1 Strategic Marketing 1. Imperatives for Market-Driven Strategy2. Markets and Competitive Space 3. Strategic Market Segmentation 4. Strategic Customer Relationship Management 5. Capabilities for Learning about Customers and Markets 6. Market Targeting and Strategic Positioning 7. Strategic Relationships 8. Innovation and New Product Strategy 9. Strategic Brand Management 10. Value Chain Strategy 11. Pricing Strategy 12. Promotion, Advertising and Sales Promotion Strategies 13. Sales Force, Internet, and Direct Marketing Strategies 14. Designing Market-Driven Organizations 15. Marketing Strategy Implementation And Control

2 Imperatives for Market-Driven StrategyChapter 1 Imperatives for Market-Driven Strategy McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

3 Objectives Pivotal role of market-driven strategy in designing and implementing business/marketing strategies Links between business/marketing strategy and corporate strategy Challenges in the modern environment

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

5 Market-Driven Strategy (1)Becoming market-oriented Customer focus Competitor intelligence Cross-functional coordination Performance implications

6 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

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

8 Characteristics of Market OrientationCustomer Focus What are the customer’s value requirements? Competitive 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

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

10 Market Orientation Information AcquisitionGather relevant information on customers, competition, and markets Involve all business function Inter-functional Assessment Share information and develop innovative products with people from different function Shared diagnosis and action Deliver superior customer value

11 Market-Driven Strategy (2)Becoming market-oriented Customer focus Competitor intelligence Cross-functional coordination Performance implications Determining distinctive capabilities

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 Market-Driven Strategy (3)Becoming market-oriented Customer focus Competitor intelligence Cross-functional coordination Performance implications Determining distinctive capabilities Types of capabilities

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

18 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.

19 Market-Driven Strategy (4)Becoming market-oriented Customer focus Competitor intelligence Cross-functional coordination Performance implications Determining distinctive capabilities Types of capabilities Creating value for customers

20 Matching Customer Value and Distinctive CapabilitiesValue Requirements Distinctive Capabilities

21 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.

22 Creating Value for CustomersBenefits Costs

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

24 Market-Driven Strategy (5)Becoming market-driven Marketing sensing capabilities Customer linking capabilities Aligning structure and processes

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

26 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

27 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

28 Corporate, Business and Marketing Strategy (1)What is corporate strategy?

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

30 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.

31 Corporate, Business and Marketing Strategy (2)What is corporate strategy? Corporate strategy framework Deciding corporate vision Objectives Resources Business composition Structure, systems and processes

32 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.

33 Corporate, Business and Marketing Strategy (3)Business and marketing strategy relationships Strategic marketing

34 CORPORATE, BUSINESS AND MARKETING STRATEGY

35 Corporate, Business and Marketing Strategy (4)The marketing strategy process Markets, segments and customer value Markets and competitive space Strategic market segmentation Strategic customer relationship management Capabilities for continuous learning about markets

36 Corporate, Business and Marketing Strategy (5)Designing market-driven strategies Market targeting and strategic positioning Strategic relationships Innovation and new product strategy Market-driven program development Strategic brand management Value chain strategy Pricing strategy Promotion strategy

37 Corporate, Business and Marketing Strategy (6)Implementing and managing market-driven strategy Designing market-driven organizations Marketing strategy implementation and control

38 MARKETING STRATEGY PROCESSMarkets, Segments And Value Implementing and Managing Market-Driven Strategy Designing Market-Driven Strategies Market-Driven Program Development

39 Challenges in the modern environmentEscalating globalization Technology diversity and uncertainty The Web 2.0 Ethical behavior and corporate social responsiveness

40 Strategic Marketing PlanningDeveloping the strategic plan for each business Preparing the marketing plan Planning relationships and frequency Planning considerations Responsibility for preparing plans Planning unit

41 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 thestrategies 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.

42 MARKETING PLAN OUTLINEIII. Positioning Statements Write 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.

43 IV. Market Mix Strategy for Each Market TargetA. Product Strategy Identify 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.

44 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.

45 Strategic Marketing 1. Imperatives for Market-Driven Strategy2. Markets and Competitive Space 3. Strategic Market Segmentation 4. Strategic Customer Relationship Management 5. Capabilities for Learning about Customers and Markets 6. Market Targeting and Strategic Positioning 7. Strategic Relationships 8. Innovation and New Product Strategy 9. Strategic Brand Management 10. Value Chain Strategy 11. Pricing Strategy 12. Promotion, Advertising and Sales Promotion Strategies 13. Sales Force, Internet, and Direct Marketing Strategies 14. Designing Market-Driven Organizations 15. Marketing Strategy Implementation And Control

46 Chapter 2 Markets and Competitive SpaceMcGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

47 MARKETS AND COMPETITIVE SPACEMarkets and Strategies Defining and Analyzing Product-Markets Describing and Analyzing End-Users Analyzing Competition Market Size Estimation Developing a Strategic Vision about the Future

48 MARKETS AND STRATEGIESThe 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

49 OPPORTUNITIES OUTSIDE THE COMPETITIVE BOXNew Types of Competition Traditional Competitors New Business Models New Customers New Customers Conventional Value Propositions Existing Customer Base New Customer Base(s)

50 AN ARRAY OF CHALLENGES Drivers of Changes in MarketsDisruptive Innovation Fast Changing Markets Commoditization Threats Drivers of Changes in Markets Creating New Market Space

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

52 DEFINING AND ANALYZING PRODUCT-MARKETSDetermine the Boundaries and Structure of the Product-Market Form the Product-Market Describe and Analyze End-Users Analyze Competition Forecast Market Size and Rate of Change

53 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.

54 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.

55 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

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

57 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

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

59 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

60 DESCRIBING AND ANALYZING END-USERS Identifying and Describing BuyersHow Buyers Make Choices Building Customer Profiles Environmental Influences

61 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

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

63 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

64 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.)

65 ANALYZING COMPETITION1. Define the Competitive Arena for the Generic, Specific, and Variant Product Markets PRODUCT- MARKET STRUCTURE AND SEGMENTS 4. Identify and Evaluate Potential Competitors 2. Identify and Describe Key Competitors 3. Evaluate Key Competitors

66 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 Product category competition: soft drinks Juices Coffee Generic competition: beverages Budget competition: food & entertainment

67 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

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

69 Rivalry among existing firms. Threat of new entrants. 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.

70 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)

71 Competitor Evaluation Extent of Market Coverage Current CapabilitiesCustomer Satisfaction Past Performance

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

73 Product-Market Forecast Relationships for Industrial Painting UnitsSales (in 1000s of units) 900 800 Market Potential 700 600 Sales Forecast 500 400 300 200 Company XYZ Sales Forecast 100 2003 2004 2005 2006 2007 2008 2009 2010

74 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.

75 Strategic Marketing 1. Imperatives for Market-Driven Strategy2. Markets and Competitive Space 3. Strategic Market Segmentation 4. Strategic Customer Relationship Management 5. Capabilities for Learning about Customers and Markets 6. Market Targeting and Strategic Positioning 7. Strategic Relationships 8. Innovation and New Product Strategy 9. Strategic Brand Management 10. Value Chain Strategy 11. Pricing Strategy 12. Promotion, Advertising and Sales Promotion Strategies 13. Sales Force, Internet, and Direct Marketing Strategies 14. Designing Market-Driven Organizations 15. Marketing Strategy Implementation And Control

76 Strategic Market SegmentationChapter 3 Strategic Market Segmentation

77 Strategic market segmentation (1)Levels and types of market segmentation

78 Levels and types of market segmentationVision Strategic intent Product benefits Strategic Segmentation Resource allocation Alignment Planning Managerial Segmentation Marketing programs - Advertising - Sales - Distribution Operational Segmentation

79 Best Buy segmentation strategyJill’s - “soccer moms” Barry’s - wealthy professionals Buzz’s - “tech enthusiasts” Ray’s - the family man Mr Storefront - the small business customer Carrie’s - young, single females Helen and Charlie’s - older couples whose children have left home

80 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

81 Strategic market segmentation (2)Market-driven strategy and segmentation Market segmentation, value opportunities and new market space Market targeting and strategic positioning

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

83 Strategic market segmentation (3)Market-driven strategy and segmentation Market segmentation, value opportunities and new market space Market targeting and strategic positioning Activities and decisions in market segmentation

84 Market Segmentation Activities and DecisionsMarket to be Segmented Strategic Analysis of Segments Decide How to Segment Finer Segmentation Strategies Form Segments

85 Strategic market segmentation (4)Market-driven strategy and segmentation Market segmentation, value opportunities and new market space Market targeting and strategic positioning Activities and decisions in market segmentation Defining the market to be segmented

86 Product Variant SegmentationProduct Type Segmentation Generic Segmentation

87 Strategic market segmentation (5)Identifying market segments Segmentation variables Characteristics of people and organizations Consumer markets Organizational markets Product use situation segmentation Buyers’ needs and preferences Consumer needs Attitudes Perceptions Purchase behavior

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

89 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

90 Strategic market segmentation (6)Forming market segments Requirements for segmentation Response differences Identifiable segments Actionable segments Cost/benefits Stability Approaches to segment identification Customer group identification Forming groups based on response differences

91 Miller Brewing’s beer brand targetsMiller genuine draft - “mainstream sophisticates” Milwaukee’s Best Light - “hardworking men” Pilsner Urquell - “beer afficionados” Miller Icehouse - for “drinking buddies”

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

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

94 Segment Dimensions for Hotel Lodging Services

95 Illustrative Example: Gasoline BuyersHigher-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 Road Warriors 16% of buyers Men and women with moderate to high incomes, loyal to a brand and sometimes a particular station … frequently buy premium, pay in cash True Blues 16% of buyers Upwardly mobile men and women - half under 25 years of age - constantly on the go … drive a lot snack heavily from the convenience store Generation F3 (Fuel, Food & Fast) 27% of buyers Usually housewives who shuttle children around during the day and use whatever gas station is based on town or on route of travel Homebodies 21% of buyers Not loyal to brand or station and rarely buy premium … frequently on tight budgets. Price Shoppers 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 Strategic market segmentation (7)Finer segmentation strategies Logic Customized offerings Diverse customer base Close customer relationships Micro-segmentation Mass customization Variety-seeking strategy

98 Strategic market segmentation (8)Selecting the segmentation strategy Deciding 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 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 but with match to company capabilities Unattractive segments that do not match with company capabilities Low

101 Strategic Marketing 1. Imperatives for Market-Driven Strategy2. Markets and Competitive Space 3. Strategic Market Segmentation 4. Strategic Customer Relationship Management 5. Capabilities for Learning about Customers and Markets 6. Market Targeting and Strategic Positioning 7. Strategic Relationships 8. Innovation and New Product Strategy 9. Strategic Brand Management 10. Value Chain Strategy 11. Pricing Strategy 12. Promotion, Advertising and Sales Promotion Strategies 13. Sales Force, Internet, and Direct Marketing Strategies 14. Designing Market-Driven Organizations 15. Marketing Strategy Implementation And Control

102 STRATEGIC CUSTOMER RELATIONSHIP MANAGEMENTCHAPTER 4 STRATEGIC CUSTOMER RELATIONSHIP MANAGEMENT McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

103 PIVOTAL ROLE OF CUSTOMER RELATIONSHIP MANAGEMENTDEVELOPING A CRM STRATEGY CRM Levels CRM Strategy Development CRM Implementation VALUE CREATION PROCESS Customer Value Value Received by the Organization CRM and Value Chain Strategy CRM AND STRATEGIC MARKETING Implementation Performance Metrics Short-Term Versus Long-Term Value Competitive Differentiation

104 CUSTOMER RELATIONSHIP MANAGEMENTCRM is a cross-functional core business process concerned with achieving improved shareholder value through the development of effective relationships with key customers and customer segments. CRM Recognizes That Customers: Vary in their economic value to the company Differ in their expectations toward the firm

105 CUSTOMER LIFETIME VALUE4-3 CUSTOMER LIFETIME VALUE Customer lifetime value (CLV) calculates past profit produced by the customer for the firm – the sum of all the margins of all the products purchased over time, less the cost of reaching that customer To this is added a forecast of margins on future purchases (under different assumptions for different customers), discounted back to their present value. This process provides an estimate of the profitability of a customer during the time span of the relationship. The CLV calculation is a powerful tool for focusing marketing and promotional efforts where they will be most productive.

106 PERSPECTIVES TOWARD CRM4-4 PERSPECTIVES TOWARD CRM STRATEGIC- THE ENTIRE COMPANY REQUIRED MARKETING FUNCTIONS THE CUSTOMER

107 THE STEPS IN DEVELOPING A CRM STRATEGY4-5 THE STEPS IN DEVELOPING A CRM STRATEGY Gain enterprise commitment Build a CRM project team Business needs analysis Define the CRM strategy Source: V. Kumar and Werner J. Reinartz, Customer Relationship Management (Hoboken, NJ: John Wiley & Sons, Inc.), 2006, 39.

108 DEFINE THE CRM STRATEGY4-6 DEFINE THE CRM STRATEGY Value Proposition 1 5 Other Stakeholders 2 Business Case CRM STRATEGY 4 3 Enterprise Transformation Plan Customer Strategy Source: V. Kumar and Werner J. Reinartz, Customer Relationship Management (Hoboken, NJ: John Wiley & sons, Inc.), 2006, 42.

109 IMPLEMENTATION DANGERS4-7 IMPLEMENTATION DANGERS Implementing Without Developing a Customer Strategy Failing to Initiate Necessary Organizational Change Allowing Technology to Dominate the CRM Process Focusing on the Wrong Customers

110 VALUE CREATION PROCESS4-8 VALUE CREATION PROCESS Value Received by the Customer Value Received by the Organization THE VALUE EXCHANGE Successful Value Exchange

111 Happy (And Not-So-Happy) Customers 4-9 METRICS FEATURE How General Electric Co. Measures Customers’ Experience Happy (And Not-So-Happy) Customers General Electric is a big user of the “Net Promoter” concept of customer satisfaction, popularized by Fred Reichheld of Bain & Co. Below, questions similar to those on which GE’s Capital Solutions unit asks customers to rate the unit’s performance on a 0 – 10 scale. How willing are you to recommend us to a friend or associate? How would you rate our ability to meet your needs? How would you rate our people? How would you rate our processes? What is your impression of our market reputation? How would you rate the cost of doing business with us? How would you rate the overall value of our product or service as being worth what you paid? Source: Kathryn Kranhold, “Client-Satisfaction Tool Takes Root,” The Wall Street Journal, July 10, 2006, B3.

112 CRM AND VALUE CHAIN STRATEGY4-10 CRM AND VALUE CHAIN STRATEGY The Perfect Customer Experience “The perfect customer experience, which must be affordable for the company in the context of the segments in which it operates and its competition, is a relatively new concept. This concept is now being embraced in industry by companies such as TNT, Toyota’s Lexus, Oce, and Guinness Breweries, but it has yet to receive much attention in the academic literature. Therefore, multi-channel integration is a critical process in CRM because it represents the point of co-creation of customer value. However, a company’s ability to execute multi-channel integration successfully is heavily dependent on the organization’s ability to gather and deploy customer information, from all channels and to integrate it with other relevant information.” Adrian Payne and Pennie Frow, “A Strategic Framework for Customer Relationship Management,” Journal of Marketing (October 2005), 173.

113 CRM AND STRATEGIC MARKETING4-11 CRM AND STRATEGIC MARKETING STRATEGIC MARKETING CRM From the perspective of strategic marketing, there are several reasons why CRM is important and why there should be extensive marketing involvement in decisions about CRM. Importantly, an organizational perspective is needed in guiding the CRM strategy.

114 Strategic Marketing 1. Imperatives for Market-Driven Strategy2. Markets and Competitive Space 3. Strategic Market Segmentation 4. Strategic Customer Relationship Management 5. Capabilities for Learning about Customers and Markets 6. Market Targeting and Strategic Positioning 7. Strategic Relationships 8. Innovation and New Product Strategy 9. Strategic Brand Management 10. Value Chain Strategy 11. Pricing Strategy 12. Promotion, Advertising and Sales Promotion Strategies 13. Sales Force, Internet, and Direct Marketing Strategies 14. Designing Market-Driven Organizations 15. Marketing Strategy Implementation And Control

115 Capabilities for Learning About Customers and MarketsChapter 5 Capabilities for Learning About Customers and Markets McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

116 Capabilities for learning about customers and marketsMarket-driven strategy, market sensing and learning processes Marketing information and knowledge resources Marketing intelligence and knowledge management Ethical issues in collecting and using information

117 Learning capabilities at P&GCompetitive strength from superior customer knowledge To deliver a customer experience, less formal research, more one-to-one communication Consumer Village Online virtual reality Cave Watch people clean baths Understand what it is like to live on $50/month Social networking sites

118 Market Sensing and Learning ProcessesMarket sensing processes Learning organization Learning and competitive advantage Learning about markets Barriers to market learning processes

119 Market sensing at Tesco InternationalRetailer entry to U.S. grocery market, not with existing format Discovering what U.S. consumers want: Senior managers live with U.S. families Probe lifestyles of families Prototype store Developing a new retail format and targeting the “grocery gap”

120 Market sensing processesOpen-minded inquiry processes Analyzing competitors’ actions Listening to front-line employees Searching for latent customer needs Scanning the peripherary of the market Encouraging experimentation

121 Marketing information and knowledge resourcesScanning processes Specific marketing research studies Internal and external marketing information resources Relationships with external marketing research providers

122 Screening A New Research Supplier1. 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?

123 Screening A New Research Supplier6. 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.

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

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

126 Barriers to market learningManagers reject new insights/information Rigid organizational structures and inflexible information systems Politics favour the status quo Overwhelming pressure of existing business operations Tendency to “active inertia”

127 Best Buy’s customer knowledge strategyStrategy treats customers as individual, develops solutions for needs and engages employees to serve them New ideas from listening more closely to customers and employees Knowledge shared with manufacturers and product developers Core innovation competency is gathering and synthesizing customer intelligence

128 Customers and design at Xerox“Customer-led innovation” - “dreaming with the customer” Not just building prototype and getting feedback Focus groups as first step in commercial printer design Changing designs in response to customer insights Investment in understanding what customers think about the “bright ideas”

129 Marketing research projectDefining the problem Understanding the limitations of the research Quality of the research Costs Evaluating and selecting suppliers Research methods

130 Existing marketing information resourcesIn-company resources Open source resources Research agency resources

131 Creating new marketing informationObservation and ethnographic studies Marriott - rethink hotel experience for “road warriors” GE - developing plastic fibers position Intel - use of computers by children in China Research surveys Internet-based research

132 Problem definition to guide marketing research studiesProject and Scope Describe the topic for the study and the background. Research Objectives Set specific goals for the study - why is it being undertaken? Identify the specific pieces of information required and the questions that need to be asked to obtain that information Research Questions Planned Outcomes When completed how should the results be presented for management use?

133 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

134 Marketing and management information systemsMarketing information systems Management information systems Marketing decision support systems

135 Marketing Decision-SupportSystem Components Database Display Analysis Capabilities Models

136 Marketing intelligence and knowledge managementRole of the chief knowledge officer Leveraging customer knowledge

137 Ethical issues in collecting and using informationInvasion of customer privacy Information and ethics Information collection Research subjects Information sharing

138 Neuromarketing Magnetic resonance imaging (MRI)Pictures response of brain to stimuli Probing consumer preferences is controversial Invasive Privacy issues Information sharing Insurance companies Employers Law enforcement

139 Strategic Marketing 1. Imperatives for Market-Driven Strategy2. Markets and Competitive Space 3. Strategic Market Segmentation 4. Strategic Customer Relationship Management 5. Capabilities for Learning about Customers and Markets 6. Market Targeting and Strategic Positioning 7. Strategic Relationships 8. Innovation and New Product Strategy 9. Strategic Brand Management 10. Value Chain Strategy 11. Pricing Strategy 12. Promotion, Advertising and Sales Promotion Strategies 13. Sales Force, Internet, and Direct Marketing Strategies 14. Designing Market-Driven Organizations 15. Marketing Strategy Implementation And Control

140 CHAPTER 6 Market Targeting and Strategic PositioningMarket Targeting Strategy Targeting in Different Market Environments Positioning Strategy Developing the Positioning Strategy Determining Positioning Effectiveness McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

141 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 resources •Competition

142 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

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

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

145 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

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

147 TARGETING IN DIFFERENT MARKET ENVIRONMENTSEmerging Growing Mature Declining Global

148 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

149 Growth Market Buyer Diversity Segments should exist Industry StructureNumerous 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.

150 Mature Markets Buyer Diversity Industry StructureSegmentation 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 Deciding which segment to serve Firms pursuing extensive targeting strategies may decide to exit from certain segments

151 Global Markets Global Reach and StandardizationIdentify 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

152 Successful British Retailer Tesco Enters the U.S. MarketGLOBAL FEATURE Successful British Retailer Tesco Enters the U.S. Market Tesco announced plans to open a chain of convenience stores on the U.S. West Coast in 2007, spending an estimated $453 M. The very successful retailer has four types of stores, including the convenience chain, Tesco Express. This initiative is being launched even though the U.S. retail grocery market is experiencing intense competition, and some chains are cutting back or selling out. Tesco’s decision to enter the U.S. convenience market is bold and risky. Some authorities consider the action questionable. However, Tesco has a very impressive success record in Britain. With its Tesco Express, Tesco Metro, Superstore, and Extra hypermarkets, the giant retailer has dulled Wal-Mart’s drive to dominate the retail scene. Tesco has no brand awareness in the U.S. so building brand identity will be challenging. Yet the retailer has global buying power, powerful information technology, and strong supply chain capabilities. The stores will offer groceries, produce, and private-label ready-to-eat meals. Some observers think Tesco is planning to compete with Wal-Mart in its home market. Source: Kerry Capell, “Tesco: California Dreaming?” BusinessWeek, February 27, 2006, 38.

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

154 STRATEGIC POSITIONING INITIATIVES POSITIONING EFFECTIVENESSPOSITIONING CONCEPT The desired positioning of the product (brand) by targeted buyers MARKET TARGET POSITIONING EFFECTIVENESS POSITIONING STRATEGY How well management’s positioning objectives are achieved for the market target The combination of marketing actions used to communicate the positioning concept to targeted buyers

155 How Positioning Works Objective Desired resultMatch the organization’s distinctive capabilities with the customer value requirements for the market target (How do we want to be perceived by targeted buyers?) Desired result Gain a relevant, distinct, and enduring position by the targeted buyers that they consider important. Actions by the organization Design and implement the positioning strategy (marketing program) for the market target.

156 Spotting Shifts in Demand in designing Hennes & Mauritz (H&M) ApparelINNOVATION FEATURE Spotting Shifts in Demand in designing Hennes & Mauritz (H&M) Apparel It’s 1:30 p.m. on a Monday in the bustling H&M store on Manhattan’s fifth Avenue, and Alma Saldana, a 28-year-old makeup artist from Houston, is stuffing three tiny vests into her black Y&M shopping bag. That’s on top of blouses, jackets, and pants. Saldana is in a buying frenzy. This is her first visit to H&M, the Stockholm-based fashion retailer, and it’s everything she had hoped for. “Somebody told me you find great fashion at a very cheap price, and it’s true!” she exclaims. Such enthusiasm has made H&M one of the hottest fashion companies around. Central to its success is its ability to spot shifts in demand and respond with lightning speed. While traditional clothing retailers design their wares at least six months ahead of time, H&M can rush items into stores in as little as three weeks. Most of the work is done ahead, too. But when it sees consumers scooping up something like vests, it speeds a slew of new variations into stores within the same season, to the delight of shoppers like Saldana. “Speed is important. You need to have system where you can react in a short lead time with the right products,” says Chief Executive Rolf Eriksen.

157 How does it work? H&M designers had included a couple of cropped vests in their autumn/winter collections. In august, shortly after the vests went on sales, they started “flying out of the stores,” say Margareta van den Bosch, H&M’s head of design. H&M’s designers in Stockholm (it has more than 100) spotted the trend in the company’s worldwide sales reports, published internally every Monday. About half of them immediately started sketching new styles. As quickly as designs came off their desks, pattern makers snipped and pinned, pressing employees into service as live models. At the same time, buyers ordered fabrics. The designs were zoomed electronically to workers at H&M’s production offices in Europe and Asia, which then selected manufacturers that could handle the jobs quickly. In less than two months most H&M stores had 5 to 10 new vest styles in stock. One of the secrets to H&M’s speed is decisiveness. The people in charge of each collection can dream up and produce new fashions on their own authority. Only huge orders require approval from higher ups. “We have a flat organization. We have a shorter way to a decision,” says Sanna Lindberg, president of H&M Hennes & Mauritz USA. That makes H&M fashionable in more ways than one. Source: Steve Hamm, “SPEEDDEMONS,” BusinessWeek, March 27, 2006,

158 SELECTING THE POSITIONING CONCEPTThe Perception or Association that Management Wants Buyers to Have Concerning the Brand Symbolic Functional SELECTING THE POSITIONING CONCEPT Experiential

159 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

160 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

161 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.

162 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.

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

164 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

165 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

166 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

167 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.

168 Illustrative Impacts of Changes in Business Strategy on Targeting and Positioning StrategiesMarket 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.

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

170 Strategic Marketing 1. Imperatives for Market-Driven Strategy2. Markets and Competitive Space 3. Strategic Market Segmentation 4. Strategic Customer Relationship Management 5. Capabilities for Learning about Customers and Markets 6. Market Targeting and Strategic Positioning 7. Strategic Relationships 8. Innovation and New Product Strategy 9. Strategic Brand Management 10. Value Chain Strategy 11. Pricing Strategy 12. Promotion, Advertising and Sales Promotion Strategies 13. Sales Force, Internet, and Direct Marketing Strategies 14. Designing Market-Driven Organizations 15. Marketing Strategy Implementation And Control

171 Strategic RelationshipsChapter 7 Strategic Relationships McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

172 Strategic relationships at IBMCollaborative projects across all major parts of business services Funding universities in services science Partnership with Sony and Toshiba to produce new processor Computer code shared with Apache open-source web-server IBM programmers work on Linux projects Collaborating with customers and competitors to invent new technologies Strategy of openess

173 Strategic relationshipsEnd-User Customers Intermediate Customers Suppliers Joint Ventures Strategic Relationships Competitors Strategic Alliances Internal Partners External Partners

174 Strategic RelationshipsThe rationale for interorganizational relationships Forms of organizational relationships Managing interorganizational relationships Global relationships among organizations

175 The rationale for interorganizational relationshipsValue-enhancing opportunities Rationale for Forming Strategic Relationships Skills and resource gaps Environmental complexity Competitive strategy

176 The rationale for interorganizational relationships (1)Opportunities to enhance value Environmental complexity Competitive strategy Skills and resource gaps Technology constraints Financial constraints Market access Information technology

177 Collaborations in open-source softwareIBM and Sun aggressive supporters of Linux open-source software Technology sharing and partnerships Rebuilding the technology “ecosystem” Reducing dependence on Microsoft

178 Airline Alliances Major global alliances Oneworld SkyteamStar Alliance Contain 18 of the world’s largest airline Account for 60% of total world airline capacity But a history of alliance failures and desertions

179 The rationale for interorganizational relationships (2)Evaluating the potential for collaboration What is the strategy? The costs of collaboration Is relationship strategy essential? Are good candidates available? Do relationships fit our culture?

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

181 Forms of organizational relationshipsSupplier relationships Internal partnerships Lateral partnerships Firm Customer relationships

182 Illustrative interorganizational relationshipsStrategic Alliance M M M Supplier/ Manufacturer Collaboration M JV Joint Venture W Distribution Channel Relationship R EU

183 Forms of organizational relationships (1)Supplier relationships Strategic suppliers Outsourcing Intermediate customer relationships End-user customer relationships Strategic customers Dominant customers Strategic account management

184 Forms of organizational relationships (2)Strategic alliances Alliance success Alliance weaknesses Types of alliance Requirements for alliance success Alliance vulnerabilities Joint ventures Internal partnering

185 CostCo Versus Wal-MartCostCo has achieved major position in U.S. warehouse club business against strong competitors Success based on customer choice and constant innovation and productivity improvement CostCo compensates employees more generously than competitors - to motivate and retain good workers - they get lower staff turnover and higher productivity

186 Managing interorganizational relationships (1)Objective of the relationship New technologies and competencies Developing new markets and building market position Market selectivity Restructuring and cost reduction

187 Managing interorganizational relationships (2)Relationship management Planning Trust and self-interest Conflicts Leadership structure Flexibility Cultural differences Technology transfer Learning from partner’s strengths

188 Managing interorganizational relationships (3)Partnering capabilities Control, evaluation and review Exiting from alliance Identify/agree what triggers exit Detail rights of each partner to assets/products Design disengagement process Communication plan for all involved parties

189 Managing Interorganizational relationshipsObjective of the Relationship Control and Evaluation Relationship Management Managing Inter-Organizational Relationships Exiting from Alliance Partnering Capabilities

190 Global relationships among organizationsThe Global Integrated Enterprise Inter-nation collaborations The strategic role of government Government interventions Competing with state-owned enterprises Collaborating with state-owned enterprises Government regulation

191 Strategic Marketing 1. Imperatives for Market-Driven Strategy2. Markets and Competitive Space 3. Strategic Market Segmentation 4. Strategic Customer Relationship Management 5. Capabilities for Learning about Customers and Markets 6. Market Targeting and Strategic Positioning 7. Strategic Relationships 8. Innovation and New Product Strategy 9. Strategic Brand Management 10. Value Chain Strategy 11. Pricing Strategy 12. Promotion, Advertising and Sales Promotion Strategies 13. Sales Force, Internet, and Direct Marketing Strategies 14. Designing Market-Driven Organizations 15. Marketing Strategy Implementation And Control

192 Innovation and New Product Strategy The Innovation MandateCHAPTER 8 Innovation and New Product Strategy The Innovation Mandate McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

193 INNOVATION AND NEW PRODUCT STRATEGYInnovation as a Customer Driven Process New Product Planning Idea Generation Screening, Evaluating, and Business Analysis Product and Process Development Marketing Strategy and Market Testing Commercialization Variation in the Generic New Product Planning Process

194 INNOVATION FEATURE Managing Google’s Idea FactoryAs director of consumer Web products Marissa Mayer is a champion of innovation. She favors new product launches that are early and often. She joined Google in early 1999 as a programmer when the workforce totaled 20. By 2007 Google had 5,700 employees with expected sales of $16 billion. How Google Innovates The search leader has earned a reputation as one of the most innovative companies in the world of technology. A few of the ways Google hatches new ideas: FREE (THINKING) TIME Google gives all engineers one day a week to develop their own pet projects, no matter how far from the company’s central mission. If work gets in the way of free days for a few weeks, they accumulate. Google News came out of this process.

195 THE IDEAS LIST OPEN OFFICE HOURS BIG BRAINSTORMS ACQUIRE GOOD IDEASAnyone at Google can post thoughts for new technologies of businesses on an ideas mailing list, available companywide for input and vetting. But beware: Newbies who suggest familiar or poorly thought-out ideas can face an intellectual pummeling. OPEN OFFICE HOURS Think back to your professors’ office hours in college. That’s pretty much what key managers, including Mayer, do two or three times a week, to discuss new ideas. One success born of this approach was Google’s personalized home page. BIG BRAINSTORMS As it has grown, Google has cut back on brainstorming sessions. Mayer still has them eight times a year, but limits hers to 100 engineers. Six concepts are pitched and discussed for 10 minutes each. The goal: to build on the initial idea with at least one complementary idea per minute. ACQUIRE GOOD IDEAS Although Google strongly prefers to develop technology in-house, it has also been willing to snap up small companies with interesting initiatives. In 2004 it bought Keyhole, including the technology that let Google offer sophisticated maps with satellite imagery. Source: “Managing Google’s Idea Factory,” BusinessWeek, October 3, 2005,

196 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

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

198 TRANSFORMATIONAL Break-through innovation Digital photography NEW PRODUCT CATEGORY Dell Printers Nike Apparel Golf clubs LINE EXTENSION New color/package/style INCREMENTAL IMPROVEMENTS Software updates

199 The Evolution of the Creative CompanySTEP 1 Technology and information become commoditized and globalized. Suddenly, the advantage of making things “faster, cheaper, better” diminishes, and profit margins decline. STEP 2 With commoditization, core advantages can be shipped abroad. Outsourcing to India, China, and Eastern Europe sends a growing share of manufacturing and even the Knowledge Economy overseas. STEP 3 Design Strategy begins to replace Six Sigma as a key organizing principle. Design plays a key role in product differentiation, decision-making, and understanding the consumer experience. Source: Bruce Nussbaum, “How to Build Innovation Companies,” BusinessWeek, August 1, 2005,

200 STEP 4 Creative innovation becomes the key driver of growth. Companies master new design thinking and metrics and create products that address consumers’ unmet, and often unarticulated, desires. STEP 5 The successful Creative Corporation emerges, with new Innovation DNA. Winners build a fast-moving culture that routinely beats competitors because of a high success rate for innovation.

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

202 Creating 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.

203 Set specific New Product Objectives. The Innovation Strategy Spells Out Management’s Priorities for New Product Opportunities Set 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.

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

205 Achieving Cross-Functional Interaction and CoordinationOperations Marketing Finance

206 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

207 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?

208 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

209 An Innovation Champion in Action at GEBeth Comstock calls herself “a little bit of the crazy, wacky one” at corporate headquarters. And it’s an apt description when you realize she works at General Electric Co. Comstock, 44, is charged with transforming GE’s culture, famously devoted to process, engineering, and financial controls, to one that’s more agile and creative. Chairman and CEO Jeffrey R. Immelt tapped the former communications chief to become GE’s first-ever chief marketing officer almost three years ago. The job came with a critical twist: the goal of driving innovation through the company’s 300,000 plus ranks. “Creativity is still a word we’re wrestling with,” Comstock concedes. “It seems a bit undisciplined, a bit chaotic for a place like GE.” More comfortable territory is the term “imaginative problem-solving” – encouraging people to think “what if” – yet always with the aim of driving growth. One of Comstock’s first moves was to bring in anthropologists to audit GE’s culture. They came back with praise for GE’s famous work ethic but noted that employees wanted more “wow” – more discoveries from the company founded by Thomas Edison.

210 Comstock has a role whose importance is spreading throughout Big Business – that of innovation champion. She began by studying the best practices at companies such as Procter & Gamble, FedEx, and 3M. She brought in a raft of creativity consultants, futurists, and design gurus to lead sessions with different operations. Their names were jolting for GE types: Play, a Richmond (VA.) group that helps execs think differently, and Jump, based in San Mateo, CA., which researches how people use things. GE is expanding its army of designers to bring businesses closer to customers. And Comstock is staging “dreaming sessions” where Immelt, senior execs, and customers debate future market trends. Comstock concedes some managers view the workshops as a waste of time. “We have a long way to go,” she says. But for GE, there’s no turning back. Source: Bruce Hussbaum, “How to Build Creative Companies,” BusinessWeek, August, 2005, 77.

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

212 Business Analysis Revenue Forecasts Preliminary Marketing Plan Cost Estimation Profit Projections Other Considerations

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

214 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

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

216 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

217 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

218 COMMERCIALIZATION The Marketing Plan Complete marketing strategyResponsibilities for execution Cross – functional approach Monitoring and Control Real – time tracking Role of the Internet Include product performance metrics with performance targets

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

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

221 Strategic Marketing 1. Imperatives for Market-Driven Strategy2. Markets and Competitive Space 3. Strategic Market Segmentation 4. Strategic Customer Relationship Management 5. Capabilities for Learning about Customers and Markets 6. Market Targeting and Strategic Positioning 7. Strategic Relationships 8. Innovation and New Product Strategy 9. Strategic Brand Management 10. Value Chain Strategy 11. Pricing Strategy 12. Promotion, Advertising and Sales Promotion Strategies 13. Sales Force, Internet, and Direct Marketing Strategies 14. Designing Market-Driven Organizations 15. Marketing Strategy Implementation And Control

222 Chapter 9 Strategic Brand ManagementMcGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

223 STRATEGIC BRAND MANAGEMENTStrategic Brand Analysis Brand Equity Measurement and Management Brand Identity Strategy Managing Brand Strategy Managing the Brand Portfolio Brand Leveraging Strategy

224 STRATEGIC BRAND MANAGEMENTA 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

225 American Marketing AssociationA brand is a name, term, design, symbol, or any other feature that identifies one seller’s good or service as distinct from those of other sellers. American Marketing Association A compelling logic has been proposed that the distinction between goods and services should be replaced by a view that services are the dominant perspective in the 21st century, consisting of both tangible and intangible components.* *Stephen LVargo and Robert F. Lusch, “Evolving to a New Dominant Logic for Marketing,” Journal of Marketing, January 2004, 1-17.

226 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.

227 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

228 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,

229 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

230 Strategic Brand ManagementBrand Identity Strategy BRAND EQUITY MANAGEMENT Identity Implementation Brand Strategy Over Time STRATEGIC BRAND ANALYSIS Managing the Brand Portfolio Leveraging the Brand

231 Recharging Sony’s Strategy Brand ManagementGLOBAL FEATURE Recharging Sony’s Strategy Brand Management Sir Howard Stringer, a Welsh-born American citizen, was appointed CEO of Sony, the troubled Japanese electronics giant in Sony’s past strategic brand management initiatives had failed to close the digital gap between software/services/content/ devices. During the CEO’s first year several cost reduction and portfolio initiatives were implemented to launch the turnaround strategy: The Aibo, a beloved robotic pet, was put to sleep. They shut down the Qualia line of boutique electronics that included a $4,000 digital camera and a $13, inch television. They eliminated 5,700 jobs and closed nine factories, including one in south Wales. (He took some flak back home for that). They have sold $705 million worth of assets. You probably don’t know that Sony owned a chain of 1,221 cosmetics salons and the 18 Japanese outlets of the Maxim’s de Paris restaurant chain. They’re gone. Gone, too, is a group of salary-men in their 60s, 70s, and 80s who, after retiring from senior management positions, were given the title of “advisor,” a tradition established by Sony’s founders. “That was very symbolic,” says Hideki (Dick) Komivama, a Sony executive and key ally of Stringer’s. The 45 advisors each had a secretary, a car and driver, and worst of all, the ability to gum up decision-making and second-guess people doing real jobs. No more. Source: Marc Gunther, “The Welshman, the Walkman, and the Salary Men,” Fortune, June 12, 2006, 72.

232 STRATEGIC BRAND ANALYSISAnalyses Product Product Line Portfolio of Product Lines □ Market and Customer □ Competition □ Brand(s)

233 Tracking Brand PerformanceObjectives Select Method(s) for Evaluation Identify Problem Products Decide How to Resolve the Problem

234 Analyzing Brand PerformanceProduct life cycle analysis Product performance analysis Financial analysis Analyzing Brand Performance Brand positioning analysis Research studies Standardized information services

235 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

236 Product Performance AnalysisManagement’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

237 BRAND EQUITY Company/Customer Value of Brand Name and Symbol ofa Product Determined by the brand’s set of assets (and liabilities)

238 “Brand equity is a set of brand assets 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.* * David A. Aaker, Managing Brand Equity, The Free Press, 1991, 15. **Ibid,

239 Measuring Brand EquityMeasuring 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.

240 BRAND IDENTITY STRATEGY 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.

241 Specific Product Line of Products Private Branding BRAND FOCUS Combination Branding Corporate Branding

242 MANAGING BRAND STRATEGYProactive efforts should be devoted to managing each brand over time.

243 Strategies for Improving Product Performanceimprovement Cost reduction Alter marketing strategy Product line Strategy Add new product(s) Eliminate specific product(s)

244 MANAGING THE BRAND PORTFOLIOLeverage Commonalities to Generate Synergy Allocate Resources Reduce Brand Identity Damage BRAND PORTFOLIO OBJECTIVES Facilitate Change and Adaptation Achieve Clarity of Product Offerings Source: David A. Aaker, Building Strong Brands, New York: The Free Press, 1996,

245 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

246 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

247 Limited Brands Shifts its Focus from Apparel to AccessoriesSTRATEGY FEATURE Limited Brands Shifts its Focus from Apparel to Accessories Ten years ago apparel represented 70% of Limited’s sales. By % of sales were from skin-care products, cosmetics, and lingerie Clothes are increasingly out of fashion—after declines for 3 years, U.S. apparel sales increased only 4% in 2004 to $172.8 billion. Apparel $ sales declines are due to discount pricing and households spending more on electronics, home improvement, and spa services. Limited is trying to make itself over as a high-end Procter & Gamble. Victoria’s Secret is adding hair and cosmetics lines to its beauty business (has 3 of the top 10 selling fragrances in the U.S.). Sources: Limited Brands 2005 Annual Report; Value Line; and Amy Merrick, “For Limited Brands Clothes Become the Accessories,” The Wall Street Journal, March 8, 2005, A1 and A14.

248 One new product is “Tutti Dolci” (all sweets), food inspired scents-lotion and lip gloss in fragrances like lemon meringue, angel-food cake, and chocolate fondue. Victoria’s Secret has also accelerated new product development. From 2003 through 2005 Intimate Brands (lingerie and beauty products) accounted for all the corporation’s operating income. Limited is also partnering with other companies to sell its brands and develop new products. Limited has three business groups: • Beauty and Personal Care • Lingerie • Apparel Apparel is a continuing challenge with 2004 operating 1.4% compared to over 19% for Bath & Body Works and Victoria’s Secret. Limited has about 3700 stores sales were nearly $9.7 billion with net profits at $51 million.

249 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

250 LEVERAGING ALTERNATIVESLINE EXTENSIONS BRAND EXTENSIONS Horizontal Extension Vertical Extension Another Product Class Range Brand Co- Branding Up from Core Brand Down from Core Brand

251 BRAND LEVERAGING IN UPSCALE AND VALUE MARKETSVertical Brand Extensions* New Up-Market Brand Core Brand New Down-Market Brand Core Brand * ONE OF THE MOST DIFFICULT BRAND PORTFOLIO CHALLENGES

252 MOVING DOWN IS EASY BUT RISKYAffects perceptions of the brand –perhaps even more significantly than other brand management options. We are influenced more by unfavorable information than by favorable information. The brand’s ability to deliver self-expressive benefits may be reduced. Potential cannibalization problem. Potential failure risk. Problem when the value entry is perceived to be inconsistent with the quality expected from the brand.

253 •Enhanced Margins at the High EndMOVING A BRAND UP THE DRIVERS •Enhanced Margins at the High End •Energy & Vitality •Enhance Credibility and Prestige of the Brand THE RISKS OF DAMAGING THE CORE BRAND •Lacks Credibility •Lacks Self-Expressive Benefits •Falls Short of Expectations

254 BRAND EXTENSION DECISIONSExtending into Different Product Classes THE PROCESS ◊Identify product categories for which the product fits and adds value. Determine existing brand associations and the brand identity. ◊Identify related product category opportunities Screening should be limited ◊Evaluate each category Attractive Growing Good margins Competition Assets/Capabilities ◊Select the most promising extension concept ◊Develop a viable Brand Strategy

255 CO-BRANDING Co-branding (dual branding) involves two or more established brands making a joint offer of their product brands — The participant’s brand names are identified on the good or service. Several different forms – Component co-branding (Volvo and Michelin) Same company co-branding Alliance co-branding (Delta and American Express) Ingredient co-branding

256 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

257 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.

258 Strategic Marketing 1. Imperatives for Market-Driven Strategy2. Markets and Competitive Space 3. Strategic Market Segmentation 4. Strategic Customer Relationship Management 5. Capabilities for Learning about Customers and Markets 6. Market Targeting and Strategic Positioning 7. Strategic Relationships 8. Innovation and New Product Strategy 9. Strategic Brand Management 10. Value Chain Strategy 11. Pricing Strategy 12. Promotion, Advertising and Sales Promotion Strategies 13. Sales Force, Internet, and Direct Marketing Strategies 14. Designing Market-Driven Organizations 15. Marketing Strategy Implementation And Control

259 Strategic Role of Price Analyzing the Pricing SituationCHAPTER 11 PRICING STRATEGY Strategic Role of Price Analyzing the Pricing Situation Selecting the Pricing Strategy Determining Specific Prices and Policies McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

260 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.

261 STRATEGIC ROLE OF PRICE…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.

262 Price in the Positioning StrategyProduct strategy Target market and objectives Value-Chain Pricing Promotion strategy

263 Pricing Situations New product pricing Life cycle pricing Changing positioning strategy Countering competitive threats

264 Various Roles of PricingSignal to the Buyer Marketing Program Considerations Instrument of Competition Improving Financial Performance

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

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

267 ANALYZING THE PRICING SITUATIONCustomer Price Sensitivity Pricing Objectives Competitors’ Likely Responses Analyzing the Pricing Situation Product Costs

268 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?

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

270 Cost Analysis for Pricing DecisionsDetermine the components of the cost of the product. Estimate how cost varies with the volume of sales. Analyze the cost competitive advantage of the product. Decide how experience in producing the product affects costs. Estimate how much control management has over costs.

271 Competitor Analysis Which firms represent the most direct competitionCompetitor’s positioning on a relative price basis Competitors’ success with their pricing strategies Competitors’ probable responses to alternative price strategies

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

273 Determinants of Pricing FlexibilityDemand Costs Demand-Cost Gap Competition Pricing Objectives

274 Determining Feasible PricesPrice 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

275 Skim strategy Neutral strategy (same as competition)Penetration strategy Above Competition Below Competition

276 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,

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

278 DETERMINING SPECIFIC PRICES AND POLICIESSelecting Specific Prices Policies to Manage Pricing Strategy Special Pricing Issues

279 Basis of Determining Specific PricesCost Competition Demand

280 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

281 Managing Pricing StrategyThe more that the competitors and customers know about your pricing, the better off you are. In an information age, it is necessary to be transparent about prices and the value of a firm’s offerings. In highly competitive markets, the focus should be on those market segments that provide opportunities to gain competitive advantage. Such a focus leads to a value-oriented pricing approach. Pricing decisions should be made within the context of an overall marketing strategy that is embedded within a business or corporate strategy. Successful pricing decisions are profit oriented, not sales volume or market share oriented. Source: Adapted from Kent B. Monroe, Pricing, 3rd ed. (Burr Ridge, IL.: McGraw-Hill/Irwin, 2003)

282 Managing Pricing StrategyPrices should be set according to customers’ perceptions of value. Pricing for new products should start as soon as product development begins. The relevant costs for pricing are the incremental avoidable costs. A price may be profitable when it provides for incremental revenues in excess of incremental costs. A central organizing unit should administer the pricing function. Generally, it is better to avoid letting salespeople set price, especially without access to profitability information and specific training in pricing and revenue management. Pricing management should be viewed as a process and price setting as a daily management activity, not a once-a-year activity.

283 Special Pricing SituationsPrice Segmentation Value Chain (Distribution Channel) Pricing Price Flexibility Product Life Cycle Pricing

284 Strategic Marketing 1. Imperatives for Market-Driven Strategy2. Markets and Competitive Space 3. Strategic Market Segmentation 4. Strategic Customer Relationship Management 5. Capabilities for Learning about Customers and Markets 6. Market Targeting and Strategic Positioning 7. Strategic Relationships 8. Innovation and New Product Strategy 9. Strategic Brand Management 10. Value Chain Strategy 11. Pricing Strategy 12. Promotion, Advertising and Sales Promotion Strategies 13. Sales Force, Internet, and Direct Marketing Strategies 14. Designing Market-Driven Organizations 15. Marketing Strategy Implementation And Control

285 Promotion, Advertising, and Sales Promotion StrategiesCHAPTER 12 Promotion, Advertising, and Sales Promotion Strategies Promotion Strategy Advertising Strategy Sales Promotion Strategy McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

286 PROMOTION STRATEGY The Composition of Promotion StrategyDeveloping 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

287 Promotion Strategy: planning, implementing, andcontrolling an organization’s communications to its customers And other target audiences.

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

289 U. S. Annual Expenditures (billions)$200 $400 $600 Sales Promotion Personal Selling Advertising

290 Brand Advertising On-Line Has Taken OffINTERNET FEATURE Brand Advertising On-Line Has Taken Off SEARCH WORKS Google and Yahoo! Have demonstrated the power of the Web by using customers’ search queries to connect them with advertisers. 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 videos, 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 On-Line Ad Surge,” BusinessWeek, November 22, 2004, 79.

291 DESIGNING 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

292 Illustrative Communications ObjectivesNeed Recognition Finding Buyers Brand Building Evaluation of Alternatives Decision to Purchase Customer Retention

293 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?

294 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

295 Determining the Promotion Budget Follow the CompetitionObjective and Task All You Can Afford Budgeting Approaches Percent of Sales Follow the Competition

296 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.

297 Integrating and Implementing Promotion StrategyAvoiding fragmentation Difficulty in evaluating productivity Differences in priorities Separate organizational units Assigning integration responsibility

298 Illustrative Factors Affecting Promotion 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

299 Promotion Strategy IssuesExpense/Response Relationships Allocation Impact on Brand Equity Integration of Promotion Components Effectiveness of the Strategy

300 ADVERTISING STRATEGY Setting Objectives and BudgetingCreative Strategy Media/Scheduling Decisions Role of the Advertising Agency Program Implementation and Measuring Effectiveness

301 The Internet is Shifting the Power Position to the CustomerHow the Money is Spent is Changing. The Amount Spent on Internet Advertising is a Small Fraction of the Total, but Very Powerful and Growth is Accelerating. Consumers Spend 10 hrs/person/day with Media of all Kinds—How Much is Media Multi-Tasking? Ad Spending Versus Consumers’ Time Allocations. Advertising Agency Consolidation and Reorganization—the Big 4. Do Companies Recognize the Revolutionary Implications of Newly Empowered Consumers? The Internet Will be the Most Prominent Medium in the Lives of the Age Group. Source: The Economist, “Crowned at Last: A Survey of Consumer Power,” April 2, 2005, 1-16.

302 Advertising Strategy Target Audience Advertising ObjectivesAdvertising Budget Creative Strategy Advertising Media and Programming Schedules Evaluate the Effectiveness of the Strategy

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

304 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

305 Budget Determination Budget Determination Media/ Scheduling DecisionsOBJECTIVE AND TASK METHOD HAS THE MOST SUPPORT Budget Determination Media/ Scheduling Decisions Creative Strategy

306 Inside the world’s biggest, most profitable luxury brandThe Vuitton Machine* Inside the world’s biggest, most profitable luxury brand BENCHMARKING VUITTON Brand Sales Percent Operating Billions Change* Margin Louis Vuitton $ % % Prada Gucci** Hermès Coach *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 *BusinessWeek, March 22, 2004,

307 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

308 Media/Scheduling DecisionTelevision Radio Magazines Online Website Outdoor

309 Relative access to the target audienceFavorable zone Unfavorable zone Relative cost of reaching the target group(s)

310 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.

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

312 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. Several methods are available to evaluate advertising results.

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

314 SALES PROMOTION STRATEGYconsists of various incentives, mostly short term, intended to stimulate quicker and/or greater purchase of particular goods/services by consumers or the trade.

315 The Realities of Mail-in RebatesSTRATEGY FEATURE The Realities of Mail-in Rebates Consumers hate the hassles, companies love unredeemed rebates, and regulators are investigating the consumer complaints. As much as 40% of rebates never get redeemed. Some 400 million rebates are offered each year with a total value of $6 billion. Unclaimed rebates translate into more than $2 billion of extra revenue for retailers and their suppliers each year. Complex filing rules and long delays discourage consumers. Companies emphasize the filing processes are intended to discourage fraud. The largest rebate processor monitors 10,000 addresses suspected of submitting bogus rebates. Rebates offer companies an opportunity to promote small discounts without marking the products down. Rebates have become very popular with computer and consumer-electronics companies.

316 The value of rebates has also increased. Regulators are intensifying their scrutiny of the companies offering rebates. The developing back-lash against rebates is pushing some companies to halt rebate strategies. Others are encouraging online filing. Fulfillment houses are revising their processing systems, using computer technology to validate claims. Consumers would like mail-in rebates to go away but want the best price they can get. Source: Brian Grow, “The Great Rebate Runaround,” BusinessWeek, December 5, 2005, 34, 36, and 37.

317 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

318 Strategic Marketing 1. Imperatives for Market-Driven Strategy2. Markets and Competitive Space 3. Strategic Market Segmentation 4. Strategic Customer Relationship Management 5. Capabilities for Learning about Customers and Markets 6. Market Targeting and Strategic Positioning 7. Strategic Relationships 8. Innovation and New Product Strategy 9. Strategic Brand Management 10. Value Chain Strategy 11. Pricing Strategy 12. Promotion, Advertising and Sales Promotion Strategies 13. Sales Force, Internet, and Direct Marketing Strategies 14. Designing Market-Driven Organizations 15. Marketing Strategy Implementation And Control

319 SALES FORCE, INTERNET, AND DIRECT MARKETING STRATEGIESCHAPTER 13 SALES FORCE, INTERNET, AND DIRECT MARKETING STRATEGIES Sales Force Strategy Internet Strategy Direct Marketing Strategies McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

320 SALES FORCE STRATEGY A 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.

321 The Vital Role of Selling at the Boeing Co.RELATIONSHIP FEATURE The Vital Role of Selling at the Boeing Co. During the 2000s Boeing experienced an intense competitive battle against Airbus for control of the commercial jetliner market. Airbus was winning the battle until 2005 when Boeing’s Asia-Pacific jet sales were $26 billion compared to Airbus’ $9 billion. Under a new CEO management gave salespeople much more control over selling strategy compared to previous tight and rigid control by top management. Boeing lost many sales to Airbus because of top management’s unwillingness to give competent professionals flexibility in negotiating sales. Salespeople like Larry Dickenson, Boeing’s top salesman who covers the Asia-Pacific market, builds on over 18 years of relationships with airlines like Cathay Pacific, Quantas Airways Ltd., and Singapore Airlines, Ltd., to negotiate winning contracts. Importantly, Dickenson carefully plans and executes each sales campaign, overseeing every detail in the process that may span several years. The strategy is a combination of attractive pricing, financing, and leasing arrangements in combinations with training and service packages. Source: Stanley Holmes, “Boeing’s Jet Propellant,” BusinessWeek, December 26, 2005, 40.

322 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

323 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.

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

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

326 Range of Selling Roles Transactional Selling Consulting-TypeRelationships

327 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,

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

329 Selecting Sales Channels to End UsersMajor Account Management Field Sales Force Telemarketing Electronic/Mail Contact

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

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

332 Designing the Sales OrganizationCustomer 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

333 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?

334 Salesforce.com Makes People More ProductiveINTERNET FEATURE Salesforce.com Makes People More Productive Salesforce.com is an interesting example of a dot-com start-up which has developed a successful business model supplying customer management software over the Net for use by salespeople. A key feature of the software is that it is sold as a service to customers at a monthly charge for each individual user. Salesforce.com has nearly 450,000 22,700 companies worldwide. Salesforce.com illustrates how Internet information technology can enhance the capabilities and efforts of salespeople. By replacing large up-front software purchases with monthly service charges, Salesforce.com offers customers a compelling value opportunity. Since this feature can be duplicated by software competitors such as Siebel Systems, Oracle, and PeopleSoft, Salesforce.com may have difficulty sustaining its competitive edge. CEO Marc Benioff launched a new product initiative in 2005 intended to strengthen Salesforce.com’s competitive edge. AppExchange is an online market place enabling software firms and customers to trade and sell applications they develop. There will be no charge for the eBay like service but Benioff expects to expand demand for the firm’s software. Source: Salesforce.com website and “An eBay for Business Software,” BusinessWeek, September 19, 2005,

335 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

336 Managing the SalesforceFinding and Selecting Salespeople Training/Development Management Control Monitoring Directing Evaluating Rewarding

337 Wyeth Reorganizes the Sales Force to Improve ProductivitySTRATEGY FEATURE Wyeth Reorganizes the Sales Force to Improve Productivity Wyeth’s changes in the sales organization are driven by concerns of physicians about duplicated sales coverage and the need to improve salesforce productivity. The prior approach of multiple salespeople calling on doctors to market the same drugs is being changed. Out of Wyeth’s salesforce of 5000, about half call on primary-care doctors. As many as 750 nay be cut or reassigned. The selling strategy is to reduce the frequency of sales calls, while making each more worthwhile. Initiatives include assigning each salesforce responsibility for more drugs, reducing sales calls on the doctors who write the fewest prescriptions, and utilizing a part-time sales force for coverage of selected accounts, and use of Internet-based seminars. Source: Scott Hensley, “Wyeth to Revamp, Cut Its Sales Force,” The Wall Street Journal, June 20, 2005, A3, A6.

338 Sales Force Evaluation and Control Performance StandardsPerformance Measures Focus on Management Control and/or Outcomes? Performance Standards

339 Reinventing the Sales OrganizationCustomer Relationships Applying Technology Coaching SALES MANAGER CHALLENGES Performance Huddles Sales Structure Internal Relationships Customer Channels Keeping Score

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

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

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

343 Designing Internet StrategyCustomer Groups Targeted Value Proposition Communications Strategy Designing the Website Structure of the Organization Alliance Partners Shareholder Value Tracking Performance

344 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

345 E-Tailing Finally Hits Its StrideThe E-tail Effect How e-commerce is shaking up the retail landscape: THE BIG GUNS ARRIVE After early struggles, online sales at brick-and-mortar giants such as Wal-Mart, Sears, and Gap are soaring. These chains are also using the Web to test new products and move into new markets. NICHES GO NATIONAL More and more niche players are succeeding by offering variety rivals can’t match. Luggage seller eBags, for example, is able to stock 12,000 styles, compared with 250 in a typical store. SEARCH LENDS A HAND Using Google and similar Websites, consumers can search far and wide for specialized products – say, stainless-steel farm sinks. That’s creating markets for lesser known brands and new merchants. MORE PRICING PRESSURES Shoppers are increasingly using price-comparison sites such as Shopping.com and Shopzilla. The result: Ever more cutthroat competition for brick-and-mortar and online stores alike. Source: “E-Tailing Finaly Hits Its Stride,“ BusinessWeek, December 20, 2004,

346 The Future of the InternetRevolutionary for certain industries and incremental for others.

347 DIRECT MARKETING Kiosk Shopping Catalogs Electronic ShoppingDirect Mail Radio/Magazine/ Newspaper Telemarketing Television

348 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

349 Strategic Marketing 1. Imperatives for Market-Driven Strategy2. Markets and Competitive Space 3. Strategic Market Segmentation 4. Strategic Customer Relationship Management 5. Capabilities for Learning about Customers and Markets 6. Market Targeting and Strategic Positioning 7. Strategic Relationships 8. Innovation and New Product Strategy 9. Strategic Brand Management 10. Value Chain Strategy 11. Pricing Strategy 12. Promotion, Advertising and Sales Promotion Strategies 13. Sales Force, Internet, and Direct Marketing Strategies 14. Designing Market-Driven Organizations 15. Marketing Strategy Implementation And Control

350 Designing Market-Driven OrganizationsChapter 14 Designing Market-Driven Organizations McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

351 Designing market-driven organizationsTrends in organization design Organizing for market-driven strategy Marketing departments Structuring marketing resources Organizing for global marketing and global customers

352 Designing market-driven organizationsProcter and Gamble Global restructuring to improve innovation and competitiveness Global business units for products and market development units to tackle local market issues Change agents appointed to work across business units Virtual innovation teams work through intranet Organization design supports clear strategies so all business disciplines can work together

353 Trends in organization design (1)The New Organization Traditional structures Centralized, vertical, “command and control” Organizational design shifts Innovation The knowledge-based worker Managing culture Collaborative working Informal networks Organizational diversity and external relationships

354 Organization costs Cadbury Schweppes - world’s largest confectionery business Restructuring at cost of $900 million Organizational structure has become too complex with too many overlaps Organizational costs account for 20% of turnover - compared to 12% at competitors Reorganization is central to regaining competitiveness

355 Trends in organization design (2)Managing organizational processes Organizational agility and flexibility Zara Toyota Employee motivation “MySpace Generation”

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

357 Process-based organizational structureProcesses that define value e.g. knowledge management, CRM Processes that create value e.g. new product development, innovation Process Leadership Processes that deliver value e.g. logistics, customer service, value chain relationships Coordination mechanisms to link process and resource leadership Specialist resource groups support process Managers e.g. functional departments, business units, external collaborators Resource Group Leadership

358 The Toyota way Pillar I Challenge Kaizen - continuous improvementGenchi Genbutsu - go and see for yourself Pillar II Respect Teamwork EM2 - Everything Matters Exponentially

359 The MySpace GenerationLives online - social networking sites are a way of life Children of the babyboomers Ambitious, demanding and question everything Work/life balance is very important Expected to be the highest maintenance workforce in history and the most high-performing “You raised them, now manage them”

360 Organizing for market-driven strategy (1)Strategic marketing and organization structure Aligning the organization with the market Informal lateral integration Integrating mechanisms Full customer alignment

361 Customer-based front-end organizationSenior Management Mediation from the center Shared planning and metrics Customer-based Front-end Units Back-end Units Internal linkages Product customers Solutions customers

362 Organizing for market-driven strategy (2)Marketing functions versus marketing processes Marketing as cross-functional process The challenge of integration Marketing’s links to other functions Finance/accounting Operations Sales R&D Customer service Human resource management Approaches to achieving effective integration

363 Marketing departmentsCentralization versus decentralization Integration or diffusion Contingencies for organizing Evaluating organizational designs

364 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

365 Structuring marketing resources (1)Structuring issues Functional organizational design Product-focused design Product/brand management Category management Venture teams New product teams Market-focused design Matrix design

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

367 Product-Focused Structure

368 Marketing Organization Based on a Combination of Functions and Products

369 Structuring marketing resources (2)New marketing roles New marketing specializations Venture marketing organizations Partnering with other organizations Networked organizations

370 New organizational structure for marketingVice President of Marketing Director of Product Management Chief Customer Officer Customer Service Customer Database Marketing Research

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

372 Organizing for global marketing and global customersOrganizing for global marketing strategies Business functions Organizational issues Coordination and communication Organizing for global customers The growth in global retailers Global account management structures

373 Global account management at MicrosoftSingle executive/team in charge of single customer and all global needs Restricted to customers by revenue size but also willingness/ability to partner Senior managers encouraged to develop relationships with senior managers at global accounts Global business managers work across business units, functions and organizations

374 Strategic Marketing 1. Imperatives for Market-Driven Strategy2. Markets and Competitive Space 3. Strategic Market Segmentation 4. Strategic Customer Relationship Management 5. Capabilities for Learning about Customers and Markets 6. Market Targeting and Strategic Positioning 7. Strategic Relationships 8. Innovation and New Product Strategy 9. Strategic Brand Management 10. Value Chain Strategy 11. Pricing Strategy 12. Promotion, Advertising and Sales Promotion Strategies 13. Sales Force, Internet, and Direct Marketing Strategies 14. Designing Market-Driven Organizations 15. Marketing Strategy Implementation And Control

375 Marketing Strategy Implementation and ControlChapter 15 Marketing Strategy Implementation and Control McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

376 Marketing strategy implementation and controlThe strategic marketing planning process Implementing the strategic marketing plan Strategic marketing evaluation and control Marketing performance measurement Global issues for planning, implementation and control

377 Marketing strategy implementation and controlFiat - strategic turnaround in auto industry Debts, losses, market share falling, reputation for low quality, diversification Recovery strategy of radical restructuring, dismantling management and bureaucracy Marketing, operations and R&D overhauled - small car focus Range of strategic relationships established

378 The strategic marketing planning processThe marketing plan guides implementation Contents of the marketing plan Managing the planning process

379 Strategy and planning relationshipsMARKETING STRATEGY Annual Marketing Planning Annual Marketing Planning Annual Marketing Planning Implementation Control and Evaluation Revision Implementation Control and Evaluation Revision

380 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.

381 MARKETING PLAN OUTLINEIII. Positioning Statements Write 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.

382 IV. Market Mix Strategy for Each Market TargetA. Product Strategy Identify 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.

383 IV. Market Mix Strategy for Each Market TargetC. 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.

384 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.

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

386 Implementing the strategic marketing plan (1)Implementation process Structural issues Behavioral issues Building implementation effectiveness Organizational design Incentives Communications Internal marketing Comprehensive approach to improving implementation

387 Implementation processActivities to be implemented Responsibility for implementation How implementation will be done IMPLEMENTATION PROCESS Time and location of implementation

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

389 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

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

391 Implementing the strategic marketing plan (2)Internal strategy-organization fit Organizational stretch The role of external organization

392 Strategic marketing evaluation and control (1)Customer relationship management Overview of control and evaluation activities Find new opportunities/avoid threats Keep performance in line with expectations Solve specific problems

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

394 Evaluation and controlConduct strategic marketing audit Select performance criteria and choose relevant marketing metrics Obtain and analyze information Assess performance and take necessary action

395 Strategic marketing evaluation and control (2)The strategic marketing audit Results provide basis for selecting performance criteria to assess actual performance against lans

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

397 Marketing performance assessment (1)The importance of marketing metrics The use of marketing metrics Types of marketing metrics Selecting relevant metrics Designing a management dashboard

398 Marketing metrics (A) Marketing metrics focusing on operationsCompetitive and customer metrics Profitability metrics Product and portfolio metrics Customer profitability metrics Sales and channel metrics Pricing metrics Promotion metrics Advertising, media and web metrics Financial metrics

399 Marketing metrics (B) Brand equity metrics Familiarity PenetrationWhat they think about the brand What they feel Loyalty Availability Innovation metrics Strategy Culture Outcomes

400 Marketing metrics (C) Internal market metricsAwareness of corporate goals Perceived caliber of employer Relative employee satisfaction Commitment to corporate goals Employee retention Perceived resource adequacy Appetite for learning Freedom to fail Customer-brand empathy Internal process metrics E.g., internal communications

401 Marketing performance assessment (2)Interpreting performance measurement results Opportunities and performance gaps Problem/opportunity definition Interpreting information Determining normal and abnormal variability Deciding what actions to take

402 Global issues for planning, implementation and controlGlobal marketing planning Additional complexity Simplifying assumptions Limited information availability Accommodate international strategy variability Implementation globally Importance of relationships between domestic and international executives Performance measurement and control globally International markets may require different metrics