Market Based Management

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Market Based Management
BA 6324 Fundamentals of Marketing Professor
Dillon Lecture Notes Set 1
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Market Based Management
1. How to Underwhelm Customers and
Shareholders 2. Marketing Defined 3. Market
Orientations 4. Market Definition Product
Markets 5. Management of Product Markets 6. Key
Quantitative Tools 7. Practice Problems
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Market Based Management
1. How to Underwhelm Customers and Shareholders
Poor Understanding of Customers and Competition

Unfocused Competitive Position
Pressure for Short-Run Results
Me-Too Customer Value
Stagnant Shareholder Value
Excessive Customer Turnover
Accounting Maneuvers Drive Financial Results
Market Share Instability
Sporadic Business Unit Profits
High Cost of Customer Retention and Acquisition
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2. Marketing Defined

• 2.1 Historical Focus on Exchange and 4Ps
• gt Product
• Key Questions?
• gt Price
• Key Questions?
• gt Promotion
• Key Questions?
• gt Place
• Key Questions?
• Marketing managers have, to vary degrees, control
  
• over these elementsthat is, the marketing mix.

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• 2.2 Modern Focus on Customer
• Marketing Any and all activities that directly
  or indirectly influence the choices that
  individuals or organizations make.
• Primary Objectives
• Creating Customer Value
• Building Strong Brands

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Power of Brands
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2.3 Why is Marketing Difficult? ANSWERS TO
MISSION CRITICAL QUESTIONS ARE NOT OBVIOUS! So
You Want to Add Another Cruise Ship
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• What are Some Key Management Issues?
• How to determine ship/deck configuration and
  amenities
• How to decide on trip itinerary
• How to determine pricing schedule

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Market Based Management
But Decisions With Respect To These Factors Will
Depend On How Consumers Make Choices
Nights Origin/destination Room Type View
Disney Princess
Line Season Deck
fall winter spring summer
1 2 5 6 7 8
stateroom deluxe stateroom suite royal suite
inside ocean
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Market Based Management
Breaking task into two steps made it easier for
respondents and provided analytic flexibility
Price levels carefully selected to avoid
dominance
Respondents foundcircling preferred
optioneasy to understandand perform
New DCL 7-Day product to be tested
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Market Based Management
Two no-buy options
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Market Based Management

• But How Do We Learn Or Come To Understand How
  Consumers Make Choices?
• THIS IS WHY MARKETING IS DIFFICULT!

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Market Based Management

• The Choices of Consumers Will Ultimately Be
  Determined By
• - Your Value Proposition
• - Their Willingness to Pay

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Market Based Management
2.4 Contributing Factors 1. Unlike successful
corporate financial, accounting, or production
personnel, a marketer cannot be successful
without spending a considerable amount of time
talking to customers. 2. At the same time,
customers cannot always tell you precisely what
they want. 3. Competition is dynamic and
competitors actions are difficult to
predict. 4. Changes in customer tastes and
general societal trends occur frequently. 5. Fol
lowing plans is often difficult.
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2.5 Changes Affecting Marketing 1. Role of
senior management 2. Globalization 3. Shifts
in channel structure and power 4. Increased
customer choice 5. Changing competitive
boundaries 6. Technology and the Internet
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Market Based Management
3. Market Orientations
Sales Driven gt WE SELL WHAT WE MAKE
Technology Driven gt LETS BUILD THE BETTER MOUSE
TRAP Marketing Driven gt LETS LISTEN TO
CUSTOMERS Customer Driven gt FOCUS NOT PROFITS
BUT CUSTOMERS - Marketing Concept SATISFIED
CUSTOMER? PROFITABILITY
Make Sell Provide what we are good at and find
people to buy it.
Sense Respond Listen to what people say and
provide it.
Anticipated Lead Find out what people want/would
like even if they cannot image it help them see
the relevance and value and then provide it.
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Market Based Management

• 3.1 What Does It Mean To Be Customer Oriented?
• gt Customers buy benefits not products.
• Implication Understand which end-benefits are
  most important.
• gt Investment in customers and their long-term
  satisfaction.
• Implication Track customer satisfaction and life
  time value of a customer.
• gt Recognize that not all customers are alike.
• Implication Segment your markets and identify
  highly profitable customers.

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Market Based Management
gt Customers are different
The Optimal Market Share is generally less than
100 percent
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Market Based Management
4. Market Definition Product Markets
Product Markets Set of products judged to be
substitutes within those usage situations in
which similar patterns of benefits are sought and
the customers for whom such usages are relevant
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Market Based Management
5. Management of Product Markets
5.1 Key Perspectives gt Financials Are Necessary,
Not Sufficient - CommTech gt Internal vs.
External Performance Metrics gt In-Process vs.
End-Result Market Metrics
Time of measurement Time of measurement
Measurement Perspective In-Process Metrics End-Result Metrics
Internal (in-company) Product Defects Late Deliveries Billing Errors Accounts Receivable Inventory Turnover Net Profit/Earnings Return on Sales Margin per Unit Return on Assets Asset Turnover
External (in-market) Customer Satisfaction Relative Product Quality Relative Service Quality Intentions to Purchase Product Awareness Market Share Customer Retention Relative New Product Sales Revenue per Customer Market Growth Rate
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Market Based Management
5.2 Market Metrics Most commonly used metrics
Metric of firms that giving top
rating using measure reach the for
assessing top board marketing performance
Awareness 78.0 28.0 28.0 Market share (volume or
value) 78.0 33.5 36.5 Relative price (market
share value/volume) 70.0 34.5 37.5 Number of
complaints (level of dissatisfaction) 69.0 30.0 45
.0 Consumer satisfaction 68.0 36.0 46.5 Distributi
on/availability 66.0 11.5 18.0 Total number of
customers 65.5 37.4 40.0 Perceived
quality/esteem 64.0 32.0 35.5 Loyalty/retention 64
.0 50.7 67.0 Relative perceived
quality 62.5 52.8 61.6 Tim Ambler, Marketing and
the Bottom Line
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6. Key Quantitative Tools
6.1 Marketing Manager Model
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6.4 Market Share
BUT
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6.5 Category/Product Development Index (CDI)
Lets determine the CDI for personal computers for
home use.
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Market Based Management
6.6 Brand Development Index (BDI)
IBM 2876 935 .3251 78.17 150 .0522 39.25 Compaq 61
3 150 .2447 58.84 60 .0979 73.61 Dell 159 50 .3145
75.62 20 .1258 94.59 MAC 3504 1400 .3995 96.06
95 .0271 20.38 Size 76568 .4159 24488 .1330
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Market Based Management
6.7 Simple Financial Metrics 6.7.1 Variable
Costs 1. Cost of Goods Sold (CGS) ?
materials ? labor ? factor overhead
applied directly to production ? cost of
merchandise 2. Expenses that vary with volume
(but not tied directly) ? sales
commissions ? discounts ? delivery
expense 6.7.2 Relevant Costs 1. expected to
occur in the future as a result of some
marketing action and 2. differ among marketing
alternatives being considered
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6.8 Gross (Unit) Margin or Gross (Unit)
Profit GM (Net Sales) - (CGS)
(Market Demand x Market Share) - (CGS) 6.8.1
Contribution Measures 1. Unit Contribution
(UC) UC unit price - unit variable
costs 2. Contribution Margin Percent (CM)
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6.9 Break-Even (BE) Analysis 6.9.1 Unit
Break-Even Volume (BEV)
6.9.2 Dollar Break-Even Volume (BEV)
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Market Based Management
6.10 Price Changes and BEV 6.10.1 Change in
Volume to BE On Price Change
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Market Based Management
7. Practice Problems 7.1 Suppose a firm has
fixed costs of 200,000 budgeted for a product or
service, the unit selling price is 25.00, and
the unit variable costs are 10.00. 1. How many
units must be sold to achieve a profit goal of
20,000? 2. Suppose now that the firm wants to
achieve a 20 profit goal How many units must
be sold? 3. This firm is considering
dropping unit selling price to 20.00. Should
it?
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Market Based Management
7.2 The table below shows CDI for Soft Drinks
(CSD) and bottled water (BW) for several regions.
Analyze.
Total World Africa Europe Latin America North
America
1996 100 33 34 0 149 137 254 56 697 89
1997 101 35 30 0 148 140 261 64 707 94
1998 105 46 29 1 155 155 277 137 715 121
2000 109 51 30 1 163 163 290 179 729 146
2002 111 56 31 1 168 168 292 195 744 157
2004 116 60 34 1 178 174 307 266 766 164
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Market Based Management
7.3 The table below provides data on branded
bottle water sales (in units) for five countries,
along with population numbers. Analyze. (Hint
compute BDI)
Brand Total Units Germany Poland Uzbeckistan Hungary Czech Rep.
Bonaqua 261.8 79.1 74.9 55.4 34.6 17.8
Vital 13.4 6.5 5.7 1.2 NA NA
Kin 46.8 12.2 13.6 10.6 7.4 3.0
Other 50.5 20.5 9.4 6.4 7.4 6.8
Population (in millions) 82.4 38.6 25.4 10.1 10.3