Studiengang Betriebswirtschaftslehre: Marketing

Transcription

1 Studiengang Betriebswirtschaftslehre: Marketing Grundlagenstudium Marketing,, Prof. Dr. Andrea E. Raab

2 What is marketing not????? - 2 -

3 What is marketing????? CUSTOMER CUSTOMER CUSTOMER CUSTOMER CUSTOMER FUTURE CUSTOMER - 3 -

4 Aims of selected Agenda points Agenda Nature and function of marketing Strategic planning processes Corporate and business unit strategic planning Analyzing Macro-Environment, Conducting market research, Forecasting and Demand Measurement Dealing with the competition Identifying market segments and selecting target markets (market targeting) Designing marketing strategies Developing marketing programs Designing and managing channels and integrated marketing communications Aim Introduction; gives an overview on different marketing definitions and concepts Demonstrates that strategic planning in a company is carried out on corporate level, on business unit level and within the marketing. Explains the steps of strategic planning (on corporate and business unit level) necessary to understand and solve business problems. Demonstrates basic research methods and analyzing tools for analysis of marketing situations and for measuring of market demand. Identifies competitors as well as competitive forces and explains possible competitive strategies. Shows possibilities to identify segments that make up a market and describes criteria useful to choose the most attractive target segments. Shows the major available differentiating attributes and describes the contents of a consistent positioning strategy. Shows variety of decision areas in product offering and pricing. Shows variety of decision areas in channel management and communications

5 Table of content Content Page Nature and function of marketing 6 Strategic planning processes 13 Corporate strategic planning 22 Business unit strategic planning 30 Marketing process 38 Analyzing market opportunities Conducting market research 40 Forecasting and Demand measurement 51 Dealing with the competition 57 Identifying market segments 70 Selecting target markets (Market targeting) 75 Designing marketing strategies Positioning strategies 78 Differentiation strategies 83 Developing marketing programs Setting the product and branding strategy 87 Developing pricing strategies and programs 103 Managing the marketing effort Designing and managing marketing channels 118 Designing and managing integrated marketing communications

6 Nature and function of marketing: Learning objectives Learning objectives: Nature and function of marketing* What are the tasks of marketing? What are customer needs? What are the strategic planning processes within a company all about? * see also Kotler, Ph. (2009), a.a.o., Chapter 1: p ; p ; p. 81 f

7 Nature and function of marketing: Some historical perspectives on marketing Convincing by gulling selling Plato: Cicero: Karl Marx: In well-ordered states, the storekeepers and salesmen are commonly those who are weakest in bodily strength and therefore of little use for any other purpose. Merchants are those who are to be accounted vulgar; therefore they can make no profit except by a certain amount of falsehood. To believe that a coat is worth less than $ 5 as long as it remains in the hands of the tailor, but that its value rises to $ 5 when I take possession of it is ridiculous. Already in the minute when the commodity is finished, it must be worth as much as the consumer pays for it in the end. Convincing by creating customer value Peter Drucker: There will always, one can assume, be need for some selling. But the aim of marketing is to make selling superfluous. The aim of marketing is to know and understand the customer so well that the product or service fits him and sells itself. Ideally, marketing should result in a customer who is ready to buy. All that should be needed then is to make the product or service available. The aim of marketing has to change; today s focus must be: price for value - 7 -

8 Nature and function of marketing: What is marketing??? Official definition according to the American Marketing Association (see Kotler, p. 45) Marketing is an organizational function and a set of processes for creating, communicating, and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stake holders. Generally accepted doctrine (Marketing News, March 1, 1985, Vol. 19, No. 5, S. 1) Marketing (management) is the process of planning and executing the conception, pricing and distribution of ideas, goods, services to create exchanges that satisfy individual and organizational goals

9 Nature and function of marketing: The three aspects of marketing Marketing as a philosophy market-driven corporate management, to live with the customer, customer oriented corporate style Marketing as a medium to organize the marketplace / -space Communication Industry (sellers) Goods / services Money Market (buyers) Information Marketing as a method to serve customer needs Marketing Mix: 4 P s: set of marketing tools that the firm uses to pursue its market objectives in the target market - 9 -

10 Nature and function of marketing: A classification of markets Market: various groupings of customers need markets product markets demographic markets Communication geographic markets basic economic markets Marketplace: physical market Industry (sellers) Goods / services Money Market (buyers) consumer market (place) business market (place) Information manufacturer intermediary (resource, nonprofit, governmental market (place)) global marketplace Market space: digital market

11 Nature and function of marketing: customer needs (1) Customer needs needs 1 wants demands purchase basic requirement directed to a specific object purchase disposition transaction pre sales phase: target market / prospects (prospective customers) are the focus sales phase: exchange of any offering 2 between marketer and customer Marketers do not create needs: Needs pre-exist marketers (Kotler, 2009, p. 52) 1 see classification of needs: stated needs, real needs, unstated needs, delight needs, secret needs (Kotler, p. 52) 2 goods, services, experiences, information etc

12 Nature and function of marketing: customer needs (2) Customer needs needs 1 wants demands purchase satisfaction basic requirement directed to a specific object purchase disposition transaction value 4 delivery pre sales phase: target market / prospects (prospective customers) are the focus sales phase: exchange of any offering 2 between marketer and customer after sales phase: successful transaction if offering delivers value to the customer Marketers do not create needs: Needs pre-exist marketers (Kotler, 2009, p. 52); the marketer delivers value to the customer if the benefits of the offering are higher than the costs it causes 1 see classification of needs: stated needs, real needs, unstated needs, delight needs, secret needs (Kotler, p. 52) 2 goods, services, experiences, information etc 3 value: benefits/costs

13 Overview - Strategic planning processes Broad environment Task environment PLANNING Corporate strategic planning Defining corporate mission Establishing strategic business units Assigning resources to SBU Assessing growth opportunities Business unit strategic planning Business mission SWOT analysis Goal formulation Strategic formulation Marketing process Analyzing market opportunities Designing marketing strategies Developing marketing programs Managing the marketing effort

14 Overview - Strategic planning processes Broad environment Broad environment Economic Technological Legal Socio-cultural Task environment PLANNING Corporate strategic planning Defining corporate mission Establishing strategic business units Assigning resources to SBU Assessing growth opportunities Business unit strategic planning Business mission SWOT analysis Goal formulation Strategic formulation Marketing process Analyzing market opportunities Designing marketing strategies Developing marketing programs Managing the marketing effort Broad marketing environment consists of key macro environment forces

15 Broad Environment Broad environment The broad environment consists of for main long term factors which can have major impact on a company Technological Long term factors non-controllable Short term controllable factors Economic Company Legal Socio-cultural Market actors must pay close attention to the trends and developments in the broad environment and make timely adjustments to their marketing strategies

16 Overview - Strategic planning processes Task environment Broad environment Task environment Competition / Industry Customer Company PLANNING Corporate strategic planning Defining corporate mission Establishing strategic business units Assigning resources to SBU Assessing growth opportunities Business unit strategic planning Business mission SWOT analysis Goal formulation Strategic formulation Marketing process Analyzing market opportunities Designing marketing strategies Developing marketing programs Managing the marketing effort Task marketing environment consists of significant micro environment actors (competitors, suppliers, customers etc.)

17 Task Environment Task marketing environment The task environment consists of customer, competition and the company itself Customer Our Company Competitive Advantage Competition Our company has to deliver at least the same value to the customer in order to stay competitive. Delivering higher value would result in competitive advantage over the competition

18 Overview - Strategic planning processes Corporate strategic planning PLANNING IMPLEMENTING CONTROLLING Defining corporate mission Corporate strategic planning Establishing strate- Assigning Assessing growth gic business unit resources to to SBU opportunities Business unit strategic planning Business mission SWOT Analysis Goal formulation Strategic formulation Marketing process Analyzing market Designing mar- Developing mar- Managing the opportunities keting strategies keting programs marketing effort IMPLEMENTING CONTROLLING Corporate strategic planning Defining corporate mission Establishing strategic business units Assigning resources to SBU Assessing growth opportunities The corporate strategic planning process consists of 4 components: Defining the corporate mission Establishing strategic business units Assigning resources to each SBU Assessing growth opportunities Focus on: Elements and characteristics of a corporate mission Criteria for the definition of SBUs Growth-share matrix (BCG) SBU life cycle SBU strategies Ansoff s product/ market expansion grid Growth strategies

19 Overview - Strategic planning processes Business unit strategic planning PLANNING Defining corporate mission Corporate strategic planning Establishing strategic business units Assigning resources to SBU Assessing growth opportunities Business unit strategic planning Business mission SWOT Analysis Goal formulation Strategic formulation Analyzing market opportunities Designing marketing strategies Marketing process Developing marketing programs Managing the marketing effort Business unit strategic planning Business mission SWOT analysis Goal formulation Strategic formulation The business unit strategic planning process consists of 4 components: The business mission SWOT analysis Goal formulation Strategic formulation Focus on: Specific mission within the broader company mission External environment analysis Internal environment analysis Types of goals Management by objectives Criteria for objectives Three generic types of strategies

20 Overview - Strategic planning processes Marketing process PLANNING Defining corporate mission Corporate strategic planning Establishing strategic business units Assigning resources to SBU Assessing growth opportunities Business unit strategic planning Business mission SWOT Analysis Goal formulation Strategic formulation Analyzing market opportunities Designing marketing strategies Marketing process Developing marketing programs Managing the marketing effort Marketing process Analyzing market opportunities Designing marketing strategies Developing marketing programs Managing the marketing effort The marketing process consists of 4 components: Analyzing market opportunities Designing marketing strategies Developing marketing programs Managing the marketing effort Focus on: Analyzing the Macroenvironment Conducting market research Forecasting and Demand Measurement Dealing with competition Identifying market segments Market targeting Positioning Strategies Differentiation Strategies Devising a branding strategy Setting product strategy Developing pricing strategies and programs Designing and managing channels Designing and managing integrated marketing communications Managing the marketing effort

21 Overview - Strategic planning processes Results are documented in a Marketing plan Marketing plan* Executive summary and table of contents: Marketing plan should open with a brief summary of the main goals and recommendations. The executive summary permits senior management to grasp the plans major thrust. A table of contents should follow the executive summary. Current market situation: Presents the relevant background data on sales, costs, profits, the market, competitors, channels, and the forces in the macro environment. This information is used to carry out on a SWOT analysis. Opportunity and issue analysis: Review of the main opportunities found in the SWOT analysis and identification of the key issues likely to affect the organization's attainment of its objectives. Objectives: The product manager outlines the plan's major financial and marketing goals, expressed in sales volume, market share, profit and other relevant terms. Marketing strategy: The product managers defines the target segments and establishes the product line's competitive positioning ( game plan ). Action programs: Each marketing strategy element must be elaborated to answer these questions: What will be done? When will it be done? Who will do it? How much will it cost? How will progress be measured? Financial projections: Action plans allow the product manager to build a supporting budget. On the revenue side, this budget shows the forecasted sales volume in units and average price. On the expense side, it shows the expected costs of production, distribution, and marketing, broken down into finer categories. The difference between revenues and sales is projected profit. Once approved, the budget is the basis for developing plans and schedules for material procurement, production scheduling, employee recruitment, and marketing operations. Implementation controls: The last section outlines the controls for monitoring and adjusting implementation of the plan. Typically, the goals and budget are spelled out for each month or quarter so management can review each period's results and take corrective action as needed. The marketing plan is one of the most important outputs of the marketing process and summarizes among others, the results of the external and internal analysis, marketing objectives/ strategy and concrete action programs * see also Kotler, Ph. (2009), p. 97 f

22 Overview - Strategic planning processes Corporate strategic planning Broad environment Task environment PLANNING Corporate strategic planning Defining corporate mission Establishing strategic business units Assigning resources to SBU Assessing growth opportunities Business unit strategic planning Business mission SWOT analysis Goal formulation Strategic formulation Marketing process Analyzing market opportunities Designing marketing strategies Developing marketing programs Managing the marketing effort

23 Corporate strategic planning Learning objectives Learning objectives: Corporate strategic planning* What are the processes towards an effective corporate strategy? Why and how to define strategic business units (SBU s)? How to assign resources to each SBU (BCG matrix)? How to develop a corporate growth plan (Ansoff s product/market expansion grid)? * see also Kotler, Ph. (2009), a.a.o., Chapter 2: p

24 Corporate strategic planning (1) Defining corporate mission Corporate strategic planning Establishing strategic business units Assigning resources to SBU Assessing growth opportunities... The corporate strategic planning process consists of 4 components:... Defining corporate mission Establishing strategic business units Assigning resources to each SBU Assessing growth opportunities By doing the corporate planning process, a company establishes the framework in which the business units prepare their plans

25 Corporate strategic planning (2) Defining the corporate mission Defining corporate mission Establishing strategic business units Assigning resources to each SBU Assessing growth opportunities The corporate mission What is our business? Who is our customer? What customer benefits do we provide? Firms must avoid marketing myopia (not only short term oriented) The corporate mission should reflect 3 elements: limited number of objectives - market share, innovation, productivity, quality, profitability - be visionary major policies and values - customers, stakeholders, employees, suppliers, distributors major competitive scopes - industry scope - products and applications scope - competence scope - market-segment scope - vertical scope - geographical scope A mission statement should be guided by a vision that provides a direction for the company for the next 10 to 20 years; it should give direction to the company itself and to the external environment

26 Corporate strategic planning (3) Establishing strategic business units Defining corporate mission Establishing strategic business units Assigning resources to each SBU Assessing growth opportunities The strategic business unit Def.: a SBU is a single business or group of related businesses that can be planned independently from other company businesses (distinct mission, customers, competitors, resources or technologies, responsibility for profitability) Criteria for definition: common consumer need or similar consumer characteristics (target markets) common technology or manufacturing process same channels of distribution etc. Guided by the corporate mission and objectives, the firm must select a collection of businesses or products, known as business portfolio Companies should define their business units in terms of customer needs, not products or technology

27 Corporate strategic planning (4) Assigning resources to each SBU Defining corporate mission Establishing strategic business units Assigning resources to each SBU Assessing growth opportunities Portfolio analysis: The BCG matrix (growth-share matrix) high > 10% Market growth rate Stars reinvest invest? Question marks?? no invest market growth rate: relative market share: divest SBU s business volume annual growth rate of the market SBU s market share relative to that of its largest competitor in the segment low < 10% Cash cows Poor dogs cash flow ,1 Relative market share A healthy portfolio is a balanced one; an unbalanced portfolio has too many dogs and/or question marks

28 Corporate strategic planning (5) Assigning resources to each SBU Defining corporate mission Establishing strategic business units Assigning resources to each SBU Assessing growth opportunities Portfolio analysis: The BCG Matrix - strategies to pursue high Market growth rate low Stars market leaders fast growing require investment to grow Strategy protect share reinvest earnings through price cuts, product improvement, more efficiency obtain large share of new users Cash cows profitable products Strategy generate more cash than needed for share maintenance slow sales growth maintain market dominance invest in process technology improvement and price leadership, R&D in other product markets high Relative market share Question marks rapid growth poor profit margins enormous demand for cash Strategy invest to aggressively build share buy existing shares by acquiring Dogs many products may fall in this category cost disadvantage - few growth opportunities at reasonable cost markets not growing Strategy focus on a specialized, defendable segment harvest: cut back all support to maintenance divest (sell); abandon (delete f. line) low

29 Corporate strategic planning (6) Assessing growth opportunities Defining corporate mission Establishing strategic business units Assigning resources to each SBU Assessing growth opportunities Corporate growth plan: Ansoff s product/market expansion grid current markets current products Market penetration increase market share increase product usage - frequency of usage - more usage - new uses new products Product development product line extensions new products for same market new markets Market development expand markets for existing products - geographical expansion - target new segments Diversification vertical integration - forward integration - backward integration diversify into related businesses diversify into unrelated businesses

30 Overview - Strategic planning processes Business unit strategic planning Broad environment Task environment PLANNING Corporate strategic planning Defining corporate mission Establishing strategic business units Assigning resources to SBU Assessing growth opportunities Business unit strategic planning Business mission SWOT analysis Goal formulation Strategic formulation Marketing process Analyzing market opportunities Designing marketing strategies Developing marketing programs Managing the marketing effort

31 Business unit strategic planning Learning objectives Learning objectives: Business unit strategic planning* What are the processes towards an effective business strategy? How to do a SWOT analysis? How to formulate goals? How to define a business strategy? * see also Kotler, Ph. (2009), a.a.o., Chapter 2: p

32 Business unit strategic planning (1) SWOT analysis Business mission SWOT analysis Goal formulation Strategic formulation SWOT analysis: overall evaluation of strengths, weaknesses, opportunities and threats of a business External environment analysis (opportunity and threat analysis) opportunity analysis: purpose: discern new marketing opportunities (area of buyer need in which a business can perform profitability) out of key macro environment forces and key microenvironment actors threat analysis: purpose: identify environmental threats (challenge posed by an unfavorable trend or development that would lead to deterioration in sales or profit) Characterize business s overall attractiveness Internal environment analysis (strengths/weaknesses analysis) evaluate internal strengths and weaknesses of different competencies periodically by using a checklist for performing strengths/weaknesses The competencies of a company must fit with the marketing opportunities the company seeks

33 Business unit strategic planning (2) SWOT analysis Business mission SWOT analysis Goal formulation Strategic formulation Core competencies of a company: Characteristics of a core competence source of competitive advantage in that it makes a significant contribution to perceived customer benefits provides potential access to a wide variety of markets difficult for competitors to imitate Core competencies are the collective learning in the organization, especially how to coordinate diverse production skills and integrate multiple streams of technology Examples: Honda has a core competence in engine design and manufacturing of cars, motorcycles and lawn mowers Sony has a core competence in miniaturization (walkman, video camera, camcorder) Core competencies often go through the whole company and range over several businesses

34 Business unit strategic planning (3) SWOT analysis Business mission SWOT analysis Goal formulation Strategic formulation Additional sources of strengths: Distinctive capabilities: describe excellence in broader business processes than technical and production processes (core competencies) Capabilities specialized knowledge of segmented needs customer service orientation design expertise trade relationships ability to utilize relevant technologies and transform them into products with clear benefits systems design capabilities Resources distribution coverage financial structure and access to capital shared experience with related businesses low cost manufacturing and/or distribution systems production capacity control of raw material sources Market driven organizations often have distinctive capabilities in market sensing, customer linking and channel bonding

35 Business unit strategic planning (4) Goal formulation Business mission SWOT analysis Goal formulation Strategic formulation Goal formulation: Def.: Defining financial objectives (profits, target profit margin, ROI, cash flow etc.) and marketing objectives (sales, volume, market share, in addition: consumer awareness, number of dealers, average cost per unit etc.) with respect to magnitude and time period Question: What does a business want to achieve? SBU sets these objectives and manages by objectives (MBO) Objectives must meet four criteria: objectives must be arranged hierarchically objectives should be stated quantitatively objectives should be realistic objectives must be consistent The more consequent a business is managed by objectives, the better the results will be; you always get what you measure

36 Business unit strategic planning (5) Strategic formulation Business mission SWOT analysis Goal formulation Strategic formulation Strategy formulation: Def.: Strategy is a game plan for achieving the set of goals Question: How does a business want to achieve its goals? Three generic types of marketing strategies (Michael Porter): overall cost leadership: lowest production and distribution costs --> price cheaper than competitors --> large market share differentiation: achieving superior performance over the competition in an customer benefit area (service leader, quality leader, style leader, technology leader etc.) focus: business focuses on one or more narrow market segments; in the segment the firm pursues either cost leadership or differentiation Porter defines strategy as the creation of a unique and valuable position involving a different set of activities Successful companies pursue distinctive strategies consisting of many different but consistent and synergistic activities that would be hard for competitors to imitate as a whole

37 Business unit strategic planning (6) Strategic formulation Business mission SWOT analysis Goal formulation Strategic formulation Example Southwest Airline s marketing strategy: fit and sustainable frequent reliable departure lean, highly productive crew no seat assignment 15-minute gate turnaround flexible union contracts high level of employee stock ownership no meals High aircraft utilization limited passenger service limited use of travel agents Automatic ticketing machines no baggage transfers no connection with other airlines standardized fleet of 737 aircrafts very low ticket prices Short haul, point-to-point route between middle-ofnowhere airports

38 Overview - Strategic planning processes Marketing process Broad environment Task environment PLANNING Corporate strategic planning Defining corporate mission Establishing strategic business units Assigning resources to SBU Assessing growth opportunities Business unit strategic planning Business mission SWOT analysis Goal formulation Strategic formulation Marketing process Analyzing market opportunities Designing marketing strategies Developing marketing programs Managing the marketing effort

39 Marketing process Analyzing market opportunities Marketing process Designing marketing strategies Developing marketing programs Managing the marketing effort... The marketing process consists of 4 components: Analyzing market opportunities Designing marketing strategies Developing marketing programs Managing the marketing effort Focus on: Analyzing the Macroenvironment Differentiation Positioning Strategies Conducting market Strategies research Forecasting and Demand Measurement Dealing with competition Identifying market segments Market targeting Devising a branding strategy Setting product strategy Developing pricing strategies and programs Designing and managing channels Designing and managing integrated marketing communications

40 Marketing process - Analyzing market opportunities The marketing process consists of 4 components: Analyzing market opportunities Designing marketing strategies Developing market programs Managing the marketing effort Focus on: Analyzing the Macroenvironment Conducting market research Forecasting and Demand Measurement Dealing with competition Identifying market segments Market targeting Positioning Strategies Differentiation Strategies Devising a branding strategy Setting product strategy Developing pricing strategies and programs Designing and managing marketing channels Managing integrated marketing communications

41 Analyzing market opportunities - Marketing research - Learning objectives Learning objectives: Marketing research* Why is information becoming more and more important nowadays? What is marketing research all about? Which process steps are necessary for achieving good marketing research results (marketing research process)? * see also Kotler, Ph. (2009), a.a.o., Chapter 4: p

42 Analyzing market opportunities - Marketing research - Introduction The need for real-time market information is greater than at any time!!! Why Brainstorming from local to national to global marketing from buyer needs to buyer wants from price to non-price competition P. Kotler: Marketing is becoming more of a battle based on information than one based on sales power

43 Analyzing market opportunities - Marketing research - Why and how Why marketing research? To get answers to the following questions: How high is the actual market potential and the market growth rate? Is there any saturation of the market visible? Who are the potential customers? How, when, where, why do they buy what? Which opinions do they have towards certain products / services / brands? Which are the profitable market segments? How do markets react on certain sales promotion activities? Is there any threat of substitutes or threat of mobility going on? And so on... Marketing research (oft übersetzt als Absatzforschung ) following Def. see Kotler, p. 130 Marketing research is the systematic design, collection, analysis, and reporting of data and findings relevant to a specific marketing situation facing the company

44 Analyzing market opportunities - Marketing research - Marketing research process (1) The marketing research process Define the problem and research objectives Develop the research plan Collect the information Analyze the information Present the findings Define nature of problem exploratory research descriptive research causal research Decide on data sources research approach research instruments sampling plan contact methods Realize survey 4 major problems of surveying Extract findings tabulate data develop frequency distribution compute averages/ measures of dispersion apply advanced statistical techniques Present major findings relevant to the marketing decisions facing management Successful marketing research has to take a couple of decisions and to overcome several barriers to finally identify market opportunities

45 Analyzing market opportunities - Marketing research - Marketing research process (2) The marketing research process Define the problem and research objectives Develop the research plan Collect the information Analyze the information Present the findings Define nature of problem exploratory research descriptive research causal research Decide on data sources research approach research instruments sampling plan contact methods Realize survey 4 major problems of surveying Extract findings tabulate data develop frequency distribution compute averages/ measures of dispersion apply advanced statistical techniques Present major findings relevant to the marketing decisions facing management

46 Analyzing market opportunities - Marketing research - Marketing research process (3) The marketing research process Define the problem and research objectives Develop the research plan Collect the information Analyze the information Present the findings Define nature of problem exploratory research descriptive research causal research Decide on data sources research approach research instruments sampling plan contact methods Realize survey 4 major problems of surveying Extract findings tabulate data develop frequency distribution compute averages/ measures of dispersion apply advanced statistical techniques Present major findings relevant to the marketing decisions facing management

47 Analyzing market opportunities - Marketing research - Marketing research process (4): Summary research plan Develop the research plan Primary research Market analysis (once) Observation (participatory, nonparticipating) Survey research Focus-group research Experimental research (field, laboratory) Sampling procedure probability sample nonprobability sample Type of questionnaire direct/indirect standardized/structured/unstructured open-end questions/ closed-end questions Contact method personal telephone mail online Secondary research Market observation (continuous) Behavioral data ( Panels ) Internal sources government publications Periodicals / books Commercial data Type of test market test product test advert. test storetest Arrangement number of experimental groups date of measurement

48 Analyzing market opportunities - Marketing research - Marketing research process (5) The marketing research process Define the problem and research objectives Develop the research plan Collect the information Analyze the information Present the findings Define nature of problem exploratory research descriptive research causal research Decide on data sources research approach research instruments sampling plan contact methods Realize survey 4 major problems of surveying Extract findings tabulate data develop frequency distribution compute averages/ measures of dispersion apply advanced statistical techniques Present major findings relevant to the marketing decisions facing management

49 Analyzing market opportunities - Marketing research - Marketing research process (6) The marketing research process Define the problem and research objectives Develop the research plan Collect the information Analyze the information Present the findings Define nature of problem exploratory research descriptive research causal research Decide on data sources research approach research instruments sampling plan contact methods Realize survey 4 major problems of surveying Extract findings tabulate data develop frequency distribution compute averages/ measures of dispersion apply advanced statistical techniques Present major findings relevant to the marketing decisions facing management

50 Analyzing market opportunities - Marketing research - Marketing research process (7) The marketing research process Define the problem and research objectives Develop the research plan Collect the information Analyze the information Present the findings Define nature of problem exploratory research descriptive research causal research Decide on data sources research approach research instruments sampling plan contact methods Realize survey 4 major problems of surveying Extract findings tabulate data develop frequency distribution compute averages/ measures of dispersion apply advanced statistical techniques Present major findings relevant to the marketing decisions facing management

51 Marketing process - Analyzing market opportunities The marketing process consists of 4 components: Analyzing market opportunities Designing marketing strategies Developing market programs Managing the marketing effort Focus on: Analyzing the Macroenvironment Conducting market research Forecasting and Demand Measurement Dealing with competition Identifying market segments Market targeting Positioning Strategies Differentiation Strategies Devising a branding strategy Setting product strategy Developing pricing strategies and programs Designing and managing marketing channels Managing integrated marketing communications

52 Analyzing market opportunities - Forecasting and demand measurement - Learning objectives Learning objectives: Forecasting and demand measurement* What are the major concepts in demand measurement? How can demand be more accurately measured and forecasted? - methods and concepts - examples to become trained * see also Kotler, Ph. (2009), a.a.o., Chapter 3: p ; Chapter 4: p

53 Analyzing market opportunities - Forecasting and demand measurement (1) What to do after identifying market opportunities? Measure and forecast the size (sales potential) growth potential profit potential of each market opportunity to determine the needed cash for investments establish capacity acquire supplies hire the needed number of workers Marketing is responsible for preparing the sales forecasts which are based on estimates of market demand What market (demand) do we talk about??? Market: set of all actual and potential buyers of a market offer Potential market (not equal to market potential): set of consumers who profess a sufficient level of interest in a market offer Available market: set of consumers who have interest, income, and access to a particular offer Target (served) market: part of the available market the company decides to pursue Penetrated market: set of consumers who are buying the company s product

54 Analyzing market opportunities - Forecasting and demand measurement (2) Market demand Market demand: total volume that would be bought by a defined customer group in a defined geographical area in a defined time period in a defined marketing environment under a defined marketing program Market demand is a function dependent on industry marketing expenditure under the precondition of a particular marketing environment, not a fixed number market demand function; different market functions under different marketing environments Market forecast: is the market demand corresponding to the level of industry marketing expenditures which actually occur. Market potential: limit approached by market demand as industry marketing expenditures approach infinity for a given marketing environment; maximum amount of sales that might be available to all the firms in an industry under the given marketing environment Market potential and market demand (in dependence of industry marketing expenditure) is higher in a period of prosperity versus in a period of recession Company demand Company demand: the company s estimated share of market demand at alternative levels of company marketing effort in a given period of time company demand function; different demand functions under different marketing environments; different positions on the demand function in dependence on company s performance perceived relative to the competitors Company sales forecast: is the expected level of company sales based on a chosen marketing plan and an assumed marketing environment; Company sales potential: sales limit approached by company demand as company marketing effort increases relative to that of competitors

55 Analyzing market opportunities - Forecasting and demand measurement (3) Practical methods for estimating current market demand Estimation of total market potential: potential number of buyers x average quantity purchased by a buyer x price ; often start with total population in the nation eliminate groups that would not buy the product --> suspect pool again eliminate groups that would not buy the product (after further research) ---> prospect pool estimate average quantity purchased by average customer per year estimate average price do calculation Estimation of area market potential: market potential of a city, state, nation market-buildup method: North American Industry Classification System (NAICS) (classifies all manufacturing into 20 major industry sectors and further breaks each sector into a six digit, hierarchical structure, for business markets) multiple-factor index method (top down estimation via index building for consumer markets) Business marketers typically have a harder time estimating their market potential and market share (own sales / total industry sales) because they have no shared data to rely on (Nielsen)

56 Marketing process - Analyzing market opportunities The marketing process consists of 4 components: Analyzing market opportunities Designing marketing strategies Developing marketing programs Managing the marketing effort Focus on: Analyzing the Macroenvironment Conducting market research Forecasting and Demand Measurement Dealing with the competition Identifying market segments Market targeting Positioning Strategies Differentiation Strategies Devising a branding strategy Setting product strategy Developing pricing strategies and programs Designing and managing channels Designing and managing integrated marketing communications

57 Analyzing market opportunities - Dealing with the competition - Learning objectives Learning objectives: Dealing with competition* What does a company need to know about the existing competitive forces within its industry? How do we identify our competitors? How should we analyze our competitors? Which competitive strategies do exist? * see also Kotler, Ph. (2009), a.a.o., Chapter 11: p

58 Analyzing market opportunities-dealing with competition Dealing with competition: Competitive Forces Identifying Competitors Analyzing Competitors Competitive Strategies Identify the forces Examine competition Ascertain competitors Classify companies that determine the from both an industry strategies, objectives, by the roles they play intrinsic long-run and a marketing point strengths, and in the target markets attractiveness of a of view weaknesses market or a market segment

59 Analyzing market opportunities - Dealing with competition Relevant questions Competitive Forces Identifying Competitors Analyzing Competitors Competitive Strategies What does a company need to know about the existing competitive forces within its industry? How much power do our competitors have in comparison to us? Who are our competitors? How many are they? What are their strategies? What are their strengths and weaknesses? What are other factors that could influence the intensity of competitive actions? Existence / Strategies of new competition? - industry related - unrelated to particular industry How much power do we have elsewhere in the channel? What is the market power of our suppliers? What is the market power of our buyers? The more competitive forces exist and the more power they have, the less attractive the market (segment) is!!! (see five forces model)

60 Analyzing market opportunities - Dealing with competition Five forces Competitive Forces Identifying Competitors Analyzing Competitors Competitive Strategies Competitive Forces Five forces model determining long-term segment structural attractiveness Potential entrants (threat of mobility) Competition includes all the actual and potential rival offerings and substitutes that a buyer might consider Suppliers (supplier power) Industry competitors (segment rivalry) Buyers (buyer power) Substitutes (threat of substitutes) Because markets have become so competitive (global markets), understanding customers is no longer enough. Competitive intelligence systems are necessary to permanently know competitors strategy and actions

61 Analyzing market opportunities - Dealing with competition Industry competitors Competitive Forces Identifying Competitors Analyzing Competitors Competitive Strategies Factors affecting rivalry among existing competitors Numerous or equally balanced competitors Slow industry growth Suppliers Potential entrants Industry competitors Buyers High fixed or storage costs need to operate at capacity and to cut costs Substitutes Lack of product differentiation (in the eyes of the customers) Capacity augmented in large increments (threat of) overcapacity in the industry High strategic stakes High exit barriers The more investment is involved and the slower the pay back comes, the more aggressive competitors fight against each other and the more difficult profitable market penetration is

62 Analyzing market opportunities - Dealing with competition Potential entrants Competitive Forces Identifying Competitors Analyzing Competitors Competitive Strategies Barriers to enter Economies of scale Experience curve (learning curve) Cost advantages independent of scale partnerships to suppliers Capital requirements Switching costs of customers Access to existing distribution channels partnerships to intermediaries Strong existing customer relationships Government policy Suppliers Potential entrants Industry competitors Substitutes Expected retaliation from existing competitors price battle, decreasing industry margins The more barriers to enter exist, the easier profitable market penetration is for existing competitors Buyers

63 Analyzing market opportunities - Dealing with competition - Substitutes Competitive Forces Identifying Competitors Analyzing Competitors Competitive Strategies Segment structural attractiveness is higher when There are no substitute products Potential entrants Product function can not be replaced Suppliers Industry competitors Buyers Examples for substitute products: Substitutes Book vs. movie Steel vs. new materials Records vs. CD s vs. mp3 vs. ipod Be aware when: Technology advances in substitute industries Substitute industries seeking for new applications Competition between industries must be recognized but offers new opportunities

64 Analyzing market opportunities - Dealing with competition- Buyer power Competitive Forces Identifying Competitors Analyzing Competitors Competitive Strategies Bargaining power for buyers is high when Potential entrants Purchasing is concentrated or is in large Suppliers Industry competitors Buyers volumes relative to seller s sales The product represents a large proportion Substitutes of buyer s costs There is little differentiation or there are low switching costs Backward integration is a credible threat Product performance / quality is relatively unimportant to buyer s performance A detailed knowledge of buyers position in the industry is necessary in order to strengthen the own bargaining power of a company

65 Analyzing market opportunities - Dealing with competition Supplier power Competitive Forces Identifying Competitors Analyzing Competitors Competitive Strategies Bargaining power for suppliers is high when Potential entrants Suppliers industry is dominated by a few firms and is more concentrated than the customer industry The product has few substitutes The customer industry is not important to the supplier The supplier product is an important input, is differenciated, or has high switching costs The supplier group poses a credible threat of forward integration Suppliers Industry competitors Substitutes Buyers A detailed knowledge of suppliers position in the industry is necessary in order to strengthen the own bargaining power of a company

66 Analyzing market opportunities - Dealing with the competition (7) Identifying competitors Competitive Forces Identifying Competitors Analyzing Competitors Competitive Strategies Identifying Competitors Industry competition Def.: competition: a group of firms that offer products / solutions that are close substitutes for one another Characteristics cross-elasticity brand switching similarity in use Four levels of competition Brand level: suppliers of similar products to similar customers at similar prices --> cross elasticity very high Industry level: suppliers of the same class of products Market competition Form level: suppliers which offer the same service Generic level: suppliers that compete for the same consumer dollars A detailed knowledge of number and type of competition in all categories is necessary in order to build up a competitive advantage

67 Analyzing market opportunities - Dealing with the competition (8) - Analyzing Competitors Competitive Forces Identifying Competitors Analyzing Competitors Competitive Strategies Analyzing Competitors Analyzing Competitors Strategic group: a group of firms following the same strategy in a given target market Strategic group: a group of firms following the same strategy in a given target market What are the competitors objectives? What are the competitors objectives? What are the competitors strengths and weaknesses? What are the competitors strengths and weaknesses? share of market: the competitors share of the target market share - share of mind: of market the percentage :the competitors of customers share who of the named target the market competitor as the first company in the industry - share that of comes mind: the to their percentage mind of customers who named the competitor as the first share company of heart: in the the percentage industry that of comes customers their who mind named the competitor as the company from which they - share prefer of to heart: buy the the product percentage of customers who named the competitor as the company from which they prefer to buy the product Selecting Competitors: Selecting strong vs. weak Competitors: close -strong vs. distant vs. weak good vs. bad -close vs. distant - good vs. bad

68 Analyzing market opportunities - Dealing with the competition (9) - Competitive strategies Competitive Forces Identifying Competitors Analyzing Competitors Competitive Strategies Competitive strategies Dimensions for mapping: mobility barriers or factors that deter movement of firms from one strategic position to another in the industry Volume Challenger 3. Commodity Player 4. Endangered Player Follower Leader 2. Dominant Player 1. Established Niche Player Nicher / Visionary Differentiation A company must carefully decide which strategic group to compete in and then closely watch its key competitors which are in the same strategic group Worldwide Production Automotive Industry (2008) Toyota 9,237,780 General Motors (Opel, Vauxhall, GM, Daewoo) 8,282,803 Volkswagen Group 6,437,414 Ford (Ford, Jaguar, Volvo) 5,407,000 Honda 3,912,700 Nissan 3,395,065 PSA 3,325,407 Hyundai 2,777,137 Suzuki 2,623,567 Fiat 2,524,325 Daimler AG 2,174,299 BMW 1,439,918 Porsche 96,721 Source: OICA ( pdf)

69 Marketing process - Analyzing market opportunities The marketing process consists of 4 components: Analyzing market opportunities Designing marketing strategies Developing marketing programs Managing the marketing effort Focus on: Analyzing the Macroenvironment Conducting market research Forecasting and Demand Measurement Dealing with the competition Identifying market segments Market targeting Positioning Strategies Differentiation Strategies Devising a branding strategy Setting product strategy Developing pricing strategies and programs Designing and managing channels Designing and managing integrated marketing communications

70 Analyzing market opportunities - Identifying market segments - Learning objectives Learning objectives: Identifying market segments / Selecting target markets* Market segmentation - why and how? Which patterns of target market selection do exist? * see also Kotler, Ph. (2009), a.a.o., Chapter 8: p ; p

71 Analyzing market opportunities - Identifying market segments (1) Target markets ( target marketing ) Market segmentation Market targeting Product/Service Positioning Identify segmentation variables and segment the market Evaluate the attractiveness of each segment Identify possible positioning concepts for each target segment Develop profiles of resulting segments Select the target segment(s) Select, develop and signal the chosen positioning concept

72 Analyzing market opportunities - Identifying market segments (2) Market segmentation Market targeting Product/Service Positioning Consumer Market and Business Market segmentation Market segmentation is the process of identifying homogeneous groups of buyers requiring different marketing strategies to influence their consumption Organizations have limited resources Consumers may be too numerous, widely scattered and varied in their needs Competing organizations my be better able to attract certain groups of customers (segments) in the market Each organization should, therefore identify the most attractive parts of the market that it could effectively serve (--> target market)

73 Analyzing market opportunities - Identifying market segments (3) Market segmentation Market targeting Product/Service Positioning Market segmentation - questions to ask Who are our customers? Purchaser / User What do our customers buy? Amount, brand, features, price What do our customers do with the products? Usage situation Where do they buy? Retailer, factory shop, Internet When do they buy? Time of year, week, day; on sale versus full price How do they choose? Decision participants roles, decision process, information sources Why do they select a product? Functional attributes, service, image, brand equity Will they buy it again? Degree of satisfaction, intentions Sensitivity to marketing mix: product/service, price, distribution, advertising/promotion

74 Marketing process - Analyzing market opportunities The marketing process consists of 4 components: Analyzing market opportunities Designing marketing strategies Developing marketing programs Managing the marketing effort Focus on: Analyzing the Macroenvironment Conducting market research Forecasting and Demand Measurement Dealing with the competition Identifying market segments Market targeting Positioning Strategies Differentiation Strategies Devising a branding strategy Setting product strategy Developing pricing strategies and programs Designing and managing channels Designing and managing integrated marketing communications

75 Analyzing market opportunities Market targeting (1) Market segmentation Market targeting Product/Service Positioning Market targeting - evaluate market segments Customer Opportunities for profit size growth potential Competition Competitive intensity unmet needs entry barriers Target market selection Company firm s objectives firm s capabilities

76 Analyzing market opportunities Market targeting (2) Market segmentation Market targeting Product/Service Positioning Market targeting - select the target segment(s) Five patterns of target market selection Single segment concentration: concentrated marketing Selective specialization: differentiated marketing Product specialization: rather undifferentiated marketing Market specialization: rather differentiated marketing Full market coverage - undifferentiated marketing - differentiated marketing Because differentiated marketing leads to both higher sales and higher costs, there is no general statement concerning this strategy s profitability

77 Marketing process Designing marketing strategies The marketing process consists of 4 components: Analyzing market opportunities Designing marketing strategies Developing marketing programs Managing the marketing effort Focus on: Analyzing the Macroenvironment Conducting market research Forecasting and Demand Measurement Dealing with the competition Identifying market segments Market targeting Positioning Strategies Differentiation Strategies Devising a branding strategy Setting product strategy Developing pricing strategies and programs Designing and managing channels Designing and managing integrated marketing communications

78 Designing marketing strategies Positioning and Differentiation - Learning objectives Learning objectives: Positioning and Differentiation* How to position a product / service in the competitive landscape? What concepts of differentiation do exist? How does a consistent positioning strategy look like? * see also Kotler, Ph. (2009), a.a.o., Chapter 10: p ; p

79 Designing marketing strategies - Positioning and Differentiation (1) Market segmentation Market targeting Product/Service Positioning Product/service Positioning Product/service is the act of designing the company s offering and image to occupy a distinctive place in the mind of the target market Determine unique differentiating benefits (unique selling proposition; unique advertising proposition) Design the marketing mix that will establish appropriate perceptions of the brand among customers Positioning statement: To Y (target audience), X is the brand of (frame of reference) that delivers a benefit Z (point of difference) because of... (supporting claim) Positioning is not what you do to the product, but how the product is perceived in the mind of the consumer

80 Designing marketing strategies - Positioning and Differentiation (2) -Types of positioning Market segmentation Market targeting Product/Service Positioning Product/Service Positioning: Types of Positioning Attribute Positioning: a company position itself on an attribute such as size (Andersen, Siemens) Benefit Positioning: product is positioned as the leader in a certain benefit; e.g. BMW and Daimler Chrysler are fighting for technology leadership/great engineering; Volvo: safest and most durable Use / Application Positioning: position the product as best for some use (e.g. utiliy cars for people who are doing sports and need to transport heavy and bulky sports equipment) User Positioning: position the product as best for some user group (basketball players take Nike shoes) Competitor Positioning: the product claims to be better in some way than a named competitor (Coke and Pepsi) Product category Positioning: product is positioned as the leader in a certain product category (aspirin in the segment of pain relief) Quality/Price Positioning: product is positioned as offering the best value (Aldi)

81 Designing marketing strategies - Positioning and Differentiation (3) Market segmentation Market targeting Product/Service Positioning Example of Positioning: beers as people Beer Brand At a party As his hobbies As his occupation Budweiser Older guy Watch ball games, Businessman rake leaves Heineken Gentleman Polo Rich guy Michelob Smoke a pipe Philately, philosophy, Free lancer classic music Becks Charming guy Sailing CEO Paulaner Cozy type of guy Beergarden Government employed Miller Good guy, friendly Golf, tennis Junior executives

82 Marketing process Designing marketing strategies The marketing process consists of 4 components: Analyzing market opportunities Designing marketing strategies Developing marketing programs Managing the marketing effort Focus on: Analyzing the Macroenvironment Conducting market research Forecasting and Demand Measurement Dealing with the competition Identifying market segments Market targeting Positioning Strategies Differentiation Strategies Devising a branding strategy Setting product strategy Developing pricing strategies and programs Designing and managing channels Designing and managing integrated marketing communications

83 Designing market strategies - Positioning and Differentiation (4) Differentiation Strategies Product Differentiation: product form, features, performance, conformance, durability, style, design, etc Services Differentiation: ordering ease, delivery, installation, customer training, customer consulting, maintenance and repair Personnel Differentiation: competence, courtesy, credibility, reliability, responsiveness, communication Channel Differentiation: coverage, expertise, performance Image Differentiation: identity : the way a company aims to identify or position itself image: the way the public perceives the company or its products

84 Designing market strategies - Positioning and Differentiation (5) Market segmentation Market targeting Product/Service Positioning Summary: towards an effective Positioning Strategy Who (which customer segments) should we serve? segmentation analysis What differentiates us from our competitors in meeting the needs of our target segment? How should we position our product so as to highlight our differential advantage over the competitors? competition analysis (what benefits are currently offered?) customer analysis per segment (what benefits are most needed?) differentiation analysis (how can we differentiate our company?) positioning analysis (how can we translate our product characteristics into benefits sought?)

85 Designing market strategies - Positioning and Differentiation (6) Market segmentation Market targeting Product/Service Positioning Summary: internally consistent positioning strategy Hanna Andersson, a $ 40 million clothing firm in Portland, Oregon, U.S. Target segment: Socially conscious, eco-sensitive parents, looking to save time Product : 100 % cotton clothing for kids, endlessly washable Distribution: mail-order, serviced by highly trained phone reps. Promotions: policy on returned clothing that no longer fits; 20% of original price credited towards next purchase; donates returned clothes to charity Product/Services + Channel Differentiation; Benefit + User Positioning

86 Marketing process Developing marketing programs The marketing process consists of 4 components: Analyzing market opportunities Designing marketing strategies Developing marketing programs Managing he marketing effort Focus on: Analyzing the Macroenvironment Conducting market research Forecasting and Demand Measurement Dealing with the competition Identifying market segments Market targeting Positioning Strategies Differentiation Strategies Devising a branding strategy Setting product strategy Developing pricing strategies and programs Designing and managing channels Designing and managing integrated marketing communications

87 Developing marketing programs - Setting the product and branding strategy - Learning objectives Learning objectives: Setting the product and branding strategy* What is the concept of the product life cycle all about? Which marketing strategies are appropriate at each stage of the product life cycle? What are the characteristics of products? Which decisions to take concerning the marketing mix element product? How can a company build and manage its product mix and product lines? How can a company make better brand decisions? * see also Kotler, Ph. (2009), a.a.o., Ch. 9: p ; p ; Ch.10: p ; Ch.12: p

88 Developing marketing programs - Setting the product and branding strategy (1) - Product management Product management: the concept of the product life cycle Characteristics of the product life cycle concept products have a limited time product sales pass through distinct stages, each posing different challenges, opportunities, and problems to seller profits rise and fall at different stages of the product life cycle products require different marketing, financial, manufacturing, purchasing, and human resource strategies in each stage of their life cycle Product life cycle curve is typically divided into four stages introduction growth maturity decline Not all products exhibit a bell shaped product life cycle with the four typical stages

89 Developing marketing programs - Setting the product and branding strategy (2) - Product management Characteristics of product life cycle stages introduction growth maturity decline sales low rapidly rising peak declining cost/customer high average low low profits negative rising high declining customers innovators early adopters middle majority laggards ( Bummler ) competitors few growing stable, begin to decline marketing objectives create product awareness, induce product trial maximize market share maximize profit while defending share declining reduce expenditure and milk the brand Each product stage has different objectives and requires a different marketing strategy

90 Developing marketing programs - Setting the product and branding strategy (3) - Product management Marketing strategies for product life cycle stages introduction growth maturity decline product basic product product extensions price cost + market penetration diversify brands/models price to match competition phase out weak items cut price distribution selective intensive more intensive selective advertising awareness among early adopers/ dealers awareness/ interest i. mass market stress brand difference/ benefits reduce to needed level to retain hard-core loyals sales promotion heavy to induce trial reduce to exploit heavy demand increase to encourage brand switching reduce to minimal level Each product stage has different objectives and requires a different marketing strategy

91 Developing marketing programs - Setting the product and branding strategy (4) - Product management Product management: the market pioneer advantage (pioneer: to be first in the market) average market share consumer goods industrial goods pioneer 29% 29% early follower 17% 21% late entrant 13% 15% Most studies indicate that the market pioneer gains the most advantage; but: there is not necessarily a correlation between market share and profitability

92 Developing marketing programs - Setting the product and branding strategy (5) What is a product?? Def. a product is anything that can be offered to a market to satisfy a want or need (including physical objects, services, persons, places, organizations, ideas) potential product augmented product expected product basic product core benefit core benefit: basic product: : expected product: augmented product: potential product: the fundamental service or benefit that the customer is really buying a product s parts, styling, features, brand name, packaging and other attributes that support core benefits a set of attribute and conditions buyers normally expect additional services/benefits built around the basic/expected product all the possible augmentations and transformations the product might undergo in the future Successful companies add benefits to their offering that not only satisfy customers but also surprise and delight them

93 Developing marketing programs - Setting the product and branding strategy (6) Product classifications Classification of products according to durability and tangibility nondurable goods: tangible goods normally consumed in one or a few uses durable goods: tangible goods that normally survive many uses services: intangible, inseparable, variable, perishable; may or may not be tied to a physical product Classification of consumer goods according to shopping habits convenience goods: usually purchased frequently, immediately, and with a minimum of effort - staple goods: purchased on a regular basis - impulse goods: purchased without any planning or search effort - emergency goods: purchased when a need is urgent shopping goods: compared in the process of selection and purchase on such bases as suitability, quality, price and style specialty goods: with unique characteristics/ brand identification for which a number of buyers makes a special purchasing effort unsought goods: the consumer does not know about or does not normally think of buying Classification of industrial goods according to production process phase and relative costliness materials and parts: goods that enter the manufacturer s product completely - raw materials - manufactured materials and parts capital items: long-lasting goods that facilitate developing or managing the finished product - installations - equipment supplies / services: short -lasting goods and services that facilitate developing or managing the finished product - supplies - business services

94 Developing marketing programs - Setting the product and branding strategy (7) Product and services decisions Product attribute decisions product quality: ability to perform its function product features product design, process of designing a product s style and function Product mix decisions: how many products/product lines to carry? Branding decisions: to brand or not to brand a product? Packaging decisions process of designing and producing the container or wrapper for a product packaging concept: what should the package be or do for the product? packaging has to support the product s positioning and marketing strategy Label decisions label identifies the product/brand, grades the product, describes the product characteristics, promotes product Product-support service decisions Product-support services augment basic products function: handle complaints and adjustments, credit service, maintenance, repair, technical service, other service, consumer information an active customer-service department coordinates all the company s services, creates consumer satisfaction and loyalty and helps the company to differentiate itself from competitors

95 Developing marketing programs - Setting the product and branding strategy (8) Product mix decisions Definition: Product mix (also called product assortment) is the set of all products and items that a particular seller offers for sale Characteristics of a product mix width: length: depth: refers to how many different product lines the company carries refers to the total number of items in the mix refers to how many variants are offered of each product in the mix consistency: refers to how closely related the various product lines are in end use, production requirements, distribution channels, or some other way Product managers need to know the sales and profits of each item in their mix in order to determine which item to build, maintain, harvest, or divest

96 Developing marketing programs - Setting the product and branding strategy (9) Product mix: Example Procter & Gamble Product mix width detergents toothpaste bar soap disposable diapers paper tissue Ivory Snow 1930 Gleem 1952 Ivory 1879 Pampers 1961 Charmin 1928 Dreft 1933 Crest 1955 Kirk s 1885 Luvs 1976 Puffs 1960 Tide 1946 Lava 1893 Banner 1982 Product line length Cheer 1950 Camay 1926 Summit 1100 s 1992 Oxydol 1954 Zest 1952 Dash 1954 Safeguard 1963 Bold 1965 Coast 1974 Gain 1966 Oil of Olaz 1993 Era

97 Developing marketing programs - Setting the product and branding strategy (10) Branding decisions Richard Branson, CEO of Virgin: (companies: Virgin Radio, Virgin Cola, Virgin Clothing, Virgin Records, Virgin Atlantic Airways) Our brand name is incredibly important. It is preserved that if you have a good experience with one Virgin product, you will try / fly / eat / drink / buy another. Jean-Nöel Kapferer: Products are what the company makes; what the customer buys is a brand

98 Developing marketing programs - Setting the product and branding strategy (11) Branding decisions Performance Brand Company Customer Brand: A name, term, sign, symbol, or design, or a combination of them, intended to identify the goods or services of one seller or group of sellers and to differentiate them from those of competitors. Markenführung / corporate branding : the consistent alignment of a company s processes which refer to positioning the company in the market in order to achieve the desired image. The brand mediates between the customers, the performance (product + service) and the company

99 Developing marketing programs - Setting the product and branding strategy (12) Branding: brand extensions category existing line extensions category extensions brand name new to the company flankers new product existing new to the company

100 Developing marketing programs - Setting the product and branding strategy (13) Branding: new product introductions by a company The good: the brand name aids the extension More good: the extension enhances the brand name Effects of extending the brand to a new product The bad: the brand name fails to help the extension The ugly: the brand name is damaged Brand extensions are not always successful; there is quite a risk to fail!!!

101 Developing marketing programs - Setting the product and branding strategy (14) Several different types and combinations of brand architecture exist* Types Description Examples parent brand/ umbrella brand The existing brand that gives birth to a brand extension or sub brand is the parent brand Siemens; Virgin; Matsushita/Panasonic; Ferrero family brand sub brand If the parent brand is already associated with multiple products through brand extensions, it can be called a family brand When marketers combine a new brand with an existing brand, the brand extension can also be called a sub brand Virgin Records; Nivea, Tesa (brands belong to Beiersdorf); Kinder (brand belongs to Ferrero) Mc Donalds Big Mac Toyota Camry automobiles individual product brand channel brand Each brand (of a company) has a separate name, which may even compete against other brands from the same company One brand per retail channel Persil (brand belongs to Henkel) Ariel (brand belongs to P&G Body Shop Media Markt, Saturn Hansa (brands belong to Metro Group)

102 Marketing process Developing marketing programs The marketing process consists of 4 components: Analyzing market opportunities Designing marketing strategies Developing marketing programs Managing the marketing effort Focus on: Analyzing the Macroenvironment Conducting market research Forecasting and Demand Measurement Dealing with the competition Identifying market segments Market targeting Positioning Strategies Differentiation Strategies Devising a branding strategy Setting product strategy Developing pricing strategies and programs Designing and managing channels Designing and managing integrated marketing communications

103 Developing marketing programs - Developing pricing strategies and programs - Learning objectives Learning objectives: Developing pricing strategies and programs* What are the essential questions concerning the marketing mix element price? What are the process steps towards setting an appropriate pricing policy? How to estimate price elasticity of demand? What are the six possible methods for selecting a pricing method? What are the components of a so called price playing field? What other factors for selecting the final price does a company have to determine? Additional factors in the practice to identify an optimal pricing strategy? Be able to do basic quantitative analysis in order to make product decisions! * see also Kotler, Ph. (2009), a.a.o., Chapter 14: p

104 Developing marketing programs - Developing pricing strategies and programs (1) Essential questions concerning pricing How much can I charge and still make the sale? How should a price be set on a product or service for the first time? How should a product mix be priced? How should the price be adapted to meet varying circumstances and opportunities? When should the company initiate a price change, and how should it respond to a competitor s price change? function of customers and competition How much money can I make? function of internal costs The adequate price of a product should primarily be a function of customers and competition, secondly a function of internal costs

105 Developing marketing programs - Developing pricing strategies and programs (2) Setting pricing policy: a six step procedure Selecting the price objective Determining demand Estimating costs Analyzing competitor's costs, prices, and offers Selecting a pricing method Selecting the final price 5 possible objectives survival maximum current profit maximum market share maximum market skimming productquality leadership Measure demand curve for a product Estimate price elasticity of demand Different types of costs accounting Economies of scale Experience curve Target Costing 3 possible cases firm s offer is similar to comp. firm s offer is inferior to comp. firm s offer is superior to comp. 6 possible methods markup pricing target-return pricing perceivedvalue pricing value pricing going-rate pricing sealed-bid pricing Consider additional factors psychological pricing influence of other marketingmix elements firm s pricing policies impact of price o. other parties

106 Developing marketing programs - Developing pricing strategies and programs (3) Setting pricing policy: a six step procedure Selecting the price objective Determining demand Estimating costs Analyzing competitor's costs, prices, and offers Selecting a pricing method Selecting the final price 5 possible objectives survival maximum current profit maximum market share maximum market skimming productquality leadership

107 Developing marketing programs - Developing pricing strategies and programs (4) Setting pricing policy: a six step procedure Selecting the price objective Determining demand Estimating costs Analyzing competitor's costs, prices, and offers Selecting a pricing method Selecting the final price 5 possible objectives survival maximum current profit maximum market share maximum market skimming Measure demand curve for a product Estimate price elasticity of demand productquality leadership

108 Developing marketing programs - Developing pricing strategies and programs (5) Setting pricing policy: a six step procedure Determining demand Demand curve: shows the market s probable purchase quantity at alternative prices inelastic demand: elastic demand: price increase leads to relatively small decline in demand price increase leads to a substantial drop in demand price price quantity demanded per period quantity demanded per period

109 Developing marketing programs - Developing pricing strategies and programs (6) Setting pricing policy: a six step procedure Selecting the price objective Determining demand Estimating costs Analyzing competitor's costs, prices, and offers Selecting a pricing method Selecting the final price 5 possible objectives survival maximum current profit maximum market share maximum market skimming productquality leadership Measure demand curve for a product Estimate price elasticity of demand Different types of costs accounting Economies of scale Experience curve Target Costing

110 Developing marketing programs - Developing pricing strategies and programs (7) Setting pricing policy: a six step procedure Selecting the price objective Determining demand Estimating costs Analyzing competitor's costs, prices, and offers Selecting a pricing method Selecting the final price 5 possible objectives survival maximum current profit maximum market share maximum market skimming productquality leadership Measure demand curve for a product Estimate price elasticity of demand Different types of costs accounting Economies of scale Experience curve Target Costing 3 possible cases firm s offer is similar to comp. firm s offer is inferior to comp. firm s offer is superior to comp

111 Developing marketing programs - Developing pricing strategies and programs (8) Setting pricing policy: a six step procedure Selecting the price objective Determining demand Estimating costs Analyzing competitor's costs, prices, and offers Selecting a pricing method Selecting the final price 5 possible objectives survival maximum current profit maximum market share maximum market skimming productquality leadership Measure demand curve for a product Estimate price elasticity of demand Different types of costs accounting Economies of scale Experience curve Target Costing 3 possible cases firm s offer is similar to comp. firm s offer is inferior to comp. firm s offer is superior to comp. 6 possible methods markup pricing target-return pricing perceivedvalue pricing value pricing going-rate pricing sealed-bid pricing

112 Developing marketing programs - Developing pricing strategies and programs (9) Setting pricing policy: a six step procedure Selecting a pricing method 6 possible pricing methods cost oriented markup pricing: add a standard markup to the product s cost --> works only if the marked-up price actually brings in the expected level of sales target-return pricing: price is determined by target rate of ROI (return on investment) --> works only if different prices and their probable impacts on sales volume (price sensitivity of customers) and profits are estimated

113 Developing marketing programs - Developing pricing strategies and programs (10) Setting pricing policy: a six step procedure Selecting a pricing method 6 possible pricing methods market oriented cost oriented markup pricing: add a standard markup to the product s cost --> works only if the marked-up price actually brings in the expected level of sales target-return pricing: price is determined by target rate of ROI (return on investment) --> works only if different prices and their probable impacts on sales volume (price sensitivity of customers) and profits are estimated perceived-value pricing: price is based on the customer s perceived value; other marketing mix elements are used to build up perceived value in buyers minds --> works only if the market perception of the offer s value is determined accurately value pricing: fairly low price for a high-quality offering -> works only if company s supply chain is reengineered towards a low-cost producer without sacrificing quality going-rate pricing: price based largely on competitors prices --> works only if there is industrial harmony in the market sealed-bid pricing: price is based on expectation how competitors will bid (contract business) --> works only for companies that make many bids

114 Developing marketing programs - Developing pricing strategies and programs (11) Setting pricing policy: a six step procedure Selecting the price objective Determining demand Estimating costs Analyzing competitor's costs, prices, and offers Selecting a pricing method Selecting the final price 5 possible objectives survival maximum current profit maximum market share maximum market skimming productquality leadership Measure demand curve for a product Estimate price elasticity of demand Different types of costs accounting Economies of scale Experience curve Target Costing 3 possible cases firm s offer is similar to comp. firm s offer is inferior to comp. firm s offer is superior to comp. 6 possible methods markup pricing target-return pricing perceivedvalue pricing value pricing going-rate pricing sealed-bid pricing Consider additional factors psychological pricing influence of other marketingmix elements firm s pricing policies impact of price o. other parties

115 Developing marketing programs - Developing pricing strategies and programs (12) Setting pricing policy: a six step procedure Price playing field competition Economic value = maximum price customer price sensitivity fairness company goals image situation - market share - costs competition situation - market share - costs co-operation differentiation collaborators trade suppliers profit goals Variable costs = minimum price

116 Developing marketing programs - Developing pricing strategies and programs (13) Adapting the price: identify an optimal pricing strategy in the practice geographical pricing countertrade - barter - compensation deal - buyback arrangement - offset discounts and allowances cash discounts quantity discounts functional discounts seasonal discounts allowances - trade-in allowances - promotional allowances two-part pricing amusement parks: admission + per ride car rentals: fixed fee + mileage product -bundling pricing discriminatory pricing customer-segment pricing product-form pricing image pricing location pricing time pricing

117 Marketing process Managing the marketing effort The marketing process consists of 4 components: Analyzing market opportunities Designing marketing strategies Developing market programs Managing the marketing effort Focus on: Analyzing the Macroenvironment Conducting market research Forecasting and Demand Measurement Dealing with the competition Identifying market segments Market targeting Positioning Strategies Differentiation Strategies Devising a branding strategy Setting product strategy Developing pricing strategies and programs Designing and managing channels Designing and managing integrated marketing communications

118 Managing the marketing effort - Designing and managing marketing channels - Learning objectives Learning objectives: Designing and managing marketing channels* Which role does distribution play for manufacturers and buyers? What work is performed by marketing channels? What are the essential questions concerning the marketing mix element place? What decisions do companies face in designing, managing, evaluating, and modifying their channels? Which types of wholesalers and retailers do exist? * only Script is relevant

119 Managing the marketing effort - Designing and managing marketing channels (1) Some basics about distributing A distribution system... is a key (external) resource. Normally it takes years to build, and it is not easily changed. It ranks in importance with key internal resources such as manufacturing, research, engineering, and field sales personnel and facilities. It represents a significant corporate commitment to large number of independent companies (as a rule) whose business is distribution - and to the particular markets they serve. Def. market channels: sets of interdependent organizations involved in the process of making a product or service available for use or consumption Why is a channel or intermediary needed? Intermediaries smooth the flow of goods and services... This procedure is necessary in order to bridge the discrepancy between the assortment of goods and services generated by the producer and the assortment demanded by the customer. The discrepancy results from the fact that manufacturers typically produce a large quantity of a limited variety of goods, whereas consumers usually desire only a limited quantity of a wide variety of goods A marketing channel performs the work of moving goods from producers to consumers and hereby overcomes the time, place and possession gaps

120 Managing the marketing effort - Designing and managing marketing channels (2) Distributor s economic role: sales and logistics manufacturer distributor customer transferred business costs transferred business costs manufacturer to distributor inventory transportation selling order handling credit communication information / market feedback customer to distributor inventory shrinkage freight technical support service The distributor takes over costs from manufacturer as well as from customer in terms of sales and logistics

121 Managing the marketing effort - Designing and managing marketing channels (3) Channel breadth: what degree of exposure does the firm desire for the product? intensive distribution: placing the goods/service in as many outlets as possible selective distribution: use of more than a few but less than all of the intermediaries who are willing to carry a particular product exclusive distribution: limiting the number of intermediaries severely When is selectivity a good choice? product characteristics: shopping goods or specialty goods buyer behavior: - high perceived risk - low frequency - high brand loyalty - high personal selling effort degree of control: - price maintenance - sales assistance - display standard - product image Selective distribution can be used as differentiating factor when a competitive strategy is pursued

122 Managing the marketing effort - Designing and managing marketing channels (4) Channel length: should one sell directly or through intermediaries? direct distribution / direct-marketing channel / zero-level marketing channel: manufacturer selling directly to the final customer own sales force (consumer business: Reisende ; industrial business: sales management) Manufacturers owned stores mail order electronic commerce: Internet, TV selling indirect distribution / one-/two-level-marketing channel: selling through intermediaries industrial market consumer market Merchants ( Absatzmittler ): buy and sell products, live on margin - OEM s ( Original Equipment Manufacturers ) - industrial distributor - wholesaler - retailer Agents ( Absatzhelfer ): don t buy products, work for acquisition commission - sales representatives / manufacturer s representatives ( Handelsvertreter 84 HGB: in fremdem Namen auf fremde Rechnung) - commission merchants ( Kommissionär 383 HGB: in eigenem Namen für fremde Rechnung) - broker ( Makler 93 HGB: gewerbsmäßige Vermittlung v. Vertragsabschlüssen f. Dritte) The channel system evolves in response to local opportunities and conditions and may vary from location to location

123 Managing the marketing effort - Designing and managing marketing channels (5) Consumer and Industrial Marketing Channels Consumer Marketing Channels Industrial Marketing Channels 0-level 1-level 2-level 0-level 1-level 2-level 2-level Manufacturer Manufacturer Manufacturer Manufacturer Manufacturer Manufacturer Manufacturer Wholesaler Manufacturer s representative Manufacturer s sales branch Retailer Retailer Industrial distributor Consumer Consumer Consumer Industrial customer Industrial customer Industrial customer Industrial customer

124 Managing the marketing effort - Designing and managing marketing channels (6) Retailing Def. retailing: includes all the activities involved in selling goods or services directly to final consumers for personal, non-business use Types of retailers specialty store ( Fachgeschäft ): narrow product line with a deep assortment; super specialty store) department store ( Kaufhaus ): several product lines - with each line operated as a separate department managed by specialist buyers or merchandisers supermarket: relatively large, low-cost, low-margin, high-volume, self-service operation designed to serve total needs for food, laundry, and household maintenance products convenience store ( Tankstellengeschäft ): relatively small store located near residential area, open long hours seven days a week, carrying a limited line of high-turnover convenience products at slightly higher prices discount store: standard merchandise sold at lower prices with lower margins and higher volumes ( specialty merchandise stores) off-price retailer: merchandise bought at less than regular wholesale price and sold at less than retail ( factory outlets) Superstore: huge selling space, routinely purchased food and household items, plus services (laundry, shoe repair). Category killer (deep assortment in one category) such as Home Depot; combination store, hypermarket (huge stores that combine supermarket, discount, and warehouse retailing) such as Carrefour. Catalog showroom: Broad selection of high-markup, fast-moving, brand-name goods sold by catalog at discount. Any organization selling to final customers - whether a manufacturer, wholesaler, or retailer - is doing retailing

125 Managing the marketing effort - Designing and managing marketing channels (7) Wholesaling Def. wholesaling: includes all the activities involved in selling goods or services to those who buy for resale or business use Types of wholesalers merchant wholesalers: independently owned business that take title to the merchandise they handle - full-service wholesalers - limited-service wholesalers brokers: chief function is bringing buyers and sellers together and assisting in negotiation; paid on a commission base by the part who hired them; they do not carry inventory, get involved in financing, or assume risk agents: represent either buyers or sellers on a more permanent basis than broker manufacturers and retailers branches and offices: wholesaling operations conducted by sellers or buyers themselves rather than through independent wholesalers miscellaneous wholesalers: specialized types of wholesalers in certain sectors (agricultural assemblers, auction companies) The trend towards vertical integration is strong; this trend is especially affecting wholesale; successful wholesalers are aggressively increasing their effectivity and efficiency

126 Managing the marketing effort - Designing and managing marketing channels (8) Channel choice: which criteria help to select the right channel??? economic criteria determine the sales output per channel estimate the sales costs of selling different sales volumes, esp. compare sales costs through direct and indirect selling selling costs ($) manufacturer s sales agency company sales force level of sales ($) control criteria sales agency: independent firm seeking to maximize its profits, direct control possibility does not exist own sales force: direct control possibility adaptive criteria sales agency: more adaptability, less continuity

127 Managing the marketing effort - Designing and managing marketing channels (9) Modifying channel arrangements over the product life cycle - the PC market as an example market growth rate low high value added by the channel 1. introductory 4. declining PC s: hobbyist stores designer apparel: boutiques 2. growing PC s: specialty retailers designer apparel: better department stores PC s: mail order designer apparel: off-price stores 3. mature PC s: mass merchandisers designer apparel: mass merchandisers origin: Stern and Sturdivant high low No marketing channel will remain effective over the whole product life cycle; successful companies adapt their channels according to product evolution

128 Marketing process Managing the marketing effort The marketing process consists of 4 components: Analyzing market opportunities Designing marketing strategies Developing market programs Managing the marketing effort Focus on: Analyzing the Macroenvironment Conducting market research Forecasting and Demand Measurement Dealing with the competition Identifying market segments Market targeting Positioning Strategies Differentiation Strategies Devising a branding strategy Setting product strategy Developing pricing strategies and programs Designing and managing channels Designing and managing integrated marketing communications

129 Managing the marketing effort Designing and managing integrated marketing communications - Learning objectives Learning objectives: Managing integrated marketing communications* What is communication / promotion all about? What major models of communication do exist? What is Integrated Marketing Communications (IMC) all about? * only Script is relevant

130 Managing the marketing effort Designing and managing integrated marketing communications (1) Marketing communications mix: five major models of communication Advertising: paid form of nonpersonal presentation and promotion of ideas, goods, or services Sales promotion: variety of short-term incentives to encourage trial or purchase of a product or service Public relations and publicity: variety of programs to promote or protect a company image or its individual products Personal selling: face-to-face interaction with prospective customer(s) for the purpose of making presentations, answering questions, and procuring orders Direct marketing: use of mail, telephone, fax, , or Internet to communicate directly with specific customers and prospects Sales promotion 2 Direct marketing 1 Advertising Public relations/ publicity Personal selling Integrated marketing communications combine a variety of communication models or disciplines to provide clarity, consistency, and maximum communications impact through the seamless integration of discrete messages

131 Managing the marketing effort Designing and managing integrated marketing communications (2) Integrated Marketing Communications (IMC) is defined as following by the American Association of Advertising Agencies: IMC is a concept of marketing communications planning that recognizes the added value of a comprehensive plan that evaluates the strategic roles of a variety of communications disciplines - for example, general advertising, direct response, sales promotion and public relations and combines these disciplines to provide clarity, consistency, and maximum communications impact through the seamless integration of discrete messages IMC will improve the company s ability to reach the right customers with the right messages at the right time and in the right place Sales promotion 2 Direct marketing 1 Advertising Public relations/ publicity Personal selling

132 Managing the marketing effort Viral Marketing Definition:* Viral marketing is an Internet adaption of marketing using the word-of-mouth effect. Viral marketing can be understood as an advertising message spread by consumers among other consumers. Viral marketing has been treated by many as an almost coincidental marketing instrument - as a funny instrument that might add a little extra attention and colour to primary marketing efforts. Example:* In March 2006 tyre maker Goodyear launched a Europe-wide viral campaign. Consisting of three viral clips produced by Legas Delaney, London, the campaign was launched by marketing agency GoViral in nine different languages with active seeding in five selected markets: Germany, France, UK, Sweden and Denmark. In just nine month the videos were viewed more than 9 million times - with the major viewing in the five selected markets. The target for the campaign, which aimed to raise awareness of the Goodyear brand, was 700,000 views! From an expected average cost per view at 0.30, actual average cost per view turned out to be just 0,025. Find the video on youtube: (Keyword: changing tyres can be dangerous) Changing tyres can be dangerous!! or * see also Kotler, Keller, Brady, Goodman, Hansen (2009), Chapter 4: p