Introduction to Marketing

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

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

Profit Maximization via Demand Generation

Marketing

1990s

Profit Maximization via Matching of Products to Customer Wants

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 Products Means Selling & Promotion Integrated Marketing End Profits Through Sales Volume Profits Through Customer Satisfaction

Marketing Concept

Customer Needs

Stages in Consumer Decision WordProcess

of- Mouth Awareness Advertising

Interest Channel Decision Product / Service

Action
Price Satisfaction

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 Ps)

Product
Price Place Promotion

3C - 4P Framework

Customer
Company

Product Price

Promotion
Place

Competitor

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

Customer
Company

Product Price

Nestle
Rohm&Haas Intel Dell

Promotion
Place

Barco

Competitor

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

Creating Value

Customer Company Competitor

Product Price Place

Capturing Value
Communicating Value

Promotion

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 1. 2. 3. Identify New Business Designs

New Entrant

1998
1. 2. 3.

New Entrant

Old

New

Key elements

Assumptions

Compare Business Designs

Build New Business Designs to Capture Growth

Office Coffee Traditional Grocery Blend

Cafes Whole bean Gourmet Coffee

1985

2. Freshness 3. Close to office

Starbucks

1. Price 2. Ease of purchase 3. Uniform offering

Coffee is Coffee

. .

GCA Millstone

Gloria Jeans

Starbucks

Value Migration Phases

Millstone Folgers

. . .

Folgers Maxwell House Nestle Chock Full O Nuts

Value Inflow

Value Stability

Value Outflow

Affordable Luxury

Value Migration in Coffee Gourmet 1. Quality Coffee Shops &

1990

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 weve 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 caf division. Took 7 years for Brothers to catch on. By opening the caf format, regional whole bean providers could have built brand loyalty. Especially as they do not have P&Gs 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.