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CHAPTER 7 Developing A Product/Brand Strategy: - Setting Objectives - Choosing a Marketing Strategy McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Quick Review • Ch.2: Boundary of your business domain • Chs. 3-5: Analysis of Major Stakeholders • Ch. 6: Your prediction about future Potential and Forecasting • Ch. 7: Strategy (to achieve your objectives) Target (Competitor & Customer) Positioning (Value Proposition) McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Key Topics of Ch. 7 • Strategy as an Action Plan • Elements of a Product Strategy** • Making Sense of a “Strategy Jungle” • Research In Progress: Kim and Lim McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Action Plan • Where are we heading to? • How will we get there?* • What will we do? McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. A Successful Strategy: • Helps achieve coordination among functional areas of the organization. • Defines how resources are to be allocated. • Leads to a superior market position. McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Elements of a Product Strategy** 1. 2. 3. 4. 5. 6. 7. Statement of the objective(s) the product should attain* Selection [Consideration] of strategic alternative(s) Selection of customer targets Choice of competitor targets Statement of the core strategy* Description of supporting marketing mix. Description of supporting functional programs McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Hierarchy of Objectives Company mission/vision Level 0 Corporate objectives Level I Corporate strategies Divisional objectives Level II Divisional strategies Level III Product/brand objectives Brand strategies Program objectives Level IV Tactics McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. 1. Setting Objectives 1. Characteristics of Good Objectives 1. Quantified standards 2. Challenging 3. Have Milestones 2. Two Major Decisions 1. Which Objective to Pursue? 2. How High it should be? McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. 2. Consideration of Strategic Alternatives 1. Corporate Objectives 2. Two Major Paths 1. Increasing Sales/Market Share* 1. Market Development Strategy 2. Market Penetration Strategy 2. Increasing Profitability 1. Decreasing Inputs 2. Increasing Outputs * 2X2 matrix on growth strategy McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Strategic Alternatives Long-term profits Efficiency, short-run profits Growth in sales or market share Market development Market penetration Decrease inputs Increase outputs New segments Existing customers Reduce costs Increase price Convert nonusers Competitors’ customers Improve asset utilization Improve sales mix New product development McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Criteria for Evaluating Strategic Alternatives Size/growth of the segment Opportunities for obtaining competitive advantage Know Yourself Resources available to penetrate the segment McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. 3. Targeting and Positioning Choice of Customer Targets: Single or multiple* Choice of Competitor Targets Statement of the Core Strategy =Value Proposition* Economic (cost/price) Advantage Functional Advantage Psychological Advantage McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Ex) Target Segments for Handspring McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. 3. Targeting and Positioning (cont’d) Five Areas of Differentiation Quality* Convenience and Service Status and Image Branding* Distribution Channels Combination of the Above McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Joint Space for Colas Cola Segment 3 Diet • Pepsi • Diet Rite • Diet • Tab • RC Cola • Pepsi • • Segment 2 • • Nondiet Segment Dr 1 Peppe r • Coke • 7-Up Fresca Noncola McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Positioning Decision Steps 1. Identifying alternative positioning themes 2. Screening alternatives according to whether they are meaningful to and believable by customers feasible given the firm and product resources competitively sensible helpful for meeting the product objective McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Positioning Decision Steps (Contd.) 3. Selecting the position that best satisfies these criteria 4. Implementing programs consistent with the product position selected McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Total Product Concept Potential product Generic product Expected product Augmented product McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Managing Brand Equity Reduced marketing costs Trade leverage 4. Brand Brand loyalty loyalty Attracting new customers • Create awareness • Reassurance Time to respond to competitive threats Anchor to which other associations can be attached 1. Brand Brand loyalty awareness Familiarity-liking Provides value to customer by enhancing customer’s: • Interpretation/ processing of information • Confidence in the purchase decision • Use satisfaction Signal of substance/ commitment Brand to be considered Brand Brandequity loyalty McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Brand Equity (cont’d). Reason-to-buy Brand Brandequity loyalty Differentiate/position 3. Perceived Brand loyalty quality Price Channel member interest Extensions Provides value to firm by enhancing: • Efficiency and effectiveness of marketing programs • Brand loyalty • Prices/margins Help process/ retrieve information 2. Brand Brand loyalty associations Reason-to-buy Create positive attitude/feelings • Brand extensions • Trade leverage • Competitive advantage Extensions Other proprietary Brand loyalty brand assets McGraw-Hill/Irwin Competitive advantage © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. 3. Targeting and Positioning (cont’d) Values Being Sought by Customers (by Rackham) Transactional Sales: Intrinsic Value Consultative Sales: Extrinsic Value Enterprise Sales: Strategic Value Relationship Life Cycle and Strategy Customer Acquisition Customer Retention Customer Expansion Customer Deletion* McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Making Sense of A “Strategy Jungle” Strategy at different levels Corporate or Business Level: Porter’s Generic Strategy Cost Leadership: Fixed Cost and Variable Cost Differentiation: Supply side and Demand side Focus: Segmentation and Targeting Functional Level Strategies: Relationship Life Cycle-based Strategy Product Life Cycle-based Strategy:* First mover advantage vs. Second mover advantage McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Strategy Over the Life Cycle Ex) Pharmaceutical industry (patent expiration in 20 years) McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. 4. Supporting Marketing Mix & Programs Product and Brand Program: Product feature & brand meaning Pricing Program: price points Marketing Channels Program: Level, intensity, and ownership/function Communication Program: ex) Advertising and Sales Promotion (Incentives) McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Multiple Effects of Consumer Promotions on Car Sales by Steve Kim and J. Lim Consumer promotions Firm performance - Advertising Car Sales Change - Immediate -Total H1 & H2 - Incentives H3 & H4 Product Quality Product variable McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Effects of Advertising and Incentives on Car Sales McGraw-Hill/Irwin Advertising Effect Incentive Effect t-test Immediate effect .013 .108 ** Fluctuation Until stabilization .002 -.059 ** Total Effect .014 .049 ** © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Effects of Incentives Under Different Quality McGraw-Hill/Irwin Incentive Effect for Low quality Incentive Effect for High quality Immediate effect .102 .116 Fluctuation Until stabilization -.069 -.046 Total Effect .034 .07 T-test ** © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Effects of Advertising Under Different Quality McGraw-Hill/Irwin Advertising Effect for Low quality Advertising Effect for High quality T-test Immediate effect .028 -.008 ** Fluctuation Until stabilization .003 .001 Total Effect .031 -.007 ** © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Illustration: Handspring’s Product Strategy Objective: To capture 15 percent of the PDA market by the end of year 2 Customer Targets: Price-conscious professionals Nonbusiness professionals Nonprofessionals Competitive Targets: Palm Sharp Core Strategy: Simplicity/convenience Low price Expandability (via expansion slot) McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.