Marketing Management Summary

Introduction
Marketing Myopia
 “shortsighted managers often fail to recognize that there is no such thing as a growth industry”
 “companies must be customer-oriented… not product-oriented in order to maintain growth”
 “an industry begins with the customer and his needs, not with a patent, raw material, or a selling skill”
 “selling is concerned with getting people to exchange their cash for your product… marketing is to satisfy
customer needs”

 4 conditions of the ‘Self Deceiving Cycle’:

1. The belief that growth is assured by an expanding and more affluent population (Population Myth).
2. Belief that there is no competitive substitute for the industry’s major product (Idea of Indispensability).
3. Too much faith in mass production and rapidly declining unit costs as output rises (Production
Pressures)… results in marketing being neglected.
4. Preoccupation with a product that lends itself to carefully controlled scientific experimentation,
improvement, and manufacturing cost reduction.

 Danger of R&D: people believe that continued growth is a matter of continued product innovation and
improvement… too much R&D!

 First 2 rules of the scientific method:

1. Being aware of and defining their companies’ problems
2. Developing testable hypotheses about solving them

Strategic Insights in Three Circles

 The 3 circles:
1. The first circle represents the team’s consensus view of everything the most important customers or
customer segments want or need.
2. The second circle represents the team’s view of how customers perceive the company’s offerings, how
much the first 2 circles overlaps shows how well they serve customer needs.
3. The third circle represents the team’s view of how customers perceive the offerings of the company’s
competitors.
  A, B, C are critical to building a competitive advantage
1. A = how big and sustainable are our advantages?
2. B= are we delivering effectively in the area of parity?
3. C= how can we counter competitor advantages?

 E = how much opportunity for growth exists in the white space?

 D, F, or G= what value do companies or their competitors create that customers don’t need?

Beating the Market with Customer Satisfaction

 “To boost customer satisfaction, best place to start is customer service”
 “according to University of Michigan study; relationship between customer satisfaction and financial success by
creating hedge portfolio in which stocks are brought long and sold short in response to changes in American
Customer Satisfaction Index (ACSI)”
 American Customer Satisfaction Index: indicates economic success that reflects levels of customer satisfaction
with goods and services purchased from 200 companies in more than 40 industries
 “problems with service have a much larger effects than problems with products themselves on customer’s
likelihood to recommend a brand”

Lecture 1 – Introduction
 Misguided view of marketing:
o Marketing: sell what you make
o Orientation: internal/product focused

 What Marketing SHOULD be:

o Marketing: creating value for ALL stakeholders
o Orientation: external/customer focused
 o Goal: profit through customer satisfaction (e.g. relationship, ROMI, life-time value)
o Means: determine NEEDS and WANTS of customers. Deliver the desired benefits more effectively than
competitors

 “Cost of attracting new customers can be up to 5 times the cost of keeping a current one happy… so customer
retention is key!!!”

 Customer Value:
o Basic segment attractiveness:
 Size
 Growth
 Stability
o Customer attractiveness:
 Volume
 Margin
 Retention potential
 Development potential
o Cost:
 Acquisition
 Retention
 Development

 Differentiating features of competitive advantage:

o Importance to consumers
o Ease/speed of duplication
o Ease of updating
o Help sales and profits
Segmentation

Note on Consumer Segmentation (CP)

 “the goal of market segmentation is to partition the total market for a product or service into smaller group of
consumer segments based on their characteristics, their potential as consumer for specific products/services, and
their differential reactions to marketing strategies”

 Marketing segmentation aids decision making in 4 ways:

1. Helps marketer by identifying group of consumers that are more effective targets for services/products
2. Segmentation helps marketer avoid ‘trial and error’ method because they know who to tailor their
strategy to
3. Helps marketer address and satisfy customer needs more effectively, aids in implementation of
marketing concept
4. Ongoing consumer analysis and market segmentation provides important data on which long-range
planning (for market growth and product development) can be based

 “most markets are neither fully homogeneous nor heterogeneous; clusters of relatively homogeneous tastes”

 3 assumptions for market segmentation:

1. Consumption behavior is generally not random; means it’s possible to identify and isolate groups who
demand specific product characteristics and react differently to specific marketing strategies
2. Marketer has invested in analysis to define market segments and predict best prospects for specific
products/services whose needs can best be fulfilled, and concentrate efforts on reaching and persuading
primarily this portion of the total market
3. If more than one target segment is desirable, the marketer is willing to design different marketing
strategies for each segment

 4 criteria for segmentation:

1. Are internally homogeneous: consumers within segment are similar
2. Are identifiable: measurable using meaningful factor
3. Are accessible: can be reached via media and distribution channels
4. Have effective demand: large enough and wealthy enough to purchase good/service

 2 broad classes of segmentation dimensions:

1. Consumers’ background characteristics: describes who the consumer is as an individual (geography,
demographic, general lifestyle, and psychographic (personality and perceptions etc))
2. Consumers’ market history: describes what consumers have done in the marketplace relating the
product or service or for comparable products (product usage, product benefit, decision-process)

 Segmentation is useful because it:

1. “provides rich profile of target consumers, to customize marketing strategies for maximum impact”
2. “useful as a tool to identify open segments and potential market opportunities, develops a picture of
consumer market for new product and market developments”
Segmenting the Base of the Pyramid
 “Companies must link their own financial success to the benefit of communities in which they operate” – this
leads to more income, demand, and growth
 “Companies too often assume that their responsibilities end once they have provided a needed product or
service” – leaves them open to criticism… you must create private and public value!

 3 segments to divide 4 billion people by using 2 dimensions:

1. Living Standard: relates to 3 levels;
 Low income (1.4 billion people living on $3-5 a day)
 Subsistence (1.6 billion live on $1-3 a day)
 Extreme poverty (1 billion that lack basic necessities)
2. Value-Creation Role:
 Consumers (companies sell product to them… low income)
 Co-producers (companies provide these with work and income.. usually in subsistence living
standard)
 Clients (extreme poverty based… require ‘agents’ to garner resources on their behalf… hard to
access basic resources… requires heavy investments to get into contact with)

 “Commercial and social value are like two blades on a pair of scissors, and scale is the tailor’s deft hand. You
must have all 3 elements to slice through the knotty obstacles at the base of the pyramid”

Rediscovering Market Segmentation

 “Demographic traits (age, sex, education, etc) are not enough… we need non-demographic traits (values, tastes,
preferences, etc), which influences consumers’ purchases more.”
 “Good segmentation identifies the groups most worth pursuing: the underserved, dissatisfied, and those likely to
make a first-time purchase”
 “Psychographics are effective at brand reinforcement and positioning… but not much else”

 Marketing segments must:

1. Reflect the company’s strategy (what are we trying to do?)
2. Indicate where sources of profit may lie (which customers drive profits?)
3. Identify consumer values, attitudes, and beliefs relating to the product (which attitudes matter to
buying decisions?)
4. Focus on actual customer behavior (what are my customers actually doing?)
5. Make sense to top executives (does it make sense to senior management?)
6. Accommodate or anticipate changes in markets or consumer behavior (can our segmentation register
change?)

 “Effective segmentations --- focus on one or two issues, and they need to be redrawn as soon as they have lost
their relevance”
  3 failures of segmentation initiatives:
1. Excessive interest in consumer identity: distracts marketers from product features that matter most to
current/potential customers of particular brands and categories
2. Too little emphasis on actual consumer behavior: if you don’t focus on it, you lose the behavior that
reveals customer attitudes and being able to predict business outcomes
3. Undue absorption of technical details of devising segmentations: estranges marketers from the
decision makers on whose support their initiatives depend

Lecture 2 - Segmentation
 Customer Analysis: outward marketing orientation is focused on the customer
1. Assess customers’ needs and wants to offer products customers want to buy
2. Customer analysis is almost always the starting point of marketing analysis

 “Marketing is not about the PRODUCT… it’s about the BENEFITS” --- (customer do not buy drills, they buy holes!)
 Segmentation: not all customers are the same; different people desire different benefits and react differently to
your marketing mix… segmenting means you classify these people in such characteristics
 Why Segment?:
1. Competition: competitors might be more efficient in attracting certain customers in the market
2. Different needs: difficult or costly to satisfy with one product/service
3. Limited resources: you can only invest in customers with highest return on marketing investment

 STP Process (Segmentation-Targeting-Positioning):

 3 criteria for market segmentation:

1. Are segments DISTINCTIVE in a strategically meaningful way? (Respond differently to marketing mix?)
2. Are the segments OPERATIONAL (Can they be identified and reached?)
3. Are the segments SUBSTANTIAL enough to support profitable tailored marketing programs?
 Bottom line: does the segmentation scheme reflect and illuminate meaningful differences in consumer needs
and behaviors that can be acted upon?

 3 levels of classification:
1. Personal Characteristics: measures that describe individuals as people (age, income, lifestyle)…
orientation toward a person’s overall life and applies to all products and brands… personal
characteristics explains/predicts behavior
 Demographic
 Lifestyles and psychographic
 Geographic
2. Benefits Sought: what consumers are seeking in a product/service… can be benefit (what does it do for
you), occasion (birthday party card, etc), and situational (beer at the pub) segment… 3 assumptions
 Different people have different preferences
 Preferences are influenced by personal factors
 People will act upon these different preferences
3. Behavior: classification of each consumer on their actual marketplace behavior (ownership, loyalty, etc)
  Segmenting Business Markets:
1. Macro-Segmentation on Firmographics: industry, geography, account size
2. Micro-Segmentation on Benefits Sought: performance, service, delivery, price, responsiveness, etc
3. Process-Related Variables: decision maker and decision making process

Targeting
Customer Value Propositions in Business Markets
 Three kinds of value propositions, from worst to greatest:
o All benefits: simply list all benefits you believe that your offering might deliver to target customers.
Least amount of work to construct, but can lead to benefit assertion (claiming advantages that don’t
provide benefit to target customers)
o Favorable points of difference: recognizes that customers have alternatives…forces suppliers to
differentiate their offerings (requires tailored knowledge) and provide favorable points of difference
compared to competitors… can lead to value presumption (assuming that favorable points of difference
must be valuable for the customer)
o Resonating focus: acknowledges managers’ increasing levels of responsibility and time constraints. They
need suppliers who fully grasp critical issues; make offerings superior by communicating elements that
matter most to target customers.
  3 types of elements:
o Points of parity: elements with the same performance/functionality as those of the next best alternative
o Points of difference: elements that make the supplier’s offering superior or inferior to alternatives
o Points of contention: elements about which suppliers and customers disagree how its
performance/functionality compares to alternatives (e.g. one sees it as superior, the other as inferior)

 Value word equations: expresses in words and simple mathematical operators how to assess the differences in
functionality or performance between a supplier’s offering and the alternatives and how to convert those
differences into dollars
 Value case histories: document the cost savings or added value that reference customers that have actually
received from their use of the supplier’s market offering
 Value calculators: typically spreadsheets software applications to demonstrate the value that customers would
likely receive from supplier’s offerings

 At Sonoco (specific company), each value proposition must be:

o Distinctive
o Measurable
o Sustainable

Lecture 3 - Targeting
 “targeting is key to success”

 Importance-Performance Model: should target people who want to buy you product… people in target
segments should perceive your products’ benefits as better than competition… in relation to the 3 C’s:
o Customer focus: what benefits are important to what segments?
o Company focus: how good am I at providing these benefits?
o Competitive focus: how good are competitors at providing those benefits?
 “after using the IM model, general attractiveness of segments can be found in terms of size, growth, seasonality,
etc”

 IPM: Targeting Decision: integrate ability- to-satisfy-benefits and general attractiveness

 Targeting Strategies:
o Mass marketing (undifferentiated): ignore segmentation variables and go after the whole market
o Single target market approach (concentrated): select one of the segments as the firm’s target market
 Nice strategy: even more narrow than single market, serves a specific need
o Multiple target market approach (differentiated): choose 2+ segments and offer different marketing
mixes for each segment

 Important criteria to keep in mind (3 C’s of marketing plus bonus):

o Consumer: distinctive, operational, substantial… provide benefits that each segment needs
o Company: capability to supply multiple segments, synergies, cannibalization
o Competition
o Costs (extra)
  Targeting: determines which segments you will invest your resources into--- ask yourself ‘which segment(s) give
you the most bang for you buck?’
o Don’t forget to include the 3 C’s!: ‘target segments of Customers that your Company can satisfy better
than the Competition

Positioning
Analyzing Consumer Perceptions (CP)
 “an important input to marketing decision is understanding consumer perceptions on the firm, brand, or product
relative to competitors”
 “When analyzing perception data (what people see) as opposed to preference data (what people like), we
usually are more willing to live with an assumption of homogeneity in responses across consumers.
 Profile analysis: also known as ‘snake plot’--- plots the ratings of brands by attribute

 Two types of mapping procedures:

1. Attribute rating method: ratings of items on pre-specified attributes… but has a key limitation for some
product types
2. Overall similarity method: judgments on overall similarity of pairs of brands… can compare completely
different products

 3 major ways in which perceptual maps are used in marketing:

1. Helps gain a better understanding of current positioning and market structure
 Useful stimulus to opportunity identification
 Exposes competitor weakness in how consumers perceive them
2. Tests where a new product being considered for introduction would be perceived
3. Provides direction to R&D efforts to satisfy the wants of consumers better, this is the ‘ideal point’--- this
point can be found in 2 ways:
 Attribute approach: alter the input data collection phase to include respondents’ “ideal” in the
set of things to be rated on each attributed
 Overall similarity method: ‘ideal’ is one of the objects in forming all possible pairs for similarity
ranking

 Ideal points: consumers’ preferred positions as well as competitors’ positions on the perceptual map

 Limitations of perceptual mapping:

1. Presents static view (current ‘snapshot’ on consumer perceptions)… series of studies must be done over
time to notice trends
2. Provides no indication of the cost or likelihood of being able to achieve the desired positioning
 “in short, it can’t substitute management judgment but provides useful input to help with decision making”
Lecture 4 - Positioning
 “our preconceptions of reality shape how we interpret and experience reality”
 Positioning: act of designing the company’s offering and image so that they occupy a meaningful and distinct
competitive position in the target customers’ minds… the idea associated with your product in customers’
minds… where you intend to be in the target customers’ minds in comparison to the competition
 Perceptual maps: tools for positioning… summarizes positions of products on benefit dimensions… infers
opportunities/threats from the way customers perceive your products and what they want (ideal point)…
typically focuses on a small number (2-3) of attributes or benefits that consumers seek
 To choose and track positioning you must know perceptions:
o What benefits and benefit levels the customers want (ideal point)
o Customers’ benefit/cost perceptions of competition
o Customers’ benefit/cost perceptions of your product

 Alternative methods to creating perceptual maps: overall similarity/multi-dimensional scaling method:

o Ask segment members to rate similarities between products and use multi-dimensional scaling to
generate low-dimensional map

 Zaltman Metaphore Elicitation Technique (ZMET): qualitative tool… use picture describing feelings about brand
and explain meaning, of which you make a ‘summary’ collage. 2 assumptions
o Implicit attitudes
o Accessible through images

 Types of positioning concepts:

o Features and benefits
o Price/quality
o Product user
o Competitor
o Product class
o Symbol and imagery

 Creating a positioning statement: ‘For [target segment], [the product] [most important claim] because [single
most important support]

 Summary of STP
o Segmentation: recognizes diversity in marketplace. The process of segmenting the market produces
cluster of similar people/organizations.
o Targeting: a segment involves selection of segment(s) to which marketing effort will be directed.
Marketers must select targets for which they can satisfy desired benefits better than competitors can.
o Positioning: requires designing a company and product image and developing a marketing mix to
promote the image to the target segment(s).
Company & Competitive Analysis

The Coherence Premium

 “companies are ‘coherent’ when its differentiating internal capabilities is aligned with the right external market
position”
 “companies should first figure out what they’re really good at (core competencies; 3-6 at most), then focus on
externalities (marketplace opportunities)”
 Coherence premium: when differentiating internal capabilities are successfully matched with marketplace
opportunities the market rewards companies with outsize returns.
 Capability: something you do better than competitors that customers value. It’s the interconnection of people,
knowledge, IT, tools, and processes that enable companies to out-execute rivals

 “In order to have a capabilities system, a company should answer the following questions”:
o How are we going to face the market?
o What capabilities do we need?
o What are we going to sell, and to whom?

 “the engine of value creation is a system of 3-6 capabilities that, together, allow a company to compete in a
differentiated way”
 “expansion is the enemy of coherence when you acquire unfocused companies that have different capability sets
that are incompatible and thus cannot be combined”

 Coherence in a company creates value in four ways:

o Strengthen a company’s competitive advantage
o Focuses strategic investment on what matters, waste is avoided
o Produces efficiencies of scale
o Creates alignment between strategic intent and day-to-day decision making

Are You Ignoring Trends That Could Shake Up Your Business?

 “heavy users of digital products/services focus more on short-term goals, demand immediate gratification,
expect to multitask, and are open to exchanging ideas to people they’ve never met in person”

 3 broad innovation strategies to address powerful trends:

o Infuse and Augment: design a new product/service that retains most of the attributes and functions of
traditional products in the category but adds others that address the needs and desires unleashed by a
major trend (use when basic value proposition of product continues to be meaningful for consumers
influenced by trend)
o Combine and Transcend: entails combining aspects of the product’s existing value proposition with
attributes that address the aspirations, attitudes, and behaviors arising from a trend to create a novel
experience – one that may land the company in an entirely new market space (use when a separation
between your category and consumers’ new focus occurs in order to re-integrate them)
o Counteract and Reaffirm: developing products that emphasize the values traditionally associated with
the category in ways that allow consumers to oppose the aspects of trends they view as negative (use
when undesired changes emerging from trend clashes with your product category)
  Four-Step Process for Addressing Trends: to tap into trends, you need audacity and imagination
o Identify trends that matter: ripple effects (multiple areas of customer’s life), impact, scope, endurance
o Conduct two separate explorations: 1st into less obvious effects of trends, 2nd look at consumers’
perceptions and behaviors related to your product category
o Compare the results
o Isolate potential strategies

 Why firms fail to leverage trends:

o Ignoring trends that originate outside their markets
o Responding to a trend in a superficial way
o Waiting too long

Strategies to Fight Low-Cost Rivals

 “companies have 3 option to fight backs: attack, coexist uneasily, or become low-cost players themselves”

 Framework for responding to low-cost rivals:

o Will the company take away any present/future customers?
 No: watch the rival, do not engage
 Yes: don’t launch price war, increase differentiation
o Are sufficient numbers of consumers willing to pay more for the benefits I offer?
 No: learn to live with it, or merge/takeover rivals
 Yes: intensify differentiation by offering more benefits, over time reduce price of benefits
o If I set up a low-cost business, will it generate synergies with my existing business?
 No: switch to selling solutions or transform your company into a low cost player
 Yes: attack low-cost rival by setting up your own low-cost business

 Low-cost rivals stay ahead by using tactics: focus on one or a few customer segments better than rivals, and
back everyday low prices with efficient operations to keep costs down

 “don’t engage in a price war with low-cost specialized rivals, they are designed to make money at low costs… you
will lose”

 “a two-pronged strategy (have your traditional company, but open an additional, related low-cost brand) works
only when low-cost operation is launched to make money --- not as a purely defensive ploy to hurt low cost rivals

 When differentiating to fight low-cost rivals, companies usually:

o Design cool products (e.g. Apple)
o Continually innovate in the tradition (e.g. Gillette)
o Offer a unique product mix (e.g. Whole Foods)
o Brand a community (e.g. Harley Davidson)
o Sell experiences (e.g. Starbucks)
  3 variables that affect differentiation strategy:
o Smart businesses don’t use these tactics in isolation
o Companies must be able to persuade consumers to pay for benefits
o Companies must bring costs and benefits in line before implementing it

 If there are no synergies between low-cost and traditional business, companies can:
o Switch from selling products to selling solutions (larger service component, ‘integrated packages’, etc)
o Convert themselves into low-cost players (very difficult)

 There are always 2 types of consumers:

o Those who buy on the basis of price
o Those who are partial to value

Should You Launch a Fighter Brand?

 “A Fighter Brand is designed to combat, and ideally eliminate, low-price competitors while protecting an
organization’s premium-price offerings”
 “positioning a fighter brand presents a dual challenge; you must ensure it appeals the price-conscious segment
while guaranteeing that it falls short for current consumers of you premium brand”
 “accurate break-even when starting a fighter brand must also account for cannibalization”

 5 major strategic hazards that a manager must negotiate in order to enjoy fighter brand success:
o Cannibalization: when fighter brands acquire customers from a company’s own premium offering.
o Failure to Bury the Competition: being so careful with the fighter brand to protect the premium, that
you fail to attack the competitors
o Financial Losses: not achieving profits
o Missing the Mark with Customers: fighter brands focus excessively on competitors, at the expense of
focusing too little on consumers
o Management Distraction: manager must divide company resources between the premium and fighter
brand… when should the manager go to war with the fighter brand or defend the homeland (premium)?

 How Qantas launched the perfect fighter brand:

o Determine whether another brand is truly necessary
o Run the numbers
o Listen to customers, early and often
o Move fast
o Control for cannibalization
o Reinvest in your premium offering and calibrate between the two brands

 “a manager will probably never encounter a strategy as tempting or potentially ruinous as a fighter brand”
Lecture 5 – Company and Competition
 “the loss of consumers’ connection with the brand (downstream competitive advantage) would be worse than
the loss of all upstream assets (upstream competitive advantage)”
 “core competency is something a company does really well that provides customers with major benefits and is
not totally copiable”

 Core competency: collective learning in the organization, especially how to coordinate diverse production skills
and integrate multiple streams of technology… has the following criteria:
o Provides potential access to wide variety of markets/can be reused widely for many products + markets
o Contributes to the perceived customer benefits of the end product
o Difficult for competitors to imitate/replicate
o Resides downstream, in the marketplace (e.g. linkages with customers, channel partners, etc)
o They are distributed (intangible)

 Strategic business units (operating separately, no cooperation or synergy) can lead to:
o Underinvestment of core competency
o Imprisoned resources
o Bounded innovation

 Resource based view of strategy: use physical and intangible resources to have a competitive advantage/ core
competency… based on 3 key dimensions:
o Scarcity
o Appropriability
o Demand

 “success is marketing-specific, can’t look at core competency independent of market/context

 To identify closest competitors: look at customer judgment (similarity and benefit ratings, substitution, etc) and
purchase records

 Competitor’s current strategy possibilities:

o Generic strategy chosen: Differentiation, Cost leadership, and Focus
o Competitor’s marketing mix: 4 P’s (product, price, promotion, and channel [place])
o Competitor’s current market position and trends: sales, market share, and profitability

 Competitive Strategies:
o Cost leadership: try getting lowest prices, but there is no loyalty (customers only care about price), offer
fewer things for few segments cheaply and have a network advantage (core competency) that is hard to
copy
o Differentiation: redefine customer’s purchase criteria by delivering benefits that other company’s cant
or wont… these benefits must be important enough for it to be worth its price, customers must know
and believe in these benefits
o Provide (Customized) Solutions: focus on completely solving customer problems and offer
products/services as an integrated package (better and cheaper solution, difficult for customer to
switch providers)
  “A strategy must look both inward and outward that is good for the present and the future”

 Marketing analysis (3 C’s) should always include: you must have all three, otherwise you will fail
o What benefits are consumer segments looking for?
o Do I have the resources to provide those benefits?
o Can I provide these benefits better than the competition?

Case 1: Crescent Pure

The Case Method of Introduction
 “a case is a statement of conditions, attitudes, and practices at a time in an organization’s history, usually
describes a problem which a company is facing”
 “a case serves to help further understand topics discussed in class and using theory you have learned to solve
these problems”

Working with Cases

 Types of problems in cases:
o Immediate: one that is facing the protagonist in the case, stated explicitly in the case and absolutely
must be addressed by your solution
o Basic: the cause of the immediate issue  stop basic issues, which solves immediate issue

Note on Low-Tech Marketing Math

 Types of costs:
o Fixed: remains at given level regardless of quantity changes in product
o Variable: changes depending upon quantity of product

 Margin calculations
o Unit margin: difference between the per unit revenue received by firm and the variable cost per unit

 Break-Even Volume:

 Selling Price:

Lecture 6 – Case 1: Crescent Pure

 Marketing mix (4 P’s):
o Product
o Price
o Distribution (Place: where do I sell?)
o Promotion
Channel Strategy

Strategic Channel Design

 “when choosing distribution channels, companies need to rely on design principles that are aligned with their
overall competitive strategy and performance objectives”
 “it’s hard to change distribution channels because of inertia… causing it to be rigid and stable”
 “as environments stabilize, distribution arrangements should become fewer, more substantial, and more stable,
and reflect a coherent, articulated channel strategy…. Multiple channels are most prevalent in fast changing
market environments”

 Forces that change customary rules of channel management:

o Proliferation of customers’ needs (increasing customer needs): customers need/demand more leading
to mass customization, 3 factors that contribute to mass customization, and thus market fragmentation:
1. Expanding capabilities for addressability and variety: firms can address/engage each
customer/small segment individually due to database technology and flexible manufacturing
2. Channel diversity: firms shift from centralized to localized (one at a time) production while
distributors are exploiting generic capabilities for variety and addressability by automating order
receipt, shipping, inventory, etc to continue turmoil and channel diversity
3. Customer expectations: customer’s have become accustomed to customized products and
greater service through their preferred channel, demand increases for improved performance
o Shifts in the balance of channel power: increased concentrations of channel structures and power
favors the intermediaries or end buyers due to:
1. Enhanced bargaining power: when there are few customers making large purchases, suppliers
must give discounts and more service because they are valuable
2. More knowledgeable buyers: big resellers know about suppliers’ costs, their own operations,
and customer needs and use it to gain power
3. Credible threats of backward integration: buyers and channel intermediaries can threaten to
take over suppliers’ activities or replacing them
o Changing strategic priorities: companies hand off noncritical activities in order to focus on their
competitive position

 Most distribution channels are subject to;

o Shifting Patterns of Commitment: fewer firms commit to retain vertically integrated distribution
systems and outsourcing them
o Vertical Compression: new forms of direct channels are emerging; indirect channels are getting shorter
with fewer intermediary layers. Role of distributor as buffer between manufacturer and retail dealer is
threatened due to innovations in IT, database marketing, and direct marketing.
o Horizontal diversity: so much diversity in distribution, you can’t focus on a few… do many small
experiments in different manners to reach customers (mail, telemarketing, etc) and invest in the
successful ones
o Functional Decomposition: do high-velocity environments favor channel specialists over generalists
(useful to have both)? As environment stabilizes, specialists tend to survive, customer’s tend to gravitate
to specialists in both markets
  Channel Strategy Design:
o Effectiveness: how closely does the channel design address customer requirements?
o Coverage: can customers find and appreciate the value of a firm’s offering?
o Cost-Efficiency: can the company justify trade off in cost efficiency to gain greater strategic
effectiveness and coverage cause of multiplier effect that distribution has on increasing the impact of
other marketing variables?
o Long-Run Adaptability: can the channel design handle possible new products/services and incorporate
emergent channel forms?

 A company should assess what customers are seeking from channels by asking:
o What service attributes do target customers value?
o How can we use differences in preferences to segment customers with similar needs?
o How well do available channels meet the needs of the segments?

 How a channel strategy must contribute to business’ overall performance objectives:

o Align channels with overall competitive strategy: through 1) design channels from the market back, 2)
create barriers to competitive response, 3) enhance delivery of superior customer value
o Decompose and recompose channels into integrated collections of functions: combine creatively to
reduce cost and increase responsiveness (AKA synergies!)
o Invest in learning
o Translate strategic choices into programs, projects, and near-term plans and establish controls for
monitoring channel performance

The Future of Shopping

 “successful companies will engage customers through ‘omnichannel’ retailing: a mashup of digital and physical
experiences”
 Omnichannel Retailing: integrated sales experience that melds advantages of physical stores with information-
rich experience of online shopping (customers interaction through different channels e.g. websites, physical
stores, televisions, etc)

 Four factors that holds traditional retailers back from using omnichannels:
1. Retailers were burned by e-commerce hype during the dot-com bubble
2. Digital retailing threatens existing store economics, measurement systems, and incentives
3. Retailers tend to focus on the wrong financial metric; profit margins
4. Conventional retailers haven’t had great experiences with breakthrough innovation

 Retailers traditionally defined their job with 3 simple imperatives:

1. Stock products that target customers will want
2. Cultivate awareness of what’s in the store
3. When customers enter the store, make it enticing and easy for them to buy

 To create an omnichannel experience that is superior than purely digital retail strategy:
1. Apply these innovations early, frequently, and broadly enough to change customer perceptions/behavior
2. Upgrade testing and learning skills to 21st century level
  Types of approaches to integrate omnichannel innovations in organizations:
1. Create separate formal organizational structures but coordinate key decisions
2. Attract and retain innovative people (imaginative, tech-savvy)

Lecture 7 – Product and Branding

 “Introducing new products has up to 50% failure rate… 75% in mass market consumer goods”

 Why most product launches fail:

o Company can’t support fast growth
o Product falls short of claims
o ‘Product limbo’- product’s differences doesn’t sway buyers
o Consumers don’t understand the product
o Product is revolutionary, but there is no market

 Potential steps to circumvent failure:

o Think hard about target segmenting and positioning
o Research lots
o Interpret research honestly, not motivated reasoning
o Customer commitment with innovation process (empowered customers that have say in selecting design
are willing to pay 50% more!!!) and pre-purchasing

 Detailed attribute descriptions: have consumers rate importance of attributes to determine value of each
attribute
 Augmented product concept: “products are not physical entities so much as anticipated benefits in the minds of
customers
 Branding: name, term, symbol or design that is intended to identify the products or services of one seller to
differentiate them from those of competitors

 Branding a portfolio of products:

o Brand extension (category must fit, brand-specific associations, and feedback effects)
o Separate, family, sub- and co-branding
o Competition from attributes/ingredients
o Consistency (can’t have completely unrelated products)

 Co-Branding: two different brands coming together to sell a ‘package’ (e.g. Nike and Apple ipod)

 Summary:
o Product decisions need to be tested conceptually and empirically
o Brands are valuable assets
Guest Lecture

Lecture 8 – Mondelez
 Mondelez dream:”create delicious moments of joy”
 Shopper marketing: use of insights driven marketing and merchandising initiatives to satisfy targeted shoppers,
enhance the shopper experience and improve business results and brand equity for both retailers and suppliers

 Selling is different to negotiating…:

o Selling: establishing a need/desire to buy in customer and matching the benefits of your proposal to
those needs
o Negotiating: act and process of trading variables to reach a mutually acceptable agreement or objective

 Negotiations can be ‘cut-throat’ due to:

o Rapid development within supermarket channel
o Supermarkets operating on low margins, along with continued price war
o Continued concentration of manufacturers
o Increasing commodity prices

Product and Branding Strategy

Principles of Product Policy

 Product: anything offered to a market for consumption that satisfies a need…. Classified among dimensions like:
o Nature of customers’ buying behavior
 Convenience goods: when products are frequently purchased without much deliberation, are
widely available
 Shopping goods: involve more planning and some comparison shopping by customers
 Specialty goods: relatively inelastic demand and little to no comparison shopping, only available
in selected outlets
o Level of involvement in purchase process
 Low involvement: requires little deliberation by customers
 High involvement: customers invest significant time and effort in the purchase process
o Type of benefit:
 Functional/utilitarian benefit: have a logical, rational advantage
 Emotional benefit: ego-expressive need

 Products can be divided into:

o Tangible goods: physical products
o Intangible goods: services, events, people, places, and ideas
 Many products have both tangible and intangible components integrated:
o Core product: what the consumer is actually buying—serves direct, primary benefit
o Augmented product: offers additional benefits

 Brand equity: term used for the positive effect that the brand has on a potential customer of a product; how
much consumers are willing to pay for a particular brand compared with a competing brand

 When making product policy decisions marketers must:

o Recognize core customer they intend to satisfy
o Verify whether their core product is ideally suited to satisfy that need, if not, how it can be redesigned
o Understand how to augment the core product to create bundle of benefits that will provide satisfying
customers’ experience, which will shield the company from threats by competitors

 Product mix encompasses all product lines: product line; group of items that serve a similar function... can be
described in terms of:
o Length: number of items within the product line (e.g. Cola, Dr. Pepper, etc)
o Depth: number of versions of each product in the line (e.g. Cola, Diet Coke, etc)
o Consistency: extent to which the product lines share relevant characteristics

 Product line and brand extensions:

o Line extensions: existing brands extended to new product forms in an existing product category (e.g.
Coke comes out with new flavor of Coke Cherry… still a soft drink, different flavor)
o Brand extensions: an existing brand extends into new product forms in a new product category (e.g.
Coke goes into beer category… or clothing, same brand completely new product)
o Additional brand: launch new products under a new brand (but same product category)
o Diversification: when a firm adds a brand new product category
  New product development includes a few general stages:
o Idea generation and screening
o Concept development and testing
o Physical product development and testing
o Commercialization

 Four hallmarks of an effective process regarding new product development:

o The voice of the customers must be heard throughout the development process
o Substantial work is done before physical production begins, across firms’ different functional areas
o The process has real go/no-go decision points
o The process recognizes the firm’s distinctive competencies

 The Product Life-Cycle:

Stage Definition Production Strategy

Development period before the product is introduced, investment increase, sales Offer basic product
are nonexistent

Introduction Product launched into marketplace, initial sales growth is slow, Add elements of augmented
marketing expenses and other costs are high, leading to negative product (e.g. customer service)
profits. Firm primarily wants to create awareness, customers that
enter in this stage can be characterized as ‘innovators’

Growth Sales rapidly rise, ‘early adopters’ now join the firm’s customer Add product extensions
base, and growing market acceptance goes along with economies
of scale and rising profits. Growing number of competitors, firm is
primarily focused on maximizing its market share

Maturity Sales peak, slows down, market saturates, and competition Extend and diversify the brand
increases. Less efficient in reaching new customers  profits level
off and firm primarily maximize profits and defend market share

Decline Sales fall, profitability disappears. Some competitors may exit. Firm Prune the product or brand mix
primarily wants to reduce expenditure and milk the brand

Figure 1: Product Life-Cycle

  “The key reason to have a product line rather than a single product is to be able to better serve multiple market
segments concurrently”

Customer-Based Brand Equity

 Customer-based brand equity model: (1)differential effect that (2)brand knowledge has on (3)consumer
response to the marketing of that brand (3 key ingredients)
 “power of the brand lies in what resides in the minds of customers”
 Associative network memory model: views memory as consisting of a network of nodes and connecting links, in
which nodes represent stored information or concepts, and links represent the strength of association between
the information or concepts

 Brand knowledge has two components:

o Brand awareness: the strength of the brand node or trace in memory, which we can measure as the
consumer’s ability to identify the brand under different conditions
 Brand recognition: consumers’ ability to confirm prior exposure to the brand when given the
brand as a cue (recognize a brand they’ve seen before)
 Brand recall: consumers’ ability to retrieve the brand from memory when given the product
category, needs fulfilled by the category, or a purchase or usage situation as a cue
o Brand image: consumers’ perceptions about a brand, as reflected by the brand associations held in
consumer memory

 Advantages of brand awareness:

o Learning advantages: brand awareness influences the formation and strength of the associations that
make up the brand image
o Consideration advantages: consumers must consider the brand whenever they are making a purchase,
you need to be part of that group (consideration set)
o Choice advantages: people usually buy familiar, well-established brands

 “Customer-based brand equity occurs when the consumer has a high level of awareness and familiarity with the
brand and holds some strong, favorable, and unique brand associations in memory”
 Consideration set: the handful of brands that receive serious consideration for purchase
 Part-list cuing effect: recall of some information can inhibit recall of other information, “in marketing, if a
consumer thinks of going to Burger King for lunch, they will less likely also be thinking of going to McDonalds.”
 “we can create brand awareness by increasing the familiarity of the brand through repeated exposure (for brand
recognition) and forging strong associations with the appropriate product category or other relevant purchase or
consumption cues (for brand recall)”

 Two factors strengthen brand associations:

o Personal relevance
o Consistency with which it is presented over time

 Brand attributes: descriptive features that characterize a product/service

 Brand benefits: personal value and meaning that consumers attach to the product/service attributes
 Favorable associations with brand must be:
o Desirable: convenient, reliable, etc, depends on 3 factors;
 How relevant
 How distinctive
 How believable
o Delivered: does the product deliver on promises, depends on 3 factors;
 Actual/potential ability of the product to perform
 Current/future prospects of communicating that performance
 Sustainability of the actual and communicated performance over time

 Unique selling proposition: essence of brand positioning; a competitive advantage that gives consumers a
reason why they should buy it
 “to get customer-based brand equity, marketers must make brand associations favorable and unique and not
shared with competing brands”

 Building a strong brand: CBBE model 4 steps:

1. Ensure identification of the brand with customers and an association of the brand in customer minds
with specific product class or customer need
2. Establish totality of brand meaning in customer minds by linking a host of (in)tangible brand associations
with certain properties
3. Elicit the proper customer responses to this brand identification and brand meaning
4. Convert brand response to create intense+active loyalty relationship between customers and the brand
 4 questions customers ask about brands:
1. Who are you? (brand identity)
2. What are you? (brand meaning)
3. What about you? What do I think/feel about you? (brand responses)
4. What about you and me? What kind of associations and how much of a connection would I like to have
with you? (brand relationships

 6 brand building blocks:

1. Brand salience: awareness of the brand, how easily the brand is evoked under various situations
2. Brand Performance: how well the product/service meets customers’ functional needs
3. Brand Imagery: how the brand meets customers’ psychological/social needs; intangible aspects of the
brand (e.g. experiences),these include:
 User profiles
 Purchase and usage situations
 Personality and values
 History, heritage, and experiences
4. Judgments: customers’ personal opinions about and evaluations of the brand, which customers form by
combining brand performance and imagery… four types of judgments:
 Brand quality
 Brand credibility (perceived expertise, trustworthiness, and likability)
 Brand consideration
 Brand superiority
5. Feelings: customers’ emotional responses/reactions to the brand
 6. Resonance: describes the nature of this relationship and the extent to which customers feel that they
are ‘in sync’ with the brand (intensity and activity), four categories:
 Behavioral loyalty: repeat purchases and amount/volume
 Attitudinal attachment: customers go beyond a mere positive attitude; they ‘love’ the brand
 Sense of community: affiliation/association with other people that buy the brand
 Active engagement: customers are willing to invest time, energy, money, etc into the brand…
more than usual

 Depth of brand awareness: measures how likely it is for a brand element to come to mind, and the ease at
which it does so
 Breadth of brand awareness: measures the range of purchase and usage situations in which the brand elements
comes to mind (product knowledge in memory)
 Product category structure: how product categories are organized in memory
 5 personalities of brands: sincerity, excitement, competence, sophistication, and ruggedness

 How do customers view performance?:

1. Reliability: measures the consistency of performance over time and from purchase to purchase
2. Durability: expected economic life of the product
3. Serviceability: ease of repairing the product if needed
4. Service:
 Service effectiveness: measures how well the brand satisfies customer service requirements
 Service efficiency: speed and response of service
 Service empathy: extent to which service providers are seen as trusting, caring, and having
customer interests in mind

 Brand associations making up brand image and meaning depend on:

1. Strength
2. Favorability
3. Uniqueness

 Brand responses: what customers think/feel about the brand

 Transformational advertising: advertising designed to change customers’ perceptions of the actual usage
experience with the product

 6 important types of brand-building feelings:

1. Warmth (experiential/immediate leading to intensity)
2. Fun (experiential/immediate leading to intensity)
3. Excitement (experiential/immediate leading to intensity)
4. Security (private/enduring leading to level of gravity)
5. Social approval (private/enduring leading to level of gravity)
6. Self-respect (private/enduring leading to level of gravity)
 CBBE 5 branding tenets:
o Customers own brands: power of the brand and its ultimate value to the firm reside with customers
o Don’t take shortcuts with brands: “Rome wasn’t built in a day”
o Brands should have a duality: blend product performance and imagery to create a rich, varied, but
complementary set of consumers responses to the brand (affects the head an heart—logic + emotion)
o Brands should have richness: should have breadth and depth
o Brand resonance provides important focus: lasting effect + brand loyalty

 Creating customer value:

o Customer relationship management: uses company’s data systems + applications to track consumer
activity and manage customer interactions with the company (e.g. email, retail stores, etc)
o Customer equity: the sum of lifetime values of all customers (revenues, retention, etc)—customer
lifetime value

 Rust, Zeithaml, and Lemon say customer equity is made of 3 components/key drivers:
o Value equity: customers’ objective assessment of the utility of a brand based on perceptions of what is
given up for what is received (3 drivers: quality, price, and convenience)
o Brand equity: customers’ subjective and intangible assessment of the brand, above and beyond its
objectively perceived value (3 drivers: customer brand awareness, customer brand attitudes, and
customer perception of brand ethics)
o Relationship equity: customers’ tendency to stick with the brand (4 drivers: loyalty programs, special
recognition and treatment programs, community-building programs, and knowledge-building programs)
Strategic Brand Valuation
 “by bridging the gap between accounting and marketing, brand valuation lets firms realistically include
intangibles in assessing financial performance”
 “there has been no beneficial free flow of information and ideas between marketers and accountants in many
firms” --- marketers usually make financial reports for externalities… not for internal decision making

 Several costing techniques present useful historical financial accounting information that can be used for
marketing decisions:
o Life cycle costing: ignores traditional financial reporting periods and aggregates the cost of a product
over the life of the item in the marketplace
o Target costing: considers not only the actual production cost, but also estimates long-term cost of
competing in the marketplace
o Customer costing: customer profitability which determines how profitable customer segments are
o Brand valuation: combination of brand loyalty, name awareness, perceived quality, brand associations,
and other assets such as competitive advantages created by the brand

 Methods of brand valuation:

1. Cost based approaches: considers costs involved in creating the brand through the stages of R&D of the
product development all the way to product improvement over time. Complies with standard
accounting practice.
2. Market based approaches: more externally focused; based on estimation amount for which the brand
can be sold. Future benefits are included in determining market value (also includes intangible-and
tangible assets).
 3. Income based approaches: by looking at future potential of a brand, determines future net revenues
directly attributable to the brand and discounts it into present value
4. Formulary approaches: considers multiple criteria;
 Leadership: ability of the brand to act as market leader and get benefits as a dominant market
share holder
 Stability: if brands retain their image and consumer loyalty over long-term
 Market: brands in certain product markets are more valuable than brands in other markets
 Internationality: brands that are international in scope are more valuable than regional/national
 Trend: ability of brand to remain current in the perception of consumers
 Support: brands that are consistently managed/supported/invested in by the organization over
time
 Protection: relates to legal trademarks and patent-protected brands
 Financial world: estimates operating profit attributable to a brand and then comparing it to an
unbranded product… premium is adjusted for taxes and then multiples by the above factors

Lecture 9 - 2nd of the 4P’s – PLACE (channels of distribution)

 Distribution: making goods/services available at the right time, correct location, correct quantity, to the right
customer, in a way that is better than your competitors
 Channels of distribution: a marketing channel is a set of interdependent organizations involved in the process of
making a product/service available for use/consumption
 “distribution is very important--- it allows access to distribution breadth, plays largest role in success of new
brand, increases sales, and interacts with other strategies (making them more effective)”
 Intermediaries: ‘middle man’ who distributes your product for you
 Intermediaries can create ECONOMIES OF EFFORT: lower transactions costs for manufacturers and consumers
 Steps in channel design:
1. Find out what customers in target segment(s) want/need
2. Benchmark channel capabilities
3. Design channel options
4. Evaluate and compare alternatives

 Push vs. Pull strategies:

1. Push strategy: uses the manufacturer’s sales force and other means to induce intermediaries to carry,
promote, and sell the product to end users
2. Pull strategy: uses advertising, promotion, and other forms of communication to persuade consumers
to demand the product from intermediaries

 Online retailers compete in 3 key aspects: mcommerce, mcommerce purchases, and driving in-store sales
 Multichannel/Omnichannel: single firm uses 2+ marketing channels (but must make sure they are well
integrated)

 Types of channel conflicts:

o Vertical: between suppliers, distributors, etc… vertical chain
o Horizontal: with competitors
o Multichannel: channels are not well integrated
  Common causes of channel conflict:
o Goal incompatibility
o Unclear roles and rights
o Differences in perception
o Levels of dependence

 Summary:
o Distribution should complement strategic decisions which involves players from within AND outside the
firm
o Channel distribution must meet END-USER needs, segmentation may need multi-channel system

Case 2 elBulli
Lecture 10 – Case 2 elBulli
 Takeaways:
o Experiences can serve as value propositions
o Managing Innovation: not always the same as managing a business  you must keep people in your
organization happy and productive
o Customer: there is a difference between listening to customers and understanding customers
o Brand extensions must always be aligned with core value propositions, must not stray

Pricing Strategy

How do you know when the price is right?

 “successful pricing efforts share two qualities: (1) the policy compliments the company’s overall marketing
strategy, and the ( 2) process is coordinated and holistic”

 When considering the coordination of the pricing process, managers should ask themselves:
o What is our pricing objective?
o Do all the participants in the process understand the objective? (accountants, producers, etc)
o Do they all have an incentive to work in pursuit of the objective

 8 steps to better pricing:

1. Assess what value your customers place on a product/service
2. Look for variation in the way customers value the product (different segment, different price)
 Usage frequency
 Differences in product use
 Does product performance matter more to some customers, even if application is the same?
 3. Assess customers’ price sensitivity (e.g. price elasiticity)
 End users bears the costs as opposed to a third party
 Cost of item represents a substantial percentage of a customer’s total expenditure
 The buyer is not the end user, and sells his end product in a competitive market, price pressure
from further down a distribution channel ripples back up through the chain
 Buyers judge quality without using price as an indicator
 Customers easily shop around and assess relative performance and price alternatives
 Customer can locate alternatives (products or new suppliers without additional costs)
4. Identify an optimal pricing structure
 Do we offer quantity discounts or bundle pricing?
5. Consider competitors’ reactions
6. Monitor prices realized at the transaction level (real price influenced by discounts, returns, damage
claims, etc)
7. Assess customers’ emotional response
8. Analyze whether the returns are worth the cost to serve

 How to assess what value customers perceive a product/service to have:

1. Market research
2. Tap employees with direct customer contact (e.g. sales department)

 Price elasticity: change in quantity sold given a change in price

How to stop customers from fixating on price

 “Constant price undercutting can damage brand equity and erode profit margins. Meanwhile, customers develop
low expectations and become disengaged”
 “when marketers refer to ‘commoditization’, they typically mean diminishing differences among offerings” ---
consumers think all products are the same which makes them less receptive to innovation/marketing
campaigns… they only care about price

 4 pricing strategies
1. Use price structure to clarify your advantage: call attention to the value your product/service delivers,
which is differentiated from that of your competitors, restructure price based on performance/value
2. Willfully overprice to stimulate curiosity
3. Partition prices to highlight overlooked benefits: break price into component charges, create a package
of related products
4. Equalize price points to crystallize personal relevance: if you have different products, try to keep the
variants at the same price (e.g. same price for coke, coca cola vanilla, diet coke, etc)

 “Price signals (1) how much money a customer has to give for a product and (2) it signals quality” – the article
adds another one: (3) price tag can actually shape the value of the product by motivating customers to better
understand what they’re being offered
Pricing to create shared value
 “companies have long used pricing to extract as much value as they can from transaction; it antagonizes
customers and fails to create new value”

 5 pricing strategies:
1. Focus on relationships, not on transaction: use pricing to communicate that you value your customers
as people, not as wallets
2. Be proactive: set prices in ways that encourage customer behavior that benefits both firm and customer
3. Put a premium on flexibility: design pricing so that it can change in response to shifting consumers need
and ensure the equitable sharing of value
4. Promote transparency: provide the rationale for your pricing to customers
5. Manage the market’s standards for fairness: make sure your pricing meets customer expectations
about what is fair and that the pricing process is clear

When should you nickel-and-dime your customers?

(missing)

Lecture 11 – Price
 “Increasing price by 1% has a more significant effect than increasing sales by 1%”

 Choosing a pricing strategy:

o Economics approach: short-run profits, assumptions on demand/costs, determined after product
design/quality are fixed, assumes ‘rational’ consumers can assess true quality
o Marketing approach: long-run profits, based on market evolution and firm’s strategic advantages, part
of evaluating alternative approaches to positioning, recognizes consumers’ need for and use of
heuristics in information processing

 To increase perceived value: increase the attribute/dimension that your target markets finds most important
 Value pricing – Bottom line: price actions have to be consistent with positioning (e.g. Saturn’s Psychological
factors), and you must go for dimensions that consumers care most about and that you are best at (better than
competitors)

 Pricing methods:
o Direct price rating method: indicate price that reflects total quality of offer
o Direct perceived value rating method: allocate x points to reflect total quality of offer

 Communicating Price: comparison effects;

o If you pay more for the same thing than a friend did, you will be unhappy… the opposite is true for the
reverse situation (relative good/bad deals)

 Psychological factors affect how people perceive price, they are most important when:
o Time pressure
o Non-important products
o ‘at the end of the day’
o After making lots of decisions
o Absence of information
  Confusopoly: use of price to make products difficult to value and compare, allowing firms to charge more than
they could charge in a transparent environment… group of companies with similar products intentionally
confuse customers instead of competing on price

Case 3: Altius Golf and the Fighter Brand

Lecture 12 – Altius Golf and the Fighter Brand
 Fighter brand: combats and eliminates low-cost competitors, protects premium-price offering, opens up a
lower-end market and expands the total potential market
o POTENTIAL HAZARD: CANNIBALIZATION

Promotion Strategy 1
If brands are built over years, why are they managed over quarters?
 Managers are short-sighted about their brands due to 3 factors:
1. Abundance of real-time sales data that make short-term promotional effects more apparent, thus
pushing manufacturers to over discount
2. Lack of usable information to assess the long-term effect of investing in brand equity, new products, and
distribution
3. Short tenure of brand managers

 Baseline sales: are estimates of actual sales by extrapolating from periods when there are no price
reductions/promotions

 Consequences of short term sales approaches (e.g. price promotion, etc):

o Changes in consumer behavior
o Diluted brand equity
o Competitive response

 Dash board approach (quantity+price premiums) can improve brand performance in long-term in 3 ways:
o Prevents exclusive focus on short-term data
o Brand managers’ performance can be judged on a combination of quarterly sales and quantity+price
premiums
o Long-term metrics inform a company’s marketing decisions

 Quantity premium: consumers are buying more of a product at full price (higher baseline
 Price premium: brands with loyal customers face less pressure to reduce their prices
Lecture 13 –

Promotion Strategy 2
Let the response fit the scandal
 Difference between a negatively perceived event and scandal is that scandals are surprising, vivid, emotional, or
pertinent to a central attribute of the company or brand
 Spillover effect: damages/scandals may affect other good companies via spillover
 Rebound effect: when a scandal does spill over from one company to another, the public’s attitude toward the
offender may actually become more favorable

 4 step framework for managing scandals:

1. Assess the incident: adopt the customer’s point of view rather than management’s perspective
2. Acknowledge the problem: avoid premature statements related to the cause, focus on the process of
investigation, and prevent further harm
3. Formulate a response: evaluate the benefits and costs of the response in terms of customer
relationships over the long run
 Deny if the allegations are false
 Explanation, apology, compensation, and punishment combination when allegations are true
4. Implement the response: align scandal communications with customers’ perceptions of the brand’s
function

The one thing you must get right when building a brand
 Brands should use new media to deliver 4 basics:
1. Offering and communicating a clear customer promise
2. Building trust by delivering on it
3. Continually improving the promise
4. Innovating beyond the familiar

 Tips on using social media (success and failures):

1. Don't throw out your playbook: start with your brand promise and let it guide all your actions on social
media
2. Use social media primarily for insight
3. Strive to go viral, but protect the brand
4. Engage , but follow the social rules
Behold the extreme consumers… and learn to embrace them
 Extreme customers are:
o Loyal
o Have resources (are usually 30-45 years old… above average income)
o They add real value

Branding in the digital age

 Old funnel metaphor for marketing: customers start at the wide end with many brands in mind and narrow
them down to a final choice

 New metaphor; consumer decision journey: consumers add and subtract brands from a group under
consideration during a n extended evaluation phase. After purchase, they often enter an open-ended
relationship with the brand, sharing their experience with it online

o Consider and buy: marketers overemphasize these stages and allocate more resources to them
o Evaluate and advocate: becoming more relevant, helps consumers navigate evaluation process and
spread positive word-of-mouth about the brand they choose (provides awareness)
o Bond: if consumers’ bond with brand is strong enough, they repurchase it without cycling through the
earlier decision-journey stages
  4 stages of consumer decision journey:
1. Consider
2. Evaluate
3. Buy
4. Enjoy, advocate, bond

 Consumer journey implications for marketing:

1. Instead of focusing how to allocate spending across media (e.g. radio, online ,etc), marketers should
target stages in the decision journey
2. Marketers’ budgets are constructed to meet the needs of a strategy that is outdated (funnel method is
outdated)

 Shifting to a consumer decision journey-driven strategy has 3 parts:

1. Understanding your consumers’ decision journey
2. Determining which touch points are priorities and how to leverage them
3. Allocating resources accordingly

 3 increasingly important new roles in marketing

1. Orchestrator: someone must connect different departments involved in a project (e.g. marketer
coordinates with customer service, product registration, etc)
2. Publisher and ‘content supply chain’ manager: marketing function takes on the role of publisher in
chief- rationalizing the creation and flow of product-related content
3. Marketplace intelligence leader: marketing data should be under marketing’s control, they should be in
charge of customer insights

For mobile devices, think apps, not ads

 Smartphone apps fall into 5 categories:
o Games and entertainment
o Social networks
o Utilities (e.g. maps, clocks, calendars, emails, etc)
o Discovery (e.g. Yelp, TripAdvisor)
o Brands (e.g. Nike)

 Steps to create apps that add value to consumers’ lives and long-term engagement to your brand:
1. Add convenience: e.g. banking apps let people pay bills online
2. Offer unique value: e.g. commuters can us app to order groceries while waiting for trains
3. Provide social value: e.g. apps on Facebook to send gifts to friends (Starbucks), social networking, and
mobile shopping
4. Offer incentives: e.g. apps that give away free mobile minutes
5. Entertain

 3 constraints on convenience apps:

1. Strengthens relationships with existing customers, not effective at acquiring new ones
2. Established brands with large customers bases have an advantage in using apps over those that aren’t
3. More and more companies will create apps, it will be harder to differentiate yourself
  Why mobile adds don't work (small banner advertisements):
1. People don’t like them (intrusive)
2. There’s no “correct” side to place them
3. ‘fat finger’ effect --- ads are too small and people accidentally click them

Lecture 14 –

Capstone Case and Exam Preparation

Lecture 15 -