MarketingPart 1 An Overview of Marketing ManagementModule 1  The Marketing Management Process - Content Questions:1.1 Define marketing

Marketing is a social process involving the activities necessary to enable individuals and organizations to obtain what they need and want through exchanges with others and to develop on going exchange relationships.

1.2 What conditions are necessary for an exchange to take place?

1. At least two parties2. Both parties must offer something of value (e.g. money, goods, services)3. Both parties aware of the existence of the other; capable of communication and

delivery4. Both parties free to accept or reject the others offer5. Both parties must be willing and able to negotiate terms of exchange that they find

acceptable.6. Both parties must believe that the exchange creates benefits or value.

1.3 Distinguish between a need and a want

Needs - Basic physical needs critical to our survival i.e. food, drink, warmth shelter sleep

- Social and emotional needs critical to our psychological well being, such as security, belonging love, esteem and self-fulfillment

Wants - Person’s desires or preferences for specific ways of satisfying a basic need,

1.4 What is a market

Consists of 1. Individuals and organizations, 2. Interested and willing to buy a particular product to obtain a benefit that will satisfy a specific need or

want3. Have resources (time, money) to engage in such a transaction.

1.5 What does strategic marketing involve

Strategic marketing involves a seller trying to determine the following points in an effort to define the target market:

1.      Which customer needs and wants are currently not being satisfied by competitive products offerings?

2.      How desired benefits and choice criteria vary among potential customers and how to identify the resulting segments by demographic variables such as age, sex, lifestyle?

3.      Which segments to target, and which product offerings and marketing programs appeal most to customers in those segments?

4.      How to position the product to differentiate it from competitors’ offerings and give the firm a sustainable competitive advantage?

1.6 What flows are necessary for an exchange to take place?

1.7 What functions/activities are necessary for exchange transactions and relationships to occur?

Flow Functions / ActivitiesInformation Marketing communication – Advertisement,

personal selling, sales promotion, publicityFeedback Marketing research, Environmental scan,

Competitive intelligenceTitle Selling Identification of potential customers

negotiation

Buying Identification and evaluation of suppliers, negotiation

Physical product

Transportation

StorageCredit and Payment

Financing – credit policies, billing, collection

Service Customer service – Installation, repair, training, alterations, complaint handling

1.8 What is the role of a marketing manager?

Responsible for:

1 Evaluating the needs, wants, and purchasing patterns of a customer segment

2 Developing an integrated plan to facilitate purchase transactions by that segment

3 Design marketing channel system to carry out those activities4 Coordinate and monitoring the effectiveness of those activities over

time.

The above planning and co-ordination responsibilities, even though actual performance falls outside the scope of their authority.

1.9 Describe what is involved in marketing management

Marketing Management is the process of analyzing, planning, implementing, coordination and controlling programs involving the conception, pricing, promotion and distribution of products, services, and ideas designed to create and maintain beneficial exchanges with target markets for the purpose of achieving organizational objectives.

1.10 What is the difference between a corporate and a business strategy?

The corporate or business strategy is the direction for the company’s mission, the business it chooses to be in and its growth policies.

1.11 What are the three interrelated decisions needed to design an objective strategic marketing program?

1.      Set specific objectives to be accomplished within the target market, such as sales volume,

2.      Decide on an overall marketing strategy to appeal to customers and to gain a competitive advantage in the target market.   Consistent with firm’s capabilities, its corporate and business unit strategies and the product market objectives.

3.      Make decisions about each element of the tactical marketing program used to carry out the strategy. Internally consistent and integrated across all elements of the marketing program.

1.12 What are the major recent developments affecting marketing management?

Globalization International markets account for a large and growing portion of the sales of many organizations

Increased Importance of Service

Defined as any activity or benefit that one party can offer another that is essentially intangible and does not result in the ownership of anything.  Its production may or may not be tied to a physical product.

Information Technology Change the nature of marketing management in tow important ways

1)    New technologies are making it possible for firms to collect and analyze more detailed information about potential customers and their needs, preferences and buying habits.

2)    Impact has been to open new avenues for communication and transacting exchanges with a firm’s customers.

Module 2 Corporate Strategies and Their Marketing Implications

2.1 Define strategy.

A strategy is a fundamental pattern of present and planned objectives, resource deployments and interactions of an organization with markets, competitors, and other environmental factors.

Specifies

1. WHAT (objectives to be accomplished)2. WHERE (on which industries and product markets to focus)3. HOW (which resources and activities to allocate to each product market to

meet environmental opportunities and threats and to gain a competitive advantage)

2.2 What are the five components of strategy?

SCOPE Number and types of industries, product line market segments it competes in or plans to enter

GOALS AND OBJECTIVES Strategies should also detail desired levels of accomplishment on one or more dimensions or performances i.e. volume growth, profit contribution return on investment

RESOURCE DEPLOYMENTS

Deciding how resources are to be obtained and allocated, across businesses product markets functional departments and activities

identification of a

SUSTAINABLE COMPETITIVE ADVANTAGE

How the organization will compete in each business and product market within its domain. Position itself to develop and sustain a differential advantage over current and potential competitors.

SYNERGYBusiness, product markets, resource deployments and competencies complement and reinforce one another,  total performance are greater than in it would be in parts.

2.3 How do the three levels of strategy differ in terms of the issues on which they focus?

STRATEGY COMPONENTS

CORPORATE STRATEGY BUSINESS STRATEGY MARKETING STRATEGY

SCOPE

Corporate domain: “Which business should we in?”

Corporate development strategy:Conglomerate

diversification (expansion into unrelated businesses)

Vertical integrationAcquisition & divestiture

polices

Business domain: “Which product markets should we be in within this business or industry?”

Business development strategy:

Concentric diversification (new products for existing customers or new customers for existing products)

Target market definition

Product-line depth and breadth

Branding policies

Product-market development plan

Line extension and product elimination plans

GOALS AND OBJECTIVES

Overall corporate objectives aggregated across businesses:

Revenue growthProfitabilityROI (return on

investment)Earnings per shareContributions to other

stakeholders

Constrained by corporate goals

Objectives aggregated across product-market entries in the business unit:Sales growthNew product or market

growthProfitabilityROICash flowStrengthening bases of

competitive advantage

Constrained by corporate and business goals

Objective for a specific product-market entry:

SalesMarket shareContribution marginCustomer satisfaction

RESOURCE DEPLOYMENTS

Allocation among businesses in the corporate portfolio

Allocation across functions shared by multiple businesses

(Corporate R&D, MIS)

Allocation among product-market entries in the business unit

Allocation across functional departments within the business unit

Allocation across components of the marketing plan (elements of the marketing mix) for a specific product-market entry

IDENTIFICATION OF A

SUSTAINABLE COMPETITIVE ADVANTAGE

Primarily through superior corporate financial or human resource; more corporate R&D; better organizational processes or synergies relative to competitors across all industries

Primarily through competitive strategy; business unit’s competencies relative to competitors in its industry

Primarily through effective product positioning; superiority on one or more components of the marketing mix relative to competitors within a specific product market

SYNERGY

Shared resources, technologies or functional competencies across businesses within the firm

Shared resources (including favorable customer image) or functional competencies across product market within an industry

Shared marketing resources competencies or activities across product-market entries

2.4 What questions should a company’s mission statement answer?

What is our business?Who are our customers?What kinds of value can we provide to these customers?What should our business be in the future?

2.5 What criteria should be used in a corporate mission statement?

Physical terms, focusing on products or services or technology The most useful mission statements focus on the customer need to be satisfied and

the functions that must be performed to satisfy that need. They are specific as to customer groups and products or technologies on which to

concentrate.

Characteristics of effective corporate mission statements

BROAD SPECIFICFUNCTIONALBased on customer needs Transportation

businessLong-distance transportation for large-volume producers of low-value, low-density products

PHYSICALBased on existing products or technology

Railroad business Long-haul, coal-carrying railroad

2.6 What is the value to the corporation of ethical guidelines?

To reduce inconsistent behaviors among marketing reduce risk/damaging ongoing-term relationships with suppliers, channel partners and customers.  To reduce damaging the trust between a firm and its suppliers or customers, thereby not disrupting the development of long term exchange relationships and resulting in the likely loss of sales and profits over time.

2.7 Define strategic intent or vision.

A Motivator for staff, personable lending to employee commitment.

2.8 What are the four components of a corporate objective?

1. A performance dimension or attribute sought2. A measure or index for evaluating progress3. A target or hurdle level to be achieved4. A time frame within which the target is to be accomplished.

2.9 What are the two major directions a corporation can go in seeking growth? What are the major options within each?

Two major directions -Diversification or Expansion

Current products New Products

Current Markets

Market penetration strategiesIncrease market shareIncrease product usage

Increase frequency of useIncrease quantity usedNew applications

Product development strategiesProduct improvementsProduct-line extensionsNew products for same market

New Markets

Market development strategiesExpand markets for existing

productsGeographic expansionTarget new segments

Diversification strategiesVertical integration

Forward integrationBackward integration

Diversification into related businesses (related/concentric diversification)

Diversification into unrelated businesses

2.10 What is a portfolio model?

Enable managers to classify and review their current and prospective SBUs by viewing them as portfolios of investment opportunities and then evaluating each business's competitive strength and the attractiveness of the markets it serves.

2.11 What are the two dimensions in the BCG growth share matrix? What are the assumptions concerning each of these dimensions? Describe the type of business contained in each of the model’s four cells.

Two Dimensions

Market Growth rate – maturity and attractiveness of an industryRelative Market share – a proxy for its competitiveness strength within its industry

Business Types

Question Marks Business in high-growth industries with low relative market shares also known as problem children increase shares of a question mark business it becomes a star, If they fail it will turn into a dog.

Stars Market leader in a high-growth industry, critical to the continued future success of the firm as industries mature they move into cash cows.

Cash Cows High relative hare of low-growth markets because they are the primary generators of profits and cash in a corporation.  Do not require additional capital markets are stable share leadership usually mean they enjoy economies of scale and relatively high profit margins.

Dogs Low share businesses in low-growth markets throw off some cash, typically generate low profits, or losses.

2.12 What are the major limitations of the BCG model?

Market growth rate is an inadequate descriptor of overall industry attractiveness Relative market share is inadequate as a description of overall competitive

strength The outcomes of a growth share analysis are highly sensitive to variations in how

growth and share are measured While the matrix specifies appropriate investment strategies for each business, it

provides little guidance on how best to implement those strategies The model implicitly assumes that all business units are independent of one

another except for the flow of cash.

2.12b Alternative Portfolio Models / improve the basic portfolio model

2.13 What is value-based planning?

Is a resource allocation tool that attempts to assess the shareholder value a given strategy is likely to crease, it is a basis for comparing the economic returns to be gained from investing in different businesses pursuing different strategies from alternative strategies that might be adopted by a given business unit.

1. Assess the economic value a strategy is lively to produce by examining the cash flows it will generate rather than relying on distorted accounting measures such as return on investment

2. Estimate the shareholder value that strategy will p[reduce by discounting its forecasted cash flows by the business’s risk-adjustment cost of capital

3. Evaluate strategies based on the likelihood that the investments required by a strategy will deliver returns greater tan the cost of capital .  The amount of return a strategy or operating program generates in excess of the cost of capital is commonly referred to as its economic value added or EVS.

2.14 What are its limitations?

Value based planning is not a substitute for strategic planning; it is a tool for evaluating strategy alternative identified and developed through mangers’ judgments.  It relies on forecast of many kinds to put a financial value on the hopes, fears, and expectations managers associate with each alterative.  I.e. forecasts of sales volumes, product mix, unit price and competitive action

2.** Source of Synergy

The total performance of the related businesses is greater than it should be otherwise.

1. Knowledge-Base Synergy2. Corporate Identity and the Corporate Brand

flows from the communications, impressions and personality projected by an organization. It is shaped by the firm’s mission and values, its functional competencies, the quality and design of it goods and services, its marketing communications, the actions of it personnel, the image generated by various corporate activities and other factors.

3. Corporate Branding Strategy- One brand name for all products- Dual branding strategy, eg. MS Windows, MS word…; VW automobiles…- Each product with a distinct unique brand and identity, eg. Unilever, P&G…

4. Synergy from shared resources

2.17 What is the role of marketing in formulating and implementing strategies?

Marketing mangers bear the primary responsibility for formulating and implementing strategic marketing plans for individual product-market entries.  However freedom of action in designing such plans is often constrained by the firm’s corporate and business-level strategies.

2.18 What are the more important characteristics of a market-oriented company?

The marketing concept holds that the planning and co-ordination of all company activities around the primary goal of satisfying customer needs in the most effective means to attain and sustain a competitive advantage and achieve company objectives over time. 

They adopt a variety of organizational procedures and structures to improve the responsiveness of their decision making, including more detailed environmental scanning, continuous, real-time information systems; seeking frequent feedback form and coordinating plans with key customers and major suppliers; decentralization of strategic decisions, encouragement of entrepreneurial thinking among lower-level mangers an the use of inter functional management teams to analyze issues and initiate strategic actions outside the formal planning process.

Module 3 Business Strategies & Their Mkg Implications

The managers in each SBU must make recommendations about:1. The unit’s objectives2. The scope of its target customers and offerings3. Which broad competitive strategy to pursue to build a competitive advantage in

its product markets of its target customers and offerings4. How resources should be allocated across its product-market entries and

functional departments

SBU design

A homogenous set of markets to serve with a limited number of related technologies.

A unique set of products markets Control over those factors necessary for successful performance Responsibility for their own profitability

Three dimensions that define the scope and mission of the entire corporation also define individual SBUs:

1. Technical Compatibility2. Similarity in the customer needs3. Similarity in the personal characteristics or customers’ behavior patterns

Business unit objectives = Unit product-market entry objectives

Subobjectives vary across SBUs according to their industry attractiveness, strength (growth potential) of their competitive positions with those industries, and resource allocation decisions by corporate management.

Content Questions3.1 What are the basic/generic competitive strategies? Describe each briefly.

Michael Porter strategies1)      Overall cost leadership

2)      Differentiation – building customer perceptions of superior product quality,design or service

3)      Focus in which the business avoids direct confrontation with its major competitors by concentration on narrowly defied market niches.

3.2 What are the characteristics of Miles and Snow’s four business strategies?

Prospector

Operates within a broad product-market domain that undergoes periodic redefinition

Values being a ‘first mover’ in new product and market areas, even if not all of these efforts prove to be highly profitable

Responds rapidly to early signals concerning areas of opportunity and these responses often lead to new rounds of competitive actions

Competes primarily by stimulating and meeting new market opportunities but may not maintain strength over time in all markets it enters

Defender

Attempts to locate and maintain a secure position in relatively stable product or service areas

Offers relatively limited range of products or services compared to competitors Tries to protect its domain by offering lower price, higher quality or better service than

competitors

Usually not at the forefront technological / new product development in its industry; tends to ignore industry changes not directly related to its area of operation

Analyzer An intermediate type; makes fewer and slower product-market changes than prospectors, but is less committed to stability and efficiency than defenders

Attempts to maintain a stable, limited line of products or services, but carefully follows a selected set of promising new developments in its industry

Seldom a first mover, but often a second or third entrant in product markets related to its existing market base – often with a lower-cost or higher-quality product or service offering

Reactor Lacks any well-defined competitive strategy

Does not have as consistent a product market orientation as its competitors Not as will to assume the risks of new-product or market development as its

competitors Not as aggressive in marketing established products as some competitors

Responds primarily when it is forced to by environmental pressures

3.3 How do low-cost defender, differentiated defender, prospector and analyzer differ with respect to their scope, cash needs and synergy?

Dimensions

Low-cost Defender

Differentiated Defender

Prospector Analyzer

Scope Mature/ stable/ well-defined domain; mature technology and customer segments

Mature/ stable/ well- defined domain; mature technology and customer segments

Broad/ dynamic domains; technology and customer segments not well established

Mixture of defender and prospector strategies

Resources Generate excess cash (cash cow)

Generate excess cash (cash cow)

Need cash for product development (question marks or stars)

Need cash for product development but less so tan do prospectors

Synergy Need to seek operating synergies to achieve efficiencies

Need to seek operating synergies to achieve efficiencies

Danger is sharing operating facilities and programs – better to share technology/ marketing skills.

Danger in sharing operating facilities and programs better to share technology / marketing skills

Goals and Objectives

Three performance dimensions:

1. Effectiveness. The success of a business’s products and programs relative to those of its competitors in the market. SALES GROWTH relative to competitors changes in MARKET SHARE

2. Efficiency. The outcomes of a B’s programs relative to the resources used in implementing them. PROFITABILITY as a per cent of sales ROI

3. Adaptability. The business’s success in responding over time to changing conditions and opportunities in the environment. number of successful new products introduced relative to those competitors % of sales accounted for by products introduced within the last 5 years.

3.4 What are the appropriate external environment conditions for a prospector strategy? A defender strategy?

External factors

Prospector Low-cost Defender

Differentiated Defender

Analyzer

Market characteristics

Industry in introductory or early growth stage of life cycle, many potential customer segments as yet unidentified and/or undeveloped.

Industry in maturity or decline stage of life cycle; current offerings targeted at all major segments; sales primarily due to repeat purchases/ replacement demand.

Same Industry in late growth or early maturity stage of life cycle, one or more product offerings currently targeted at major customer segments, but some potential segments may still be undeveloped.

Technology Newly emerging technology; many applications as yet undeveloped.

Basic technology fully developed and stable; few major modifications or improvements likely.

Same Basic technology well developed but still evolving; product modifications and improvements – as well as emergence of new competing technologies – still likely.

Competition Few established competitors; industry structure still emerging; single competitor holds commanding share of major market segments.

Small to moderate number of well- established competitors; industry structure stable, though acquisitions and consolidation possible; maturity of market means relative shares of competitors tend to be reasonably stable over time.

Same Large number of competitors, but future shake-out likely; industry structure still evolving; one or more competitors hold large shares in major segments but continuing growth may allow rapid changes in relative shares.

Business's relative strengths

SBU (or parent) has strong R&D, product engineering and marketing research and marketing capabilities.

SBU (or parent) has superior sources of supply and/or process engineering and production capabilities that enable it to be LOW-COST producer; R&D, product engineering, marketing, sales or service capabilities may not be as strong as those of some competitors.

SBU has NO outstanding strengths in R&D or product engineering; HIGHER COSTS than those of at least some competitors; SBU’s OUTSTANDING STRENGTHS are in process engineering and QUALITY control and/or in MARKETING, sales, distribution or customer services

SBU (or parent) has good R&D, product engineering and marketing research capabilities, but not as strong as those of some competitors; has either low-cost position or strong sales, marketing, distribution or service capabilities in one or more segments.

3.5 What are the marketing implications for each of the different business strategies with respect to?

A product policiesB pricing policiesC distribution/. place policiesD promotion policies

Strategy

Marketing policies and program components Prospector

Differentiated defender

Low-cost defender

Product policies•Product-line breadth *** + + -•Technical sophistication of products *** + + +•Product quality *** ? + -•Service quality *** ? + -

Price policies•Price levels *** + + -

Distribution policies•Degree of forward vertical integration *** - + ?•Trade promotion expenses as percentage of sales

*** + - -

Promotion policies•Advertising expenses as percentage of sales *** + ? -•Sales promotion expenses as percentage of sales

*** + ? -•Salesforce expenses as percentage of sales *** ? + -

Key:Plus sign (+) = greater than the average competitor.Minus sign (-) = smaller than the average competitor.Question mark (?) = uncertain relationship between strategy and marketing policy or program component.

***Relative to competitors

3.6 Do service businesses require different strategies? Why? Why not?

Services can be thought of as intangibles and goods as tangibles.  Service can rarely be experienced in advance of the sale while goods can be experienced even tested before purchase.

Many organizations are concerned with producing and marketing a service as their primary offering rather than as an adjunct to a physical product. 

Have the same implications as those for goods producers. 

3.7 Ideally, what characteristics should strategic business units have?

A homogenous set of markets to serve with a limited number of related technologies.

A unique set of products markets Control over those factors necessary for successful performance Responsibility for their own profitability

Three dimensions that define the scope and mission of the entire corporation also define individual SBUs:

4. Technical Compatibility5. Similarity in the customer needs6. Similarity in the personal characteristics or customers’ behavior patterns

3.8 What are the objectives of a business unit?

Business unit objectives = Unit product-market entry objectives

Subobjectives vary across SBUs according to their industry attractiveness, strength (growth potential) of their competitive positions with those industries, and resource allocation decisions by corporate management.

Part 2 Market Opportunity Analysis

Module 4 Environmental AnalysisTools to identify market attractiveness

Content Questions:4.1 What are the major problems in terms of the planet’s physical environment?

Depletion of many of the earth’s valuable resources, decline in the earth’s overall health – deserts are growing while forests are shrinking, lakes are dying, quality and quantity of groundwater are declining and rising temperatures.  Pollution problems, inadequate supply of municipal water.

4.2 What are green products?

Green products are those that are environmentally friendly ie phosphate-free detergents, recycled motor oil, tuna caught without netting dolphins, organic fertilizer, high-efficiency light bulbs, recycled paper.

4.3 What kinds of risk derive from a change in a country’s regulatory environment?

Confiscation (seizure without compensations) Exportation (seizure with some compensations) Domestication (transfer of ownership to the host country and local management and

sourcing) Change in exchange control local content laws import restriction taxes and price controls

Designed to provide advantage to local industry.

4.4 What are some of the more important opportunities resulting from research in biology? Electronics?

Trends in biology especially in gene therapy.  ie. research to discover faulty geneses is an example of what is hoped to be gained.

Trends in Electronics / Telecommunication relating to how goods and services as well as ideas are exchanged and how individuals learn and earn as well as interact with one another.

4.5 What are the major trends in the world’s population?

Ageing of the world’s population, caused primarily by declining mortality rates.Rapid shift in the populations of less-developed countries from rural to urban.

4.6 Describe the four major shifts taking place in the US population.

Family Structure

Closely structured family is less and less typical, households because of divorce, remarriage two wage earners etc

Ageing Baby boomers 1949 – 1064 continue to dominate growth in the age groups they pass through en route to old age.

Geographic Distribution

Immigrants account for nearly 1/3 of US annual growth and end up residing mostly in the large metropolitan areas of the South and West.Migration of jobs and people to suburban cities – further and further form central cities.

Ethnic Composition

Diverse ethnically 25% of population is composed of racial minorities.

4.7 Define purchasing power parity. Further, explain why an unadjusted per capital GNP substantially understates the spending power of urban households in the underdeveloped countries.

Gross domestic product (GNP) measure economic performance of a country on a per capita basis after accounting for inflation, in order realistically to compare incomes across countries it is necessary to use a purchasing power parity (PPP) approach that takes into account the cost of a standard basket of products expressed in US dollars for each country. Thus, using a PPP analysis helps to compare the relative purchasing power of a given country for goods with what theses same goods would cost in the United States.   PPP typically lower GDP per capita income for wealthier countries and higher ones for the poorer nations.   Despite leveling from PPP the GDP gap is less inflation increased between rich and poor countries – mainly because of higher population growth.  PPP does not take into account the subsidies provided by many countries for such essentials as food, utilities, shelter, transportation, education and medical care, which account for about half of the average household expenditures in developed countries.

4.8 What are the major forces driving the competitive environment?

Known as the macro environments

Globalization of business

Takes more resources to be a major global player, the number of players become more and more limited.  Almost always results in a change in an industry’s structure, which makes it more difficult for entry as well as for competitors to survive

Technology Rate and complexity has a strong impact on innovations in the production process and development of new and improved products. Vertical integration and mergers.

Changing channels of distribution

In retailing they have been numerous and far reaching include: Fast growth of general merchandise discount

stores operating cost lower than traditional retailers

Direct marketing via telemarketing, direct mail and Internet

Growth in vertical marketing systems that integrate producers, wholesaler and retailer into a unified system designed to achieve lower costs while increasing market power.  I.e. franchising examples of fast foods (McDonalds)

Regulation / Deregulation

In US Deregulation has had an impact on airlines, trucking banking bringing more competition.And Regulation to Telephone markets, which had controlled of the seven ‘Baby Bells’ the new legislation, will open theses markets to competition and in exchange will permit the Baby Bells to compete in the long-distance market.

Changing values, Attitudes and lifestyles

These are powerful engines of change as companies compete to take advantage of new trends.  I.e. increase concern about physical fitness has been responsible for athletics clubs exercise equipment etc.

4.9 Describe what an opportunity/threat matrix is and how it can be used to help management identify, evaluate and respond to environmental events.

An opportunity/threat matrix enables the examination of a large number of events in such a way that management can focus on the most important ones.  In any given period, many environmental events that could have an impact on the firm – either positively or negatively – may be detected. 

Example:

4.10 What are the ethical issues arising from the interaction of business and the environment?

Environmental Impact Third world countries concerns for unhealthy working environments, Third world countries use of child labor High prices of third world countries for goods purchase pharmaceutical drugs. 

Module 5 Industry Analysis and Competitive Advantage

Content Questions:5.1 What are the various levels at which products can be defined?

Generic category Includes an array of non-competing products i.e. car industry

Product class May serve diverse markets or market segments.The more generic the definition the higher the aggregation level of products i.e. desserts versus pastries

Product type Subsets of product class contain items that are technically the same

Brand level Bottom of the aggregation hierarchy, inappropriate units of analysis.  Sales largely function of managements strategic decisions,

5.2 Describe market hierarchies.

Market Hierarchy is a complex one to define since there are numerous ways markets can be arrayed.  Levels targeted, the trend is towards greater specificity – that is towards targeting more precisely defined segments at the lower level in the hierarch e.g. Johnson & Johnson targeted children aged 2 – 6years with a special line of bath products featuring Winnie the Pooh.

5.3 Describe what is meant by the product life-cycle concept.

Sales history of a product and the sales change over time in a predictable way the product go through a series of five distinct stages: Each opportunities brings threats, thereby affecting the strategy as well as marketing programs.

5.4 What are the characteristics and their implications of each of the product life-cycle stages?

Stage in product life cycleIntroduction Growth Shake-out Mature Decline

Stage characteristicsMarket growth rate(net of inflation)

Moderate High Levelling-off Insignificant Negative

Technical change in product design

High Moderate Limited Limited limited

Segments Few Few to many Few to many Few to many FewCompetitors Small Large Decreasing Limited FewProfitability Negative Large Low Large for high-

market-share holders

Low

Firm’s normative responsesStrategic mk objectives

Stimulate primary demand

Build share Build share Hold share Harvest

Product Quality improvement

Continue quality improvement

Rationalize Concentrate on features

No change

Product line Narrow Broad Rationalize Hold length of line Reduce length of line

Price Skimming vs. penetration

Reduce Reduce Hold or reduce selectively

Reduce

Channels Selective Intensive Intensive Intensive SelectiveCommunications High High High High to declining Reduce

5.5 What are the strategic implications of the product life cycle?

4.3 Stages 4.4 Characteristics and Implications 4.5 Strategic Implications

Introduction

Purchase of new product limited because members of the target market are insufficiently aware of its existence. And product availability.Communications task at the outset to build awareness of the new products uniqueness, expensive undertaking promotional expenditures product availability for trial

Both innovators and followers, accelerate overall market growth and product acceptance through awareness, trial and product availability.

Growth As people learn about product and it becomes readily available, sales increase at a progressively faster rate.Marketing mix changes, prices tend to decline , price differences between brands decrease,  Sellers build channel or a direct sales system provide maximum product availability and service at lowest cost.  This accomplished rivals at disadvantaged,Promotion costs concerned with building demand for a company’s brand  (selective demand) than demand for product class or type (primary demand) Firms strive to build favorable attitudes toward their brand on unique features,  promotion costs remain high, typically decline as a percentage of sales.

Increase competitive position

Shake-out / Competitive turbulence stage

Growth slows as the number of buyers nears maximum and repeat sales become increasingly more important than trial sales as number of buyers and purchases stabilesPrice cuts, weaker competitors leave the market, stronger firms gain shares.  Major changes in industry’s competitive structure occur.  Firms rationalize product line by eliminating weaker items, emphasis creative promotional pricing and strengthen its channel relationships.Marketing mix changesMore direct price competition, firms make every effort to maintain and enhance their distribution system.  Reduce number of products carried weaker competitors need to offer buying incentives to continue in the market.

Improve/solidify competitive position

Maturity Sales plateau, typically lasts some time, Net adoption rate holds steady, adopters drop out and exceed new first time users,Longer stage lasts the more likely changes occur.  If firm does not respond successfully to change its competitors do, then a change in industry structure of significant may occurMarketing mix changesVarious brands mare similar, breakthroughs by R&D or engineering help to differentiate product.  Options is to add value to product that benefits customer., increase service distribution and in-store displays become increasingly important as does effective cost management.

Maintain position

Decline sales rate declines and product is said to have reached its final stage this may be gradual or extremely fast.Sales decline, costs increase and radical efforts are needed to reduce costs and the asset base.  Exit barriers are low , many firms vacate the market so increasing the sales of remaining firms, there by delaying their exit.  Stronger firms may even prosper for a time.

5.6 What are the major limitations of the product life-cycle concept?

Major limitations lies in its normative approach to prescribing strategies based on assumptions about the features or characteristics of each stage.  It fails to take into account that the product life cycle is in reality driven by market forces expressing the evolution of consumer preferences (the market), technology (the product) and competition (the supply side).

5.7 Describe the adoption process.

The adoption process involves the attitudinal changes experienced by individuals from time they first hear about a new product, serve or idea until they adopt it.  The five stages in the adoption process are:

Awareness

Person only aware of the existence of the new product insufficiently motivated to seek information about it

Interest Individual becomes sufficiently interested in the new product, but is not yet involved.

Evaluation

Mental rehearsal stage, Individual is mentally applying the new product to his or her own use requirements and anticipating the results.

Trial Individual actually uses the product, but, if possible, on a limited basis to minimize risk.  Only is the use experience is satisfactory with the product stand a chance of being adopted.

Adoption Individual not only continues to use the new product but adopts it in lieu of substitutes.

5.8 What is the adoption rate a function of?

The time dimension is a function of the rate at which people in the target group move through the five stages in adoption process.  Depends on the following factors

1)      Risk (cost of product failure or dissatisfaction)

2)      Relative advantage over other products

3)      Relative simplicity of the new product

4)      Compatibility with previously adopted ideas

5)      Extent to which its trial can be accomplished on a small-scale basis

6)      Ease with which the central idea of the product can be communicated.

5.9 What are the various adopter categories?

Innovators First 2.5% of all individuals who ultimately adopt a new product,  more venturesome more likely to be receptive to new ideas and tend to

have high incomes which reduces the risk of a loss arising from an early adoption.

Early adopters

Next 13% –14 % who adopt.  Part of local scenes, often opinion leaders, serve as vital links to members of the early majority group, participate more in community organizations than do later adopters.

Early Majority 34% of those who adopt.  Display less leadership than early adopters, tend to be active in community display less leadership than early adopters, active in community affairs * thereby gain respect form their peers0.  do not like to take unnecessary risks and want to be sure new product will prove successful before they adopt it.

Late Majority Another 34% Frequently those individuals adopt a new product because they are forced to do so for either economic or social reasons.  They participate in community activities less than the previous groups and only rarely assume a leadership role.

Laggards Last 16% they are the most ‘local; .  participate less in community matters than any other groups and stubbornly resist change.  Adopt a product so late sometimes that it has already been replac3ed by another new product.

5.10 Describe the ways in which a product market’s characteristics change as the market evolves.

Product innovation diminishes over time.  Thus the sales of a new products those entering the market for the first time decline as percentage of total market volume form 10.2% during the growth stage of evolution to 5.4% during growth maturity, to 3.5% and 3.7% during stable maturity and declining maturity and to 2.8% in the decline stage.  This is know as PIM (profit impact of market strategy)

5.11 What questions need to be answered in making an industry analysis?

1)      How profitable is the industry likely to be in the short term?  Or in the longer term? 

2)      What are the more import industry characteristics?

3)      What are the industry driving forces?

a.       Changes in the market’s long-term growth rate which directly affect investment decisions and intensity of competition

b.      Changes in buyer segments, which affect demand and strategic marketing programs

c.       Diffusion of proprietary knowledge, which controls both the rate at which products become ore alike and the entry of new firms

d.      Changes in cost and efficiency, derived from scale and learning effects which have the potential of making entry more difficulty

e.       Changes in government regulations, which can affect entry costs, bases on competition and profitability.

4)      What the essential determinants of success?

5.12 What are the major forces, which determine industry competition?

This is a part of industry analysis, five interactive competitive forces that collectively determine an industry’s long-term attractiveness present competitors, potential competitors, the bargaining power of suppliers and buyers and substitute products

.

Module 6 Understanding Consumer Buying Behavior6.1 Describe each of the four types of purchasing decision.

Extent of involvement

Extent of decision making

High Low

Extended (information search; consideration of brand alternatives

Complex decision making

(cars, homes, vacations)

Limited decision making, including variety seeking and impulse purchasing (adult cereals and snack foods)

Habit /routine (little or no information search; focus on one brand)

Brand loyalty (athletic shoes, adult cereals, cologne, deodorant)

Inertia (frozen vegetables, paper towels)

6.2 Describe briefly the five steps consumers go through when purchasing high involvement products or services.

Problem identification

Triggered by unsatisfied needs or wants Perceive differences between in deal and actual states on some physical or sociopsychological dimension.  Seek products or services to help bring their current state more into balance with the idea

Information search How much information will a consumer seek?

Source of Information - personal – commercial - public

Evaluation of alternatives

Product attributes and their relative importance i.e. Cost , Performance, Social attributes, Availability

Purchase Choosing a source from which to buy the product involves essential the same mental process i.e. mail order, teleshopping, catalogue, retail store.

Post Purchase Evaluation

Aspiration or expectation level how well the product was expected to perform.

Post purchase dissonance consumer may doubt whether they made the best possible choices. Such doubts are called cognitive dissonance.

6.3 How do low-involvement purchase decisions differ from high-involvement ones?

They are not import to consumers, the search for information to evaluate alternative brands is minimal.  As a result, decisions to buy products such as cookies or cereal often are made within the store either impulsively on the basis of brand familiarity or as a result of comparisons of the brands on the shelf.

6.4 What are the marketing implications of low-involvement purchasing?

Implications High Involvement

Low Involvement

Product design and positioning

Consumers evaluate alternative brands according to choice criteria that reflect the benefits they seek

Brand evaluation occurs after the product is purchased, consumers seek brands that are least likely to give them problems,

Focus on product features that minimize any problems in using the product.

Advertising and Promotion

Printed media are better for highly involved with the product and actively seeking information.

Passive information gatherer, advertising should focus on a few main points to make it as easy as possible for them to gain familiarity and positive association with a brand.  Television is primary medium for advertising. – allows passive learning. Distinctive package design helps consumers recognize brands they have seen advertised.

Pricing Bought often on price alone, special sales or coupon offers can be effective.  If no problems experienced in use of trial consumers may continue to repurchase the brand out of inertia until a competitor offers an attractive price promotion

Distribution Extensive retail distribution important because consumers are unwilling to search for a particular brand.

Strategies to increase consumer involvement

Link product to some involving issue, i.e. bran cereals associated their product with a high fiber diet that may reduce the incidence of colon cancer.

6.5 Describe the Fishbein model by using an example.

Attitude A = Consumer’s overall attitude towards Brand A

Bi = Consumer’s belief concerning the extent to which attribute i is associated with Brand A

Ii = The importance of attribute i to the consumer when choosing a brand to buy.

k =  The total attributes considered by the consumer when evaluating alternative brands in the product category.

i = Any specific product attribute.

Cruise ship selection

Service attribute Importance weight (0 –10)

Rating

A

Rating

B

Rating

CDemographics – other passengers

10 8 8 8

Entertainment 10 8 10 9Ports of Call 8 8 9 9

Cruise A = (10x8)+(10x8)+(8x8) = 224

Cruise B = (10x8)+(10x10)+(8x9) = 252

Cruise C = (10x8)+(10x9)+(8x9) = 242

Cruise B would be selected.

6.6 What is the difference between a compensatory and a non-compensatory model?

In a compensatory model a poor evaluation of one attribute can be offset by a strong evaluation on another. 

In a non compensatory model brands are evaluated one attribute at a time. Until one is superior

6.7 How do demographics and lifestyle have an impact on buying behavior?

Demographics influence:

1)      The nature of consumers needs and wants

2)      Their ability to buy products or services to satisfy those needs

3)      The perceived importance of various attributes or choice criteria used to evaluate alterative brands

4)      Consumers’ attitudes toward and preferences for different products and brands.

Lifestyles

People live their lives in different ways i.e. different opinions, interests and activities, i.e. buying and using brands in different ways for different purposed.

6.8 Identify the major social influences on consumers’ decision-making processes.

Social

Culture – set of beliefs, attitudes and behaviour patterns relatively stable over time.

Sub Culture – share common geographic, ethnic, racial or religious backgrounds, They continue to hold some values, attitudes and behaviour pattern that are uniquely their own.

Social Class - status groups largely based on similarities in income, education and occupation.

Reference Groups –groups that affect consumer behaviour through normative compliance, value-expressed influence and informational influence.

The Family – it serves as the primary socialization agent, helping members acquire the skills, knowledge and attitudes to function as consumers.

Module 7 Organizational Markets & Buying Behavior7.1 What are the major differences between organizational and consumer markets?

Organizational markets are about twice as large as consumer markets.

Organizational buyers purchase goods and services for further production, for use in operations or for resale to other consumers, In contrast to individual and households who buy for their own use and consumption.

Differences between organizational & consumer markets

Demand characteristicsThe demand for industrial goods and services is:

1. Derived from the demand for consumer goods and services.2. Relatively inelastic – price changes in the short run are not likely to affect

demand drastically.3. More erratic because small increases in consumer demand can, over time,

strongly affect the demand for manufacturing plants and equipment.4. More cyclical.

Market demographicsOrganizational buyers, when compared with buyers of consumer goods, are:

1. 1 Fewer in number.2. Larger.3. Geographically concentrated.4. More apt to buy on specifications.

Buyer–seller relationshipsOrganizational markets are characterized by the following when compared with the markets for consumer goods:

1. The use of professional buying specialists following prescribed procedures.2. Closer buyer–seller relationships.3. The presence of multiple buying influences.

7.2 What groups of people are the participants in the buying process?

It involves people from various departments, and can be:

Users People who must use or work with the product or serviceInfluencers Provide information for evaluating alternative products

and services, usually technical experts from various departments.  Help determine specifications and criteria to use in making the purchase decision.

Gatekeepers

Control the flow of information to other people in the purchasing process, primarily purchasing agents and suppliers salespeople control information that reaches other decision makers.

Buyers Purchasing agent or purchasing manager buyers have authority to contact suppliers and negotiate the purchase transaction.

Deciders Person who has the authority to make a final purchase decision.

7.3 Describe briefly the organizational purchase decision-making process.

7.4 What are the marketing implications of the following categories of industrialgoods and services?

CATEGORY: RAW MATERIALS Description: Relatively unprocessed goods that become apportion of a final productCharacteristics: Limited supply, few producers; distribution is a key function; price is a critical competitive variable. Marketing Implication: Little promotional activity except for co-operative advertising campaigns funded by trade groups to stimulate primary demand for a product. 

CATEGORY: COMPONENT MATERIALS AND PARTS. Description: Processed goods that become a portion of a final product.Characteristics: High volume purchases, long-term contracts; fierce competition among suppliers, requires good service and nurturing of relationships with buyers.Marketing Implication: Manufacturers buy most components materials and parts in large quantities, usually sold direct, without use of middlemen.  Wholesale distributors sell to smaller manufactures in some lines of trade.  To avoid disrupting production runs, sellers must ensure a steady reliable supply of materials and parts, JIT

CATEGORY: ACCESSORY EQUIPMENT Description: Finished goods that facilitate production of a final productCharacteristics: Enduring but less os than installations, more standardized, more frequently purchased and less costly than capital equipment; less complex buying intermediaries may be involved.Marketing Implication: Wide range of specific items, it is hard to generalize about the most common or appropriate marketing strategies for accessory equipment. , producers sell accessory equipment directly.  Presale and post sale service requirements are substantial, but the monetary value of the average sale is high enough to justify direct distribution.  Personal selling either by the producers or a distributor sales force is the most important promotional method used in selling accessory equipment.  Products standardized and not technically complex and thus advertising and brand name promotion are also important.

CATEGORY: INSTALLATIONS Description:

Major capital goods used to produce a final product, but not part of the final product.Characteristics: Long-lasting; involved in production of many units of the final product over several years; involve large monetary outlays; capital budgeting committee involved in purchase decision; sold directly from manufacturer.Marketing Implication: Presents real challenge because there are few potential customers at any one time, average sale is very large.  Many installations are custom-made to fit a particular customers needs, therefore sellers must provide engineering and design services before making a sale.  Often long period of negotiation prior to final transaction. Firms selling installation must usually provide many post sale services, ie installation, training, maintenance repair and sometimes financing.  Small number of buyers buys large monetary volume of each sale and custom engineering involved, distribution usually direct from producer to customer.  Some wholesale distributors provide replacement parts and repair services for equipment already in operation.  For similar reasons promotional emphasis is usually on personal selling rather than advertising, High-caliber, well-trained salespeople are critically important in the marking of installations.

CATEGORY: OPERATING SUPPLIES. Description: Finished goods that facilitate repair, maintenance and ongoing operations.Characteristics: Analogous to consumer convenience goods, frequently purchased and consumed in a short time; standardized; broad market; heavy used of channel intermediaries.Marketing Implication: Purchased in small quantities by a great many different organizations, wholesale middlemen typically used to distribute.  Price is usually critical variable in marketing operating supplies.  Competing products are quite standardized and there is little brand loyalty.  Personal selling by agents and distributors is also important.

CATEGORY: BUSINESS SERVICES. Description: Provide special expertise to facilitate ongoing operationsCharacteristics: Long-term relationships with customers; supplier’s qualifications, experience and reputation critical to success; purchase decision often made by top executives.Marketing Implication: Services are intangible purchased prior to evaluation by buyer, Suppliers qualifications, past performance and reputation become critical determinants of the success of the marketing effort.  Price is less important in selling business services because a lawyer or consultant with an outstanding reputation can often charge much more for a given service than one who is less well know,  Even so, rice often serves as an indicator of quality, especially when there are no other quality cues.

7.5 What factors determine the buying task faced by an organization?

1)      The newness of the problem and the relevant buying experience of decision makers in the buying center.

2)      The information needs of the people in the buying center.

3)      The number of new alternative products and/or suppliers to consider in making the purchase decision.

Three kinds of buying task or situations;

1)      Straight rebuy purchasing common product or service the organization has bought many times before.  Routine

2)      Modified rebuy – organization’s needs remain unchanged, but buying center members are not satisfied with the product or the supplier they have been using.

3)      New-task buying  organization faces a new and unique need or problem - one in which buying center members have little or no experience in buying and thus must expend a great deal of effort to define purchasing specifications.

7.6 Who are the major types of organizational customers?

Resellers All retailers, wholesalers – buy large quantities of goods for resale to other organization or household consumers

Goods Producers

Producers of raw materials (such as farm and forest products firms and mines), building contractors and manufacturers.

Service Producers

Banks, Hotels (lodgings), Financial, Insurance, entertainment, Education

Government Large buyers of goods and services

Module 8 Marketing Information and Marketing Research 8.1 Define the term ‘marketing potential’.

the likely demand from all actual and potential buyers of a product or product class.

8.2 How can one measure market potential?

Via Single factor index – researchers use it most successfully when the two items have a derived or complementary demand.

Multiple-factor indexes - use a combination of two or more factors to estimate relative market potentials, multifactor index

8.3 What are the benefits and drawbacks of using statistical methods for estimating market potential and sales?

Statistical methods use past history and various statistical techniques, to forecast the future based on an extrapolation of the past.

Benefits: In established firms, for established products, statistical methods are extremely useful, especially if firms have years of experience with which to calibrate their statistical model.

Drawbacks: They assume that the future will look very much like the past.If product or market characteristics change, statistical models used without adequate judgment may not keep pace.

8.4 What other evidence-based methods might you use to estimate market potential or forecast sales?

6 major evidence-based methods:

1. Statistical and quantitative, 2. Observation, 3. Surveys, 4. Analogy, 5. Judgment, 6. Market tests.

7. Not evidence-based – the SWAG method (Silly Wild-Ass Guess) – is not condoned here, though there is little else to support some forecasts!

8.5 Explain some of the biases in forecasting?

1. subject to anchoring bias, where forecasts are perhaps inappropriately ‘anchored’ in recent historical figures, even though market conditions have markedly changed, for better or worse

2. Capacity constraints are sometimes misinterpreted as forecasts.3. Incentive pay. Bonus plans can cause managers to artificially inflate or

deflate forecasts, whether intentionally or otherwise. ‘Sandbagging’: setting the forecast or target at an easily achievable figure in order to earn bonuses when that figure is beaten

4. Unstated but implicit assumptions can overstate a well-intentioned forecast.

8.6 Describe marketing database systems and how they can be used.

Point of Sale (POS) database are used for direct marketing and prospecting programs for companies that sell directly to end users.  Collecting demographic data and tracking purchases.

Geodemographic database provide 4 types of data demographics, geographics, psychographics and consumer behavior. 

8.7 Define what is meant by the term ‘marketing research’.

The function which links the consumer, customer and public to the marketer through information – information used to identify and define marketing opportunities and problems; generate, refine and evaluate marketing actions; monitor marketing performance; and improve understanding of marketing as a process.

8.8 What is the difference between primary and secondary data sources?

Primary Are collected specifically for the problem at hand and require the firm to undertake the steps in the research process or hire an outside agency to do so

Secondary Data collected by other organizations and are not usually tied directly to the firms’ problems.  They have the advantage of saving time and money, but the data must be compatible with the needs of the specific study.

8.9 In performing marketing research, what are some important ethical considerations to make when dealing with respondents?

Potential to harm individuals when such information is used without their knowledge and/or consent, leading them to be excluded from or included in activities in such a way that they are harmed economically, psychologically or physically.

Stem in large part from the interaction between the researcher and respondents, clients and the general public. For instance, respondents should not be pressured to participate, should have the right to remain anonymous and should not be deceived by fake sponsorship.

8.10 What are the major differences between probability and non-probability sampling?

Probability Sample Every person in the population has an equal chance of being selected.

Non Probability or Convenience Sample

Every person in the population DOES NOT have an equal chance of being selected

Thus, the results cannot be generalize with any degree of certainty to a larger population

Margin of error: the larger the sample size, the smaller the margin of error.

Always ask about the sample selection method.If not random, inquire about how the sample was selected

8.11 What are sine critical questions that managers setting up competitive intelligence systems should ask?

1. How rapidly does the competitive climate in our industry change?How important is it that we keep abreast of such changes?

2. What are the objectives of CI in our company?

3. Who are the best internal clients for CI?To whom should the CI effort report?

4. What budget should be allocated to CI?Will it be staffed full, or part-time?

What are the major kinds of data you would want to collect about a competitor?

Examining data on their characteristics, objectives, strategies, performance to date and their strengths and weaknesses in order to gain insights into their future behavior.

8.12 Name each step of the marketing research process and explain what could go wrong at each step.

Exhibit 8.7 Steps in the marketing research process: what can go wrong?

Steps What frequently goes wrong?

1. Identify managerial problem and establish research objectives

Management identifies no clear objective, no decision to be made based on the proposed research.

2. Determine data sources (primary or secondary) and types of data and research approaches (qualitative or quantitative) required

Primary data are collected when cheaper and faster secondary data will do. Quantitative data are collected without first collecting qualitative data.

3. Design research: type of study, data collection approach, sample, etc.

These are technical issues best managed by skilled practitioners. Doing these steps poorly can generate misleading or incorrect results.

4. Collect data Collector bias: hearing what you want to hear.

5. Analyze data Tabulation errors or incorrect use or interpretation of statistical procedures may mislead the user.

6. Report results to the decision maker

Some users do not really want objective information – they want to prove what they already believe to be true.

(8.5) How can secondary source data be evaluated?

Researchers must answer the question ‘How good are the data?’ if the source specifies the data-collection method used, it can serve as the basis for the evaluation. If not the researchers are forced to judge the quality on the basis of other factors. I.e. research sponsors may be federal government or a trade association.  And how data was collected i.e. by mail or personal interview.

(8.6) What is the difference between exploratory and conclusive research?

Exploratory Uses secondary data (case studies and interview with

knowledgeable people) Used to learn more about the nature and scope of the

problem Preliminary step to be followed by conclusive research that

tests the relevant findings Flexibility is key to the investigation

Conclusive

Comprises descriptive and experimental studiesConclusive research to test alternative solutions to a problemstudies.

(8.7) What is the difference between descriptive and experimental research?

Descriptive

Often referred to as survey research more commonly used design

Experimental

Advantage of permitting the researcher to show cause-and – effect relationships between the variables 0 something that can only be inferred from descriptive studies.

Some serious disadvantages that limit its usefulness in marketing

1. most experiments can measure only immediate results2. Expensive3. Use small samples that may not be representative of the

national market4. Difficulty holding all variables constant5. Pose severe administrative problems can be audited by

competitors

(8.9) Why is interviewing one of the major sources of error in a typical research project?

Telephone and personal interviews, an interviewer often selects the person to interview, asks questions and records the answer and errors can occur at each step.

Respondents refuse to cooperate

Unable to remember information wanted

Biased by the interviewing process

Not want to report things that reflect poorly on their intelligence or social position.

Does question mean the same to everyone?

Interviewing respondents it the one major source of error in the typical research project

(8.10) Under what conditions would you use each of the various data collection methods?

Questioning

Most common way - almost any problem can be attacked using it, problems involving attitudes, knowledge and buying intentions can be approached only by using this method.

Observation

Recognizes and notes people, objects and actions, rather than asking for information. Less popular than interviewing respondents

(8.12) What two kinds of measures need to be merged to develop a meaningful measure of customer satisfaction?

The first has to do with understanding of the criteria used by customers to evaluate the quality of the firm’s relationship with them. Knowing the product/service attributes that constitute the customers choice.  Criteria as well as the relative importance of each should facilitate this task.  Once these attributes are identified they serve as the basis for developing expectation measures

The second type of measurement is concerned with how well the firm is meeting the customer’s expectations on an individual attribute as well as an overall basis, Thus, if the choice criteria of a cruise line’s target market included such attributes as food, exercise facilities and entertainment, then a performance measure would be developed for each .

(8.15) What is a marketing-decision support system?

Marketing-Decision Support Systems (MDSS) deals with the use of computer technology to enhance a marketer’s ability to identify and solve problem on a continuous day-in day-out basis using a marketing-decision support system. It co-ordinates collection of data, systems, tools, and techniques with supporting software and hardware by which organization gathers and interprets relevant information from business and its environment and turns into a basis for marketing action.

Highly flexible and action oriented

(8.16) What is the future of MDSS?

Many have not progressed further in developing more sophisticated system. Major reason risk involve din making large investments, given the difficulty of estimating the return. Al closely related problem is that the success of such system depends heavily on the decision making capabilities of the user.

Companies will adopt during the next decade. Increasingly empowering managers throughout the organization to make bigger, more complex decisions more quickly because of increased environmental dynamics. Becoming a critically needed resource.

Module 9 Market Segmentation and Market Targeting

9.1 Define market segmentation.

Involves subdividing the market place into distinct subsets of customers having similar needs and wants, each of which can be reached with a different marketing mix. Lead them to respond in similar ways to a particular product offering and strategic marketing Program.

Target marketing requires evaluating the relative attractiveness of various segments (in terms of market potential, growth rate, competitive intensity, and other factors) and the firm’s mission and capabilities to deliver what each segment wants, in order to choose which segments it will serve.

9.2 Why is there a strong interdependency between market segmentation, market targeting and positioning?

Determination of which segment target.  To do so would require evaluating the relative attractiveness of each segment (size, revenue potential and growth rate), the benefits sought and the firm’s relative business strengths.  This is called target marketing. Finally

Product positioning – that is, designing product offerings and developing strategic marketing programs that collectively create an enduring competitive advantage in the target market – would need to be undertaken. 

All must be well considered and implemented if the firm is to be successful in managing a given product-market relationship.

9.3 What is the rationale for market segmentation?

Find an appropriate segmentation scheme that will facilitate market targeting, product positioning and the formulation of successful marketing strategies and programs. 

9.4 Why is market segmentation of growing importance?

1)      Population growth has slowed

2)      More product markets are maturing in turn sparks more intense competition as firms seek growth via gains in market share.

3)      Social and economic forces as expanding disposable incomes, higher education level and more awareness of the world

4)      Important trend toward micro-segmentation.  Accelerated by new technology

5)      Implementation of specialized marketing programs by broadening and segmenting their own services. 

9.5 What are the objectives of the market segmentation process?

1. Identify a homogeneous segment that differs from other segments2. Specify criteria that define the segment.3. Determine segment size and potential.

9.6 What are the different types of descriptors used to segment consumer goods markets? Industrial goods markets?

Consumer market Organizational marketDemographic = WHO

age, sex, income, occupation, education, geography, race and ethnic origin

Demographic = WHO1. macro: characteristics of the buying

organization: age, size, industry affiliation (SIC code)

2. micro: characteristics of the individuals who influence the purchasing decision: age, sex, position, …

Geographic = WHEREGeodemographic = WHERE + WHOBehavioral = WHAT THEY DONeeds, benefits sought, purchasing is a problem-solving process, choice criteriaproduct-related: usage, loyalty, predisposition, purchase influence

Lifestyle or psychographics groups consumers on the basis of their activities, interest, opinions.social class → be careful, 62 distinct classes in the US

Purchasing structure: the degree to which the purchasing activity is centralized.Buying situation: straight rebuy, modified rebuy, new buying situation

Know the demographic profile, even if the driving force behind the segmentation scheme is geographical and/ or behavioral in nature.

Insightful segmentation sharply focused in a behavioral way

9.7 Describe the two-step process used to segment industrial markets.

Macro segmentation

Divides the market according to the characteristics of the buying organization using such descriptors a geography, location, company size and industry affiliation. (SIC) International counterpart of SIC is the trade-category code

Micro segmentation Groups customers by the characteristics of the individuals who influent the purchasing decision for instance, age, sex and position within the organization

9.8 What is geodemographic segmentation? Why is it becoming increasingly important?

It attempts to predict consumer behavior by making demographic, psychographics and consumer information available at the bloc and zip code levels. 

9.9 What are the steps in constructing a market-attractiveness/business-position matrix for evaluating potential target markets?

1. Choose criteria to measure attractiveness and competitive position

2. Weight each factors to reflect their relative importance

3. Assess the current position of each potential target market on each factor

4. Project the future position of each marketbased on expected environmental, customer and competitive trends

5. Choose segments to target, Allocate resourcesEvaluate implications of possible future changes for business strategies & resources requirements

Market-attractiveness/ business-position matrix

9.10 What are the three most common types of targeting strategy? Discuss each.

Niche Market Involves serving one or more segments that, while not the largest, consist of substantial numbers of customer seeking somewhat specialized benefits from a product or service. Designed to avoid direct competition with larger firms pursing bigger segments.

Mass Market 1. Ignore any segment differences and design a single product and marketing program that will appeal to the largest number of consumers.  Capture sufficient volume to gain economies of scale and a cost advantage.

2. Design separate products and marketing programs for the differing segments.  Differentiated marketing.

Growth Market

Target one or more fast-growth segments even though they may not currently be very large.  Favored by smaller competitors to avoid direct confrontation with larger firms while building volume and share for the future

(9.10) What are the requirements for effective segmentation?

1)      Adequate size

2)      Measurability

3)      Accessibility

4)      Different response.

(9.11) What are the two emerging inter-country global segments?

Identify consumers with similar needs and wants reflected in their behavior in the marketplace across a range of countries.   Identifies consumer homogenous groups of consumers across country segments.

(9.12) Why, for many products, are international markets becoming more homogeneous?

Similar segments have emerged in different countries at the same time because of technological developments affecting communications, transportation and travel,  developing Global segments. 

(9.15) Discuss the major inclusion and exclusion ethical issues involved in market targeting.

Inclusion

Undesirable stereotypes. Include sex role, race or age stereotypes ie women a sex objects.

Exclusion

Certain groups are deprived of the products or services but also that they may pay more for those they do receive.

(9.4) What are the benefits of market segmentation?

1)      Identifies opportunities for new-product development

2)      Segmentation helps in the design of marketing programs that are most effective for reaching homogenous groups of customers

3)      It improves the strategic allocation of marketing resources. 

Module 10 Positioning Decisions10.1 What is meant by positioning?

Differentiation – the perceived fit between a particular product and the needs of the target market.  Defined relative to competitive offerings and consumer needs. 

10.2 What are the differences between physical and perceptual positioning?

A business positions its offering so that customers in the target market perceive it as providing the desired benefits, thereby giving it an advantage over current and potential customers.

Physical position offerings are based on comparison on some set of objective physical characteristics

10.3 What are the limitations of physical positioning?

A simple comparison of only the physical dimensions of alterative offerings usually does not provide a complete picture of relative positions because positioning ultimately takes place in customer’s minds. 

10.4 What are the steps in the positioning process?

1) Identify relevant set of competitive products

2) Identify the set of determinant attributes that define the ‘product space’ in which the positions of current offerings are located.

3) Collect information from a sample of customers and potential customers about perceptions of each product on the determinant attributes

4) Analyze intensity of a product’s current position in customers’ minds.

5) Determine product’s current location in the product space (product positioning)

6) Determine customers’ most preferred combination of determinant attributes

7) Examination the fit between preferences of market segments and the current positions of product (market positioning).

8) Select positioning or repositioning strategy.

10.5 What are some of the more common types of bases used to distinguish one product or service from another?

1) Features – physical product position and industrial products2) Benefits – directly related to a product3) Usage including end use, demographic, psychographics or behavioral and

popularity.4) Parentage – who makes it, 5) Manufacturing process – the subject of a firm’s positioning efforts.6) Ingredients - positioning concept illustrated by ie pure cotton7) Endorsements two types those by experts ie medical professionals and

those via emulation Michael Jordan using Nike shoes.8) Comparison with a competitor’s product is commonplace9) Pro-environment – positioning seeks to portray a company as a good

citizen 10) Product Class – new different product type11) Price/quality – 12) Country or geographic area

10.6 What constraints are imposed on a brand with an intense position?

Developing a strong relationship between a brand and a limited number of attributes.

10.7 What are the limitations of a product positioning analysis?

It indicates how alterative products or brands are positioned relative to one another in costumers; minds.  Does not tell the marketer which positions are most appealing to customers. 

10.8 In choosing a given position for a given brand, what factors should one consider?

Market targeting analysis and the results of a market positioning analysis. 

Position should match the preferences of a particular market segment and should take into account the current positions of competing brands.  Also reflect the current and future attractiveness of the target market and the relative strengths and weaknesses of the competitors. 

(10.9) What is a product intent share?

Product intent share represents the percentage of consumers who intend to buy a specific brand before actually searching for it.  Integrates all factors that influence the perceived qualities of a product.

(10.10) How can the purchase intent share that a brand might acquire in a given segment be estimated?

Based on the positions of existing brands and the preferences of consumers in the segments.  In a perceptual map obtained via multidimensional scaling,   based on the distance between a brands position and the ideal points. 

(10.11) What market dynamics should be considered in evaluating the sales potential of alternative positions?

1)      Growth of market segments2)      Evolution of segments ideal pints3)      Changes in position intensity4)      Evolution of existing brands positions5)      Emerging attributes6)      Development of new segments7)      Introduction of new brands.

(10.12) Describe each of the various market positioning strategies.

Monosegment positioning

Developing a product and marketing Program tailored to the preferences of a single market segment.

Multisegment positioning

Position a product so as to attract consumers from different segments. Provides higher economies of scale, requires smaller investments and avoids dispersion of managerial attention

Standby positioning

Not in best economic interest of a firm to switch from multisegment position to monosegment (assumes use several brands, each positioned to serve the needs of only one segment) only implement monosegment when forced to do so.

Imitative positioning

Head-on strategy where a new brand targets a position similar to that of an existing successful brand.

Anticipatory positioning

Position anew brand in anticipation of the evolution of a segment’s needs. This is particularly appropriate when the new brand is not expected to have a fast acceptance and market share will build as the needs of consumers become more and more aligned with the benefits being offered.

Adaptive Positioning

Periodically repositioning a brand to follow the evolution of the segment’s needs.

Defensive positioning.

When a firm occupies a strong position in a market segment with a single brand, it is vulnerable to imitative positioning strategies.  Pre-empt competitive strategies by introducing similar poison for the same segment.

Part 3 Developing Strategic Marketing Programs

Module 11Product Decisions

11.1 What is a product? Describe its various components.

A product can be defined as anything that satisfies a want or need through use, consumption or acquisition.  It includes subjects, services, places, people activities, and ideas.

11.2 Describe the four subgroups of consumer goods.

Goods & Services

Examples Strategy elements stressed

ConvenienceToothpaste, soap, razor blades, magazines, haircuts, many packaged food products

Maximum distribution (availability)Consumer advertising (awareness, brand recognition)Merchandizing (in-store displays)

Shopping

Color TV, cars, major appliances, homes, car repair, family doctors

Available in limited number of stores,Personal selling importantLimited to extensive advertisingSeller often offer financing, warranties and post purchase service

SpecialtyMusical instruments, stereo equipment, some brands of men’s clothing, college consultants

Limited distribution high price strong advertising to promote brand uniqueness and where available locally

Unsought Certain medical services, insurance , encyclopedias

Strong promotion, including personal selling

11.3 What are the eight dimensions of quality? How do these affect a firm’s quality strategies?

Performance

Has to do with a product’s basic operating characteristics,

Features Secondary product characteristics that are designed to enhance the products basic functions.

Reliability Is the probability that a product will perform satisfactorily over a given period.

Conformance

The extent to which a product’s operating characteristics meet certain specifications.

Durability Measure of the life of a product, technical (replacement) and economic (repair cost)

Serviceability

Concerned with the speed and ease of obtaining competent repair.

Aesthetics How product looks, feels, sounds, tastes, and smells

Perceived quality

Results from the use of indirect measures since the consumer may lack or not understand information about a product’s attributes.

11.4 How does branding benefit consumers? Sellers?

Consumers

Simplifies shopping, facilitates the processing of information concerned with purchase options, provides confidence that the consumer made the right decision.

Seller Enhances:- Effectiveness of their marketing Programs – particularly promotion- Brand loyalty which in turn leads to greater profitability- Opportunities for successfully launching brand extensions- Prices and margins resulting from a competitive advantage- Channel relationships.

11.5 Discuss briefly the various branding strategy options.

Individual Branding Each product has a distinctive name.  I.e. Proctor and Gamble (Tide, Luvs, Crest, Pringles)

Family Branding Same brand name to cover a group of products i.e. Campbell’s soups Sears Kenmore appliances

No Brand Name Examples include generic, no-frills, unbranded,

Multiple Brands strategy

Company deliberately competes against itself i.e. General Motors (Buick versus Oldsmobile versus Pontiac)

Co-Branding Multiple brand names with a single product or service offerings, eg Smart car, Häegen-Dazs’ Baileys Irish Cream ice cream

Global Branding Difficult, negative associations in some countries, presence of strong local brands, heavy investments required. If successful, scale effects dramatically enhance sales and profits. Coca, Nike, Starbucks, Sony…

11.6 Define each of the following:

Line filling Lengthens the product line by adding items within the present range , objective to satisfy more customers, increase sales and profits, ward off competitors

Line stretching Lengthening the product line beyond its current range of variables, such as size and price.  Upward stretch(higher-quality) JC Penney, downward stretch (lower-quality) Mercedes minicar

Line extensions Introduction of new products that differ significantly form those in the existing line certainly by more than just size and price.  - Greater costsand financial risks than product line filling or stretching strategies

11.7 Discuss briefly the five criteria consumers use to evaluate service quality.

Tangibles Appearance of physical characteristics

Reliability Dependable performance

Responsiveness

Promptness and helpfulness

Assurance Competence, courtesy and credibility

Empathy Good communication and understanding of customer’s needs and concerns

11.8 How can the variation in new-product failure-rate estimates be explained?

Some studies examine the proportion of new-product concepts or ideas that fail to achieve commercial success, while others focus only on products that fail after being introduced into the market. 

11.9 Why are more and more firms using teams to introduce new products?

One of the advantages of using participative structures with cross-functional teams is their ability to reduce the time of the new product development process by fostering closer relations between various functional areas.  

Reduces time to gain approval from one area (marketing) for another’s work (product design).

11.10 What are the major steps of the new-product development process?

11.11 What are the more important sources of new product ideas?

Customers, R&D, Salesforce, Product Managers, Marketing, Distribution, Competitors.

11.12 What are the various ways new product ideas can be tested?

Screening process largely or entirely based on secondary data, on the market, on technical know-how resident in the company (Module 8 estimating market potential).

Scoring models use limited number of review criteria to more sophisticated ones. Easy to use and low in cost.  When only rough distinctions are required among projects. 

2 3 4 5 6

11.13 Describe a laboratory test market and how it operates.

Packaged consumer products, mainly food, household and some personal care items. Measures the process by which a consumer adopts a new product.Three major steps:  awareness, trial and repeat buying.

Respondents representative of the target audience see commercials about the new product imbedded in a TV program. Then they are given the option of buying such a product in a simulated store also stocked with competing brands. If they choose the test product, then researchers make follow-up interviews to determine the extent of satisfaction (including preference over their regular brand) and repurchase intentions.

11.14 What factors might influence a firm’s decision about whether to conduct a field test market.

Implemented in a small geographical area to ensure that it will deliver the expected results.

Cost reasons and competitor threats giving them the opportunity to evaluate the results, even to the point of introducing their own new product.

11.15 Describe briefly the various commercialization strategies.

Forego market testing and move directly to a roll-out region by region or nationally from the outset. 

Extension of the full-scale test market, which was designed to test a national introductory plan.

Roll-out test rather than an elaborate market test, provided the results from the market simulation studies are strongly positive. Thus, they launch their product in 10% of the country and rely on fast sales results data (by scanners when possible) to check how well the product is doing.

Testing in a few countries before global rollout.

Test area where the company has strong resources in order to lead from strength to get things moving.

Multiple channels roll out 

Based on the trade-offs between risk and the need to plan the cash flow for the introduction and the speed with which competitors are likely to react. Seeking national rollout asap.

(11.4) How do the earlier decisions concerning targeting and positioning affect the composition of the product line as well as the attributes of individual products?

Earlier steps in the marketing management process constrain a business unit’s product strategy – especially market targeting and market positioning which have an impact on the composition of the product line and the attributes of individual products. 

(11.5) How do the various stages in the product life cycle constrain product strategy?

As times change the environment in which the business unit competes, the result is likely to be a change in its product strategy, constrained by the product’s life cycle.

(11.6) What are the characteristics of a high-share global strategy?

1. A drive for a strong international market-share position2. Products with a high degree of international standardization3. A marketing Program – especially price, product line and advertising – geared

to the mass market.4. Large expenditures on design and R&D relative to the industry’s norm. 

Because of the large volume of sales, these costs on a unit basis are low.5. The use of regional production facilities or a rationalized global network

designed to reduce logistics costs.

(11.7) Under what conditions should a firm adopt a localization strategy?

The premise that products and programs must be adapted to the needs and wants of individual countries because of environmental differences especially cultural ones. Often occurs because of mandatory adaptation (that is, the foreign market requires it). 

(11.8) Discuss briefly the effect of each positioning strategy on product decisions.

Single (mono) product line is typically shorten than if it undertakes a multisegment positioning strategy, In a defensive positioning strategy a firm with a successful brand introduces a second similar brand to pre-empt a competitors initiative strategy,  similar to a flanker or fighting brand, which counters the moves made by competitors by offering retailers certain price and advertising concessions. 

(11.9) How does each of the three major types of business strategy constrain

a firm’s product strategy?

Prospector Strategies

Center on new-product development, which encourages broad and technically advanced lines

Analyzers Concerned with defending their established business, either by using a low cost approach or by differentiating their product offering on the basis of quality and service.  Some attention to new-product development.

Defender Similar to Analyzers except the defenders devote fewer resources to the development of new products, have smaller product lines (on average) and wherever possible differentiate themselves from competitors via service.

Three major types of business strategies constrain a firm’s product strategy with respect to its breadth, technical sophistication, quality and service.

(11.12) Under what conditions is branding particularly effective?

When it is difficult for the consumer to measure the products quality objectively.  Status, large enough market to warrant the cost of branding, differentiate product.

(11.13) Why in America have high quality store brands gained considerable

share as against national brands?

In the 80’s the national brands regularly increased their prices along with making massive distributions of coupons, thereby training consumers to shop on price.  Large number of line extensions and in general, focused less on brand equity.  Taking advantage of the price vulnerability of many national brands. Strong in the soft goods trade. 

(11.16) How does the fact that services are ‘intangible’ affect marketing management?

Differentiates service from a good.  The degree to which a service is intangible affects the getting and keeping of customers.  Consumers are forced to buy the promise of a service.  They are intangible; hence marketers need to make them tangible to prospective buyers.  

Module 12 Pricing Decisions

12.1 Why has price become a more important part of a firm’s marketing strategy

in recent years?

Slower growth, the maturing of many basic industries, improved productivity, the growing power of retailers and their private labels and the increased aggressiveness of low-cost global competitors have made domestic markets more price competitive. Resulting in pricing and price competition becoming number one priority in the 1990s.

12.2 Why is price an area in which managers feel the most pressure to perform

yet the least certain they are doing a good job?

For the most part, managers believe that they don’t have control over price.  The market dictates it yet anything closer to the “right” price can have a tremendous impact. 

12.3 What are the steps in the price-setting decision process?

Influences and Constraints

SBU and marketing strategies Target market characteristics Product characteristics Competitor characteristics Company strengths and weaknesses Environmental influences

Economic trends Legal restrictions

The price-setting decision process

1. Set strategic pricing objective2. Estimate demand and price elasticity of demand3. Determine cost and their relationship to volume4. Examine competitors’ prices and costs5. Select a method for calculating prince6. Set a price level7. Adapt price structure to meet variations in demand and cost across

geographic territories, market segments, etc.

12.4 Under what conditions is penetration pricing appropriate?

When in addition to a large market:

1. Target customers are relatively sensitive to price

2. The firm’s costs are low compared to those of competitors and the SBU is pursing a low-cost strategy

3. Production and distribution costs per unit are likely to fall substantially with increasing volume.

4. Low prices may discourage potential competitors from entering the market. 

12.5 Describe a skimming price policy.

Setting the price very high and appealing to only the least price-sensitive segment of potential customers. This can also be accomplished over time, as in ‘periodic discounting’, when the seller prices high at the beginning of each period and low at the end. Used normally in pioneer development of a new product market.  Maximize short-run profits.

12.6 Describe a harvesting price strategy.

Maximize short-term profits before demand for the product disappears.  Typically involves cutting marketing, production and operating costs of the product while setting a relatively high price to maintain margins and maximize profits. 

12.7 What are the major factors affecting a customer’s sensitivity to price?

1. Buyers’ willingness to pay a given price for a product is influenced by their perception and preferences: their needs, desires, awareness of and attitude towards the item in question

2. The price, availability and attractiveness of alternative brands and substitutes products affect buyers’ willingness to buy the product.

3. Size of their incomes relative to the price influences customers’ ability to pay for a product or service.

Taken together, these factors determine the perceived value a potential customer will associate with a given product-market entry and price he or she will pay.

12.8 Define the term ‘elasticity of demand’.

The larger the proportion of price-sensitive customers in a product’s market the more sensitive overall demand is to a change in the product’s price.  The degree of responsiveness of demand to a price change is referred to as the price elasticity of demand.

12.9 What is the formula for calculating the price elasticity of demand for a

product or service?

Price elasticity of demand (E) =

12.10 What are the major problems in using this formula?

- Failure to consider the response of competitors to the company’s change in price

- The demand may be inelastic for a given price change, but elastic for a larger amount

- That elasticity is measure din terms of sales revenues not profit margins (one reason being that it does not take into account scale effects)

- A lowering of price may affect the sales of others in the company’s product line

- It ignores any societal benefits that may be accorded to the company for benefiting low-income segments via a price reduction

12.11 What are the more common ways of estimating a product’s demand

curve?

1. Approach is to survey a sample of consumers, or bring them into a laboratory setting, and ask them how much of the product they would buy at different possible prices. -Validity is questionable,

2. Estimating the price-quantity relationship via the regression analysis of historical sales using consumer panel data,

3. In-store experiments where a product’s price is systematically varied, or

4. Multiple test markets. This is expensive.

%change in quantity demanded% change in price

12.12 How can competitors’ costs and prices be estimated?

Track the price, cost and relative quality of each competitor’s offer.

Competitors’ costs are harder to measure than their price.  Reverse engineering can be used to take apart competing products and examinee the cost of their components, packing and production process. 

12.13 Describe (using an example) cost-plus or mark-up pricing, rate-of-return

or target return pricing and break-even pricing.

Cost-plus or mark-up pricing is simply to add a standard mark-up to the cost of the product.

Rate-of-return or target return this uses the same method as markup price but adds the cost of capital tied up in producing and distributing the product.

Break-even pricing   This is the variable cost per unit and fixed costs the volume necessary to just cover total costs. 

12.14 Describe the various competition-oriented pricing methods.

Going – rate or competitive parity  - where all try to maintain prices equal to those of one or more major competitors.  Used when little product differentiation and a few large competitors. 

Discount or premium price policies – base its pricing on what its competitors are charging, but try to hold its price either below or above the competition.

Sealed bidding buyers request a formal bid with no later opportunity for change.

12.15 Define the following terms:

FOB origin pricing.

The manufacturer places the goods ‘free on board’ a transportation carrier.  At this point the title and responsibility pass to the customer, who pays the freight form the factory to the destination.

Freight absorption pricing.

The seller picks up all or part of the freight charges.  New competitors trying to penetrate new markets and smaller competitors in maturing industries trying to increase their share

Zone pricing. Is another compromise approach that falls between FOB and uniform delivered pricing.  Here the company divides the country into two or more pricing zones.  IT charges all customers within the same zone the same delivered price, but a higher price is set for distant zones than for those closer to the plant.

12.16 Describe the various forms counter trade can take.

Barter Direct exchange of goods with no money and no third party involved.

Compensation deals Seller agrees to take some % of the payment in cash and the rest in goods.

Buyback arrangements

Seller offers a plant, equipment, or technical exercise to a customer and agrees to accept a partial payment products manufactured with the equipment or training supplied.

Offsets Seller compensated in cash but agrees to spend a substantial amount of that cash with e customer or its government over a stated time period.

12.18 Define trade or functional discounts, quantity discounts, co-operative advertising allowances and rebates.

Trade or functional discounts A discount from the suggested retail list price.  This discount is given to the wholesaler and / or retailer.

Quantity discounts Discount increases as order size increases.

Cooperative advertising A temporary reduction in the product’s price.  I.e. Pepsi’s offer of 15 cans of soda for the price of a 12-pack.

 Allowance Similar to discounts In they inducements to encourage channel members or final customers to engage in specific behaviors in support of the product.  I.e. car is a trade-in allowance.

Rebates Rebates reduce the price of the product through a money-refund offer.  Example mail in rebate.

12.19 What conditions allow for differential pricing

Not always possible or wise to set different prices for essential the same product. 

1. Must be obviously be identifiable customer segments with different price sensitivities

2. Either the customer segments must be physically separated from one another or the firm must institute control procedures to ensure that the segment paying the lower price cannot resell the product to customers paying the higher price.

3. The cost to the manufacturer of segmenting and monitoring the market should not exceed the extra revenue generated by the discriminatory pricing.

4. The firm should be confident that resentment among customer asked to pay the higher price, or competitive conditions in the market, will not leave it vulnerable to competitive attacks in the high price segments.

5. The firm should pay careful attention to the legal restrictions involved in price discrimination.

12.15 Describe the various customer-oriented pricing methods.

Perceived Value Potential customers usually have some idea of what constitutes a good or bad price.

Customary Prices Consumers expect a single customary price for products i.e. Candy bars at a customary price of 10 cents when cost put pressure on manufactures margins, they reduced size of bar rather than upset customers expectation by raising the price.

Price Lining Selling all products in a category at one of several predetermined ‘price points or levels.  Each price line represents a different level of quality.

Psychological pricing Users use price as an indication of quality.

Promotional pricing Most common type is sale: the offer of a reduced price on a product for a limited time.

12.1 A value-based pricing strategy emphasizes the value of a brand to the consumer. It hopes to capture the consumer’s perceived value of the product. To adopt such a strategy, a manufacturer of consumer household products would have to consider how and on what basis its products differed from competing products and use the perception of these differences to set a price relative to the prices being charged by competing products. To exploit these perceived differences as translated into stable, relative price differences (as against the use of frequent promotional deals involving price), the manufacturer would need to abandon its promotional pricing. This would not only stabilize prices over time, but save money, thereby permitting a reduction in price. To ease the pain of accepting value pricing by retailers, a firm should reduce the retailer’s costs of selling the product (e.g. better control over inventories).

12.3 Firms sometimes set a low price in a new product market (penetration pricing) to discourage potential competitors from entering the market. Can you think of any circumstances where a company might deliberately want to attract competitors to a new market and set a high price to help accomplish such an objective?

A firm wanting to maintain a high quality image and keep production quantities down may wish to adopt a high price in order to: (1) limit demand among customers; (2) reinforce the quality image of the product; and (3) attract other competitors to help build primary demand. Consequently, the company may want competitors to come in at the other end of the market to satisfy consumer demand for lower priced products while the company continues to sell its products at the high end. Also, if the pioneer has limited marketing resources, it may want competitors to help build primary demand for the new product.

12.4 What is price elasticity? Distinguish between price-elastic demand and priceinelastic demand. What are the pricing implications of each type of elasticity?

Price elasticity – A small price increase leads to a relatively large drop in quantity demanded.

Price inelasticity – A small price increase leads to a relatively small decline in quantity demanded.

When the price is elastic the firm may wish to lower the price, while the firm may want to consider raising the price when the price is inelastic.

12.10 Manufacturer A has experienced cost increases for its product in recent months.It would like to initiate a price increase, but only if its major competitors are likely to follow A’s lead with price increases of their own. Which characteristics of Manufacturer A and which market and competitive conditions, are most likely to encourage A’s competitors to follow its lead in increasing prices?

Manufacturer A must: (1) be one of the most efficient producers in the industry; (2) be perceived to have good marketing expertise which will help move the product even with a price increase; or (3) have a history of making price increases stick. It is more than likely that the industry is oligopolistic with little product differentiation and a few large competitors (e.g. steel).

12.11 Ford Motor Company offers a number of car models in different price ranges. In addition to the usual cost and demand considerations, what other factors should the company consider when determining the relative prices for various products in its line?

A key factor to consider is the cross-elasticity between models (cannibalization) which is the percentage change in sales of one product induced by a 1 per cent change in the price of another. This would enable Ford to examine how price increases in one model would affect demand for the other models in its line. In addition, the company must consider the costs and demand for replacement parts and how much of each car model should be composed of parts from other models (e.g. bumpers).

12.12 Some companies are using the Internet to sell their products – both new and old. How could the Internet be used to develop a demand curve for a new product?

An established product?

For a new product the company could use the Internet to auction it off. To do so would require a description of the product, its uses, the benefits it provides, the amount involved, and competitive/substitute products and their prices. Bidders would receive some kind of incentive to enter a bid. The range of bid prices coupled with their frequency could be used as an estimate of the perceived value of the new product.

For an established product consumers could be asked to estimate the per cent increase or decrease in sales resulting from each increment ‘up’ and ‘down.’ The assumption here is that in responding the consumer is actually revealing his/her demand schedule. Again, there would have to be a ‘reward’ for responding. The difficulty would be that the company would not know whether those answering were representative of the firm’s customers.

Module 13 Distribution Channel Decisions13.1 Define a marketing channel.

The set of interdependent organizations involved in the process of making a product or service available for consumption or use by consumers or industrial users.

13.2 Define each of the institutions found in marketing channels.

Merchant wholesalers

Take title to the goods they handle; sell primarily to other resellers industrial and commercial customers rather than to individual customers.

Agent middlemen Includes manufacturer’s representatives and brokers.  Also sell to other resellers and industrial or commercial customers, but do not take title to the goods.  Usually specialize in the selling function and represent client manufacturers on a commission basis.

Retailers Sell goods and services directly to ultimately consumer s for their personal, non-business use.  Usually take title to goods they handle; are compensated by the margin between the price they pay for those goods and the price they receive from their customers.

Facilitating agencies Include advertising agencies, marketing research firms, collection agencies, trucking firms and railways; specialize din one or more marketing functions, work on a fee-f0r-service basis to help clients perform those functions more effectively and efficiently.

13.3 Define the following:

Manufacturer’s agents

Work for several manufactures, carry non-competitive, complementary merchandise in an exclusive territory and concentrate only on the selling function.  Important where a manufacturer’s sales are not sufficient to support a company salesperson in a particular territory.

Broker Independent firms whose purpose is to bring buyers and sellers together for an exchange.  Brokers usually have no continuing relationship with a particular buyer or seller.

Rack jobber One unique form of full-service wholesaler.  In recent years supermarkets and drugstores have added non-traditional product lines such a magazines, housewares, and health and beauty aids about which they have little knowledge.  Rack jobbers have prospered by not only performing a full range of wholesaling activities by also taking over some retain functions such as providing display racks, promotional materials, stocking and selling on consignment.

13.4 What are the major types of retailer?

General merchandise discount chains

(Wal-Mart) carry a broad assortment of goods

Wholesale clubs (Sams) cash-any carry wholesalers selling to small businesses and individual consumers

Supermarkets (Safeway) full lien self-service store selling food and related products.

Single-line mass-merchandiser stores

(Toys’R’Us )offering in-depth assortment within a limited number of lines at low prices.

13.5 What are the major types of non-store retailing?

Direct selling 1% all retail sales ie Avon – house to house

Catalogue sales 5% all retail sales general merchandise and specialty

TV home shopping 20% all retail sales home shopping channel

Vending machines Food snacks, beverages, cigarettes

The World Wide Web Great potential for selling goods and services to

consumers around the world.

13.6 Describe each of the four alternative consumer goods channels.

13.7 Describe each of the four alternative industrial goods channels.

13.8 Firms design channels to accomplish one or more objectives? What are they?

1. Increase product availability to potential buyers2. Satisfy customers’ service requirement:

Order cycle time, Dependability, Communication, Convenience, Postsale services3. Ensure promotional effort4. Obtain market information5. Increase cost-effectiveness6. Maintain flexibility

13.9 Describe the three basic strategies of retail coverage.

Retail Coverage

Major strength Major Weakness

Product mostappropriate for

Intensive

Maximum Maximizes product availability

Lack of retailer support

Low involvement consumer convenient goods

Exclusive

Single Matches retailer clientele with target market; facilitates close co-operation with retailer.

Risk of relying on single retailer

High-involvement specialty or shopping goods

Selective

Limited

(more than 1 but fewer than all retailers)

Provide adequate coverage but not at expense of manufacturer-retailer co-operation

Difficult to implement given interstore competition, especially where discounts may occur

Infrequently purchased shopping goods(eg. automobiles)

13.10 Describe the various types of vertical marketing system.

Corporate VMS Involves a vertically integrated system

Contractual VMS Formulates agreements spelling out a coordinated set of rights and obligations for members of the system

Administered VMS

Co-operation between two or more channel partners is based on norms of mutual trust and the expectation that co-operation will increase the total systems success thereby make all members better off in the

long term

13.11 What are the major sources of channel power?

Economic power Members perceive that a firm can mediate economic rewards for them if they follow its directives

Coercive power Perception that one channel member will punish another for failure to co-operate.  Inverse of economic power. Punishments usually take the form of a reduction in or with holding of economic rewards

Expert power Perception one channel member has special knowledge or expertise that can benefit other members of the system

Referent power Beliefs that the benefits generated are likely to continue.OB7/5: based on the extent to which the power-holder is well liked & admired by others attached to the person, not to the position

Legitimate power Belief that one channel member has the right to make certain decisions or demands and to expect compliance from other members, result of ownership or contractual agreements but in some instances it is based on moral authority or common beliefs.

13.12 Under what conditions should a manufacturer use a pull strategy?

A push strategy?

Pull Strategy:A share leader of most prestigious brand in its category has substantial power to influence other channel members, particularly if the product is in the growth stage of its life cycle. For new product, the producer must demonstrate that its marketing program can quickly build strong customer demand and loyalty for the new brand. It’s easier for firms with substantial resources, who are perceived to have a great deal of marketing expertise, and has an extensive track record or past new product successes. Large consumer goods marketers employ pull strategies.

Push strategies:Smaller firms with limited resources, those without established reputations as savvy marketers, and those attempting to gain better channel support for existing products with relatively small shares and volumes often have difficulty achieving cooperation solely on the promise of future sales and profits.

13.13 Discuss briefly the various purposes channel incentives are used for?

Functional performance dimensions Examples of channel incentivesIncreased purchases/carry larger inventories

Larger margins, exclusive territories, buy-in promotions, quantity discounts, seasonal discounts, buy-back allowances, free goods, shelf-stocking programs, slotting allowances.

Increased personal selling effort Sales training programs, instructional materials, incentive programs for channel members’ salespeople.

Increased local promotional effort Local advertising Co-operative advertising; advertising allowances;

print, radio or spot television advertisements for use by local retailers.

Increased display space Promotion allowances tied to shelf space. In-store promotions Display racks and signs, in-store demonstrations,

in-store sampling. Price promotions Off-invoice allowances.

Improved customer service Service training programs, instructional materials, high margins on replacement parts, liberal labor cost allowances for warranty service.

Exhibit 13.10 Incentives for motivating channel member performance

13.14 Discuss the three major ways of entering a foreign country?Exporting

Direct - Foreign based distributors/ agents- Operating units (branches or subsidiaries)

Indirect Relies on the expertise of domestic international middlemen:- Export merchants, buy the product and sell it

overseas for their own account- Export agents, sell on a commission basis- Cooperative organizations, export for several

producers, especially farm productsContractual entry modes - Licensing

- Franchising- Contract manufacturing (sourcing a product

from a manufacturer located in a foreigh country for sale there or elsewhere

- Turnkey construction contract- Coproduction- Contertrade transactions (M12: barter,

compensation packages, counterpurchase, buyback arrangement)

Overseas direct investment Joint venture (joint ownership arrangement)Sole ownership (setting up a production facility)

(13.10) The design of a distribution channel involves a series of interrelated

decisions. What are they?

Influencing factors

         SBU and marketing strategies

         Target market characteristics

         Product characteristics

         Competitor characteristics

         Company strengths and weaknesses

        Environmental factors

Specify objectives to be achieved by distribution channels

Determine desired number of retail outlets (for consumer goods and services only)

Determine appropriate number of wholesale distribution points

Select types of institution to be used at each channel level

(13.4) What are the major trends in wholesaling?

- One wholesaler to acquire / merge with another wholesaler that has favorably located branches and one or more new product lines

- Increase the number of value-added services offered, such as financing arrangements, engineering consultants, just-in time inventory control, overnight deliveries and store layouts.

- Large wholesalers are also implementing a combination of strategies to improve low margins. Cutting operating costs by using their resources more efficiently.

13.7 What are the major trends in retailing?

- The demographic changes ie two wage earner households, aging baby boomers

- Consumer attitudes more health care concerns

- Retailers carrying more diverse me4rchandise lines

- Slowing of retail sales, little new shopping center construction greater emphasis on price, greater competition and more and more consolidation through mergers

- Retailers investing heavily in sate of the art technology to maximize operating efficiencies.

Selective

Limited Provides adequate coverage but not at expense of manufacturer retailer co-operation

Difficult to implement given inter store competition, especially where discounts may occur

Infrequently purchased shopping goods.

13.3 Under what conditions is a manufacturer most likely to consider the use of multiple distribution channels for marketing a product? Describe an example of multiple channels involving a consumer good or service.

Answer:A firm is most likely to consider the use of multiple distribution channels when it is trying to reach several markets simultaneously and each market has unique characteristics which require different levels of performance from channel members.

IBM has its own direct salesforce and also sells via retailers.

13.5 Calvin Klein jeans are selectively distributed through a limited number of fashionable department and specialty stores. Is this an appropriate channel design for such a product? Why or why not?

Answer:In the case of Calvin Klein jeans this is an appropriate channel design, since the jeans are considered shopping goods that customers buy infrequently and compare on price and product features. It is also appropriate since certain retailers such as mass merchandisers (Kmart) do not fit the image set by Klein for their jeans.

13.7 One of a number of trends affecting wholesalers in the United States, Europe and Japan is just-in-time. Describe what this term means and explain what forces are making it a more and more important business practice. For a wholesaler to adopt this practice, what must it be able to do?

Answer:Just-in-time has to do with inventory control. It programs the delivery of a component by a supplier to a customer at literally the moment when the last component in stock has been used. The objective of a just-in-time system is zero inventory which would imply not only a unique physical logistics system, but products with zero quality defects. In order to be able to make such a system work, a wholesaler must be able to work closely with a client, develop and constantly update a decision support system and stock error free products.

13.8 A few years ago, large manufacturers with well-known brands – General Foods and Procter & Gamble – held substantial power over even the largest retailers in their distribution channels. Today, large retailers such as the Safeway supermarket chain have the power to demand more rewards and support from major manufacturers. What has caused this change in the balance of power? What are the bases (or sources) of retailers’ power over their suppliers? Answer:Information and the technology to supply it quickly are the primary reasons for the increased power of retailers. Expert power is supplied by the ability of retailers to have access to up-to-the-minute information on sales of products.

13.9 Why would an independent hardware store owner agree to become a member of a co-operative chain? What benefits would the store owner receive? How would the development and growth of the co-operative chain affect the balance of power in hardware distribution channels?

Answer:A cooperative chain gives the individual retailer greater power in dealing with suppliers, economies of scale in advertising, lower prices and special promotional materials.

The benefits are: (1) ability to compete with national chains more effectively;(2) better, more profitable relationship with suppliers.

The growth of a cooperative chain would shift power towards the retail end of the channel.

13.10 A small and relatively unknown manufacturer of valves and fittings wants to induce large plumbing wholesalers to carry and promote its products. Which strategy should it pursue? Which specific incentives might it offer to wholesalers to gain their support?

13.10 Answer:A push strategy would be most appropriate in the situation described.

Specifically, the company should: (1) Offer higher margins on some of its products than its competitors; (2) Provide sales training programs to the sales staff of each of the wholesalers; (3) Develop a cooperative advertising program with the wholesaler to subsidize its

advertising program; (4) Provide in-store display racks or demonstrations; and (5) Enhance product return and replacement policies to make the product more

attractive.

13.11 A cereal manufacturer is considering using a pull strategy to gain extensive retail coverage for a new cereal brand targeted at health-conscious adults. Which characteristics and capabilities of the manufacturer can help determine its ability to successfully implement such a strategy?

13.11 Answer:If the cereal manufacturer is the market leader and its other products hold strong market shares, the manufacturer has a better opportunity to make a pull strategy work successfully. Specifically, the manufacturer should: (1) Have substantial resources to devote to the product’s marketing program;(2) Be perceived to have a great deal of marketing expertise; and (3) Have an extensive track record of past new-product successes.

13.13 In establishing and maintaining a channel system in the developing countries in Africa, what problems might the manufacturer of small electrical appliances expect to encounter? For each such problem, what can be done to solve it?

13.13 Answer:In many parts of Africa, the manufacturer would find no channels suitable for the sale and servicing of a line of small electrical appliances – or, at best, inadequate ones. If the latter, the manufacturer could try to augment the channel’s effort – e.g. by providing inventory items on a consignment basis, providing credit at the retail level and helping retailers to open new accounts with company salespersons. If no channels are available, the manufacturer can either set up its own channel or locate a wholesaler who is willing to work with the manufacturer in selling and servicing retail accounts.

Module 14 Integrated Promotion Decisions14.1 Define each of the promotion mix components.

Advertising Any paid form of non-personal presentation and promotion of ideas, goods, or services by an identified sponsor.

Personal selling

A process of helping and persuading one or more prospects to purchase a good or service or to act on any idea through the use of an oral presentation (person-to-person communication)

Sales promotion

Incentives designed to stimulate the purchase or sale of a product – usually in the short term.

Public relations

Non-paid, non-personal stimulation of demand for a product, service or business unit by planting significant news about it or a favorable presentation of it in the media.

14.2 What are the steps needed to develop a promotion program?

Developing an integrated Marketing Communication Plan/ProgramPromotion marketing communication Plan/Program

Exhibit 14.2 Decision sequence for developing the promotion mix

14.3 What subjects is advertising decision making concerned with?

- Setting Objectives and Budget- Choosing media types and vehicles choice - What frequency- Deciding what the message should be and- How to present it and- Analyzing the effectiveness of the advertising program

14.4 What are the contents of a copy platform?

- Basic issue or problem advertising must address- Advertising objective- Target audience- Major selling idea – or key benefits- Creative strategy statement (campaign theme, appeal and execution technique)- Support information

14.5 Describe the various ways to pre-test message effectiveness.

Recall test Print ads are inserted into a simulated magazine and respondents are told to read whatever interests them.After doing so, they are asked to ‘ply back’ ads they remember.

Sales test Administered by commercial research firms measure the effects of TV commercials through the use of consumer panels located in a number of small cities.

TV Commercials Tested by exposing them in one or more cities and following up with several hundred phone interview to find out how many remember the message

Project tests Give respondents an ad and using a variety of projective techniques to elicit responses.

Physiological test

Use special machines to measure physiological responses to advertising.

Pupil Dilation When person is viewing or listening to interesting pleasant message the pupil dilates.

Theatre tests Similar to the above except the audience’s reaction to commercials is measured electronically during the showing via buttons the audience pushes to indicate liking / disliking.

On Air testing Using VHF or cable television channel to air a given program in which the advertisement will appear.

14.6 Describe the various ways to measure the effects of an advertising

message after it has run.

Recognition test Most popular post-exposure testing for print media. 

Field workers interview people who say they have read a given issue of a magazine.  Respondent goes through the issue pointing out what was seen and read.  Interviewer asks which parts were read. Interviewer starts each interview at a random point within the issue, so that ratings are not affected by respondent fatigue.

Recall tests Measure the effectiveness of an advertising message –especially TV commercials after it has been run.  Respondents are typically aided in their recall.  Interviews show them a list of the advertisers and brands presented and ask which ones they have seen recently.  Interviewers proceed to obtain play backs of these advertisements from the respondents.

14.7 Define the term ‘sales promotion’.

Those marketing activities, other than personal selling, advertising and publicity that stimulate consumer purchasing and dealer effectiveness.

14.8 What are the most commonly used sales promotion techniques?

- Price off promotions- Premiums – bundled good or service- Sampling - Rebates- Contests - Sweepstakes - Trade promotions

14.9 Define the term ‘integrated marketing communications plan’ IMC.

The process of building and reinforcing mutually profitable relationships with employees, customers, other stakeholders and the general public by developing and coordinating a strategic communications program that enables them to make constructive contact with the company brand through a variety of media.

(14.2) In recent years substantial changes have occurred in the way firms market their goods – all of which have affected the firm’s promotion decisions. What are they?

- Targeting of smaller and smaller segments including individual consumers. 

- Growth in no-traditional media resulted in increase in direct marketing.  Ie Internet.

- Increase competition that forced firms to become more price conscious.

- Shift in power from manufacturers to retailers that have resulted from growth of large discount general merchandise and ‘killer category’ chains.

(14.3) Describe the communication process.

Source The communicatorMessage a set of symbolsMedium The communication channelReceived

The target audience

Response

A set of reactions

Feedback

(14.4) Consumers engage in practices designed to protect themselves from receiving unwanted messages. Describe these practices.

Selective exposure

Expose themselves to messages and media that are compatible with their existing attitudes,  Avoid messages not compatible with their attitudes or that they find irritating or boring.

Selective perception

People distort or misinterpret the intended meaning of a message when it differs from their attitudes.  The greater the attitude change required to make respondents accept the position advocated in the message, the more likely the message is to be distorted or rejected.

Selective retention

People the to forget more quickly communications that are substantially at variance with their attitudes.  People remember for a longer time messages that reinforce their attitudes.

(14.7) What are the major types of advertising?

Cobranding Enables a brand to be leveraged by entering another product call as a braded ingredient, which has less risk than a brand extension or combining two brands

Selective demand Most brand advertising focus on stimulating selective demand for a particular product.

Primary Demand Seeks to expand the market for a product type

Co-operative Advertising Joint effort by manufacturers and retainers to sell a particular product.

Corporate (institutional) Advertising

Differs from product advertising in that its purpose to benefit the corporation by building favorable attitudes toward the overall firm.

Issue advertising Support a given social or economic issue in which the firm has a strong interest.

Investor relations Designed to generate awareness and understanding of a company’s financial performance.

(14.8) What is the hierarchy-of-effect model?

Move prospective buyers through a series of steps – awareness, comprehension, conviction, action – to the ultimate goal of purchasing the product or service.

(14.9) Describe Ray’s three-order hierarchy models

Learning Hierarchy The mental stages people go through when deciding to purchase relatively high-involvement consumer or industrial products.

Dissonance-attribution Hierarchy

Consists of action followed by attitude change and learning; do, feel, learn,

Low Involvement Hierarchy

Consisting of a general awareness followed by action and then attitude change and learning: do, feel

(14.11) What have researchers concluded regarding what message structures are most effective?

Success of any message depends not only on its content, but also on its structure. 

Two-sided presentations           generally more effective with those members of the audience who are well educated or opposed to the communicator’s position.  Prepare people for counterarguments. 

Drawing conclusions     the best thing to do, although advertisability of doing so depends on the intelligence of the audient, the complexity of the subject matter presented and the extend to which the audience is involved.

Optimum size    of a message is difficult to ascertain because of the interactions of message size, the power of the message itself and effect of repletion on consumer learning.  Strongly liked to the degree of consumer interest in the product.  Low interest require high or large unit message i.e. full page advertisement 30 second television spot.

Message is of great interest to the target audience a smaller unit may suffice.

(14.12) What problems arise from using reach and frequency measures?

1. Defining the target audience and correlating it with audiences reached by the various media vehicles.

2. Defining exposure – is it an opportunity to be exposed to a given message or is it an actual reading of a print advertisement, the actual watching of a television commercial or the actual listening to an advertisement on radio?  Difficult task to measure exposure, no matter how it is defined.

3. Not all who are exposed are of equal value to the advertiser 0 some may not even be prospects

4. How should successive exposures be weighted?  Is a second exposure worth more than third? How much? And how much time should else between exposures.

(14.13) What are the advantages and limitations of each of the four typesof mass media?

Television Best at communicating images and symbols because it can demonstrate product usage and consumer reactions.  Enormous reach almost all US households have a TV set.

Radio Less involving than television, but offers economy and the opportunity to target specific audiences- Hispanics, blacks, teenagers, senior citizens.Inexpensive compared with TVReaches people mostly when they are doing something else-working, driving or walking.   Often used to reinforce TV advertising

Printed media More involving than broadcast media, Readers select what advertising they want to read and take as much time as they wish to read it.  Effective in communicating specific information about a product.  Particular important for most industrial products and high-involvement consumer goods. (Three major types of magazines, consumer, farm and business), Newspapers advertise consists mainly of retail and classified.

Out of home, exhibition and supplementary media

Cover wide variety of media typed Out-of home – Billboards are most prominent  Exhibition – in-store display materials

Supplementary Directories and yellow pages

Event sponsorship Become increasingly popular high visibility in terms of media coverage,

(14.14) Why have retailers had difficulty in using the Web?

It requires subscribing to an Internet access service as well as the hardware and software to facilitate accessing the site and exploring the company information fields,  Technical support needed to maintain the system, including its update and security.  Advertising costs associated with maximizing site traffic and guiding visitors through the files.

(14.15) How are print medium audiences typically measured?

Researches conduct interviews however when to conduct the interview is also a problem

(14.16) What are the major problems in measuring television audiences?

Researchers can measure the number of sets tuned to a given program, how long they are tuned to a given program but do not know the demographics of the individual viewing , the number of actual views, does not record who is looking at the television especially during commercials.

(14.19) Discuss the use of a globalized advertising strategy as compared with a localized one.

The benefit of globalize is in the form of economies of scale, which relate primarily to production costs and to a lesser extent to the use international media.

Okay for product component of the marketing mix especially for industrial goods and consumer durables. 

Difficulties encountered by differences in local cultures, translation, how consumer respond to humorous appeals, sexual appeals reactions,  Start with standard / globalize and expand to local as required.

(14.22) Define the term ‘public relations’.

A promotional function that uses two-way communication to mesh the needs and interest of an institution or persons with the needs and interests of the various publics with which that intuition or person must communicate.

(14.24) Discuss the problems in regulating and controlling deception in advertising.

It is difficult to detect in many cases because of the subtle ways in which it can work.   Enforcement is hindered by the fact that advertisers can legally employ ‘puffery’ which uses subjective claims the ‘best’ or ‘greatest’ to promote a product. 

14.2 You are the marketing manager for a major airline. How would you vary the emphasis among the tools in your promotion mix when designing promotional strategies for (a) individual consumers who travel for pleasure and (b) corporate travel departments that select the airlines to be used by company employees?

Answer 14.2 Individual consumers focus on advertising media which reach consumers such as print media (local newspapers, national news magazines such as Time). Develop incentive (frequent flyer) promotions. Target certain segments in order to increase the load factor. Also develop package vacations.

Corporate travelers focus on media designed to reach decision makers in the travel department; for example, trade publications within the travel industry. Also, if the company maintains a salesforce, it should have them call on large corporations to explain in detail what exactly each airline is offering and at what price.

14.5 The advertising manager for a large firm asked you – the marketing vice president – to approve a $500 000 increase in the advertising budget for one of the company’s products. She predicts that the additional advertising will produce a $2 million increase in the product’s sales. What additional information would you ask for before making a decision?

Answer 14.5 (a) How will the money be spent – how will it be divided among various advertising

media? (b) Over what time frame are the additional funds to be spent?(c) What is the time frame for the projected sales increase – how long will it take to

achieve the $2 million sales increase?(d) What percentage increase in total sales does this $2 million represent and what

is the percentage increase in the advertising budget if the $500 000 is appropriated?

(e) What is the amount of the marginal contribution generated by this expenditure?

(f) Could a better return be achieved by spending the $500 000 on other promotional tools, such as hiring more salespeople?

14.6 A car company sets the advertising and promotion budget for one of its car lines by allocating a fixed number of dollars for each car it forecasts will be sold in the company year. What are the advantages and limitations of this approach to determining a promotional budget?

Answer 14.6 Advantages: (1) simple to calculate; (2) risk adverse – since spending is tied to sales it keeps the company from getting too far out of line with the rest of the industry.

Disadvantages: (1) provides little direction in setting promotional budgets; (2) does not work well with new brands or in situations where sales volume is unstable or declining.

Part 4 Strategic Marketing Programs for Selected Situations

Module 15 Strategies for New and Growing Markets15.1 Describe the subcategories of new products based

on their degree of newness.

New-to-the-world product True innovations new to the firm and create an entirely new market 10%

New product lines Product category that is new for the company introducing it, but not new to customers in the target market competitive brands exist 20%

Additions to existing product lines

New items that supplement a firm’s established product line 26%

Improvements in or revisions of existing product

Provide improved performance or greater perceived value brought out to replace existing product 26%

Repositioning Existing products that are targeted at new applications and new market segments 7%

Cost reductions Product modifications proving similar performance at lower cost 11%

15.2 What are the potential sources of competitive advantages available to a pioneer?

1. Economies of scales and experience2. High switching costs for early adopters3. Pioneer defines the rules of the game4. Distribution advantage5. First choice of market segments and positioning6. Possibility of network externalities or positive network effects7. Possibility of pre-empting scarce resources

15.3 What are the possible advantages of adopting a follower strategy?

1. Ability to take advantage of pioneer’s positioning mistakes2. … product mistakes3. … marketing mistakes4. … limited resource5. Ability to take advantage of the latest technology

15.4 What are the determinants of success for a pioneer strategy?

1.      New product market is insulated form the entry of competitors, at least for a while, by strong patent protection, proprietary technology (such as unique production process), substantial investment requirements, or positive network effects

2.      The firm has sufficient size, resources, and competencies to take full advantage of its pioneering position and preserve it in the face of late competitive entries. 

- Large entry scale- Broad product line- High quality product- Heavy promotional expenditures.

Successful fast followers: - Larger entry scale than pioneer- leapfrogging the pioneer w/ superior

product technology product quality customer service

Successful last entrants: Focus on peripheral target markets or niches

15.5 Discuss each of the three types of pioneer strategy.

Mass Market Penetration

Capture and maintain a commanding share of the total market for the new product. – Most successful with entry barriers inhibit or delay appearance of competitors.

Niche penetration Focus on a single market segment. Lets smaller pioneer gain the biggest bang for its limited bucks and avoid direct confrontation with bigger competitors.

Skimming & Early withdrawal

Competition is usually inevitable, and prices and margins tend to drop dramatically after followers enter the market.  Skimming strategy while planning an early withdrawal involves setting a high price and engaging in only limited advertising and promotion to maximize per-unit profits and recover the product’s development costs as quickly as possible.

15.6 What marketing activities should a firm engage in to increasecustomers’ awareness and willingness to buy? And to increase the customers’ ability to buy?

Increase Awareness- Heavy expenditures on advertising, introductory promotions

such as sampling & couponing, and personal selling efforts- Broadly focus promotional efforts to expose & attract as many potential

customers as possible before competitors show up

Increase Willingness to Buy- Reducing the risk associated with buying something new- letting customer try without obligation

test-drive, 60 days free trial version,- liberal return policies- extended warranties

Increase Customers ability to buy- Pursuing mass-marketing penetration to keep prices low (penetration pricing)- Liberal financing arrangements - Easy credit terms- Gaining adequate distribution for increasing availability before promotional

campaigns -> extensive personal selling and trade promotions- Compatible with related equipment- Installation assistance- Training programs

15.7 What marketing program components are important for a skimming strategy?

- Relatively high price - Introductory promotional programs best focus on customer groups who are

least sensitive to price and most likely to be early adopters of new products- Focus on upscale customers- Predation the firm’s avenue of escape from the market by

Concentrating on the next generation of technology Identifying new application segments

15.3 Research shows that companies that increase profits mostly by cutting the costs of their new product entries have substantially lower profits than those that emphasize revenue growth with their new entries. How do you explain this finding?

Answer 15.3 This difference in profits results from the fact that cost cutting has a largely short-term affect whereas revenue growth – particularly that derived from innovative new products – has a much longer-term impact. This is especially true if the company’s initial product generates a product line of considerable consequence and the company develops and holds the largest market share.

15.4 Under what conditions do pioneer and follower strategies each have the greatest probability of long-term success?

Answer 15.4 A pioneering firm has the best chance for long-term success in market-share leadership and profitability when the new-product market is insulated from the entry of competitors and/or the firm has sufficient size, resources and competencies to take full advantage of its pioneering position and preserve it in the face of later competitive entries. Followers are most likely to succeed when there are few legal, technological or financial barriers to inhibit entry and when it has sufficient resources or competencies to overwhelm the pioneer’s early advantage.

15.5 With the exception of certain core businesses – such as adhesives and information-storage technology – the 3M Company has often followed a strategy of withdrawing from markets in which it was the pioneer after other competitors enter and profit margins start to decline. It typically does this by licensing products to other firms. Under what kinds of market and competitive situations is such a withdrawal strategy most appropriate? What kinds of products do you think 3M is most likely to license to other firms?

Answer 15.5 Skimming with early withdrawal is most successful when there is limited potential demand, customers are likely to adopt early and pay a premium and when there is substantial potential competition.

3M is most likely to engage in skimming and spinning off when the product technology cannot be effectively protected, when the resources to produce the product are commonly available and when production is relatively simple.

Module 16 Marketing Strategies for Growth Markets 16.1 Discuss the marketing actions and strategies to achieve the

share maintenance objectives of a market leader.

1. Fortress or Position defense 2. Flanker 3. Confrontation 4. Market expansion 5. Contraction or Strategic withdrawal

1. Fortress or Position defense Primary Objectives: Increase satisfaction, loyalty & repeat purchase among current customers by building on existing strengths; appeal to late adopters with same attributes & benefits offered to early adopters.Market Characteristics:Relatively homogeneous market with respect to customer needs and purchase criteria; strong preference for leader’s product among largest segment of customers.Competitors Characteristics:Current and potential competitors have relatively limited resources and competenciesFirm’s Characteristics:Current product offering enjoys high awareness and preference among major segment of current and potential customers; firm has marketing and R&D resources and competencies equal to or greater than those of any current or potential competitor.

2. Flanker Primary Objectives: Protect against loss of specific segment of current customers by developing a second entry that covers a weakness in original; improve ability to attract new customers with needs or purchase criteria different from those of early adopters.Market Characteristics:Two or more major market segments (fragmented market) with distinct needs or purchase criteria.Competitors Characteristics:One or more current or potential competitors with sufficient resources and competencies to effectively implement a differentiation strategy.Firm’s Characteristics:Current product offering perceived as weak on at least one attribute by a major segment of current or potential customers; firm has sufficient R&D and marketing resources to introduce and support a second offering aimed at the disaffected segment.

3. Confrontation Primary Objectives: Protect against loss of share among current customers by meeting or beating a head-to-head competitive offering; improve ability to win new customers who might otherwiseMarket Characteristics:Relatively homogeneous market with respect to customers’ needs and purchase criteria; little preference for, or loyalty towards leader’s product among largest segment of customers.Competitors Characteristics:One or more current or potential competitors with sufficient resources and competencies to effectively implement a head-to-head strategy.Firm’s Characteristics:Current product offering suffers low awareness, preference and/or loyalty among major segment of current or potential customers; Firm has R&D and marketing resources and competencies equal to or greater than those of any current or potential competitor.

4. Market expansion Primary Objectives: Increase ability to attract new customers by developing new product offerings or line extensions aimed at a variety of new applications and user segments;Improve ability to retain current customers as market fragments.Market Characteristics:Relatively heterogeneous market with respect to customers’ need s and purchase criteria;Multiple product uses requiring different product or service attributes.Competitors Characteristics:Current and potential competitors have relatively limited resources and competencies, particularly with respect to R&D and marketing.Firm’s Characteristics:No current offerings in one or more potential applications segments; firm has marketing and R&D resources and competencies equal to or greater than those of any current or potential competitor.

5. Contraction or Strategic withdrawal Primary Objectives: Increase ability to attract new customers in selected high-growth segments by focusing offerings and resources on those segments;Withdraw from smaller or slower-growing segments to conserve resources.Market Characteristics:Relatively heterogeneous market with respect to customers’ needs, purchase criteria and growth potential;Multiple product uses requiring different product or service attributes.Competitors Characteristics:One or more current or potential competitors with sufficient resources and competencies to present a strong challenge in one or more growth segments.Firm’s Characteristics:Current product offering suffers low awareness, preference and/or loyalty among current and potential customers in one or more major growth segments;Firm’s R&D and marketing resources and competencies are limited to those of one or more competitors.

Exhibit 16.2 Marketing actions to achieve share-maintenance objectives

Marketing objectives Possible marketing actions

Retain current customers by:

1. • Maintaining/improving satisfaction and loyalty

• Increase attention to quality control as output expands.• Continue product modification and improvement efforts to increase customer

benefits and/or reduce costs.• Focus advertising on stimulation of selective demand; stress product’s superior

features and benefits; reminder advertising.• Increase salesforce’s servicing of current accounts; consider formation of

national or key account representatives to major customers; consider replacing independent manufacturer’s reps with company salespeople where appropriate.

• Expand post-sale service capabilities; develop or expand company’s own service force, or develop training programs for distributors’ and dealers’ service people; expand parts inventory; consider development of customer service hotline.

2. • Encourage/simplify repeat purchase

• Expand production capacity in advance of increasing demand to avoid stockouts.• Improve inventory control and logistics systems to reduce delivery times.• Continue to build distribution channels; use periodic trade promotions to gain

more extensive retail coverage and maintain shelf facings; strengthen relationships with strongest distributors/dealers.

• Consider negotiating long-term requirements contracts with major customers.• Consider developing automatic reorder systems for major customers.

3. • Reduce attractiveness of switching

• Develop a second brand or product line with features or price more appealing to a specific segment of current customers (flanker strategy – see Exhibit 17.9 & 17.10).

• Develop multiple-line extensions or brand offerings targeted to the needs of several user segments within the market (market expansion).

• Meet or beat lower prices or heavier promotional efforts by competitors – or try to pre-empt such efforts by potential competitors – when necessary to retain customers and when lower unit costs allow (confrontation strategy).

Stimulate selective demand among later adopters by:

1. Head-to-head positioning against more competitive offering or potential offerings

• Develop a second brand or product line with features or price more appealing to a specific segment of potential customers (flanker strategy).

• Make product modifications or improvements to match or beat superior competitive offerings (confrontation strategy).

• Meet or beat lower prices or heavier promotional efforts by competitors when necessary to retain customers and when lower unit costs allow (confrontation strategy).

• When resources are limited relative to competitor’s, consider withdrawing from smaller or slower-growing segments to focus product development and promotional efforts on higher potential segments threatened by competitor (contraction or strategic-withdrawal strategy).

2. Differentiated positioning against competitive offerings or potential offerings

• Develop multiple-line extensions or brand offerings targeted to the needs of various potential user applications, or geographical segments within the market (market expansion).

• Build unique distribution channels more effectively to reach specific segments of potential customers (market expansion strategy).

• Design multiple advertising and/or sales promotion campaigns targeted at specific segments of potential customers (market expansion strategy).

16.2 What marketing activities and strategies are needed for a challenger to achieve share growth?

1. Frontal attack 2. Leapfrog 3. Flank attack 4. Encirclement 5. Guerrilla attack

1. Frontal attack Primary Objectives: Capture substantial repeat/replacement purchases from target competitor’s current customers; Attract new customers among later adopters by offering lower price or more attractive features ie. differentiated position.Market Characteristics:Relatively homogeneous market with respect to customers’ needs and purchase criteria;Relatively little preference or loyalty for existing brands.Competitors Characteristics:Target competitor has relatively limited resources and competencies, particularly in marketing and R&D;Would probably be vulnerable to direct attack.Firm’s Characteristics:Firm has stronger resources and competencies in R&D and marketing and/or lower operating costs than target competitor.

RYAN AIR low price

2. Leapfrog Primary Objectives: Induce current customers in mass market to replace their current brand with superior new offering;Attract new customers by providing enhanced benefits.Market Characteristics:Relatively homogeneous market with respect to customers’ needs and purchase criteria, but some needs or criteria not currently met by existing brands.Competitors Characteristics:One or more current competitors have relatively strong resources and competencies in marketing, but relatively unsophisticated technology and limited R&D competencies.Firm’s Characteristics:Firm has proprietary technology superior to that of competitors;Firm has necessary marketing and production resources to stimulate and meet primary demand for new generation of products.

3. Flank attack Primary Objectives: Attract substantial share of new customers in one or more major segments where customers’ needs are different from those of early adopters in the mass market.Market Characteristics:Two or more major segments with distinct needs and purchase criteria;Needs of customers in at least one segment not currently met by existing brands.Competitors Characteristics:Target competitor has relatively strong resources and competencies, particularly in marketing and R&D;Would probably be able to withstand direct attack.Firm’s Characteristics:Firm’s resources and competencies are limited, but sufficient to effectively penetrate and serve at least one major market segment.

4. Encirclement Primary Objectives: Attract a substantial share of new customers in a variety of smaller, specialized segments where customers’ needs or preferences differ from those of early adopters in the mass market.

JAPANES CAR MFRS, low price in the USDISTRIBUTION L’EGGS, pantyhose

Market Characteristics:Relatively heterogeneous market with a number of small, specialized segments;Needs and preferences of customers in some segments not currently satisfied by competing brands.Competitors Characteristics:One or more competitors have relatively strong marketing, R&D resources and competencies and/or lower costs;Could probably withstand a direct attack.Firm’s Characteristics:Firm has marketing, R&D and productions resources and competencies necessary to serve multiple smaller segments;Firm has decentralized and adaptable management structure.

5. Guerrilla attack Primary Objectives: Capture growth share by attacking competition weakness spots. Surprise raids against more established competitors. Sporadic, limited geographic areas where the target competitor is not particularly well entrenched. Market Characteristics:

Competitors Characteristics:Well established competitors already covering all major segments, with large marketing, R&D resources and competencies.Firm’s Characteristics:Challenger’s resources relatively limited, flanking, encirclement, or all-out frontal attack may be impossible

Sales promotion efforts, local advertising blitzes, and even legal actions (by one or several smaller competitors).Short term price reductions (consumer goods markets)Carefully targeted direct mail, Internet marketing campaigns

AGAINST AT&T

Exhibit 16.5 Marketing actions to achieve share-growth objectives

Marketing objectives Possible marketing actions

Capture repeat/replacement purchases from current customers of the leader or other target competitor by:

1. Head-to-head positioning • Develop products with features and/or performance levels superior to those of the target competitor.

against competitor’s offering in primary target market.

• Draw on superior product design, process engineering and supplier relationships to achieve lower unit costs.

• Set prices below target competitor’s for comparable level of quality or performance, but only if low-cost position is achieved.

• Outspend the target competitor on promotion aimed at stimulating selective demand:– Comparative advertising appeals directed at gaining a more favorable positioning

than the target competitor’s brand enjoys among customers in the mass market.– Sales promotions to encourage trial if offering’s quality or performance is

perceptively better than target competitor’s, or to induce brand switching.– Build more extensive and/or better-trained salesforce than target competitor’s.

• Outspend the target competitor on trade promotion to attain more extensive retail coverage, better shelf space and/or representation by the best distributors/dealers.

• Outperform the target competitor on customer service:– Develop superior production scheduling, inventory control and logistics systems to

minimize delivery times and stockouts.– Develop superior post-sale service capabilities; build a more extensive company

service force, or provide better training programs for distributor/dealer service people than those of target competitor.

2. Technological differentiation from target competitor’s offering in its primary target market

• Develop a new generation of products based on different technology that offers superior performance or additional benefits desired by current and potential customers in the mass market (leapfrog strategy).

• Build awareness, preference and replacement demand through heavy introductory promotion:– Comparative advertising stressing product’s superiority.– Sales promotions to stimulate trial or encourage switching.– Extensive, well-trained salesforce; heavy use of product demonstrations in sales

presentations.• Build adequate distribution through trade promotions and dealer training programs.

Stimulate selective demand among later adopters by:

1. Head-to-head positioning against target competitor’s offering in established market segments.

• See preceding actions.

2. Differentiated positioning focused on untapped or underdeveloped segments.

• Develop a differentiated brand or product line with unique features or price that is more appealing to a major segment of potential customers whose needs are not met by existing offerings (flanking strategy).

• Or• Develop multiple line extensions or brand offerings with features or prices targeted to

the unique needs and preferences of several smaller potential applications or regional segments (encirclement strategy).

• Design advertising, personal selling and/or sales promotion campaigns that address specific interests and concerns of potential customers in one or multiple underdeveloped segments to stimulate selective demand.

• Build unique distribution channels to more effectively reach potential customers in one or multiple underdeveloped segments.

• Design service programs to reduce the perceived risks of trial and/or solve the unique problems faced by potential customers in one or multiple underdeveloped segments (e.g. systems engineering, installation, operator training or extended warranties).

16.1 Stouffer’s Foods holds a commanding share of the growing market for low-calorie frozen entrées with its Lean Cuisine product line. To maintain its lead as the market continues to grow, what strategic marketing objectives should Stouffer focus on and why?

Answer 16.1Stouffer should focus on retaining current customers by:

(1) maintaining and improving satisfaction and loyalty; (2) encouraging and simplifying repeat purchases; and (3) reducing the attractiveness of switching. It should also stimulate selective demand among late

adopters by: (1) head-to-head positioning against competitive offerings or potential offerings; and (2) differentiated positioning against competitive offerings or potential offerings.

16.2 Given your answer to question 16.1, which specific marketing actions would you recommend for accomplishing Stouffer’s objectives? Be specific with regard to each of the 4 Ps in the firm’s marketing program.

Answer 16.2Marketing element

Specific actions

Product Increase quality control.Continue product modification.Expand production capacity.

Price Meet prices as needed; selective sales promotion.

Place Improve inventory control.Continue building distribution channels.

Promotion Focus advertisements on selective demand.Increase salesforce servicing of current accounts.

16.3 A number of years ago General Foods’ Cool Whip frozen dessert topping held nearly a two-thirds share of the market, but it was gradually losing share to low-priced private label competitors in many regional markets. Describe two strategies that General Foods might have adopted to defend its leading share position and the marketing actions necessary to implement them. Which of the two would you recommend and why?

Answer 16.3:Strategy Marketing actionsFortress Increase satisfaction, loyalty, and repeat purchase by current customers; appeal to

late adopters.Continue quality control.Continue product modification/improvement.Use ads to stimulate selective demand.

Flanker Develop a second entry (in this case, perhaps a budget topping).

16.5 If you had been the top marketing executive at General Motors during the early years of the Japanese invasion of the US car market, which strategy would you have recommended to defend GM’s leading market share against this new competitive threat? Why do you think GM failed to adopt such a strategy at the time?

Answer 16.5Major US car makers probably should have pursued a flanker maintenance strategy, designing and producing cars for the segment(s) of the market seeking fuel-efficient, inexpensive, reasonably reliable transportation.

There are probably several reasons this approach was not pursued. First, car plant construction, or retooling of existing plants, is expensive and requires a long lead time. US car makers may have avoided the expense until too late, and then the lead time prevented share maintenance. Second, the larger, more expensive models produced by US firms had higher margins, and US car makers were probably reluctant to divert attention from that market (or perhaps to admit it was declining). Third, Japanese production systems are a unique combination of culture and cultivation achieved over a long period. Not all US car makers demonstrated an ability to make cars of such quality.

Module 17 Strategies for Mature and Declining Markets17.1 Success in mature markets requires two sets of strategic

actions: What are they?

1. Development of a well-implemented business strategy to sustain a competitive advantage, customer satisfaction, and loyalty

2. Flexible and creative marketing programs geared to purse growth or profit opportunities as conditions change in specific product-markets.

17.2 What strategy options are available to both analyzers and defenders in their attempt to sustain a competitive advantage in mature markets?

Differentiation of their product offering (on the basis of either superior quality or service, or customer intimacy)

Maintaining a low-cost position.

17.3 What dimensions (8) do customers use to perceive underlying differences across products in a given category?

Performance How well does it work?

Durability How long will it last?

Conformance with specifications What is the incidence of product defects?

Features Does an airline flight offer a movie and dinner?

Reliability Will each visit to a restaurant result in consistent quality?

Serviceability Is the product easy to service?

Fit and finish Does the product look and feel like a quality product?

Brand name Is this a name that customers associate with quality?

17.4 What dimensions do customers use to judge the quality of the servicesthey receive?

Tangibles Appearance of physical facilities, equipment personnel and communications materials

Reliability Ability to perform the promised service dependably and accurately

Responsiveness

Willingness to help customers and provide prompt service

Assurance Knowledge and courtesy of employees and their ability to convey trust and confidence

Empathy Caring, individualized attention the firm provides its customers.

17.5 What are the more important ways in which a company can improve customer perceptions of service quality?

Gap between

customer’s expectations & the marketer’s perception

Determine what service attributes customers consider important through collect of information

management perceptions & service quality specifications

Ensure employees know what the company’s service policies are and believe that management is seriously committed to those standards; their performance is likely to fall short of desired levels.

service-quality specifications & service delivery

Employees must be provided with training, equipment and time necessary to deliver good service.  Service performance must be measured and evaluated.  Good performance must be rewarded

service delivery & external communications

Good service performance may disappoint some customers if the firms marketing communications cause them to have unrealistically high expectations.

17.6 Discuss briefly the various ways a firm can maintain a low-cost position.

- No-frills product- Innovative product design- Cheaper raw materials- Innovative production processes- Low-cost distribution- Reductions in overhead

17.7 What should a firm strive to achieve during the early years of market maturity?

Maximize the flow of profits over the remaining life of the product market.

Maintain and protect the business’s market share. 

Continue strengthen their position through a fortress defense.

17.8 Discuss the strategies that can be used to extend the volume growth of products

Increased-penetration

Increase the proportion of users by converting current non-users in one or more major market segments

Extended use Increase the amount of product used by the average customer by increasing frequency of use or developing new and more varied ways to use the product

Market expansion Expand the number of potential customers by targeting underdeveloped geographic areas or applications segments.

17.9 Discuss briefly how a firm can use sequential strategies to expand a global market.

Develop home market and then expand, firms can enter foreign markets in a variety of ways: Import agents / Joint ventures / Wholly owned subsidiaries.

1. Home market Developing countries Developed countries2. Home market Developed countries Developing countries (high-tech

products)

3. Home market Developing countries (discretionary goods such as soft drinks)

4. Different ‘world brands’ (L’Oreal)

17.10 What are the three sets of factors that help determine the strategic attractiveness of declining product markets?

Conditions of demand Including the rate and certainty of future declines in volume

Exit barriers The ease with which weaker competitors can leave the market

Intensity of future competitive rivalry

Intense price competition and maintain reasonable margins

17.11 Discuss briefly the strategic options possible in declining markets.

Harvesting Maximize short term cash flow; maintain or increase margins even at the expense of a slow decline in market share

Maintenance Maintain share in short term as market declines, even if margins must be sacrificed.

Profitable Survivor

Increase share of the declining market with an eye to future profits; encourage weaker competitors to leave.

Niche Focus on strengthening position in one or a few relatively substantial segments with potential for future profits.

(17.1) What strategic issues are involved with mature markets? Declining markets?

- Hold existing customers – to sustain a meaningful competitive advantage.- Success depends heavily on firm’s ability to achieve and sustain a lower

delivered cost or some perceived product-quality or customer-service superiority.

- Passively defend mature products while using the bulk of revenue to develop aggressively market new product with more growth potential.

perceived service & expected service

Management fails to close one or more of the above 4 gaps.

17.1 A leading European airline has asked you, a consultant, to suggest areas the company should emphasize to differentiate itself from competing airlines. In so doing, you are told to assume that the airline would continue to be price competitive.

Answer 17.1The service dimensions and marketing actions needed to develop a high quality image for the airline are:

Dimensions Marketing actions

Tangibles Clean facilities including interior and exterior of plane – and professional appearance of all flight personnel

Reliability On-time performance

Responsiveness Agent/flight attendant/training in reacting to customers’ needs, queries, etc.

Competence Pilot/flight attendant/agent training in operating procedures

EmpathyCourtesyCommunications

Flight attendant/agent training in customer contact protocols

17.2 After completing your assignment from the European airline, you are asked to develop a procedure by which the company can measure customer loyalty and customer satisfaction. Outline your plan for measuring each of these two areas.

Answer 17.2A measure of customer loyalty (repeat patronage) could be obtained by surveying a sample of the airline’s passengers (while en route) asking for information concerning the last five or so flights – month, cities involved (from/to), day of week, time of day and airline. This would provide an overall measure of loyalty as well as loyalty by geographical area and demographics and loyalty to other carriers.

A measure of customer satisfaction is derived from an expectancy measure based on the weight (relative importance) given to all airlines, as cited in the answer to question 17.1, coupled with customers’ rating of the image of the airlines, as mentioned in the loyalty answer above. These questions would be included in the survey of customer loyalty. Thus, the satisfactions measured/obtained can be tied directly into the loyalty data.

17.7 While we have seen that a business may have a number of other strategic options, the conventional wisdom suggests that a declining business should be either divested or harvested for maximum cash flow. Under what kinds of market and competitive conditions do each of these two conventional strategies make good sense? What kinds of marketing actions are typically involved in successfully implementing a harvesting strategy?

Answer 17.7Harvesting makes sense when the market is expected to decline at a steady rate, there are few strong competitors, low exit barriers and the firm has a leading share position. When the decline is expected to be relatively rapid, divestment makes sense.

Marketing actions consistent with harvesting include: (1) eliminating R&D expenditures; (2) reducing marketing expenditures; (3) seeking ways to reduce production costs; and (4) raising prices as needed to maintain margins.

Part 5 Implementing & Controlling Strategic

Marketing Programs

Module 18 Organizing & Planning for Effective Implementation

18.1 What are the three aspects of the relationship between corporate headquarters and the business unit that determine the SBU’s success in implementing a particular competitive strategy?

1. The degree of autonomy provided to each business unit manager.

2. The degree to which the business unit shares functional programs and facilities with other units.

3. The manner in which the corporation evaluates and rewards the performance of its SBU managers.

18.2 Successful implementation of a given strategy is more likely under what conditions?

When the business has the functional competencies demanded by its strategy and supports them with substantial resources relative to those of competitors, is organized suitably for its technical, market and competitive environment and has developed appropriate mechanisms for coordinating efforts and resolving conflicts across functional departments.

18.3 What additional functional-area competencies are needed for success for service organizations – especially those involving high customer contact?

Service organizations and manufacturers that provide high levels of customer service as part of their product offering – often need some additional functional competencies because of the unique problems involved in delivering quality service.

Close co-ordination between operations, sales and marketing is crucial. Also, because many different employees may be involved in producing and delivering the service, production planning and standardization are needed to reduce variations in quality from one transaction to the next. Similarly, detailed policies and procedures for dealing with customers are necessary to reduce variability in customer treatment across employees. All of this suggests that personnel management – particularly the activities of employee selection, training, motivation and evaluation – is an important adjunct to the production and marketing efforts of high-contact service organizations.

18.4 Organizational adaptiveness and innovativeness are enhanced under what conditions?

1. Decision-making authority is decentralized2. Managerial discretion and informal co-ordination mechanisms replace rigid

rules and policies3. More specialists are present. Thus, prospector business units and their

marketing departments are likely to perform better when they are decentralized, have little formalization and are highly specialized

18.5 Under what conditions is a functional type of organization best to use? And a product-management type?

Functional type

Companies operating in stable and slow-growth industries where the environments are predictable. Thus, the form is appropriate for low-cost defender SBUs attempting to maximize their efficiency and profitability in mature or declining industries.

Product management type

When an SBU has many product-market entries, this form adds an additional layer of managers to the marketing department, usually called product managers, brand managers or marketing managers, each of whom has the responsibility to plan and manage the marketing programs and to co-ordinate the activities of other functional departments for a specific product or product line.

18.6 Discuss briefly the recent organizational design developments.

Managing of business processes in contrast to functional areas. Every business has about six basic or core processes, such as, for example, new-product development and materials flow. The former would be staffed by individuals from marketing, R&D, manufacturing and finance. The latter would contain people with expertise in purchasing, manufacturing, order delivery and billing.

Managing processes will make the organization essentially horizontal – flat (few layers) and lean – in contrast to a vertical or hierarchical model. Thus, executive positions will no longer be defined in terms of managing a group of functionally oriented people; instead, executives will be concerned with a process that strongly emphasizes the importance of customer satisfaction.  Process management is quite different from the management of a function because,

1. It uses external objectives – for example, customer satisfaction rather than simple revenues.

2. People with different skills are grouped to undertake a complete piece of work; their work is done simultaneously, not in sequence.

3. Information flows directly to where it is used. Thus, if you have an upstream problem, you deal with the people involved directly rather than via your boss.

18.7 What are the more common organizational designs for selling in global markets?

Functional type Would have vice presidents (worldwide) for such areas as manufacturing, marketing and finance – all reporting to the president.

Products based Giving SBUs worldwide control over their product lines. The main advantages of this type of structure are the economies derived from centralizing manufacturing activities and the ability to respond quickly to product-related problems originating in overseas markets. Marketing is localized at the country or regional level.

Area structure When there is considerable variance across markets regarding product acceptance and marketing activities. Firms typically organize on a regional basis (North America, Latin America, Far East, Middle East and Africa) using a central staff that co-ordinates worldwide planning and control activities.

Hybrid organization

Combination of the functional, product or area types of structure. The global matrix is one such attempt. It has individual business managers reporting to both area and functional groups, or area managers reporting to business and functional groups, thereby enabling the company to balance the need for centralized efficiency and its responsiveness to local needs. But the dual reporting sets up conflicts and slows the management process to such an extent that many companies, have returned to more traditional organizational designs

18.8 What are the major components of an annual marketing plan for a given product?

I Executive summary

Presents a short overview of the issues, objectives, strategy and actions incorporated in the plan and their expected outcomes for quick management review.

II Current situation Summarizes relevant background information on the market, competition, past performance of the product and the various elements of its marketing program (e.g. distribution, promotion, etc.) and trends in the macroenvironment.

III Key issues Identifies the main opportunities and threats to the product that the plan must deal with in the coming year and the relative strengths and weaknesses of the product and business unit that must be taken into account in facing those issues.

IV Objectives Specifies the goals to be accomplished in terms of sales volume, market share and profit.

V Marketing strategy

Summarizes the overall strategic approach that will be used to meet the plan's objectives.

VI  Action plans This is the most critical section of the annual plan for helping to ensure effective implementation and co-ordination of activities across functional departments. It specifies:

- What specific actions are to be taken?- Who is responsible for each action?- When the action will be engaged in?- How much will be budgeted?

VII Projected profit-and-loss statement

Presents the expected financial payoff from the plan.

VIII Controls Discusses how the plan's progress will be monitored; may present contingency plans to be used if performance falls below expectations or the situation changes.

18.9 What subject areas should be discussed under the analysis of the current situation section of the annual marketing plan?

Market Situation Data relating to the present target market. I.e. market size growth trends, variations across geographic regions or other market segments.  Market research information re customer perceptions and buying behavior trends

Competitive Situation Identifies and describes the product’s major competitors in terms of their size, market share, product quality, marketing strategies and other relevant factions.  Likelihood that other potential competitors will enter the market in near future and possible impact of such entry.

Macro environmental Situation

Broad environmental occurrences or trends that my have a bearing on the product’s future.  Relevant economic, technological, political/ legal or social/cultural changes.

Past Product Performance Products performance on sales volume, margins, marketing expenditures, and profit contribution for several recent years.  Usually presented in form of a table

18.10 Describe what should be included in the discussion of a company’s action plan for a given product.

Specific actions necessary to implement the strategy for the product are listed, together with a clear statement of who is responsible for each action, when it will be done and how much is to spend o each activity.

18.6 Given your answer to question 18.5, how would potential conflicts between functional departments within the industrial tape SBU be resolved? Who would be responsible for co-ordinating the activities of the various functional departments for each of the SBU’s product-market entries?

Answer 18.6 A participative approach would be the best way to handle potential conflicts. A general manager would be given the responsibility of coordinating all the functional activities one level above each of the product groups.

Module 19 Controlling Marketing Strategies and Programs19.1 What are the major steps in the control process?

19.2 Why are more and more firms using non-financial control measures in addition to the traditional financial-based measures? What are some of the more commonly used non-financial measures?

Companies are turning to measure they feel better reflect how their mangers think about what decision areas drive the firm’s success – such as

- Customer satisfaction- Product quality- Market share- New-product development

19.3 Describe the use of benchmarking as a performance type of measure.

The firm’s performance in a given area is compared against the performance of other companies. The comparison does not however have to be with companies in the same industry.

19.4 What are the advantages of using the marginal contribution method to determine a product’s profitability?

A product or market may make a contribution to profits even though it shows a loss. Thus, even though the company must eventually absorb its overhead costs, the contribution method indicates what is gained by adding or dropping a product or a customer. 

19.5 What does strategic control hope to accomplish?

Monitoring and evaluating a firm’s SBU level strategies. Strategic control must provide some way of changing the firm’s thrust if new information about the environment and/ or the firm’s performance so dictates.

19.6 What are the various types of marketing audit?

Marketing Environment Audit Analysis of current and future macro-environment

Objectives and Strategy Audit Assess how appropriate these are, given macro trends

Planning and Control System Audit

Evaluate adequacy of systems developing new product-mkt entries and control systems

Organisation Audit Structure, how MK dept is organised, synergy between MK units

Market Productivity Audit Profitability of company’s individual products, key accounts, and markets

Marketing Functions Audit How adequately firm handles marketing mix elements

Ethical Audit Extent to which company acts in ethical and socially/environmentally responsible way

Product Manager Audit Determine if product managers are channelling efforts in best possible way

19.7 What are the major steps in the contingency planning process?

1. Identifying critical assumptions about the future2. Measuring probability of each critical assumption’s being right3. Rank ordering of critical assumptions4. Tracking / monitoring of action plan5. Specifying alternative response options6. Setting triggers to activate contingency plan

What is a balanced scorecard?

The Balanced Scorecard (developed by Robert S Kaplan and David P Norton) is a tool for implementing strategy.

It uses four perspectives on the company's vision and strategy to identify value creating activities at the SBU level:

Financial

Internal Business Processes

Customer

Learning and Growth

And for each of these it sets out:

Objectives

Measures

Targets

Initiatives

By being explicit about value creating activities and how to develop and measure them the approach provides a framework for translating a strategy into operational terms and contributes to the development of a strategic management system.

Question 19.2 Discuss the relative advantages and limitations of the full costing versus the contribution margin approaches for determining the profitability of a specific item within a firm’s product line. Which approach do you think is most commonly used by large, multi-SBU corporations? Why?

Answer 19.2 Full costing – Analysts assign both direct or variable and indirect costs to the unit of analysis. Direct costs are directly associated with the unit of analysis (production costs, direct marketing costs). Indirect costs involve certain fixed joint costs that cannot be linked directly to a single unit of analysis (general management, costs of occupying a facility).

Contribution margin – This approach argues that there is really no accurate way to assign indirect costs. In addition, because indirect costs are mostly fixed costs, a product or market may make a contribution to profits even if it shows a loss. Thus, even though overhead must eventually be absorbed, the contribution method clearly indicates what is gained by adding or dropping a product or customer.

Large, multi-SBU corporations would most probably use a contribution margin approach, since it enables the firm to better assess the way a product adds or subtracts from overall profitability.

Question 19.5 You are a marketing manager in an SBU of a large consumer food manufacturer. The SBU’s general manager has asked you to conduct a marketing audit of the SBU as a basis for evaluating its strategic and operations strengths and weaknesses. What issues or areas of concern should be covered by your audit? After completing your marketing audit, you are asked to develop a contingency plan for the SBU’s major product line. Outline the plan you would recommend.

Answer 19.5

1. Marketing environment.2. Objectives and strategy.3. Planning and control

system.4. Organization.5. Marketing productivity.6. Marketing functions.

1. Identifying critical assumptions about the future2. Assigning probability of each critical assumption’s being

right3. Rank ordering of critical assumptions4. Tracking/monitoring of action plan5. Setting triggers to activate contingency plan6. Specifying alternative response options

Question 19.6 For each set of issues to be included in the audit you designed in your answer to question 19.5, specify the kinds of information you would need to collect and the major sources you might use to obtain that information.

Answer 19.6

1 Marketing environment – What opportunities and/or threats derive from the firm’s present and future environment: that is, what technological, political and social trends are significant? Sources – news magazines, government publications.

2 Objectives and strategy – How logical are the company’s objectives, given the more significant opportunities/threats and its relative resources? How valid is the firm’s strategy, given the anticipated environment? Sources – internal company strategic documents.

3 Planning and control system – Does the firm have adequate and timely information about consumers’ satisfaction with the products? With the actions of competitors? Sources – internal marketing information system.

4 Organisation – Does the organisation structure fit the evolving needs of the marketplace?

5 Marketing productivity – How profitable are each of the firm’s products/ brands? How effective are each of the firm’s marketing activities? Sources – internal company cost and marketing documents (invoices).

6 Marketing functions – How well does the product line meet the unit’s objectives? How well do the other marketing-mix elements fit corporate objectives? Sources – internal company documents.

Question 19.7 When they saw the result of the sales territory analysis presented in Exhibit 19.9 in the text, the firm’s top managers concluded that Barlow in territory 1 was not devoting sufficient effort to her job, since her performance was more than $32 000 below quota. They have asked you – the firm’s sales manager – to have a talk with Barlow and suggest a way to improve her performance. Do you agree that Barlow’s performance is probably the result of too little effort on her part? Why or why not?

Answer 19.7 It is difficult without further information to say for certain what is the cause of Barlow not reaching her quota. On her behalf, she is fairly close to reaching her quota (94 per cent). This might suggest that perhaps a little more effort would put her over the top. However, there might be other factors (more training, personal reasons, etc.) at play. It is also possible that her quota was set too high in view of competitive conditions or other uncontrollable factors.

Question 19.8 What other causes might be responsible for Barlow’s failure to make quota?What additional information or analyses would you seek in order to determinewhat should be done to improve Barlow’s future performance?

Answer 19.8

1 Customer analysis – An analysis of Barlow’s customers to determine if she is doing a good job of qualifying her customers.

2 Product analysis – What is the mix of products she is selling? Perhaps she needs to sell a different mix of product combinations.

3 Order size – How big is an average order? Perhaps she needs to work on putting together larger orders.

4 Analysis of competitive actions in Barlow’s territories.