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Strategic Marketing
1. Imperatives for Market-Driven Strategy 2. Markets and Competitive Space 3. Strategic Market Segmentation 4. Strategic Customer Relationship Management 5. Capabilities for Learning about Customers and Markets 6. Market Targeting and Strategic Positioning 7. Strategic Relationships 8. Innovation and New Product Strategy 9. Strategic Brand Management 10. Value Chain Strategy 11. Pricing Strategy 12. Promotion, Advertising and Sales Promotion Strategies 13. Sales Force, Internet, and Direct Marketing Strategies 14. Designing Market-Driven Organizations 15. Marketing Strategy Implementation And Control

Chapter 1

Imperatives for Market-Driven Strategy

McGraw-Hill/Irwin

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

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Objectives
Pivotal role of market-driven strategy in designing and implementing business/marketing strategies Links between business/marketing strategy and corporate strategy Challenges in the modern environment

Characteristics of a Market-Driven Strategy


Becoming MarketOrientation

Achieving Superior Performance

Determining Distinctive Capabilities

Customer Value/ Capabilities Match

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Market-Driven Strategy (1)


Becoming market-oriented
Customer focus Competitor intelligence Cross-functional coordination Performance implications

BECOMING MARKET ORIENTED


Customer is the focal point of the organization Commitment to continuous creation of superior customer value Superior skills in understanding and satisfying customers Requires involvement and support of the entire workforce Monitor rapidly changing customer needs and wants

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Determine the impact of changes on customer satisfaction Increase the rate of product innovation Pursue strategies to create competitive advantage

Characteristics of Market Orientation


Customer Focus What are the customers value requirements? Competitive Intelligence Importance of understanding the competition as well as the customer Cross-Functional Coordination Remove the walls between business functions Performance Consequences Market orientation leads to superior organizational performances

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Becoming a Market-Oriented Organization


Information Acquisition Cross-Functional Analysis of Information Shared Diagnosis and Coordinated Action Delivery of Superior Customer Value

Market Orientation
Information Acquisition Gather relevant information on customers, competition, and markets Involve all business function Inter-functional Assessment Share information and develop innovative products with people from different function Shared diagnosis and action Deliver superior customer value

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Market-Driven Strategy (2)


Becoming market-oriented
Customer focus Competitor intelligence Cross-functional coordination Performance implications

Determining distinctive capabilities

DISTINCTIVE CAPABILITIES
Capabilities are complex bundles of skills and accumulated knowledge, exercised through organizational processes, that enable firms to coordinate activities and make use of their assets.
George S. Day, Journal of Marketing, October 1994, p.38.

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Southwest Airlines Distinctive Capabilities


Organizational Processes Southwest uses a point-to-point route system rather than the hub-and-spoke design used by many airlines. The airline offers services to 57 cities in 29 states, with an average trip about 500 miles. The carriers value proposition consists of low fares and limited services (no meals). Nonetheless, major emphasis throughout the organization is placed on building a loyal customer base. Operating costs are kept low by using only Boeing 737 aircraft, minimizing the time span from landing to departure, and developing strong customer loyalty. The company continues to grow by expanding its point-to-point route network. Skills and Accumulated Knowledge The airline has developed impressive skills in operating its business model at very low cost levels. Accumulated knowledge has guided management in improving the business design over time. Coordination of Activities Coordination of activities across business functions is facilitated by the point-to-point business model. The high aircraft utilization, simplification of functions, and limited passenger services enable the airline to manage the activities very efficiently and to provide on-time point-to-point services offered on a frequent basis. Assets Southwests key assets are very low operating costs, loyal customer base, and high employee esprit de corps

Capabilities
Disproportionate (higher) contribution to superior customer value

Compelling Logic of Distinctive Capabilities

Provides value to customers on a more cost-effective basis


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

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Capabilities
Desirable Capabilities

Applicable to Multiple Competition Situations Difficult to Duplicate


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

Superior to the Competition

Market-Driven Strategy (3)


Becoming market-oriented
Customer focus Competitor intelligence Cross-functional coordination Performance implications

Determining distinctive capabilities Types of capabilities

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Types of Capabilities
Outside-In Processes Spanning Processes

Inside-Out Processes

Organizations Process
EXTERNAL EMPHASIS Outside-In Processes Spanning Processes
Market sensing Customer linking Channel bonding Technology monitoring Customer order fulfillment Pricing Purchasing Customer service delivery New product/service development Strategy development
Source: George S. Day, Journal of Marketing, October 1994, 41.

INTERNAL EMPHASIS Inside-Out Processes


Financial management Cost control Technology development Integrated logistics Manufacturing/ transformation processes Human resources management Environment health and safety

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Market-Driven Strategy (4)


Becoming market-oriented
Customer focus Competitor intelligence Cross-functional coordination Performance implications

Determining distinctive capabilities Types of capabilities Creating value for customers

Matching Customer Value and Distinctive Capabilities


Value Requirements

Distinctive Capabilities

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CREATING VALUE FOR CUSTOMERS


Customer Value:
Value for buyers consists of the benefits less the costs resulting from the purchase of products.
Superior value: positive net benefits

Creating Value:
Customer value is the outcome of a process that begins with a business strategy anchored in a deep understanding of customer needs.
Source: C. K. Troy, The Conference Board Inc., 1996, 5.

Creating Value for Customers


Customer Value

Benefits

Costs

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Value Composition
Product Services
Employees

Benefits
Value (gain/loss) Costs (sacrifices)

Image
Monetary costs

Time
Psychic and physic costs

Market-Driven Strategy (5)


Becoming market-driven
Marketing sensing capabilities Customer linking capabilities Aligning structure and processes

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Becoming Market Driven


Market Sensing Capabilities

MARKET DRIVEN STRATEGIES

Customer Linking Capabilities

Market Driven Initiatives


Market Sensing Capabilities Effective processes for learning about markets Sensing: Collected information needs to be shared across functions and interpreted to determine proper actions. Customer Linking Capabilities Create and maintain close customer relationships

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Aligning Structure and Processes


Potential change of organizational design Improve existing processes Process redesign Cross-functional coordination and involvement Primary targets for reengineering: Sales and marketing, customer relations, order fulfillment, and distribution

Corporate, Business and Marketing Strategy (1)


What is corporate strategy?

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CORPORATE STRATEGY
Deciding the Scope and Purpose of the Business Business Objectives

Actions and Resources for Achieving Objectives

CHARACTERISTICS OF SUCCESSFUL STRATEGY


Unique competitive position for the company. Activities tailored to strategy. Clear trade-offs and choices vis--vis competitors. Competitive advantage arises from fit across activities. Sustainability comes from the activity system not the parts. Operational effectiveness a given.
Source: Michael E. Porter, What Is Strategy, Harvard Business Review, November-December 1996, 74.

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Corporate, Business and Marketing Strategy (2)


What is corporate strategy? Corporate strategy framework
Deciding corporate vision Objectives Resources Business composition Structure, systems and processes

CORPORATE STRATEGY COMPONENTS


Managements long-term vision for the corporation Objectives Assets, skills, and capabilities Businesses in which the corporation competes Structure, systems, and processes Creation of value
Source: David J. Collis and Cynthia A. Montgomery, Corporate Strategy, Chicago: Irwin, 1997, 7-12.

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Corporate, Business and Marketing Strategy (3)


Business and marketing strategy
Business and marketing strategy relationships Strategic marketing

CORPORATE, BUSINESS AND MARKETING STRATEGY

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Corporate, Business and Marketing Strategy (4)


The marketing strategy process
Markets, segments and customer value
Markets and competitive space Strategic market segmentation Strategic customer relationship management Capabilities for continuous learning about markets

Corporate, Business and Marketing Strategy (5)


Designing market-driven strategies
Market targeting and strategic positioning Strategic relationships Innovation and new product strategy

Market-driven program development


Strategic brand management Value chain strategy Pricing strategy Promotion strategy

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Corporate, Business and Marketing Strategy (6)


Implementing and managing marketdriven strategy
Designing market-driven organizations Marketing strategy implementation and control

MARKETING STRATEGY PROCESS


Markets, Segments And Value Implementing and Managing Market-Driven Strategy Market-Driven Program Development Designing Market-Driven Strategies

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Challenges in the modern environment


Escalating globalization Technology diversity and uncertainty The Web 2.0 Ethical behavior and corporate social responsiveness

Strategic Marketing Planning


Developing the strategic plan for each business
Preparing the marketing plan
Planning relationships and frequency Planning considerations
Responsibility for preparing plans Planning unit

Preparing the marketing plan

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MARKETING PLAN OUTLINE


I. Strategic Situation Summary
Summarize the key points from your situation analysis (market analysis, segments, industry/competition) in order to recount the major events and provide information to better understand thestrategies outlined in the marketing plan.

II.

Market-Targets and Objectives

The market target may be defined demographically (key characteristics only), geographically, or in social/economic terms. Each market target should have needs and wants that differ to some degree from other targets. These differences may be with respect to types of products purchased, use situation, frequency of purchase, and other variations that indicate a need to alter the positioning strategy to fit the needs and wants of each target. An objective is a quantified goal identifying what is expected when. It specifies the end results expected. The objectives should be written for each target market. Objectives should also be included for the following program components: (1) product, (2) price, (3) distribution, (4) promotion (salesforce, advertising, sales promotion, and public relations), and (5) technical services.

MARKETING PLAN OUTLINE


III. Positioning Statements
Write statements that describe how you want each market target to perceive each product relative to competition. State the core concept used to position the product (brand) in the eyes and mind of the targeted buyer. The positioning statement should describe: (1) What criteria or benefits the customer considers when buying a product along with the level of importance, (2) What we offer that differentiates our product from competition, and (3) The limitations of competitive products.

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IV. Market Mix Strategy for Each Market Target


A. Product Strategy
Identify how each product fits the market target. Other issues that may be addressed would be new product suggestions, adjustments in the mix of existing products, and product deletion candidates.

B.

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

C.

Distribution Strategy
Describe specific distribution strategies for each market target. Issues to be addressed are intensity of distribution (market coverage), how distribution will be accomplished, and assistance provided to distributors. The role of the sales force in distribution strategy should also be considered.

D.

Promotion Strategy
Promotion strategy is used to initiate and maintain a flow of communication between the company and the market target. To assist in developing the communications program, the attributes or benefits of our product should be identified for each market target. How our product differs from competition (competitive advantage) should be listed. The sales forces responsibilities in fulfilling the market plan must be integrated into the promotion strategy. Strategies should be listed for (1) personal selling, (2) advertising, (3) sales promotion, and (4) public relations.

E.

V.

VI. VII.

Marketing Research Describe the market research problem and the kind of information needed. Include a statement which addresses why this information is needed. The specific market research strategies can be written once the above two steps have been followed. Coordination with Other Business Functions Indicate other departments/functions that have responsibilities for implementing the marketing plan. Sales Forecasts and Budgets Contingency Plans Indicate how your plans should be modified if events should occur that are different from those assumed in the plan.

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Strategic Marketing
1. Imperatives for Market-Driven Strategy 2. Markets and Competitive Space 3. Strategic Market Segmentation 4. Strategic Customer Relationship Management 5. Capabilities for Learning about Customers and Markets 6. Market Targeting and Strategic Positioning 7. Strategic Relationships 8. Innovation and New Product Strategy 9. Strategic Brand Management 10. Value Chain Strategy 11. Pricing Strategy 12. Promotion, Advertising and Sales Promotion Strategies 13. Sales Force, Internet, and Direct Marketing Strategies 14. Designing Market-Driven Organizations 15. Marketing Strategy Implementation And Control

Chapter 2

Markets and Competitive Space


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

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MARKETS AND COMPETITIVE SPACE


Markets and Strategies Defining and Analyzing Product-Markets Describing and Analyzing End-Users Analyzing Competition Market Size Estimation Developing a Strategic Vision about the Future

MARKETS AND STRATEGIES


The Challenges Markets are increasingly complex, turbulent, and interrelated. Importance of a broad view of the market. Essential to develop a vision about how the market is likely to change in the future. Continuous Monitoring is Necessary to: Find promising opportunities Identify shifts in value requirements Understand competitors positioning Guide targeting and positioning decisions

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OPPORTUNITIES OUTSIDE THE COMPETITIVE BOX


The Competitive Box
New Types of Competition

Traditional Competitors

New Business Models New Customers

New Customers

Conventional Value Propositions Existing Customer Base New Customer Base(s)

AN ARRAY OF CHALLENGES
Disruptive Innovation

Fast Changing Markets

Drivers of Changes in Markets

Commoditization Threats

Creating New Market Space

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Markets Impact Strategies


Market changes often require altering strategies Forces of change create both market opportunities and threats Inherent danger in faulty market sensing

DEFINING AND ANALYZING PRODUCT-MARKETS


Determine the Boundaries and Structure of the Product-Market

Form the Product-Market Describe and Analyze End-Users Analyze Competition Forecast Market Size and Rate of Change

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Matching Needs with Product Benefits


A product market matches people with needs to the product benefits that satisfy those needs A product market is the set of products judged to be substitutes within those usage situations in which similar patterns of benefits are sought by groups of customers.*
*Srivastava, et al. (1984) Journal of Marketing, Spring, 32.

INNOVATION FEATURE
Progressive Insurance: Customer Needs at the Center of Strategy
In the period 1994 to 2004, Progressive Insurance increased sales from $1.3 billion to $9.5 billion, and ranks high in the Business Week Top 50 U.S. companies for shareholder value creation. The company invents new ways of providing services to save customers time, money and irritation, while often lowering costs at the same time. Loss adjusters are sent to the road accidents rather than working at head office, and they have the power to write checks on the spot. Progressive reduced the time needed to see a damaged automobile from seven days to nine hours. Policy holders cars are repaired quicker, and the focus on this central customer need has won much automobile insurance business for Progressive. These initiatives also enable Progressive to reduce its own costs the cost of storing a damaged automobile for a day is $28, about the same as the profit from a six-month policy.

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

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Product Market Boundaries and Structure


Determining Product-Market Structure

1. Start with the generic need satisfied by the product category of interest to management 2. Identify the product categories (types) that can satisfy the generic need 3. Form the specific product markets within the generic product market

Illustrative Fast-Food Product-Market Structure

SUPER MARKETS

MICROWAVE OVENS

FAST-FOOD MARKET
CONVENIENCE STORES
TRADITIONAL RESTAURANTS

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Extent of Market Complexity


Three characteristics of markets:
1. Functions or uses of the product 2. The enabling technology of the product 3. Customer segments in the product-market

Illustrative Product Market Structure


Food and beverages for breakfast meal

Generic Product Class

Cereals

Product Type

Ready to eat
Regular Natural Nutritional Pre-sweetened

Variant A Variant B

Life

Product 19

Special K

Brands

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DEFINING AND ANALYZING MARKETS


Define Product-Market Boundaries and Structures

Identify and Describe End-Users

Analyze Industry and Value Added Chain

Evaluate Key Competitors

Forecast Market Size and Growth Trends

Identifying and Describing Buyers

Building Customer Profiles

DESCRIBING AND ANALYZING END-USERS

How Buyers Make Choices

Environmental Influences

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Identifying and Describing EndUsers


Illustrative buyer characteristics in consumer markets: Family size, age, income, geographical location, sex, and occupation Illustrative factors in organizational markets: Type of industry Company size Location

How Buyers Make Choices


BUYING DECISION PROCESS:
1. Problem recognition 2. Information search 3. Alternative evaluation 4. Purchase decision 5. Post-purchase behavior

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Environmental Influences
External factors influencing buyers needs and wants: Government, social change, economic shifts, technology etc. These factors are often noncontrollable but can have a major impact on purchasing decisions

Building Customer Profiles


Start with generic product market Move next to product- type and variant profiles >> increasingly more specific Customer profiles guide decision making (e.g. targeting, positioning, market segmentation etc.)

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ANALYZING COMPETITION
1. Define the Competitive
Arena for the Generic, Specific, and Variant Product Markets

4. Identify
and Evaluate Potential Competitors

PRODUCTMARKET STRUCTURE AND MARKET SEGMENTS

2. Identify and Describe Key Competitors

3. Evaluate
Key Competitors

Examples of Levels of Competition


Baseball cards Bottle water Regular colas Diet-Rite Cola Diet Coke Diet lemon limes Video Games Ice Cream Fast Food Beer Fruit flavored colas

Diet Pepsi Wine Lemon limes

Product from competition: Product category diet colas competition: Juices soft drinks

Coffee

Budget competition: food & entertainment

Generic competition: beverages

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Industry Analysis
Industry size, growth, and composition Typical marketing practices Industry changes that are anticipated (e.g. consolidation trends) Industry strengths and weaknesses Strategic alliances among competitors

Defining Industry Structure & Characteristics


SUPPLIERS
Industry Form Industry Environment Competitive Forces

PRODUCERS WHOLESALERS/ DISTRIBUTORS RETAILERS/DEALERS

Value Added Chain

CONSUMER/ ORGANIZATIONAL END USERS

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Competitive Forces
1. Rivalry among existing firms. 2. Threat of new entrants. 3. Threat of substitute products. 4. Bargaining power of suppliers. 5. Bargaining power of buyers.
Source: Michael E. Porter, Competitive Advantage, Free Press, 1985, 5.

Key Competitor Analysis


Business scope and objectives Management experience, capabilities, and weaknesses Market position and trends Market target(s) and customer base Marketing program positioning strategy Financial, technical, and operating capabilities Key competitive advantages (e.g., access to resources, patents)

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Extent of Market Coverage

Current Capabilities

Competitor Evaluation

Customer Satisfaction

Past Performance

MARKET SIZE ESTIMATION


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

Market Potential Estimate

Unrealized Potential

Company Sales Forecast

Industry Sales Forecast

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Product-Market Forecast Relationships for Industrial Painting Units


Sales (in 1000s of units) 900 800 700 600 500 400 300 200 100 0 2003 2004

Market Potential Sales Forecast

Company XYZ Sales Forecast

2005

2006

2007

2008

2009

2010

DEVELOPING A STRATEGIC VISION ABOUT THE FUTURE


Industry Boundaries Blurring and Evolving Competitive Structure and Players Changing Value Migration Paths Product Versus Business Design Competition Firms are Collaborating to Influence Industry Standards

Source: C. K. Prahalad, Journal of Marketing, Aug. 1995, vi.

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Strategic Marketing
1. Imperatives for Market-Driven Strategy 2. Markets and Competitive Space 3. Strategic Market Segmentation 4. Strategic Customer Relationship Management 5. Capabilities for Learning about Customers and Markets 6. Market Targeting and Strategic Positioning 7. Strategic Relationships 8. Innovation and New Product Strategy 9. Strategic Brand Management 10. Value Chain Strategy 11. Pricing Strategy 12. Promotion, Advertising and Sales Promotion Strategies 13. Sales Force, Internet, and Direct Marketing Strategies 14. Designing Market-Driven Organizations 15. Marketing Strategy Implementation And Control

Chapter 3

Strategic Market Segmentation

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Strategic market segmentation (1)


Levels and types of market segmentation

Levels and types of market segmentation


Strategic Segmentation Vision Strategic intent Product benefits Managerial Segmentation Resource allocation Alignment Planning Marketing programs - Advertising - Sales - Distribution

Operational Segmentation

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Best Buy segmentation strategy


Jills - soccer moms Barrys - wealthy professionals Buzzs - tech enthusiasts Rays - the family man Mr Storefront - the small business customer Carries - young, single females Helen and Charlies - older couples whose children have left home

From Mass Markets to Micro Markets OLD NEW


CONSUMERS Passively receive whatever TV networks broadcast To keep up with the crowd Three networks plus maybe a PBS station Age of the big glossies: Time, Life, Newsweek Everyone hums the Alka-Seltzer jingle Rise of the big, ubiquitous brands from Coca-Cola to Tide Empowered media users control and shape content thanks to TiVo, iPod and Internet To standout from the crowd Hundreds of channels plus video on demand Age of the special interest magazine for every age and affinity group Talking to a group of one, ads go ever narrower Niche brands, product extensions and mass customization mean many product variations

ASPIRATIONS TV CHOICE

MAGAZINES

ADS

BRANDS

Source: Anthony Bianco, The Vanishing Mass Market, Business Week, July 12 2004, 58-62

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Strategic market segmentation (2)


Market-driven strategy and segmentation
Market segmentation, value opportunities and new market space Market targeting and strategic positioning

SEGMENTS

Segmentation and Market-Driven Strategy


VALUE OPPORTUNITIES CAPABILITIES/ SEGMENT MATCH TARGET(S)

POSITIONING STRATEGY

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Strategic market segmentation (3)


Market-driven strategy and segmentation
Market segmentation, value opportunities and new market space Market targeting and strategic positioning

Activities and decisions in market segmentation

Market Segmentation Activities and Decisions


Market to be Segmented Strategic Analysis of Segments Finer Segmentation Strategies Decide How to Segment

Form Segments

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Strategic market segmentation (4)


Market-driven strategy and segmentation
Market segmentation, value opportunities and new market space Market targeting and strategic positioning

Activities and decisions in market segmentation Defining the market to be segmented

Product Variant Segmentation Product Type Segmentation Generic Segmentation

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Strategic market segmentation (5)


Identifying market segments
Segmentation variables Characteristics of people and organizations
Consumer markets Organizational markets Product use situation segmentation Buyers needs and preferences
Consumer needs Attitudes Perceptions

Purchase behavior

Segmentation Variables

Purchase Behavior
Buyers Needs/ Preferences
Characteristics of People/ Organizations

Use Situation

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Illustrative Segmentation Variables


Characteristics of people/ organizations Consumer Markets Age, gender, income, family size, lifecycle stage, geographic location, lifestyle Occasion, importance of purchase, prior experience with product, user status Brand loyalty status, brand preference, benefits sought, quality, proneness to make a deal Size of purchase, frequency of purchase Industrial/ Organizational Markets Type of industry, size, geographic location, corporate culture, stage of development, producer/ intermediary Application, purchasing Procedure (new task, modified rebuy, straight rebuy Performance requirements, brand preferences, desired features, service requirements Volume, frequency of purchase

Use situation

Buyers needs/ preferences

Purchase behavior

Strategic market segmentation (6)


Forming market segments
Requirements for segmentation
Response differences Identifiable segments Actionable segments Cost/benefits Stability

Approaches to segment identification Customer group identification Forming groups based on response differences

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Miller Brewings beer brand targets


Miller genuine draft - mainstream sophisticates Milwaukees Best Light - hardworking men Pilsner Urquell - beer afficionados Miller Icehouse - for drinking buddies

Requirements for Segmentation


Identifiable segments Response differences Segmentation Requirements Actionable segments

Stability over time

Favorable cost/benefit

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Approaches to Segment Identification


IDENTIFIERS OF CUSTOMER GROUPS Characteristics of People and Organizations Buyers Needs and Preferences CUSTOMER RESPONSE PROFILE Use Situation

Purchase Behavior and Loyalty

Segment Dimensions for Hotel Lodging Services

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Illustrative Example: Gasoline Buyers


Road Warriors Higher-income, middle-aged men, drive 2550000 miles a year buy premium with a credit card purchase sandwiches and drinks from the convenience store will sometimes use carwash Men and women with moderate to high incomes, loyal to a brand and sometimes a particular station frequently buy premium, pay in cash Upwardly mobile men and women half under 25 years of age constantly on the go drive a lot snack heavily from the convenience store Usually housewives who shuttle children around during the day and use whatever gas station is based on town or on route of travel Not loyal to brand or station and rarely buy premium frequently on tight budgets. 16% of buyers

True Blues Generation F3 (Fuel, Food & Fast)

16% of buyers

27% of buyers

Homebodies

21% of buyers 20% of buyers

Price Shoppers

Illustrative Consumer Perception Map


Expensive

Brand E
Low Quality
GROUP I

GROUP II

Brand A
High Quality

Brand B
GROUP V
GROUP III GROUP IV

Brand D

Brand C

Inexpensive

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Strategic market segmentation (7)


Finer segmentation strategies
Logic
Customized offerings Diverse customer base Close customer relationships

Finer segmentation strategies


Micro-segmentation Mass customization Variety-seeking strategy

Strategic market segmentation (8)


Selecting the segmentation strategy
Deciding how to segment Strategic analysis of market segments
Customer analysis Competitor analysis Positioning analysis Estimating segment attractiveness Segmentation fit and implementation

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Strategic Analysis of Market Segments

Customer Analysis
Financial and Market Attractiveness

Competitor Analysis

Positioning Analysis

Segmentation Fit for Implementation


Segment Attractiveness and Internal Compatibility
Internal Compatibility
High
Attractive segments that match with company capabilities Unattractive segments but with match to company capabilities

Low
Attractive segments but with poor match with company capabilities Unattractive segments that do not match with company capabilities

High

Market Segment Attractiveness


Low

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Strategic Marketing
1. Imperatives for Market-Driven Strategy 2. Markets and Competitive Space 3. Strategic Market Segmentation 4. Strategic Customer Relationship Management 5. Capabilities for Learning about Customers and Markets 6. Market Targeting and Strategic Positioning 7. Strategic Relationships 8. Innovation and New Product Strategy 9. Strategic Brand Management 10. Value Chain Strategy 11. Pricing Strategy 12. Promotion, Advertising and Sales Promotion Strategies 13. Sales Force, Internet, and Direct Marketing Strategies 14. Designing Market-Driven Organizations 15. Marketing Strategy Implementation And Control

Chapter 3

Strategic Market Segmentation

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Strategic market segmentation (1)


Levels and types of market segmentation

Levels and types of market segmentation


Strategic Segmentation Vision Strategic intent Product benefits Managerial Segmentation Resource allocation Alignment Planning Marketing programs - Advertising - Sales - Distribution

Operational Segmentation

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Best Buy segmentation strategy


Jills - soccer moms Barrys - wealthy professionals Buzzs - tech enthusiasts Rays - the family man Mr Storefront - the small business customer Carries - young, single females Helen and Charlies - older couples whose children have left home

From Mass Markets to Micro Markets OLD NEW


CONSUMERS Passively receive whatever TV networks broadcast To keep up with the crowd Three networks plus maybe a PBS station Age of the big glossies: Time, Life, Newsweek Everyone hums the Alka-Seltzer jingle Rise of the big, ubiquitous brands from Coca-Cola to Tide Empowered media users control and shape content thanks to TiVo, iPod and Internet To standout from the crowd Hundreds of channels plus video on demand Age of the special interest magazine for every age and affinity group Talking to a group of one, ads go ever narrower Niche brands, product extensions and mass customization mean many product variations

ASPIRATIONS TV CHOICE

MAGAZINES

ADS

BRANDS

Source: Anthony Bianco, The Vanishing Mass Market, Business Week, July 12 2004, 58-62

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Strategic market segmentation (2)


Market-driven strategy and segmentation
Market segmentation, value opportunities and new market space Market targeting and strategic positioning

SEGMENTS

Segmentation and Market-Driven Strategy


VALUE OPPORTUNITIES CAPABILITIES/ SEGMENT MATCH TARGET(S)

POSITIONING STRATEGY

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Strategic market segmentation (3)


Market-driven strategy and segmentation
Market segmentation, value opportunities and new market space Market targeting and strategic positioning

Activities and decisions in market segmentation

Market Segmentation Activities and Decisions


Market to be Segmented Strategic Analysis of Segments Finer Segmentation Strategies Decide How to Segment

Form Segments

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Strategic market segmentation (4)


Market-driven strategy and segmentation
Market segmentation, value opportunities and new market space Market targeting and strategic positioning

Activities and decisions in market segmentation Defining the market to be segmented

Product Variant Segmentation Product Type Segmentation Generic Segmentation

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Strategic market segmentation (5)


Identifying market segments
Segmentation variables Characteristics of people and organizations
Consumer markets Organizational markets Product use situation segmentation Buyers needs and preferences
Consumer needs Attitudes Perceptions

Purchase behavior

Segmentation Variables

Purchase Behavior
Buyers Needs/ Preferences
Characteristics of People/ Organizations

Use Situation

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Illustrative Segmentation Variables


Characteristics of people/ organizations Consumer Markets Age, gender, income, family size, lifecycle stage, geographic location, lifestyle Occasion, importance of purchase, prior experience with product, user status Brand loyalty status, brand preference, benefits sought, quality, proneness to make a deal Size of purchase, frequency of purchase Industrial/ Organizational Markets Type of industry, size, geographic location, corporate culture, stage of development, producer/ intermediary Application, purchasing Procedure (new task, modified rebuy, straight rebuy Performance requirements, brand preferences, desired features, service requirements Volume, frequency of purchase

Use situation

Buyers needs/ preferences

Purchase behavior

Strategic market segmentation (6)


Forming market segments
Requirements for segmentation
Response differences Identifiable segments Actionable segments Cost/benefits Stability

Approaches to segment identification Customer group identification Forming groups based on response differences

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Miller Brewings beer brand targets


Miller genuine draft - mainstream sophisticates Milwaukees Best Light - hardworking men Pilsner Urquell - beer afficionados Miller Icehouse - for drinking buddies

Requirements for Segmentation


Identifiable segments Response differences Segmentation Requirements Actionable segments

Stability over time

Favorable cost/benefit

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Approaches to Segment Identification


IDENTIFIERS OF CUSTOMER GROUPS Characteristics of People and Organizations Buyers Needs and Preferences CUSTOMER RESPONSE PROFILE Use Situation

Purchase Behavior and Loyalty

Segment Dimensions for Hotel Lodging Services

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Illustrative Example: Gasoline Buyers


Road Warriors Higher-income, middle-aged men, drive 2550000 miles a year buy premium with a credit card purchase sandwiches and drinks from the convenience store will sometimes use carwash Men and women with moderate to high incomes, loyal to a brand and sometimes a particular station frequently buy premium, pay in cash Upwardly mobile men and women half under 25 years of age constantly on the go drive a lot snack heavily from the convenience store Usually housewives who shuttle children around during the day and use whatever gas station is based on town or on route of travel Not loyal to brand or station and rarely buy premium frequently on tight budgets. 16% of buyers

True Blues Generation F3 (Fuel, Food & Fast)

16% of buyers

27% of buyers

Homebodies

21% of buyers 20% of buyers

Price Shoppers

Illustrative Consumer Perception Map


Expensive

Brand E
Low Quality
GROUP I

GROUP II

Brand A
High Quality

Brand B
GROUP V
GROUP III GROUP IV

Brand D

Brand C

Inexpensive

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Strategic market segmentation (7)


Finer segmentation strategies
Logic
Customized offerings Diverse customer base Close customer relationships

Finer segmentation strategies


Micro-segmentation Mass customization Variety-seeking strategy

Strategic market segmentation (8)


Selecting the segmentation strategy
Deciding how to segment Strategic analysis of market segments
Customer analysis Competitor analysis Positioning analysis Estimating segment attractiveness Segmentation fit and implementation

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Strategic Analysis of Market Segments

Customer Analysis
Financial and Market Attractiveness

Competitor Analysis

Positioning Analysis

Segmentation Fit for Implementation


Segment Attractiveness and Internal Compatibility
Internal Compatibility
High
Attractive segments that match with company capabilities Unattractive segments but with match to company capabilities

Low
Attractive segments but with poor match with company capabilities Unattractive segments that do not match with company capabilities

High

Market Segment Attractiveness


Low

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Strategic Marketing
1. Imperatives for Market-Driven Strategy 2. Markets and Competitive Space 3. Strategic Market Segmentation 4. Strategic Customer Relationship Management 5. Capabilities for Learning about Customers and Markets 6. Market Targeting and Strategic Positioning 7. Strategic Relationships 8. Innovation and New Product Strategy 9. Strategic Brand Management 10. Value Chain Strategy 11. Pricing Strategy 12. Promotion, Advertising and Sales Promotion Strategies 13. Sales Force, Internet, and Direct Marketing Strategies 14. Designing Market-Driven Organizations 15. Marketing Strategy Implementation And Control

CHAPTER 4

STRATEGIC CUSTOMER RELATIONSHIP MANAGEMENT

McGraw-Hill/Irwin

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

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PIVOTAL ROLE OF CUSTOMER RELATIONSHIP MANAGEMENT


DEVELOPING A CRM STRATEGY
CRM Levels CRM Strategy Development CRM Implementation

VALUE CREATION PROCESS


Customer Value Value Received by the Organization CRM and Value Chain Strategy

CRM AND STRATEGIC MARKETING


Implementation Performance Metrics Short-Term Versus Long-Term Value Competitive Differentiation

CUSTOMER RELATIONSHIP MANAGEMENT


CRM is a cross-functional core business process concerned with achieving improved shareholder value through the development of effective relationships with key customers and customer segments.
CRM Recognizes That Customers: Vary in their economic value to the company Differ in their expectations toward the firm

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4-3

CUSTOMER LIFETIME VALUE


Customer lifetime value (CLV) calculates past profit produced by the customer for the firm the sum of all the margins of all the products purchased over time, less the cost of reaching that customer
To this is added a forecast of margins on future purchases (under different assumptions for different customers), discounted back to their present value. This process provides an estimate of the profitability of a customer during the time span of the relationship. The CLV calculation is a powerful tool for focusing marketing and promotional efforts where they will be most productive.

4-4

PERSPECTIVES TOWARD CRM


STRATEGICTHE ENTIRE COMPANY

REQUIRED MARKETING FUNCTIONS

THE CUSTOMER

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4-5

THE STEPS IN DEVELOPING A CRM STRATEGY


Gain enterprise commitment

Build a CRM project team

Business needs analysis

Define the CRM strategy


Source: V. Kumar and Werner J. Reinartz, Customer Relationship Management (Hoboken, NJ: John Wiley & Sons, Inc.), 2006, 39.

4-6

DEFINE THE CRM STRATEGY


Value Proposition
1

Other Stakeholders

CRM STRATEGY
3

Business Case

4 Enterprise Transformation Plan

Customer Strategy

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

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4-7

IMPLEMENTATION DANGERS
Implementing Without Developing a Customer Strategy Failing to Initiate Necessary Organizational Change Allowing Technology to Dominate the CRM Process Focusing on the Wrong Customers

4-8

VALUE CREATION PROCESS


Value Received by the Customer Value Received by the Organization

THE VALUE EXCHANGE

Successful Value Exchange

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4-9

METRICS FEATURE

How General Electric Co. Measures Customers Experience

Happy (And Not-So-Happy) Customers General Electric is a big user of the Net Promoter concept of customer satisfaction, popularized by Fred Reichheld of Bain & Co. Below, questions similar to those on which GEs Capital Solutions unit asks customers to rate the units performance on a 0 10 scale. How willing are you to recommend us to a friend or associate? How would you rate our ability to meet your needs? How would you rate our people? How would you rate our processes? What is your impression of our market reputation? How would you rate the cost of doing business with us? How would you rate the overall value of our product or service as being worth what you paid?
Source: Kathryn Kranhold, Client-Satisfaction Tool Takes Root, The Wall Street Journal, July 10, 2006, B3.

4-10

CRM AND VALUE CHAIN STRATEGY


The Perfect Customer Experience
The perfect customer experience, which must be affordable for the company in the context of the segments in which it operates and its competition, is a relatively new concept. This concept is now being embraced in industry by companies such as TNT, Toyotas Lexus, Oce, and Guinness Breweries, but it has yet to receive much attention in the academic literature. Therefore, multi-channel integration is a critical process in CRM because it represents the point of co-creation of customer value. However, a companys ability to execute multichannel integration successfully is heavily dependent on the organizations ability to gather and deploy customer information, from all channels and to integrate it with other relevant information.
Adrian Payne and Pennie Frow, A Strategic Framework for Customer Relationship Management, Journal of Marketing (October 2005), 173.

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4-11

CRM AND STRATEGIC MARKETING

CRM

STRATEGIC MARKETING

From the perspective of strategic marketing, there are several reasons why CRM is important and why there should be extensive marketing involvement in decisions about CRM. Importantly, an organizational perspective is needed in guiding the CRM strategy.

Strategic Marketing
1. Imperatives for Market-Driven Strategy 2. Markets and Competitive Space 3. Strategic Market Segmentation 4. Strategic Customer Relationship Management 5. Capabilities for Learning about Customers and Markets 6. Market Targeting and Strategic Positioning 7. Strategic Relationships 8. Innovation and New Product Strategy 9. Strategic Brand Management 10. Value Chain Strategy 11. Pricing Strategy 12. Promotion, Advertising and Sales Promotion Strategies 13. Sales Force, Internet, and Direct Marketing Strategies 14. Designing Market-Driven Organizations 15. Marketing Strategy Implementation And Control

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Chapter 5

Capabilities for Learning About Customers and Markets


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

Capabilities for learning about customers and markets


Market-driven strategy, market sensing and learning processes Marketing information and knowledge resources Marketing intelligence and knowledge management Ethical issues in collecting and using information

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Learning capabilities at P&G


Competitive strength from superior customer knowledge To deliver a customer experience, less formal research, more one-to-one communication
Consumer Village Online virtual reality Cave Watch people clean baths Understand what it is like to live on $50/month Social networking sites

Market Sensing and Learning Processes


Market sensing processes Learning organization
Learning and competitive advantage Learning about markets Barriers to market learning processes

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Market sensing at Tesco International


Retailer entry to U.S. grocery market, not with existing format Discovering what U.S. consumers want:
Senior managers live with U.S. families Probe lifestyles of families Prototype store

Developing a new retail format and targeting the grocery gap

Market sensing processes


Open-minded inquiry processes Analyzing competitors actions Listening to front-line employees Searching for latent customer needs Scanning the peripherary of the market Encouraging experimentation

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Marketing information and knowledge resources


Scanning processes Specific marketing research studies Internal and external marketing information resources
Relationships with external marketing research providers

Screening A New Research Supplier


1. Client Would you recommend this supplier? 2. Supplier Do you have sufficient funds for this project? 3. What parts of the project will be subcontracted, and how do you manage subcontractors? 4. May I see your interviewers manual and data entry manual? 5. How do you train and supervise interviewers?

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Screening A New Research Supplier


6. What percentage of interviews are validated? 7. May I see a typical questionnaire? 8. Who draws your samples? 9. What percentage of your data entry is verified? 10. Managers - What do you think about this supplier?
Source: Seymour Sudman and Edward Blair, Marketing Research, A Problem-Solving Approach, Irwin/McGraw-Hill, 1998, 67.

A Framework for Market Sensing


Probability of the Event Occurring
High 7 6 Utopia Field of Dreams Medium Low

Effect of the Event on the Company

5 4 3 2 1 Danger Future Risks Things to Watch

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

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Learning About Markets


Objective Inquiry Keeping and Gaining Access to Prior Learning Mutually Informed Interpretations
Source: George S. Day, Journal of Marketing, October 1994.

Synergistic Information Distribution

Barriers to market learning


Managers reject new insights/information Rigid organizational structures and inflexible information systems Politics favour the status quo Overwhelming pressure of existing business operations Tendency to active inertia

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Best Buys customer knowledge strategy


Strategy treats customers as individual, develops solutions for needs and engages employees to serve them New ideas from listening more closely to customers and employees Knowledge shared with manufacturers and product developers Core innovation competency is gathering and synthesizing customer intelligence

Customers and design at Xerox


Customer-led innovation - dreaming with the customer Not just building prototype and getting feedback Focus groups as first step in commercial printer design Changing designs in response to customer insights Investment in understanding what customers think about the bright ideas

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Marketing research project


Defining the problem Understanding the limitations of the research Quality of the research Costs Evaluating and selecting suppliers Research methods

Existing marketing information resources


In-company resources Open source resources Research agency resources

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Creating new marketing information


Observation and ethnographic studies
Marriott - rethink hotel experience for road warriors GE - developing plastic fibers position Intel - use of computers by children in China

Research surveys Internet-based research

Problem definition to guide marketing research studies


Research Project and Scope Describe the topic for the study and the background. Set specific goals for the study - why is it being undertaken? Identify the specific pieces of information required and the questions that need to be asked to obtain that information When completed how should the results be presented for management use?

Research Objectives

Research Questions

Planned Outcomes

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Impact of the Internet on Marketing Costs and Availability


Online Surveys Fast Inexpensive Limitations in population coverage Resistance to excessive Web communications Customer feedback and peer-to-peer Web communications Monitoring customer Web behavior

Marketing and management information systems


Marketing information systems Management information systems Marketing decision support systems

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Marketing Decision-Support System Components

Database

Display

Analysis Capabilities

Models

Marketing intelligence and knowledge management


Marketing intelligence Knowledge management Role of the chief knowledge officer Leveraging customer knowledge

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Ethical issues in collecting and using information


Invasion of customer privacy Information and ethics
Information collection Research subjects Information sharing

Neuromarketing
Magnetic resonance imaging (MRI) Pictures response of brain to stimuli Probing consumer preferences is controversial Invasive Privacy issues Information sharing
Insurance companies Employers Law enforcement

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Strategic Marketing
1. Imperatives for Market-Driven Strategy 2. Markets and Competitive Space 3. Strategic Market Segmentation 4. Strategic Customer Relationship Management 5. Capabilities for Learning about Customers and Markets 6. Market Targeting and Strategic Positioning 7. Strategic Relationships 8. Innovation and New Product Strategy 9. Strategic Brand Management 10. Value Chain Strategy 11. Pricing Strategy 12. Promotion, Advertising and Sales Promotion Strategies 13. Sales Force, Internet, and Direct Marketing Strategies 14. Designing Market-Driven Organizations 15. Marketing Strategy Implementation And Control

CHAPTER 6
Market Targeting and Strategic Positioning
Market Targeting Strategy Targeting in Different Market Environments Positioning Strategy Developing the Positioning Strategy Determining Positioning Effectiveness
McGraw-Hill/Irwin Copyright 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

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MARKET TARGETING STRATEGY


The Marketing Targeting Decision Identities the People or Organizations in a Product-Market Toward Which a Firm Directs Its Positioning Strategy Guided by an understanding of: The product-market Its buyers Firms capabilities resources Competition

Market Targeting and Strategic Positioning


Core dimensions of market-driven strategy: deciding which buyers to target and how to position the firms products Effective targeting and positioning strategies are essential in gaining and sustaining superior performance

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SEGMENTS VALUE OPPORTUNITES CAPABILITIES/ SEGMENT MATCH TARGET(S) POSTIONING FOR EACH TARGET

Identify segments within the product-market

TARGETING AND POSTIONING


Decide and implement a positioning strategy for each targeted segment Decide which segment(s) to target

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Market Targeting Alternatives


Segments Clearly Defined

Selective Targeting

Target Selected Niche(s) Product Specialization

Target Multiple Segments Product Variety

Extensive Targeting

Differentiated But Segments Not Clearly Defined

Factors Influencing Targeting Decisions


Stage of product market maturity Extent of diversity in preferences Industry structure Capabilities and resources Opportunities to gain competitive advantage

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TARGETING IN DIFFERENT MARKET ENVIRONMENTS

Emerging Growing Mature Declining Global

Emerging Market
Buyer Diversity Segmentation limited due to similarity of buyers preferences Industry Structure Typically small new organizations Limited access to resources Capabilities and Resources Unique benefit (differentiation) strategy rather than low-cost First-mover advantage Targeting Strategy Single target or a few broad segments

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Growth Market
Buyer Diversity Segments should exist Industry Structure Numerous competitors Capabilities and Resources Survival requires aggressive actions by firms that seek large market positions Otherwise select one or a few market segments Targeting Strategy Three possible strategies 1. Extensive market coverage by firms with established businesses in related markets 2. Selective targeting by firms with diversified product portfolios 3. Very focused targeting strategies by small organizations serving one or a few market segments.

Mature Markets
Buyer Diversity
Segmentation essential for competitive advantage

Industry Structure
Intense competition for market share Emphasis on cost and service, and pressures on profits

Capabilities and Resources


Managements objectives: cost reduction, selective targeting, product differentiation

Targeting Strategy
Deciding which segment to serve Firms pursuing extensive targeting strategies may decide to exit from certain segments

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Global Markets
Global Reach and Standardization Identify market segments that span global markets and serve these needs with global positioning strategies Local Adaptation Consider requirements of domestic buyers Buyers needs and preferences affected by social, political, cultural, economic, and language differences Industry Structure Restructuring, acquisitions, mergers, and strategic alliances altering industries and competition Targeting Strategy Targeting a single country, regional (multinational) targeting, or global targeting

GLOBAL FEATURE

Successful British Retailer Tesco Enters the U.S. Market

Tesco announced plans to open a chain of convenience stores on the U.S. West Coast in 2007, spending an estimated $453 M. The very successful retailer has four types of stores, including the convenience chain, Tesco Express. This initiative is being launched even though the U.S. retail grocery market is experiencing intense competition, and some chains are cutting back or selling out. Tescos decision to enter the U.S. convenience market is bold and risky. Some authorities consider the action questionable. However, Tesco has a very impressive success record in Britain. With its Tesco Express, Tesco Metro, Superstore, and Extra hypermarkets, the giant retailer has dulled Wal-Marts drive to dominate the retail scene. Tesco has no brand awareness in the U.S. so building brand identity will be challenging. Yet the retailer has global buying power, powerful information technology, and strong supply chain capabilities. The stores will offer groceries, produce, and private-label ready-to-eat meals. Some observers think Tesco is planning to compete with Wal-Mart in its home market.
Source: Kerry Capell, Tesco: California Dreaming? BusinessWeek, February 27, 2006, 38.

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POSITIONING STRATEGY

Deciding the desired perception/ association of an organization/ brand by market target buyersand designing the marketing program to meet (and exceed) buyers value requirements.

STRATEGIC POSITIONING INITIATIVES


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

MARKET TARGET
POSITIONING EFFECTIVENESS How well managements positioning objectives are achieved for the market target POSITIONING STRATEGY The combination of marketing actions used to communicate the positioning concept to targeted buyers

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How Positioning Works


Objective
Match the organizations distinctive capabilities with the customer value requirements for the market target (How do we want to be perceived by targeted buyers?)

Desired result
Gain a relevant, distinct, and enduring position by the targeted buyers that they consider important.

Actions by the organization


Design and implement the positioning strategy (marketing program) for the market target.

INNOVATION FEATURE

Spotting Shifts in Demand in designing Hennes & Mauritz (H&M) Apparel

Its 1:30 p.m. on a Monday in the bustling H&M store on Manhattans fifth Avenue, and Alma Saldana, a 28-year-old makeup artist from Houston, is stuffing three tiny vests into her black Y&M shopping bag. Thats on top of blouses, jackets, and pants. Saldana is in a buying frenzy. This is her first visit to H&M, the Stockholmbased fashion retailer, and its everything she had hoped for. Somebody told me you find great fashion at a very cheap price, and its true! she exclaims. Such enthusiasm has made H&M one of the hottest fashion companies around. Central to its success is its ability to spot shifts in demand and respond with lightning speed. While traditional clothing retailers design their wares at least six months ahead of time, H&M can rush items into stores in as little as three weeks. Most of the work is done ahead, too. But when it sees consumers scooping up something like vests, it speeds a slew of new variations into stores within the same season, to the delight of shoppers like Saldana. Speed is important. You need to have system where you can react in a short lead time with the right products, says Chief Executive Rolf Eriksen.

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How does it work? H&M designers had included a couple of cropped vests in their autumn/winter collections. In august, shortly after the vests went on sales, they started flying out of the stores, say Margareta van den Bosch, H&Ms head of design. H&Ms designers in Stockholm (it has more than 100) spotted the trend in the companys worldwide sales reports, published internally every Monday. About half of them immediately started sketching new styles. As quickly as designs came off their desks, pattern makers snipped and pinned, pressing employees into service as live models. At the same time, buyers ordered fabrics. The designs were zoomed electronically to workers at H&Ms production offices in Europe and Asia, which then selected manufacturers that could handle the jobs quickly. In less than two months most H&M stores had 5 to 10 new vest styles in stock. One of the secrets to H&Ms speed is decisiveness. The people in charge of each collection can dream up and produce new fashions on their own authority. Only huge orders require approval from higher ups. We have a flat organization. We have a shorter way to a decision, says Sanna Lindberg, president of H&M Hennes & Mauritz USA. That makes H&M fashionable in more ways than one.
Source: Steve Hamm, SPEEDDEMONS, BusinessWeek, March 27, 2006, 70-71.

The Perception or Association that Management Wants Buyers to Have Concerning the Brand

Symbolic
SELECTING THE POSITIONING CONCEPT

Functional

Experiential

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DEVELOPING THE POSITIONING STRATEGY


The Positioning Strategy Places the Marketing Program (mix) Components into a Coordinated Set of Actions Designed to Deliver Superior Customer Value
PRODUCT PROMOTION PRICE VALUE CHAIN

Positioning Issues
1. The positioning concept applies to a

specific brand rather than all the competing brands that compose a product classification 2. The concept is used to guide positioning decisions over the life of the brand 3. Multiple concepts are likely to confuse buyers and may weaken the effectiveness of positioning actions

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The positioning strategy indicates how (and why) the product mix, line, or brand is to be positioned for each market target. This strategy includes:
The product strategy, indicating how the product(s) will be positioned against the competition in the product-market. The value chain (distribution) strategy to be used. The pricing strategy, including the role and positioning of price relative to competition. The advertising and sales promotion strategy and the objectives these promotion components are expected to achieve. The sales force strategy, direct marketing strategy, and the Internet strategy, indicating how they are used in the positioning strategy.

DETERMINING POSITIONING EFFECTIVENESS

The marketing offer (product, distribution, price, and promotion) is both distinct and valued in the minds of the customers in the market target.

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Customer and Competitor Research

Methods for Determining Positioning Effectiveness

Analytical Positioning Models

Test Marketing

Customer and Competitor Research Research Studies Preference Maps Test Marketing Generates information about commercial feasibility and marketing program Provides market (sales forecasts) and effectiveness measures Positioning Models Incorporates research data into formal models of decision analysis

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Positioning Errors
Under-positioning customers have only vague ideas about the company and do not perceive anything distinctive about it Over-positioning Customers have too narrow an understanding of the company, product, or brand Confused positioning Frequent changes and contradictory messages confuse customers Doubtful positioning claims made for the product or brand are not regarded as credible

Positioning in Perspective
Positioning is a central part of business strategy Positioning analysis starts with an understanding of the value proposition for the target segment Value-driven positioning is the objective Positioning seeks to differentiate the organizations offer from the competition Positioning seeks to create a unique perception in buyers minds of the target market segment Positioning is the unifying dimension of marketdriven strategy

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Positioning usually means that an overt decision is being made to concentrate only on certain segments. Such an approach requires commitment and discipline because its not easy to turn your back on potential buyers. Yet, the effect of generating a distinct, meaningful position is to focus on the target segments and not to be constrained by the reaction of other segments.
Source: Aaker and Shansby, Business Horizons, May-June 1982, 61.

Illustrative Impacts of Changes in Business Strategy on Targeting and Positioning Strategies


Changes in Business Strategy Rapid Growth/ Retrenchment Market Targeting Impact
Market scope may not change although targets may be increased or reduced. No change is necessary unless increase in product scope creates opportunities in new segments. Targeting is likely to change to include new targets. Should not have a major effect on targeting strategy. Should have no effect on targeting strategy. Targeting strategies must be selected in new business areas. Targeting strategy may be affected based on the nature and scope of the alliance.

Positioning Impact
Substantial changes in resource allocation, (e.g. advertising expenditures Changes in product strategy, methods of distribution, and promotional strategies may be necessary. Positioning strategy must be developed for each new target. Product, distribution, price, and promotion strategies may be affected. Primary impact on channel, pricing and promotion strategies. Positioning strategies must be developed (or acquired for the new business areas. Operating relationships and assignment or responsibilities must be established.

Changing the Product Mix

Changing the Market Scope Repositioning Value Chain Integration

Diversification Strategic Alliance

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Targeting and Positioning


Product Strategy

Positioning Strategy

Promotion Strategy

Market Target

Distribution Strategy

Price Strategy

Strategic Marketing
1. Imperatives for Market-Driven Strategy 2. Markets and Competitive Space 3. Strategic Market Segmentation 4. Strategic Customer Relationship Management 5. Capabilities for Learning about Customers and Markets 6. Market Targeting and Strategic Positioning 7. Strategic Relationships 8. Innovation and New Product Strategy 9. Strategic Brand Management 10. Value Chain Strategy 11. Pricing Strategy 12. Promotion, Advertising and Sales Promotion Strategies 13. Sales Force, Internet, and Direct Marketing Strategies 14. Designing Market-Driven Organizations 15. Marketing Strategy Implementation And Control

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Chapter 7

Strategic Relationships

McGraw-Hill/Irwin

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

Strategic relationships at IBM


Collaborative projects across all major parts of business services Funding universities in services science Partnership with Sony and Toshiba to produce new processor Computer code shared with Apache open-source webserver IBM programmers work on Linux projects Collaborating with customers and competitors to invent new technologies Strategy of openess

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Strategic relationships
End-User Customers Suppliers Joint Ventures Strategic Alliances Intermediate Customers Competitors

Strategic Relationships
External Partners Internal Partners

Strategic Relationships
The rationale for interorganizational relationships Forms of organizational relationships Managing interorganizational relationships Global relationships among organizations

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The rationale for interorganizational relationships


Value-enhancing opportunities

Skills and resource gaps

Rationale for Forming Strategic Relationships

Environmental complexity

Competitive strategy

The rationale for interorganizational relationships (1)


Opportunities to enhance value Environmental complexity Competitive strategy Skills and resource gaps
Technology constraints Financial constraints Market access Information technology

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Collaborations in open-source software


IBM and Sun aggressive supporters of Linux open-source software Technology sharing and partnerships Rebuilding the technology ecosystem Reducing dependence on Microsoft

Airline Alliances
Major global alliances Oneworld Skyteam Star Alliance Contain 18 of the worlds largest airline Account for 60% of total world airline capacity But a history of alliance failures and desertions

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The rationale for interorganizational relationships (2)


Evaluating the potential for collaboration
What is the strategy? The costs of collaboration Is relationship strategy essential? Are good candidates available? Do relationships fit our culture?

Mapping the Path to Market Leadership


Market-Oriented Culture and Process

Organizational Change

Relationship Strategies
Positioning with Distinctive Competencies

Superior Customer Value Proposition

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Forms of organizational relationships


Supplier relationships

Internal partnerships

Firm

Lateral partnerships

Customer relationships

Illustrative interorganizational relationships


Strategic Alliance Supplier/ Manufacturer Collaboration M M W R EU M M

JV Joint Venture Distribution Channel Relationship

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Forms of organizational relationships (1)


Supplier relationships
Strategic suppliers Outsourcing

Intermediate customer relationships End-user customer relationships Strategic customers


Dominant customers Strategic account management

Forms of organizational relationships (2)


Strategic alliances
Alliance success Alliance weaknesses Types of alliance Requirements for alliance success Alliance vulnerabilities

Joint ventures Internal partnering

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CostCo Versus Wal-Mart


CostCo has achieved major position in U.S. warehouse club business against strong competitors Success based on customer choice and constant innovation and productivity improvement CostCo compensates employees more generously than competitors - to motivate and retain good workers - they get lower staff turnover and higher productivity

Managing interorganizational relationships (1)


Objective of the relationship
New technologies and competencies Developing new markets and building market position Market selectivity Restructuring and cost reduction

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Managing interorganizational relationships (2)


Relationship management
Planning Trust and self-interest Conflicts Leadership structure Flexibility Cultural differences Technology transfer Learning from partners strengths

Managing interorganizational relationships (3)


Partnering capabilities Control, evaluation and review Exiting from alliance
Identify/agree what triggers exit Detail rights of each partner to assets/products Design disengagement process Communication plan for all involved parties

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Managing Interorganizational relationships


Objective of the Relationship Control and Evaluation Relationship Management

Partnering Capabilities

Managing Inter-Organizational Relationships

Exiting from Alliance

Global relationships among organizations


The Global Integrated Enterprise Inter-nation collaborations The strategic role of government
Government interventions Competing with state-owned enterprises Collaborating with state-owned enterprises Government regulation

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Strategic Marketing
1. Imperatives for Market-Driven Strategy 2. Markets and Competitive Space 3. Strategic Market Segmentation 4. Strategic Customer Relationship Management 5. Capabilities for Learning about Customers and Markets 6. Market Targeting and Strategic Positioning 7. Strategic Relationships 8. Innovation and New Product Strategy 9. Strategic Brand Management 10. Value Chain Strategy 11. Pricing Strategy 12. Promotion, Advertising and Sales Promotion Strategies 13. Sales Force, Internet, and Direct Marketing Strategies 14. Designing Market-Driven Organizations 15. Marketing Strategy Implementation And Control

CHAPTER 8 Innovation and New Product Strategy

The Innovation Mandate

McGraw-Hill/Irwin

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

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INNOVATION AND NEW PRODUCT STRATEGY


Innovation as a Customer Driven Process New Product Planning Idea Generation Screening, Evaluating, and Business Analysis Product and Process Development Marketing Strategy and Market Testing Commercialization Variation in the Generic New Product Planning Process

INNOVATION FEATURE
Managing Googles Idea Factory
As director of consumer Web products Marissa Mayer is a champion of innovation. She favors new product launches that are early and often. She joined Google in early 1999 as a programmer when the workforce totaled 20. By 2007 Google had 5,700 employees with expected sales of $16 billion.

How Google Innovates


The search leader has earned a reputation as one of the most innovative companies in the world of technology. A few of the ways Google hatches new ideas: FREE (THINKING) TIME
Google gives all engineers one day a week to develop their own pet projects, no matter how far from the companys central mission. If work gets in the way of free days for a few weeks, they accumulate. Google News came out of this process.

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THE IDEAS LIST


Anyone at Google can post thoughts for new technologies of businesses on an ideas mailing list, available companywide for input and vetting. But beware: Newbies who suggest familiar or poorly thought-out ideas can face an intellectual pummeling.

OPEN OFFICE HOURS


Think back to your professors office hours in college. Thats pretty much what key managers, including Mayer, do two or three times a week, to discuss new ideas. One success born of this approach was Googles personalized home page.

BIG BRAINSTORMS
As it has grown, Google has cut back on brainstorming sessions. Mayer still has them eight times a year, but limits hers to 100 engineers. Six concepts are pitched and discussed for 10 minutes each. The goal: to build on the initial idea with at least one complementary idea per minute.

ACQUIRE GOOD IDEAS


Although Google strongly prefers to develop technology in-house, it has also been willing to snap up small companies with interesting initiatives. In 2004 it bought Keyhole, including the technology that let Google offer sophisticated maps with satellite imagery.
Source: Managing Googles Idea Factory, BusinessWeek, October 3, 2005, 88-90.

FINDING CUSTOMER VALUE OPPORTUNITIES


Customer value analysis Objective is to identify needs for: 1. New products 2. Improvements to existing products 3. Improvements in production processes 4. Improvements in supporting services

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Customer Expectations Customer Satisfaction Gap Actual Product Performance

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

TRANSFORMATIONAL Break-through innovation Digital photography NEW PRODUCT CATEGORY Dell Nike Printers Apparel Golf clubs

LINE EXTENSION New color/package/style INCREMENTAL IMPROVEMENTS Software updates

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The Evolution of the Creative Company

STEP 1 Technology and information become commoditized and globalized. Suddenly, the advantage of making things faster, cheaper, better diminishes, and profit margins decline. STEP 2 With commoditization, core advantages can be shipped abroad. Outsourcing to India, China, and Eastern Europe sends a growing share of manufacturing and even the Knowledge Economy overseas. STEP 3 Design Strategy begins to replace Six Sigma as a key organizing principle. Design plays a key role in product differentiation, decision-making, and understanding the consumer experience.
Source: Bruce Nussbaum, How to Build Innovation Companies, BusinessWeek, August 1, 2005, 62-63.

STEP 4 Creative innovation becomes the key driver of growth. Companies master new design thinking and metrics and create products that address consumers unmet, and often unarticulated, desires. STEP 5 The successful Creative Corporation emerges, with new Innovation DNA. Winners build a fast-moving culture that routinely beats competitors because of a high success rate for innovation.

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Characteristics of Successful Innovators


Creating an Innovative Culture

Leveraging Capabilities

STRATEGIC INITIATIVES

Selecting the Right Innovation Strategy

Making Resource Commitments

Developing and Implementing Effective New Product Processes

Creating an Innovation Culture


Innovation Workshop for top executives to develop an innovation plan. Innovation Statement highlighting objectives and senior managements role and responsibilities. Training programs for employees and managers. Communicate the priority of innovation. Speakers to expose employees to innovation authorities.
Source: Thomas D. Kuczmarski et al., The Breakthrough Mindset, Marketing Management, March/April 2003, 43.

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The Innovation Strategy Spells Out Managements Priorities for New Product Opportunities
1. Set specific New Product Objectives. 2. Communicate the role of New Products throughout the organization. 3. Define the areas of strategic focus: Product Scope Markets Technologies 4. Include longer term discontinuous projects in the portfolio along with incremental projects.
Source: Robert Cooper, Benchmarking New Product Performance, European Management Journal, Feb. 1998, 1-7.

NEW PRODUCT PLANNING PROCESS


Customer Needs Analysis Idea Generation Screening and Evaluation Marketing Strategy Development Testing Commercialization Business Analysis Product Development

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Achieving Cross-Functional Interaction and Coordination

R&D Operations Marketing

Finance

Responsibility for New Product Planning


Coordination of new product activities by a highlevel general manager Inter-functional coordination by a team of new product planning representatives Creation of a project task force responsible for new product planning Designation of a new products manager to coordinate planning between departments Formation of matrix structure for integration new product planning with business functions Creation of a permanent design center

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IDEA GENERATION

Idea search: targeted or open-ended? How extensive and aggressive? What specific sources are best for generating a regular flow of new product ideas? How can new ideas be obtained from customers? Where will responsibility for the new product ideas search be placed? What are potential threats from alternative (or disruptive) technologies?

Alliances/ Acquisition/ Licensing National Policy

Direct Search Technological Innovation METHODS OF GENERATING IDEAS

Exploratory Customer Studies Facilitating Lead User Analysis

Creative Methods

Linking Marketing and Technology

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An Innovation Champion in Action at GE


Beth Comstock calls herself a little bit of the crazy, wacky one at corporate headquarters. And its an apt description when you realize she works at General Electric Co. Comstock, 44, is charged with transforming GEs culture, famously devoted to process, engineering, and financial controls, to one thats more agile and creative. Chairman and CEO Jeffrey R. Immelt tapped the former communications chief to become GEs first-ever chief marketing officer almost three years ago. The job came with a critical twist: the goal of driving innovation through the companys 300,000 plus ranks. Creativity is still a word were wrestling with, Comstock concedes. It seems a bit undisciplined, a bit chaotic for a place like GE. More comfortable territory is the term imaginative problem-solving encouraging people to think what if yet always with the aim of driving growth. One of Comstocks first moves was to bring in anthropologists to audit GEs culture. They came back with praise for GEs famous work ethic but noted that employees wanted more wow more discoveries from the company founded by Thomas Edison.

Comstock has a role whose importance is spreading throughout Big Business that of innovation champion. She began by studying the best practices at companies such as Procter & Gamble, FedEx, and 3M. She brought in a raft of creativity consultants, futurists, and design gurus to lead sessions with different operations. Their names were jolting for GE types: Play, a Richmond (VA.) group that helps execs think differently, and Jump, based in San Mateo, CA., which researches how people use things. GE is expanding its army of designers to bring businesses closer to customers. And Comstock is staging dreaming sessions where Immelt, senior execs, and customers debate future market trends. Comstock concedes some managers view the workshops as a waste of time. We have a long way to go, she says. But for GE, theres no turning back.

Source: Bruce Hussbaum, How to Build Creative Companies, BusinessWeek, August, 2005, 77.

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SCREENING, EVALUATING, AND BUSINESS ANALYSIS IDEA GENERATION SCREENING (fit/feasibility) CONCEPT EVALUATION BUSINESS ANALYSIS

Business Analysis
Revenue Forecasts Preliminary Marketing Plan Cost Estimation Profit Projections Other Considerations

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PRODUCT AND PROCESS DEVELOPMENT


NEW PRODUCT CONCEPT
PRODUCT DEVELOPMENT AND USE TESTING MARKETING STRATEGY DEVELOPMENT MARKET TESTING LAUNCH

Product and Process Development


Development of the new product includes: Product design Packaging design Decisions to make or purchase product components Product Development Process: Product Specifications Industrial Design Prototype Use Tests Process Development Collaborative Development

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Does it have the required attributes? Verify claims PURPOSE OF USE TESTS Identify use situations Ideas for improvements

MARKETING STRATEGY AND MARKET TESTING


Marketing Strategy Decisions Market Targeting Positioning Strategy Market Testing Options Simulated Test Marketing Scanner Based Test Marketing Conventional Test Marketing Testing Industrial Products Selecting Test Sites Length of the Test External Influences

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Scanner-based Test Marketing


Less artificial than simulated testing Costs less than full-scale market test Test is controlled by using IRIs 2300 panel members in each test city Cable TV enables use of controlled ad testing Tests take about 12 months

COMMERCIALIZATION
The Marketing Plan Complete marketing strategy Responsibilities for execution Cross functional approach Monitoring and Control Real time tracking Role of the Internet Include product performance metrics with performance targets

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Marketing Strategy

Market Target(s)

Objectives

Marketing Program(s)

VARIATIONS IN THE GENERIC NEW PRODUCT PLANNING Technology Push Processes Platform Products Process Intensive Products Customized Products

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Strategic Marketing
1. Imperatives for Market-Driven Strategy 2. Markets and Competitive Space 3. Strategic Market Segmentation 4. Strategic Customer Relationship Management 5. Capabilities for Learning about Customers and Markets 6. Market Targeting and Strategic Positioning 7. Strategic Relationships 8. Innovation and New Product Strategy 9. Strategic Brand Management 10. Value Chain Strategy 11. Pricing Strategy 12. Promotion, Advertising and Sales Promotion Strategies 13. Sales Force, Internet, and Direct Marketing Strategies 14. Designing Market-Driven Organizations 15. Marketing Strategy Implementation And Control

Chapter 9

Strategic Brand Management

McGraw-Hill/Irwin

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

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STRATEGIC BRAND MANAGEMENT


Strategic Brand Management Strategic Brand Analysis Brand Equity Measurement and Management Brand Identity Strategy Managing Brand Strategy Managing the Brand Portfolio Brand Leveraging Strategy

STRATEGIC BRAND MANAGEMENT A product is anything that is potentially valued by a target market for the benefits or satisfaction it provides, including objects, services, organizations, places, people, and ideas

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A brand is a name, term, design, symbol, or any other feature that identifies one sellers good or service as distinct from those of other sellers.
American Marketing Association

A compelling logic has been proposed that the distinction between goods and services should be replaced by a view that services are the dominant perspective in the 21st century, consisting of both tangible and intangible components.*
*Stephen LVargo and Robert F. Lusch, Evolving to a New Dominant Logic for Marketing, Journal of Marketing, January 2004, 1-17.

Strategic Role of Brands


A strategic brand perspective requires managers to be clear about what role brands play for the company in creating customer value and share-holder value. FOR BUYERS, BRANDS CAN: reduce customer search costs by identifying products quickly and accurately, reduce the buyers perceived risk by providing an assurance of quality and consistency (which may then be transferred to new products), reduce the social and psychological risks associated with owning and using the wrong product by providing psychological rewards for purchasing brands that symbolize status and prestige.

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FOR SELLERS, BRANDS CAN FACILITATE: repeat purchases that enhance the companys financial performance because the brand enables the customer to identify and re-identify the product compared to alternatives, the introduction of new products, because the customer is familiar with the brand from previous buying experience, promotional effectiveness by providing a point of focus, premium pricing by creating a basic level of differentiation compared to competitors, market segmentation by communicating a coherent message to the target audience, telling them for whom the brand is intended and for whom it is not, brand loyalty, of particular importance in product categories where loyal buying is an important feature of buying behavior.
Source: Marketing Science Institute Report No. 97-422, 1997

Brand Management Challenges*


Internal and external forces create hurdles for product brand managers in their brand building initiatives:
Intense Price and Other Competitive Pressures Fragmentation of Markets and Media Complex Brand Strategies and Relationships Bias Against Innovation Pressure to Invest Elsewhere Short-Term Pressures
*David A. Aaker, Building Strong Brands, 1996, 26-35.

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Responsibility for Managing Products


Product/Brand Management
Planning, managing, and coordinating the strategy for a specific product or brand

Product Group/Marketing Management


Product director, group manager, or marketing manager

Product Portfolio Management


Chief executive at SBU Team of top executives

Strategic Brand Management


Brand Identity Strategy Identity Implementation
BRAND EQUITY MANAGEMENT

Brand Strategy Over Time


STRATEGIC BRAND ANALYSIS

Managing the Brand Portfolio

Leveraging the Brand

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GLOBAL FEATURE

Recharging Sonys Strategy Brand Management

Sir Howard Stringer, a Welsh-born American citizen, was appointed CEO of Sony, the troubled Japanese electronics giant in 2005. Sonys past strategic brand management initiatives had failed to close the digital gap between software/services/content/ devices. During the CEOs first year several cost reduction and portfolio initiatives were implemented to launch the turnaround strategy: The Aibo, a beloved robotic pet, was put to sleep. They shut down the Qualia line of boutique electronics that included a $4,000 digital camera and a $13,000 70-inch television. They eliminated 5,700 jobs and closed nine factories, including one in south Wales. (He took some flak back home for that). They have sold $705 million worth of assets. You probably dont know that Sony owned a chain of 1,221 cosmetics salons and the 18 Japanese outlets of the Maxims de Paris restaurant chain. Theyre gone. Gone, too, is a group of salary-men in their 60s, 70s, and 80s who, after retiring from senior management positions, were given the title of advisor, a tradition established by Sonys founders. That was very symbolic, says Hideki (Dick) Komivama, a Sony executive and key ally of Stringers. The 45 advisors each had a secretary, a car and driver, and worst of all, the ability to gum up decision-making and second-guess people doing real jobs. No more.
Source: Marc Gunther, The Welshman, the Walkman, and the Salary Men, Fortune, June 12, 2006, 72.

STRATEGIC BRAND ANALYSIS


Analyses Product Product Line Portfolio of Product Lines

Market and Customer

Competition

Brand(s)

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Tracking Brand Performance


Performance Objectives

Select Method(s) for Evaluation

Identify Problem Products

Decide How to Resolve the Problem

Product life cycle analysis Financial analysis

Product performance analysis

Analyzing Brand Performance


Research studies Brand positioning analysis

Standardized information services

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Product Life Cycle Analysis


Relevant issues in PLC analysis include:

Determining the length and rate of change of the PLC Identifying the current PLC stage and selecting the product strategy that corresponds to that stage Anticipating threats and finding opportunities for altering and extending the PLC

Product Performance Analysis Managements performance criteria Strengths and weaknesses relative to portfolio Brand Positioning Analysis Perceptual maps for brand comparison Buyer preferences Other Product Analysis Methods Information Services Research studies Financial analysis

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BRAND EQUITY
Company/Customer Value of Brand Name and Symbol of a Product

Determined by the brands set of assets (and liabilities)

Brand Equity
Effective strategic brand management requires that we understand brand equity and evaluate its impact when making brand management decisions: Brand equity is a set of brand assets and liability linked to a brand, its name, and symbol, that add to or subtract from the value provided by a product or service to a firm and/or to that firms customers.*

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

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Measuring Brand Equity. Several measures are needed to capture all relevant aspects of brand equity.** loyalty (price premium, satisfaction/loyalty), perceived quality/leadership measures (perceived quality, leadership/popularity), associations/differentiation (perceived value, brand personality, organizational associations), awareness (brand awareness), and market behavior (market share, price and distribution indices). These components provide the basis for developing operational measures of brand equity.

BRAND IDENTITY STRATEGY


Brand identity is a unique set of brand associations that the brand strategist aspires to create or maintain. These associations represent what the brand stands for and imply a promise to customers from the organization members.*

Four Brand Identity Perspectives Product Organization Person Symbol


* David A. Aaker, Building Strong Brands, 1996, 68.

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Specific Product Private Branding BRAND FOCUS

Line of Products

Combination Branding

Corporate Branding

MANAGING BRAND STRATEGY

Proactive efforts should be devoted to managing each brand over time.

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Strategies for Improving Product Performance


Cost reduction Add new product(s) Product improvement Product line Strategy Alter marketing strategy Eliminate specific product(s)

MANAGING THE BRAND PORTFOLIO


Leverage Commonalities to Generate Synergy Allocate Resources Reduce Brand Identity Damage

BRAND PORTFOLIO OBJECTIVES


Facilitate Change and Adaptation

Achieve Clarity of Product Offerings

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

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Strategies for Brand Strength


Brand-Building Strategies Developing the brand identification strategy Coordinate identity across the organization Brand Revitalization Find new uses for mature brands Add products related to heritage Strategic Brand Vulnerabilities Brand equity can be negative Retailer private brands compete with manufacturer brands Major shifts in consumer tastes Competitive actions Unexpected events

Product Mix Modifications


Motivation for changing the product mix: Increase the growth rate of the business Offer a more complete range of products to wholesalers and retailers Gain marketing strength and economies in distribution, advertising, and personal selling Leverage an existing brand position Avoid dependence on one product line or category

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STRATEGY FEATURE

Limited Brands Shifts its Focus from Apparel to Accessories

Ten years ago apparel represented 70% of Limiteds sales. By 2005 70% of sales were from skin-care products, cosmetics, and lingerie Clothes are increasingly out of fashionafter declines for 3 years, U.S. apparel sales increased only 4% in 2004 to $172.8 billion. Apparel $ sales declines are due to discount pricing and households spending more on electronics, home improvement, and spa services. Limited is trying to make itself over as a high-end Procter & Gamble. Victorias Secret is adding hair and cosmetics lines to its beauty business (has 3 of the top 10 selling fragrances in the U.S.).

Sources: Limited Brands 2005 Annual Report; Value Line; and Amy Merrick, For Limited Brands Clothes Become the Accessories, The Wall Street Journal, March 8, 2005, A1 and A14.

One new product is Tutti Dolci (all sweets), food inspired scentslotion and lip gloss in fragrances like lemon meringue, angel-food cake, and chocolate fondue. Victorias Secret has also accelerated new product development. From 2003 through 2005 Intimate Brands (lingerie and beauty products) accounted for all the corporations operating income. Limited is also partnering with other companies to sell its brands and develop new products. Limited has three business groups: Beauty and Personal Care Lingerie Apparel Apparel is a continuing challenge with 2004 operating margins @ 1.4% compared to over 19% for Bath & Body Works and Victorias Secret. Limited has about 3700 stores. 2005 sales were nearly $9.7 billion with net profits at $51 million.

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BRAND LEVERAGING STRATEGY LINE EXTENSION


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

BRAND EXTENSION

Extensions of the brand name to other product categories --Similar --Dissimilar

LEVERAGING ALTERNATIVES

LINE EXTENSIONS

BRAND EXTENSIONS
Another Product Class Range Brand CoBranding

Horizontal Extension

Vertical Extension Up from Core Brand

Down from Core Brand

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BRAND LEVERAGING IN UPSCALE AND VALUE MARKETS


Vertical Brand Extensions*
Core Brand New Up-Market Brand

New Down-Market Brand

Core Brand

* ONE OF THE MOST DIFFICULT BRAND PORTFOLIO CHALLENGES

MOVING DOWN IS EASY BUT RISKY


Affects perceptions of the brand perhaps even more significantly than other brand management options. We are influenced more by unfavorable information than by favorable information. The brands ability to deliver self-expressive benefits may be reduced. Potential cannibalization problem. Potential failure risk. Problem when the value entry is perceived to be inconsistent with the quality expected from the brand.

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MOVING A BRAND UP
THE DRIVERS
Enhanced Margins at the High End Energy & Vitality Enhance Credibility and Prestige of the Brand

THE RISKS OF DAMAGING THE CORE BRAND


Lacks Credibility Lacks Self-Expressive Benefits Falls Short of Expectations

BRAND EXTENSION DECISIONS


Extending into Different Product Classes THE PROCESS Identify product categories for which the product fits and adds value. Determine existing brand associations and the brand identity. Identify related product category opportunities Screening should be limited Evaluate each category Attractive Growing Good margins Competition Assets/Capabilities Select the most promising extension concept Develop a viable Brand Strategy

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CO-BRANDING
Co-branding (dual branding) involves two or more established brands making a joint offer of their product brands The participants brand names are identified on the good or service. Several different forms Component co-branding (Volvo and Michelin) Same company co-branding Alliance co-branding (Delta and American Express) Ingredient co-branding

BRAND LEVERAGING EVALUATION CRITERIA


Brand Relevance/Differentiation Capabilities/Perceived Value Match Market/Segment Opportunity Cannibalization Risks Potential for Core Brand Damage Clarity of Product Offerings Estimated Financial Performance Brand Equity Impact

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SEVEN DEADLY SINS OF BRAND MANAGEMENT*


Failure to fully understand the meaning of the brand. Failure to live up to the brand promise. Failure to adequately support the brand. Failure to be patient with the brand. Failure to adequately control the brand. Failure to properly balance consistency and change with the brand. Failure to understand the complexity of brand equity measurement and management.
*Kevin Lane Keller, Strategic Brand Management, Prentice Hall, 2003, 736.

Strategic Marketing
1. Imperatives for Market-Driven Strategy 2. Markets and Competitive Space 3. Strategic Market Segmentation 4. Strategic Customer Relationship Management 5. Capabilities for Learning about Customers and Markets 6. Market Targeting and Strategic Positioning 7. Strategic Relationships 8. Innovation and New Product Strategy 9. Strategic Brand Management 10. Value Chain Strategy 11. Pricing Strategy 12. Promotion, Advertising and Sales Promotion Strategies 13. Sales Force, Internet, and Direct Marketing Strategies 14. Designing Market-Driven Organizations 15. Marketing Strategy Implementation And Control

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Chapter 10

Value Chain Strategy

McGraw-Hill/Irwin

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

Value Chain Strategy


Strategic role of value chain Channel strategy Managing the channel International channels

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Dells dilemma
Business built around powerful direct business model Direct model poor fit with customer preferences in new target markets and weak on service Dell is braodening business model
Targeting computer re-sellers Global retail strategy (including Wal-Mart, Dellbranded stores, kiosks in malls)

Redesigning value chain is critical strategic move

Strategic role of value chain (1)


Distribution functions
Buying and selling Assembly Transportation Financing Processing and storage Advertising and sales promotion Pricing Reduction of risk Personal selling Communications Servicing and repairs

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Value chain structures - consumer products


Consumer Products Producers

Supply Chains

Sales Agents

Direct Channel

Wholesalers

Wholesalers

Retailers

Retailers

Retailers

Consumers

Value chain structures - organizational products


Organizational Products Producers

Supply Chains

Sales Agents

Sales Agents

Direct Channel

Distributors

Distributors

Distributors

Re-sellers

Organizational Customers

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Strategic role of value chain (2)


Channels for services Direct distribution by manufacturers
Buyer considerations Competitive considerations Product characteristics Financial and control considerations

Factors Favoring Distribution by Manufacturer


Profit margins adequate to support distribution organization Complete line of products Opportunity for competitive advantage

Rapidly changing market environment Early stages of product life cycle

Distribution by the manufacturer

Purchases are large and infrequent Small number of geographically concentrated buyers Supporting services are required

Complex product application Extensive purchasing process

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Branded manufacturers enter retail


Nespresso (Nestle) coffee boutiques to establish lifestyle brand Heineken branded beer bars in airports and retail Strategic logic is to avoid control of third-party retailers over brand Move from selling A product in a box to offering a superior service experience for the brand

Channel strategy (1)


Types of channel Conventional channel Vertical marketing systems Ownership VMS Contractual VMS Administered VMS Relationship VMS Horizontal marketing systems Digital channels Product digitization Channel digitization

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Channel strategy selection

1. Type of distribution channel Conventional Vertical marketing system Administered/ Relationship Horizontal marketing system

Ownership

Contractual 2. Intensity of distribution

Intensive

Selective 3. Channel configuration

Exclusive

Channel strategy (2)


Distribution intensity Intensive Exclusive Selective Channel configuration End-user considerations Product characteristics Manufacturer's capabilities and resources Required functions Availability and skills of intermediaries

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Channel strategy (3)


Channel maps Selecting the channel strategy
Market access Value-added competencies Financial considerations Flexibility and control considerations Channel strategy evaluation

Illustrative channel map for heating units


Production = 100,000 units
Direct sales = 10,000 units 84,000 units Independent Distributors 42,000 units Construction SubContractors 40,000 units 2,000 units 5,000 units Domestic Customers (15,000 units) 75,000 units 7,000 units

Consumption = 100,000 units


Commercial Construction Companies (85,000 units)

42,000 units Production Of Central Heating Boilers 5,000 units Direct sales = 1,000 units Small Hardware Retailers Large Hardware Retailers

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Channel strategy (4)


Changing channel strategy
Channel strategy modification Channel migration Channel audit

Illustrative Channel Strategy Evaluation


Evaluation Criteria Market access Manufacturers Representatives Rapid Company Salesforce 1 to 3 year development High $30 million Medium to low $3.6 million** 12% Limited Good

Value-added competencies Sales forecast (2 years) Forecast accuracy Estimated costs Selling Expense (cost/sales) Flexibility Control *

Medium $20 million High $2 million* 10% Good Limited

Includes 8% commission plus management time for recruiting and training representatives.

** Includes $150,000 for 10 salespeople, plus management time.

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Managing the Channel (1)


Channel leadership Management structure and systems Physical distribution management
Supply chain strategy The impact of supply chain management on marketing E-procurement

Efficient Consumer Response


4 Traditional channel problems
Forward buying and diverting Excessive inventories Damages and unsaleable goods Complex deals and deductions Too many promotions and coupons Too many new products 4 Efficient Consumer Response Category management Value pricing replaces promotions Continuous replenishment and cross-docking Electronic data interchange New performance measures New organizational processes and structures Internet-based network for supplier-buyer trading

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Lean Supply Chain Elements


1. Definition of Value

2. Identification of Value Streams and Removal of Muda (Waste) 3. Organizing Around Flow, Instead of Batch and Queue 4. Responding to Pull Through the Supply Chain

5. The Pursuit of Perfection

Marketing/supply chain relationship


Focus on real drivers of customer value not just technical Do not create inflexibility and inability to respond to change Protect brands and competitive strength over short-term cost savings Do not confuse supply chain strategy with competitive advantage

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Managing the channel (2)


Channel relationships Degree of collaboration Commitment and trust among channel members Power and dependence Channel globalization Multichanneling Conflict resolution Channel performance Legal and ethical considerations

Channel metrics
Performance Objective Possible Measures Applicable Product and Channel Level

PRODUCT AVAILABILITY Coverage of relevant retailers In-store positioning Percent of effective distribution Percent of shelf facings or display space gained by product, weighted by store importance Frequency of sales calls by customer type; average delivery time Consumer products at retail level Consumer products at retail level

Coverage of geographic markets

Industrial products; consumer goods at wholesale level

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Channel metrics
Performance Objective Possible Measures Applicable Product and Channel Level

PROMOTIONAL EFFORT Effective point-ofpurchase (POP) promotion Percent of stores Consumer products using special at retail level displays and POP materials, weighted by importance of store Percent of Industrial products; salespeoples time consumer durables at all devoted to product; channel levels; consumer number of salespeople convenience goods at receiving training on wholesale level products characteristics and applications

Effective personal selling support

Channel metrics
Performance Objective Possible Measures Applicable Product and Channel Level CUSTOMER SERVICE Installation, training and repair Number of service technicians receiving technical training; monitoring of customer complaints Industrial products, particularly those involving high technology; consumer durables at retail level

MARKET INFORM,ATION Monitoring sales trends, inventory levels, competitors actions Quality and timeliness of information obtained All levels of distribution

COST-EFFECTIVENESS Cost of channel Functions relative To sales volume Middleman margins and marketing costs as percent of sales All levels of distrbution

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Value chain ethics


Retailers Global Social Compliance Program Growing green consumer pressure B2B suppliers increasingly mandated to meet customers values in employment practices, environmental standards, ethical behavior

International channels
Examining international distribution patterns Factors affecting global channel selection Global issues regarding multichannel strategies

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International Channel of Distribution Alternatives


Home country Foreign country
The foreign marketer or producer sells to or through

Domestic producer or marketer sells to or through

Open distribution via domestic wholesale middlemen

Exporter

Importer

Foreign agent or merchant wholesalers

Foreign retailer

Foreign consumer

Export management company or company sales force

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

Strategic Marketing
1. Imperatives for Market-Driven Strategy 2. Markets and Competitive Space 3. Strategic Market Segmentation 4. Strategic Customer Relationship Management 5. Capabilities for Learning about Customers and Markets 6. Market Targeting and Strategic Positioning 7. Strategic Relationships 8. Innovation and New Product Strategy 9. Strategic Brand Management 10. Value Chain Strategy 11. Pricing Strategy 12. Promotion, Advertising and Sales Promotion Strategies 13. Sales Force, Internet, and Direct Marketing Strategies 14. Designing Market-Driven Organizations 15. Marketing Strategy Implementation And Control

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CHAPTER 11 PRICING STRATEGY Strategic Role of Price Analyzing the Pricing Situation Selecting the Pricing Strategy Determining Specific Prices and Policies

McGraw-Hill/Irwin

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

Pricing Decisions are Creating Major Challenges for Many Companies


Examples Include: Threats to major airlines by discount carriers. Pressures on drug companies to reduce prices. Intense price competition on supermarket chains by Wal-Mart and Costco. Aggressive discounting by U.S. automobile producers to retain market share. Threats to strong brands by counterfeit products.

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STRATEGIC ROLE OF PRICE


requires that we put pricing at the beginning of the process. For example, a multi-part marketing strategy usually is required in value-based pricing. Airlines complicated service packages with arcane restrictions, and their multiple channels of distribution must support pricing that reflects different values of the service to different segments. Without such a strategy, airlines would capture a much smaller portion of the value they have the potential to create.
T. Nagle, Marketing News, 11/9/98, 4.

Price in the Positioning Strategy


Target market and objectives

Product strategy

Positioning Strategy

Value-Chain strategy

Pricing strategy

Promotion strategy

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Pricing Situations New product pricing Life cycle pricing Changing positioning strategy Countering competitive threats

Various Roles of Pricing

Signal to the Buyer Marketing Program Considerations Instrument of Competition

Improving Financial Performance

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Pricing Strategy for New and Existing Products


Set Pricing Objectives Analyze the Pricing Situation

Select Pricing Strategy

Determine Specific Prices and Policies

Examples of Pricing Objectives Gain market position Achieve financial performance Product positioning Stimulate demand Influence competition

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ANALYZING THE PRICING SITUATION


Customer Price Sensitivity Pricing Objectives Analyzing the Pricing Situation

Product Costs

Competitors Likely Responses

Customer Price Sensitivity


1. How large is the product-market in terms of buying potential? 2. What are the market segments and what market target strategy is to be used? 3. How sensitive is demand in the segment(s) to changes in price? 4. How important are nonprice factors, such as features and performance? 5. What are the estimated sales at different price levels?

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Buyers Perceptions of Value Offerings of Brands A-E

Perceived Value

Superior Value Zone D

A B E

C Inferior Value Zone

Perceived Price

Cost Analysis for Pricing Decisions


Determine the components of the cost of the product. Estimate how cost varies with the volume of sales. Analyze the cost competitive advantage of the product. Decide how experience in producing the product affects costs. Estimate how much control management has over costs.

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Competitor Analysis
Which firms represent the most direct competition Competitors positioning on a relative price basis Competitors success with their pricing strategies Competitors probable responses to alternative price strategies

SELECTING THE PRICING STRATEGY How much flexibility exists? How to position price relative to costs? How visible to make the price of the product?

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Determinants of Pricing Flexibility

Demand

Competition

Demand-Cost Gap

Pricing Objectives

Costs

Determining Feasible Prices


Price too high; little or no demand

Range of feasible prices

Price Ceiling Nature of demand in target market Business and marketing strategy Product differentiation Competitors prices Prices of substitutes Price Floor Product costs

Price too low; no profit possible

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Above Competition

Skim strategy

Neutral strategy (same as competition)

Below Competition

Penetration strategy

Diplomacy rather than force

Select competitive confrontations

Competitive Pricing Issues

Target segments instead of volume

Signaling

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

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Illustrative Price Strategies


Active strategy

Low relative price

Lowactive strategy Lowpassive strategy Passive strategy

Highactive strategy Highpassive strategy

High relative price

DETERMINING SPECIFIC PRICES AND POLICIES Selecting Specific Prices Policies to Manage Pricing Strategy Special Pricing Issues

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Basis of Determining Specific Prices

Cost

Demand

Competition

Establishing Pricing Policy and Structure


Policy Discounts, allowances, returns, and other operating guidelines Pricing Structure Product mix and line pricing relationships How individual items in the line are priced in relation to one another

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Managing Pricing Strategy


1.

The more that the competitors and customers know about your pricing, the better off you are. In an information age, it is necessary to be transparent about prices and the value of a firms offerings. In highly competitive markets, the focus should be on those market segments that provide opportunities to gain competitive advantage. Such a focus leads to a value-oriented pricing approach. Pricing decisions should be made within the context of an overall marketing strategy that is embedded within a business or corporate strategy. Successful pricing decisions are profit oriented, not sales volume or market share oriented.

2.

3.

4.

Source: Adapted from Kent B. Monroe, Pricing, 3rd ed. (Burr Ridge, IL.: McGraw-Hill/Irwin, 2003) 624-6.

Managing Pricing Strategy


5. 6. 7. 8. 9.

10.

Prices should be set according to customers perceptions of value. Pricing for new products should start as soon as product development begins. The relevant costs for pricing are the incremental avoidable costs. A price may be profitable when it provides for incremental revenues in excess of incremental costs. A central organizing unit should administer the pricing function. Generally, it is better to avoid letting salespeople set price, especially without access to profitability information and specific training in pricing and revenue management. Pricing management should be viewed as a process and price setting as a daily management activity, not a once-a-year activity.

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Special Pricing Situations


Price Segmentation Value Chain (Distribution Channel) Pricing Price Flexibility Product Life Cycle Pricing

Strategic Marketing
1. Imperatives for Market-Driven Strategy 2. Markets and Competitive Space 3. Strategic Market Segmentation 4. Strategic Customer Relationship Management 5. Capabilities for Learning about Customers and Markets 6. Market Targeting and Strategic Positioning 7. Strategic Relationships 8. Innovation and New Product Strategy 9. Strategic Brand Management 10. Value Chain Strategy 11. Pricing Strategy 12. Promotion, Advertising and Sales Promotion Strategies 13. Sales Force, Internet, and Direct Marketing Strategies 14. Designing Market-Driven Organizations 15. Marketing Strategy Implementation And Control

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CHAPTER 12

Promotion, Advertising, and Sales Promotion Strategies Promotion Strategy Advertising Strategy Sales Promotion Strategy
McGraw-Hill/Irwin Copyright 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

PROMOTION STRATEGY
The Composition of Promotion Strategy Developing Promotion Strategy Communications Objectives Deciding the Role of the Promotion Components Determining the Promotion Budget Promotion Component Strategies Integrating and Implementing the Promotion Strategy Effectiveness of Promotion Strategy

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Promotion Strategy:
planning, implementing, and controlling an organizations communications to its customers And other target audiences.

Composition of Promotion Strategy


Interactive/Internet Marketing Direct Marketing Personal Selling Public Relations Advertising Promotion Components Sales Promotion

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U. S. Annual Expenditures (billions)

$600 $400

Sales Promotion Personal Selling

Advertising

$200 0

INTERNET FEATURE

Brand Advertising On-Line Has Taken Off

SEARCH WORKS Google and Yahoo! Have demonstrated the power of the Web by using customers search queries to connect them with advertisers. CUSTOMERS ARE ONLINE More than half of American households have always-on Net connections. And the Web reaches millions at the office. The Big Three portalsYahoo, AOL, and MSNreach a combined 50 million a day-twice the TV audience of a World Series game. VIDEO ROCKS The adoption of broadband, which can handle videos, lets advertisers put TV-like ads online. Longer spots by BMW and Adidas have reached cult status. As demand for video soars, portals sell choice slots in advance, much like TVs up-front sales. FEEDBACK IS INSTANT Marketers and online publishers have tools to track an ads performance in real time allowing them to make quick adjustments if customers arent clicking. This turns the Net into a vast marketing lab. And as video grows, it becomes a test bed for TV ads. CUSTOMERS LEAVE TRAILS It was an empty promise during the dot-com days, but now advertisers have the technology to follow customers, click by click, and to hit them with relevant ads. The upshot? No wasted money peddling dog food to cat owners.
Source: Stephen Baker, The On-Line Ad Surge, BusinessWeek, November 22, 2004, 79.

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DESIGNING THE PROMOTION STRATEGY


MARKET TARGETING AND POSITIONING STRATEGIES COMMUNICATION OBJECTIVES ROLE OF PROMOTION COMPONENTS
Advertising Sales Promotion Public Relations Personal Selling Direct Marketing Interactive/ Internet Marketing

PROMOTION BUDGET
Coordination with Product, Distribution, and Price INTEGRATE AND IMPLEMENT PROMOTION Strategies

PROMOTION COMPONENT STRATEGIES

COMPONENT STRATEGIES EVALUATE EFFECTIVENESS OF PROMOTION STRATEGY

Illustrative Communications Objectives


Need Recognition Finding Buyers Brand Building Evaluation of Alternatives Decision to Purchase Customer Retention

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Deciding the Role of the Promotion Components


Expected contribution for each of the promotion components. Which communication objective(s) will be the responsibility of each component? What part of the budget will go to each component?

Factors Guiding the Role Assigned to Each Component


Market Target(s) Desired Positioning Role of Promotion in Positioning Product Characteristics Stage of Life Cycle Situation Specific Factors

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Determining the Promotion Budget


Objective and Task

All You Can Afford

Budgeting Approaches

Percent of Sales

Follow the Competition

Budgeting Methods
Features
Percent of Sales Fixed percent of sales, often based on past expenditure patterns.

Limitations
Percent of Sales The method is very arbitrary. Budget may be too high when sales are high and too low when sales are low. Comparative Parity Differences in marketing strategy may require different budget levels.

Comparative Parity Budget is based largely upon what competition is doing.

Objective and Task Set objectives and then determine tasks (and costs) necessary to meet the objectives.

Objective and Task The major issue in using this method is deciding the right objectives so measurement of results is important.

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Integrating and Implementing Promotion Strategy


Avoiding fragmentation Difficulty in evaluating productivity Differences in priorities Separate organizational units Assigning integration responsibility

Illustrative Factors Affecting Promotion Strategy


Advertising/ sales promotion driven Balanced Personal selling driven

Large Low Small

Number and dispersion of buyers Buyers information needs Size and importance of purchase Distribution

Small High Large Direct High Yes

Channel Product Complexity Low No Post-purchase contact required

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Promotion Strategy Issues


Expense/Response Relationships Allocation Impact on Brand Equity Integration of Promotion Components Effectiveness of the Strategy

ADVERTISING STRATEGY
Setting Objectives and Budgeting Creative Strategy Media/Scheduling Decisions Role of the Advertising Agency Program Implementation and Measuring Effectiveness

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The Internet is Shifting the Power Position to the Customer


How the Money is Spent is Changing. The Amount Spent on Internet Advertising is a Small Fraction of the Total, but Very Powerful and Growth is Accelerating. Consumers Spend 10 hrs/person/day with Media of all KindsHow Much is Media Multi-Tasking? Ad Spending Versus Consumers Time Allocations. Advertising Agency Consolidation and Reorganization the Big 4. Do Companies Recognize the Revolutionary Implications of Newly Empowered Consumers? The Internet Will be the Most Prominent Medium in the Lives of the 18-34 Age Group.
Source: The Economist, Crowned at Last: A Survey of Consumer Power, April 2, 2005, 1-16.

Advertising Strategy
Target Audience Advertising Objectives Advertising Budget

Creative Strategy

Advertising Media and Programming Schedules Evaluate the Effectiveness of the Strategy

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Advertising Objectives
Expose communication to target audience Create awareness

Change attitude(s)

Increase Sales

Generate profits

Alternative Levels for Setting Advertising Objectives


Increasing Uncertainty About Impact on Purchasing Behavior Type of Objective Exposure Awareness Attitude Change Sales Profit

Increasing Difficulty of Measurement

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Budget Determination
OBJECTIVE AND TASK METHOD HAS THE MOST SUPPORT

Budget Determination Media/ Scheduling Decisions Creative Strategy

The Vuitton Machine*


Inside the worlds biggest, most profitable luxury brand BENCHMARKING VUITTON
Brand 2003 Sales Billions Percent Change* Operating Margin

Louis Vuitton Prada Gucci** Herms Coach

$3.80 1.95 1.85 1.57 1.20

+16% 0.0 -1.0 +7.7 +34.0

45.0% 13.0 27.0 25.4 29.9

*At constant rate of exchange **Gucci division of Gucci Group Data: Company reports. BW

Vuitton increased advertising 20% in 2003spends only 5% of revenues on advertisingabout half the industry average

*BusinessWeek, March 22, 2004, 98-102.

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CREATIVE STRATEGY
The creative strategy is guided by the market target and the positioning strategy.

Product

Distribution

Price

Promotion Advertising

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

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

Creative Strategy

Media/Scheduling Decision
Television Radio Magazines Online Website Outdoor

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Relative access to the target audience

Favorable zone

Unfavorable zone Relative cost of reaching the target group(s)

Advertising Agencies in Perspective


Fast change has come to the advertising industry. Huge, integrated agencies face a challenging future. Do clients want a full-service agency? The business model is in need of change. The basis of compensation continues to be debated and altered. Specialists (e.g. media buying services) are being used. Importantly, the core of the creative process is the agency. Several methods are available to evaluate advertising results.

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Role of the Advertising Agency


Target Audience Advertising Objectives

Advertising Budget

Creative Strategy

Advertising Agency
Advertising Media and Programming Evaluate the Effectiveness of the Strategy

Advertising Strategy Implementation and Effectiveness


Decide how to measure effectiveness before implementing the strategy. Assign responsibility for tracking performance. Assessing the quality of advertising is important. Exposure to advertising is not a very sensitive measure of effectiveness. Several methods are available to evaluate advertising results.

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Rating Services Test Marketing Sales and Expense Analysis

MEASURING ADVERTISING EFFECTIVENESS


Recall Tests

Controlled Tests

SALES PROMOTION STRATEGY


SALES PROMOTION consists of various incentives, mostly short term, intended to stimulate quicker and/or greater purchase of particular goods/services by consumers or the trade.

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STRATEGY FEATURE

The Realities of Mail-in Rebates

Consumers hate the hassles, companies love unredeemed rebates, and regulators are investigating the consumer complaints. As much as 40% of rebates never get redeemed. Some 400 million rebates are offered each year with a total value of $6 billion. Unclaimed rebates translate into more than $2 billion of extra revenue for retailers and their suppliers each year. Complex filing rules and long delays discourage consumers. Companies emphasize the filing processes are intended to discourage fraud. The largest rebate processor monitors 10,000 addresses suspected of submitting bogus rebates. Rebates offer companies an opportunity to promote small discounts without marking the products down. Rebates have become very popular with computer and consumer-electronics companies.

The value of rebates has also increased. Regulators are intensifying their scrutiny of the companies offering rebates. The developing back-lash against rebates is pushing some companies to halt rebate strategies. Others are encouraging online filing. Fulfillment houses are revising their processing systems, using computer technology to validate claims. Consumers would like mail-in rebates to go away but want the best price they can get.

Source: Brian Grow, The Great Rebate Runaround, BusinessWeek, December 5, 2005, 34, 36, and 37.

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Sales Promotion Activities and Targets


Activities include trade shows, specialty advertising, contests, displays, coupons, recognition programs, and free samples. SALES PROMOTION TARGETS
Consumer Buyers Salespeople Business Buyers Value Chain

Strategic Marketing
1. Imperatives for Market-Driven Strategy 2. Markets and Competitive Space 3. Strategic Market Segmentation 4. Strategic Customer Relationship Management 5. Capabilities for Learning about Customers and Markets 6. Market Targeting and Strategic Positioning 7. Strategic Relationships 8. Innovation and New Product Strategy 9. Strategic Brand Management 10. Value Chain Strategy 11. Pricing Strategy 12. Promotion, Advertising and Sales Promotion Strategies 13. Sales Force, Internet, and Direct Marketing Strategies 14. Designing Market-Driven Organizations 15. Marketing Strategy Implementation And Control

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CHAPTER 13

SALES FORCE, INTERNET, AND DIRECT MARKETING STRATEGIES


Sales Force Strategy Internet Strategy Direct Marketing Strategies

McGraw-Hill/Irwin

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

SALES FORCE STRATEGY


A companys sales force strategy determines how the organization will use the personal selling function to maintain contact with customers and develop the relationships that management wants in order to achieve marketing and promotion objectives.

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RELATIONSHIP FEATURE

The Vital Role of Selling at the Boeing Co.

During the 2000s Boeing experienced an intense competitive battle against Airbus for control of the commercial jetliner market. Airbus was winning the battle until 2005 when Boeings Asia-Pacific jet sales were $26 billion compared to Airbus $9 billion. Under a new CEO management gave salespeople much more control over selling strategy compared to previous tight and rigid control by top management. Boeing lost many sales to Airbus because of top managements unwillingness to give competent professionals flexibility in negotiating sales. Salespeople like Larry Dickenson, Boeings top salesman who covers the Asia-Pacific market, builds on over 18 years of relationships with airlines like Cathay Pacific, Quantas Airways Ltd., and Singapore Airlines, Ltd., to negotiate winning contracts. Importantly, Dickenson carefully plans and executes each sales campaign, overseeing every detail in the process that may span several years. The strategy is a combination of attractive pricing, financing, and leasing arrangements in combinations with training and service packages.
Source: Stanley Holmes, Boeings Jet Propellant, BusinessWeek, December 26, 2005, 40.

Sales Force Strategy


Determine the role of the sales force in promotion strategy Define the selling process (how selling will be accomplished) Decide if and how alternative sales channels will be utilized Design the sales organization Recruit, train, and manage salespeople

Evaluate performance and make adjustments where necessary

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Challenges in Selling and Sales Management


Two sets of ethical dilemmas are of particular concern to sales managers. The first set is embedded in the managers dealings with the salespeople. Ethical issues involved in relationships between a sales manager and the sales force include such things as fairness and equal treatment of all social groups in hiring and promotion, respect for the individual in supervisory practices and training programs, and fairness and integrity in the design of sales territories, assignment of quotas, and determination of compensation and incentive rewards. Ethical issues pervade nearly all aspects of sales force management. The second set of ethical issues arises from the interactions between salespeople and their customers. These issues only indirectly involve the sales manager because the manager cannot always directly observe or control the actions of every member of the sales force. But managers have a responsibility to establish standards of ethical behavior for their subordinates, communicate them clearly, and enforce them vigorously.
Source: Mark W. Johnston and Greg W. Marshall, Sales Force Management, 7th ed., Burr Ridge, IL: McGraw-Hill/Irwin, 2003, 21.

Business and Marketing Strategy Influences on Sales Strategy


Business Strategy Promotion Strategy Market Target(s) Strategy Product Strategy Distribution Strategy

SALES STRATEGY
Pricing Strategy

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Marketing productivity crisis

Escalating customer expectations Intense global competition

SALES FORCE CHALLENGES


Blurring of industry boundaries Mergers and acquisitions Technology Advances

Range of Selling Roles


Transactional Selling

Consulting-Type Relationships

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Defining the Selling Process


Finding Prospects Opening the Relationship

Qualifying the Prospect Presenting the Sales Message

Closing the Sale Servicing the Account

Source: Mark W. Johnston and Greg W. Marshall, Sales Force Management, McGraw-Hill/Irwin, 2003, 51-56.

The Selling Process Guides


Recruiting Training Effort Allocation Organizational Design Selling Support Activities

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Selecting Sales Channels to End Users


Major Account Management Field Sales Force Telemarketing Electronic/Mail Contact

DESIGNING THE SALES ORGANIZATION

Organizational Structure

Deployment of Selling Effort

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Sales Force Deployment


Size of the Sales Force Allocation of Selling Effort Salesperson skills and effort PLUS Market potential Number and location of customers Intensity of competition Market (brand) position of the company

Designing the Sales Organization


Customer needs different

Market-Driven design Product/ Market-Driven design


Simple product offering Complex range of products

Geography-Driven design

ProductDriven design

Customer needs similar

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Selecting an Organizational Design


What is the selling job? How much customer/product specialization is necessary? Role of value chain (channel) relationships? How many sales management levels (hierarchy versus process)? Will sales teams be used? Sales channels in addition to the field sales force? Are there any sales structure danger signals (high costs, turnover, large sales variations across territory?

INTERNET FEATURE

Salesforce.com Makes People More Productive

Salesforce.com is an interesting example of a dot-com start-up which has developed a successful business model supplying customer management software over the Net for use by salespeople. A key feature of the software is that it is sold as a service to customers at a monthly charge for each individual user. Salesforce.com has nearly 450,000 subscribers @ 22,700 companies worldwide. Salesforce.com illustrates how Internet information technology can enhance the capabilities and efforts of salespeople. By replacing large up-front software purchases with monthly service charges, Salesforce.com offers customers a compelling value opportunity. Since this feature can be duplicated by software competitors such as Siebel Systems, Oracle, and PeopleSoft, Salesforce.com may have difficulty sustaining its competitive edge. CEO Marc Benioff launched a new product initiative in 2005 intended to strengthen Salesforce.coms competitive edge. AppExchange is an online market place enabling software firms and customers to trade and sell applications they develop. There will be no charge for the eBay like service but Benioff expects to expand demand for the firms software.
Source: Salesforce.com website and An eBay for Business Software, BusinessWeek, September 19, 2005, 78-79.

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Sales Force Size Example


Sales

40
Current level

35
Maximum profit contribution level

30

25
Gross profit contribution

20
Selling expense

15

10

60

70

Number of salespeople

80

90 100 110

Managing the Salesforce


Finding and Selecting Salespeople Training/Development Management Control Monitoring Directing Evaluating Rewarding

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STRATEGY FEATURE

Wyeth Reorganizes the Sales Force to Improve Productivity

Wyeths changes in the sales organization are driven by concerns of physicians about duplicated sales coverage and the need to improve salesforce productivity. The prior approach of multiple salespeople calling on doctors to market the same drugs is being changed. Out of Wyeths salesforce of 5000, about half call on primary-care doctors. As many as 750 nay be cut or reassigned. The selling strategy is to reduce the frequency of sales calls, while making each more worthwhile. Initiatives include assigning each salesforce responsibility for more drugs, reducing sales calls on the doctors who write the fewest prescriptions, and utilizing a part-time sales force for coverage of selected accounts, and use of Internet-based seminars.
Source: Scott Hensley, Wyeth to Revamp, Cut Its Sales Force, The Wall Street Journal, June 20, 2005, A3, A6.

Sales Force Evaluation and Control


Performance Measures
Focus on Management Control and/or Outcomes?

Performance Standards

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Reinventing the Sales Organization


Customer Relationships

Performance Huddles

SALES MANAGER CHALLENGES

Sales Structure

Keeping Score

INTERNET STRATEGY
Strategy Development Deciding Internet Objectives E-Commerce Strategy Value Opportunities and Risks Measuring Internet Effectiveness The Future of the Internet

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Internet Strategy Alternatives


Promotional Medium

Communication Tool

Value-Chain Channel

Separate Business Model

Deciding Internet Objectives

Creating Awareness and Interest Information Dissemination Obtaining Research Information Brand Building Improving Customer Service

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Designing Internet Strategy


1. Customer Groups Targeted 2. Value Proposition 3. Communications Strategy 4. Designing the Website 5. Structure of the Organization 6. Alliance Partners 7. Shareholder Value 8. Tracking Performance

Measuring Internet Effectiveness


Challenging but capabilities are developing. What should be measured and how? Major changes are likely through trial and error. Alternative measures: Ad impressions, clicks, unique visitors, total visits, page impressions

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E-Tailing Finally Hits Its Stride


The E-tail Effect
How e-commerce is shaking up the retail landscape: THE BIG GUNS ARRIVE After early struggles, online sales at brick-and-mortar giants such as Wal-Mart, Sears, and Gap are soaring. These chains are also using the Web to test new products and move into new markets. NICHES GO NATIONAL More and more niche players are succeeding by offering variety rivals cant match. Luggage seller eBags, for example, is able to stock 12,000 styles, compared with 250 in a typical store. SEARCH LENDS A HAND Using Google and similar Websites, consumers can search far and wide for specialized products say, stainless-steel farm sinks. Thats creating markets for lesser known brands and new merchants. MORE PRICING PRESSURES Shoppers are increasingly using price-comparison sites such as Shopping.com and Shopzilla. The result: Ever more cutthroat competition for brick-and-mortar and online stores alike.
Source: E-Tailing Finaly Hits Its Stride, BusinessWeek, December 20, 2004, 36-37.

The Future of the Internet

Revolutionary for certain industries and incremental for others.

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DIRECT MARKETING
Kiosk Shopping Catalogs

Electronic Shopping

DIRECT MARKETING

Direct Mail

Radio/Magazine/ Newspaper

Telemarketing Television

Advantages of Direct Marketing


Socio-economic Trends Time constraints/ convenience Low Access Costs Much lower than face-to-face contact Data Base Management Facilitates direct marketing initiatives Value An attractive bundle of value

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Strategic Marketing
1. Imperatives for Market-Driven Strategy 2. Markets and Competitive Space 3. Strategic Market Segmentation 4. Strategic Customer Relationship Management 5. Capabilities for Learning about Customers and Markets 6. Market Targeting and Strategic Positioning 7. Strategic Relationships 8. Innovation and New Product Strategy 9. Strategic Brand Management 10. Value Chain Strategy 11. Pricing Strategy 12. Promotion, Advertising and Sales Promotion Strategies 13. Sales Force, Internet, and Direct Marketing Strategies 14. Designing Market-Driven Organizations 15. Marketing Strategy Implementation And Control

Chapter 14

Designing Market-Driven Organizations

McGraw-Hill/Irwin

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

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Designing market-driven organizations


Trends in organization design Organizing for market-driven strategy Marketing departments Structuring marketing resources Organizing for global marketing and global customers

Designing market-driven organizations


Procter and Gamble Global restructuring to improve innovation and competitiveness Global business units for products and market development units to tackle local market issues Change agents appointed to work across business units Virtual innovation teams work through intranet Organization design supports clear strategies so all business disciplines can work together

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Trends in organization design (1)


The New Organization Traditional structures Centralized, vertical, command and control Organizational design shifts Innovation The knowledge-based worker Managing culture Collaborative working Informal networks Organizational diversity and external relationships

Organization costs
Cadbury Schweppes - worlds largest confectionery business Restructuring at cost of $900 million Organizational structure has become too complex with too many overlaps Organizational costs account for 20% of turnover - compared to 12% at competitors Reorganization is central to regaining competitiveness

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Trends in organization design (2)


Managing organizational processes Organizational agility and flexibility
Zara Toyota

Employee motivation
MySpace Generation

Alternative Organizational Structures


Traditional Hierarchy Functional Structure Process Structure Functional Overlay Horizontal Structure Process Overlay

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Process-based organizational structure


Processes that define value e.g. knowledge management, CRM Process Leadership Processes that create value e.g. new product development, innovation Processes that deliver value e.g. logistics, customer service, value chain relationships

Coordination mechanisms to link process and resource leadership

Specialist resource groups support process Managers e.g. functional departments, business units, external collaborators Resource Group Leadership

The Toyota way


Pillar I Challenge Kaizen - continuous improvement Genchi Genbutsu - go and see for yourself Pillar II Respect Teamwork EM2 - Everything Matters Exponentially

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The MySpace Generation


Lives online - social networking sites are a way of life Children of the babyboomers Ambitious, demanding and question everything Work/life balance is very important Expected to be the highest maintenance workforce in history and the most highperforming You raised them, now manage them

Organizing for market-driven strategy (1)


Strategic marketing and organization structure Aligning the organization with the market Informal lateral integration Integrating mechanisms Full customer alignment

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Customer-based front-end organization


Senior Management Mediation from the center

Back-end Units

Shared planning and metrics Internal linkages

Customer-based Front-end Units Solutions customers

Product customers

Organizing for market-driven strategy (2)


Marketing functions versus marketing processes Marketing as cross-functional process The challenge of integration Marketings links to other functions Finance/accounting Operations Sales R&D Customer service Human resource management Approaches to achieving effective integration

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Marketing departments
Centralization versus decentralization Integration or diffusion Contingencies for organizing Evaluating organizational designs

Organizing Concepts
Centralized Formalized Nonspecialized

BUREAUCRATIC
Internal (hierarchical) Organization of Activity

TRANSACTIONAL
External (market) Organization of Activity

ORGANIC

RELATIONAL

Decentralized Nonformalized Specialized

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Structuring marketing resources (1)


Structuring issues Functional organizational design Product-focused design Product/brand management Category management Venture teams New product teams Market-focused design Matrix design

Traditional Marketing Organization Designs


Functional

Matrix

TRADITIONAL DESIGNS
MarketFocused

ProductFocused

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Product-Focused Structure

Marketing Organization Based on a Combination of Functions and Products

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Structuring marketing resources (2)


New marketing roles New marketing specializations Venture marketing organizations Partnering with other organizations Networked organizations

New organizational structure for marketing


Vice President of Marketing

Director of Product Management

Chief Customer Officer

Customer Service

Customer Database

Marketing Research

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The Marketing Coalition Company

Source: Ravi S Achrol, Evolution of the Marketing Organization: New Forms for Turbulent Environments, Journal of Marketing, October 1991, 88.

Organizing for global marketing and global customers


Organizing for global marketing strategies Business functions Organizational issues Coordination and communication Organizing for global customers The growth in global retailers Global account management structures

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Global account management at Microsoft


Single executive/team in charge of single customer and all global needs Restricted to customers by revenue size but also willingness/ability to partner Senior managers encouraged to develop relationships with senior managers at global accounts Global business managers work across business units, functions and organizations

Strategic Marketing
1. Imperatives for Market-Driven Strategy 2. Markets and Competitive Space 3. Strategic Market Segmentation 4. Strategic Customer Relationship Management 5. Capabilities for Learning about Customers and Markets 6. Market Targeting and Strategic Positioning 7. Strategic Relationships 8. Innovation and New Product Strategy 9. Strategic Brand Management 10. Value Chain Strategy 11. Pricing Strategy 12. Promotion, Advertising and Sales Promotion Strategies 13. Sales Force, Internet, and Direct Marketing Strategies 14. Designing Market-Driven Organizations 15. Marketing Strategy Implementation And Control

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Chapter 15

Marketing Strategy Implementation and Control

McGraw-Hill/Irwin

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

Marketing strategy implementation and control


The strategic marketing planning process Implementing the strategic marketing plan Strategic marketing evaluation and control Marketing performance measurement Global issues for planning, implementation and control

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Marketing strategy implementation and control


Fiat - strategic turnaround in auto industry Debts, losses, market share falling, reputation for low quality, diversification Recovery strategy of radical restructuring, dismantling management and bureaucracy Marketing, operations and R&D overhauled small car focus Range of strategic relationships established

The strategic marketing planning process


The marketing plan guides implementation Contents of the marketing plan Managing the planning process

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Strategy and planning relationships


MARKETING STRATEGY

Annual Marketing Planning

Annual Marketing Planning

Annual Marketing Planning

Implementation Control and Evaluation Revision

Implementation Control and Evaluation Revision

MARKETING PLAN OUTLINE


I. Strategic Situation Summary
Summarize the key points from your situation analysis (market analysis, segments, industry/competition) in order to recount the major events and provide information to better understand the strategies outlined in the marketing plan.

II.

Market-Targets and Objectives

The market target may be defined demographically (key characteristics only), geographically, or in social/economic terms. Each market target should have needs and wants that differ to some degree from other targets. These differences may be with respect to types of products purchased, use situation, frequency of purchase, and other variations that indicate a need to alter the positioning strategy to fit the needs and wants of each target. An objective is a quantified goal identifying what is expected when. It specifies the end results expected. The objectives should be written for each target market. Objectives should also be included for the following program components: (1) product, (2) price, (3) distribution, (4) promotion (salesforce, advertising, sales promotion, and public relations), and (5) technical services.

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MARKETING PLAN OUTLINE


III. Positioning Statements
Write statements that describe how you want each market target to perceive each product relative to competition. State the core concept used to position the product (brand) in the eyes and mind of the targeted buyer. The positioning statement should describe: (1) What criteria or benefits the customer considers when buying a product along with the level of importance, (2) What we offer that differentiates our product from competition, and (3) The limitations of competitive products.

IV.

Market Mix Strategy for Each Market Target

A.

Product Strategy
Identify how each product fits the market target. Other issues that may be addressed would be new product suggestions, adjustments in the mix of existing products, and product deletion candidates.

B.

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

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IV.

Market Mix Strategy for Each Market Target

C. Distribution Strategy Describe specific distribution strategies for each market target. Issues to be addressed are intensity of distribution (market coverage), how distribution will be accomplished, and assistance provided to distributors. The role of the sales force in distribution strategy should also be considered. D. Promotion Strategy Promotion strategy is used to initiate and maintain a flow of communication between the company and the market target. To assist in developing the communications program, the attributes or benefits of our product should be identified for each market target. How our product differs from competition (competitive advantage) should be listed. The sales forces responsibilities in fulfilling the market plan must be integrated into the promotion strategy. Strategies should be listed for (1) personal selling, (2) advertising, (3) sales promotion, and (4) public relations.

E.

Marketing Research Describe the market research problem and the kind of information needed. Include a statement which addresses why this information is needed. The specific market research strategies can be written once the above two steps have been followed.

V.

Coordination with Other Business Functions Indicate other departments/functions that have responsibilities for implementing the marketing plan.

VI. VII.

Sales Forecasts and Budgets Contingency Plans Indicate how your plans should be modified if events should occur that are different from those assumed in the plan.

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Dimensions of Planning Process


Analytical Process Dimension Marketing Planning Process
Techniques Procedures Systems Planning Models Managerial perceptions Participation Strategic assumptions Structure Information Culture

Behavioral Process Dimension Organizational Process Dimension

Process Consistency

Implementing the strategic marketing plan (1)


Implementation process Structural issues Behavioral issues Building implementation effectiveness Organizational design Incentives Communications Internal marketing Comprehensive approach to improving implementation

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Implementation process
Activities to be implemented

Responsibility for implementation

IMPLEMENTATION PROCESS

How implementation will be done

Time and location of implementation

Improving Implementation
Skilled Implementers Effective Communications Organizational Design

Improving Implementation
Internal Marketing Incentives

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Internal Marketing
Strategy Plan

Internal Marketing Program

External Marketing Program

Internal Marketing Program: Targeted at key groups in the company, alliance partner companies, and other influencers

External Marketing Program Targeted at key customers, segments and niches, and other external influencers

Comprehensive Approach to Improving Implementation


Financial Measures

Learning and Innovation Measures

BALANCED SCORECARD MANAGEMENT CONTROL SYSTEM

Customer Measures

Internal Business Process Measures

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Implementing the strategic marketing plan (2)


Internal strategy-organization fit Organizational stretch The role of external organization

Strategic marketing evaluation and control (1)


Customer relationship management Overview of control and evaluation activities Find new opportunities/avoid threats Keep performance in line with expectations Solve specific problems

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Evaluation Activities

Find New Opportunities or Avoid Threats Solve Specific Problems Keep Performance on Target

Evaluation and control


Conduct strategic marketing audit Select performance criteria and choose relevant marketing metrics

Obtain and analyze information

Assess performance and take necessary action

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Strategic marketing evaluation and control (2)


The strategic marketing audit Results provide basis for selecting performance criteria to assess actual performance against lans

Strategic Marketing Audit


4Corporate Mission and Objectives 4Business Composition and Strategies 4Marketing Strategy (for each planning
unit)

4Marketing Program Activities 4Implementation and Management

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Marketing performance assessment (1)


The importance of marketing metrics The use of marketing metrics Types of marketing metrics Selecting relevant metrics Designing a management dashboard

Marketing metrics (A)


Marketing metrics focusing on operations Competitive and customer metrics Profitability metrics Product and portfolio metrics Customer profitability metrics Sales and channel metrics Pricing metrics Promotion metrics Advertising, media and web metrics Financial metrics

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Marketing metrics (B)


Brand equity metrics Familiarity Penetration What they think about the brand What they feel Loyalty Availability Innovation metrics Strategy Culture Outcomes

Marketing metrics (C)


Internal market metrics Awareness of corporate goals Perceived caliber of employer Relative employee satisfaction Commitment to corporate goals Employee retention Perceived resource adequacy Appetite for learning Freedom to fail Customer-brand empathy Internal process metrics E.g., internal communications

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Marketing performance assessment (2)


Interpreting performance measurement results Opportunities and performance gaps Problem/opportunity definition Interpreting information Determining normal and abnormal variability Deciding what actions to take

Global issues for planning, implementation and control


Global marketing planning Additional complexity Simplifying assumptions Limited information availability Accommodate international strategy variability Implementation globally Importance of relationships between domestic and international executives Performance measurement and control globally International markets may require different metrics

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