Marketing Concept

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Marketing Concept Analysis Framework

• Week 2
• Fall 2007

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Agenda

• The Marketing Concept
• Consumer orientation
• Competitive advantage
• Two Caselets
• A Framework for Marketing Analysis and Planning

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The Marketing ConceptTwo Components

• C Customer Orientation
• The Marketing concept is to make profits through
  satisfying consumer needs and wants that creates
  and keeps customers.
• Connection
• C Competitive Advantage
• The marketing concept is about satisfying the
  needs and wants of consumers more effectively
  than competitors.

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Caselet 1 New Coke Cola Category Share of Soft
Drinks
From 57 to 67
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Cola Category (Sales Volume)
Almost tripling
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Cokes Declining Performance
From a 12 lead to a 3 lead
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Competitive Comparisons

• Advertising
• Coke 34.4 million (1975) to 211.5 million
  (1993)
• Pepsi 25.3 million (1975) to 147.3 million
  (1993)
• Distribution
• Coke stronger in fountain. But Pepsi growing in
  supermarkets.
• Pricing
• no differences
• Why the decline??

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Market Facts

• Baby Boomers respond to the Pepsi Generation
  and boost Pepsi sales.
• Pepsi sales surpass Coke in supermarkets by 1975.

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Market Facts

• Pepsi had Diet Pepsi and Mountain Dew since the
  60s. Coke had Sprite and Tab.
• In 1982 made a departure in extending the Coke
  brand name for the first time - Diet Coke.
• Runaway success and becomes 3rd largest soft
  drink and had 5.2 m.s by 1984 (versus 22.5 for
  Coke and 19.1 for Pepsi).

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US Soft Drink Industry

• Pepsi Cola
• 1960s Pepsi Generation
• 1974 Pepsi Challenge(based on taste test)

• Coca Cola
• Coke had nostalgic home town image in early 60s.
• Real Thing response to Pepsi Generation

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The Pepsi Challenge

• Integrated Advertising/Promotion Campaign (1975
  to 1984)
• a majority of consumers prefer Pepsi in blind
  taste tests
• Ads hammered away on this
• Promotion had booths in malls across U.S.
• By 79, Pepsi share in overall grocery was bigger
  than Coke
• In supermarkets and convenience store where the
  two brands were available side-by-side.

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Testimonials

• The company is obsessed about Coke losing the
  No.1 slot.
• Concern Over the last ten years we moved by
  barely 3 tenths of a percent, the competition
  gained 4 points on us. Brian Dyson, Coca-Cola
  1979
• Confusion If we have twice as many vending
  machines, dominate fountain, have more shelf
  space, spend more on advertising, and are
  competitively priced, why are we losing share?
  Roy Stout, Coca-Cola 1980
• I am not going to sit on my ass and watch that.
  To do nothing means I am forever condemned to not
  touching my product even though I know I can make
  a better product and move with consumer tastes.
  Brian Dyson, Coca-Cola 1981

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Change to New Coke

• 1983 go-ahead to explore possibilities of
  reformulation.
• September 1984 found a formula that beat Pepsi in
  blind tests by 8 points.
• Even Pepsi exclusive drinkers preferred it.
• Decision to not introduce the new formula as a
  line extension.
• January 1985 Secret mission to introduce New
  Coke (after 200,000) blind taste tests.

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Change to New Coke

• Taste Tests
• blind taste tests
• what if this were a new Coke taste? test
• Direct test against branded and unbranded Pepsi
• But did not disclose that the product that they
  were testing would replace the old coke
  completely.
• Once again overwhelming preference for new
  formulation over Pepsi in blind taste tests.
• A small minority (5-7) will not get over the
  change. This loss will be more than compensated
  by Pepsi consumers switching to New Coke.
• In focus groups when participants knew that it
  was new coke about 10 would become very upset.

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Change to New Coke

• April 23, 1985 Press Conference in New York
  City.
• Coke PR line Product improvement, necessary
  change to follow trends in consumer preferences.
• the best just got better.
• Absolutely no mention that New Coke beat Pepsi in
  taste tests.

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Pepsis Response

• Responded aggressively to Coke through
  advertising, public media
• Re-framed the change as a product withdrawal.
• Gave reporters list of questions to ask

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Pepsis Message

• ... After 87 years of going at it eyeball to
  eyeball, the other guy just blinked. Coca-Cola
  is withdrawing their product from the
  marketplace, and is reformulating brand Coke to
  be more like Pepsi. ...
• There is no question the long-term market success
  of Pepsi has forced this move. ... Maybe they
  finally realized what most of us have known for
  years. Pepsi tastes better than Coke.
• Letter by Roger Enrico, CEO Pepsi-Cola USA, to
  employees and published as full page ad on the
  morning of the New Coke introduction.

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Consumer ReactionsA Surprise

• Many consumers did not perceive the introduction
  of New Coke as a product improvement, but as a
  loss of Coca Cola, a sentiment that was
  reinforced by the media coverage.
• Coca Colas toll-free number was flooded with
  calls from angry and deeply saddened consumers.
• Dear Chief Dodo What ignoramus decided to
  change the formula of Coke?
• It was nice knowing you. You were my friend for
  most of 35 years. Yesterday I had my first taste
  of the new Coke and to tell the truth, if I had
  wanted a Pepsi, I would have ordered a Pepsi.
• Some hard-core drinkers stocked up Coke worth
  hundreds or even thousands of dollars.

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Consumer Reactions

• Organized groups of consumers that resisted the
  change received extensive news coverage.
• Old Coke Drinkers of America laid plans to file
  a class action lawsuit.
• Many bottlers also resisted the change.
• What was the problem? Why was this happening?

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Cokes Retraction

• July 1985 Comeback of original formula as Coke
  Classic announced.
• Hype actually did the overall Coke brand good
• love you more if harder to get syndrome.
• Emphasis from brands to category (megabrand
  strategy).
• January 1986 Coke Classic becomes flagship
  brand.

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What can we learn from this?

• Even a marketer as experienced as Coke can
  misread its customers.
• Two Questions that were ignored
• When people consume Coke what do they really
  consume?
• Did Coke really have a problem?

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Corporate Shares
A constant 8 point lead
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Total Cola Shares
Goes up from a 5 point to a 6 point lead
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How was Coke actually doing?

• Diet Coke was the main reason for the decline in
  regular Coke
• Coke is lighter than Pepsi
• Pepsi is sweeter than Coke
• Should we be surprised that Coke drinkers
  converted more enthusiastically to the diet
  version?
• Obsession on the Coke vs. Pepsi rivalry blinded
  top management on the real reason for Cokes
  decline.
• It wasnt taste----it was Diet Coke.

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The Pepsi Challenge

• Even if true...did Coke really have a taste
  problem?
• consumers in mall prefer the taste of Pepsi
  (58).
• only 67 of ALL consumers are cola drinkers
• Pepsi was stronger than Coke but with non-cola
  drinkers.
• depending on who you sample you can get very
  different results.
• So there is a market research lesson here.
• What if Coke made the product change gradually
  and did not announce the change?
• The Canadian new coke experience

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Connection1984

• "There is a twist to this story which will
  probably keep professors puzzled for years
• The simple fact is that all the time and money
  and skill poured into consumer research on the
  new Coca-Cola could not measure or reveal the
  deep and abiding emotional attachment
  (connection) to original Coca-Cola felt by so
  many people." Don Keough, President Coca-Cola.

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Caselet 2 Apple ComputersIdentifying the
competitor

• Apple 1980s - a tremendous success story
• Introduced computers that anybody could learn to
  use
• had a stranglehold on the US educational market,
  so kids got exposed to Apple much earlier than
  competitive products
• Better products and Better advertising
• price premium reflecting the product advantage
  and the stronger loyalty of its customers
• What happened? Where did they go wrong?

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What can we learn from this?

• Apple didnt understand who their competition was
• Who did Apple think was their competition?
• In fact, competition changed over time
• Apples perceived vs. actual competition
• Maybe Apple didnt understand its own strengths
• good at designing customer interfaces
• Apple was a winner because of its operating
  system and software.
• What was the best way to leverage Apples
  strength.

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Key Takeaways

• What do these two caselets tell us?
• Coke misread their customers emotional value
  for the product.
• Misread the connection that Coke had with
  customers
• Coke executives did not make the Coke brand
  versus Coke corporate distinction.

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Key Takeaways

• Understanding the market and customer needs is a
  firms most difficult task.
• Using relevant quantitative and qualititative
  customer analysis tools is a critical skill.
• Consumers often consume more than the physical
  product.

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Key TakeawaysApple

• Werent really sure who the competition was.
• licensed their system for the first time very
  late.
• the horse already bolted
• Technically superior
• operating system
• the hardware/software interface
• Microsoft which was technically behind
• understood the market and the need for an open
  Windows platform.
• network effects
• icon-based

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Summary

• Successful marketing strategy entails two
  principles. Designing products, services, and
  programs that emphasize attributes which
• which customers value and connect to.
• Provide a sustainable differential advantage over
  competitors.

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Analysis Framework
Company Analysis
Competitor
Analysis
Marketing Strategy
Product
Price
Promotion
Place
Market