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Marketing
Structure of Lecture
1. Importance of marketing to NPD
2. Strategic marketing frameworks
3. Marketing launch tools: 4Ps
R&D Based Versus Marketing Based Ideas
100% 100% 100% 100% 100% 100%
90%
10% 22%
78%
25%
75%
31%
69%
34%
66%
34%
61%
5%
Materials Computers, railway, housing
Instruments Winners of the Industrial Research Award
British innovators
Weapons systems
R&D Based
Marketing Based
Source: Utterbach
NPD Process: Marketing Input
Idea
Conception
Business
PlanDesign Manufacture Launch
Fit with marketing/ corporate strategy
Market research
Market testing
Implement marketing mix
Establish marketing mix
Approximate Costs of NPD: %
Industrial ChemicalsConsumer Goods
100100
5779
13
28
2
16
3
2
Stage
Opportunity Identification
Design
Testing
Launch
Total
100% = $12.6m $4.7m
Marketing Mix: The 4 Ps
Place
Promotion Product
Price
The Marketing Mix
Product
• Definition
• PLC
• Physical products versus services
Place
Promotion
Price
The Marketing
Mix
Product
Consistency in Marketing Mix
Premium Product (e.g. Jermyn St shirt)
Premium Price (+30% over average)
Premium Place (narrow distribution)
Premium Promotion (selective advertising)
Importance of 4Ps by Industry – examples of promotions
Advertising
Sales Promotion
Personal Selling
PR
Advertising
Sales Promotion
Personal Selling
PR
Consumer Goods Industrial Goods
Importance
High
Low
Push versus Pull
Push Strategy Manufacturer Intermediary End User
e.g Lever Brothers
Pull Strategy Manufacturer Intermediary End User
e.g. P & G
Demand Demand
Demand Demand
Marketing’s Definition of the Product
Any want - satisfying good or service that is considered
together with its perceived tangible and intangible
benefits
Product from Customer’s Viewpoint
A product is a “bundle of satisfactions or benefits”
i.e. The nature of the product lies in the consumer’s perception of it
This explains marketing’s obsession with the consumer
Product versus Benefit Definitions: Examples
Company Product-orientated Benefit-oriented definition definition
Lancome We sell cosmetics We sell beauty
Xerox We make photocopiers We improve office productivity
Disney We make films and We entertainassociated products you and provide
escapism
UCL-NPD We teach you a wide We prepare you forrange of skills/frameworks the outside world
SWOT Analysis
SWOT
Strengths Weaknesses Opportunities Threats
Internal External
BCG Growth Share Matrix
?High
Dog Cash CowLow
MarketGrowthRate
Low High
Relative Market Share
Star
1x10x0.1x
10%
0%
Product Life Cycle
IntroductoryStage
GrowthStage
MaturityStage
Decline Stage
TotalMarketSales
Time
Characteristics of “Introduction” Phase of PLC
1. High product failure rate
2. Relatively little competition
3. Limited distribution
4. Frequent product modification
5. Losses associated with the product
Characteristics of “Growth” Phase of PLC
1. More competitors
2. Less product distinctiveness
3. Profitable returns
4. Company or product acquisition by larger companies
Characteristics of ‘Maturity’ Phase of NPD
1. Sales continue to increase but at reduced rate
2. Attempts are made to differentiate or re-differentiate the product
3. Product line may be widened
4. Prices fall as competitiveness increases
5. Profits fall due to “double whammy” of falling price and need to promote the product
6. Brand rationalisation becomes common among retailers/dealers
7. Marginal producers drop out of the industry
Characteristics of “Decline” Phase of NPD
1. Falling sales for total industry
2. Price cutting may intensify
3. Many producers decide to abandon the market
PLC example: audio cassette tapes
Cassettes Sold 1974 to 2004
050
100150200250300350400450500
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
Years
Un
its
So
ld(i
n m
illio
ns)
units sold
Product Life Cycle Traditional With Variations
Introduction Growth Maturity Decline
Time
Sales
Growth, Slump, Maturity
Cycle recycle
Scalloped
Fashion
Fad
Cycle I Cycle II
Using the PLC Framework
Pros
- Different stages of a product’s life call for explicitly different strategies
- The framework prepares management for changes of strategy. (A useful spur given much management inertia)
Cons
- Time span of the curve varies enormously
- Rigid adherence to PLC means management can prematurely end the life of a product
- The curve is not always a curve - variations exist
Handle with Care!
As with all frameworks , use as a guide, not a bible
Strategic marketing -summary
Strategic marketing is critical to NPD both prior to embarking on a new project and as an ongoing process, eg
• SWOT analysis• BCG growth share matrix• Product life cycle
(PS Some of these can be quite useful outside the NPD process too!)
Service Products
Definition “A service is an intangible product involving a deed, a performance, or an effort that cannot be physically possessed”
Examples Education
Health care
R&D projects
Insurance
Transport
Hairdressing
Hotels
Differences Between Physical Products and Services
Difference Comment
Intangibility Services generally have no “physical” element
Inseparability Production and consumption occur simultaneously
Variability High ‘human’ contact leads to different service levels
Perishability Service products cannot be stored and ‘perish’ instantly
No ownership Service is experienced –it can’t be sold on
Implications for Marketing Service Products
Characteristic Issue Marketing Implication
Difficult for customers to compare services
Both provider and client affect quality of relationship
‘Tangibalise’ the product e.g. appearance of staff, promotional literature, etc
Periods of excess supply and demand
Difficult to ensure consistent quality
Intangibility
Perishability
Variability
Inseparability
Manage supply and demand explicitly (e.g. differential pricing, part time personnel)
Implement strict quality control. Develop customer care programmes
Selection and training of service provider’s personnel
Price
• Importance of Price
• Influences on Price
• Pricing Strategy
Place
Promotion Product
Price
The Marketing
Mix
Importance of price-theory
S
D
p
q
Price
Quantity
Importance of Price-Practice
“Which of the following would make you switch supermarket”
(% of respondents)
Lower price
Wider range
Closer to home
Convenient hours
Car parking
75%
66%
60%
45%
44%
Source: Questions asked of AGB Superpanel
Effect of 1% Rise on Price on Profits - e.g. Consumer Goods Manufacturing
Price rise of 1%
Rise in operating profit
10%
Phenomenon known as operating leverage
Effect of 1% rise in price - e.g. consumer goods manufacturing
Before After
Revenue 100 101 1% rise
Cost of goods sold 60 60
Gross margin 40 41
Sales and marketing 15 15
R&D 2 2
General & Admin 10 10
Depreciation 3 3
Operating Profit 10 11 10% rise
Inputs to Pricing Decisions
• Demand
• Costs
• Other factors
- company and marketing objectives
- competition/ market structure
- legal/ social constraints
Demand
Demand constrains the upper price limit (i.e. you cannot charge more than the customer will pay)
Some people are more price sensitive than others
Demand for some products is more price sensitive than for others
If you can identify the people and charge them separately, you will increase revenue
If you can identify price sensitive products and drop prices, you will increase revenue
Conditions for Price Discrimination
1. The firm can control what is offered to a particular buyer
2. It can prevent the resale of the item by one buyer to another
Industries with Price Discrimination
Industry Example
Theatres OAPs, students, etc charged less for same seats
Food manufacturing Large retailers with huge volumes are given lower prices than small corner shops with low volume
Airline transport Business and first class charged more than economy class
Private dentistry Many dentists have no ‘schedule of prices’ and will charge patients what they think they can afford
Price Sensitivity
Price Elasticity measures Price Sensitivity
e = percentage change in quantity demanded
percentage change in price
P P
p1
p2
Q Qq1 q2 q1 q2
Inelastic demand
e<1
Elastic demand
e>1
Factors Affecting Price Sensitivity
Customers are less price sensitive when:
1. The product is unique with few substitutes
2. Comparisons are difficult to make
3. The cost of the product is low relative to total expenditure
4. The product is perceived to be high value or prestigious
5. The product is required for assets previously bought
Cost- based Pricing
Price = Full cost of producing the item + x% profit margin
Pros
1. Simple method
2. Explicitly considers costs therefore unlikely to result in loss
3. Fair and transparent
Cons
1. Largely arbitrary method, depends how you allocate overhead
2. Prevents full usage of marketing tools as in short run pricing at less than full cost is feasible
3. Can lead to nonsensical vicious circle
Vicious Circle of cost based pricing
Full cost = Allocated fixed cost + variable cost
- sales and marketing - raw materials
- R&D - direct energy costs
- general overhead
- depreciation
Demand
Fixed cost per unit
Price Production
Range of Pricing Discretion
Price
To increase pricing discretion the firm can:
- increase perceived benefits (i.e. demand)
- reduce costs
Upper level determined by demand
Lower level determined by costs
Other Factors Affecting Pricing
Area Examples
Company and Marketing Objectives
- Overall goal (profit maximisation versus accessibility of service)
- Target market (mass or niche)
- Brand image (exclusive or commodity)
- Rest of marketing mix (product, promotion, place)
- No of firms (monopoly through to perfect competition)
- Degree of differentiation (one-off product through to commodity)
- Government legislation (e.g. closely controlled pharmaceutical pricing)
- Regulatory bodies (e.g. Oftel with RPI-7.5%)
- Social/political pressure (e.g. for bell-weathers of the economy)
Competition/ Market Structure
Legal/ Social
Popular Pricing Strategies
Strategy Description
Skimming Start with a high price for early adopters, then reduce the price progressively (good for inelastic demand)
Penetration Go for maximum market penetration by adopting a low price strategy to attract the largest number of new buyers early on
Promotion
• Types of Promotion
• Effects
• Promotion
strategy
Place
Promotion Product
Price
The Marketing
Mix
Promotion (Marketing Communication)Types:
Sales Promotion
Direct Marketing
Public Relations
Salesforce
Advertising
Objectives of Promotions (Marketing Communications)
To Customer
Raise awareness
Inform about new product
Correct misconceptions about product
Increase frequency of use
Present special offers
Educate consumers in how to use
Build image for brand/company
Build customer loyalty
To Trade
Provide information
Inform about promotions
Present trade offers
Avoid stockpiling
Educate the trade
Build patronage
Specific Objectives of Sales Promotions
For Consumer
Announce new product
Encourage product trial
Stimulate greater use
Encourage purchase of larger sizes
Attract non-users
Encourage brand switching
For Trade
Encourage stocking
Increase inventory levels
Encourage off-peak buying
Promote related products
Offset competitive marketing
Open up new outlets
Build retailer loyalty
Effect of Sales Promotion on Brand Share
6%
10%
5%
7%
Preparation period
Promotion period
Immediate post-promotion
Long-term post-promotion
Direct Marketing
Targeting customer directly without an intermediary
Examples of Methods
Phone
Internet
Letters
Catalogues
Direct response radio
Direct response TV
Loyalty cards
Trends in Direct Marketing
Increasingly focused on target group
- specific lists
- technology advances
Used frequently with multiple approaches
Changing to long-term “relationship marketing” rather than one-off mail-shots
Direct Marketing: Pros and Cons
Pros
- Measurable response
- Relatively cheap
- Communicate directly with customer (67% customers go elsewhere next time as no one keeps in touch)
Cons
- Can alienate potential customers
- Low hit rate if unfocused
Public Relations
How
Interviews
Articles
Exhibitions
Launches
Sponsorships
Publications
Videos
Training
Factory visits
Press releases
Community projects
Definition by IPR: “the deliberate, planned and sustained effort to establish and maintain mutual understanding
between an organisation and its public”
Whom to influence
Community
Employees
Government
The City
Distributors
Consumers
Opinion leaders
Advertising Objectives
Increases sales and profits through:
- Building awareness
- Building comprehension
- Reminding
- Generating leads
- Legitimising
- Reassuring
Stages in the Adoption Process
AwarenessInterest
Evaluation
Trial
Adoption
Source: K p342
Adopter Categorisation
Characteristics By Adopter Group
Group
Characteristics
Type of individual
Innovator Early adopter
Early majority
Late majority
Laggard
Willing to try new ideas at some risk
Ideas adopted early as sign to others
Deliberate steady adoption of new ideas
Sceptical: wait to see what world thinks before trying
Tradition bound: suspicious of change
Techno-freak(?) Youngish
Opinion leaders in community
Older, Conserv-ative
Most of Population
Innovation adoption - examples• INNOVATOR Blu-ray
• EARLY ADOPTERMobile TV, (Sky service to deliver broadcasts to mobile phones), video i-pod
• EARLY MAJORITYHDTV, Skype, Podcasting; Sky + / PVRs
• LATE MAJORITY
i-Pod; Broadband
• LAGGARDSDVD players, internet shopping, online banking VHS; mobile phones
Influence of Product Characteristic on Adoption Rate
Product Characteristic
Description/ Rationale
Relative advantage The degree to which it outperforms existing
products
Compatibility How it matches experiences & values of the
target market
Complexity How difficult or simple it is to use
Divisibility Extent to which it can be tried on a limited basis
Communicability How easy it is to describe or communicate the
product attributes
Advertising
Types
- Subliminal
- Subtle
- Direct
- “Knocking copy”
Characteristics
- Public presentation
- Pervasive
- Amplified
- Impersonal
Advertising Management
Set objective
Decide budget
Choose message
Choose media
Evaluate effectiveness
- Communication objectives
- Sales objectives
- Affordable approach
- % sales
- competitive parity
- Message generation
- Message evaluation
- Message execution
- Type
- Impact
- Frequency
- Reach
- Timing
- Communication impact
- Sales impact
Place
• Types of channel
• Value of channel
• Choice of channel
Place
Promotion Product
Price
The Marketing
Mix
Place
Channels
Coverage
Location
Inventory
Transport
What do Distribution Channels Do?
- Provide information
- Promote
- Negotiable
- Take orders
- Hold inventory
- Take risk
- Assume title
- Distribute to final customer
Considerations in Choice of Channel
Consideration Example/ Comment
Company objectives Maximisation of market share suggests widespread distribution
Target customer
- numbers High numbers require mass market channels
- geographical dispersion Wide dispersion may suggest need for mail order
- customer needs Specialist channels if complex needs
Product Direct selling if high value complex product
Competition How do competitors distribute and do consumers like it?
Control How much control is relinquished by choosing a specific channel
Intermediaries: Pros and Cons
Pros
- Allows manufacturers to “stick to the knitting”
- Replaces inefficiency of multiple deliveries
- Enables consumers to minimise efforts
Cons
- Company loses some control
- Can add to costs
- Company loses touch with end user
Introduction Growth Maturity Decline
Promotion Create product awareness
- advertising
- personal selling
Promote the brand (rather than product awareness)
Reinforce the ‘message’ to:
- encourage regular repurchase
- build loyalty
Possibly withdraw promotions or target specific niches
Lower price prevents excessive erosion of demand
Place Resign yourself to narrow distribution strategy
Build the foothold by moving some promotional activity to the channel
Key focus on distribution to establish foothold prior to ‘maturity’
Distribution according to pricing strategy
Profits peak and start to decline
Losses as advertising can exceed revenues
Product becomes profitable
Profits
Price Skimming or penetration
Continue existing strategy
Price reductions frequent though not necessarily advisable
Firm emphasis on cost control to prevent huge fall in profits
PLC Strategies
Reasons to Understand Marketing
1. Ultimately your research/ new product is to benefit the customer/public (widely defined). Why else are you doing it?
2. Allows you to understand who the customer is and what elements of the product/ research they value
3. If other areas within the organisation can think like marketing (and vice versa) it reduces cultural conflict
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