Master Marketing
1° semester 2012
Strategic Marketing
MARKETING MANAGEMENT
PART 1 – Chapter 1 Defining Definin g Marketing Marke ting for 21 st Century
The importance of marketing The first decade of the 21st century challenged firms to prosper financially and even survive in the face of an unforgiving economic environment. Marketing is playing a key role in addressing those challenges. C!s recogni"e the role of marketing marketing in #uilding #uilding strong strong #rands and a loyal customer customer #ase$ intangi#le intangi#le assets that contri#ute contri#ute heavily to the value of a firm. Marketers must decide %hat features to design into a ne% product or service$ %hat prices to set$ %here to sell products or offer services$ and ho% much to spend on advertising$ sales$ the &nternet$ or mo#ile marketing. They must make those decisions decisions in an &nternet'f &nternet'fueled ueled environment environment %here consumers$ consumers$ competition$ competition$ technology$ technology$ and economic forces forces change change rapidly$ and the conse(uences of the marketer)s %ords and actions can (uickly multiply.
The scope of marketing What is marketing? marketing? &s a#out identifying and meeting human and social needs. !ne of the shortest good definitions of marketing is *meeting needs profita#ly+. Marketing t urned a private need into a profita#le opportunity.
Marketing is the activity, set of institutions, and processes processes for creating, creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large.
Marketing Marketing manageme management nt , science of choosing target markets and getting, keeping, and growing customers through creating, delivering, and communicating superior customer value. -e can can distinguish distinguish #et%een a social and a managerial definition of marketing . A social social definition definition sho%s sho%s the role role marketing plays in society for e/ample$ one marketer has said that marketing)s role is to * deliver a higher standard of .+ 0ere is a social definition that serves our purpose living .+ Marketing is a societal process by which individuals and groups obtain what they need and want through creating, creating, offering, and freely exchanging products and services of value with others.
Managers sometimes think of marketing as * the art of selling products$+ #ut many people are surprised %hen they hear that selling is not the most important part of marketing 3elling is only the tip of the marketing ice#erg. Peter 4rucker$ a leading management theorist$ puts it this %ay There will always, one can assume, be need for some selling. But the aim of marketing is to make selling superfluous. The aim of marketing is to know and understand the customer so well that the product or service fits him and sells itself. itself. Ideally, marketing should result result in a customer who is ready to buy. buy. All that should be needed then is to make make the product product or service available. What is marketed? 5oods$ services$ events$ e/periences$ persons$ places$ properties$ organi"ations$ information$ and ideas. Who markets? A marketer is someone %ho seeks a response6attention$ a purchase$ a vote$ a donation6from another party$ called the prospect 7poten"iale cliente8.
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Master Marketing
1° semester 2012
Strategic Marketing
Marketers seek to influence the level$ timing$ and com' position of demand to meet the organi"ation)s o#9ectives. ight demand states are possi#le
• • • •
Negative demand— onsumers onsumers dislike the product and may even pay to avoid it. Nonexistent demand— onsumers onsumers may #e una%are of or uninterested in the product. Latent demand— onsumers onsumers may share a strong need that cannot #e satisfied #y an e/isting product. onsumers #egin to #uy the product less fre(uently or not at all. Declining demand— onsumers daily$ or even hourly #asis. Irregular demand— onsumer onsumer purchases vary on a seasonal$ monthly$ %eekly$ daily$ Full demand— onsumers onsumers are ade(uately #uying all products put into the marketplace. Overfull demand— More consumers %ould like to #uy the product than can #e satisfied. Unwholesome demand— onsumers onsumers may #e attracted to products that have undesira#le social conse(uences.
Markets ' Traditionally$ a *market+ %as a physical place %here #uyers and sellers gathered to #uy and sell goods. conomists descri#e a market as a collection of #uyers and sellers %ho transact over a particular product or product class 7such as the housing market or the grain market8. Structure of Flows in a modern exchange economy
simple marketing system
!ey customer markets – consumer$ #usiness$ glo#al and nonprofit. •
•
• •
Consumer Markets - Companies selling mass consumer goods and services such as 9uices$ cosmetics$ athletic shoes$ and air travel spend a great deal of time esta#lishing a strong #rand image #y developing a superior product and packaging$ ensuring its availa#ilit y$ and #acking it %ith engaging communications and relia#le service. :usiness Markets - Companies selling #usiness goods and services often face %ell'informed professional #uyers skilled skilled at evaluating competitive competitive offerings offerings.. :usiness :usiness #uyers #uy goods to make or resell a product product to others others at a profit. :usiness marketers m arketers must demonstrate ho% their products %ill %il l help achieve higher revenue or lo%er costs. Advertising can play a role$ #ut the sales force$ the price$ and the company)s reputation may play a greater one. 5lo#al Markets ;onprofit and 5overnmental Markets
Marketplaces" Marketspaces and Metamarkets • • •
The marketplace is physical$ such as a store you shop in the marketspace is digital$ as %hen you shop on the &nternet. Researcher Researcherss have proposed the concept of a metamarket to descri#e a cluster of complementary products and services closely related in the minds of consumers$ #ut spread across a diverse set of industries.
Core Marketing Concepts
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Master Marketing
1° semester 2012
Strategic Marketing
Marketers seek to influence the level$ timing$ and com' position of demand to meet the organi"ation)s o#9ectives. ight demand states are possi#le
• • • •
Negative demand— onsumers onsumers dislike the product and may even pay to avoid it. Nonexistent demand— onsumers onsumers may #e una%are of or uninterested in the product. Latent demand— onsumers onsumers may share a strong need that cannot #e satisfied #y an e/isting product. onsumers #egin to #uy the product less fre(uently or not at all. Declining demand— onsumers daily$ or even hourly #asis. Irregular demand— onsumer onsumer purchases vary on a seasonal$ monthly$ %eekly$ daily$ Full demand— onsumers onsumers are ade(uately #uying all products put into the marketplace. Overfull demand— More consumers %ould like to #uy the product than can #e satisfied. Unwholesome demand— onsumers onsumers may #e attracted to products that have undesira#le social conse(uences.
Markets ' Traditionally$ a *market+ %as a physical place %here #uyers and sellers gathered to #uy and sell goods. conomists descri#e a market as a collection of #uyers and sellers %ho transact over a particular product or product class 7such as the housing market or the grain market8. Structure of Flows in a modern exchange economy
simple marketing system
!ey customer markets – consumer$ #usiness$ glo#al and nonprofit. •
•
• •
Consumer Markets - Companies selling mass consumer goods and services such as 9uices$ cosmetics$ athletic shoes$ and air travel spend a great deal of time esta#lishing a strong #rand image #y developing a superior product and packaging$ ensuring its availa#ilit y$ and #acking it %ith engaging communications and relia#le service. :usiness Markets - Companies selling #usiness goods and services often face %ell'informed professional #uyers skilled skilled at evaluating competitive competitive offerings offerings.. :usiness :usiness #uyers #uy goods to make or resell a product product to others others at a profit. :usiness marketers m arketers must demonstrate ho% their products %ill %il l help achieve higher revenue or lo%er costs. Advertising can play a role$ #ut the sales force$ the price$ and the company)s reputation may play a greater one. 5lo#al Markets ;onprofit and 5overnmental Markets
Marketplaces" Marketspaces and Metamarkets • • •
The marketplace is physical$ such as a store you shop in the marketspace is digital$ as %hen you shop on the &nternet. Researcher Researcherss have proposed the concept of a metamarket to descri#e a cluster of complementary products and services closely related in the minds of consumers$ #ut spread across a diverse set of industries.
Core Marketing Concepts
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Master Marketing
1° semester 2012
Strategic Marketing
#eeds" Wants Wants and Demands $%isogni" esigen&e e richieste' ' !eeds are the #asic human re(uirements such as for air$ food$ %ater$ clothing$ and shelter. 0umans also have strong needs for recreation$ education$ and entertainment. ' These needs #ecome wants %hen they are directed to specific o#9ects that might satisfy the need. ' "emands are %ants for specific products #acked #y an a#ili ty to pay.
Marketers do not create needs ;eeds pree/ist marketers. Marketers$ along %ith other societal factors$ influence %ants. They might promote the idea that a Mercedes %ould satisfy a person)s need for social status. They do not$ ho%ever$ create the need for social status. #e can distinguish $ types of needs% 1. 3tated needs 7The customer customer %ants an ine/pensive ine/pensive car.8 car.8 2. Real needs needs 7The customer customer %ants %ants a car %hose operating operating cost$ cost$ not initial initial price$ price$ is lo%. lo%.88 <. =nstated =nstated needs needs 7The 7The customer customer e/pects e/pects good good service service from from the the dealer. dealer.88 >. 4elight needs needs 7The 7The customer customer %ould like like the dealer dealer to include include an on#oard on#oard 5P3 5P3 navigation navigation system.8 system.8 ?. 3ecret 3ecret needs 7The customer customer %ants friend friendss to see him or her her as a savvy savvy consumer consumer.8 .8 (arget (arget Markets" )ositioning and Segmentation 71. 3egmentare$ 2. 4efinire il target$ <. Posi"ionarsi8
;ot everyone likes the same cereal$ restaurant$ college$ or movie. Therefore$ marketers start #y dividing the market into segments. 1. They identify identify and profile profile distinct distinct groups groups of #uyers #uyers %ho might prefer prefer or re(uire re(uire varying varying product product and service service mi/es #y e/amining demographic$ psychographic$ and #ehavioral differences differences among #uyers. 2. After identifying identifying market market segments$ segments$ the marketer marketer decides decides %hich %hich present present the greatest greatest opportunities opportunities6 6 %hich are its target markets. <. @or @or eac each$ h$ the firm firm deve develo lops ps a market offering that it positions in the minds of the target #uyers as delivering some central #enefit7s8. olvo develops its cars for #uyers to %hom safety is a ma9or concern$ positioning its vehicles as the safest a customer can #uy. *ffering and +rands
Companies Companies address customer customer needs #y putting forth a ,alue proposition" #enefits that satisfy satisfy those needs. The proposition" a set of #enefits intangi#le value proposition is made physical #y an offering, %hich can #e a com#ination of products$ services$ information$ and e/periences. A brand is an offering from a kno%n source. A #rand name such as Mc4onald)s carries many associations in people)s minds that make up its image ham#urgers$ cleanliness$ convenience$ courteous service$ and golden arches. All companies strive to #uild a #rand image %ith as many strong$ favora#le$ and uni(ue #rand associations as possi#le. -alue -alue and Satisfaction 7value , #enefici B costi soddisfa"ione , perce"ione della presta"ione B aspettative8
The #uyer chooses chooses the offering offeringss he or she perceives perceives to deliver deliver the most value$ the sum of the tangible and intangible alue$ a central marketing concept$ is primarily a com#ination of (uality$ service$ and price 7(sp8$ benefits and costs to her. alue$ called the customer value triad. alue perceptions increase %ith (uality and service #ut decrease %ith price. -e can think of marketing as the identification$ creation$ communication$ delivery$ and monitoring of customer value. 3atisfaction 3atisfaction reflects a person)s person)s 9udgment 9udgment of a product) product)ss perceived perceived performance performance in relationship relationship to e/pectation e/pectations. s. &f the performance falls short of e/pectations$ the customer is disappointed. &f it matches e/pectations$ the customer i s satisfied. &f it e/ceeds them$ the customer is delighted. Marketing Channels 1. Communication channels deliver and receive messages from target #uyers and include ne%spapers$ maga"ines$
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Master Marketing
2. <.
1° semester 2012
Strategic Marketing
radio$ television$ mail$ telephone$ The marketer uses 4istri#ution channels to display$ sell$ or deliver the physical product to t he user. To carry out transactions %ith potential #uyers$ the marketer also uses service channels that include %arehouses$ transportation companies$ #anks$
Marketing .n,ironment
The marketing environment consists of the task environment and the #road environment. The task environment includes the actors engaged in producing$ distri#uting$ and promoting the offering. These are the company$ suppliers$ distri#utors$ dealers$ and target customers. The broad environment consists of si/ components demographic environment$ economic environment$ social'cultural environment$ natural environment$ technological environment$ and political'legal environment. Marketers must pay close attention to the trends and developments in these and ad9ust their marketing strategies as needed.
The new marketing realities Ma/or societal forces
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;et%ork information technologies 5lo#ali"ation 4eregulation Privati"ation 0eightened competition &ndustry convergence Retail transformation
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4isintermediation Consumer #uying po%er Consumer information Consumer participation Consumer resistance 7less #rand loyal$ more price and (uality sensitive8
;e% Company Capa#ilities
& &
Marketers can use the Internet as a owerful information and sales channel! The &nternet augments marketers) geographical reach to inform customers and promote products %orld%ide. Marketers can collect fuller and richer information a"out markets# customers# rosects# and cometitors! Marketers can conduct fresh marketing research #y using the &nternet to arrange focus groups$ send out (uestionnaires$ and gather primary data in several other %ays. Marketers can ta into social media to amlif$ their "rand message! Marketers can feed information and updates to consumers via #logs and other postings$ support online communities$ and create their o%n stops on the &nternet superhigh%ay. Marketers can facilitate and speed external communication among customers. Marketers can send ads, coupons, samples, and information to customers who have re'uested them or given the
& & & &
company permission to send them. Marketers can reach consumers on the move with mobile marketing. ompanies can make and sell individually differentiated goods. ompanies can improve purchasing, recruiting, training, and internal and external communications. ompanies can facilitate and speed up internal communication among their employees by using the Internet as a
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private intranet. ompanies can improve their cost efficiency by skillful use of the Internet.
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Marketing in practice
&n theory$ the marketing planning process consists of analy"ing marketing opportunities$ selecting target markets$ designing marketing strategies$ developing marketing programs$ and managing the marketing effort. &n practice$ ho%ever$ in the
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Master Marketing
1° semester 2012
Strategic Marketing
highly competitive marketplaces that are more often the norm$ marketing planning is more fluid and is continually refreshed. Companies must al%ays #e moving for%ard %ith marketing programs$ innovating products and services$ staying in touch %ith customer needs$ and seeking ne% advantages rather than relying on past strengths. Marketing in the organi&ation ' Although an effective CM! is crucial$ increasingly marketing is not done only #y the marketing department. :ecause marketing must affect every aspect of the customer e/perience$ marketers must properly manage all possi#le touch points6store layouts$ package designs$ product functions$ employee training$ and shipping and logistics methods. Marketing must also #e influential in key general management activities$ such as product innovation and ne%'#usiness development. To create a strong marketing organi"ation$ marketers must think like e/ecutives in other departments$ and e/ecutives in other departments must think more like marketers.
Company orientation toward the Marketplace 5iven these ne% marketing realities$ %hat philosophy should guide a company)s marketing effortsD &ncreasingly$ marketers operate consistent %ith the holistic marketing concept. (volution of earlier marketing ideas% ' The production concept is one of the oldest concepts in #usiness. &t holds that consumers prefer products that are %idely availa#le and ine/pensive. Managers of production'oriented #usinesses concentrate on achieving high production efficiency$ lo% costs$ and mass distri#ution. ' The product concept proposes that consumers favor products offering the most (uality$ performance$ or innovative features. 0o%ever$ managers are sometimes caught in a love affair %ith their products. ' The selling concept holds that consumers and #usinesses$ if left alone$ %on)t #uy enough of the organi"ation)s products. The marketing concept emerged in the mid'1E?Fs as a customer'centered$ sense'and'respond philosophy. ' The marketing concept holds that the key to achieving organi"ational goals is #eing more effective than competitors in creating$ delivering$ and communicating superior customer value to your target markets. (he holistic marketing concept 0 -ithout (uestion$ the trends and forces that have defined the first decade of the 21st century are leading #usiness firms to a ne% set of #eliefs and practices.
The holistic marketing concept is #ased on the development$ design$ and implementation of marketing programs$ processes$ and activities that recogni"e their #readth and interdependencies. 0olistic marketing ackno%ledges that everything matters in marketing6and that a #road$ integrated perspective is often necessary. 0olistic marketing thus recogni"es and reconciles the scope and comple/ities of marketing activities. This figure provides a schematic overvie% of four #road components characteri"ing holistic marketing relationship marketing$ integrated marketing$ internal marketing$ and performance marketing. )olistic marketing%
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elationship marketing aims to #uild mutually satisfying long'term relationships %ith key constituents in order to earn and retain their #usiness. @our key constituents for relationship marketing are customers$ employees$ marketing
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Master Marketing
1° semester 2012
Strategic Marketing
partners 7channels$ suppliers$ distri#utors$ dealers$ agencies8$ and mem#ers of the financial community 7shareholders$ investors$ analysts8. Marketers must create prosperity among all these constituents and #alance the returns to all key stakeholders. To develop strong relationships %ith them re(uires understanding their capa#ilities and resources$ needs$ goals$ and desires. The ultimate outcome of relationship marketing is a uni(ue company asset called a marketing network " consisting of the company and its supporting stakeholders6customers$ employees$ sup' pliers$ distri#utors$ retailers$ and others6 %ith %hom it has #uilt mutually profita#le #usiness relationships. The operating principle is simple #uild an effective net%ork of relationships %ith key stakeholders$ and profits %ill follo%. '
ntegrated marketing occurs %hen the marketer devises marketing activities and assem#les marketing programs to create$ communicate$ and deliver value for consumers such that *the %hole is greater than the sum of its parts.+ T%o key themes are that 718 many different marketing activities can create$ communicate$ and deliver value and 728 marketers should design and implement any one marketing activity %ith all other activities in mind.
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nternal marketing is the task of hiring$ training$ and motivating a#le employees %ho %ant to serve customers %ell. &t ensures that everyone in the organi"ation em#races appropriate marketing principles$ especially senior management.
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)erformance marketing re(uires understanding the financial and nonfinancial returns to #usiness and society from marketing activities and programs. o @inancial accounting marketers are increasingly asked to 9ustify their investments in financial and o
profita#ility terms. 3ocial responsi#ility marketing :ecause the effects of marketing e/tend #eyond the company and the customer to society as a %hole$ marketers must consider the ethical$ environmental$ legal$ and social conte/t of their role and activities. The organi"ation)s task is thus to determine the needs$ %ants$ and interests of target markets and satisfy them more effectively and efficiently than competitors %hile preserving or enhancing consumers) and society)s long'term %ell'#eing.
Updating the four Ps McCarthy classified various marketing activities into marketing&mix tools of four #road kinds$ %hich he called the four *s of marketing product$ price$ place$ and promotion. 5iven the #readth$ comple/ity$ and richness of marketing$ ho%ever6as e/emplified #y holistic marketing6clearly these four Ps are not the %hole story anymore. &f %e update them to reflect the holistic marketing concept$ %e arrive at a more representative set that encompasses modern marketing realities people" processes" programs" and performance
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Master Marketing
1° semester 2012
Strategic Marketing
%eole reflect$ in part$ internal marketing and the fact that employees are critical to marketing success. Marketing %ill only #e as good as the people inside the organi"ation. &t also reflects the fact that marketers must vie% consumers as people to understand their lives more #roadly$ and not 9ust as they shop for and consume products and services. %rocesses reflect all the creativity$ discipline$ and structure #rought to marketing management. Marketers must avoid ad hoc planning and decision making and ensure that state'of'the'art marketing -e define erformance as in holistic marketing$ to ideas and concepts play an appropriate role in all they do. !nly #y capture the range of possi#le outcome measures that instituting the right set of processes to guide activities and programs have financial and nonfinancial implications can a firm engage in mutually #eneficial long'term relationships. 7profita#ility as %ell as #rand and customer e(uity8$ %rograms reflect all the firm)s consumer'directed activities. &t and implications #eyond the company itself 7social encompasses the old four Ps as %ell as a range of other marketing responsi#ility$ legal$ ethical$ and community related8. activities that might not fit as neatly into the old vie% of marketing. @inally$ these ne% four Ps actually apply to all Regardless of %hether they are online or offline$ traditional or disciplines %ithin the company$ and #y thinking this nontraditional$ these activities must #e integrated such that their %ay$ managers gro% more closely aligned %ith the %hole is greater than the sum of their parts and they accomplish rest of the company. multiple o#9ectives for the firm.
Marketing management tasks -e can identify a specific set of tasks that make up successful marketing management and marketing leadership 1. 2. <. >.
4eveloping marketing strategies and plans Capturing marketing insights and performance Connecting %ith customers :uilding strong #rands
?. G. H.
Chapter 2 De,eloping marketing strategies and plans
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3haping the market offerings 4elivering and communicating value Creating successful long'term gro%th
Master Marketing
1° semester 2012
Strategic Marketing
4eveloping the right marketing strategy over time re(uires a #lend of discipline and fle/i#ility. @irms must stick to a strategy #ut also constantly improve it. They must also develop strategies for a range of products and services %ithin the organi"ation.
Marketing and customer value (he ,alue deli,ery process
This traditional vie% %ill not %ork of marketing 7product sell8 in economies %ith many different types of people$ each %ith individual %ants$ perceptions$ preferences$ and #uying criteria. The smart competitor must design and deliver offerings for %ell'defined target markets. This reali"ation inspired a ne% vie% of #usiness processes that places marketing at the beginning of planning. &nstead of emphasi"ing making and selling$ companies no% see themselves as part of a value delivery process. -e can divide the value creation and delivery se(uence into three phases 1. @irst$ choosing the value represents the *home%ork+ marketing must do #efore any product e/ists. Marketers must segment the market$ select the appropriate target$ and develop the offering)s value positioning. The formula *segmentation$ targeting$ positioning 73TP8+ is the essence of strategic marketing. 2. The s econd p hase i s roviding the value. Marketing must determine specific product features$ prices$ and distri#ution. <. The task in the third phase is communicating the value #y utili"ing the sales force$ &nternet$ advertising$ and any other communication tools to announce and promote the product. The value delivery process #egins #efore there is a product and continues through development and after launch. ach phase has cost implications.
(he ,alue chain
Porter has proposed the ,alue chain as a tool for identifying %ays to create more customer value. According to this model$ every firm is a synthesis of activities performed to design$ produce$ market$ deliver$ and support its product. The value chain identifies E strategically relevant activiti es6five primary and four support activities6that create value and cost in a specific #usiness. Primary activities 1. &n#ound logistics$ or #ringing materials into the #usiness 2. !perations$ or converting materials into final products <. !ut#ound logistics$ or shipping out final products >. Marketing$ %hich includes sales ?. and service 3upport activities G. Procurement H. Technology development I. 0uman resource management E. @irm infrastructure. •
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The firm)s task is to e/amine its costs and performance in each value'creating activity and look for %ays to improve it. Managers should estimate competitors) costs and performances as benchmarks +punti di riferimento against %hich to compare their o%n. The firm)s success depends not only on ho% %ell each department performs its %ork$ #ut also on ho% %ell the company coordinates departmental activities to conduct core business processes. These processes include The market&sensing process. All the activities in gathering and acting upon information a#out the market The new&offering reali-ation process. All the activities in researching$ developing$ and launching ne% high'(uality offerings (uickly and %ithin #udget The customer ac'uisition process. All the activities in defining target markets and prospecting for ne% customers • •
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Master Marketing
1° semester 2012
Strategic Marketing
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The customer relationship management process. All the activities in #uilding deeper understanding$ relationships$
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and offerings to individual customers The fulfillment management process. All the activities in receiving and approving orders$ shipping the goods on time$ and collecting payment
To #e successful$ a firm also needs to look for competitive advantages #eyond its o%n operations$ into the value chains of suppliers$ distri#utors$ and customers. Many companies today have partnered %ith specific suppliers and distri#utors to create a superior ,alue deli,ery network" also called a supply chain3 Core capa%ilities
A core competency has three characteristics 1. &t is a source of competitive advantage and makes a significant contri#ution to perceived customer #enefits. 2. &t has applications in a %ide variety of markets. <. &t is difficult for competitors to imitate . -harton)s 5eorge 4ay offers a systematic process for developing peripheral vision$ and practical tools and strategies for #uilding *vigilant organi"ations+ attuned to changes in the environment$ #y asking three (uestions each related to learning from the past$ evaluating the present$ and envisioning the future. Competitive advantage ultimately derives from ho% %ell the company has fitted its core competencies and distinctive capa#ilities into tightly interlocking *activity systems+. :usiness realignment may #e necessary to ma/imi"e core competencies. &t has three steps 718 $re'defining the #usiness concept or *#ig idea+$ 728 $ re'shaping the #usiness scope$ and 7<8 $re'positioning the company)s #rand identity. holistic marketing orientation and consumer ,alue
!ne vie% of holistic marketing sees it as *integrating the value e/ploration$ value creation$ and value delivery activities %ith the purpose of #uilding long'term$ mutually satisfying relationships and co ' prosperity among key stakeholders.+ 0olistic marketers address three key management (uestions 1. alue exploration/)ow a company identifies ne% value opportunities 2. alue creation/)ow a company efficiently creates more promising ne% value offerings <. alue delivery/)ow a company uses its capa#ilities and infrastructure to deliver the ne% value offerings more efficiently. (he central role of strategic planning The marketing plan is the central instrument for directing and coordinating the marketing effort. &t operates at t%o levels strategic and tactical. The strategic marketing plan lays out the target markets and the firm)s value proposition$ #ased on an analysis of the #est market opportunities. The tactical marketing plan specifies the marketing tactics$ including product features$ promotion$ merchandising$ pricing$ sales channels$ and service.
orporate and division strategic planning All corporate head(uarters undertake four planning activities 1. 2. <.
4efining the corporate mission sta#lishing strategic #usiness units Assigning resources to each strategic #usiness unit
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Master Marketing
>.
1° semester 2012
Strategic Marketing
Assessing gro%th opportunities
Defining the corporate mission
!rgani"ations develop mission statements to share %ith managers$ employees$ and 7in many cases8 customers. A clear$ thoughtful mission statement provides a shared sense of purpose$ direction$ and opportunity. Mission statements are at their #est %hen they reflect a vision$ an almost *impossi#le dream+ that provides direction for the ne/t 1F to 2F years. 5ood mission statements have five ma9or characteristics 1. 2. <. >. ?.
They focus on a limited num#er of goals. They stress the company)s ma9or policies and values. They define the ma9or competitive spheres %ithin %hich the company %ill operate. They take a long'term vie%. They are as short$ memora#le$ and meaningful as possi#le.
.sta%lishing strategic %usiness units
Companies often define themselves in terms of products They are in the *auto #usiness+ or the *clothing #usiness.+ Market definitions of a #usiness$ ho%ever$ descri#e the #usiness as a customer' satisfying process. Products are transient #asic needs and customer groups endure forever. ie%ing #usinesses in terms of customer needs can suggest additional gro%th opportunities. A target market definition tends to focus on selling a product or service to a current market. Pepsi could define its target market as everyone %ho drinks car#onated soft drinks$ and competitors %ould therefore #e other car#onated soft drink companies. A strategic market definition , ho%ever$ also focuses on the potential market. A #usiness can define itself in terms of three dimensions customer groups$ customer needs$ and technology. An 3:= has three characteristics 1. &t is a single #usiness$ or a collection of related #usinesses$ that can #e planned separately from the rest of the company. 2. &t has its o%n set of competitors. <. &t has a manager responsi#le for strategic planning and profit performance$ %ho controls most of the factors affecting profit. The purpose of identifying the company)s strategic #usiness units is to develop separate strategies and assign appropriate funding. 3enior management kno%s its portfolio of #usinesses usually includes a num#er of *yesterday)s has'#eens+ as %ell as *tomorro%)s #read%inners.+ !nce it has defined 3:=s$ management must decide ho% to allocate corporate resources to each. ssessing growth opportunities
Assessing gro%th opportunities includes planning ne% #usinesses$ do%nsi"ing$ and terminating older #usinesses. &f there is a gap #et%een future desired sales and pro9ected sales$ corporate management %ill need to develop or ac(uire ne% #usinesses to fill it.
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Master Marketing
1° semester 2012
Strategic Marketing
/ample of a strategic planning gap The lo%est curve pro9ects the e/pected sales over the ne/t five years from the current #usiness portfolio. The highest descri#es desired sales over the same period. vidently$ the company %ants to gro% much faster than its current #usinesses %ill permit. 0o% can it fill the strategic'planning gapD The first option is to identify opportunities for gro%th %ithin current #usinesses 7intensive opportunities8. The second is to identify opportunities to #uild or ac(uire #usinesses related to current #usinesses 7integrative opportunities8. The third is to identify opportunities to add attractive unrelated #usinesses 7diversification opportunities8. Intensive growth - The company first considers %hether it could gain more market share %ith its current products in their current markets$ using a market&penetration strategy. ;e/t it considers %hether it can find or develop ne% markets for its current products$ in a market&development strategy. Then it considers %hether it can develop ne% products of potential interest to its current markets %ith a product&development strategy. Jater the firm %ill also revie% opportunities to develop ne% products for ne% markets in a diversification strategy. Integrative growth ' A #usiness can increase sales and profits through #ack%ard$ for' %ard$ or hori"ontal integration %ithin its industry 79oin ventures$ mergers$ ...8. Diversification growth ' 4iversification gro%th makes sense %hen good opportunities e/ist outside the present #usinesses 6the industry is highly attractive and the company has the right mi/ of #usiness strengths to succeed. *rgani&ation and organi&ational culture 0 The company)s culture is very hard to change. Ket adapting the culture is often the key to successfully implementing a ne% strategy. -hat e/actly is a corporate cultureD 3ome define it as *the shared e/periences$ stories$ #eliefs$ and norms that characteri"e an organi"ation.+ Marketing inno,ation 0 &nnovation in marketing is critical. &maginative ideas on strategy e/ist in many places %ithin a company. 3enior management should identify and encourage fresh ideas from three underrepresented groups employees %ith youthful or diverse perspectives$ employees far removed from company head(uarters$ and employees ne% to the industry. ach group can challenge company orthodo/y and stimulate ne% ideas. Creating inno,ating marketing &nnovation can #e ' Much colla#oration %ithin the firm itself and e/ternally %ith other companies$ governments ' A cumulative decision making and actions ' An increase of customer value ' 5ain #y employees
Business unit strategic planning & (he %usiness unit strategic 4 planning process5
(he %usiness mission 0 ach #usiness unit needs to define its specific mission %ithin the #roader company mission.
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Master Marketing
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Strategic Marketing
SW*( analysis The overall evaluation of a company)s strengths$ %eaknesses$ opportunities$ and threats is called 3-!T analysis. &t)s a %ay of monitoring the e/ternal and internal marketing environment.
/ternal environment 7opportunity and threat8 analysis A #usiness unit must monitor key macro'environment forces and significant microenvironment factors that affect its a#ility to earn profits. &t should set up a marketing intelligence system to track trends and important developments and any related opportunities and threats. 5ood marketing is the art of finding$ developing$ and profiting from these opportunities. A marketing opportunity is an area of #u yer need and interest that a company has a high pro#a#ility of profita#ly satisfying. There are three main sources of market opportunities. ' The first is to offer something that is in short supply. This re(uires little marketing talent$ as the need is fairly o#vious. ' The second is to supply an e/isting product or service in a ne% or superior %ay. 0o%D The pro#lem detection method asks consumers for their suggestions$ the ideal method has them imagine an ideal version of the product or service$ and the consumption chain method asks them to chart their steps in ac(uiring$ using$ and disposing of a product. ' This last method often leads to a totally ne% product or service. Marketers need to be good at spotting opportunities. onsider the following%
' ' ' ' ' ' '
A company may #enefit from converging industry trends and introduce hy#rid products or services that are ne% to the market 75P38. A company may make a #uying process more convenient or efficient 7internet8. A company can meet the need for more information and advice. A company can customi"e a product or service. A company can introduce a ne% capa#ilities. A company may #e a#le to deliver a product or service faster. A company may #e a#le to offer a product at a much lo%er price.
(xample of opportunity and threat matrices
To evaluate opportunities$ companies can use market opportunity analysis 7M!A8 to ask (uestions li ke 1. Can %e articulate the #enefits convincingly to a defined target market7s8D 2. Can %e locate the target market7s8 and reach them %ith cost'effective media and trade channelsD <. 4oes our company possess or have access to the critical capa#ilities and resources %e need to deliver the customer #enefitsD >. Can %e deliver the #enefits #etter than any actual or potential competitorsD ?. -ill the financial rate of return meet or e/ceed our re(uired threshold for investmentD
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Master Marketing
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Strategic Marketing
An en,ironmental threat is a challenge posed #y an unfavora#le trend or development that$ in the a#sence of defensive marketing action$ %ould lead to lo%er sales or profit.
&nternal environment 7strengths and %eaknesses8 analysis &t)s one thing to find attractive opportunities$ and another to #e a#le to take advantage of them. ach #usiness needs to evaluate its internal strengths and %eaknesses. Clearly$ the #usiness doesn)t have to correct all its %eaknesses$ nor should it gloat a#out all its strengths. The #ig (uestion is %hether it should limit itself to those opportunities for %hich it possesses the re(uired strengths$ or consider those that mi ght re(uire it to find or develop ne% strengths. 6oal formulation
!nce the company has performed a 3-!T analysis$ it can proceed to goal formulation$ developing specific goals for the planning period. 5oals are o#9ectives that are specific %i th respect to magnitude and time. Most #usiness units pursue a mi/ of o#9ectives$ including profita#ilit y$ sales gro%th$ market share improvement$ risk containment$ innovation$ and reputation. The unit0s ob1ectives must meet four criteria% 1. They must #e arranged hierarchically$ from most to least important. The #usiness unit)s key o#9ective for the period may #e to increase the rate of return on investment. Managers can increase profit #y increasing revenue and reducing e/penses. They can gro% revenue$ in turn$ #y increasing market share and prices. 2. !#9ectives should #e (uantitative %henever possi#le. The o#9ective *to increase the return on investment 7R!&8+ is #etter stated as the goal *to increase R!& to 1? percent %ithin t%o years.+ <. 5oals should #e realistic. 5oals should arise from an analysis of the #usiness unit)s opportunities and strengths$ not from %ishful thinking. >. !#9ectives must #e consistent. &t)s not possi#le to ma/imi"e sales and profits simultaneously. Strategic formulation 5oals indicate %hat a #usiness unit %ants to achieve strategy is a game plan for getting there. very #usiness must design a strategy for achieving its goals$ consisting of a marketing strategy and a compati#le technology strategy and sourcing strategy.
Porter)s generic strategies ' Michael Porter has proposed three generic strategies that provide a good starting point for strategic thinking !verall cost leadership 7lo%est in cost8 4ifferentiation 7highest in perceived value8 @ocus 7#est in serving some market segment8 • • •
According to Porter$ firms directing the same strategy to the same target market constitute a strategic group3 The firm that carries out that strategy #est %ill make the most profits. Porter defines strategy as *the creation of a uni(ue and valua#le position involving a different set of activities.+ A company can claim it has a strategy %hen it *performs different activit ies from rivals or performs similar activities in different %ays.+ 3trategic alliances ven giant companies often cannot achieve leadership$ either nationally or glo#ally$ %ithout forming alliances %ith domestic or multinational companies that complement or leverage their capa#ilities and resources.
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1° semester 2012
Strategic Marketing
Many strategic alliances take the form of marketing alliances. These fall into > ma9or categories • • • •
Product or service alliances Promotional alliances Jogistics alliances Pricing colla#orations
Companies need to give creative thought to finding partners that might complement their strengths and offset their %eaknesses. -ell'managed alliances allo% companies to o#tain a greater sales impact at lo%er cost. Program formulation and implementation ven a great marketing strategy can #e sa#otaged #y poor implementation. A smart company creates a high level of employee satisfaction$ %hich leads to higher effort$ %hich leads to higher'(uality products and services$ %hich creates higher customer satisfaction$ %hich leads to more repeat #usiness$ %hich leads to higher gro%th and profits$ %hich leads to high stockholder satisfaction$ %hich leads to more investment$ and so on. This virtuous circle spells profits and gro%th. According to Mc!insey 7 Company$ strategy is only one of seven elements6all of %hich start %ith the letter s/in successful #usiness practice. The first three6 strategy, structure, and systems 6are considered the *hard%are+ of success. The ne/t four6 style, skills, staff, and shared values 6are the *soft%are.+ @eed#ack and control A company)s strategic fit %ith the environment %ill inevita#ly erode$ #ecause the market environment changes faster than the company)s seven 3s. Thus$ a company might remain efficient yet lose effectiveness. !nce an organi"ation fails to respond to a changed environment$ it #ecomes increasingly hard to recapture its lost positi on.
Product planning: the nature and contents of a marketing plan A marketing plan is a %ritten document that summari"es %hat the marketer has learned a#out the marketplace and indicates ho% the firm plans to reach its marketing o#9ectives. &t contains tactical guidelines for the marketing programs and financial allocations over the planning period. More limited in scope than a #usiness plan$ the marketing plan documents ho% the organi"ation %ill achieve its strategic o#9ectives through specific marketing strategies and tactics$ %ith the customer as the starting point. Marketing plans are #ecoming more customer' and competitor'oriented$ #etter reasoned$ and more realistic. Planning is #ecoming a continuous process to respond to rapidly changing market conditions. A marketing plan usually contains the follo%ing sections • • • • •
/ecutive summary and ta#le of contents 3ituation analysis 73-!T8 Marketing strategy 7defines the mission$ marketing and financial o#9ectives8 @inancial pro9ections 7sales forecast$ e/pense forecast and #reak – even analysis8 &mplementation controls 7monitoring and ad9usting implementation of the plan8
(he role of research
To develop innovative products$ successful strategies$ and action programs$ marketers need up'to'date i nformation a#out the environment$ the competition$ and the selected market segments.
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Strategic Marketing
As the plan is put into effect$ marketers use research to measure progress to%ard o#9ectives and identify areas for improvement. @inally$ marketing research helps marketers learn more a#out their customers) re(uirements$ e/pectations$ perceptions$ satisfaction$ and loyalty. (he role of relationships
Marketing plan affects also #oth internal and e/ternal relationships. Marketers must consider all these relationships %hen developing a marketing plan 1. mployees 2. 3uppliers$ distri#utors and partners <. !ther stakeholders 7media$ the community$ ...8
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Strategic Marketing
)( 2 Chapter 8 4 Collecting information and forecasting demand
Components of a modern marketing system Companies %ith superior information can choose their markets #etter$ develop #etter offerings$ and e/ecute #etter marketing planning. very firm must organi"e and distri#ute a continuous flo% of information to its marketing man' agers. A marketing information system $MS' consists of people$ e(uipment$ and procedures to gather$ sort$ analy"e$ evaluate$ and distri#ute needed$ timely$ and accurate information to marketing decision makers. The company)s marketing information system should #e a mi/ture of %hat managers think they need$ %hat they really need$ and %hat is economically feasi#le.
Internal records To spot important opportunities and potential pro#lems$ marketing managers rely on internal reports of orders$ sales$ prices$ costs$ inventory levels$ receiva#les$ and paya#les. (he order 4 to 4 payment cycle 0 :ecause customers favor firms that can promise timely delivery$ companies need to perform these steps (uickly and accurately. Many use the &nternet and e/tranets to improve the speed$ accuracy$ and efficiency of the order'to'payment cycle. Sales information system
Marketing managers need timely and accurate reports on current sales. Companies that make good use of *cookies$+ records of -e# site usage stored on personal #ro%sers$ are smart users of targeted marketing. Companies must carefully interpret the sales data$ ho%ever$ so as not to dra% the %rong conclusions. Michael 4ell gave this illustration 2If you have three yellow Mustangs sitting on a dealer0s lot and a customer wants a red one, the salesman may be really good at figuring out how to sell the yellow Mustang. 3o the yellow Mustang gets sold, and a signal gets sent back to the factory that, hey, people want yellow Mustangs.4 Data%ases" data warehousing and data mining
Companies organi"e their information into customer$ product$ and salesperson data#ases6and then com#ine their data. The customer data#ase %ill contain every customer)s name$ address$ past transactions$ and sometimes even demographics and psychographics 7activities$ interests$ and opinions8. &nstead of sending a mass *carpet #om#ing+ mailing of a ne% offer to every customer in its data#ase$ a company %ill rank its customers according to factors such as purchase recency$ fre(uency$ and monetary value 7R@M8 and send the offer to only the highest'scoring customers. Companies make these data easily accessi#le to their decision makers. Analysts can *mine+ the data and garner fresh insights into neglected customer segments$ recent customer trends$ and other useful information. Managers can cross'ta#ulate customer information %ith product and sales' person information to yield still'deeper insights
Marketing intelligence (he marketing intelligence system
A marketing intelligence system is a set of procedures and sources that managers use to o#tain everyday information a#out developments in the marketing environment. The internal records system supplies results data$ #ut the marketing intelligence s ystem supplies happenings data. Marketing managers collect marketing intelligence in a variety of different %ays$ such as #y reading #ooks$ ne%spapers$ and trade pu#lications talking to customers$ suppliers$ and distri#utors monitoring social media on the &nternet and meeting %ith other company managers.
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Strategic Marketing
A company can take eight possible actions to improve the 'uantity and 'uality of its marketing intelligence% • • • • • • •
Train and motivate the sales force to spot 7individuare8 and report ne% developments Motivate distri#utors$ retailers and other intermediaries to pass along important intelligence 0ire e/ternal e/perts to collect intelligence ;et%ork internally and e/ternally 3et up a customer advisory panel 7gruppo di consulto8 Purchase information from outside research firms and vendors C!JJCT&;5 MARLT&;5 &;TJJ&5;C !; T0 &;TR;T.
Collecting marketing intelligence on the internet
Thanks to the e/plosion of outlets availa#le on the &nternet$ online customer revie% #oards$ discussion forums$ chat rooms$ and #logs can distri#ute one customer)s e/periences or evaluation to other potential #uyers and$ of course$ to marketers seeking information a#out the consumers and the competition. There are ? main %ays marketers can research competitors) product strengths and %eaknesses online 1. &ndependent customer goods and service revie% forums 2. 4istri#utor or sales agent feed#ack sited <. Com#o sites offering customers revie%s and e/pert opinions >. Customer complaint sites ?. Pu#lic #logs Communicating and acting on marketing intelligence
The competitive intelligence function %orks #est %hen it is closely coordinated %ith the decision'making process. 5iven the speed of the &nternet$ it is important to act (uickly on information gleaned online.
Analyzing the micro-enironment #eeds and (rends
nterprising individuals and companies manage to create ne% solutions to unmet needs. Jet)s distinguish among fads$ trends$ and megatrends A fad is *unpredicta#le$ short'lived$ and %ithout social$ economic$ and political significance.+ A direction or se(uence of events %ith momentum and dura#ility$ a trend is more predicta#le and dura#le than a fad trends reveal the shape of the future and can provide strategic direction. A megatrend is a *large social$ economic$ political$ and technological change thatN is slo% to form$ and once in place$ influences us for some time6#et%een seven and ten years$ or longer. * • •
•
dentifying the ma/or forces
@irms must monitor si/ ma9or forces in the #road environment demographic$ economic$ social' cultural$ natural$ technological$ and political'legal 7their interactions %ill lead to ne% opportunities and threats8. 4emographic environment o o o
%orld%ide population gro%th population age mi/
o o
ethnic and other markets educational groups household patterns
conomic environment ' The availa#le purchasing po%er in an economy depends on current income$ prices$ savings$ de#t$
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and credit availa#ility. As the recent economic do%nturn vividly demonstrated$ trends affecting purchasing po%er can have a strong impact on #usiness$ especially for companies %hose products are geared to high'income and price'sensitive consumers. Consumer psychology ' 3ome e/perts #elieved the recession had fundamentally shaken consumers) faith in the economy and their personal financial situations. *Mindless+ spending %ould #e out %illingness to comparison shop$ haggle$ and use discounts %ould #ecome the norm. !thers maintained tighter spending reflected a mere economic constraint and not a fundamental #ehavioral change. Thus$ consumers) aspirations %ould stay the same$ and spending %ould resume %hen the economy improves.
3ociocultural environment ' @rom our sociocultural environment %e a#sor#$ almost unconsciously$ a %orld vie% that defines our relationships to ourselves$ others$ organi"ations$ society$ nature$ and the universe. 9igh persistence of core cultural ,alues ' ore beliefs and values are passed from parents to children and reinforced #y social institutions6schools$ churches$ #usinesses$ and governments. 3econdary beliefs and values are more open to change. :elieving in the institution of marriage is a core #elief #elieving people should marry early is a secondary #elief. Marketers have some chance of changing secondary values$ #ut little chance of changing core values. Although core values are fairly persistent$ cultural s%ings do take place. .xistence of su%cultures ' ach society contains su%cultures" groups %ith shared values$ #eliefs$ preferences$ and #ehaviors emerging from their special life e/periences or circumstances.
;atural environment orporate environmentalism recogni"es the need to integrate environmental issues into the firm)s strategic plans. Trends in the natural environment for marketers to #e a%are of include the shortage of ra% materials$ especially %ater the increased cost of energy increased pollution levels and t he changing role of governments
Technological environment -hen old industries fight or ignore ne% technologies$ their #usinesses decline. Ma9or ne% technologies stimulate the economy)s gro%th rate. =nfortunately$ #et%een innovations$ an economy can stagnate. Marketers should monitor the follo%ing technology trends the accelerating pace of change$ unlimited opportunities for innovation$ varying RO4 #udgets$ and increased regulation of technological change. Political – legal environment The political and legal environment consists of la%s$ government agencies$ and pressure groups that influence various organi"ations and individuals. 3ometimes these la%s create ne% #usiness opportunities. Mandatory recycling la%s have #oosted the recycling industry and launched do"ens of ne% companies making ne% products from recycled materials. T%o ma9or trends are the increase in #usiness legislation 7protect companies from unfair competition$ protect consumers from unfair #usiness practices$ protect society from un#ridled #usiness #ehavior$ and charge #usinesses %ith the social costs of their products or production processes8 and the gro%th of special'interest groups.
!orecasting and demand measurement The company must measure and forecast the si"e$ gro%th$ and profit potential of each ne% opportunity. 3ales forecasts prepared #y marketing are used #y finance to raise cash for investment and operations #y manufacturing to esta#lish capacity and output #y purchasing to ac(uire the right amount of supplies and #y human resources to hire the needed %orkers.
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(he measures of market demand
There are many productive %ays to #reak do%n the market 1. 2. <. >.
The potential market is the set of consumers %ith a sufficient level of interest in a market offer. 0o%ever$ their interest is not enough to define a market unless they also have sufficient income and access to the product. The available market is the set of consumers %ho have interest$ income$ and access to a particular offer. The company or government may restrict sales to certain groups The target market is the part of the (ualified availa#le market the company decides to pursue. The penetrated market is the set of consumers %ho are #uying the company)s product.
A vocabulary for demand measurement ' The ma9or concepts in demand measurement are market demand and company demand. -ithin each$ %e distinguish among a demand function$ a sales forecast$ and a potential. Market demand - The marketer)s first step in evaluating marketing opportunities is to estimate total market demand. Market demand for a product is the total volume that would be bought by a defined customer group in a defined geographical area in a defined time period in a defined marketing environment under a defined marketing program. Market demand is not a fi/ed num#er$ #ut rather a function of the stated conditions. @or this reason$ %e call it the market demand function
3ome #ase sales6called the market minimum and la#eled 56 in the figure6%ould take place %ithout any demand' stimulating e/penditures. 0igher marketing e/penditures %ould yield higher levels of demand$ first at an increasing rate$ then at a decreasing rate. Marketing e/penditures #eyond a certain level %ould not stimulate much further demand$ suggesting an upper limit called the market potential and la#eled 57 in the figure. The distance #et%een the market minimum and the market potential sho%s the overall marketing sensitivity of demand. -e can think of t%o e/treme types of markets$ the e/pansi#le and the non ' e/pansi#le. An expansible market , such as the market for rac(uet#all playing$ is very much affected in si"e #y the level of industry marketing e/penditures. A nonexpansible market/for e/ample$ the market for %eekly trash or gar#age removal6is not much affected #y the level of marketing e/penditures the distance #et%een 56 and 57 is relatively small. !rgani"ations selling in a none/pansi#le market must accept the market)s si"e6the level of primary demand for the product class6and direct their efforts to%ard %inning a larger market share for their product$ that is$ a higher level of selective demand for their product. &t pays to compare the current and potential levels of market demand. The result is the market0 penetration index3 A lo% inde/ indicates su#stantial gro%th potential for all the firms. A high inde/ suggests it %ill #e e/pensive to attract the fe% remaining prospects. 5enerally$ price competition increases and margins fall %hen the market'penetration inde/ is already high. Market forecast 8 only one level of industry marketing e/penditure %ill actuall y occur.
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sho%s e/pected market demand.
Master Marketing
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Strategic Marketing
Market potential , is the limit approached #y market demand as industry marketing e/penditures approach infinity for a given marketing environment.
The phrase *for a given market environment+ is crucial. Consider the market potential for auto' mo#iles. &t)s higher during prosperity than during a recession. The market potential depends on the environment.
&oman$ demand ' is the company)s estimated share of market demand at alternative levels of company marketing effort in a given time period. &t depends on ho% the company)s products$ services$ prices$ and communications are perceived relative to the competitors). &oman$ sales forecast ' is the e/pected level of company sales #ased on a chosen marketing plan and an assumed marketing environment.
& &
3ales 'uota 8is the sales goal set for a product line$ company division or sales representative. 7o#iettivo di vendita fissato per una linea di prodotto 8 3ales budget 8 is a conservative estimate of the expend volume of sales, primary for making current purchasing, production and cash flow decisions. +valume di vendita stimato in una prospettiva conservativa
&oman$ sales otential 8 is the sales limit approached #y company demand as company marketing effort increases relative to that of competitors. 7livello massimo di vendite che un)impresa pu raggiungere compati#ilmente con i suoi investimenti di marketing8.
(stimating market potential
Marketing e/ecutives %ant to estimate total market potential$ area market potential$ and total industry sales and market shares. (otal market potential ' is the ma/imum sales availa#le to all firms in an industry during a given period$ under a given level of industry marketing effort and environmental conditions. A common %ay to estimate total market potential is to multiply the potential num#er of #uyers #y the average (uantity each purchases$ times the price.
&f 1FF million people #uy #ooks each year$ and the average #ook #uyer #uys three #ooks a year at an average price of Q2F each$ then the total market potential for #ooks is QG #illion 71FF million / < / Q2F8. The most difficult component to estimate is the num#er of #uyers. -e can al%ays start %ith the total population in the nation$ say$ 2G1 million people. ;e/t %e eliminate groups that o#viously %ould not #uy the product. Assume illiterate people and children under 12 don)t #uy #ooks and constitute 2F percent of the population. This means IF percent of the population$ or 2FE mil lion people$ are in the potentials pool. @urther research might tell us that people of lo% income and lo% education don)t #uy #ooks$ and they constitute over G.< million #ook #uyers. -e use this num#er to calculate total market potential. A variation on this method is the chain&ratio method $ %hich multiplies a #ase num#er #y several ad9usting percentages. (rea market otential & :ecause companies must allocate their marketing #udget optimally among their #est territories$ they need to estimate the market potential of different cities$ states$ and nations.
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Industr$ sales and market shares - :esides estimating total potential and area potential$ a company needs to kno% the actual industry sales taking place in its market. This means identifying competitors and estimating their sales. The industry trade association %ill often collect and pu#lish total industry sales$ although it usually does not list individual company sales separately. -ith this information$ ho%ever$ each company can evaluate its o%n performance against the industry)s. &f a company)s sales are increasing #y ? percent a year and industry sales are increasing #y 1F percent$ the company is losing its relative standing in the industry.
(stimating future demand
0o% do firms develop their forecastsD They may create their o%n or #uy forecasts from outside sources such as marketing research firms$ %hich intervie% customers$ distri#utors$ and other kno%ledgea#le parties. 3peciali"ed forecasting firms produce long'range forecasts of particular macro'environmental components$ such as population$ natural resources$ and technology. All forecasts are #uilt on one of three information #ases %hat people say$ %hat people do$ or %hat people have done. =sing %hat people say re(uires surveying #uyers) intentions$ composites of sales force opinions$ and e/pert opinion. :uilding a forecast on %hat people do means putting the product into a test market to measure #uyer response. To use the final #asis6 %hat people have done6firms analy"e records of past #uying #ehavior or use time'series analysis or statistical demand analysis. ' ' ' ' '
survey of #uyers) intentions composite of sales force opinions 7raccolta delle opinioni dei venditori per stimare le vendite8 e/pert opinion past – sales analysis market – test method 7comprendere le rea"ioni della clientela8
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Chapter : 4 Conducting marketing research
The marketing research system -e define marketing research as the systematic design$ collection$ analysis$ and reporting of data and findings relevant to a specific marketing situation facing the company. &t)s the 9o# of the marketing researcher to produce insight into the customer)s attitudes and #uying #ehavior. Marketing insights provide diagnostic information a#out ho% and %hy %e o#serve certain effects in the marketplace$ and %hat that means to marketers.
The marketing research process ffective marketing research follo%s G steps 1.
3tep 1 define the pro#lem$ the decisions alternatives and the research o#9ectives
Marketing managers must #e careful not to define the pro#lem too #roadly or too narro%ly for the marketing researcher. 7see the e/ample of American Airlines8. 3ome research is exploratory /its goal is to shed light on the real nature of the pro#lem and to suggest possi#le solutions or ne% ideas. 3ome re' search is descriptive/it seeks to (uantify demand. 2.
3tep 2 develop the research plan
The second stage of marketing research is %here %e develop the most efficient plan for gathering the needed information and %hat that %ill cost. To design a research plan$ %e need to make decisions a#out the data sources$ research approaches$ research instruments$ sampling plan$ and contact methods. ' Data sources5 The researcher can gather secondary data$ primary data$ or #oth. 3econdary data are data that %ere collected for another purpose and already e/ist some%here. *rimary data are data freshly gathered for a specific purpose or for a specific research pro9ect. ' esearch approaches ' Marketers collect primary data in ? main %ays !#servation 7e/ ethnographic research provide deep cultural understanding of o
o
o o
o
ho% people live8$ @ocus groups 7try to understand consumers) real motivations and %hy they say and do certain things8$ 3urveys 7to assess people)s kno%ledge$ #eliefs$ preferences and satisfaction8$ :ehavioral data 7customers leave traces of their purchasing #ehavior in store scanning data$ catalog purchases and customer data#ases8$ /periments 7understand cause – and – effect relationships8.
-e can choose t%o research instruments (ualitative or (uantitative measures. There is increasing interest in using (ualitative methods. 3ome other popular (ualitative research approaches to get inside consumers) minds and find out %hat they think or feel a#out #rands and products include • • • •
-ord associations Pro9ective techni(ues 7give people an incomplete stimulus and ask them to complete it8 isuali"ation 7create a collage from maga"ine photos8 :rand personification 7ask su#9ects %hat kind of person they think of %hen the #rand is mentioned8 Jaddering 7A series of increasingly more specific *%hy+ (uestions can reveal consumer motivation and consumers) deeper$ more a#stract goals8
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'
Sampling plan5 after deciding on the research approach and instruments$ the marketing researcher must design a sampling plan. This calls for three decisions 3ampling unit% %hom should %e surveyD o 3ample si-e% ho% many people should %e surveyD o 3ampling procedure% ho% should %e choose the respondentsD o
0
Contact methods5 ;o% the marketing researcher must decide ho% to contact the su#9ects #y mail$ #y telephone$ in person$ or online. 9nline contacts5 an approach of increasing importance$ the &nternet offers many %ays to do research. A o
company can em#ed a (uestionnaire on its -e# site and offer an incentive to ans%er it$ inviting people to ans%er some (uestions and possi#ly %in a pri"e. Marketers can also host a real'time consumer panel or virtual focus group or sponsor a chat room$ #ulletin #oard$ or #log and introduce (uestions from time to time. They can ask customers to #rainstorm or have follo%ers of the company on T%itter rate an idea. There are many other means to use the &nternet as a research tool. The company can learn a#out individuals %ho visit its site #y tracking ho% they clickstream through the -e# site and move to other sites. &t can post different prices$ use different headlines$ and offer different product features on different -e# sites or at different times to learn the relative effectiveness of its offerings. Ket$ as popular as online research methods are$ smart companies are choosing to use them to augment rather than replace more traditional methods. There are a num#er of pros and cons to online research. 0ere are some advantages ' !nline research is ine/pensive ' !nline research is fast ' People tend to #e honest and thoughtful online ' !nline research is versatile 3ome disadvantages include ' 3amples can #e small and ske%ed 7alterati8 !nline panels and communities can suffer from e/cessive turnover 7mem#ers may #ecome #ored 0 %ith the company)s efforts and flee 7fuggono88. ' !nline market research con suffer from technological pro#lems and inconsistencies <.
3tep < collect the information
The data collection phase of marketing research is generally the most e/pensive and the most prone to error. > ma9or pro#lems arise in surveys. 3ome respondents %ill #e a%ay from home or other%ise inaccessi#le and must #e contacted again or replaced. !ther respondents %ill refuse to cooperate. 3till others %ill give #iased or dishonest ans%ers. @inally$ some intervie%ers %ill #e #iased or dishonest. &nternationally$ one of the #iggest o#stacles to collecting information is the need to achieve consistency. >.
3tep > analy"e the information 7through statistic instruments8
?.
3tep ? Present the findings
As the last step$ the researcher presents findings relevant to the ma9or marketing decisions facing management. Researchers increasingly are #eing asked to play a more proactive$ consulting role in translating data and information into insights and recommendations. G.
3tep G make decision
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3ome organi"ations use marketing decision support systems to help their marketing managers make #etter decisions. M&T)s ohn Jittle defines a marketing decision support system $MDSS' as a coordinated collection of data$ systems$ tools$ and techni(ues$ %ith supporting soft%are and hard%are$ #y %hich an organi"ation gathers and interprets relevant information from #usiness and environment and turns it into a #asis for marketing action.
Measuring marketing productiity Marketers are facing increased pressure to provide clear$ (uantifia#le evidence to senior management as to ho% their marketing e/penditures help the firm to achieve its goals and financial o#9ectives. Although %e can easily (uantify marketing e/penses and investments as inputs in the short run$ the resulting outputs such as #roader #rand a%areness$ enhanced #rand image$ greater customer loyalty$ and improved ne% product prospects may take months or even years to manifest themselves. Marketing research can help address this increased need for accounta#ility. T%o complementary approaches to measuring marketing productivity are 718 marketing metrics to assess marketing effects and 728 marketing&mix modeling to estimate causal relationships and measure ho% marketing activity affects outcomes. Marketing dashboards are a structured %ay to disseminate the insights gleaned from these t%o approaches %ithin the organi"ation. Marketing metrics 0 is the set of measures that helps them (uantify$ compare$ and interpret their marketing performance. There are many different marketing measures marketers choose one or more #ased on the particular issue they face or the pro#lem they must solve. Jondon :usiness 3chool)s Tim Am#ler suggests that if firms think they are already measuring marketing performance ade(uately$ they should ask themselves five (uestions
1. 2. <. >. ?.
4o you routinely research consumer #ehavior 7retention$ ac(uisition$ usage8 and %hy consumers #ehave that %ay 7a%areness$ satisfaction$ perceived (uality8D 4o you routinely report the results of this research to the #oard in a format integrated %ith financial marketing metricsD &n those reports$ do you compare the results %ith the levels previously forecasted in the #usiness plansD 4o you also compare them %ith the levels achieved #y your key competitor using the same indicatorsD 4o you ad9ust short'term performance according to the change in your marketing'#ased asset7s8D
Am#ler says firms must give priority to measuring and reporting marketing performance through marketing metrics. 0e #elieves they can split evaluation into t%o parts 718 short'term results and 728 changes in #rand e(uity. 3hort'term results often reflect profit'and'loss concerns as sho%n #y sales turnover$ shareholder value$ or some com#ination of the t%o. :rand'e(uity measures could include customer a%areness$ attitudes$ and #ehaviors market share relative price premium num#er of complaints distri#ution and availa#ility total num#er of customers perceived (uality$ and loyalty and retention. Companies can also monitor an e/tensive set of internal metrics$ such as innovation
Marketing 4 mix modeling ' analy"e data from a variety of sources$ such as retailer scanner data$ company shipment data$
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pricing$ media$ and promotion spending data$ to understand more precisely the effects of specific marketing activities. To deepen understanding$ marketers can conduct multivariate analyses$ such as regression analysis$ to sort through ho% each marketing element influences marketing outcomes such as #rand sales or market share. Marketing dash%oards ' @irms are also employing organi"ational processes and systems to make sure they ma/imi"e the value of all these different metrics. Management can assem#le a summary set of relevant internal and e/ternal measures in a marketing dashboard for synthesis and interpretation. Marketing dash#oards are like the instrument panel in a car or plane$ visually displaying real' time indicators to ensure proper functioning. They are only as good as the information on %hich they)re #ased$ #ut sophisticated visuali"ation tools are helping #ring data alive to improve understanding and analysis.
As input to the marketing dash#oard$ companies should include t%o key market'#ased score' cards that reflect performance and provide possi#le early %arning signals. '
A customer&performance scorecard records ho% %ell the company is doing year after year on such customer'#ased measures. Management should set target goals for each measure and take action %hen results get out of #ounds.
'
A stakeholder&performance scorecard tracks the satisfaction of various constituencies %ho have a critical interest in and impact on the company)s performance employees$ suppliers$ #anks$ distri#utors$ retailers$ and stockholders. Again$ management should take action %hen one or more groups register increased or a#ove'norm levels of dissatisfaction.
)( 8
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Chapter ; 0 Creating long 4 term loyalty relationships
"uilding customer alue# satisfaction and loyalty Managers %ho #elieve the customer is the company)s only true *profit center+ consider the traditional organi"ation a pyramid %ith the president at the top$ management in the middle$ and frontline people and customers at the #ottom6 o#solete.
3uccessful marketing companies invert the chart. At the top are customers ne/t in importance are frontline people %ho meet$ serve$ and satisfy customers under them are the middle managers$ %hose 9o# is to support the frontline people so they can serve customers %ell and at the #ase is top management$ %hose 9o# is to hire and support good middle managers. -e have added customers along the sides to indicate that managers at every level must #e personally involved in kno%ing$ meeting$ and serving customers. They e/pect companies to listen and respond to them. Customer percei,ed ,alue
Customer'perceived value is thus #ased on the difference #et%een #enefits the customer gets and costs he or she assumes for different choices. Consumers are #etter educated and informed than ever$ and they have the tools to verify companies) claims and seek out superior alternatives. Customers estimate %hich offer they #elieve6for %hatever reason6%ill deliver the most perceived value and act on it. -hether the offer lives up to e/pectation affects customer satisfaction and the pro#a#ility that the customer %ill purchase the product again.
4eterminants of customer perceived value
Customer0percei,ed ,alue $C)-' is the difference #et%een the prospective customer)s evaluation of all the #enefits and all the costs of an offering and the perceived alternatives. (otal customer %enefit is the perceived monetary value of the #undle of economic$ functional$ and psychological #enefits customers e/pect from a given market offering #ecause of the product$ service$ people$ and image. (otal customer cost is the perceived #undle of costs customers e/pect to incur in evaluating$ o#taining$ using$ and disposing of the given market offering$ including monetary$ time$ energy$ and psychological costs.
ery often$ managers conduct a customer value analysis to reveal the company)s strengths and %eaknesses relative to those of various competitors. The steps in this analysis are
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Identif$ the ma)or attri"utes and "enefits customers value. Customers are asked %hat attri#utes$ #enefits$
and performance levels they look for in choosing a product and vendors. Attri#utes and #enefits should #e defined #roadly to encompass all the inputs to customers) decisions. (ssess the *uantitative imortance of the different attri"utes and "enefits . Customers are asked to rate the importance of different attri#utes and #enefits. &f their ratings diverge too much$ the marketer should cluster them into different segments. (ssess the coman$+s and cometitors+ erformances on the different customer values against their rated imortance. Customers descri#e %here they see the company)s and competitors) performances on each attri#ute and #enefit. ,xamine how customers in a secific segment rate the coman$+s erformance against a secific ma)or cometitor on an individual attri"ute or "enefit "asis! &f the company)s offer e/ceeds the competitor)s offer on all important attri#utes and #enefits$ the company can charge a higher price 7there#y earning higher profits8$ or it can charge the same price and gain more market share. Monitor customer values over time. The company must periodically redo its studies of customer values and competitors) standings as the economy$ technology$ and features change.
The point is clear :uyers operate under various constraints and occasionally make choices that give more %eight to their personal #enefit than to the company)s #enefit. Customer'perceived value is a useful frame%ork that applies to many situations and yields rich insights. &t suggests that the seller must assess the total customer #enefit and total customer cost associated %ith each competitor)s offer in order to kno% ho% his or her offer rates in the #uyer)s mind. &t also implies that the seller at a disadvantage has t%o alternatives increase total customer #enefit or decrease total customer cost. The former calls for strengthening or augmenting the economical$ functional$ and psychological #enefits of the offering)s product$ services$ personnel$ and image. The latter calls for reducing the #uyer)s costs #y reducing the price or cost of o%nership and maintenance$ simplifying the ordering and delivery process$ or a#sor#ing some #uyer risk #y offering a %arranty. Deli,ering high customer ,alue 0 Consumers have varying degrees of loyalty to specific #rands$ stores$ and companies. !liver defines loyalty as 2a deeply held commitment to rebuy a preferred product or service in the future despite situational influences and marketing efforts having the potential to cause switching behavior.4
The ,alue proposition consists of the %hole cluster of #enefits the company promises to deliver it is more than the core positioning of the offering. @or e/ample$ olvo)s core positioning has #een *safety$+ #ut the #uyer is promised more than 9ust a safe car other #enefits include good performance$ design$ and safety for the environment. The value proposition is thus a promise a#out the e/perience customers can e/pect from the company)s market offering and their relationship %ith the supplier. -hether the promise is kept depends on the company)s a#ility to manage its value delivery system. The ,alue deli,ery system includes all the e/periences the customer %ill have on the %ay to o#taining and using the offering. At the heart of a good value delivery system is a set of core #usiness processes that help deliver distinctive consumer value. (otal customer satisfaction 0 &n general$ satisfaction is a person)s feelings of pleasure or disappointment that result from comparing a product)s perceived performance 7or outcome8 to e/pectations. &f the performance falls short of e/pectations$ the customer is dissatisfied. &f it matches e/pectations$ the customer is satisfied. &f it e/ceeds e/pectations$ the customer is highly satisfied or delighted. Customer assessments of product performance depend on many factors$ especially the type of loyalty relationship the customer has %ith the #rand. Consumers often form more favora#le perceptions of a product %ith a #rand they already feel positive a#out.
The company might #e a#le to increase its profita#ility #y means other than increased satisfaction 7for e/ample$ #y improving manufacturing processes or investing more in RO48. Also$ the company has many stakeholders$ including
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employees$ dealers$ suppliers$ and stockholders. 3pending more to in' crease customer satisfaction might divert funds from increasing the satisfaction of other *partners.+ =ltimately$ the company must try to deliver a high level of customer satisfaction su#9ect to also delivering accepta#le l evels to other stakeholders$ given its t otal resources. 0o% do #uyers form their e/pectationsD /pectations result from past #uying e/perience$ friends) and associates) advice$ and marketers) and competitors) information and promises. &f marketer raise e/pectations too high$ the #uyer is likely to #e disappointed. &f it sets e/pectations t oo lo%$ it %on)t attract enough #uyers 7although it %il l satisfy those %ho do #uy8. Monitoring satisfaction 0 A highly satisfied customer generally stays loyal longer$ #uys more as the company introduces ne% and upgraded products$ talks favora#ly to others a#out the company and its products$ pays less attention to competing #rands and is less sensitive to price$ offers product or service ideas to the company$ and costs less to serve than ne% customers #ecause transactions can #ecome routine. 0igh satisfaction or delight creates an emotional #ond %it h the #rand or company$ not 9ust a rational preference. Measurement techni percent to HF percent %ill do #usiness %ith the organi"ation again if their complaint is resolved. The figure goes up to a staggering E? percent if the customer feels the complaint %as resolved 'uickly. The #est thing a company can do is make it easy for customers to complain. 3uggestion forms$ toll'free num#ers$ -e# sites$ and e'mail addresses allo% for (uick$ t%o'%ay communication.
Product and service (uality =uality is the totality of features and characteristics of a product or service that #ear on its a#ility to satisfy stated or implied needs. -e can say the seller has delivered (uality %henever its product or service meets or e/ceeds the customers) e/pectations. mpact of
Ma$imizing customer lifetime alue A company could improve its profits #y *firing+ its %orst customers. &t)s not al%ays the company)s largest customers$ %ho can demand considera#le service and deep discounts$ %ho yield the most profit. The smallest customers pay full price and receive minimal service$ #ut the costs of transacting %ith them can reduce their profita#ility. Midsi"e customers %ho receive good service and pay nearly full price are often the most profita#le. Customer profita#ility A profita%le customer is a person$ household$ or company that over time yields a revenue stream e/ceeding #y an accepta#le amount the company)s cost stream for attracting$ selling$ and serving that customer. ;ote the emphasis is on the lifetime stream of revenue and cost$ not the profit from a particular transaction.
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Customer profita%ility analysis
Customer 1 is very profita#le he #uys t%o profit' making products 7P1 and P28. Customer 2 yields mi/ed profita#ility he #uys one profita#le product 7P18 and one unprofita#le product 7P<8. Customer < is a losing customer #ecause he #uys one profita#le product 7P18 and t%o unprofita#le products 7P< and P>8. -hat can the company do a#out customers 2 and
The case for ma/imi"ing long'term customer profita#ility is captured in the concept of customer lifetime value.>G Customer lifetime ,alue $C>-' descri#es the net present value of the stream of future profits e/pected over the customer)s lifetime purchases. The company must su#tract from its e/pected revenues the e/pected costs of attracting$ selling$ and servicing the account of that customer$ applying the appropriate discount rate
Cultiating customer relationships Customers no% have a (uick and easy means of doing comparison shopping through sites such as :i"rate.com$ 3hopping.com. The &nternet also facilitates communication #et%een customers. Customer empo%erment has #ecome a %ay of life for many companies that have had to ad9ust to a shift in the po%er %ith their customer relationships. Customer relationship managements Customer relationship management $CM' is the process of carefully managing detailed information a#out individual customers and all customer *touch points+ to ma/imi"e loyalty. A customer touch point is any occasion on %hich a customer encounters the #rand and product 6 from actual e/perience to personal or mass communications to casual o#servation. CRM ena#les companies to provide e/cellent real'time customer service through the effective use of individual account information. :ased on %hat they kno% a#out each valued customer$ companies can customi"e market offerings$ services$ programs$ messages$ and media. CRM is important #ecause a ma9or driver of company profita#ility is the aggregate value of the company)s customer #ase.
)ersonali&ing marketing ' The %idespread usage of the &nternet allo%s marketers to a#andon the mass market practices
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that #uilt #rand po%erhouses in the 1E?Fs$ 1EGFs$ and 1EHFs for ne% approaches that are a thro%#ack to marketing practices from a century ago$ %hen merchants literally kne% their customers #y name. *ersonali-ing marketing is a#out making sure the #rand and its marketing are as relevant as possi#le to as many customers as possi#le6a challenge$ given that no t%o customers are identical. Companies are also recogni"ing the importance of the personal component to CRM and %hat happens once customers make actual contact %ith the company. mployees can create strong #onds %ith customers #y individuali"ing and personali"ing relationships. &n essence$ thoughtful companies turn their customers into clients. To adapt to customers) increased desire for personali"ation$ marketers have em#raced concepts such as permission marketing and one'to'one marketing. *ermission marketing , the practice of marketing to consumers only after gaining their e/pressed permission$ is #ased on the premise that marketers can no longer use *interruption marketing+ via mass media campaigns. Marketers can develop stronger consumer relationships #y respecting consumers) %ishes and sending messages only %hen they e/press a %illingness to #ecome more involved %ith the #rand.
Researchers outline a four'step frame%ork for one&to&one marketing that can #e adapted to CRM marketing as follo%s 1. 2. <. >.
&dentify your prospect and customers 4ifferentiate customers in terms of 718 their needs and 728 their value to your company &nteract %ith individual customers to improve your kno%ledge a#out their individual needs and to #uild stronger relationships Customi"e products$ services and messages to each customer.
Customer empo%erment and customer revie%s S recommendation Consumers are #eginning in a very real sense to o%n our #rands and participate in their creation. Although much has #een made of the ne%ly empo%ered consumer6in charge$ setting the direction of the #rand$ and playing a much #igger role in ho% it is marketed6it)s still true that only some consumers %ant to get involved %ith some of the brands they use and$ even then$ only some of the time. Although the strongest influence on consumer choice remains *recommended #y relativeSfriend$+ an increasingly important decision factor is *recommendations from consumers. Attracting and retaining customers Companies seeking to e/pand their profits and sales must spend considera#le time and resources searching for ne% customers. To generate leads$ they develop ads and place them in media that %ill reach ne% prospects send direct mail and e'mails to possi#le ne% prospects$ Reducing defection 7a##andono8 ' &t is not enough to attract ne% customers the company must also keep them and increase their #usiness. To reduce the defection rate$ the company must • • •
4efine and measure its retention rate 4istinguish the causes of customer attrition and identify those that can #e managed #etter Compare the lost customer)s lifetime value t o the costs of reducing the defection rate.
Retention dynamics – there are I main steps in attracting and retaining customers in terms of a funnel and some sample (uestions to measure customer progress through the funnel. The marketing funnel identifies the percentage of the potential target market at each stage in the decision process$ from merely a%are to highly loyal. Consumers must move through each stage #efore #ecoming loyal customers.
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The funnel also emphasi"es ho% important it is not 9ust to attract ne% customers$ #ut to retain and cultivate e/isting ones. 3atisfied customers are the company)s customer relationship capital. Managing the customer #ase ' Customer profita#ility analysis and the marketing funnel help marketers decide ho% to manage groups of customers that vary in loyalty$ profita#ility$ and other factors. -inning companies improve that value #y e/celling at strategies like the follo%ing
•
:educing the rate of customer defection. 3electing and training employees to #e kno%ledge' a#le and friendly increases the likelihood that customers) shopping (uestions %ill #e ans%ered satisfactorily. Increasing the longevity of the customer relationship (nhancing the growth potential of each customer through 2share of wallet,4 cross&selling, and up&selling. 3ales
•
from e/isting customers can #e increased %ith ne% offerings and opportunities. Making low&profit customers more profitable or terminating them. To avoid the direct need for termination$
•
•
•
marketers can encourage unprofita#le customers to #uy more or in larger (uantities$ forgo certain features or services$ or pay higher amounts or fees. ;ocusing disproportionate effort on high&profit customers. The most profita#le customers can #e treated in a special %ay. Thoughtful gestures such as #irthday greetings$ small gifts$ or invitations to special sports or arts events can send them a strong positive signal.
:uilding loyalty Creating a strong$ tight connection to customers is the dream of any marketer and often the key to long'term marketing success. The follo%ing sections e/plain three types of marketing activities companies are using to improve loyalty and retention. •
nteracting with customers listening to customers is crucial to customer relationship management. 3ome
companies have created an ongoing mechanism that keeps their marketers permanently plugged in to frontline customer feed#ack. :ut listening is only part of the story. &t is also important to #e a customer advocate and$ as much as possi#le$ take the customers) side and understand their point of vi e%.
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De,eloping loyalty programs fre(uency programs are designed to re%ard customers %ho #uy fre(uently and in
su#stantial amounts 7clu# cards$ clu# m em#ership programs$ 8 -in ' :acks Regardless of ho% hard companies may try$ some customers inevita#ly #ecome inactive or drop out. The challenge is to reactivate them through %in'#ack strategies. &t)s often easier to reattract e/'customers 7#ecause the company kno%s their names and histories8 than to find ne% ones. /it intervie%s and lost'customer surveys can uncover sources of dissatisfaction and help %in #ack only those %ith strong profit potential.
Customer data%ases and data%ase marketing Marketers must kno% their customers. And in order to kno% the customer$ the company must collect information and store it in a data#ase from %hich to conduct data#ase marketing. A customer data%ase is an organi"ed collection of comprehensive information a#out individual customers or prospects that is current$ accessi#le$ and actiona#le for lead generation$ lead (ualification$ sale of a product or service$ or maintenance of customer relationships. Data%ase marketing is the process of #uilding$ maintaining$ and using customer data#ases and other data#ases 7products$ suppliers$ resellers8 to contact$ transact$ and #uild customer relationships. Customer data#ases &deally$ a %usiness data%ase contains #usiness customers) past purchases past volumes$ prices$ and profits #uyer team mem#er names 7and ages$ #irthdays$ ho##ies$ and favorite foods8 status of current contracts an estimate of the supplier)s share of the customer)s #usiness competitive sup' pli ers assessment of competitive strengths and % eaknesses in selling and servicing the account and relevant customer #uying practices$ patterns$ and policies. 4ata %arehouses and data mining 3avvy companies capture information every time a customer comes into contact %ith any of their departments$ %hether it is a customer purchase$ a customer're(uested service call$ an online (uery$ or a mail'in re#ate card. These data are collected # y the company)s contact center and organi"ed into a data warehouse %here marketers can capture$ (uery$ and analy"e them to dra% inferences a#out an individual customer)s needs and responses. Through data mining" marketing statisticians can e/tract from the mass of data useful information a#out individuals$ trends$ and segments. In general, companies can use their databases in five ways% • • • • •
To identify prospects To decide %hich customers should receive a particular offer To deepen customer loyalty To reactive customer purchases To avoid serious customer mistakes
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The do%nside of data#ase marketing and CRM ;ive main problems can prevent a firm from effectively using :M.
1.
3ome situations are 1ust not conducive to database management. :uilding a customer data' #ase may not #e %orth%hile %hen 718 the product is a once'in'a'lifetime purchase 7a grand piano8 728 customers sho% little loyalty to a #rand 7there is lots of customer churn8 7<8 the unit sale is very small 7a candy #ar8 so CJ is lo% 7>8 the cost of gathering information is too high and 7?8 there is no direct contact #et%een the seller and ultimate #uyer.
2. Building and maintaining a customer database re'uires a large, well&placed investment in computer hardware, database software, analytical programs, communication links, and skilled staff. &t)s difficult to collect the right data$ especially to capture all the occasions of company interaction %ith individual customers. <. It may be difficult to get everyone in the company to be customer oriented and use the avail& able information. >. !ot all customers want a relationship with the company. ?. The assumption behind :M may not always hold true. Thus$ the #enefits of data#ase marketing do not come %ithout significant costs and risks$ not only in collecting the original customer data$ #ut also in maintaining and mining them. -hen it %orks$ a data %arehouse yields more than it costs$ #ut the data must #e in good condition$ and the discovered relationships must #e valid and accepta#le to consumers.
Chapter 4 naly&ing consumer markets
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The aim of marketing is to meet and satisfy target customers) needs and %ants #etter than competitors. Marketers must have a thorough understanding of ho% consumers think$ feel$ and act and offer clear value to each and every target consumer. Adopting a holistic marketing orientation means understanding customers6 gaining a
&hat influences consumer %ehaior' Consumer %eha,ior is the study of ho% individuals$ groups$ and organi"ations select$ #uy$ use$ and dispose of goods$ services$ ideas$ or e/periences to satisfy their needs and %ants. Marketers must fully understand #oth the theory and reality of consumer #ehavior. A consumer)s #uying #ehavior is influenced #y cultural$ social$ and personal factors. !f these$ cultural factors e/ert the #roadest and deepest influence.
Cultural factors Culture$ su#culture$ and social class are particularly important influences on consumer #uying #ehavior. Culture is the fundamental determinant of a person)s %ants and #ehavior. Marketers must closely attend to cultural values in every country to understand ho% to #est market their e/isting products and find opportunities for ne% products. ach culture consists of smaller su%cultures that provide more specific identification and sociali"ation for their mem#ers. 3u#cultures include nationalities$ religions$ racial groups$ and geographic regions. -hen su#cultures gro% large and affluent enough$ companies often design speciali"ed marketing programs to serve them. irtually all human societies e/hi#it social stratification, most often in the form of social classes" relatively homogeneous and enduring divisions in a society$ hierarchically ordered and %ith mem#ers %ho share simil ar values$ interests$ and #ehavior. 3ocial factors &n addition to cultural factors$ social factors such as reference groups$ family$ and social roles and statuses affect our #uying #ehavior. eference groups ' A person)s reference groups are all the groups that have a direct 7face' to'face8 or indirect influence on their attitudes or #ehavior. 5roups having a direct influence are called mem%ership groups3 3ome of these are primary groups %ith %hom the person interacts fairly continuously and informally$ such as family$ friends$ neigh#ors$ and co%orkers. People also #elong to secondary groups" such as religious$ professional$ and trade'union groups$ %hich tend to #e more formal and re(uire less continuous interaction.
Reference groups influence mem#ers in at least three %ays. They e/pose an individual to ne% #ehaviors and lifestyles$ they influence attitudes and self'concept$ and they create pressures for conformity that may affect product and #rand choices. People are also influenced #y groups to %hich they do not #elong. spirational groups are those a person hopes to 9oin dissociati,e groups are those %hose values or #ehavior an individual re9ects. -here reference group influence is strong$ marketers must determine ho% to reach and influence the group)s opinion leaders. An opinion leader is the person %ho offers informal advice or information a#out a specific product or product category$ such as %hich of several #rands is #est or ho% a particular product may #e used. Family ' The family is the most important consumer #uying organi"ation in society$ and family mem#ers constitute the most influential primary reference group. There are t%o families in the #uyer)s life. The family of orientation consists of parents and si#lings. A more direct influence on everyday #uying #ehavior is the family of procreation@namely" the person)s spouse and children. oles and status ' -e each participate in many groups6family$ clu#s$ organi"ations. 5roups often are an important source
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of information and help to define norms for #ehavior. -e can define a person)s position in each group in terms of role and status. A role consists of the activities a person is e/pected to perform. ach role in turn connotes a status. People choose products that reflect and communicate their role and their actual or desired status in society. Marketers must #e a%are of the status'sym#ol potential of products and #rands. Personal factors Personal characteristics that influence a #uyer)s decision include age and stage in the life cycle$ occupation and economic circumstances$ personality and self'concept$ and lifestyle and values. ge and stage in the life cycle ' Consumption is also shaped #y the family life cycle and the num#er$ age$ and gender of people in the household at any point in time. &n addition$ psychological life'cycle stages may matter. Adults e/perience certain *passages+ or *transformations+ as they go through life. Their #ehavior as they go through these passages$ such as #ecoming a parent$ is not necessarily fi/ed #ut changes %it h the times. Marketers should also consider critical life events or transitions/marriage, child#irth$ illness$ relocation$ divorce$ first 9o#$ career change$ *ccupation and economic circumstances ' !ccupation also influences consumption patterns. Marketers try to identify the occupational groups that have a#ove'average interest in their products and services and even tailor products for certain occupational groups. As the recent recession clearly indicated$ #oth product and #rand choice are greatly affected #y economic circumstances spenda#le income 7level$ sta#ility$ and time pattern8$ savings and assets 7including the percentage that is li(uid8$ de#ts$ #orro%ing po%er$ and attitudes to%ard spending and saving. )ersonality and self 4 concept ' ach person has personality characteristics that influence his or her #uying #ehavior. :y personality" %e mean a set of distinguishing human psychological traits that lead to relatively consistent and enduring responses to environmental stimuli 7including #u ying #ehavior8. -e often descri#e personality in terms of such traits as self' confidence$ dominance$ autonomy$ deference$ socia#ility$ defensiveness$ and adapta#ility.
Personality can #e a useful varia#le in analy"ing consumer #rand choices. :rands also have personalities$ and consumers are likely to choose #rands %hose personalities match their o%n. -e define %rand personality as the specific mi/ of human traits that %e can attri#ute to a particular #rand. Consumers often choose and use #rands %ith a #rand personality consistent %ith their actual self&concept 7ho% %e vie% ourselves8$ although the match may instead #e #ased on the consumer)s ideal self&concept 7ho% %e %ould like to vie% ourselves8 or even on others0 self&concept 7ho% %e think others see us8. !n the other hand$ consumers %ho are high *self' monitors+6that is$ sensitive to ho% others see them6are more likely to choose #rands %hose personalities fit the consumption situation. @inally$ often consumers have multiple aspects of self 7serious professional$ caring family mem#er$ active fun'lover8 that may #e evoked differently in di fferent situations or around different types of people. >ifestyle and ,alues ' People from the same su#culture$ social class$ and occupation may lead (uite different lifestyles. A lifestyle is a person)s pattern of living in the %orld as e/pressed in activities$ interests$ and opinions. &t portrays the *%hole person+ interacting %ith his or her environment. Marketers search for relationships #et%een their products and lifestyle groups.
Consumer decisions are also influenced #y core ,alues" the #elief systems that underlie attitudes and #ehaviors. Core values go much deeper than #ehavior or attitude and determine$ at a #asic level$ people)s choices and desires over the long term. Marketers %ho target consumers on the #asis of their values #elieve that %ith appeals to people)s inner selves$ it is possi#le to influence their outer selves6their purchase #ehavior.
(ey psychological processes
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The starting point for understanding consumer #ehavior is the stimulus'response model. Marketing and environmental stimuli enter the consumer)s consciousness$ and a set of psychological processes com#ine %ith certain consumer characteristics to result in decision processes and purchase decisions. The marketer)s task is to understand %hat happens in the consumer)s consciousness #et%een the arrival of the outside marketing stimuli and the ultimate purchase decisions. @our key psychological processes6 moti,ation" perception" learning" and memory 6fundamentally influence consumer responses.
Motivation @reud$ Maslo% and 0er"#erg -e all have many needs at any given time. 3ome needs are biogenic< they arise from physiological states of tension such as hunger$ thirst$ or discomfort. !ther needs are psychogenic< they arise from psychological states of tension such as the need for recognition$ esteem$ or #elonging. A need #ecomes a moti,e %hen it is aroused to a sufficient level of intensity to drive us to act. Motivation has #oth direction6%e select one goal over another6and intensity6%e pursue the goal %ith more or less vigor. FreudAs theory ' 3igmund @reud assumed the psychological forces shaping people)s #ehavior are largely unconscious$ and that a person cannot fully understand his or her o%n motivations. 3omeone %ho e/amines specific #rands %ill react not only to their stated capa#ilities$ #ut also to other$ less conscious cues such as shape$ si"e$ %eight$ material$ color$ and #rand name. MaslowAs theory ' A#raham Maslo% sought to e/plain %hy people are driven #y particular needs at particular times. 0is ans%er is that human needs are arranged in a hierarchy from most to least pressing 6physiological needs$ safety needs$ social needs$ esteem needs$ and self'actuali"ation needs. People %ill try to satisfy their most important need first and then try to satisfy the ne/t most important. 9er&%ergAs theory ' @rederick 0er"#erg developed a t%o'factor theory that distinguishes dissatisfiers 7factors that cause dissatisfaction8 from satisfiers 7factors that cause satisfaction8. The a#sence of dissatisfiers is not enough to motivate a purchase satisfiers must #e present. 0er"#erg)s theory has t%o implications. @irst$ sellers should do their #est to avoid dissatisfiers. Although these things %ill not sell a product$ they might easily unsell it. 3econd$ the seller should identify the ma9or satisfiers or motivators of purchase in the market and then supply them.
Perception A motivated person is ready to act6ho% is influenced #y his or her perception of the situation. &n marketing$ perceptions are more important than reality$ #ecause perceptions affect consumers) actual #ehavior. )erception is the process #y %hich
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%e select$ organi"e$ and interpret information inputs to create a meaningful picture of the %orld. &t depends not only on physical stimuli$ #ut also on the stimuli)s relationship to the surrounding environment and on conditions %ithin each of us. Selecti,e attention ' Attention is the allocation of processing capacity to some stimulus. oluntary attention is something purposeful involuntary attention is gra##ed #y someone or something. 3elective attention means that marketers must %ork hard to attract consumers) notice.
' ' '
people are more likely to notice stimuli that relate to a current need people are more likely to notice stimuli they anticipate people are more likely to notice stimuli %hose deviations are large in relationship to the normal si"e of stimuli.
Selecti,e distortion ' ven noticed stimuli don)t al%ays come across in the %ay the senders intended. Selecti,e distortion is the tendency to interpret information in a %ay that fits our preconceptions. Consumers %ill often distort information to #e consistent %ith prior #rand and product #eli efs and e/pectations.
@or a stark demonstration of the po%er of consumer #rand #eliefs$ consider that in *#lind+ taste tests$ one group of consumers samples a product %ithout kno%ing %hich #rand it is$ %hile another group kno%s. &nvaria#ly$ the groups have different opinions$ despite consuming exactly the same product. -hen consumers report different opinions of #randed and un#randed versions of identical products$ it must #e the case that their #rand and product #eliefs$ created #y %hatever means 7past e/periences$ marketing activity for the #rand$ or the like8$ have someho% changed their product perceptions. Selecti,e retention ' Most of us don)t remem#er much of the information to %hich %e)re e/posed$ #ut %e do retain information that supports our attitudes and #eliefs. :ecause of selecti,e retention" %e)re likely to remem#er good points a#out a product %e like and forget good points a#out competing products. 3elective retention again %orks to the advantage of strong #rands.
Jearning -hen %e act$ %e learn. >earning induces changes in our #ehavior arising from e/perience. Most human #ehavior is learned$ although much learning is incidental. Jearning theorists #elieve learning is produced through the interplay of drives$ stimuli$ cues$ responses$ and reinforcement. motions Consumer response is not all cognitive and rational much may #e emotional and invoke different kinds of feelings. A #rand or product may make a consumer feel proud$ e/cited$ or confident. An ad may create feelings of amusement$ disgust$ or %onder. Memory Cognitive psychologists distinguish #et%een short0term memory $S(M'@a temporary and limited repository of information6and long0term memory $>(M'@a more permanent$ essentially unlimited repository. All the information and e/periences %e encounter as %e go through life can end up in our long'term memory. +rand associations consist of all #rand'related thoughts$ feelings$ perceptions$ images$ e/periences$ #eliefs$ attitudes$ and so on that #ecome linked to the #rand node. Memory processes ' Memory is a very constructive process$ #ecause %e don)t remem#er information and events completely and accurately. !ften %e remem#er #its and pieces and fill in the rest #ased on %hatever else %e kno%. Memory encoding descri#es ho% and %here information gets into memory. The strength of the resulting association depends on ho%
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much %e process the information at encoding 7ho% much %e think a#out it$ for instance8 and in %hat %ay.>H &n general$ the more attention %e pay to the meaning of information during encoding$ the stronger the resulting associations in memory %ill #e. Memory retrie,al is the %ay information gets out of memory. Three facts are important a#out memory retrieval.
1. 2. <.
The p resence o f other product information in memory can produce interference effects and cause us to either overlook or confuse ne% data. The time #et%een e/posure to information and encoding has #een sho%n generally to produce only gradual decay. &nformation may #e available in memory #ut not #e accessible for recall %ithout the proper retrieval cues or reminders.
The %uying decision process: the ) stage model The consumer t ypically passes through five stages pro#lem recognition$ information search$ evaluation of alternatives$ purchase decision$ and post'purchase #ehavior. Consumers don)t al%ays pass through all five stages6they may skip or reverse some. This model captures the full range of considerations that arise %hen a consumer faces a hi ghly involving ne% purchase. )ro%lem recognition ' The #uying process starts %hen the #uyer recogni"es a pro#lem or need triggered #y internal or e/ternal stimuli. Marketers need to identify the circumstances that trigger a particular need #y gathering information from a num#er of consumers. They can then develop marketing strategies that spark consumer interest. nformation search ' -e can distinguish #et%een t%o levels of engagement in the search. The milder search state is called heightened attention. At this level a person simply #e' comes more receptive to information a#out a product. At the ne/t level$ the person may enter an active information search% looking for reading material$ phoning friends$ going online$ and visiting stores to learn a#out the product.
Information sources personal 7family$ friends$8$ commercial 7advertising$ %e# sites$ 8$ pu#lic 7mass media$ 8$ e/perimental 7 e/amining$ using the product$8 3earch dynamics #y gathering information$ the consumer learns a#out competing #rands and their features.
The first #o/ sho%s the total set of #rands availa#le. The individual consumer %ill come to kno% a su#set of these$ the awareness set. !nly some$ the consideration set, %ill meet initial #uying criteria. As the consumer gathers more information$ 9ust a fe%$ the choice set, %ill remain strong contenders. The consumer makes a final choice from these.
Marketers need to identify the hierarchy of attri#utes that guide consumer decision making in order to understand different competitive forces and ho% these various sets get formed. This process of identifying the hierarchy is called market
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partitioning3
The hierarchy of attri#utes also can reveal customer segments. :uyers %ho first decide on price are price dominant those %ho first decide on the type of car 7sports$ passenger$ hy#rid8 are type dominant those %ho choose the #rand first are #rand dominant. TypeSpriceS#rand'dominant consumers make up one segment (ualitySserviceStype #uyers make up another. ach may have distinct demographics$ psychographics$ and media'graphics and different a%areness$ consideration$ and choice sets. The company must also identify the other #rands in the consumer)s choice set so that it can plan the appropriate competitive appeals. &n addition$ marketers should identify the consumer)s information sources and evaluate their relative importance. .,aluation of alternati,es 0 0o% does the consumer process competitive #rand information and make a final value 9udgmentD ;o single process is used #y all consumers$ or #y one consumer in all #uying situations. There are several processes$ and the most current models see the consumer forming 9udgments largely on a conscious and rational #asis. 3ome #asic concepts %ill help us understand consumer evaluation processes
@irst$ the consumer is trying to satisfy a need. 3econd$ the consumer is looking for certain #enefits from the product solution. Third$ the consumer sees each product as a #undle of attri#utes %ith varying a#ilities to deliver the #enefits. Consumers %ill pay the most attention to attri#utes that deliver the sought'after #enefits. -e can often segment the market for a product according to attri#utes and #enefits important to different consumer groups. Beliefs and attitudes ' Through e/perience and learning$ people ac(uire #eliefs and attitudes. These in turn influence #uying #ehavior. A %elief is a descriptive thought that a person holds a#out something. ust as important are attitudes" a person)s enduring favora#le or unfavora#le evaluations$ emotional feelings$ and action tendencies to%ard some o#9ect or idea. (xpectancy = value model ' The consumer arrives at attitudes t o%ard various #rands through an attri#ute evaluation procedure$ developing a set of #eliefs a#out %here each #rand stands on each attri#ute. The expectancy0,alue model of attitude formation posits that consumers evaluate products and services #y com#ining their #rand #eliefs 6the positives and negatives6according to importance. )urchase decision 0 &n the evaluation stage$ the consumer forms preferences among the #rands in the choice set and may also form an intention to #uy the most preferred #rand. &n e/ecuting a purchase intention$ the consumer may make up to five su#'decisions #rand 7#rand A8$ dealer 7dealer 28$ (uantity 7one computer8$ timing 7%eekend8$ and payment method 7credit card8.
!oncompensatory models of consumer choice ' The e/pectancy'value model is a compensatory model$ in that perceived good things a#out a product can help to overcome perceived #ad things. :ut consumers often take *mental shortcuts+ called heuristics or rules of thum# in the decision process. -e highlight three choice heuristics here.
' ' '
=sing the con9unctive heuristic$ the consumer sets a minimum accepta#le cutoff level for each at' tri#ute and chooses the first alternative that meets the minimum standard for all attri#utes. -ith the le/icographic heuristic$ the consumer chooses the #est #rand on the #asis of its perceived most important attri#ute. =sing the elimination'#y'aspects heuristic$ the consumer compares #rands on an attri#ute selected pro#a#ilistically6%here the pro#a#ility of choosing an attri#ute is positively related to its importance6 and eliminates #rands that do not meet minimum accepta#le cutoffs.
!ur #rand or product kno%ledge$ the num#er and similarity of #rand choices and time pressures present$ and the
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social conte/t 7such as the need for 9ustification to a peer or #oss8 all may affect %hether and ho% %e use choice heuristics. nter,ening factors ' ven if consumers form #rand evaluations$ t%o general factors can intervene #et%een the purchase intention and the purchase decision.
The first factor is the attitudes of others. The influence of another person)s attitude depends on t%o things 718 the intensity of the other person)s negative attitude to%ard our preferred alternative and 728 our motivation to comply %ith the other person)s %ishes. The second factor is unanticipated situational factors that may erupt to change the purchase intention 7for e/ample some other purchase might #ecome more urgent8.
A consumer)s decision to modify$ postpone$ or avoid a purchase decision is heavily influenced #y one or more types of perceived risk. The degree of perceived risk varies %ith the amount of money at stake$ the amount of attri#ute uncertainty$ and the level of consumer self'confidence. Consumers develop routines for reducing the uncertainty and negative conse(uences of risk$ such as avoiding decisions$ gathering information from friends$ and developing preferences for national #rand names and %arranties. Marketers must understand the factors that provoke a feeling of risk in consumers and provide information and support to reduce it. )ostpurchase %eha,ior ' After the purchase$ the consumer might e/perience dissonance from noticing certain dis(uieting features or hearing favora#le things a#out other #rands and %ill #e alert to information that supports his or her decision. Marketing communications should supply #eliefs and evaluations that reinforce the consumer)s choice and help him or her feel good a#out the #rand. The marketer)s 9o# therefore doesn)t end %ith the purchase. Marketers must monitor postpurchase satisfaction$ postpurchase actions$ and postpurchase product uses and disposal.
*ostpurchase satisfaction ' 3atisfaction is a function of the closeness #et%een e/pectations and the product)s perceived performance. &f performance falls short of e/pectations$ the consumer is disappointed< if it meets e/pectations$ the consumer is satisfied< if it e/ceeds e/pectations$ the consumer is delighted. *ostpurchase actions ' A satisfied consumer is more likely to purchase the product again and %ill also tend to say good things a#out the #rand to others. *ostpurchase uses and proposal ' Marketers should also monitor ho% #uyers use and dispose of the product. A key driver of sales fre(uency is product consumption rate6the more (uickly #uyers consume a product$ the sooner they may #e #ack in the market to repurchase it. Moderating effects on consumer decision making
The manner or path #y %hich a consumer moves through the decision'making stages depends on several factors$ including the level of involvement and e/tent of variety seeking. Jo% – involvement consumer decision making ' The e/pectancy'value model assumes a high level of consumer in,ol,ement" or engagement and active processing the consumer undertakes in responding to a marketingstimulus. Richard Petty and ohn Cacioppo)s elaboration likelihood model, an influential model of attitude formation and change$ descri#es ho% consumers make evaluations in #oth lo%' and high'involvement circumstances.
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Consumers follo% the central route only if they possess sufficient motivation$ a#ility$ and opportunity. &n other %ords$ they must %ant to evaluate a #rand in detail$ have the necessary #rand and product or service kno%ledge in memory$ and have sufficient time and the proper setting. &f any of those factors is lacking$ consumers tend to follo% the peripheral route and consider less central$ more e/trinsic factors in t heir decisions. ariety seeking #uying #ehavior ' 3ome #uying situations are characteri"ed #y lo% involvement #ut significant #rand differences. 0ere consumers often do a lot of #rand s%itching. Think a#out cookies. The consumer has some #eliefs a#out cookies$ chooses a #rand %ithout much evaluation$ and evaluates the product during consumption. ;e/t time$ the consumer may reach for another #rand out of a desire for a different taste. :rand s%itching occurs for the sake of variety$ rather than dissatisfaction.
"ehaioral decision theory and %ehaioral economics Decision heuristics
' ' '
The a,aila%ility heuristic@ Consumers #ase their predictions on the (uickness and ease %ith %hich a particular e/ample of an outcome comes to mind. The representati,eness heuristic@ Consumers #ase their predictions on ho% representative or similar the outcome is to other e/amples. The anchoring and ad/ustment heuristic@ Consumers arrive at an initial 9udgment and then ad9ust it #ased on additional information.
Framing
"ecision framing is the manner in %hich choices are presented to and seen #y a decision maker.
'
Mental accounting ' Researchers have found that consumers use mental accounting %hen they handle their money. Mental accounting refers to the %ay consumers code$ categori"e$ and evaluate financial outcomes of choices. @ormally$ it is *the tendency to categori"e funds or items of value even though there is no logical basis for the categori"ation$ e.g.$ individuals often segregate their savings into separate accounts to meet different goals even though funds from any of t he accounts can #e applied to any of the goals.+
The principles of mental accounting are derived in part from prospect theory. )rospect theory maintains that consumers frame their decision alternatives in terms of gains and losses according to a value function. Consumers are generally loss' averse. They tend to over%eight very lo% pro#a#ilit ies and under%eight very high pro#a#ilities.
Chapter B 4 naly&ing %usiness markets
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&hat is organizational %uying' @rederick . -e#ster r. and Koram -ind define organi&ational %uying as the decision'making process #y %hich formal organi"ations esta#lish the need for purchased products and services and identify$ evaluate$ and choose among alternative #rands and suppliers. (he +usiness market -S the Consumer market
The %usiness market consists of all the organi"ations that ac(uire goods and services used in the production of other products or services that are sold$ rented$ or supplied to others. 5iven the highly competitive nature of #usiness'to'#usiness markets$ the #iggest enemy to marketers here is commoditi"ation. Commoditi"ation1 eats a%ay margins and %eakens customer loyalty. &t can #e overcome only if target customers are convinced that meaningful differences e/ist in the marketplace$ and that the uni(ue #enefits of the firm)s offerings are %orth the added e/pense. Thus$ a critical step in #usiness'to'#usiness marketing is to create and communicate relevant differentiation from competitors. :usiness marketers face many of the same challenges as consumer marketers. &n particular$ understanding their customers and %hat they value is of paramount importance to #oth. A survey of top #usiness'to'#usiness firms identified the follo%ing as challenges they faced 1. 2. <. >. ?. G.
=nderstanding deep customer needs in ne% %ays &dentifying ne% opportunities for organic #usiness gro%th &mproving value management techni(ues and tools Calculating #etter marketing performance and accounta#ility metrics Competing and gro%ing in glo#al markets$ particularly China Countering the threat of product and service commoditi"ation #y #ringing innovative offerings to market faster and
H.
moving to more competitive #usiness models and Convincing C'level e/ecutives to em#race the marketing concept and support ro#ust marketing programs.
:usiness marketers contrast sharply %ith consumer markets in some %ays$ ho%ever Fewer# larger "u$ers! The #usiness marketer normally deals %ith far fe%er$ much larger #uyers than the consumer
marketer does$ particularly in such industries as aircraft engines and defense %eapons. &lose suliercustomer relationshi! :ecause of the smaller customer #ase and the importance and po%er of the larger customers$ suppliers are fre(uently e/pected to customi"e their offerings to individual #usiness customer needs. %rofessional urchasing . :usiness goods are often purchased #y trained purchasing agents$ %ho must follo% their organi"ations) purchasing policies$ constraints$ and re(uirements. Multile "u$ing influences. More people typically influence #usiness #uying decisions. :uying committees consisting of technical e/perts and even senior m anagement are common in the purchase of ma9or goods. Multile sales calls! A study #y Mc5ra%'0ill found that it took four to four and a half calls to close an average
industrial sale. Derived demand . The demand for #usiness goods is ultimately derived from the demand for consumer goods. @or this reason$ the #usiness marketer must closely monitor the #uying patterns of ult imate consumers. Inelastic demand . The total demand for many #usiness goods and services is inelastic6that is$ not much affected #y price changes.
1
Commoditi&ation is defined as the process #y %hich goods that have economic value and are distinguisha#le in terms of attri#utes 7uni(ueness or #rand8 end up #ecoming simple commodities in the eyes of the market or consumers. &t is the movement of a market from differentiated to undifferentiated price competition and from monopolistic to perfect competition.
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Fluctuating demand . The demand for #usiness goods and services tends to #e more volatile than the demand for
consumer goods and services. 6eographically concentrated %uyers . The geographical concentration of producers helps to reduce selling costs. At the same time$ #usiness marketers need to monitor regional shifts of certain industries3 Direct urchasing! :usiness #uyers often #uy directly from manufacturers rather than through intermediaries :uying situations The #usiness #uyer faces many decisions in making a purchase. )ow many depends on the comple/ity of the pro#lem #eing solved$ ne%ness of the #uying re(uirement$ num#er of people involved$ and time re(uired. Three types of #uying situations are the straight re#uy$ modified re#uy$ and ne% task. .traight re"u$! &n a straight re#uy$ the purchasing department reorders supplies such as office supplies and #ulk
chemicals on a routine #asis and chooses from suppliers on an approved list. The suppliers make an effort to maintain product and service (uality and often propose automatic reordering systems to save time. Modified re%uy. The #uyer in a modified re#uy %ants to change product specifications$ prices$ delivery re(uirements$ or other terms. This usually re(uires additional participants on #oth sides. The in'suppliers #ecome nervous and %ant to protect the account. The out'suppliers see an opportunity to propose a #etter offer to gain some #usiness. #ew task . A ne%'task purchaser #uys a product or service for the first time 7an office #uilding$ a ne% security system8. The greater the cost or risk$ the larger the num#er of participants$ and the greater their information gathering6the longer the time to a decision. The #usiness #uyer makes the fe%est decisions in the straight re#uy situation and the most in the ne%'task situation. !ver time$ ne%'#uy situations #ecome straight re#uys and routine purchase #ehavior. ;e%'task #uying is the marketer)s greatest opportunity and challenge. The process passes through several stages a%areness$ interest$ evaluation$ trial$ and adoption. &n the new0task situation$ the #uyer must determine product specifications$ price limits$ delivery terms and times$ service terms$ payment terms$ order (uantities$ accepta#le suppliers$ and the selected supplier. The #rand promise and the manufacturer)s #rand name recognition %ill #e important in esta#lishing trust and the customer)s %illingness to consider change. The marketer also tries to reach as many key participants as possi#le and provide helpful information and assistance. !nce a customer has #een ac(uired$ in'suppliers are continually seeking %ays to add value to their market offer to facilitate re#uys. !ne %ay to entice ne% #uyers is to create a customer reference program in %hich satisfied e/isting customers act in concert %ith the company)s sales and marketing department #y agreeing to serve as references. 3ystem #uying and 3ystem selling Many #usiness #uyers prefer to #uy a total pro#lem solution from one seller. Called s$stems "u$ing , this practice originated %ith government purchases of ma9or %eapons and communications systems. The government solicited #ids from prime contractors that$ if a%arded the contract$ %ould #e responsi#le for #idding out and assem#ling the system)s su#components from second&tier contractors. The prime contractor thus provided a turnkey solution$ so'called #ecause the #uyer simply had to turn one key to get the 9o# done. .$stems selling is a key industrial marketing strategy in #idding to #uild large'scale industrial pro9ects such as dams$ steel factories$ irrigation systems$ sanitation systems$ pipelines$ utilities$ and even ne% to%ns. Customers present potential suppliers %ith a list of pro9ect specifications and re(uirements. Pro9ect engineering firms must compete on price$ (uality$ relia#ility$ and other attri#utes to %in contracts. 3uppliers$ ho%ever$ are not 9ust at the mercy of customer demands. &deally$ they)re active %ith customers early in the process to influence the actual development of the specifications.
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Participants in the %usiness %uying process Purchasing agents are influential in straight're#uy and modified're#uy situations$ %hereas other department personnel are more influential in ne%'#uy situations. ngineering personnel usually have a ma9or influence in selecting product components$ and purchasing agents dominate in selecting suppliers. The #uying center -e#ster and -ind call the decision'making unit of a #uying organi"ation the #uying center. &t consists of *all those individuals and groups %ho participate in the purchasing decision'making process$ %ho share some common goals and the risks arising from the decisions.+ The #uying center includes all mem#ers of the organi"ation %ho play any of the follo%ing seven roles in the purchase decision process. 1. 2. <. >. ?. G.
H.
nitiators 6=sers or others in the organi"ation %ho re(uest that something #e purchased. sers 6Those %ho %ill use the product or service. &n many cases$ the users initiate the #uying proposal and help define the product re(uirements. nfluencers 6People %ho influence the #uying decision$ often #y helping define specifications and providing information for evaluating alternatives. Technical personnel are particularly important influencers. Deciders 6People %ho decide on product re(uirements or on suppliers. ppro,ers 6People %ho authori"e the proposed actions of deciders or #uyers. +uyers 6People %ho have formal authority to select the supplier and arrange the purchase terms. :uyers may help shape product specifications$ #ut they play their ma9or role in selecting vendors and negotiating. &n more comple/ purchases$ #uyers might include high'level managers. 6atekeepers 6People %ho have the po%er to prevent sellers or information from reaching mem#ers of the #uying center. @or e/ample$ purchasing agents$ receptionists$ and telephone operators may prevent salespersons from contacting users or deciders.
3everal people can occupy a given role such as user or influencer$ and one person may play multiple roles. :uying center influences :uying centers usually include several participants %ith differing interests$ authority$ status$ and persuasiveness$ and sometimes very different decision criteria. ngineers may %ant to ma/imi"e the performance of the product production people may %ant ease of use and relia#ility of supply financial staff focus on the economics of the purchase$ &ndividuals are motivated #y their o%n needs and perceptions in attempting to ma/imi"e the re%ards 7pay$ advancement$ recognition$ and feelings of achievement8 offered #y the organi"ation. Personal needs motivate their #ehavior$ #ut organi"ational needs legitimate the #uying process and its outcomes. Thus$ #usinesspeople are not #uying *products.+ They are #uying solutions to t%o pro#lems the organi"ation)s economic and strategic pro#lem$ and their o%n personal need for individual achievement and re%ard. &n this sense$ industrial #uying decisions are #oth *rational+ and *emotional+6they serve #oth the organi"ation)s and the individual)s needs. Recogni"ing these e/trinsic$ interpersonal influences$ more industrial firms have put greater emphasis on strengthening their corporate #rand. Targeting firms and #uying centers 3uccessful #usiness'to'#usiness marketing re(uires that #usiness marketers kno% %hich types of companies to focus on in their selling efforts$ as %ell as %ho to concentrate on %ithin the #uying centers in those organi"ations. (argeting firms ' #usiness marketers may divide the marketplace in many different %ays to decide on the types of firms to
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Strategic Marketing
%hich they %ill sell. @inding those #usiness sectors %ith the greatest gro%th prospects$most profita#le customers$ and most promising opportunities for the firm is crucial. (argeting within the %usiness center ' !nce it has identified the type of #usinesses on %hich to focus marketing efforts$ the firm must then decide ho% #est to sell to them. To target their efforts properly$ #usiness marketers need to figure out -ho are the ma9or decision participantsD -hat decisions do they influenceD -hat is their level of influenceD -hat evaluation criteria do they useD
The #usiness marketer is not likely to kno% e/actly %hat kind of group dynamics take place during the decision process$ although %hatever information he or she can o#tain a#out personalities and interpersonal factors is useful. 3mall sellers concentrate on reaching the key buying influencers. Jarger sellers go for multilevel in&depth selling to reach as many participants as possi#le.
The purchasing * procurements process &n principle$ #usiness #uyers seek to o#tain the highest #enefit package 7economic$ technical$ service$ and social8 in relation to a market offering)s costs. To make comparisons$ they %ill try to translate all costs and #enefits into monetary terms. A #usiness #uyer)s incentive to purchase %ill #e a function of the difference #et%een perceived #enefits and perceived costs. The marketer)s task is to construct a profita#le offering that deli vers superior customer value to the target #uyers. :usiness marketers must therefore ensure that customers fully appreciate ho% the firm)s offerings are different and #etter. ;raming occurs %hen customers are given a perspective or point of vie% that allo%s the firm to *put its #est foot for%ard.+ @raming re(uires understanding ho% #usiness customers currently think of and choose among products and services$ and then determining ho% they should ideally think and choose.
+tages in the %uying process &n modified're#uy or straight're#uy situations$ some stages are compressed or #ypassed. @or e/ample$ the #uyer normally has a favorite supplier or a ranked li st of suppliers and can skip the search and proposal solicitation stages.
1.
)ro%lem recognition The #uying process #egins %hen someone in the company recogni"es a pro#lem or need that can #e met # y ac(uiring a good or service. The recognition can #e triggered #y internal or e/ternal stimuli.
2.
6eneral need description and product specification ;e/t$ the #uyer determines the needed item)s general characteristics and re(uired (uantity. @or standard items$ this is simple. @or comple/ items$ the #uyer %ill %ork %ith others6engineers$ users6to define characteristics such as relia#ility$ dura#ility$ or price. :usiness marketers can help #y descri#ing ho% their products meet or even e/ceed the #uyer)s needs.
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Strategic Marketing
<.
Supplier search the #uyer ne/t tries to identify the most appropriate suppliers through trade directories$ contacts %ith other companies$ trade advertisements$ trade sho%s$ and the &nternet. The move to &nternet purchasing has far' reaching implications for suppliers and %ill change the shape of purchasing for years to come. !nline #usiness #uying offers several advantages &t shaves transaction costs for #oth #uyers and suppliers$ reduces time #et%een order and delivery$ consolidates purchasing systems$ and forges more direct relationships #et%een partners and #uyers. a. 'Procurement
>.
)roposal solicitation The #uyer ne/t invites (ualified suppliers to su#mit proposals. &f the item is comple/ or e/pensive$ the proposal %ill #e %ritten and detailed. After evaluating the proposals$ the #uyer %ill invite a fe% suppliers to make formal presentations. :usiness marketers must #e skilled in researching$ %riting$ and presenting proposals. -ritten proposals should #e marketing documents that descri#e value and #enefits in customer terms. !ral presentations must inspire confidence and position the company)s capa#ilities and resources so they stand out from the competition.
?.
Supplier selection :efore selecting a supplier$ the #uying center %ill specify and rank desired supplier attri#utes$ often using a supplier'evaluation model. To develop compelling value propositions$ #usiness marketers need to #etter understand ho% #usiness #uyers arrive at their valuations.
G.
*rder routine specification After selecting suppliers$ the #uyer negotiates the final order$ listing the technical specifications$ the (uantity needed$ the e/pected time of delivery$ return policies$ %arranties$ and so on.
H.
)erformance re,iew The #uyer periodically revie%s the performance of the chosen supplier7s8 using one of three methods. The #uyer may contact end users and ask for their evaluations$ rate the supplier on several criteria using a %eighted'score method$ or aggregate the cost of poor performance to come up %ith ad9usted costs of purchase$ including price. The performance revie% may lead the #uyer to continue$ modify$ or end a supplier relationship.
Managing "," customer relationships To improve effectiveness and efficiency$ #usiness suppliers and customers are e/ploring different %ays to manage their relationships. Closer relationships are driven in part #y supply chain management$ early supplier involvement$ and purchasing alliances. Cultivating the right relationships %ith #usiness is paramount for any holistic marketing program. The #enefit of vertical coordination :uilding trust is one prere(uisite to healthy long'term relationships. *Marketing &nsight sta#lishing Corporate Trust$ Credi#ility$ and Reputation+ identifies some key dimensions of such trust. Lno%ledge that is specific and relevant to a relationship partner is also an important factor in the strength of inter' firm ties. A num#er of forces influence the development of a relationship #et%een #usiness partners. @our relevant factors are availa#ility of alternatives$ importance of supply$ comple/ity of supply$ and supply market dynamism. :ased on these %e can classify #uyer–supplier relationships into eight categories 1. 2. <.
+asic %uying and selling 6These are simple$ routine e/changes %ith moderate levels of cooperation and information e/change. +are %ones 6These relationships re(uire more adaptation #y the seller and less cooperation and information e/change. Contractual transaction 6These e/changes are defined #y formal contract and generally have lo% levels of trust$ cooperation$ and interaction.
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Master Marketing
>. ?. G. H. I.
1° semester 2012
Strategic Marketing
Customer supply 6&n this traditional custom supply situation$ competition rather than cooperation is the dominant form of governance. Cooperati,e systems 6The partners in cooperative systems are united in operational %ays$ #ut neither demonstrates structural commitment through legal means or adaptation. Colla%orati,e 6&n colla#orative e/changes$ much trust and commitment lead to true partnership. Mutually adapti,e 6:uyers and sellers make many relationship'specific adaptations$ #ut %ithout necessarily achieving strong trust or cooperation. Customer is king 6&n this close$ cooperative relationship$ the seller adapts to meet the customer)s needs %ithout e/pecting much adaptation or change in e/change.
!ver time$ ho%ever$ relationship roles may shift or #e activated under different circumstances. 3ome needs can #e satisfied %ith fairly #asic supplier performance. :uyers then neither %ant nor re(uire a close relationship %ith a supplier. Jike%ise$ some suppliers may not find it %orth their %hile to invest in customers %ith limited gro%th potential. :usiness relationships risk and opportunism Researchers have noted that esta#lishing a customer–supplier relationship creates tension #et%een safeguarding 7ensuring predicta#le solutions8 and adaptation 7allo%ing for fle/i#ility for unanticipated events8. ertical coordination can facilitate stronger customer–seller ties #ut at the same time may increase the risk to the customer)s and supplier)s specific investments. -hen #uyers cannot easily monitor supplier performance$ the supplier might shirk or cheat and not deliver the e/pected value. 9pportunism is *some form of cheating or undersupply relative to an implicit or e/plicit contract.+ &t may entail #latant self'serving and deli#erate misrepresentation that violates contractual agreements. !pportunism is a concern #ecause firms must devote resources to control and monitoring that they could other%ise allocate to more productive purposes.
Institutional and goernment markets The institutional market consists of schools$ hospitals$ nursing homes$ prisons$ and other institutions that must provide goods and services to people in their care. Many of these organi"ations are characteri"ed #y lo% #udgets and captive clienteles. &n most countries$ government organi"ations are a ma9or #uyer of goods and services. They typically re(uire suppliers to su#mit #ids and often a%ard the contract to the lo%est #idder. &n some cases$ they %ill make allo%ance for superior (uality or a reputation for completing contracts on time. 5overnments %ill also #uy on a negotiated contract #asis$ primarily in comple/ pro9ects %ith ma9or RO4 costs and risks and those %here there is little competition.
Chapter 4 dentifying market segments and targets Companies cannot connect %ith all customers in large$ #road$ or diverse markets. :ut they can divide such markets into groups of consumers or segments %ith distinct needs and %ants. A company then needs to identify %hich market segments it can serve effectively. This decision re(uires a keen understanding of consumer #ehavior and careful strategic thinking. To develop the #est marketing plans$ managers need to understand %hat makes each segment uni(ue and different. &dentifying and satisfying the right market segments is often the key to marketing success.
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Master Marketing
1° semester 2012
Strategic Marketing
To compete more effectively$ many companies are no% em#racing target marketing. &nstead of scattering their marketing efforts$ they)re focusing on those consumers they have the greatest chance of satisfying. (ffective target marketing re'uires that marketers% 1. &dentify and profile distinct groups of #uyers %ho differ in their needs and %ants 7market segmentation8. 2. 3elect one or more market segments to enter 7market targeting8. <. @or each target segment$ esta#lish and communicate the distinctive #enefit7s8 of the company)s market offering 7market positioning8.
"ases for segmenting consumer markets A market segment consists of a group of customers %ho share a similar set of needs and %ants. The marketer)s task is to identify the appropriate num#er and nature of market segments and decide %hich one7s8 to target. The ma9or segmentation varia#les6geographic$ demographic$ psychographic$ and #ehavioral segmentation.
5eographic segmentation 5eographic segmentation divides the market into geographical units such as nations$ states$ regions$ counties$ cities$ or neigh#orhoods. The company can operate in one or a fe% areas$ or it can operate in all #ut pay attention to local variations. &n that %ay it can tailor marketing programs to the needs and %ants of local customer groups in trading areas$ neigh#orhoods$ even individual stores. &n a gro%ing trend called grassroots marketing, such activities concentrate on getting as close and personally relevant to individual customers as possi#le. 3ome approaches com#ine geographic data %ith demographic data to yield even richer descriptions of consumers and neigh#orhoods. ;ielsen Claritas has developed a geoclustering approach called PR&M 7Potential Rating &nde/ #y ip Markets8. Marketers can use PR&M to ans%er (uestions such as -hich geographic areas 7neigh#orhoods or "ip codes8 contain our most valua#le customersD 0o% deeply have %e already penetrated these segmentsD -hich distri#ution channels and promotional media %ork #est in reaching our target clusters in each areaD
4emographic segmentation n demographic segmentation$ %e divide the market on varia#les such as age$ family si"e$ family life cycle$ gender$ income$ occupation$ education$ religion$ race$ generation$ nationality$ and social class. !ne reason demographic varia#les are so popular %ith marketers is that they)re often associated %ith consumer needs and %ants. Another is that they)re easy to measure. ven %hen %e descri#e the target market in nondemographic terms 7say$ #y personality type8$ %e may need the link #ack to demographic characteristics in order to estimate the si"e of the market and the media %e should use to reach it efficiently. 0ere)s ho% marketers have used certain demographic varia#les to segment markets ' ' '
'
ge and life 4 cycle stage customer %ants and a#ilities change %ith age >ife stage People in the same part of the life cycle may still differ in their life stage. Jife stage defines a person)s ma9or concern$ such as going through a divorce$ 6ender Men and %omen have different attitudes and #ehavedifferently$ #ased partly on genetic makeup and partl y onsociali"ation. -omen tend to #e more communal'minded and men more self'e/pressive and goal'directed %omen tend to take in more of the data in their immediate environment and men to focus on the part of the environment that helps them achieve a goal. ncome &ncome segmentation is a long'standing practice in such categories as automo#iles$ clothing$ cosmetics$ financial services$ and travel. 0o%ever$ income does not al%ays predict the #est customers for a given product.
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Master Marketing
'
1° semester 2012
Strategic Marketing
6eneration ach generation or cohort is profoundly influenced #y the times in %hich it gro%s up6the music$ movies$ politics$ and defining events of that period. Mem#ers share the same ma9or cultural$ political$ and economic e/periences and have similar outlooks and values Millenials 7or 5en K8 internet generation 7#orn #et%een 1EHE – 1EE>8 they are selective$ o
o
o
o
'
confident and impatient >en ? #orn #et%een 1EG> – 1EHI. 5en Uers feel self'sufficiency and the a#ility to handle any circumstance are key. Technology is an ena#ler for them$ not a #arrier. Baby boomers :a#y #oomers are the appro/imately HG million =.3. consumers #orn #et%een 1E>G and 1EG>. 3ilent generation Those #orn #et%een 1E2? and 1E>?6the *3ilent 5eneration+6are redefining %hat old age means.
ace and culture Multicultural marketing is an approach recogni"ing that different ethnic and cultural segments have sufficiently different needs and %ants to re(uire targeted marketing activities$ and that a mass market approach is not refined enough for the diversity of the marketplace. The norms$ language nuances$ #uying ha#its$ and #usiness practices of multicultural markets need to #e factored into the initial formulation of a marketing strategy$ rather than added as an afterthought. All this diversity also has implications for marketing research it takes careful sampling to ade(uately profile target markets.
Psychographic segmentation )sychographics is the science of using psychology and demographics to #etter understand consumers. &n psychographic segmentation, #uyers are divided into different groups on the #asis of psychologicalSpersonality traits$ lifestyle$ or values. People %ithin the same demographic group can e/hi#it very different psychographic profiles.
The main dimensions of the AJ3 segmentation frame%ork are consumer motivation 7the hori"ontal dimension8 and consumer resources 7the vertical dimension8. Consumers are inspired #y one of three primary motivations ideals$ achievement$ and self'e/pression. Those primarily motivated #y ideals are guided #y kno%ledge and principles. Those motivated #y achievement look for products and services that demonstrate success to their peers. Consumers %hose motivation is self'e/pression desire social or physical activity$ variety$ and risk. Personality traits such as energy$ self'confidence$ intellectualism$ novelty seeking$ innovativeness$ impulsive' ness$ leadership$ and vanity6in con9unction %ith key demographics6determine an individual)s resources.
The @ groups with higher resources are%
1. 2. <.
nno,ators 63uccessful$ sophisticated$ active$ *take'charge+ people %ith high self'esteem. Purchases often reflect cultivated tastes for relatively upscale$ niche'oriented products and services. (hinkers 6Mature$ satisfied$ and reflective people motivated #y ideals and %ho value order$ kno%ledge$ and responsi#ility. They seek dura#ility$ functionality$ and value in products. chie,ers 63uccessful$ goal'oriented people %ho focus on career and family. They favor premium products that demonstrate success to their peers.
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Master Marketing
>.
1° semester 2012
Strategic Marketing
.xperiencers 6Koung$ enthusiastic$ impulsive people %ho seek variety and e/citement. They spend a comparatively high proportion of income on fashion$ entertainment$ and sociali"ing.
The @ groups with lower resources are%
1. 2. <. >.
+elie,ers 6Conservative$ conventional$ and traditional people %ith concrete #eliefs. They prefer familiar$ =.3.' made products and are loyal to esta#lished #rands. Stri,ers 6Trendy and fun'loving people %ho are resource'constrained. They favor stylish products that emulate the purchases of those %ith greater material %ealth. Makers 6Practical$ do%n'to'earth$ self'sufficient people %ho like to %ork %ith their hands. Sur,i,ors 6lderly$ passive people concerned a#out change and loyal to their favorite #rands.
:ehavioral segmentation Needs and "enefits ' &n #ehavioral segmentation$ marketers divide #uyers into groups on the #asis of their kno%ledge of$ attitude to%ard$ use of$ or response to a product. ;ot everyone %ho #uys a product has the same needs or %ants the same #enefits from it. ;eeds'#ased or #enefit'#ased segmentation is a %idely used approach #ecause it identifies distinct market segments %ith clear marketing implications. Constellation :rands identified si/ different #enefit segments in the =.3. premium %ine market 7Q?.?F a #ottle and up8.
.nthusiast 712 percent of the market8. 3ke%ing female$ their average income is a#out QHG$FFF a year. A#out <
percent are *lu/ury enthusiasts+ %ho ske% more male %ith a higher income. mage Seekers 72F percent8. The only segment that ske%s male$ %ith an average age of
%ine. 0appy to use the #argain #in. (raditionalist 71G percent8. -ith very traditional values$ they like to #uy #rands they)ve heard of and from %ineries that have #een around a long time. Their average age is ?F and they are GI percent female. Satisfied Sippers 71> percent8. ;ot kno%ing much a#out %ine$ they tend to #uy the same #rands. A#out half of %hat
they drink is %hite "infandel. *,erwhelmed 72< percent8. A potentially attractive target market$ they find purchasing %ine confusing.
Decision rules ' People play five roles in a #uying decision Initiator, Influencer, "ecider, Buyer, and ser. User and usage / real user and usage related varia"les – Many marketers #elieve varia#les related to various aspects of users or their usage6occasions$ user status$ usage rate$ #uyer'readiness stage$ and loyalty status6are good starting points for constructing market segments.
Occasions - !ccasions mark a time of day$ %eek$ month$ year$ or other %ell'defined temporal aspects of a
consumer)s life. -e can distinguish #uyers according to the occasions %hen they develop a need$ purchase a product$ or use a product.
User .tatus - very product has its nonusers$ e/'users$ potential users$ first'time users$ and regular users. &ncluded
in the potential'user group are consumers %ho %ill #ecome users in connection %ith some life stage or life event. Market'share leaders tend to focus on attracting potential users #ecause they have the most to gain. 3maller firms focus on trying to attract current users a%ay from the market leader. Usage 0ate - -e can segment markets into light$ medium$ and heavy product users. 0eavy users are often a small
slice #ut account for a high percentage of total consumption.
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Master Marketing
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Strategic Marketing
1u$er-0eadiness .tage - 3ome people are una%are of the product$ some are a%are$ some are informed$ some are
interested$ some desire the product$ and some intend to #uy. To help characteri"e ho% many people are at different stages and ho% %ell they have converted people from one stage to another$ marketers can employ a marketing funnel to #reak do%n the market into different #uyer'readiness stages. The proportions of consumers at different stages make a #ig difference in designing the marketing program.
Lo$alt$ status ' Marketers usually envision four groups #ased on #rand loyalty status o o o o
2ard-core lo$als—&onsumers %ho #uy only one #rand all the time .lit lo$als—&onsumers %ho are loyal to t%o or three #rands .hifting lo$als—&onsumers %ho shift loyalty from one #rand to another .witchers—&onsumers %ho sho% no loyalty to any #rand
A company can learn a great deal #y analy"ing degrees of #rand loyalty 0ard'core loyals can help identify the products) strengths split loyals can sho% the firm %hich #rands are most competitive %ith its o%n and #y looking at customers dropping its #rand$ the company can learn a#out its marketing %eaknesses and attempt to correct them.
(ttitude ' @ive consumer attitudes a#out products are enthusiastic$ positive$ indifferent$ negative$ and hostile.
Multile "ases ' Com#ining different #ehavioral #ases can provide a more comprehensive and cohesive vie% of a
market and its segments.
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Master Marketing
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"ases for segmenting %usiness markets
Market targeting
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Strategic Marketing
Master Marketing
1° semester 2012
Strategic Marketing
There are many statistical techni(ues for developing market segments. !nce the firm has identified its market'segment opportunities$ it must decide ho% many and %hich ones to target. Marketers are increasingly com#ining several varia#les in an effort to identify smaller$ #etter'defined target groups.
ffective segmentation criteria To be useful, market segments must rate favorably on five key criteria% Measura"le! The si"e$ purchasing po%er$ and characteristics of the segments can #e measured. .u"stantial! The segments are large and profita#le enough to serve. A segment should #e the largest possi#le
homogeneous group %orth going after %ith a tailored marketing program. &t %ould not pay$ for e/ample$ for an automo#ile manufacturer to develop cars for people %ho are less than four feet tall. (ccessi"le! The segments can #e effectively reached and served. Differentia"le! The segments are conceptually distinguisha#le and respond differently to different marketing'mi/ elements and programs. &f married and unmarried %omen respond similarly to a sale on perfume$ they do not constitute separate segments. (ctiona"le! ffective programs can #e formulated for attracting and serving the segments.
Michael Porter has identified five forces that determine the intrinsic long'run attractiveness of a market or market segment industry competitors$ potential entrants$ su#stitutes$ #uyers$ and suppliers. The threats these forces pose are as follo%s
Threat of intense segment rivalry6A segment is unattractive if it already contains numerous$ strong$ or aggressive
competitors. Threat of ne% entrants6The most attractive segment is one in %hich entry #arriers are high and e/it #arriers are
lo%. Threat of su#stitute products6A segment is unattractive %hen there are actual or potential su#stitutes for the product. 3u#stitutes place a limit on prices and on profits. Threat of #uyers) gro%ing #argaining po%er6A segment is unattractive if #uyers possess strong or gro%ing
#argaining po%er. Threat of suppliers) gro%ing #argaining po%er6A segment is unattractive if the company)s suppliers are a#le to
raise prices or reduce (uantity supplied. 3uppliers tend to #e po%erful %hen they are concentrated or organi"ed$ %hen they can integrate do%nstream$ %hen there are fe% su#stitutes$ %hen the supplied product is an important input$ and %hen the costs of s%itching suppliers are high.
valuating and selecting the market segment &n evaluating different market segments$ the firm must look at t%o factors the segment)s overall attractiveness and the company)s o#9ectives and resources. 0o% %ell does a potential segment score on the five criteriaD 4oes it have characteristics that make it generally attractive$ such as si"e$ gro%th$ profita#ility$ scale economies$ and lo% riskD 4oes investing in the segment make sense given the firm)s o#9ectives$ competencies$ and resourcesD 3ome attractive segments may not mesh %ith the company)s long'run o#9ectives$ or the company may lack one or more necessary competencies to offer superior value. Marketers have a range or continuum of possi#le levels of segmentation that can guide their target market decisions.
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Master Marketing
1° semester 2012
Strategic Marketing
Full market coverage ' -ith full market coverage$ a firm attempts to serve all customer groups %ith all the products they might need. !nly very large firms such as Microsoft and Coca Cola can undertake a full market coverage strategy.
&n undifferentiated or mass marketing , the firm ignores segment differences and goes after the %hole market %ith one offer. &t designs a marketing program for a product %ith a superior image that can #e sold to the #roadest num#er of #uyers via mass distri#ution and mass communications. =ndifferentiated marketing is appropriate %hen all consumers have roughly the same preferences and the market sho%s no natural segments. The argument for mass marketing is that it creates the largest potential market$ %hich leads to the lo%est costs$ %hich in turn can lead to lo%er prices or higher margins. The narro% product line keeps do%n the costs of research and development$ production$ inventory$ transportation$ marketing research$ advertising$ and product management. The undifferentiated communication program also reduces costs. 0o%ever$ many critics point to the increasing splintering of the market$ and the proliferation of marketing channels and communication$ %hich make it difficult and increasingly e/pensive to reach a mass audience. -hen different groups of consumers have different needs and %ants$ marketers can define multiple segments. The company can often #etter design$ price$ disclose$ and deliver the product or service and also fine'tune the marketing program and activities to #etter reflect competitors) marketing. &n differentiated marketing , the firm sells different products to all the different segments of the market. 4ifferentiated marketing typically creates more total sales than undifferentiated marketing. 0o%ever$ it also increases the costs of doing #usiness. :ecause differentiated marketing leads to #oth higher sales and higher costs$ no generali"ations a#out its profita#ility are valid. Multile segment seciali3ation ' -ith selective speciali-ation, a firm selects a su#set of all the possi#le segments$ each o#9ectively attractive and appropriate. There may #e little or no synergy among the segments$ #ut each promises to #e a moneymaker. The multisegment strategy also has the advantage of diversifying the firm)s risk. Leeping synergies in mind$ companies can try to operate in supersegments rather than in isolated segments.
A firm can also attempt to achieve some synergy with product or market speciali-ation%
-ith product speciali"ation$ the firm sells a certain product to several different market segments. A microscope
manufacturer$ for instance$ sells to university$ government$ and commercial la#oratories$ making different instruments for each and #uilding a strong reputation in the specific product area. The do%n' side risk is that the product may #e supplanted #y an entirely ne% technology. -ith market speciali"ation$ the firm concentrates on serving many needs of a particular customer group$ such as #y selling an assortment of products only to university la#oratories. The firm gains a strong reputation among this customer group and #ecomes a channel for additional products its mem#ers can use. The do%nside risk is that the customer group may suffer #udget cuts or shrink in si"e.
.ingle segment concentration ' -ith single'segment concentration$ the firm markets to only one particular segment. Porsche concentrates on the sports car market and olks%agen on the small'car market6its foray into the large'car market %ith the Phaeton %as a failure in the =nited 3tates. Through concentrated marketing$ the firm gains deep kno%ledge of the segment)s needs and achieves a strong market presence. &t also en9oys operating economies #y speciali"ing its production$ distri#ution$ and promotion. &f it captures segment leadership$ the firm can earn a high return on its investment.
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Master Marketing
1° semester 2012
Strategic Marketing
A niche is a more narro%ly defined customer group seeking a distinctive mi/ of #enefits %ithin a segment. Marketers usually identify niches #y dividing a segment into su#segments. -hat does an attractive niche look likeD Customers have a distinct set of needs they %ill pay a premium to the firm that #est satisfies them the niche is fairly small #ut has si"e$ profit$ and gro%th potential and is unlikely to attract many competitors and the niche gains certain economies through speciali"ation. As marketing efficiency increases$ niches that %ere seemingly too small may #ecome more profita#le. &ndividual marketing ' The ultimate level of segmentation leads to *segments of one$+ *customi"ed marketing$+ or *one'to' one marketing.+ Today$ customers are taking more individual initiative in determining %hat and ho% to #uy. They log onto the &nternet look up information and evaluations of product or service offerings conduct dialogue %ith suppliers$ users$ and product critics and in many cases design the product they %ant. erry -ind and Arvind Rangas%amy see a movement to%ard *customeri"ing+ the firm. Customeri"ation com#ines operationally driven mass customi"ation %ith customi"ed marketing in a %ay that empo%ers consumers to design the product and service offering of their choice. The firm no longer re(uires prior information a#out the customer$ nor does it need to o%n manufacturing. &t provides a platform and tools and *rents+ to customers the means to design their o%n products. A company is customeri"ed %hen it is a#le to respond to individual customers #y customi"ing its products$ services$ and messages on a one'to'one #asis.
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Master Marketing
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Strategic Marketing
)( : 4 +>D#6 S(*#6 +#DS Chapter E 4 Creating %rand e
&hat is %rand euity' %rand is 2a name, term, sign, symbol, or design, or a combination of them, intended to identify the goods or services of one seller or group of sellers and to differentiate them from those of competitors.4 A #rand is thus a product or service %hose dimensions differentiate it in some %ay from other products or services designed to satisfy the same need. These differences may #e functional$ rational$ or tangi#le6related to product performance of the #rand. They may also #e more sym#olic$ emotional$ or intangi#le6related to %hat the #rand represents or means in a more a#stract sense.
4he role of "rands :rands identify the source or maker of a product and allo% consumers6either individuals or organi"ations6to assign responsi#ility for its performance to a particular manufacturer or distri#utor. Consumers may evaluate the identical product differently depending on ho% it is #randed. They learn a#out #rands through past e/periences %ith the product and its marketing program$ finding out %hich #rands satisfy their needs and %hich do not. :rands also perform valua#le functions for firms. @irst$ they simplify product handling or tracing. :rands help to organi"e inventory and accounting records. A #rand also offers the firm legal protection for uni(ue features or aspects of the product. #randing can #e a po%erful means to secure a competitive advantage.
4he scoe of "randing 0o% do you *#rand+ a productD &t is a perceptual entity rooted in reality #ut reflecting the perceptions and idiosyncrasies of consumers. +randing is endo%ing products and services %ith the po%er of a #rand. &t)s all a#out creating differences #et%een products. Marketers need to teach consumers *%ho+ the product is6#y giving it a name and other #rand elements to identify it6as %ell as %hat the product does and %hy consumers should care. :randing creates mental structures that help consumers organi"e their kno%ledge a#out products and services in a %ay that clarifies their decision making and$ in the process$ provides value to the firm. @or #randing strategies to #e successful and #rand value to #e created$ consumers must #e convinced there are meaningful differences among #rands in the product or service category.
Defining "rand e*uit$ Brand e'uity is the added value endo%ed on products and services. &t may #e reflected in the %ay consumers think$ feel$ and act %ith respect to the #rand$ as %ell as in the prices$ market share$ and profita#ility the #rand commands. Customer'#ased approaches vie% it from the perspective of the consumer6either an individual or an organi"ation6 and recogni"e that the po%er of a #rand lies in %hat customers have seen$ read$ heard$ learned$ thought$ and felt a#out the #rand over time.
Customer'#ased #rand e(uity is thus the differential effect #rand kno%ledge has on consumer response to the marketing of that #rand. A #rand has positive customer'#ased #rand e(uity %hen consumers react more favora#ly to a product and the %ay it is marketed %hen the #rand is identified$ than %hen it is not identified. A #rand has negative customer'#ased #rand e(uity if consumers react less favora#ly to marketing activity for the #rand under the same circumstances. There are three key ingredients of customer'#ased #rand e(uity. •
:rand e(uity arises from differences in consumer response. &f no differences occur$ the #rand' name product is essentially a commodity$ and competition %ill pro#a#ly #e #ased on price.
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2.
4ifferences in response are a result of consumers) #rand kno%ledge$ all the thoughts$ feelings$ images$ e/periences$ and #eliefs associated %ith the #rand. :rands must create strong$ favora#le$ and uni(ue #rand associations %ith customers. <. :rand e(uity is reflected in perceptions$ preferences$ and #ehavior related to all aspects of the marketing of a #rand. 3tronger #rands lead to greater revenue. The challenge for marketers is therefore ensuring customers have the right type of e/periences %ith products$ services$ and marketing programs to create the desired #rand kno%ledge. &n an a#stract sense$ %e can think of #rand e(uity as providing marketers %ith a vital strategic *#ridge+ from their past to their future.
A %rand promise is the marketer)s vision of %hat the #rand must #e and do for consumers. Consumers %ill decide$ #ased on %hat they think and feel a#out the #rand$ %here 7and ho%8 they #elieve the #rand should go and grant permission 7or not8 to any marketing action or program.
1rand e*uit$ models Although marketers agree a#out #asic #randing principles$ a num#er of models of #rand e(uity offer some differing perspectives. 0ere %e highlight three more'esta#lished ones. 1.
:randasset valuator there are > keys components of #rand e(uity a. (nergi-ed differentiation measures the degree to %hich a #rand is seen as different from others$ and its perceived momentum and leadership. #. :elevance measures the appropriateness and #readth of a #rand)s appeal. c. (steem measures perceptions of (uality and loyalty$ or ho% %ell the #rand is regarded and respected. d. nowledge measures ho% a%are and familiar consumers are %it h the #rand. nergi"ed differentiation and relevance com#ine to determine #rand strength6a leading indicator that predicts future gro%th and value. steem and kno%ledge together create #rand stature$ a *report card+ on past performance and a current indicator of current value.
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:rand" a. #. c. d. e.
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Strategic Marketing
#rand strength. The #rand #uilding follo%s a series of steps
*resence. Active familiarity #ased on past trial$ saliency$ or kno%ledge of #rand promise :elevance. Relevance to consumer)s needs$ in the right price range or in the consideration set *erformance. :elief that it delivers accepta#le product performance and is on the consumer)s short'list Advantage. :elief that the #rand has an emotional or rational advantage over other #rands in the category Bonding . Rational and emotional attachments to the #rand to the e/clusion of most other #rands
*:onded+ consumers at the top of the pyramid #uild stronger relationships %ith and spend more on the #rand than those at lo%er levels. There are more consumers at the lo%er levels$ so the challenge for marketers is to help them move up.
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:rand resonan resonance ce model The The #rand resonanc resonancee model also vie%s vie%s #rand #uilding #uilding as an ascending ascending series series of steps$ steps$ from #ottom to top a. nsuring nsuring customers customers identify identify the #rand #rand and and associate associate it %ith a specific specific produc productt class or need need #. @irmly esta#lishing the #rand meaning m eaning in customers) minds #y strategically li nking a host of tangi#le t angi#le and intangi#le #rand associations c. liciting liciting the proper proper customer customer respons responses es in terms terms of #rand'rel #rand'related ated 9udgment 9udgment and feeling feelings s and d. Converting Converting custome customers) rs) #rand #rand response response to an an intense$ intense$ active active loyalty. loyalty.
Creating Creating significant significant #rand #rand e(uity re(uires re(uires reaching the top of the #rand pyramid$ %hich occurs occurs only if the right #uilding #uilding #locks are put into place.
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+rand salience is ho% often and ho% easily customers think of the #rand under various purchase or consumption
situations. +rand performance is ho% %ell the product or service meets customers) functional needs. +rand imagery descri#es the e/trinsic properties of the product or service$ including the %ays in %hich the #rand attempts to meet customers) psychological or social needs. +rand /udgments focus on customers) o%n personal opinions and evaluations. +rand feelings are customers) emotional responses and reactions %ith respect to the #rand. +rand resonance descri#es the relationship customers have %ith the #rand and the e/tent to %hich they feel they)re *in sync+ %ith it.
Resonance is the intensity of customers) psycho' logical #ond %ith the #rand and the level of activit y it engenders.
"uilding %rand euity Marketers #uild #rand e(uity #y creating the right #rand kno%ledge structures %ith the right consumers. @rom a marketing management perspective$ ho%' ever$ there are three main sets of #rand e(uit y drivers •
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The initial choices for the #rand elements or identities making up the #rand 7#rand names$ =RJs$ logos$ sym#ols$ characters$ spokespeople$ slogans$ 9ingles$ packages$ and signage8 The product and service and all accompanying marketing activities and supporting marketing programs !ther associations indirectly transferred to the #rand #y linking it to some other entity 7a person$ place$ or thing8.
&hoosing "rand elements +rand element elementss are devices$ %hich can #e trademarked$ that identify and differentiate the #rand. Most strong #rands employ multiple #rand elements. •
:rand element choice criteria ' There are si/ criteria criteria for choosing #rand elements. elements. The first first three6memor three6memora#le$ a#le$ meaningful$ and lika#le6are *#rand #uilding.+ The latter three6transfera#le$ adapta#le$ and protecta#le6are *defensive+ and help leverage and preserve #rand e(uity against challenges. o
Memorable 60o% easily do consumers recall and recogni"e the #rand element$ and %hen6at #oth
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purchase and consumptionD 6&s the #rand element credi#leD 4oes it suggest the corresponding category and a product Meaningful
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ingredient or the type of person %ho might use the #randD Cikable 60o% aesthetically appealing is the #rand elementD Transferable 6Can the #rand element introduce ne% products in the same or different categoriesD 4oes it add to #rand e(uity across geographic #oundaries and market segmentsD Adaptable 60o% adapta#le and updata#le is the #rand elementD *rotectable *rotectable 60o% legally protecta#le is the #rand elementD 0o% competitively protecta#leD
4eveloping #rand elements ' :rand elements can play a num#er of #rand'#uilding roles. &f consumers don)t e/amine much information information in making product product decisions$ decisions$ #rand elements should #e easy to recall recall and inherently inherently descriptive and persuasive. The lika#ility of #rand elements may also increase a%areness and associations. !ften$ the less concrete #rand #enefits are$ the more important that #rand elements capture intangi#le characteristics. Jike #rand names$ slogans are an e/tremely efficient means to #uild #rand e(uity. !ften$ choosing a name %ith inherent meaning may make it harder to add a different meaning or update the positioning.
Designing holistic marketing marketing activities activities
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:rands are not #uilt #y advertising alone. Customers come to kno% a #rand through a range of contacts and touch points personal o#servation and use$ %ord of mouth$ interactions %ith company personnel$ online or telephone e/periences$ and payment transactions. A #rand contact is any information'#earing e/perience$ %hether positive or negative$ a customer or prospect has %ith %i th the #rand$ its product category$ or its market. The company must put as much effort into managing these e/periences as into producing its ads. &ntegrated marketing is a#out mi/ing and matching marketing activities to ma/imi"e their individual and collective effects. To achieve it$ marketers need a variety of different marketing activities that consistently reinforce the #rand promise. -e can evaluate integrated marketing activities in terms of the effectiveness and efficiency %ith %hich they affect #rand a%areness and create$ maintain$ or strengthen #rand associations and image. Marketing programs should #e put together so the %hole is greater than the sum of the parts. &n other %ords$ marketing activities should %ork singularly and in com#ination.
Leveraging 5usare a"ilmente6 a"ilmente6 secondar$ associations associations
The third and final %ay to #uild #rand e(uity is$ in effect$ to *#orro%+ it. That is$ create #rand e(uity #y linking the #rand to other information in memory that conveys meaning to consumers. These *secondary+ #rand associations can link the #rand to sources$ such as the company itself 7through #randing strategies8$ to countries or other geographica geographicall regions regions 7through 7through identificatio identification n of product origin8$ and to channels of distri#ution 7throu 7through gh channe channell strate strategy8 gy8$$ as %ell %ell as to other other #rands 7through ingredient or co'#randing8$ charac character terss 7throu 7through gh licens licensing8 ing8$$ spo spokes kespeo people ple 7throu 7through gh endors endorseme ements nts8$ 8$ spo sporti rting ng or cultur cultural al events 7through sponsorship8$ or some other third' party sources 7through a%ards or revie%s8.
Internal "randing Marketers must no% *%alk the %alk+ to deliver the #rand promise. They must adopt an internal perspective to #e sure employees and marketing partners appreciate and understand #asic #randing notions and ho% they can help6or hurt6 #rand e(uity. &nternal #randing consists of activities and processes that help inform and inspire employees a#out #rands. 0olistic marketers must go even further and train and encourage distri#utors and dealers to serve their customers %ell. Poorly trained dealers can ruin the #est efforts to #uild a strong #rand image. :rand #onding occurs %hen customers e/perience the company as delivering on its #rand promise. All the customers) contacts contacts %ith company company employees and communication communicationss must #e positive. The #rand promise %ill not #e delivered delivered unless everyone in the company lives the #rand.
1rand communities
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Thanks to the &nternet$ companies are interested in colla#orating %ith consumers to create value through communities #uilt around #rands. A #rand community is a speciali"ed community of consumers and employees %hose identification and activities focus around the #rand. Three characteristics identify #rand communities •
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A *consciousness of kind+ or sense of felt connection to the #rand$ company$ product$ or other community mem#ers 3hared rituals$ stories$ and traditions that help to convey the meaning of the community and A shared moral responsi#ility or duty to #oth the community as a %hole and individual community mem#ers.
A #rand community can also #e a constant source of i nspiration and feed#ack for product improvements or innovations.
Measuring %rand euity 0o% do %e measure #rand e(uityD An indirect approach assesses potential sources of #rand e(uity #y identifying and tracking consumer #rand kno%ledge structures. A direct approach assesses the actual impact of #rand kno%ledge on consumer response to different aspects of the marketing. 4he "rand value chain
The %rand ,alue chain is a structured approach to assessing the sources and outcomes of #rand e(uity and the %ay marketing activities create #rand value.
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The program multiplier determines the marketing program)s a#ility to affect the customer mind'set and is a function of the (uality of the program investment. The customer multiplier determines the e/tent to %hich value created in the minds of customers affects market performance. This result depends on competitive superiority 7ho% effective the (uantity and (uality of the marketing investment of other competing #rands are8$ channel and other intermediary support 7ho% much #rand reinforcement and selling effort various marketing partners are put' ting forth8$ and customer si"e and profile 7ho% many and %hat types of customers$ profita#le or not$ are attracted to the #rand8. The market multiplier determines the e/tent to %hich the value sho%n #y the market performance of a #rand is manifested in shareholder value. &t depends$ in part$ on the actions of financial analysts and investors.
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@or #rand e(uity to perform a useful strategic function and guide marketing decisions$ marketers need to fully understand 718 the sources of #rand e(uity and ho% they affect outcomes of interest$ and 728 ho% these sources and outcomes change$ if at all$ over time. :rand audits are important for the former 7primo8 #rand tracking for the latter 7secondo8. •
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A %rand audit is a consumer'focused series of procedures to assess the health of the #rand$ uncover its sources of #rand e(uity$ and suggest %ays to improve and leverage its e(uity. Marketers should conduct a #rand audit %hen setting up marketing plans and %hen considering shifts in strategic direction. Conducting #rand audits on a regular #asis$ such as annually$ allo%s marketers to keep their fingers on the pulse of their #rands so they can manage them more proactively and responsively. +rand0tracking studies collect (uantitative data from consumers over time to provide consistent$ #aseline information a#out ho% #rands and marketing programs are performing. Tracking studies help us understand %here$ ho% much$ and in %hat %ays #rand value is #eing created$ to facilitate day'to'day decision making.
Marketers should distinguish #rand e(uity from #rand valuation$ %hich is the 9o# of estimating the total financial value of the #rand.
Managing %rand euity :ecause consumer responses to marketing activity depend on %hat they kno% and remem#er a#out a #rand$ short'term marketing actions$ #y changing #rand kno%ledge$ necessarily increase or decrease the long'term success of future marketing actions.
1rand reinforcement As a company)s ma9or enduring asset$ a #rand needs to #e carefully managed so its value does not depreciate. Marketers can reinforce #rand e(uity #y consistently conveying the #rand)s meaning in terms of 718 %hat products it represents$ %hat core #enefits it supplies$ and %hat needs it satisfies and 728 ho% the #rand makes products superior$ and %hich strong$ favora#le$ and uni(ue #rand associations should e/ist in consumers) minds. An important part of reinforcing #rands is providing consistent marketing support. Consistency doesn)t mean uniformity %ith no changes -hile there is little need to deviate from a successful position$ many tactical changes may #e necessary to maintain the strategic thrust and direction of the #rand. -hen change is necessary$ marketers should vigorously preserve and defend sources of #rand e(uity. Marketers must recogni"e the trade'offs #et%een activities that fortify the #rand and reinforce its meaning$ such as a %ell' received product improvement or a creatively designed ad campaign$ and those that leverage or #orro% from e/isting #rand e(uity to reap some financial #enefit$ such as a short'term promotional discount.
1rand revitali3ation !ften$ the first thing to do in revitali"ing a #rand is to understand %hat the sources of #rand e(uity %ere to #egin %ith. Are positive associations losing their strength or uni(uenessD 0ave negative associations #ecome linked to the #randD Then decide %hether to retain the same positioning or create a ne% one$ and if so$ %hich ne% one.
.eising a %randing strategy A firm)s #randing strategy6often called the #rand architecture6reflects the num#er and nature of #oth common and distinctive #rand elements. 4eciding ho% to #rand ne% products is especially critical.
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A firm has three main choices • • •
&t can develop ne% #rand elements for the ne% product. &t can apply some of its e/isting #rand elements. &t can use a com#ination of ne% and e/isting #rand elements.
-hen a firm uses an esta#lished #rand to introduce a ne% product$ the product is called a %rand extension. -hen marketers com#ine a ne% #rand %ith an e/isting #rand$ the #rand e/tension can also #e called a su#'#rand. The e/isting #rand that gives #irth to a #rand e/tension or su#'#rand is the parent %rand. &f the parent #rand is already associated %ith multiple products through #rand e/tensions$ it can also #e called a master #rand or family #rand. :rand e/tensions fall into t%o general categories •
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&n a line extension$ the parent #rand covers a ne% product %ithin a product category it currently serves$ such as %ith ne% flavors$ forms$ colors$ ingredients$ and package si"es. &n a category extension $ marketers use the parent #rand to enter a different product category$ such as 3%iss Army %atches.
1rand ortfolios A #rand can only #e stretched so far$ and all the segments the firm %ould like to target may not vie% the same #rand e(ually favora#ly. Marketers often need multiple #rands in order to pursue these multiple segments. 3ome other reasons for introducing multiple #rands in a category include 1. 2. <. >.
&ncreasing shelf presence and retailer dependence in the store Attracting consumers seeking variety %ho may other%ise have s%itched to another #rand &ncreasing internal competition %ithin the firm Kielding economies of scale in advertising$ sales$ merchandising$ and physical distri#ution
The #rand portfolio is the set of all #rands and #rand lines a particular firm offers for sale in a particular category or market segment. The #asic principle in designing a #rand portfolio is to ma/imi"e market coverage so no potential customers are #eing ignored$ #ut minimi"e #rand overlap so #rands are not competing for customer approval. ach #rand should #e clearly differentiated and appealing to a si"a#le enough marketing segment to 9ustify its marketing and production costs. Marketers carefully monitor #rand portfolios over time t o identify %eak #rands and kill unprofita#le ones.
1rand extensions Many firms have decided to leverage their most valua#le asset #y introducing a host of ne% products under their strongest #rand names. Two main advantages of #rand e/tensions are that they can facilitate ne%'product acceptance and provide positive feed#ack to the parent #rand and company. !n the downside$ line e/tensions may cause the #rand name to #e less strongly identified %ith any one product. +rand dilution occurs %hen consumers no longer associate a #rand %ith a specific or highly similar set of products and start thinking less of the #rand.
Customer euity @inally$ %e can relate #rand e(uity to one other important marketing concept$ customer e(uity. The aim of customer relationship management 7CRM8 is to produce high customer e(uity. Although %e can calculate it in different %ays$ one definition is *the sum of lifetime values of all customers.+ Customer lifetime value is affected #y revenue and # y the costs of customer ac(uisition$ retention$ and cross'selling.
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Ac(uisition depends on the num#er of prospects$ the ac(uisition pro#a#ility of a prospect$ and ac(uisition spending per prospect. Retention is influenced #y the retention rate and retention spending level. Add'on spending is a function of the efficiency of add'on selling$ the num#er of add'on selling offers given to e/isting customers$ and the response rate to ne% offers.
The #rand e(uity and customer e(uity perspectives certainly share many common themes. :oth emphasi"e the importance of customer loyalty and the notion that %e create value #y having as many customers as possi#le pay as high a price as possi#le. &n practice$ ho%ever$ the t%o perspectives emphasi"e different things. •
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The customer e(uity perspective focuses on #ottom'line financial value. &ts clear #enefit is its (uantifia#le measures of financial performance. :rand e(uity$ on the other hand$ tends to emphasi"e strategic issues in managing #rands and creating and leveraging #rand a%areness and image %ith customers. &t provides much practical guidance for specific marketing activities.
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Chapter 1 4 Crafting the %rand positioning
.eeloping and esta%lishing a %rand positioning All marketing strategy is #uilt on segmentation$ targeting$ and positioning 73TP8. A company discovers different needs and groups in the marketplace$ targets those it can satisfy in a superior %ay$ and then positions its offerings so the target market recogni"es the company)s distinctive offerings and images. )ositioning is the act of designing a company)s offering and image to occupy a distinctive place in the minds of the target market.2 The goal is to locate the #rand in the minds of consumers to ma/imi"e the potential #enefit to the firm. A good #rand positioning helps guide marketing strategy #y clarifying the #rand)s essence$ identifying the goals it helps the consumer achieve$ and sho%ing ho% it does so in a uni(ue %ay. veryone in the organi"ation should understand the #rand positioning and use it as conte/t for making decisions.
A good positioning has a *foot in the present+ and a *foot in the future.+ &t needs to #e some%hat aspirational so the #rand has room to gro% and improve. Positioning on the #asis of the current state of the market is not for%ard'looking enough$ #ut$ at the same time$ the positioning cannot #e so removed from reality that it is essentially uno#taina#le. The real trick in positioning is to strike 9ust the right #alance #et%een %hat the #rand is and %hat it could #e. The result of positioning is the successful creation of a customer&focused value proposition, a cogent 7convincente8 reason %hy the target market should #uy the product. 7es. olvo the safest$ most dura#le %agon in %hich your family can ride8 Positioning re(uires that marketers define and communicate similarities and differences #et%een their #rand and its competitors. 3pecifically$ deciding on a positioning re(uires 1. 2. <.
4etermining a frame of reference #y identifying the target market and relevant competition$ &dentifying the optimal points of parity and points of difference #rand associations given that frame of reference$ and Creating a %rand mantra to summari"e the positioning and essence of the #rand.
Determining a cometitive frame of reference The competiti,e frame of reference defines %hich other #rands a #rand competes %ith and therefore %hich #rands should #e the focus of competitive analysis. 4ecisions a#out the competitive frame of reference are closely linked to target market decisions. 4eciding to target a certain type of consumer can define the nature of competition$ #ecause certain firms have decided to target that segment in the past 7or plan to do so in the future8$ or #ecause consumers in that segment may al' ready look to certain products or #rands in their purchase decisions. &dentifying competitors ' A good starting point in defining a competitive frame of reference for #rand positioning is to determine category mem%ership 6the products or sets of products %ith %hich a #rand competes and %hich function as close su#stitutes. -e can e/amine competition from #oth an industry and a market point of vie%. An industry is a group of firms offering a product or class of products that are close su#stitutes for one another. Marketers classify industries according to num#er of sellers degree of product differentiation presence or a#sence of entry$ mo#ility$ and e/it #arriers cost structure degree of vertical integration and degree of glo#ali"ation. =sing the market approach$ %e define competitors as companies that satisfy the same customer need. The market concept of competition reveals a #roader set of actual and potential competitors than competition defined in 9ust product category terms. effrey @. Rayport and :ernard . a%orski suggest profiling a company)s
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direct and indirect competitors #y mapping the buyer0s steps in o#taining and using the product. This type of analysis highlights #oth the opportunities and the challenges a company faces.1 Analy"ing competitors – 73-!T8 A company needs to gather information a#out each competitor)s real and perceived strengths and %eaknesses.
The ta#le sho%s the results of a company survey that asked customers to rate its three competitors$ A$ :$ and C$ on five attri#utes. Competitor A turns out to #e %ell kno%n and respected for producing high'(uality products sold #y a good sales force$ #ut poor at providing product availa#ility and technical assistance. Competitor : is good across the #oard and e/cellent in product availa#ility and sales force. Competitor C rates poor to fair on most attri#utes. This result suggests that in its positioning$ the company could attack Competitor A on product availa#ility and technical assistance and Competitor C on almost anything$ #ut it should not attack :$ %hich has no glaring %eaknesses. As part of this competitive analysis for positioning$ the firm should also ascertain the strategies and o#9ectives of its primary competitors. Identif$ing otimal %oints of difference and %oints of arit$
Points – of – difference are attri#utes or #enefits that consumers strongly associate %ith a #rand$ positively evaluate$ and #elieve they could not find to the same e/tent %ith a competitive #rand. Associations that make up points'of'difference may #e #ased on virtually any type of attri#ute or #enefit. 3trong #rands may have multiple points'of' difference. 3ome e/amples are Apple 7design$ ease&of&use, and irreverent attitude. Any attri#ute or #enefit associated %ith a product or service can function as a point'of'difference for a #rand as long as it is sufficiently desira#le$ delivera#le$ and differentiating. The #rand must demonstrate clear superiority on an attri#ute or #enefit$ ho%ever$ for it to function as a true point'of'difference. Points – of – parity are attri#ute or #enefit associations that are not necessarily uni(ue to the #rand #ut may in fact #e shared %ith other #rands. These types of associations come in t%o #asic forms •
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ategory points&of&parity are attri#utes or #enefits that consumers vie% as essential to a legitimate and credi#le
offering %ithin a certain product or service category. &n other %ords$ they represent necessary6#ut not sufficient6 conditions for #rand choice. Consumers might not consider a travel agency truly a travel agency unless it is a#le to make air and hotel reservations$ provide advice a#out leisure packages$ and offer various ticket payment and delivery options. ompetitive points&of&parity are associations designed to overcome perceived %eaknesses of the #rand. A competitive point'of'parity may #e re(uired to either 718 negate competitors) perceived points'of'difference or 728 negate a perceived vulnera#ility of the #rand as a result of its o%n points'of'difference.
The #rand does not literally need to #e seen as e(ual to competitors$ #ut consumers must feel it does %ell enough on that particular attri#ute or #enefit. Multiple frames of reference ' &t is not uncommon for a #rand to identify more than one actual or potential competitive frame of reference$ if competition %idens or the firm plans to e/pand into ne% categories. There are t%o main options %ith
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multiple frames of reference. !ne is to first develop the #est possi#le positioning for each type or class of competitors and then see %hether there is a %ay to create one com#ined positioning ro#ust enough to effectively address them all. &f competition is too diverse$ ho%ever$ it may #e necessary to prioriti"e competitors and then choose the most important set of competitors to serve as the competitive frame.
&hoosing %O%s and %ODs Marketers typically focus on #rand #enefits in choosing the points'of'parity and points'of'difference that make up their #rand positioning. :rand attri#utes generally play more of a supporting role #y providing *reasons to #elieve+ or *proof points+ as to %hy a #rand can credi#ly claim it offers certain #enefits. Marketers of 4ove soap$ for e/ample$ %ill talk a#out ho% its attri#ute of one'(uarter cleansing cream uni(uely creates the #enefit of softer skin. Consumers are usually more interested in #enefits and %hat e/actly they %ill get from a product. Multiple attri#utes may support a certain #enefit$ and they may change over time. @or choosing specific #enefits as P!Ps and P!4s to position a #rand$ perceptual maps may #e useful. *erceptual maps are visual representations of consumer perceptions and preferences. They provide (uantitative portrayals of market situations and the %ay consumers vie% different products$ services$ and #rands along various dimensions. :y overlaying consumer preferences %ith #rand perceptions$ marketers can reveal *holes+ or *openings+ that suggest unmet consumer needs and marketing opportunities. per esempio vedi li#ro pg.
1rand mantras A brand mantra is an articulation of the heart and soul of the #rand and is closely related to other #randing concepts like *#rand essence+ and *core #rand promise.+ :rand mantras are short$ three' to five'%ord phrases that capture the irrefuta#le essence or spirit of the #rand positioning. Their purpose is to ensure that all employees %ithin the organi"ation and all e/ternal marketing partners under' stand %hat the #rand is most fundamentally to represent %ith consumers so they can ad9ust their actions accordingly. :rand mantras are po%erful devices. They can provide guidance a#out %hat products to introduce under the #rand$ %hat ad campaigns to run$ and %here and ho% to sell the #rand. Their influence$ ho%ever$ can e/tend #eyond these tactical concerns. 4esigning a #rand mantra ' :rand mantras are designed %ith internal purposes in mind. A #rand slogan is an e/ternal translation that attempts to creatively engage consumers. Although ;ike)s internal mantra %as *authentic athletic performance$+ its e/ternal slogan %as *ust 4o &t.+ 0ere are the three key criteria for a #rand mantra. •
ommunicate. A good #rand mantra should define the category 7or categories8 of #usiness for the #rand and set the
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#rand #oundaries. &t should also clarify %hat is uni(ue a#out the #rand. 3implify. An effective #rand mantra should #e memora#le. @or that$ it should #e short$ crisp$ and vivid in meaning. Inspire. &deally$ the #rand mantra should also stake out ground that is personally meaningful and relevant to as
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many employees as possi#le. :rand mantras typically are designed to capture the #rand)s points'of'difference$ that is$ %hat is uni(ue a#out the #rand. -ords that descri#e the nature of the product or service$ or the type of e/periences or #enefits the #rand provides$ can #e critical to identifying appropriate categories into %hich to e/tend. @or #rands in more sta#le categories %here e/tensions into more distinct categories are l ess likely to occur$ the #rand mantra may focus more e/clusively on points' of'difference. :rand mantras derive their po%er and usefulness from their collective meaning. !ther #rands may #e strong on one$ or perhaps even a fe%$ of the #rand associations making up the #rand mantra. :ut for the #rand mantra to #e effective$ no other #rand should singularly e/cel on all dimensions.
,sta"lishing "rand ositioning
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Master Marketing
1° semester 2012
Strategic Marketing
!nce they have determined the #rand positioning strategy$ marketers should communicate it to everyone in the organi"ation so it guides their %ords and actions. !ne helpful schematic to do so is a #rand'positioning #ull)s'eye. Constructing a #ull)s' eye for the #rand ensures that no steps are skipped in its development. 7vedi esempio pg
.ifferentiation strategies To #uild a strong #rand and avoid the commodity trap$ marketers must start %ith the #elief that you can differentiate anything. Competiti,e ad,antage is a company)s a#ility to perform in one or more %ays that competitors cannot or % ill not match. Michael Porter urged companies to #uild a sustaina#le competitive advantage. :ut fe% competitive advantages are sustaina#le. At #est$ they may #e leveragea#le. A leverageable advantage is one that a company can use as a spring#oard to ne% advantages$ much as Microsoft has leveraged its operating system to Microsoft !ffice and then to net%orking applications. &n general$ a company that hopes to endure must #e in the #usiness of continuously inventing ne% advantages. @or a #rand to #e effectively positioned$ ho%ever$ customers must see any competitive advantage as a customer advantage. @or e/ample$ if a company claims its product %orks faster than its competitors$ it %on)t #e a customer advantage if customers don)t value speed. Companies must also focus on #uilding customer advantages. Then they %ill deliver high customer value and satisfaction$ %hich leads t o high repeat purchases and ultimately to high company profita#ility.
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