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Value-based marketing strategy Lecture 3 New marketing meets old marketing: New marketing wins A route-map for market-led strategic change Part I Customer value imperatives Part II Developing a value-based marketing strategy The strategic pathway Market sensing and learning strategy The Customer is always right-handed New marketing meets old marketing Value-based marketing strategy Strategic thinking and thinking strategically Strategic market choices and targets Customer value strategy and positioning Strategic relationships and networks Part III Processes for managing strategic transformation Change strategy Strategic gaps Organization and processes for change Implementation process and internal marketing Agenda • • • • • • • Old marketing has not kept up with new markets and new priorities Products, brands and innovation Price and value Distribution channels and value chains Marketing communications The “new marketing” challenge Marketing is strategy Old marketing has not kept up… • Old marketing is about marketing programmes – structured/planned around traditional model – operations/tactical • New marketing is concerned with the underlying process of going to market and strategic choices Marketing strategy and marketing programmes (the ‘marketing mix’) Marketing strategy The value offering Marketing programme Customer marketplace * Product policies * Pricing policies * Place/distribution * Promotion/marketing communications Marketing tools Products, brands and innovation • Conventional views of product policy – defining the product itself – choosing the product mix – creating a branding policy – developing and launching new products – managing product deletions • Much emphasis on brands to compete Products, brands and innovation • So what’s wrong with that? – it produces incremental, marginal changes in product offerings which impress no-one – the real challenge is building creative, innovative companies – marketing processes must drive creative and powerful innovations that re-shape markets Price and value • Conventional views of pricing policy – price-based positioning in the market – price levels and relativities – price discounts – pricing to different markets – price seen as a calculation based on cost and competition – usually the role of junior executives Price and value • So what’s wrong with that? – the price/profit relationship – dangers of seeing price as a quick-fix – ignoring real price sensitivity – underestimating importance of price visibility and architecture – misses price-based strategic vulnerability – fails to link price to customer value Distribution channels and value chains • Conventional views of distribution policy (place): – managing the channel and intermediaries – recruiting distributors, motivating and controlling them – direct marketing approaches as an alternative to intermediaries Distribution channels and value chains • So what’s wrong with that? – underestimates Internet impact on business models and digitization of products and channels – ignores massive power of distributors, e.g. supermarkets in consumer goods – neglects new types of direct marketing strategy – focus needs to be on value chain between buyer and seller, not traditional vertical marketing channel Marketing communications • Conventional view of “marcoms” – deciding role of each form of communication, setting objectives, managing process, integrating communications activities – distinguishes between: advertising/promotion, sales and account management, public relations Marketing communications – advertising/promotion • Conventional view of advertising/promotion – advertising in mass media and more specialised vehicles like direct mail, exhibitions – sales promotion more short-term, e.g., coupons, price cuts, special offers Marketing communications – advertising/promotion • So what’s wrong with that? – mass markets are an illusion and mass media no longer exist – audiences are fragmented by digital/wireless communications – “big ideas” replaced by “small ideas” for specialised consumer communities – online communities resistant to commercial messages, e.g., on social networks – traditional advertising agencies are struggling to keep up Marketing communications – sales and account management • Conventional views of sales and account management – Selling is face-to-face representation plus supporting materials for presentation, display – Sales management focused on recruitment, selection, motivation, reward and organization of salesforce – account management is service provision, e.g. call centres Marketing communications – sales and account management • So what’s wrong with that? – strategic customer management is replacing traditional sales approaches – major customers demand dedicated account teams and partnership – strategic account management – the focus has shifted from adversarial transactions to cooperative relationships – dominant customers always get their own way Marketing communications – public relations • Conventional view of PR: – creation and maintenance of corporate image relevant to different audiences – publicity, e.g. press releases, sports/arts sponsorship – house style, e.g. logos Marketing communications – public relations • So what’s wrong with that? – PR looks at trivia while corporate reputation has become a major strategic issue – sustaining and managing risk to corporate reputation is a critical management concern – corporate reputation management poses a major cross-functional challnege largely ignored by conventional PR The “new marketing” challenge • Confronting revolution in markets • Identifying renewal opportunities • Developing new ways of doing business/new business models or reinvention Market revolution drives renewal and reinvention Disruptive pressures on existing business models RENEWAL Coping/ adaptation mechanisms REVOLUTION Radical market and customer change/trends Value-creating opportunities for new business models REINVENTION Designing new ways of doing business Marketing is strategy “the fate of marketing hinges on elevating the role of marketing executives from promotions- focused tacticians to customerfocused leaders of transformational initiatives that are strategic, cross-functional and bottom-line oriented” Nirmalya Kumar, 2004 Value-based marketing strategy A route-map for marketled strategic change Part I Customer value imperatives Part II Developing a value-based marketing strategy The strategic pathway Market sensing and learning strategy The Customer is always right-handed New marketing meets old marketing Value-based marketing strategy Strategic thinking and thinking strategically Strategic market choices and targets Customer value strategy and positioning Strategic relationships and networks Part III Processes for managing strategic transformation Change strategy Strategic gaps Organization and processes for change Implementation process and internal marketing Agenda • • • • • • Value as the driver of business and marketing strategy Transactional marketing and selling Brand marketing Relationship marketing Value-driven strategy The search for customer value Value as the driver of business and marketing strategy • Compare the search for customer loyalty with the escalating sophistication of customers • Suggests several phases in how we think and thought about the way we go to market Value-based marketing Customer loyalty High Low High Value-based Relationship marketing marketing Customer sophistication Brand marketing Low Transactional marketing and selling Value-based marketing Customer loyalty High Low High Value-based Relationship marketing marketing Customer sophistication Brand marketing Low Transactional marketing and selling Transactional marketing and selling • Focuses on immediate revenue and profit – the deal, the sale, the contract • Often the dominant thinking in sales management in particular • Reinforced by paying people volume-based commission/bonus • BUT – maybe all some customers want from us is efficientlymanaged transactions Value-based marketing Customer loyalty High Low High Value-based Relationship marketing marketing Customer sophistication Brand marketing Low Transactional marketing and selling Brand marketing • Branding is central to conventional marketing thinking – brand the product/service, company, person, country, etc. • Brands bring important benefits to customers (reduced search time) and companies (brand equity or value) Brand marketing • Branding can transform markets • Cool brands often win • BUT – brands do not make you unbeatable – Coca-Cola – Levi-Strauss – Marlboro Coca-cola • • • • • Most valuable brand in world 1999 had 50% market share of world soft drinks market Problem – world fell out of love with carbonated soft drinks Tried to keep up with fragmenting soft drinks market Introduced bottled water, flavoured water, juice-based drinks, flavoured iced tea and coffee drinks and energy drinks • Use local brands • Products not always branded with Coca-cola name Dazani • UK customers assume bottled water from natural sources ie springs • Coca- Cola purified water from tap water in London • Origin came to light when a complaint was made to the British Food Standards Agency over Coke's use of the word "pure" in its Dasani marketing - implies that tap water is 'impure'. • Like Nestle, McDonald's and Cadbury Schweppes, Coke makes a gratifying target for journalists, in that all those companies trade heavily on their brand. • Source: Guardian March 4, 2004 Brand marketing • Issues that go wrong with branding – blind branding – private brand competition – brands which are liabilities – counterfeit brands – wrong brand trajectory, e.g., Stella Artois “wife beater” Brand marketing • Strategic brand management is the priority not creativity • Does the brand create customer value and how? Value-based marketing Customer loyalty High Low High Value-based Relationship marketing marketing Customer sophistication Brand marketing Low Transactional marketing and selling Relationship marketing • What did relationship marketing do for us? • Customer relationship management (CRM) systems • BUT – what matters is the type of relationship customers want How B2B purchasers look at supplier relationships Impact of supplier on cost structure and competitiveness High High Market risk/lack of choice Low Low CRITICAL partner to create competitive advantage SHOWSTOPPERS manage to reduce risk LEVERAGE manage for financial impact RECURRING consolidate, simplify, manage by exception Relationships with strategic customers Seller Buyer Major account selling The seller devotes specialized resources to dealing with an important major account, e.g., an account team, specialized salespeople, but the relationship is transactional Strategic account investment The seller dedicates resources to the buyer organization and plans around the individual customer’s needs, e.g., may locate specialist personnel at or near the buyer’s locations Seller Buyer Strategic account partnership The buyer and seller collaborate, plan jointly, and both invest resources and share risks crossboundary links extend beyond purchasing and sales to include management and technology. Seller Buyer Relationship marketing • Customer relationship provides the basis for market segmentation • Contrast the relationship the customer wants (long-term vs short-term) with the closeness wanted in the supplier relationship (close vs distant) Segmenting markets by customer relationship requirements Type of relationship customer wants with supplier Long-term Close relationship Closeness wanted by customer in supplier relationship Distant relationship Short-term/ transactional Relationship Relationship seekers exploiters Loyal buyers Arm’s length transactional customers Value-based marketing Customer loyalty High Low High Value-based Relationship marketing marketing Customer sophistication Brand marketing Low Transactional marketing and selling Value-driven strategy • Value has become the central focus of strategy (because there is no choice) • The key issue is now value innovation (in the customer’s terms) • But value does not have a single meaning – e.g., operational excellence vs. customer intimacy vs. product leadership (Treacy and Wiersema, 1995) Treacy and Wiersema- Value Disciplines • • • Operational Excellence – Providing customers with reliable products or services at competitive prices and delivered with minimal difficulty or inconvenience Customer intimacy – Segmenting and targeting markets precisely and then tailoring offerings to match exactly the demands of those niches – Companies combine detailed customer knowledge with operational flexibility – can respond quickly to almost any need and creates customer loyalty Product Leadership – Offering leading-edge products and services that enhance the customer’s use or application of the product – Make rivals goods obsolete Source: Treacy, M. and Wiersema, F., 1993, Customer Intimacy and Other Value Disciplines Harvard Business Review January- February The search for customer value • The danger of making assumptions – “we know what our customers want” – “bung in some customer service” – “just make it cheaper” – or, perhaps, take customer value seriously? The search for customer value • Value as rational cost/benefit analysis • Value migration – value migrates from one attribute feature to another – different people buy different value • Customer value is complex, multi-dimensional, unstable and idiosyncratic, but it is what matters