Kotler Formatted

Harvard Business School Publishing Textbook Article Map for Kotler: Marketing Management Prentice-Hall, 2002
This map contains articles from Harvard Business Review. It was prepared by an experienced editor at HBS Publishing, not by a teaching professor. Faculty at Harvard Business School were not involved in analyzing the textbook or selecting the articles. Every article map provides only a partial list of relevant items from HBS Publishing. To explore alternatives, or to get more information on the articles listed below, visit our web site: www.hbsp.harvard.edu/educators
Chapter 2: Building Customer Satisfaction, Value, and Retention
HBR article title The One Number You Need to Grow
Author Frederick Reichheld
Product number R0312C
Article abstract Companies spend lots of time and money on complex tools to assess customer satisfaction. But they're measuring the wrong thing. The best predictor of top-line growth can usually be captured in a single survey question: Would you recommend this company to a friend? This finding is based on two years of research in which a variety of survey questions were tested by linking the responses with actual customer behavior--purchasing patterns and referrals--and ultimately with company growth. Surprisingly, the most effective question wasn't about customer satisfaction or even loyalty per se. In most of the industries studied, the percentage of customers enthusiastic enough about a company to refer it to a friend or colleague directly correlated with growth rates among competitors. Willingness to talk up a company or product to friends, family, and colleagues is one of the best indicators of loyalty because of the customer's sacrifice in making the recommendation. When customers act as references, they do more than indicate they've received good economic value from a company; they put their own reputations on the line. The findings point to a new, simpler approach to customer research, one directly linked to a company's results. Who wouldn't want loyal customers? Surely they should cost less to serve, they'd be willing to pay more than other customers, and they'd actively market your company by word of mouth, right? Maybe not. Careful study of the relationship between customer loyalty and profits plumbed from 16,000 customers in four companies' databases tells a different story. The authors found no evidence to support any of these claims. What they did find was that the link between customers and profitability was more complicated because customers fall into four groups, not two. Simply put: Not all loyal customers are profitable, and not all profitable customers are loyal. Traditional tools for segmenting customers do a poor job of identifying that latter group, causing companies to chase expensively after initially profitable customers who hold little promise of future profits. The authors suggest an alternative approach, based on well-established "event-history modeling" techniques, that more accurately predicts future buying probabilities. Armed with such a tool, marketers can correctly identify which customers belong in which category and market accordingly. The challenge in managing customers who are
The Mismanagement of Customer Loyalty
Werner Reinartz ; Vishesh Kumar
R0207F
www.hbsp.harvard.edu/educators 800-545-7685 (outside the U.S. and Canada 617-783-7600) custserv@hbsp.harvard.edu
profitable but disloyal--the "butterflies"--is to milk them for as much as you can while they're buying from you. A softly-softly approach is more appropriate for the profitable customers who are likely to stay loyal--your "true friends." As for highly loyal but not very profitable customers--the "barnacles"--you need to find out whether they have the potential to spend more than they currently do. And, of course, for the "strangers"--those who generate no loyalty and no profits--the answer is simple: Identify early and don't invest anything. Business Marketing: Understand What Customers Value James C. Anderson ; James A. Narus 98601 In this article, authors James Anderson, professor at the Kellogg Graduate School, Northwestern University, and James Narus, associate professor at the Babcock Graduate School, Wake Forest University, illustrate several ways in which suppliers can figure out exactly what their offerings are worth by creating and using what they call customer value models. Field value assessments--the most commonly used method for building customer value models--call for suppliers to gather data about their customers firsthand whenever possible. Through these assessments, a supplier can build a value model for an individual customer or for a market segment, drawing on data gathered from several customers in that segment. Suppliers can use customer value models to create competitive advantage in several ways. First, they can capitalize on the inevitable variation in customers' requirements by providing flexible market offerings. Second, they can use value models to demonstrate how a new product or service they are offering will provide greater value. Third, they can use their knowledge of how their market offerings specifically deliver value to craft persuasive value propositions. And fourth, they can use value models to provide evidence to customers of their accomplishments. Doing business based on value delivered gives companies the means to get an equitable return for their efforts. Once suppliers truly understand value, they will be able to realize the benefits of measuring and monitoring it for their customers. Most managers rejoice if the majority of customers that respond to customer-satisfaction surveys say they are satisfied. But some of those managers may have a big problem. When most customers are saying they are satisfied but not completely satisfied, they are saying that they are unhappy with some aspect of the product or service. If they have the opportunity, they will defect. Companies that excel in satisfying customers excel both in listening to customers and in interpreting what customers with different levels of satisfaction are telling them. Companies that aim for "zero defections" (keeping every customer they can profitably serve) can make profits rise. Defection rates are both a measure of service quality and a guide for achieving it. By listening to the reasons why customers defect, managers know exactly where the company is falling short and where to direct their resources.
Why Satisfied Customers Defect
Thomas O. Jones ; W. Earl Sasser Jr.
95606
Zero Defections: Quality Comes to Service
Frederick Reichheld ; W. Earl Sasser Jr.
90508
Chapter 3: Winning markets: Market-Oriented Strategic Planning HBR article title The Brand Report Card Author Kevin L. Keller Product number R00104 Article abstract Most managers recognize the value in building and properly managing a brand. But few can objectively assess their brand's particular strengths and weaknesses. Most have a good sense of one or two areas in which their brand may excel or may need help. But, if pressed, many would find it difficult even to identify all the factors they should be considering. To give managers a systematic way to think about their brands, Tuck School professor Kevin Lane Keller lays out the ten characteristics that the strongest brands share. He starts with the relationship of the brand to the customer: The strongest brands excel at delivering the benefits customers truly desire, he says. They stay relevant to customers over time. Pricing truly reflects consumers' perceptions of value. Keller then moves on to consider marketing strategy and implementation: Strong brands are properly positioned. The brand stays consistent. Sub-brands relate to one another in an orderly way within a portfolio of brands. A full range of marketing tools are employed to build brand equity. Finally, he looks at management considerations: Managers of strong brands understand what the brand means to customers. The company gives the brand proper support and sustains it over the long term. And the company consistently measures sources of brand equity. By grading a brand according to how well it addresses each dimension, managers can come up with a comprehensive brand report card. By doing the same for competitors' brands, they can gain a fuller understanding of the relative strengths of their own brands in the marketplace. Forecasting total market demand can be crucial to creating a smart marketing strategy. Some companies--and even whole industries--have learned the hard way that a product's historical demand curve doesn't necessarily predict future demand. An accurate total market demand forecast can yield clues about future product performance. Here are the four steps to creating one: 1) define the market, 2) divide total industry demand into segments, 3) find out what drives demand in each segment and project how those drivers might change, and 4) assess the risks to the forecast and decide which assumptions are most critical to success. Just going through this process can help managers better understand the real world in which they operate. Most companies are able to forge a marketing strategy, but have difficulty implementing it. Marketing practice has two components: structural and human. There are four levels in the structural hierarchy--functions, programs, systems, and policy directives--and each has its pitfalls. Of 32 companies sampled, those best at marketing practice have a strong sense of identity and direction, appeal to customers (including distributors) in unusual ways, have marketing managers who are willing to substitute skills for the formal structure, and see the executives as more important than the execution structure.
Four Steps to Forecast Total Market Demand
F. William Barnett
88401
Making Your Marketing Strategy Work
Thomas V. Bonoma
84201
Marketing Myopia
Theodore Levitt
75507
In order to ensure continued company growth, executives must define their industries broadly and take advantage of growth opportunities. Four conditions usually guarantee the selfdeceiving cycle of bountiful expansion and undetected decay: the belief that an expanding and more affluent population assures growth; the belief that no competitive substitute exists for the industry's major product; too much faith in mass production and in the advantages of rapidly declining unit costs as output rises; and preoccupation with a product that lends itself to carefully controlled scientific experimentation, improvement, and manufacturing cost reduction. McKinsey Award Winner.
Chapter 4: Gathering Information and Measuring Market Demand HBR article title The Case of the Test Market Toss-up Author Stephen H. Star, Glen L. Urban Product number 88513 Article abstract The marketing committee of Paradise Foods decided against national rollout of Sweet Dream, the company's new premium frozen dessert. They feared Sweet Dream would take away market share from LaTreat, the company's first, and still successful, entry in frozen specialty desserts. Bill Horton, Sweet Dream's product manager, who had spent 18 months evaluating the new product and strongly favored the launch, doubted LaTreat's long-term market strength, believing that the company was protecting a product that was already tiring. Four executives - Jerry Della Femina, chairman and CEO of Della Femina, McNamee WCRS, Inc.; William H. Moult, executive vice president of SAMI/Burke; John M. Keenan, executive vice president of General Foods Worldwide; and Richard F. Chay, director of marketing research for NutraSweet Co. - evaluate Bill Horton's performance and examine whether Paradise Foods should reconsider its no-launch decision. Many small businesses and nonprofit organizations avoid doing marketing research because they have at least five misconceptions about it: the big decision myth; the survey myopia myth; the big bucks myth; the sophisticated researcher myth; and the most research is not read myth.
Cost-Conscious Marketing Research
Alan Andreasen
83401
Chapter 6: Analyzing Consumer Markets and Buyer Behavior HBR article title The Customer Has Escaped Author Paul Nunes, Frank Cespedes Product number R0311G Article abstract Every company makes choices about the channels it will use to go to market. For instance, traditionally, customer demographics guided the decision to sell through a discount superstore or a pricey boutique. It was a fair assumption that certain customer types were held captive by certain channels. The problem, the authors say, is that today's customers have become unfettered. As their channel options have proliferated, they've come to recognize that different channels serve their needs better at different points in the buying process. The result is "value poaching." For example, certain channels hope to use higher margin sales to cover the cost of providing expensive high-touch
services. Potential customers use these channels to do research, then leap to a cheaper channel when it's time to buy. What does this mean for your go-to-market strategy? The authors urge companies to make a fundamental shift in mind-set toward designing for buyer behaviors, not customer segments. A company should design pathways across channels to help its customers get what they need at each stage of the buying process. Customers are not mindful of channel boundaries--and you shouldn't be either. The Mismanagement of Customer Loyalty Werner Reinartz, Vishesh Kumar R0207F Who wouldn't want loyal customers? Surely they should cost less to serve, they'd be willing to pay more than other customers, and they'd actively market your company by word of mouth, right? Maybe not. Careful study of the relationship between customer loyalty and profits plumbed from 16,000 customers in four companies' databases tells a different story. The authors found no evidence to support any of these claims. What they did find was that the link between customers and profitability was more complicated because customers fall into four groups, not two. Simply put: Not all loyal customers are profitable, and not all profitable customers are loyal. Traditional tools for segmenting customers do a poor job of identifying that latter group, causing companies to chase expensively after initially profitable customers who hold little promise of future profits. The authors suggest an alternative approach, based on well-established "event-history modeling" techniques, that more accurately predicts future buying probabilities. Armed with such a tool, marketers can correctly identify which customers belong in which category and market accordingly. The challenge in managing customers who are profitable but disloyal--the "butterflies"--is to milk them for as much as you can while they're buying from you. A softly-softly approach is more appropriate for the profitable customers who are likely to stay loyal--your "true friends." As for highly loyal but not very profitable customers--the "barnacles"-you need to find out whether they have the potential to spend more than they currently do. And, of course, for the "strangers"-those who generate no loyalty and no profits--the answer is simple: Identify early and don't invest anything. Despite all the data that retailers and e-tailers can now gather about point-of-purchase information, buying patterns, and customer tastes, they still haven't figured out how to offer the right product, in the right place, at the right time, for the right price. But some retailers are moving profitably toward what the authors call "rocket science retailing"--a blend of traditional forecasting systems, which are largely based on the gut feel of employees, with the prowess of information technology. The authors recently finished surveying 32 retail companies in which they tracked practices and progress in four areas critical to rocket science retailing: demand forecasting, supply-chain speed, inventory planning, and data gathering and organization. In this article, the authors look at some companies that have excelled in those four areas and offer some valuable advice for other businesses seeking retailing perfection. In particular, the authors emphasize the need to monitor crucial metrics such as forecast accuracy, early sales data, and stockouts--information that will
Rocket Science Retailing Is Almost HereAre You Ready?
Marshall Fisher, Ananth Raman, Anna McClelland
R00404
help retailers determine when to tweak their supply-chain processes to get the right products to stores at just the right time.
Chapter 7: Analyzing Consumer Markets and Buyer Behavior HBR article title The Future of Commerce Author Adrian Slywotzky, Clayton Christensen, Richard Tedlow, Nicholas Carr Product number R00112 Article abstract As we enter the twenty-first century, the business world is consumed by questions about e-commerce. In this article, four close observers of e-commerce speculate about the future of commerce. Adrian Slywotzky believes the Internet will overturn the inefficient push model of supplier-customer interaction. He predicts that in all sorts of markets, customers will use choiceboards--interactive, on-line systems that let people design their own products by choosing from a menu of attributes, prices, and delivery options. And he explores how the shifting role of the customer--from passive recipient to active designer--will change the way companies compete. Clayton Christensen and Richard Tedlow agree that e-commerce, on a broad level, will change the basis of competitive advantage in retailing. The essential mission of retailers--getting the right product in the right place at the right price at the right time--is a constant. But over the years retailers have fulfilled that mission differently thanks to a series of disruptive technologies. The authors identify patterns in the way that previous retailing transformations have unfolded to shed light on how retailing may evolve in the Internet era. Nicholas Carr takes issue with the widespread notion that the Internet will usher in an era of "disintermediation," in which producers of goods and services bypass wholesalers and retailers to connect directly with their customers. Business is undergoing precisely the opposite phenomenon--what he calls hypermediation. Transactions over the Web routinely involve all sorts of intermediaries. It is these middlemen that are positioned to capture most of the profits. Electronic hubs--Internet-based intermediaries that host electronic marketplaces and mediate transactions among businesses--are generating a lot of interest. Companies like Ariba, Chemdex, and Commerce One have already attained breathtaking stock market capitalizations. Venture capitalists are pouring money into more business-to-business start-ups. Even industrial stalwarts like GM and Ford are making plans to set up their own Web markets. As new entrants with new business models pour into the business-to-business space, it's increasingly difficult to make sense of the landscape. This article provides a blueprint of the e-hub arena. The authors start by looking at the two dimensions of purchasing: what businesses buy--manufacturing inputs or operating inputs --and how they buy--through systematic sourcing or spot sourcing. They classify B2B e-hubs into four categories: MRO hubs, yield managers, exchanges, and catalog hubs, and they discuss each type in detail. Drilling deeper into this B2B matrix, the authors look at how e-hubs create value--through aggregation and matching-and explain when each mechanism works best. They also examine the biases of e-hubs. Although many e-hubs are
E-Hubs: The New B2B Marketplaces
Steven Kaplan, Mohanbir Sawhney
R00306
neutral--they're operated by independent third parties--some favor the buyers or sellers. The authors explain the differences and discuss the pros and cons of each position. The B2B marketplace is changing rapidly. This framework helps buyers, sellers, and market makers navigate the landscape by explaining what the different hubs do and how they add the most value.
Chapter 8: Dealing with the Competition HBR article title Hardball: Five Killer Strategies for Trouncing the Competition Author George Stalk, Jr., Rob Lachenauer Product number R0404C Article abstract
The winners in business play hardball, and they dont apologize for it. They single-mindedly pursue competitive advantage and the benefits it offers: a leading market share, great margins, and rapid growth. They pick their shots, seek out competitive encounters, set the pace of innovation, and test the edges of the possible. Softball players, by contrast, may look good they may report decent earnings and even get favorable coverage in the business press but they arent intensely serious about winning. They dont accept that you must sometimes hurt your rivals, and risk being hurt, to get what you want. Instead of running not scared, but smart softball players seem almost to be standing around and watching. They dont play to win; they play to play.That approach may reflect the recent focus of management science, which itself has gone soft. Indeed, the discourse around soft issues such as leadership, corporate culture, knowledge management, talent management, and employee empowerment has encouraged the making of softball players.While there are countless ways to play hardball, a handful of classic strategies are effective in generating competitive advantage. Best employed in bursts of ruthless intensity, these strategies are: Devastate rivals profit sanctuaries, plagiarize with pride, deceive the competition, unleash massive and overwhelming force, and raise competitors costs. But hardball isnt only about the moves you make. Its also about the attitude you bring to them. The playbook wont do you any good if you feel squeamish about using it. Do you have what it takes to play hardball?
Competition among multinationals these days is likely to be a three-dimensional game of global chess: The moves an organization makes in one market are designed to achieve goals in another in ways that aren't immediately apparent to its rivals. The authors--all management professors--call this approach "competing under strategic interdependence," or CSI. And where this interdependence exists, the complexity of the situation can quickly overwhelm ordinary analysis. Indeed, most business strategists are terrible at anticipating the consequences of interdependent choices, and they're even worse at using
Global Gamesmanship
Ian MacMillan, Alexander van Putten, Rita Gunther McGrath
R0305D
interdependency to their advantage. In this article, the authors offer a process for mapping the competitive landscape and anticipating how your company's moves in one market can influence its competitive interactions in others. They outline the six types of CSI campaigns--onslaughts, contests, guerrilla campaigns, feints, gambits, and harvesting--available to any multiproduct or multimarket corporation that wants to compete skillfully. Using data they collected from their studies of consumer-products companies Procter & Gamble and Unilever, the authors describe how to create CSI tables and bubble charts that present a graphical look at the competitive landscape and that may uncover previously hidden opportunities. Smaller organizations that compete with a portfolio of products in just one national or regional market may find the CSI mapping process just as useful for planning their next business moves. Bottom-Feeding for Blockbuster Businesses David Rosenblum, Doug Tomlinson, Larry Scott R0303C Marketing experts tell companies to analyze their customer portfolios and weed out buyer segments that don't generate attractive returns. Loyalty experts stress the need to aim retention programs at "good" customers--profitable ones--and encourage the "bad" ones to buy from competitors. And customer relationship management software provides evermore sophisticated ways to identify and eliminate poorly performing customers. On the surface, the movement to banish unprofitable customers seems reasonable. But writing off a customer relationship simply because it is currently unprofitable is at best rash and at worst counterproductive. Executives need to ask, "How can we make money off the customers that everyone else is shunning?" Consider Paychex, a payroll-processing company that built a nearly billion-dollar business by serving small companies. Established players had ignored these customers on the assumption that small companies couldn't afford the service. When founder Tom Golisano couldn't convince his bosses at Electronic Accounting Systems that they were missing a major opportunity, he started a company that now serves 390,000 U.S. customers, each employing around 14 people. In this article, the authors look closely at bottom-feeders--companies that assessed the needs of supposedly unattractive customers and redesigned their business models to turn a profit by fulfilling those needs. And they offer lessons that other executives can use to do the same. The arrival of a multinational corporation often looks like a death sentence to local companies in an emerging market. After all, how can they compete in the face of the vast financial and technological resources, the seasoned management, and the powerful brands of, say, a Compaq or a Johnson & Johnson? But local companies often have more options than they might think, say the authors. Those options vary, depending on the strength of globalization pressures in an industry and the nature of a company's competitive assets. In the worst case, when globalization pressures are strong and a company has no competitive assets that it can transfer to other countries, it needs to retreat to a locally oriented link within the value chain. But if globalization pressures are weak, the company may be able to defend its market share by leveraging the advantages it enjoys in
Competing with Giants: Survival Strategies for Local Companies in Emerging Markets
Niraj Dawar, Tony Frost
99203
its home market. Many companies in emerging markets have assets that can work well in other countries. Those that operate in industries where the pressures to globalize are weak may be able to extend their success to a limited number of other markets that are similar to their home base. And those operating in global markets may be able to contend head-on with multinational rivals. By better understanding the relationship between their company's assets and the industry they operate in, executives from emerging markets can gain a clearer picture of the options they really have when multinationals come to stay.
Chapter 9: Identifying Market Segments and Selecting Target Markets HBR article title Diamonds in the Data Mine Author Gary Loveman Product number R0305H Article abstract Harrah's Entertainment may not offer the most dazzling casinos in the business, but it is the most profitable gaming company in the United States. Since 1998, Harrah's has recorded 16 straight quarters of same-store revenue growth. It boasts the most devoted clientele in the casino industry, a business notorious for fickle customers. In this article, Harrah's Entertainment CEO and former Harvard Business School Professor Gary Loveman explains how his company has trumped its competitors by mining customer data, running experiments using customer information, and using the findings to develop and implement marketing strategies that keep customers coming back for more. Harrah's identified its best customers--who were not typical high rollers--and taught them to respond to the casino's marketing efforts in a way that added to their individual value. The company's customer preference data were collected through its Total Rewards incentive program; in addition, it used decision-science-based analytical tools and database marketing. This deep data mining has succeeded because Harrah's has simultaneously maintained its focus on satisfying its customers. Loveman outlines the specific strategies and employee-performance measures that Harrah's uses to nurture customer loyalty across its 26 casinos. Who wouldn't want loyal customers? Surely they should cost less to serve, they'd be willing to pay more than other customers, and they'd actively market your company by word of mouth, right? Maybe not. Careful study of the relationship between customer loyalty and profits plumbed from 16,000 customers in four companies' databases tells a different story. The authors found no evidence to support any of these claims. What they did find was that the link between customers and profitability was more complicated because customers fall into four groups, not two. Simply put: Not all loyal customers are profitable, and not all profitable customers are loyal. Traditional tools for segmenting customers do a poor job of identifying that latter group, causing companies to chase expensively after initially profitable customers who hold little promise of future profits. The authors suggest an alternative approach, based on well-established "event-history modeling" techniques, that more
The Mismanagement of Customer Loyalty
Werner Reinartz ; Vishesh Kumar
R0207F
accurately predicts future buying probabilities. Armed with such a tool, marketers can correctly identify which customers belong in which category and market accordingly. The challenge in managing customers who are profitable but disloyal--the "butterflies"--is to milk them for as much as you can while they're buying from you. A softly-softly approach is more appropriate for the profitable customers who are likely to stay loyal--your "true friends." As for highly loyal but not very profitable customers--the "barnacles"--you need to find out whether they have the potential to spend more than they currently do. And, of course, for the "strangers"--those who generate no loyalty and no profits--the answer is simple: Identify early and don't invest anything. Should You Take Your Brand to Where the Action Is? David A. Aaker 97501 When markets turn hostile, it's no surprise that managers are tempted to extend their brands vertically--that is, to take their brands into a seemingly attractive market above or below their current positions. And for companies chasing growth, the urge to move into booming premium or value segments also can be hard to resist. The draw is indeed strong; and in some instances, a vertical move is not merely justified but actually essential to survival--even for top brands, which have the advantages of economies of scale, brand equity, and retail clout. But beware: leveraging a brand to access upscale or downscale markets is more dangerous than it first appears. Before making a move, then, managers should ascertain whether the rewards will be worth the risks. In general, David Aaker recommends that managers avoid vertical extensions whenever possible. There is an inherent contradiction in the very concept because brand equity is built in large part on image and perceived worth, and a vertical move can easily distort those qualities. Still, certain situations demand vertical extensions, and Aaker examines both the winners and the losers in the game. The idea of one-to-one marketing (also called "relationship marketing") is simple: accommodating a customer based on your knowledge of that customer, as well as the customer's input. This Manager's Tool Kit includes exhibits designed to help managers understand one-to-one marketing and provide guidance for those who may be interested in implementing their program. One-to-one marketing promises to increase the value of your customer base by establishing a learning relationship with each customer. Although the theory behind one-to-one marketing is simple, implementation is complex. The authors offer practical advice for implementing a one-to-one marketing program correctly. They describe four key steps: identifying your customers, differentiating among them, interacting with them, and customizing your product or service to meet each customer's needs. This tool kit will help you determine what type of program your company can implement now, what you need to do to position your company for a large-scale initiative, and how to set priorities.
Is Your Company Ready for One-to-One Marketing?
Don Peppers ; Martha Rogers ; Bob Dorf
99107
The Power of Virtual Integration: An Interview with Dell Computers Michael Dell Michael Dell ; Joan Magretta 98208 This interview offers a deeper look inside Dell's highly publicized success and offers managers a model of how traditional relationships in a value chain can be reconceived in the Information Age. The individual pieces of Dell Computer's strategy--customer focus, supplier partnerships, mass customization, just-in-time manufacturing--may all be familiar. But Michael Dell's business insight about how to combine them is highly innovative: Technology is enabling coordination across company boundaries to achieve new levels of efficiency and productivity, as well as extraordinary returns to investors. In this HBR interview, Michael Dell describes to HBR editor-at-large, Joan Magretta, how his company is achieving "virtual integration" with its customers and suppliers. Direct relationships with customers create valuable information, which in turn allows the company to coordinate its entire value chain back through manufacturing to product design. Dell describes how his company has come to achieve this tight coordination without the "drag effect" of ownership.
Chapter 10: Positioning the Market Offering Through the Product Life Cycle HBR article title Dont Homogenize, Synchronize Author Mohanbir Sawhney Product number R0107G Article abstract To be more responsive to customers, companies often break down organizational walls between their units--setting up all manner of cross-business and cross-functional task forces and working groups and promoting a "one-company" culture. But such attempts can backfire by distracting business and functional units and by contaminating their strategies and processes. Fortunately, there's a better way, says the author. Rather than tear down organizational walls, a company can make them permeable to information. It can synchronize all its data on products, filtering the information through linked databases and applications and delivering it in a coordinated, meaningful form to customers. As a result, the organization can present a single, unified face to the customer--one that can change as market conditions warrant--without imposing homogeneity on its people. Such synchronization can lead to stronger customer relationships, more sales, and greater operational efficiency as well as sustain product innovation-goals that have traditionally been difficult to achieve simultaneously. In this article, University of California at Berkeley professors Carl Shapiro and Hal Varian explain how a "versioning" strategy can enable a company to distinguish its products from the competition and protect its prices from collapse. This insightful article will be essential reading for any executive competing in the information economy. Many producers of information goods assume that their products are exempt from the economic laws that govern more tangible goods. But that's just not so. Information goods are subject to the same market and competitive forces that govern the fate of any product. And their success, too, hinges on traditional productmanagement skills: gaining a clear understanding of
Versioning: The Smart Way to Sell Information
Carl Shapiro ; Hal R. Varian
98610
customer needs, achieving genuine differentiation, and developing and executing an astute positioning and pricing strategy. What makes information goods tricky is their "dangerous economics." Producing the first copy of an information product is often very expensive, but producing subsequent copies is very cheap. In other words, the fixed costs are high and the marginal costs are low. Because competition tends to drive prices to the level of marginal costs, information goods can easily turn into low-priced commodities, making it impossible for companies to recoup their up-front investments and eventually bringing about their demise. The best way to escape that fate, the authors say, is to create different versions of the same core of information by tailoring it to the needs of different customers. The authors draw on a wide range of examples to illustrate how companies use different versioning strategies to appeal to customers with different needs. The power of versioning is that it enables managers to apply tried-and-true productmanagement techniques in a way that takes into account both the unusual economics of information production and the endless malleability of digital data. Discovering New Points of Differentiation Ian C. MacMillan ; Rita Gunther McGrath 97408 Most profitable strategies are built on differentiation: offering customers something they value that competitors don't have. But most companies concentrate only on their products or services. In fact, a company can differentiate itself at every point where it comes in contact with its customers--from the moment customers realize they need a product to service to the time when they dispose of it. The authors believe that if companies open up their thinking to their customers' entire experience with a product or service--the consumption chain-they can uncover opportunities to position their offerings in ways that neither they nor their competitors thought possible. The authors show how even a mundane product such as candles can be successfully differentiated. By analyzing its customers' experiences and exploring various options, Blyth Industries, for example, has grown from a $2 million U.S. candle manufacturer into a global candle and accessory business with nearly $500 million in sales and a market value of $1.2 billion. In the last ten years, products have proliferated in every category of consumer goods and services, and the deluge shows few signs of letting up. Most companies are pursuing product expansion strategies--in particular, line extensions-full steam ahead. But more and more evidence is indicating the pitfalls of such aggressive tactics. The strategic role of each product becomes muddled when a line is oversegmented. Also, a company that extends its line risks undermining brand loyalty. Some companies, such as Procter & Gamble, Chrysler, and a leading U.S. snack foods company, have discovered that a carefully focused and wellmanaged line can increase profits and sales volume. Quelch and Kenny describe how marketing managers can sharpen their product-line strategies by improving cost accounting, allocating resources to popular products, researching
Extend Profits, Not Product Lines
John A. Quelch, David Kenny
94509
consumer behavior, coordinating marketing efforts, working with channel partners, and fostering a climate in which product-line deletions are not only accepted but also encouraged. Marketing Success Through Differentiation Of Anything Theodore Levitt 80107 Marketers can differentiate any product or service, even commodities which seem to differ only in price from competitors' offerings. Products almost always combine a tangible entity with an intangible promise of user satisfaction. The expected product, which includes the generic product, represents the customer's minimal purchase conditions. These purchase conditions include variables such as delivery, terms, support efforts and new ideas. The sale of the generic product depends on how well the customer's wider expectations are met.
Chapter 11: Developing New Products HBR article title The New Rules for Bringing Innovations to Market Author Bhaskar Chakravorti Product number R0403D Article abstract It's tough to get consumers to adopt innovations--and it's getting tougher all the time. That's because more and more markets are taking on the characteristics of networks. The interconnections among today's companies are so plentiful that often a new product's adoption by one player depends on its systematic adoption by other players. The traditional levers executives use to launch products--such as targeting unique customer segments or developing compelling value propositions--don't work as well in this new environment. Instead, innovators must orchestrate a change of behaviors across the market so that a large number of players adopts their offerings and believes they are better off for having done so. In this article, Monitor Group's Bhaskar Chakravorti outlines a four-part framework for doing just that: Reason back from a target endgame, implementing only those strategies that maximize the chances of getting to goal; complement power players, positioning the innovation as an enhancement to products or services; offer coordinated switching incentives to three core groups: the players that add to the innovation's benefits, the players that act as channels to adopters, and the adopters themselves; and preserve flexibility in case the initial strategy fails. How much of innovation is inspiration, and how much is hard work? The answer lies somewhere in the middle, says management thinker Peter Drucker. In this HBR classic from 1985, he argues that innovation is real work that can and should be managed like any other corporate function. Success is more likely to result from the systematic pursuit of opportunities than from a flash of genius. Indeed, most innovative business ideas arise through the methodical analysis of seven areas of opportunity. Within a company or industry, opportunities can be found in unexpected occurrences, incongruities of various kinds, process needs,
The Discipline of Innovation
Peter F. Drucker
R0208F
or changes in an industry or market. Outside a company, opportunities arise from demographic changes, changes in perception, or new knowledge. There is some overlap among the sources, and the potential for innovation may well lie in more than one area at a time. Innovations based on new knowledge tend to have the greatest effect on the marketplace, but it often takes decades before the ideas are translated into actual products, processes, or services. The other sources of innovation are easier and simpler to handle, yet they still require managers to look beyond established practices, Drucker explains. The author emphasizes that innovators need to look for simple, focused solutions to real problems. Tough-Minded Ways to Get Innovative Andrall E. Pearson R0208H Consistent innovation is the key to market leadership. Outstanding companies know that and build their success on it. And other organizations can do the same, the author explains in this HBR article from 1988, by making a systematic effort to concentrate on five key activities. Start at the top. Innovation begins with a CEO or general manager who believes change is the way to survive. Spread that mindset through the organization by setting challenging, measurable goals; getting everyone focused on beating a specific competitor; and supporting individuals who take risks. Allow innovation to rise. New ideas need champions, sponsors, a mix of creative types (for ideas) and operators (to keep things practical), and separate systems to get ideas to top management early and quickly. Know the competitive dynamics of your business cold. A realistic strategic vision will channel innovative efforts to ideas that will pay off in the marketplace. Determine where innovation lives. Look hard at your customers to find new segments, at your competitors to see what's already working, and at your own business to determine where you can leverage existing strengths. Once an idea is well developed, go for broke. Set priorities. Think through every step of the launch. Creativity is often touted as a miraculous road to organizational growth and affluence. But creative new ideas can hinder rather than help a company if they are put forward irresponsibly. Too often, the creative types who generate a proliferation of ideas confuse creativity with practical innovation. Without understanding the operating executive's day-to-day problems or the complexity of business organizations, they usually pepper their managers with intriguing but short memoranda that lack details about what's at stake or how the new ideas should be implemented. They pass off onto others the responsibility for getting down to brass tacks. In this classic HBR article from 1963, the author, a professor emeritus at Harvard Business School and a former HBR editor, offers suggestions for the person with a great new idea. First, work with the situation as it is-recognize that the executive is already bombarded with problems. Second, act responsibly by including in your proposal at least a minimal indication of the costs, risks, manpower, and time your idea may involve. Extolling
Creativity Is Not Enough
Theodore Levitt
R0208K
corporate creativity at the expense of conformity may, in fact, reduce the creative animation of business. Conformity and rigidity are necessary for corporations to function. The Weird Rules of Creativity Robert I. Sutton R0108F For at least the past decade, the holy grail for companies has been innovation. Managers have gone after it with all the zeal their training has instilled in them, using a full complement of tried and true management techniques. The problem is that none of these practices, well suited for cashing in on old, proven products and business models, works very well when it comes to innovation. Instead, managers should take most of what they know about management and stand it on its head. In this article, Robert Sutton outlines several ideas for managing creativity that are clearly odd but clearly effective: Place bets on ideas without much heed to their projected returns. Ignore what has worked before. Goad perfectly happy people into fights among themselves. Good creativity management means hiring the candidate you have a gut feeling against. And as for the people who stick their fingers in their ears and chant, "I'm not listening, I'm not listening" when customers make suggestions--praise and promote them. Using vivid examples from more than a decade of academic research to illustrate his points, the author discusses new approaches to hiring, managing creative people, and dealing with risk and randomness in innovation. His conclusions? The practices in this article succeed because they increase the range of a company's knowledge, allow people to see old problems in new ways, and help companies break from the past.
Chapter 12: Designing Global Market Offering HBR article title Global Gamesmanship Author Ian C. MacMillan ; Alexander B. Van Putten ; Rita Gunther McGrath Product number R0305D Article abstract Competition among multinationals these days is likely to be a three-dimensional game of global chess: The moves an organization makes in one market are designed to achieve goals in another in ways that aren't immediately apparent to its rivals. The authors--all management professors--call this approach "competing under strategic interdependence," or CSI. And where this interdependence exists, the complexity of the situation can quickly overwhelm ordinary analysis. Indeed, most business strategists are terrible at anticipating the consequences of interdependent choices, and they're even worse at using interdependency to their advantage. In this article, the authors offer a process for mapping the competitive landscape and anticipating how your company's moves in one market can influence its competitive interactions in others. They outline the six types of CSI campaigns--onslaughts, contests, guerrilla campaigns, feints, gambits, and harvesting--available to any multiproduct or multimarket corporation that wants to compete skillfully. Using data they collected from their studies of consumer-products companies Procter & Gamble and Unilever, the authors describe how to create CSI tables
and bubble charts that present a graphical look at the competitive landscape and that may uncover previously hidden opportunities. Smaller organizations that compete with a portfolio of products in just one national or regional market may find the CSI mapping process just as useful for planning their next business moves. Espoir Cosmetics has received a tantalizing offer: sponsorship of the sequel to the Hollywood hit Diana's She Devils. For Natasha Singh, the U.S.-based company's global marketing officer, the movie is an ideal vehicle for global brand building. As the film is released in each country, Espoir can launch tie-in lipsticks and nail polishes. But some of Espoir's regional executives don't see it that way. One of them--Vasylko Mazur, the head of Eastern European operations and Tasha's old friend--is particularly upset. "Tasha," he says, "you don't realize how different Eastern Europe is from the rest of the world. Movie-based promotions won't do anything for my sales." Tasha understands his point of view. When she was Espoir's marketing head in India, she had to fight for her unconventional local initiatives. But she has come to believe that tastes are changing rapidly all over the world. From Eastern Europe to the smallest towns in India, customers want the products they see on TV, in the movies, and in international magazines. Should Espoir take its new branding initiative global? Offering their perspectives on this fictional case study are Peter M. Thompson, president and CEO of PepsiCo Beverages International; Jennifer L. Aaker, associate professor of marketing at Stanford Business School; Harish Manwani and Simon Clift, executives of Unilever; and Masaaki Kotabe, professor of international business at Temple University. In 1982, the West German company Henkel relaunched Pattex, an internationally accepted but stagnating contact adhesive. The relaunch was successful and Henkel attempted to duplicate it with Pritt, its glue stick. The strategy failed. The experience illustrates two pitfalls of global marketing: insufficient use of research and poor follow-up. Other pitfalls include overstandardization, narrow vision, and inflexibility in implementation. A committee of managers from headquarters and subsidiaries should oversee the global marketing process. The big issue for multinationals today is not whether to go global but how to tailor the global marketing concept to fit each business. In determining the degree of standardization or adaptation that is appropriate, managers should consider their companies' overall business strategy, which products will benefit from the economies or efficiencies of standardization, which products won't fight cultural barriers, what trade-offs will result from standardizing various elements of the marketing mix, and how standardization will vary from country to country.
The Global Brand FaceOff
Anand P. Raman
R0306A
Beware the Pitfalls of Global Marketing
Kamran Kashani
89506
Customizing Global Marketing
John A. Quelch ; Edward J. Hoff
86312
Chapter 13: Managing Product Lines and Brands
HBR article title
Author
Product number R0209F
Article abstract
Three Questions You Need to Ask About Your Brand
Kevin L. Keller ; Brian Sternthal ; Alice Tybout
Traditionally, the people responsible for positioning brands have concentrated on the differences that set each brand apart from the competition. But emphasizing differences isn't enough to sustain a brand against competitors. Managers should also consider the frame of reference within which the brand works and the features the brand shares with other products. Asking three questions about your brand can help: Have we established a frame? A frame of reference signals to consumers the goal they can expect to achieve by using a brand. Are we leveraging our points of parity? Certain points of parity must be met if consumers are to perceive your product as a legitimate player within its frame of reference. Are the points of difference compelling? A distinguishing characteristic that consumers find both relevant and believable can become a strong, favorable, unique brand association, capable of distinguishing the brand from others in the same frame of reference.
The Brand Report Card
Kevin L. Keller
R00104
Most managers recognize the value in building and properly managing a brand. But few can objectively assess their brand's particular strengths and weaknesses. Most have a good sense of one or two areas in which their brand may excel or may need help. But, if pressed, many would find it difficult even to identify all the factors they should be considering. To give managers a systematic way to think about their brands, Tuck School professor Kevin Lane Keller lays out the ten characteristics that the strongest brands share. He starts with the relationship of the brand to the customer: The strongest brands excel at delivering the benefits customers truly desire, he says. They stay relevant to customers over time. Pricing truly reflects consumers' perceptions of value. Keller then moves on to consider marketing strategy and implementation: Strong brands are properly positioned. The brand stays consistent. Subbrands relate to one another in an orderly way within a portfolio of brands. A full range of marketing tools are employed to build brand equity. Finally, he looks at management considerations: Managers of strong brands understand what the brand means to customers. The company gives the brand proper support and sustains it over the long term. And the company consistently measures sources of brand equity. By grading a brand according to how well it addresses each dimension, managers can come up with a comprehensive brand report card. By doing the same for competitors' brands, they can gain a fuller understanding of the relative strengths of their own brands in the marketplace.
Should You Take Your Brand to Where the Action Is? David A. Aaker 97501 When markets turn hostile, it's no surprise that managers are tempted to extend their brands vertically--that is, to take their brands into a seemingly attractive market above or below their current positions. And for companies chasing growth, the urge to move into booming premium or value segments also can be hard to resist. The draw is indeed strong; and in some instances, a vertical move is not merely justified but actually essential to survival--even for top brands, which have the advantages of economies of scale, brand equity, and retail clout. But beware: leveraging a brand to access upscale or downscale markets is more dangerous than it first appears. Before making a move, then, managers should ascertain whether the rewards will be worth the risks. In general, David Aaker recommends that managers avoid vertical extensions whenever possible. There is an inherent contradiction in the very concept because brand equity is built in large part on image and perceived worth, and a vertical move can easily distort those qualities. Still, certain situations demand vertical extensions, and Aaker examines both the winners and the losers in the game. Conventional wisdom holds that market share drives profitability. Certainly, in some industries, such as chemicals, paper, and steel, market share and profitability are inextricably linked. But when the authors studied the profitability of premium brands--brands that sell for 25% to 30% more than private-label brands--in 40 categories of consumer goods, they found that market share alone does not drive profitability. Instead, a brand's profitability is driven by both market share and the nature of the category, or product market, in which the brand competes. Developing the most profitable strategy for a premium brand, then, means reexamining market share targets in light of the brand's category. That is, managers must think about their brand strategy along two dimensions at the same time. First, is the category dominated by premium brands or by value brands? Second, is the brand's relative market share low or high?
Your Brands Best Strategy
Vijay Vishwanath ; Jonathan Mark
97311
Chapter 14: Designing and Managing Services HBR article title Want to Perfect Your Companys Service? Use Behavioral Science Author Richard B. Chase ; Sriram Dasu Product number R0106D Article abstract It may seem like the topic of service management has been exhausted. Legions of scholars and practitioners have applied queuing theory to bank lines, measured response times to the millisecond, and created cults around "delighting the customer." But practitioners haven't carefully considered the underlying psychology of service encounters--the feelings that customers experience during these encounters, feelings often so subtle they probably couldn't be put into words. Fortunately, behavioral science offers new insights into better service management. In this article, the authors translate findings from behavioral-
science research into five operating principles: 1) finish strong; 2) get the bad experiences out of the way early; 3) segment the pleasure, combine the pain; 4) build commitment through choice; and 5) give people rituals and stick to them. Ultimately, only one thing really matters in a service encounter--the customer's perception of what occurred. This article will help you engineer your service encounters to enhance your customers' experiences during the process as well as their recollections of the process after it is completed. Putting the ServiceProfit Chain to Work James L. Heskett; Thomas O. Jones; Gary Loveman; W. Earl Sasser Jr.; Leonard A. Schlesinger 94204 In the new economics of service, frontline workers and customers need to be the center of management concern. Successful service managers heed the factors that drive profitability in this new service paradigm--investment in people, technology that supports frontline workers, revamped recruiting and training practices, and compensation linked to performance. The service-profit chain, developed from analyses of successful service organizations, establishes relationships between profitability, customer loyalty, and employee satisfaction, loyalty, and productivity. The authors provide a service-profit chain audit that helps companies determine what drives their profit and suggests actions that can lead to long-term profitability. Jill Hoover was looking skyward, marveling at the heartstopping beauty of Paradise Park-Seattle's newest attraction, its tallest and scariest roller coaster to date: the Anaconda. "Quite impressive," Jill thought. But a scuffle in the ride queue quickly brought the CEO of Paradise Parks back to earth. The company's 19 seasonal and year-round amusement parks had always been popular--ever since Jill's father founded the original Paradise Park just after the Second World War--but they hadn't been very profitable of late. Operating costs had been spiraling, and every dollar of extra revenue had been hard won. At the company's annual management off-site meeting, held that morning at the Seattle park, CFO Nathan Cortland proposed that Paradise offer its customers the option of a "preferred guest" card. Cardholders would pay more, but they would get first crack at the rides--entering through separate lines--and would get seated immediately at any of the parks' restaurants. According to Nathan, the plan would bolster Paradise's sagging finances because it would target the "mass affluents"--a rising demographic of moneyed but timepressed people who might visit the park more often and spend more if it weren't for long lines at the rides. Jill respects Nathan's idea--but hasn't her plan to upgrade some of the parks' souvenir shops to gift boutiques already shown some promise? And doesn't Nathan's plan smack of elitism, as Jill's longtime friend and park manager Adam Goodwin suggests? The CEO has resolved to get back to Nathan with a decision about "Operation Upmarket" by the time she leaves Seattle and returns to headquarters. Should Paradise Parks offer guests different levels of service? Four commentators offer their advice in this fictional case study.
Are Some Customers More Equal Than Others? [C]
Paul F. Nunes ; Brian A. Johnson
R0110A
The Service-Driven Service Company Leonard A. Schlesinger ; James L. Heskett 91511 For more than 40 years, service companies like McDonald's prospered with organizations designed according to the principles of traditional mass-production manufacturing. Today that model is obsolete, and companies like Taco Bell, Dayton Hudson, and ServiceMaster have chosen to reverse the cycle of failure by putting workers with customer contact first and designing the business around them. They are developing a model that replaces the logic of industrialization with a new service-driven logic. Service companies often cannot prevent mistakes, but they can learn to recover from them and thereby retain an unhappy customer. Recovery begins by identifying the problem, then acting quickly to correct it. Most important, service companies should give front-line employees the authority and responsibility to do what is necessary to correct a service mistake, even if it means deviating from the rules.
The Profitable Art of Service Recovery
Christopher W.L. Hart ; James L. Heskett ; W. Earl Sasser Jr.
90407
Chapter 15: Designing Pricing Strategies and Programs HBR article title Pricing and the Psychology of Consumption Author John T. Gourville ; Dilip Soman Product number R0209G Article abstract Most executives know how pricing influences the demand for a product, but few of them realize how it affects the consumption of a product. In this article, the authors argue that the relationship between pricing and consumption lies at the core of customer strategy. The extent to which a customer uses a product during a certain time period often determines whether he or she will buy the product again. So pricing tactics that encourage people to use the products they've paid for help companies build long-term relationships with customers. The link between pricing and consumption is clear: People are more likely to consume a product when they are aware of its cost. But for many executives, the idea that they should draw consumers' attention to the price that was paid for a product or service is counterintuitive. Companies have long sought to mask the costs of their goods and services to boost sales. And rightly so--if a company fails to make the initial sale, it won't have to worry about consumption. The problem is that masking how much a buyer has spent on a given product decreases the likelihood that the buyer will actually use it. Price wars are a fact of life, whether we're talking about the fast-paced world of knowledge products, the marketing of Internet appliances, or the staid, traditional sales of aluminum castings. If you're a manager and you're not in battle currently, you probably will be soon, so it's never too early to prepare. The authors describe the causes and characteristics of price wars and explain how companies can fight them, flee them--or even start
How to Fight a Price War
Akshay R. Rao ; Mark E. Bergen ; Scott Davis
R00208
them. The authors say the best defense in a pricing battle isn't to simply match price cut for price cut; they emphasize other options for protecting market share. For instance, companies can compete on quality instead of price; they can alert customers to the risks and negative consequences of choosing a low-priced option. Companies can reveal their strategic intentions and capabilities; just the threat of a major price action might hold rivals' pricing moves in check. And, finally, companies can seek support from interested third parties-governments, customers, and vendors, for instance--to help avert a price war. If a company chooses to compete on price, the authors suggest using complex pricing actions, cutting prices in certain channels, or introducing new products or flanking brands--each of which lets companies selectively target only those segments of the market that are under competitive threat. A simple tit-fortat price move should be the last resort--and managers should act swiftly and decisively so competitors will know that any revenue gains will be short-lived. How Do You Know When the Price Is Right? Robert J. Dolan 95501 Too often when managers think about pricing, the first question they ask is, What should the price be? In fact, what they should be asking is, Have we addressed all the considerations that will determine the correct price? Robert J. Dolan describes two broad qualities of an effective pricing process and provides eight steps to enable managers to develop and use such a process. The pricing scorecard included at the end of the article will allow managers to evaluate how well their pricing practices meet these guidelines. Managers miss out on significant profits because they shy away from pricing decisions for fear that they will alienate their customers. But if management isn't controlling its pricing policies, the customers probably are. Two basic principles, the pocket price waterfall and the pocket price band, show managers how to control the pricing puzzle. The pocket price waterfall reveals how price erodes between a company's invoice figure and the actual amount paid by the customer--the transaction price. It tracks volume purchase discounts, early payment bonuses, and frequent customer incentives that squeeze a company's profits. The pocket price band plots the range of pocket prices over which any given unit volume of a single product sells. Wide price bands are common, with many manufacturer's transaction prices ranging over 60%. Using the pocket price bank enables a manager to control the price range to greater profits. Scott Palmer's most important account, Occidental Aerospace, is pushing for a discount, but Standard Machine Corp., Scott's company, has a long-standing policy of selling its products at list price--discounts are out of the question. Occidental also has plans for two new plants so Standard's bid may affect millions of dollars in
Managing Price, Gaining Profit
Michael V. Marn ; Robert L. Rosiello
92507
The Case of the Pricing Predicament [C]
Mary Karr
88205
future business. And two Asian machine-tool companies have set their sights on Occidental's home market. Has Standard's fixed-price policy outlived its usefulness? F.G. Rogers, formerly vice president of marketing at IBM; Bruce Moore, president and CEO of H.R. Krueger Machine Tool, Inc.; Richard T. Lindgren, president and CEO of Cross & Trecker Corp.; and William Whitescarver, president of the Bindery & Forms Press Division of Harris Graphics consider whether Standard's pricing policy can withstand the pressures of new competition and more demanding customers.
Chapter 17: Managing Retailing, Wholesaling, and Market Logistics HBR article title Welcome to the New World of Merchandising Author Scott C. Friend ; Patricia Walker Product number R0110K Article abstract Retailing is and always has been an inefficient business. Retailers, particularly those that operate large chains, have to predict the desires of fickle consumers, buy and allocate complex sets of merchandise, set the right prices, and offer the right promotions for each individual item. Inevitably, there are gaps between supply and demand, leaving stores holding too much of what customers don't want and too little of what they do. Now, however, a new set of software tools promises to revolutionize the entire merchandising chain. These merchandising optimization systems, as they're called, determine the right quantity, allocation, and price of items to maximize retailers' returns. By applying sophisticated data processing techniques to existing inventory and sales data, they accurately model future patterns of supply and demand at the item and store level. In other words, they turn the art of merchandising into a science. Early users of the new software, such as Gymboree and J.C. Penney, are already reporting promising gains in gross margins in the range of 5% to 10%. Retailers are also seeing significant increases in efficiency: At one chain, for instance, planners' productivity rose 20%. Equally important, retailers are showing improvements in customer satisfaction, as shoppers become more likely to find desired merchandise in stock at fair prices. This article provides retailers with a guide to merchandising optimization systems, explaining how they work and how they change processes at each step of the merchandising chain. Despite the harsh realities of retailing, the illusion persists that magical tools can help companies overcome the problems of fickle consumers, price-slashing competitors, and mood swings in the economy. Such wishful thinking holds that retailers will thrive if only they communicate better with customers through e-mail, employ hidden cameras to learn how customers make purchase decisions, and analyze scanner data to tailor special
The Old Pillars of New Retailing
Leonard L. Berry
R0104J
offers and manage inventory. But the truth is, there are no quick fixes. In the course of his extensive research on dozens of retailers, Leonard Berry found that the best companies create value for their customers in five interlocking ways. Whether you're running a physical store, a catalog business, an e-commerce site, or a combination of the three, you have to offer your customers superior solutions to their needs, treat them with respect, and connect with them on an emotional level. You also have to set prices fairly and make it easy for people to find what they need, pay for it quickly, and then move on. None of these pillars is new, and each sounds exceedingly simple, but don't be fooled-implementing these axioms in the real world is surprisingly difficult. The author illustrates how some retailers have built successful operations by attending to these commonsense ways of dealing with their customers and how others have failed to do so. Rocket Science Retailing Is Almost HereAre You Ready? Marshall L. Fisher ; Ananth Raman ; Anna McClelland R00404 Despite all the data that retailers and e-tailers can now gather about point-of-purchase information, buying patterns, and customer tastes, they still haven't figured out how to offer the right product, in the right place, at the right time, for the right price. But some retailers are moving profitably toward what the authors call "rocket science retailing"--a blend of traditional forecasting systems, which are largely based on the gut feel of employees, with the prowess of information technology. The authors recently finished surveying 32 retail companies in which they tracked practices and progress in four areas critical to rocket science retailing: demand forecasting, supply-chain speed, inventory planning, and data gathering and organization. In this article, the authors look at some companies that have excelled in those four areas and offer some valuable advice for other businesses seeking retailing perfection. In particular, the authors emphasize the need to monitor crucial metrics such as forecast accuracy, early sales data, and stockouts--information that will help retailers determine when to tweak their supply-chain processes to get the right products to stores at just the right time.
Chapter 18: Managing Integrated Marketing Communications HBR article title The One Number You Need to Grow Author Frederick F. Reichheld Product number R0312C Article abstract Companies spend lots of time and money on complex tools to assess customer satisfaction. But they're measuring the wrong thing. The best predictor of top-line growth can usually be captured in a single survey question: Would you recommend this company to a friend? This finding is based on two years of research in which a variety of survey questions were tested by linking the responses with actual customer behavior--
purchasing patterns and referrals--and ultimately with company growth. Surprisingly, the most effective question wasn't about customer satisfaction or even loyalty per se. In most of the industries studied, the percentage of customers enthusiastic enough about a company to refer it to a friend or colleague directly correlated with growth rates among competitors. Willingness to talk up a company or product to friends, family, and colleagues is one of the best indicators of loyalty because of the customer's sacrifice in making the recommendation. When customers act as references, they do more than indicate they've received good economic value from a company; they put their own reputations on the line. The findings point to a new, simpler approach to customer research, one directly linked to a company's results. Buzz on Buzz Renee Dye R00606 Word-of-mouth promotion has become an increasingly potent force, capable of catapulting products from obscurity into runaway commercial successes. Harry Potter, collapsible scooters, the Chrysler PT Cruiser, and The Blair Witch Project are all recent examples of the considerable power of buzz. Yet many top executives and marketing managers are misinformed about the phenomenon and remain enslaved to some common myths. In her article, author Renee Dye explores the truth behind these myths. As globalization and brand proliferation continue, writes Dye, buzz may come to dominate the shaping of markets. Indeed, companies that are unable to control buzz may soon find the phenomenon controlling them. Consumers are regularly blitzed with thousands of marketing messages--television commercials, telephone solicitations, supermarket circulars, and Internet banner ads. Still, a lot of these messages fail to hit their targets or elicit the desired response: the purchase of a product or service. It has been very difficult for companies to isolate what drives consumer behavior, largely because there are so many possible combinations of stimuli. In this article, consultants Eric Almquist and Gordon Wyner explain that although marketing has always been a creative endeavor, adopting a scientific approach to it may actually make it easier--and more cost effective--for companies to target the right customers. "Experimental design" techniques, which have long been applied in other fields, let people project the impact of many stimuli by testing just a few of them. By using mathematical formulas to select and test a subset of combinations of variables, marketers can model hundreds or even thousands of marketing messages accurately and efficiently--and they can adjust their messages accordingly. The authors use a fictional company, Biz Ware, to describe how companies can map out on a grid a combination of the attributes (or variables) of a marketing message and the levels (or variations) of
Boost Your Marketing ROI with Experimental Design
Eric Almquist ; Gordon Wyner
R0109K
those attributes. Marketers can test a few combinations of those attributes and levels and can apply logistic regression analysis to extrapolate the probable customer responses to all of the possible combinations. The company can then analyze the experiment's implications for its resources, revenues, and profitability. The authors also present the results of their work with Crayola, in which they used experimental design techniques to test that company's e-mail marketing campaign. From Sales Obsession to Marketing Effectiveness Philip Kotler 77605 U.S. companies confuse marketing effectiveness with sales effectiveness. Executives determine whether an organization understands and practices marketing by conducting a marketing effectiveness audit. The audit rates marketing effectiveness in each of five major functions: customer philosophy, integrated marketing organization, adequate marketing information, strategic orientation, and operational efficiency. The resulting score tells where the organization falls on a scale ranging from no marketing effectiveness to superior effectiveness.
Chapter 19: Managing Advertising, Sales Promotion, Public Relations HBR article title Gilded and Gelded: HardWon Lessons from the PR Wars Author Dick Martin Product number R0310B Article abstract A golden statue of a winged youth once perched on the roof of AT&T's old headquarters. But when AT&T lowered the 24-foot-high statue for regilding so that it could be placed in the company's new headquarters, the chairman was shocked to discover that the figure was anatomically correct. So he decreed that it also be gelded. The altered "Golden Boy" thus became a metaphor for AT&T's recent embattled history, and it serves as a cautionary symbol for all companies operating in today's brutal business environment, where perception can be as important as reality. While image consultants and executives work to gild a company's image, special interest groups and the media can geld a company with countless little cuts. The author, a former executive vice-president of public relations for AT&T, provides an insider's view of some of the company's most painful public relations scrapes. The author offers four lessons: Don't become hypnotized by your own buzz; understand the way the business media think; address the needs of all your stakeholders; and be sensitive to the possible emotional resonance of what appear to be straightforward facts. For as long as can be remembered, BestBaby Corporation, a manufacturer of baby equipment and furniture, has enjoyed a solid reputation with retailers, a good track record with consumers, and a supportive relationship with stockholders. But then the child of a celebrity is injured when her stroller tips over because
When No News Is Good News [C]
Bronwyn Fryer
R0104A
its brakes failed. The media go wild, and CEO Greg James finds himself in uncharted territory. The morning after the accident, Greg calls an emergency meeting of his executive staff. As he searches his memory to prepare for it, he thinks about Arzep Enterprises, BestBaby's main provider of parts and materials. He remembers his COO, Keith Sigismund, telling him that Arzep had switched suppliers at some point in order to cut its own costs. Nevertheless, Keith had assured Greg that the new material, although not quite as sturdy, hadn't affected the quality of Arzep's components. Then in the meeting, Keith drops a bombshell: he reads from a year-old memo sent to him by an employee in manufacturing stating that the new brake fittings delivered by Arzep don't grab the front brakes as well as the ones previously supplied. In this fictional case study, four commentators offer advice to Greg on how BestBaby should respond to the victim's family, the media, the public, and the company's own employees during this PR crisis. Media PolicyWhat Media Policy? Sandi Sonnenfeld 94407 Every year since 1982, Naturewise Apparel has donated $400,000 to charity through its Corporate Giving Fund. This year, Dana Osborne, the founder and CEO of the children's clothing manufacturer, decided to allow each of the company's regional divisions to decide for itself where the money should go. Her goal was to include all employees in the program and to pay back the various local communities that support the company. Dana's good intentions backfired, however, when an abortion clinic in Illinois was bombed and the bomber claimed affiliation with a radically pro-life group called TermRights. Naturewise's Midwest division had inadvertently provided donations to TermRights through a nonprofit umbrella corporation called CHICARE. How should Dana handle the media? Five experts consider this fictitious scenario and give advice on forming an effective media policy. Many U.S. manufacturers, searching for growth in maturing consumer markets, have shifted their emphasis from advertising to sales promotions. But promotions actually mean price reductions. The loss of profits can be severe. Promotions bring volatile demand, whereas the producer seeks stable demand. Theme advertising that seeks to sustain a brand's image and build customer loyalty can actually help stabilize demand.
The Double Jeopardy of Sales Promotions
John Philip Jones
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Chapter 20: Managing the Sales Force HBR article title How You Slice It: Smarter Segmentation Author Ernest Waaser , Marshall Product number R0403H Article abstract Three years ago, 70-year-old Hill-Rom Inc. was in a position familiar to many mature businesses: The
for Your Sales Force Dahneke , Michael Pekkarinen, Michael Weissel company was strong but needed to be stronger. It was a top producer of hospital beds and specialty mattresses-its core product lines. It also had competitive, complementary lines of stretchers, furniture, and architectural equipment. Its customer base was extensive and had a respected sales force and solid profit margins. But by the time Ernest Waaser took over as chief executive in early 2001, revenue growth had been slowing, and competition was on the rise. To secure Hill-Rom's place in the market, Waaser focused first on the sales organization. The CEO took several steps to restructure the sales force. The company changed its customer segments to reflect customers' demands and financial status better, ultimately targeting two main groups: key and prime customers. It then changed the overall structure of the sales organization so it could tailor its approach to these two segments; key customers received more specialized service than prime customers. Finally, Hill-Rom adjusted the sales force after the company took an in-depth look at historical data on products and services and sales completed. Reasons for staffing changes were carefully communicated to the sales force. Because of Hill-Rom's initiatives, the cost of sales is down, short-term revenue growth is up, the outlook for long-term revenue growth looks bright, sales and profit margins are up, and customer satisfaction has increased. R0207A Cynthia Mitchell has finally gotten a plum management opportunity at AgFunds, a Houston-based company that provides financial services to farmers and farmer-owned cooperatives. Peter Jones, regional vice president, has recruited Cynthia to revive the Arkansas district, which has been losing customers for 15 years. The sales force there isn't bad; it's just been poorly managed by an indifferent boss for too long. Still, Cynthia knows she'll need at least one powerhouse sales rep to get things back on track. She thinks she's found that person in Steve Ripley, this year's top trainee at AgFunds, who is inexplicably available three months after the training period is over. In the interview, he proves to be ambitious, intelligent, and personable. But several of Cynthia's colleagues suggest that Steve might not be the best fit for the job: He's a black man in a company whose customer base is mostly conservative and white. Uncomfortably recalling her own experiences at AgFunds--she'd been rejected for a position in a territory that was deemed too unfriendly to female sales representatives--Cynthia addresses the issue with Peter. The mostly white farmers in Cynthia's district just won't trust their books to a black professional, Peter explains. And other minority professionals at AgFunds have derailed their careers trying to make inroads in unfriendly districts. "Steve deserves to start out in a more hospitable district. Once the right opportunity opens up, he'll be hired, and he'll do brilliantly," Peter
The Best of Intentions
John Humphreys
reassures Cynthia, but she's still uncertain. Should she ignore her customers' biases and hire Steve, possibly setting him up to fail? Or would it be better to let Steve wait for a friendlier opportunity? Four experts comment on this fictional case study. Making Local Knowledge Global Keith Cerny 96302 David Martin, chief operating officer of Lexington Labs, was apprehensive about the upcoming meeting with his senior sales executives. Just a few years earlier, when the pharmaceutical company enjoyed extraordinary success, gatherings with the sales force had seemed like celebrations. But in the past 18 months, sales had begun to fall, as had earnings. And most of the top sales personnel had begun to focus on their own businesses as major changes swept through the health care industry. Martin sensed that the solution was a system to facilitate the flow of knowledge across borders. Sales executives needed to share vital information about products, customers, competitors, and selling techniques. But what kind of system would work best? Unfortunately, Martin's apprehensions were justified. The meeting only emphasized how fragmented the company had become. How can Martin get Lexington to function as one global company? Five experts offer their opinions on the issues raised by this HBR case study.
Chapter 21: Managing Direct and On-Line Marketing HBR article title Prevent the Premature Death of Relationship Marketing Author Susan Fournier ; Susan Dobscha ; David Glen Mick Product number 98106 Article abstract As companies develop more and better ways to understand and respond to their customers' needs, relationship marketing has become the talk of the marketing community. Executives, academics, and consultants alike have the same goal in mind--creating meaningful relationships with consumers that will yield both the cost-saving benefits of customer retention economics and the revenue-generating rewards of customer loyalty. Unfortunately, a close look at consumers suggests that these relationships are troubled ones at best. The things that marketers are doing to build relationships with customers, are, in fact, subverting them. Relationship marketing--what is supposed to be the acme of customer orientation--is falling far short of its mark. Susan Fournier, assistant professor at the Harvard Business School, Susan Dobscha of Bentley College in Waltham, MA, and David Glen Mick, a professor at the University of Wisconsin offer a way to get this concept back on track. Customer relationship management is one of the hottest management tools today. But more than half of all CRM initiatives fail to produce the anticipated
Avoid the Four Perils of CRM
Darrell Rigby ; Frederick F. Reichheld ; Phil
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Schefter results. Why? And what can companies do to reverse that negative trend? The authors--three senior Bain consultants--have spent the past 10 years analyzing customer-loyalty initiatives, both successful and unsuccessful, at more than 200 companies in a wide range of industries. They've found that CRM backfires in part because executives don't understand what they are implementing, let alone how much it will cost or how long it will take. The authors' research unveiled four common pitfalls that managers stumble into when trying to implement CRM. Each pitfall is a consequence of a single flawed assumption--that CRM is software that will automatically manage customer relationships. It isn't. Rather, CRM is the creation of customer strategies and processes to build customer loyalty, which are then supported by the technology. This article looks at best practices in CRM at several companies, including the New York Times Co., Square D, GE Capital, Grand Expeditions, and BMC Software. It provides an intellectual framework for any company that wants to start a CRM program or turn around a failing one.

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Harvard Business School Publishing Textbook Article Map for Kotler: Marketing Management Prentice-Hall, 2002

Chapter 2: Building Customer Satisfaction, Value, and Retention

HBR article title The One Number You Need to Grow

Author Frederick Reichheld

Product number R0312C

The Mismanagement of Customer Loyalty

Werner Reinartz ; Vishesh Kumar

www.hbsp.harvard.edu/educators 800-545-7685 (outside the U.S. and Canada 617-783-7600) custserv@hbsp.harvard.edu

Why Satisfied Customers Defect

Thomas O. Jones ; W. Earl Sasser Jr.

Zero Defections: Quality Comes to Service

Frederick Reichheld ; W. Earl Sasser Jr.

www.hbsp.harvard.edu/educators 800-545-7685 (outside the U.S. and Canada 617-783-7600) custserv@hbsp.harvard.edu

Four Steps to Forecast Total Market Demand

Making Your Marketing Strategy Work

www.hbsp.harvard.edu/educators 800-545-7685 (outside the U.S. and Canada 617-783-7600) custserv@hbsp.harvard.edu

Cost-Conscious Marketing Research

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Rocket Science Retailing Is Almost HereAre You Ready?

Marshall Fisher, Ananth Raman, Anna McClelland

www.hbsp.harvard.edu/educators 800-545-7685 (outside the U.S. and Canada 617-783-7600) custserv@hbsp.harvard.edu

E-Hubs: The New B2B Marketplaces

Steven Kaplan, Mohanbir Sawhney

www.hbsp.harvard.edu/educators 800-545-7685 (outside the U.S. and Canada 617-783-7600) custserv@hbsp.harvard.edu

Ian MacMillan, Alexander van Putten, Rita Gunther McGrath

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Niraj Dawar, Tony Frost

www.hbsp.harvard.edu/educators 800-545-7685 (outside the U.S. and Canada 617-783-7600) custserv@hbsp.harvard.edu

The Mismanagement of Customer Loyalty

Werner Reinartz ; Vishesh Kumar

www.hbsp.harvard.edu/educators 800-545-7685 (outside the U.S. and Canada 617-783-7600) custserv@hbsp.harvard.edu

Is Your Company Ready for One-to-One Marketing?

Don Peppers ; Martha Rogers ; Bob Dorf

www.hbsp.harvard.edu/educators 800-545-7685 (outside the U.S. and Canada 617-783-7600) custserv@hbsp.harvard.edu

Versioning: The Smart Way to Sell Information

Carl Shapiro ; Hal R. Varian

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Extend Profits, Not Product Lines

John A. Quelch, David Kenny

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The Discipline of Innovation

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Creativity Is Not Enough

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The Global Brand FaceOff

Beware the Pitfalls of Global Marketing

Customizing Global Marketing

John A. Quelch ; Edward J. Hoff

www.hbsp.harvard.edu/educators 800-545-7685 (outside the U.S. and Canada 617-783-7600) custserv@hbsp.harvard.edu

Chapter 13: Managing Product Lines and Brands

HBR article title

Product number R0209F

Three Questions You Need to Ask About Your Brand

Kevin L. Keller ; Brian Sternthal ; Alice Tybout

The Brand Report Card

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Your Brands Best Strategy

Vijay Vishwanath ; Jonathan Mark

www.hbsp.harvard.edu/educators 800-545-7685 (outside the U.S. and Canada 617-783-7600) custserv@hbsp.harvard.edu

Are Some Customers More Equal Than Others? [C]

Paul F. Nunes ; Brian A. Johnson

www.hbsp.harvard.edu/educators 800-545-7685 (outside the U.S. and Canada 617-783-7600) custserv@hbsp.harvard.edu

The Profitable Art of Service Recovery