Professional Documents
Culture Documents
and
managing markts
effectively,efficiently to be
successful
how to do this?
What are markets?
Mrkts are prospects,customers and
consumers with unfulfilled needs,with a
desire to fulfill the same and
An ability to buy and willingness to buy,
An ability to pay& willingness to pay and a
willingness to be loyal as long as the
marketer's offer is perceived to be of far
higher value than those of all substitute
and competitive offers
What is mrktng?
Marktg is a continuous and proactive
process of creating,nurturing and retaining
a loyal customer base and helping them
perceive that the co's offer is far superior
to those of all current and future substitute
and competitive offers
$%ANFORD UNVER$%
Ninety-five percent of the people who
hear, understand and agree with a
principle do not have the ability to apply it
to their lives because they do not have the
necessary resources.
Mystery solved!-Zig Ziglar
Why do so many people start on a project ,get
marvelous results for a brief period of time , and
then revert to their old, humdrum way of thinking
and living?
Why does motivation change some people
permanently & others only temporarily?
Why do we get roughly 200 times as many
letters , phone calls, and personal statements
from people who say my books and tapes
changed their lives as we do from people who
say my presentation changed their lives?
%he answer is now clear!
%hey hear me speak & get excited .
%hen they encounter negative situations,
problems and people.Little by little, over a period
of time,they lose their enthusiasm, ant they are
back on squre one!
%he resource to implement & apply the
principles that change & enrich ur life is here.
Make a plan to fulfill the promise!
Discover why u should use the plan ,and even
more important, how u can.
Keep hope alive & give u the inspiration,
conviction & know how to follow through.
Mystery solved---
Motivation is not permanent. But neither is
bathing. However if we bathe every day,
we are ahead of the game.
From a motivational point of view, if we
deliberately seek encouragement,
(motivation) on a daily basis, it will become
a habit & enable us get ahead& stay
ahead in life!
Mystery solved--
CHALLENGE;
Keep ur goals & plans highly visible
Be inspired and be enthusiastic.
$ee the connection & that will reignite the
sparks and get u excited again about what
is really important in life.
Be reminded of ur goals/ plans so u will
receive the encouragement u need to
continue ur winning ways!
!urpose of any business-what is it?
Because it's purpose is to create a customer,a business
has two and only two basic functions; marktg and
innovation. Mrktg and innovation produce results; all the
rest are costs.
Mrktng is too important to leave to a mrktng department.
Mrktng is so basic that it cannot be considered to be a
separate function.it is the whole business seen from the
point of view of its final result, that is ,from the
customer's point of view,
!eter F Drucker'
Concept of internal and external customers
%ypes of business orientations-
what philosophy guides your
business?
%he producttion concept or orientation
%he product concept or orientation
%he selling concept or orientation
%he marketing concept or orientation
What are the differences?what are the
implications?
%he elephantine electronics co case
Elephantine case
%he engineering manager of this co one day
concieved of a new computer terminal that
would do every thing but peel potatoes- a slight
exaggeration perhaps ,but the concept was a
widely applicable, broadly compatible device.
$ince the manager enjoyed excellent rapport
with the firm's general manager,who was also
an engineer,it was easy to convince the GM of
the merit of the idea, and a product development
program was vigorously undertaken.
Elephantine-----
When the prototype was complete and functionally
proven,a production line was set up and manufacturing
was begun. About this time,the sales manager and his
sales force were called in for a product presentation.
After the new device was explained and demonstrated,
they were told to go,sell it.
$nce the new production line was capable of producing
500 units a month, this was established as average
sales goal .%he sales manager and the sales force went
optimistically forth into the market, but 6 months later
reported back to the general management that they were
unable to move this wonderful new product in any thing
approaching the target volume.
Ele---contd
After firing the sales manager, the gm and the engg mgr
commisserated with one another about the
incompetence of sales people who couldn't sell a
product that is obviously superior to anything else
available and right for the markt.
Neither of them knew quite where the mrkt was or who it
was,and unforttunately even the ex sales mngr hadn't
known either.$ince the mountain wouldn't come to
Mohemmad and Mohemmad didn't know where the
mountain was, so he could go to it, a lot of time and
money were wasted for practically nothing.
t was certainly too bad Elephantine was so unlucky,
because,when the product design was eventually sold to
Whiz-Bang computer co, it was a roaring success.
Elephantine----Discussion
questions
1.Does ur group think Elephantine was really unlucky?
Why? Why not?
2.What do u think whiz-bang did to make it a roaring
success? $tep by step process or activities?
3.What is wrong with Elephantine?What is right, f any?
4.What concept or philosophy drove Elephantine
mngmnt? Whiz-bang mngmnt?
5.Do u think Ele learnt any mrktng lessons? What
mrktng lessons did u learn? What is the moral of the
story?
Mrktng fundamentals
Mrktng is ---
A rouge function---
$alesmen are cheats---they push you into buying things
that you don't want
Advertising is a bunch of lies
Mrktng is a sheer waste. Goods cost us much less if we
don't promote them and advertise.
nshort, life wd be better off without this function.
Do we agree with this? f so why? f not why not?
Finally what is mrktg?
t is a function
t is a process
t is a concept
t deals with understanding mrkts,effectively and
efficiently managing the same and continuously
measuring the success through monitoring continuous
profitable growth in sales volume,markt
share,profit,customer nos and brand loyltycompared to
all competitors.
What attitudes,knowledge,skills and behaviour does
mrktg need to be effective?
Characteristics of market-oriented
companies
1.have clear market objectives
strategic intent
Ambitious mrkt share,positioning goals
2.segment their mrkts
dentify growth opportunities
%ailor strategies to segments
3.understand customers'existing and potential needs
Get close to customers
Focus on solutions, not products
4create competencies to match opportunities
Develop capabilities
ntegrate functions and resoutces around this task.
5.build competitive advantage
Beating competition
$ustainable advantages via branding and continuous improvement
Beating competition
$ustainable advantages via branding and continuous improvement
6.recognise environment changes
Existing strategies erode
!riorities to change and innovation
7.customer-focussed organisation
nverting and flattening the pyramid
!rioritising service providers
Lower costs-faster responsegreater motivation
8.monitor and bench mark customer satisfaction
Quantitative research systems
ndepth research.
Formulating a mrktng plan
1.situational assessment
Current performance
Background analysis
%rends and projections
Opportunity and issue analysis
2.objectives
Marketing
Financial
Human
3.positioning strategy
A.tarjet market segment(s)
B.differential advantage
Mrktng plan
4.marketing mix
A.product
B.price
C.promotion
D.place
5 action programs
6.organisation and control & Recruitment of talent
7,budjet & Control systems in implementation.
Key tasks of mrktg mgmt
1.Understand broad mrkts&segment
2.Carry out environment analysis
3.$et goals and objectives
4.Develop positioning strategies
A)select target mrkt segmentsa.broad market b.identify bases for
segmentation c.develop profiles of segments d.measure
segments'attractiveness
B).create a differential advantage a.identify benefits sought
b.measure competitor positioning c.create reason for preference
5.Develop appropriate mrktg mix a.product b.price c.place
d.promotion
6.Action programs
7.Create organisation structure &Recruit Appropriate talent
8.Budjets and controls and implementation
9.Learnings
%M$
DA
%he essence Of marketing
Functional
Value
$elf image
Availability
$ervice
Risk Avers ness
!roduct
!rice
Advertising
Distribution
$ervicing
Guarantees
Customer Wants
Marketing MX Variables
1product
Quality-featuresoptionsstylebrand namepackaging
sizesserviceswarrantiesreturns
2price
List pricediscountsallowancespayment periodcredit terms
3place
Channelscoveragelocationsinventorytransport
4.promotion
Advertisingpersonal sellingsales promotionpublic relations
All addressed at target market segment
Marketing Mix
!roduct
Characteristics of mrkt
oriented co's
1have clear mrkt objectives-----
have strategic intent------
have ambitious markt share and positioning
goals
2segment their markets---------------
identify growth opportunities-------
tailor strategiesto segments
3understand customers'existing and
potentialneeds
Get close to customres
Focus on solutions,not products
Characteristics of mrkt oriented
co's
4.Create competencies to match
opportunities
Develop capabilities
ntegrate functions and resources around
this task
5.Build competitive advantage
Beating competition
$ustainable advantages via branding and
continuous improvement
Charactiristics of---
6.Recognise environment changes
Existing strategies erode
!riorities to change and innovation
7. Customer-focussed organisation
nverting and flattening the pyramid
!rioritising service providers
8.Monitor and bench mark customer satisfaction
Quantitative research systems
n-depth research
%he strategy of a modern airlines
n the olden days, airlines didn't segment their markets.t
soon became clear that passengers differ in their
expectations. Business travellers value convenience,
comfort and service,while,leisure travellers were more
interested in lower price,
A carrier flying from London to New ork, using a 300
seater plane and anticipating an average load factor of
80%, if it pursues an un-differentiated strategy-one class
plane-the management can charge a highest price of
$250 %O AChEVE A 80% OCCU!ANC RA%E.%he
variable cost for the airlines was $20 per passenger and
the fixed cost is $50,000per flight.
Airlines----contd
However to the mrktng mgmnt,it is obvious that while a price of $250
already begins to lose the business of low budget
travellers,business people and the more affluent people would be
willing to pay much more for superior service and comfort.
%he result was that the airlines moved to the differentiated strategy
whereby they offered 3 levels of service on the
plane;economy,business and first class at very different price levels.
%o get the same 80%occupancy level,the prices are respectively
$250,500,and 1000 per passenger while the variable costs
are$20,40 and 100 per passenger. t is estimated that the fixed cost
would go up by 10% to accommodate the changes in the aircraft to
provide the desired comfort to the upper 2 classes, each of them
taking 50% of the additional amount.t is also estimated that the
business class pssengers wd be 3 times the number of first class
and economy passengers wd be double the business class
occupants at 80% plane loading factor.
Airline---contd.
%he consequences are to massively enhance the revenue and the profitability for the
airlines.n addition,the strategy better meets the needs of all customers by offering
the values that the particular type of passenger prioritises
And this example of airline segmentationis exactly analogous to the strategies
pursued by most of the sophisticated cos of today!
ou are requested to calculate the profits,the profitability, the revenues and the costs
incurred in both the strategies,for the full plane,for each class and per passenger in
each class, assuming in both cases the plane is 80%loaded.!l find the break even
point in both.
Discussion q's
1List all benefits of segmentation to all stakeholders of the airlines
2Who all could be the beneficiaries
3Do u think any segment is subsidising for any other segment? f so who to whom? f
not,why not?What do u understand by absolute satisfaction and relative
satisfaction?Do u think that there is a possibility that any cass may feel relatively
dissatisfied although absolutely satisfied, When wd that happen? How wd mgmnt
prevent it?
4When can segmentation go wrong?How to avoid segmentation from going
wrong?What precautions to take?
What is your position?are we
positioned correctly?
A manufacturer of industrial cutting equipment
was concerned about its poor market share and
wondered whether its prices were the problem.
t undertook a markt research study which
identified the product and service attributes most
desired by customers and evaluated how its
product " X " & its key competitors were rated in
tablebelow on a 1to 6 scale where 1 is lowest
and 6 is highest.
%able assessing price & value
competitiveness
mporta
nce wt
Quality
dimensio
ns
Compet
itors
a b c x
35%
!recisio
n
6 5 4 6
25%
reliability
6 6 3 4
15%
durability
5 3 2 5
20%
service
5 3 5 1
5%
Delivery
2 5 5 5
weig
hted
scor
e
A
5.5
B
4.6
C
3.7
X
4,3
Actu
al
price
s
29 K 21 K 15 K 22 K
Mrkt
shar
e%
27 45 20 8
1.What is the problem of x n
marktng jargon?
2.how do you solve? What srategy do u
recommend? Why?
3. What alternates can be considered by
X? Why should they be dropped?
How to take positions? - 2 ways
based on Quality&price conscious
markets
QUAL%-CON$COU$ MARK%$-steps
1.find out quality dimensions,relative importance
between them and assess performance of all current
players on each dimension
2.f there is a gap between expectations and
performance tae a position
3. fill the position by offering the highest value than the
average value provider as well as the best value provider
so that no one will find a gap in value to replace u in
future.
4 constantly monitor and defend this position thro
innovation.
!rice conscious customers/markts-
--how to take positions
1.find out what price are the markets willing to
pay?
2.find out what quality are they willing to accept
for the price they are willing to pay
3.find put a gap if any where u can offer a higher
value for the price they are willing to pay better
than the average value privider as well as the
highest value provider in the markt.
4defend and protect .
Concepts of
cost,price,revenue,value &
quality.how are they connected?
Adi godrej said,when asked what is important,top line or
bottom line?
REVENUE $ (read sales) vanity,!ROF% $ $AN%
and cash is reality.Cost is a fact & Value is a perception.
Value is benefit divided by price
Customer delivered value=total customer benefits(%CB)-
total customer costs(%CC).
%CB=!roduct benefits+$ervice benefits+personnel
benefits +image benefits
%CC=monetory cost+%ime cost+energy cost+psychic
cost
Quality is 2 types Quality of
conformance & quality of
performance
QUAL% OF CONFORMANCE-consistently meeting specifications
laid down batch after batch/supply after supply.at any agreed level
of quality
!erformance as per promise.supplier commits to buyer a certain
level of quality features,prices and performance and delivers in
practice what was promised.
QUAL% OF !ERFORMANCE-this has got to do with the level of
quality Certain products promise and perform at higher level of
quality and certain other products promise and perform at a lower
level of quality.
EXAM!LE.Which product has a higher quality of
performance,Mercedes Benz? Or Maruti 800? Answer is the former.
Which of the above 2 products has a higher quality of conformance/
Answer is both can have the same level or one can have a higher or
loer level than the other depending on the actual percetved
performance over a period of time.
Cdv=tcb-tcc
Compare the customer deliverd value of
any 2 brands fighting with each other in
the same %M$/
Compare cdv of kinetic Honda to ladies
with cdv of Hero Honda to male outh.
Which one is greater?
Caterpiller V$ komatsu how to
price caterpiller's buldozer?
Cost to make =$30k
!erceived worth of customers=$100k
Added value=$70k
!ricing optionsA.$hare
equally,!=$65k.B.take a higher
share,!=$80kC.%ake a smaller share,
!=$50k.
How to decide what strategy to follow.?
Caterpiller 's price strategy
depends on
1.the Co's goals/ambitions
2.the competitive factors and
3. the customers value perceptions
f the co wanta a short run high return,and
doesn't mind losing competitive entry, price it
high.
f the co's interest is to gain a high markt share
quickly and protect it over a long term,go for a
low price but a longer pay-back.
Cdv concept of buyer decision
making and its use for seller
3ways
1.Caterpiller can increase total customer
value.By improving !,$,!,or benefits
2,Caterpiller can reduce the buyers non-
mo0netary costs By lessening the buyer's
time,energy and psychic costs.
3.Caterpiller can reduce buyer's monetory
cost,by lowering its price,providing easier
terms,of sale,or in the longer term lowering its
bulldozer's operating or maintenance costs.
Customer value assessment of
bulldozer
Cost of prdn to Caterpiller-$140k
Customer perception of its worth-$200k
%otal added value-$60k
!RCNG O!%$
<140kcosts not covered for Caterpiller.
>200kCustomer value exceeded
$160k-20k to
$190k-50k to Caterpiller and 10k to customer.
%he lower the caqterpiller price,the highjer the delivered
value to customer.caterpiller and 40k to customer.
%otal customer satisfaction concept
Customer satisfaction depends on the product's performance
relative to a buyers' expectations-
$hort of expectations-dissatisfied
Matches expectations-satisfied
Exceeds expectations-highly satisfied or delighted.
How are expectations formed?
1,past buying experiences
2.opinions of friends and associates
3.marketer and competitors'info and promises
Marketers should set the right level of expectations. Holiday nn
campaign of 'NO $UR!R$E$ran into hot weather and was
withdrawn.Consistent and trouble-free services.if u aren't satisfied
ur night's stauy wd be free.Can u defend this ?How do u measure?
Can u argue with ur customer? And still maintain a good relation?
mplementing total quality
marketing
!M$-Correlation between Relative product
quality and profitability
QUAL%-Fitness for use
Conformance to requirements
Freedom from variation
%he tottality of characteristics and features of a
product/service that bear on its ability to satisfy
stated or implied needs.Customer-centered def
of Q as per American soc for QC.
!erformance q vs conformance Q
!erformance q-Refers to level at which a product
peforms its function.Ex Mercedes provides higher
performance Q than Volkswagen.Gives a smoother
ride,handles better and lasts longer.t is more expensive
and sells to upper segment.
Conformance Q-Refers to freedom from defects and the
consistency with which a product delivers a specified
level of performance.
A Mercedes and a Volkswagen offer equivalent
conformance Q (each delivers consistently what it
promises).
A $ 50k car that meets all its requirements is a Q car. $o
is a $15k car that meets all of its requirements.
Marketing's role in total Q
2 roles-
1.Formulate strategies/policiesto win total Q excellence
2.Must deliver marketing Q as well as !roduction Q .Must perform
each mrktng activity MR,sales training, advertising, customer
service and others to high standards.
ROLE$
1.Correctly identify customer needs & communicate correctly
product design dept.
2.Fill customer orders correctly on time and ensure customers
receive training in product application
3.stay in touch with customers after sales to ensure they remain
satisfied.
4,Gather and convey customer ideas for product and service
improvement to Co departments.
ronic research study.
Marketing people responsible for more customer complaints than
any other dept.(35%)
Marketing mistakes;
1.$ales force orderd spl product features for customers but failed to
notify manufacturing of the same changes
2.ncorrect order processing resulted in wrong product being made
& shipped
3,.Customer complaints aren't properly handled.
Marketers must be
1. customers' watch dogs complaining for the customer when
service is not right.
2.spend time and effort for both external and internal marketing
3,uphold the std of "giving the customer the best solution
%he malcolm balridge national
quality qward-Q principles applied
by MR firmCR-custom researchinc
1.focus on building major customer relationships
2 organise into cross-functional client-centered
teams to get every one working toward customer
satisfaction.
3,Develop high Q processes& procedures to get
the work done ,then measure the results
4.Explicitly ask customers what they expect from
a partnering relationship.
5.seek customer feed back on individual projects
and overall relationship.
Malcolm---
6.Hire the best people and invest ti their
development
7.$tay flexible,agile fast moving-empower
every one in the Co to 'just do it'
8.Have fun with hoopla and recognition
9.Build Q continuously
10.Never be satisfied.
Essentials for total Q marketing
strategy-W.Edward Deming
1.Q is the eyes of the customer.
2.Q must be reflected not just in the Co's products but in every Co
activity.
3.Q requires total employee commitment.
4.Q requires high Q partners (suppliers)
5.A Q program can not save a poor product.
6.Q can always be improved.
7.Q improvement sometimes in quantum leaps.
8.Q does not cost more-'do things right the first time'-'Q is not
inspected in; it must be designed in'.%hese reduce the cost of
salvage ,repare and redesign,not to mention losses in customer
good will'
9.Q may be necessary but may not be sufficient.eg $ingapore Air
lines-Competitors reduced the percieved Q gap ,so M$ reduced for
$A.
Customer
loyalty,retention,relationship
marketing
%he case of lost customers
!ay attention to 'customer defection rate'-rate at which they lose
customersand the steps to reduce it.
4 ways of doing this
1.Define and measure its retention rate. For a magazine renewal
rate is a good measure of retention .For a college it could be the 1
st
to 2
nd
year retention rate.
2.Distinguish causes of customer attrition & identify those that can
be managed better .Do something about customers who leave due
to poor service ,shoddy products, high prices etc., while nothing
could be done about who leave the region or go out of business.
3.Estimate how much profit the Co loses when it loses customers. n
case of an individual customer, the lost profit is equal to the
customer's life time value (CL%V)-that is the present value of the
profit stream if the customer hadn't defected prematurely.
Cost of a lost customer
For a group of lost customers ,one transportation carrier estimated
its profit loss as follows.
1.Co's accounts-64k
2.Lost 5% due to poor service this year.
3.%he average lost A/c represented a $40k in revenue per annum.
4. %he Co's profit margin is 10%.how much is the loss for the Co this
year? How much would it be if the average no. of loyal years is 5
and the inflation in prices is just same as discounting rate for N!V
calculation?
5.Fgure out how much would it cost to reduce the defectrion rate ?
As long as the cost is less than the lost profit the Co should spend
the amount to reduce the defection tate.
Lost custom---
%he cost of attracting a new customer is
estimated to be 5 times the cost of keeping a
current customer happy.%raditionally we all
make sales rather than build relationships,
selling and pre selling becoming more important
than after sales.
%oday, more Co's recognise importance of
satisfying and retaining current customers . One
study indicates co's can increase profits
between 25-85% by reducing customer attrition
by 5%.
$hould this Co add new
customers?
1.cost of an average sales call-incuding
salary,commission,benefits,expenses,incentives etc.--$300
2.Av no. of sales calls to convert an average prospect into a customer-4. n
fact this doesn't include advert,promoting,operations,planning etc.
3.Co's estimate of Av customer life time value
Annual customer revenue--$5k
Av no. of loyal years2
Co profit margin-10%.
Q.s customer's L%V higher or lower than the cost of attracting a new
customer?
Q.How will u recommend this Co should do to add new customers?
%he Co is clearly spending more than they are worth to attract new
customers.Unless the Co is signing up costomers with (a) fewer
calls,(b)spend less per sales call,stimulate higher new customer annual
spending,(d) retain customers longer,(e)sell them higher profit products,the
Co is headed for bankruptsy.
2 ways to strengthen customer
retention
1.%o erect high switching barriers. $witching
involves high capital cost, high search cost, the
loss of loyal customer discounts and so on.
2.Better approach is to deliver high customer
satisfaction .Due to this, Lower prices/switching
inducements of competitors won't be attractive
enough.
%he task of creating "strong customer loyaltyis
called "relationship marketing'%o know and to
serve better all valued customers.
%he key of relationship marketing
%he customer development process
$U$!EC%$----!RO$!EC%$----D$QUALFED !RO$!EC%$
!RO$!EC%$
First time customers-may buy from competitors
Repeat costomers-may buy from competitors
Clients-buy only from Co.
Advocates-word of mouth
!artners-work actively together
Every stage of customer can become inactive or EX customer due
to bakruptcy,moving out to other locations,dissatisfaction etc.
Reactivation is a challenge thro customer win back strategies.
t is easier to re attract ex customers than to win new ones.
$ocial actions affecting buyer-seller
relations-good things
1.nitiate +ve phone calls
2.Make recommendations
3.Candor in language
4.Use phone
5.$how appreciation
6.Make service suggessions
7.Use 'we' problem-solving language
8.Get to problems
9.Use jargon/shorthand
10.personality problems aired
11.%alk of our-future together
12.Routinise responses
13.Accept responsibility
14.!lan the future
Bad things-affecting buyer-seller
relation
1.Make only call-backs
2.Make justifications
3.Accommodative langusge
4.Use correspondence
5.Wait for misunderstandings
6.Wait for service requests
7.Use 'owe-us' legal language
8.Only respond to problems
9.Use long-winded comments
10.!ersonality problems hidden
11.%alk about making good on the past
12.Fire-drill/emergency responsiveness
13.$hift blame
14.rehash the past.
Retaining customers-CRM
Only attract new customers? Don't want to retain
existing ones? Look at the statistics.
!.Competition increasing vand so cost of
attracting new customer is increasing.
2.5 times costlier to attract new customers
3.Offensive marketing costs more than
defensive marketing. Coaxing satisfied
customers away from competition is expensive.
4.By reducing customer defections by 5%,Co's
can improve profits from 25-85%.
Relationship marketing
%he process of creating ,maintaining and
enhancing strong, value-laden relationships with
customers and other stake holders.
All of Co's departments work together with
marketing as a team to serve the customer.
nvolves building relationships at many levels-
economic,social,technical and legal-resulting in
high customer loyalty.
5 different levels of relationship as
a function of profit margin and no.
of customers
1.Basic. $ell but don't follow up.H.J.Heinzdon't call every ketch-up
buyer to thank.(large no. of customers and low margins)
2.Reactive; $ell and encourage to call if any question or problem.
3.Accountable;Check after sale if product meets expectations.$olicit
improvements, suggessions,and any specific disappointments
4.!roactive;$ales persons and others in the Co phone customer
often with info on improved product use or new products.
5.!artnership;Continuously work with customers to discover ways to
deliver better value.Boeing does partnership matng with United
airlines to work closely in design of aeroplanes and satisfying
customer requirements.
!rofit margin vs no of customers-
relationship levels as a function of
profit margin & no of customers
!roft- HGH MEDUM lOW
No.of Customers
Many Accountable Reactive Basic
Medium !roactive Accountable Basic
FEW !artnership Accountable Reactive
Develop strong customer bonding
& satisfaction-3 value building
approaches
Financial, social and structural
1.Financial; Adding financial benefits to relationship
.Ex.Frequent flier programs of airlines ; *room
upgradesto frequent guests in hotels *!&G's money-
back guaranteeon Crest tooth paste(cavities and tartar
build up ion 6 months).!&G builds up data base .Dentist
certificates.
2,$ocial;ndividualise and personalise the products and
services ,Ritz hotels offers financial and social
benefits.Refer to guests by name& give each guest a
warm welcome!.Record specific guest preferences &
maintain data base accessible to all hotels in chain.
A guest wanting a foam pillow Ritz in Montreal first and
Atlanta later.
3 value building approaches
3.structural ties; A business marketer helps
costomers with spl equipment or computer
linkages to help them manage orders ,pay roll or
inventory. Ex.Mc Kesson Corp.a leading pharma
wholesaler built financial,social and structural
ties with customers by spending $millions in ED
to help small pharmacies manage their
inventory,order entry and shelf space.Fedex has
computer linkages with its customers.
Customer profitability the ultimate
test-how to attract and keep
profitable customers?
1.Usually 20-40% of customers are unprofitable.
2.Most profitable A/cs aren't the largest a/cs; but
mid-size a/cs.
3.Largest a/cs demand high services and high
discounts,so low profits.
4.$mallest a/cs pay full price and receive less
service ;but cost of handling high and so low
profit.
5.Mid size a/cs paying good price and receiving
good service are the most profitable. %herfore
invade the middle not only the largest a/cs!
Choose ur customer-CRM-What
not to do
1.don't pursue and satisfy every a/c.
2.Don't try to satisfy every whim.
3,don't provide any thing and every thing an a/c
suggests.
4.Market focus doesn't mean "blindly following all
suggessions that can't be profitably undertaken
5.Market focus means "making disciplined choices of
which customers to serve and which specific benefits to
deliver or deny
f !RE$DEN% customers want %aj service !resident
should say 'no'.Because providing confuses positioning
of %Aj and !resident systems.
What makes a customer
profitable?-concept of CLV
CLV is the amount by which revenues from a
given customer overtime will exceed the Co's
cost of attracting,selling and serving that
customer.
Emphasis is on life time revenues and costs
not profits from a single transaction!
Life time profit of %om !eters to Fedex.%om
spends $1500/month in fedex service.=12
*1500*10 years =$180k for 10 yrs
@10%profit=$18k on %om's life time
business.$o can Fedex risk poor service from a
driver to %om?
CLVRE%URN ON CU$%OMER &
correlation with MARKE%
CA!%AL$A%ON
How happy ur customers are has a bearing on how well
ur stock does!
%he CFO of a Fortune 500 Co has his marketing dept
ask him for $50 mn budget to improve customer
satisfaction from 4.1 on a scale of 5 to 4.5
High level of customer satisfaction is beneficial but was it
worth $50mn? s the question.
Can the marketing explain expenditure in pure financial
terms? f they can't then difficult to get the budget
sanctioned. Marktng should speak a laguage that the
rest of the colleagues and shareholders understand!
HOW %O DO %HA%?
How do marketers speak
shareholders' language?
Customers are seen as assets but marketing programs are seen as
expenditure and not investments.
As competition intensifies and cost cutting takes center stage,
marketers should learn to account for their costs.
A financial approach to understand if Cos are spending more than
they are worth.
CLV concept tells u 2 things 1, how much to spend on
customers?2, calculate market capitalisation of Cos using
customer metrics and therefore indicate how marketing spends
impact the bottom line.
!roviding value to customer requires marketing investment and the
firm must recover the investment.
MARKE%NG VEWCU$%OMER $ KNG. FNANCAL VEW ---
CA$H $ KNGBO%H NEED$ to be combined!
Clv=value of all current & future
generated from customer over her
life of business with firm
%o calculate CLV, we need CU$%OMER !ROF% !A%%ERN &
DEFEC%ON RA%E OVER %ME.
CLV is a function of profit margin from customer, defection rate and
discount rate of the Co that depends on cost of capital & riskiness of
business
CLV can be tepresented as a multiple of annual profits earned from
costomers and the multiplier is a function of customer retention and
usually it is in the range of 1 to 4.5.
f u know annual profit u know CLV and u know how much u can
pamper her!
n case of credit cards & banks where customers have less
incentives to switch brands, the multiple & CLV are on higher side. f
u have a low retentio rate of ur cusrtomer, ur multiple is low,and u
need to cut back on how much u spend!
Clv is discounted cash flow of a
firm at an individual level , Extend it
and multiply with no of customers
to get M cap.
$o customer base c an be another method
of estimating M cap.
Return on customerROC ---
concept of Don !eppers
f ur business has customers , Capital will flow!
%herefore business performance metrics that
measure RO tell only half the story!
Customers are these days scarcer than capital .
n their book, "the one to one future "he
preaches the virtue of collaboration and dialogue
with costomers, customised products and
greater sophistication in segmentation!
ROC=A firm's current period cash flow from its
customers plus any changes in the underlying
customer equity ,divided by the total customer
equity at the beginning of the period.
Clv or cltv (CU$% LFE %ME
VALUE)
A$K Cos to do a better job of predicting long term Co
performance by askking themselves as much about
ROC as about RO.
Any fool can boost earnings and cash flow in the short
term, by say, reducing the Ad expenditure, refusing
warranty claims and firing half the customer service dept!
BU% %HE DAMAGE %O %HE LONG %ERM VALUE OF
%HE BU$NE$$ WOULD BE $EROU$!
%herefore measure the damage here and now rather
than waiting for the consequences to emerge!
AN DECLNE N %HE CL%V OF CU$%OMER$
CO$%$ ME MONE %ODA.
Customer equity vs CL%V
Customer equity is a slippery con cept as a basis for
ROC calculation.
%herefore to be sure u can estimate L%V of ur
customers by analysing the likelihood that each will
make repeat purchases, buy across multiple lines of
business, use low-cost sales and service channels and
so on.
LOAL% threfore is just one component of L%V.
Disclose more of non financial infowhat happened to
the value of the Co's brands during the year? Did
revenue groth come from new customers or repeat
purchases?
Customer/product profitability
analysis
Customers with varying profitability
C1(high) C2(mixed) C3(losing)
!roducts at varying profitability
!1(high) ++ +crosssell +
!2(ok) + +
!3(mixed) + -crosssell -
!4(losing) +crosssell - -
high p custom Mixed bag Losing a/c
Customer-product profitability
analysis
Co's should actively measure individual customer value &
profitability.
1.customer c1 buys 3 profit making products !1,p2,!3.
2.Customer C2 gives mixed profitability buying one profitable
product !2 and one un profitable product !4
3.Customer C3 generates losses by buying one profitable product
!1 and 2 unprofitable products !3 and !4..loss leaders.
What should the Co do about C3? 1.Rise the prices of less
profitable products or consider elimination.
2.try to cross-sell profit making products to its unprofitable
customers
3.f customers like C3 defect ,it may be for the good!
4.in fact Co may benefit from encouraging its unprofotable a/cs to
switch to competitors.
$atisfaction,value and quality (tools
for building customer relationship)
$imple and effective competitive marketing strategies of
successful companies.
$teps %o consistently offer the best value to customers
$%E! 1.$tudy and listen to customer
$%E!2.Learn about consumer problems and needs;
likes and dislikes; trends, through demographic and
lifestyle analysis,focus group interviews,indepth
interviews and product tests.
$%E! 3.Give consumers what they want-a continuous
flow of useful and high quality products.
How to gain reputation of value and
quality
1.Well designed and well made products
2.Obsession for quality
3.nnovative or new ways of serving customers
4.New product development a religion-!ER!E%U%
FAC%OR 33% from products developed and launched in
the last 5 years.
5.Base executive compensation on new product share of
sales.
6.New product teams or venture teams-Experts from
marketing,manufacturing,finance and design-live,
breathe and sleep new products from idea to commercial
launch.
7.Ordinary products offer simple
but elegant improvements.
8.strong relationship with 'other customers'-retailers and
suppliers who appreciate the Co's high quality,larger
margins,outstanding service,and strong consumer
appeal.
9.Grab 'vendors of the year'awards, or 'the most reputed
marketing Co'award or 'oustanding co' award.
10.Open 'supershoppees' or 'rubber maid botiques'-
whole sections stocking Co's products and offering
'complete solutions approach'to customer problems.
11.Competence to execute the strategy flawlessly-
uncopiable by competitors.
12.%hey never run out of ideaswhen it comes to fresh
and saleable new ways to serve customers.
Being a customer-centered
company
1.Be adept in building customers-not just
building products.
2.%he key is 'CU$%OMER-VALUE DELVER
$$%EM'-EX.
Mc Donald'sConsumers flock to the
McDonald's system which supplies a high
standard of Q$CV-
QUAL%,$ERVCE,CLEANLNE$$ AND
VALUE.
Not just for the taste of hamburgers ,several
others make better-tasting ones!
Value-delivery system
$ystem made of value chains of the Co and its suppliers
,distributors and ultimately customers who work together
to deliver value to customers.EX.
HONDA chose DONNELLE Corporation for supply of
car mirrors for U$ made cars.
Honda engineers work together with Donnelly in
improving products/operations.Donnelly could reduce
costs by 2% in first year.And its sales to Honda improved
from 5mn $ a year to $ 60 mn in less than 10yrs.
Honda benefited from nan efficient low cost supplier in
Donnelly for quality materials
Honda's customers benefited from lower cost and high
quality cars resulting from Honda's partnerships with
donnelly and others.
Levi $trauss's value-delivery
system.
ORDER FLOW-
CU$%OMER(buyer)$EAR$(Retailer)LEV(jeans supplier)
MLLKEN(fabric supplier)---DU!ON%(fiber supplier)
DELVER FLOW---
n the opposite direction
LEV's Quick Response $ystem(QR$)
1.Every night Levi's knows thro ED Electronic Data nterchange-
the sizes and styles of its blue jeans that sold thro $EAR$
2.Levi's orders electronically more fabric from Milliken
3.Milliken relaysan order for more fiber from Dupont.
Most current sales info is used to make what is selling.n
QR$,goods are pulled by demand not pushed by sales/supplier!
%raditional vs modern value-
delivery processes
%raditional process
Make product---$ell the product
Design product-!rocuremake-----!rice-sell-Advertise
and promoteDistribute-service
Modern value creation and delivery sequence
CHOO$E %HE VALUE-!RVDE %HE VALUE-
COMMUNCA%E%NHE VALUE.
Customer segmentation-market selection focus-value
position----!roduct development-service development-
pricing-sourcingand making-distributing and servicing----
personal selling-sales promos-advertising-!R-!ublicity
positionings
Usp developmentan attribute to tout as
number 1common no1 positionsbest
quality ----lowest pricesafest---best
servicebest value---fastestmost
customisedmost convenientmost
advanced technology etc.
Examples of value propositions
Co/pro
duct
%arget
custom
ers'
profile
1
unique
benefit
!ercvd
benefit
to price
ratio
Value
proposi
tion
statem
ent
Remar
ks
compa
ct,artist
ic,punc
hy---
Hll/lux Geo-
Demo-
!sycho
%cchno
%he
best
and
the
firstbea
uty
soap
Just
right
price
for the
benefit
4 positioning errors to avoid
1.Under positioning; buyers have only a vague
idea of the brand.Nothing special is seen. !epsi-
Cola's clear 'Crystal !epsi, was introduced in
1993. Costomers didn't see 'clarity' as important
benefit in a soft drink.
2.Over positioning. Buyers have too narrow an
'image' of the brand. Consumers think 'diamond
rings' at %iffany's start at $5000 while %iffany's
now offers affordable diamond rings $900
upwards Unsuccessfully.
!ositioning errors--contd
3.Confused positioning; %oo many changes in brand's
positioning too frequently.eg.stephen job's sleek and
powerful NeX% computer positioned first for students,
then for engineers and then for business people all
unsuccessfully.
4.Doubtful positioning; Buyers find it hard to believe the
brand features.GM's Cadillac division launched Cimarron
as a luxury competitor with BMW, Mercedes and Audi.
While the car featured leather seats, a large luggage
rack,lots of chrome and Cadillac logo stamped on the
chassis, customers saw the car as a dolled-up version of
Chevy's Cavalier and Oldsmobile's Firenza. While the
car was positioned as "more for more customers saw
"less for more.
Factors affecting positioning
strategies
A.Attractiveness of market
1.Market size
2.Mrkt growth
3.Competitive structure
4.!rofitability
5.$ocio-political constraints
B.Ability of Co to create a relative strength.
1.Mrkt share & position
2.Cost competitiveness
3.%echnical capability
4.Mrktng and distrbn capability
5.Future cash requirements
6.Commncn & Branding capabilitry.
6 key analyses for developing
positioning strategies
1.Mrkt analysis
2.Customer analysis
3.Competitor analysis
4.%rade analysis
5.Economic analysis
6.Environmental analysis
1.Market analysis
A.How attractive are alternate mrkts?
1.$ize
2.Growth
3.Competition
4.!rofitability.
5.$ocio-political issues
B.Do we have the capability to compete effectively?
1.Mrkt share &position
2.Cost competitiveness
3.%echnical capability
4. Mrktg & distribution
5.Future cash requirements.
2.Customer analysis
1.How is the mrkt segmented?
2 What are the needs of each segment?
3.How are purchasing decisions made?
4.Who makes the key decisions?
5.Are there any new segments to appear
or be created?
3.competitor analysis
1.Who are the key competitors?intra-type?---
nter-type?---nnovative?
2.What are the strategies of competitors?---
Aggressive?---Me-too?---$egmentation?
3.How are we positioned as competitors?----
Where are they vulnerable?---Where are we
vulnerable?
4.Are there any srategic windows?---New markt
segmentation?----New technologies?---Market
redefinition?----Channel changes?
4.%rade analysis
1.What are the key channels?
2.Are new channel opportunities likely to
develop?
3.What are the needs of our dealers?
4.Do we have an effective partnership to
develop our mrkt opportunities?
5.How are we perceived relative to our
competitors?
6.What can we add to enhanceour dealer
business?
5.Economic analysis
1.Can "RO and "share holder valuebe
enhanced ?
2.Can costs be reduced?
3.Can prices be revised ?up and down wards?
4. Can the product mix be improved?
5. Can volume be improved by investing in new
mrkts or brand enhancements?
6. Can investment in fixed and current assets be
rationalised?
7. Can time be taken out of the production and
marktng processes?
6.Environmental analysis
1 How are we likely to be affected by
trends in the environment?---------------------
-Demographic?------------------------------------
--Economic?------------------------------------
!ollution and environmental protection
controls
%echnology? !olitical? Cultural?
2.what contingency and crisis mngmnt
plans exist? For key vulnerabilities?
Developing the "value proposition
U$!,UB!,V! CONCE!%$
U$!unique selling proposition
UB!unique buying proposition
V!value proposition
U$! is an attribute to tout as No.1.
Common No.1 positionsBest Quality
Lowest !rice$afestBest $ervice
Best ValuefastestMost Customised
most ConvenientMost Advanced
%echnology.
Examples of value propositions-
$tep by step process
1. Co name? and !roduct name?
2.What is target customer profile n
Geographic,Demographic,!sychographic including life
style and %echnosavviness parameters?
3.What is one unique benefit that is distinctly different
from others? And a couple of other normal benefits?
4. What is customers perception of Benefit to price ratio?
Expressed as%oo high a price for the benefit?---
Moderately high price for the benefit?Just right price
for the benefit?Moderately low price for the brenefit
5.Make a value proposition statementAn artistic
statemennt, compact, unambiguous' and easily
understoodNeither too long nor too short- but covering
the salient aspects of all the above 4 points.
3definitions of positioning strategy
1 !ositioning strategy is choice of target mrkt
segment(%M$), which determines where the
business competes and the choice of "DA which
dictates how it competes.
2.!ositioning strategy is deciding which game to
play and how better to play so that the co
continues to win the game for ever
3.!ositioning is not so much what the product
actually is, but rather how the Co wants it's
target customers to perceive it. A Co can choose
from a No. of different strategies.
Match the strategy with the example.
Match strategy with example
!ositioning strategy
1.!ositioning by
attribute;Associating a
product with a particular
feature
2.!ositioning by
benefit;Associating a
product with a spl
customer benefit
3.positioning by use or
application
Example
A.Master card is
accepted at more
restaurants than any
other card
B.Head & $houlders is
the best shampoo for
people with dandruff.
C.Chevy trucks out-
perform Ford trucks
Matching------
4.!ositioning by
user;Associating a
product with a user or
class of users.
5.!ositioning by
competitordentifying a
product by using a
competitor as reference
6.!ositioning by product
category;
7.!ositioning by quality&
price
D."%imex watches take a
licking but keep on
ticking
E"!reference by
L'Oreal.t costs a little
more, but am worth it
F.7-U! is the Un-
Cola.t's lighter& more
refreshing.
G.A box of
Arm&Hammer baking
soda in your refrigerator
will keep it clean-
smelling
How do Co's add superior value?
n 3 ways
1By strategies adding value
2,by strategies reducing cost &
3.by developing more effective
positionings.
Let us get into details of each.
Drivers of utility
drivers of cost &repositionings
1.Drivers of utility.
Utility,usefulness,perceived value
orcustomer satisfaction is a combination of
rational, economic factors and subjective
image dimensions4 drivers -----
.!roduct,$ervice,!ersonal &mage drivers
A,!roduct drivers
!roduct drivers & service drivers
!roduct drivers;
1,!erformance
2.Features
3.Reliability
4.Conformance to specs
expected
5.Durability
6.$eviceability
7.Operating costs
8.Aesthetics.
$ervice drivers;Become
important as competition
narrows down product
differences.
1Credit&Finance
2.Ordering facility
3delivery
4nstallation
5%raining&consultancy
6 Aftersales-service
7 Gaurantee
8Operating support
!ersonal & image drivers
!ersonal drivers. n service- oriented Co's,
personnel become a valuable source of "DA-
since difficult to copy high quality person or
service. mportant traits;
1.!rofessional skill, knowledge,talent
2.Courtesy
3.%rustworthiness,reliability,!ositive attitude
4.nitiative
5.Communicability etc.
mage drivers
mage drivers give customers the
confidence in the product.%his confidence
value is in socio-psychological utility of the
brand or it's economic performance or
both.
Ex.oungsters see Coke, Levi's
jeans,$ony Walkman,Nike shoes as
consistent with their life styles.
2 drivers of cost
Michael !orter's 5 force theory&
value chain
%ypical !&L of a Co
Revenue---100
Materials-----25
Manfacture---15
R&D-----------o5
$ales&Distrbn15
Corp.OH$-----20
Mrktng OH$---15
%O%AL CO$%95
--------------------------
Margin-----------05
Cost drivers
t is cost drivers that decide if a Co's costs are
lower or higher than it's competitors.Eg.
1.Economies of scale
2.Learning curve or Experience curve
3.Capacity utilisation
4.$haring of costs with group Co's
5.Vertical/horizontal integration
6,First/leader in mrkt
7.Location,Marktng strategy advantage.
Value chain
5 forces of porter
3.Repositioning strategies
are you positioned adequately?
!roduct X is positioned wrongly in between mass & premium mrkts-
where the economy and luxury segments are at the 2 extremes of
the markt.
On the Quality V$ Cost or price map, there could be 3 reasons of
inadequate positioning of X.
1.Un-attractive segment-too small in size,declining,too
competitive,or unprofitable.
2.Quality & features don't match the target segment.
3.%he product costs too high to allow it to be priced competitively.
N O%HER WORD$.!RODUC% X $ %OO CO$%L FOR %HE
MA$$ MRK% AND HA$ N$UFFCEN% QUAL% %O A!!EAL %O
%HE !REMUM $EGMEN%.
%herefore it has %O RE!O$%On itself
7 repositioning options
real & psychological options
1.ntroduce a new brand. In 1990,IBM , in the PC mrkt,
introduced it's own cheap clone under AMBRA brand
name to have a foot - hold in the emerging mass or
economy mrkt.
2. Change existing brand. In contrast to IBM,Compaq
solved the problem by cutting price & simplifying features
offered to hold on to position in mass mrkt.
3.Alter beliefs about brand.; Chivas Regal scotch
repositioned itself from the mass mrkt to the premium
segment thus rationalising it's higher price and quality.
4. Alter beliefs about competing brands; %he BOD
$HO! retail group has communicated that the beauty&
personal care products of competitors are not
environmentally friendly.
Repositions--contd
5. Alter attribute importance rates; VOLVO
raised importance of safety as an attribute
in choosing a car thus enhancing the value
of it's differentiation.
6. ntroduce new or neglected
attributes;Unilever successfully introduced
"RADON, a new detergent that
eliminated odour-a benefit previously
considered not important.
Repositionscontd.
7. Find a new mrkt segment; DUNHL
diversified from smoking accessories into
mens' clothing. nstead of getting into the
crowded segments,created a new luxury
segment of expensive high quality ready-
to-wear suits. As the only typically British
competitor in the segment,it brought a
unique brand with a strong appeal to
affluent executivesespecially the
Japanese.
Creating brands & nurturing them
Why brand technology products?
!urpose of any business?
How do we measure success?
%he 3 secrets of business success
& survival?
$ecrets of----
!roduct image
$ervice image
Corporate image
Channel image
Right Business orientation needed
for success?
!roduction orientation
!roduct orientation
$elling orientation
Marketing orientation
Customer focus/orientation
%he role of engineering/R&D in success
%he elephantine electronics case
What moral can we engineers draw from
this story?
Differences between products
&brands?
Benefits of brands-
to customers ?
to company ?
to society?
!urpose driven R&D-in commercial
firms
What goals should we have?
Market goals
Financial goals
!eople goals
$egmenting markts-how will we be
different & better?
"all skills are subsidiary to the master skill of concentrated focus
FOCU$ ON %HE MARK% FOR $UCCE$$
2 stages to undertake segmentationDefinition of potential
segments & selection of target segments
DEFN%ON-in a lot of different ways;
FOR NDU$%RAL MARKE%$,
Geographic; ,ndustry,%ype of application,Customer size,Markt
served,Channels of distribution,
Demographic,!sychographic,%echnographic, Behavioural etc.
FOR CON$UMER
MARK%$;_GEO,DEMO.ECONOMC,!syco,%echno,Behavioural
all can be used.
When >2or3 variables are used, the process becomes complex.
$ELEC%ONs easier based on MA & DA.
A practical approach to segmenting
markts-cascade method
$tep1;what is our definable
markt?Questions to A$K;!O%EN%AL
BENEF%$?MAN OVERALL NEED?
KE CU$%OMER !ROBLEM$?KE
BU$NE$$ !ROCE$$?
$%E!2;BREAKNG %HE CA$CADE OU%
%HROUGH $U!!LEMEN%AR
QUE$%ON$
EG:HARD CO! !RN%NG
Cascade---
1.HOW MUCH?v lowlowmedhigh
2.WHA% QUAL%?
LOW QLE%%ER QUAL%DRAF% GRA!HC$
BU$iness GRA!HC$
3.HOW OF%EN?$!ORADC NON_URGEN%
$!ORADC URGEN%UNFORM NON-URGEN%
UNFORM URGEN%
4.WHERE?!ER$ONALWORK GROU!
DE!AR%MEN%$%E
5.WHA% !RCE?--<5k--5K-25K25K-100K-->100k
$tep3.Defining segments by
sentence
EG.;DE!AR%MEN%$ !RN%NG LE%%ER
QUAL%OU%!U%$ $!ORADCALL &URGEN%LN
VOLUME$ U!%O100K !AGE$ !ER MON%H
$%E!4;make as many segment statements as possible.
$%E!5;FND WHCH $EGMEN%$ ARE CURREN%L
OCCU!ED B WHOM?
$%E!6;FND NCHE.
$%E!7;MEA$URE A%%RAC%VENE$$ OF %HE NCHE
& OUR CO'$ CA!ABL% %O CREA%E "DA
Guidelines for cascading
1.AVOD %OO NARROW/BROAD DEFN%ON
A% $%E!1
2.DON'% LE% !RODUC%$ A!!EAR ON %HE
CA$CADE.% $ NEED /$%UA%ON ANAL$$
3.DEFNE "Q %ERM$ WHEREVER !O$$BLE.
4.KEE! A MAX OF 5-6 LAER$.
5.QUAN%F ACRO$$ EACH
LEVEL.RE$EARCH F REQURED DA%A NO%
AVALABLE.
Cascade--
6.ANAL$E OBJEC%VEL.DON'% BE BA$ED.
7.$E!ARA%E $EGMEN%$ FROM
$ELEC%ON.$ELEC%ON $ NEX% $%E!.
8.AL%ERNA%E %HE "Qs.ELMNA%E NON_U$EFUL
LREVEL$.
M%H$ OF $EGMEN%A%ON
"we segment our mrkts
'%HERE $ ONE DEAL $EGMEN%A%ON VARABLE
"segments are technologies or products
"$egments are forever
"WE want to be in all segments E%C.
Assignment on cascade method of
segmenting markts
%ke any markt u like and do follow the above
swtep by step process of cascade method,
Divide into segments,
Mention at least 3-4 segment statements,find out
if thjose sedgments were already occupied by
current players,if so who and if not check
attractiveness of the niche u have just
discovered.
HOW DD U D$COVER %HENCHE?
!lc strategies. ch- fig--
!roduct strategies-Ansoff diagram
or directional policy matrix.
4 types of product strategies
BCG matrix ch fig
GE or McKinsey matrix
Bcg-NDO GULF,BRLA GLOBAL
to merge into ND RAON-What
rationale?
New entity called Aditya Birla Nuo(ABN)-sep 05
nd Ray ndGulf Bir Glo Comb
$ales* 3209 678 43 3930
Net !rof*58 57 12 127
!romo hold%28.6 58.2% 74.8% 38%
Net worth 1825 cr
*F05 R$ CR financials of ind ray are
consolidated figs
$hare holding pattern of indian
rayon
!re merger post merger
!romoter 28.64 38
F's/Banks/F's/GDR's39.52 37
Others 31.85 25
All in %
KM Birla's past time-Mergers / acquisitions
04-Acquisition of L&%'s cement operation
Now-major consolidation to create a
conglomerate with a projected turn over of rs
6000 cr for 05-06.-3 shares of indogulf & birla
global get 1 share of ind ray.
Recast history
$ep 21, 1998-nd Ray transfers cement
business to Grasim
Jul, 22,02-Hindalco takes over ndo Gulf's Cu
business-leavinf ndo gulf with fertilisers
Aug,20,03-Grasim,Hindalco,nd Ray sell
ndoGulf stake to %G$ nvestment & %rade
July,24,04-!romoters consolidate holdings in
Birla global via %G$
July,1, 05-Grasim sells Century Enka pie to %G$
$ep 11, 05-nd Ray to take over Birla global &
indogulfthro a share swap.
!ost merger nd Rayoneffective
31 May 05
Will morph into a complex combination of brick
and mortar and New-Age businesses
AB group will now have 4 major cos in ndia-
1,AB Nuo, 2, Grasim(the country's largest
viscose rayon fiber,V$F, 3,its subsidiary Ultra
%ech,ndia's largest cement producer, and 4,
Hindalco, ndia's largest producer of non-ferrous
metals.mainly Cu & Al.
%otal group turnover is Rs 34,000crof which 70%
is from ndia.
%he driver behind the restructuring-
-
Desire to deploy the steady stream of cash
thrown up by traditional business for
ramping up growth of New-Age
businesses.
%he group clearly sees limited scope for
investment in old businesses-even though
some of them generating cash and
therefore marshall these funds in some of
faster growing new businesses.
!roduct strategies.HLL
1.product mix width strategy
2.product mix consistency satrategy
3.product line length strategy
4.product depth strategy
!RODUC% MX WD%H measures the no of
individual(NDE!ENDEN%) lines of products the co
carries in its product portfolio.
For ex,HLL has roughly 3 dozens of lines of products
say,soaps,detergents,tooth
pstes,toiletries,cosmetics,personal care products,ice
creams,bread,shampoos,atta,salt,jams,jellies,tea,coffee
etc,
!roduct stra----
Advantages;wide mix helps
1,growyth in bad times for some lines
2.good customer coverage
3.prevent competitor entry
4develop trade interest
5reduce overall cost
6synergy etc.
D$ADVAN%AGE$
1.resources scarcely distributed
2.lack of focus
3.Confusion if overlap
4.too much inventories.
What is optimum width?
f mix is too narrow,vulnerability, competitors get
strong if they discover & enter into new niches,
and stake holders growth expectations not met,
Optimum width depends on
1,co's resource capability
2.co's ambitions for growth with matching
capability
3.ability to start a new line when the existing
lines can survive & grow on their own merits,
2.!roduct mix consistency strategy
%his measures how well each line is related to every other line in
terms of
1,technical capability
2.manufacturing skill& capability,
3.distribution capability,4,employee talent and skills,5branding&
commncn skills
6,customer mix etc.
Advantages of high mix consistency
1.lower costs
2.quicker growth
3higher profit
Disadvantages;1inability to venture into unrelated but high
opportunity areas.ex reliance.
!roduct line length strategy
Line length measures the no of
independent products in a line.
For example,HLL's soaps line has a dozen
different soaps
Jay Lux Hamam
Breeze Liril Dove
Lifebuoy Fair&lovely
Rexona !ears
Long lines-advantages
1different segments
2high sale,M$ & profit
3.prevent competition
4.be first to open a swegment
5overal markt leadership
6.More satisfied customer
groups7.synergies in marktng costs
7.satisfied trade
Long line-disadvantages
%oo long unnecessary-wasted inventory
$low non-moving stocks
Low RO
Confuse customer choice if overlap.
Lack of focus
Resources too thinly distributed.
product depth-no. of variants of
same product-by
sige,packing,colors,styles etc.
Lux is available in 2 formulations,3 siges,3
colors and 2 skin types
%herefore lux's product depth is
2.3.3.2=36
Why product depth?
%o cater to subsegmental needs
%o retain customers
%o meet needc fragmentation in evolving
markts
!lc strategies. ch- fig--
Branding strategies
!ricing decisions-why is price p is
the most imp of all p's of M.MX?
!remium strategy Good value
strategy
Over charging
strategy
Economy strategy
higher
lower
quality
higher lower
!rice
!rice is the only p that gets
revenue all others add to cost!
!rem strategyHigh Q,High !ROLEX
Economy $trategyLow Q, Low!-%imex
Usually coexist,since markt consists of atleast 2
groups of buyers%hose seeking Q and those
seeking !.
Good Value strategy---A way to attack premium
pricer.we have high Q but at a low !.f really
true,and Q sensitive buyers believe this,they buy
and save money.---Un less the premium product
offers more status or snob appeal.
Over charging strategy
Over price the product in relation to Q.n long
run, customers may feel "taken,will stop buying
& may complain to others.$o avoid this strategy.
!RCNG AN NNOVA%VE !A%EN%
!RO%EC%ED !RODUC%.How to price first
time? Choose between 1,Market-skimming
pricing and 2,Market-penetration pricing.
MARKE% $KMMNG !RCNG
1.$et a high price to skim maximum profit from
the segment willing to pay the high price.Fewer
but,more potential sales
!ricing an innovative patent
protected product first time
Choose between
A.market skimming pricing
B.market penetration pricing
1.market skimming pricing.---set a high price to get a
high profit per unit from the segment willing to pay a high
price---fewer but more profitable sale.
Conditions for success
1.quality & image must match the high price.
2.cost of production of small volume can not be so high
as to cancel out the high price.
3.competitive entry barriers should be highnot to enter
& under-cut.
2market penetration pricing
$et a small price in order to attract a large
number of buyers and a large market share
deeply & quickly.Ex
1.Dell & Gatreway used penetration pricing for
high quality computers through lower cost mail-
order channel.%heir sales increased
substantially when BM,COM!AQ & A!!LE sold
thro retail stores & could not match their prices.
HOME-DE!O% & WALLMAR% & other discount
retailers charge low prices for high volumes
leading to low costs to allow keep prices low!
Conditions for setting low price
1.markt to be highly price-sensitive.so,low price
leads to more sales and growth.
2. production & distribution costs fall as sales
volume increases.
3.low price must help keep out competition-
otherwise price advantage may be purely
temporary.Dell & Gateway faced problems when
BM & Compaq established their own direct
distribution channels.
3.skimming layer by layer
$ome firms that are highly innovative use a hybrid
strategy whereby they set a high price to begin with to
skim maximum profit from the top most segment and
then reduce price continuously to skim profit layer by
layer from the segments willing to pay the high price.Ex.
ntel charges the highest price for the computer chip
"pentium.When it first brought it out,they charged $1000
each so that computer producers priced first pentium
computer at $3500,attracting innovative & serious first
buyers
Later, ntel cut pentium prices by 30% per year to
eventually allow the pentium !C prices to drop into the
price range of home buyers. ..
Choice between penetration and
skimming strategies.
!enetration
1.Objective-long run markt
share;risk taking
2.demand-price elastic;few
markt segments
3.competition-deter new
competitors;few barriers to
entry
4.product.-image seen as
unimportant,long product life
cycle
5.price-pressure for prices to
fall,need to move fast
$kimming-
$hort run profit
Risk-avert
!rice elastic,multiple markt
segments
Accept new competitors,high
barriers to entry
$eeks prestige and
image,short !LC
!rices can be sustained,fewer
pressures in markt.
$kim-penetrate-------
!enetration
!romotion-customers
understand product
Distribution-existing
system
!roduction-high scale
economies,experienc
e curve effects
$kim strategy
Unfamiliar product
Unfamiliar channel
Few scale economies
and experience curve
effects.
!rice problem
Case 1. A toaster marketer has the cost and pricing structure as
below.
Fixed cost;$300,000
!rice/unit;$20
Variable cost/unit;$10
Q1.What is the break-even volume in units and value in $
Q2.%he Co invested $10,00,000 and wants a 20% return on
investment (RO).How much should the Co sell in units and value?
Q3.At an expected unit sale of 50'000 what is the total
manufacturing cost per unit?
Q4.At the above manufacturing cost per unit,what should be the
selling price
A,to earn a mark-up of 20% on cost?
B,to earn a margin of 20% on selling price?
!rice problem case-2
$etting a price to Government A'c is quite
tough.n a sealed-bid pricing,the firm
needs to set a price based on how it thinks
competitors will price rather than on its
costs or demand.Both "high price " & "low
pricesetting strategies are
undesirable.One needs to strike a
balance.$uggest your pricing strategy with
following data.
What is the best price?
Co's bid & profit in $
9,500 &100
10,000 &600
10,500 &1100
11,000 &1600
Assumed probability
of winning
0.81
0.36
0.09
0.01
EVC-Economic value %o Customer
central concept in pricing in
industrial products
%he markt leader is selling a machine tool
(product X) at a price of Rs.30,000.%he
customer will also have to cover start-up costs of
rs.20,000-(installation,initial training etc.)and
post-purchase costs over the life of the machine
with a present value of rs.50,000-
(labor,maintainance,power and other operating
costs).%hus the total LFE CCLE CO$% of the
m/c is Rs100,000.n other words,the price is
under 1/3
rd
of the total cost of employing the
m/c.
By developing an offer with high
EVC ,a Co can charge significantly
higher prices and stll offer its
Customers a superior value.%he higher vpriced
product may offer value because (a),it generates
more output thanits competitor or
(b),because the operating costs associated with
it (mint,labor,depreciation etc)are lower over its
economic life.
f a competitor wants to dislodge the markt
leader ,it must offer superior EVC.One way is
simply to price-cut.But this is not likely to be a
decisive strategy here,because,even if the m/c
price is cut by 20%,the savings to customer of
Rs.6000 is only 6% of total cost.
%here are 2 other better ways.For
ex,a new product is shown as
reducing the start-up cost
By Rs.10,000 and post-purchase cost by
Rs 20,000.What do u think is the highest
price the customer will be willing to pay for
product ,assuming both X & would
have the same life cycle cost and
productivity?%his represents the EVC that
offers to the customer and below the
EVC it would be rational for the buyer to
switch to ,provided that all other things
were equal between the 2 suppliers.
Assume a new product Z is
available which ,besides lowering
%he customer's cost ,may enhance its revenues
also.Z actually turns out more finished product
for the customer or products with superior quality
!roduct Z has the same start-up cost as X ,but
post-purchase costs are Rs 10,000 lower and
offers a N!V of Rs 30,000 extra contribution
margin,arising from enhanced output of higher
quality for which demand exists.Find out the
EVC or the maximum price customers are willing
to pay for Z?
Questions on evc case
f you are the market leader with X and
developed and Z for the first time what
marketing strategy would u adopt for
success?
f u are the unsuccessful competitor for the
leader X and fortunately developed both
and Z,what marketing strategy wd u adopt
to challenge the leader and displace him?
Evc case solution
Using the EVC concept, the firm can target
those mrkt segments where the evc is the
highest.
n such segments the product is more attractive
and so here the firm can get the highest prices.
n this eg, it may pay the firm to launch 2 new
products.
A high price brand Zto the quality-oriented
customersand a low priced brand to the cost-
oriented segment of the brand mrkt.
Firm's pricing policy setting
1.selecting pricing objectives
$urvival
Max current profit
Max current service
Max sales grwth
Max markt skimming
!roduct-quality leadership
Other pricing objectives
2.Determining demand-price elastic
demand & price-inelastic demand
3.estimating costs;Demand sets the sealing & cost sets
the floor for product pricing
4.analysing competitors'costs prices &offers
5.selecting aq pricing method.select the price based on 3
C's---Customers' demand schedule,cost function &
competitive prices.
LOW !RCE costs
competitors prices/substitutes
Customers assessmnt of unique product features
HGH !RCE$
f price is lower than cost, no profit
f price higher than customers'assessment of value,no
possible demand exists.
Various pricing methods
A.mark-up pricing
B.target-return pricing
C.perceived value pricing---value in use
price
D.value-pricing---fairly low price for a high
quality product ex.%oyota LEXU$
E.going rate pricing
F.sealed-bid pricing
!erceived value pricing or value-in-
use pricing
ncreasingly companies are basing prices on
buyers' perception of quality and value,not on
the seller's cost.
%hey use other marketing mix elements,such as
advertising,packing,sales force,and promotion to
build-up perceived value in buyer's mind.
Eg.Dupont,when it developed its new synthetic
fiber for carpets,it demonstrated to carpet
makersthat they could afford to pay Dupont as
much as $1.4 per pound for the new fiber and
still make their target profit.
Dupont calls this $1.4 the value-in-
use price.
Dupont sets a price lower than $1.4 to induce carpet
makersto adopt the new fiber,since at &1.4,the
customers are indifferent.
Dupont didn't use its manfng cost to set the price,but
only to judge whether there was enough profit to go
ahead in the first place.%he key to perceived value
pricing is to determine the markt's perception of the
offer's value accuraely.
$ellers with an inflated view of their offer's value will
over-price their product.$ellers with an under estimated
view will charge less than they could both are
undesirable,
!erceived value pricing contd.
When a customer asks Caterpiller's dealer why he
should pay$10000 more,the dealer answers;
$90k is the tractor's price if it is only equivalent to the
competitor
$7k is the price premium for Caterpiller's superior
durability.
&6k is the price premium for Caterpiller's superior
reliability
$5k is the premium for superior service
$2k is premium for larger variety on parts.
$110k is the normal price to cover Caterpiller's superior
value.
Minus $10k discount is equal to final price.
Value pricing
Here sellers chargea fairly low price for a high quality offering,such
that the price should represent a high value offer to the consumers.
Value pricing is not a matter of simply setting lower prices on one's
products compared to competitors.
t is a matterof reengineering the co's operations to become a low
cost producer without sacrificing quality and lowering prices
significantly to attract a large no of value-conscious customers.
An imp type of value pricing is every day low pricing(EDL!) at the
retail level.High-low pricing is resorted to by promotion oriented
competitors. Here the retailer charges higher prices on every day
basis but then runs frequent promos in which prices are temporarily
lowered to below EDL! levels.
As super mrkts face increasing compttn,from counterparts and
alternate channels,the key to success is using a combination of high
low and EDL! strategies with increased ad promos!
6.$electing the final price
consider addnl factors
A.psychological pricing
B.influence of other MM elements on
price.
C.company pricing policies
D.impct of price on other parties.
Adapting the price.Co's don't set a
single price,they follow a pricing
structure that reflects
A variations in geographical
demands/costs
B.markt segment requirements
C.purchase timing
D.order levels
E.delivery frequency
F.guarantees
G.service contracts
!rice discounts & allowances
Cash discounts-prepayment
Quantity discounts
Functional discounts
$easonal discounts
Allownces-trade-in allowances
!romotional pricing stimulates early
purchases
Loss-leader pricing
$pl-event pricing
Cash rebates
Low-interest financing
Longer payment terms
Warranties & service contracts
!sychological discounting-was $359, now $299 only.
!romotional strategies are usually a zero-sum game!
if they work,competitors copy easily.
f they don't work,waste of money!
Discriminatory pricing
same product at diff prices
Customer segment pricing-eg.museums-
low price for students&sr citizens
!roduct form pricing-diff pack sizes
mage pricing-diff names,diff prices,diff
images
Location pricing-%agj charges differently at
diff cities.
%ime pricing-season,day or hour.
!roduct mix pricing
!roduct line pricing-price steps one sneaker to
another
Optional feature pricing
Captive product pricing-camera & films
2-part pricing-fixed fee plus variable usage fee
Bye-product pricing
!roduct bundling pricing-season tickets. %otal
cost less than sum of individual products
nitiating & responding to price
changes
initiating price cuts
Ex; excess plant capacity
Declining markt share
Drive to dominate markt thro lower costs
Risks of price cuts
Low-quality trap
Fragile-merkt share trap-high priced
competitors may cut prices& can withstand
due to deep pockets
nitiating price changes
Normally pressure exists on co's to reduce
prices.Experience curve,competition and rising
customer price sensitivity as markets evolve,all
encourage falling real price levels.
nflation,stock markets expectations of growing
profits and possibility of new and improved
products/brands encourage enterprising
managers to consider ways of increasing prices
and margins.
Cost reduction is another obvious way of rising
margins.But price increase has a better impact.