* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Download 1.2. Why use a marketing strategy?
Social media marketing wikipedia , lookup
Dumping (pricing policy) wikipedia , lookup
Bayesian inference in marketing wikipedia , lookup
Grey market wikipedia , lookup
Service parts pricing wikipedia , lookup
Ambush marketing wikipedia , lookup
Pricing strategies wikipedia , lookup
Darknet market wikipedia , lookup
Perfect competition wikipedia , lookup
Food marketing wikipedia , lookup
Marketing communications wikipedia , lookup
Marketing research wikipedia , lookup
Market analysis wikipedia , lookup
Multi-level marketing wikipedia , lookup
First-mover advantage wikipedia , lookup
Viral marketing wikipedia , lookup
Digital marketing wikipedia , lookup
Guerrilla marketing wikipedia , lookup
Youth marketing wikipedia , lookup
Neuromarketing wikipedia , lookup
Marketing mix modeling wikipedia , lookup
Direct marketing wikipedia , lookup
Market penetration wikipedia , lookup
Integrated marketing communications wikipedia , lookup
Market segmentation wikipedia , lookup
Target audience wikipedia , lookup
Marketing plan wikipedia , lookup
Street marketing wikipedia , lookup
Product planning wikipedia , lookup
Marketing channel wikipedia , lookup
Multicultural marketing wikipedia , lookup
Advertising campaign wikipedia , lookup
Green marketing wikipedia , lookup
Target market wikipedia , lookup
Sensory branding wikipedia , lookup
Global marketing wikipedia , lookup
STRATEGIC MARKETING PROF. M.LECOCQ DUYSENS NATACHA ICHEC MASTER 1 2015-2016 1 TABLE DES MATIÈRES 1.1. How marketing helps to create value and attain business results? ....................................... 6 1.2. Why use a marketing strategy? ............................................................................................ 6 2.1. Company strategy & strategic planning ................................................................................ 9 2.1.1. What is a company strategy? ........................................................................................................ 9 2.1.2. Every strategy relies on a competitive advantage. ....................................................................... 9 2.1.3. 3 characteristics of company strategy........................................................................................... 9 2.1.4. 3 levels of a company strategy ...................................................................................................... 9 Company strategy and strategic planning ........................................................................................ 10 2.1.5. 2 types of strategies according to M. Porter ............................................................................... 11 2.2. The Planning process: 4 step-process ................................................................................. 12 2.2.1. Defining the corporate mission ............................................................................................... 12 2.2.2. Market analysis: ...................................................................................................................... 14 2.2.3. Goal formulation ..................................................................................................................... 14 2.2.4. Assigning resources to each SBU ............................................................................................. 14 3.1 External & Internal analysis ................................................................................................. 15 3.1.1 EXTERNAL ANALYSIS ..................................................................................................................... 16 Company ............................................................................................................................................ 16 Suppliers ............................................................................................................................................ 16 Intermediaries ................................................................................................................................... 17 Competitors ....................................................................................................................................... 17 Publics ................................................................................................................................................ 17 Customers .......................................................................................................................................... 18 Demographic environment ................................................................................................................ 19 Economic environment ...................................................................................................................... 20 Natural environment ......................................................................................................................... 20 Technological environment ............................................................................................................... 21 Political and social environment........................................................................................................ 21 Cultural environment......................................................................................................................... 22 Conclusion: Responding to the Marketing Environment ................................................................... 22 3.1.2. INTERNAL ANALYSIS (MIS) ........................................................................................................... 22 3.2 Interpretation of the results ................................................................................................ 23 3.2.1 SWOT ............................................................................................................................................ 23 Opportunities ..................................................................................................................................... 25 Threats............................................................................................................................................... 25 Strenghts/Weaknesses ...................................................................................................................... 25 Opportunities and Threats – Matrix .................................................................................................. 26 Examples............................................................................................................................................ 26 3.2.2 BCG matrix .................................................................................................................................... 28 1. Stars ............................................................................................................................................... 29 2. Cash Cows ...................................................................................................................................... 29 3. Question Marks ............................................................................................................................. 29 4. Dogs ............................................................................................................................................... 29 The circles in the matrix (size in euros) .............................................................................................. 30 3.2.3 The GE grid ................................................................................................................................... 30 Alternatives and next steps ............................................................................................................... 31 Potential issues with Matrix approaches .......................................................................................... 31 2 3.2.4 Porter’s 5 forces model ................................................................................................................ 31 3. Threat of potential entrants .......................................................................................................... 32 4. Threat of substitution .................................................................................................................... 32 5. Bargaining power of buyers .......................................................................................................... 33 Conclusion.......................................................................................................................................... 33 4.1 Developing competitive strategies ...................................................................................... 34 4.1.1. Concept definitions ..................................................................................................................... 34 Competitive advantage ..................................................................................................................... 34 Competitor analysis ........................................................................................................................... 34 Competitive marketing strategies ..................................................................................................... 35 Market leader .................................................................................................................................... 35 Market challenger ............................................................................................................................. 35 Market follower ................................................................................................................................. 35 Market nicher .................................................................................................................................... 35 4.1.2. Competitive strategies ................................................................................................................ 36 4.1.3. Market leader strategies ............................................................................................................. 36 Expanding Total Demand .................................................................................................................. 37 Protecting Market Share ................................................................................................................... 37 Expanding Market Share ................................................................................................................... 37 4.1.4. Market challenger strategies....................................................................................................... 38 4.1.5. Market follower strategies .......................................................................................................... 38 4.1.6. Market nicher strategies ............................................................................................................. 39 4.1.7. Developing strategies for growth ................................................................................................ 39 Product/Market growth matrix ......................................................................................................... 40 4.1.8. Blue ocean strategy (Chan Kim) .................................................................................................. 40 Ex: With the creation of Viagra, Pfizer created a blue ocean in lifestyle drugs by going beyond the boundaries of the pharmaceutical industry at the time. Viagra shifted the focus from the pharmaceutical industry’s largely functional orientation, medical treatment, to lifestyle enhancement, an emotional orientation. ................................................................................ 41 4.2 The goal formulation ........................................................................................................... 41 For an MBO system to work, the unit’s objectives must meet four criteria: ..................................... 41 5.1 Introduction ........................................................................................................................ 43 5.1.1 The STP trio .................................................................................................................................. 44 5.1.2 Définitions .................................................................................................................................... 44 5.1.3 Segmentation ............................................................................................................................... 45 Bases for Segmenting Consumer Markets......................................................................................... 45 5.2 Geographic segmentation ................................................................................................... 45 5.3 Demographic segmentation ................................................................................................ 46 5.3.1 Age and Life-Cycle Stage .............................................................................................................. 46 5.3.2 Gender .......................................................................................................................................... 46 5.3.3 Income .......................................................................................................................................... 47 5.4 Psychographic segmentation ............................................................................................... 47 5.4.1 VALS .............................................................................................................................................. 48 5.5 Behavioral segmentation ..................................................................................................... 48 5.6 Occasion segmentation ....................................................................................................... 48 5.7 Benefit segmentation .......................................................................................................... 48 3 5.8 Using Multiple Segmentation Bases .................................................................................... 49 5.9 Requirements for Effective Segmentation ........................................................................... 49 5.10 Segmenting Business Markets (bonus!) ............................................................................. 49 5.11 Summary ........................................................................................................................... 50 6.1 Targeting ............................................................................................................................. 51 6.1.1 Evaluating Market Segments........................................................................................................ 51 6.1.2 Selecting Market Segments .......................................................................................................... 52 Undifferentiated (mass) Marketing................................................................................................... 53 Differentiated (segmented) Marketing ............................................................................................. 53 Concentrated (niche) Marketing ....................................................................................................... 54 Micro Marketing ................................................................................................................................ 54 6.2 Summary ............................................................................................................................. 55 7.1 Brand................................................................................................................................... 57 7.1.1 The role of brands ........................................................................................................................ 57 7.1.2 Value of brands ............................................................................................................................ 57 7.1.3 Brand equity ................................................................................................................................. 58 7.1.4 The scope of branding .................................................................................................................. 58 7.1.5 BrandZ Example ............................................................................................................................ 58 7.1.6 Creating a brand equity ................................................................................................................ 59 7.2 Differentiation and positioning ............................................................................................ 59 7.2.1 Benefits of brand positioning and differentiation........................................................................ 60 7.2.2 Identifying optimal points-of-difference and points-of-parity ..................................................... 60 a) Points of difference........................................................................................................................ 60 b) Points of parity .............................................................................................................................. 60 7.2.3 Choosing a differentiation and positioning .................................................................................. 61 7.3 Edeka on Xmas .................................................................................................................... 63 7.4 Sample questions class of Dec 14th on positioning: ............................................................ 63 7.5 Summary ............................................................................................................................. 63 8.1 Marketing Plan .................................................................................................................... 64 8.2 Sections of a marketing plan ........................................................................................................... 65 Executive summary............................................................................................................................ 65 Situation analysis............................................................................................................................... 65 Marketing strategy ............................................................................................................................ 65 Financial projections .......................................................................................................................... 66 Implementation controls ................................................................................................................... 66 9.1 Measuring marketing productivity....................................................................................... 67 9.2 KPI’s & measurement .......................................................................................................... 67 9.2.1 Marketing metrics ........................................................................................................................ 67 9.2.2 Key performance indicators ......................................................................................................... 67 9.2.3 Marketing dashboards ................................................................................................................. 68 9.2.4 Marketing scorecards ................................................................................................................... 69 9.2.5 Marketing metrics ........................................................................................................................ 69 9.2.6 Key performance indicators & measures ..................................................................................... 70 9.2.7 Marketing ROI .............................................................................................................................. 70 4 9.3 Sample questions class of Dec 14th on KPI’s and measurement: ......................................... 71 5 1. Introduction The fundamental goal of marketing strategy is to achieve a sustainable competitive advantage. The company must decide which Customers it will serve (Segmentation and Targeting) and how to serve them (differentiation and positioning). Strategy by Porter: - Competitive strategy is about being different. It means deliberately choosing a different set of activities to deliver a unique mix of value. - Strategy is about competitive position, about differentiating yourself in the eyes of the customer, about adding value through a mix of activities different from those used by competitors. - It is a combination of the ends (goals) for which the firm is striving and the means (policies) by which it is seeking to get there. - Strategy is both plan and position. (It should be noted that Porter writes about competitive strategy, not about strategy in general.) 1.1. How marketing helps to create value and attain business results? Marketing strategy intends to answer how marketing helps to create value and achieve business results. 1.2. Why use a marketing strategy? It encourages systematic thinking Can help to anticipate changes and respond quicker to changes Forces the company to sharpen its objectives It leads to better coordination of company’s efforts Provides better standards for control The goal of the marketing strategy is to achieve a stainable competitive advantage. The company must decide which customers will serve (segmentation, target), and how to serve them. Business does not stop while you design your marketing strategy. The end of the world is the end of the month. Short term tends to win every time. We don’t have time; we are too busy, too small, 6 marketing strategy is not for starter companies, but neither for mature companies. Most of the time the world doesn’t stop, there is a lot of pressure for short term goal to achieve for instance. You do not design your strategy in isolation. In any given market, there are many different actors of different size, strength and agility. Too often, marketers focus on budget and other resources. The first question is about what you intend to do to create value? Many times people say they don’t have enough budgets but strategy comes first, budget after. It is about direction; don’t try to rush it too much. Environment of very high technology, company can be addressed to it intelligence. The essence of strategy is choosing what not to do. Some executives want to be all things to everybody. Ex: GM USA. There is a constant debate about what is the most important, design or execution, Both are VERY IMPORTANT and interrelated. “Doing things right” (implementation) is as important as“Doing the right thing” (strategy). The marketing strategy is the marketing logic by which the business hopes to achieve its marketing and business objectives. It is the fundamental goal achieving a sustainable competitive advantage. Marketing strategy includes the analysis of the strategic initial situation of a company and the formulation, evaluation and selection of market-oriented choices to contribute to the goals of the company. The company decides which Customers it will serve (Segmentation and Targeting) and how (differentiation and positioning). Elevator pitch: introduce yourself in 10 seconds. He is introducing the course in 10 seconds, the definition of marketing strategy. Create, communicate, and deliver the value to a target market and profit. Creating value = product management, communicate value= brand management, deliver value=customer management. P&G makes Pringles, how do you print …? Open technology, open innovation, brand management means packaging, brand is a promise, inspires everything we do, way we act, its emotional, emotions. Creating an emotional relationship is important. Customer management is changed, we have data customers, reach them by emails, this customer management deals with them, but we want to meet them, get their help in creating products, want to co create, radical change in marketing. 2. From company strategy to marketing strategy Summary of Kotler video CREATING VALUE - The task of any business is to deliver customer value at a profit. In a hypercompetitive economy with increasingly informed buyers faced with abundant choices, a company can win only by developing the value delivery process and choosing, providing, and communicating superior value. We can divide the value creation and delivery sequence into three phases. First, choosing the value represents the “homework” marketing must do before any product exists. Marketers must segment 7 the market, select the appropriate target, and develop the offering’s value positioning. The formula “segmentation, targeting, positioning (STP)” is the essence of strategic marketing. The second phase is providing the value. Marketing must determine 4P’s. The task in the third phase is communicating the value by utilizing the sales force, adv….to promote the product. Before developing a MS, we need a full understanding of company’s reasons to be in business, corporate mission, and corporate objectives. Marketing STRATEGY requires vertical alignment with senior management and horizontal alignment with other departments, so everyone understands, appreciates, and supports the marketing effort. Marketing is no longer the responsibility of a single department—it is a company-wide undertaking that drives the company’s vision, mission, and strategic planning. It succeeds only when all departments work together to achieve company goals: when engineering designs the right products, finance provides the right funding, purchasing buys the right materials, production makes the right products, and finance measures profitability in the right ways. This harmony can only truly work, when management clearly communicates a vision of how the company’s will operate and how marketing orientation and philosophy serve customers. EXAMPLE AIRLINE: best CX….for RY,….fleet, cabin crew, pricing, on-board service, on boarding efficiency…contradicts RY bus. If we are mkt director of rayanair, goal provide best customer experience, contradicts the essence of business model because the goal is to fly the cheapest way possible. Marketing Strategy is derived from the business strategy How can marketing help to attain the objectives of the business strategy? Marketing can be part of it, help design it Influencing and nurturing Corporate objectives and then aligning to them Combining marketing goals into a multi-year plan and a yearly tactical plan detailing specific actions Focus on offering the right products and services, based on customer insights and market research Utilize the marketing mix to achieve the company’s ambition, enabling the creation of value (market share, revenue, more customers, price premium,…) 1st question: Is there a good Marketing Strategy? No one strategy is best for all companies. It depends on situation, opportunities, objectives and resources. Situation: (bruxelles ailines) best business class, can be successful, after financial crisis, in 2008 this company lost 90% in business class, the chief says that the employees with the cheapest fly of the day, recreate a premium economy class (b-flex now flex & fast ) that will be acceptable to buyer, still provide with number of advantages (lowest price of the day), or design a new business class for best CX. Opportunities: ex: An electric car in Norway=>Nissan is very successful in Norway. Objectives: example: penetration or geographical expansion? Hertz could increase share in EU or go to China Resources: example: TECHNOLOGICAL: ex. Fiat, question is do you have the technology is it available? Fiat Chrysler to launch a luxury brand 8 FINANCIAL: launching a new automobile brand in the US (Renault, peugeot, alfa) HUMAN: eg If Land Rover wanted to enter the motorcycle business. SONACA small aircraft: yes 2.1. Company strategy & strategic planning 2.1.1. What is a company strategy? “Une stratégie est la définition d’orientations claires et réalistes d’un ensemble d’actions pour atteindre à moyen et long terme un but face à des adversaires désignés”. The overall scope and direction of a corporation and the way in which its various business operations work together to achieve specific goals. 2.1.2. Every strategy relies on a competitive advantage. The nature of the competitive advantage determines the company strategy: It is a consumer relevant, strong and long lasting competency that has the potential to improve your position on the market and generate superior margins and profits. EXAMPLES: TECHNOLOGY / R&D: e.g. MERCEDES ENGINEERING COST STRUCTURE: e.g. aldi, rayanair, have put in place a model that enable to have cheaper prices ACCESS TO RESOURCES: e.g. company belonging to a large PE SPECIFIC EXPERTISE: e.g. CARREFOUR/DFC SUPPLY CHAIN REPUTATION / CREDIBILITY: e.g. NESTLE FOOD SAFETY. 1 brand QUALITY: TOYOTA PEOPLE: GOOGLE ENGINEERS OR LOUIS VUITTON DESIGNERS, many companies believe that the quality of their people is their best advantage/shot CCL: your strategy has a higher chance to succeed if based on a Competitive Advantage => the company can be successful if they take advantage on a specific existent strength. Counter examples: Gillette. Manual shaving business. But electric razor? Less expertise or credibility 2.1.3. 3 characteristics of company strategy 1) IT IS A VISION: it is how we see ourselves in the market, our role, what we want to bring, how we want to make a difference? 2) IT IS DEVELOPED AND IMPLEMENT AGAINST A COMPETITOR: not in isolation (IN THE WIDE SENSE. E.G. TAX LEGISLATION – automotive sector, taxes on gas or on engine size, displacement and power) OR CLIMATE CHANGE 3) IT IS LONG TERM ORIENTED (>< 4P’S STRATEGY AND MARKETING PLAN). You only adjust, adapt or change your strategy when appropriate, when market conditions have changes, when no longer appropriate 2.1.4. 3 levels of a company strategy 1) GROUP / CORPORATE LEVEL: Corporate headquarters are responsible for designing a corporate strategic plan to guide the whole enterprise; it makes decisions on priorities and the amount of resources to allocate to each division, as well as on which businesses to start, grow, consolidate, milk or eliminate (e.g. AXA pension savings) (all markets, all SBU, all Brands, the one usually approved by shareholders for growth, Return on capital, shareholder value). E.g. AXA (Auto/Home, saving,health). 9 2) STRATEGIC BUSINESS UNIT LEVEL (SBU): Large companies can manage quite different businesses, each requiring its own strategy.) (food / non food, e.g Unilever or L’Oreal: consumer FMCG, professionals/hairdressers, luxury, pharmacy OTC, The body shop retail). Autonomous >< Independent, Disney (movies, TV, parks, cruises, merchandise) At one time, General Electric classified its businesses into 49 (SBUs). An SBU has three characteristics: 1. It is a single business, or a collection of related businesses, that can be planned separately from the rest of the 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. 3) FUNCTION or COE (centre of excellence) (R&D, engineering, geographical, financial, marketing). E.g. R&D.: hybrids Toyota, electrical vehicles Renault Nissan) Examples: Unilever: full divisions and non-full division, investor’s strategy is completely different, has 2 headquarters, food business in Rotterdam, another is in London. L’oréal: some products are called mass market products=one division, others are made for hairdressers=another division, there are some that are only selling to pharmacies. Body shop retailer was acquired by L’Oreal, the same designers, producers at the same time. Disneyland: movie, attractions, etc. Company strategy and strategic planning Corporate headquarters are responsible for designing a corporate strategic plan to guide the whole enterprise; it makes decisions on the amount of resources to allocate to each division, as well as on which businesses to start or eliminate. Each division establishes a plan covering the allocation of funds to each business unit within the division. Each business unit develops a strategic plan to carry that business unit into a profitable future. Finally, each product level (product line, brand) develops a marketing plan for achieving its objectives. The Central Role of Strategic Planning: To ensure they 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 company must develop a game plan for achieving each business’s long-run objectives. Most large companies consist of four organizational levels: (1) corporate, (2) division, (3) business unit, and (4) product. 10 2.1.5. 2 types of strategies according to M. Porter 1) Overall cost leadership/ Cost advantage: Firms work to achieve the lowest production and distribution costs so they can under price competitors and win market share. They need less skill in marketing. The problem is that other firms will usually compete with still-lower costs and hurt the firm that rested its whole future on cost. (RY & Easyjet, evolution of Kia/Huyndai from one to the other/ Dacia). 2) Differentiation/ Value perception: The business concentrates on achieving superior performance in an important customer benefit area valued by a large part of the market. The firm seeking quality leadership, service leadership, design leadership, innovation leadership. Example: IBM: The turnaround of IBM under Louis V. Gerstner's leadership is considered to be one of the most remarkable turnarounds in corporate history. Gerstner transformed IBM from a hardware vendor to a complete IT solutions provider. Why Most Company Strategic Plans Fail? There are many reasons most plans fail. Here are those top four, from least to most important: • 4. Belief that a budget is a plan. When planning is approached as a budgeting exercise, there can be a tendency to fill in the numbers on a spreadsheet based on a mindset that says, the people are in place, other costs are givens, the work is what it is, so here’s the number for next year. High-performing companies budget, too, of course, but they use the planning process to give them something more: a springboard for identifying and evaluating new opportunities, considering new strategies, and discussing objectives that may at first seem unattainable. The planning process also should be expected to identify people, processes, and programs that no longer serve the enterprise or are inefficient. It requires trust first, planning second, and budgeting third. • 3. Reluctance to address big issues. In the excitement of using the planning session to articulate a vision, agree on priorities, and develop a road map for success, leaders too often fail to spend time reaching agreement on the current situation. To achieve the objectives you and your team say you want, you must talk about all the obstacles to high performance. Alignment does not mean absence of conflict. Just the opposite. Authentic alignment is achieved only when conflict is encouraged, options for resolving that conflict are weighed, and a solution is reached that all leaders support. Debate is healthy, though argument is not. And for healthy conflict to occur, leaders must trust one another. When trust is present, you and your team can focus on fixing problems, replicating successes, and carving up sacred cows. • 2. Getting too complicated. The thicker the plan, the more likely your failure. Keep your plan simple and short. Don’t write a plan with dozens of pages. Rather, spend your time gaining commitment among your leadership team on what must be accomplished and how your 11 objectives will be met. Invest the time you save in planning on execution, because executing the plan will take everything you’ve got. Developed a one-page template to help leaders convert their ideas into the priorities they must address as their organizations migrate from Point A to Point B. What they put there is not the final plan, but it forces them to first agree on what matters most. • 1. Failing to hold one another accountable. Leaders should delay holding a planning session until they and their organizations are truly ready to embrace change. Planning equals change, and in the plan that’s developed, each leader must commit to changing by doing more of the things that result in success and fewer of the things that don’t. At the midpoint of a planning session, I ask the participants to break into small groups and return in 20 minutes with answers to this question: “What will be our response to underperformance?” In high-performing organizations, accountability is not just top-down, it’s bottom-up and side-to-side. 2.2. The Planning process: 4 step-process 2.2.1. Defining the corporate mission What are we in business for? What sort of business are we in (Aldi vs Colruyt vs Delhaize vs Rob) A mission should be (4 elements): Realistic (e.g. SAS should not want to be the W’s biggest airline Specific (not do everything for everybody) and not « stuck in the middle) Based on distinctive competencies Motivating (not make more profit. E.g. Greenpeace « to ensure the ability of the Earth to nurture life in all its diversity » In some companies it starts with a vision before mission. Vision Outlines what the organization wants to be How it wants the world in which it operates to be (an "idealized" view of the world) Long term view on the future Inspirational: to motivate both potential shareholders and employees Used to the external world to let them know what your company aspires Mission Defines the fundamental purpose of an organization Description of why it exists and what it does to achieve its vision 12 Used to the external world to let them know what you are aiming at Defining the Corporate Mission: An organization exists to accomplish something: to make cars, lend money, provide a night’s lodging. It is for the long term even if over time, the mission may change, to take advantage of new opportunities or respond to new market conditions. E.g. Amazon.com changed its mission from being the world’s largest online bookstore to aspiring to become the world’s largest online store To define its mission, a company should address Peter Drucker’s classic questions: What is our business? What should our business be? What is of value to our customers? These simple questions can be the most difficult a company has to answer. Successful companies continuously raise them and answer them. Organizations develop mission statements to share with managers, employees, and (in many cases) customers. A clear, thoughtful mission statement provides a shared sense of purpose, direction, and opportunity. Mission statements are at their best when they reflect an almost “impossible dream” that provides direction for the next 10 to 20 years. Fred Smith dreamed to deliver mail anywhere in the United States before 10:30 AM the next day, so he created FedEx. Good mission statements have five major characteristics 1. They focus on a limited number of goals. The statement “We want to produce the highest quality products, offer the best service, and achieve the widest distribution, at the lowest prices” claim is too much. 2. They are aligned with company’s values. They narrow the range of discretions so employees act consistently on important issues. 3. They define the major competitive spheres within which the company will operate. Some companies operate in only one industry; some only in a set of related industries; some only in industrial goods, consumer goods, or services; and some in any industry. Ex: Caterpillar focuses on the industrial market: Products and applications. Firms define the range of products they will supply. Competence. The firm identifies the range of core competencies it will master and leverage. Market segment. The type of market or customers a company will serve Aston Martin makes only high-performance sports cars. 4. They take a long-term view. Should change the mission only when it ceases to be relevant. 5. They are as short, memorable, and meaningful as possible. Marketing consultant Guy. Kawasaki advocates developing three- to four-word corporate mantras rather than mission statements, like “Enriching Women’s Lives”. Considering company culture Values are beliefs that are shared among the stakeholders of an organization Values are the guiding principles that dictate behaviour and action to support the company mission. Values can have an external and/or internal reach Strategic planning happens within the context of the organization. 13 A company’s organization consists of its structures, policies, and corporate culture, all of which can become dysfunctional in a rapidly changing business environment. Managers can change structures and policies. But, the company’s culture is very hard to change. What exactly is a corporate culture? Some define it as “the shared experiences, stories, beliefs, and norms that characterize an organization. “Walk into any company and the first thing that strikes you is the corporate culture—the way people dress, talk to one another, and greet customers.” Example: if Mercedes wanted to launch a low cost automotive brand, it could face cultural challenges Examples Mission P&G: To provide branded products and services of superior quality and value that improve the lives of the world’s consumers. Nike: We sell athletic shoes and apparel. Customer: We bring inspiration and innovation to every athlete* in the world. (*If you have a body, you are an athlete.) DHL: vision: Remain the Postal Service provider for Germany; Become the Logistics Company for the World. Mission: We want to make our customers, employees and investors more successful. We always demonstrate respect without compromising on results. We simplify our Customers’ lives. We want to make a positive contribution to our world. Pfizer: Vision: Pfizer will strive to achieve and sustain its leading place as the world's premier research-based pharmaceutical company. The company's continuing success benefits patients, customers, shareholders, business partners, families and the communities in which they operate all around the world. Mission: We will become the world's most valued company to patients, customers, colleagues, investors, business partners, and the communities where we work and live. BMW: Mission: To become most successful premium manufacturer in the car industry. Even the other brands of BMW group are aligned (MINI and RR). Google: Mission: “To organize the world’s information and make it universally accessible and useful.” Apple: Mission: Apple is committed to bringing the best personal computing experience to students, educators, creative professionals and consumers around the world through its innovative hardware, software and Internet offerings. 2.2.2. Market analysis: • Internal and external analysis • SWOT analysis & other tools • Assessing growth opportunities 2.2.3. Goal formulation 2.2.4. Assigning resources to each SBU 14 3. Market analysis Also called the strategic audit. You are future decision makers and your decisions will impact company’s performance (market share, revenue, profit, Customer satisfaction, employee satisfaction). Your goal is to make well educated decision to maximize chances of success. To do this, need to understand environment (continuous process), adapt, assess opportunities and minimize threats. Marketers have two advantages for the task: disciplined methods for collecting information, and time spent interacting with customers and observing competitors and other outside groups. Companies with superior information can choose their markets better, develop better offerings, and execute better marketing planning. Making marketing decisions in a fast-changing world is both an art and a science. To provide context, insight, and inspiration for marketing decision making, companies must possess comprehensive, upto-date information about macro trends, as well as about micro effects particular to their business. Holistic marketers recognize that the marketing environment is constantly presenting new opportunities and threats, and they understand the importance of continuously monitoring, forecasting, and adapting to that environment. Importance of market analysis Decision making based on robust and reliable data to avoid subjective interpretation, mistakes and failure Data collection, analysis and interpretation Look at current and future situation The major responsibility for identifying significant marketplace changes falls to the company’s marketers. Marketers have two advantages for the task: disciplined methods for collecting information, and time spent interacting with customers and observing competitors and other outside groups. Some firms have marketing information systems that provide rich detail about buyer wants, preferences, and behaviour. Companies with superior information can choose their markets better, develop better offerings, and execute better marketing planning. Every firm must organize and distribute a continuous flow of information to its managers. 3.1 External & Internal analysis Internal elements define the company’s current and future DNA (competences, resources, business strategy). External elements define the market’s reality and estimate its needs, potential and (future) tendencies. => There is reciprocal influence and creating perspective between internal and external elements. Marketing environment: The actors and forces outside marketing that affect marketing management’s ability to build and maintain successful relationships with target customers. The marketing environment consists of a microenvironment and a macro environment. Micro environment: The actors close to the company that affect its ability to serve its customers— the company, suppliers, marketing intermediaries, customer markets, competitors, and publics Macro environment: The larger societal forces that affect the microenvironment— demographic, economic, natural, technological, political, and cultural forces. 15 Companies constantly watch and adapt to the changing environment. More than any other group in the company, marketers must be environmental trend trackers and opportunity seekers. Although every manager in an organization should watch the outside environment, marketers have two special aptitudes. They have disciplined methods—marketing research and marketing intelligence—for collecting information about the marketing environment. They also spend more time in customer and competitor environments. By carefully studying the environment, marketers can adapt their strategies to meet new marketplace challenges and opportunities. 3.1.1 EXTERNAL ANALYSIS Marketing management’s job is to build relationships with customers by creating customer value and satisfaction. However, marketing managers cannot do this alone. Marketing success requires building relationships with other company departments, suppliers, marketing intermediaries, competitors, various publics, and customers, which combine to make up the company’s value delivery network. Micro environment Company In designing marketing plans, marketing management takes other company groups into account— groups such as top management, finance, research and development (R&D), purchasing, operations, and accounting. All of these interrelated groups form the internal environment. Top management sets the company’s mission, objectives, broad strategies, and policies. Marketing managers make decisions within the strategies and plans made by top management. As already said, marketing managers must work closely with other company departments. Other departments have an impact on the marketing department’s plans and actions. Marketers must work in harmony with other company departments to create customer value and relationships. E.g. Aldi’s marketers can’t promise low prices unless its operations / purchasing dept. delivers low costs. E.g. SN service with a smile if Cabin crew / operations is not trained/selected on empathy. Suppliers Suppliers form an important link in the company’s overall customer value delivery network. They provide the resources needed by the company to produce its goods and services. Supplier problems can seriously affect marketing. Marketing managers must watch supply availability and costs. Supply shortages or delays, labour strikes, and other events can cost sales in the short run and damage customer satisfaction in the long run. Rising supply costs may force price increases that can harm the company’s sales volume. (e.g. JIT auto industry). 16 Most marketers today treat their suppliers as partners in creating and delivering customer value. For example, Toyota knows the importance of building close relationships with its suppliers. In fact, it even includes the phrase achieve supplier satisfaction in its mission statement. E.g.: active suspension, seat comfort, improved fuel economy. Intermediaries Firms that help the company to promote, sell, and distribute its goods to final buyers. Like suppliers, marketing intermediaries form an important component of the company’s overall value delivery network. In its search to create satisfying customer relationships, the company must do more than just optimize its own performance. It must partner effectively with marketing intermediaries to optimize the performance of the entire system. They include resellers, physical distribution firms, marketing services agencies, and financial intermediaries. Resellers are distribution channel firms that help the company find customers or make sales to them. These include wholesalers and retailers who buy and resell merchandise. Selecting and partnering with resellers is not easy. No longer do manufacturers have many small, independent resellers from which to choose. They now face large and growing reseller organizations, such as Carrefour. These organizations frequently have enough power to dictate terms or even shut smaller manufacturers out of large markets. Physical distribution firms help the company stock and move goods to their destinations. Marketing services agencies are the marketing research firms, advertising agencies, media firms, and marketing-consulting firms that help the company target and promote its products to the right markets. Financial intermediaries include banks, credit companies, insurance companies, and other businesses that help finance transactions or insure against the risks associated with the buying and selling of goods. EXAMPLES: Lexus dealer network, Coca-cola hospitality retail network (Mc Donald’s, Subway or Carrefour). Examples: www.CokeSolutions.com, Unilever ice cream at Disney, Walibi, Credit cards distributed through banks, Web intermediaries (hotels/airlines and car rental brokers), amazon. Competitors To be successful, a company must provide greater customer value and satisfaction than its competitors do. Thus, marketers must do more than simply adapt to the needs of target consumers. They also must gain strategic advantage by positioning their offerings strongly against competitors’ offerings in the minds of consumers. No single competitive marketing strategy is best for all companies. Each firm should consider its own size and industry position compared to those of its competitors. Large firms with dominant positions in an industry can use certain strategies that smaller firms cannot afford. But being large is not enough. There are winning strategies for large firms, but there are also losing ones. And small firms can develop strategies that give them better rates of return than large firms enjoy. Publics Any group that has an actual or potential interest in or impact on an organization’s ability to achieve its objectives. The company’s marketing environment also includes various publics. 17 7 types of publics: • Financial publics. This group influences the company’s ability to obtain funds. Banks, investment analysts, and stockholders are the major financial publics. • Media publics. This group carries news, features, and editorial opinion. It includes newspapers, magazines, television stations, and blogs and other Internet media. • Government publics. Management must take government developments into account. • Citizen-action publics. A company’s marketing decisions may be questioned by consumer organizations, environmental groups, minority groups, and others. • Local publics. This group includes neighbourhood residents and community organizations. General public. A company needs to be concerned about the general public’s attitude toward its products and activities. The public’s image of the company affects its buying. • Internal publics. This group includes workers, managers, volunteers, and the board of directors. When employees feel good about the companies they work for, this positive attitude spills over to the external EXAMPLES: financial, media, government, consumer organizations, environmental groups, minority groups (religious, languages, GLBT). E.g. Abercrombie statement on XXL (banks, media, general public, citizen action). Customers The company might target any or all five types of customer markets: Consumer markets consist of individuals and households that buy goods and services for personal consumption. Business markets buy goods and services for further processing or use in their production processes. Reseller markets buy goods and services to resell at a profit. Government markets consist of government agencies that buy goods and services to produce public services or transfer the goods and services to others who need them. International markets consist of these buyers in other countries, including consumers, producers, resellers, and governments. Each market type has special characteristics that call for careful study by the seller. Macro environment The larger societal forces that affect the microenvironment—demographic, economic, natural, technological, political, and cultural forces. The company and all of the other actors operate in a larger macro environment of forces that shape opportunities and pose potential threats to the company. Figure shows the six major forces in the company’s macro environment. 18 Demographic environment The demographic environment is of major interest to marketers because it involves people, and people make up markets. Example: China’s youth born after 1980—called the “Me generation”. Starbucks – indulgence China’s one-child rule created a generation of people who have been pampered by parents and grandparents and have the means to make indulgent purchases. Instead of believing in traditional Chinese collective goals, these young people embrace individuality. “Their view of this world is very different,” says the president of Starbucks Greater China. “They have never gone through the hardships of our generation.” Starbucks is in sync with that, he says, given its customized drinks, personalized service, and original music compilations. “In the U.S., most of Starbucks’ business is takeaway,” says one analyst. “It is the opposite in China. Young people go to Starbucks as a destination and spend time there. They like to be seen as chic and cosmopolitan.” The Changing Age Structure of the Population The baby boomers: The post–World War II who were born between 1946 and 1964. The maturing boomers are rethinking the purpose and value of their work, responsibilities, and relationships. After years of prosperity, free spending, and saving little, the Great Recession hit many baby boomers hard, especially the preretirement boomers. A sharp decline in stock prices and home values (US) ate into their retirement prospects. Today’s baby boomers account for about 25 percent of the U.S. population but hold 75 percent of the nation’s financial assets and account for about 50 percent of total consumer spending. EX: financial services. As they reach their peak earning and spending years, the boomers will continue to constitute a lucrative market for financial services, new housing and home remodelling, travel and entertainment, eating out, health and fitness product. Generation X: born between 1965 and 1976. Although they seek success, they are less materialistic; they prize experience. For many of the Gen Xers who are parents, family comes first—both children and their aging parents—and career second. They tend to research products before they consider a purchase, prefer quality to quantity, and tend to be less receptive to overt marketing. Millennials: also called Generation Y, born between 1977 and 2000. One thing that all the Millennials have in common is their utter fluency and comfort with digital technology. They don’t just embrace technology; it’s a way of life. However, rather than having mass marketing messages pushed at them, they prefer to seek out information and engage in two-way brand 19 conversations. Thus, reaching these message-saturated consumers effectively requires creative marketing approaches. Product example: Cyber security insurance. Other consideration in structure of the Population The Changing Family structure A Better-Educated, More White-Collar Increasing Diversity : racial, non native speakers, religion, sexual preferences Economic environment Economic factors that affect consumer purchasing power and spending patterns Marketers must pay close attention to major trends and consumer spending patterns both across and within their world markets. E.g.: Changes in Consumer Spending Since 2008 crisis, buyers are looking for greater value in the things that they do buy. In turn, value marketing has become the watchword for many marketers. Marketers in all industries are looking for ways to offer today’s more financially cautious buyers greater value—just the right combination of product quality and good service at a fair price Income distribution Changes in major economic variables, such as income, cost of living, interest rates, and savings and borrowing patterns have a large impact on the marketplace. Companies watch these variables by using economic forecasting. Businesses do not have to be wiped out by an economic downturn or caught short in a boom. With adequate warning, they can take advantage of changes in the economic environment. E.g. interest rates: new car registration and home buying Marketers should pay attention to income distribution as well as income levels. Over the past several decades, the rich have grown richer, the middle class has shrunk, and the poor have remained poor. The top 5 percent of American earners get more than 21 percent of the country’s adjusted gross income, and the top 20 percent of earners capture 49 percent of all income. In contrast, the bottom 40 percent of American earners get just 13 percent of the total income. This distribution of income has created a tiered market. Many companies—such as LVMH—aggressively target the affluent. Others—such as Pound Land or Primark target those with more modest means. In fact, Pound land stores in the UK are now the fastest-growing retailers in the UK. Still other companies tailor their marketing offers across a range of markets, from the affluent to the less affluent. Natural environment The natural environment involves the natural resources that are needed as inputs by marketers. Marketers should be aware of several trends in the natural environment. The first involves growing shortages of raw materials. Air and water may seem to be infinite resources, but some groups see long-run dangers. Air pollution chokes many of the world’s large cities, and water shortages are already a big problem in some parts of the US and the world. By 2030, more than one in three of the world’s population will not have enough water to drink. Renewable resources, such as forests and food, also have to be used wisely. (e.g. Las Vegas is importing water from Northern States!). Firms making products that require these scarce resources face large cost increases, even if the materials remain available. E.g. Impact on marketeers and NPD: packaging, recycling, full production impact E.g. dishwasher reasons to buy: from the 80’ and today/tomorrow, tulips from Africa A second environmental trend is increased pollution. Industry will almost always damage the quality of the natural environment. Consider the disposal of chemical wastes; the dangerous mercury levels in the ocean; the quantity of chemical pollutants in the soil and food supply; 20 and the littering of the environment with non biodegradable bottles, plastics, and other packaging materials. Influence of environmental groups will grow. E.g. recent case of VW group for diesel engines. Concern for the natural environment has spawned the so-called green movement. Today, enlightened companies go beyond what government regulations dictate. They are developing strategies and practices that support environmental sustainability—an effort to create a world economy that the planet can support indefinitely. They are responding to consumer demands with more environmentally responsible products. e.g. Colruyt solar energy, first with no bags, frozen food in fully sealed fridges. Technological environment Technological environment: forces that create new technologies, creating new product and market opportunities. The technological environment is perhaps the most dramatic force now shaping our destiny. Technology has released such wonders as antibiotics, robotic surgery, miniaturized electronics, smartphones, and the Internet. New technologies can offer exciting opportunities for marketers: Example: from owning car to rent a car to car sharing… (blabla car) RFID technology – less need for brick & mortar /agencies (Autolib in Paris) Example: combination of on-line retailer (amazon) + overnight international delivery (UPS/Fedex) Political and social environment Increasing Legislation: Legislation affecting business around the world has increased steadily over the years. States has many laws covering issues such as competition, fair trade practices, environmental protection, product safety, truth in advertising, consumer privacy, packaging and labeling, pricing, and other important areas. The European Commission has been active in establishing a new framework of laws covering competitive behaviour, product standards, product liability, and commercial transactions for the nations of the European Union. Example: Child protection act: bans the sale of hazardous toys and articles; sets standards for child resistant packaging. 3 goals: to protect companies from each other from unfair competition protect consumers from unfair business practices protect the interests of society against bad business behaviour Marketing decisions are strongly affected by developments in the political environment. The political environment consists of laws, government agencies, and pressure groups that influence or limit various organizations and individuals in a given society. Legislation Regulating Business Even the most liberal advocates of free-market economies agree that the system works best with at least some regulation. Well-conceived regulation can encourage competition and ensure fair markets for goods and services. Thus, governments develop public policy to guide commerce—sets of laws and regulations that limit business for the good of society as a whole. Almost every marketing activity is subject to a wide range of laws and regulations. Opportunities for marketers: E.g. right2repair EU, company cars taxation UK, pricing transparency – EU. 21 New laws and their enforcement will continue to increase. Business executives must watch these developments when planning their products and marketing programs. Marketers need to know about the major laws protecting competition, consumers, and society. They need to understand these laws at the local, state, national, and international levels. Increased Emphasis on Ethics and Socially Responsible Actions Examples: Internet technology can be ahead of legislation, in particular in terms of privacy. The boom in Internet marketing has created a new set of social and ethical issues. Critics worry most about online privacy issues. There has been an explosion in the amount of personal digital data available. Users, themselves, supply some of it. They voluntarily place highly private information on social-networking sites, such as Facebook or LinkedIn, that are easily searched by anyone with a computer or a smartphone. Example: DATA PROVIDED WHEN RENTING A CAR or info available to credit card companies => The duty of a future executive: Uncompromised integrity. Cultural environment Cultural environment: forces that affect society’s basic values, perceptions, preferences, and behaviours. Cultural factors strongly affect how people think and how they consume. So marketers are keenly interested in the cultural environment. The major cultural values of a society are expressed in people’s views of themselves and others, as well as in their views of organizations, society, nature, and the universe. We need to identify shifts in Secondary Cultural Values. Although core values are fairly persistent, cultural swings do take place. Consider the impact of popular music groups, movie personalities, and other celebrities on young people’s hairstyling and clothing norms. Marketers want to predict cultural shifts to spot new opportunities or threats. The major cultural values of a society are expressed in people’s views of themselves and others, as well as in their views of organizations, society, nature, and the universe. Religion (e.g..Hallal business), Cocconing 2.0 (home made meals, big screen TV, simple pleasures of life/back to nature (e.g. electric bikes), health conscience, work life balance (e.g. sports clubs basic fit). Conclusion: Responding to the Marketing Environment “There are three kinds of companies: those who make things happen, those who watch things happen, and those who wonder what’s happened.” Many companies view the marketing environment as an uncontrollable element to which they must react and adapt. They passively accept the marketing environment and do not try to change it. Others analyze environmental forces and design strategies that will help the company avoid the threats and take advantage of the opportunities the environment provides Marketing management cannot always control environmental forces. In many cases, it must settle for simply watching and reacting to the environment. For example, a company would have little success trying to influence geographic population shifts, the economic environment, or major cultural values. But whenever possible, smart marketing managers will take a proactive rather than reactive approach to the environment. 3.1.2. INTERNAL ANALYSIS (MIS) A marketing information system (MIS) consists of people, equipment, and procedures to gather, sort, analyze, evaluate, and distribute needed, timely, and accurate information to marketing decision makers. 22 It relies on internal company records, marketing intelligence activities, and marketing research. MIS is a set of procedures and sources that managers use to obtain everyday information about developments in the marketing environment. The internal records system supplies results data, but the marketing intelligence system supplies happenings data. Marketing managers collect marketing intelligence in a variety of different ways, such as by reading trade publications, talking to customers, suppliers, and distributors, monitoring social media on the Internet; and meeting with other company managers. Examples on how to collect info for your intelligence system (See MP) Train and motivate the sales force to spot and report new developments Motivate distributors, retailers, and other intermediaries to pass along important intelligence Hire external experts to collect intelligence Network internally and externally Set up a customer advisory panel Take advantage of government-related data resources Purchase information from outside research firms Collecting Marketing Intelligence on the Internet, including forums, blogs, Customer reviews site, complaints sites Questions following the session of 13th October 1. List the 6 key elements of the micro environment 2. Explain importance of Intermediaries in the value delivery chain 3. List the 6 major forces of the macro environment 4. Can the political environment be an opportunity? 3.2 Interpretation of the results 3.2.1 SWOT SWOT analysis is a structured planning method used to evaluate and interpret all data gathered in the market analysis process. It’s a way of monitoring the external and internal marketing environment. SWOT analysis is a distillation of the findings of the internal and external audits, which draws attention to the critical organizational strengths and weaknesses and the opportunities and threats facing the company. It’s one thing to find attractive opportunities, and other to be able to take advantage of them. Each business needs to evaluate its internal strengths and weaknesses. Diagnosis of the current and the prospective: Internal elements = Strengths – Weaknesses External elements = Opportunities – Threats 23 Strengths include internal capabilities, resources, and positive situational factors that may help the company serve its customers and achieve its objectives. Weaknesses include internal limitations and negative situational factors that may interfere with the company’s performance. Opportunities are favorable factors or trends in the external environment that the company may be able to exploit to its advantage. Threats are unfavorable external factors or trends that may present challenges to performance. The goal is to match the company’s strengths to attractive opportunities in the environment, while eliminating or overcoming the weaknesses and minimizing the threats. Marketing analysis provides inputs to each of the other marketing management functions. Strenghts: characteristics of the company or product that give it an advantage over others Weaknesses: characteristics that place the company or product at a disadvantage relative to others Threats: Opportunities: elements that company or product could exploit to its advantage elements in the environment that could cause trouble for the company or the product Core Competencies Traditionally, companies owned and controlled most of the resources that entered their businesses— labor power, materials, machines, information, and energy—but many 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. Many textile, chemical, and computer/electronic product firms do not manufacture their own products because offshore manufacturers are more competent in this task. Instead, they focus on product design and development and marketing, their core competencies. A core competency has three characteristics: 24 (1) It is a source of competitive advantage and 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 Competitive advantage ultimately derives from how well the company has fitted its core competencies and distinctive capabilities into tightly interlocking “activity systems.” e.g. Competitors find it hard to imitate Southwest Airlines and IKEA because they are unable to copy their activity systems. Opportunities A business unit must monitor key microenvironment forces and significant microenvironment factors that affect its ability to earn profits. It should set up a marketing intelligence system to track trends and important developments and any related 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. There are three main sources of market opportunities. The first is to offer something that is in short supply. This requires little marketing talent, as the need is fairly obvious. The second is to supply an existing product or service in a new or superior way. How? The problem detection method asks consumers for their suggestions, the ideal method has them imagine an ideal version of the product or service, and the consumption chain method asks them to chart their steps in acquiring, using, and disposing of a product. This last method often leads to a totally new product or service. Marketers need to be good at spotting opportunities. A few examples: A company may benefit from introducing hybrid products or services: phones with Global Positioning Systems (GPS). A company may make a buying process more convenient or efficient: book search for the lowest price with a few clicks. A company can customize a product or service: Timberland allows customers to choose colors for different sections of their boots A company can introduce a new capability: Consumers can create and edit digital “iMovies” with the iMac and upload them on YouTube to share with friends around the world. A company may be able to deliver a product or service faster: FedEx discovered a way to deliver mail and packages quicker than the Post Office A company may be able to offer a product at a much lower price: Pharmaceutical firms have created generic versions of brand-name drugs Threats A threat is a challenge posed by an unfavourable trend or development that, in the absence of defensive marketing action, would lead to lower sales or profit. To deal with them, the company needs contingency plans. Strenghts/Weaknesses Business can evaluate their own strengths and weaknesses by using a form like the one shown in “Marketing meme: Checklist for Performing Strengths/ Weaknesses Analysis.” 25 Clearly, the business doesn’t have to correct all its weaknesses, nor should it exploit all its strengths. The big question is whether it should limit itself to those opportunities for which it possesses the required strengths, or consider those that might require it to find or develop new strengths. Opportunities and Threats – Matrix To evaluate opportunities, companies can use market opportunity analysis (MOA) to ask questions like: Can we articulate the benefits convincingly to a defined target market(s)? Can we locate the target market(s) and reach them cost-effectively? Does our company possess or have access to the critical capabilities and resources we need to deliver the customer benefits? Can we deliver the benefits better than any actual or potential competitors? Will the financial rate of return meet or exceed our required threshold for investment? In the opportunity matrix (a), the best marketing opportunities facing appear in the upper-left cell (#1). The opportunities in the lower-right cell (#4) are too minor to consider. The opportunities in the upper-right cell (#2) and the lower-left cell (#3) are worth monitoring in the event that any improve in attractiveness and potential. An environmental threat is a challenge posed by an unfavorable trend or development that, in the absence of defensive marketing action, would lead to lower sales or profit. Not all threats call for the same attention or concerns. The manager should assess the likelihood of each threat and the potential damage each could cause. Check the most probable and harmful threats and prepare plan in advance to meet them. Examples Air France 26 27 3.2.2 BCG matrix The BCG matrix, or Boston or growth-share matrix, analyzes product lines in search of growth opportunities. It is an essential part of portfolio analysis: Portfolio analysis: The process by which management evaluates the products and businesses that make up the company. A major activity in strategic planning is business portfolio analysis, whereby management evaluates the products and businesses that make up the company. The company will want to put strong resources into its more profitable businesses and phase down or drop its weaker ones. Management’s first step is to identify the key businesses that make up the company, called strategic business units (SBUs). An SBU can be a company division, a product line within a division, or sometimes a single product or brand. The company next assesses the attractiveness of its various SBUs and decides how much support each deserves. When designing a business portfolio, it’s a good idea to add and support products and businesses that fit closely with the firm’s core philosophy and competencies. The purpose of strategic planning is to find ways in which the company can best use its strengths to take advantage of attractive opportunities in the environment. So most standard portfolio analysis methods evaluate SBUs on two important dimensions: the attractiveness of the SBU’s market or industry and the strength of the SBU’s position in that market or industry. Growth-share matrix: A portfolio-planning method that evaluates a company’s SBUs in terms of its market growth rate and relative market share. The Consulting Approach. Boston Group A company classifies all its SBUs according to the growth-share matrix. On the vertical axis, market growth rate provides a measure of market attractiveness. On the horizontal axis, relative market share serves as a measure of company strength in the market. The growth-share matrix defines four types of SBUs: 28 1. Stars Stars are high-growth, high-share businesses or products. They often need heavy investments to finance their rapid growth. Eventually their growth will slow down, and they will turn into cash cows. Stock markets love stars. The business units or products that have the best market share and generate the most cash are considered stars. Monopolies and first-to-market products are frequently termed stars. However, because of their high growth rate, stars also consume large amounts of cash. This generally results in the same amount of money coming in that is going out. Stars can eventually become cash cows if they sustain their success until a time when the market growth rate declines. Companies are advised to invest in stars. 2. Cash Cows Cash cows are low-growth, high-share businesses or products. These established and successful SBUs need less investment to hold their market share. Thus, they produce a lot of the cash that the company uses to pay its bills and support other SBUs that need investment. Cash cows are the leaders in the marketplace and generate more cash than they consume. These are business units or products that have a high market share, but low growth prospects. Cash cows provide the cash required to turn question marks into market leaders, to cover the administrative costs of the company, to fund research and development, to service the corporate debt, and to pay dividends to shareholders. Companies are advised to invest in cash cows to maintain the current level of productivity, or to "milk" the gains passively. 3. Question Marks Question marks are low-share business units in high-growth markets. They require a lot of cash to hold their share, let alone increase it. Management has to think hard about which question marks it should try to build into stars and which should be phased out. These parts of a business have high growth prospects but a low market share. They are consuming a lot of cash but are bringing little in return. In the end, question marks, also known as problem children, lose money. However, since these business units are growing rapidly, they do have the potential to turn into stars. Companies are advised to invest in question marks if the product has potential for growth, or to sell if it does not. 4. Dogs Dogs are low-growth, low-share businesses and products. They may generate enough cash to maintain themselves but do not promise to be large sources of cash. Also known as pets, dogs are units or products that have both a low market share and a low growth rate. They frequently break even, neither earning nor consuming a great deal of cash. Dogs are generally considered cash traps because businesses have money tied up in them, even though they are bringing back basically nothing in return. These business units are prime candidates for divestiture. 29 The circles in the matrix (size in euros) The 10 circles in the growth-share matrix represent the company’s 10 current SBUs. The company has two stars, two cash cows, three question marks, and three dogs. The areas of the circles are proportional to the SBU’s dollar sales. This company is in fair shape, although not in good shape. It wants to invest in the more promising question marks to make them stars and maintain the stars so that they will become cash cows as their markets mature. Fortunately, it has two good-sized cash cows. Income from these cash cows will help finance the company’s question marks, stars, and dogs. The company should take some decisive action concerning its dogs and its question marks. Once it has classified its SBUs, the company must determine what role each will play in the future. It can pursue one of four strategies for each SBU. It can invest more in the business unit to build its share. Or it can invest just enough to hold the SBU’s share at the current level. It can harvest the SBU, milking its short-term cash flow regardless of the long-term effect. Finally, it can divest the SBU by selling it or phasing it out and using the resources elsewhere. As time passes, SBUs change their positions in the growth-share matrix. Many SBUs start out as question marks and move into the star category if they succeed. They later become cash cows as market growth falls and then finally die off or turn into dogs toward the end of their life cycle. The company needs to add new products and units continuously so that some of them will become stars and, eventually, cash cows that will help finance other SBUs. 3.2.3 The GE grid 30 Alternatives and next steps As BCG matrix has been criticized for implying that every company will identify products in each quadrant and that there is or should be steady movement of products among the quadrants as they progress in their life cycles, we can use the GE matrix instead. BCG is not predictive. The GE/McKinsey Matrix measures products according to business-unit strength and industry attractiveness rather than market share, the complexity of which may be outside the control of an individual company. Potential issues with Matrix approaches The BCG and other formal methods revolutionized strategic planning. However, such centralized approaches have limitations: They can be difficult, time-consuming, and costly to implement. Management may find it difficult to define SBUs and measure market share and growth. In addition, these approaches focus on classifying current businesses but provide little advice for future planning. Because of such problems, many companies have dropped formal matrix methods in favour of more customized approaches that better suit their specific situations. Moreover, unlike former strategic-planning efforts that rested mostly in the hands of senior managers at company headquarters, today’s strategic planning has been decentralized. Increasingly, companies are placing responsibility for strategic planning in the hands of cross-functional teams of divisional managers who are close to their markets. 3.2.4 Porter’s 5 forces model 5F model aims at: Mapping the crucial competitive forces Defining the global competition intensity => Model is used to identify whether new products, services or businesses can be profitable 31 1. Bargaining power of suppliers Here you assess how easy it is for suppliers to drive up prices. Number of suppliers Uniqueness of product/service Their strength/control Switching cost => The less suppliers, the fewer choice you have, the more powerful your suppliers are (dependence). 2. Rivalry among existing firms What is important here is the number and capability of your competitors. Number of competitors Capability of competitors Often equally attractive products => Try to do what no-one else can (Unique positioning) 3. Threat of potential entrants Power is also affected by the ability of people to enter your market. Required time/money to enter Economies of scale Key technologies Operating costs Barriers => A strong and durable position allows you to preserve a favourable position. 4. Threat of substitution This is affected by the ability of your customers to find a different way of doing what you do. 32 Copy of the process / product Can weaken your position 5. Bargaining power of buyers Ask yourself how easy it is for buyers to drive prices down. Number of buyers Importance Switching costs => The number of buyers defines the underlying buyer – seller relationship. Conclusion Take your time to analyze, but don’t get stuck in figures. Marketing is a constant changing environment. You’ll never be able to master everything. Listen to your clients, but also trust your intuition. Competition is important, but being yourself is even more. 33 4. The goal(s) formulation CREATING VALUE - The task of any business is to deliver customer value at a profit. In a hypercompetitive economy with increasingly informed buyers faced with abundant choices, a company can win only by fine tuning the value delivery process and choosing, providing, and communicating superior value. To gain competitive advantage, companies must use this understanding to design marketing offers that deliver more value than the offers of competitors seeking to win the same customers. 4.1 Developing competitive strategies • • • Beyond evaluating current businesses, designing the business portfolio involves finding businesses and products the company should consider in the future Companies need growth if they are to compete more effectively, satisfy their stakeholders, and attract top talent At the same time, a firm must be careful not to make growth itself an objective. The company’s objective must be to manage “profitable growth.” 4.1.1. Concept definitions Competitive advantage An advantage over competitors gained by offering consumers greater value than competitors do. Building profitable customer relationships and gaining competitive advantage requires delivering more value and satisfaction to target customers than competitors do. Customers will see competitive advantages as customer advantages, giving the company an edge over its competitors. Competitive marketing strategies—how companies analyse their competitors and develop successful, customer value-based strategies for building and maintaining profitable customer relationships. The first step is competitor analysis, the process of identifying, assessing, and selecting key competitors. The second step is developing competitive marketing strategies that strongly position the company against competitors and give it the greatest possible competitive advantage. Competitor analysis The process of identifying key competitors; assessing their objectives, strategies, strengths and weaknesses, and reaction patterns; and selecting which competitors to attack or avoid. Identify competitors • E.g. Eurostar? Ritz-Carlton? Coke? Avis? Assessing Competitors • • • • • Determining Competitors’ Objectives Assessing Competitors’ Strengths and Weaknesses Estimating Competitors’ Reactions Selecting Competitors to Attack and Avoid Finding Uncontested Market Spaces 34 Examples: Eurostar – plane, Eurotunnel, cars, boats, buses; Ritz-Carlton – luxury cruises; Coke – cold drinks, caffeinated drinks; Hertz - Uber, taxi, public transport, car sharing. Creating competitive advantage begins with a thorough understanding of competitors’ strategies. But before a company can analyze its competitors, it must first identify Determining Competitors’ Objectives Each competitor has a mix of objectives. The company wants to know the relative importance that a competitor places on current profitability, market share growth, cash flow, technological leadership, service leadership. Next, the company wants to know: What will our competitors do? A competitor’s objectives, strategies, and strengths and weaknesses go a long way toward explaining its likely actions. Competitive marketing strategies Strategies that strongly position the company against competitors and give the company the strongest possible strategic advantage. Market leader The firm in an industry with the largest market share. Market challenger A runner-up firm that is fighting hard to increase its market share in an industry. Market follower A runner-up firm that wants to hold its share in an industry without rocking the boat. Market nicher A firm that serves small segments that the other firms in an industry overlook or ignore. Firms competing in a given target market, at any point in time, differ in their objectives and resources. Some firms are large; others are small. Some have many resources; others are strapped for funds. Some are mature and established; others new and fresh. Some strive for rapid market share growth; others for long-term profits. And these firms occupy different competitive positions in the target market. Remember, however, that these classifications often do not apply to a whole company but only to its position in a specific industry. Large companies such as GE, Microsoft, P&G, or Disney might be leaders in some markets and nichers in others. For example, P&G leads in many segments, such as laundry detergents and shampoo. But it challenges Unilever in hand soaps and Kimberly-Clark in facial tissues. Such companies often use different strategies for different business units or products, depending on the competitive situations of each. 35 4.1.2. Competitive strategies Having identified and evaluated its major competitors, the company now must design broad competitive marketing strategies by which it can gain competitive advantage through superior customer value. But what broad marketing strategies might the company use? Which ones are best for a particular company or for the company’s different divisions and products? Approaches to Marketing Strategy No one strategy is best for all companies. Each company must determine what makes the most sense given its position in the industry and its objectives, opportunities, and resources. Even within a company, different strategies may be required for different businesses or products. The bottom line is that there are many approaches to developing effective competitive marketing strategy. There will be a constant tension between the formulated side of marketing and the creative side. It is easier to learn the formulated side of marketing, which has occupied most of our attention in this book. But we have also seen how marketing creativity and passion in the strategies of many of the companies studied—whether small or large, new or mature—have helped to build and maintain success in the marketplace. With this in mind, we now look at the broad competitive marketing strategies companies can use. 4.1.3. Market leader strategies Most industries contain an acknowledged market leader. The leader has the largest market share and usually leads the other firms in price changes, new-product introductions, distribution coverage, and promotion spending. Competitors focus on the leader as a company to challenge, imitate, or avoid. Some of the best-known market leaders are Carrefour, (retailing), McDonald’s (fast food), Coca-Cola 36 (beverages), Microsoft (software), Nike (athletic footwear and apparel), and Google (Internet search services). A leader’s life is not easy. It must maintain a constant watch. Other firms keep challenging its strengths or trying to take advantage of its weaknesses. To remain number one, leading firms can take any of three actions. First, they can try to expand total demand. Second, they can protect their current market share through defensive and offensive actions. Third, they can try to expand their market share further, even if market size remains constant. Expanding Total Demand The leading firm normally gains the most when the total market expands. Market leaders can expand the market by developing new users, new uses, and more usage of its products • They usually can find new users or untapped market segments (weight watchers for men) • Discovering and promoting new uses for the product (maredsous sauces) • Encourage more usage by convincing people to use the product more often or use more per occasion (Royco soup). Protecting Market Share What can the market leader do to protect its position? • Always fulfill its value promise • Keep strong relationships with valued customers • Prevent or fix weaknesses that provide opportunities for competitors • “plug holes” so that competitors do not jump in While trying to expand total market size, the leading firm also must protect its current business against competitors’ attacks. Walmart must constantly guard against Target; Caterpillar against Komatsu; and McDonald’s against Burger King. But the best defence is a good offense, and the best response is continuous innovation. The market leader refuses to be content with the way things are and leads the industry in new products, customer services, distribution effectiveness, promotion, and cost cutting. It keeps increasing its competitive effectiveness and value to customers. And when attacked by challengers, the market leader reacts decisively. E.g. Hertz, Starbucks, Accor Hotels, L’Oreal, Coke, Google, Nike. Expanding Market Share • In some markets, a small market share increase can mean significant revenue increase (e.g. in carbonated soft drinks, 1% increase in market share is worth $739 million) • Many companies pursue expanded market shares to improve profitability (economies of scale) • Increased market share will not automatically improve profitability Market leaders also can grow by increasing their market shares further. In many markets, small market share increases mean very large sales increases. For example, in the U.S. digital camera market, a 1 percent increase in market share is worth $66 million; in carbonated soft drinks, $739 million! 13 Studies have shown that, on average, profitability rises with increasing market share. 37 There are many high-share companies with low profitability and many low-share companies with high profitability. The cost of buying higher market share may far exceed the returns. (e.g. VW vs Porsche) Higher shares tend to produce higher profits only when unit costs fall with increased market share or when the company offers a superior-quality product and charges a premium price that more than covers the cost of offering higher quality. 4.1.4. Market challenger strategies Imitate and improve on the ideas pioneering leader (e.g. Minivans) Avoid the leader and target smaller players (e.g. beer market) Full frontal attack (e.g. Pepsi) Indirect attack (e.g. Red Bull) Firms that are second, third, or lower in an industry are sometimes quite large, such as PepsiCo. They can challenge the market leader and other competitors in an aggressive bid for more market share. A market challenger must first define which competitors to challenge and its strategic objective. The challenger can attack the market leader, a high-risk but potentially high-gain strategy. Its goal might be to take over market leadership. Or the challenger’s objective may simply be to wrest more market share. In fact, challengers often become market leaders by imitating and improving on the ideas of pioneering processors. For example, Chrysler invented the modern minivan and led in that market for more than a decade. However, then-followers Honda and Toyota improved on the concept and now dominate the minivan market. How can the market challenger best attack the chosen competitor and achieve its strategic objectives? It may launch a full frontal attack, matching the competitor’s product, advertising, price, and distribution efforts. It attacks the competitor’s strengths rather than its weaknesses. The outcome depends on who has the greater strength and endurance. PepsiCo challenges Coca-Cola in this way. Red Bull, by contrast, tackled the leaders indirectly. It entered the soft drink market with a niche product: a carbonate energy drink retailing at about twice what you would pay for a Coke. It started by selling Red Bull through unconventional outlets not dominated by the market leaders, such as bars and nightclubs, After gaining a loyal following, Red Bull used the pull of high margins to elbow its way into supermarkets. 4.1.5. Market follower strategies Not all runner-up companies want to challenge the market leader. The leader never takes challenges lightly. If the challenger’s lure is lower prices, improved service, or additional product features, the market leader can quickly match these to defuse the attack. The leader probably has more staying power in an all-out battle for customers. Many firms prefer to follow rather than challenge the market leader. A follower can gain many advantages. The market leader often bears the huge expenses of developing new products and markets, expanding distribution, and educating the market. By contrast, as with challengers, the market follower can learn from the market leader’s experience. It can copy or improve on the leader’s products and programs, usually with much less investment. Although the follower will probably not overtake the leader, it often can be as profitable. E.g. Fast food in France – Subway; Domino’s pizza The follower can: 1) Learn from leader’s success and failure 2) Copy or improve on the leader’s products 3) Compete with less risks and investments 38 4.1.6. Market nicher strategies The key idea in niching is specialization 1) Serve segments of market that are small but profitable 2) Serve specific Customer needs or specific end users better than anyone Instead of pursuing the whole market or even large segments, these firms target subsegments. Nichers are often smaller firms with limited resources. But smaller divisions of larger firms also may pursue niching strategies. Firms with low shares of the total market can be highly successful and profitable through smart niching. Why is niching profitable? The main reason is that the market nicher ends up knowing the target customer group so well that it meets their needs better than other firms that casually sell to that niche. As a result, the nicher can charge a substantial markup over costs because of the added value. Whereas the mass marketer achieves high volume, the nicher achieves high margins. Nichers try to find one or more market niches that are safe and profitable. An ideal market niche is big enough to be profitable and has growth potential. It is one that the firm can serve effectively. Most importantly, the niche is of little interest to major competitors. And the firm can build the skills and customer goodwill to defend itself against a major competitor as the niche grows and becomes more attractive Niching carries some major risks. For example, the market niche may dry up, or it might grow to the point that it attracts larger competitors. That is why many companies practice multiple niching. 4.1.7. Developing strategies for growth Marketing needs to identify, evaluate, and select market opportunities and establish strategies for capturing them. One useful device for identifying growth opportunities is the product/market expansion grid: A portfolio-planning tool for identifying company growth opportunities through market penetration, market development, product development, or diversification. 39 Product/Market growth matrix Market penetration Company growth by increasing sales of current products to current market segments without changing the product. Market development Company growth by identifying and developing new market segments for current company products. Product development Company growth by offering modified or new products to current market segments. Diversification Company growth through starting up or acquiring businesses outside the company’s current products and markets. Companies must not only develop strategies for growing their business portfolios but also strategies for downsizing them. There are many reasons that a firm might want to abandon products or markets. The firm may have grown too fast or entered areas where it lacks experience. This can occur when a company introduces new products that do not offer superior customer value. The market environment might change, making some products or markets less profitable. For example, in difficult economic times, many firms prune out weaker, less profitable products and markets to focus their more limited resources on the strongest ones. Finally, some products or business units simply age and die. When a firm finds brands or businesses that are unprofitable or that no longer fit its overall strategy, it must carefully prune, harvest, or divest them. Weak businesses usually require a disproportionate amount of management attention. Managers should focus on promising growth opportunities, not fritter away energy trying to salvage fading ones. 4.1.8. Blue ocean strategy (Chan Kim) Red Ocean is competing head-on results in overcrowded industries (the strategy isn’t likely to create profitable growth in the future). Red oceans applicable to all the existing industries today – the known market space. In the red oceans, industry boundaries are defined and accepted, and the competitive rules of the game are known. Here companies try to outperform their rivals to grab a greater share of product or service demand. As the market space gets crowded, prospects for profits and growth are reduced. Products become commodities or niche, and cutthroat competition turns the ocean bloody. Leading companies will succeed not by battling competitors but by creating “blue oceans” of uncontested market space. Also called value innovation, Blue Ocean Strategy suggests that an organization should create new demand in an uncontested market space, or a "Blue Ocean", rather than compete head-to-head with other suppliers in an existing industry. 40 Blue oceans, in contrast, denote all the industries not in existence today – the unknown market space, untainted by competition. In blue oceans, demand is created rather than fought over. There is ample opportunity for growth that is both profitable and rapid. Competition is irrelevant because the rules of the game are waiting to be set. Blue Ocean is an analogy to describe the wider, deeper potential of market space that is not yet explored. Ex: With the creation of Viagra, Pfizer created a blue ocean in lifestyle drugs by going beyond the boundaries of the pharmaceutical industry at the time. Viagra shifted the focus from the pharmaceutical industry’s largely functional orientation, medical treatment, to lifestyle enhancement, an emotional orientation. 4.2 The goal formulation Once the company has performed a SWOT analysis, it can proceed to goal formulation, developing specific goals for the planning period. Goals are objectives that are specific with respect to magnitude and time. Most business units pursue a mix of objectives, including profitability, sales growth, market share improvement, risk containment, innovation, and reputation. The business unit sets these objectives and then manages by objectives (MBO). For an MBO system to work, the unit’s objectives must meet four criteria: 1. They must be arranged hierarchically, from most to least important. The business unit’s key objective for the period may be to increase the rate of return on investment. Managers can increase profit by increasing revenue and reducing expenses. They can grow revenue, in turn, by increasing market share and prices. 2. Objectives should be quantitative whenever possible. The objective “to increase the return on investment (ROI)” is better stated as the goal “to increase ROI to 15 percent within two years.” 41 3. Goals should be realistic. They 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. Other important trade-offs include short-term profit versus long-term growth, deep penetration of existing markets versus development of new markets, profit goals versus nonprofit goals, and high growth versus low risk. Each choice calls for a different marketing strategy. Many believe adopting the goal of strong market share growth may mean foregoing strong short-term profits. Volkswagen has 15 times the annual revenue of Porsche—but Porsche’s profit margins are seven times bigger than Volkswagen’s. Questions: 1) 2) 3) 4) 5) 6) 7) 8) 9) 10) 11) What is the ultimate goal of the SWOT? Ideally, a strength should be “relative”. Explain In the BCG, CFO’s tend to love cash cows. Why? List 4 potential strategies derived from the BCG. Explain one of them. What is the main difference between the BCG and GE matrix? In porter’s 5 forces model, explain “threat of potential entrants”. What are 3 key market leader strategies? Explain one Can a market nicer be profitable? Explain Define the red ocean and blue ocean strategies Briefly describe the 5 key elements of goal setting What are the key mistakes in setting goals? Assigning Resources to each SBU: Will be covered in marketing plan chapter Even a great marketing strategy can be sabotaged by poor implementation. If the unit has decided to attain technological leadership, it must strengthen its R&D department, gather technological intelligence, develop leading-edge products, train its technical sales force, and communicate its technological leadership. Once they have formulated marketing programs, marketers must estimate their costs. 42 5. Segmentation Market segmentation addresses the first simple sounding marketing question: Which customers will we serve? Selecting Customers to Serve The company must first decide whom it will serve. It does this by dividing the market into segments of customers (market segmentation) and selecting which segments it will go after (target marketing). Some people think of marketing management as finding as many customers as possible and increasing demand. But marketing managers know that they cannot serve all customers in every way. By trying to serve all customers, they may not serve any customers well. Instead, the company wants to select only customers that it can serve well and profitably. Ultimately, marketing managers must decide which customers they want to target and on level, timing, and nature of their demand. 5.1 Introduction There’s no such thing as a bad customer. Right? And the more customers, the merrier. Makes sense, right? After all, more customers mean more money in the till. As it turns out, however, that’s often not so. These days, many marketers are discovering a new truth: Some customers can be way, way wrong for the company—as in unprofitable. And trying to serve any and all customers can mean serving none of them well. Instead, companies need to make certain that they are serving the right customers and serving them in the right way. They need to decide who their best potential customers are—and who they aren’t. Companies today recognize that they cannot appeal to all buyers in the marketplace—or at least not to all buyers in the same way. Buyers are too numerous, widely scattered, and varied in their needs and buying practices. Moreover, the companies themselves vary widely in their abilities to serve different segments of the market. Companies must identify the parts of the market that it can serve best and most profitably. It must design customer-driven marketing strategies that build the right relationships with the right customers. Thus, most companies have moved away from mass marketing and toward target marketing: identifying market segments, selecting one or more of them, and developing products and marketing programs tailored to each. Instead of scattering their marketing efforts (the “shotgun” approach), firms are focusing on the buyers who have greater interest in the values they create best (the “rifle” approach). 43 5.1.1 The STP trio To compete more effectively, many companies are now embracing target marketing. Instead of scattering their marketing efforts, they’re focusing on those consumers they have the greatest chance of satisfying. Effective target marketing requires that marketers: 1. Identify and profile distinct groups of buyers who differ in their needs and wants (market segmentation). 2. Select one or more market segments to enter (market targeting). 3. For each target segment, establish and communicate the distinctive benefit(s) of the company’s market offering (market positioning). Buyers in any market differ in their wants, resources, locations, buying attitudes, and buying practices. Through market segmentation, companies divide large, heterogeneous markets into smaller segments that can be reached more efficiently and effectively with products and services that match their unique needs. 5.1.2 Définitions Market segmentation : Dividing a market into smaller segments with distinct needs, characteristics, or behavior that might require separate marketing strategies or mixes. The company identifies different ways to segment the market and develops profiles of the resulting market segments. Market targeting (targeting) : The process of evaluating each market segment’s attractiveness and selectingone or more segments to enter. In the final two steps, the company decides on a value proposition—how it will create value for target customers. Differentiation : Differentiating the market offering to create superior customer value. Positioning : Arranging for a market offering to occupy a clear, distinctive, and desirable place relative to competing products in the minds of target consumers. We discuss each of these steps in turn. In concept, marketing boils down to two questions: (1) Which customers will we serve? And (2) How will we serve them? The difficult part is coming up with good answers to these simple-sounding yet difficult questions. The goal is to create more value for the customers we serve than competitors do. 44 5.1.3 Segmentation What are the different levels of market segmentation? 2. How can a company divide a market into segments? 3. What are the requirements for effective segmentation? 4. How should business markets be segmented? 5. How to choose the most attractive target markets? Bases for Segmenting Consumer Markets Market segmentation divides a market into well-defined slices. A market segment consists of a group of customers who share a similar set of needs and wants. The marketer’s task is to identify the appropriate number and nature of market segments and decide which one(s) to target. We use two broad groups of variables to segment consumer markets. Some researchers try to define segments by looking at descriptive characteristics: geographic, demographic, and psychographic. Other researchers try to define segments by looking at behavioral considerations, such as consumer responses to benefits, usage or brands. The researcher then sees whether different characteristics are associated with each consumerresponse segment. For example, do people who want “quality” rather than “low price” in an automobile differ in their geographic, demographic, and psychographic makeup? Regardless of which type of segmentation scheme we use, the key is adjusting the marketing program to recognize customer differences. The major segmentation variables—geographic, demographic, psychographic, and behavioral segmentation There is no single way to segment a market. A marketer has to try different segmentation variables, alone and in combination, to find the best way to view market structure. 5.2 Geographic segmentation Dividing a market into different geographical units, such as nations, states, regions, counties, cities, or even neighborhoods. A company may decide to operate in one or a few geographical areas or operate in all areas but pay attention to geographical differences in needs and wants. Many companies today are localizing their products, advertising, promotion, and sales efforts to fit the needs of individual regions, cities, and even neighborhoods. Some examples: 1. Climate: e.g; A company that sells both rain gear and summer wear 2. Population Density: e.g. High-density cities create a higher demand for products, like readyto-eat meals. 3. Cultural Preferences: The fast food giant McDonald's serves beer in their German outlets. 45 5.3 Demographic segmentation Dividing the market into segments based on variables such as age, gender, family size, family life cycle, income, occupation, education, religion, race, generation, and nationality. Demographic factors are the most popular bases for segmenting customer groups. One reason is that consumer needs, wants, and usage rates often vary closely with demographic variables. Another is that demographic variables are easier to measure than most other types of variables. Even when marketers first define segments using other bases, such as benefits sought or behavior, they must know a segment’s demographic characteristics to assess the size of the target market and reach it efficiently. Note: main base for media planning and media buying agencies 5.3.1 Age and Life-Cycle Stage Consumer needs and wants change with age. Some companies use age and life-cycle segmentation, offering different products or using different marketing approaches for different age and life-cycle groups. Other companies focus on the specific age of life-stage groups. For example, although consumers in all age segments love Disney cruises, Disney Cruise Lines focuses primarily on families with children. Most of its destinations and shipboard activities are designed with parents and their children in mind Marketers must be careful to guard against stereotypes when using age and life-cycle segmentation. Although some 80-year-olds fit the stereotypes, others play tennis. Similarly, whereas some 40-year-old couples are sending their children off to college, others are just beginning new families. Thus, age is often a poor predictor of a person’s life cycle, health, work or family status, needs, and buying power. Companies marketing to mature consumers usually employ positive images and appeals. For example, one Carnival Cruise Lines ad for its Fun Ships features an older boomer and child riding waterslides, stating “fun has no age limit.” Also grand parents can take their grand kids on a Disney cruise 5.3.2 Gender Gender segmentation has long been used in clothing, cosmetics, toiletries, and magazines. More recently, many mostly women’s cosmetics makers have begun marketing men’s lines. For example, Nivea markets Nivea for Men, a product line for men ranging from its 3-in-1 Active3 body wash, shampoo, and shaving cream combination to a revitalizing eye cream. According to a Nivea marketer, Active3 appeals to the male mind-set of, “I wanted to be fast, convenient, and economical. ” It’s “What Men Want.” Some traditionally more male-oriented markets, such as the automobile industry, are beginning to recognize gender segmentation and changing the way they design and sell cars. Women shop differently for cars than men; they are more interested in environmental impact, care more about interior than exterior styling, and view safety in terms of features that help drivers survive an accident rather than help avoid one. (active saftety vs. passive safety: brakes vs. airbags) 46 5.3.3 Income Income. The marketers of products and services such as automobiles, clothing, cosmetics, financial services, and travel have long used income segmentation. Many companies target affluent consumers with luxury goods and convenience services. For example, luxury hotels provide special packages to attract affluent travelers. The Four Seasons Miami recently offered a Five Diamond package that included a two-carat Graff diamond eternity band and a stay in the presidential suite with a bottle of 1990 Dom Pérignon champagne, caviar for two, and an 80-minute in-suite couples massage using a lotion infused with real ground diamonds. The price tag: “From $50,000…. The recent troubled economy has provided challenges for marketers targeting all income groups. Consumers at all income levels—including affluent consumers—are cutting back on their spending and seeking greater value from their purchases. In many cases, luxury marketers targeting high-income consumers have been hardest hit. Even consumers who can still afford to buy luxuries appear to be pushing the pause button. “The wealthy still have the wealth, [but] it’s the image you project in a bad economy of driving a nice car when your friends or colleagues may be losing their businesses.” Income segmentation is a long-standing practice in such categories as automobiles, clothing, cosmetics, financial services, and travel. However, income does not always predict the best customers for a given product. Blue-collar workers were among the first purchasers of flat screen television sets; it was cheaper for them to buy these sets than to go to movies and restaurants. Also, some lower income groups still buy premium or luxury products / accessories as status products (LVMH bags , Sunglasses, phones,…. And high income can shop at ALDI… 5.4 Psychographic segmentation Dividing a market into different segments based on social class, lifestyle, or personality characteristics. People in the same demographic group can have very different psychographic characteristics. The products people buy reflect their lifestyles. As a result, marketers often segment their markets by consumer lifestyles and base their marketing strategies on lifestyle appeals. Marketers also use personality variables to segment markets. For example, cruise lines target adventure seekers. Royal Caribbean appeals to high-energy couples and families by providing hundreds of activities. By contrast, the Regent Seven Seas Cruise Line targets more serene and cerebral adventurers, mature couples seeking a more elegant ambiance and exotic destinations, such as the Orient. 47 Psychographics is the science of using psychology and demographics to better understand consumers. In psychographic segmentation, buyers are divided into different groups on the basis of psychological/personality traits, lifestyle, or values. People within the same demographic group can exhibit very different psychographic profiles. One of the most popular commercially available classification systems based on psychographic measurements is Strategic Business Insight’s (SBI) VALS™ framework.VALS, signifying values and lifestyles, classifies U.S. adults into eight primary groups based on responses to a questionnaire featuring 4 demographic and 35 attitudinal questions 5.4.1 VALS The main dimensions of the VALS segmentation framework are consumer motivation (the horizontal dimension) and consumer resources (the vertical dimension). Consumers are inspired by one of three primary motivations: ideals, achievement, and self-expression. Those primarily motivated by ideals are guided by knowledge and principles. Those motivated by achievement look for products and services that demonstrate success to their peers. Consumers whose motivation is self-expression desire social or physical activity, variety, and risk. Personality traits such as energy, self-confidence, intellectualism, novelty seeking, innovativeness, impulsiveness, leadership, and vanity—in conjunction with key demographics—determine an individual’s resources. Different levels of resources enhance or constrain a person’s expression of his or her primary motivation. 5.5 Behavioral segmentation Dividing a market into segments based on consumer knowledge, attitudes, uses, or responses to a product. 5.6 Occasion segmentation Dividing the market into segments according to occasions when buyers get the idea to buy, actually make their purchase, or use the purchased item. Occasions mark a time of day, week, month, year, or other well-defined temporal aspects of a consumer’s life. We can distinguish buyers according to the occasions when they develop a need, purchase a product, or use a product. For example, air travel is triggered by occasions related to business, vacation, or family. Occasion segmentation can help expand product usage. Occasion segmentation can help firms build up product usage. Some holidays, such as Mother’s Day and Father’s Day, were originally promoted partly to increase the sale of candy, flowers, cards, and other gifts. And many marketers prepare special offers and ads for holiday occasions. For example, M&Ms runs ads throughout the year but prepares special ads and packaging for holidays and events such as Christmas, Easter, 5.7 Benefit segmentation Dividing the market into segments according to the different benefits that consumers seek from the product. Benefit segmentation requires finding the major benefits people look for in a product class, the kinds of people who look for each benefit, and the major brands that deliver each benefit. Champion athletic wear segments its markets according to benefits that different consumers seek from their activewear. For example, “Fit and Polish” consumers seek a balance between function and 48 style—they exercise for results but want to look good doing it. “Serious Sports Competitors” exercise heavily and live in and love their activewear—they seek performance and function. By contrast, “Value-Seeking Moms” have low sports interest and low activewear involvement—they buy for the family and seek durability and value. Thus, each segment seeks a different mix of benefits. Champion must target the benefit segment or segments that it can serve best and most profitably, using appeals that match each segment’s benefit preferences. 5.8 Using Multiple Segmentation Bases Marketers rarely limit their segmentation analysis to only one or a few variables only. Rather, they often use multiple segmentation bases in an effort to identify smaller, better-defined target groups. Thus, a bank may not only identify a group of wealthy, retired adults but also, within that group, distinguish several segments based on their current income, assets, savings and risk preferences, housing, and lifestyles. Several business information services provide multivariable segmentation systems that merge geographic, demographic, lifestyle, and behavioral data to help companies segment their markets 5.9 Requirements for Effective Segmentation Measurable: The size, purchasing power, and profiles of the segments can be measured. Certain segmentation variables are difficult to measure. For example, there are approximately 30.5 million left handed people in the United States. Yet few products are targeted toward this left-handed segment. The major problem may be that the segment is hard to identify and measure. Accessible: The market segments can be effectively reached and served. Unless a specific group lives or shops at certain places and is exposed to certain media, its members might be difficult to reach. Substantial: The market segments are large or profitable enough to serve. A segment should be the largest possible homogeneous group worth pursuing with a tailored marketing program. It would not pay, for example, for an automobile manufacturer to develop cars especially for people whose height is greater than seven feet. Differentiable: The segments are conceptually distinguishable and respond differently to different marketing mix elements and programs. If men and women respond similarly to marketing efforts for soft drinks, they do not constitute separate segments. Actionable: Effective programs can be designed for attracting and serving the segments. For example, although one small airline identified seven market segments, its staff was too small to develop separate marketing programs for each segment. 5.10 Segmenting Business Markets (bonus!) Consumer and business marketers use many of the same variables to segment their markets. Business buyers can be segmented geographically, demographically (industry, company size), or by benefits sought, user status, usage rate, and loyalty status. Yet, business marketers also use some additional variables, such as customer operating characteristics, purchasing approaches, situational factors, and personal characteristics. 49 5.11 Summary 1. Target marketing includes three activities: market segmentation, market targeting, and market positioning. Market segments are large, identifiable groups within a market. 2. Two bases for segmenting consumer markets are consumer characteristics and consumer responses. The major segmentation variables for consumer markets are geographic, demographic, psychographic, and behavioral. Marketers use them singly or in combination. 3. Business marketers use all these variables along with operating variables, purchasing approaches, and situational factors. 4. To be useful, market segments must be measurable, substantial, accessible, differentiable, and actionable. 5. We can target markets at four main levels: mass, multiple segments, single (or niche) segment, and individuals. 6. A mass market targeting approach is adopted only by the biggest companies. Many companies target multiple segments defined in various ways such as various demographic groups who seek the same product benefit. 7. A niche is a more narrowly defined group. Globalization and the Internet have made niche marketing more feasible to many. 8. More companies now practice individual and mass customization. The future is likely to see more individual consumers take the initiative in designing products an 50 6. Targeting TARGET MARKET – A set of buyers sharing common needs or characteristics that the company decides to serve. Definitions Market targeting (targeting) : The process of evaluating each market segment’s attractiveness and selecting one or more segments to enter. Undifferentiated (mass) marketing : A market-coverage strategy in which a firm decides to ignore market segment differences and go after the whole market with one offer. Differentiated (segmented) marketing : A market-coverage strategy in which a firm decides to target several market segments and designs separate offers for each. Concentrated (niche) marketing :A market-coverage strategy in which a firm goes after a large share of one or a few segments or niches Micromarketing : Tailoring products and marketing programs to the needs and wants of specific individuals and local customer segments; It includes local marketing and individual marketing Local marketing : Tailoring brands and promotions to the needs and wants of local customers segments—cities, neighbourhoods, and even specific stores. Individual marketing : Tailoring products and marketing programs to the needs and preferences ofindividual customers—also called one-to-one marketing, customized marketing, and markets-ofone marketing. 6.1 Targeting Market segmentation reveals the firm’s market segment opportunities. The firm now has to evaluate the various segments and decide how many and which segments it can serve best. 6.1.1 Evaluating Market Segments Market segmentation divides a market into well-defined slices. A market segment consists of a group of customers who share a similar set of needs and wants. The marketer’s task is to identify the appropriate number and nature of market segments and decide which one(s) to target In evaluating different market segments, a firm must look at three factors: segment size and growth, segment structural attractiveness, and company objectives and resources. The company must first collect and analyze data on current segment sales, growth rates, and the expected profitability for various segments. It will be interested in segments that have the right size and growth characteristics. But “right size and growth” is a relative matter. The largest, fastest-growing segments are not always the most attractive ones for every company. Smaller companies may lack the skills and resources needed to serve larger segments. Or they may find these segments too competitive. Such companies may target segments that are smaller and less attractive, in an absolute sense, but that are potentially more profitable for them. The company also needs to examine major structural factors that affect long-run segment attractiveness (see Porter’s five forces model). 51 Even if a segment has the right size and growth and is structurally attractive, the company must consider its own objectives and resources. Some attractive segments can be dismissed quickly because they do not mesh with the company’s long-run objectives. Or the company may lack the skills and resources needed to succeed in an attractive segment. 6.1.2 Selecting Market Segments After evaluating different segments, the company must decide which and how many segments it will target. A target market consists of a set of buyers who share common needs or characteristics that the company decides to serve. Market targeting can be carried out at several different levels. Figure 7.2 shows that companies can target very broadly (undifferentiated marketing), very narrowly (micromarketing), or somewhere in between (differentiated or concentrated marketing). Companies need to consider many factors when choosing a market-targeting strategy. Which strategy is best depends on the company’s resources. The best strategy also depends on the degree of product variability. Undifferentiated marketing is more suited for uniform products, such as grapefruit or steel. Products that can vary in design, such as cameras and cars, are more suited to differentiation or concentration. The product’s life-cycle stage also must be considered. When a firm introduces a new product, it may be practical to launch one version only, and undifferentiated marketing or concentrated marketing may make the most sense. In the mature stage of the product life cycle, however, differentiated marketing often makes more sense. Another factor is market variability. If most buyers have the same tastes, buy the same amounts, and react the same way to marketing efforts, undifferentiated marketing is appropriate. Finally, competitors’ marketing strategies are important. When competitors use differentiated or concentrated marketing, undifferentiated marketing can be suicidal. Conversely, when competitors use undifferentiated marketing, a firm can gain an advantage by using differentiated or concentrated marketing, focusing on the needs of buyers in specific segments. In evaluating different market segments, the firm must look at two factors: the segment’s overall attractiveness and the company’s objectives and resources. Does it have characteristics that make it generally attractive, such as size, growth, profitability, scale economies, and low risk? Does investing 52 in the segment make sense given the firm’s objectives, competencies, and resources? Some attractive segments may not fit with the company’s long-run objectives, or the company may lack one or more necessary competencies to offer superior value. Marketers have a range or continuum of possible levels of segmentation that can guide their target market decisions. As Figure above shows, at one end is a mass market of essentially one segment; at the other are individuals or segments of one person. Between lie multiple segments and single segments. We describe each of the four approaches next. Undifferentiated (mass) Marketing In undifferentiated or mass marketing, the firm ignores segment differences and goes after the whole market with one offer. It designs a marketing program for a product with a superior image that can be sold to the broadest number of buyers via mass distribution and mass communications. Undifferentiated marketing is appropriate when all consumers have roughly the same preferences and the market shows no natural segments. Henry Ford epitomized this strategy when he offered the Model-T Ford in one color, black. The argument for mass marketing is that it creates the largest potential market, which leads to the lowest costs, which in turn can lead to lower prices or higher margins. The narrow product line keeps down the costs of research and development, production, inventory, transportation, marketing research, advertising, and product management. The undifferentiated communication program also reduces costs. However, many critics point to the increasing splintering of the market, and the proliferation of marketing channels and communication, which make it difficult and increasingly expensive to reach a mass audience. Most modern marketers have strong doubts about this strategy. Difficulties arise in developing a product or brand that will satisfy all consumers. Moreover, mass marketers often have trouble competing with more-focused firms that do a better job of satisfying the needs of specific segments and niches. Benefit: huge economy of scales Go to market cost a lot because we use mass media which are really expensives Differentiated (segmented) Marketing Using a differentiated marketing (or segmented marketing) strategy, a firm decides to target several market segments and designs separate offers for each. When different groups of consumers have different needs and wants, marketers can define multiple segments. The company can often better design, price, disclose, and deliver the product or service and also fine-tune the marketing program and activities to better reflect competitors’ marketing. Indifferentiated marketing, the firm sells different products to all the different segments of the market e.g: VF Corporation offers a full set of more than thirty premium lifestyle brands, which “fit the lives of consumers the world over” in well-defined segments. VF is the nation’s number-one jeans maker, with brands such as Lee, Riders, Rustler, and Wrangler. But jeans are not the only focus for VF. The company’s brands are carefully separated into five major segments—Jeanswear, Imagewear (workwear), Outdoor, Sportswear, and Contemporary Brands. The North Face, part of the Outdoor unit, offers top-of-the-line gear and apparel for diehard outdoor enthusiasts, especially those who prefer cold weather activities. From the Sportswear unit, Nautica focuses on people who enjoy highend casual apparel inspired by sailing and the sea. … 53 But differentiated marketing also increases the costs of doing business. A firm usually finds it more expensive to develop and produce, say, 10 units of 10 different products than 100 units of a single product. Developing separate marketing plans for the separate segments requires extra marketing research, forecasting, sales analysis, promotion planning, and channel management. And trying to reach different market segments with different advertising campaigns increases promotion costs. Thus, the company must weigh increased sales against increased costs when deciding on a differentiated marketing strategy. Concentrated (niche) Marketing Concentrated (niche) marketing: A market-coverage strategy in which a firm goes after a large share of one or a few segments or niches. Instead of going after a small share of a large market, a firm goes after a large share of one or a few smaller segments. Through concentrated marketing, the firm achieves a strong market position because of its greater knowledge of consumer needs in the niches it serves and the special reputation it acquires. It can market more effectively by fine-tuning its products, prices, and programs to the needs of carefully defined segments. It can also market more efficiently, targeting its products or services, channels, and communications programs toward only consumers that it can serve best and most profitably. Whereas segments are fairly large and normally attract several competitors, niches are smaller and may attract only one or a few competitors. Niching lets smaller companies focus their limited resources on serving niches that may be unimportant to or overlooked by larger competitors What does an attractive niche look like? Customers have a distinct set of needs; they will pay a premium to the firm that best satisfies them; the niche is fairly small but has size, profit, and growth potential and is unlikely to attract many competitors; and the niche gains certain economies through specialization. Micro Marketing Micromarketing is the practice of tailoring products and marketing programs to suit the tastes of specific individuals and locations. Rather than seeing a customer in every individual, micro-marketers see the individual in every customer. Micromarketing includes local marketing and individual marketing INDIVIDUAL MARKETING: The ultimate level of segmentation leads to “segments of one,” “customized marketing,” or “one-to-one marketing.” Today, customers are taking more individual initiative in determining what and how to buy. They log onto the Internet; look up information and evaluations of product or service offerings; conduct dialogue with suppliers, users, and product critics; and in many cases design the product they want. Examples Local marketing involves tailoring brands and promotions to the needs and wants of local customer groups—cities, neighborhoods, and even specific stores Geo-fencing is a feature in a software program that uses the global positioning system (GPS) or radio frequency identification (RFID) to define geographical boundaries. A geofence is a virtual barrier Geofencing is the use of the Global Positioning System (GPS) satellite network and/or local radiofrequency identifiers (such as Wi-Fi nodes or Bluetooth beacons) to create virtual boundaries around a location. The geofence is then paired with a hardware/software application that responds to the boundary in some fashion as dictated by the parameters of the program. Example: HERTZ message in airport arrival halls for last minute rental at the counter 54 Local marketing has some drawbacks. It can drive up manufacturing and marketing costs by reducing the economies of scale. It can also create logistics problems as companies try to meet the varied requirements of different regional and local markets Mass Customization Individual Marketing. In the extreme, micromarketing becomes individual marketing— tailoring products and marketing programs to the needs and preferences of individual customers. Individual marketing has also been labeled one-to-one marketing, mass customization, and markets-of-one marketing. Mass customization is the process through which firms interact one-to-one with masses of customers to design products and services tailor-made to individual needs. Dell, HP, and Apple create custom-configured computers. Visitors to Nike’s Nike ID Web site can personalize their sneakers by choosing from hundreds of colors. Target Message If you watch an ad on a video screen in a mall, health club, or grocery store, there is a growing chance that the ad is also watching you. Small cameras can now be embedded in or around the screen, tracking who looks at the screen and for how long. With surprising accuracy, the system can determine the viewer’s gender, approximate age range, and, in some cases, ethnicity—and change the ads accordingly. That could mean razor ads for men, cosmetics ads for women, and videogame ads for teens. Or a video screen might show a motorcycle ad for a group of men but switch to a minivan ad when women and children join them. “This is proactive merchandising,” says a media executive. “You’re targeting people with smart ads.” Retargeting example Example: Sojern is a provider of a data-driven traveler marketing platform that utilizes programmatic buying and machine learning technology.[ Sojern partners with travel companies including airlines, On-line travel agencies, hotels, and rental car companies to collect (non-personally identifiable) traveler profiles. The company utilizes this data to target travelers and deliver marketing messages across media channels The Sojern Traveler Platform uses data collected by the platform to target audiences and provide access to Customer touch-points Specifically the company offers solutions in such areas as display advertising & mobile video, and re-targeting Sojern uses data on traveler behavior in addition to targeting algorithms and programmatic bidding to provide these solutions. 6.2 Summary 1. Target marketing includes three activities: market segmentation, market targeting, and positioning. Market segments are large, identifiable groups within a market. 2. Two bases for segmenting consumer markets are consumer characteristics and consumer responses. The major segmentation variables for consumer markets are geographic, demographic, psychographic, and behavioral. Marketers use them singly or in combination. 3. Business marketers use all these variables along with operating variables, purchasing approaches, and situational factors. 55 4. To be useful, market segments must be measurable, substantial, accessible, differentiable, and actionable. 5. We can target markets at four main levels: mass, multiple segments, single (or niche) segment, and individuals. 6. A mass market targeting approach is adopted only by the biggest companies. Many companies target multiple segments defined in various ways such as various demographic groups who seek the same product benefit. 7. A niche is a more narrowly defined group. Globalization and the Internet have made niche marketing more feasible to many. 8. More companies now practice individual and mass customization. The future is likely to see more individual consumers take the initiative in designing products and brands. 56 7. Positioning 7.1 Brand One of the most valuable intangible assets of a firm is its brands, and it is incumbent on marketing to properly manage their value. Building a strong brand is both an art and a science. It requires careful planning, a deep long-term commitment, and creatively designed and executed marketing. A strong brand commands intense consumer loyalty—at its heart is a great product or service. Perhaps the most distinctive skill of professional marketers is their ability to create, maintain, enhance, and protect brands. Established brands such as Mercedes, Sony, and Nike have commanded a price premium and created deep customer loyalty through the years. We can define a brand as “a name, term, sign, symbol, or design, or a combination of them, intended to identify the goods or services of one seller or group of sellers and to differentiate them from those of competitors.” A brand is thus a product or service whose dimensions differentiate it in some way from other products or services designed to satisfy the same need. These differences may be functional, rational, or tangible—related to product performance of the brand. They may also be more symbolic, emotional, or intangible—related to what the brand represents or means in a more abstract sense. 7.1.1 The role of brands Brands identify the source or maker of a product and allow consumers—either individuals or organizations—to assign responsibility for its performance to a particular manufacturer. Consumers may evaluate the identical product differently depending on how it is branded. They learn about brands through past experiences with the product and its marketing program, finding out which brands satisfy their needs and which do not. As consumers’ lives become more complicated, rushed, and time-starved, a brand’s ability to simplify decision making and reduce risk becomes invaluable. A credible brand signals a certain level of quality so that satisfied buyers can easily choose the product again. Brand loyalty provides predictability and security of demand for the firm, and it creates barriers to entry that make it difficult for other firms to enter the market. One research study that provoked much debate about the effects of marketing on children showed that kids felt identical McDonald’s food items— even carrots, milk, and apple juice—tasted better when wrapped in McDonald’s familiar packaging than in unmarked wrappers 7.1.2 Value of brands To firms, brands represent enormously valuable pieces of legal property that can influence consumer behavior, be bought and sold, and provide their owner the security of sustained future revenues. Companies have paid dearly for brands in mergers or acquisitions, often justifying the price premium on the basis of the extra profits expected and the difficulty and expense of creating similar brands from scratch. Wall Street believes strong brands result in better earnings and profit performance for firms, which, in turn, create greater value for shareholders. 57 7.1.3 Brand equity Is the added value on products and services. It may be reflected in the way consumers think, feel, and act with respect to the brand, as well as in the prices, market share, and profitability the brand commands 7.1.4 The scope of branding Marketers can apply branding virtually anywhere a consumer has a choice. It’s possible to brand a physical good, a medication (viagra), a service (British Airways), a hospital, an insurance, a retail store, a person, a place (country of Spain), an organization (U2), a school, or an idea (e.g. political party),…. Gaz: you don’t see the product, you can’t taste it but the brand has a value Potential benefits of strong brand equity : If you drink Spa, i twill be hard to Evian to have you in its consumers. 7.1.5 BrandZ Example BRANDZ Marketing research consultants Millward Brown and WPP have developed the BrandZ model of brand strength, at the heart of which is the BrandDynamics pyramid. According to this model, brand building follows a series of steps. For any one brand, each person interviewed is assigned to one level of the pyramid depending on their responses to a set of questions. The BrandDynamics Pyramid shows the number of consumers who have reached each level. • Presence. Active familiarity based on past trial or knowledge of brand • Relevance. Relevance to consumer’s needs, in the consideration set • Performance. Belief that it delivers right product performance and is on the consumer’s short-list • Advantage. Belief that the brand has an emotional or rational advantage over other brands in the category • Bonding. Rational and emotional attachment to the brand to the exclusion of most other brands “Bonded” consumers at the top of the pyramid build stronger relationships with and spend more on the brand than those at lower levels. 58 7.1.6 Creating a brand equity Customer-based brand equity is thus the differential effect brand knowledge has on consumer response to the marketing of that brand. A brand has positive customer-based brand equity when consumers react more favorably to a product and the way it is marketed when the brand is identified, than when it is not identified. A brand has negative customer-based brand equity if consumers react less favorably to marketing activity for the brand under the same circumstances. If no differences occur, the brand name product is essentially a commodity, and competition will probably be based on price. 7.2 Differentiation and positioning Beyond deciding which segments of the market it will target, the company must decide on a value proposition—how it will create differentiated value for targeted segments and what positions it wants to occupy in those segments. A product’s position is the way the product is defined by consumers on important attributes—the place the product occupies in consumers’ minds relative to competing products. Products are made in factories, but brands happen in the minds of consumers. Consumers are overloaded with information about products and services. They cannot reevaluate products every time they make a buying decision. To simplify the buying process, consumers organize products, services, and companies into categories and “position” them in their minds. A product’s position is the complex set of perceptions, impressions, and feelings that consumers have for the product compared with competing products. Consumers position products with or without the help of marketers. But marketers do not want to leave their products’ positions to chance. They must plan positions that will give their products the 59 greatest advantage in selected target markets, and they must design marketing mixes to create these planned positions. 7.2.1 Benefits of brand positioning and differentiation What the brand can do for you? Positioning is the act of designing a company’s offering and image to occupy a distinctive place in the minds of the target market. A company discovers different needs and groups in the marketplace, targets those it can satisfy in a superior way, and then positions its offerings so the target market recognizes the company’s distinctive benefits. The goal is to locate the brand in the minds of consumers to maximize the potential benefit to the firm. A good brand positioning helps guide marketing strategy by clarifying the brand’s essence, identifying the goals, and showing how it does so in a unique way. Everyone in the organization should understand the brand positioning and use it as context for making decisions. 7.2.2 Identifying optimal points-of-difference and points-of-parity a) Points of difference Points-of-difference (PODs) are attributes or benefits that consumers strongly associate with a brand, positively evaluate, and believe they could not find to the same extent with a competitive brand Three criteria determine whether a brand association can truly function as a point-of-difference: Desirable to consumer. Consumers must see the brand association as personally relevant to them. The Westin hotel Singapore advertised that it was the world’s tallest hotel, but a hotel’s height might not important to tourists. Consumers must be given a compelling reason to believe why the brand can deliver the desired benefit, such as NIVEA Wrinkle Control Crème with Q10 co-enzyme Deliverable by the company. The company must have the internal resources and commitment to feasibly and profitably create and maintain the brand association in the minds of consumers. The product design and marketing offering must support the desired association. The ideal brand association is preemptive, defensible, and difficult to attack. Differentiating from competitors. Consumers must see the brand association as distinctive and superior to relevant competitors. The brand must demonstrate clear superiority on an attribute or benefit for it to function as a true point-of-difference. b) Points of parity Point of parity are attribute or benefit associations that are not necessarily unique to the brand but may in fact be shared with other brands. Category points-of-parity are attributes or benefits that consumers view as essential to a legitimate and credible offering within a certain product or service category. In other words, they represent necessary—but not sufficient—conditions for brand choice. Consumers might not consider a travel agency truly a travel agency unless it is able to make air and hotel reservations, and offer various payment options. Category points-of parity may change over time due to technological advances, legal developments, or consumer trends, but to use a golfing analogy, they are the “greens fees” necessary to play the marketing game. Sometimes called “hygiene factors” 60 7.2.3 Choosing a differentiation and positioning Some firms find it easy to choose a differentiation and positioning strategy. For example, a firm well known for quality in certain segments will go for this position in a new segment if there are enough buyers seeking quality. But in many cases, two or more firms will go after the same position. Then each will have to find other ways to set itself apart. Each firm must differentiate its offer by building a unique bundle of benefits that appeals to a substantial group within the segment. Above all else, a brand’s positioning must serve the needs and preferences of well defined target markets. For example, although Boss and Burberry both offer high quality clothing, they offer very different product assortments and store atmospheres. Yet each succeeds because it creates just the right value proposition for its unique mix of customers. The differentiation and positioning task consists of three steps: 1. Identifying a set of differentiating competitive advantages on which to build a position To build profitable relationships with target customers, marketers must understand customer needs better than competitors do and deliver more customer value. To the extent that a company can differentiate and position itself as providing superior customer value, it gains competitive advantage. But solid positions cannot be built on empty promises. If a company positions its product as offering the best quality and service, it must actually differentiate the product so that it delivers the promised quality and service. Companies must do much more than simply shout out their positions with slogans and taglines To find points of differentiation, marketers must think through the customer’s entire experience with the company’s product or service. It can differentiate along the lines of product, services, channels, people, or image. 1. Product differentiation (e.g. Bose) 2. Service differentiation (e.g. British Airways) 3. Channel differentiation (e.g. Amazon) 4. People differentiation (e.g. Disney) Through product differentiation, brands can be differentiated on features, performance, or style and design. 2. Choosing the right competitive advantages Suppose a company is fortunate enough to discover several potential differentiations that provide competitive advantages. It now must choose the ones on which it will build its positioning strategy. It must decide which differences to promote. Many marketers think that companies should aggressively promote only one benefit to the target market. Advertising executives usually say a company should develop a unique selling proposition (USP) for each brand and stick to it. Each brand should pick an attribute and tout itself as “number one” on that attribute. Other marketers think that companies should position themselves on more than one differentiator. This may be necessary if two or more firms are claiming to be best on the same attribute. Today, in a time when the mass market is fragmenting into many small segments, companies and brands are trying to broaden their positioning strategies to appeal to more segments. • Important: The difference delivers a highly valued benefit to target buyers. 61 • Distinctive: Competitors do not offer the difference, or the company can offer it in a more distinctive way. • Superior: The difference is superior to other ways that customers might obtain the same benefit. • Communicable: The difference is communicable and visible to buyers. • Preemptive: Competitors cannot easily copy the difference. • Affordable: Buyers can afford to pay for the difference. • Profitable: The company can introduce the difference profitably. 3. Selecting an overall positioning strategy The full positioning of a brand is called the brand’s value proposition—the full mix of benefits on which a brand is differentiated and positioned. It is the answer to the Customer’s question “Why should I buy your brand?” Volvo’s value proposition hinges on safety but also includes reliability and roominess, all for a price that is higher than average but seems fair for this mix of benefits. Figure shows examples of possible value propositions on which a company might position its products. In the figure, the five green cells represent winning value propositions— differentiation and positioning that gives the company competitive advantage. The red cells, however, represent losing value propositions. The center yellow cell represents at best a marginal proposition. Examples • More for more E.g. Miele, Audi, Bose, Omega, Starbucks, Apple,… • More for the same E.g. Kia, Lexus • Same for less E.g. Colruyt, Ikea • Less for much less E.g. Hotel F1, Dacia 62 7.3 Edeka on Xmas A Christmas television advert by a German supermarket chain has been described as "more heartbreaking" than the one put out by John Lewis after being subtitled for English-speaking audiences. Its powerful theme of elderly loneliness strikes a similar chord to John Lewis' acclaimed 'Man On The Moon' advert released earlier this month. But the Edeka advert goes one step further, and some users are claiming it has overtaken the British store's crown in the stakes for the most powerful ad yet. An old man features as the centrepiece of the unfolding drama during the two-minute-clip, and as years go by the Granddad graces the table on his own, dressed up and eating all alone. "I just wanted to call and let you know that we can’t make it for Christmas this year," the daughter’s message plays on his answerphone as the granddad is seen proudly putting up his daughter’s family Christmas card on the mantlepiece. "We’ll try again next year. It’ll work out, I promise. Merry Christmas Daddy," the message concludes. The same small voice is heard crying "See you soon. Merry Christmas Grandpa!" before the phone cuts out. He then can be seen sat at his Christmas table alone as the years pass by, his family having not visited his house. Fast forward several months and his daughter, plus her various brothers, all receive news of their father's death. The offspring, visibly full of regret, return to their family home to pay their respects, and tearfully embrace each other outside. But when they enter the property, the old man, who is still alive, walks into the dining room and says, "How else could I have brought you all together?" His relatives are stunned, but fight off the tears to break out into wide smiles and they all end up eating together. The whole ordeal was just too much for some social media users who flocked to Twitter to react to the sad advert: 7.4 Sample questions class of Dec 14th on positioning: 1.What are the initial three steps to define a positioning? 2. What are key criteria to select the right competitive advantages? 7.5 Summary 63 8. Marketing plan 8.1 Marketing Plan A marketing plan is a written document that summarizes what the marketer has learned about the marketplace and indicates how the firm plans to reach its marketing objectives. It contains tactical guidelines for the marketing programs and financial allocations over the planning period. A marketing plan is one of the most important outputs of the marketing process. It provides direction and focus for a brand, product, or company. Working within the plans set by the levels above them, Product / Brand managers come up with a marketing plan for individual products, lines, brands, channels, or customer groups. Each product level, whether product line or brand must develop a marketing plan for achieving its goals E.g. Unilever global,to Dove Belgium More limited in scope than a business plan, the marketing plan documents how the organization will achieve its strategic objectives through specific marketing strategies and tactics, with the customer as the starting point. It is also linked to the plans of other departments. Marketing plans are becoming more customer- and competitor-oriented, better reasoned, and more realistic. They draw more inputs from all the functional areas and are team-developed. Planning is becoming a continuous process to respond to rapidly changing market conditions Although the exact length and layout varies from company to company, most marketing plans cover one year in anywhere from 5 to 50 pages. Smaller businesses may create shorter or less formal marketing plans, whereas corporations generally require highly structured documents. To guide implementation effectively, every part of the plan must be described in considerable detail. Sometimes a company will post its marketing plan on an internal Web site so everyone can consult specific sections and collaborate on changes. 64 8.2 Sections of a marketing plan Executive summary Presents a brief summary of the main goals and recommendations of the plan for management review, helping top management find the plan’s major points quickly. A table of contents should follow the executive summary. Situation analysis CURRENT MARKET SITUATION Describes the target market and a company’s position, including information about the market, product performance, competition, & distribution: • A market description that defines the market and major segments and then reviews customer needs and factors in the marketing environment that may affect customer purchasing. • A product review that shows sales, prices, and gross margins of the major products in the product line. • A review of competition that identifies major competitors and assesses their market positions and strategies • A review of distribution sales trends and other developments in major distribution channels. THREATS AND OPPORTUNITIES ANALYSIS Assesses major threats and opportunities that the product might face, helping management to anticipate important positive or negative developments that might have an impact on the firm and its strategies. OBJECTIVES AND ISSUES States the marketing objectives that the company would like to attain during the plan’s term and discusses key issues that will affect their attainment. For example, if the goal is to achieve a 15 percent market share, this section looks at how this goal might be achieved. Marketing strategy Outlines the broad marketing logic by which the business unit hopes to create customer value and relationships and the specifics of target markets, positioning, and marketing expenditure levels. How 65 will the company create value for customers in order to capture value from customers in return? This section also outlines specific strategies for each marketing mix element and explains how each responds to the threats, opportunities, and critical issues spelled out earlier in the plan. ACTION PLAN AND KEY INITIATIVES Spells out how marketing strategies will be turned into specific action programs that answer the following Questions: - What will be done? - When will it be done? - Who will do it? - How much will it cost? Financial projections BUDGET AND SUPPORT/ ENABLERS Details a supporting marketing budget that is essentially a projected profit-and-loss statement. It shows expected revenues and expected costs of production, distribution, and marketing. The difference is the projected profit. Once approved by higher management, the budget becomes the basis for materials buying, production scheduling, personnel planning, and marketing operations. Implementation controls KPI’s, CONTROL AND EXPECTED ROI Outlines the control that will be used to monitor progress and allow higher management to review implementation results and spot products that are not meeting their goals. It includes measures of return on marketing investment. Marketing Control Because many surprises occur during the implementation of marketing plans, marketers must practice constant marketing control—evaluating the results of marketing strategies and plans and taking corrective action to ensure that the objectives are attained. Marketing control involves four steps. Management first sets specific marketing goals. It then measures its performance in the marketplace and evaluates the causes of any differences between expected and actual performance. Finally, management takes corrective action to close the gaps between goals and performance. This may require changing the action programs or even changing the goals. Its purpose is to ensure that the company achieves the sales, profits, and other goals set out in its annual plan. 66 9. KPI’s & measurement 9.1 Measuring marketing productivity Marketers are facing increased pressure to provide clear, quantifiable evidence to senior management as to how their marketing expenditures help the firm to achieve its goals and financial objectives. Although we can easily quantify marketing expenses and investments as inputs in the short run, the resulting outputs such as broader brand awareness, enhanced brand image, greater customer loyalty, and improved new product prospects may take months or sometimes years to manifest themselves. Moreover, a whole host of internal changes within the organization and external changes in the marketing environment may coincide with the marketing expenditures, making it hard to isolate the effects of any particular marketing activity. 9.2 KPI’s & measurement Still, measuring and managing return on marketing is a key necessity for Marketing managers. They must ensure that their marketing funds are being well spent. In the past, many marketers spent freely on big, expensive marketing programs, often without thinking carefully about the financial returns on their spending. But all that has changed rapidly. “Marketing accountability”—measuring and managing return on marketing investments—has now become an important part of strategic marketing decision making. 9.2.1 Marketing metrics • Marketing metrics is a set of measures that helps quantify, compare, and interpret the marketing performance • Marketing control is measuring and evaluating the results of marketing strategies & plans and taking corrective actions to ensure that the objectives are achieved. Marketing control involves four steps. Management first sets specific marketing goals. It then measures its performance in the marketplace and evaluates the causes of any differences between expected and actual performance. Finally, management takes corrective action to close the gaps between goals and performance. This may require changing the action programs or even changing the goals. • Marketing ROI is the net return from a marketing investment divided by the costs of the marketing investment. 9.2.2 Key performance indicators A key performance indicator or KPI is a type of performance measurement. It is used to evaluate its success, or to evaluate the success of a particular activity in which it is engaged, and this periodically to follow up the evolution. 67 Not great in number is the most important one. Small number of KPI is a key. 9.2.3 Marketing dashboards Marketing dashboards are like the instrument panel in a car or plane, visually displaying real time indicators to ensure proper functioning. Management can assemble a summary set of relevant internal and external measures in a marketing dashboard for synthesis and interpretation. They are only as good as the information on which they’re based, but sophisticated visualization tools are helping bring data alive to improve understanding and analysis. 68 9.2.4 Marketing scorecards A customer-performance scorecard records how well the company is doing year after year on customer-based measures. A stakeholder-performance scorecard tracks the satisfaction of various constituencies who have a critical interest in and impact on the company’s performance: employees, suppliers, banks, distributors, retailers, and stockholders. 9.2.5 Marketing metrics Ambler says firms must give priority to measuring and reporting marketing performance through marketing metrics. He believes they can split evaluation into two parts: (1) short-term results and (2) changes in brand equity. Short-term results often reflect profit-and-loss concerns as shown by sales turnover, shareholder value, or some combination of the two. Brand-equity measures could include customer awareness, attitudes, and behaviors; market share; relative price premium; number of complaints; distribution and availability; total number of customers; perceived quality, and loyalty and retention. 69 9.2.6 Key performance indicators & measures Every campaign you run, should have a ‘ROI’ or Return on investment. It is a quantified way to analyze, improve and predict the return on marketing spending on the basis of objective measurements or metrics. Based on this, decisions are made for future marketing activities, conclusions are drawn about past activities and corrections are made to ongoing actions or campaigns 9.2.7 Marketing ROI Beyond measuring return on marketing investment in terms of standard performance measures such as sales or market share, many companies are using customer relationship measures, such as customer satisfaction, retention, and equity. 70 MARKETING METRICS – Reporting process London Business School’s Tim Ambler suggests that if firms think they are already measuring marketing performance adequately, they should ask themselves five questions: 1. Do you routinely research consumer behavior (retention, acquisition, usage) and why consumers behave that way (awareness, satisfaction, perceived quality)? 2. Do you routinely report the results of this research to the board in a format integrated with financial marketing metrics? 3. In those reports, do you compare the results with the levels previously forecasted in the business plans? 4. Do you also compare them with the levels achieved by your key competitor using the same indicators? 5. Do you adjust short-term performance according to the change in your marketing-based asset(s)? 9.3 Sample questions class of Dec 14th on KPI’s and measurement: 1. When choosing your set of KPI’s, what are the characteristics of winning KPI’s? 2. What is a marketing dashboard? 3. Exercise: Which company is doing better overall and with respect to marketing? Explain 71