MGT 6450 Marketing

Web Main Menu Syllabus Schedule & Outline Web Resources Class e-mail News Overview of marketing Small group formation & discussion of products/services via product life cycle Next week: market segmentation

Marketing News

Generational Marketing
Niche trends for 2009 Advertising Age AMA Marketing News Direct Marketing News Marketing Today

"Marketing is the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, services, organizations, and events to create and maintain relationships that will satisfy individual and organizational objectives."

The societal marketing concept holds that the organization's task is to determine the needs, wants, and interests of target markets and to deliver the desired satisfactions more effectively and efficiently than competitors, in a way that preserves or enhances the consumer's and the society's well-being.

Discussion Questions
How is marketing currently conducted in your organization? What role does a marketing department have in helping form organizational strategy; how well connected are they with other departments and functions in the organization; how is market information gathered, analyzed and used? What are the change drivers that have propelled marketing to this position in organizations? Why is strategic marketing so crucial in today's marketplace? In your organization, where does marketing fit with strategic planning?

How aware are employees of the marketing concept and efforts of the marketing department?
Examine your organization's mission statement and define it from product/service perspective as well as marketing perspective (who are the customers & what needs are you committed to satisfying?)

Using the Product Life Cycle, place your product/service line along the continuum (Portfolio methods)

How is marketing done in your organization?

Change Drivers: What are the large scale forces that are driving organizations to change? Give examples of each (e.g., globalism, demographics, technology, information, environment, etc.) Organizational Impact: What do these forces require the organization to do differently? (competition, new markets, faster response, etc.) Organizational Response: What are organizations doing to make themselves more competitive and adaptive? List some of the initiatives (downsizing, reengineering, outsourcing, etc.) What are the differences between the marketplace/workplace you work in and that of your parents & grandparents? (e.g., YOU Inc, multiple careers, lower commitment, etc.) Worker Requisites: What are the implications for workers--what are the requisite KSAs? (e.g., continuous learning)

Impact of Change Drivers on the Workplace

Change Drivers
Less expensive, more widely available communications, transactions, information, and production technologies such as: Internet based communication and commerce Data mining Pattern recognition algorithms (neural networks) Computer integrated design Rapid prototyping Simulation testing of designs and prototypes Real time data tracking Nanotechnology Flexible manufacturing technology Enterprise wide software

Effects of Change Drivers

Competitive environment: More informed customers More evenly distributed technological capabilities among competitors More closely linked suppliers Easier entry for new competitors World wide market for supplies and workers Business processes: More knowledge about customer buying patterns Improved forecasting ability Improved production scheduling and tracking More rapid production process design Integration: Coordination of geographically dispersed operations Coordination of culturally diverse workforce Coordination of logistics and information with dispersed networks of customer and suppliers Workforce: More use of temporary workers Competition for skilled and knowledge workers Management across international cultures Difficulty in molding organizational cultures

Culturally, ethnically diverse workforce that is more mobile: Political and economic conditions creating more opportunities for markets and supplies worldwide Aging workforce worldwide Language and culture differences

Whats gone wrong with strategy?

75% of executive teams do not have a clear customer propositions (idea of the mix that appeals to the target market) 20% of organizations take more than 16 weeks to prepare a budget, with many not completed by the start of the fiscal year

78% of companies do not change their budgets within the fiscal cycle, even if the rest of the world changes around them
85% of management teams spend less than one hour per month discussing strategy 60% of organizations don't link strategy and budgeting 92% of organizations don't report on strategic lead indicators Less than 5% of an organization's workforce understands its strategy Only 51% of senior managers, 21% of middle managers, and 7% of line employees have personal goals linked with strategy Organizations find that up to 25% of strategy measures change each year Tangible book value represented only 62% of industrial organization's market value in 1982; in 1992 it was 38%, and 10-15% in 2000 The failure rate of strategies is between 70-90%, due primarily to poor implementation

The Balanced Scorecard

Eras of Marketing
Next ?
Relationship/Partnering Era (1990-): Short term financial focus, downsizing, globalization, reengineering trends. Publish or perish pressure on research. Concern, trust, and investment in collaborative relationships with long term customers and competitors (e.g., Saturn owner parties, Sams Club memberships, etc.). Specialized interest areas; sophisticated multivariate segmentation; wide application [Problem: still short term, fragmented research, customer manipulation] Marketing Era (1950s-1980s): Mass market boom! Use of behavioral and quantitative sciences. Customer is King! Find (create) a need and fill it; (market segmentation & targeting) satisfy needs! [problem: too short term & costly] Sales Era (1925-1950s): Marketing principles. Good advertising and sales will overcome consumer resistance (Brand image differentiation); Marketing associations & journals [problem: broad advertising not cost-effective] Production Era (1900-1925): a good product sells itself; offer more products! Build it and they will come! [problem: unsold inventory]. First courses with marketing title. Focus on distribution. Pre-Marketing Era (1750-1900): I got it, you want it?

64 ideas

Product Development: death of an idea

1 idea Testing time 10% of ideas reach the test market stage 50% of new products fail in test marketing 50% of those fail on national launch only 2.5% ever enter the marketplace 1 entrant for every 64 ideas the average new product that fails costs about $50 million some product failures have losses of over $100 million for some companies

Marketing decreases costs, improves the quality of ideas, and ensures better fit with the marketplace

 Advantages & disadvantages of matrix methods

Team Formation

In class group discussions Follow-up on absent sessions Presentation of Point-Counterpoint issues Review of each others papers for feedback

Whats your product lifecycle mix?

Team activity: Construct a product life cycle diagram for one of the companies in your team

Business growth Cash generation

BCG Model

Market growth cash use

Volume-based

Revenue-based

The GE/McKinsey Matrix

Relative market share Profit margins Ability to compete on price & quality Knowledge of customer & market Competitive strengths & weaknesses Technological capability Caliber of management

Business Strengths
High Low Medium Low

Market size & growth Industry profit margins Competitive intensity Seasonality Cyclicity Economies of scale Technology Social, environmental, legal, & human impacts

Industry Attractiveness

Invest in, growth strategy Monitor performance, selective strategy No growth or investment, consider divestment or liquidation

High

Medium

Ansoffs Product/Market Matrix Existing products

Market Penetration:
Increase product purchase in existing markets (withdrawal, do nothing, consolidate, retrenchment) Revitalize brand image Coordinate advertising and sales training Adapt to market change Increase market share Increase consumer usage (frequency, quantity, new application)

New Products
Product Development:
Introduce new products into existing markets; can be risky & expensive Product launch Add product features & refinements Develop new products for same market

Existing Markets

Market Development:
Explore new markets for existing products; when distinctive competencies rest with product not market Expanding geographic distribution Targeting new customer segments

Diversification:
introduce new products into new markets; horizontal, vertical, conglomerate Acquisition/merger New business venture

New Markets

Advantages of Matrix Approaches

Key areas. highlights essential aspects of business Cash flows. focus on cash flow requirements of the SBU's of a business. They help identify the different cash flow implications and requirements of different business activities that can assist management to carry out its resource allocation function. Balance portfolio. helps identify ways to balance and optimize value of the corporate portfolio by identifying strengths and weaknesses in the portfolio, the gaps that need to be filled to rebalance it; when a new SBU needs to be added or when one needs to be removed. It can also tell when there are too many duplicative businesses of one type in a portfolio. Diverse perspective. enables systematic examination of diverse activities of a multibusiness company, and understand enterprise diversity. Flexible comparisons. Some matrices, like the McKinsey Matrix, are highly flexible in selecting different factors for different industries, thereby providing coverage of a wide number of strategically relevant variables. Return on Investment. (ROI) often used as a single measure of organizational performance because it is a single comprehensive figure, it checks accuracy of capital investment proposals, provides a common denominator for comparison across entities, and is an incentive to using assets efficiently.

Disadvantages of Matrix Models

Too simple. Matrix models are often criticized for being too simplistic. For so many important factors to be reduced to only two dimensions (e.g., market share and business attractiveness) other factors are necessarily excluded or lose their distinctiveness in the collapsed dimensions. Market share mismeasure. Market share, though used widely, may not be the best measure of a company's success. For example, product differentiation for a particular market segment may have low market share but produce high success within a market segment.

Market share and cash flow mismatch. High market share in a low-growth industry does not necessarily result in a large positive cash flow characteristics of a "cash cow" business. For example, the BCG would classify GM auto operations as a cash cow, but the capital investments needed to remain competitive are so substantial in the auto industry that the reverse is likely true. Low growth industries can be very competitive and staying ahead in such environments can require major cash investments.
Attractiveness mismeasure. Industry growth also used widely may not be the best measure. Many factors in the environment affect competitive intensity in an industry and thus its attractiveness.

 Market share and cost savings mismatch. The connection between relative market share and cost savings (economies of scale) may also not be a direct relationship. For example, in the US steel industry low market share companies using low share technology (minimills) can have lower production costs than high market share companies ising high share technologies (integrated mills). While the BCG matrix would classify them as "dogs" their performance would show them as "star" businesses.
Subjective numbers. The numerical format of some matrices may lead the user to place greater confidence in them than is warranted. The numbers from most ratings are subjectively derived, subject to personal biases, political pressure, and budgetary needs. Static pictures. The analyses most often provide a static picture of SBU's and do not account adequately for how their position might change due to various factors such as industry evolution, technological change, and other environmental forces.

Multiple SBU's. Not all businesses hold to the assumption of planning for a reasonable number of SBU's. For example, GE has close to 300 SBU's which results in information overload, and the resulting analysis becomes increasingly superficial. Thorough analysis of each holding simply does not become practical. Such problems can occur when the volume exceeds 40-50 SBU's.

 Conflict of interests. When a SBU contains several different but related businesses (as is often the case) conflicts of interest can occur between the cash flow priorities of a SBU and the priorities of the company as a whole. For example, a dog SBU may be told to divest and harvest its market, but it has business units that are rising stars that go unnoticed. Inappropriate divesting. Naive application of portfolio techniques may result in inappropriate divesting of useful synergistic holdings. For example, divesting a supplier in a vertically integrated company might create gretaer losses if that SBU provides benefits of lower production costs. Synergistic effects of linked SBU's is usually not reflected in matrices. ROI mismeasures. ROI has some disadvantages: it is very sensitive to depreciation policy (accelerated techniques reduce it), it is sensitive to book value and inflation, equitable transfer priving (when one division sells to another) can be difficult to determine, favorability of the environment can affect SBU's differentially, it encourages short term profits, and the business cycle can affect ROI despite managerial efforts.

Conclusions about marketing matrix models--

There is a risk of using matrix models is misclassifying businesses Use multiple models to ensure better coverage Know the strengths and limits of each model; when to use and avoid them Integrate the information from matrices with other sources of information and comparison Don't let the matrix make decisions-- people make decisions!

Next Week: Market S-e-g-m-e-n-t-a-t-i-o-n

Be able to describe yourself using segmentation concepts Be able to discuss how your company uses (or can use) segmentation