Chapter One Market-Driven Strategy

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Author: Merryl Franklin

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3 MARKET-DRIVEN STRATEGYBecoming Market Oriented Distinctive Capabilities Creating Value for Customers Becoming Market Driven Challenges of a New Era for Strategic Marketing

4 MARKET-DRIVEN STRATEGYAll business strategy decisions should start with a clear understanding of markets, customers, and competitors. The market and the customers that form the market should be the starting pint in shaping business strategy.

5 Characteristics of a Market-Driven StrategyBecoming Market- Orientation Achieving Superior Performance Determining Distinctive Capabilities Customer Value/ Capabilities Match

6 Why Pursue a Market-Driven Strategy?Strong supporting logic Achievements of companies displaying market-driven characteristics are impressive Examples include: Dell Inc. Louis Vuitton Southwest Airlines Tesco Tiffany & Co. Wal-Mart Zara

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

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

9 Characteristics of Market OrientationCustomer Focus What are the customer’s value requirements? Competition Intelligence Importance of understanding the competition as well as the customer Cross-Functional Coordination Remove the walls between business functions Performance Consequences Market orientation leads to superior organizational performances

10 Becoming a Market-Oriented OrganizationInformation Acquisition Cross-Functional Analysis of Information Shared Diagnosis and Coordinated Action Delivery of Superior Customer Value

11 Market Orientation Information Acquisition Inter-functional AssessmentGather relevant information on customers, competition, and markets Involve all business functions Intuit’s Quicken Inter-functional Assessment Share information and develop innovative products with people from different functions Zara Shared diagnosis and action Deliver superior customer value

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

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

14 Capabilities Disproportionate (higher) contribution to superiorcustomer value Compelling Logic of Distinctive Capabilities Provides value to customers on a more cost-effective basis Source: George S. Day, Journal of Marketing, October 1994, p. 38.

15 Capabilities Desirable Capabilities Applicable to MultipleCompetition Situations Superior to the Competition Difficult to Duplicate Source: George S. Day, Journal of Marketing, October 1994, 49.

16 Types of Capabilities Outside-In Processes Spanning ProcessesInside-Out Processes

17 Organization’s ProcessEXTERNAL EMPHASIS INTERNAL EMPHASIS Outside-In Processes Inside-Out Processes Spanning Processes Financial management Cost control Technology development Integrated logistics Manufacturing/ transformation processes Human resources management Environment health and safety Market sensing Customer linking Channel bonding Technology monitoring Customer order fulfillment Pricing Purchasing Customer service delivery New product/service development Strategy development Source: George S. Day, Journal of Marketing, October 1994, 41.

18 Matching Customer Value and Distinctive CapabilitiesValue Requirements Distinctive Capabilities

19 CREATING VALUE FOR CUSTOMERSCustomer Value: Value for buyers consists of the benefits less the costs resulting from the purchase of products. Superior value: positive net benefits Creating Value: “Customer value is the outcome of a process that begins with a business strategy anchored in a deep understanding of customer needs.” Source: C. K. Troy, The Conference Board Inc., 1996, 5.

20 Creating Value for CustomersBenefits Costs

21 Psychic and physic costsValue Composition Product Services Employees Image Benefits Value (gain/loss) Monetary costs Costs (sacrifices) Time Psychic and physic costs

22 Becoming Market DrivenMarket Sensing Capabilities MARKET – DRIVEN STRATEGIES Customer Linking Capabilities

23 BECOMING MARKET DRIVENMarket Sensing Capabilities MARKET-DRIVEN STRATEGIES Customer Linking Capabilities

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

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

26 CHALLENGES OF A NEW ERA FOR STRATEGIC MARKETINGStrategic marketing faces unprecedented challenges and opportunities: Turbulent markets Intense competition Disruptive innovations Escalating customer demands Ethical Challenges Societal and Global Change Social Responsiveness of Organizations

27 Escalating GlobalizationIt is important to understand the differences (and similarities) between the developed economies and the new world beyond. Market opportunities Competitive threats Partnering opportunities Outsourcing initiatives The world’s poor

28 Technology Diversity and UncertaintyRadical New Product Opportunities Nanotechnology Private space travel The digital home Self-cleaning windows Finland was ranked #1 in global competitiveness in 2004 by the World Economic Forum because of strong skills in adapting to new technology, proactive business practices, and nurturing a culture of innovation (www.weforum.org).

29 Ethical Behavior and Social ResponsivenessIncreasingly demanding ethical challenges Corporate responsibility Responsibilities to stakeholders

32 CORPORATE, BUSINESS AND MARKETING STRATEGYCorporate strategy Business and marketing strategy Marketing strategy process Internet strategy Preparing the marketing plan

33 CORPORATE, BUSINESS AND MARKETING STRATEGY

34 CORPORATE STRATEGY Deciding the Scope and Purpose of the BusinessObjectives Actions and Resources for Achieving Objectives

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

36 ORGANIZATIONAL CHANGEVertical Disaggregation Internal Redesign New Organizational Forms

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

38 BUSINESS AND MARKETING STRATEGYDeveloping the strategic plan for each business Business and marketing strategy relationships Strategic marketing: Developing a vision about the markets of interest to the organization, select market target strategies, setting objectives, and developing, implementing and managing the marketing program positioning strategies designed to meet the value requirements of customers in each market target

39 MARKETING STRATEGY PROCESSSituation Analysis Implementing and Managing Marketing Strategy Designing Marketing Strategy Marketing Program Development

40 MARKETING STRATEGY PROCESSStrategic situation analysis Market vision, structure and analysis Segmenting markets Continuous learning about markets

41 SITUATION ANALYSIS Market Vision, Structure, and Analysis ContinuousLearning About Markets Segmenting Markets

42 MARKET-DRIVEN STRATEGIESDesigning Market- Driven Strategies Market Targeting and Strategic Positioning Relationship Strategies Planning for New Products

43 Positioning Strategy DevelopmentProduct strategy Positioning strategy Promotion strategy Market target Distribution strategy Price strategy

44 IMPLEMENTING AND MANAGING MARKET-DRIVEN STRATEGYDesigning Effective Market-Driven Organizations Implementing and Managing Market-Driven Strategy Strategy Implementation and Control

45 MARKETING PLAN OUTLINEI. Strategic Situation Summary Summarize the key points from your situation analysis (market analysis, segments, industry/competition) in order to recount the major events and provide information to better understand the strategies outlined in the marketing plan. II. Market-Targets and Objectives The market target may be defined demographically (key characteristics only), geographically, or in social/economic terms. Each market target should have needs and wants that differ to some degree from other targets. These differences may be with respect to types of products purchased, use situation, frequency of purchase, and other variations that indicate a need to alter the positioning strategy to fit the needs and wants of each target. An objective is a quantified goal identifying what is expected when. It specifies the end results expected. The objectives should be written for each target market. Objectives should also be included for the following program components: (1) product, (2) price, (3) distribution, (4) promotion (salesforce, advertising, sales promotion, and public relations), and (5) technical services.

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

47 IV. Market Mix Strategy for Each Market Target A. Product StrategyIdentify how each product fits the market target. Other issues that may be addressed would be new product suggestions, adjustments in the mix of existing products, and product deletion candidates. B. Price Strategy The overall pricing strategy (I.e., competitive, premium-priced, etc.) should be identified along with a cost/benefit analysis if applicable. Identify what role you want price to play, i.e., increase share, maintenance, etc. C. Distribution Strategy Describe specific distribution strategies for each market target. Issues to be addressed are intensity of distribution (market coverage), how distribution will be accomplished, and assistance provided to distributors. The role of the sales force in distribution strategy should also be considered. D. Promotion Strategy Promotion strategy is used to initiate and maintain a flow of communication between the company and the market target. To assist in developing the communications program, the attributes or benefits of our product should be identified for each market target. How our product differs from competition (competitive advantage) should be listed. The sales force’s responsibilities in fulfilling the market plan must be integrated into the promotion strategy. Strategies should be listed for (1) personal selling, (2) advertising, (3) sales promotion, and (4) public relations.

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

49 INTERNATIONAL PLANNING PROCESSSource: Philip R Cateora, International Marketing, Irwin, 1996.

52 MARKETS AND COMPETITIVE SPACEMarkets and Strategies Product-Market Scope and Structure Describing and Analyzing End-Users Analyzing Competition Developing a Strategic Vision about the Future Market Size Estimation

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

54 MARKETS AND STRATEGIESMarkets and Strategies are Interlinked Forming a Shared Vision Value Migration Challenges

55 Markets Impact StrategiesMarket changes often require altering strategies Forces of change create both market opportunities and threats Inherent danger in faulty market sensing

56 Value Migrations Customers shift purchasing to new business designs with enhanced value offering Beware of disruptive technologies Market sensing and organizational learning are essential

57 PRODUCT-MARKET SCOPE AND STRUCTUREMatching Needs with Product Benefits Product-Market Boundaries and Structure Forming Product-Markets for Analysis The Changing Composition of Markets

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

59 INNOVATION FEATURE Progressive Insurance:Customer Needs at the Center of Strategy In the period 1994 to 2004, Progressive Insurance increased sales from $1.3 billion to $9.5 billion, and ranks high in the Business Week Top 50 U.S. companies for shareholder value creation. The company invents new ways of providing services to save customers time, money and irritation, while often lowering costs at the same time. Loss adjusters are sent to the road accidents rather than working at head office, and they have the power to write checks on the spot. Progressive reduced the time needed to see a damaged automobile from seven days to nine hours. Policy holders’ cars are repaired quicker, and the focus on this central customer need has won much automobile insurance business for Progressive. These initiatives also enable Progressive to reduce its own costs – the cost of storing a damaged automobile for a day is $28, about the same as the profit from a six-month policy. Source: Adapted from Mitchell, Adrian (2004)”Heart of the Matter,” The Marketer, June 12, 14.

60 Product – Market Boundaries and StructureDetermining Product-Market Structure Start with the generic need satisfied by the product category of interest to management Identify the product categories (types) that can satisfy the generic need Form the specific product – markets within the generic product – market

61 Illustrative Fast-Food Product-Market StructureSUPER MARKETS MICROWAVE OVENS CONVENIENCE STORES TRADITIONAL RESTAURANTS FAST-FOOD MARKET

62 Forming Product – Markets for AnalysisFactors influencing product – market boundaries: Purpose of analysis Changing composition of markets Extent of market complexity

63 The Changing Composition of MarketsChange due to new technologies and emerging competition Consider existing and emerging markets Identify alternative ways to meet needs Extend product-market analysis beyond industry boundaries (e.g. Fast-foods)

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

65 Illustrative Product – Market StructureFood and beverages for breakfast meal Generic Product Class Cereals Product Type Variant A Ready to eat Regular Natural Variant B Pre-sweetened Nutritional Brands Life Product 19 Special K

66 DEFINING AND ANALYZING MARKETSDefine Product-Market Boundaries and Structures Identify and Describe End-Users Analyze Industry and Value Added Chain Evaluate Key Competitors Forecast Market Size and Growth Trends

67 DESCRIBING AND ANALYZING END-USERSIdentifying and Describing Buyers DESCRIBING AND ANALYZING END-USERS How Buyers Make Choices Building Customer Profiles Environmental Influences

68 Identifying and Describing End-UsersIllustrative buyer characteristics in consumer markets: Family size, age, income, geographical location, sex, and occupation Illustrative factors in organizational markets: Type of industry Company size Location Type of products

69 How Buyers Make ChoicesBUYING DECISION PROCESS: Problem recognition Information search Alternative evaluation Purchase decision Post-purchase behavior

70 Environmental InfluencesExternal factors influencing buyers’ needs and wants: Government, social change, economic shifts, technology etc. These factors are often non-controllable but can have a major impact on purchasing decisions

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

72 ANALYZING COMPETITION1. Define Industry Structure and Characteristics 2. Identify and Describe Key Competitors 5. Identify New Competitors PRODUCT- MARKET STRUCTURE AND SEGMENTS 4. Anticipate Actions by Competitors 3. Evaluate Key Competitors

73 Examples of Levels of CompetitionBaseball cards Bottle water Video Games Fast Food Regular colas Diet lemon limes Ice Cream Beer Diet-Rite Cola Fruit flavored colas Diet Coke Diet Pepsi Wine Product from competition: diet colas Lemon limes Juices Product category competition: soft drinks Coffee Generic competition: beverages Budget competition: food & entertainment

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

75 Defining Industry Structure & CharacteristicsSUPPLIERS Industry Form Industry Environment Competitive Forces PRODUCERS WHOLESALERS/ DISTRIBUTORS Value Added Chain RETAILERS/DEALERS CONSUMER/ ORGANIZATIONAL END USERS

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

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

78 Competitor EvaluationExtent of Market Coverage Competitor Evaluation Current Capabilities Customer Satisfaction Past Performance

79 DEVELOPING A STRATEGIC VISION ABOUT THE FUTUREIndustry Boundaries Blurring and Evolving Competitive Structure and Players Changing Value Migration Paths Product Versus Business Design Competition Firms are Collaborating to Influence Industry Standards Source: C. K. Prahalad, Journal of Marketing, Aug. 1995, vi.

80 MARKET SIZE ESTIMATIONProduct-Market Forecast Relationships (area denotes sales in $’s) Market Potential Estimate Unrealized Potential Company Sales Forecast Industry Sales Forecast

81 Product-Market Forecast Relationships for Industrial Painting UnitsSales (in 1000s of units) 900 800 Market Potential 700 600 Sales Forecast 500 400 300 Company XYZ Sales Forecast 200 100 2001 2002 2003 2004 2005 2006 2007 2008

84 STRATEGIC MARKET SEGMENTATIONSegmentation and market-driven strategy Identifying market segments Forming segments Finer segmentation strategies Selecting the segmentation strategy

85 Segmentation and Market-Driven StrategySEGMENTS VALUE OPPORTUNITIES CAPABILITIES/ SEGMENT MATCH TARGET(S) POSITIONING STRATEGY

86 From Mass Markets to Micro MarketsOLD NEW CONSUMERS Passively receive Empowered media users whatever TV control and shape content networks thanks to TiVo, iPod and broadcast Internet ASPIRATIONS To keep up with To standout from the the crowd crowd TV CHOICE Three networks Hundreds of channels plus maybe a plus video on demand PBS station MAGAZINES Age of the big Age of the special interest glossies: Time, magazine for every age Life, Newsweek and affinity group ADS Everyone hums Talking to a group of the Alka-Seltzer one, ads go ever jingle narrower BRANDS Rise of the big, Niche brands, product ubiquitous brands extensions and mass from Coca-Cola customization mean many to Tide product variations Source: Anthony Bianco, “The Vanishing Mass Market”, Business Week, July , 58-62

87 Identifying the Health and Beauty Supplies Market SegmentsLevel of Competition Generic Product Type Variant Product Definition Health & Beauty Aids Shaving Equipment Electric Razors Illustrative Competitors Consumer Product Companies Gillette, Remington, Bic Braun, Norelco, Remington, Panasonic Need/Want Satisfied Enhancement of Health & Beauty Shaving Electric

88 Exhibit 4-3 Market Segmentation Activities and DecisionsMarket to be Segmented Strategic Analysis of Segments Decide How to Segment Finer Segmentation Strategies Form Segments

89 Product Variant SegmentationProduct Type Segmentation Generic Segmentation

90 Segmentation VariablesPurchase Behavior Characteristics of People/ Organizations Buyers’ Needs/ Preferences Use Situation

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

92 Requirements for SegmentationIdentifiable segments Response differences Actionable segments Segmentation Requirements Stability over time Favorable cost/benefit

93 Approaches to Segment IdentificationIDENTIFIERS OF CUSTOMER GROUPS CUSTOMER RESPONSE PROFILE Characteristics of People and Organizations Use Situation Buyers Needs and Preferences Purchase Behavior and Loyalty

94 Segment Dimensions for Hotel Lodging Services

95 llustrative Example: Gasoline BuyersRoad Warriors Higher-income, middle-aged men, drive miles a year … buy premium with a credit card … purchase sandwiches and drinks from the convenience store … will sometimes use carwash 16% of buyers True Blues Men and women with moderate to high incomes, loyal to a brand and sometimes a particular station … frequently buy premium, pay in cash 16% of buyers Generation F3 (Fuel, Food & Fast) Upwardly mobile men and women - half under 25 years of age - constantly on the go … drive a lot snack heavily from the convenience store 27% of buyers Homebodies Usually housewives who shuttle children around during the day and use whatever gas station is based on town or on route of travel 21% of buyers Price Shoppers Not loyal to brand or station and rarely buy premium … frequently on tight budgets. 20% of buyers

96 Illustrative Consumer Perception MapExpensive GROUP II Brand A Brand E Brand B GROUP V Low Quality High Quality GROUP I GROUP III Brand C Brand D GROUP IV Inexpensive

97 Finer Segmentation StrategiesLogic of finer segments customized offerings diverse customer base close customer relationships Finer segmentation strategies microsegmentation mass customization variety-seeking strategy

98 SELECTING THE SEGMENTATION STRATEGYDeciding how to segment Strategic analysis of market segments Customer analysis Competitor analysis Positioning analysis Estimating segment attractiveness Segmentation “fit” and implementation

99 Strategic Analysis of Market SegmentsCustomer Analysis Financial and Market Attractiveness Competitor Analysis Positioning Analysis

100 Exhibit 4-11 Segment Financial and Market AttractivenessX Y Z Estimated ($ million) Sales* Variable costs* Contribution margin* Market share ~ % % % Total segment sales Segment position: Business strength High Medium Low Attractiveness # Medium Low High *For a two-year period. ~Percent of total sales in the segment. #Based upon a five-year projection.

101 Segmentation “Fit” for ImplementationSegment Attractiveness and Internal Compatibility Internal Compatibility High Low Attractive segments that match with company capabilities Attractive segments but with poor match with company capabilities High Market Segment Attractiveness Unattractive segments that do not match with company capabilities but with match to company capabilities Low

104 Continuous Learning About MarketsMarket orientation and organizational learning Marketing research information Information systems Marketing intelligence systems and knowledge management Ethical issues in collecting and using information

105 Market Orientation and Organizational LearningMarket orientation perspective includes all relevant sources of knowledge and ideas Characteristics of the learning organization Learning and competitive advantage

106 Learning About MarketsOpen- Minded Inquiry Keeping and Gaining Access to Prior Learning Synergistic Information Distribution Mutually Informed Interpretations Source: George S. Day, Journal of Marketing, October 1994.

107 Illustrative Example: The Bombay CompanyTurnaround strategy at The Bombay Company started with customer research examining shopping experiences and what consumers really wanted from a home furnishings supplier This drove major changes in how goods were displayed and presented to overcome perceptions of confused merchandizing and pricing Stores were re-merchandized around themes to overcome consumer feelings that the company was too “stuffy” The research showed that catalogs were used for decorating ideas not product listings, so they were restyled around lifestyle choices The Bombay Company strategy is driven by extensive market research and rewsponse to customer feedback

108 A Framework for Market SensingProbability of the Event Occurring High Medium Low 7 Field of Utopia 6 Dreams 5 Effect of the Event on the Things to Company* 4 Watch 3 Future 2 Danger Risks 1 * 1=Disaster, 2=Very bad, 3=Bad, 4=Neutral, 5=Good, 6=Very good, 7=Ideal

109 Types of Marketing InformationMarketing research studies Standardized information services Management information systems Database systems Decision support systems Customer relationship management (CRM) systems Competitor intelligence systems

110 Strategies for Obtaining InformationInternal Data Collect existing information Published information Subscription Strategy alternatives Use standardized research services Single purchase Exploratory Conduct research study Full-scale

111 Advantages and Limitations of Questioning MethodsAdvantages Limitations Personal Interviews Most versatile and High cost flexible Possibility of interviewer Long questionnaires bias handled more easily Possibility of cheating by Presence of interviewer interviewer due to lack allows more flexibility of supervision in procedure Project time often lengthy More enjoyable for respondents Fewer refusals Telephone Interviews Fewer interviewers needed More noncommittal Relatively inexpensive answers Rapid method of data Some households collection overrepresented Can reach large number of Lengthy and detailed households questions often not More control over interviewers feasible Mail surveys Higher-quality information Questionnaire cannot be Better for collecting changed information on possibly Complex embarrassing subjects Can be completed by Relatively cheaper to conduct person other than intended No interviewer bias Follow-up expensive Response often slow in coming Source: Harper W. Boyd, Jr., Ralph Westfall, and Stanley F. Stasch, Marketing Research: Text and Cases, 5th ed. (Homewood, IL Richard D. Irwin, 1981), Chap. 4.

112 Special Research StudiesProblem Definition Information Required Research Method Sampling Plan Questionnaire Design Data Collection Analysis and Report

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

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

115 Impact of the Internet on Marketing Costs and AvailabilityOnline Surveys Fast Inexpensive Limitations in population coverage Resistance to excessive Web communications Customer feedback and peer-to-peer Web communications Monitoring customer Web behavior

116 Illustrative Example: Knowledge Sharing at Buckman LabsBuckman has more than 50 Internet discussion groups focused on its main products – employees post messages a day The company has amassed an easily searchable database of in-house expertise and past lessons learned, all accessible to employees and customers The Web harnesses the brainpower of an entire global speciality chemicals company around customer problems Knowledge sharing is the foundation for superior learning about customers

117 Marketing Decision-SupportSystem Components Database Display Analysis Capabilities Models

118 Marketing Intelligence and Knowledge ManagementMarket sensing does not rely on hard data alone intelligence from publications, sales calls, customer visits, social contacts, Internet, rumor Knowledge management Role of the Chief Knowledge Officer Leveraging customer knowledge creating “customer knowledge development dialogues” operating enterprise-wide “customer knowledge communities” capturing customer knowledge at the point of customer contact management commitment to customer knowledge

119 Ethical Issues in Collecting and Using InformationInvasion of customer privacy e.g., use of medical databases to sell healthcare products Information and ethics e.g., guidelines for sharing of confidential information e.g., collecting data from children

122 Market Targeting and Strategic PositioningMarket Targeting Strategy Targeting in Different Market Environments Positioning Strategy Developing the Positioning Strategy Determining Positioning Effectiveness

123 MARKET TARGETING STRATEGYThe Marketing Targeting Decision Identities the People or Organizations in a Product-Market Toward Which a Firm Directs Its Positioning Strategy Guided by an understanding of: •The product-market •Its buyers •Firm’s capabilities and resources •Competition

124 Market Targeting and Strategic PositioningCore dimensions of market-driven strategy: deciding which buyer’s to target and how to position the firm’s products Effective targeting and positioning strategies are essential in gaining and sustaining superior performance

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

126 Decide and implement a positioning strategy for each targeted segmentIdentify segments within the product-market TARGETING AND POSTIONING Decide and implement a positioning strategy for each targeted segment Decide which segment(s) to target

127 Market Targeting AlternativesSegments Clearly Defined Target Selected Niche(s) Target Multiple Segments Selective Targeting Extensive Targeting Product Specialization Product Variety Differentiated But Segments Not Clearly Defined

128 Factors Influencing Targeting DecisionsStage of product – market maturity Extent of diversity in preferences Industry structure Capabilities and resources Opportunities to gain competitive advantage

129 TARGETING IN DIFFERENT MARKET ENVIRONMENTSEmerging Fragmented Transitional Declining Global

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

131 SATELLITE RADIO POWERS UPINNOVATION FEATURE An Emerging Market for Satellite Radio Services SATELLITE RADIO POWERS UP Satellite radio is catching on., with some 700,000 subscribers today and forecasts for 1.5 million by year end. WHAT IS SATELLITE RADIO? These systems bean CD-quality signals from space to special radios, most of which are installed in cars. Customers can also listen at home or on the go. WHERE IS IT AVAILABLE? Two carriers offer nationwide coverage. XM, based in Washington, D.C., is $19.99 a month; Sirius, based in New York, is $12.95 WHAT DO YOU GET? The services offer about 100 channels. Sirius is commercial-free, while XM broadcasts a limited number of ads. Programs range from music to news to comedy. WHO IS BACKING SATELLITE RADIO? Carmakers, who are eager for a stake in a new, fast-growing business. GM funded XM, and Daimler-Chrysler is backing Sirius. Others are picking one of the two technologies, which are not currently compatible.

132 DO MOST CARS HAVE SATELLITE RADIODO MOST CARS HAVE SATELLITE RADIO? The systems are available on many new models for about $300. Within two years, satellite radio is expected to be available on many new cars. WHAT ABOUT HOME AND PORTABLE SYSTEMS? You can buy a palm-size receiver from Sirius or XM. They are available from retailers like Circuit City and Wal-Mart for about $200, including adapters. You can carry these, using them at home or in the car. For an additional $99, XM’s can be used with a special portable boom box. XM has the lead position in the market but faces major financial challenges, and is spending $20 million in cash each month. With less than 1 million subscribers, XM needs 7.5 million and $1 billion in revenues to cover capital and interest costs. Source: “This is the Dawning of the Age—XM?”, Business Week, July 7, 2003,

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

134 Strategies for Mature MarketsBuyer Diversity Segmentation essential for competitive advantage Industry Structure Intense competition for market share Emphasis on cost and service, and pressures on profits Capabilities and Resources Management’s objectives: cost reduction, selective targeting, product differentiation Targeting Strategy Firms pursuing extensive targeting strategies may decide to exit from certain segments

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

136 POSITIONING STRATEGY Deciding the desired perception/ association of an organization/ brand by market target buyers…and designing the marketing program to meet (or exceed) buyers’ value requirements.

137 POSITIONING EFFECTIVENESSPOSITIONING CONCEPT The desired positioning of the product (brand) by targeted buyers MARKET TARGET POSITIONING EFFECTIVENESS POSITIONING STRATEGY The extent to which positioning objectives are achieved for the market target The combination of marketing actions used to communicate the positioning concept to targeted buyers

138 Positioning in PerspectiveObjective Match the organization’s distinctive capabilities with the customer value requirements in each market target (How do we want to be perceived by targeted buyers?) Desired result Gain a relevant, distinct, and enduring position that is considered important by the targeted buyers Actions by the organization Design and implement the positioning strategy (marketing program) for the market target.

139 The Perception or Association that Management Wants Buyers to Have Concerning the BrandSymbolic Functional POSITIONING CONCEPT Experiential

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

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

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

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

144 Customer and Competitor ResearchMethods for Determining Positioning Effectiveness Analytical Positioning Models Test Marketing

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

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

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

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

149 Illustrative Impacts of Changes in Business Strategy Restructuring on Targeting and Positioning Strategies Changes in Business Strategy Market Targeting Impact Positioning Impact Rapid Growth/ Retrenchment Market scope may not change although targets may be increased or reduced. Substantial changes in resource allocation, (e.g. advertising expenditures Changing the Product Mix No change is necessary unless increase in product scope creates opportunities in new segments. Changes in product strategy, methods of distribution, and promotional strategies may be necessary. Changing the Market Scope Targeting is likely to change to include new targets. Positioning strategy must be developed for each new target. Repositioning Should not have a major effect on targeting strategy. Product, distribution, price, and promotion strategies may be affected. Value Chain Integration Should have no effect on targeting strategy. Primary impact on channel, pricing and promotion strategies. Diversification Targeting strategies must be selected in new business areas. Positioning strategies must be developed (or acquired for the new business areas. Strategic Alliance Targeting strategy may be affected based on the nature and scope of the alliance. Operating relationships and assignment or responsibilities must be established.

150 Targeting and PositioningProduct Strategy Positioning Strategy Promotion Strategy Distribution Strategy Market Target Price Strategy

153 Strategic RelationshipsThe rationale for interorganizational relationships Types of organizational relationships Developing effective relationships between organizations Global relationships among organizations

154 Strategic Relationships

155 Mapping the Path to Market LeadershipMarket-Oriented Culture and Process Superior Customer Value Proposition Organizational Change Relationship Strategies Positioning with Distinctive Competencies

156 Strategic Relationships Between Various OrganizationsChannel Member Competitor Company Customer Supplier

157 Exhibit 7-1 Drivers of Interorganizational RelationshipsValue Enhancing Opportunities THE RATIONALE Environmental Turbulence and Diversity Skill and Resource Gaps

158 Illustrative Inter-Organizational RelationshipsStrategic Alliance M M M Supplier/ Manufacturer Collaboration M JV Joint Venture W Distribution Channel Relationship R EU

159 Growth in Strategic RelationshipsBy 2001, the top 500 global businesses had 60 major strategic allainces each By end of 1990s, U.S. alliances had grown more than 25 percent annually for previous 5 years Accenture suggests nearly one-third of companies expect alliances to account for more than one-third of market value by mid-2000s Reliance on alliances is high (20-30% of revenue) in U.S. and European companies

160 The Logic of CollaborationIs partnering a promising strategy? How essential is the relationship strategy? Are good candidates available? Do relationships fit our culture?

161 Exhibit 7-3 Types of Organizational RelationshipsSupplier Partnerships Goods Suppliers Services Suppliers Internal Partnerships Lateral Partnerships Business Units Competitors Focal Firm Nonprofit Organizations Employees Functional Departments Government Intermediate Customers Ultimate Customers Buyer Partnerships Source: Robert M. Morgan and Shelby D. Hunt, “The Commitment - Trust Theory of Relationship Marketing,” Journal of Marketing, July 1994, 21.

162 Illustrative Partnering with CustomersCompany/Brand Boeing (commercial aircraft) Harley-Davidson (motorcycles) Marriott (hotels) System Soft (PC Card software) Customer Partner Involving airlines in design of Boeing 777 Harley Owners Group with over 100,000 members Partnering with corporate customers Partnering with PC makers and Intel

163 Strategic Alliances Success of alliances failures in logicfailures in process Kinds of alliances Alliance success requirements Alliance vulnerabilities

164 Exhibit 7-6 Motives Underlying Entry of Firms into Strategic AlliancesMarket entry and market position-related motives Product-related motives Product/market-related motives Market structure modification-related motives Market entry timing-related motives Resource extension- and risk-reduction related motives Skills enhancement-related motives Source: P. Rajan Varadarajan and Margaret H. Cunningham, “Strategic Alliances: A Synthesis of Conceptual Foundations,”Journal of the Academy of Marketing Science, Fall 1995, 285.

165 Exhibit 7-7 Relationship Management GuidelinesPlanning Trust/Self Interest Conflicts Leadership Flexibility Technology Transfer Learning

166 How Strategic Relationships Enhance ValueImproved market vision and learning by pooling the knowledge and experience of the partners Enhanced customer value by integrating the partner’s unique competencies Joint analysis of what is required to create superior customer value for specific market segments Capitalizing on value migration opportunities that are not feasible for a single organization Reforming organization structure to gain efficiencies and greater adaptability to change

167 Strategic Relationship IssuesThe role of strategic relationships in market-driven strategy Moving from hierarchies to process driven structures Fit of relationship strategy with organizational design Marketing and organizational change

168 Global Relationships Among OrganizationsTypes of global organizations the network corporation trading companies The strategic role of government single nation partnership multiple nation partnership government corporations government legislation

171 Planning for New ProductsThe Innovation Mandate

172 PLANNING FOR NEW PRODUCTSImportance of New Products Customer Driven Process Steps in New Product Planning Idea Generation Screening/Evaluating/and Business Analysis Product and Process Development Marketing Strategy and Market Testing Commercialization Variation in the Generic Planning Process

173 Importance of New ProductsInnovation at top of potential value drivers (Ernst & Young) Innovation initiatives extend beyond new goods and services to include ideas, processes, and business practices Organizations must build a culture of innovation

174 New Product Planning as a Customer Driven ProcessNew product classifications: Newness to market Newness to company New product types: Transformational innovations New product category Product line extensions Incremental improvements

175 High High Low Newness to company Newness to market New-to-worldproducts 10% New product lines 20% Newness to company Improvements/ revisions to existing products 26% Additions to existing product lines 26% Cost reductions 11% Repositionings 7% High Low Newness to market Size of circle denotes number of introductions relative to total. Source: New Product Management for the 1980s, Booz Allen & Hamilton Inc

176 Finding Customer Value OpportunitiesCustomer value analysis Objective is to identify needs for: New products Improvements to existing products Improvements in production processes Improvements in supporting services TM 5-1

177 Matching Capabilities to Customer Value OpportunitiesFit between capabilities and product offering Transformational Innovations “new-to-the-world” ideas Customers not always the best guides TM 5-1

178 OPPORTUNITIES Customer Expectations Customer Satisfaction Gap Actual(1) New Products (2) Improvements (3) New and Improved Processes Actual Product Performance

179 Characteristics of Successful InnovationsCreating an Innovative Culture Selecting the Right Innovation Strategy Leveraging Capabilities STRATEGIC INITIATIVES Making Resource Commitments Developing and Implementing Effective New Product Processes

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

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

182 NEW PRODUCT PLANNING PROCESSCustomer Needs Analysis Idea Generation Screening and Evaluation Business Analysis Marketing Strategy Development Product Development Testing Commercialization

183 Achieving Cross-Functional Interaction and CoordinationOperations Marketing Finance

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

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

186 BENETTON’S STRATEGY TO REVIVE APPAREL IDEA GENERATION“We didn’t take advantage of the [industry’s] quick transformation,” says Silvana Cassano, the ex-Fiat manager who assumed the post of chief executive of Benetton Group on May 5. The transformation saw the best retailers turn into cutting-edge users of digital technology. Benetton’s competitors-notably Spain’s Zara and Sweden’s H&M Hennes & Mauritz-have raised the bar for the entire industry. These retailers can beam new styles from the catwalk to the shop floor in less than a month-and at bargain prices. Both deploy sophisticated technology to track which items are selling and which aren’t, so winners can be speedily restocked and slow movers yanked down from the racks. They’ve got the look down, too-cool and minimal for the working women who love Zara, and over-the-top trendy for H&M’s teen fans. And Benetton’s look? Blan. “The Benetton brand is out of fashion,” says Sagra Maceira de Rosen, retail analyst at J.P. Morgan Chase & Co. in London.

187 Benetton’s Strategy (continued)Cassano is out to change that. The message he delivered in his first encounter with shareholders was short and powerful: Benetton is going to refocus on the apparel business, which encompasses the Sisley and Benetton brands. It’s no secret that Benetton’s core casual wear business has suffered neglect. In 1994, founder Luciano Benetton launched an ill-fated diversification into sports equipment, snapping up trophy brands such as Prince (tennis rackets), Rollerblade (in-line skates), and Killer Loop (snowboards). But the strategy foundered and last year, Benetton sold the entire equipment division, booking $190 million in write-offs. The company posted its first annual loss-$10.5 million, on revenues of $2.3 million. Source: “Has Benetton Stopped Unraveling?” Business Week, June 30, 2003, 76.

188 METHODS OF GENERATING IDEAS Direct Search Linking Marketing and Technology Facilitating Lead User Analysis Creative Methods National Policy Exploratory Customer Studies Alliances/ Acquisition/ Licensing Technological Innovation

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

190 Business Analysis Revenue Forecasts Preliminary Marketing PlanCost Estimation Profit Projections Other Considerations

191 PRODUCT AND PROCESS DEVELOPMENTNEW PRODUCT CONCEPT PRODUCT DEVELOPMENT AND USE TESTING MARKETING STRATEGY DEVELOPMENT MARKET TESTING LAUNCH

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

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

194 MARKETING STRATEGY AND MARKET TESTINGMarketing Strategy Decisions Market Targeting Positioning Strategy Market Testing Options Simulated Test Marketing Scanner – Based Test Marketing Conventional Test Marketing Testing Industrial Products Selecting Test Sites Length of the Test External Influences

195 Scanner-based Test MarketingLess artificial than simulated testing Costs less than full-scale market test Test is controlled by using IRI’s 2300 panel members in each test city Cable TV enables use of controlled ad testing Tests take about 12 months Costs are $250,000+

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

197 Marketing Strategy Market Target(s) Marketing Program(s) Objectives

198 VARIATIONS IN THE GENERIC NEW PRODUCT PLANNINGTechnology Push Processes Platform Products Process – Intensive Products Customized Products

201 STRATEGIC BRAND MANAGEMENTChallenges in Building Strong Brands Strategic Brand Analysis Brand Identity Strategies Managing Products/Brands Managing the Brand Portfolio

202 CHALLENGES IN BUILDING STRONG BRANDSA product is anything that is potentially valued by a target market for the benefits or satisfaction it provides, including objects, services, organizations, places, people, and ideas

203 Services are intangible A brand is a name, term, sign, symbol, or design, or combination of them, intended to identify the goods or services of one seller or group of sellers, and to differentiate them from those of competitors. American Marketing Association Goods Versus Services Services are intangible consumed at the time they are produced, often linked to the people who produce the services.* * Leonard Berry, “Services are Different,” Business, May-Jun 1980,

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

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

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

207 Responsibility for Managing ProductsProduct/Brand Management Planning, managing, and coordinating the strategy for a specific product or brand Product Group/Marketing Management Product director, group manager, or marketing manager Product Portfolio Management Chief executive at SBU Team of top executives TM 5-1

208 Marketing’s Role in Product StrategyMarket sensing Identifying the characteristics and performance features of products Guiding target market and program-positioning strategies Strategic brand management decisions are relevant to all businesses, including suppliers, producers, wholesalers, distributors, and retailers. TM 5-1

209 Strategic Brand ManagementBrand Identity Brand Equity Identity Implementation Brand Strategy Over Time Strategic Brand Analysis Managing the Brand Portfolio Leveraging the Brand

210 Strategic Brand Analysis Portfolio of Product LinesAnalyses Product Product Line Portfolio of Product Lines □ Market and Customer □ Competition □ Brand(s)

211 Tracking Product PerformanceSet Performance Objectives Select Method(s) for Product Evaluation Identify Problem Products Decide How to Eliminate the Problems

212 Analyzing Brand PerformanceProduct life cycle analysis Product grid analysis Financial analysis Analyzing Brand Performance Brand Positioning maps Research studies Standardized information services

213 Product Life Cycle AnalysisRelevant issues in PLC analysis include: Determining the length and rate of change of the PLC Identifying the current PLC stage and selecting the product strategy that corresponds to that stage Anticipating threats and finding opportunities for altering and extending the PLC

214 Brand Positioning AnalysisProduct Grid Analysis Management’s performance criteria Strengths and weaknesses relative to portfolio Brand Positioning Analysis Perceptual maps for brand comparison Buyer preferences Other Product Analysis Methods Information Services Research studies Financial analysis

215 Brand Equity Effective strategic brand management requires that we understand brand equity and evaluate its impact when making brand management decisions: “Brand equity is a set of brand assets and liability linked to a brand, its name, and symbol, that add to or subtract from the value provided by a product or service to a firm and/or to that firm’s customers.* Measuring Brand Equity. Several measures are needed to capture all relevant aspects of brand equity.** loyalty (price premium, satisfaction/loyalty), perceived quality/leadership measures (perceived quality, leadership/popularity), associations/differentiation (perceived value, brand personality, organizational associations), awareness (brand awareness), and market behavior (market share, price and distribution indices). These components provide the basis for developing operational measures of brand equity. * David A. Aaker, Managing Brand Equity, The Free Press, 1991, 15. **Ibid,

216 BRAND IDENTITY STRATEGIES Four Brand Identity PerspectivesBrand identity is a unique set of brand associations that the brand strategist aspires to create or maintain. These associations represent what the brand stands for and imply a promise to customers from the organization members.* Four Brand Identity Perspectives Product Organization Person Symbol * David A. Aaker, Building Strong Brands, 1996, 68.

217 Specific Product Line of Products Private Branding Basis of Identification Combination Basis Company Name

218 MANAGING PRODUCTS/BRANDSBuilding the Product/Brand Over Time Product Line Strategies Product/Brand Portfolio Strategies

219 Strategies for Improving Product Performanceimprovement Alter marketing strategy Cost reduction Product line Strategy Add new product(s) Eliminate specific product(s) Product mix strategy Delete product line(s) Add new product line(s) Change product line priorities

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

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

222 Brand Leveraging StrategyLINE EXTENSION Minor variants of a single product are marketed under the same brand name BRAND EXTENSION Extensions of the brand name to other product categories --Similar --Dissimilar

223 Leveraging AlternativesLINE EXTENSIONS BRAND EXTENSIONS Horizontal Extension Vertical Extension Another Product Class Co- Branding Range Brand Up from Core Brand Down from Core Brand

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

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

226 MANAGING THE BRAND PORTFOLIOObjectives: Leverage commonalities to generate synergy Reduce damage to brand identity Obtain clarity of product offering Enable change and adaptation Guide resource allocations among brands Source: Aaker, Building Strong Brands, 1996.

227 GLOBAL BRANDS International markets: strategic branding challengesGlobal brands supported by increasingly cosmopolitan consumers in many countries Don’t build global brands but strive for global brand leadership Challenge for MNCs: managing brand systems containing global, regional, and local brands

228 Internet Brands Interactivity enhances brand relationships and corporate reputation Guidelines for a website used to reinforce an existing brand Create a positive experience (ease of use, value, interactive, personalized, timely) Reflect and support the brand Synergy with other communication programs Provide home for loyalists Differentiate with strong sub-branded content Source: Aaker and Joachimsthaler, Brand Leadership, 2000, 242.

229 HOW MANY BRANDS? Is it different enough to merit a new name?Will the brand identity add value? Are there risks in using an existing brand name? Is the new brand a viable business venture?

232 Value Chain Strategy Strategic role of distributionChannel of distribution strategy Managing the channel International channels Supply chain management issues

233 Strategic Role of DistributionDistribution functions - buying and selling activities - product assembly - transportation - financing - processing and storage - advertising and sales promotion - pricing - reduction of risk - personal selling - communications - servicing and repairs Channels for Services Direct distribution by manufacturers

234 Illustrative Example: Internet Impact on DistributionThe Impact of Technology on Value Chains In India E-Government Computer Kiosks Agricultural e-commerce Tele-medicine

235 Manufacturers and producersThe Marketing System Manufacturers and producers Facilitating organizations Financial Transportation Advertising Other Marketing intermediaries Retailers Agents-brokers Wholesalers-distributors Agriculture and raw materials suppliers End users Consumer Industrial-institutional

236 Marketing Channels Manufacturers/producers Agents/brokers Wholesalers/distributors Retailers Retailers Consumers and organizational end users

237 Illustrative Example: SamsungGoal of moving from cheap imitative electronics products to a cool brand Feature-packed products Products removed from shelves of Wal-Mart and Target and positioned with higher-end chains like Best Buy and Circuit City Samsung competes through hardware innovation, product customization and speed Samsung sells only higher-end goods and resists pressures towards marketing low-price products Strategy is implemented in part through supply chain and distribution choices

238 Distribution by ManufacturersManufacturers have three distribution alternatives: Direct distribution is necessary Use of intermediaries is necessary Both direct and intermediary contact are feasible

239 Factors Favoring Distribution by ManufacturerOpportunity for competitive advantage Profit margins adequate to support distribution organization Rapidly changing market environment Complete line of products Early stages of product life cycle Distribution by the manufacturer Purchases are large and infrequent Complex product application Extensive purchasing process Small number of geographically concentrated buyers Supporting services are required

240 Illustrative Example: Retail Initiatives by ManufacturersApple Computer To educate consumers about computers and music players Sony Electronics, palmOne Reinforce brands with affluent consumers and better understand market trends Driving forces are market access and market learning

241 Channel of Distribution StrategyTypes of distribution channel Distribution intensity Selecting the channel strategy Strategies at different channel levels

242 Steps in Channel Strategy Selection(1) Type of channel arrangement Conventional Vertically coordinated Ownership Contractual Administered (2) Desired intensity of distribution Intensive Selective Exclusive (3) Selection of a channel configuration

243 Distribution Intensity IllustrationsTrading Area A B C + + + + + Exclusive distribution Selective distribution Intensive distribution Illustrations Cadillac automobiles Ethan Allen furniture Revlon cosmetics Caterpillar equipment Estée Lauder cosmetics Timex watches

244 Design stages Decision criteriaSelecting the Channel Strategy Design stages Decision criteria Identification of channel alternatives Intensity of distribution Access to end users Prevailing distribution practices Necessary activities and functions Revenue-cost analysis Time horizon for development Control considerations Legal constraints Channel availability Select the channel Market coverage Capabilities Intermediary’s needs Functions provided Availability Evaluation and selection of channel(s) to be used Selection of channel participants

245 Illustrative Channel Strategy EvaluationEvaluation Manufacturer’s Company Criteria Representatives Salesforce Market access Rapid to 3 year development Sales forecast (2 years) $10 million $20 million Forecast accuracy High Medium to low Estimated costs $1 million* $2.4 million** Selling Expense (cost/sales) % % Flexibility Good Fair Control Limited Good * Includes 8% commission plus management time for recruiting and training representatives. ** Includes $100,000 for 10 salespeople, plus management time.

246 Managing the Channel Channel leadershipManagement structure and systems Physical distribution management Channel relationships Conflict resolution Channel performance Legal and ethical considerations

247 International Channel of Distribution AlternativesHome country Foreign country The foreign marketer or producer sells to or through Domestic producer or marketer sells to or through Open distribution via domestic wholesale middlemen Exporter Importer Foreign agent or merchant wholesalers Foreign retailer Foreign consumer Export management company or company sales force Source: Philip R. Cateora, International Marketing, 7th ed., Homewood, Ill.: Richard D. Irwin, Inc., 1990, 572.

248 Strategic Value Chain ManagementSupply chain management Efficient Consumer Response program Lean supply chains Agile supply chains Impact of supply chain strategy on marketing E-business models Retailer and distributor power Strategic flexibility and change

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

250 Lean Supply Chain Elements1. Definition of Value 2. Identification of Value Streams and Removal of Muda (Waste) 3. Organizing Around Flow, Instead of “Batch and Queue” 4. Responding to Pull Through the Supply Chain 5. The Pursuit of Perfection

253 PRICING STRATEGY AND MANAGEMENTStrategic Role of Price Analyzing the Pricing Situation Selecting the Pricing Strategy Determining Specific Prices and Policies

254 Pricing Decisions are Creating Major Challenges for Many CompaniesExamples Include: Threats to major airlines by discount carriers. Pressures on drug companies to reduce prices. Intense price competition on supermarket chains by Wal- Mart and Costco. Aggressive discounting by U.S. automobile producers to retain market share. Threats to strong brands by counterfeit products.

255 STRATEGIC ROLE OF PRICEPart of the reason that pricing is misused and poorly understood is the common practice of making it the last marketing decision. We think that we must design products, communications plans, and a method of distribution before we have something to price. We then use pricing tactically to capture whatever value we can. T.Nagle, Marketing News, 11/9/98, 4.

256 Pricing Strategically…requires that we put pricing at the beginning of the process. For example, a multi-part marketing strategy usually is required in value-based pricing. Airlines’ complicated service packages with arcane restrictions, and their multiple channels of distribution must support pricing that reflects different values of the service to different segments. Without such a strategy, airlines would capture a much smaller portion of the value they have the potential to create. T. Nagle, Marketing News, 11/9/98, 4.

257 How Price Fits into the Positioning StrategyProduct strategy Target market and objectives Value-Chain Pricing Promotion strategy

258 Pricing Situations New product pricing Life cycle pricingPositioning strategy change Countering competitive threats

259 Role of Price in Positioning StrategySignal to the Buyer Instrument of Competition Improving Financial Performance Marketing Program Considerations

260 Pricing Strategy for New and Existing ProductsSet Pricing Objectives Analyze the Pricing Situation Select Pricing Strategy Determine Specific Prices and Policies

261 Examples of Pricing ObjectivesGain market position Achieve financial performance Product positioning Stimulate demand Influence competition

262 ANALYZING THE PRICING SITUATIONCustomer Price Sensitivity Legal and Ethical Constraints Competitors’ Likely Responses Analyzing the Pricing Situation Product Costs

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

264 Buyers’ Perceptions of Value Offerings of Brands A-EPerceived Value Superior Value Zone D A B E C Inferior Value Zone Perceived Price

265 Guide to Cost Analysis A B C D E Determine cost structureAnalyze cost and volume relationships B Analyze competitive advantage C Estimate the effect of experience on costs D Determine the extent of control over costs E

266 Competitor Analysis Which firms represent the most direct competitionCompetitor’s positioning on a relative price basis How active is price in their marketing strategies Competitors’ success with their pricing strategies Competitors’ probable responses to alternative price strategies

267 Pricing Pressures in the Personal Computer MarketThe personal computer market offers an interesting look at the effects of intense competition. Dell, Inc. continually looks to lower its operating expenses in an effort to pass savings to customers. The result over time has enabled Dell to profitably grow at a multiple of the industry, which has had a negative effect on companies such as Hewlett-Packard Co. The pricing pressure on rivals is one of the reasons that led to the merger between Compaq Computer and H-P. The aggressive price competition resulted in H-P’s PC unit reporting a loss in 3rd Quarter A major competitive hurdle for H-P is Dell’s low-cost direct-sales business model. Sources: “A Nasty Surprise from HP,” Business Week, September 1, 2003; Gary McWilliams and Pui-Wing Tam, “Dell Price Cuts Put a Squeeze on Rival H-P,” The Wall Street Journal, August 21, 2003, B1 and B7.

268 Legal and Ethical ConsiderationsWhat are the legal and ethical factors that may affect the choice of a price strategy?

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

270 Determinants of Pricing FlexibilityDemand Costs Demand-Cost Gap Competition Legal and Ethical Influences

271 How Much Flexibility Exists?Price too high; little or no demand Price Floor Price Ceiling Nature of demand in target market Business and marketing strategy Product differentiation Competitors’ prices Prices of substitutes Product costs Range of feasible prices Price too low; no profit possible

272 Price Positioning Skim strategy Neutral strategy (same as competition)Penetration strategy Above Competition Below Competition

273 Competitive Pricing IssuesDiplomacy rather than force Competitive Pricing Issues Target segments instead of volume Select competitive confrontations Signaling Source: Thomas T. Nagle, “Price Competition,” Marketing Management, Vol. 2, No. 1,

274 Illustrative Price StrategiesActive strategy Low- active strategy High- active strategy Low relative price High relative price Low- passive strategy High- passive strategy Passive strategy

275 DETERMINING SPECIFIC PRICES AND POLICIESPolicies to Manage Pricing Strategy Special Pricing Issues

276 Pricing in Action Basis of Determining Specific Prices DemandCost Competition Demand

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

278 Special Pricing SituationsPrice Segmentation Value Chain (Distribution) Channel Pricing Price Flexibility Product Life Cycle Pricing Counterfeit Products

281 Promotion, Advertising, and Sales Promotion StrategiesPromotion Strategy Advertising Strategy Sales Promotion Strategy

282 The Vuitton Machine* Inside the world’s biggest, most profitable luxury brand BENCHMARKING VUITTON Brand 2003 Sales Billions Percent Change* Operating Margin Louis Vuitton $3.80 +16% 45.0% Prada 1.95 0.0 13.0 Gucci** 1.85 -1.0 27.0 Hermés 1.57 +7.7 25.4 Coach 1.20 +34.0 29.9 *At constant rate of exchange **Gucci division of Gucci Group Data: Company reports. BW Vuitton increased advertising 20% in 2003―spends only 5% of revenues on advertising―about half the industry average *Business Week, March 22, 2004,

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

284 Promotion Strategy is ―Initiating and maintaining a flow of communications between a company (brand) and its market targets.

285 Composition of Promotion Strategy Interactive/Internet MarketingDirect Marketing Advertising Promotion Components Personal Selling Sales Promotion Public Relations

286 Annual Expenditures (billions)$200 $400 $600 Personal Selling Sales Promotion Advertising

287 DEVELOPING THE PROMOTION STRATEGYMARKET TARGETING AND POSITIONING STRATEGIES COMMUNICATION OBJECTIVES ROLE OF PROMOTION COMPONENTS Advertising Sales Promotion Public Relations Personal Selling Direct Marketing Interactive/ Internet Marketing PROMOTION BUDGET Coordination with Product, Distribution, and Price Strategies PROMOTION COMPONENT STRATEGIES INTEGRATE AND IMPLEMENT PROMOTION COMPONENT STRATEGIES EVALUATE EFFECTIVENESS OF PROMOTION STRATEGY

288 ILLUSTRATIVE COMMUNICATION OBJECTIVESNeed Recognition Finding Buyers Brand Building Evaluation of Alternatives Decision to Purchase Customer Retention

289 DECIDING THE ROLE OF THE PROMOTION COMPONENTSExpected contribution for each of the promotion components. Which communication objective(s) will be the responsibility of each component? What part of the budget will go to each component?

290 Factors Guiding the Role Assigned to Each ComponentMarket Target(s) Desired Positioning Role of Promotion in Positioning Product Characteristics Stage of Life Cycle Situation Specific Factors

291 DETERMINING THE PROMOTION BUDGET Follow the CompetitionObjective and Task All You Can Afford Percent of Sales Budgeting Approaches Follow the Competition

292 Budgeting Methods Features Limitations Percent of SalesFixed percent of sales, often based on past expenditure patterns. Comparative Parity Budget is based largely upon what competition is doing. Objective and Task Set objectives and then determine tasks (and costs) necessary to meet the objectives. Percent of Sales The method is very arbitrary. Budget may be too high when sales are high and too low when sales are low. Comparative Parity Differences in marketing strategy may require different budget levels. Objective and Task The major issue in using this method is deciding the right objectives so measurement of results is important.

293 Integrating and Implementing Promotion Strategy Integration ChallengesAvoiding fragmentation Difficulty in evaluating productivity Differences in priorities Separate organizational units Assigning integration responsibility

294 Illustrative Influences on Promotions StrategyAdvertising/ sales promotion driven Balanced Personal selling driven Number and dispersion of buyers Buyers’ information needs Size and importance of purchase Distribution Product Complexity Post-purchase contact required Small High Large Direct Yes Low Channel No

295 Promotion Strategy IssuesExpense/Response Relationships Allocation Impact on Brand Equity Integration of Promotion Components Evaluating Effectiveness

296 ADVERTISING STRATEGY Setting Objectives and BudgetingCreative Strategy Media/Programming Strategy Role of the Agency Program Implementation and Effectiveness

297 ADVERTISING STRATEGY Target Audience Advertising ObjectivesAdvertising Budget Creative Strategy Advertising Media and Programming Schedules Implement and Evaluate Strategy Effectiveness

298 Illustrative Advertising ObjectivesExpose communication to target audience Create awareness Change attitude(s) Increase Sales Generate profits

299 Alternative Levels for Setting Advertising ObjectivesIncreasing Uncertainty About Impact on Purchasing Behavior Type of Objective Exposure Awareness Attitude Change Sales Profit Increasing Difficulty of Measurement

300 Determining Advertising ObjectivesDoes the advertising aim at immediate sales? Does the advertising aim at near-term sales? Does the advertising aim at building a long-range consumer franchise? Does the advertising aim at helping increase sales? Does the advertising aim at some specific step that leads to a sale? How important are supplementary benefits of advertising? Should the advertising impart information needed to consummate sales and build customer satisfaction? Should advertising build confidence and goodwill for the corporation? What kind of images does the company wish to build? Source: from Exhibit 12-5.

301 Budget Determination OBJECTIVE AND TASK METHOD HAS A STRONGER SUPPORTING LOGIC THAH THE OTHER METHODS. Budget Determination Media/ Scheduling Creative Strategy

302 CREATIVE STRATEGY The creative strategy is guided by the market target and the positioning strategy. Product Distribution Price Promotion Advertising (How to communicate intended positioning to buyers and others influencing the purchase.) Provide a unifying concept that binds together the various parts of the advertising campaign. Creative Strategy

303 MEDIA / SCHEDULING DECISIONSTelevision Radio Magazines Online Website Outdoor

304 SPREADING the Word on the NetOnline advertising is growing at a sizzling 29% rate, to $9.3 billion this year. Here’s why: SEARCH WORKS Google and Yahoo! have demonstrated the power of the Web by using customers’ search queries to connect them with advertisers. This combination fuels a search industry expected to hit $3.9 billion this year. CUSTOMERS ARE ONLINE More than half of American households have always-on Net connections. And the Web reaches millions at the office. The Big Three portals-Yahoo, AOL, and MSN-reach a combined 50 million a day-twice the TV audience of a World Series game. VIDEO ROCKS The adoption of broadband, which can handle video, lets advertisers put TV-like ads online. Longer spots by BMW and Adidas have reached cult status. As demand for video soars, portals sell choice slots in advance, much like TV’s up-front sales. FEEDBACK IS INSTANT Marketers and online publishers have tools to track an ad’s performance in real time, allowing them to make quick adjustments if customers aren’t clicking. This turns the Net into a vast marketing lab. And as video grows, it becomes a test bed for TV ads. CUSTOMERS LEAVE TRAILS It was an empty promise during the dot-com days, but now advertisers have the technology to follow customers, click by click, and to hit them with relevant ads. The upshot? No wasted money peddling dog food to cat owners. Source: Stephen Baker, “The Online Ad Surge,” Business Week, November 22, 2004, 79.

305 Factors Influencing Media DecisionsAccess to the target audience Favorable access to cost Unfavorable access to cost Cost of reaching the target group(s)

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

307 Role of the Advertising AgencyTarget Audience Advertising Objectives Advertising Budget Creative Strategy Advertising Agency Advertising Media and Programming Evaluate the Effectiveness of the Strategy

308 ADVERTISING STRATEGY IMPLEMENTATION AND EFFECTIVENESSDecide how to measure effectiveness before implementing the strategy. Assign responsibility for tracking performance. Assessing the quality of advertising is important. Exposure to advertising is not a very sensitive measure of effectiveness.

309 MEASURING ADVERTISING EFFECTIVENESSRating Services Test Marketing Sales and Expense Analysis MEASURING ADVERTISING EFFECTIVENESS Controlled Tests Recall Tests

310 SALES PROMOTION STRATEGYSALES PROMOTION consists of various incentives, mostly short term, intended to stimulate quicker and/or greater purchase of particular goods/services by end-user consumers or value chain organizations. The strategy process is similar to the design of advertising strategy.

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

314 SALES FORCE, INTERNET, AND DIRECT MARKETING STRATEGIESSales Force Strategy Internet Strategy Direct Marketing Strategies

315 OFFICE DEPOT’S SUCCESSFUL INTERNET STRATEGYUsing a seamless network, Web operations are integrated into Office Depot’s existing businesses. An easy-to-use electronic link is provided between the online store and internal networks. Purchasing authorizations and limits are incorporated into the system. Ease of use rather than technology is the key priority for improving the online network. Bonuses are offered to salespeople to encourage corporate customers to use online ordering. Sales applicants are tested concerning Internet familiarity, and informed of the importance of Office Depot’s online initiatives during the hiring process. Office Depot’s Internet-sourced sales have increased at double digit rates from $1 billion in The online business was profitable in its first year. Source: Charles Haddad, “Office Depot’s E-Diva,” Business Week e.biz, August 6, 2001, EB22-EB24.

316 DESIGNING AND IMPLEMENTING SALES FORCE STRATEGYA company’s sales force strategy determines how the organization will use the personal selling function to maintain contact with customers and develop the relationships that management wants in order to achieve marketing and promotion objectives.

317 Sales Force Strategy Determine the role of the sales force in promotion strategy Define the selling process (how selling will be accomplished) Decide if and how alternative sales channels will be utilized Design the sales organization Recruit, train, and manage salespeople Evaluate performance and make adjustments where necessary

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

319 Business and Marketing Strategy Influences on Sales StrategyBusiness Strategy Promotion Strategy Market Target(s) Strategy SALES STRATEGY Pricing Strategy Product Strategy Distribution Strategy

320 SALES FORCE CHALLENGESEscalating customer expectations Marketing productivity crisis Intense global competition SALES FORCE CHALLENGES Mergers and acquisitions Blurring of industry boundaries Technology Advances

321 Range of Personal Selling RolesTransactional Selling Feature/Benefit Selling Solution Selling Value-Added Selling

322 DEFINING THE SELLING PROCESSFinding Prospects Opening the Relationship Qualifying the Prospect Presenting the Sales Message Closing the Sale Servicing the Account Source: Mark W. Johnston and Greg W. Marshall, Sales Force Management, McGraw-Hill/Irwin, 2003,

323 As radical change sweeps through today’s marketplace, managers face daunting questions about just how to adapt. Most of those questions focus on the structure and deployment of sales forces: What is the right mix of outside salespeople, inside reps, independent reps, brokers, telemarketers, and support staff? Are sales reps even necessary? Or can they be replaced by 800 numbers, catalogs, shopping channels, or the Internet? James Champy, “Strategy Session,” SAMM, 1997, 32.

324 The Selling Process GuidesRecruiting Training Effort Allocation Organizational Design Selling Support Activities

325 Selecting Sales Channels to Value Chain Members and End UsersMajor Account Management Field Sales Force Telemarketing Electronic/Mail Contact

326 DESIGNING THE SALES ORGANIZATION Deployment of Selling EffortOrganizational Structure Deployment of Selling Effort

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

328 Alternative Designs Market-Driven design Product/ Market-Driven designCustomer needs different Market-Driven design Product/ Market-Driven design Simple product offering Complex range of products Geography-Driven design Product- Driven design Customer needs similar

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

330 Sales Force Size Example40 35 30 25 20 15 10 5 Current level Maximum profit contribution level $ millions Gross profit contribution Selling expense Number of salespeople

331 MANAGING THE SALES FORCEFinding and Selecting Salespeople Training/Development Management Control Monitoring Directing Evaluating Rewarding

332 The Swiss Drug Maker Novartis Strengthens Sales Force CapabilitiesNovartis’ 1999 sales growth was very low compared to rivals’ double-digit sales increases. Top management launched a major turnaround strategy, spearheaded by new product initiatives and strengthening of the sales force. Salespeople were provided customer research information to focus their targeting efforts. The size of the sales force was increased from 2,815 to 6,200 in 2002. Collaboration and persistence were determined to be key traits of high performance Novartis salespeople. Major efforts were initiated to upgrade the sales force and improve selling and product training. Source: “New Prescription: It’s Rivals in Funk, Novartis Finds a Way to Thrive,” The Wall Street Journal, August 23, 2002, A1 and A5.

333 SALES FORCE EVALUATION AND CONTROLPerformance Measures Performance Standards Activities Focus of Management Control and/or Outcomes

334 REINVENTING THE SALES ORGANIZATIONCustomer Relationships Applying Technology Coaching SALES MANAGER CHALLENGES Performance Huddles Sales Structure Customer Channels Internal Relationships Keeping Score

335 INTERNET STRATEGY Strategy Development Internet ObjectivesE-Commerce Strategy Value Opportunities and Risks Measuring Effectiveness The Future of the Internet

336 Internet Strategy AlternativesPromotional Medium Communication Tool Value-Chain Channel Separate Business Model

337 Deciding Internet ObjectivesCreating Awareness and Interest Information Dissemination Obtaining Research Information Brand Building Improving Customer Service

338 DESIGNING THE STRATEGYCustomer Groups Targeted Value Proposition Communications Strategy Designing the Website Structure of the Organization Alliance Partners Shareholder Value Tracking Performance Source: J. F. Rayport and B. J. Jaworski, e-Commerce, McGraw-Hill/Irwin, 2003, 12.

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

340 DIRECT MARKETING METHODSKiosk Shopping Catalogs DIRECT MARKETING METHODS Electronic Shopping Direct Mail Telemarketing Radio/Magazine/ Newspaper Television

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

344 Designing Market-Driven OrganizationsConsiderations in organizational design Organizational design options Selecting an organizational design Global dimensions of organizations

345 Considerations in Marketing OrganizationMatching structure to strategic goals Extent of need to alter vertical structures Extent of process- type organizational design CONSIDERATIONS IN ORGANIZATION DESIGN Extent of partnering with other organizations Need to integrate value-creating activities around customers Impact of Internet on organizational processes

346 Alternative Organizational StructuresTraditional Hierarchy Process Overlay Functional Structure Process Structure Functional Overlay Horizontal Structure

347 The Challenge of IntegrationIntegration problems Marketing’s links to other functional units Additional approaches to effective integration relocation/design of facilities personnel movement reward systems formal procedures social orientation project budgeting

348 Illustrative Example: Johnson ControlsExecutives from marketing and sales meet frequently, collaborate on promotions, take training courses together, make sales calls together, share information freely Customer visits often involve executives from sales, marketing, engineering and design working togther Johnson’s teamwork philosophy extends to alliances and underpins its product development strategy

349 Illustrative Example: GE’s Philosophy“One clear message in our approach is the value of the borderless culture which breaks down the horizontal barriers between functions and the vertical barriers between organizational levels. This means that employees are encouraged to collaborate with others and given considerable freedom to turn their creativity into productivity.” Source: Robert Nardelli, GE, 1993

350 Impact of the Internet on OrganizationNew managerial roles and practices are mandated by the Web fast access to information from any location and remotely accelerated trend towards flatter organizations virtual team-working across geographical and organizational boundaries new approaches to supplier relationship management (SRM) and customer relationship management (CRM) managing and controlling outsourcing of more business processes and activities to specialist suppliers

351 Organizational Design OptionsTraditional designs Marketing’s corporate role New forms of marketing organizations

352 Traditional Marketing Organization DesignsFunctional TRADITIONAL DESIGNS Product- Focused Matrix Market- Focused

353 Product-Focused Structure

354 Marketing Organization Based on a Combination of Functions and Products

355 Organizational TransformationHybrid organization forms Designs linked to value strategy and core capabilities Vital role of data networks Shared information and decision making Source: George S. Day, “Aligning the Organization to the Market,” in Reflections on the Future of Marketing, Donald R. Lehmann and Katherine E. Jocz, eds. Cambridge, MA: Marketing Science Institute, 1997,

356 New Forms of Marketing OrganizationNew marketing roles Chief relationship officer, chief knowledge office, chief customer officer Transforming vertical organizations through managing processes New organizational forms networked organizations the marketing coalition company venture marketing organizations

357 The Marketing Coalition CompanySource: Ravi S Achrol, “Evolution of the Marketing Organization: New Forms for Turbulent Environments”, Journal of Marketing, October 1991, 88.

358 Selecting an Organization DesignOrganizing concepts Organizing the sales force

359 Organizing Concepts BUREAUCRATIC TRANSACTIONAL ORGANIC RELATIONALCentralized Formalized Nonspecialized BUREAUCRATIC TRANSACTIONAL Internal (hierarchical) Organization of Activity External (market) Organization of Activity ORGANIC RELATIONAL Decentralized Nonformalized Specialized

360 Organizing the Sales ForceOrganizing multiple sales channels personal selling Internet-based channels telesales direct marketing Coordinating major account responsibilities Key account management Global account management

361 Global Dimensions of OrganizationsIssues in organizing global marketing strategies Variations in business functions Organizational considerations Coordination and communication Strategic alliances Executive qualifications

362 Marketing Organization Plan Combining Product, Geographic, and Functional FeaturesSource: Philip B Cateora and John L Graham, International Marketing, 12th ed. (Burr Ridge, IL: McGraw-Hill/Irwin, 2005), 336.

363 Global Marketing OrganizationStandardized Versus Customized Strategies Executive Qualifications Alternative Organization Forms GLOBAL ORGANIZING ISSUES Strategic Alliances Coordination and Communication

366 Marketing Strategy Implementation and ControlThe marketing plan Implementing the plan Strategic evaluation and control Performance criteria and information needs Performance assessment and action

367 The Marketing Plan How the marketing plan guides implementationContents of the marketing plan Managing the planning process

368 Marketing Strategy OverviewTARGET(S) PROGRAM POSITIONING STRATEGY OBJECTIVES

369 Marketing Planning RelationshipsExhibit 15-1 Marketing Planning Relationships MARKETING STRATEGY Annual Marketing Plan Implementation Evaluation Revision Annual Marketing Plan

370 Contents of the Marketing Plan (Sonesta Hotels Example)I Introduction II Marketing Position III The Product IV Marketplace Overview V The Competition VI Marketing Data VII Strategy by Market Segment VIII Advertising IX Public Relations X Summary

371 Dimensions of Planning ProcessAnalytical Process Dimension Techniques Procedures Systems Planning Models Marketing Planning Process Managerial perceptions Participation Strategic assumptions Process Consistency Behavioral Process Dimension Organizational Process Dimension Structure Information Culture

372 Implementing the Plan Implementation process Improving implementationInternal marketing A comprehensive approach to improving implementation Internal strategy-structure Fit Developing a market orientation The role of external organization

373 The Implementation ProcessActivities to be implemented How implementation will be done Responsibility for implementation Time and location of implementation

374 Improving ImplementationSkilled Implementers Effective Communications Organizational Design Improving Implementation Internal Marketing Incentives

375 Internal Marketing Strategy Plan Internal Marketing Program ExternalTargeted at key groups in the company, alliance partner companies, and other influencers External Marketing Program Targeted at key customers, segments and niches, and other external influencers

376 Comprehensive Approach to Improving ImplementationFinancial Measures BALANCED SCORECARD MANAGEMENT CONTROL SYSTEM Learning and Innovation Measures Customer Measures Internal Business Process Measures

377 Factors Affecting the Implementation of Business and Marketing Strategies External environment Corporate strategy Corporate-SBU relationship SBU’s strategy SBU’s organization structure; interfunctional coordination processes R & D Manufacturing Finance Marketing policies and strategies Marketing plans for individual product-market entries SBU’s performance Source: Harper W. Boyd, Jr., and Orville C. Walker, Jr., Marketing Management (Burr Ridge, IL: Richard D. Irwin, 1990), 826.

378 Strategic Evaluation and ControlCustomer relationship management (CRM) Overview of evaluation activities The strategic marketing audit

379 Data Mining and CRM Victoria’s Secret - Data mining to improve inventory decisions Music company - People over 62 buy rap music Wal-Mart - Data mining so each store adapts merchandizing to local preferences AT&T - CRM data to identify profitability of individual customer and adapt service levels

380 Evaluation ActivitiesFind New Opportunities or Avoid Threats Solve Specific Problems Keep Performance on Target

381 Strategic Marketing Evaluationand Control Conduct strategic marketing audit Select performance criteria, measures, and metrics Obtain and analyze information Assess performance and take necessary action

382 Strategic Marketing AuditCorporate Mission and Objectives Business Composition and Strategies Marketing Strategy (for each planning unit) Marketing Program Activities Implementation and Management

383 Performance Criteria and Information NeedsSelecting performance criteria and measures Marketing metrics Obtain and analyze information

384 Marketing Metrics External market metricsFinancial measures Sales value/volume Marketing investment Profit Brand equity Relative satisfaction Commitment Relative perceived quality Relative price Availability Internal Market metrics Innovation health Strategy and employee Culture alignment and Outcomes commitment Source: Tim Ambler, Marketing and the Bottom-Line, 2nd ed., Hemel Hempstead: Prentice-Hall, 2003.

385 Performance Assessment and ActionOpportunities and performance gaps Determining normal and abnormal variability Deciding what actions to take

Chapter One Market-Driven Strategy

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