EGE] Harvard Business School 9-598-061 #% Note on Marketing Strategy The objective of marketing i to create value forthe firms chosen customers. Haying ¢ the value, the flint is then entitled lo capture @ portion of 1 through pricing, “To remain e viable concern, the firm nuust sustain this process of creating and capturing value over time, Within this Iramework, the plan by which value is created ov a sustained bass isthe firm's Marketing Strategy Marketing Siraiagy invnlvec wn major actives: (i) selecting 2 target market and determining, the desired positioning of product in target customers’ minds and (i) specifying the plan for the rnarketing activities to achieve the desired positioning. Figure A presents a schematic describing 2 enieral process of markeling strategy development. As shown, four major ateas of analysis underlie reek g. Atslyais of the 4 2's—encinmers. company. competitors. and collaborators (such as distribution partners)—leads first to. specification of a target markel and dlesired positioning and then to the marketing mix. This results in customer acquisition and retention slrategies driving the firm's profitability, This note develops this framework, setting out the major {Tecistons to be made and the types of avalyses requited Lv auyyortsflestive decision making, As a0 overview note, ne do not provicle depth in presenting the actual analytical techniques. However, throughout the Able we provide references to textbooks which contain in-depth coverage of the issues.) anhetiny, desis of Marketing Process? TEE) eee Fiodect ane Figure A Scliem Marketing Mix (the 4 P's) (Crane) nn Prema | the ides for a note ofthis type a « wstul adjunct to studying marketing eeginated with Profesor Rayrnond t: Corey n his "Marketing Stategy: An Overview,” wit in-1770, 85 Ni. 379-034 2 this figuce delves fom tations developed over the yeats by HOS marketing faculty and otber rafessor Robert J. Bola prepared this nol as te basi Jor cass acum. Copyright © 1997 by the President and Fellows of Harvard College. To order copies or requesl permission to reproduce materlals cll 1-800-545.7685 wr weite Harvard Business Schoo! Publishing, Buston, MA 2163. No phar} this publication may be reproduced. stored in a retrieval system, used ina spreadsheet, or transmitted in Any form or by any. means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Dusinevs Schoo!seco! ow on Matting Sttningy Target Market Selection and Product? Positioning Marketing strategy development bogins with the customer. A prerequisite to the develop ment of the rest of the marketing strategy is specification of the target markels the company will altempt to serve, Marketers have generally been moving froin serving large mass markets to specification of smaller segments with customized marketing programs. Indeed, a populsr phrase today is “markets of one suggesting that marketing cimpsifns can and should be customized to individuals. In the days of “you can have any color you want a8 long as it’s black,” production capabilities and limited information on consumers’ varying wants acled as consttainis on the development of programs customized to individual consumers. Now, new technologies enable firms to practice customized marketing on an economical basis in many situations. ‘The twa key questions are: 1. Whick potential buyers should the firm attempt to serve? To aisswer this, the ficim must first determine the most appropriate way lo describe and differentiate customers, This Ie the process of segarentntion, How much customization should the firm offer in ils programs, ie, at which [yolnt on the continu from Mace Market. Misba! Segmante Maybe! Nicks will the flem construct plans? Marlets enn be segmented ina veticly af ways’ Ang the moat widely used bases ares + demographic (eg, age, income, gender, occupation) + geoarephte (gration, ragion of counry, aban wt marl) 4+ lifestyle (eg. hedonistic vs. value oriented), These three types of bases—demozraphic. severaphic. and lifestyle-—are general descriptors of consumers. Often, 2 useful segmentation of the market is derived by using segmentation bases ‘which describe a customer's behavior or relationship ta a product. eg, Leer Statue: Nowetleer ve User Usage Rate: Light, Medium, Heavy User Benefits Sought: Performance:-Oriented vs. Price-Oriented Loyalty Status: None, Moderate, Strong, Totally Loyal Attitusle Toward Product Unestietied, Satisfied, Dalightad : For example, a personal computer manufacturer segmenting the market on the basis of user status right choose to target first-time home-use computer buyers: another may target mainly those who chenly owned but wish to "eed up.” The (ema! explicit choise of target matkate har obviour, Tiviighout this note, we will use the tem “product” although thelgke conveyed applice equally to situations immfich customer vai ls dlinred by « prodel/teraicebunle or service sfona. 4 The developmedt of customization szategles Is covered La BJ Pine lh Mass Cistomiaaton (Doston, Mass. Hisreard Busines School Fees, 1992, and D. Peppers and! M. Rogers. The One fo One Future (New York Careeney Doubled, (993). 5A good relerence on the process of wegimentatin is In V.R. Rag and J. Steckel,"Sepmenting Marke: Who ‘Av the Poental Buyers,” Anal for Srlegc Marketing (Resding, Mana: Addison-Wesley 199), Chapter 2 2‘ote on Markating Straiegy ; smmpentant implications for oth the features to Include in their computers and theiecommunichtions chika. Segmentation schemes yielding these clear implicaons for marketing are most useful hers fclitte point in wing 2 segmentation basis to define groups to be marketed fo in the same way. “The prevoce of calorting the cogramnis to serve Is critical because ultimately the customer has the righ to dictate the rules vin which the marketing geme will be played, he. a customer uses the putin extra he or she cides tose and these i effect ae the “res ofthe game” Th, the Finn's selecting a target market is tantamouet to choosing the rules of the game, and consequently tunget snauhet selection should considees «The v's comparative seenghs and weaknesesvsa-vie competition given | Pee eens | ' + The firm's corporate goals and the fit of the segment with these goals. +The resources necessary to markel successfully o lhe target segment, + The need for/availability of appropriate collaborators to markel successfully. + The Hkely financial returns from the segment, i As part of the segmentation and target market selection process, the finn has to play out scenarios, he,, consider the question: if we pursue this segment, how would we approach it and how would we want potential buyers (0 see us? The answer should be formalized in a “positioning teisles to ecupy in the target customers’ minda.® The staverent™ speulfyliny Wee postions Ue Fas precise form of a positioning statement can vary but a form lypically quite useful is to fil in: TTT Die Bradact Ream ‘einnia mach important rlaieal among all (competitive frame) because “(single most important support) In come cases. the positioning carcot be sufficiently well captured via a focus on “single most important” claim, eg. 4 computer manulecturer may want t0 be seen as both “easy-to-use” and “as,” s0 the positioning stalement form can be adjusted. But, an explicit statement of the positioning idea ig critical The absolute importance of target market selection and positioning is well conveyed in a best- selling marketing textbook: “The aulvantaye of sviving ke positioning problem to sal i enables the company to solve the marketing mix problem. ‘The marketing mix—-product, price, place, and promotion—is essentially the working out of the tactical delails of the positioning strategy." 6 This conception of “positioning” has been popularized by Ries and Trout in Positioning: The Battle for Your Mind, 1 ed. (Revised, McGraw-Hill, 1986). 7p asta, Maraing Managements Analyst, Planing. lnplementation and Central. 8 el Englewood Clits, Ns Prentie 997), p. 310.sovost ote on Marketing Strategy The Marketing Mix the net Neil Borden® of Harvard Business School used the term “marketing mix” to dese ins comprising a firm's marketing program le noted hav" forme Bland vis laanant iv ven product category can have dramatically different aba program and how even firms competing tna mixes at work. He specified 12 mix elements, viz. 1. Merchandising Prosdiet Blawlins 2, Pricing 9. Vranding 4. Channels of Distribution 3. Fersonat seuting, 6, Advertising, 7. Promotions 8. Packaging 9. Display 10. Servicing 11, Physical Handling 12, Fact-Finding and Analysis-Market Research ‘Over time, an aggregation and regrouping of these elements has become popular. As-showa in Figure A, the “4 P's" of Product, Price, Promotion and Place are often used to set out the “marketing, mix” in an easy to recall way. We now discuss the major issues in setting the “4 P's" in the following sequence: 1, Product 2. Place (Channels of Distribution) 3. Promotion (Communications Strategy) J Reprttea ts RY Dolan Staasie Marketing Always NH. borden, “rine Cuncepe oF (Boston, Mass: Harvard Business School Dress, 1991), i $i | | 98-061 Not on Narang Siatngy i Product (a) Product Definition | Produet decison start with an understanding of what a producti, vi. the prjduct fering isnot the thie sel. but rather ine tn package Penets abla bythe customet, {his es has had a number of sames, ey, Uwe “ola product concept rite augmented. product” or "the integrated product.” For marketing stategy evelopment purposes, the product hae to i Considered fromthe point-of-view of value delivered fo he customer, Value can be delivered simellaneousy by + the physical product itself tha brane name + the company reputation + pre-sale education provided by salespeople + postsale technical support + repate service + financing plans + convenient availability + woru-ormouun reterences provided by eattter adopters of ine product # reputation of outlet where purchased. 24 hours vf ‘ry enamapley watt foot ve Laney rl Catalog Is us Justa sti¢ but one ships wit order and unconditionall, guaranteed.? This broad conception of a “product” is key to seeing possible points of differentiation from competitors | {b) Product Line Planning Decisions A taxonomy of product line planning decisions is best developed by considering ekamples of some product planning decisions firms lace. + Product Line Breadth: A desktop computer manulacturer considers also selling laptops: a maker of men’s golf attire considers adding a women's line; an automobile manufacturer considers a mini-ven of sport utility vehicle. Product line breadth decisions are how many different lines will the company offer. A guiding principle in answering breadth questions is the company’s position on desired consistency or similarity between the lines it offers, Some firms focus, e-g., “we market only products which draw on our skills in small motor technology” while others are more broad: “we sell Products which dravy on our euperinr eancumer penctiicte marketing el + Product Line Length: A beer producer in the mass pact of the market is considering if It should develop an entry in the premium segment; the high-end compuler manufacturer considering, Fee product line breadth latua above olee has to decide If wants te compete In the emerging “under $999" market sector. These are product line lenglh decisions, ie., how many items will there be ina line providing coverage of diffevent price points. offered by Regis McKenna a8 an ilusteation of an “integral product” in hls "Marketing in an 9 This exampl Harvard Bnsiness Review, Septerber-October 1988. ‘Age of Diversty,598.061 Mole on Marketing Strategy + Product Line Depth: The men’s golf atire manufacturer considers whether to olfer its $110 crew neck sweater in five colors or just three. Thus, » product line depth decision, je, how many types of a given product. ‘These are the three major types of product line planning decisions. Important considerations Is making thoes dacieinne are: + Does the product satisfy target customer wants in a way that is profitable for the firm? © Does it offer opportunity for differentiation from competitors when the “product” 1s appropriately viewed as the total set of benefits delivered lo consumers? «What is the impact of this product on the rest of the line? Will it be @ complement to other products, enhancing their value to the customer (e.g. @ colot-coordinaled sweater enhancing the value of the matching golf shirt) or SOI it he a subetitote porribly enmnthalizing «ales (e.g, an erttey in the low~ tnd of the personal computer machine taking sales from the same manufacturer's high-end, higher-tiargin lems)? = What ie the impact af the ilome on the brand and company’s reputation? The brand's equily is offen a key asset and the product may enhance it or it may datraet from it. A key issue is whether there would be damage to the brand, e.g. did Lipton Soup detract from the equity as 2 lea supplier, did Sears Pinanclal fetwork bs ert Sena retail opsent (€)Individugt ltem Decisions uot Heme need to he contidered Atte individual item [As reflected in the discussion avove, decisions vit ini within'the context of the firm's full product line due to item inte relationships: Tevel, decisions to be made are whether fo undertake efforts to: = delete an item from the line = reposition an existing product within the fine = Unuprove the performance of an exicting predict tn strengthen is positioning = introduce a new product within an existing line = introduce a product to establish a new line (d) The New Product Development Proce: Conerally, + prnarilue approach to new product development follows some form of a sequential process, ey a five-slep process of 1. Opportunity Identification 2, Design 3° Testing hese examples are offered and this topic is considered In detail in DA. Aake orks Pree Prove, 1001) particularly Chapter 9. er, Managing Brand Equily (New4. Product Introduction 5, Life Cycle Management!” In the Opportunity Identification stage, the firm identifies a customer problem which it can Inn addition, it identifies the concept for a product to ensure both a product/market ni (tne solve. product fits the needs of the customer) and a product/company fit (it fits with the manufacturing and ‘operational skills of the firm). ‘The next two stages of Design and Testing are linked in an iterative process. For example, the firm might first embody the product idea in a concept statement which is tested via presentation to potential customers. Given a favorable reaction, the concept could then be developed into a mock-up fe eammunication nf what the predvct would look like when actually Le pparislt mare affect marketed, An unfavorable reaction from consumers in any testing results is an iteration back to the design stage. esting with consumers cai be done vie # suinber of prcedures,! eg, surveyor taste (estoy simulated test markets (in which mock stores are sel up and consumers recruited to shop in the mock slore environment), and actual test markets for consumer goods and beta tests for industslal goods. Testing Is appropriate not only for the product itself but also for the supporting elements of the ayarkeling mix, suen as the communication strategy and price. After the firm has settled on the product and a supporting plan, it reaches Product Introduction, Decisions at this stage involve the geographic markets to which the product will be introduced and whether markets Will be approached af the same time oc sequentially over time (e.g, 2 regional rollout) Alter introduction, a process of Product Life Cycle Management begins. First, the firm should con''nually be learning more about consumers from their reactions to the introduced product This added learning may suggest product repositioning or marketing mix changes. Second, the marketing environment is always changing, For example, cuslomer wants are not static; ‘market segment! sizes change: competitive offerings change: technology imparts the firm's capabilities and costs, Thus, managing the product line is a dynamic process over time, Place: Marketing Channels ‘The marketing channel is the set of mechanisms or network via which a firm “goes to market.” ie,, is “in touch” with its customer for a variety of tasks ranging from demand generation to physical delivery of the goods. The customer's requirements for effective support determine the functions which the members of the channel must collectively provide. Kash Rangan!? of Harvard re aca starting place far 2 Ph Rusinoee School hae identified sight “generic” channel functions which assessing needs in a particular context This panel mode pretented by GC. Urban and. Hauser in Design an Mar cooled Cl fe Dees Hal, 199) 12 These methods ace described in C.M. Crawlord, Naw Product Management, 5* ed, (Homewood, It. Inwin 1997 and}. Dolan. Mavaging le New Paine! Development races (Rend Mass. Addison Wesley, 193) Ive Range "Detgnng Chores of Disiaten” HOS, 58416 ah teed Vk Regi BP raps nn tc, mony. ses arcing Sage’ Conepo and appeaions eeetn ie WriedT929 of New ia n 7 8500.061 1. Product Information 2, Product Customization 1 Prndduct Quallly Avsurance 4. Lot Size (e.g, the ability to buy in small quaniities) 5. Todust Assurtuwent (uefery iy breadth, lengar, and width of product ines) 6. Availability 7, Atter-sate service 8. Logistics An important point with respect to channel design is that while there are options about whether a particular institutlon.(e.,, a distributor) is included in the channel or not, the setting Implicates specifle tasks which need to be accomplished by someone in the channel, One can eliminate a laver in the chain but not the tacke that layer pernemed The poplar phrase "wore cut out the middleman ‘and passed the savings on to you" seems to indicate that the middleman represent all costs but ho value-added. The functions done by the middleman now have to be done by someone else. Thus, the recommended approach is to develop “customer-driven” aysteme tll best perform the needed 1e channel etrurtuire and mansgemen! mechanien furetions.'4 ‘The two major decisions in channels are: (0 channel design = which irvolves both a length and breadth issue {(W) channel management = ie, what polices and procedures will be used to have the necessary functions performed by the various parties {a) Channel Design With an understanding of customer requirements in place, a primary question in channel design ts whether distribution will he "dicect." "indirect” og hoth, Le.. some customers served one way and others another. In direct distribution, there a no independent party between the firm and {is cusiomers, ¢g. the “blue suits” of the firm's salesforce visit the customer premises and sell computer mainframes, Through 1980, this was the only way IBM sold its products. In indirect distribution, Uvere 1s « third porty. This porty moy operate under contract to the firm (egy 24 In a franchise system) ot It may act Independently (e.g. as ina sitwation where a retailer pays for and takes tile to the firm's goods and then is free to sell Unern at whatever price and in whatever fashion it desires). Inrough me (¥0Us, me conventional wisdom was mat a Grn sluhd eliber py tw diteet or indirect, but not both because of the channel conflict which would result. The blas was toward going direct as soon as sales volume justified it, because it provided more conttol ancl direct contact with customers. in LW. Clare, Ad. RLAmewry and AT Coughlan, 11096); particularly Chapter 5 M4 thie approach be edvecsted and described in de Marketing Cheels, 5* ed. (Englewood Cliffs, Ns PeerNote on Mermatng St so-cet v By the early 1980s, more firms begas simultaneously serving different target markels, exch requiring different channel functions (eg,, one segment needed intense pre-sale education; énothes {hig noo’ Thus there came a need to manage “dual distribution” wherein different systems are used retrcneh each market seyucut etCiclenily and effactively. A firm ealeeforew served some segments: & Ulstrbutor served others. This move away from only one method of “going to market” has Accelerated, Now a firm may sell through relail outlets and via direct mail; use its own salesforce to W8 distributors to call smaller ones; and rely on other customers to find the Company's BOO number, Web site, or subInic an ister divcatly to the fle theowsgh, some Flectrnale Date interchange System. In many firms, the economics of reaching the full set of its chosen target Segments are such that a single approach for all customers simply won't work Thus, rather than sue decision, the ficm needs to make a coordinated set of decisions by market segment Teognizing and preparing to manage the confliels that may anse across whe witfenat shennct pee call on some accounts; rely 0 In addition to customer requirements, the mnajor considerations in channel length issues are: = eccownt concentration: Ifa few customers represent the bulk of sales opportunites (tg. Je. engines) aizeet selling appronck ean be cost elfetive, If (he target group is larger in umber and sean diffuse e.g. toothpaste, then he services of someone like a retaliec who can spread! Ure costs of cunt lationship over many products ic warranted, importance of direct customer contact: One reason to go direct may be the lack of intermediaries from whom the firm could secure adequate attention, ie. the firm lacks the power to gain suune wwntiol over the intormediarae tn ane the necessary tasks are performed Riso, direct customer contact may be seen as a critical way to gain market understanding as an input to future product dev lopment efforts. — degree of control ‘The second part of Ue eharuvel desig ous ib channel breadth, fa, owe intense should the finn’s resence be in a market area? Does the fim wish 19 intensively distuibute its product, making Larnabimal customer conventence (e., placing the product "within arms reach of desire,” as Coca Cola terine it) or does il wish to be more selective? More selectivity may be warranted if there is coe tere telion or development task tO De done. Thus, ovine autwsncbile manlacturere, typically Nigh-end (eg Infinit, limit the numberof dealers in an ares to educe the dealer's concern that the aaarrils of developing potential customers in a given area would accrue to another dealer “free ding” om these efforts. In general, the strength of the argument for limiting distribution to selective or exclusive levels increases with the customer's willingness to travel and search for the good, = the unit cost of stocking the good, the amount of true “selling” or market development which needs to be done. ‘As a product becomes mote well known, there isa tendency to become less selective in distribution. i eee ees Nernputare meved tron npr eprcaly stores to mass merchans aed warehouse clubs over time as customer education requirements decreased. ‘Thus, the right channel Sucture changes over time. ‘This presents a significant challenge as the firm seeks to maintain flexibility in channels while complex legal and other relationship elements tend to.cementdistoution arrangements. {b) Channel Management Conflict between “partners in a dismnbution syst si wet uncommon mors thar » few tions have been filed over issues like 1 /o596-061 Mote on wee Strateg, “we povidl «grat prod but ey never sold th ay thy agen + “we developed the market, but they were never able to supply the product liable hasis™ + “they began distributing through a discounter right in the middle of the territory we spent years developing” Many conflicts do not result in litigation but color the relationship, eg., a beer distributor lamenting “somehow their [the manufacturer's} view is that every time sales go up, it’s their great advertising; when sales go down, it’s our lousy sales promotion.” in a general sense, all parties in the marketing system want tne product to "do well.” But conilcls can arise Irom: 1. lack of congruence in goals, e.g., the manufacturer's M1 priority may be to “bulld the consumer franchise.” while the distributors is to make money this, quarter. 2. lack of consensus on who is doing what, e.g, who is to perform certain funntions such aa after-tie-vale setvice, hw testes sual avuusilsy rely handles global or national accounts when assignments were originally made along amaller geographic basis, (Channel management is a day-to-day “work-on-it” task rather than a solve-it-once situation. Attention to proper design of contracts and other explicit understandings can help to reduce the potential for conflict. Good communications, eg, through dealer panels, can help facilitate development of understanding and trust which will almaet always he nrcoseary 10 racalye iesiios since contracts cannot typically anticipate all the situations which may arise. Promotion: Marketing Commun'cations The nev! elamant af the marketing mix is deciding the appropriate eet of waye In twhich to communicate with customers to foster thelr awareness of the product, knowledge about its features, interest in purchasing, likelihood of trying the product/and or repeat pucchasing it. fifective marketing requires an integrated communications plan combining both personal selling efforts and nosrpeisunal une such as atlverising, sales promotion, and public relations. (a) Tasks and Tools ‘A useful mnemonic for the tasks in planning communications strategy is the 6 M's model: 1. Market to whom is the communication to be addressed? 2. Mission — ‘what is the objective of the communication? 3. Message ~ what are the specific points to be communicated? 4 Medta~ Which venictes willbe used to convey the messager 5. Money =» how much will be spent in the effort? & Moacuremant— how will impact be asseazed after the campaign? io HWMote on Markating Stratogy ‘The marketing communications mix is potentially extensive, eg., including “nonpersonal” elements such 28: advertising, sales promotion events, ditect marketing, public relations, packaging, trade shows, as well as personal selling. !$ A bay tn developing an oflertive communications strategy is understanding of the people involved in the purchase decision making, the roles they play, and their current perceptions of the situation, Those involved, the so-called Decision-Making Unit (DMU) for a product, can vary from very few (even just the usec himself or herself) to many. Hundreds may be involved in major lundtastiat pus Members of the DMU differ in the role played, their desires, and perhaps their perceptions; consequently, the need is for an integrated communications plan which uses different elements of the Communication MIX to address cifferent Issues perunent wo DIU menibers. Eas etenjent bes particular strengths and weaknesses. (b) Nonpersonal Vehicles Advertising ig media is particularly effective in: + creating awareness of a new product + describing features of the product + suggesting usage situations + distinguishing the product from competitors + directing buyers to the pointof-purchase + creating or en ancing a brand image. Advertising is limited in its ability to actually close the sale and make a transaction Happen; sales promotions may be an effective device to complement the favorable attitude developntent for which advertising is appropriate.!6 ; One trend in advertising is the movement to more precisely targeted media vehicles. For xmpley lvereas the thece major TY networks wero once the only cheives for talavielon advertiing Highly specialized channels like The Nasbville Network (featuring country music) and the Goll Channel are now available. Direct marketing to households is another option. A direct mail piece can be customized to the household receiving it based on some demographic data available on Imaling ists ot even purchase histories, catalog cart bot deseribe the firun’s products and proviie ordering information. Like a direct mall piece, the eatalog can be customized to the household receiving it. } Sales promotions includes Usings such as samples, coupons, and contests, Ihese are Usually short-term inducement to generale action. most effective when used as 15 This categorization is given by PAW. Facts and JA. Quel in Advertsing and Prometion Management: A Manors Gude lo Theory and Practice (Chien, 1983) ' 16 A good eeference on advertising is DA. Aaker, R. Batra, and JG. Myers, Advertising Mourgement, 4* ed (Copia is Ne Prentice al 19D, wher ihe eed o conde averting inthe aver ole of the communications nix stresse ' mn (2The three major types of sales promotions are:!? ‘+ consumer promolions—used ty # manufacturer and addressed to the end consumer, e.g, a cents-off coupon sent In the mall or contained tn print media of @ continuity program such as collecting, proofs-ol-purchase to redeem for a gil + trade promotions--used by the manufacturer and addressed to the trade, fi lempotmry ofFinvoice price discounts or cooperative advertising allowances. 4+ retail promotions—used by the trade and addressed to the end consumer; often this is stimulated by a trade promotion. Examples include offering a discount and displaying or advertising the brand. Public retations refers to non-pald communication efforts, such as press releases, speeches nt industry seminars, appearances by firm executives on radio or TV programs. These efforts do ental a cost to the firm, but generally are distinguished from advertising by virtue of the fact that the firm does not pay for space In the madia vehicle itself. For example, in-some industries, new product reviews in the trade press are very influential with consumers. However, the output of public camawhst Ieee crnteniishle than ie the exce with either advertising or sales promotion. Purchasiig a TV spot pretty much guarantees that the firm’s desires with respect to message and timing of delivery will be met. That level of control is not generally attainable with public relations since other parties decide whether or not to pick up a press release, write favorable or iifevvreble thinga about the product ln a ceviev, sand 90 forthe (e) Personal Selling A salesperson as te communication venucle presents We advantage Uf pesnitting en interaction to take place betwern the firm and a potential customer rather than just th broadcast information. The salesperson can develop an understanding of the particular customer's perceptions and preferences and then tallor the communications message to the particulars of the situation. The importance of personal selling in the communications mix fypically increases with the complexity of the product and the need for education of potential customers. For example, pharmaceutical ‘companies maintain large field sales forces because nonpersonal media would not do an adequate job ‘of educating doctors about new druns. Is critleal to Identify precisely the tasks ofa salesperson. In some cases, the primary cole is to take an order generated primarily by other elements of the marketing mix. In other cases, demand [enctation io a kay tark as the salesperson prospects for new accounts and/or performs consultative felling solving customers’ problems. A salesperson can also have a role after-the-sale, providing technical support or transmitting customer data to the firm as a form of market research. Understanding the tasks to be done is a prerequisite to specifying skills and desired behaviors of salespeople, Rewultiny, seeetiryy au lain propane van be designed te provide the noodted talents; and evaluation, compensation, and motivation plans constructed to induce the necessary effort. 17 RC. Blattberg and S.A. Neslin, Seles Promotion: Concepl, Meliods, and Strategies (Englewood Cit, Ni. ‘Pernice Hail. 1990), uses this categorization, This book includes important information on the lypes and design of sales promotion events and empirical evielence on their impact @ aNote on Markating straiagy 96-061 (a) Constructing the Communications Mix ‘The proper allocation of dollars accoss the various media vehicles varies greatly depending ‘upon the market situation. A fundamental decision is whether to focus on a “pustt” of “pull” sicalegy. In a push strategy, focus is on inducing intermediaries, such as a retailer, to sell the product at retail. Advertising’s job may be lo make the consumer aware of the product, but the closing of the deal |s left to the intermediary. Alternatively, a “pull” strategy means the end consumer develops such an insistence on the product that he or she “pulls” it through the channel of distribution, and the retailer's role is merely to make the product conveniently available As the number of feasible communicttion vehicles has increased (e.g. to event sponsorship, telemarketing, one’s own Web site, posting on someone else's Web site, and infomercials), the job of specifying the right communications mix has grown more complex simply due to the number of options and permutations and combinations to be considered. However, the growth in options also es the possibility of gaining competitive advantage via superior performance in this task. Prieing To a large extent, the combination of the 3 P's—~product, place (channel), and plomotion (communication mls)—determine the target customer's perception of the value af the fem'4 product inva given competitive context. Conceptually, tis perceived value represents the maximlm price whlch the customer i willng to pay. ‘This should be the primary guide to pricing the product. Once the firm has created value for customers, iis enilled to capture some of that value fr Hise Yo fare future value-creation efforts. This is the role of effective pricing.'® {2) Pricing Basis and Objective In most situations. cost should act as a floor on pricing. ln some circumstances, a firs intentionally sells at a loss for a tine to establish a position in the market, but its often difficult to increase prices later due to the customer's use of the introductory price a3 a reference point. | does the pricing objective derive from that? For example, the perceived value of the product typically varies by customer, Thus, the higher the price, the lower the sales rate, and vice-versa. The price that would maximize short-lerm profit {s thus typically higher than the one which would maximize ive palit mm aneh tein With perceived value in mind the fest question is what is the matketine sc tow subject auan ta making imarket penetra Some have described this 8 a choice between a “skin and “penetration” pricing! sirategy tna skim strategy, the focus is on those customers with high value—skimming-the-ream off the 1op of the marbat._ "The clasie example af thi ig hardcover books at $20 initially for the impationt and aropping to 87 for Une identical book in softcover about a yeat later. tx penetration pricing) the firms feist lower price to geneatefts of sales Guicky, This “eaves money onthe table wi the igh value customers, but is designed to preempt competition and gain a significant number of customers Say om The peal oa pena oatgy nneern te beeen tat) estes ees to price, (2) economies of scale are important, (3) adequate production capacity is available, and (4) there ta threat of competition I 1 this view ls developed tn RJ. Dolan and H. Simon, Peter Pricing (New York: Free Pres, 1936) 13 4ssn.081 ote on Marketing Stewepy (b) Price Customization Since customere typically place differant wah product. the firm should consider whether it is worth trying to capitalize on these value variations by charging different customers different prices. In some cases, legal constraints and logistical practicalities can make this infeasible However, many firms owe their economic well-being to their ability to customize prices. For example, dhe yeh menegewest aysteu umed Ly eilines anc car rental compenior have bean 2 major source of profit, as prices are varied depending on when the buyer is booking, for how long, for what days of week, and so forth. These characteristics are used as indicators of the value the customer places on the product. Price customization can be achieved by + developing a product line—such as the hardcover/softcaver book situation described above. tinble © controiing tne avauaputy of tower prices, eg, by madly ‘only in certain locations. + varying prices based on observable buyer characteristics, e.g, software suppliers charge lower prices (U “upygemdero” then to neve sustemersy the logic in new customers paying a higher price Is they value the product more highly since they"do not have the option of sticking with the current version. “Upgraders” Identify themselves by turning in some proof of ownership, such a support manuals, + varying prices based on observable characteristics of the transaction, #65, quantity discounts could be offered if the situation were that big-volume buyers valued the product less than small-volume buyers. (c) Price Leadership ss feature a large degree of pricing interdependence in an industry, i ing moves. Thus, any pricing decision has to reflect anticipated competitive Some indust competitors react to pr reaction. in some industries, legal and effective price leadership has been displayed as firms avoided price cutting in pursuit of share gaina. In other Industrie, price wars have destroyed the profitability bf nearly all the players. The tendency toward excessive price competition ls particularly acute when + firms have high fixed, but low variable costs, + there is tile differentiation among. competitors’ products, and) thus conounvers lenpely Ung un prey | + Industry growth rate is low, ole ace + there ore Laustess 1 capacity ailjustuent, and economies of important ‘Thus, 9 key decision is how to ensure that the firm’s actions do not have a negative impact on industey profitability by setting off a round of price cuts. 1Sote on Marketing Strategy "508-081 Analysis Underlying Marketing Strategy Formulation wre A, the major aroae al analysie ta he conducted in dévelnping a0 the tops Ae vol marketing strategy are the "C's": + Customers + Company + Competitors + Collaborators, eg, channel partners and suppliers Effective marketing requires in-depth understanding of customets’ purchase’ anid usage pattems. Asnoted above, ateas to be considered are + The Decision Making Unit (2MU) = who is involved in the process? = what role does each play? Researchers have identified five major roles in buying situations and it should be understood who assumes each role (chore than one individual can play each role and one individual can play more than one role). These roles are + iitiator(s)- recognize value in solving a particular issue and stimulate search for product. + Decider(s)- make the choice. + Influencer(s)— while not making the final decision, have input to it, Purchases) ccsguinmate die tearisac tion + User(s) = consume the product. ator cole may be held by t For avampla, in » docision to purchase « computes for the home, the in oldest child who saw value init for her school assignments; the decider on brand was a relative with computer knowiedge; parents ond all children influenced the product features and price point; the purchaser was the same as the decider; and the user was all family members. The second major area is, + Decision-Making Process (DM!) = ts there search for information? = how? ~ what criteria are used to evaluate alternatives? ~ how important ate the varies attributes. such as price and performance? = how did OMU member interact? Othor considerations inetote = where do customers wists |» buy? how is the product to be wart? how frequently intently wil 2 be used? hhow iaypurtanl isthe peubley which it sutves? ‘These questions need to be addressed at a clisaggregate level so market segments can be identified.$00.05! Note on Marketing Stiategy. Company Analysis Corporate strengths and weakness need to be undersioad since the fit of the product to the company is Important a3 well as the fit to the market. Assessing product/company fit requires an understanding of the finances, RéD capability, manufacturing capability, and other assets of the firm. Competitive Analyala Marketers need to identify both current and potential competitors. Competitors’ strengths and weaknesses must be understood as the firm seeks differentiation possibilities. Similarly. in ordec te be able to predict and shape competitive eavtluni Ue fins ust aasess wunapetlions! vbjecthves wid strategies. Collaborator Anaiysis To the extent that there are important partners in the markeling systern, their positions and goals need to be assessed. Froquently, two key collaborators are the downstream trade (e.g., retailers) and upstream suppliers, With respect to the trade, the firm must understand thelr cost structure; ‘expectations about margins and allocation of tasks; support and training requirements; and the nature of thelr relationship with the firm’s competitors Increasingly. suppliers are being seen a¢ critical collaborators in making matketing strateey work, What is their ability to supply quality product on a reliable basis? How much lead time is requiced, expecially relative to the delivery time commitment to downstream customers? In the end, an The 4 Cie andljele te input te the conetouction of the masbating strategy economic analysis needs to be done to ensure that everything adés-up to « viable business propositicn, What are the fixed dellne commitments? What level of unt contribution ean be attained, td whats the anticipated associated sales level? Summary Devising an effective marketing program requires indepth analysis 1o support decision making on a host of interrelated issues. Textbooks have been written to address this general tople!? and to provide in depth information on specifi topice given in thie note. This nate’ nhjoctive was ta contribute by bringing together the issues and analyses underlying marketing strategy development to provide » general overview and provide guidance to resources which could be usefully consulted if needed. {9 For general marketing management Issues, good tents are T.K. Klnnenr, KL. Beenkardt, and KA. Krentler, Principles of Marketing, &* ed. (New York: Harper Collins, 1998) and P. Koller, Marketing Managertent: Analysis, Planning, Inplemes ice Hall, 1997). see lion and Control, 9* ed. (Englewood Cllfs, N.J.: Pr ea