A Brief History of Marketing Strategy

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A Brief History of Marketing Strategy

• James E. Coleman
• CPA, CFP, PhD

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What this course is about

• Address 3 common expectations of employers of
  recent MBAs
• Ability to work/manage teams
• Ability to evaluate and solve problems
• Ability to communicate solutions persuasively
• Learn basic tools and techniques for analyzing
  markets industries
• Understand how to apply the marketing strategy
  development process across various settings

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Marketing Strategy Development Process The
Search for Opportunities
FOUR Ps
F O U R C s
(Context)
External Market Environment
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(No Transcript)
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Overview

• You take over marketing management
  responsibilities for your firm.
• Must satisfy customers to sell product and earn
  profits
• Focus is on marketing strategy planning.
• Requires integration of all strategy decisions.
• Requires attention to competitive environment.
• Considers short term and long term perspectives.
• Features ongoing, rapid feedback.

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The Process
Analysis of market situation/opportunities Plannin
g and budgeting Make marketing plan
DECISIONS!!! Submit plan decisions The marketing
game! simulation Company reports returned to
firms
Next Decision period
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Industry Environment

• Market growth
• Traditional PLC applies, but subsidiary to
  strategy
• Technological environment
• No major innovations expected
• Yearly revision cycle
• Competitive environment
• Type of competition depends on firms decisions

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Six Key Product-Market Segments
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Past Sales By Market Segment
For Voice Recognition Device
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Distribution Channels
Firm 1
Firm 2
Firm 3
Firm 4
Firms reach customers through full-service dealers
and Internet/mail-order discount dealers.
Channel 1 Traditional Dealers
Channel 2 Discount Dealers
Different segments have different shopping
preferences.
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Product 1 Voice Recognition Device (VRD)
Number of Special Commands (5-20)
Key Product Features
Error Protection (1-10)
Ability to Customize (1-10)
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RD for Product Modifications Computing Costs
Feature (Product 1) Cost to Decrease Cost to Increase
Special Commands (5-20) 0 8,000(change)2
Error Protection (1-10) 0 5,000(change)2
Ease of Learning (1-10) 3,000change 3,000(change)2
Product 2 RD costs follow the same pattern as
Product 1 (shown above)
Example Example Example Example Example
Feature Last periods product This periods product Change Cost to Change
Special Commands 6 8 2 8,0002232,000
Error Protection 4 3 -1 0
Ease of Learning 3 5 2 3,0002212,000
Total modification costs Total modification costs Total modification costs Total modification costs 44,000
Note RD for product changes is more expensive
if you have to make big changes in a short
period of time
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Product 2 Digital Vocal Communicator (DVC)
Level 3
Number of Tasks (1-10)
Key Product Features
Similarity of Commands (1-10)
Ease of Learning (1-10)
Not necessarily cannibalistic of Product 1, but
additional sales support is needed.
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Types of Advertising

• Pioneering
• Best for expanding market demand early in PLC
• Direct competitive
• Best for stimulating current sales (reduced
  carryover)
• Indirect competitive
• Best for building brand awareness improves
  carryover
• Reminder
• Improves ad effectiveness if brand awareness is
  high
• Corporate (Institutional)
• Creates halo effect for the other product (not
  useful for single product situations)

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Marketing Responsibilities (Level 3)
2 PRODUCTs Features (and RD for product
modifications) PRICE Wholesale price may
differ in each channel and for each
product PLACE Distribution intensity by
channel, product PROMOTION -Advertising
Spending for each product Type for each
product -Personal selling Number of sales reps
in each channel Percent non-selling time in
each channel Commission rate -Sales
promotion Spending per channel,
product CUSTOMER SERVICE Spending MARKET
RESEARCH 7 reports may be purchased Demand
forecast/ production order Number of units for
each product
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Production Economies of Scale
Unit production costs will decline as cumulative
production increases, but this is not reflected
in the pro forma estimates
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Response Functions and Marketing Spending
Spending too little may have little effect, but
spending too much just increases costs and
reduces profit.
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Marketing Budget Items (Level 2 and 3)

• RD product modification costs
• Sales force salaries and severance pay
• NOT commissions (which come out of profits)
• Advertising expense
• Customer service expense
• Sales Promotion Expense
• Market research reports expense
• BUDGET FOR FIRST PERIOD 984k
• Use it or lose it!

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Discretionary Budget
1,500,000

• If you overspend your regular budget it is
  automatically deducted from this amount.
• When its gone, its gone.
• If you overspend after its gone, it comes out of
  your advertising budget.
• Unspent money carries to future periods and earns
  interest.

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Computing Prices
Computing Retail Prices from Wholesale
Prices Expected Retail Price Wholesale
price/(1- Markup) Example Wholesale price
105 Channel 1 Retail Price (105/(1-.50))
210 Channel 2 Retail Price (105)/(1-.35)
161.54 Computing Wholesale Prices from Desired
Retail Prices Wholesale Price Retail Price
(1 - Markup) Example Desired Retail Price
190 Channel 1 Wholesale Price
190(1-.50) 95.00 Channel 2 Wholesale
Price 190(1-.35) 123.50
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Retail Prices Charged Final Consumers

• The retail price set by a dealer depends on
• The wholesale price in the dealers channel.
• The customary markup used in the channel.
• The portion of any sales promotion deals that
  the dealer passes along to consumers as a price
  reduction.

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A Good Wholesale Price

• Should cover the unit cost of the product (given
  its features).
• Should result in a retail price that will appeal
  to target consumers.
• Should result in a profit margin that will
  contribute to other expenses and profit.

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Competitor Analysis

• Review posted reports of industry results.
• Analyze past strategies likely changes.
• Evaluate positioning and target segments.

Firms
1 2 3 4
1 2 3 4 5 6
X
?
X
X
Segments
?
X
?
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Industry Sales Report (Free)
Brand Unit Sales Share (units) Sales (retail)
Firm 1 25,151 .250 4,292,964
Firm 2 25,151 .250 4,292,964
Firm 3 25,151 .250 4,292,964
Firm 4 25,151 .250 4,292,964
Total 100,604 17,171,854

Channel Unit Sales Dollars Sales
1 56,296 10,696.240
2 44,308 6,475,614
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Product Features and Prices Report (Free)
Error protect- ion 3 3 3 3
Ease of learning 3 3 3 3
Retail price channel 1 190.00 190.00 190.00
190.00
Retail price channel 2 146.15 146.15 146.15 1
46.15
Brand of VRD Firm 1 Firm 2 Firm 3 Firm 4
Special commands 8 8 8 8
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Market Activity Report (Free)
Adv. Dollars Adv. Type Sales Promotion
Channel 1 Channel 2 No. Sales Reps Channel
1 Channel 2 Commission Customer Service
Firm 1 250,000 0 0 10 10 5 92,500
Firm 2 250,000 0 0 10 10 5 92,500
Firm 3 250,000 0 0 10 10 5 92,500
Firm 4 250,000 0 0 10 10 5 92,500
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Additional Market Research Reports (NOT Free)

• 1. Market share by segment (all brands)
• 2. Market share by channel (all brands)
• 3. Consumer preference study
• 4. Marketing effectiveness report
• 5. Sales by segment by channel (own brand)
• 6. Consumer shopping habits study
• 7. Product positioning report

Note separate reports are available for each
product, Except for the consumer shopping habits
study
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Market Share by Segment Report (15,000)
Segment
4 0.250 0.250 0.250 0.250 10,240
Brand Firm 1 Firm 2 Firm 3 Firm 4 Total
Sales (units)
1 0.250 0.250 0.250 0.250 20,028
2 0.250 0.250 0.250 0.250 15,084
3 0.250 0.250 0.250 0.250 25,104
5 0.250 0.250 0.250 0.250 22,056
6 0.250 0.250 0.250 0.250 8,092
Whos selling to whom? Whos buying what? What
is each firm achieving? Which segments are buying?
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Market Share by Channel Report (12,000)
Brand Firm 1 Firm 2 Firm 3 Firm 4 Total
Sales (units)
Channel 1 0.250 0.250 0.250 0.250 56,296
Channel 2 0.250 0.250 0.250 0.250 44,308
Whats selling where? Whos buying what?
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Consumer Preference Study (30,000)
Price Range low low high high high low
Special Commands 10-13 7-10 10-13 12-15 13-16 5-8
Error Protection 2-4 2-4 6-8 2-4 6-8 2-4
Ease of Learning 1-3 6-8 6-8 4-6 2-4 7-9
Segment Students Home Assistants Creators Manage
rs Parents
What kind of product would a segment prefer? What
reference price seems typical for the
segment? How are segments similar and different?
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Marketing Effectiveness Report (25,000 or
30,000 for both prod.)
Competitors with lower Index 0 0 0 0 0
Competitors with equal or higher
Index 3 3 3 3 3
Brand Awareness Customer Service Consumer
Group Rating Industry Average Rating Channel
1 Sales Rep Workload Dealer
Satisfaction Channel Strength
(Push) Channel 2 Sales Rep Workload
Dealer Satisfaction Channel Strength
(Push)
Index 0.550 100 100 100 1.00 .500 100 1.
00 .500
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Detailed Sales Analysis (15,000)
Segment
Firm Channel 1 Channel 2
1 896 5,269
2 1,109 3,337
3 5,602 1,396
4 1,808 1,196
5 4,363 1,865
6 1,086 1,074
Unit sales by segment and channel Are you
reaching your target?
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Customer Shopping Habits (7,000)
Segment Students Home Assistants Creators Manage
rs Parents
Percent of Shopping in Channel 2 ? ? ? ? ? ?
Percent of Shopping in Channel 1 ? ? ? ? ? ?
Who shops where? How do shopping patterns match
distribution focus?
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Product Positioning Report (30,000)
Segment
3 ? ? ? ?
5 ? ? ? ?
6 ? ? ? ?
Brand Firm 1 Firm 2 Firm 3 Firm 4
1 ? ? ? ?
2 ? ? ? ?
4 ? ? ? ?
Which brands are closest to which segments?
Which segments have no close brands?
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Submitting Marketing Plans

• Submitting marketing plans decisions
• Submit your decision plan files via email no
  later than the due date and time per class
  calendar.
• Each firm has a distinct industry and firm
  identification (e.g., A1, B3, etc.)
• Need to keep it straight!
• Passwords and the TMGPlan software
• Remember password used to create Plan
• It is case sensitive (upper and lower case make a
  difference)
• Best to stick to one password!

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Recommendations

• Analyze the reports as you would analyze a case.
• Make intentional changes.
• Find a balance in marketing research spending.
• Be integrative--think carefully about how each
  decision impacts each of the others.
• Have some fun!