Introduction to Marketing

University of Chicago Marketing Management

Company Orientations Towards the Marketplace
Orientation Description Relative Time Span Industrial Revolution Basic Managerial Objective Profit Maximization via Economies of Scale Profit Maximization Through Superior Product Performance Profit Maximization via Demand Generation 1990s Profit Maximization via Matching of Products to Customer Wants

Production

Transition from Home Manufacturing to Factories Focus on Product Development, Performance and Features and the Growth of Large Scale Industrial Empires Transition from Scarcity of Goods to Scarcity of Markets; Market Saturation with Basics Transition from Internal (Organization) to External (Customer) Basis for Guiding Marketing Decisions

Product & Financial

Sales

Marketing

The Marketing Concept
A Customer Orientation

Backed By Integrated Marketing

Aimed at Generating Customer Satisfaction and Repurchase As The Key To Satisfying the Organizations Goals

The Marketing Concept (Contd..)

Focus Sales Concept Marketing Concept Products Customer Needs

Means Selling & Promotion Integrated Marketing

End Profits Through Sales Volume Profits Through Customer Satisfaction

Wordof- Mouth

Stages in Consumer Decision Process
Awareness Interest Channel Decision Product / Service Action Price Satisfaction Advertising

Profits Through Customer Satisfaction (One Customer)

Referrals Price Premium Reduced Selling Effort Increased Usage Normal Profits

Acquisition Costs

Profit A Customer Generates Over Time
Dollars($)
60 40 20 0 -20 -40 -60 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Credit Card Customer

Cost of Losing and Attracting Customers
• Cost of Lost Customers • # Accounts = 64000 • Loss = 5% for poor service = 3200 accounts • Loss in Revenue / Account = $40000 • Total Revenue Loss = $ 128 MM • Margin = 10% • Loss in Profits = $ 12. 8 MM • How to Increase Retention Rate? • Cost of Average Sales Call = $300 • Average # Calls to Convert Customer = 4 • Cost of New Customer = $1200 • Annual Revenue from Customer = $5000 • # Loyal Years = 2 • Profit Margin = 10% • Lifetime Value = $1000 • Firm is spending more on attracting new customers than they are worth!

Cost of Losing and Attracting Customers
• Cost of attracting a new customer can be upto 5 times the cost of keeping a current one happy • Cost of Offensive Marketing > Cost of Defensive Marketing • Some companies have increased profits from 25% to 85% by reducing defections by 5%

Developing An Effective Marketing Plan
• • • • Conduct A Marketing Review Build A Marketing Strategy Implement Strategy Via Marketing Mix Evaluate The Success Of The Marketing Plan

Conduct A Marketing Review (3-C Analysis)

A. Analysis of CUSTOMER Trends, Needs, Perceptions, Behavior

B. Assessment of COMPANY Capabilities and Current Marketing Position

C. Analysis of COMPETITORS Current Position, Capabilities, Actions

Opportunity Identification

Build A Marketing Strategy

Generic Strategies For DIFFERENTIAL ADVANTAGE * Product Differentiation * Cost Leadership * Special Market Focus

Selection of TARGET MARKET and Development of a POSITIONING STATEMENT

Implementation: The Marketing Mix (Four P’s)

• Product • Price • Place • Promotion

3C - 4P Framework

• Customer • Company • Competitor

• Product • Price • Promotion • Place

3C - 4P Framework
BMW Colgate IDS PDA / Infiniti Sealed-Air Barco

• Customer • Company • Competitor

• Product • Price • Promotion • Place

Nestle Rohm&Haas Intel Dell

Marketing System
Long Term Factors Technological Short Term Controllable Factors Economic Product Place Price Promotion Socio / Cultural Legal

Recasting the 3C - 4P Framework in Value Terms

• Customer • Company • Competitor

• Product • Price • Place • Promotion

Creating Value Capturing Value Communicating Value

Mapping Value Migration
• Limited competition • High growth • High profitability • Competitive stability • Stable market share • Stable margins

In the outflow stage, talent, resources & customers leave at an accelerating rate

Market 2 Value ÷ Revenues 1

• Competitive intensity • Declining sales • Low profits

Value Inflow

Value Stability

Value Outflow

Capturing Value Growth
Map Changing Customer Priorities 2001 1998 1. 2. 3. 1. 2. 3. Identify New Business Designs

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New Entrant

New Entrant

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Old

New

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Key elements

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Assumptions Compare Business Designs Build New Business Designs to Capture Growth

Value Migration in Coffee
Coffee Shops & Office Coffee Traditional Grocery Blend Gourmet Cafes Whole bean Gourmet Coffee 1985 1. Price 2. Ease of purchase 3. Uniform offering

1990

1. Quality 2. Freshness 3. Close to office

Starbucks

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Coffee is Coffee

. .

GCA Millstone

Gloria Jean’s Folgers Maxwell House Nestle Chock Full O’ Nuts

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. . . .

Starbucks Starbucks

Value Migration Phases
Millstone Millstone Folgers Folgers

Value Inflow

Value Stability

Value Outflow

Affordable Luxury

Replaying the Game
• P&G: “We sell coffee” vs. “We sell canned coffee of moderate quality in groceries” • The brand we have built to sell mid-tier coffee will not cater to gourmet coffee position as its made of Robusta rather than Arabica beans. So we need to launch a new brand that preempts the quality position. We may need a new design (DSD), but we’ve done radical stuff before! • Most restaurants, food chains and institutions sell Coke or Pepsi (branded) but unbranded coffee. Once our gourmet brand is established in grocery stores, we may be able to move into the institutional market (after all, we sell to Wal-Mart!) • Whole bean provider: Could have built a brand by opening a café division. Took 7 years for Brothers to catch on. By opening the café format, regional whole bean providers could have built brand loyalty. Especially as they do not have P&G’s deep pockets. If the regional whole bean provider launched in 1991, could have built a national brand. By 1994, it was too late. • Starbucks: May have missed an opportunity by not aggressively expanding via franchising. Region by region rollout gave competitors / imitators time to preempt in certain markets. This way it would have “conquered” the retail business and could have focused more fully on institutional and grocery markets.