Market Based Management

Market Based Management...

100 Slides

Generic product

Expected product

Augmented product

Potential product

Core benefit

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Key Words...Customer Value – Shareholder Value – Market-based-

Strategies – Market Potential – Value Creation – Economic Benefits – Market Segmentation – Targeting

– Competitive Advantage – Industry Analysis – Prisoners Dilemma – Switch Cost – Pricing – Skimming

– Penetration – Channel Management – Push-Pull – Portfolio Analysis – Life Cycle Analysis – Market

Performance – Sales Forecast – Four P’s – Competitor Analysis – Transaction Marketing – Consumer

Behavior – Mass Customization – Cluster Theory – Value Chain – Marketing Information – Brand

Management – AIDA – Marketing Plan – SWOT – New Age Pricing – Producer/Customer Gap – Mass

Production

How to Underwhelm Customers and Shareholders

Poor Understanding of Customers and Competition

Poor Understanding of Customers and Competition

High Cost of Customer Retention and Acquisition

High Cost of Customer Retention and Acquisition

Sporadic Business Unit Profit

Sporadic Business Unit Profit

Market Share Instability

Market Share Instability

Accounting Maneuvers Drive Financial Results

Accounting Maneuvers Drive Financial Results

Excessive Customer Turnover

Excessive Customer Turnover

Me-TooCustomer Value

Me-TooCustomer Value

Pressure for Short-Run Results

Pressure for Short-Run Results

Unfocused Competitive Position

Unfocused Competitive Position

Stagnant Shareholder Value

Stagnant Shareholder Value

Marketing Knowledge and Market Orientation

Bottom HighMiddle

Marketing Knowledge

Mar

ket O

rien

tati

on S

core

(0-

100)

60

90

100

70

50

80

Business Profitability

Customer Retention

Marketing Knowledge

Market Orientation

Fundamental Market-Based Strategiesand Profitable Growth

Strategies to Grow Market

Demand

Strategies to Grow Market

Demand

Net Marketing Contribution

Market Demand

Market ShareRevenue per

CustomerVariable Cost per Customer

Strategies to Increase

Market Share

Strategies to Increase

Market Share

Strategies to Grow Customer Purchases

Strategies to Grow Customer Purchases

Strategies to Increase Marketing Efficiency

Strategies to Increase Marketing Efficiency

Strategies to Enter or Exit

Markets

Strategies to Enter or Exit

Markets

Strategies to Lower Variable Cost per

Customer

Strategies to Lower Variable Cost per

Customer

Marketing Expenses

= X -X -

Sales-Based vs. Market-BasedOrganizational Structure

Mining Marketing Unit

Mining Marketing Unit

Construction Marketing Unit

Construction Marketing Unit

End-User Market

Mining

End-User Market

Mining

Mining Dealers

Mining Dealers

Market-Based Structure

Earthmoving Equipment Division


Direct Sales

Direct Sales

Construction Dealers

Construction Dealers

End-User Market

Construction

End-User Market

Construction



Sales-Based Structure

Sales OrganizationSales Organization

Dealer Sales

Dealer Sales

Mining Dealers

Mining Dealers

End-User Market

Mining and Construction

End-User Market

Mining and Construction

Maximum Market Potential andCurrent Market Demand

Maximum Number of Potential Customers

Developed Market

Current Market Demand

Current Market Demand

Not AffordableNot Affordable

Lack BenefitsLack Benefits

Unable to UseUnable to Use

Not AvailableNot Available

Not AwareNot Aware

Untapped Market

Opportunity

Customer Adoption and Market Development

Market Development

Gap

Late MajorityEarly

MajorityEarly Adopters LaggardsInnovators

Early Market Mainstream Market

Full Market Development100

%

60%

80%

20%

40%

0%

Economic Benefits and Value Creation

Amazon.com lowers purchase price with the on-line purchase of books.

Usage CostsUsage Costs

Maintenance

Costs

Maintenance

Costs

Ownership

Costs

Ownership

Costs

Disposal CostsDisposal Costs

Price PaidPrice Paid

Acquisition

Costs

Acquisition

Costs

American Hospital Supply reduces a hospital’s cost with a computerized customer order program.

Sealed Air reduces labor cost in packaging with AirCap.

Saturn lowers the cost of repair and insurance through module product design.

GE Capital works with customers to create affordable ownership.

Rohm-Haas’s Kathon MWX cuts cost of disposal of machine fluid waste in half.

Tot

al C

ost

of P

urc

has

e

Fundamental Forces That Shape Differencesin Customer Needs

Consumer Market Customer Needs

Consumer Market Customer Needs

Demographic ForcesDemographic Forces Usage BehaviorsUsage Behaviors

- Quantity- Time of Use- Personal- Social- Frequency of Use

- Age- Income- Marital Status- Education- Occupation

Lifestyle ForcesLifestyle Forces

- Attitudes- Values- Activities- Interests- Political View

Fundamental Forces That Drive Differencesin Business-to-Business Customer Needs

Business-to-Business Customer Needs

Business-to-Business Customer Needs

Firmographic ForcesFirmographic Forces Usage BehaviorsUsage Behaviors

- Application- Quantity- Time of Purchase- Frequency of Purchase- Users

- Number of Employees- Sales Volume- Number of Locations- Years in Business- Financial Situation

Business CultureBusiness Culture

- Business Sophistication- Growth Orientation- Innovativeness- Technology- Decision Making

Market Segmentationof the Small Business Market

Growth-Oriented EntrepreneursCore Business Need Ways to invest and grow

Firmographics Medium size More sophisticated Higher in education Ongoing financial plan

Purchase Behavior Products that enhance productivity High revenue per customer Willing to buy value-added solutions

Value Proposition

Solutions that help you grow your business

Cost-Focused SustainersCore Business Need Ways to continue and save

Firmographics Small in sales / employees Less sophisticated Lower in education Limited or no financial plan

Purchase Behavior Products that lower cost Low revenue per customer Confused by value-added

solutions

Value Proposition

Solutions that saves your business money

Growth-Oriented Cost-

Focused

Forces That Shape Segment Attractiveness

Segment AttractivenessSegment Attractiveness

Market GrowthMarket Growth Market AccessMarket AccessCompetitive IntensityCompetitive Intensity

- Customer Familiarity- Channel Access- Company Fit

- Market Size- Growth Rate- Market Potential

- Number Of Companies- Ease of Entry- Substitutes

Segmentation Hierarchy: Mass Market toMass Customization Strategies

Mass Market

Approach

Small Segment Strategy

Large Segment Strategy

Adjacent Segment Strategy

Niche Segment Strategy

Multi-segment Strategy

Mass Customization

Strategy

Segment ASegment A

Segment CSegment C

Segment A1Segment A1




Segment B1Segment B1




Segment C1Segment C1

Segment C2Segment C2Segment C2

Segment C2

Segment ASegment A

Segment BSegment B

Segment CSegment C

Segment ASegment A

Segment BSegment B

Competitive Forces That Shape Competitive Position and Profitability

Competitive Position and Profitability

Competitive Position and Profitability

Industry ForcesIndustry Forces Competitive AdvantageCompetitive AdvantageCompetitor Benchmarking

Competitor Benchmarking

- Cost Advantage- Quality Advantage- Marketing Advantage

- Market Entry/Exit- Buyer/Supplier Power- Substitutes/Rivalry

- Competitor Intelligence- Competitor Analysis- Competitive Benchmarking

Industry Analysis: Industry Forces andProfit Potential

Industry ForcesBarriers to EntryBarriers to ExitBuyer PowerSupplier PowerSubstitutesCompetitive Rivalry

UnfavorableLowHighHighHigh

ManyIntense

FavorableHighLowLowLowNoneNone

The more favorable the forces that shape a market’s competitive environment, the greater a business’s profit potential

Competitive Environment

Competitive Environment

More favorable competitive environmentLess favorable competitive environment

Unfavorable

Pro

fit

Pot

enti

al

Favorable

Performance Impact of Price Rivalry and Prisoner‘s Dilemma

Hold Price Cut Price 5%

Hold Price

Cut Price 5%

Market Share = 10%Volume = 1 million unitsPrice = $100 per unitMargin = $40 per unitTotal Cont. = $40 million

Market Share = 12%Volume = 1.2 million unitsPrice = $95 per unitMargin = $35 per unitTotal Cont. = $42 million

Market Share = 10%Volume = 1 million unitsPrice = $95 per unitMargin = $35 per unitTotal Cont. = $35 million

Market Share = 8%Volume = 800’000 unitsPrice = $100 per unitMargin = $40 per unitTotal Cont. = $32 million

Business’s Marketing Strategy

Competitor’s Marketing Strategy

Major Sources of Competitive Advantage

Competitive AdvantageCompetitive Advantage

Cost AdvantageCost Advantage Marketing AdvantageMarketing AdvantageDifferentiation Advantage

Differentiation Advantage

- Distribution- Sales Effort- Brand Awareness

- Variable Costs- Marketing Expenses- Operating Expenses

- Product Differentiation- Service Quality- Brand Reputation

Ignition Switch Cost Advantage Due to Scale and Scope Effects

Scale Effect

Cos

t p

er U

nit

Production Capacity

C1 C2

Cos

t p

er U

nit

Scope Effect

Auto-mobiles

Product Breadth

PumpsSnow Blowers

Lawn-mowers

Motor-cycles

Product-Price Position, Marketing Effort,and Market Share

Market ShareMarket Share Marketing Effort

Marketing Effort

Product Position

Product Position

Sales Force

Product BreadthPrice Physical

DistributionProduct

Differentiation

Retailing & Merchandising

Customer Support

New Products

Service Quality

Brand Image

Media Advertising

Sales Promotion

= X

Core Elements ofProduct Management Strategy

Product Management Strategies

Product Management Strategies

Product Positioning and Differentiation

Product Positioning and Differentiation

New Product Development

New Product Development

Product Line Positioning and

Extension Strategies

Product Line Positioning and

Extension Strategies

- New Product Sales- New Product Innovation- Development Process

- Low Price/Cost of Purchase- Product Differentiation- Service/Brand

- Product Line Positioning- Product Line Extensions- Product Bundling

Differentiation and Customer Value I

Product Differentiation

Product BenefitsProduct Benefits

Service BenefitsService Benefits

Brand BenefitsBrand

Benefits

Total Benefits

Total Cost

Customer Value

PricePrice

Nonprice Costs

Nonprice Costs

Service Differentiation



Brand BenefitsBrand

Benefits

Total Benefits

Total Cost

Customer Value

PricePrice

Nonprice Costs

Nonprice Costs

Brand Differentiation



Brand BenefitsBrand

Benefits

Total Benefits

Total Cost

Customer Value

PricePrice

Nonprice Costs

Nonprice Costs

Differentiation and Customer Value II



Brand BenefitsBrand

Benefits

Total Benefits Derived from Product Position

Total Cost of Obtaining These Benefits

Brand Differentiation

Service Differentiation

Product Differentiation

Customer Value

PricePrice

Transaction Costs

Transaction Costs

Low-Price Position

Lower Transaction

Costs

Pricing Differentiation and Customer Value

Customers•Need / Benefits•Price Sensitivity•Demand / Growth

Customers•Need / Benefits•Price Sensitivity•Demand / Growth

Positioning•Market Share•Differentiation•Cost / Supply

Positioning•Market Share•Differentiation•Cost / Supply

Competitors•Number / Entry•Positioning•Objectives

Competitors•Number / Entry•Positioning•Objectives

Impacts•Customer Value•Market Share•Profitability

Impacts•Customer Value•Market Share•Profitability

Market Situation

Market-Based Pricing•Economic Value Pricing•Perceived Value Pricing•Segment Pricing

Market-Based Pricing•Economic Value Pricing•Perceived Value Pricing•Segment Pricing

Cost-Based Pricing•Commodity Pricing•Cost Leader Pricing•Competitive Bid Pricing

Cost-Based Pricing•Commodity Pricing•Cost Leader Pricing•Competitive Bid Pricing

Market-Based Value Pricing

Perceived Value vs. Costs



Brand BenefitsBrand

Benefits

Relative Benefits

Relative Cost

Perceived Value

PricePrice

Nonprice Costs

Nonprice Costs

Per

cep

tion

Total Cost of Ownership

Competitor’s Product

Business’s Product

Economic Value

PricePrice

Cos

t

UseUse

MaintenanceMaintenance

AcquisitionAcquisitionAcquisitionAcquisition

PricePrice

MaintenanceMaintenance

UseUse

Price Elasticity and Performance

Price Elasticity

Price Elasticity

Unit Volume

Decrease

Unit Contribution

Increase

Sales Revenue

Increase

Unit Margin

Increase

DecreaseIncrease Decrease Decrease

Decrease

Decrease

Decrease

Increase Increase

Increase

No change No changeNo change

Inc/Dec*

Inc/Dec*

Maximum

Inelastic (<-1)

Elastic (>-1)

Unity (=-1) Hold Price

Raise Price

Lower Price

Raise Price

Lower Price

* The total contribution could increase or decrease, depending on the level of elasticity and unit margin.

Skim Pricing

Favorable ConditionsConsiderable Differentiation

Quality-Sensitive Customers

Sustainable Advantage

Few Competitors

Few Substitutes

Difficult Competitor Entry

Skim Pricing

Time

Dol

lars

per

Un

it

Price

Cost

Penetration Pricing

Favorable ConditionsNo/Limited Differentiation

Price-Sensitive Customers

No Sustainable Advantage

Many Competitors

Many Substitutes

Easy Competitor Entry

Penetration Pricing

Time

Dol

lars

per

Un

it

Price

Cost

Break-Even Volume for a Given Price Strategy

Total Revenue

Total Costs

Fixed Expenses*

* Fixed Expenses = Marketing Expenses and Other Direct Expenses

$ M

illi

ons

15

30

35

20

10

25

5

050 150100

Break-Even Volume(90,000)

200

Units Sold (‘000)

Profit Loss

Alternative Channel Systems

•Direct Channel Systems: Provide alternative direct channel and sales systems that require the business to retain ownership (title) of products sold and responsibility for delivery to customers and value-added functions desired by customers.

•Indirect Channel Systems: Provide varying degrees of sales and value-added functions while taking ownership and responsibility for delivery to target customers or other intermediaries.

•Mixed Channel Systems: Provide direct sales contact and technical support while the actual purchase is made at a channel intermediary who has taken title (ownership) of the products being sold.

Alternative Channel SystemsAlternative Channel Systems

DirectChannel Systems


IndirectChannel Systems


MixedChannel System

MixedChannel System

Channel IntermediariesChannel Intermediaries

Target Market CustomersTarget Market Customers

Alternative Customer Channel Systems

ManufacturersManufacturers





Reps/AgentsReps/Agents

Customer MarketsCustomer Markets

Tele- marketing

Tele- marketing

Direct Marketing

Direct Marketing

Direct Sales

Direct Sales

On-Line MarketingOn-Line

MarketingReps/

AgentsReps/

Agents

RetailersRetailers

WholesalersWholesalers

Message Reinforcement Strategies

1

Gro

ss R

atin

g P

oint

s

50

200

250

100

0

150

Pulsing

5 9 13 17 21 25 29

Weeks

Ad

Aw

aren

ess

1

20%

80%

100%

40%

0%

60%

5 9 13 17 21 25 29

Weeks

1

Gro

ss R

atin

g P

oint

s

50

200

250

100

0

150

Heavy-Up

5 9 13 17 21 25 29

Weeks

Ad

Aw

aren

ess

1

20%

80%

100%

40%

0%

60%

5 9 13 17 21 25 29

Weeks

Push-Pull Communicationsand Customer Response

Communications MixAdvertising

Sales PromotionsCatalogs

Direct MarketingTelemarketing

Electronic MarketingPublic Relations

Customer ResponseCustomer Response

CustomerPush

CustomerPush

CustomerPull

CustomerPull

Customer Loyalty

• Commitment• Search Effectiveness

Customer Loyalty

• Commitment• Search Effectiveness

Customer Preference

•Awareness•Attraction

Customer Preference

•Awareness•Attraction

Customer Push CommunicationsCustomer Push

CommunicationsCustomer Pull

CommunicationsCustomer Pull

Communications

Distributor Push

•Merchandising•Marketing Effort

Distributor Push

•Merchandising•Marketing Effort

Market Coverage

•Availability•Stockouts

Market Coverage

•Availability•Stockouts

Strategic Market Planning Process

Business PerformanceBusiness Performance Competitive AdvantageCompetitive AdvantageMarket AttractivenessMarket Attractiveness

- Differentiation- Cost- Marketing

- Share Position- Sales Growth- Profitability

- Market Forces- Competitive Intensity- Market Access

Portfolio Analysis and Strategic Market Plan

Portfolio Analysis and Strategic Market Plan

Tactical Marketing Strategy and Performance

Plan

Tactical Marketing Strategy and Performance

Plan

Factors That Shape Market Attractiveness

Market AttractivenessMarket Attractiveness

Market ForcesMarket Forces Market AccessMarket AccessCompetitive IntensityCompetitive Intensity

- Customer Familiarity- Channel Access- Sales Requirements- Company Fit

- Market Size- Growth Rate- Buyer Power- Customer Loyalty

- Number of Competitors - Price Rivalry- Ease of Entry- Substitutes

Portfolio Analysis and Strategic Market Plans

Protect Invest to protect or hold a competitive advantage. Businesses often fail to invest in hold strategies, and the result is an erosion of competitive advantage.

Grow Invest to improve or grow competitive advantage. In an underdeveloped or emerging market, this can also mean to invest in order to grow the market, and hence, its attractiveness.

Focus Selectively narrow market focus to profitable segments or niches within a segment in order to capture profits while limiting the resources committed to this market.

Harvest Adjust prices and marketing expenses to gradually exit the market while attempting to maximize profits during this gradual exit.

Entry Invest to enter an attractive market to establish a desired competitive advantage. This strategy could also require investment to accelerate the growth of a new or underdeveloped market.

Divest Quick divestment from a market. When there are no short-term profits to be gained with a harvest strategy, an immediate exit strategy is appropriate.

Very Attractive

Mar

ket

Att

ract

iven

ess

Very Unattractive

Offensive (Entry)

Very StrongVery WeakCompetitive Advantage

Offensive (Grow)

Defensive (Divest or Harvest)

Defensive (Protect)

Defensive (Protect or Harvest)

Defensive (Divest or Harvest)

Offensive(Grow)

Defensive(Protect / Harvest)

Offensive(Grow)

Defensive(Protect / Focus)

Offensive(Grow)

Defensive(Protect / Focus)

Offensive(Grow)

Defensive(Protect)

Offensive and Defensive Strategic Market Plans

Business Performance Share Position Sales Revenue Growth Profit Performance

Business Performance Share Position Sales Revenue Growth Profit Performance

Offensive Strategic Market PlansOffensive Strategic Market Plans Defensive Strategic Market PlansDefensive Strategic Market Plans

- Penetrate or Grow Existing Markets- Enter or Develop New Markets

- Protect or Reduce Focus within Existing Markets

- Harvest or Divest Existing Markets

Product Life Cycle andOffensive and Defensive Marketing Strategies

Sal

es R

even

ue

Early Growth

Declining Market

Emerging Market

Late Growth

Mature Market

Maturing Market

Rapid Growth

Offensive

Offensive

Offensive

Offensive/ Defensive

Offensive/ Defensive

Defensive

Defensive

Offensive Strategic Market Plans

OffensiveStrategic Market Plans

OffensiveStrategic Market Plans

Market Penetration StrategiesMarket Penetration Strategies New Market Entry StrategiesNew Market Entry Strategies

- Related New Market Entry- Diversified New Market Entry- Enter New Emerging Market- Develop New Market Potential

- Grow Market Share- Grow Customer Purchases- Enter New Market Segment- Grow Market Demand

Defensive Strategic Market Plans

- Harvest Price Strategy- Harvest Resource Strategy- Divest Market Position

DefensiveStrategic Market Plans

DefensiveStrategic Market Plans

Protect Market PositionProtect Market Position Exit Market PositionExit Market Position

- Protect Market Share- Build Customer Retention- Reduced Focus

Portfolio Positions andDefensive Strategic Market Plans

Very Attractive

Mar

ket

Att

ract

iven

ess

Very Unattractive

Very StrongVery WeakCompetitive Advantage

Harvest or Divest

Protect

Protect or Harvest

Harvest or Divest

Protect or Harvest

Protect or Focus

Protect or Focus

Protect

Major Components of a Situation Analysis

Situation AnalysisSituation Analysis

Market Demand

Market Demand

Market Demand

Market Demand

Market Demand

Market Demand

Market Demand

Market Demand

Market Demand

Market Demand

- Size and Growth- Potential- Environment

- End Users- Intermediaries- Nonconsumers

- Market Share- Price / Quality- Cost / Value

- Structure- Gap Analysis- Substitutes

- Sales- Customer

satisfaction- Margins/Profit

A Customer-Based Model of Net Profits

Market Demand

(Customers)

Market Demand

(Customers)

Market Share (Percent)


Revenue per Customer


Variable Cost per CustomerVariable Cost per Customer

Marketing Expenses

Marketing Expenses

Operating ExpensesOperating Expenses

Net Profits (before taxes)

Net Profits (before taxes)

Margin per Customer

Margin per Customer

Customer Volume

Customer Volume

Total Contribution

Total Contribution



A Customer-Based Model of Return on Assets

Accounts ReceivableAccounts

Receivable

InventoryInventory

CashCash

Plant and EquipmentPlant and

Equipment

Return on Assets

Return on Assets

Fixed ExpensesFixed Expenses

Current AssetsCurrent Assets

Total AssetsTotal Assets

Market Demand (Customers)

Market Demand (Customers)





Variable Cost per CustomerVariable Cost per Customer

Marketing Expenses

Marketing Expenses

Operating Expenses

Operating Expenses

Net Profits(before taxes)Net Profits

(before taxes)

Margin per Customer

Margin per Customer

Customer Volume

Customer Volume

Total Contribution

Total Contribution



Market, Operational and Profit Performance

Market Performance Profit PerformanceOperational Performance

=X

Market Metrics

•Market Share

•Customer Satisfaction

•Customer Retention

•Product Awareness

•Service Quality

Market Metrics

•Market Share

•Customer Satisfaction

•Customer Retention

•Product Awareness

•Service Quality

Operational Merits

• Margin (% of sales)

• Overhead (% of sales)

• Inventory Turnover

• Accts. Rec. (days outstanding)

• Capacity Utilization

Operational Merits

• Margin (% of sales)

• Overhead (% of sales)

• Inventory Turnover

• Accts. Rec. (days outstanding)

• Capacity Utilization

Profitability Merits

•Return on Assets

•Return on Equity

•Earnings per Share

•Economic Value Added

•Price-Earnings Ratio

Profitability Merits

•Return on Assets

•Return on Equity

•Earnings per Share

•Economic Value Added

•Price-Earnings Ratio

GE / McKinsey Multifactor Portfolio Matrix

INDUSTRY ATTRACTIVENESS

BU

SIN

ES

S S

TR

EN

GT

H

InvestManage

Selectively for Earnings

Invest

Invest

Manage Selectively

for Earnings

Manage Selectively

for Earnings

Harvest or Divest

Harvest or Divest

Harvest or Divest

Market Potential, Sales Potential,and Sales Forecast

Market Potential

Sales Forecast

Total Population

Sales Potential

The R&D Effort Portfolio

MARKET OPPORTUNITY

SELECTIVE EMPHASIS

LIMITED SUPPORT

HEAVY EMPHASIS

HEAVY EMPHASIS

HEAVY EMPHASIS

LIMITED SUPPORT

LIMITED SUPPORT

SELECTIVE EMPHASIS

SELECTIVE EMPHASIS

LOW HIGHMODERATE

MA

RK

ET

OP

PO

RT

UN

ITY

LO

WH

IGH

MO

DE

RA

TE

When to Use a Penetration or Skimming Strategy for Pricing New Products

Penetration Strategy

Level of Desire in Market

High

Skimming Strategy

Distinctive

Not Important

Low

Not Easy

Similar

Important

Easy

FastGradual

Importance of Price to Market

Ease of Duplicating Product

Distinctiveness from Competitive Products

Return on Investment Objective

Dimension

Strategy Decision AreasOrganized by the Four Ps

ProductProduct

•Physical good•Service•Features•Quality level•Accessories•Installation•Instructions•Warranty•Product lines•Packaging•Branding

•Physical good•Service•Features•Quality level•Accessories•Installation•Instructions•Warranty•Product lines•Packaging•Branding

PlacePlace

• Objectives• Channel type• Market exposure• Kinds of

middlemen• Kinds and

locations of stores• How to handle

transporting and storing

• Service levels• Recruiting

middleman• Managing

channels

• Objectives• Channel type• Market exposure• Kinds of middlemen

• Kinds and locations of stores

• How to handle transporting and storing

• Service levels• Recruiting middleman

• Managing channels

PromotionPromotion

• Objectives• Promotion blend• Sales people, Kind, Number Selection, Training, Motivation

• Advertising Targets, Kinds of ads, Copy thrust, Prepared by whom

• Sales promotion• Publicity

• Objectives• Promotion blend• Sales people, Kind, Number Selection, Training, Motivation

• Advertising Targets, Kinds of ads, Copy thrust, Prepared by whom

• Sales promotion• Publicity

PricePrice

• Objectives• Flexibility• Level over product life cycle

• Geographic terms• Discounts• Allowances

• Objectives• Flexibility• Level over

product life cycle• Geographic terms• Discounts• Allowances

Strategy Planning for Product

PricePrice

BrandBrand

Type of brandIndividual or family

Manufacturer or dealer

Type of brandIndividual or family

Manufacturer or dealer

ProductProduct

Physical good / serviceFeatures

Quality levelAccessoriesInstallationInstructionsWarranty

Product line

Physical good / serviceFeatures

Quality levelAccessoriesInstallationInstructionsWarranty

Product line

Product ideaProduct idea

PlacePlace PromotionPromotion

Target marketTarget market

PackagePackage

ProtectionPromotion(or both)

ProtectionPromotion(or both)

Product Classes

Consumer products

Consumer products

Convenience productsConvenience products

Unsought productsUnsought products

Specialty productsSpecialty products

Shopping productsShopping products

StaplesImpulse productsEmergency products

HomogeneousHeterogeneous

New unsoughtRegularly unsought

ProductsProducts

Professional servicesProfessional services

ComponentsComponents

Raw materialsRaw materials

AccessoriesAccessories

SuppliesSupplies

InstallationsInstallations

Industrial products

Industrial products

StaplesImpulse productsEmergency products

Farm productsNatural products

Component partsComponent materials

New-Product Development Process

Idea generation

Idea generation

ScreeningScreening

Rough ROI estimateRough ROI estimate

Idea evaluationIdea evaluation

Concept testingRough ROI verificationConcept testingRough ROI verification

DevelopmentDevelopment

R&DBuild modelTest in marketROI estimateRevise product

R&DBuild modelTest in marketROI estimateRevise product

Idea evaluationIdea evaluation

Finalize productFinalize marketing planFinal ROI estimateStart production and

marketing plan

Finalize productFinalize marketing planFinal ROI estimateStart production and

marketing plan

International Marketing Opportunities

ProductProduct

Pro

mot

ion

Pro

mot

ion

Same Adaptation New

Ad

apta

tion

Sam

e

Basically same needs, but different incomes and / or applications (street vendor with low-cost hamburgers)

Basically same needs, but different incomes and / or applications (street vendor with low-cost hamburgers)

Different needs and different incomes and / or applications (hand-powered washing machines)

Different needs and different incomes and / or applications (hand-powered washing machines)

Basically same needs and use conditions (McDonald’s strategy with beer in Germany)

Basically same needs and use conditions (McDonald’s strategy with beer in Germany)

Different needs and use conditions (clothing)

Different needs and use conditions (clothing)

Same needs and use conditions (McDonald’s usual strategy)

Same needs and use conditions (McDonald’s usual strategy)

Different needs but same use conditions (bicycles)

Different needs but same use conditions (bicycles)

Customer and Competitor Orientations

Self-centeredMinor

Market-driven

Customer-oriented

Competitor-centered

Competitor emphasis

Competitor emphasis

Major

Minor Major

Efficiency vs. Effectiveness

ThriveEfficient

Die quicklySurvive

Die slowly

Strategic management

Operational management

Inefficient

Effective Ineffective

1

43

2

Approaches to Competitor Analysis

Desk Research

Databases

Market Research

Internal Information

Industry Mapping

Building Competitive Advantage

Critical Success Factors

Special Competitor

Studies

Value Chain Analysis

Industry Analysis

Competitor Profiling

Benchmarking

Developing the Organization‘s Core Competences

Cor

e C

ompe

tenc

es

Existing New

Markets

Exi

stin

gN

ew

Extending the base

What core competences do we need to be developed so that the organization’s current position is best protected and/or extended?

Uncharted waters

What core competences need to be developed in order to compete in the new and developing markets which offer the greatest future potential?

Good housekeeping

How can better use be made of the organization’s current core competences?

Moving into new areas

What new products or services can be developed by rethinking or reallocating the existing core competences?

The Nine Price / Quality Strategies

Cheap-value strategy

Low

Price

Product quality

High

1

4

32

98

6

7

5

Premium strategy

Overcharging strategy

Exploitative strategy

Middle-of-the- road strategy

Above average value strategy

High-value strategy

Superb value strategy

Out-of-step strategy

Medium

Low HighMedium

Relationship Between Service Levels and Costs

$

Total costs

Transportation, order processing

and inventory carrying costs

Level of customer service

Cost of lost sales

Cos

t

0100%

Setting Customer Service Levels

$

Revenue from service

Distribution costs

Service level

Incr

ease

in c

osts

, sal

es

reve

nu

e or

pro

fit

0

99

Profit curve

Maximum profit

contribution

93 %

Marketing Excellence Framework

Marketing Strategy

Marketing Strategy

Sup

ply

Cha

inS

uppl

y C

hain

BrandingBranding

Quality Strategy

Quality Strategy

Customer Development

Customer Development

Product Innovation

Product Innovation

Man

ufac

turi

ngM

anuf

actu

ring

Business Performance

Business Performance

Consequences of Strategic and Tactical Implementation

Mar

ket

ing

imp

lem

enta

tion

Appropriate Inappropriate

Strategy / tactic

Pro

ofE

xcel

lent

SuccessPossible short-

term success – but ultimately failure

Trouble orfailure

Failure

The Transition to RM

Emphasis on all six market domains

Transaction marketing

Relationship marketing

Emphasis on customer market

domain

Functionally based marketing

Cross-functionally based marketing

The RM Multiple Markets Model

Customer Markets

Supplier & Alliance Markets

Internal Markets

Referral Markets

Influencer Markets

Recruitment Markets

Types of Consumer Buyer Behavior

Complex buyer behaviourMany

Habitual buyer

behaviour

Dissonance-reducing buyer

behaviour

Variety-seeking buyer

behaviour

Involvement

Differences between brands

Few

Appropriate Pricing Strategies

Op

por

tun

ity

for

valu

e en

han

cem

ent

Low

High Skimming strategy

Price leadership

‘Follow my leader’

Penetration strategy

Low High

Opportunity for cost reduction

The Expanded Marketing Mix

Product

Price

People

Processes

Place

Promotion

Customer Service

The Paradigm of Mass Production as a Dynamic System of Reinforcing Factors

New Products

Mass Production Processes

Low-Cost, Consistent Quality, Standardized Products

Homogeneous MarketStable Demand

Long Product Life Cycles

Long Product Development Cycles

R

The New Paradigm of Mass Customization as a Dynamic System Feedback Loop

New Products

Mass Customization Processes

Low-Cost, High Quality, Customized Products

Heterogeneous MarketsDemand Fragmentation

Short Product Life Cycles

Short Product Development Cycles

R

Product Technology Process Technology

R R

Six Types of Modularity for the Mass Customization of Products and Services

Component – Sharing Modularity Component-Swapping Modularity

Cut-to-Fit Modularity Mix Modularity

Bus Modularity Sectional Modularity

Product-Process Change Matrix

PRODUCT CHANGE

MASS CUSTOMIZATION INVENTION

CONTINUOUS IMPROVEMENT

MASS PRODUCTION

PROCESS CHANGE

STABLE DYNAMIC

ST

AB

LE

DY

NA

MIC

Product-Process Change Matrix:The Mass Production Axis

PROCESS CHANGE

STABLE

PRODUCT CHANGE

DYNAMIC

ST

AB

LE

DY

NA

MIC MASS

CUSTOMIZATIONINVENTION


MASS PRODUCTION

Mass-Customized Products: Stable Processes Producing Dynamic Flow of Products

PRODUCT 1 VOLUMES

TIME

PROCESS CAPABILITIES

PRODUCT VOLUMES

PRODUCT 3 VOLUMESPRODUCT 2

VOLUMES


Mass-Customized Products:Shortening Process Life Cycles

PROCESS 1 CAPABILITIE

S

TIME

PRODUCT VOLUMES

PROCESS 3 CAPABILITIE

SPROCESS 2

CAPABILITIES

ENTERPRISE

ENTERPRISE CAPABILITIES

AND RESOURCES


PRODUCT N VOLUMES

Product-Process Change Matrix:Virtual Enterprise Flow

MASS CUSTOMIZATION

INVENTION


MASS PRODUCTION

PROCESS CHANGE

STABLE

PRODUCT CHANGE

DYNAMIC

ST

AB

LE

DY

NA

MIC

Four Stages of National Competitive Development

FACTOR DRIVEN

INVESTMENT DRIVEN

INNOVATION DRIVEN

WEALTH DRIVEN

• Existing basic factors

• Abundant, cheap and unqualified labour

• Low investments

• Building general factors

• Cheap and qualified labour

• Heavy basic investments

• Building advanced factors

• Costly and highly qualified labour

• Productivity and innovation investments

• Acquired advantages

• Stagnant rate of innovation

DECLINE?

Relaunched

by the stimulation of innovation

Cluster Theory

Factor (Input) Conditions

Context for Firm

Strategy and Rivalry

Related and Supporting Industries

• Presence of capable, locally-based suppliers

• Presence of competitive related industries

• A local context that encourages appropriate forms of investment and sustained upgrading

• Vigorous competition among locally-based rivals

• Factor quality

• Factor specialization

Demand Conditions

• Sophisticated and demanding local customer(s)

• Customer needs that anticipate those elsewhere

• Unusual local demand in specialized segments that can be served globally

– natural resources– human resources– capital resources

– physical infrastructure– information infrastructure

– scientific and technological infrastructure

•Factor (input) quantity and cost

Management of Industrial Customer‘s Portfolios I

For a continuous supply case

Existing customer Prospect

Structural Attractiveness


Customers to be kept without over investing

Customers justifying an overinvestment

Customers to be kept with minimum investment

Customers to be examined in a selective way

Prospects to be cultivated with tenacity while expecting an opening

“hot” prospects justifying a strong investment

Prospects not to be worked on intensively

“hot” prospects justifying only a limited investment

Development possibilities Penetration possibilities

Management of Industrial Customer‘s Portfolios II

Case of discontinued supply


To follow up on a major customer if the deal is not too unfavourable

Major opportunity justifying a major investment

To decline and not to be followed To grasp an excellent deal if the customer is acceptable

Transaction attractiveness

The Marketing Exchange Process I

Middlemen-Wholesalers-Retailers

Many individual

Suppliers (heterogeneous supply)

Perform universal marketing functions of buying, selling, transporting, storing, marketing, information, standardization and grading, financing, and risk taking

To overcome discrepancies of quantity and assortment, and to overcome separation of space, time, information, values and ownership

To create form, time, place, and possession utility and direct the flow of need – satisfying goods and services

Too many individual

Customers (heterogeneous demand)

Facilitators

-Ad agencies-Marketing research firms-Product testing labs-Public warehouses-Transportation specialists-Financial institutions

The Marketing Exchange Process II

Raw materials

End user

Components

Finished product

Retailer

Wholesaler

Upstream exchange

Supplier

Customer

Downstream exchange

The Producer – Customer GapSpecialization and division of labour result in heterogeneous supply capabilitiesPRODUCTION SECTOR

Heterogeneous demand for form, time, place, possession utility to satisfy needs /wantsCONSUMPTION SECTOR

ScatteredMany locations

CUSTOMERS

Consumption usually not at time of production (exception: services)

Don’t know what is available from whom, where, when, what price

Value goods and services in terms of economic utility and ability to pay

Want to consume goods which they don’t own

Prefer to buy and consume in small quantities

Purchase a broad assortment

ClusteredFew locations

PRODUCERS

Time required to bring goods to market

Don’t know who needs what, where, when, what price

Value goods and services in terms of costs and competitive prices

Hold title to goods which they don’t consume

Prefer to produce and sell in large quantities

Produce a narrow assortment

SPACE

OWNERSHIP

TIME

VALUES

QUANTITY

ASSORTMENT

INFORMATIONMarketing needed to overcome

gaps

The Value Chain

Value chain of a computer manufacturer

Component suppliers

Computer manufacturer Retail outlets

End users: Individuals, Companies

Component Purchasing R & D MarketingManufac-

turingProduct Design

Make or buy?

Make or Buy

Advantages of Making

• Low costs• Better quality• Unique characteristics• Better time management• Control of proprietary

information• Etc…

Risks tied to Outsourcing

• Size, power of producer• Technical capacity of buyer• Number of transactions

involved• Etc...

Low

Low

High

High

Buy

Partnership

Make

Weak control needed

Moderate control needed

Strong control needed

Market Structure: Actual / Potential Market

Potential market (100%)

Accessible market (80%)

Qualified market (50%)

Serviced market (20%)

Total population (100%)

Actual market (2%)

Potential market (100%)

Market Segmentation Strategies

a) Product variety: no segmentation

Need Analysis

Program A

Program B

Program C

Program for Segment B

Program for Segment A

Program for Segment B

Need Analysis

Need Analysis

Program for Segment C

MARKETFIRM

FIRM

FIRM

c) Multi-segment marketing

b) Concentrated marketing

Segment B

Segment C

Segment A

Segment C

Segment B

Segment A

Factors Affecting the Choice of Target Markets

Needs / wants of

end-users

Market size / structure

Decision-maker

preferences and

corporate culture

Resources / capabilities of the firm

Firm / brand market

share, sales projections

Competitive activity

Political pressures

and lobbying

Production / marketing,

scale economies

Choice of target

markets

The Use of Marketing Information I

Marketing Information System

Environment

Target marketsDistribution channels

CompetitorsPeople

Macro-environment

Marketing Manager

AnalysisPlanningExecution

Control

Data Information

Accounting system

Market studies and research

system

Marketing models system

Accounting system

M. I. S. / M. D. S. S.

The Use of Marketing Information II

Evolution of information needs

Product orientation

Customer orientation

1960

Personalized target communication

Mass media advertising

General information

Specific information

Customized marketing

Mass marketing

Customer equity

1970

1980

1990

The Use of Marketing Information III

The Marketing Information Value Chain

Data collection and transmission

Customer filesDiary panelsPOS scanner

Data management

Data interpretation = Information

Marketing-related models

Decision Support Systems E.I.S.

DB2OracleDB3Paradox

Promoter, ADCAD

Conjoint (choice)

MDS (position)

Expert systems:SalespartnerCoverstory

Collect Organise Describe Represent Explain

Recommend

Approaches to the Study of Customer Behavior

HOMO ECONOMICUS

Rationality: revenue determines consumption level price determines consumption allocation

Unlimited needs: utility and satisfaction maximization

Perfect knowledge of needs and of products to satisfy them

Deterministic choice

Product functionality

Objective

Subjective

Product symbolism

Degree of involvement

Imperfect knowledge, stochastic choice

Limited needs: satisfiers

Irrational action: needs / wants / hopes, dreams,…

Feelings, emotions / unconscious motivations

HOMO PSYCHOLOGICUS

Group Influence on Buyer Appraisalof Product and Brand

Group influence on product category

Group influence on

product brand

Strong Weak

Strong

Weak

automobiles

cigarettes

beer,wine

clothes

furniture

watches

cellular phones

instant coffee

color TV

detergent

canned food

garbage bags

Attitude Based Decision Process:AIDA (Attention, Interest, Desire, Action)

Awareness, perception

Preference, choice

Post-purchase reaction (cognitive dissonance)

Desire

Action

Desire

Action

Attention

Interest

Attention

Interest

Purchase

Yes / No

Purchase

Yes / No

Cognitive

Affective

Conative

The 6 – Step Marketing Plan

1

2

3

budget allocation: product promotion price distribution

4

5

6

Action plan

Forecasts

Control

quantify: costs sales profits market share

organization structuremeasurement toolscheck frequency=> Corrective actions

firmmarketindustrycompetitionenvironment

Situation (SWOT)

Objectives

Strategy

salesmarket sharemarket expansionleadershipsatisfaction

segment – targetprice / qualityproduct positioningdifferentiationdiversification

Marketing Plan

Marketing Plan

SWOT Analysis I

• Market share• Key account share• Growth rate• Supply diversity• Influence• On market• Purchasing / selling

deadline• New products cycles• Negotiation power - firm suppliers - customers

STRENGTHS / WEAKNESSES

Firm, Organization


Firm, Organization

OPPORTUNITIES / THREATS

Environment, Market, Industry



• Market size• Key account size• Annual growth rate• Market diversity• Price sensitivity• Seasonality• Cycles• Negotiation power - suppliers - consumers

• Competitor types• Concentration level• Intrants / extrants• Market share evolution• Vertical / horizontal integration• Technology substitution

• Firm competitivity - Product, service - Profitability, H.R., …• Segments invested in• Firm’s integration level• High-tech vulnerability

MARKET

COMPETITION

SWOT Analysis II

• Firm margins• Economies of scale• Barriers• Production capacity level


Firm, Organization


Firm, Organization





FINANCE / BUSINESS

TECHNOLOGY

SOCIO - POLITICAL• Reactivity / Flexibility level• Adaptability• Agressiveness• Working relationships

• Attitudes / Social trends• Laws and regulations• Pressure groups• Trade union activities

• Adaptability to change• Expertise / Know-How• Patent ownership• Production technology

• Maturity / volatility• Complexity• Differentiation• Patents and copyrights• Production technology

• Global benefits• Economies of scale• Barriers• Production capacity level

Sources of Market Uncertainty

What needs might

be met by the new

technology?

Market Uncertainty

How large is the

potential

market?

How will needs

change in the

future?

How fast will the

innovation

spread?

Will the market

adopt industry

standards?

Sources of Technological Uncertainty

Will the new

product function

as promised?

Technological Uncertainty

Will new

technology make

ours obsolete?

Will the delivery

timetable be met?

Will there be side

effects of the

product or

service?

Will the vendor

give high-quality

service?

A Taxonomy of Marketing Situations Based on Technological and Market Uncertainty

Better Mousetrap Marketing

High-Fashion Marketing

Low-Tech Marketing

High-Tech Marketing

Market Uncertainty

Technological Uncertainty

High

Low

Low High

New Age Pricing

Average Unit Customer Value

Amount of Pricing Discretion

Average Unit Cost

$

Unit Volume

Performance – Based Pricing

P-BP provides more customer value through:

1. Goal alignment

2. Overpay Insurance

3. Clearer information on customer needs & objectives.

Customer Value

CostP-BP provides lower vendor cost through:

1. Goal alignment

2. Under payment insurance

3. Less wasted effort for things the customer doesn’t value.

With Performance – Based Pricing

Without Performance – Based Pricing

Cost

Customer Value

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Market Based Management

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