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Chapters 1-5: Marketing Strategy Notes For Cravens/Piercy Book
Chapters 1-5: Marketing Strategy Notes For Cravens/Piercy Book
Chapters 1-5
Market driven Strategy = the market and the customers that form the market should be
the starting point in business strategy formulation.
See page 3.
What does this mean for the auto business, a restaurant, a college or university, what
would they do?
This contrast to the production orientation/concept which focuses on how to make the
product at low cost, and the selling concept/orientation which focuses on promoting
what you want to sell.
In the production and selling orientations the company makes what it wants to make and
tries to get the consumer to buy it. With the marketing orientation the company first
figures out what people want to buy, then makes it, and then tells them about it.
Creating Value must deliver benefits in excess of costs (value), the greater the excess
the better. (Auto and college as examples)
Basically what we want to do is identify and target those markets and segments of
markets where our /competencies/capabilities offer the most benefit compared to
competition
Why should we be market driven? Change in the marketplace and competition force us
+ quest for superior performance, especially financial. Note the changes going on right
now per technology, globalization, increased competition, new modes of business,
increased sophistication/information/power of consumer
Why would some companies not be market driven? (trouble, costs, pride, laziness, and
short term orientation this takes time to pay off)
Marketing Strategy should focus on the needs of the customer and changes in the
marketplace, especially as these changes relate to competition.
Strategy needs to be forward looking per the challenges that will be faced in the future.
See book page for the key challenges of disruptive innovation, commoditization,
creation of new market space, and fast changing markets.
Note how generic needs give rise to product categories and then specific product
markets with product variants per pages 53-55.
Generic product market is for basic need like transportation = indirect competition =
buses, airplanes, cars etc.
Product type product market general product class like pickup trucks fairly direct
Product variant exact product type most direct competition like midsize pickup
trucks Ford Ranger, Dodge Dakota, Nissan Frontier, and Toyota Tacoma
One reason for these product variants is that different end user will have different needs
and wants see cereals on page 57.
Estimating market size and sales potential know the sales forecasting methods on
page 69.
Note the basic ideas of segmentation: dividing the market up into groups that have
similar needs and wants but whose needs and wants are different from other groups.
Why do it? To better satisfy needs of customers, thus more sales, higher priced sales, and
superior marketing and financial performance.
Target marketing involves choosing markets and segments to go after note how this
relates to the simulation.
Positioning has to do with how you will try to place your product in the minds of the
consumer (for women, easy to use, convenient, the most powerful etc.).
Note that with undifferentiated strategy we ignore segment differences and simply
shoot for the middle with a one size fits all approach.
With a concentrated strategy we recognize the different segments but choose only one
or a few to develop a specific marketing program for.
Why not segment - why would someone use the undifferentiated strategy - why not just
have one model/product/program? Is there an argument for this and against really using
segmentation per the differentiated strategy?
YES per trouble and expense and dilution of resources can you be all things to all
people.
THE FACT IS THERE IS A LIMIT TO HOW MANY SEGMENTS SHOULD BE
IDENTIFIED AND TARGETED
the requirements (criteria) for effective segmentation per below and page 96+ which
you should/must know!
Response differences needs and wants must vary between segments and be similar
within so that there is a real difference in how the segments respond to any given
marketing mix.
Reachable/ actionable is there an efficient way to reach and act on the variations
for example, how hard would it be to alter the product for man vs. women
Cost effective ie. Benefit greater than cost for example would the benefit of
marketing/segmenting based on gender be greater than the extra cost from doing it.
Basically look for variables that account for differences in needs and wants.
Demographics
Note that there are three things that have been discussed and that you should know:
1. What segmentation, positioning, and target marketing are, 2. Why to or not to
segment including requirements/criteria for effective segmentation, and 3. How to
segment (variables),
Note idea of mass customization (cite Levis example in book where they measure you
and get or make pair just for you) and niche marketing.
Historically marketing has focused on satisfying the needs and wants of the customer on
a transaction by transaction basis. In recent years, there has been increasing emphasis on
thinking about marketing on an ongoing or relationship basis. That is, you just dont stay
in a Hampton Inn once, or buy groceries for a particular occasion. In most instances,
Kroger becomes our grocery supplier and we go there on a regular basis, and likewise
whenever we plan a trip we might see if there is an Hampton Inn we can stay in. When
this happens the customer and the seller have an ongoing relationship which brings us to
the idea or relationship marketing and in particular, as reflected in the title of this chapter
customer relationship management. CRM involves a specific program to manage the
relationship between the organization and its customers on an ongoing basis. A familiar
example of this is customer loyalty cards such as a Kroger card, or a frequent flyer
program. These are tools by which the marketer can manage the relationship with the
customer for years to come.
Note the idea of CRM and database marketing per page 114. When you interact with
most large companies today they know who you are and whether you are the kind of
customer they really want which could well impact the treatment you get. In other words,
if you call a motel about a reservation they can see on the computer screen that you rarely
stay and always take the light bulbs and towels therefore they quote you a high rate and
hope you dont come. Another customer calls and they see that this person if a frequent
stay member and never leaves a mess or takes anything with them, and therefore get
excellent treatment from the customer rep.
Know the idea of customer lifetime value per page 115. When there is a problem and
you create a dissatisfied customer you dont just lose that sales but lose all the sales they
would have made from that point on. If you create a satisfied customer on the other hand,
you dont just gain that sale, you also gain all the future sales as well.
A market driven strategy will focus on the needs and wants of consumers (marketing
orientation), the extent to which needs vary or are the same (segmentation), which
markets and segments best meet our capabilities and should have a marketing mix
(targeting), and what the nature of the overall market is in terms of competition and
economic conditions.
Companies that do this best will have superior financial performance and will help make
the world a better place.
You can have good information and still have a bad strategy, but it is almost impossible to
have a good strategy if you have bad information.
Note that book says in todays information age the critical link is shifting to interpretation
instead of acquisition. In other words., we have increasing access to data and information
but when we get it what does it mean? What is the implication? That is the hard question
that we must answer.
In regard to being information focused note two things First, you have to humble
yourself and admit that you dont already know (men and directions).
Some organizations are basically hostile to information and learning, others embrace it.
Note what the book says about a learning organization at the bottom of page 131.
A learning organization will be doing the kinds of things that listed at top of page 131.
Information gathering (sensing) and learning take time, effort, and money which are
all scarce resources. Therefore, we need to concentrate our efforts where they will do the
most good. One way to help direct our efforts is to classify per the effect on the company
and the probability of occurrence as seen at the bottom of page 137.
Getting Information:
Know primary data (what we actually originate/ collect ourselves) and secondary data
(has already been collect by someone else, we are not the first time user).
Information systems are not a process but rather a computerized database system that is
in place 24/7 whether anybody uses it or not.
These are covered in book pages 146-147 but the following may be helpful:
An expert system uses artificial intelligence to actually make the decision for us.
Chapter 6 Market Targeting and Strategic Positioning
Note the opening examples in the book about how Whole Foods and Intel have used
target marketing and positioning. Another example would be Costco who has targeted
more affluent and sophisticated buyers primarily in urban areas, to position themselves as
similar to but up-market from Sams. Likewise, Target has targeted upscale females for
competing up-market from Wal-mart. In order to actually do this you must do more than
just promote the position you must actually be different in all areas of the marketing
mix.
Target Marketing:
Basically what we must do is 1. identify markets and segments, 2. choose the ones to
target, and 3. position different marketing offerings for the chosen segments. Again,
note how this relates to the simulation.
What makes a market attractive what do we want to target what do we look at? (not
exactly what is in the book)
Suppose you are strategic analyst for Honda Outdoor equipment how would you
decide what new markets to target? You would probably want to look at target market
selection factors such as:
Size
Competition
Ease of entry and exit
Distinctive capabilities and competitive advantage of the organization
Goals, objectives, vision
Market environment /Stage in product life cycle note the discussion which begins on
page 187 about how targeting changes over lifecycle
Positioning Strategy:
The basic idea of positioning is that we need a deliberate strategy for determine how we
will be seen in the eyes and minds of the consumer?
A classic example is Gatorade which was positioned as thirst quencher appropriate for
situations involving heat and athletics. This positioning strategy was very innovative at
the time Gatorade was launched and created a whole new category of sports drinks.
Note how this contrasts to positioning of breakfast drinks and soft drinks as snacks.
Positioning Concept is the desired position in the consumers mind that we want to create
and the positioning strategy is the plan for the marketing mix elements that we will use
to carry this out.
What we want is to create a relevant, distinctive, and enduring position that is relevant to
and desired by the target market.
To the extent that we are successful we have created a MOAT or competitive advantage.
Functional linking to specific needs and wants, as a way to solve specific problem,
linking to practical, rational reasons to buy.
As a way to save money, protect your family, kill germs, protect data, maintain health.
Symbolic linking to self image and ego, group identity, role identification.
Basically will link to type of person and situation per rich person going to party,
executive in business meeting. This is about style and who you are.
When you want to have fun, for the time of your life etc.
The positioning strategy will include coordination of all marketing mix elements to
carry out the proceeding, see pages 196+
Why?
Note the reasons or rationale for interorganizational relationships per Exhibit 7.2 and
discussed on pages 207 211.
Note the types of relationships per Exhibit 7.1 and discussed on pages 210 222.
Well run market-driven companies will have an ongoing deliberate strategy for coming
up with new product and service innovations. This will be carried out through the new
product planning process.
Know the new product planning process per pages 247-264. You should be able to
name and explain each step and including what would be done and how.
For large companies, a significant part of the marketing effort will focus on the creation
and development of brands.
Branding has a strategic role in marketing as there are benefits to both the buyer and
seller as note pages 291-292.
The extra value that is built up in a brand is called brand equity thus a Polo shirt or
Rolex watch has very high brand equity as measured by the variables listed under
measuring brand equity on page 301.
Know basic brand terminology per brand, brand positioning, brand equity, line
extension, brand extension, co-branding, licensing.
The channel of distribution performs the functions that are necessary to connect goods
and services with end-users. Distribution involves getting the product or service from the
point of manufacture to the point of consumption. Value chain strategy is a newer more
comprehensive approach to distribution.
The term value chain refers to the distribution activities that must be undertaken to make
a product available when and where it is needed. Value chain basically means
distribution, but reflects a new emphasis that is two fold.
First, there is an emphasis on a team of participants ie a chain, what the book calls
vertically aligned organizations which means that a number of organizations work
together to perform distribution activities.
Second, there is also a new emphasis on the value component the purpose of the chain
is to add value by doing what they do more benefits are created and customer value is
enhanced.
Note that distribution has a very important, long-term, strategic role in that it can be an
important source of competitive advantage and create a deep wide moat that
competitors cannot easily cross. This is due to the fact that it is very difficult and
expensive to set up or change your channel of distribution. For example it takes
significant time and money to set up a dealer net work such as you would have with
autos, motorcycles, or appliances. Likewise it is difficult and expensive to obtain shelf
space in retailers such as Kroger and Walmart, or to establish relationships with suppliers
and wholesalers. Distribution innovations such as the direct order of computers per Dell
or company owned stores such as Radio Shack cannot easily be duplicated.
How does the distribution strategy create value? By providing time, place, and service
utitlity. In other words, value is created by making the products available where and when
they are needed plus providing auxiliary services that are desired and needed.
These are termed distribution functions and are discussed in the book on page 319 to
320 and include buying and selling, assembly/accumulation, transportation, processing
and storage, promotion (advertising, sales promotion, and personal selling), pricing,
servicing and repairs. The overall reason to use intermediaries or middleman to handle
distribution is reduction of risk. To the extent that you let others handle these functions
you reduce your investment, work load, and risk. The basic choices for value chain or
distribution structures are shown in Exhibit 10.1. Note that this particular textbook
includes supply chains in addition to the manufacturer/producer. In other words, if the
producers and other suppliers which constitute the supply chain sell directly to the
consumer or organization without using a middleman/intermediary such as the wholesaler
or retailer it is direct distribution/channel. If the producer or supply chain does use
middlemen/intermediaries then it is indirect. In terms of advantages and advantages, if a
producer uses a direct channel then the producer along with the consumer must assume
responsibility for carrying out all of these functions, however they will not have to share
the final value of the product. If an indirect channel using retailers and others is used
then the intermediaries will fulfill some or all of these functions. This is what is usually
done, however it must be kept in mind that the intermediaries must be paid by receiving
some of the final value. This will be usually done through a markup. That is the
intermediary will buy from the producer or other supplier and add on a markup for the
next party in the value chain.
The following summarizes the pros and cons of using middlemen (indirect) versus not
using (direct).
Indirect spreads the risk, enables you to capitalize on the expertise and capital of others,
and reduce risk, effort, and investment requirements.
Direct gives you total control, all the profit is yours, but all of the value enhancing
activities are your responsibility along with the associated costs and risk.
In some case more than one channel (multi-channeling) may be used. For example many
producers will sell direct to large retailers, but use wholesalers for selling to smaller
companies. Likewise a company may sell direct in the same country but use wholesalers
when going to foreign countries.
1. The total cost to the buyer includes more than just money: it is everything the
buyer gives up to obtain the good or service. In addition to the monetary price the
buyer also gives up time, inconvenience, waiting, travel, and risk.
2. Price is the simplest and most visible element of the marketing mix.
3. Price is the most difficult element of the marketing mix in the sense that we rarely
know what the optimal price is, and as a result, don't know whether we should be
charging more or less.
4. Price is the only element of the marketing mix that generates revenues. Thus, the
price charged must be greater than the cost of making the product plus the cost of
distribution and the cost of promotion
In order to develop an effective pricing for the goods and services that are being sold
there are a number of factors that should be considered and activities that should be
undertaken. These are delineated in Exhibit 11.1 on page 351.
The basic challenge is to set prices in accordance with objectives and in light of particular
target market.
High Quality/Prestige In this segment customers seek quality and status. They want
the best and are willing to pay for it. A high price actually makes it more desirable since
that is where the snob appeal comes from. Examples include Rolex watches, Ritz-Carlton
Hotels, and Mercedes automobiles.
Value In this segment customers seek a good product at a reasonable price. This is
probably the biggest segment of the auto market and features some of the top sellers such
as Honda Accord, Toyota Camry, and Ford Fusion. In the motel industry this would
include brands such as Hampton and Courtyard Mariot.
Price conscious/Economy In this segment customers seek a low price. Saving money
is a key motivation. The Toyota Corolla used to be in this segment and was advertised as
the lowest priced car in America. With a retail price in 1974 of $2,250 it certainly was. In
the motel business Motel Six and Days Inn have appealed to this segment.
One of the best examples of these segments is contained in the simulation. How are
these segments demonstrated in the simulation, which ones have you targeted, and
how has that affected your pricing?
You should know the concept of price elasticity, the key measure of consumer
sensitivity to price. If consumers are sensitive to price then demand will be elastic, and if
they are not sensitive to price then demand will be inelastic.
Suppose that a restaurant is considering raising the price of a cup of coffee from $1.00 to
$1.25. If they are currently selling fifty cups at lunch and it falls to forty seven cups when
the price is raised then demand is inelastic. This is because the percentage change in price
((1.25-1.00)/1.00)) of 25%, is larger than the percentage change in demand ((47-50)/50),
of 6%. This is also reflected in total sales revenue which is the reason that we care.
Specifically, with inelastic demand an increase in price will cause total sales revenue to
go up in this case from 50 x 1.00 = 50, to 47 x 1.25 = 58.75.
On the other hand suppose that demand is inelastic and that demand falls to 35 cups when
the price is increased. In this case we still have the 25% increase in price but now have a
30% decrease in sales ((35-50)/50). Since the percentage decrease in sales is larger than
the percentage increase in price demand is elastic. Unlike the inelastic situation, the
increase in price now causes total revenue (sales$) to go down since the loss of revenue
from the decline in volume more than offsets the gain in revenue from the increase in
price. Selling 50 cups for $1 produces total sales revenue of $50 whereas selling 35 cups
for $1.25 only produces total sales revenue of $43.75. Thus with elastic demand, an
increase in the sales price will result in a lowering of total revenue.
Fixed do not vary with the quantity sold. For example rent and insurance.
Variable vary with the amount sold. For example packaging costs and sales
commissions.
Mixed are somewhat fixed and somewhat variable. For example some rent contracts
called for a fixed amount based on time plus an extra amount based on sales. Thus total
rent is a combination of both and is mixed. Likewise, some sales people are paid a salary
(fixed), some are paid a commission (variable), and some are paid a base salary plus
commission (mixed).
Legal and Ethical Considerations see page 364 per price fixing, price
discrimination, deceptive pricing, bait and switch, and predatory pricing.
This is not in the book but is an important strategic choice. Should your prices be set with
no room or negotiation or should they be adjustable for the situation and customer? With
negotiated prices we can adjust the price to the situation. For example if I am selling
treadmills that cost me $700 each and customer one comes in and says How much is that
treadmill and I say $1,500, and he says that is a little more than I want to spend,
then I could then say Well let me see if the manager will let me knock one hundred
dollars off, and then come back with a price and sale for $1,400. Then customer two
comes in and says that the treadmill is way too much, and I tell him that today is his luck
day that, we are just getting ready to have a close out sale, and that I can let him have it
for $1,200, which he agrees. Note that this negotiation takes time, requires a higher level
of skill on the part of the salesperson, and can cause resentment with customers who
dont want to negotiate or who learn that someone else got a better price. As an
alternative, I could have a fixed price of $1,250, in which case I would make the sale to
customer one but at a $250 lower price, and would lose the sale to customer two who will
not spend more than $1,200.
Note what promotion is and its ultimate purpose to alter peoples behavior. That is to
get them to do something they would not have done otherwise, or not to something they
would have done otherwise. Many times this behavior will involve a sales transaction but
not always. For example we might want have an objective of getting people to call, visit,
or stop smoking.
You should know the promotional mix or tools that we have for achieving this per the
composition of promotion strategy beginning on page 373. You should know the
definition for each element for matching purposes.
You should know the methods of determining the promotional budget which starts on
page 378.
Be able to give some examples of advertising objectives per Exhibit 12.5 on page 383.
Know examples or types of sales promotion (activities) per Exhibit 12.7 on page 391.
Generate awareness and trial a coupon plus free sample is very effective
Clear out excess inventory sales promotions are often used to clear out seasonal items.
Shift purchase patterns use sale promotions to get people to buy early or later.
Will not correct fundamental problems that may exist with other elements of marketing
stragtegy.
Can train buyers to wait for promotions. Why buy at regular price if a sales promotion
will be coming?
Sales force strategy involves the role of personal selling in the overall promotional
strategy.
Personal selling is often used where there is not an efficient way to communicate with
mass media. This is the main reason we use personal selling and not advertising in B2B
selling. There is no radio or television station that car dealers, doctors, or computer store
owners watch, therefore we use personal selling to reach these people.
Why would you use personal selling why not? There are advantages and disadvantages
to using personal selling.
It is more persuasive.
It is hard to ignore a real person whereas you can easily flip a magazine page or change
the channel.
You can incorporate feedback and adjust message for the situation and the person when
using personal selling.
Time inefficient it would take forever to contact 50,000 people using sales people,
would take only a few seconds using mass media.
Expensive average outside sales call cost about 300$ when you figure salary,
trasportation, lodging, and benefits. Inside sales cost be a few dollars to several hundred
dollars per transaction .
Most Transactions do not involve personal selling it is too time consuming and
expensive. What percent of the items that you have purchase involved a sales person?
From a marketing strategy perspective how do we decide whether or not to use personal
selling and if so how?
Order taking (fast food), sales assisting (shoe store or high end restaurant), and
persuasive (insurance, cars, college recruiting).
Cold call (no prior contact) vs. Responsive (have requested information of sales visit0
Consumer (selling to regular people) vs. B2B per trade (selling to retailers and
wholesalers), industry (manufacturers), organization/institutions (churches, schools),
government (state, local, federal).
Hiring Salespeople made or born, can you tell in advance? Some say yes, some say
no.
What type of person would you want to hire what makes for a successful sales person
Ethical/honest tells the truth and puts the customers needs and wants above his/her own
often called Golden Rule Selling.
Motivating Sales People Sales people must believe that putting forth extra effort will
produce extra sales and profits and that these will in turn translate into a reward that they
care about. Motivation leads to effort which leads to results which leads to reward. This
linkage is called Expectancy Theory and is widely used to explain why or why not
motivation exists.
Direct marketing as opposed to traditional marketing.
Traditional Marketing:
The organization advertises through mass media now and later customers go to the store
and buy.
Direct Marketing: The organization promotes with a variety of tools directly to the
customer now and asks the customer to buy now. This is actually not new, as years ago
peddlers were very common. They would go directly to houses and sell out of a wagon,
truck, or car. With the growth of mass media and retail stores direct selling declined, but
in recent years with changes in communication and transportation direct marketing has
become very common. What has changed: Cable Tv and infomercials, bulk mail with
computerized databases and credit cards and UPS and Fed Ex. The Internet.
Know what is meant by traditional structures for organizing businesses and the
problems or weaknesses that are associated with it.
Know in general terms how and why organizational structures have changed.
Know the general idea of organizing for market-driven strategy, marketing functions
versus marketing processes, and especially marketing as cross-functional process.
Review the overall planning process: Analyze situation, develop a strategy and plan
for implementing, implement, and analyze results. Most our attention thus far has been
on strategic choice, not implementation and follow up. That is where we are now though.
B. External factors like the economy, competition, energy prices, the weather and so on.
Implementation and control are crucial so that performance gaps can be identified and
corrected ultimate results will depend on this.
One tool for doing this is to prepare a written marketing plan to guide the
implementation of our marketing strategy.
Forces us to analyze and plan for the areas ordinarily addressed by a marketing plan
Serves as proof that we have done our homework on the proposed project
The truth is, whether you like it or not, market planning and the development of actual
marketing plans is an important point of a career in marketing. Note exhibits 15.2 and
15.3
Note that there are structural and behavioral issues in implementing a plan. Structure has
to do with resources available and the actual structure of the organization. Behavior has
to do with peoples buying into and supporting the plan.
Note the idea of internal marketing per page 479 and the Nucor example per page 480.