Download Marketing

Marketing
Structure of Lecture
1. Importance of marketing to NPD
2. Strategic marketing frameworks
3. Marketing launch tools: 4Ps
R&D Based Versus Marketing
R&D Based
Based Ideas
Marketing Based
100%
10%
100%
100%
100%
100%
5%
22%
25%
31%
34%
69%
66%
61%
Winners of
the Industrial
Research
Award
British
innovators
Weapons
systems
90%
78%
Materials
100%
Computers,
railway,
housing
75%
Instruments
34%
Source:
Utterbach
NPD Process: Marketing Input
Idea
Business
Conception
Plan
Fit with
marketing/
corporate
strategy
Market
research
Design
Market
testing
Manufacture
Establish
marketing
mix
Launch
Implement
marketing
mix
Approximate Costs of NPD: %
Stage
Opportunity
Identification
Design
Testing
Consumer Goods
2
2
3
28
16
Launch
Total
100% =
Industrial Chemicals
$12.6m
13
79
57
100
100
$4.7m
Marketing Mix: The 4 Ps
Place
Promotion
The Marketing Mix
Price
Product
Product
Place
• Definition
• PLC
• Physical
products versus
services
The
Promotion
Marketing
Mix
Price
Product
Consistency in Marketing Mix
Premium Product
(e.g. Jermyn St shirt)
Premium Price
(+30% over
average)
Premium Place
(narrow
distribution)
Premium Promotion
(selective advertising)
Importance of 4Ps by Industry –
examples of promotions
Consumer Goods
Industrial Goods
High
Advertising
Personal Selling
Sales Promotion
Sales Promotion
Personal Selling
Advertising
PR
PR
Importance
Low
Push versus Pull
Demand
Push Strategy
Manufacturer
Demand
Intermediary
End User
e.g Lever Brothers
Demand
Pull Strategy
Manufacturer
Demand
Intermediary
End User
e.g. P & G
Marketing’s Definition of the Product
Any want - satisfying good or service
that is considered together with its
perceived tangible and intangible
benefits
Product from Customer’s Viewpoint
A product is a “bundle of
satisfactions or benefits”
i.e. The nature of the product lies in the
consumer’s perception of it
This explains marketing’s obsession with
the consumer
Product versus Benefit Definitions: Examples
Company
Product-orientated
definition
Benefit-oriented
definition
Lancome
We sell cosmetics
We sell beauty
Xerox
We make photocopiers
We improve office
productivity
Disney
We make films and
associated products
We entertain
you and provide
escapism
UCL-NPD
We teach you a wide
range of skills/frameworks
We prepare you for
the outside world
SWOT Analysis
SWOT
Strengths
Weaknesses
Internal
Opportunities
Threats
External
BCG Growth Share Matrix
Market
Growth
Rate
High
Star
?
10
%
Dog
Cash Cow
Lo
w
0%
0.1x
Low
1x
10x
High
Relative Market Share
Product Life Cycle
Introductory
Stage
Growth
Stage
Maturity
Stage
Decline Stage
Total
Market
Sales
Time
Characteristics of “Introduction”
Phase of PLC
1.
High product failure rate
2.
Relatively little competition
3.
Limited distribution
4.
Frequent product modification
5.
Losses associated with the product
Characteristics of “Growth” Phase
of PLC
1.
More competitors
2.
Less product distinctiveness
3.
Profitable returns
4.
Company or product acquisition by larger
companies
Characteristics of ‘Maturity’ Phase
of NPD
1.
Sales continue to increase but at reduced rate
2.
Attempts are made to differentiate or re-differentiate the
product
3.
Product line may be widened
4.
Prices fall as competitiveness increases
5.
Profits fall due to “double whammy” of falling price and need
to promote the product
6.
Brand rationalisation becomes common among
retailers/dealers
7.
Marginal producers drop out of the industry
Characteristics of “Decline” Phase
of NPD
1.
Falling sales for total industry
2.
Price cutting may intensify
3.
Many producers decide to abandon the market
PLC example: audio cassette tapes
500
450
400
350
300
250
200
150
100
50
0
Years
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
units sold
1974
Units Sold
(in millions)
Cassettes Sold 1974 to 2004
Product Life Cycle
Traditional
With Variations
Growth, Slump,
Maturity
Introduction
Growth
Maturity
Sales
Decline
Cycle I
Cycle II
Cycle recycle
Scalloped
Fashion
Time
Fad
Using the PLC Framework
Pros
Cons
- Different stages of a
product’s life call for
explicitly different strategies
- Time span of the curve
varies enormously
- The framework prepares
management for changes of
strategy. (A useful spur
given much management
inertia)
- Rigid adherence to PLC
means management can
prematurely end the life of a
product
- The curve is not always a
curve - variations exist
Handle with Care!
As with all frameworks , use
as a guide, not a bible
Strategic marketing -summary
Strategic marketing is critical to NPD both prior to
embarking on a new project and as an ongoing
process, eg
• SWOT analysis
• BCG growth share matrix
• Product life cycle
(PS Some of these can be quite useful outside the
NPD process too!)
Service Products
Definition
“A service is an intangible product involving a
deed, a performance, or an effort that cannot be
physically possessed”
Examples
Education
Health care
R&D projects
Insurance
Transport
Hairdressing
Hotels
Differences Between Physical Products
and Services
Difference
Comment
Intangibility
Services generally have no “physical” element
Inseparability
Production and consumption occur
simultaneously
Variability
High ‘human’ contact leads to different service
levels
Perishability
Service products cannot be stored and ‘perish’
instantly
No ownership
Service is experienced –it can’t be sold on
Implications for Marketing Service
Products
Characteristic
Issue
Intangibility
Difficult for customers
to compare services
Marketing Implication
‘Tangibalise’ the product e.g.
appearance of staff,
promotional literature, etc
Inseparability
Both provider and
client affect quality of
relationship
Selection and
training of service
provider’s personnel
Variability
Difficult to ensure
consistent quality
Implement strict quality
control. Develop customer
care programmes
Perishability
Periods of excess
supply and
demand
Manage supply and demand
explicitly (e.g. differential
pricing, part time personnel)
Price
Place
• Importance of
Price
• Influences on
Price
• Pricing Strategy
The
Promotion
Marketing
Mix
Price
Product
Importance of price-theory
S
Price
p
D
q
Quantity
Importance of Price-Practice
“Which of the following would make you switch supermarket”
(% of respondents)
Lower price
75%
Wider range
66%
Closer to home
Convenient hours
Car parking
60%
45%
44%
Source: Questions asked of AGB Superpanel
Effect of 1% Rise on Price on Profits e.g. Consumer Goods Manufacturing
Price rise
of 1%
Rise in
operating
profit
Phenomenon known as operating leverage
10%
Effect of 1% rise in price - e.g. consumer
goods manufacturing
Before
After
Revenue
100
101
Cost of goods sold
60
60
Gross margin
40
41
Sales and marketing
15
15
R&D
2
2
General & Admin
10
10
Depreciation
3
3
Operating Profit
10
11
1% rise
10% rise
Inputs to Pricing Decisions
• Demand
• Costs
• Other factors
- company and marketing objectives
- competition/ market structure
- legal/ social constraints
Demand
Demand constrains the upper price limit (i.e. you
cannot charge more than the customer will pay)
Some people are more
price sensitive than
others
Demand for some products
is more price sensitive than
for others
If you can identify the
people and charge
them separately, you
will increase revenue
If you can identify price
sensitive products and drop
prices, you will increase
revenue
Conditions for Price Discrimination
1.
The firm can control what is offered to a
particular buyer
2.
It can prevent the resale of the item by
one buyer to another
Industries with Price Discrimination
Industry
Example
Theatres
OAPs, students, etc charged less for
same seats
Food manufacturing
Large retailers with huge volumes are
given lower prices than small corner
shops with low volume
Airline transport
Business and first class charged
more than economy class
Private dentistry
Many dentists have no ‘schedule
of prices’ and will charge patients
what they think they can afford
Price Sensitivity
Price Elasticity measures Price Sensitivity
e=
percentage change in quantity demanded
percentage change in price
P
P
p1
p2
q1 q2
q1
Q
q2
Inelastic demand
Elastic demand
e<1
e>1
Q
Factors Affecting Price Sensitivity
Customers are less price sensitive when:
1. The product is unique with few substitutes
2. Comparisons are difficult to make
3. The cost of the product is low relative to total expenditure
4. The product is perceived to be high value or prestigious
5. The product is required for assets previously bought
Cost- based Pricing
Price = Full cost of producing the item + x% profit margin
Pros
Cons
1. Simple method
1. Largely arbitrary method,
depends how you allocate
2. Explicitly considers costs
overhead
therefore unlikely to result
in loss
2. Prevents full usage of
marketing tools as in short run
3. Fair and transparent
pricing at less than full cost is
feasible
3. Can lead to nonsensical
vicious circle
Vicious Circle of cost based pricing
Full cost =
Allocated fixed cost + variable cost
- sales and marketing - raw materials
- R&D
- direct energy costs
- general overhead
- depreciation
Demand
Price
Production
Fixed cost
per unit
Range of Pricing Discretion
Upper level
determined by
demand
To increase pricing
discretion the firm
can:
Price
- increase perceived
benefits (i.e.
demand)
- reduce costs
Lower level
determined by
costs
Other Factors Affecting Pricing
Area
Company and
Marketing
Objectives
Examples
- Overall goal (profit maximisation versus accessibility
of service)
- Target market (mass or niche)
- Brand image (exclusive or commodity)
- Rest of marketing mix (product, promotion, place)
Competition/
Market Structure
- No of firms (monopoly through to perfect competition)
Legal/ Social
- Government legislation (e.g. closely controlled
pharmaceutical pricing)
- Degree of differentiation (one-off product through to
commodity)
- Regulatory bodies (e.g. Oftel with RPI-7.5%)
- Social/political pressure (e.g. for bell-weathers of the
economy)
Popular Pricing Strategies
Strategy
Description
Skimming
Start with a high price for early adopters,
then reduce the price progressively (good
for inelastic demand)
Penetration
Go for maximum market penetration by
adopting a low price strategy to attract the
largest number of new buyers early on
Promotion
Place
• Types of
Promotion
• Effects
• Promotion
strategy
The
Promotion
Marketing
Mix
Price
Product
Promotion (Marketing Communication)Types:
Sales Promotion
Direct Marketing
Public Relations
Salesforce
Advertising
Objectives of Promotions (Marketing
Communications)
To Customer
To Trade
Raise awareness
Provide information
Inform about new product
Inform about promotions
Correct misconceptions about
product
Present trade offers
Increase frequency of use
Present special offers
Educate consumers in how to use
Build image for brand/company
Build customer loyalty
Avoid stockpiling
Educate the trade
Build patronage
Specific Objectives of Sales
Promotions
For Consumer
For Trade
Announce new product
Encourage stocking
Encourage product trial
Increase inventory levels
Stimulate greater use
Encourage off-peak buying
Encourage purchase of larger
sizes
Promote related products
Attract non-users
Encourage brand switching
Offset competitive marketing
Open up new outlets
Build retailer loyalty
Effect of Sales Promotion on Brand Share
10%
7%
6%
5%
Preparation Promotion
period
period
Immediate
postpromotion
Long-term
postpromotion
Direct Marketing
Targeting customer directly without an intermediary
Examples of Methods
Phone
Internet
Letters
Catalogues
Direct response radio
Direct response TV
Loyalty cards
Trends in Direct Marketing
Increasingly focused on target group
- specific lists
- technology advances
Used frequently with multiple approaches
Changing to long-term “relationship
marketing” rather than one-off mail-shots
Direct Marketing: Pros and Cons
Pros
Cons
- Measurable response
- Can alienate potential
customers
- Relatively cheap
- Communicate directly with
customer (67% customers go
elsewhere next time as no
one keeps in touch)
- Low hit rate if unfocused
Public Relations
Definition by IPR: “the deliberate, planned and sustained effort
to establish and maintain mutual understanding
between an organisation and its public”
Whom to influence
Community
Employees
Government
The City
Distributors
Consumers
Opinion leaders
How
Interviews
Articles
Exhibitions
Launches
Sponsorships
Publications
Videos
Training
Factory visits
Press releases
Community projects
Advertising Objectives
Increases sales and profits through:
- Building awareness
- Building comprehension
- Reminding
- Generating leads
- Legitimising
- Reassuring
Stages in the Adoption Process
Adoption
Trial
Evaluation
Interest
Awareness
Source: K p342
Adopter Categorisation
Characteristics By Adopter Group
Group
Innovator
Willing to
try new
Characteristics ideas at
some risk
Type of
individual
Technofreak(?)
Youngish
Early
adopter
Ideas
adopted
early as
sign to
others
Opinion
leaders in
community
Early
majority
Deliberate
steady
adoption
of new
ideas
Late
majority
Laggard
Sceptical:
wait to see
what world
thinks
before
trying
Tradition
bound:
suspicious
of change
Most of Population
Older,
Conservative
Innovation adoption - examples
•
INNOVATOR
Blu-ray
•
EARLY ADOPTER
Mobile TV, (Sky service to deliver broadcasts to
mobile phones), video i-pod
•
EARLY MAJORITY
HDTV, Skype, Podcasting; Sky + / PVRs
•
LATE MAJORITY
i-Pod; Broadband
•
LAGGARDS
DVD players, internet shopping, online banking
VHS; mobile phones
Influence of Product Characteristic
on Adoption Rate
Product
Characteristic
Relative advantage
Description/ Rationale
The degree to which it outperforms existing
products
Compatibility
How it matches experiences & values of the
target market
Complexity
How difficult or simple it is to use
Divisibility
Extent to which it can be tried on a limited basis
Communicability
How easy it is to describe or communicate the
product attributes
Advertising
Characteristics
Types
- Public presentation
- Subliminal
- Pervasive
- Subtle
- Amplified
- Direct
- Impersonal
- “Knocking copy”
Advertising Management
Set
objective
Decide
budget
Choose
message
- Communication - Affordable
objectives
approach
- Message
generation
- Sales objectives - % sales
- Message
evaluation
- competitive
parity
- Message
execution
Choose
media
- Type
- Impact
- Frequency
- Reach
- Timing
Evaluate
effectiveness
- Communication
impact
- Sales impact
Place
Place
• Types of channel
• Value of channel
• Choice of
channel
The
Promotion
Marketing
Mix
Price
Product
Place
Channels
Coverage
Location
Inventory
Transport
What do Distribution Channels Do?
- Provide information
- Promote
- Negotiable
- Take orders
- Hold inventory
- Take risk
- Assume title
- Distribute to final customer
Considerations in Choice of Channel
Consideration
Example/ Comment
Company objectives
Maximisation of market share suggests
widespread distribution
Target customer
- numbers
High numbers require mass market channels
- geographical dispersion
Wide dispersion may suggest need for mail
order
- customer needs
Specialist channels if complex needs
Product
Direct selling if high value complex product
Competition
How do competitors distribute and do
consumers like it?
Control
How much control is relinquished by
choosing a specific channel
Intermediaries: Pros and Cons
Pros
Cons
- Allows manufacturers to
“stick to the knitting”
- Company loses some control
- Replaces inefficiency of
multiple deliveries
- Company loses touch with
end user
- Enables consumers to
minimise efforts
- Can add to costs
PLC Strategies
Promotion
Introduction
Growth
Create product
awareness
- advertising
- personal
selling
Promote the
brand (rather
than product
awareness)
Price
Skimming or
penetration
Place
Distribution
according to
pricing strategy
Key focus on
distribution to
establish foothold
prior to ‘maturity’
Profits
Losses as
advertising can
exceed revenues
Product becomes
profitable
Continue existing
strategy
Maturity
Decline
Reinforce the
‘message’ to:
- encourage
regular
repurchase
- build loyalty
Price
reductions
frequent
though not
necessarily
advisable
Build the
foothold by
moving some
promotional
activity to the
channel
Possibly
withdraw
promotions or
target specific
niches
Profits peak and
start to decline
Firm emphasis
on cost control
to prevent huge
fall in profits
Lower price
prevents
excessive
erosion of
demand
Resign yourself
to narrow
distribution
strategy
Reasons to Understand Marketing
1. Ultimately your research/ new product is to benefit the
customer/public (widely defined). Why else are you doing it?
2. Allows you to understand who the customer is and what
elements of the product/ research they value
3. If other areas within the organisation can think like
marketing (and vice versa) it reduces cultural conflict