Marketing Management

1. Marketing Management Prof. R.K.Prasad Fellow-NITIE, Mumbai Institute of Cooperative and Corporate Management , Research & Training Lucknow U P INDIA

2. Chapter Contents • Introduction • Marketing Function • Market Forecast -- Four-step Process • Market Segmentation • Product Strategy • Pricing Strategy

3. Chapter Contents • Marketing Communications (Promotion) • Distribution (Placement) Strategy • Other Factors Affecting Marketing Success • Summary • Appendices (1) Product Testing Program, (2) Market Attractiveness and Marketplace Acceptance

4. Introduction • Basic functions of an enterprise: Marketing and Innovation - special roles for engineers! • Marketing: Provide products/services meeting the needs and wants of customers, Focusing on basic marketing concepts and applications • Innovation: Strengthen the firm’s competitive marketing position and sustain profitability by technology, supply chains, product design, etc.

5. Marketing Function Information (Advertising, Promotion) Firm Customers Suppliers Purchase (Response, Vote, Attitude) Information (Market Research, Wants/needs Preferences)

6. Selling Versus Marketing Production Capacities Manufacturing Products Aggressive Sales Efforts Aim at Customer as a Target Production Capabilities Actual Wants/ Needs of Potential Customers Potential Marketing Opportunities Market Products/ Services Marketing Program Customer

7. Marketing Orientation • Customer Focus - Understand needs, create value, and serve to assure customer satisfaction, with inter-functional teamwork • Competitor Focus - Seek advantages relative to competitors, monitor behavior and respond to strategic moves (foes or friends) • Profit Focus - Manage to assure short- and long-term profitability

8. Marketing Process Define Problem Evaluate Program Improve Program Analyze Market (Environment, Competition, Strength, Weakness, Needs/Interests of Defining Segments Develop Marketing Program (Set strategies for Product, Pricing, Promotion and Distribution) Select Segment (s): Profitability, Fit with Company/Product/Market

9. Levels of Marketing Strategy • Corporate Level: Set future direction of what businesses to pursue (product, service, total solution, etc.) and what value to be emphasized • Business Level: Bring products/services to the marketplace and achieve/maintain competitive advantages • Operational Level: Plan marketing program and implement/control marketing efforts

10. Marketing Effectiveness Diagram High Partial Success Total Success Customer Attractiveness Total Failure Partial Failure Low Low Customer Retention High

11. Marketing Effectiveness • Total Success: High profitability at maximum possible rate • Partial Success: New customers replace lost customers • Partial Failure: Sales slow or fall due to a lack of new customers • Total Failure: Sales fall as customers leave

12. Key Elements in Marketing • Market (size, growth rate, location) • Environment (competition, entry barriers, constraints) • Customers (who, why, when, where how, what) • Marketing Mix

13. Market Forecast • Demand forecast is critically important • Four-step process by Barnett (Source: F. William Barnett, “Four Steps to Forecast total Market Demand,” Harvard Business Review, July/August 1988) • (1) Define the market - Total Sales revenue per year of all products delivering similar benefits to customers regardless of physical and functional features • , (2) Segment the market, (3) Determine the segment drivers and predict their changes, (4) conduct sensitivity analysis

14. Market Forecast • (2) Segment the market - Subdivide total market into homogeneous customer subgroups with similar buying behavior and preferences • (3) Determine segment drivers and predict their changes - key factors affecting the segment growths

15. Market Forecast • (4) Conduct sensitivity analyses - assess risks and check assumptions • Application examples: (a) Industrial product - Segments based on industries with individual segment growth rates as drivers, assuming product demand is proportional to growth and business levels involved

16. Market Forecast • (b)Electricity - segments of industrial, commercial and residential; drivers are: business climate and industrial growth rate for industrial; Internet sales increase, consumer confidence, stock market performance for commercial; new home sales, change in home size and energy efficiency of appliances for residential

17. Environment • Market study is needed to assess: • Competition (market share distribution, technology, brand strength, marketing position, customer loyalty, etc.) • Barriers of entry (capital, technology, supply chains, distribution channels, governmental regulations, etc.)

18. Customer Orientation • Define needs through research (real value of a product to customer - prestige, convenience) • Define market segments (groups with similar needs to facilitate product customization) • Differentiate products and communications (e.g., “Dude” selling Dell computers) • Create differentiated advantages for customers

19. Customers • Who (Profile, who buy from competitors, who does the buying, for whom is the buying done) • Why (Reasons for product preference: price, product performance, convenience, product styling, service, packaging) • What (What for, what value benefit, what they really want? what needed in the future?)

20. Customers • Where (where to get product information, where is buying decision made, where to buy from: Retail store, mail order, via internet, department store, discount store ) • How (How to decide, how to compare) • When (When to buy, weekly, monthly, special occasions, etc.)

21. Who Makes What Decisions for Whom?

22. Market Segmentation • Purpose • Segmentation Steps • Criteria for Creating an Effective Segmentation Strategy • Pitfalls of Market Segmentation

23. Purpose • Divide consumers into groups having similar product/service preferences (divide/conquer) • Value to Company: (1) Match products/ service better to the groups, (2) Create suitable channels of distribution to reach them, (3) Uncover new consumer groups, not being served sufficiently in the past, (4) Focus on niches being neglected by competition

24. Additional Segmentation Benefits to Company • Develop suitable marketing strategies • Formulate better-fitting marketing programs • Track changes of buying behavior over time • Evaluate company’s competitive position in these segments • Achieve improved effectiveness in utilizing marketing resources

25. Pitfalls • Over-Segmentation (small sizes, fragmented segments difficult for company to serve -scale of economy) - Newer supply chains allows “build-to-order” strategies to serve smaller segments (Dell, Custom beer, Chinese foods, etc.) • Over-concentration (lack of balance between segments)

26. Problem 9.1 • Which are the bases for tradeoffs between conflicting wants and needs of different customers with respect to the same product? How important is it to emphasize product quality, when a new, unique product is launched?

27. Answer 9.1 • Customers make the following typical tradeoffs: (1) Quality versus price, (2) Common features versus customization, (3) Automated self-service versus personalized attention, (4) Technical functionality versus styling and other aesthetic values • When launching new products, quality is secondary to time-to-market and price. The strength of a new product lies in its novelty

28. Marketing Mix Product Strategy Customer Distribution Strategy Pricing Strategy Promotion Strategy

29. Marketing Mix • Product Strategy: Functional attributes, compatibility to customer needs, distinguishable features over competition, product-line strategy, product/market fit • Promotion/Communication Strategy: How to promote, adopt pull/push, which media to use, fit promotion to market segment selected

30. Marketing Mix • Pricing Strategy: Skimming or penetration based pricing, value-added pricing, target pricing, pricing fit to market segment • Placement (Distribution) Strategy: Intensive, exclusive or selective distribution, relationship with intermediaries (retailers, wholesalers), changes in distribution logistics and technologies

31. Product Strategy • Nature of Products • Life Cycle of Products • New Product Development Process • Product Failure (Rate, Reasons) • Summary

32. Product Positioning • What product features to include and emphasize - critically important • Selection of product features to place new (or existing) products in a favorable position with respect to competition - customer preferences and gap created by existing products in marketplace • Example: Automobiles

33. Product Life Cycle • Every Product goes through a number of phases: (1) Initiation (product development, testing, market development, advertising), (2) Growth (product promotion, market acceptance, profit growth), (3) Stagnation (price competition, substitution, new technologies), (4) Decline (cash cow strategy, product withdrawal)

34. Product Life Cycle

35. Product Supply Curve • Product supply curve describes the market behavior of companies -- supplying larger quantity of products in the product price is raising to higher levels in search of higher profits • Product innovations -- better products or lower product price, causing demand to increase and downward shift of supply curve

36. Impact of Product Innovation

37. Product Portfolio High ? Market Growth Rate Cash Cow Dog Low Low High Market Share

38. Products/Brands • Brand - A Distinct identity that differentiates a relevant, enduring and creditable promise of value associated with a product, service or organization that indicates the source of that promise. It represents all images and experience customers have of and with the organization.

39. Promise of Value - Brand Examples • IBM - Superior Service and support • Apple - Simple and easy to use • Lucent - Newest technologies • Gateway - Friendly service

40. Brand Pyramid 5 - Personality 4 - Value relevance 3 - Benefits (Emotional and Psychological) 2 - Benefits (Technical) 1 - Product features and characteristics 5 4 3 2 1

41. Problem 9.3 • Is it better to market a new product quickly and then improve the design later or to incorporate all design modification/ improvements before launching the product?

42. Answer 9.3 • Marketing product quickly is a superior strategy for new products, as doing so will allow (1) Brand name build up, (2) Customer loyalty creation, (3) Customer retention due to “switching costs,” and (4) earlier customer response assessment, (5) Steady product design improvements, and (6) Larger gross margin for lack of competition in earlier phase of product life cycle.

43. Answer 9.3 • Waiting to market the new product until all conceivable design improvements have been incorporated suffers from two drawbacks: (1) Not offering what exactly what the customers want and need (due to a lack of customer feedback), (2) Loss of a preemptive marketing advantage

44. Problem 9.4 • How can product development costs be reduced by entering the market late?

45. Answer 9.4 • Some companies follows the “best follower” strategy; Wait until a new product is about to take off, reverse engineer the competitor’s products, modify the product features, and enter the market with imitation products to compete at a slightly lower price • In 1985-86, IBM started with the innovative PCs, followed by many clones thereafter • Follower realizes smaller gross margin, never a leader

46. Problem 9.5 • For products intended for the global markets, customers’ wants and needs are regionally different. How can a centralized concurrent engineering team develop a product, which serves as the common “platform” for the global markets?

47. Answer 9.5 • One option is to segregate the mechanical aspects (functionality) of the products from their aesthetic aspects (look and feel) • General Motors is accomplishing this challenging objective by: (1) Build identical assembly plants for Buick cars at four global locations, (2) Outsource major subassemblies to local industries to reduce import duties and to satisfy local content laws

48. Answer 9.5 • (3) Standardize the technical specifications so that parts are globally interchangeable for load balancing (market demands, labor disputes, regulations, etc.), (4) Allow design changes to account for local market conditions (cultural preferences in car names, styling, color), (5) Retain centralized concurrent engineering approach to implement global business strategy and realize scale of economy benefit

49. Pricing Strategy • Pricing Options • Factors affecting Price • Pricing Methods

50. Pricing Options • Skimming Strategy - Set premium price initially to capture high profitability from affordable customers and then reduce price in time to reach additional customers in the marketplace (e.g., new books, ginger) • Penetration Strategy - Set price low to penetrate the market rapidly for setting barrier of entry to late-coming competitors (e.g., Microsoft Office 2000, Japanese motor cycles)