Market Based Management...

100 Slides Potential

product

Augmented
product
Expected
product
Generic
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
PoorUnderstanding
Understandingofof
Customers
Customersand
andCompetition
Competition

Pressure
Pressurefor
forShort-
Short- Unfocused
Unfocused
Run Results
Run Results Competitive
CompetitivePosition
Position

Stagnant
StagnantShareholder
Shareholder Me-Too
Me-Too
Value Customer
CustomerValue
Value
Value

Accounting
AccountingManeuvers
Maneuvers Excessive
ExcessiveCustomer
Customer
Drive
DriveFinancial
FinancialResults
Results Turnover
Turnover

Sporadic
SporadicBusiness
Business Market
MarketShare
Share
Unit Profit
Unit Profit Instability
Instability

High
HighCost
CostofofCustomer
Customer
Retention and Acquisition
Retention and Acquisition
Marketing Knowledge and Market Orientation

100

Market Orientation Score (0-100)

90
Business
Profitability
80
Customer
Retention
70

Market
Orientation 60

Marketing 50
Knowledge Bottom Middle High
Marketing Knowledge
 Fundamental Market-Based Strategies
and Profitable Growth

Strategies
Strategiestoto Strategies
Strategiestoto Strategies
StrategiestotoGrow
Grow
Grow
GrowMarket
Market Increase
Increase Customer
Customer
Demand
Demand Market
MarketShare
Share Purchases
Purchases

Net Marketing = Market Revenue per - Variable Cost - Marketing

X Market Share X
Contribution Demand Customer per Customer Expenses

Strategies
Strategiestoto Strategies
StrategiestotoLower
Lower Strategies
StrategiestotoIncrease
Increase
Enter
Enteror
orExit
Exit Variable
VariableCost
Costper
per Marketing Efficiency
Marketing Efficiency
Markets
Markets Customer
Customer
 Sales-Based vs. Market-Based
Organizational Structure
Sales-Based Structure Market-Based Structure

Earthmoving
EarthmovingEquipment
Equipment Earthmoving
EarthmovingEquipment
Equipment
Division
Division Division
Division

Mining
Mining Construction
Construction
Sales
SalesOrganization
Organization Marketing
MarketingUnit
Unit Marketing
MarketingUnit
Unit

Dealer
Dealer Mining
Mining Mining
Mining Direct
Direct Construction
Construction
Sales
Sales Dealers
Dealers Dealers
Dealers Sales
Sales Dealers
Dealers

End-User
End-UserMarket End-User
Market End-UserMarket
Market End-User
End-UserMarket
Market
Mining Mining
Mining Construction
Construction
Miningand
andConstruction
Construction
 Maximum Market Potential and
Current Market Demand

Maximum Number of
Potential Customers
Not
NotAffordable
Affordable
Lack
LackBenefits
Benefits
Untapped
Unable
Unableto
toUse
Use Market
Not Opportunity
NotAvailable
Available
Not
NotAware
Aware

Current
CurrentMarket
Market
Demand
Demand Developed
Market
Customer Adoption and Market Development

100 Full Market Development

%

80%

60%
Market
Development
40% Gap

20% Early Market Mainstream Market

0%
Innovators Early Adopters Early Late Majority Laggards
Majority
 Economic Benefits and Value Creation

Amazon.com lowers purchase price with the on-line

Price
PricePaid
Paid
purchase of books.

Acquisition
Acquisition American Hospital Supply reduces a hospital’s cost with a
computerized customer order program.
Total Cost of Purchase

Costs
Costs

Usage
UsageCosts
Costs Sealed Air reduces labor cost in packaging with AirCap.

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

Ownership
Ownership GE Capital works with customers to create affordable
Costs
Costs ownership.

Rohm-Haas’s Kathon MWX cuts cost of disposal of

Disposal
DisposalCosts
Costs
machine fluid waste in half.
Fundamental Forces That Shape Differences
in Customer Needs

Consumer
ConsumerMarket
Market
Customer
CustomerNeeds
Needs

Demographic
DemographicForces
Forces Lifestyle
LifestyleForces
Forces Usage
UsageBehaviors
Behaviors

- Age - Attitudes - Quantity

- Income - Values - Time of Use
- Marital Status - Activities - Personal
- Education - Interests - Social
- Occupation - Political View - Frequency of Use
Fundamental Forces That Drive Differences
in Business-to-Business Customer Needs

Business-to-Business
Business-to-Business
Customer
CustomerNeeds
Needs

Firmographic
Firmographic Forces
Forces Business
BusinessCulture
Culture Usage
UsageBehaviors
Behaviors

- Number of Employees - Business Sophistication - Application

- Sales Volume - Growth Orientation - Quantity
- Number of Locations - Innovativeness - Time of Purchase
- Years in Business - Technology - Frequency of Purchase
- Financial Situation - Decision Making - Users
 Market Segmentation
of the Small Business Market
Growth-Oriented Entrepreneurs Cost-Focused Sustainers
Core Business Need Core Business Need
Ways to invest and grow Ways to continue and save

Firmographics Firmographics
Medium size Small in sales / employees
More sophisticated Less sophisticated
Higher in education Growth-
Lower in education
Oriented Cost-
Ongoing financial plan Limited or no financial plan
Focused

Purchase Behavior Purchase Behavior

Products that enhance productivity Products that lower cost
High revenue per customer Low revenue per customer
Willing to buy value-added Confused by value-added
solutions solutions

Value Proposition Value Proposition

Solutions that help you grow your Solutions that saves your
business business money
Forces That Shape Segment Attractiveness

Segment
SegmentAttractiveness
Attractiveness

Market
MarketGrowth
Growth Competitive
CompetitiveIntensity
Intensity Market
MarketAccess
Access

- Market Size - Number Of Companies - Customer Familiarity

- Growth Rate - Ease of Entry - Channel Access
- Market Potential - Substitutes - Company Fit
 Segmentation Hierarchy: Mass Market to
Mass Customization Strategies
Mass Large Adjacent Multi- Small Niche Mass
Market Segment Segment segment Segment Segment Customization
Approach Strategy Strategy Strategy Strategy Strategy Strategy

Segment
SegmentAA11

Segment
SegmentAA22

Segment Segment
SegmentAA33
SegmentAA Segment
SegmentAA Segment
SegmentAA

Segment
SegmentAA44

Segment
SegmentAA55

Segment
SegmentBB11

Segment
SegmentBB Segment
SegmentBB Segment
SegmentBB22

Segment
SegmentBB33

Segment
SegmentCC11
Segment
SegmentCC Segment
SegmentCC
Segment
SegmentCC22 Segment
SegmentCC22
Competitive Forces That Shape Competitive
Position and Profitability

Competitive
CompetitivePosition
Positionand
and
Profitability
Profitability

Competitor
Competitor
Industry
IndustryForces
Forces Competitive
CompetitiveAdvantage
Advantage
Benchmarking
Benchmarking

- Market Entry/Exit - Competitor Intelligence - Cost Advantage

- Buyer/Supplier Power - Competitor Analysis - Quality Advantage
- Substitutes/Rivalry - Competitive Benchmarking - Marketing Advantage
 Industry Analysis: Industry Forces and
Profit Potential
Competitive Environment
Industry Forces Unfavorable Favorable
Barriers to Entry Low High
Barriers to Exit High Low
Buyer Power High Low
Supplier Power High Low
Substitutes Many None
Competitive Rivalry Intense None

The more favorable the forces

that shape a market’s
Profit Potential

competitive environment, the

greater a business’s profit
potential
More favorable competitive environment
Less favorable competitive environment

Unfavorable Favorable
Competitive Environment
Performance Impact of Price Rivalry and
Prisoner‘s Dilemma

Competitor’s Marketing Strategy

Business’s Marketing
Strategy Hold Price Cut Price 5%
Market Share = 10% Market Share = 8%
Volume = 1 million units Volume = 800’000 units
Hold Price Price = $100 per unit Price = $100 per unit
Margin = $40 per unit Margin = $40 per unit
Total Cont. = $40 million Total Cont. = $32 million

Market Share = 12% Market Share = 10%

Cut Price 5% Volume = 1.2 million units Volume = 1 million units
Price = $95 per unit Price = $95 per unit
Margin = $35 per unit Margin = $35 per unit
Total Cont. = $42 million Total Cont. = $35 million
Major Sources of Competitive Advantage

Competitive
CompetitiveAdvantage
Advantage

Differentiation
Differentiation
Cost
CostAdvantage
Advantage Marketing
MarketingAdvantage
Advantage
Advantage
Advantage

- Variable Costs - Product Differentiation - Distribution

- Marketing Expenses - Service Quality - Sales Effort
- Operating Expenses - Brand Reputation - Brand Awareness
 Ignition Switch Cost Advantage Due to Scale
and Scope Effects

Scale Effect Scope Effect

Cost per Unit

Cost per Unit

C1 C2 Auto- Motor- Lawn- Snow

mobiles cycles mowers Blowers Pumps
Production Capacity Product Breadth
Product-Price Position, Marketing Effort,
and Market Share

Product Price Product Sales Physical

Differentiation Breadth Force Distribution

Retailing &
Merchandising
Product
Product Marketing
Marketing
Market
MarketShare
Share = X
Position
Position Effort
Effort
Customer
Support

New Service Brand Media Sales

Products Quality Image Advertising Promotion
 Core Elements of
Product Management Strategy

Product
ProductManagement
Management
Strategies
Strategies

Product Product
ProductLine
Line
ProductPositioning
Positioning New
NewProduct
Product
and Positioning
Positioningand
and
andDifferentiation
Differentiation Development
Development
Extension
ExtensionStrategies
Strategies
- Low Price/Cost of Purchase - Product Line Positioning - New Product Sales
- Product Differentiation - Product Line Extensions - New Product Innovation
- Service/Brand - Product Bundling - Development Process
 Differentiation and Customer Value I

Product Differentiation Service Differentiation Brand Differentiation

Customer Customer Product Customer

Value Product Value Value
Product Benefits Benefits
Benefits

Price Service Price Service Price

Service Benefits Benefits
Benefits

Nonprice Nonprice Nonprice

Brand Brand Brand
Costs Costs Costs
Benefits Benefits Benefits
Total Total Total Total Total Total
Benefits Cost Benefits Cost Benefits Cost
 Differentiation and Customer Value II

Customer
Product Product Value
Differentiation Benefits

Low-Price
Price Position
Service Service
Differentiation Benefits
Transaction Lower
Brand Brand Transaction
Differentiation Costs Costs
Benefits

Total Benefits Derived Total Cost of Obtaining

from Product Position These Benefits
Pricing Differentiation and Customer Value

Customers Market-Based Pricing

•Need / Benefits •Economic Value Pricing
•Price Sensitivity •Perceived Value Pricing
•Demand / Growth •Segment Pricing

Competitors Impacts
•Number / Entry Market •Customer Value
Situation
•Positioning •Market Share
•Objectives •Profitability

Positioning Cost-Based Pricing

•Market Share •Commodity Pricing
•Differentiation •Cost Leader Pricing
•Cost / Supply •Competitive Bid Pricing
 Market-Based Value Pricing

Total Cost of Ownership Perceived Value vs. Costs

Economic Perceived
Price Value Product Value
Benefits

Maintenance

Perception
Price
Cost

Service Price
Benefits
Use Maintenance

Use
Brand Nonprice
Acquisition Acquisition Benefits Costs

Competitor’s Business’s Relative Relative

Product Product Benefits Cost
 Price Elasticity and Performance

Unit Sales Unit Unit

Volume Revenue Margin Contribution
Raise Price
Decrease Increase Increase Increase
Inelastic (<-1)

Lower Price Increase Decrease Decrease Decrease

Price Unity (=-1) Hold Price No change Maximum No change No change

Elasticity

Raise Price Decrease Decrease Increase Inc/Dec*

Elastic (>-1)

Lower Price Decrease

Increase Increase Inc/Dec*

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

Skim Pricing

Price
Favorable Conditions
Dollars per Unit

Considerable Differentiation
Quality-Sensitive Customers
Sustainable Advantage
Few Competitors
Few Substitutes
Cost
Difficult Competitor Entry

Time
 Penetration Pricing

Penetration Pricing
Dollars per Unit

Favorable Conditions
Price
No/Limited Differentiation
Price-Sensitive Customers
No Sustainable Advantage
Cost Many Competitors
Many Substitutes
Easy Competitor Entry

Time
 Break-Even Volume for a Given Price
Strategy
35 Total
Revenue
30

25
Total Costs
$ Millions

20

15

10 Fixed
Expenses*

0
50 100 150 200
Break-Even Volume Units Sold (‘000)
(90,000)
Profit Loss
* Fixed Expenses = Marketing Expenses and Other Direct
Expenses
 Alternative Channel Systems
Alternative
AlternativeChannel
ChannelSystems
Systems

Direct
Direct Mixed
Mixed Indirect
Indirect
Channel
ChannelSystems
Systems Channel
ChannelSystem
System Channel
ChannelSystems
Systems

Channel
ChannelIntermediaries
Intermediaries

Target
TargetMarket
MarketCustomers
Customers

• 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 Customer Channel Systems

Manufacturers
Manufacturers

Direct
Direct Indirect
Indirect
Channel
ChannelSystems
Systems Channel
ChannelSystems
Systems

Direct
Direct On-Line
On-Line Direct
Direct Tele-
Tele- Reps/
Reps/ Reps/Agents
Sales Marketing Marketing marketing Agents Reps/Agents
Sales Marketing Marketing marketing Agents

Wholesalers
Wholesalers

Retailers
Retailers

Customer
CustomerMarkets
Markets
 Message Reinforcement Strategies
Pulsing Heavy-Up
250 250
Gross Rating Points

Gross Rating Points

200 200
150 150
100 100
50 50
0 1 5 9 13 17 21 25 29 0 1 5 9 13 17 21 25 29
Weeks Weeks

100% 100%
80% 80%
Ad Awareness

Ad Awareness
60% 60%
40% 40%
20% 20%
0% 0%
1 5 9 13 17 21 25 29 1 5 9 13 17 21 25 29
Weeks Weeks
 Push-Pull Communications
and Customer Response
Customer
CustomerResponse
Response

Customer
Customer Customer
Customer
Pull
Pull Push
Push

Customer
Customer Customer
Customer Market
Market Distributor
Distributor
Preference
Preference Loyalty
Loyalty Coverage
Coverage Push
Push
•Awareness
•Awareness • •Commitment
Commitment •Availability
•Availability •Merchandising
•Merchandising
•Attraction
•Attraction • •Search
SearchEffectiveness
Effectiveness •Stockouts
•Stockouts •Marketing
•MarketingEffort
Effort

Customer
CustomerPull
Pull Customer
CustomerPush
Push
Communications
Communications Communications
Communications
Communications Mix
Advertising
Sales Promotions
Catalogs
Direct Marketing
Telemarketing
Electronic Marketing
Public Relations
 Strategic Market Planning Process

Tactical
TacticalMarketing
Marketing
Strategy
Strategyand
andPerformance
Performance
Plan
Plan

Portfolio
PortfolioAnalysis
Analysisand
and
Strategic
StrategicMarket
MarketPlan
Plan

Business
BusinessPerformance
Performance Market
MarketAttractiveness
Attractiveness Competitive
CompetitiveAdvantage
Advantage

- Share Position - Market Forces - Differentiation

- Sales Growth - Competitive Intensity - Cost
- Profitability - Market Access - Marketing
Factors That Shape Market Attractiveness

Market
MarketAttractiveness
Attractiveness

Market
MarketForces
Forces Competitive
CompetitiveIntensity
Intensity Market
MarketAccess
Access

- Market Size - Number of Competitors - Customer Familiarity

- Growth Rate - Price Rivalry - Channel Access
- Buyer Power - Ease of Entry - Sales Requirements
- Customer Loyalty - Substitutes - Company Fit
 Portfolio Analysis and Strategic Market Plans
Very Attractive
Offensive
Offensive Offensive (Grow) Defensive
(Entry) (Grow) Defensive (Protect)
Market Attractiveness

(Protect)

Offensive Offensive Offensive

(Grow) (Grow) (Grow)
Defensive Defensive Defensive
(Protect / Harvest) (Protect / Focus) (Protect / Focus)

Defensive Defensive Defensive

(Divest or (Divest or (Protect or
Harvest) Harvest) Harvest)
Very Unattractive
Very Weak Very Strong
Competitive Advantage
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.
Offensive and Defensive Strategic Market
Plans

Business
BusinessPerformance
Performance
Share
SharePosition
Position
Sales
Sales RevenueGrowth
Revenue Growth
Profit
ProfitPerformance
Performance

Offensive
OffensiveStrategic
StrategicMarket
MarketPlans
Plans Defensive
DefensiveStrategic
StrategicMarket
MarketPlans
Plans

- Penetrate or Grow Existing Markets - Protect or Reduce Focus within

- Enter or Develop New Markets Existing Markets
- Harvest or Divest Existing Markets
 Product Life Cycle and
Offensive and Defensive Marketing Strategies

Offensive/ Defensive
Defensive
Sales Revenue

Defensive
Offensive/
Defensive

Offensive

Offensive

Offensive

Emerging Early Rapid Late Maturing Mature Declining

Market Growth Growth Growth Market Market Market
 Offensive Strategic Market Plans

Offensive
Offensive
Strategic
StrategicMarket
MarketPlans
Plans

Market
MarketPenetration
PenetrationStrategies
Strategies New
NewMarket
MarketEntry
EntryStrategies
Strategies

- Grow Market Share - Related New Market Entry

- Grow Customer Purchases - Diversified New Market Entry
- Enter New Market Segment - Enter New Emerging Market
- Grow Market Demand - Develop New Market Potential
 Defensive Strategic Market Plans

Defensive
Defensive
Strategic
StrategicMarket
MarketPlans
Plans

Protect
ProtectMarket
MarketPosition
Position Exit
ExitMarket
MarketPosition
Position

- Protect Market Share - Harvest Price Strategy

- Build Customer Retention - Harvest Resource Strategy
- Reduced Focus - Divest Market Position
 Portfolio Positions and
Defensive Strategic Market Plans

Very Attractive

Protect Protect
Market Attractiveness

Protect or Protect or Protect or

Harvest Focus Focus

Harvest or Harvest or Protect or

Divest Divest Harvest

Very Unattractive
Very Weak Very Strong
Competitive Advantage
Major Components of a Situation Analysis

Situation
SituationAnalysis
Analysis

Market
Market Market
Market Market
Market Market
Market Market
Market
Demand
Demand Demand
Demand Demand
Demand Demand
Demand Demand
Demand

- Size and Growth - End Users - Structure - Market Share - Sales

- Potential - Intermediaries - Gap Analysis - Price / Quality - Customer
- Environment - Nonconsumers - Substitutes - Cost / Value satisfaction
- Margins/Profit
A Customer-Based Model of Net Profits

Market
Demand
(Customers) Customer
Volume
Market Share
(Percent)
Total
Contribution
Revenue per
Customer Net Marketing
Margin per Contribution
Customer
Variable Cost
per Customer
Net Profits
Marketing (before taxes)
Expenses

Operating
Expenses
A Customer-Based Model of Return on Assets
Market Demand
(Customers) Customer
Volume
Market Share
(Percent) Total
Contribution
Revenue per
Customer Net Marketing
Margin per
Contribution
Customer
Variable Cost
per Customer
Net Profits
Marketing (before taxes)
Expenses

Operating
Expenses

Accounts
Receivable Return on
Current Assets Assets
Inventory
Total Assets
Cash
Fixed Expenses
Plant and
Equipment
Market, Operational and Profit Performance

Market Performance Operational Performance Profit Performance

Operational
OperationalMerits
Merits
Market
MarketMetrics
Metrics Profitability
ProfitabilityMerits
Merits
••Margin
Margin(%
(%of
ofsales)
sales)
••Market
MarketShare
Share ••Return
Returnon
onAssets
Assets
••Overhead
Overhead(%
(%of
ofsales)
sales)
••Customer
CustomerSatisfaction
Satisfaction ••Return
Returnon
onEquity
Equity
X ••Inventory =
••Customer InventoryTurnover
Turnover ••Earnings
CustomerRetention
Retention Earningsper
perShare
Share
••Accts.
Accts.Rec.
Rec.(days
(days
••Product
ProductAwareness
Awareness ••Economic
EconomicValue
ValueAdded
Added
outstanding)
outstanding)
••Service
ServiceQuality
Quality ••Price-Earnings
Price-EarningsRatio
Ratio
••Capacity
CapacityUtilization
Utilization
GE / McKinsey Multifactor Portfolio Matrix
INDUSTRY ATTRACTIVENESS

Manage
Invest Invest Selectively
for Earnings
BUSINESS STRENGTH

Manage
Invest Selectively Harvest or
for Earnings Divest

Manage
Harvest or Harvest or
Selectively
Divest Divest
for Earnings
Market Potential, Sales Potential,
and Sales Forecast

Sales
Forecast
Sales
Potential

Market
Potential Total
Population
 The R&D Effort Portfolio

HIGH
SELECTIVE HEAVY HEAVY
EMPHASIS EMPHASIS EMPHASIS
OPPORTUNITY
MODERATE
MARKET

LIMITED SELECTIVE HEAVY

SUPPORT EMPHASIS EMPHASIS
LOW

LIMITED LIMITED SELECTIVE

SUPPORT SUPPORT EMPHASIS

LOW MODERATE HIGH

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

Dimension

Low Level of Desire High

in Market

Similar Distinctiveness from Distinctive

Competitive Products

Penetration Important Importance of Not Important Skimming

Strategy Price to Market Strategy

Easy Ease of Duplicating Not Easy

Product

Gradual Return on Investment Fast

Objective
 Strategy Decision Areas
Organized by the Four Ps

Product
Product Place
Place Promotion
Promotion Price
Price
••Physical
Physical good
good ••Objectives
Objectives ••Objectives
Objectives ••Objectives
Objectives
••Service
Service ••Channel
Channel type
type ••Promotion
Promotion blend
blend ••Flexibility
Flexibility
••Features
Features ••Market
Market exposure
exposure ••Sales
Sales people,
people, ••Level
Level over
over
••Quality
Quality level
level ••Kinds
Kinds of
of Kind,
Kind, Number
Number product
product life
life cycle
cycle
••Accessories
Accessories middlemen
middlemen Selection,
Selection, ••Geographic
Geographic terms
terms
••Installation
Installation ••Kinds
Kinds and
and Training,
Training, ••Discounts
Discounts
••Instructions
Instructions locations
locations of
of stores
stores Motivation
Motivation ••Allowances
Allowances
••Warranty
Warranty ••How
How toto handle
handle ••Advertising
Advertising
••Product
Product lines
lines transporting
transporting and
and Targets,
Targets, Kinds
Kinds of
of
••Packaging
Packaging storing
storing ads,
ads, Copy
Copy thrust,
thrust,
••Branding
Branding ••Service
Service levels
levels Prepared
Prepared byby
••Recruiting
Recruiting whom
whom
middleman
middleman ••Sales
Sales promotion
promotion
••Managing
Managing ••Publicity
Publicity
channels
channels
 Strategy Planning for Product

Target
Target market
market

Product
Product Place
Place Promotion
Promotion Price
Price

Product
Product idea
idea Package
Package Brand
Brand

Physical
Physical good
good // service
service Protection
Protection Type
Type of
of brand
brand
Features
Features Promotion
Promotion Individual
Individual or
or family
family
Quality
Quality level
level (or
(or both)
both) Manufacturer
Manufacturer or or dealer
dealer
Accessories
Accessories
Installation
Installation
Instructions
Instructions
Warranty
Warranty
Product
Product line
line
 Product Classes

Products
Products

Consumer
Consumer Industrial
Industrial
products
products products
products

Staples Installations
Installations
Convenience
Convenience Impulse products
products
products Accessories
Emergency products Accessories
Shopping Homogeneous Farm products
Shopping Raw
Raw materials
materials
products
products Heterogeneous Natural products
Component parts
Specialty Components
Components Component materials
Specialty
products
products
Professional
Professional
Unsought New unsought services
services
Unsought
products Regularly unsought Staples
products
Supplies
Supplies Impulse products
Emergency products
 New-Product Development Process

Screening
Screening Idea
Idea evaluation
evaluation
Idea
Idea
generation
generation Concept
Concept testing
testing
Rough
Rough ROI
ROI estimate
estimate Rough
Rough ROI verification
ROI verification

Development
Development Idea
Idea evaluation
evaluation

R&D
R&D Finalize
Finalize product
product
Build
Build model
model Finalize
Finalize marketing
marketing plan
plan
Test
Test in market
in market Final
Final ROI
ROI estimate
estimate
ROI
ROI estimate
estimate Start
Start production
production and
and
Revise
Revise product
product marketing plan
marketing plan
 International Marketing Opportunities

Product
Product

Same Adaptation New

Same
Same needs
needs and
and use
use Basically
Basically same
same Basically
Basically same
same
conditions
conditions needs
needs and
and use
use needs,
needs, but
but different
different
Same

(McDonald’s
(McDonald’s usual
usual conditions
conditions incomes
incomes and
and // or
or
strategy)
strategy) (McDonald’s
(McDonald’s applications
applications (street
(street
strategy
strategy with
with beer
beer in
in vendor
vendor with
with low-
low-
Promotion
Promotion

Germany)
Germany) cost
cost hamburgers)
hamburgers)

Different
Different needs
needs but
but Different
Different needs
needs and
and Different
Different needs
needs and
and
Adaptation

same
same use
use conditions
conditions use
use conditions
conditions different
different incomes
incomes
(bicycles)
(bicycles) (clothing)
(clothing) and
and // or
or applications
applications
(hand-powered
(hand-powered
washing
washing machines)
machines)
 Customer and Competitor Orientations

Competitor emphasis
Minor Major

Competitor-
Minor Self-centered
centered

Competitor
emphasis

Major Customer- Market-

oriented driven
 Efficiency vs. Effectiveness

Strategic management
Effective Ineffective

1 2

Efficient Thrive Die slowly

Operational
management 3 4

Inefficient Survive Die quickly

Approaches to Competitor Analysis

Industry
Analysis

Building
Industry
Competitive
Mapping
Advantage

Desk Databases
Research
Critical
Benchmarking Success
Factors
Market Internal
Research Information

Value Chain Competitor

Analysis Profiling

Special
Competitor
Studies
Developing the Organization‘s Core
Competences

Extending the base Uncharted waters

What core competences What core competences
do we need to be need to be developed
developed so that the in order to compete in
New

organization’s current the new and developing

Core Competences

position is best markets which offer the

protected and/or greatest future
extended? potential?

Good housekeeping Moving into new areas

How can better use be What new products or
made of the services can be
Existing

organization’s current developed by rethinking

core competences? or reallocating the
existing core
competences?

Existing New
Markets
 The Nine Price / Quality Strategies

Price
Low Medium High

1 2 3
Low Cheap-value Out-of-step Exploitative
strategy strategy strategy

4 5 6
Product Above Middle-of-the- Overcharging
Medium average value
quality road strategy strategy
strategy
7 8 9
High Superb value High-value Premium
strategy strategy strategy
Relationship Between Service Levels and Costs

Total costs

Transportation,
Cost

order processing
and inventory
carrying costs

Cost of lost sales

0
Level of customer service 100%
 Setting Customer Service Levels

Revenue from Maximum

Increase in costs, sales

service profit
revenue or profit

contribution

Distribution
costs

Profit curve

0
Service level 93 99 %
Marketing Excellence Framework

Marketing
Marketing
Strategy
Strategy

Branding
Branding

Manufacturing
Manufacturing
Chain
Supply Chain

Product
Product Business
Innovation
Supply

Innovation Performance

Customer
Customer
Development
Development

Quality
Quality
Strategy
Strategy
Consequences of Strategic and Tactical
Implementation
Strategy / tactic
Appropriate Inappropriate

Possible short-
Marketing implementation
Excellent

Success term success – but

ultimately failure

Trouble or
Proof

Failure
failure
 The Transition to RM

Emphasis on all six Relationship

market domains marketing

Emphasis on
customer market Transaction
domain marketing

Functionally Cross-functionally
based marketing based marketing
The RM Multiple Markets Model

Internal
Markets

Supplier & Referral

Alliance Markets
Markets Customer
Markets

Recruitment Influencer
Markets Markets
 Types of Consumer Buyer Behavior

Involvement

Complex buyer Variety-seeking

Many behaviour buyer
behaviour

Differences
between
brands Dissonance-
reducing buyer Habitual
Few buyer
behaviour
behaviour
 Appropriate Pricing Strategies

Opportunity for value enhancement

High
Skimming Price
strategy leadership

‘Follow my Penetration
Low
leader’ strategy

Low High

Opportunity for cost reduction

The Expanded Marketing Mix

Product

Promotion Price

Customer
Service

Place People

Processes
The Paradigm of Mass Production as a Dynamic
System of Reinforcing Factors
New
Products

Long Product Mass Production

Development Cycles Processes

R
Long Product Low-Cost, Consistent Quality,
Life Cycles Standardized Products

Stable Demand Homogeneous Market

The New Paradigm of Mass Customization as a
Dynamic System Feedback Loop
Product Technology Process Technology
New
Products
R R

Short Product Mass Customization

Development Cycles Processes

R
Short Product Low-Cost, High Quality,
Life Cycles Customized Products

Demand Heterogeneous Markets

Fragmentation
 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

DYNAMIC

MASS
CUSTOMIZATION INVENTION

PRODUCT
CHANGE
STABLE

MASS CONTINUOUS
PRODUCTION IMPROVEMENT

STABLE DYNAMIC
PROCESS
CHANGE
 Product-Process Change Matrix:
The Mass Production Axis
DYNAMIC

MASS
INVENTION
CUSTOMIZATION

PRODUCT
CHANGE
STABLE

MASS CONTINUOUS
PRODUCTION IMPROVEMENT

STABLE DYNAMIC
PROCESS
CHANGE
Mass-Customized Products: Stable Processes
Producing Dynamic Flow of Products
PROCESS
CAPABILITIES

PROCESS
CAPABILITIES PRODUCT 3
PRODUCT 2 VOLUMES
PRODUCT 1 VOLUMES
VOLUMES

PRODUCT
VOLUMES

TIME
 Mass-Customized Products:
Shortening Process Life Cycles

ENTERPRISE

ENTERPRISE
CAPABILITIES
AND RESOURCES PROCESS 3
PROCESS 2 CAPABILITIE
PROCESS 1 CAPABILITIE S
CAPABILITIE S
PROCESS S
CAPABILITIES

PRODUCT N VOLUMES

PRODUCT
VOLUMES

TIME
 Product-Process Change Matrix:
Virtual Enterprise Flow

DYNAMIC

MASS
INVENTION
CUSTOMIZATION

PRODUCT
CHANGE
STABLE

MASS CONTINUOUS
PRODUCTION IMPROVEMENT

STABLE DYNAMIC
PROCESS
CHANGE
 Four Stages of National Competitive
Development

FACTOR INVESTMENT INNOVATION WEALTH

DRIVEN DRIVEN DRIVEN DRIVEN

• Existing basic • Building • Building • Acquired

factors general factors advanced advantages
factors
• Abundant, • Cheap and • Stagnant rate of
cheap and qualified labour • Costly and innovation
unqualified highly qualified
• Heavy basic
labour labour
investments DECLINE?
• Low • Productivity
investments and innovation
investments

Relaunched
by the stimulation of
innovation
 Cluster Theory
Context for
Firm
Strategy
and Rivalry

• A local context that encourages

appropriate forms of investment
Factor (Input) and sustained upgrading Demand
Conditions Conditions
• Vigorous competition among
locally-based rivals
•Factor (input)
quantity and cost
– natural resources • Sophisticated and
– human resources Related and demanding local
– capital resources Supporting customer(s)
Industries • Customer needs that
– physical infrastructure
anticipate those elsewhere
– information infrastructure • Presence of capable,
locally-based suppliers • Unusual local demand in
– scientific and technological
specialized segments that
infrastructure • Presence of competitive can be served globally
related industries
• Factor quality
• Factor specialization
Management of Industrial Customer‘s Portfolios I

For a continuous supply case

Existing customer Prospect
Structural Structural
Attractiveness Attractiveness

Customers to be kept Customers justifying an Prospects to be “hot” prospects

without over investing overinvestment cultivated with tenacity justifying a strong
while expecting an investment
opening

Customers to be kept Customers to be “hot” prospects

Prospects not to be
with minimum examined in a selective justifying only a limited
worked on intensively
investment way investment

Development possibilities Penetration possibilities

Management of Industrial Customer‘s Portfolios II

Case of discontinued supply

Structural
Attractiveness

To follow up on a major customer Major opportunity justifying a major

if the deal is not too unfavourable 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

Perform universal To overcome To create form,

Middlemen marketing discrepancies of time, place, and
-Wholesalers functions of quantity and possession utility
buying, selling, assortment, and to and direct the flow
-Retailers transporting, overcome of need – Too many
storing, marketing, separation of satisfying goods individual
information, space, time, and services Customers
Many individual standardization information, (heterogeneous
Suppliers and grading, values and demand)
(heterogeneous financing, and risk ownership
supply) taking

Facilitators
-Ad agencies
-Marketing research firms
-Product testing labs
-Public warehouses
-Transportation specialists
-Financial institutions
The Marketing Exchange Process II

Raw materials

Components

Finished product
Downstream
Supplier exchange
Upstream
exchange Customer

Wholesaler

Retailer

End user
 The Producer – Customer Gap
PRODUCTION SECTOR Specialization and division of labour result in heterogeneous supply capabilities

PRODUCERS CUSTOMERS
Clustered Scattered
SPACE Few locations Many locations
Consumption usually not
Time required to
TIME bring goods to market
at time of production
(exception: services)
Don’t know who Don’t know what is
INFORMATION needs what, where, available from whom,
when, what price where, when, what price
Marketing
needed to Value goods and services Value goods and services
overcome VALUES in terms of costs and in terms of economic
gaps competitive prices utility and ability to pay

OWNERSHIP Hold title to goods which Want to consume goods

they don’t consume which they don’t own

QUANTITY Prefer to produce and Prefer to buy and consume

sell in large quantities in small quantities

ASSORTMENT Produce a narrow Purchase a broad

assortment assortment

CONSUMPTION SECTOR Heterogeneous demand for form, time, place, possession utility to satisfy needs /wants
 The Value Chain

Value chain of a computer manufacturer

Component Computer End users:

Retail outlets Individuals,
suppliers manufacturer
Companies

Component Manufac- Product

R&D Marketing
Purchasing turing Design

Make or buy?
 Make or Buy
High

Advantages of Making Strong control

needed Make
• Low costs
• Better quality
Moderate
• Unique characteristics control needed Partnership
• Better time management
• Control of proprietary Weak control
information needed Buy
• Etc… Low
Low High

Risks tied to Outsourcing

• Size, power of producer
• Technical capacity of buyer
• Number of transactions
involved
• Etc...
Market Structure: Actual / Potential Market

Potential
Total market
population (100%)
(100%)

Accessible
market
(80%)

Qualified
market
Potential (50%)
market
(100%) Serviced
market
Actual (20%)
market
(2%)
 Market Segmentation Strategies
Need Analysis
Program A
FIRM Program B MARKET
Program C

a) Product variety: no segmentation

Need Analysis
Segment A
FIRM Program for Segment B Segment B
Segment C
b) Concentrated marketing

Need Analysis
Program for Segment A Segment A
Program for Segment B Segment B
FIRM
Program for Segment C Segment C

c) Multi-segment marketing
Factors Affecting the Choice of Target Markets

Firm / brand
Needs / wants Market size /
market
of end-users structure
share, sales
projections

Decision- Political
maker
Choice of pressures
preferences target and lobbying
and
corporate markets
culture
Resources / Production /
Competitive
capabilities marketing,
activity
of the firm scale
economies
 The Use of Marketing Information I

Marketing Information System

Data Information
M. I. S. / M. D. S. S.

Environment Market studies Marketing Manager

Accounting
and research
system
system
Target markets
Analysis
Distribution channels
Planning
Competitors
Execution
People
Control
Macro-environment
Accounting Marketing
system models system
 The Use of Marketing Information II

Evolution of information needs

1960 Mass marketing

Product Mass media
orientation advertising

General
1970 information

1980
Customized marketing
Customer Personalized target
orientation communication

1990 Specific
information
Customer
equity
 The Use of Marketing Information III
The Marketing Information Value Chain

Data collection and

transmission

Customer Data management

files
Diary panels Data interpretation =
POS scanner DB2 Information
Oracle
DB3 Expert Marketing-related models
systems:
Paradox
Salespartner
Decision Support Systems
Coverstory Conjoint E.I.S.
(choice)
MDS Promoter, ADCAD
(position)

Collect Organise Describe Represent Recommend

Explain
Approaches to the Study of Customer Behavior
HOMO ECONOMICUS

Rationality: revenue determines consumption level

price determines consumption allocation Subjective

Unlimited needs: utility and satisfaction Product symbolism

maximization

Degree of involvement
Perfect knowledge of needs and of products
to satisfy them Imperfect knowledge, stochastic choice

Deterministic choice Limited needs: satisfiers

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

Objective
Feelings, emotions / unconscious motivations

HOMO PSYCHOLOGICUS
 Group Influence on Buyer Appraisal
of Product and Brand

Group influence on
product category
Strong Weak

automobiles clothes
Strong
cigarettes furniture

Group influence on beer,wine watches

product brand
cellular phones detergent
Weak instant coffee canned food
color TV garbage bags
 Attitude Based Decision Process:
AIDA (Attention, Interest, Desire, Action)

Cognitive
Awareness,
Attention
Attention perception

Interest
Interest
Affective
Desire
Desire
Preference, choice

Action
Action
Conative
Purchase
Purchase
Post-purchase reaction
Yes
Yes/ /No
No (cognitive dissonance)
 The 6 – Step Marketing Plan
1 Situation (SWOT) Action plan 4
firm budget allocation:
market product
industry promotion
competition price
environment distribution

2 Objectives
Marketing Forecasts 5
sales quantify:
market share Plan costs
market expansion sales
leadership profits
satisfaction market share

3 Strategy Control 6
segment – target organization structure
price / quality measurement tools
product positioning check frequency
differentiation => Corrective actions
diversification
 SWOT Analysis I
STRENGTHS
STRENGTHS/ /WEAKNESSES
WEAKNESSES OPPORTUNITIES
OPPORTUNITIES/ /THREATS
THREATS
Firm,
Firm,Organization
Organization Environment,
Environment,Market,
Market,Industry
Industry
• Market share • Market size
• Key account share • Key account size
• Growth rate MARKET
• Annual growth rate
• Supply diversity • Market diversity
• Influence • Price sensitivity
• On market • Seasonality
• Purchasing / selling • Cycles
deadline
• New products cycles • Negotiation power
• Negotiation power - suppliers
- firm suppliers - consumers
- customers
COMPETITION
• Firm competitivity • Competitor types
- Product, service • Concentration level
- Profitability, H.R., … • Intrants / extrants
• Segments invested in • Market share evolution
• Firm’s integration level • Vertical / horizontal integration
• High-tech vulnerability • Technology substitution
 SWOT Analysis II
STRENGTHS
STRENGTHS/ /WEAKNESSES
WEAKNESSES OPPORTUNITIES
OPPORTUNITIES/ /THREATS
THREATS
Firm,
Firm,Organization
Organization Environment,
Environment,Market,
Market,Industry
Industry
• Firm margins • Global benefits
• Economies of scale FINANCE / BUSINESS • Economies of scale
• Barriers • Barriers
• Production capacity level • Production capacity level

• Adaptability to change • Maturity / volatility

• Expertise / Know-How TECHNOLOGY • Complexity
• Patent ownership • Differentiation
• Production technology • Patents and copyrights
• Production technology

• Reactivity / Flexibility level SOCIO - POLITICAL • Attitudes / Social trends

• Adaptability • Laws and regulations
• Agressiveness • Pressure groups
• Working relationships • Trade union activities
 Sources of Market Uncertainty

What needs might

be met by the new
technology?

How large is the How will needs

potential Market change in the
market? Uncertainty future?

How fast will the Will the market

innovation adopt industry
spread? standards?
Sources of Technological Uncertainty

Will the new

product function
as promised?

Will new Will the delivery

technology make Technological timetable be met?
ours obsolete? Uncertainty

Will there be side Will the vendor

effects of the give high-quality
product or service?
service?
A Taxonomy of Marketing Situations Based on
Technological and Market Uncertainty

Better High-Tech
High Mousetrap Marketing
Marketing
Technological
Uncertainty

Low Low-Tech High-Fashion

Marketing Marketing

Low High

Market Uncertainty
 New Age Pricing

Average Unit
Customer Value

Amount of
$ Pricing
Discretion

Average Unit Cost

Unit Volume
 Performance – Based Pricing
Customer
Value

Customer P-BP provides more

Value customer value
through:
1. Goal alignment
2. Overpay Insurance
3. Clearer information
on customer needs &
objectives.

Cost

P-BP provides lower vendor Cost

cost through:
1. Goal alignment
2. Under payment
Without Performance insurance With Performance
– Based Pricing 3. Less wasted effort for – Based Pricing
things the customer
doesn’t value.
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