PART1: UNDERSTANTING MARKETING AND MANAGEMENT CHAPTER 1: DEFINITNG MARKETING FOR THE 21st CENTURY THE IMPORTANCE OF MARKETING Marketing is a significant dimension of any business in today’s highly competitive environment and financial success is often dependent on marketing ability. Marketing is crucial for business success. THE SCOPE OF MARKETING Marketing is about identifying and meeting human and social needs. One of the shortest definitions of marketing is the process of meeting needs profitably. Marketing management is the art and the science of choosing target markets and getting, keeping and increasing customers though creating, managing, communicating and delivering superior customer value. UNDERSTANDING MARKETS Marketing can be used for: Services, products, services and products, events, experiences, people, places ideas Marketing managers seek to influence the level, timing, and composition of demand to meet the organization’s objectives. Eight states of market demand are possible: - Full demand: consumers buy all services or products brought to market. - Overfull demand: there are more consumers demanding the service or product than can be satisfied. - Irregular demand: consumer purchases vary on a seasonal, monthly, weekly… - Declining demand: consumers begin to buy services or products less frequently or not all. - Negative demand: consumers dislike the service or product and may even pay a price to avoid it. - Nonexistent demand: consumers may be unaware of or uninterested in the product or service. - Latent demand: consumers may share a strong need that cannot be satisfied by an existing product or service. - Unwholesome demand: consumers may be attracted to services or products that have undesirable social consequences. In each case, marketers must identify the underlying causes of the demand state then determine a plan of action to shift the demand to a more desirable state. HOW IS MARKETING PRACTICED? Marketing practice can be viewed in many perspectives. The traditional view is the KOTLERIAN marketing management view of managing the marketing mix after selecting target market and positioning. TRANSACTIONAL, RELATION AND SERVICE MARKETING
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PART1: UNDERSTANTING MARKETING AND MANAGEMENT
CHAPTER 1: DEFINITNG MARKETING FOR THE 21st CENTURY
THE IMPORTANCE OF MARKETINGMarketing is a significant dimension of any business in today’s highly competitive environment and financial success is often dependent on marketing ability. Marketing is crucial for business success.
THE SCOPE OF MARKETINGMarketing is about identifying and meeting human and social needs. One of the shortest definitions of marketing isthe process of meeting needs profitably.Marketing management is the art and the science of choosing target markets and getting, keeping and increasing customers though creating, managing, communicating and delivering superior customer value.
UNDERSTANDING MARKETSMarketing can be used for:Services, products, services and products, events, experiences, people, places ideas
Marketing managers seek to influence the level, timing, and composition of demand to meet the organization’s objectives. Eight states of market demand are possible:
- Full demand: consumers buy all services or products brought to market.
- Overfull demand: there are more consumers demanding the service or product than can be satisfied.
- Irregular demand: consumer purchases vary on a seasonal, monthly, weekly…
- Declining demand: consumers begin to buy services or products less frequently or not all.
- Negative demand: consumers dislike the service or product and may even pay a price to avoid it.
- Nonexistent demand: consumers may be unaware of or uninterested in the product or service.
- Latent demand: consumers may share a strong need that cannot be satisfied
by an existing product or service.
- Unwholesome demand: consumers may be attracted to services or products that have undesirable social consequences.
In each case, marketers must identify the underlying causes of the demand state then determine a plan of action toshift the demand to a more desirable state.
HOW IS MARKETING PRACTICED?Marketing practice can be viewed in many perspectives. The traditional view is the KOTLERIAN marketing management view of managing the marketing mix after selecting target market and positioning.
TRANSACTIONAL, RELATION AND SERVICE MARKETING
Transaction marketing is defined as attracting and satisfying potential buyers by managing the elements in the marketing mix.Interaction marketing: implies face to face interaction between individuals.Network marketing is with the consumers but occurs across and among organization.
The concept was developed by the Nordic school from northern Europe and developments from the USA. Relationship marketing in its simplest form is a progression from the dominant and often criticized the 4 P focus. The relational is focus on building long-term relationships with consumers
CHAPTER 2 : DEVELOPING MARKETING, STRATEGIES AND PLAN
Mktg and customer value
Marketing is about satisfying consumers' needs and wants. The task of any business is to deliver customer value ata profit.
I. The value Delivery Process
The traditional view of marketing is that the firm makes something and then sells it. Companies that subscribe to this view have the best chance of succeeding in economies marked by goods shortages where consumers are not fussy about quality, features, or style. This traditional view will not work in economies with different types of peopleeach with individual perceptions, preferences and buying criteria. We can divide value delivery sequence in 3 phases: segment the market, select the appropriate target and develop the offering’s value positioning; providing the value determining specific product feature, prices and distributions; communicating the value.
II. The value Chain
Michael Porter of Harvard has proposed the value chain as a tool for identifying ways to create more customer value. According to this model, every firm is a synthesis of activities performed to design, produce, and market, deliver, and support its product. The value chain identifies nine strategically relevant activities-five primary and four support activities-that create value and cost in a specific business. He firm's infrastructure covers thecosts of general management, planning, finance, accounting, legal, and government affairs. The firm's task is to examine its costs and performance in each value-creating activity and to look for ways to improve it. Managers should estimate their competitors' costs and performances as benchmarks against which to compare their own costs and performance.
The firm's success depends not only on how well each department performs its work, but also on how well the company coordinates departmental activities to conduct core business processes.
• The market-sensing process.
• The new-offering realization process.
• The customer acquisition process.
• The customer relationship management process.
• The fulfilment management process.
To be successful, a firm also needs to look for competitive advantages beyond its own operations, into the value chains of suppliers, distributors, and customers.
III. Core competencies
Many companies today outsource less-critical resources if they can obtain better quality or lower cost. The key, is to own and nurture the resources and competencies that make up the essence of the business.
A core competency has three characteristics:
1. It is a source of competitive advantage in that it makes a significant contribution to perceived customer benefits.
2. It has applications in a wide variety of markets.
3. It is difficult for competitors to imitate.
Business realignment may be necessary to maximize core competencies. It has three steps:
1. Defining the business concept or "big idea"
2. Shaping the business scope
3. Positioning the company's brand identity.
IV. A holistic marketing Orientation and Customer Value
A marketing strategy that is developed by thinking about the business as a whole, its place in the broader economy and society, and in the lives of its customers. It attempts to develop and maintain multiple perspectives on the company’s commercial activities.
A holistic marketing orientation can also help capture customer value. The holistic marketing framework is designed to address three key management questions:
1. Value exploration- How can a company identify new value opportunities
2. Value creation- How can a company efficiently create more promising new value offerings
3. Value delivery-----How can a company use its capabilities and infrastructure to deliver the new value offerings more efficiently
V. The central role of the strategic planning
Successful marketing thus requires companies to have capabilities such as understanding customer value, creating customer value, delivering customer value, capturing customer value, and sustaining customer value. To ensure thatthey select and execute the right activities, marketers must give priority to strategic planning in three key areas: managing a company's businesses as an investment portfolio, assessing each business's strength by considering the market's growth rate and the company's position and fit in that market, and establishing a strategy.
The marketing plan is the central instrument for directing and coordinating the marketing effort. The marketing plan operates at two levels: strategic (stp) and tactical (4p)
Corporate and division strategic planning
All corporate headquarters undertake four planning activities
1. Defining the corporate mission
2. Establishing strategic business units
3. Assigning resources to each SBD
4. Assessing growth opportunities
I. Defining the corporate missionMission statements have to be share with managers, employees and customers, and are at their best when they reflect a vision, an impossible dream that provides directions for the next 10/20 years.
To define its mission, a company should address Peter Drucker's classic questions:What is our business? Who is thecustomer? What is of value to the customer? What will our business be? What should our business be? These simple-sounding questions are among the most difficult a company will ever have to answer.
The good mission statements have five major characteristics. First, they focus on a limited number of goals; then they stress the firm’s policies and values; take a long term view; are short, meaningful and memorable as possible; define the major competitive spheres within which the firm will operate.
II. Establishing Strategic Business Units
Large companies normally manage quite different businesses, each requiring its own strategy. General Electric has classified its businesses into 49 strategic business units, SBUs. A SBU has three dimensions:
1. It is a single business, or a collection of related businesses, that can be planned separately from the rest ofthe company.2. It has its own set of competitors.3. It has a manager responsible for strategic planning and profit performance, who controls most of the factors affecting profit.
III. Assigning Resources to Each SBU Once it has defined SBUs, management must decide how to allocate corporate resources to each. Management would want to grow, "harvest" or draw cash from, or hold on to the business.
IV. Assessing growth Opportunities
Includes planning new businesses, downsizing and terminating older business. In particular there are 3 options:
A. Intensive Growth
Corporate management's first course of action should be are view of opportunities for improving existing businesses. It considers strategic growth in terms of new and current products and markets. First company considers if it could gain more mkt share with its current product in their current markets, using a market-penetration strategy; then considers whether can find or develop new markets for its current products in a market-development strategy; then considers if can develop new products to its current markets using a product-development strategy; later the firm will consider whether develop new products for new markets in a diversification strategy.
B. Integrative Growth
A business can increase sales and profits through backward, for- ward, or horizontal integration within its industry. Media companies have long reaped the benefits of integrative growth.
C. Diversification Growth
Diversification growth makes sense when good opportunities exist outside the present businesses-the industry is highly attractive and the company has the right mix of business strengths to be successful.
D. Downsizing and Divesting Older Businesses
Weak businesses require a disproportionate amount of managerial attention. Companies must carefully prune, harvest, or divest tired old businesses in order to release needed resources to other uses and reduce costs.
VI. Organization and Organizational Culture
The former consists of a firm’s structure, policies and corporate culture, which is the first thing that strikes you in a company, the way people dress, talk to one other etc… Often it develops organically and is transmitted directly from the CEO’s personality and habits to the employees.
The Business Unit Strategic Planning
I. The Business Mission
Each business unit needs to define its specific mission within the broader company mission. Therefore, a television-studio-lighting-equipment company might define its mission as, “To target major television studios and
become their vendor of choice for lighting technologies that represent the most advanced and reliable studio lighting arrangements.”
II. SWOT ANALYSIS
The overall evaluation of a company's strengths, weaknesses, opportunities, and threats is called SWOT analysis. It's a way of monitoring the external and internal marketing environment.
A. External Environment (opportunity and threat) Analysis
The business unit should set up a marketing intelligence system to track trends and important developments and anyrelated opportunities and threats. Good marketing is the art of finding, developing, and profiting from these opportunities.
A marketing opportunity is an area of buyer need and interest that a company has a high probability of profitably satisfying.
Opportunities can take many forms, and marketers need to be good at spotting them.
To evaluate opportunities, companies can use market opportunity analysis (MOA) to determine their attractiveness and probability of success by asking questions like:
- To articulate the benefits convincingly to a defined target market(s)?
- To locate the target market(s) and reach them with cost-effective media and trade channels?
- To possess or have access to the critical capabilities and resources we need to deliver the customer benefits?
- To deliver the benefits better than any actual or potential competitors?
B. Internal Environment (strengths and weaknesses)
It's one thing to find attractive opportunities, and another to be able to take advantage of them. Each business needs to evaluate its internal strengths and weaknesses.
III. Goal Formulation
This stage of the process is called goal formulation, developing specific goals for the planning period. Goals areobjectives that are specific with respect to magnitude and time. For a management by objectives (MBO) system to work, the unit's objectives must meet four criteria: 1. They must be arranged hierarchically, from the most to the least important.
2. Objectives should be quantitative whenever possible.
3. Goals should be realistic. Goals should arise from an analysis of the business unit's opportunities and strengths, not from wishful thinking.
4. Objectives must be consistent. It's not possible to maximize sales and profits simultaneously.
IV. Strategic Formulation
Strategy is a game plan for getting there; every business must design a strategy for achieving its goals, consisting of a mktg strategy and a compatible technology strategy and sourcing strategy.
A) Porter Generic Strategies- Overall cost leadership. Firms pursuing this strategy work hard to achieve the lowest production and distribution costs so they can price lower than their competitors and win a large market share.
- Differentiation. The business concentrates on uniquely achieving superior performance in an important customer benefit area valued by a large part of the market.
- Focus. The business focuses on one or more narrow market segments.
B) Strategic Alliances
Even giant companies cannot achieve leadership without forming alliances with domestic or multinational companies;these alliances fall into 4 categories:
- Product or service alliances-One company licenses another to produce its product, or two companies jointly market their complementary products or a new product.
- Promotional alliances - One company agrees to carry a promotion for another company's product or service.
- Logistics alliances - One company offers logistical services for another company's product.
- Pricing collaborations - One or more companies join in a special pricing collaboration.Hotel and rental car companies often offer mutual price discounts.
V. Program Formulation and Implantation
The unit has decided to attain technological leadership, it must plan programs to strengthen its R&D department, gather technological intelligence, develop leading-edge products, train the technical sales force, and develop adsto communicate its technological leadership.Businesses are also increasingly recognizing that unless they nurture other stake- holders-customers, employees, suppliers, distributors-they may never earn sufficient profits for the stockholders.
VI. Feedback and Control
The company has to point out that it is more important to "do the right thing"-to be effective-than "to do things right"-to be efficient. The most successful companies excel at both.
Product Planning: The Nature and Contents of a Marketing PlanWhat, does a marketing plan look like? What does it contain?
A MP is a written document that summarized what the marketer has learned about the marketplace and indicates how the firm plans to reach its marketing objectives. It documents how the organization will achieve its strategic goals through specific mktg strategies and tactics with the customer as a starting point; planning in fact is becoming a continuous process to respond to rapidly changing market conditions. Usually it contains the following sections:
- Executive summary and table of contents. The marketing plan should open with a brief of the main goals and recommendations. A table of con- tents outlines the rest of the plan and all the supporting rationale and operational detail.
- Situation analysis. This section presents relevant background data on sales, costs, the market, competitors, andthe various forces in the macro environment. How do we define the market, how big is it, and how fast is it growing? What are the relevant trends? What is the product offering and what critical issues do we face? Firms will use all this information to carry out a SWOT (strengths, weaknesses, opportunities, threats) analysis.- Marketing strategy .Here the product manager defines the mission, marketing and financial objectives, and groups and needs that the market offerings are intended to satisfy. The manager then establishes the product line's competitive positioning, which will inform the "game plan" to accomplish the plan's objectives. All this requires inputs from other areas, such as purchasing, manufacturing, sales, finance, and human resources.
- Financial projections. Financial projections include a sales forecast, an expense fore- cast, and a break-even analysis. On the revenue side, the projections show the forecasted sales volume by month and product category. On the expense side, they show the expected costs of marketing, broken down into finer categories. The break-even analysis shows how many units the firm must sell monthly to offset its monthly fixed costs and average per-unit variable costs.
- Implementation controls. The last section of the marketing plan outlines the controls for monitoring and adjusting implementation of the plan. Typically, it spells out the goals and budget for each month or qU31ter, so management can review each period's results and take corrective action as needed.
PART 2: CAPTURING MARKETING INSIGHTS
CHAPTER 4 : CONDUCTING MARKETING RESEARCH
MARKETING RESEARCH SYSTEM
Are the systematic design, collection, analysis, and reporting of data and findings relevant to a specific marketing situation facing the company. Most large companies have their own mktg research dept. but also small companies can hire the services of a mktg research firm or conduct research in different ways: engaging students,professor to design and carry out projects; using the Internet; checking out rivals.
THE MARKETING RESEARCH PROCESS
Step 1 : Define the problem and research objectives. Being careful not to define the problem too broadly or too narrowly for the marketing researcher.
Step 2 : Developing the research plan. - Decisions on the data sources: primary data, data gathered freshly for a specific purpose or research projects; secondary data, those data that we collect for another purpose and already exist somewhere. Researchers usually start their investigations by examining the rich variety of low-costs and available secondary data to see whether they could solve the problem without collecting costly primary data.
- Research approaches: primary data can be collected in five ways: observational research, survey research, behavioralresearch, experimental research or focus group.(*)
- Research instruments, such as questionnaires with close end question, which is the most common instrument use to collect primary data; qualitative measures: with a rangeof possible responses or through approaches to get inside the consumers’ mind: word association (what words come to mind when they hear the brand’s name), visualization (requires people creating a collage from magazine photos or drawing to depict their perceptions), brand personification (which person they think then the brand is mentioned), laddering (more specific WHY to reveal deeper motivations and goals) - Sampling plan, 3 decision: whom we should survey?; how many people (size)?; how should we choose the respondents?
- Contact methods: mail (requires just simply questions but response rate is low and slow); telephone (quickly, interviewer can clarify questions if respondents do not understand them, difficult because of consumers’ growing antipathy toward telemarketers); personal (more versatile, allows additional observations, but more expensive and subject to interviewer bias); online contact ( inexpensive, fast, people tend to be honest but samples can be small and can suffer from excessive turnover and technological problems)
Step 3 : Collect the information. The data collection phase of marketing research is the most expensive and the most prone to error.
Step 4 : Analyze the information. Extract pertinent findings from the collected data and developing summary measures in order to compute averages and dispersion for the major variables trying to discover additional findings.
Step 5 : Present the findings. Major findings are pertinent to the major marketing decisions facing management.
Step 6: Make the decision. Some organizations use marketing decision support systems (MDSS) which is a coordinated collection of data, systems, tools and techniques with supporting software and hardware by which an organization gathers and interprets relevant information from business and environment and turns it into a basis for marketing action.
Measuring MKTG Productivity
Marketers are facing increasing pressure to provide clear, quantifiable evidence to senior management as to how their expenditure help the firm to achive its goals and financial objectives. Mktg research can help address this increased need for accountability through two different approaches:
1) Marketing metrics: is a set of measures that helps them quantify, compare and interpret their marketing performances. (awareness, market share, relative price, customers satisfaction and so on..)
2) Marketing mix modeling: analyze data from a variety of sources to understand more precisely the effects of specific marketing activities.
Marketing dashboards are a structured way to disseminate the insights gleaned from these 2 approaches within the organization.
PART 3 : CONNECTING WITH CUSTOMERS
CHAPTER 6: ANALYZING CONSUMER MARKETS
What influences consumer behavior?
Consumer behavior is the study of how individuals, groups and organizations select, use, and dispose of goods, services, ideas, or experiences to satisfy their needs and wants. It is influenced by cultural, social and personal factors.
1- Cultural factors
Culture is the fundamental determinant of a person’s wants and behavior because of values. Each one consists of smaller subcultures that provide more specific identification and socialization for their members. Subcultures include nationalities, religion, racial groups… All human society exhibit social stratification , in the form of social classes which are relatively homogeneous and enduring divisions in a society, hierarchically ordered and with members who share similar values, interests, and behaviors and which so show distinct product and brand preferences.
2- Social factors
- Reference group . A person’s reference groups are all the groups that have a direct or indirect influence on theirattitudes or behavior.Membership groups have a direct influence and some of these are primary groups which are in constant contact with the person (family, friends, neighbors, coworkers). Secondary groups are religious, professional, trade-union groups, which tend to be more formal and require less interaction.
People are also influenced by aspiration groups (are those a person hopes to join) and by dissociative groups (are based onindividual reject)An opinion leader is the person who offers informal advice or information about a specific productor product category.
- Family. From family a person acquires an orientation toward religion, politics, and economics and a sense of personal ambition, self-worth, and love. It is a more direct influence on everyday buying behavior.
- Role and status. A role consists of the activities a person is expected to perform. Each role carriers a status.People choose products that reflect and communicate their role and their actual or desired status in society.
Personal factors
Personality is a set of distinguishing human psychological traits that lead to relatively consistent and enduring responses to environmental stimuli (including buying behavior).Brand personality is defined as the specific mix of human traits that we can attribute to a particular brand.
Lifestyle is person’s pattern of living in the world as expressed in activities, interests, and opinions.
Key psychological processes
Motivation : Freud, Maslow, Herzberg
A need becomes a motive when its intensity drives us to act.
Perception
Perception is the process by which we select, organize, and interpret information inputs to create a meaningful picture of the world.Selective attention is the screening of stimuli and marketers must work hard to attract consumers’ notice.
People are more likely to notice stimuli that relate to a current need
People are more likely to notice stimuli they anticipate
Selective distortion is the tendency to interpret information in a way that fits our preconceptions.Because of the selective retention, we are pore likely to remember good points of a product we like and forget good
points about competing products.
Learning
Learning comes from experiences and makes us changing our behavior.A drive is a strong internal stimulus impelling action.Cues are minor stimuli that determine when, where, and how a person responds.Discrimination means that we have learned to recognize differences in sets of similar stimuli and can adjust our responses accordingly.The hedonic bias says people are more likely to attribute failure to external causes and success to themselves.
Memory
Associative network memory model explains that information are stored and linked with a different level of strength.Brand associations consist of all brand-related thoughts, feelings, perceptions, images, experiences, beliefs, attitudes, and so on that become linked to the brand information stored.Memory encoding describes how and where information gets into memory.Memory retrieval is the way of the information gets out of the memory.
The buying decision process
Marketers must identify who makes the buying decision: people can be initiators, influencers, deciders, buyers, orusers.
Problem recognition
Information search
Personal: family, friends, neighbors.Commercial: advertising, web sites, salespersons, packaging, displays.Public: mass media.Experiential: handling, examining, is using the product.Market partitioning is the process of identifying the hierarchy of attributes that guide consumer decision making for the marketer to understand different competitive forces and how this various sets get formed.
Evaluation of alternatives
Belief is a descriptive thought that a person holds about something.Attitudes are a person’s favorable or unfavorable evaluations, emotional feelings,
and action tendencies towards some object or idea.Expectancy-value model of attitude formation shows that consumers evaluate products and services by combining their brand beliefs according to importance.
Purchase decision
Heuristics are rules of mental shortcuts in the decision process.With the conjunctive heuristic the customer looks for every attribute and chooses the first alternative that meetsthe minimum standard for all attributes.With the lexicographic heuristic the customer chooses the best brand on the basis of its perceived most important attribute.With the elimination-by-aspects heuristic the customer compares brands and eliminates those which don’t correspondto the minimum acceptable cutoffs.The perceived risks can modify, postpone or avoid a purchase decision.Functional risk: the product does not perform up to expectations.Physical risk: the product could threat health or well-being of the user or others.Financial risk: the product is not worth the price paid.Social risk: the product results in embarrassment from others.Psychological risk: the product affects the mental well-being of the user.
Postpurchase behavior
Other theories of consumer decision making
Level of consumer involvement
Consumer involvement is the level of engagement and active processing responding to a marketing stimulus.
Decision heuristics and biases
The availability heuristic means that for example a customer who had troubles with a product would be more likely to purchase a future product with warranty.The representativeness heuristic means that the customer buy a product to be seen as representative of a whole category.The anchoring and adjustment heuristic means that the first impression
determines the interpretation of the further information. That is why it is very important to make a first good impression for a salesperson, for instance.
Mental accounting
Mental accounting refers to the way consumers code, categorize, and evaluate financial outcomes of choices.Prospect theory maintains that the consumers frame their decision alternatives in terms of gains and losses according to a value function.
CHAPTER 8 : IDENTIFYING MARKET SEGMENTS AND TARGETS
SEGMENT MARKETING
A market segment consists of a group of customers who share a similar needs and wants. Rather than creating the segments, the marketer’s task is to identify them and to decide which one to target. Market segments can be characterized in different ways, one approach is to:
Identify preference segment categorized them by:
Homogeneous preferences: if the customers have the same preferences
Diffused preferences: the customer preference vary greatly in their requirement
Clustered preferences: when natural market segment emerge from groups of customers with shared preferences
NICHE MARKETING
A niche is marketing is narrowly defined customers group seeking a distinctive mix of benefits or values. Marketers
usually identify niches by dividing a market into subsegments. Niche markets are generally fairly small is term ofvolume but constitute a sufficientetly attractive size, profit and growth potential. Also they are less likely to attract many other powerful competitors
• Focusing their resources to gain economies though specialization
LOCAL MARKETING
Customizes merchandise to match the perceived demand of local areas
The risk associated with localized marketing includes:
• A tendency to drive up the manufacturing costs and to reduce economies of scale
Grassroots marketing
INDIVIDUAL MARKETING
Marketing one to one
The researches seek to define segment by looking at descriptive characteristics: geographic, demographic and psychographic.
GEOGRAPHIC SEGMENTATION
Divide the market into different geographical units such as nations, states, regions…
DEMOGRAPHIC SEGMENTATION
The market is divided into groups on the basic of variable such as ages, family size, occupation, race…
PSYCHOGRAPHIC SEGMENTATION
Psychographic profiles are typically developed with reference to three variables know as the AIO factors that describe individual lifestyle:
1. Activities
2. Interests
3. opinions
BEHAVIOURAL SEGMENTATION
Marketers place buyers into groups on the basic of their knowledge of, attitude towards, use of or response to a product.
To compete more effectively many companies are now adopting target marketing. Instead of scattering their marketing efforts they are focusing on customers they have the greatest chance of satisfying.
Target marketing includes three activities: market segmentation, market targeting and market
positioning.
EFFECTIVE SEGMENTATION CRITERIA
An effective segmentation must be:
1. Measurable: size, purchasing power…
2. Substantial: the segment are large and profitable enough toserve
3. Accessible: the segment can be effectively reached and seved.
4. Differentiable: the segment are distinguishable
5. Actionable: effective programs can be formulates for attracting and serving the segments
Positioning is the act of designing the company offering and image to occupy a distinctive place in the minds of the target market. The goal is to establish the brand in the mind of the consumers. The result of positioning is the successful creation of a consumer- focused value proposition
PART 4 : BUILDING STRONG BRANDS
CHAPTER 9 CREATING BRAND EQUITY
I. What is a brand equity
A. Role of brand
Permit to consumers evaluate products (of specific brands), in order to find their needs. Brand signal a certain level of quality. Brand offer security for customers and firms
B. The scope (ampleur) of branding
A brand resides in the minds of consumer as an identityOne of the first branding strategy is:
consumers must be convinced their meaningful differences among brands in products or services
C. Defining brand equity
-is the added value endowed on product and service-customer based brand equity: the customer brand knowledge is + when he reacts more favorably to a product and –when reacts less favorably3 keys for favorably react: different responses about consumer needs associated the brand of something (image…), and ensuring consumer has great experiences with products.
D. Brand equity as a bridge
-brand knowledge (decide by customer) dictates future direction of the brand- Brand promise: is what the brand is and must do for consumersSo, money spend for marketing is an investment for consumers’ brand knowledge
E. brand equity model
4 models of B.equity models-brand asset valuator (p 283) 5 categories: differenciation,energy, revelance, estum, knowledge-brandz: (p 284) relationship with brand (pyramid)-AAKER model: typically elements (value, uses, meaning, origin country, personality, symbols)-brand resonance model (p 285): development, building objectives
II. Building brand equity
This is the creating to have the right brand knowledge of consumers
F. Choosing brand elements
-It’s that identify and differentiate the brand-6 criteria: memorable, meaningful, likable, adaptable, transferable (for a new product, geography), protectable (not become generic as Kleenex, scotch). G. Designing holistic marketing activities
Brand contact with the consumer, there are 3 phase:
Personalization:-stop mass market, throwback to personalizing marketing.- Each customer is unique: one to one marketing-build a strong consumer’s relationship
Integration:-traditional
mix marketing isn’t adequately, now we need variet of marketing to reinforce the brand. (Sponsoring, communication, promotion, events………..)
Internalization:-companies must adopt an international perspectiveChoose the right moment, link internal and external marketing and bring the brand alive for employees
H. Leveraging (influence) secondary association
Linking the brand with others information (p290), a brand can build equity by linking with others entities.
III. Measuring brand equity
2 basic approaches:-Brand audit: uncover sources of brand equity, suggest way to improve its equity. Brand audit is use to prepare marketing plan-brand tracking studies: understanding thank to quantitative data from consumers, to facilitate day to day decision marketing.
IV. Managing brand equity
Brand management requires a long term view of marketing actions
I. Brand reinforcement-Brand need to be carefully managed to surviveImprove product, service, and marketingNeeds innovations/relevance throughout marketing program (p295)-marketing need some change to be competitive-brands need activities to awareness (new products, creatively design, ad campaign…)
J. Brand revitalization
New competitors can affect a brand, so brand have to be refreshSolution:-understanding the source of brand equity-bad association loosing the brand ??????-create new positioning-change marketing program-come back to basic image
V. Devising (concevoir) a brand Strategy
-Brand extension: establish brand with introduce a new one-sub brand: new brand combine with existing brand-brand line: all product-License product: brand name has been licensed to make the product
K. Branding
decision
Develop a brand name for a product:4 strategiesIndividual name:(old el Paso) advantage, if the product is low quality brand is not hurtBlanket family name: development cost is lower because we don’t need research/add, to create recognitionSeparate family name for all products: ex: craftsman for toolsCorporate name combined with individual product name: Kellogg: kellogg’scorn flakes
L. Brand extension
Advantages:-customers know parent brand-don’t need to create awareness for marketing, communication
Feed back effect: knowledge
Disadvantages:-confusion with new product-harm, hurt parent brand with bad a product
(Success characteristic f 9.8 p301)
M. Brand portfolio
Marketers need multiple brands to pursue these segments. Aim goal of brand portfolio is maximize brand coverage.
-low end entry: attract customers to brand franchise-high end prestige: prestige of brand with adds
PART 5 : SHAPING THE MARKET OFFERINGS
CHAPTER 12 : SETTING PRODUCT STRATEGY
Understanding brandingA brand is a name, term, sign, symbol or design, or some combination of these elements, intended to identify the products
Managing strategic brand management decisionsA branding strategy for a company identifies which brand elements a company chooses to apply across its various product or service. In a brand extension, the marketing manager uses an established brand name to introduce a new product. Potential extensions must be judged by how effectively they leverage existing brand equity as well as howeffectively the extension, in turn, contributes to the equity of the existing parents brand.
There are four processes for strategic for strategic brand management:
• Ensure identification of the brand with customers and an association of the brand in customers’ minds with aspecific product or service class or customer need.
• Firmly establish the brand meaning in the minds of customers.
• Elicit the proper customer responses to this brand identity and brand meaning.
• Convert brand response to create an intense, active loyalty relationship between the customer and the brand.
Creating and managing brand value or equityBrands equity should be defined in terms of marketing effects uniquely attributable to a brand. That is, brand equity relates to the fact that different outcomes result from the marketing of a branded product or service when compared to the results if that same product or service was not branded.Brand equity needs to be measured in order to be managed well. Brand audits measure “where the brand has been”, and tracking studies measure “where the brand is now” and whether marketing programmes are having the intended effects.
a. Co- Branding & Ingredient branding
Marketers combine their products with products from other companies in various ways. It can be: • Same company co-branding” (as Danone with Activia and actimel)
• A joint-venture co-branding (British Gas energy and Bosch Worcester gas boilers in the UK)
• Multiple-sponsor co-branding (Football club)
• Retail co-branding (retail parks)
Ingredient branding (Gore-Tex, Intel processors) Requirement for success in ingredient branding: • Customers must perceive that the ingredient matters to the performance and success of the end product.
• Customers
must be convinced that not all ingredient brands are the same and that the ingredient is superior.
• A distinctive symbol or logo must clearly signal to customers that the host product contains the ingredient.
b. Criteria for choosing brand names
Six main criteria for choosing brand names: Memorable, Meaningful, Likeability, Transferable, Adaptable & Protectable c. Branding decisions: individual or house brands
Four general strategies are often used: • Individual names
• Blanket corporate, family or house names
• Separate family or house names for all products and services
• Corporate name combined with individual product names
When a company introduces a new product or service marketers have three main choices: • They can develop new brands elements for the new product or service.
• They can apply some of their existing brand elements.
• They can use a combination of new and existing brand elements.
d. Brand reinforcement and revitalisation
The brand must always be moving forward because changes in consumer tastes and preference, the emergence of new competitors or new technology can affect the fortunes of a brand.
1. Branding services, co-creation and brand touch points
Services branding, co-creation and brand touch points are all areas of branding that are growing and demanding marketing managers’ attention. a. Services branding
The best service brands are the ones that: • Align their process, organisational structures and service processes and environments to deliver a consistently superior brand experience.
• Harness the power of customer
information to enhance the service experience.
• Leverage that information to expand their offerings into additional categories.
Managing a service brand means focusing on four aspects: Service, Staff behaviour, Brand positioning, Environment b. Co-creation and customisation
Co-creation: this is the move from top-down to bottom-up leading by customers who know what they want. Customisation: The rapid growths of the Internet and other technologies have created opportunities to personalise marketing offerings. Customers are now allowed to or encouraged to personalise so many items.
CHAPTER 14:DEVELOPING PRICING STRATEGIES AND PROGRAMS
.Understanding PricingPrice is not just a number on a tag or an item. Price is all around us. You pay rent for your apartment, tuition for your education, and a fee to your physician or dentist.Consumer Psychology and PricingMany economists assume that consumers are "price takers" and accept prices at "face value" or as given. Marketers recognize that consumers often actively process price information, interpreting prices in terms of their knowledgefrom prior purchasing experience, formal communications (advertising, sales calls, and brochures), informal communications (friends, colleagues,
or family members), and point-of-purchase or online resources.
REFERENCE PRICES Prior research has shown that although consumers may have fairly good knowledge of the range of prices involved, surprisingly few can recall specific prices of products accurately.
PRICE-QUALITY INFERENCI S Many consumers use price as an indicator of quality. Image pricing is especially effective with ego-sensitive products such as perfumes and expensive cars.
PRICE CUES Consumer perceptions of prices are also affected by alternative pricing strategies. Many sellers believe that prices should end in an odd number. Many customers see a stereo amplifier priced at $299 instead of $300 as a price in the $200 range rather than $300 range. Research has shown that consumers tend to process pricesin a "left-to-right" manner rather than by rounding.Setting the PriceA firm must set a price for the first time when it develops a new product, when it introduces its regular product into a new distribution channel or geographical area, and when it enters bids on new contract work.
Step 1: Selecting the Pricing ObjectiveThe company first decides where it wants to position its market offering. The clearer a firm's objectives, the easier it is to set price.SURVIVAL Companies pursue survivalas their major objective if they are plagued with overcapacity, intense competition, or changing consumer wants.MAXIMUM CURRENT PROFIT Many companies try to set a price that will maximize current profits.
MAXIMUM MARKET SHARE Some companies want to maximize their market share. They believe that a higher sales volume will lead to lower unit costs and higher long-run profit.MAXIMUM MARKET SKIMMING Companies unveiling a new technology favor setting
high prices to maximize market skimming.PRODUCT-QUALITY LEADERSHIP.A company might aim to be the product-quality leader in the market. Many brands strive to be "affordable luxuries"—products or services characterized by high levels of perceived quality, taste, and status with a price just high enough not to be out of consumers' reach.OTHER OBJECTIVES Nonprofit and public organizations may have other pricing objectives. A university aims for partial cost recovery, knowing that it must rely on private gifts and public grants to cover the remaining costs. A nonprofit hospital may aim for full cost recovery in its pricing.
Step 2: Determining DemandEach price will lead to a different level of demand and therefore have a different impact on a company's marketingobjectives. The relation between alternative prices and the resulting current demand is captured in a demand.PRICE SENSITIVITY The demand curve shows the market's probable purchase quantity at alternative prices. It sums the reactions of many individuals who have different price sensitivities.ESTIMATING DEMAND CURVES Most companies make some attempt to measure their demand curves using several different methods.- Statistical analysis-Price experiments- SurveysPRICE ELASTICITY OF DEMAND Marketers need to know how responsive, or elastic, demand would be to a change in price.
Step 3: Estimating CostsDemand sets a ceiling on the price the company can charge for its product. Costs set thefloor.
TYPES OF COSTS AND LEVELS OF PRODUCTION A company's costs take two forms, fixed and variable. Fixed costs (also known as overhead) are costs that do not vary with production or sales revenue. Variable costs vary directly with the level of production. Total
costs consist of the sum of the fixed and variable costs for any given level of production. Average cost is the cost per unit at that level of production; it is equal to total costs divided by production.
ACCUMULATED PRODUCTION Suppose TI runs a plant that produces 3,000 hand calculators per day. As TI gains experience producing hand calculators, its methods improve. Workers learn shortcuts, materials flow more smoothly,and procurement costs fall.
ACTIVITY-BASED COST ACCOUNTING Today's companies try lo adapt their offers and terms to different buyers.
TARGET C )STINGCosts change with production scale and experience. They can also change as a result of a concentrated effort by designers, engineers, and purchasing agents to reduce them through target costing.
Step 4: Analyzing Competitors' Costs, Prices, and OffersWithin the range of possible prices determined by market demand and company costs, the firm must take competitors'costs, prices, and possible price reactions into account. The firm should first consider the nearest competitor's price.
Step 5: Selecting a Pricing MethodGiven the three Cs—the customers' demand schedule, the cost function, and competitors' prices—the company is now ready to select a price.
MARKUP PRICING The most elementary pricing method is to add a standard markup to the product's cost.
TARGET-RETURN PRICING In target-return pricing, the firm determines the price that would yield its target rate of return on investment (ROI).
PERCEIVED-VALUE PRICING An increasing number of companies now base their price on the customer's perceived value. They must deliver the value promised by their value proposition, and the customer must perceive this value. They use the other marketing-mix
elements, such as advertising and sales force, to communicate and enhance perceived value in buyers' minds.
VALUE PRICING In recent years, several companies have adopted value pricing: They win loyal customers by charging a fairly low price for a high-quality offering. Among the best practitioners of value pricing are IKEA and Southwest Airlines.
GOING-RATE PRICING In going-rate pricing, the firm bases its price largely on competitors' prices. The firm might charge the same, more, or less than major competitor(s).
AUCTION-TYPE PRICING Auction-type pricing is growing more popular, especially with the growth of the Internet.
Step 6: Selecting the Final PricePricing methods narrow the range from which the company must select its final price. In selecting that price, the company must consider additional factors, including the impact of other marketing activities, company pricing policies, gain-and-risk-sharing pricing, and the impact of price on other parties.
IMPACT OF OTHER MARKETING ACTIVITIES The final price must take into account the brand's quality and advertising relative to the competition.
COMPANY PRICING POLICIES The price must be consistent with company pricing policies. At the same time, companies are not averse to establishing pricing penalties under certain circumstances.
GAIN-AND-RISK-SHARING PRICING Buyers may resist accepting a seller's proposal because of a high perceived level of
risk. The seller has the option of offering to absorb part or all of the risk if it does not deliver the full promised value.
IMPACT OF PRICE ON OTHER PARTIES Management must also consider the reactions of other parties to the contemplated price.
Adapting the PriceCompanies usually do not set a single
price, but rather a pricing structure that reflects variations in geographical demand and costs, market-segment requirements, purchase timing, order levels, delivery frequency, guarantees, service contracts, and other factors.
Geographical Pricing (Cash, Countertrade, Barter)In geographical pricing the company decides how to price its products to different customers in different locations and countries.
Price Discounts and AllowancesMost companies will adjust their list price and give discounts and allowances for early payment, volume purchases,and off-season buying. Companies must do this carefully or find that their profits are much less than planned.
Promotional PricingCompanies can use several pricing techniques to stimulate early purchase: • Loss-leader pricing. Supermarkets and department stores often drop the price on well-known brands to stimulate additional store trafic. • Special-event pricing. Sellers will establish special prices in certain seasons to draw in more customers.Every August, there are back-to-school sales. • Cash rebates. Auto companies and other consumer-goods companies offer cash rebates to encourage purchase of the manufacturers' products within a specified time period. Rebates can help clear inventories without cutting the stated list price. • Low-interest financing. Instead of cutting its price, the company can offer customers low-interest financing. Automakers have even announced no-interest financing to attract customers. • Longer payment terms. Sellers, especially mortgage banks and auto companies, stretch loans over longer periods and thus lower the monthly payments. Consumers often worry less about the cost (i.e., the interest rate) of a loan and
more about whether they can afford the monthly payment • Warranties and service contracts. Companies can promote sales by adding a free or low-cost warranty or service contract. Psychological discounting. This strategy involves setting an artificially high price and then offering the product at substantial savings.
Differentiated PricingCompanies often adjust their basic price to accommodate differences in customers, products, locations, and so on.
• Image pricing: Some companies price the same product at two different levels based on image differences. • Channel pricing.: Coca-Cola carries a different price depending on whether it is purchased in a fine restaurant, a fast-food restaurant, or a vending machine. • Location pricing. The same product is priced differently at different locations even though the cost of offering at each location is the same. A theater varies its seat prices according to audience preferences for different locations. • Time pricing. Prices are varied by season, day, or hour. Public utilities vary energy rates to commercial users by time of day and weekend versus weekday. Restaurants charge less to "early bird" customers. Hotels charge less on weekends.
Initiating and Responding to Price ChangesCompanies often face situations where they may need to cut or raise prices.
Initiating Price CutsSeveral circumstances might lead a firm to cut prices. One is excess plant capacity: The firm needs additional business and cannot generate it through increased sales effort, product improvement, or other measures. It may resort to aggressive pricing, but in initiating a price cut, the company may trigger a price war. • Low-quality trap. Consumers will assume
that the quality is low. • Fragile-market-share trap. A low price buys market share but not market loyalty. The same customers will shift to any lower-priced firm that comes along. • Shallow-pockets trap. The higher-priced competitors may cut their prices and may have longer staying powerbecause of deeper cash reserves.
Initiating Price IncreasesA successful price increase can raise profits considerably. For example, if the company's profit margin is 3 percent of sales, a 1 percent price increase will increase profits by 33 percent if sales volume is unaffected. A major circumstance provoking price increases is cost inflation. Rising costs unmatched by productivity gains squeeze profit margins and lead companies to regular rounds of price increases.Companies often raise their prices by more than the cost.
• Delayed quotation pricing. The company does not set a final price until the product is finished or delivered. This pricing is prevalent in industries with long production lead times, such as industrial construction and heavy equipment. • Escalator clauses. The company requires the customer to pay today's price and all or part of any inflationincrease that takes place before delivery. An escalator clause bases price increases on some specified price index. Escalator clauses are found in contracts for major industrial projects, like aircraft construction and bridge building. • Unbundling. The company maintains its price but removes or prices separately one or more elements that were part of the former offer, such as free delivery or installation. Car companies sometimes add antilock brakes and passenger-side airbags as supplementary extras to their vehicles. • Reduction of discounts.
The company instructs its sales force not to offer its normal cash and quantity discounts
Reactions to Price ChangesAny price change can provoke a response from customers, competitors, distributors, suppliers, and even government.
CUSTOMER REACTIONS Customers often question the motivation behind price changes.
COMPETITOR REACTIONS Competitors are most likely to react when the number of firms are few, the product is homogeneous, and buyers are highly informed. Competitor reactions can be a special problem when they have a strongvalue proposition.
Responding to Competitors' Price ChangesHow should a firm respond to a price cut initiated by a competitor? In markets characterized by high product homogeneity, the firm should search for ways to enhance its augmented product.
• Maintain price. The leader might maintain its price and profit margin, believing that it would lose too much profit if it reduced its price, it would not lose much market share, and it could regain market share when necessary.• Maintain price and add value. The leader could improve its product, services, and communications. The firm may
find it cheaper to maintain price and spend money to improve perceived quality than to cut price and operate at a lower margin. ● Reduce price. The leader might drop its price to match the competitor's price. It might do so because it’scosts fall with volume, it would lose market share because the market is price sensitive, and it would be hard to rebuild market share once it is lost. This action will cut profits in the short run. ● Increase price and improve quality. The leader might raise its price and introduce new brands to bracket theattacking brand. ● Launch a low-price fighter
line. It might add lower-priced items to the line or create a separate, lower-priced brand.
PART 6 ; DELIVERY VALUE
CHAPTER 15: DESIGNING AND MANAGING VALUE NETWORKS AND CHANNELS
Marketing Channels and Value NetworksMost producers do not sell their goods directly to the final users; between them stands a set of intermediaries performing a variety of functions. These intermediaries constitute a marketing channel (also called a trade channel or distribution channel).
The Importance of ChannelsA marketing channel system is the particular set of marketing channels employed by a firm. Decisions about the marketing channel system are among the most critical facing management.
Channel DevelopmentA new firm typically starts as a local operation selling in a limited market, using existing intermediaries. The number of such intermediaries is apt to be limited: a few manufacturers' sales agents, a few wholesalers, several established retailers, a few trucking companies, and a few warehouses.
Value NetworksA supply chain view of a firm sees markets as destination points and amounts to a linear view of the flow. The company should first think of the target market, however, and then design the supply chain backward from that point.
The Role of Marketing ChannelsWhy would a producer delegate some of the selling job to intermediaries? Delegation means relinquishing some control over how and to whom the products are sold. Producers do gain several advantages by using intermediaries:- Many producers lack the financial resources to cany out direct marketing.- Producers who do establish their own channels can often earn a greater return by increasing investment in their main business.- In some cases direct
marketing simply is not feasible.
Channel Functions and FlowsA marketing channel performs the work of moving goods from producers to consumers. It overcomes the time, place, and possession gaps that separate goods and services from those who need or want them.
Channel LevelsThe producer and the final customer are part of every channel. We will use the number of intermediary levels to designate the length of a channel.
Service Sector ChannelsMarketing channels are not limited to the distribution of physical goods. Producers of services and ideas also face the problem of making their output available and accessible to target populations.
Channel-Design DecisionsDesigning a marketing channel system involves analyzing customer needs, establishing channel objectives, identifying major channel alternatives, and evaluating major channel alternatives.
Analyzing Customers' Desired Service Output LevelsIn designing the marketing channel, the marketer must understand the service output levels desired by target customers. Channels produce five service outputs:
1. Lot size2. Wailing and delivery time3. Spatial convenience4. Product variety5. Service backup
Establishing Objectives and ConstraintsChannel objectives should be stated in terms of targeted service output levels. Under competitive conditions, channel institutions should arrange their functional tasks to minimize total channel costs and still provide desired levels of service outputs.
Identifying Major Channel AlternativesCompanies can choose from a wide variety of channels for reaching customers, from sales forces to agents, distributors, dealers, direct mail, telemarketing, and the Internet. Each channel has unique strengths as
well as weaknesses.
TYPES OF INTERMEDIARIES A firm needs to identify the types of intermediaries available to carry on its channel work.
NUMBER OF INTERMEDIARIES Companies have to decide on the number of intermediaries to use at each channel level. Three strategies are available: exclusive distribution, selective distribution, and intensive distribution.-Exclusive distribution-Intensive Distribution-Selective Distribution
TERMS AND RESPONSIBILITIES OF CHANNEL MEMBERS The producer must determine the rights and responsibilities of participating channel members. Each channel member must be treated respectfully and given the opportunity to be profitable.
Evaluating the Major AlternativesEach channel alternative needs to be evaluated against economic, control, and adaptive criteria.
ECONOMIC CRITERIA Each channel alternative will produce a different level of sales and costs?
CONTROL AND ADAPTIVE CRITERIA Using a sales agency poses a control problem. A sales agency is an independent firm seeking to maximize its profits.
Channel-Management DecisionsAfter a company has chosen a channel alternative, individual intermediaries must be selected, trained, motivated,
and evaluated. Channel arrangements must be modified over time.
Selecting Channel MembersCompanies need to select their channel members carefully. To customers, the channels are the company.
Training Channel MembersCompanies need to plan and implement careful training programs for their intermediaries. Fast-growing Culver's restaurants requires its Midwestern franchisees to work 60 hours in one of the 5 restaurants Culver owns and then work 12-hour days, 6 days a week for 4 months at headquarters, learning every facet of how Culver operates
logistically and financially.Motivating Channel MembersA company needs to view its intermediaries in the same way it views its end users. It needs to determine intermediaries' needs and construct a channel positioning such that its channel offering is tailored to provide superior value to these intermediaries : Coercive power, Reward power, Legitimate power, Expert power, Referent power.
Evaluating Channel MembersProducers must periodically evaluate intermediaries' performance against such standards as sales-quota attainment,average inventory levels, customer delivery time, treatment of damaged and lost goods, and cooperation in promotional and training programs.
Modifying Channel ArrangementsA producer must periodically review and modify its channel arrangements. Modification becomes necessary when the distribution channel is not working as planned, consumer buying patterns change, the market expands, new competition arises, innovative distribution channels emerge, and the product moves into later stages in the product life cycle.
Channel Integration and SystemsDistribution channels do not stand still. New wholesaling and retailing institutions emerge, and new channel systems evolve.
Vertical Marketing SystemsOne of the most significant recent channel developments is the rise of vertical marketing systems. A conventional marketing channel comprises an independent producer, wholesaler (s), and retailer(s). Each is a separate business seeking to maximize its own profits, even if this goal reduces profit for the system as a whole. No channel memberhas complete or substantial control over other members.
A vertical marketing system (VMS), by contrast, comprises the producer, wholesaler(s), and retailer(s)
acting as a unified system. One channel member, the channel captain, owns the others or franchises them or has so much power that they all cooperate.
CORPORATE VMS A corporate VMS combines successive stages of production and distributionUnder single ownership
ADMINISTERED VMS An administered VMS coordinates successive stages of production and distribution through the sizeand power of one of the members.
CONTRACTUAL VMS A contractual VMS consists of independent firms at different levels of production and distributionintegrating their programs on a contractual basis to obtain more economies or sales impact than they could achievealone. Johnston and Lawrence call them "value-adding partnerships" (VAPs).
1. Wholesaler-sponsored voluntary chains2. Retailer cooperatives3. Franchise organizations
THE NEW COMPETITION IN RETAILING Many independent retailers that have not joined VMSs has developed specialty stores that serve special market segments. The result is a polarization in retailing between large vertical marketing organizations and independent specialty stores, which creates a problem for manufacturers.Horizontal Marketing SystemsAnother channel development is the horizontal marketing system, in which two or more unrelated companies put together resources or programs to exploit an emerging marketing opportunity.Multichannel Marketing SystemsOnce, many companies sold to a single market through a single channel. Today, with the proliferation of customer segments and channel possibilities, more companies have adopted multichannel marketing. Multichannel marketing occurs when a single firm uses two or more marketing channels to reach one or more customer segments.
PLANNING CHANNEL ARCHITECTURE
Clearly, companies need to think through their channel architecture. Moriarty and Moran propose using the hybrid grid to plan the channel architecture.
Conflict Cooperation and CompetitionNo matter how well channels are designed and managed, there will be some conflict, if for no other reason than that the interests of independent business entities do not always coincide. Channel conflict is generated when onechannel member's actions prevent the channel from achieving its goal. Channel coordination occurs when channel members are brought together to advance the goals of the channel, as opposed to their own potentially incompatiblegoals.Types of Conflict and CompetitionSuppose a manufacturer sets up a vertical channel consisting of wholesalers and retailers. The manufacturer hopes for channel cooperation that will produce greater profits for each channel member. Yet vertical, horizontal, and multichannel conflict can occur.Causes of Channel ConflictIt is important to identify the causes of channel conflict. Some are easy to resolve, others are not.
Managing Channel ConflictAs companies add channels to grow sales, they run the risk of creating channel conflict. Some channel conflict canbe constructive and lead to better adaptation to a changing environment, but too much is dysfunctional.
Legal and Ethical Issues in Channel RelationsFor the most part, companies are legally free to develop whatever channel arrangements suit them. In fact, the lawseeks to prevent companies from using exclusionary tactics that might keep competitors from using a channel.
E-Commerce Marketing PracticesE-business describes the use of electronic means and platforms to conduct a company's business.Pure-Click CompaniesThere are several kinds of pure-click companies: Search engines, Internet Service Providers (ISPs), commerce sites, transaction sites, content sites, and enabler sites. Commerce sites sell all types of products and services, notably books, music, toys, insurance, stocks, clothes, financial services, and so on.THE DOT-COM BUBBLE Pure-click Web businesses reached astronomical capitalization levels in the late 1990s, in somecases far exceeding the capitalization of major companies such as United Airlines or PepsiCo.BUSINESS-TO-BUSINESS E-COMMERCE Although the popular press has given the most attention to business-to-consumer (B2C) Web sites, even more activity is being conducted on business-to-business (B2B) sites.Brick-and-Click CompaniesMany brick-and-mortar companies have agonized over whether to add an online e-commerce channel. Many companies
moved quickly to open Web sites describing their businesses but resisted adding e-commerce to their sites. They felt that selling their products or services online would produce channel conflict—they would be competing with their offline retailers, agents, or their own stores.
CHAPTER 16 : MANAGING RETAILING, WHOLESALING, AND LOGISTICS
RETAILINGRetailing includes all the activities involved in selling goods or services directly to final consumers for personal, nonbusiness use. Retailers can be understood in terms of store retailing, nonstore retailing, and retailorganizations.Like products, retail-store, types pass through stages of growth and decline. As existing stores offer more services to remain competitive, costs and prices go up, which opens the door to new retail forms that offer a mix of merchandise and services at lower prices. The major types
of retail stores are specialty stores; department stores; supermarkets; convenience stores; discount stores; off-price retailers (factory outlets, independent off-price retailers, and warehouse clubs); and catalog showrooms.Although most goods and services are sold through stores, nonstore retailing has been growing. The major types of nonstore retailing are direct selling (one-to-one selling, one-to-many-party selling, and multilevel network marketing); direct marketing (which includes e-commerce and Internet retailing); automatic vending; and buying services.Although many retail stores are independently owned, an increasing number are falling under some form of corporateretailing. Retail organizations achieve many economies of scale, such as greater purchasing power, wider brand recognition, and better-trained employees. The major types of corporate retailing are corporate chain stores, voluntary chains, retailer cooperatives, consumer cooperatives, franchise organizations, and merchandising conglomerates.
PRIVATE LABELSLike all marketers, retailers must prepare marketing plans that include decisions on target markets, service and store atmosphere, price, promotion, and place. These decisions must take into account major trends, such as the growth of private labels, new retail forms and combinations, growth of inter-type retail competition, competition between store-based and non-store-based retailing, growth of giant retailers, decline of middle-market retailers, growing investment in technology, and global presence of major retailers.
WHOLESALINGThere are four types of wholesalers:- merchant wholesalers- brokers and agents- manufacturers’ and retailers’ sales branches, sales offices, and purchasing
offices- miscellaneous wholesalers such as agricultural assemblers and auction companies.Like retailers, wholesalers must decide on target markets, product assortment and services, price, promotion, and place. The most successful wholesalers are those who adapt their services to meet suppliers’ and target customers’needs.
MARKET LOGISTICSProducers of physical products or services must decide on market logistics--the best way to store and move goods and services to market destinations; to coordinate the activities of suppliers, purchasing agents, manufacturers, marketers, channel members, and customers. Major gains in logistical efficiency have come from advances in information technology.
PART 7 : COMMUNICATION VALUE
CHAPTER 17: DESIGNING AND MANAGING INTEGRATED MARKETING COMMUNICATIONS
THE ROLE OF MARKETING COMMUNICATIONSMarketing Communications are the means by which firms attempt to inform, persuade, and remind consumers – directlyor indirectly- about the products and brands they sell. Marketing Communications can tell and show consumers how and why a product is used, by what kind of person, and where and when.The Changing Marketing Communication EnvironmentAlthough marketing communications can play a number of crucial roles, they must do so in an increasingly tough communication environment. Technology and others factors have profoundly changed the way consumers process communications, and even whether they choose to process them at all. The rapid diffusion of powerful broadband Internet connections, ad-skipping digital video recorders, multipurpose cell phones, and portable music and video players have forced marketers to rethink a number of their traditional practices. These dramatics changes have
eroded the effectiveness of the mass media. For example, Procter & Gamble could reach in 1960 80% of US women withone 30-second Tide commercial aired simultaneously on only three TV networks. Today, the same ad would have to run100 channels to achieve this marketing feat.Marketing Communications, Band Equity, and SalesIn this new communication environment, although advertising is often a central element of a marketing communications program, it is usually not the one – or even the most important one – in terms of building brand equity and driving sales.MARKETING COMMUNICATIONS MIXThe marketing communications mix consists of eight major modes of communication:
1. Advertising: Any paid form of nonpersonal presentation and promotion of ideas, goods, or services by an identified sponsor 2. Sales promotion: A variety of short-term incentives to encourage trial or purchase of a product or service 3. Events and experiences: Company-sponsored activities and programs designed to create daily or special brand-related interactions 4. Public relations and publicity: A variety of programs designed to promote or protect a company’s image or itsindividual products 5. Direct marketing: Use of mail, telephone, fax, e-mail, or Internet to communicate directly with or solicit response or dialogue from specific customers and prospects 6. Interactive marketing: Online activities and programs designed to engage customers or prospects and directly or indirectly raise awareness, improve image, or elicit sales of products and services 7. Word-of-mouth marketing: People-to-people oral, written, or electronic communications that relate to the merits or experiences of purchasing or using products or services
8. Personal selling: Face-to-face interaction with one or more prospective purchases for the purpose of making presentations, answering questions, and procuring orders
MARKETING COMMUNICATION EFFECTSThe manner in which brand associations are formed does not matter. Marketing communications must be integrated to deliver a consistent message and achieve the strategic positioning. The starting point in planning marketing communications is an audit of all the potential interactions that customers in the target market may have with thecompany and all its products and services. Marketers need to assess which experiences and impressions will have the most influence at each stage of the buying process. This understanding will help them allocate communications monies more efficiently and design and implement the right communications programs. Anything that causes the consumer to notice and pay attention to the brand can increase brand awareness, at least in terms of brand recognition.
The communications Process ModelsMarketers should understand the fundamental elements of effective communications. Two models are useful: a macro model and a micro model.
MICROMODEL OF CONSUMER RESPONSESMicro models of marketing communications concentrate on consumers’ specific responses to communications. All thesemodels assume that the buyer passes through a cognitive, affective and behavioral stage, in that order.
- Identifying the target audienceThe process must start with a clear target audience in mind: potential buyers of the company’s products, current users, deciders, or influencers; individuals, groups, particular publics, or the general public. The target audience is a critical influence on the communications, selecting
the channels, and establishing the budget.
- Determining the objectives o Category need: Establishing a product or service category. o Brand awareness: Identifying the brand within the category, in sufficient to make a purchase. o Brand attitude: Evaluating the brand with respect to its perceived ability to meet a currently relevant need. o Brand purchase intention: Self-instructions to purchase the brand or to take purchase-related action.
- Designing the communicationsFormulating the communications to achieve the desired response will require solving three problems: What to say (the message strategy), How to say it (the creative strategy), and who should say it (the message source)
- Selecting the channelsSelecting efficient means to carry the message becomes more difficult as channels of communication become more fragmented and cluttered.
- Establishing the budgetEstablishing the Total Marketing Communications Budget: One of the most difficult marketing decisions is determining how much to spend on marketing communications or promotion.
Deciding on the Marketing Communications Mix
Characteristics:Each communication tool has its own unique characteristics and costs;Advertising, Sales promotion, Public relations and Publicity, Events and experiences, Direct and interactive marketing, Word-of-mouth marketing and Personal selling.
Factors:Companies must consider several factors in developing their communications mix: type of product market, consumer readiness to make a purchase, and stage in the product life cycle. Also important is the company’s market rank.
Measuring resultsManagers want to know the outcomes and revenues resulting
from their communications investments; the communications directors try to translate outputs such as reach and frequency, recall and recognition scores, persuasion changes, and cost-per-thousand calculations. Ultimately, behavior-change measures capture the real payoff. Then, communications directors measure the impact on the target audience. Members of the target audience are asked whether they recognize or recall the message, how many times they saw it, what points they recall, how they felt about the message, and their previous and current attitudes
toward the product and the company.
Managing the Integrated Marketing communications ProcessIt is a concept of marketing communications planning that recognizes the added value of a comprehensive plan. Sucha plan evaluates the strategic roles of a variety of communications disciplines and combines these disciplines to provide clarity, consistency, and maximum impact through the seamless integration of messages.Coordinating MediaMedia coordination can occur across and within media types, but marketers should combine personal and nonpersonal communications channels to achieve maximum impact. Research has also shown that promotions can be more effective when combined with advertising. The awareness and attitudes created by advertising campaigns can improve the success of more-direct sales pitches.Implementing Integrated Marketing communications Process (IMC)IMC has been slow to take hold for several reasons. Large companies often employ several different communications specialists who may know comparatively little about the other communications tools. Further complicating matters is that many global companies use a large number of ad agencies located in different countries and serving different divisions, resulting in uncoordinated communications and image diffusion.Integrated marketing communications can produce stronger message consistency and help to build brand equity and create sales impact. It forces management to think about every way the customer comes in contact with the company,how the company communicates its positioning, the relative importance of each vehicle, and timing issues. It givessomeone the responsibility to unify the company’s brand images and messages as they come through thousands of company activities. IMC should improve the company’s ability to reach the right customers with the right messages at the right time and in the right place.
CHAPTER 18 : MANAGING MASS COMMUNICATIONS: ADVERTISING, SALES, PROMOTION, EVENTS AND PUBLIC RELATIONS.
I. DEVELOPING AND MANAGING AN ADVERTISING PROGRAM.
Advertising is any paid form of non personal presentation and promotion of ideas, goods, or services by an identified sponsor. Ads can be a cost-effective way to disseminate messages, whether to build a brand preference or to educate people.Most companies use an outside agency to help create advertising campaigns and to select and purchase media. Today,advertising agencies are redefining themselves as communications companies that assist their clients to improve their communication effectiveness by advice. In developing an advertising program, marketing managers must always start by identifying the target market and buyers motives.The “5Ms” help set the objectives:
An advertising goal is a specific communications task and achievement level to be accomplished with a specific audience in a specific period of time. Advertising objectives can be classified:Informative advertising: create brand awareness and knowledge of new products.Persuasive advertising: create liking, preference, conviction, and purchase of a product or service.Reminder advertising: stimulate repeat purchase of products and services.Reinforcement advertising: convince current purchasers that they made the right choice.
There are also 5 specific factors to know how to determinate the advertising budget:Stage in the product life cycle.Market share and consumer base.Competition and clutter.Advertising frequency.Product substitutability.
In designing and evaluating an ad campaign, it is important to distinguish the message strategy or positioning of
an ad. So designing effective advertising campaigns is both an art and a science. To develop a message strategy, advertisers go through 3 steps:Message generation and evaluation.Creative development and execution.Social-responsibility review.
II. DECIDING ON MEDIA AND MEASURING EFFECTIVENESS.
After choosing the message, the advertiser’s next task is to choose media to carry it. The steps are deciding on desired: ▪ Reach (R): the number of different persons or households exposed to a particular media schedule at least once during a specified time period. ▪ Frequency (F): the number of times within the specified time period that an average person or household is exposed to the message. ▪ Impact (I): the qualitative value of an exposure through a given medium.
Media planners make their choices by considering the following variables: ⇨ Target audience media habits: Radio & TV are
the most effective media for reaching teenagers. ⇨ Product characteristics: Media types have different potential for demonstration, visualization,explanation, believability, and color. ⇨ Message characteristics: Timeliness and information content will influence media choice. ⇨ Cost: TV is very expensive, whereas newspaper advertising is relatively inexpensive.Audience size has several possible measures:
• Circulation: the number of physical units carrying the advertising. • Audience: the number of people exposed to the vehicle. • Effective audience: the number of people with target audience characteristics exposed to the vehicle. • Effective ad-exposed audience: the number of people with target audience characteristics who actually saw the ad.
Media planners calculate the cost per thousand persons reached by a vehicle. Several adjustments have to be applied to the cost-per-thousand measure.-The measure should be adjusted for audience quality.-The exposure value should be adjusted for:-the audience-attention probability.-the magazine’s editorial quality (prestige & believability).-the magazine’s ad placement policies and extra services.
The most effective pattern depends on the communications objectives in relation to the nature of the product, target customers, distribution channels, and other marketing factors. The timing pattern should consider 3 factors:Buyer turnover expresses the rate at which new buyers enter the market.The higher this rate, the more continuous the advertising should be. • Purchase frequency is the number of time during the period that the average
buyer buys the product.The higher the purchase frequency, the more continuous the advertising should be.
• The forgetting rate is the rate at which the buyer forgets the brand.The higher the forgetting rate, the more continuous the advertising should be.In launching a new product, the advertiser has to choose among continuity, concentration, fighting, and pulsing.
A company has to decide how to allocate its advertising budget over space as well as over time.
Communication effect researchMost advertisers try to measure the communication effect of an ad.The consumer feedback method asks consumers for their reactions to an ad. They respond to to questions susch as these: ▪ What is the main message you get from this ad? ▪ What do you think they want you to know, believe, or do? ▪ How likely is it that this ad will influence you to undertake the action? ▪ What works well in the ad and what works poorly? ▪ How does the ad make you feel? ▪ Where is the best place to reach you with this message? Where would you be most likely to notice it and pay attention to it? Where are you when you make decisions about this action?Portfolio tests ask consumers to view or listen to a portfolio of advertisements. Consumers are then asked to recall all the ads and their content, aided or unaided by the interviewer. Recall level indicates an ad’s ability to stand out and to have its message understood and remembered.Laboratory tests use equipment to measure physiological reactions (heartbeat, blood pressure, pupil dilation etc…)
III. SALES PROMOTION.
Sales promotion consists of a collection of incentives tools, designed to stimulate quicker or greater purchase ofparticular products or
services by consumers or the trade, such as samples, coupons, prices off, free goods, trade shows, etc..Manufacturers award money to the trade: 1. To persuade to carry the brand. 2. To persuade to carry more units than the normal amount. 3. To induce retailers to promote the brand by featuring, display and price reductions. 4. To stimulate retailers and their sales clerks to push the product.In deciding to use a particular incentive, marketers have several factors to consider, they must: 1. Determine the size of the incentive. 2. Establish conditions for participation. 3. Decide on the duration of the promotion. 4. Choose a distribution vehicle. 5. Establish the timing of promotion. 6. Determine the total sales promotion budget.
IV. EVENTS AND EXPERIENCES.
Marketers report a number of reasons why they sponsor events: 1. To identify with a particular target market or life style. 2. To increase awareness of company or product name. 3. To create or reinforce consumer perceptions of key brand image associations. 4. To enhance corporate image dimensions. 5. To create experiences and evoke feelings.
6. To express commitment to the community or on social issues. 7. To entertain key clients or reward key employees. 8. To permit merchandising or promotional opportunities.
An ideal event might be one: ▪ Whose audience closely matches the desired target market? ▪ That generates much favorable attention.
▪ That is unique but not encumbered with many sponsors. ▪ That lends itself to ancillary marketing activities. ▪ That reflects or enhances the brand or corporate image of the sponsor.
V. PUBLIC RELATIONS.
Public Relation (PR) involves a variety or programs designed to promote or protect a company’s image or its products. Marketing PR can build awareness by placing stories in the media to bring attention to a product, service, person, organization or idea. It can help boost sales force and dealer enthusiasm. The MPR manager must identify and develop interesting stories about the product. The main tools of PR are: • Publications. • Events. • News. • Speeches. • Public service activities. • Identity media.
CHAPTER 19: MANAGING PERSONAL COMMUNICATIONS: DIRECT MARKETING AND PERSONAL SELLING
DIRECT MARKETING.It is the use of consumer-direct channels, as face-to-face, direct mail, catalogs, telemarketing, interactive TV, kiosks, web sites or mobile devices, to reach and deliver goods and services to customers at any location. ⇨ Direct mail (postal, non-postal, list rental). ⇨ Telephone (outbound). ⇨ Broadcast (television, radio). ⇨ Internet. ⇨ Newspaper (local, national). ⇨ Magazine (consumer, farm, business papers). ⇨ Misc. Media (Yellow pages, outdoor, trade shows, other).Direct marketers plan campaigns by deciding on objectives, target markets and prospects, offers, and prices, followed by testing and establishing measures to determine the campaign’s success.Some
direct marketers mail audiotapes, videotapes, CDs to prospects and customers.
Direct Mail permits target market selectivity, it can be personalized, it is flexible, and it allows early testingand response measurement. It has passed through several stages: ▪ Carpet bombing: they gather or buy as many names as possible and send out a mass mailing. Usually the response rate is very low. ▪ Database marketing: they mine the database to identify prospects that would have the most interest in an offer.
▪ Interactive marketing: they include a telephone number and Web address, and offer to print coupons from the Web site. Recipients can contact the company with questions. The company uses the interaction as an opportunity toup-sell, cross-sell, and deepen the relationship. ▪ Real-time personalized marketing: they know enough about each customer to customize and personalize the offer and message. ▪ Lifetime value marketing: they develop a plan for lifetime marketing to each value customer, based on knowledge of life events and transitions.The aim is receiving an order.Direct marketers need to identify the characteristics of prospects and customers who are most able, willing, and ready to buy. Most of them apply the R-F-M formula (Recency, Frequency, Monetary amount).The offer strategy consists of the: ▪ Product ▪ Offer ▪ Medium ▪ Distribution method ▪ Creative strategy.
In Catalog marketing, companies send full-line merchandise catalogs, usually in print form but also as CDs, videosor online. Global consumers are catching on to the catalog craze.
Telemarketing is the use of the telephone
and call centers. It helps companies increase revenue, reduce selling costs, and improve customer satisfaction. ▪ Telesales: Taking orders from catalogs or ads and doing outbound calling. They can cross-sell the company’s other products, upgrade orders, introduce new products, open new accounts, and reactivate former accounts. ▪ Telecoverage: Calling customers to maintain and nurture key account relationship and give more attention to neglected accounts. ▪ Teleprospecting: Generating and qualifying new leads for closure by another sales channel. ▪ Customer service and technical support: Answering service and technical questions.
Direct marketers use all the major media to make offers to potential buyers. Newspapers and magazines carry abundant print ads offering books, articles of clothing, appliances, vacations, and other goods and services that individuals can order by dialing a toll-free number. Radio ads present offers to listeners 24 hours a day.
Television is used by direct marketers in several ways: ▪ Direct-response advertising. ▪ At-home shopping channels. ▪ Videotext and interactive TV.
VI. INTERACTIVE MARKETING.
Interactive marketing provides marketers with opportunities for much greater interaction and individualization through well-designed Web sites as well as online ads and promotions. Today, companies can interact and dialogue with much larger groups than ever in the past.
The Benefits of Interactive MarketingIt is highly accountable and its effects can be easily traced. Marketers can buy ads from sites that are related to their offerings, as well as place advertising based on contextual keywords
from online search outfits like Google. In that way, the Web can reach people when they have actually started the buying process.
Designing an Attractive Web SiteA key challenge is designing a site that is attractive on first viewing and interesting enough to encourage repeatvisits. Rayport and Jaworski 7Cs theory: ▪ Context: layout and design. ▪ Content: text, pictures, sound, and video the site contains. ▪ Community: how the site enables user-to-user communication. ▪ Customization: site’s ability to tailor itself to different users or to allow users to personalize the site. ▪ Communication: how the site enables site-to-user, user-to-site, or two-way communication. ▪ Connection: degree that the site is linked to other sites. ▪ Commerce: site’s capacities to enable commercial transactions.Visitors will judge a site’s performance on its ease of use and its physical attractiveness: • The Web site downloads quickly. • The first page is easy to understand. • The visitor finds it easy to navigate to other pages that open quickly. • The individual pages are clean looking and not overly crammed with content. • The typefaces and font sizes are very readable. • The site makes good use of color and sound.
Placing Ads and Promotion Online. • Banners ads are small, rectangular boxes containing text and perhaps a picture. • Sponsorships are best placed in well-targeted sites. • A micro site is a limited area on the Web managed and paid for by an external advertiser.
• Interstitials are advertisements, often with video or animation that pop up between changes on aWeb site. • Search-related ads are used as a proxy for the consumer’s consumption interests and relevant links to product or service offerings are listed alongside the search results from Google, MSN, and Yahoo!. • Content-target advertising. • Alliances and affiliate programs.
E-Marketing Guidelines: ▪ Give the customer a reason to respond. ▪ Personalize the content of your e-mails. ▪ Offer something the customer could not get via direct mail. ▪ Make it easy for customers to “unsubscribe”.
VII. DESIGNING THE SALES FORCE.
Sales personnel serve as the company’s personal link to the customers. The sales representative is the company to many of its customers. It is the sales rep who brings back much-needed information about the customer.Designing the sales force requires decisions regarding, objectives, strategy, structure, size and compensation. Their objectives are prospecting, targeting, communicating, selling, servicing, information gathering, allocating
VIII. MANAGING THE SALES FORCE.
The companies have to recruit and select people, train them in sales techniques and in the company’s products, supervise and help them to use their time efficiently, motivate and evaluate them.
IX. PRINCIPLES OF PERSONAL SELLING.
Personal selling is an ancient art. Salespeople are trained in the methods of analysis and customer management. There are 6 steps: ▪ Identifying and qualifying prospects ▪ Preapproach/Approach: What needs? Who is involved in the purchase decision? ▪ Presentation and demonstration:
1. Gaining attention. 2. Holding interest. 3. Arousing desire. 4. Obtaining action. ▪ Overcoming objections: 1. Psychological resistance ⇨ Resistance to interference. ⇨ Preference to established supply sources or brands. ⇨ Apathy. ⇨ Reluctance to giving up something. ⇨ Unpleasant associations created by the sales rep. ⇨ Predetermined ideas. ⇨ Dislike of making decisions. ⇨ Neurotic attitude toward money. 2. Logical resistance ⇨ Price. ⇨ Delivery schedule. ⇨ Certain product or company characterics. ▪ Closing . ▪ Follow-up and maintenance.
PART 8 : CREATING SUCCESSFUL LONG TERM GROWTH
CHAPTER 20: INTRODUCING NEW MARKET OFFERINGS
Companies need to grow their revenue over time by developing new products and services and expanding into new markets. New product development shapes the company's future. Improved or replacement products and services can maintain or build sales; new to-the-world products and services can transform industries and companies and change lives. But the low success rate of new products and services points to the many challenges involved. More and morecompanies are doing more than just talking about innovation. They are fundamentally changing the way they develop'their new products and services.
New-Product Options
There are a variety of types of new products and ways to create them.3
Make or Buy
A company can add new products through acquisition or development. The acquisition route can take three forms. Thecompany can buy other companies,
it can acquire patents from other companies, or it can buy a license or franchise from another company.
But firms can successfully make only so many acqusitions. At some point, there becomes a pressing need for organic growth-the development of new products from within the company. When Praxair, in Danbury, Connecticut, setan ambitious goal of$200 million per year of double-digit new annual sales growth, it achieved that goal only through a healthy dose of organic growth and a large number of smaller but significant $5 million projects.
For product development, the company can create new products in its own laboratories, or it can contract with independent researchers or new-product development firms to develop specific new products or provide new technology.
Types of New Products
New products range from new-to-the-world products that create an entirely new market at one end, to minor improvements or revisions of existing product at the other. Most new product activity is devoted to improving existing products.In many categories, it is becoming increasingly difficult to identify blockbuster products that will transform a market; but continuous innovation to better satisfy consumer needs can force competitors to play catch-up. Continually launching new products as brand extensions into related product categories can also broaden the brand meaning.
Many high-tech firms strive for radical innovation High tech covers a wide range of industries-telecommunications,computers, consumer electronics, biotech, and software. High-tech marketers face a number of challenges in launching their products: high technological uncertainty; high market uncertainty; high competitive volatility; high investment
costs; short product life cycles; and difficulty in finding funding sources for risky projects.
Challenges in New-Product Development
New-product introductions have accelerated in recent years. In many industries, such as retailing, consumer goods,electronics, autos, and others, the time it takes to bring a product to market has been cut in half.The Innovation Imperative
In an economy of rapid change, continuous innovation is a necessity. Highly innovative firms are able to identify and quickly seize new market opportunities.
Companies that fail to develop new products put themselves at risk. Their existing products are vulnerable to changing customer needs and tastes, new technologies, shortened product life cycles, and increased domestic and foreign competition. New technologies are especially threatening.
New-Product Success
Most established companies focus on incremental innovation. Incremental innovation can allow companies to enter new markets by tweaking products for new customers, use variations on a core product to stay one step ahead of themarket, and create interim solutions for industry-wide problems. Scott Paper and Southwest Airlines have made somenotable incremental innovations.
Newer companies create disruptive technologies that are cheaper and more likely to alter the competitive space. Established companies can be slow to react or invest in these disruptive technologies because they threaten their investment. Then they suddenly find themselves facing formidable new competitors, and many fail. To avoid this trap, incumbent firms must carefully monitor the preferences of both customers and noncustomers over time and uncover evolving, difficult-to-articulate customer needs.
New-Product
Failure
New-product development can be quite risky. New products continue to fail at a disturbing rate. Recent studies putthe rate as high as 50% and potentially as high as 95% in the United States and 90% in Europe. New products can fail for many reasons: ignored or misinterpreted market research; overestimates of market size; high development costs; poor design; incorrect positioning, ineffective advertising, or wrong price; insufficient distribution support; and competitors who fight back hard. Some additional factors hindering new-product development are:
• Shortage of important ideas in certain areas. There may be few ways left to improve some basic products (such assteel or detergents).• Fragmented markets. Companies must aim their new products at smaller market segments, and this can mean lower sales and profits for each product.• Social and governmental constraints. New products must satisfy consumer safety and environmental concerns.• Cost of development. A company typically must generate many ideas to find just one worthy of development and often faces high R&D, manufacturing, and marketing costs.• Capital shortages. Some companies with good ideas cannot raise the funds needed to research and launch them.• Shorter required development time. Companies must learn how to compress development time by using new techniques, strategic partners, early concept tests, and advanced marketing planning.• Shorter product life cycles. When a new product is successful, rivals are quick to copy it. Sony used to enjoy athree-year lead on its new products. Now Matsushita will copy the product within six months, barely leaving time for Sony to recoup its investment.
Organizational Arrangements
Many companies
today use customer-driven engineering to design new products. This strategy attaches high importance to incorporating customer preferences in the final design.
New-product development requires senior management to define business domains, product categories, and specific criteria. The product can be introduced within five years.
•The product has a market potential of at least $50 million and a 15% growth rate.•The product can provide at least 30% return on sales and 40% on investment.•The product can achieve technical or market leadership.
Budgeting for New-Product Development
Senior management must decide how much to budget for new-product development. R&D outcomes are so uncertain that it is difficult to use normal investment criteria. Some companies solve this problem by financing as many projectsas possible, hoping to achieve a few winners. Other companies apply a conventional percentage-of-sales figure or spend what the competition spends. Still other companies decide how many successful new products they need and work backward to estimate the required investment.
Organizing New-Product Development
Companies handle the organizational aspect of new-product development in several ways. Many companies assign responsibility for new-product ideas to product managers. But product managers are often so busy managing existinglines that they give little thought to new products other than line extensions..
Cross-functional teams can collaborate and use concurrent new-product development to push new products to market. Concurrent product development resembles a rugby match, with team members passing the new product back and forth as they head toward the goal.
Many top companies use the stage-gate
system to manage the innovation process. They divide the process into stages, at the end of each being a gate or checkpoint. The project leader, working with a cross-functional team, must bring a set of known deliverables to each gate before the project can pass to the next stage.
Managing the Development Process: Ideas
Idea Generation
The new-product development process starts with the search for ideas. Some marketing experts believe the greatest opportunities and highest leverage with new products are found by uncovering the best possible set of unmet customer needs or technological innovation. New product ideas can come from interacting with various groups and using creativity-generating techniques
INTERAC ING WITH OTHERS
Encouraged by the open innovation movement, many firms are increasingly going outside the company to tap external sources of new ideas, including customers, employees, scientists, engineers, channel members, marketing agencies, top management, and even competitors.
Besides producing new and better ideas, cocreation can help customers feel closer to and more favorably towards the company, and to tell others of their involvement through favorable word of mouth.
A company can motivate its employees to submit new ideas to an idea manager whose name and phone number are widelycirculated. Internal brainstorming sessions also can be quite effective-if they are conducted correctly. "Marketing Memo: How to Run a Successful Brainstorming Session" provides some brainstorming guidelines.
Companies can find good ideas by researching the products and services of competitors and other companies. They can find out what customers like and dislike about competitors' products. They can buy their competitors'
products, take them apart, and build better ones. Company sales representatives and intermediaries are a particularly good source of ideas. These groups have firsthand exposure to customers and are often the first to learn about competitive developments. Electronic retailer Best Buy actually checks with venture capitalists to find out what start-ups are working on.
CREATIVITY TECHNIQUES The following list is a sampling of techniques for stimulating creativity in individuals andgroups.
• Attribute listing.• Forced relationships.• Morphological analysis.• Reverse assumption analysis• New contexts.• Mind mapping..
Idea Screening
In screening ideas, the company must avoid two types of errors.
A GO-error occurs when the company permits a poor idea to move into development and commercialization, An absoluteproduct failure loses money; its sales do not cover variable costs. A partial product failure loses money, but itssales cover all its variable costs and some of its fixed costs. A relative product failure yields a profit lower than the company's target rate of return.The purpose of screening is to drop poor ideas as early as possible. The rationale is that product-development costs rise substantially with each successive development stage. Most companies require new-product ideas to be described on a standard form for a new-product committee's review. The description states the product idea, the target market, and the competition and roughly estimates market size, product price, development time and costs, manufacturing costs, and rate of return.The executive committee then reviews each idea against a set of criteria. Does the product meet a need? Would it offer superior value? Can it
be distinctively advertised? Does the company have the necessary know-how and capital? Will the new product deliver the expected sales volume, sales growth, and profit? Consumer input may be necessary to tap into marketplace realities.
Managing the Development Process: Concept to Strategy
Attractive ideas must be refined into testable product concepts. A product idea is a possible product the company might offer to the market. A product concept is an elaborated version of the idea expressed in consumer terms.
Concept Development and Testing
CONCEPT DEVELOPMENT Let us illustrate concept development with the following situation: A large food-processing company gets the idea of producing a powder to add to milk to increase its nutritional value and taste. This is a product idea, but consumers don't buy product ideas; they buy product concepts.
A product idea can be turned into several concepts. The first question is: Who will use this product? The powder can be aimed at infants, children, teenagers, young or middle-aged adults, or older adults. Second, what primary benefit should this product provide? By answering this question, a company can form several concepts:
• Concept 1.An instant breakfast drink for adults who want a quick nutritious breakfast without preparation.• Concept 2. A tasty snack for children to drink as a midday refreshment.• Concept 3.A health supplement for older adults to drink in the late evening before they go to bed.
Each concept represents a category concept that defines the product's competition. An instant breakfast drink would compete against bacon and eggs, breakfast cereals, coffee and pastry, and other breakfast alternatives. A tasty snack drink would compete against soft
drinks, fruit juices, sports drinks, and other thirst quenchers.
CONCEPT TESTING Concept testing means presenting the product concept, symbolically or physically, to target consumers and getting their reactions. The more the tested concepts resemble the final product or experience, the more dependable concept testing is. Concept testing of prototypes can help avoid costly mistakes, but it may be especially challenging with radically different, new-to-the-world products. In the past, creating physical prototypes was costly and time consuming, but today firms can use rapid prototyping to design products on a computer, and then produce rough models of each to show potential consumers for their reactions.
After receiving this information, researchers’ measure product dimensions by having consumers respond to the following types of questions:
1. Communicability and believability-Are the benefits clear to you and believable? If the scores are low, the concept must be refined or revised.
2. Need level -Do you see this product solving a problem or filling a need for you? The stronger the need, the higher the expected consumer interest.
3. Gap level -Do other products currently meet this need and satisfy you? The greater the gap, the higher the expected consumer interest. Marketers can multiply the need level by the gap level to produce a need-gap score. A high score means the consumer sees the product as filling a strong need not satisfied by available alternatives.
4. Perceived value -Is the price reasonable in relationship to value? The higher the perceived value, the higheris expected consumer interest.
5. Purchase intention-Would you (definitely, probably, probably not, definitely not) buy the
product? Consumers who answered the first three questions positively should answer "Definitely" here.
6. User targets, purchase occasions, purchasing frequency-·Who would use this product, when, and how often?
Respondents' answers indicate whether the concept has a broad and strong consumer appeal, what products it competes against, and which consumers are the best targets. The need-gap levels and purchase-intention levels can be checked against norms for the product category to see whether the concept appears to be a winner, a long shot, or a loser. One food manufacturer rejects any concept that draws a definitely-would-buy score lower than 40%.
CONJOINT ANALYSISWe measure consumer preferences for alternative product concepts with conjoint analysis, a method for deriving theutility values that consumers attach to varying levels of a product's attributes. Conjoint analysis has become oneof the most popular concept-development and testing tools. For example, Marriott used it to design its Courtyard hotel concept.
Marketing Strategy Development
Following a successful concept test, the new-product manager will develop a preliminary three-part strategy plan for introducing the new product into the market. The first part describes the target market's size, structure, andbehavior; the planned product positioning; and the sales, market share, and profit goals sought in the first few years:
Business Analysis
After management develops the product concept and marketing strategy, it can evaluate the proposal's business attractiveness. Management needs to prepare sales, cost, and profit projections to determine whether they satisfy company objectives. If they do, the concept can move to the development stage.
As new information comes in, the business analysis will undergo revision and expansion.
ESTIMATING TOTAL SALES Total estimated sales are the sum of estimated first-time sales, replacement sales, and repeat sales. Sales-estimation methods depend on whether the product is purchased once (such as an engagement ringor retirement home), infrequently, or often.
Infrequently purchased products-such as automobiles, toasters, and industrial equipment-exhibit replacement cyclesdictated by physical wear or obsolescence associated with changing styles, features, and performance.
ESTIMATING COSTS AND PROFITS Costs are estimated by the R&D, manufacturing, marketing, and finance departments.
Companies use other financial measures to evaluate the merit of a new-product proposal. The simplest is breakeven analysis, which estimates how many units the company must sell to break even with the given price and cost structure. If management believes sales could easily reach the break-even number, it is likely to move the projectinto product development.
Managing the Development Process: Development to Commercialization
Up to now, the product has existed only as a word description, a drawing, or a prototype. The next step representsa jump in investment that dwarfs the costs incurred so far. The company will determine whether the product idea can translate into a technically and commercially feasible product. If not, the accumulated project cost will be lost, except for any useful information gained in the process.
Product Development
The job of translating target customer requirements into a working prototype is helped by a set of methods known as quality function deployment (QFD). The methodology takes the list of desired customer attributes (CAs) generated by market research and turns them into a list of engineering attributes (EAs) that engineers can use. For example, customers of a proposed truck may want a certain acceleration rate (CA). Engineers can turn this intothe required horsepower and other engineering equivalents (EAs). The methodology measures the tradeoffs and costs of meeting customer requirements. A major contribution of QFD is improved communication between marketers, engineers, and manufacturing people.
PHYSICAL PROTOTYPESThe R&D department will develop one or more physical versions of the product concept. Its goal is to find a prototype that embodies the key attributes described in the product-concept statement, that performs safely under normal use and conditions, and that the firm can produce within budgeted manufacturing costs. In the past, developing and manufacturing a successful prototype could take days, weeks, months, or even years. The Web now permits more rapid prototyping and more flexible development processes. Sophisticated virtual-reality technology is also speeding the process. By designing and testing product designs through simulation, for example,companies achieve the flexibility to respond to new information and to resolve uncertainties by quickly exploring alternatives.
CUSTOMER TESTS
When the prototypes are ready, they must be put through rigorous functional tests and customer tests before they enter the marketplace. Alpha testing is testing the product within the firm to see how it performs in different applications. After refining the prototype further, the company moves to beta testing with customers.
Market Testing
After management is satisfied with functional and psychological performance, the product is ready to be dressed upwith a brand name and packaging and put into a market test. In an authentic setting' marketers can learn how largethe market is and how consumers and dealers react to handling, using, and repurchasing the product. Not all companies undertake market testing. The main issues are: How much market testing should be done, and what kind(s)?
CONSUMER·GOODS MARKET TESTINGConsumer-products tests seek to estimate four variables: trial, first repeat, adoption, and purchase frequency.
The company hopes to find all these variables at high levels. Many consumers may try the product but few rebuy it;or it might achieve high permanent adoption but low purchase frequency (like gourmet frozen foods). Here are four major methods of consumer-goods market testing, from least to most costly.
Sales-Wave Research In sales-wave research, consumers who initially try the product at no cost are reoffered it, or a competitor's product, at slightly reduced prices. The offer may be made as many as five times (sales waves), while the company notes how many customers selected that product again and their reported level of satisfaction. Sales-wave research can also expose consumers to one or more advertising concepts to measure the impact of that advertising on repeat purchase.
Simulated Test Marketing Simulated test marketing calls for finding 30 to 40 qualified shoppers and questioning them about brand familiarity and preferences in a specific product category.Consumers are asked the reasons for their purchases or non purchases. Those who did not buy the
new brand are given a free sample. Some weeks later, they are interviewed by phone to determine product attitudes,usage, satisfaction, and repurchase intention and are offered an opportunity to repurchase any products. This method gives fairly accurate results on advertising effectiveness and trial rates (and repeat rates if extended) in a much shorter time and at a fraction of the cost of using real test markets. The results are incorporated intonew-product forecasting models to project ultimate sales levels. Marketing research firms have reported surprisingly accurate predictions of sales levels of products that are subsequently launched in the market.
Controlled Test Marketing In controlled test marketing, a research firm manages a panel of stores that will carry new products for a fee. The company with the new product specifies the number of stores and geographic location sit wants to test. There search firm delivers the product to the participating stores and controls shelf position;number of facings, displays, and point-of-purchase promotions; and pricing. Electronic scanners measure sales at checkout. The company can also evaluate the impact of local advertising and promotions. Controlled test marketing allows the company to test the impact of in-store factors and limited advertising on buying behavior.
Test Markets The ultimate way to test a new consumer product is to put it into full blown test markets. The company chooses a few representative cities, and the sales force tries to sell the trade on carrying the product and giving it good shelf exposure. The company puts on a full advertising and promotion campaign similar to the one it would use in national marketing. Test marketing also measures the impact
of alternative marketing plans by varying the marketing program in different cities: A full-scale test can cost over $1 million, depending on the number of test cities, the test duration, and the amount of data the company wants to collect.
Management faces several decisions:
1. How many test cities?
2. Which cities? Length of test? What information to collect?
3. What action to take?
BUSINESS·GOODS MARKETTESTING Business goods can also benefit from market testing. Expensive industrial goods and new technologies will normally undergo alpha testing (within the company) and beta testing (with outside customers). During beta testing, the company's technical people observe how test customers use the product, a practice that often exposes unanticipated problems of safety and servicing and alerts the company to customer training and servicing requirements. The company can also observe how much value the equipment adds to the customer's operation as a clue to subsequent pricing.
Commercialization
If the company goes ahead with commercialization, it will face its largest costs to date.7° It will need to contract for manufacture or build or rent a full-scale manufacturing facility. Another major cost is marketing. Tointroduce a major new consumer packaged good into the national market can cost from $25 million to as much as $100million in advertising, promotion, and other communications in the first year. In the introduction of new food products, marketing expenditures typically represent 57% of sales during the first year. Most new-product campaigns rely on a sequenced mix of market communication tools.
WHEN (TIMING)in commercializing a new product, market-entry timing is critical. Suppose a company
has almost completed the development work on its new product and learns that a competitor is nearing the end of its development work. The company faces three choices:
1. First entry---The first firm entering a market usually enjoys the "first mover advantages" of locking up key distributors and customers and gaining leadership. But if the product is rushed to market before it is thoroughly debugged, the first entry can backfire.
2. Parallel entry---The firm might time its entry to coincide with the competitor's entry. The market may pay more attention when two companies are advertising the new product.
3. Late entry---The firm might delay its launch until after the competitor has entered. The competitor will have borne the cost of educating the market, and its product may reveal faults the late entrant can avoid. The late entrant can also learn the size of the market.
The timing decision requires additional considerations. If a new product replaces an older product, the company might delay the introduction until the old product's stock is drawn down. If the product is seasonal, it might be delayed until the right season arrives; often a product waits for a "killer application" to occur. Complicating new-product launches, many.
WHERE GEOGRAPHIC STRATEGY
The company must decide whether to launch the new product in a single locality, a region, several regions, the national market, or the international market. Most will develop a planned market rollout over time. Company size is an important factor here. Small companies will select an attractive city and put on a blitz campaign, entering other cities one at a time. Large companies will introduce their product into a whole region and then
move to the next region. Companies with national distribution networks, such as auto companies, will launch their new models in the national market.
Most companies design new products to sell primarily in the domestic market. If the product does well, the companyconsiders exporting to neighboring countries or the world market, redesigning if necessary. In choosing rollout markets, the major criteria are market potential, the company's local reputation, the cost of filling the pipeline, the cost of communication media, the influence of the area on other areas, and competitive penetration.
TO WHOM (TARGET·MARKET PROSPECTS)?
Within the rollout markets, the company must target its initial distribution and promotion to the best prospect groups. The company will have profiled these, and ideally they should be early adopters, heavy users, and opinion leaders who can be reached at low cost. Few groups have all these characteristics. The company should rate the various prospect groups on these characteristics and target the best group. The aim is to generate strong sales assoon as possible to attract further prospects.
HOW (INTRODUCTORY MARKET STRATEGY)?
The company must develop an action plan for introducing the new product into the rollout markets. Because new-product launches often take longer and cost more money than expected, many potentially successful offerings sufferfrom underfunding. It's important to allocate sufficient time and resources-but also not to overspend-as the new product gains traction in the marketplace
The Consumer-Adoption Process
Adoption is an individual's decision to become a regular user of a product. The consumer adoption process is followed by the consumer-loyalty process, which
is the concern of the established producer. Years ago, new-product marketers used a mass-market approach to launchproducts, which had two main drawbacks: It called for heavy marketing expenditures, and it wasted many exposures. These drawbacks led to a second approach, heavy-user target marketing. This approach makes sense, provided that heavy users are identifiable and are early adopters. However, even within the heavy-user group, many heavy users are loyal to existing brands. New-product marketers now aim at early adopters and use the theory of innovation diffusion and consumer adoption to identify them.
Stages in the Adoption Process
An innovation is any good, service, or idea that someone perceives as new, no matter how long its history. Innovations take time to spread. Everett Rogers defines the innovation diffusion process as "the spread of a new idea from its source of invention or creation to its ultimate users or adopters."The consumer-adoption process is the mental steps through which an individual passes from first hearing about an innovation to final adoption.
Adopters of new products move through five stages:
1. Awareness-The consumer becomes aware of the innovation but lacks information about it.2. Interest-The consumer is stimulated to seek information about the innovation.3. Evaluation-The consumer considers whether to try the innovation.4. Trial-The consumer tries the innovation to improve his or her estimate of its value.5. Adoption-The consumer decides to make full and regular use of the innovation.
Factors Influencing the Adoption Process
Marketers recognize the following characteristics of the adoption process: differences in individual readiness to try new products; the effect
of personal influence; differing rates of adoption; and differences in organizations' readiness to try new products. Some researchers are focusing on use-diffusion processes as a complement to adoption process models, to see how consumers actually use new products.
READINESS TO TRY NEW PRODUCTS AND PERSONAL INFLUENCE
• Innovators are technology enthusiasts; they are venturesome and enjoy tinkering with new products and mastering their intricacies. In return for low prices, they are happy to conduct alpha and beta testing and report on early weaknesses.• Early adopters are opinion leaders who carefully search for new technologies that might give them a dramatic competitive advantage. They are less price sensitive and willing to adopt the product if given personalized solutions and good service support.• Early majority are deliberate pragmatists who adopt the new technology when its benefits are proven and a lot ofadoption has already taken place. They make up the mainstream market.• Late majority are skeptical conservatives who are risk technology shy, and price sensitive.• Laggards are tradition-bound and resist the innovation until they find that the status quo is no longer defensible
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