Review & Discussion

Too narrow definition of the market prevents from foreseeing threats from subsitution › Railroads didn’t think about transportation in

general but only about trains › Hollywood film industry didn’t consider the

whole entertainment market but only films

Porter’s 5 Forces: tool to list substitutes direct & indirect competitors

Product oriented businesses › Example: Railroads, Hollywood › Define the market in terms of the product

Customer oriented businesses

› Examples: DuPont; Cornings › Key to success: « apply technical know-how

to create customer satisfying uses » › Define the market in terms of the « need »

Growth • Apparent

customer need • No other

solutions = no substitutes

Decline • Other solutions

to the need are available

• The « need » decreases cuz’ new tech

Growth Dry-Cleaning › Need driven by

woolen clothes › No other technical

solutions

Decline Dry-Cleaning › Synthetic fiber

replace wool = need decreases!

› Ultrasound tech replaces chemical = new solution!

When Market/Industry declines, companies must strive to EXIT it

EXIT barriers can be Emotional: › Example corner store groceries beaten by

supermarkets: the companies with « the courage of their convictions » [...] kept their pride but lost their shirts

Other exit barriers:

› When costs too high (layoffs cost) › When equipement cannot be reconverted/sold

Companies only capitalize on growth opportunities Growing industries go into decay

Assume Growing demographics = growing industry

Assume Growing demographics = growing industry

Assume No substitute possible for the

product

Assume No substitute possible for the

product

Faith in economies of scale Faith in economies of scale Assume optimizing

manufacturing is sufficient (cost reduction, better quality)

Assume optimizing manufacturing is sufficient

(cost reduction, better quality)

Why Growth-Decline cycle? Why Growth-Decline cycle?

HYPOTHESIS: If the number of consumers grow, sales will also grow = growing industry

True only if no substitute for the need Example of Oil Industry

Kerosene lamps substituted by light bulbs Kerosene lamps substituted by light bulbs

Natural gaz substituting oil for heating, even cars (diesel) Natural gaz substituting oil for heating, even cars (diesel)

Innovations come from outside the industry Innovations come from outside the industry

Fail to recognize new opportunities: plastics Fail to recognize new opportunities: plastics

Focus on producing more at lower cost Focus on selling more: market offering is

just the generic product/service Neglect the marketing aspects:

› The role of marketing is to listen to the customer

› Market Offering includes the 4Ps: Product, Price but also Place & Promotion How the product is made available? When & under what conditions available?

• Focus:the selling • Objective: convert the

product into cash • Push strategy: salesmen try

to sell as much as they can

SELLING SELLING

• Focus: the customer • Objective: satisfy at best

customer needs • Pull strategy: salesmen

capture customer needs

MARKETING MARKETING

Symptom: new models sell better than the old ones

Problem: the producer doesn’t know what the customer wants - WHY?? › Research of Customer Preferences limited

only to what already decided to offer › No listen to customer concerns: no attention

paid to customer needs about point of sale or repair&maintenance

It is not the cost that sets the price It is the price at which the product can be

sold profitably that drives the need to cut costs

Mass production results from marketing

strategy, dosn’t replace such

First, determine price for level of demand Last, cut cost to be profitable at this price

Improving the Product won’t save sales if another substitute satisfies customer needs much better

• Example: the buggy whip industry • Example: oil vs electricity

Creative destruction: when a new (tech) solution fits better customer needs, the old one must be abandoned • Example: gaz stations will become obsolete if new fuel last

much longer

Illusion: superior product will sell itself False Hypothese: continuous growth is a

matter of product innovation

Note that if u replace « product » by « market offering » the statement is true

Product Innovation focus: features of product Market Offering focus: satisfy customer needs

• Focus on « how to do » the product – R&D

• Neglect « how to sell » - marketing

« The organization view itself as

making things, not satisfying the customer needs »

« The organization view itself as

making things, not satisfying the customer needs »

• the customer comes to tell them what they need (military)

• No need to research customer needs

Success factor: Success factor:

Identify consumer needs Identify consumer needs

Physical delivery of customer satisfaction

Physical delivery of customer satisfaction

Creating the things that achieve the satisfaction

Creating the things that achieve the satisfaction

Find the raw materials to make the products

Find the raw materials to make the products

Attributes of a Leader

•Will to succeed •Viewpoint: company

is creating customer value & satisfaction

•He knows where he’s going – which road is not important, only the final destination

Human organization

• Redefining the firm from product to customer oriented

• pays off (several examples listed in the conclusion)

« marketing mania »: chasing customer’s needs disregarding costs (segmentation)

« marketing mania »: chasing customer’s needs disregarding costs (segmentation)

Expand to new segments without effort to organize & integrate new businesses

Expand to new segments without effort to organize & integrate new businesses

Bigger marketing department doesn’t automatically make more results

Bigger marketing department doesn’t automatically make more results

Change organization from functional to customer-oriented without consideration of company culture

Change organization from functional to customer-oriented without consideration of company culture

Create great product but being unable to educate the customer how to take advantage of it

Create great product but being unable to educate the customer how to take advantage of it

Yes, definitely. However must understand the relationship between customer need, price, production, technical solution

› The target is satisfy the need › But can it be done at reasonable price/cost? › Does it makes sense to produce in mass or not? › What technical solution(s)?

Must learn how to do SMART customer-orientation

Today, much more

tools to:

Today, much more

tools to:

understand the market (Porter’s 5

forces)

understand the market (Porter’s 5

forces)

the product & industry

lifecycle,

the product & industry

lifecycle, the needs of the customer (value chain,

the 7s McKansey)

the needs of the customer (value chain,

the 7s McKansey)

•markets don’t automatically expand with population growth: growing demand vs sustanable development

Slowing demographic growth in the West –

Slowing demographic growth in the West –

•ex. electronics Shorter product lifecycles: Shorter product lifecycles:

•deeper understanding, •Models and derived tools

Marketing is more sophisticated :

Marketing is more sophisticated :

•ex. the internet New market rules: New market rules:

•climate change, global economy, •scarce ressources, politics, culture&religion

Not to forget, growing importance of external

factors like

Not to forget, growing importance of external

factors like

The big success stories recognize the need of customer orientation and take advantage of it: Starbucks, McDonalds, Coca Cola, Festo, Toyta

Example of Kodak: since they defined themselves as being in the photo industry, they didn’t have problems going digital and remained a leader. Others like Fuji or Konica we don’t hear about anymore!