Nirmalya Kumar Marketing as Strategy

Nirmalya KumarProfessor of Marketing Director, Centre for Marketing Co-Director, Aditya V Birla India Centre

London Business School

Copyright Nirmalya Kumar Not to be used or reproduced without permission

Marketing TransformationsStrategic, Cross-Functional, and Bottom Line Oriented 1. 2. 3. 4. 5. From market segments to strategic segments From selling products to providing solutions From declining to growing distribution channels From branded bulldozers to global distribution partners From brand acquisitions to brand rationalization

6. From market-driven to market-driving 7. From SBU marketing to corporate marketingCopyright Nirmalya Kumar Not to be used or reproduced without permission

From Market Segments To Strategic SegmentsCopyright Nirmalya Kumar Not to be used or reproduced without permission

Value PropositionHow different will be our value curveValue attributes Worldwide network Choice in distribution New airplanes Punctuality Seat selection Offer business class Seat spacing In-flight meals Frequent flyer miles Refunds if plane is late Flexibility to change flight Refund for missed flight Price attractivenessLow Medium. High

-----easyJet

-----Flag carrier


Value PropositionWhich assumptions should be challenged?Which of the factors which the industry takes for granted could be: Eliminated? Raised above industry standards? Reduced below industry standards? Which totally new factors the industry never considered could be introduced?

easyJet ResponseMeals, Travel agents Punctuality Low-cost travel Flight change flexibility Seat selection Refunds if late plane Ticketless travelCopyright Nirmalya Kumar Not to be used or reproduced without permission

Marketing Innovation: easyJetTraditionalValued Customer Value Proposition Everyone, especially business class Flexible Full service Worldwide network High prices

easyJetPeople who pay from their own pockets and some who dont fly One-way fares Refunds, if plane is late No seat choice No meals Low prices

Value Network Purchasing Operations Integrated Short and long-haul Multiple planes Worldwide network Segmented customers Varied meal services Frequent flyer program Travel agents Outsourced Short-haul routes Single type of plane Select destinations Treat all customers the same Focused Direct sales/Internet

Marketing

Distribution


From Brand Acquisitions To Brand RationalizationCase StudyCopyright Nirmalya Kumar Not to be used or reproduced without permission

Electrolux in 19961 INTERNATIONAL BRAND

NET SALES 4.251 KSEK

>14 NATIONAL BRANDS

>15 BRANDS >15 BRANDS

OP II -1,3 %

1996 1996Copyright Nirmalya Kumar Not to be used or reproduced without permission

Price SegmentationPrice High Middle Low Specs High Middle Low Brand Best Better GoodWhy would Why would people people prefer or prefer or buy our buy our brands ? brands ?


The Electrolux WayBenefits Needs Brand Best Best Best Value Best Best Best


Performance specialisation Context Produce large volumes Manage complicated menus Very special circumstances Very complicated logistics High performance / capacity Industrial reliability Customized kitchen layout Integrated systems

Basic solution fast ROI Auxiliary catering Easy and fast ROI Very basic environment Manage basic menus Conformity with legal and sanitary regulation Basic specs and features Very low price

Gastronomy partnership < 200 meals per day Little technical competence Normal environment

Prestige gourmet Celebrity chefs Gourmet restaurants A la carte cuisine signature dishes Prestigious working environment Status symbol Be part of a very exclusive elite Very reliable tailored stove

Needs

Modular & homogeneous catering solutions Close relationship with the supplier partner Proven technology suitable performance affordable Staff Canteens 3-4-Star Hotels Family Restaurants Schools Elderly Homes Complete range of functions Uniform aesthetics stylish Reliable standard components Full service : pre- & after-sales pre- after50 75 Proximity Partner-dealer PartnerCompetent service Best-in-class commercial Best- inorganization

Customer types

In-Flight Marine 5-Star Hotels In Hospitals Central Kitchens

Pubs & Bars C-Stores

Gourmet Restaurants 5-Star Hotels (Private Homes) Overwhelming design Prestigious materials Everlasting construction

Product specifications

Best components & materials Modular engineering Top service : pre- & after-sales pre- after-

Cheapest components Occasional use durability No service

Price index Distribution

100 Direct sales selected partner consultants & opinion leaders! Very high commercial & technical competence

10 25 Cash & Carry Internet Lowest cost close to market

200 300 Direct sales Personal relationship

Target brand


Electrolux 1996-2001OP II +8,1 %


>15 BRANDS >15 BRANDS


3 BRANDSOP II -1,3 %

1996 1996

1997 1997

1998 1998

1999 1999

2000 2000

2001 2001


From Market Driven To Market DrivingCopyright Nirmalya Kumar Not to be used or reproduced without permission

Market DrivenMarket driven firms target clusters of customers (segments)

Segment

Target

Position

Product

Service

Promotion

Place

Price

Differentiation

Win through

Profits through customer satisfactionLow Cost

Examples:

Toyota, Nestle, Unilever, P&G,


Market DrivingMarket driving firms change the basis of competition Win through Seeing differently Profits through leap in value

Value Proposition Discontinuous Leap

Value innovation Incremental DevelopmentEvolutionary

Market Driving Architectural InnovationRevolutionary Business System

Continuous Improvement

Examples: Aravind Eye Hospital, Body Shop, CNN, Federal Express, IKEA, Microsoft, Southwest, Starbucks, Swatch, TetraPak, WalmartCopyright Nirmalya Kumar Not to be used or reproduced without permission

Zara


Sales, 1999-2003: Inditex vs H&M(Millions of Euro)

6,000 5,000 4,000 3,000 2,000 1,000 0 1999 2000 2001 2002 2003Copyright Nirmalya Kumar Not to be used or reproduced without permission

4,972 4,297 3,607 3,168 2,615 2,035 1,614 3,250

5,289 3,980Inditex H&M



Value PropositionHow different will be our value curveValue attributesPrice* Fashion content Assortment breadth Store experience Fresh items Celebrity advertising Central store locations Out of stock (traditional)** Durability of clothing Discounts / sales Out of stock (unique)**H&MLow

Low

Medium.

High

ZARAValue to CustomersHigh

*High price means low value to customers **Traditional out of stock is poor service, in Zara customer is wearing unique product


Value PropositionWhich assumptions should be challenged?Which of the factors which the industry takes for granted could be: Eliminated? Reduced below industry standards? Raised above industry standards? Which totally new factors the industry never considered could be introduced?

Zara ResponseAdvertising Clothing quality, out of stock (traditional), sales. Store atmosphere, Fashion content Out of stock (unique), Fashion freshnessCopyright Nirmalya Kumar Not to be used or reproduced without permission

Market Driving: ZaraH&M Valued Customer Value Proposition Budget conscious youth Cheap clothes worn by fashionable people Zara Fashion conscious urban youth Expensive fashion designers at cheaper prices

Value Network Purchasing Manufacturing Logistics Marketing Finished Outsourced Long production cycle Long lead times Celebrity advertising Finished & raw materials Vertical integration Short product cycles Short lead times Storefront as advertisement


Price Comparison of Zara Jeans in Different MarketsCountry Prices (USD) Difference (Spain = 100) 100 104 114 129 131 131 131 138 139 140 144 173 177 219 Adapted: DAndrea and Arnold , 2003 Spain Portugal Greece Italy Turkey Hungary Poland Germany France Saudi Arabia Belgium Mexico USA Japan 24.84 25.78 28.45 32.04 32.46 32.68 32.70 34.42 34.58 34.81 35.81 42.91 44.00 54.52


Product Development & Delivery: Zara vs Traditional Industry1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 5th Quarter

Sales Markdowns

TRADITIONAL Visit to Design Introduction to Manufacturing INDUSTRY Exhibitions Collection

Distribution & Sales

Season

Sales Markdowns

Design & Raw Material Sourcing ZARA External Manufacturing

65% 55% 15%

35% 40-55% 85% Season

Internal Manufacturing

Copyright Nirmalya Kumar

Source:Not to be used or reproduced, without permission DAndrea and Arnold 2003

Inditex Supply Chain: Speed to Market6-month pre-seasonTraditional industry model

Start of season

In-season

Sales % not at full price

45-60%

80-100%

0-20%

30-40%

Advertising

Advertising & Markdowns

Zara

15-25%

50-60%

40-50%

15-20%

Copyright Nirmalya Kumar Source: Inditex, 2004 Not to be used or reproduced without permission

Comparative Performance Indicators, 2000Operating Margin / Sales (%) Zara 14.7 Inventory Turnover

10.67

Gap

10.6

7.18

Hennes & Mauritz

12.3

6.84

Source: DAndrea and Arnold , 2003


Relative Wage Levels: 1998(USD)Textiles India China Tunisia Morocco Hungary Portugal Spain USA Italy 0.60 0.62 1.76 1.89 2.98 4.51 8.49 12.97 15.81 Clothing 0.39 0.43 NA 1.36 2.12 3.70 6.79 10.12 13.60

Source: Fraiman and Singh, 2002Copyright Nirmalya Kumar Not to be used or reproduced without permission

What they do wrongNo advertising No approval of designs Non replenishment of successful fashion items Manufacturing in Europe Own production Too many designers Copy everything New assortment every two weeksCopyright Nirmalya Kumar Not to be used or reproduced without permission

To Become Market Driving Unleash individual creativity Tolerate mistakes and allow multiple channels for approval of new ideas Establish Skunk works Select and match employees on values and personality Encourage competitive teams Develop an experimenting organization Cannibalize your own


Be the change you want to create

Mahatma Gandhi


Nirmalya Kumar Marketing as Strategy

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