketplace into many different groups of people or segments that have
something in common.
Market segmentation is the process of identifying and analysing subgroups of
buyers in a product-market with similar response characteristics (Cravens &
Piercy, 2006 p 97).
It is basically about aggregating prospective and qualified customers into groups
that have common needs and who will respond similarly to a marketing action.
The purpose of market segmentation is two-fold: to divide a market into
homogeneous sub-markets or segments, and to design a proper marketing mix
strategy for the segment (McCartney, 1981).
TOPIC 5
69
SELF-CHECK 5.1
Use a real-life example to illustrate market segmentation.
5.2
70
TOPIC 5
A good market segmentation will have segment members that are internally
homogeneous and externally heterogeneous; that is, as similar as possible within
the segment, and as different as possible between segments.
SELF-CHECK 5.2
Examine the budget airline industry and consider the probable market
segments that may constitute this industry. In what way are they
similar and/or different?
5.3
There are many ways to segment markets, but not all segmentations are effective.
Segmentation effectiveness depends on identifying segments that are measurable,
accessible, substantial, differentiable and actionable (Roberts, 1961).
Measurable segments It should be possible to identify customer groups by
measuring size and purchasing power of the segments. E.g. It is estimated that
one in ten people are left-handed (Reuters, 01 May 2007 at website
http://www.reuters.com/article/healthNews/idUSCOL14739020070501,
retrieved 12 October 2007) yet very few products are really targeted towards
this left-handed segment, the problem being that it is difficult to identify and
measure this segment. Malaysian Census does not monitor left-handedness in its
surveys hence there is no data on the demographics of lefties.
TOPIC 5
71
Figure 5.3: Malaysian magazines that reach out to specific market segments
72
TOPIC 5
SELF-CHECK 5.3
Under what circumstances may it not be possible to break up a
product-market into segments?
ACTIVITY 5.1
Describe the student market segments for your university. To what
extent are these segments measurable, accessible, substantial,
differentiable, and actionable?
5.4
HOW TO SEGMENT?
TOPIC 5
73
Characteristics of
people/organisations
Use situation
Buyers
needs/preferences
Organisational markets
Type of industry
Income
Size
Family size
Geographic location
Lifecycle stage
Corporate culture
Geographic location
Stage of development
Lifestyle
Producer/intermediary
Occasion
Application
Importance of purchase
Purchasing procedure
Performance requirements
Brand preference
Brand preferences
Benefits sought
Desired features
Quality
Service requirements
rebuy,
Size of purchase
Volume
Frequency of purchase
Frequency of purchase
5.5
5.5.1
74
TOPIC 5
(b)
TOPIC 5
75
and Funky Purple (see Figure 5.6). After all, kids are the Number 1
consumers of this condiment.
(c)
5.5.2
76
TOPIC 5
Figure 5.7: Uptown targets a demographic segment that still has growth potential
(b)
(c)
TOPIC 5
77
The rationale behind this is that customers who are given choice-varieties
may increase their total purchases of a brand.
SELF-CHECK 5.4
5.6
1.
2.
Customer analysis
When forming segments, it is relevant to find out as much as possible about
the customers in each segment.
The objective is to obtain descriptive characteristics that can be correlated to
the variables used to form these segments.
An important aspect of customer analysis is to establish how satisfied the
customers in the segment are.
(b)
Competitor analysis
Here we consider the key competitors that are presently active in the
identified market where the segment is located, as well as any potential
segment entrants.
We can use value-chain analysis to examine competitive advantage at the
segment level, and/or Porters Five-Forces to determine segment
attractiveness.
(c)
Positioning analysis
Segment analysis involves positioning strategy choices. Positioning analysis
shows how we can combine the four Ps in order to favourably position the
firm or brand with customers in that segment.
TOPIC 5
78 X
(d)
SELF-CHECK 5.5
Discuss the major areas of analysis of market segments.
ACTIVITY 5.2
Undertake a review of TD Cars, the Malaysian-Australian JV that
produces the retro-classic lifestyle car called the TD2000. Do you
believe that TD Cars has built a sustainable niche or segment strategy,
or is the car just a fashion item with limited lasting appeal to car buyers,
like other retro attempts?
5.7
Choosing the right market targeting strategy does impact on the firms
performance. The targeting decision plays an important role in guiding the
positioning of a brand or firm in the marketplace.
Targeting and positioning strategies consist of the following:
TOPIC 5
79
Armstrong & Kotler (2005, p 185) illustrates the above as follows (see Figure 5.9):
The targeting decision involves the selection of customer group(s) the firm will
serve. We may select one or a few segments or go for a more complete coverage
of the product-market by targeting most of the segments. A specific marketing
effort (positioning strategy) is then directed toward each target that we have
decided to serve.
E.g. Pfizers targeting strategy for the 2003 introduction of its drug Relpax is as
follows:
Pfizer for the first time launched a new product Relpax (see Figure 5.10)
without any TV advertising at all. Relpax is a prescription medicine for migraine
headache relief. Pfizer identified active young mothers as the prime target group
for Relpax and adjusted its media mix accordingly. They are listening to the
radio in the car, [going] on the Internet late at night, or reading a magazine in a
quiet moment, says Dorothy L. Weitzer, a Pfizer marketing vice-president.
They are not watching TV.
80
TOPIC 5
5.8
Once a company has decided which segment(s), it wants to serve it must then
decide on its positioning strategy on which position(s) to occupy in its selected
segments.
Positioning may focus on the company, product, and brand although
positioning works very well on the brand.
TOPIC 5
81
The brands full positioning is called its value proposition the full mix of
benefits on which the brand is positioned.
Positioning is meant to deliver the value proposition that is suitable for each
target market that the company intends to serve.
E.g. Gatorade (Figure 5.13) is targeted at active people experiencing hot and
thirsty situations. The drink is therefore positioned as the best thirst quencher
and replenisher, backed by scientific tests.
82
TOPIC 5
Doyle (1983) describes positioning strategy as: The choice of target market
segment which describes the customers a business will seek to serve and the
choice of differential advantage which defines how it will compete with rivals in
the segment.
The positioning strategy is the combination of marketing mix strategies used to
show the desired positioning to its customers. It is how the company uses the
four Ps: product, price, distribution and promotion to map out and communicate
a clear position in the marketplace.
Positioning effectiveness considers how well this position equals to buyers own
perception of the product/brand itself. It is important that the positioning
strategy meets buyers value preferences.
Market segmentation
Positioning concept
Market segment
Positioning effectiveness
Mass-customisation
Value proposition
Micro segmentation
Variety-seeking strategy
TOPIC 5
83
84
TOPIC 5
Books
Cravens, D., & Piercy, N. (2006). Strategic marketing. (8th ed.). New York:
McGraw-Hill/Irwin, Chapter 4.
Kotler, P. (1997). Marketing management analysis, planning, implementation,
and control. (9th ed.). Prentice-Hall International: Englewood Cliffs, NJ,
Chapter 6.
Journals
Brooksbank, R. (1994), The Anatomy of Marketing Positioning Strategy,
Marketing Intelligence & Planning, Volume 12, Number 4, pp 10-14.
Lin C. F. (2002), Segmenting customer brand preference: demographic or
psychographic, Journal of Product & Brand Management, Volume 11,
Number 4, pp 249-268.
Kara, A., & Kaynak, E. (1997), Markets of a single customer: exploiting conceptual
developments in market segmentation, European Journal of Marketing,
Volume 31, Number 11/12, pp 873-895.
Topic Strategic
Brand
Management
LEARNING OUTCOMES
By end of this topic, you should be able to:
1.
2.
3.
4.
5.
6.
INTRODUCTION
Companies produce a portfolio of products and services. These products and
services are revenue earners and profit generators for the companies. In a world
of intense competition amidst the onslaught of globalisation, we are beginning to
see the commoditisation of these products and services. Just look at
telecommunication services how do we choose between Maxis and other
telecommunication providers like Celcom and DiGi? Or computers can we
really differentiate between Panasonic and Lenovo (Figure 6.1)? Or banking
services what separates Maybank from CIMB, Public Bank, AmBank and EON
Bank? When you remove the brand name can you identify and differentiate
all these products?
86
TOPIC 6
I dont think so. We will be hard-pressed to answer the above questions because
the truth of the matter is that it is branding that provides us with some degree of
differentiation.
Brands therefore add value to a basic product or service.
Figure. 6.1: Does it matter if we switch the brand names in these two ads?
Therefore, the exercise in branding is a continuous affair that aims to identify the
products of one company, and to differentiate them from those of other
competing companies.
This chapter on strategic brand management examines the challenges in
building strong brands.
6.1
TOPIC 6
87
6.2
A strategic brand approach expects the company to be very clear about what role
brands play for the company in developing customer value and also shareholder
value. An understanding of this expectation will determine the brand
investments that are needed to direct and sustain the companys portfolio of
products.
Berthon, Hulbert & Pitt (1997) promoted one approach that makes distinctions
between the functions of brands for both buyers and sellers.
For buyers, brands can:
(a)
(b)
Assist to reduce the perceived risk that buyers take when they purchase a
product by providing an assurance of quality.
(c)
Assist to reduce the social and psychological risks associated with buying,
owning and/or using the product, by being able to transfer psychological
benefits such as prestige and status.
(b)
TOPIC 6
88
(c)
(d)
(e)
Promote premium
competitors.
(f)
pricing
by
differentiating
themselves
from
its
ACTIVITY 6.1
Proton is a Malaysian automobile brand. Consider Berthon, Hulbert &
Pitts (1997) distinctions between the functions of brands for both
buyers and sellers, relate these directly to the Proton brand in
determining their validity and/or relevance.
6.3
BRAND EQUITY
Brand equity is a set of brand assets and liabilities linked to a brand, its name,
and symbol that add or subtract from the value provided by a product or service
to a firm and/or to that firms customers (Aaker, 1991, p 15).
These assets which affect brand equity include
Proprietary brand assets (e.g. Protons patent for the Campro engine).
TOPIC 6
89
Increases cash flow by the brand increasing sales and expanding market
share, allowing for premium pricing, and even redoing promotional costs.
(b)
(c)
Therefore, brand equity is all about the worth of brand names. Top brands (e.g.
Coca-Cola, Microsoft, Toyota, and GE) have high net worth because of three
reasons:
(a)
(b)
(c)
Successful brands are well-established and normally, they have long life
spans and therefore, they will contribute higher returns to their respective
companies. These old brands include Coca-Cola, Kellogg, Eveready and
Gillette among others.
ACTIVITY 6.2
Identify two Malaysian companies that you believe have high brand
equity. Why do you suggest so? Give reasons to support your answer.
How does having high brand equity help them compete against
competing companies?
6.4
BRAND IDENTITY
90 X
TOPIC 6
Some examples:
(a)
(b)
1901 (Figure 6.4) is a hotdog franchise, whose name refers to the year the
term hotdog was coined in the United States. Yet it is a home-grown
business, with ambitions to compete with the likes of McDonalds, A&W
and others in the fast-food industry. Its tagline Food for friendship says a
lot about this brand, as it aims to become a friendship icon via its products,
conduct and aspirations. The 1901 website proclaims: We are famous for
our hotdogs, but the food we sell is merely a vehicle. What we actually offer
is a celebration of friendship and a sense of togetherness. (www.1901.com,
16 November 2007)
TOPIC 6
91
(c)
92
TOPIC 6
Therefore, a brands identity means the sum of all the ways a (brand) chooses to
identify itself to all its publics (Marguiles, 1977, p 66). Another way of putting it
is How marketers want the brand to be perceived.
SELF-CHECK 6.1
Take a brand such as Proton describe the ways in which Proton
chooses to identify itself to the public.
6.5
BRAND IMAGE
Brand image is defined as the set of beliefs held about a particular brand
(Kotler, 1988, p 197). Or another way of putting it is that image is the perception
of the (brand) by these publics (Marguiles, 1977, p 66).
The term "brand image" became popular when it was evident that the feelings
and images associated with a brand are powerful purchase influencers, through
brand recognition, recall and brand identity. It is based on the proposition that
consumers buy not only a product (here we see the product as a commodity), but
also the image associations of the product, such as power, wealth, lifestyle, and
most importantly identification and association with other users of the brand.
Brand images come to mind when we start asking consumers the first
words/images that come to their mind when a brand is called (we can refer this
to "top of mind"). When responses are significantly variable, or there are no
responses, or responses are directed toward non-image attributes such as cost
this is an indicator of a weak brand image.
When I think of AirAsia, the first sentence that comes to mind is now everyone
can fly, suggesting affordability. Another is the colour red (Figure 6.6) that is
used to identify AirAsia this signifies (positive) aggression, in the sense that it is
a very competitive organisation, daring to confront market challenges in order to
win business.
TOPIC 6
93
Figure 6.6: Brand image can be reinforced by brand communications such as advertising
In fact, brand image has been argued to be the key to answer the question of
how the consumer chooses among alternative brands (Ataman & Ulengin, 2003,
pp 237-250).
SELF-CHECK 6.2
Take a brand such as DiGi how does its brand image address the
question of how consumers choose among alternative brands?
6.6
MANAGING BRANDS
Marketing proficiency/skills.
(b)
Product quality.
TOPIC 6
94
(c)
The evidence suggests that choosing and implementing good brand strategies
pays off. Cravens & Piercy (2006) mention that research findings have
demonstrated that the top brands in many product categories are at least 50
percent more profitable than their nearest competitors (p 280).
6.6.1
These include decisions for each product, product line, and the product portfolio.
Once we know that there is a need to change the strategy for an existing product,
we can examine the following options for responding to this situation:
(a)
Additions to the product line This means adding a new product to the
existing product line. For instance, Proton added new models after its first
model, Proton Saga, was launched such as Persona, Satria Neo and Savvy.
Additionally, a strong performing brand may permit the company to
leverage its strengths by adding a new related line or product category. For
instance, Proton went into bikes, both the mountain bike and road bike
varieties (Figure 6.8).
TOPIC 6
95
(b)
Cost reduction Low costs can give a company a major advantage over its
competitors. For example Proton Saga, the first model to be launched in the
mid 1980s continues to bring in sales, even in 2007 because of its low pricing
and the over-the-top success of the SAGA Merdeka promotion (Figure 6.9):
Figure 6.9: The basic Proton only requires a monthly repayment of RM248
96
(c)
TOPIC 6
(d)
TOPIC 6
97
(e)
(f)
6.6.2
98
(b)
TOPIC 6
(c)
TOPIC 6
6.6.3
99
Established and well-known brand names can introduce other products by using
their names and linking the new products to the existing brand name(s).
The primary benefit is instant brand recognition for the new product. The
strategies used to capitalise on this form of brand leveraging are:
(a)
(b)
100
(c)
TOPIC 6
(e) Licensing This strategy involves selling the core brand name to
another company for use on a non-competing product. E.g. PepsiCo
employees licensing as a strategic tool to enhance and build the
identification of the brand and generate additional revenue stream the
use of the Pepsi logo on young mens and womens apparel is intended to
reflect the lifestyles of Pepsi drinkers (BusinessWeek, 10 September 2001,
p 84). The main disadvantage is that the licensee may create an
unfavourable image for the core brand.
TOPIC 6
SELF-CHECK 6.3
Consider the following brand extensions and evaluate how well the
brands associations fit the new product: Proton extending from cars
into batteries; HELP extending from education into management
consultancy; and 1901 extending from hotdogs into breakfast cereal.
ACTIVITY 6.3
Take a brand such as Milo investigate and explain why it is so
successful in Malaysia. Is it likely to continue to be a success in the
future? Why?
6.7
GLOBAL BRANDS
102
TOPIC 6
SELF-CHECK 6.4
Can you name any Malaysian brands that can be considered as global
brands? Support your answer(s).
6.8
INTERNET BRANDS
It has been noted that successful online brands are adopting brand strategies that
depend on the traditional, offline forms of communications (Cravens & Piercy,
2006, p 286). E.g. the career website, Monster.com (Figure 6.16) makes successful
use of sponsoring the halftime report at the Super Bowl backed by advertising
spots in the pre-game and during the game. Monsters target is men and women
aged 18 to 49, and the Super Bowl gives excellent coverage, which coincides with
that time of the year when people are normally thinking of changing jobs
(Marketing News, 01 May 2004, p 6).
TOPIC 6
SELF-CHECK 6.5
Can you identify any Malaysian online brands? Are they similarly
adopting the traditional, offline brand strategies or are they different?
Explain.
6.9
Managers are today concerned with the system or network of brands in the
portfolio. Each brand should contribute to the portfolio as well as benefitting
from it. The goal should be to coordinate strategies across the system rather than
managing each brand independently.
According to Aaker (2004), The brand portfolio strategy specifies the structure of
the brand portfolio and the scope, roles and interrelationships of the portfolio
brands. The goals are to create synergy, leverage, clarity within the portfolio and
relevant, differentiated, and energised brands.
A key concept that guides the management of the brand portfolio is that
individual brands play different roles in this system. One brand may take on a
leading role, whereas other brands in the system play supportive roles.
SELF-CHECK 6.6
Discuss the underlying logic of managing brand systems.
104
TOPIC 6
And it also looks at global brands and Internet brands and their relevance in
todays business landscape.
Brand
Brand image
Brand equity
Co-branding
Brand identity
Product
TOPIC 6
QUESTION
Branson uses the same Virgin brand name for all of his diverse businesses.
What is the underlying logic of this strategy? Do you agree or disagree
with this approach notwithstanding that Branson has achieved major
success thus far?
106
TOPIC 6
Books
Aaker, D. (1996). Building strong brands. New York: The Free Press.
Aaker, D. (2004). Brand portfolio strategy. New York: The Free Press.
Aaker, D., & Joachimesthaler, E. (2000). Brand leadership. New York: The Free
Press.
Cravens, D., & Piercy, N. (2006). Strategic marketing. (8th ed.). New York:
McGraw-Hill/Irwin, Chapter 9.
Journal
Leiser, M. (2004), Understanding brands value: advancing brand equity tracking
to brand equity management, Handbook of Business Strategy, Volume 5,
Number 1, pp 216-222.
Reports
Berthon, P., Hulbert, J., & Pitt, L.(1997), Brands, Brand Managers and the
Management of Brands: Where To Next? Boston, MA : Report No. 97-122,
Marketing Science Institute.
Topic
New Product
Strategies
LEARNING OUTCOMES
By end of this topic, you should be able to:
1.
2.
3.
4.
5.
6.
INTRODUCTION
We have read in the preceding chapter that companies are willing to spend
millions to create market dominance through branding. This is especially so
when we talk about dominating existing product categories.
But as rapid change comes upon us and markets become even more dynamic and
competitive, companies must now look beyond their present product portfolio.
As Stalk, Evans & Shulman (1992, p 62) point out: Dominating existing product
segments becomes less important than being able to create new products and
exploit them quickly.
It is becoming very obvious that it is not just marketing, but that innovation is
recognised as the other key platform that enables an organisation to establish and
maintain a competitive edge over the other market players and thereby, to also
108
TOPIC 7
7.1
Here we will consider four issues concerning the marketing of new products.
7.1.1
The first and most fundamental issue that we must clarify is the meaning of new
product.
Management consultants Booz, Allen and Hamilton (BAH) (1982) argue that a
new product can be considered along two dimensions newness to the market
and newness to the company.
TOPIC 7
109
(b)
(c)
(d)
(e)
(f)
110
7.1.2
TOPIC 7
The choice of market-entry timing is one of the major reasons for new product
success or failure (Hopkins & Bailey, 1971; Crawford, 1977; Booz, Allen &
Hamilton, 1982).
Where products are being developed for new markets or new market segments,
should the organisation be a pioneer and take first-mover advantage, or should it
be a follower or even a late entrant?
Market entry timing decisions are not so easy to arrive at. The organisation will
need to evaluate the many internal and external conditions affecting it before
deciding whether to enter a market with a new product (Lieberman and
Montgomery, 1991).
The decision to enter a market should be timed to balance the risks of premature
entry (entry that is too early) and the issue of missed opportunities (entry that is
too late).
7.1.3
The third issue is to examine why some new products succeed and others fail.
A popular generalisation is the fact that fewer than 10% of all new
products/services produce enough return on the company's investment to
survive past the third year. In fact, a 1994 study conducted by Kuczmarski &
Associates indicated that new products/services fared better it reported a 56
percent success rate (for new products/services).
So why do some products succeed while others fail?
These are many reasons but the following is a checklist of a number of possible
causes:
(a)
TOPIC 7
111
(b)
(c)
112
TOPIC 7
overturn when a tyre blew out due to detaching of the tyres threads. At the
same time, the Explorer was also accused of having design faults that,
together with the tyre problem, could prove a fatal combination for the
driver.
(d)
(e)
Overestimation of Market Size In 1982, Atari, the licensee for the Pac-Man
video game console (Figure 7.6) rights, created twelve million cartridges of
the Atari 2600, the highly-popular Pac-Man arcade game in hopes of huge
sales. Atari did sell close to seven million cartridges, but consumers and
TOPIC 7
113
critics alike gave it low ratings. The game was rushed to make the 1982
Christmas season but the high number of unsold units (over 5 million),
coupled with the expense of a large marketing campaign, led to large losses
for Atari. Shortly after the disappointment of Pac-Man, Atari reported a
huge quarterly loss, prompting parent company, Warner Communications
to sell the division off in 1984.
(f)
114
TOPIC 7
(g)
(h)
Price too high or too low McDonalds 1996 introduction of the Arch
Deluxe Burger (Figure 7.8) was the result of its wish to market McDonalds
fine cuisine to the adult demographic. Unfortunately, adults werent
interested in paying significantly more for slightly different burgers.
(i)
TOPIC 7
7.1.4
115
Time to Market
SELF-CHECK 7.1
Can you name three Malaysian products which have failed in the
marketplace? Why do you consider them as product failures? Also
identify the reason(s) for the failure(s).
7.2
116
TOPIC 7
Lets briefly examine the steps in this new-product development process (Figure
7.9):
(a)
(b)
Idea generation: Finding promising new ideas is the starting point in the
new-product development process these ideas can come from customers,
suppliers, employees, competitors, own R&D laboratories, external
inventors, acquisitions and other value-chain members.
(c)
TOPIC 7
117
and viable from a purely economic standpoint. The purpose of this stage is
to get rid of as many of the unpromising ideas as quickly as possible before
the company has invested in huge sums of time, effort and money.
(d)
Business analysis: Before the product idea goes into the product
development stage, a P&L for developing and commercialising the new
product is to be undertaken. Financial projections that map out cost and
revenue forecasts are important for the company to help it decide on
whether to proceed as well as basing on the expected return on
investment and the time span taken to yield this return.
(e)
(f)
(g)
Testing: Once the product is deemed ready, then we will need to embark on
market testing. Market tests measure customer response to the new product
and even evaluate the positioning strategy assigned to the product. This
method of market testing introduces the new product under actual market
conditions in one or more test cities.
(h)
7.3
INNOVATION SUCCESS
118
TOPIC 7
(a)
TOPIC 7
119
(c)
(d)
120
TOPIC 7
SELF-CHECK 7.2
After reading this section and in your own words, how would you
define innovation success?
SELF-CHECK 7.3
Discuss whether your organisation fulfils the four criteria that define
innovation success.
7.4
Although this statement itself can provoke debate, there are those who believe it
to be a truism: That innovation will supplant cost reduction and mergers and
acquisitions as the competitive battleground in the near future. In fact, a BAH
study had claimed that ninety percent of executives believe that the introduction
of new products and services is crucial to an organisations profitability (Visions,
March, 2007).
So, how do we locate these innovations? Many companies have been focusing on
tighter control of the innovation process and innovation costs.
Innovation success does not come about from just the analytical rigours of the
innovation process. In fact, it is very necessary to balance this rigour of the
control regime with a softer side that includes creativity, curiosity, pattern
recognition, cultural sensitivity, leadership, agility and transforming itself into a
learning organisation.
Dehoff & Jaruzelski (2007) identify this approach as the Intelligent Innovation
model and they believe strongly that this is the only way that companies can
hope to exploit the four major sources of advantaged innovation, as illustrated
below (see Figure 7.11):
TOPIC 7
W 121
(a)
Customer Insight
Procter & Gamble obtains valuable customer insight by keeping many
channels open to gather information about and from customers, and convey
this information widely throughout the organisation. They also provide
opportunities for customers to participate directly in the innovation
process.
(b)
Future Foresight
Progressive companies do engage in scenario planning, yet, few use it to
drive Intelligent Innovation. Identifying tomorrows market opportunities
and risks is not anybodys solo effort but it requires working in concert with
senior management to evaluate the strategic and tactical implications of
market trends, and then sharing this information with everyone in the
organisation. For example, Siemens drew pictures of the future to
discover market opportunities and create a roadmap for its R&D strategy.
(c)
Innovation Organisation
Not many organisations recognise the tremendous innovation potential
residing in an organisations employees. Intelligent innovators such as 3M
have developed key principles and install them into their organisations
DNA to unlock this potential. These principles must include senior
managements commitment to innovation as a corporate philosophy,
122
TOPIC 7
Global Network
Whilst innovation can be nurtured in both centralised and decentralised
organisations, it is generally accepted that the former, especially those with
a headquarters knows best mentality are at a disadvantage. Intelligent
innovators know how to leverage knowledge that may be dispersed across
the globe, and that may be either inside or outside the
organisation. Intelligent innovators integrate each site or partner into a
seamlessly managed innovation network. E.g. When General
Electric entered the wind energy market, it put together a team of people
from not just USA, but also from Canada, Germany, India and China to
develop an energy-generating equipment (Visions, March, 2007).
Although the four Sources of Intelligent Innovation model is particularly
suitable in industries these include high technology, pharmaceuticals,
automotive, and consumer goods, among others where growth through
innovation is critically important, in truth, innovation is applicable for all
industries.
TOPIC 7
123
SELF-CHECK 7.4
1.
2.
3.
Does your own organisation practise any one, if not all of the four
Sources of Intelligent Innovation? Explain.
7.5
Whilst we recognise the many bountiful benefits that come from new products,
questions have been raised about on whether continuous and faster product
innovation can be reconciled with ethical business practice? What about
innovations that not only provide no tangible benefit to consumers but may even
bring harm? After all, all this while we have been assuming that new products
bring only positive benefit to consumers and to society in general.
It is not just a question of the marketplace being littered with product failures,
but it is not uncommon to also see products that failed because they are defective
and/or dangerous. A case in point is Nintendos Virtual Boy (Figure 7.12) the
first portable game console capable of displaying true 3D graphics. Released in
July 1995 in Japan and then in North America in August of the same year it met
with poor sales, and the product was discontinued barely a year later. Most
parties blamed the failure to issues related to players getting eye strain and
headaches when trying to play it.
124
TOPIC 7
TOPIC 7
125
which is itself a threat to the freedom of the individual to make an informed and
free choice.
As Giaretta (2005) have said that the challenge to the businesses of the future will
therefore be to embrace slow haste to proceed at a pace that is in harmony
with the needs of the multifarious voices speaking to the business (es).
SELF-CHECK 7.5
Do you think the concept of slow haste makes sense in todays
world of unrelenting innovations, or do you think consumers want as
many product innovations as they can get, without considering the ill
effects? Explain.
We use the BAH Model and look at the six categories of new products,
consider market-entry timing, examine the reasons for new-product failures
and time to market.
Also we know there is no one single formula for success in innovation and a
study of high-leverage innovators came up with four criteria of innovation
success: strengths in the innovation value chain, involvement of senior
management in the innovation process, close attention to end-user input and
feedback, and flatter and more responsive management structures.
126
TOPIC 7
Consumerism
Programmed obsolescence
Intelligent Innovation
Slow haste
Time to market
Product innovation
TOPIC 7
127
128
TOPIC 7
"For every 10 new products developed only one or two are launched, and
probably half of those fail.
Of course the deciding factor for the success rate of a product is how well
it sells.
"It's much harder to innovate now than it was four years ago," says
Helen.
But with the average product life cycle only 18 months, it means that
people like Seaneen will be kept busy for some time to come.
Source: Lunch Lesson 12 New product development, BBC News, 27
November 2002
QUESTIONS
1.
2.
Books
Cooper, R.G. (2000). Product leadership: Creating and launching superior new
products. Cambridge, MA.,: Perseus Books
Cravens, D., & Piercy, N. (2006). Strategic marketing. (8th ed.). New York:
McGraw-Hill/Irwin, Chapter 8.
Rainey. D. (2005). Product innovation. New York: Cambridge University Press
Online
Dehoff, K. & Jaruzelski, B. (2007), Heres what high-leverage innovators do
differently, Visions, PDMA, March, at webpage http://www.pdma.org/
visions/march07/npd-trends-booz.php, retrieved 25 November, 2007.
TOPIC 7
129
Jaruzelski, B., Dehoff, K., & Bordia R. (2007), Smart Spenders: The Global
Innovation
1000,
Visions,
PDMA,
March
at
webpage
http://www.pdma.org/visions/march07/npd-trends-booz.php, retrieved
05 December, 2007.
Kotelnikov,
V.,
New
Product
Development
at
webpage
http://www.1000ventures.com/business_guide/new_product_developme
nt.html, retrieved 25 November 2007.
Journals
Giaretta, E. (2005), Ethical product innovation: in praise of slowness, The TQM
Magazine, Volume 17, Number 2, pp 161-181.
Lilien, G. & Yoon, E. S. (1990), The Timing of Competitive Market Entry: An
Exploratory Study of New Industrial Products, Management Science,
Volume 36, Number 5, May.
Salavou, H. (2002), Profitability in market-oriented SMEs: does product
innovation matter? European Journal of Innovation Management, Volume
5, Number 3, pp 164-171.
Shepherd, C. & Pervaiz, A. (2000), From product innovation to solutions
innovation: a new paradigm for competitive advantage, European Journal
of Innovation Management, Volume 3 Number 2, pp 100-106.
Topic
Pricing
Strategy and
Management
LEARNING OUTCOMES
By end of this topic, you should be able to:
1.
2.
3.
4.
5.
INTRODUCTION
From a marketers perspective, the price is what the consumer is willing to pay
for the value of the good or service that is being offered. And the value of the
resources and efforts put in by the company to produce this good or service
represents the price that it is willing to charge the consumer. In this respect, price
serves an economic function and it becomes a monetary exchange of value.
Price is therefore, an important strategic issue because it has a direct impact on a
companys profitability.
In understanding the concept of value, we should remember that price is the
value placed on what is exchanged. Price represents the value at which the seller
is prepared to exchange and the value at which the customer is prepared to
purchase in a transaction. Something of value, usually buying power (expressed
in monetary terms), is exchanged for satisfaction or utility.
TOPIC 8
Still, it is worth remembering that with price, the focus should be on the
customer, not the company. If the customer does not buy nothing else matters
whether it is the companys cost structure, sales/market share goals, and so on.
Therefore, the price represents what the consumer is willing to pay in order to
gain the value of the product or service. When the consumer is making this
sacrifice, then we can see how important this marketing mix is. This is because
price is the only P which is a revenue generator; all other Ps are cost drivers.
Also, it can be said that price, like the other marketing programme components,
is a means of generating market response although price can be deployed much
faster than other marketing mix components (Figure 8.1).
Two significant patterns are evident in the use of pricing as a strategic variable.
Firstly, companies are designing far more flexibility into their pricing strategies in
order to cope with changing conditions in a challenging business environment.
Secondly, price is used as an active rather than a passive element of corporate
and marketing strategies.
132
8.1
TOPIC 8
8.1.1
Positioning
TOPIC 8
8.1.2
Demand Curve
The law of demand states that, if everything else remains equal, then the higher
the price, the lower the quantity demanded; consequently, the lower the price,
the higher the quantity demanded. The quantity of a good that
buyers/consumers purchase at a higher price is less because as the price of a
good goes up, so does the opportunity cost of buying that good; and vice versa.
What this means is that people will naturally avoid buying a product that will
force them to give up the consumption of something else that they value more.
If you wish to spend your time and money to watch a movie on a free Saturday,
you obviously cannot spend that time at home reading this module, and you also
cannot spend the money on something else. If your next-best alternative to seeing
the movie is reading this module, then the opportunity cost of seeing the movie is
the money spent (i.e. the cost of a movie ticket) plus the knowledge you have to
forgo by not reading the book during your limited spare time.
This demand curve (Figure 8.3) is helpful because it demonstrates that at say, $A,
A1 quantity will be demanded; at $B, B2 quantity will be purchased, and so on. In
other words, price affects demand.
8.1.3
Cost of goods sold refers to the costs that go into manufacturing the products that
a company sells; therefore, the actual costs calculated are those that are
directly associated to the manufacture of the products. This cost is the cost of the
materials used in producing the good along with the direct labour costs used to
134
TOPIC 8
produce the good, but excludes indirect expenses such as distribution costs and
costs for salespeople.
For instance, the cost of goods sold for Proton (Figure 8.4) would include
the material costs for the parts that go into making say, Proton Saga, along with
the labour costs used to put this car together. The cost of sending the cars to
dealerships and the cost of the labour used to sell the car would be excluded.
8.1.4
Environmental Factors
Here, we will have to examine the external factors that can influence price.
Consider whether there are political and/or legal issues governing the setting of
prices (e.g. Price controls on essential goods like flour and cooking oil); and
competitors actions and how they affect you (e.g. Will a price reduction trigger a
price war with your competitors?) are just two issues to contemplate.
SELF-CHECK 8.1
Considering Peroduas and Protons prices for its range of cars, what
are the likely environmental factors that play a role in influencing
their prices? Elaborate in relation to what you have learnt about
pricing.
TOPIC 8
8.2
PRICING OBJECTIVES
Gain market position Low prices to gain sales and market share can be a
popular and even useful objective for many companies. Perodua has seen
increasing sales and improving market share because prices for its models
are generally seen as comparatively low.
(b)
(c)
(d)
136
TOPIC 8
Figure 8.5: This advertisement creates awareness of the Suzuki T-500 by highlighting both
price and durability
(e)
TOPIC 8
SELF-CHECK 8.2
With regard to the two Proton models, the Persona and the Saga
what do you think are the companys pricing objectives? Do you think
the company will or has achieved its objectives?
ACTIVITY 8.1
Check out the prices of food items in KFC and Marrybrown. Discuss
the role of price in the marketing strategy for KFC. Compare
Marrybrowns pricing strategy with KFCs strategy in respect to
objectives.
8.3
CALCULATING PRICE
Once we are clear about what we intend to achieve, we are now ready to take a
look at methods used to calculate price, as described below:
(a)
(b)
Target return pricing Set your price to achieve a certain target return-oninvestment (ROI). Lets assume that you have $10,000 invested in the
business. Your expected sales volume is 1,000 units in the first year. You
want to recover all your investment in the first year, so you need to make
$10,000 profit on 1,000 units, or $10 profit per unit, giving you again a price
of $70 per unit.
(c)
Value-based pricing - Set the price of your product based on the value it
creates for the customer. If it is a viable proposition, value-based pricing is
definitely the most profitable form of pricing, if you can achieve it. The
most extreme variation on this is "pay for performance" pricing for services,
in which you charge on a variable scale according to the results you
138
TOPIC 8
achieve. Let's say that your product above saves the typical customer $1,000
a year in, say, energy costs. In that case, $70 seems like a bargain maybe
even too cheap. If your product reliably produced that kind of cost savings,
you could easily charge $200, or more for it, and customers would gladly
pay it, since they would get their money back in a matter of months.
(d)
(ii)
Popular price points There are certain "price points" (specific prices)
at which people become much more willing to buy a certain type of
product. For example, a popular price-point is "under $100". Meals
under $5 are still a popular price point, as are entree or snack items
under $1 (see Figure 8.6 and 8.7). It may seem that dropping your
price to a popular price point might mean a lower margin, but if it is
well accepted, the increase in sales can more than offset the lower
margins.
Figure 8.6: This US promotion from the Del Tacos Macho value menu
promoting seven items for under $1
Source: http://www.foodfacts.info/blog/2007/10/del-tacos-machovalue-menu.html, retrieved January 27, 2008.
TOPIC 8
Figure 8.7: Taco Bells focus on its Big Bell Value Menu
Source: http://www.usatoday.com/money/industries/food/2006-01-11-valuemenu-usat_x.htm, retrieved January 27, 2008.
(iii)
Fair pricing Sometimes it doesn't really matter what the value of the
product is, even if you don't have any direct competition. There is
always a limit to what consumers perceive as "fair", and are prepared
to pay. If it's obvious that your product only cost $20 to manufacture,
even if it delivered $10,000 in value, you'd have a hard time charging
two or three thousand dollars for it people would just feel like they
were being cheated. Market testing will help you determine the
maximum price consumers will perceive as fair.
Pricing is a tricky business. Like all businesses, we are entitled to make a fair
profit on our product(s), and even bigger profits if we create value for our
customers. But it is worth remembering that something is ultimately worth only
what someone is willing to pay for it.
Methods for calculating price is summarised in Figure 8.8:
140
TOPIC 8
SELF-CHECK 8.3
Considering the impact of psychological pricing, provide a local
example that illustrates each of the three components.
8.4
Once we have completed the above, we can begin to develop a pricing strategy
for a product or category of products, whether for current or new products. We
will choose current because the market dynamics may have changed so much
that prices of current products need to be re-visited, and possibly re-aligned to
match the changed market conditions. However, new will be chosen because
determining the correct price for a new product may either help a new product to
survive and prosper, or may doom the product to failure.
Prior to developing pricing strategies, marketers need to begin analysing
customer price sensitivity, cost, competition, product substitution, and even legal
and ethical considerations. These analyses will indicate the extent of pricing
flexibility, by identifying the price band between cost and potential demand for
the good or service being analysed.
Cravens & Piercy (2006, p 331) contends that the pricing strategy selected
depends on how the companys management decides to position the product
relative to competitors products, and also whether price performs an active or
passive role in the marketing programme.
Whether a price is classified as active or passive in turn depends on whether a
company highlights pricing in its advertising and promotion.
An examination of the five pricing strategies:
(a)
(b)
TOPIC 8
(c)
(d)
142
TOPIC 8
(e)
TOPIC 8
ACTIVITY 8.2
Check out the prices of food items in KFC and Marrybrown. Check
out the prices of food items in KFC and Marrybrown. Discuss the role
of price in the marketing strategy for KFC. Compare Marrybrowns
pricing strategy with KFCs strategy in respect to objectives.
Compare Marrybrowns pricing strategy with KFCs strategy in
respect to objectives.
We start off by talking about the strategic role of pricing not just as a
revenue generator but that price represents value and used as a means of
generating market response.
You want to select objectives and strategies that will position your product for
business success.
Choosing an objective and strategies that are appropriate for your business at
the current time does not prevent you from changing objectives or employing
different strategies in the future as business dynamics change in an everchanging environment.
144
TOPIC 8
Microsofts drastic price cut for its Xbox comes into effect on Friday.
The UK sees prices for the new games console drop from 300 to 199.
The new price matches Sony's PlayStation 2, the market leader in
Europe and in the rest of the world, although it is more expensive
than Nintendo's GameCube, which launches next week and has
already slashed its price.
A HMV spokesman said that early indications show that Xbox sales
had picked up, but that the weekend would be a better test to see if
public interest had increased after the price cut.
The Xbox was launched in a blaze of publicity in March, but sales
have not met Microsoft's expectations. Last week the firm said that by
the end of June it expects to have shipped 3.5 million to 4 million
Xbox consoles worldwide, down from an earlier estimate of 4.5
million to 6 million.
Game players who bought the Xbox at its original price will be offered
a "thank you" package worth about 110.
Chris Lewis from Microsoft told BBC News Online that the company
is very happy with Xbox's progress so far. He said: "We are in this for
the long term sales and success.
"We are extremely happy with our games. Halo has sold more than a
million units worldwide. But we must remain competitive and this
pricing strategy is about more gamers gaining access to the Xbox."
Official UK Xbox Magazine editor James Ashton said the price cut
shows that Microsoft are serious about gaining a foothold in a
competitive market.
He said: "The fact that Microsoft is selling the games console at a huge
loss shows how determined they are. They will need to make their
money back from selling games.
"I think the big winner here are the gamers.
The games industry is worth $20bn (13.7bn) and the history of
consoles has been littered with expensive failures like Sega's
Dreamcast.
Source: BBC News Online, 26 April 2002.
TOPIC 8
QUESTION
Develop a list of pricing issues faced by Microsoft. Are there arguments
that can be made for avoiding the price-cutting option?
Books
Cravens, D., & Piercy, N. (2006). Strategic marketing. (8th ed.). New York:
McGraw-Hill/Irwin, Chapter 11.
Reed, P. (2003), Strategic marketing planning. Australia: Nelson. Chapter 7.
Online
Allen, S., Pricing Strategy. Retrived from http://entrepreneurs.about.com
/od/salesmarketing/a/pricingstrategy.htm, retrieved January 26, 2008.
Journals
Rowley, J. (1997), Principles of price and pricing policy for the information
marketplace, Library Review, Volume 46, Number 3, pp 179-189.
Topic
Value-Chain
Strategy
LEARNING OUTCOMES
By end of this topic, you should be able to:
1.
2.
3.
4.
5.
INTRODUCTION
The value-chain is basically a network of distribution channels that link valuechain members with end-users.
There are two relevant issues to consider here.
Firstly, the term value-chain is used because the focus of any marketing text
should still centre on the customer. Therefore, value-chain is preferred as a more
appropriate description because we intend to talk about this aspect of the
marketing mix that serves to provide superior customer value. The terms
physical distribution, supply chain management, and logistics that are
usually referred to in most texts, are all part and parcel of the value-chain
described in this chapter.
TOPIC 9
VALUE-CHAIN STRATEGY
147
Secondly, distribution channels are nevertheless still important and they will
remain a pivotal issue in managing the value-chain. A distribution channel that is
efficient and effective provides the organisation with the important means to
reach its target market(s), and as such, it gives this organisation, a strategic
advantage over its competitors. As with other aspects of the marketing mix, a
competitive organisation that resolves to deliver higher quality products and
services will have to first perform its value chain activities better than its
competitors.
This activity of differentiating itself through a value-chain means that the
organisation will have to focus attention on the processes, activities,
organisations, and structures that combine to create value for customers as
products move from their point of origin to the end user (Cravens & Piercy,
2006, p 292).
9.1
148
TOPIC 9
VALUE-CHAIN STRATEGY
Yet, this does not spell the end for third-party operators. Online search engines
can instantly search available flights of any airlines at the lowest fares that are
linked to e-commerce-enabled websites operated by online travel agents (e.g.
Orbitz.com (Figure 9.2) and UKs Expedia.co.uk where we can book our holidays,
find cheap flights and browse through great hotel deals). After all, the Internet is
not just the playground of the worlds airlines. Travel agents and other
companies representing a myriad of industries from cars to music, books to
apparel and banking to flowers have all made full use of the Internet.
TOPIC 9
VALUE-CHAIN STRATEGY
149
SELF-CHECK 9.1
When we talk about Internet shopping, this also includes shopping for
groceries. But unlike other businesses, groceries that are ordered online
must be delivered, generally at a time and place convenient for the
consumer. Also given the nature of the product, especially fresh and/or
frozen items, delivery must be done promptly and with careful control
of temperature and other conditions during shipment.
This then produces a real and significant fixed cost per delivery.
Without a sufficient number of items to be delivered, to offer economies
of scope distribution costs can be high.
How does this impact on the consumer as well as on the retailer in them
adopting the Internet as a distribution channel?
9.2
Processing and storage (to break bulk into individual units, maintain
inventory and put together orders for shipment);
Pricing (to set the basis of exchange in the transactions that are occurring);
150
TOPIC 9
VALUE-CHAIN STRATEGY
SELF-CHECK 9.2
List five value-chain activities that make up the distribution function.
9.3
DIRECT DISTRIBUTION BY
MANUFACTURERS
The choice between company distribution to end users and the use of
intermediaries is guided by end user needs and characteristics, product
characteristics, competitive considerations and financial and control
considerations.
(a)
(b)
TOPIC 9
(c)
VALUE-CHAIN STRATEGY
151
(d)
152
TOPIC 9
VALUE-CHAIN STRATEGY
9.4
We will now examine the decisions that are required in developing a channel of
distribution strategy.
These decisions are shown below (Figure 9.5):
TOPIC 9
9.4.1
VALUE-CHAIN STRATEGY
153
The two major types of channels are conventional channels and vertical
marketing systems.
Conventional channels of distribution are a grouping of vertically-linked
independent organisations, each trying to look out for itself, with limited concern
for the total performance of the channel (Cravens & Piercy, 2006, p 298).
These channel relationships are generally informal the focus of the channel
organisations is on the buyer-seller transactions rather than on fostering close
cooperation throughout the distribution channel.
Vertical marketing systems (VMS) can be defined as the channel systems
consisting of horizontally coordinated and vertically aligned establishments that
are professionally managed and centrally coordinated to achieve optimum
operating economies and maximum market impact (MarketingPower.com).
A primary characteristic of the VMS is the management (or coordination) of the
distribution channel by one organisation. This said organisation is in effect, the
channel manager as it programmes and coordinates all channel activities.
There are essentially three types of VMS: ownership, contractual and
administered.
(a)
154
TOPIC 9
VALUE-CHAIN STRATEGY
(b)
TOPIC 9
(c)
VALUE-CHAIN STRATEGY
155
Administered VMS This type of VMS exists because one channel member
can exert considerable influence over the other participants. This may be
due to strong financial clout, well-established brand image, expertise of a
specialised nature (e.g. product innovations). For example, DeBeers (Figure
9.8) not only managed the worldwide distribution of rough diamonds
through its marketing cartel, but since 2000, it has also moved down the
value chain, to participate in the finished jewellery business (Cravens &
Piercy, 2006, p 301).
9.4.2
Distribution Intensity
Distribution intensity is best seen in reference to how many retail outlets (or
dealers, if in an industrial context) carry a particular brand in a specific
geographical area.
There are three forms of distribution intensity:
(a)
156
TOPIC 9
VALUE-CHAIN STRATEGY
(c)
Choosing the right distribution intensity depends on the companys targeting and
positioning strategies as well as product and market characteristics.
9.4.3
Channel Configuration
(b)
TOPIC 9
VALUE-CHAIN STRATEGY
157
SELF-CHECK 9.3
9.5
1.
2.
Once an organisation has done its work and has identified the appropriate
intermediaries it has to sit down to look at managing the channel.
Channel management activities include the following: Choosing how to assist
and support intermediaries, developing SOPs, providing incentives, selecting
promotional programmes and assessing channel results. It must be noted that
these management issues are just as important as the earlier activities since once
established, the channel design may be difficult to modify, or worse, very
expensive to rectify.
We are now going to focus on the individual issues that have an influential
impact on the management of the channel(s):
(a)
TOPIC 9
VALUE-CHAIN STRATEGY
158
(b)
(c)
(d)
(ii)
TOPIC 9
VALUE-CHAIN STRATEGY
159
(g)
160
TOPIC 9
VALUE-CHAIN STRATEGY
(h)
(i)
SELF-CHECK 9.4
What do you believe are the benefits brought about by multichannelling?
TOPIC 9
VALUE-CHAIN STRATEGY
161
SELF-CHECK 9.5
Distribution analysts indicate that costs for supermarkets equal about
98 percent of sales. What influence does this high breakeven level
have on supermarkets diversification into delis, cheese shops,
seafood shops and flowers?
9.6
The value chain consists of the organisation, systems and processes that add
to customer value in moving goods and services to end-users.
162
TOPIC 9
VALUE-CHAIN STRATEGY
Administered VMS
Intensive distribution
Backward integration
Multi-channelling
Contractual VMS
Ownership VMS
Selective distribution
Exclusive distribution
Value-chain
Forward integration
TOPIC 9
VALUE-CHAIN STRATEGY
The husband and wife team of Lawrence Liew and Nancy Chan are
the new names to watch in the international fast food franchising
fraternity. Their rapidly growing Marrybrown Fried Chicken system is
the first Malaysian fast food company to go international via the
franchising system.
The Johor, Malaysia-based company, founded in 1981, now has over
100 company-owned and franchised fast food restaurants in Malaysia,
China, Singapore, Brunei, India and the United Arab Emirates (UAE).
There are 95 company-owned and franchised outlets throughout the
peninsula. Overseas, it has 16 franchises in China, seven in southern
India, two in Brunei, three in the UAE and one in Singapore.
The company had also been negotiating with several parties interested
in becoming master franchisees in Afghanistan, Australia, Cambodia,
Iran, Indonesia, Laos, Myanmar, Russia, South Africa, Thailand and
Vietnam.
According to Liew, the company has laid a five-year programme
starting from this year to open franchised outlets in these places.
"Initially, it is not easy to convince foreigners to take up our master
franchisee deal as they always compare us with the US-based fried
chicken company," Chan said. But at the same time, she said, they
were quite impressed with MarryBrown's overseas expansion
programme since 1986 despite having to compete with the fast food
giants, especially from the US.
Chan said that sealing the contract for the master franchisee was not
just a matter of getting money from the licensee but also included help
finding the right location, recruiting frontline staff, logistics, lining up
the menu and investigating the existing players in the market. She also
went onto say that whenever they were on business trips overseas
they would patronise as many fast food joints as they could, in order
to see what other players were offering to their customers in terms of
pricing and serving portions, and tailor their own offerings
accordingly.
Source: Extracted from article Malaysian Marrybrown Fried Chicken
Goes International, July 2004 by www.FranchiseZ.com, at webpage
http://www.franchiseek.com/Malaysia/news0704_MaryLand_
Chicken.htm, retrieved 03 February, 2008.
163
164
TOPIC 9
VALUE-CHAIN STRATEGY
QUESTIONS
1.
2.
Books
Cravens, D., & Piercy, N. (2006). Strategic marketing. (8th ed.). New York:
McGraw-Hill/Irwin, Chapter 10.
Kerin, R., Hartley, S., & Rudelius, W. (2005). Marketing: The core, McGrawHill/Irwin, Chapter 15.
Pelson, L., Strutton, D., & Lompkin, J. (1997). Marketing channels. Chicago:
Richard Irwin, Chapters 6 & 7.
Articles
Hobbs, M. & Wilson, H. (2004), The Multi-Channel Challenge, Marketing
Business, February, pp 12-15.
Meehan, R. (2000), Create, Revise Channels for Customers, Marketing News, 23
October, p 48.
Topic
10
Communications
Strategies
LEARNING OUTCOMES
By end of this topic, you should be able to:
1.
2.
3.
4.
5.
X INTRODUCTION
Promotion is one of the key four Ps in the marketing mix and it is the last to be
discussed in this module. Although last, it is by no means, less important than the
other Ps; instead it plays a key role in ensuring an organisations market success.
There was this description on promotion marketing from the General Mills
website (www.generalmills.com) which aptly summarises the concept of
promotion marketing:
166
TOPIC 10
COMMUNICATIONS STRATEGIES
Grow sales;
Reinforce customers that the companys brands are still good value;
TOPIC 10
COMMUNICATIONS STRATEGIES W
167
Figure .10.1: An ad that informs prospective customers of the benefit of this 3M product:
that the scotch tape is good (i.e. strong) enough for even Spiderman to depend on!
SELF-CHECK 10.1
Select any two ads from a newspaper or magazine. What
communications objectives do these ads fulfil? Explain.
168
TOPIC 10
COMMUNICATIONS STRATEGIES
TOPIC 10
COMMUNICATIONS STRATEGIES
169
Effectiveness of methods
Internet marketing a 24/7 availability that crosses borders, besides the fact
that this medium is extremely popular in usage.
Typically, organisations will use a combination of these strategies and the type
of strategy that is used, depends on the communication objectives.
Also, the advances in communications technologies have led to more person-toperson contacts meaning, this has placed a heavy focus on establishing a
trusting relationship with the consumer. Hence, the type of communications tools
(in this case, the Internet) being favoured by organisations will witness a seismic
shift e.g. Internet marketing is bound to become much more important in this
century.
Schultz and Schultz (1998) theorise that marketing as a process has gone through
two distinct phases in the past 40 years of so.
170
TOPIC 10
COMMUNICATIONS STRATEGIES
SELF-CHECK 10.2
What effect will the rise in individualism have on marketing
communications?
SELF-CHECK 10.3
1.
2.
Percentage of sales method This is the most common method, where the
promotion budget is set at a seemingly arbitrary percentage (e.g. 3 percent
or 4 percent, or 5 percent at the case may be) of current or expected sales.
There is no rationale in the percentage selected. This method is based on a
false premise that sales cause promotion, rather than the other way round.
Logically, if sales fall, promotion expenditure should be increased to bring
back the customers.
TOPIC 10
COMMUNICATIONS STRATEGIES
171
(b)
Competitive parity This second approach (some texts also refer this as
comparative parity) is to spend the same percentage as the competition. By
matching expenditure, the firm does not lose out, or so we are led to
believe. This creates the illusion of safety in numbers that it is the right
amount to spend because it represents the collective wisdom of the
industry. Still this method does not take into account changes in the
marketplace or even opportunities that may come by.
(c)
(d)
Objective and task approach This method claims to be more scientificbased, meaning it is logic-driven. The company identifies its objectives to be
achieved, then determines the costs and effort required to achieve those
activities. The effectiveness of the objective and task method still relies on
the judgment as well as experience of the marketers. After all, it is rather
difficult to calculate the necessary spending to achieve the said objectives.
(e)
Thus, even if we adopt an objective and task approach, we may start off by
looking at what the competition are spending (competitive parity approach) if
only to determine what is our likely spend.
SELF-CHECK 10.4
What are the important considerations in determining a promotion
budget?
172
TOPIC 10
COMMUNICATIONS STRATEGIES
(b)
(c)
Select the message Decide on the message in terms of content (or copy)
and the appropriate (pictorial) image.
(d)
(e)
the
Some texts suggest a sixth step that is, collecting feedback. Feedback includes
carrying out market research to find out how effective the message was.
A sample of strategies to consider:
TOPIC 10
COMMUNICATIONS STRATEGIES
173
174
TOPIC 10
COMMUNICATIONS STRATEGIES
TOPIC 10
COMMUNICATIONS STRATEGIES
175
Media strategy, on the other hand, refers to how the organisation is going to
deliver their message. Which promotional medium will the company use to
deliver their message strategy? Clearly the company must take into account the
target audience and also the general characteristics of their target audience before
they select their media strategy. What newspapers do their target market read?
What TV programmes do they watch? Which radio station do they tune in?
Effective targeting of their media campaign could ensure cost-effective
promotion.
Decline As the product reaches the decline stage, the organisation will rely
on the strategy of reminding consumers of the product in an attempt to slow
down the inevitable.
176
TOPIC 10
COMMUNICATIONS STRATEGIES
10.4.3
10.4.4
The development of the World Wide Web has changed the business environment
forever. The Dot com landscape has changed the way business is done. The ecommerce model promises to deliver a more efficient way of conducting
business. Shoppers can now purchase from the comfort of their homes 24 hours a
day, 7 days a week, all year round and from anywhere in the world.
Owning a website is a now a crucial ingredient to the marketing mix strategy of
any organisation. Consumers can now obtain instant information on products or
services to guide them in their crucial purchase decision. Sony Japan took preorders of their popular Playstation 2 console over the net, which topped 1 million
after just a few days, European football stars are now issuing press releases over
TOPIC 10
COMMUNICATIONS STRATEGIES
177
the web with the sites registered under their own names and hit rates are
phenomenal.
Arnott & Bridgewater (2002) studied the extent to which organisations are
capitalising on the interactive potential of the Internet. It is this interactive
potential that will spell the difference between success and failure of the
technology in marketing terms, for it holds the power to facilitate and develop
one-to-one long-term relationships with customers on a global scale. This
capability is, as yet, little used since the primary purpose of the Internet is still
used by most people for informational reasons. Transactional functions of the
Internet are increasingly becoming common but again, this is not pervasive. Just
look at the Malaysian websites. If at all, there is some level of marketing
sophistication the use of relationship marketing this is currently limited to
large multinationals that are serving the global marketplace via the Internet.
Dutta and Segev (1999) reinforce our position that organisations have a long way
to go to exploit the potential of the Internet. They divide Internet activity into
three stages:
(a)
(b)
(c)
Business transformation.
According to their data only around one third of firms have reached the second
stage of Internet activity and less than 20 per cent of firms stimulate any
interaction, let alone intra-community interactions.
178
TOPIC 10
COMMUNICATIONS STRATEGIES
The above (Figure 10.8), by no means, represents all the strategies in our arsenal
but that they should be seriously considered when organisations formulate and
execute strategies to compete. These strategies complement the generic strategies
that will be employed, e.g. a public relations strategy, a sponsorship strategy, an
advertising strategy. At the end of the day, if organisations are serious about
long-term sustainability in terms of market share and sales, they are useful. All
too often, businesses focus only on the short- to medium-term granted that if
there is no short- or medium-term, there wouldnt be a long-term. Still, a business
must be brave to have a long-term view in this highly-competitive and extremelycrowded marketplace. Many businesses come and go, but only the daring few
will last for the long haul. Think:
Disney.
Kraft Foods.
PepsiCo.
General Electric.
Nestle.
SELF-CHECK 10.5
What are the main strategic issues that arise for marketers in this
century?
TOPIC 10
COMMUNICATIONS STRATEGIES
179
Explanation
Awareness stage
Planning integration
Integration of content
Formal integration
Intra-organisational integration
Inter-organisational integration
Geographical integration
Integration of publics
180
TOPIC 10
COMMUNICATIONS STRATEGIES
SELF-CHECK 10.6
What are the main advantages and disadvantages of integrated
marketing communications strategies?
This chapter introduced the concept of promotion marketing and relate this to
the overarching subject of marketing communications.
TOPIC 10
COMMUNICATIONS STRATEGIES
personal
selling,
as
well
as
deciding
181
the
Advertising
Personal selling
Direct marketing
Sales promotion
Internet marketing
182
TOPIC 10
COMMUNICATIONS STRATEGIES
TOPIC 10
COMMUNICATIONS STRATEGIES
183
West Country Violins applies the same standards whether the customer is
buying a violin for 200 or one for 4,000. When one Australian customer
visited the store in 2002, the managing director, Brian Ward-Smith,
collected her from the station and dropped her off again afterwards. This
level of customer service has generated amazing loyalty a layperson
might imagine that few violinists would buy violins regularly, but many of
West Country Violins sales are actually repeat purchases, as students
upgrade or as professional musicians add to their range of instruments.
Everyone from beginners to virtuosos, from classical concert violinists to
country fiddle players, has been able to find a suitable instrument at West
Country Violins. As one customer wrote:
Brian is more than a seller of violins, he is a friend to those who are
looking for the right violin.
Brian Ward-Smith comments: Customer satisfaction must remain at the
heart of overall business strategy and weve endeavored to keep this in
mind as we build our website and integrate e-commerce with our business
operations.
Source: Blythe, Jim (2006), Essentials of Marketing Communications, Third
edition, Harlow, Essex: Pearson Education, pp 303-304.
QUESTIONS
1.
2.
3.
184
TOPIC 10
COMMUNICATIONS STRATEGIES
Books
Blythe, J. (2006). Essentials of marketing communications (3rd ed). Harlow, Essex:
Pearson Education
Cravens, D., & Piercy, N. (2006). Strategic marketing. (8th ed.). New York:
McGraw-Hill/Irwin, Chapters 12 & 13.
Doyle, P. (2002). Marketing management and strategy (3rd ed). Harlow, Essex:
Pearson Education. Chapter 9.
Journals
Arnott, D., & Bridgewater, S. (2002), Internet, interactions, and implications for
marketing, Marketing Intelligence & Planning, Volume 20, Number 2, pp
86-95.
Kitchen, P. (1996), Public relations in the promotional mix: a three-phase analysis,
Marketing Intelligence & Planning, Volume 14, Number 2, pp 5-12.
Rowley, J. (1998), Promotion and marketing communications in the information
marketplace, Library Review, Volume 47, Number 8, pp 383-387.
Schultz, D. E., & Schultz, H. E. (1998), Transitioning marketing communication
into the twenty-first century, Journal of Marketing Communications, 4(1),
pp 9-26.
Website
Webpage
http://www.generalmills.com/corporate/careers/promotion_marketing.a
spx, retrieved February 05, 2008.
MODULE FEEDBACK
MAKLUM BALAS MODUL
Should you have any comment or feedback, you are welcomed to:
1.
OR
2.
Thank you.
Centre for Instructional Design and Technology
(Pusat Reka Bentuk Pengajaran dan Teknologi)
Tel No.:
03-27732273
Fax No.:
03-26978702