MARKSTRAT is a simulation designed to focus on strategic marketing issues

Transcription

1 Market Driving Strategies P Period January-February 008 Professor David Midgley (b). MARKSTRAT Basics Link is MARKSTRAT is a simulation designed to focus on strategic marketing issues Understanding customer needs Long-term perspective Marketing as a profit center Competitive environment Takes the CMO perspective Marketing strategy is based on objectives, capabilities and resource allocation across a portfolio of products Positioning & marketing mix decisions (the brand manager perspective) are secondary 1

2 Each firm can compete in TWO product markets independent not substitutes not complements SONITES Established technology & market VODITES Embryonic technology, no market yet Sonite customers have traditionally been classified into segments Singles / Si Professionals / Pr Buffs / Bf Others / Ot High Earners / Hi

3 The Sonite market is already developed, each product having 6 determining product characteristics Weight Kg Design Index Volume dm Max. Frequency khz Power W Base Cost $ min. 10 Customers have the choice of purchasing through distinct distribution channels

4 Pricing & advertising You set the recommended retail price You are free to set price, except you cannot: Price below your unit cost Change the price of an existing brand by more than +/- % per year You set the advertising budget for each brand You determine the target segments for advertising You determine the positioning for each brand There is no company advertising or company image Pricing in Markstrat is fixed once a year Recommended Retail Price = $100 Specialty Stores Department Stores Mass Merchandisers Average Retail Price $100 $100 $90 Distributor Margin $0 $ 0 $ 7 Average Selling Price $ 60 $ 70 $ 6

5 Distribution You set the sales force size per channel. For each channel, you allocate effort to each brand. Sales people are equally capable and easily transferable No sales support - no shelf space - no sales! Don t be misled by the simplicity of the allocation interface: store availability is driven by complex forces Market research studies provide market data it is up to you to prioritize, digest, and interpret them Consumer survey Consumer panel Distribution panel Semantic scales Multi-dimensional (benefit) scaling Conjoint analysis Advertising experiment Sales force experiment Industry benchmarking Market forecast Competitive advertising Competitive sales force Offline 1 page Vodite Evaluation available for $ million

6 Each firm receives a marketing budget for the coming period, based on the previous period s performance Advertising Advertising expenditures Advertising research expenditures for each brand Budget Sales force R & D Operating cost Hiring & training cost Firing cost Development budget for each project Market Research Sonite and Vodite study costs Core concepts reinforced through MDS and MARKSTRAT 1. Market development decisions. Positioning decisions. Organization & decision-making process. The performance metric 6

7 1. Developing an existing market Awareness Potential customers are not aware of the product/do not understand its benefits. Lack of Benefits Benefits of the product are not attractive enough. Ability to Use Potential customers are unable to use the product. Affordability Regardless of attractiveness, potential customers are not able to afford the product. Availability Potential customers are aware and have intentions to buy, but it is not available to them. Not Not Available Available Not Not Affordable Unable Unable to to Use Use Lacks Lacks Benefits Benefits Not Not Aware Aware Current Market Demand Untapped Market Opportunity Developed Market Rule 6: Market definition Ultimately, customer behavior determines who your competitors are through their consideration set & which benefits they value 7

8 The hierarchy of effects Why we can t evaluate our situation by looking only at our market share and/or sales Scenarios #1 # # # Awareness Intention Availability Market share 0% 100% 100% 0% 100% 0% 100% 0% 100% 100% 0% 0% 80% 8% 90% 0% What drives each step in the hierarchy? Advertising Product attributes & price Sales force Production volume Cost Retail availability Brand awareness Intentions Brand choice Sales Profits Competitive marketing mix Category & Segment volume 8

9 Influencing customers Effect Main Forces Information Awareness Purchase Intentions Availability Market Demand Advertising Forgetting Share of voice Customer perceptions Product features Advertising Competition Sales force Competition Stock-outs Feet-on-the-street Maturity of segment Product attractiveness Advertising experiment Competitive ad spending Benefit scales Semantic scales Conjoint analysis Sales force experiment Competitive sales forces Market forecasts Benefit/conjoint trends. Positioning on benefits 0 SUNY SAFE Bu 10 SURF Pr Hi PERCEPTUAL MAP SAKE SURR (based on MDS study) 0 SIGH SIBU Horizontal axis = Economy Si Vertical axis = Performance SOLO -10 SIDE Ot SECO SODA

10 Positioning on benefits (continued) 0 SUNY SAFE Bu 10 PERCEPTUAL MAP (based on MDS study) 0 SURF Pr SAKE Hi Hi SURR SIGH SIBU Si Horizontal axis = Economy Si Vertical axis = Performance SOLO -10 MARKSTRAT uses an ideal point model, one of two models generally used (the other is the vector preference model) A consequence of the ideal point model is that, for a segment, too much is just as bad as too little SIDE Ot SECO Ot SODA IMPORTANT NOTE: Ideal points change over time Influenced by consumer trends & firm offers 10

11 Benefits or attributes? Benefits Economy Performance Convenience Attributes Weight Design Volume Maximum Frequency Power Price Benefit= j=1 to k (w j *attribute j ) Connecting benefits to attributes is important Example House of Quality Matrix (Mountaineering Climbing Harness) Dr. A. J. Lowe 000 Key to roof / correlation matrix symbols + Positive / Supporting - Negative / Tradeoff DIRECTION OF IMPROVEMENT TECHNICAL REQUIREMENTS Performance measures Size of range Technical details PLANNING MATRIX CUSTOMER REQUIREMENTS Easy to put on Comfortable when hanging Fits over different clothes Accessible gear loops Does not restrict movement Lightweight Safe Attractive TECHNICAL PRIORITIES PERCENTAGE OF TOTAL Key to interrelationship matrix symbols Strong interrelationship Our product Y 17g 0 mm 1 Medium interreltionship Competitor A's product Y 19g 1 8mm Weak interrelationship Competitor B's product Y 17g mm 1 DESIGN TARGETS Y 160g mm 11

12 Air Traffic Management Systems Source: Hughes Aircraft, segments disguised. Organize yourselves and manage the group process Information overload Develop vision Time pressure Think ahead, reason back Reduce decision-making biases Conflicting opinions 1

13 Our organization CMO OR CMO Brand Manager SAMA Brand Manager SABI Brand Manager VACE Category Manager Sonites Category Manager Vodites New Product Manager The role of the CMO (CMO Council 007 survey of 100 search firm partners, board members and senior marketers) Top responsibilities Marketing plans, programs and deliverables Brand ombudsman values, consistency, culture Competitive intelligence and pre-emptive strategies View from the boardroom Highly influential and strategic throughout the organization High impact on overall performance [But only 1% gave their CMO an A grade] Weaknesses seen by other C-suite members Failure to provide ROI data Lack of financial management skills Sometimes more tactical than strategic in mindset 1

14 The role of the CMO (continued) Top challenges as seen by CMOS Establishing influence with the business units Creating partnerships with the CIO/CTO and IT Cooperation and integration with the sales organization As seen by board members Lack of support from the CEO Creating partnerships with the CIO/CTO and IT Resistance from the CFO or finance about the marketing budget Organization & process Do you need a CMO? Is brand or category management better? Is there a need for specialized (functional) roles? New product/r&d manager, market research analyst, sales manager? Is there a need for different organizational structures at different times? Vodites don t really exist yet You start with 1, or brands but can end up with 10 Is there a need for different organization during a decisionperiod? For phases of analysis, prioritization, implementation perhaps? 1

15 What Will Happen? Many decisions distinct phases Practice decision doesn t count, expect a mess! Bid for a new firm with year s information, corresponds to Years 0 & 1 Your first decision = Year Launch your R&D programme Decisions & Develop your own strategy Clinic Write your marketing strategy Decisions, 6, 7, 8 & 9 Turnaround, continue to improve or stay ahead Markets become more mature/competitive. The performance metric: economic value added (EVA) Building on the idea that CMOs need to think more about financial returns But keeping it simple with one measure EVA = NOPAT-(Capital Invested in Project x %WACC) Also economic profit, reflecting opportunity cost of any project Firm Value = Capital Invested in Assets in Place + PV of EVA from Assets in Place + Sum of PV of EVA from new projects How calculated? Your successful bid at the auction defines the capital Each firm has a know WACC e.g. 10% Yearly accounting profits/losses are adjusted for the cost of capital to give an annual EVA At the end of the simulation, annual EVAs are summed and compared with the bid to form an annual economic return on investment e.g. 7% pa 1

16 Takeaways Use the hierarchy of effects to diagnose problems and allocate marketing mix resources Benefit (multidimensional) scaling is the better way to measure brand positions But you need to develop an understanding of the link between benefits and attributes to develop new products MARKSTRAT uses an ideal point model for segments, this accurately reflects how MARKSTRAT consumers think Ideal points can be influenced by firm actions Organization is key to successful MARKSTRAT teams Since CMOs need to think more about financial returns your performance will be judged on EVA Every time you make an investment look at the potential EVA versus alternative uses of the funds Countdown to Markstrat! Step 1. The practice decision is: Friday Before then you must have: 1. Informed of your team and the designated contact person. Read the Markstrat Online manual you have received. We will start and finish with short sessions in the amphi but you will work most of the time in your assigned BOR 16

17 Prof. David F. Midgley INSEAD Boulevard de Constance F-770 Fontainebleau Tel. +-(0)