APUNTES MOODLE MARKETING II (2013)Apunte Español
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1. Introduction to Marketing
The first step when preparing a marketing plan consists of establishing a reference
framework which summarises the company's mission and established objectives
We then have to carry out an exhaustive analysis to diagnose the current situation.
This will also help us recommend a strategy which we will translate into an action plan that is coherent with this strategy Lastly, we prepare an executive summary that synthesises the essential points of our plan The following diagram summarises this process: To understand the concept better, we can think about the marketing plan drafting process like a visit to the family doctor: 1. The first thing the doctor has to ask the patient is the reason for his/her visit, the "mission": routine visit, preventative (before a trip or due to pregnancy), treatment, aesthetic purposes, etc.
2. The doctor then has to investigate to have a general idea about the patient's current state based on his/her medical record. Afterwards, the doctor will probably propose the patient undergo different medical/analytical tests: External: Habits, appearance, skin, symptoms, temperature, etc.
Internal: Blood work, x-rays, urine samples, etc.
3. Depending on the test results, the doctor will diagnose one or several ailments or risks 4. A decision is made in terms of the strategy the patient has to keep to (vaccines, extraction/removal, changing habits, etc.) 5. Lastly these translate into concrete actions (taking specific medication, rest, hospital stay, etc.).
Executive Summary We prepare it after drafting the marketing plan because the summary includes the most important points in the plan According to Parmerlee (1993): The executive summary has to encapsulate the plan contents to provide the reader with a general view of next year's objectives and expectations Kotler talks about the executive summary as a document which lets senior management get a quick idea of the main points included in the plan Lambin, though not expressly using the term "executive summary," proposes a synthesis which describes the selected goals, the means required to achieve them and the action programmes We clearly need an extract of the plan which we can call the plan's executive summary or synthesis and which plays two basic functions: o Serve as a good substitute for the marketing plan to keep executives informed about the strategies and actions to be taken if they don't have enough time to read the entire plan o Serve as a guide for those people who are going to read the entire marketing plan, giving them prior notice of the plan's most important points (Robinson, 2003) Note from professor: We should note that providing an index of the plan's content after the executive summary is highly recommended 2. Reference framework Reference framework: all the reference markets in which the organisation operates or will operate and helps us to contextualise the organisation's real and potential area of action from the client's point of view Determining this first point before carrying out our analysis is fundamental to situate ourselves within the organisation's current context and that of its shareholders and stakeholders We should include the previously defined corporate mission in the first part of the marketing plan. It also has to be available to everyone both internally and externally The company's mission has to define: o The area of action o The company's priority objectives o Its strategic ambitions A description of the available resources and details of the company's moral and ethical values can also be included as a way to avoid proposing "impossible missions" Note from professor: Scholars have widely discussed the problem with defining a company's mission in business management literature. Ansoff has underscored the importance of defining the company's business principles as the starting point to begin considering the strategy which will then guide the functional plans: marketing plan, finance plan, operations plan, etc.
A good mission allows us to identify the company's profitability/risk binomial which the marketing executive and other executives have to adapt to in a sustained fashion over time through their actions The marketing executive's primary function is not to maximise the company's profits as might be supposed but make decisions with the aim of balancing the profitability/risk binomial and always using the risk the shareholder or group of shareholders are ready to accept as the reference. If the company wants to achieve greater profitability, the shareholders will have to be willing to assume greater risks We can achieve this balance by weighing the level of risk relative to the profitability for the shareholder The profitability/risk ratio should always be balanced over the long term For a company to aspire to maximum benefits at minimum risk in a sustained fashion over time is unrealistic because this situation would only attract competitors, and profits would automatically drop When risk and profitability compensate each other, the market can balance itself, and we can stop the entry/exit of new competitors The first mission of a marketing executive when joining a new firm is: o Check to see if the risk the shareholder is willing to accept corresponds with the risk the company is willing to assume (if there is an imbalance between the two, the shareholder may opt to sell his/her shares) o Take measures with the other executives to adapt to the shareholder's ideal profitability/risk binomial in a sustained fashion over time As we've seen, a company's binomial can be balanced at different levels. Depending on the company owner/shareholder's objectives, the binomial can be low, medium or high Shareholders want to achieve what's been agreed on, whether the company is a multinational or a small neighbourhood shop. Based on this, the right market decisions can be made: these decisions will aim to satisfy more needs or not satisfy them Example: A cosmetic company that is launching new products and operating in different countries has a high profitability/risk binomial. Because: Working on a worldwide scale and constantly innovating involves a high profitability/risk binomial In a scenario like this one, the probability of success increases, but so does the probability of failure For the company to work well, it is important we sustain the binomial over time. Some companies already refer to these three elements as the profitability/risk/sustainability trinomial Example: a family-firm or one owned by a single individual. The differences in terms of the companies' missions are obvious: o Determining the mission of a small or family-run firm is not as necessary because the owner's personality already tells us a lot about the path we have to follow o In companies with large shareholder groups, defining the mission is fundamental to apply the criteria which filter the policies to be implemented Case study: A company, in line with its current culture, may determine that its mission is to obtain profitability from its asset ("Bultaco" brand) over the long term, obtaining this profitability as efficiently as possible and as sustained a fashion for as long as possible. As such, the company's mission should be precise, and the binomial and culture should coincide. We could describe this mission as follows: Mission 1: “Manage a brand for the founding family's legacy to last” If the company decides to change the path it's been following to assume new risks and enter the volatile fashion industry, perhaps it would be a good idea to identify that new path explicitly. This would imply that the company has to change the way it sees the world around it and how it wants to influence that world. We can propose a few alternative missions, but determining this mission has to involve the company and, especially, its senior management. It doesn’t only refer to the formal hierarchical managers but also the informal power groups within the company Mission 2: “Change the world and change points of view through our image of beauty” This mission represents a high profitability/risk binomial. It would be very interesting due to the fact that it is the most challenging; it presents the broadest type of challenge and the most difficult type of mission to achieve. The mission would be to turn X into a super fashion company. It would be a dynamic and innovative firm, constantly searching for new solutions.
The most avant-garde fashion brands are guided by missions like this one 3. Reference market The different needs we identify in a given market allow us to identify different markets This is why we talk about a 'reference' market because our product or solution is competing for the same budget (or wallet) along with other products and solutions The reference market is defined based on budgetary allotments. Defining the reference market well, without segmenting or positioning, and having a clear idea regarding the wallet involved are very important decisions The budget items are not the only dimension to consider in the reference market We need to consider three dimensions in the reference market: o Budget items o Large client groups o Our solution or product Budget item Budget items in the case of companies and wallets in the case of end clients Companies have to determine the ideal budget allotments, those which maximize profitability according to the level of risk we take on Large groups of clients The large groups of clients who are potentially interested in our product (we refer to large groups of clients and not market segments which we will define later through segmentation) Examples of these large groups of clients include women, Europeans, public administrations, self-employed workers, salaried workers, the Catholic Church, the Army, etc.
They tend to encompass socio-demographic or descriptive variables Product or solution We explain the different ways the large group of clients can spend their money or the respective budget We have based our definition of the reference market on the market structure proposed by Lambin. He limits the market based on the function and group of clients, giving special emphasis to the "substitutable" nature of the different technologies for the same function Technological innovations can disrupt consumer habits and completely replace the predominant technological solutions of the time. Keeping track of these substitutes is made easier by defining the reference market. The primary inconvenience is the fact that the technological areas to be covered can be highly varied and at times very distant one from the other. Lambin, 1995.
To situate the three dimensions better, we need to identify each one: o For the first dimension we have to answer the following question: What needs do we satisfy? (wallet): Health, for example o For the second dimension, we have to answer: Who do we want to satisfy? (client groups or client types): Spaniards, for example o For the third dimension: How do we satisfy them? The technology or ways to spend, for example drugs, insurance, doctor's visits, surgery, functional food, orthopaedics, rehabilitation, etc.
Once defined, the three dimensions would look as follows graphically: The following step in marketing (after balancing the profitability/risk binomial) is: o Selecting the needs we are going to satisfy in our market. We identify these needs with budgetary allotments that we can define as the client's different wallets, that is, the way people distribute their expenses and pay for them o Each wallet has a different binomial. One of the fundamental questions in marketing is finding out from which of the consumers' wallets we're going to get the budget to be able to sell our product. In other words: What budget amount is our client willing to spend? In which wallet does the client keep adding money to spend? Example: The budget item children is a good one as it’s a large wallet which parents refill often Budget items are the clients' mental spaces, allotting money in a certain proportion depending on the importance each space has for the needs that they can satisfy. We can find: o Conservative budget item allotments o Risky budget item allotments Examples: "Entertainment, food, communications, education, health" The "entertainment" budget item (weekends) is not very conservative and it is the one that varies the most Research methods to identify the budget item allotments Budgetary allotments or wallets are cultural Culture determines how budgets are distributed, and it's important to know some of the consumers' habits and routines Example: In 2013, Spaniards spent an average of €1,200 per year on entertainment.
For each Spaniard who earns €3,000 per month there are four who earn €800. 20 to 22-year-old upper middle/upper class Spaniards tend to have budget item allotments of €30/40. That is, they spend €30/40 per activity; on mobile phones, gasoline (petrol), weekends, etc.
Each country will have different sources of data both public and private that will provide us interesting and useful statistical data. For instance, in Spain there are: o Instituto Nacional de Estadística (INE – www.ine.es) o Institut d’Estadística de Catalunya (IDESCAT – www.idescat.cat) o SABI As we can see… Health: Low profitability/low risk. Competing for this budgetary item is complex and difficult because it requires heavy initial investments and there are numerous barriers of entry Clothing: High profitability/high risk. This budget item has changed since Inditex and similar firms entered the market. Though the product is aimed at a specific target, other targets also consume it. The profitability/risk binomial is higher in accessories than clothes because the trend today is to wear basic and cheaper clothes complemented with expensive accessories We can see an example of how the budget item "children" is used in the Telefónica ad in which teenage children are rapping and asking their parents to add a Telefónica internet connection. The company exploits the "children" item and not mobile telephones or communications items One of the items which has dropped the most in the last few months (but which isn't yet reflected in the table above) is the "mortgage" budget item Note from professor: Mortgages have dropped because interest rates have dropped. In Spain, people tend to dedicate the difference on entertainment rather than on mortgages (a cultural factor). The ideal situation would be to dedicate this money to mortgage: raise our mortgage quota and not lower it as dictated by current trends in Spain and Catalonia. The reason is that interest rates will one day go up again, and we should dedicate the money we're not spending on the current mortgage to reduce our future mortgage payments Example 1: The crisis. Some budget items have been affected more or less due to the current crisis. An economic crisis can change culture and, as such, also change our wallets. Some budget items will increase: food, health, household supplies (and should include the amount allotted to the mortgage) Example 2: Private brands are the result of contracts signed between large chains / supermarkets and their brand distribution suppliers, paying less in exchange for more volume.
If this volume dropped because of the crisis, they would have to raise their prices or close. For this not to occur, they ensure that volume is maintained by increasing facings, preferential spots on the store shelves, eliminating the name brand's most sold format while leaving a marginal format so that it seems that the store does have those name brand products available, etc.
Facing concept: the products are arranged within the shoppers' sight-lines. They're the first products shoppers see What should the Marketing Director do? 1. Not fight against the private brand/white label trend 2. The savings from private brands will be spent on something else: launching spontaneous purchase products to complement the wallet 3. Strategic points of sale for the new products: next to the cash registers Example 3: Gas (petrol) station products. More magazines, sweets, etc., are sold at gas stations when the price of gas drops. Unconsciously, consumers spend the amount they had planned on spending Example 4: drop on car sales. Consumes are spending more on accessories (GPS, DVD players, speaker phones, etc.). The amount spend on repairs has also increased: only 30% of car owners take their cars to the official dealership for their annual inspections. People go to independent mechanics.
Crowding out effect: Any displacement of the private sector due to the public sector’s intervention in the economy. It represents a significant limit to the application of fiscal policies.
For example, it can include legislative measures and executive proposals to foment the public sector and which absorb a considerable part of internal savings, displacing the private Macro-segmentation Each of the three-dimensional figures which is produced by combining the three dimensions or axes (previous example: health, Spaniards as individuals, and insurance firms) is called a macro-segment Each macro-segment will have a different binomial but they may be similar to each other because they are framed within the same budget item. Example: when we buy a product or solution using one budget allotment (or wallet), we're limiting how much we can spend from that same wallet on other solutions. Based on these macrosegments, we can define the: Reference market: set of combinations (macro-segments) which appear for each specific budget item and the same group of clients, though each with different ways of spending the amount allotted: we should not confuse the reference framework with the reference market. The set of reference markets is the reference framework It is important to highlight that the same firm can satisfy the needs of different reference markets Example: Bayer makes much more than just aspirin, manufacturing other products ranging from automotive materials to crop protection solutions A product can also be in two different wallets; we can buy a backpack because it is a need (we're avid mountain-climbers or guides) or for occasional use (for weekends as a hobby) Reference framework: all the reference markets in which the firm currently operates or will operate in the future. It serves to help contextualize our company's real and potential area of operations from the clients' perspective Micro-segments: divisions based on explicatory criteria that we apply within each macro-segment. We will know if we need to micro-segment depending on how our product or solution's lifecycle evolves Corporate objectives Corporate objectives have to be: o Coherent with the mission and with each other o Clear and concise o As quantitative as possible when defined o Motivating and attainable Most scholars recommend: o As few words as possible be used when defining each objective (Harvard recommends using approximately 25) o Simple language and avoid technicisms o Objectives ideally are visionary and capable of creating motivating challenges.
These objectives are one more input we have to have in order to begin to draft our marketing plan We have not made any decisions; we have only been gathering information Marketing directors' objective is to balance the profitability/risk binomial in accordance with the objectives set by the company's shareholders Our company's binomial should be expressed in our mission (which reflects our area of activity, priority objectives and strategic ambitions), though it can also be available through industry studies, observing the stock markets and interacting with business professionals and shareholder 4. External analysis: Solution’s Lifecycle This topic corresponds to the third phase when defining a marketing plan During this stage, we need to carry out in-depth studies on the environment in which the company operates to have a clear image of the market's situation both externally and internally Externally Using the previous example of a doctor attempting to cure a patient, we are now completely in the research stage: observation and its results are vitally important to correctly diagnose the illness To maintain the market focus which guides our entire marketing plan, we should first carry out the external analysis before the internal one This way we can ensure that our analysis stems from our observation of the market and not from "staring at our own bellybutton" and avoiding being driven by a focus which would otherwise lead to the typical short-sightedness found in marketing It is vital that all businessmen understand that the vision of an industry is a client satisfaction process and not a production-product process. An industry begins with the client and his/her needs, not with a patent, a raw material or sales skills The external analysis has four key points: o Analysis of the solution lifecycle o Market analysis o Analysis of the competition o Current positioning Lifecycle Product lifecycle: the set of various states or stages which the product undergoes throughout its existence Solution lifecycle: an aggregate curve made up of all the product lifecycles: Lifecycle Phases We will divide the growth phase into two stages: accelerated and slowed growth as the actions required in each of these stages are different We add an additional phase after decline and which we call obsolescence We add a final residual phase characterized by stagnant demand Different product lifecycle phases within the same solution: The solution lifecycle model is based on preparing a graph like the previous one where we place the time variable on the horizontal axis. On the vertical axis, we place demand for the concrete solution being analysed and as a result, we obtain a generally bell-shaped curve divided into various stages.
Each of these macrosegments includes a solution lifecycle. We will be able to answer the following question based on this lifecycle: do we need to segment? It depends on the market's maturity To understand the solution's lifecycle, first we have to understand how our brains work. The synaptic (neuron) connections are key. Our brains have 2 types of connections: o More rational connections based on a sequential chain of neurons connected one after the other o More emotional or sensorial connections which are configured as a network of neurons Note from the professor: In marketing we always have to bear in mind that emotions last longer than rational ideas in our memory. The objective is: 1) How to explain things to the brain while spending the least amount of money possible, 2) Ensuring the greatest permanence possible, 3) Always attempting to balance the profitability/risk binomial, 4) Ensure long maturity which is achieved when the profitability/risk binomial is balanced the most In this part of the marketing plan, we have to identify in which lifecycle stage our solution is, basing our answer on solid arguments The fact that demand varies in different ways over time has important implications for a company's marketing strategy. It has to be adopted in each of the different lifecycle phases: o The economic and competitive environment is different in each phase o The priority strategic objective has to be redefined in each phase o The cost/benefit structure is different in each phase o We have to adapt our marketing program in each phase Below are 4 basic questions to help guide us when analysing each lifecycle: 1. How have sales grown in the last periods? What is the foreseen growth for the next periods? 2. What are other industry companies doing? (Are they creating a mental space, talking about tangible or intangible attributes, etc.) Are they rationalizing or expanding their product portfolios? Do a lot of companies or only a few offer the same product? 3. Is it easy to find the product in distribution channels? 4. What experience and knowledge do consumers have? How do they ask for the product? 1. LAUNCH Objective: associate the solution concept to a specific "wallet" Linking to a specific budget item or wallet should correspond to the profitability/risk binomial shareholders want. Our brains prefer to relate different ideas to a single electric impulse. This is achieved through comparisons Neuromarketing: synapses are neuronal connections and play the most important role in learning concepts since disconnected ideas are eliminated from our brains. When a connection is no longer used, the brain cuts it off and erases what it doesn't understand or what doesn't interest it. Connections can be rational or sensorial. It is extremely important that we carry out continuous market research to find out which synapses (connections) don't interest the brain and are cut off. Depending on our solution's lifecycle stage, we may be interested in rational connections more than sensorial ones or vice versa Rational connections: are easier to manipulate since they are related to a product's tangible concepts and are elements which are easy to modify, copy and overcome.
Example: a newer car, with even more features or more potent engine than the previous model, can always appear Sensorial connections: are more difficult to achieve but easier to maintain as they're related to intangible product concepts and consist of neuronal networks. Even if one synapsis is cut off, electricity continues to flow via alternative routes. Example: A car brand that has a reputation for fun, cosmopolitan or classic is more difficult to unseat Example 1: Let's say we're going to launch fresh pasta products as a new solution to substitute the dry variety we had in the market up to now. We need to analyse the different food wallets: 1. Wallet for pantry items 2. Wallet for fresh food If we want to launch fresh pasta, we have to attract the fresh food wallet via comparison (associating the new product to fresh food). We can help consumers' brains interconnect concepts: a new solution related to another familiar one in the desired wallet. Consumers have to re-learn how to consume, going from dry pasta to the fresh variety. But, in this case, fresh pasta can easily be related to other fresh products 1. Macrosegments in the fresh product wallet: vegetables, meat, bread, fish, etc.
2. Macrosegments in the dry (pantry) food wallet: oil, chocolate, canned food (tins), etc.
Example 2: Launch of DVDs. R&D teams discovered how to expand CD capacity. To take advantage of this discovery, manufacturers had to bear in mind that tangible elements are the easiest to copy. As such, designing a CD with twice as much capacity isn't worthwhile. In addition, it may also cut sales in half. Let's analyse different wallets in this example: 1. Home appliance wallet: with the real estate market boom, there was an increase in home appliance sales (medium binomial). Invent an electronic device to take advantage of the situation 2. VCR use and sales have already been dropping 3. Create the DVD with a CD reader incorporated for CDs with double the capacity of standard CDs The companies connected the new solution (CDs with double the capacity) to a familiar solution (videos) and presented it as a new digital video Example 3: Budweiser is the world's leading beer brand without being the leader in any specific country. How is this possible? 1. Beer used to be a beverage that people generally drank during meals 2. Its main competitor: wine 3. The food wallet's binomial is low The brand's advertising campaign, however, was directed at another wallet: 1. Ads in which no one is eating, having fun instead 2. Evokes pleasure 3. They compared the pleasure of drinking beer to the pleasure of smoking, having an appetizer, etc.
Example 4: Sony laptops. Personal computers were in the "home" wallet because they came from the Personal Computers. Sony proposed moving it to the "company" wallet. How? 1. Proposal that computers should be paid from the work/company wallet so that it wasn't a personal expense 2. It moved from the private individual's wallet to the work/company wallet We can see that a solution's launch phase is characterized by a slow increase in sales figures and by single-digit growth from one period to another. This is due to: 1. Problems with technological debugging 2. Reluctance within the distribution chain 3. Client resistance to modify their behaviours. Target group: clients who are receptive towards innovation 4. No direct competition for a period of time or few competitors 5. High degree of doubt 6. Negative liquidity: marketing costs (distribution and promotions), high R&D costs, etc.
2. ACCELERATED GROWTH PHASE In this second phase, all companies' primary objective should be to increase the market's size to gain market share: o Extend and develop the market o Maximize presence and market share Warning: During the growth phase, it's a mistake to try and increase market share for our firms and not focus on increasing the market's size. Generally, when we experience this accelerated growth, competitors begin to lose market share homogenously. It is also best for consumers because, if the market grows, so do competition and sales: the offer creates demand Note from the professor: Some companies decide to create private brands (white labels) to compete against themselves Invest in communication and distribution The accelerated growth stage implies investments. The shorter this stage, the better, though the market has to digest the new solution and its advantages well: o Investments should be aimed at multiplying the distribution network (sales force and commercialization) o A greater percentage of the total communications budget has to be dedicated to the sales force than to publicity o We have to dedicate the advertising budget to publicize tangible aspects Note from the professor: Investing in publicity without investing in the sales force implies risking the possibility that the consumer won't find our product at the sales point and will choose the competition's product (we are doing their work) During the accelerated growth stage, the priority is selling: the first satisfied users will repeat and will influence potential buyers by word of mouth. During this stage, the socalled first majority begins to consume Peaceful competition without segmentation During the second phase, all the companies must adopt the same strategy in order to help: o Expand the market and create competition o Maintain the competitive climate peaceful among the numerous competitors o Demand to continue growing but doing so at the market pace o Demand satisfies everyone Note from the professor: Some companies send out messages aimed at their competitors and announcing the foreseen growth, all as a means to encourage competition. When the market is expanding, companies don't have to distinguish themselves from the competition because it would imply stealing market share while losing the possibility of increasing the total market Normally, companies can distinguish themselves very quickly The problem arises when the leader distinguishes itself quickly, causing the market to stagnate. “Corporate wars” begin when firms losing market share fight against the company that's growing. As a result, the market will stop growing as quickly Investing in tangibles In the accelerated growth phase, the primary focus has to be on informing about the solution's tangible attributes. Because: o We informed about its function in the first phase (launch) through comparisons o Tangible attributes help expand the market: they have to be added progressively; we should not launch the "ideal" product from the outset but add new physical characteristics little by little (improve the solution technologically) Companies invest in tangibles because the human brain understands them faster: they are easy-to-make synaptic connections Intangibles affect neuronal networks and are difficult to create though they are not easily forgotten The pace at which we introduce tangibles will vary depending on our competitors and consumers or clients acceptance Different concepts cannot be transmitted; the differences should not be easily perceived Example: in the past, there were no specialized shops and the product traits didn't matter. With the arrival of computers, they were initially associated to other household appliances such as washers and refrigerators. Intel successfully compared them to make life easier for clients and sales representatives. The setting was different then because "wallets" were smaller, markets weren't saturated: you could easily grow with some specific products and there were monopolies During the accelerated growth phase, we will see a rapid growth in sales figures: there can be 2-digit positive growth from one period to the next (growth will be greater in the next period compared to the previous one): o Repeat purchases and word-of-mouth influence among the first satisfied users o Target group: early adopters o Product availability at distribution channels o The entry of new competitors increases demand o Widely-used technology Note from professor: It is important to invest in R&D during the accelerated growth phase to modify our products based on what future segments we will be looking for The accelerated growth phase develops based on tangibles which also require greater investment from the company (R&D) The time will come to slow down this growth, but we shouldn't expect the market to decelerate on its own. There has to be a leader who decides to stop adding new tangibles 3. DECELERATION PHASE Companies need to know that creating tangibles has its limits; tangibles are not infinite The sum of tangibles may even be prejudicial for the company because tangibles are easy to copy and can be improved upon. R&D expenses are also increasingly greater but offer fewer advantages The leader decides to slow down the market’s growth based on the hypothesis that it is mature the company balances its profitability/risk binomial It is important we understand the significant role the leader plays in our market. We should see the leader as one more stakeholder for our company, the stakeholder that clears the path. However, a “defective” leader can harm all the other companies in the same market. We need to: o Know the leader: our company can choose a market led by one or another leader. Based on the latter's attributes, we should try to always have a similar profitability/risk binomial to ensure that the leader's decisions will also benefit our company o Companies in the same market have a generally similar binomial, but their marketing processes are adjusted differently: when choosing a wallet, when focusing on a macrosegment, when segmenting, etc.
Note from the professor: the first thing the leader does to detect the right time to decelerate and act accordingly is carry out market studies which provide the necessary information to determine if it's time to segment, if the market is mature, etc. These studies include opinions regarding the tangible attributes, if there are differences between clients, if the market is heterogeneous and if different clients perceive the same tangible differently. All these questions will provide the key to help us decide if we should slow the market down, always basing our decision on forecasts regarding the binomial Before moving on to the solution's next lifecycle phase, we have to introduce two concepts here which will help understand following phases: o Segmentation o Liquidity Segmentation This is a defensive tool used during the deceleration phase. We can define it as an abstraction of the market by the company The market still hasn't been pre-segmented; the company has to decide when to segment based on the profitability/risk binomial When clients are heterogeneous, we know it’s time to create intangibles and begin to slow the market down It’s an unavoidable step is to segment the market. Descriptive segmentation is of no use to us because it isn't solid. We need explanatory segmentation: it explains the whys Maximum profitability/maximum risk implies fewer segments Example: when a monopoly exists, there is only one segment In the case of artisans/craftsmen, each client is a segment. Both profitability and risk are low because the more he/she adapts to each client, the greater the costs, the fewer the benefits, but the safer the transaction Companies that succeed in having a specific solution for each segment have a competitive advantage over others Just because a company focuses on one segment does not mean that it cannot address others Segmentation does not mean losing market share though it does imply slowing down growth as we spread out our investment among different segments. We exert less pressure on the market for it to grow. We need to re-focus resources from capturing clients to building their loyalty Liquidity Liquidity: actual cash or money in the safe. It can be positive or negative When negative, it means that we don’t have any cash even though the company is perhaps earning a profit Example: during the real estate bubble, many construction firms managed their operations based on their liquidity, and this is a false reality According to the solution's lifecycle phase, the company can have different liquidity levels: The company should invest during the solution's initial lifecycle to achieve returns during the maturity phase During the deceleration phase: o Companies invest in intangibles o Products that have just been launched are withdrawn to launch new products o Product stocks accumulate All resources have to be dedicated to make the market grow (invest in tangibles): o Some investments have to be dedicated to product distribution in new channels that reach the target o Followed by some R&D investments to fit the target o Third: product stocks o Finally, we invest in communications efforts (fourth investment item but growing) Contrarily, the company would lose market share and even jeopardize its growth Competitors could take away segments which could generate positive liquidity for us in the future. Investments need to be maintained during deceleration Note from the professor: As a result, having negative liquidity is a good sign that the market is growing During the deceleration phase, we have a quick growth in sales figures: 2-digit growth from one period to the next though at a slower rate (growth in one period is less than in the previous period): o Word of mouth increases o Target group: second majority o Product available in distribution points o Established competitors o Widely-used technology Note from the professor: Segmenting is now worthwhile because competitors will begin to offer tailor-made solutions for different user groups since consumers have attained enough experience to know what they are looking for in this concrete market. Segmenting is also important to build client loyalty Example: mobile (cell) phone operators. Mobile phone operators are in the deceleration phase. The various firms are trying to differentiate between groups, with differential offerings and intangible traits highlighted in their ads (Vodafone: "Now's your time") 4. TURBULENCE PHASE Objectives begin to vary during the deceleration phase and we enter the turbulence stage, when "war" breaks out among companies to capture greater market share As the market is no longer growing, competitors will attempt to "steal" other companies' market shares The conditions which might arise during this phase, making it impossible to avoid confrontation, include: o Different perceptions now exist: if you try to put yourself in someone else's shoes and don't understand, you have different perceptions o Different objectives: these make perceptions different. Objectives can be conflictive when there is only one thing and two people want it o The time variable can be important: as time passes, arguments become imminent. There's a risk of losing Objectives begin to change during the deceleration phase because one company wants to slow down before the others. We will begin to segment We should attempt to build our defences during the deceleration phase, never forgetting that there will be war during the turbulence phase The time factor now begins to play a decisive role, and segmentation is a defensive tool Companies incorporate intangibles into their messages to differentiate and defend themselves, not to satisfy needs. They will do so based on the "whys" they discover through market studies During the turbulence phase, just before the maturity phase begins, “war” between companies serves to gain market share and stabilize them This phase is still characterized by negative liquidity. Positive liquidity is still possible, but only those who "survive" will reach this Promised Land Note from the professor: It's possible that a situation may arise in which companies are well aware of their competitive roles and have segmented the market differently. The conflictive area will be reduced, and the fight will be a quick one. Segmentation creates problems because it is an abstraction of reality. It is subjective and artificial. Each company segments based on its own objectives. How companies segment the market will depend on the profitability/risk binomial which will determine the groups and objectives Some solutions will disappear from the market during the turbulence phase because they didn't capture the minimum market share required by distribution channels to keep them in their product catalogues Note from the professor: The company leaving the market can “play” with prices before disappearing: lower them, special promotions and discounts, gifts, start rumours about the competitors, etc. The company that stays in the market but is attacked by the loser's rumours has to demonstrate that they are not true. This is easy if the company remaining in the market has done its homework and has introduced tangible features first, followed by intangibles later Other factors which can lead to a solution's disappearance from the market (in addition to not having the minimum market share needed) include: o The profitability/risk binomial isn't balanced at the desired level of profitability/risk. It is important to remember that an unbalanced binomial does not exclude a company from the solution's lifecycle because the company can balance the binomial through segmentation o Despite having the minimum market share desired, the company doesn't have the share necessary for its level or competitive role o Many companies leave during the turbulence phase because they haven't met product billing objectives This doesn't mean the company has to close down; it just has to change the solution With the work done on that product, these companies can offer special promotions or sell them to other firms When the product's lifecycle is shorter and the billing earned from this solution with respect to the company's total billing is an extremely low percentage, at times the minimum share needed isn't a question of the market, but the percentage of all the company's sales At the end of the turbulence phase Companies remaining in the market don't have to do anything in particular, though they may offer special promotions to fight at the price level. These promotions tend to be temporary (for example, in summer) They can also offer smaller discounts without fighting at the price level but, rather to change client perceptions, for example, with a "6+1" type of promotion Having competitors is good because, without them, there is no pressure to "do your homework". Example: an executive who argues that he/she wants to act and use segmentation to ensure market share. If this executive works for a company that's alone in the market or is the market leader, this segmentation is difficult A company has to take care if it earns a lot of money. This may indicate that it has a high profitability/risk binomial. It won't be long before competitors appear; interested in taking away some of that company's market share.
Example: The leading brand in the natural yoghurt market had no competition initially and did nothing to protect its market. Eventually, private brands (white labels) entered the market and seized a part of the market Example: Coca-Cola's vending machines have a special distribution When a product doesn't have the appropriate share, it's given a button. This represents an opportunity This is the case with the company's Aquarius product which represented under 10% of Coca-Cola's sales To compensate the loss of share and keep the button on vending machines, the company spent money on publicity.
Here we can see market share's importance in differentiating between a "true" product and a marginal one Marginal products will tend to be on the last pages or the bottom buttons. The same occurs with pharmaceutical products. The sales representative only has a few minutes to convince the doctor and will only select the products he/she wants to sell and will ignore the marginal products In terms of mass commodity products, it is very important they maintain market share to remain on the shelves. Depending on their market share, the space available for them on shelves will be larger or smaller Products that don't make it and are withdrawn leave the market, often lowering their prices, fomenting rumours about their competitors, etc. Those that remain will be able to withstand if they have done their homework in previous phases The turbulence phase is characterized by: o Market growth though at a slower rate. Growth in sales figures is less than in previous stages, usually in the single-digit range (levels above GDP). Growth is slowing down o Target group: market majority o Weaker competitors leave the market o The industry is more concentrated o Imitation ("me too") products proliferate The Art of War. Business Strategies General Sun Tzu's famous book, "The Art of War," allows us to reflect on and apply combat techniques to the business world since both war and economies use similar strategies though their objectives are at times different Perspective: unfamiliarity makes one unable to act effectively. We need external analyses Segmentation: appropriate segments. "Water shapes its course according to the nature of the ground over which it flows; the soldier works out his victory in relation to the foe whom he is facing." (Sun Tzu, 1990) Operational strategy: What is the best formation to attack? The best is no formation.
There is nothing worse than having a defined formation which can be attacked.
Formation is not strategy. For many years, scholars have been talking about the Unique Selling Proposition, a unique and very powerful sales proposal. The concept is very dangerous, and it is better to segment and have different sales arguments. You can only sell the same product to different segments if other parameters in the marketing mix are changed: publicity, price or distribution channel. The only parameter which can never be maintained and has to change is communication (positioning) because there are different segments. Example: the leading cola brand's products in the supermarket, restaurant, bars and vending machines. They represent different distribution points with different prices. Maintaining a single product strategy for all its clients is vulnerable if not managed well On spies: “There are five classes [of spies]: local spies, inward spies, converted spies, doomed spies, surviving spies. […]. Having local spies means employing the services of the inhabitants of a district. Having inward spies, making use of officials of the enemy.
Having converted spies, getting hold of the enemy's spies and using them for our own purposes. Having doomed spies, doing certain things openly for purposes of deception and allowing our spies to know of them and report them to the enemy. Surviving spies, finally, are those who bring back news from the enemy's camp.” (Sun Tzu, 1990). If we analyse Sun Tzu's typology, we can see that a company's most important spies are its sales representatives. The most effective way of sending a message is to tell it to the sales representatives and for them to forward it to the clients. In a sales convention, the company should not reveal all its business strategy. The Marketing Director needs to confirm that the sales representatives know that there is a combined strategy behind their actions. They don't know this full strategy, though. It is explained to them step by step to keep the campaign and, as a result, the strategic plan from being uncovered On victory: “To see victory only when it is within the ken of the common herd is not the acme of excellence. Neither is it the acme of excellence if you fight and conquer and the whole Empire says, 'Well done!' "If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.” (Sun Tzu, 1990). If a price war breaks out, we should not react with the same tactic. We have to avoid "weapons of war" such as publicity and promotions. The best victory is the one that is not waged, the one that is never fought 5. MATURITY PHASE Market share remains more stable because no new competitors appear as roles are already distributed and customers are loyal if all the companies have done their homework well. Companies keep a close eye on each other but do not fight Characterized by positive liquidity because we sell the same thing we sold before but without needing so much investment. We have invested more during the growth phases. A company needs to invest more when it earns more. Liquidity is negative in growth phases and positive in the maturity phase o Negative liquidity: invest in the company (from the solution's launch phase to the turbulence phase) o Positive liquidity: when money can be taken from the solution (during the maturity phase) At the beginning of the maturity phase, some market share adjustments take place.
Afterwards, companies stop spending, and the situation stabilizes itself. The war over market share ends because it is expensive and difficult to win Innovating during the maturity phase shortens this stage and stops or reduces positive liquidity. Many technology firms mistakenly fall in love with their product and not the client, investing in tangible elements until shareholders get tired and stop investing in the company We need to bear in mind that product lifecycles are increasingly faster The leader and main competitor are the ones who begin to segment and stop innovating in general Nothing should be done during the maturity phase. If companies decide to advertise, they should focus on intangible features to strengthen brand recognition If a company sees that all its competitors are doing poorly, the best thing is to abandon the market in a timely fashion. Example: Marks & Spencer disembarking in Spain but soon after deciding to leave given the overall panorama affecting distribution companies Late maturity When new solutions appear to substitute old solutions, it's time to hyper-segment: o Divide the market into small niches o Restyling: maintain the focus on positive liquidity; a lot of money can be earned with little investment As this practice is easy to imitate and involves little risk, prices will fall, the market will begin to fall and the decline phase will begin Example: the distribution market in Spain is: o A hybrid system between the continental and Anglo-Saxon models o It can harm brands those brands that haven't differentiated themselves through segmentation o With the increased purchase of private brands, impulse buying has also grown rapidly o Areas around supermarket cash registers are full of impulse products: batteries, chewing gum, candies (sweets), etc.
o Consequence: the "food" budget item remains intact and ends up being the sales receipt. If distributors decide to use private brands, there will always be competitors selling their products more cheaply because price is tangible and a trait which can be overcome Price is never a good strategy: consumers only look for low prices when they aren't offered anything relevant in exchange for higher prices Clients who shop based on price do so because the company doesn't offer them any different trait compared to other establishments Examples: El Corte Inglés has done its homework and has differentiated itself.
Mercadona's model is based on growth because it needs volume. Low prices always require sales volume. However, this growth model has its limits, and the next step for the company will be to segment The low-cost model Low price is not the same as low cost “Low cost” is a "value-subtracted" model; it doesn't provide any added value but, eliminates services The “low-cost” model is maintained if the differential between cost and perceived value is high; if the differential between real cost and perceived value is low, it is eliminated Is it a model for the future? The low-cost phenomenon is a model for the future since it does provide margins and differentiates itself well through tangible features To continue succeeding in a few years low-cost products and services will have to be able to also provide intangibles Examples: A low-cost airline. The leading British low-cost airline in the European market is built upon young and middle-class wallets with budgets for getaways. We have to remember that the lifecycles of traditional airlines are not the same as those of their low-cost counterparts. They offer two different solutions which are purchased and consumed differently The maturity phase's characteristics: o Total demand continues to decline. There is 1-digit growth in sales figures, similar to GDP levels (maximum sales level achieved) o Demand cannot be expanded. The penetration rate is very high and is highly unlikely to increase o Market coverage through intensive distribution; it is highly unlikely to increase o Technology is popularized (minor product modifications) o Demand for replacement of durable goods o The market is oligopolistic in structure o Target group: market majority o High probability of re-launching products based on technology o Liquidity becomes positive 6. DECLINE PHASE Liquidity increases because no investments are made or companies even disinvest. The aim is to reduce stocks to keep having positive liquidity. Companies also cut back on publicity and sales representatives which are redirected towards other solutions During the decline phase, we find that demand decreases structurally: o New products appear with greater features, replacing existing ones for the same function o There are changes in preferences, tastes and consumption habits o There are changes in the social, economic or political setting in terms of safety, hygiene or environmental protection, making products obsolete or prohibiting them o The number of competitors is dropping o Target group: laggards o Excessive capacity 7. OBSOLESCENCE PHASE It is a very short phase of the life cycle, in which you can even get to double prices for staying with your brand end up with very basic features, based on a classical model with high price, giving a profit via margin or turnover 8. RESIDUAL PHASE From the end of the obsolescence phase we enter the residual phase: o Liquidity is low but positive and very interesting because risk is extremely low o There are practically no competitors left in a residual market, and we can raise our prices to compensate for the low sales volume and thus increase our margin o This margin is distributed between the companies and distributors Note from the professor: We have to raise our prices during this phase because, with the low volume, we have to earn our margin and the distributors'. If this doesn't work, our product will not be residual; it will disappear Residual phase characteristics: o Sales figures remain stable (neither increasing nor decreasing) o Reduced number of competitors Example 1: What do ads for toys and perfumes at Christmas aim to achieve? Through their Christmas advertising campaigns, these companies are attempting to create a very fast lifecycle as products go from launch and growth to maturity in 3 months, the Christmas shopping period 10% of products will be sold in the residual market. They're ads for the residual market or available to push the product at Christmas, making it seem like a “good and expensive” product These companies will use the same ads the following year New solution or new product? The appearance of electric and hybrid cars in the automobile market A change in solutions occurs when the product requires learning a new way to buy and/or use it To determine if the item is a new product or a new solution, we must first know what the current solution is Example: if we analyse today's automotive market, we can see that: o High-priced cars have important market shares o People don't buy cars for transportation. If this were the case, a low-end car would be the sales leader o Cars were a status symbol: when a family was doing well, the first thing it did was buy a new home, later shares in the telephone company and, finally, a new car o In the last few years, the automobile industry has grown tremendously and exploited having a second car among middle-class families which now have several cars per family o Today, electric cars are seen as a new technology, something tangible: electric cars have appeared as a tangible for the new solution (one which already exists: "various cars per family") Example: glasses. A few years ago, Europeans had a single pair of eyeglasses on average. Since then, however, the average is now 2.6 pairs of glasses per person.
Glasses are now in the fashion accessory "wallet." This change is due to a change of wallet from health to fashion accessory Patents are no longer an obstacle to take advantage of technology. In the 21st century, companies have realized that it is more profitable to share their patents to expand the market rather than waiting to grow with the benefits earned from the product Example: Nespresso has shared its patent with other coffee-maker manufacturers. It still holds the patent even though imitators have appeared Note from the professor: For everyone to act the same way, you first have to convince the leader about the "wallet" you want to aim your new idea at 5. External analysis: Market analysis 1. Market analysis is the next point within external analysis. It will help us have a good idea of the market in which our firm operates 1. MARKET PARAMETERS 2. In this section we will analyse global demand in the reference market and its growth perspectives over the next three to five years 3. Our analysis has to take into account market factors and how we measure demand.
These can have an impact on the market's growth 4. Market size: set of actual and potential consumers of a given product Potential The potential market is determined by the set of consumers who demonstrate enough interest in a given offering. It is important to remember that consumer interest is not enough to define a market. Potential consumers have to have sufficiently high income to acquire the product Available The available market refers to the set of consumers who are interested in the product, have enough income and access to a given market offering Target (or addressed) The target market is the specific portion within the larger market on which the company focuses all its efforts Penetrated The penetrated market refers to the set of consumers that have already purchased the product These market definitions represent a useful tool in marketing planning. If the company is not satisfied with current sales, it can attempt to find a larger share of buyers within the market it serves or reduce product prices to increase the size of the available market Demand: total volume which a group of purchasers can buy in a given place, time, environmental condition and sales effort Global demand Quantity of sales in terms of a reference product-market (industry or market) in a given place and time period, and for the set of competing brands or companies Company or brand demand Part of the global demand which corresponds to a brand or company’s market share in terms of the reference product-market Both are response functions which depend on two elements: socio-economic factors in the given setting and the total marketing efforts by all the companies competing in the market The different methods available to estimate demand are based on two essential factors: the number of consumption units (n) and the amount consumed per unit (q) Similarly, the value of this global demand can be calculated as follows: When measuring demand we should also pay attention to: o Market shares o Current sales in terms of volume (units) and value: Product levels reference market (solution), industry, generic product, specific product, product line, brand sales, and company sales (market share) o Spatial levels client, territory, region, country and world Temporal levels short, mid and long term Trends: growth, stagnation and decline After analysing both the market and demand, we now list all the variables we have to take into account: o Seasonal sales structure o Geographic distribution o Penetration rate and product use o Contribution margins o Average marketing expenditure levels in the market: Total level of advertising intensity and trends Most used advertising media and trends Sales force and advertising distribution and trends o Advertising topics adopted and trends o Average consumption per inhabitant, home and client (current rate and trends) o Home and company furnishing rate o Average product life-time o Replacement share of sales o Recent product innovations (technology) o Average price growth trends o Identified trends in product use 2. PURCHASE BEHAVIOR Purchase behaviour refers to the set of activities which precede, accompany and follow purchase decisions and those in which the individual or the organisation actively intervene with the aim of making well-founded choices The factors that influence purchase behaviour can be: o Cultural: culture, subculture, social class o Social: groups buyers belong to, reference groups (aspirations, disassociative, opinion leaders), social role, status o Personal: age and family lifecycle phase, profession and economic circumstances, lifestyle (activities, interests and opinions), personality and concept of oneself o Psychological: motivation, perception (selective attention, selective distortion and selective retention), learning, benefits and attitudes People's lifestyles are the patterns they follow in their lives, expressed through their activities (work, entertainment, purchases, sports, social activities), interests (food, fashion, family, entertainment, etc.) and opinions (about themselves, on social concerns, commercial and products) 2.1. Players and types of purchase behaviour There are five different types of players: o Initiator: the first who suggests the idea to buy a given product or service o Influencer: the person whose point of view or advice has some weight on the final decision made o Decider: the one who decides on one of the purchase decision elements (if it should be bought, what should be bought, how and where) o Buyer: the person who carries out the actual purchase o User: the person who consumes or uses the product or service Once identified, we can now direct our marketing campaigns to the different types of players that have a role in the purchase process Example: Perfume For companies dedicated to selling perfumes, the difference between the buyer and the user is vital given that the majority of perfumes are bought as a gift for someone else. In this case, the buyer does not coincide with the final user Each purchaser's behaviour can be: o Complex o Disassociative (reduce disonance) o Habitual o Searching for variety The following matrix can be used to relate each behaviour to the differences between brands and engagement: 2.2. Response levels among potential buyers According to Lambin, we can identify different response levels among potential buyers, the information perceived and the stimuli used by producers Response: all the purchaser's mental and physical activity provoked by a given stimulus The purchaser's different response levels can be grouped into three categories: o Cognitive: highlights the information assimilated and knowledge o Affective (emotional): corresponds to attitudes and appraisal systems o Behavioural: describes the action, not only during the act of buying but also behaviour after the purchase.
It refers to the area of knowledge (set of information and beliefs which an individual or group of people can have). This information is stored in the memory and influences when interpreting the stimuli the individual is exposed to Market awareness Awareness: ability of a potential buyer to identify a brand in a sufficiently detailed way so as to propose, recommend, choose or use that brand to satisfy the need of a given product category Types of awareness according to consumer responses: Awareness-recognition The brand precedes and drives needs (“I recognise a brand A and realize that I need that product category”). Recognition is the lowest level of awareness and is particularly important at the point of sale, at the moment consumers choose a brand Awareness-memory Need precedes and drives to the brand (“I need a given type of product category: I’m going to buy brand A”). it’s a much more demanding test of awareness which often comes about after many years in the market Awareness-top-of-the-mind The first brand mentioned. It refers to what the consumer has on his/her mind Note from the professor: The information that can be extracted from the answers to these questions are both numerous and important. They let us appreciate the goodwill a particular brand or company enjoys Types of awareness according to the question asked: Spontaneous awareness (unprompted) When the question does not refer to any specific brand Aided awareness If the person surveyed receives a list of brands and has to identify the one he/she knows, for example Qualified awareness We can also identify the level of awareness or familiarity using a three or five-position brand. As a result, in addition to total awareness, we will also have a measure of qualified awareness Within the different cognitive response factors we also find measures of advertising memorization. The most popular measures are the various impact scoring systems which aim to measure the percentage of potential buyers who correctly identify an ad or message after seeing an advertising campaign This information can be gathered through interviews: o Total spontaneous score: percentage of individuals who spontaneously remember the advertisement when talking about the product in question o Described-tested score: percentage of individuals who, in addition to the previous group, are capable of correctly describing the advertisement in question, providing, proof that their memories are real o Recognition score: percentage of individuals who recognize an advertisement when it's shown to them o Beta factor: percentage of people who, when exposed to a new message for the first time, memorize the brand and at least one of the advertisement's visual or textual elements Finally, we can also approach cognitive responses with a similarity perception analysis: The objective of similarity perception is to identify the perceived similarity between a group of potential buyers’ known brands based on a visual representation of the perceived similarities between these brands, all without formulating any hypothesis a priori about the causes of these perceived similarities or differences Note from the professor: In practice, we know that potential buyers perceive brands or products based on a reduced number of dimensions (generally two or three) referred to as "macrocharacteristics." A multidimensional analysis of similarity will lead to perceptual maps in which each brand is represented by a dot and where the distance between dots measures the greater or lesser degree of perceived similarity for those interviewed. This serves to help define positioning maps Affective response.
Is essentially evaluatory. It not only remits to the field of knowledge but also to feelings, preferences, intentions and favourable/unfavourable opinions towards a brand or organisation We can find different models within affective responses: The most widely used method to measure attitude is through the composition focus. It considers that an attitude towards an object is based on the knowledge the individual has about that object's attributes and the importance the individual gives to these objects based on those attributes There are two focuses within composition methods: o Compensatory model: low scores on some attributes are compensated by high marks on another attribute. This method to evaluate scores isn't necessarily the most appropriate since, for example, the individual in question may have an absolute restriction about exceeding a certain price. In this type of situation, a compensatory evaluation is no longer such since a single criterion predominates o Non-compensatory model: Disjunctive model: the buyer decides to not consider any brands except for the best in terms of some dominant attributes, regardless of how the brands perform with respect to other attributes Conjunctive model: the buyer establishes an acceptable minimum per attribute. The buyer will not choose a given brand if it does not exceed the minimum demanded; it will be rejected Lexicographic model: the individual acts sequentially. He/she orders the product attributes from the most important to the least. He/she first compares brands on the first attribute and remembers which have the highest scores. If the brands are equal, the individual goes to the second most important attribute, and so on Another technique to measure attitude is the decomposition method. The decomposition method is based on classifying preferences regarding different products or brands whose characteristics the interviewee is already familiar with. From this classification we can perceive the partial underlying usefulness each characteristic has for the interviewee, reconstructing his/her order of preferences as best as possible Behavioural response Purchase habits and their change, questions we should ask: Concepts related to repeat purchases: loyalty rate and attraction rate Loyalty rate: percentage of purchasers who, having bought brand A in previous periods, continue to buy it today Attraction rate: measure of behavioural response. Percentage of buyers who, having bought from the competition throughout preceding periods, buy the other brand from now on Sales analysis (volume and value) and market share (volume, value, market served, compared to the competition, compared to the leader) Market occupation rate/horizontal percentage: percentage of brand X buyers over the total number of buyers in the reference product category Exclusivity rate: share of purchases within the product category reserved for brand Z Intensity rate/vertical percentage: comparison of the average quantities of brand X bought by the consumer with the average quantities bought in the product category Functions of behavioural response refer to uses which join responses from buyers (expressed in volume, sales figures and market share) with one or various marketing and/or environmental variables. The quantitative estimate of response functions leads to elasticity coefficients which measure demand sensitivity or market share depending on variations in an explicatory variable such as price, advertising or family income 2.3. Purchase process in a consumer market 2.4. Corporate purchase process Problem identification Description of the need Product specification Search for suppliers Request for proposals Supplier selection Specification of ordering routines Revision of results Note from the professor: It's important we understand the buyer's behaviour during each stage and what influences him/her, all the while highlighting the changes we feel are the most important for our company in our annual marketing plans. To further explore this point, we can examine market studies carried out or carry out our own qualitative research based on observations or focus groups with sample consumers to identify what basic factors are influencing purchase behaviour for our product and then, after receiving results, carrying out an exhaustive as possible a survey on a significant number of consumers 3. DISTRIBUTION In this point we will analyse the type of distribution channel the company uses and its probable development in the future, seeing the distribution channel not only as an intermediary but also as the company's most important client As distribution channels control entry into the market, they have significant bargaining power Distribution channel: set of interdependent organisations involved in the process of putting a product/service in the market for its use or consumption by the user or by other companies 3.1. Distributors' functions Finalize transactions, gather and transmit information Communicate, contacts, negotiate prices and other conditions Logistic capacities (transport and storage) Financing and covering risks 3.2. Type of distribution channel There is an important distinction between distribution channels in terms of retail and wholesale Retail distribution channels.
Includes all activities related to the sale of products/services directly to final consumers for personal use and not commercial Wholesale distribution All the activities required in selling goods/services to those who buy them for resale or business use We have different types: o Merchant wholesalers: they can be full-service (wholesale for retailers and industrial distributors) or limited-service (cash & carry, truck wholesalers, drop shippers, rack jobbers, producer co-ops and mail-order wholesalers) o Brokers and agents: they do not take title to goods and only perform limited functions. The primary one is facilitate sales and purchases, receiving in turn, a commission which can range from 2 to 6 percent of the sales price o Central brokers and manufacturer and distributor offices Corresponding checklist Distributor traits (quality, territorial, coverage, client type, type of publicity, etc.) Market share of each distribution channel Growth trends in each channel Distribution concentration and negotiating power Distribution type (intensive, selective, exclusive) Numerical and weighted distribution Product presence in the channel Client segments addressed by the channel Distribution margin levels by channel Habitual discounts and rebates offered by channel Distribution costs Product turnover and stock needed at point of sale Point of sale actions (promotions, direct marketing, etc.) Product sale sharing out by type of distributor Rate of sales increases by type of distributor Relation with distribution (entry conditions, distributor’s motivation to offer the product, measures to be adopted if the distributor abandons the product, factors which can modify the relation with the channel, etc.) 4. ENVIRONMENT When carrying out an analysis of the environment, we have to bear in mind the main economic, technological, demographic, socio-cultural, political, international and ecological indicators which affect or can affect the development of our market, helping us prepare for different scenarios.
Example: Below is an example list of questions, the different questions we have to answer will depend on the market in which our company operates: A. Economic setting: What is the expected growth in GDP and industrial production? What is the forecast increase in prices? What economic change could potentially have a negative effect on the market's growth and on demand? What measures should we take in case these changes occur? B. Technological setting: What technological development may arise, impacting production costs? What measures should we take if this occurs? What technological innovation could affect the demand for our products? What technological industries could threaten our area of activity? What measures would allow us to minimize the impact of this change? In which fields would a technological discovery affect our market? In what timeframe might this technological discovery occur? What measures should we enact today to minimize the impact of that change in the future? C. Socio-demographic and cultural setting: What demographic trends might affect the demand for our product? What is the foreseen impact of these trends on our sales? What socio-cultural changes might have an impact on the demand for our products? What changes in buyers' attitudes might have an impact on global market demand? What foreseeable impact might these changes have? D. Political setting: What law or regulation might have an impact on our production activities in the near future? What should we do in this situation? What law or regulation might affect our sales, distribution or communications mechanisms? What measures should we adopt in this case? What financial or fiscal law or regulation might have an impact on the profitability of our activities? Do consumer associations criticize or complain about our industry? How should we react in this case? E. International setting: Do we depend on the import of raw materials or components? If so, are the countries of origin economically and politically stable? What measure should we take if our supply to these raw materials and components is completely cut off? What changes might occur in the country where we have a presence, affecting our activities? What threats and opportunities does the creation of a single European market imply? How should we prepare for a market globalization process? F. Ecological setting: What procedures do our suppliers have that represent a threat for the environment? What measures should we adopt if our suppliers have to change their manufacturing processes? What processes, raw materials and packaging do we use that represent a threat to health or the environment? Can our industry become the target of ecological groups' campaigns? If so, how should we respond? 6. External analysis: Analysis of the competition and current positioning Analysis of the competition 3.1. Analysis of the competitors Studying our competitors implies a comparative analysis, grouping firms by: o The types of actions they take o Their products o Where we find them o Their pricing policies After carrying out this general analysis, we need to identify and analyse our most direct competitors to determine which we need to attack and which we should avoid.
Checklist format that we should bear in mind during this process: o Identify direct or priority competitors o Total and relative market share of the 5 most significant competitors (units and euros); trends o Direct competitors’ positioning and strength of their brand images o Strength and degree of protection for direct competitors’ key differentiating factors o Source of direct competitors’ competitive advantage o Direct competitors’ weaknesses o Competitors’ objectives o Dominant type of competitive behaviour or strategy o Price structure: absolute and relative prices o Profile of competitor’s clients o Audit of our competitors’ marketing mix: product quality strategies, pricing, promotions and distribution o Direct competitor’s financial resources and capacity o Competitors to attack and avoid: retaliation or protection measures to adopt in case of a frontal attack o Ability to retaliate in case of direct confrontation o Entry barriers for new competitors o Threat of substitute products o Competitive intelligence o Degree of vertical or horizontal integration 3.2. 5 forces analyses Another way to analyse competition consists of using Porter's 5 forces analysis or extended rivalry This model is based on the fact that a company's ability to exploit a competitive advantage in its reference market depends on: o The direct competition it finds there and o The role of the following 4 rival forces: Potential competitors Substitute products Clients Suppliers Identify potential competitors.
Companies outside the product market that could easily overcome the entry barriers Companies for whom their entry represents a clear synergy Companies for whom their entry represents the logical extension of their strategy Clients or suppliers who can integrate at the product origin or consumer levels Identify possible barriers of entry.
Economies of scale Difference between products that are well-protected via patents Need for capital Transfer costs the purchaser has to pay to change supplier Distributors' reluctance to sell a new product Effect of experience Substitute products.
Those that have the same function for the same group of consumers but are based on a different technology We need a tracking system for technological developments to adopt systematic behaviour We have to stay well aware of conversion costs (real and psychological) which can be very high and nullify the impact of the price differential for consumers Client’s bargaining power.
Importance of their purchases with respect to the seller's total sales figures Level of differentiation between the products compared Transfer costs or costs of changing suppliers Threat of client integration towards the origin Information available to the client about demand, real market prices and supplier costs as well Suppliers' bargaining power.
Degree of supplier concentration with respect to their clients. They can take advantage of an activity's profitability if their clients cannot apply the increase in suppliers' costs to their own prices Existence of potential substitute products for those provided by the supplier The company's importance as a client for the supplier Importance of the supplier's product as a key manufacturing/production component for the client Level of differentiation between the supplier's products Transfer costs for the client Threat of supplier integrating towards consumers The nature and intensity of the competitive situation and the ways in which direct rivals compete.
Pure or perfect competition Oligopoly Monopolistic or imperfect competition Monopoly Current positioning Note from the professor: Analysing the current positioning of the company under study is one of the key aspects of external analyses Objective is to determine which attributes consumers in this reference market value the most Attributes should be physical or tangible if we are currently during the accelerated growth stage or previous stages and intangible (elements related to perception) if we are in later stages If the attributes are highly interrelated, we need to group them into various components which, when cross-referencing them, will help us define our positioning maps. These maps need to include our company and our competitors By using maps with 2 axes, we can see the perception clients have of the companies with respect to the factors they value the most Example: A market study on travel accommodations detected that what consumers value the most when choosing the accommodation is: Elements related to the breadth and variety of services the establishment offers (newspapers, secretarial services and fax, transport, dry-cleaning, etc.) Price The positioning map was created as follows: But be careful: Other studies detected that what consumers value the most when choosing the accommodation is: location and soundproofing 7. Product Portfolio Analysis - After carrying out our external analysis, we now focus on the company from the inside, developing three key points: o Product portfolio analysis (or portfolio management) o Client classification o - Internal audit Let’s think about the answer to the following question: What type of analytical frameworks have you used or are you familiar with? o ABC products, Pareto 20-80 o Boston Consulting Group o McKinsey A marketing director's priority functions have to include, among others: o Balance the company's profitability/risk binomial with the shareholder's binomial o Analyse the most interesting budget items ("wallets") for our solution o Define the reference market (budget item, technology and large groups of clients) o Make decisions based on the solution's lifecycle stage for our macrosegment(s) We will obtain a large part of this information through our external analysis because our reference should always be the market (market perspective) and not the company or the product (product perspective) Note from the professor: If we only carried out an internal analysis, we would end up with an incomplete, egotistical perspective. By examining the market, we can find important data about consumers, the competition, the legal framework, etc. Once we have this information, we can begin our internal analysis We'll divide this part of the marketing plan into two sub-sections. In the first, we'll present the most important data regarding our products' current situation. In the second, we will use up to 4 different analytical tools to examine our product portfolio management 1.1. CURRENT PRODUCT SITUATION The most important data that we should bear in mind to have a clear idea of our products' current situation: 1.2. PRODUCT PORTFOLIO ANALYTICAL TOOLS All companies with a future vision have to analyse their product portfolios periodically.
There are two well-known portfolio analysis matrixes: o Boston Consulting Group o GE McKinsey We will propose two other tools developed at ESADE and designed to adapt to today's reality: o "Clieducts" matrix o Analysis of solution pairs A) BOSTON CONSULTING GROUP In the 1970s, Boston Consulting Group (BCG), the leader in management consultancy, developed a tool called the Growth-Share Matrix or BCG Matrix Its aim was to help analyse business portfolios across two dimensions: market share and market growth.
We can identify 4 very different product-market groups in terms of priority objectives and precise financial needs: o Vacas lecheras (Cash cows): products whose reference market is growing slowly but for which the company has a relatively high market share. These products should provide significant financial liquidity and consume little. They represent a source of financing to maintain diversification strategies and research. The priority strategic objective here is to "milk" the cows o Perros (Dogs or pets): products whose relative market share is low in an ageing sector. Companies should increase their market share over competitors which have cost advantages. As such, this is not very feasible. The objective is to abandon the market o Interrogantes (Question marks): this group consists of products with a relatively small market share in a quickly expanding market. It requires significant funds to finance growth. The aim is to identify the activities with the possibility of succeeding. The objective is to increase market share. Significant financing is required o Estrellas (Stars): product leaders in their respective, quickly growing market.
Less financing is needed to maintain their growth, but, due to their competitive advantage, they provide great benefits. They will generate significant benefits and will replace cash cows in the future The importance of an activity can be represented by a circle whose surface area is proportional to the sales figure or added value. The sales figure’s distribution among the quadrants allows us to assess how balanced out activity portfolio is The ideal situation is to have products which can generate revenues alongside products in the launch or growth phase to ensure the company’s renovation and that the high-revenue products finance the others The vertical axis measures the degree of market attractiveness it is measured based on the market growth rate The horizontal axis measures the competitive position of each strategic centre it's measured in terms of market share Are these two indicators useful or, rather, enough? Important: The BCG Matrix is supported only on the internal competitive advantage; it doesn't take into account the external competitive advantage which can be achieved through successful differentiation. For example, "dogs" have a small market share with respect to the leader but they could become profitable if different qualities were made available for buyers willing to pay a higher price Note from the professor: The BCG Matrix is useful in markets in which the primary indicators for companies are market share and growth; markets with more demand than supply (high growth). In markets with a heavy volume, having a strong market share is an indicator of relative strength. There are also countries whose settings allow us to apply this matrix.
However, the majority of our current markets don't meet these requirements. Instead, our markets are saturated, and the appropriate indicators are others. As such, the Boston Consulting Group matrix is obsolete B) GE MCKINSEY MATRIX General Electric along with the McKinsey consulting firm (BCG's biggest competitor) developed a matrix to analyse the company's own business portfolio This new matrix incorporated more variables in an attempt to explain the success or failure of given products The matrix' axes are multivariables. It is a straight-line, orthogonal graph. The matrix is divided into nine strategic areas, the result of dividing each axis into three equal parts: In theory, this matrix has several advantages over the previous one. However, measurement problems (choice of variables and weighting) add a greater subjective component, and it does not provide many new conclusions or ideas other than those we already know This tool is not useful because it has a significant subjective component Note from the professor: We should therefore forget the BCG Matrix and the GE McKinsey Matrix due to their limits C) "CLIEDUCTS" MATRIX The first tool is a matrix to analyse the current economy (non-monopolistic).
Attractiveness and competitiveness are evaluated Some of these items could include: Flexibility of the adaptation Solution lifecycle Innovation Margin The aim is to achieve an optimal product portfolio. For this, Risk three variables have to be taken into account Profitability (margin) Sustainability What is more appropriate: analysing the client portfolio or the product portfolio? A combined analysis of our "clieducts" (clients + products). This is a new way of managing our product portfolio, allowing us to have a portfolio of products and clients with the right and sustainable profitability/risk binomial Important: It is extremely important to have balanced "clieducts" We can identify three client types within firms: Captive (30%) These clients always pay for and buy out company’s product. If companies don’t have this clieduct (client+product), their future is jeopardized. These clients allow the company to pay for its structure and bills Satisfied (30%) These client’s expectations are met and even exceeded and they are willing to pay for this. These are the ideal clients to give them extras and added value because they’re willing to pay for them. However, the more we give them, the more they demand and, they can reach such an extent that the brand may no longer be enough. That can mean that these clients won’t be satisfied in the end Loyal (30%) These are clients who always choose out products when they have various options. This situation also allows the company to make mistakes; these clients will continue buying their products. However, they won’t tolerate mistakes forever.
Note from the professor: Captive clients are low-risk customers. Satisfied clients provide profitability and money through our margin, while loyal clients provide sustainability. To have balanced "clieducts", each of these client groups needs to represent 30% of all clients. The remaining 10% can be aimed at balancing the profitability/risk binomial our shareholders demand Example: A business school 1. Captive clients → Undergraduate degrees. They pay for the business school's structure and help adjust the risk for a long time (up to 5 years) 2. Satisfied clients → Customized in-company Trainings. They provide margin and profitability 3. Loyal clients → Masters. They appear in rankings and after completing the program, they will send their children there for their undergraduate degrees. They provide sustainability and image We recommend always beginning from the bottom: o Start by capturing captive clients (with enough critical mass to pay for the structure) o We can begin to capture the remaining client types later The optimal process is to begin with a little of each type It is very important to have balanced clieducts (clients + products). In other words, we have to have a balanced distribution of clients: This structure of percentages is very hard to maintain when the economy is strong since concentrating on clients offering the greatest profitability and satisfaction will be tempting Note from the professor: Though 10% may seem like a small percentage, it should be sufficient because we will have already made the decisions to adjust the binomial for our product portfolio; we should only have little to adjust for. The big decisions in terms of the binomial are the reference market, the budget item and the macrosegment. This "clieduct" model is relatively new but can be applied to different situations Example: A restaurant.
It has 3 types of clients: those who come for the daily set menu, sporadic clients who order “a la carta” and celebrities who visit the restaurant often. The restaurant treats these celebrities very well and adapt to their eccentricities In times of “economic bonanza”, preparing set menus may seem like a waste of money, and the tables reserved for celebrities are always taken. Without planning, celebrities no longer have reserved tables like before. The result is that the restaurant gives increasing importance to clients ordering a la carta because they offer greater profitability Suddenly, an economic crisis appears and the set menu clients stop coming, preferring the restaurant next door which is better. This second restaurant did not focus on clients providing a greater margin and managed its clients well D) ANALYSIS OF SOLUTION PAIRS Once we have identified all the solutions our company offers: o We determine which ones and how many are in lifecycles with negative liquidity and require economic resources from the company (from their launch to the turbulence phase). Also which ones and how many are in phases providing the company with resources (after the maturity phase) due to the fact that they generate positive liquidity o To have a balanced portfolio we should pair solutions so the one that provides resources can balance with the one that requires Important: we should remember that liquidity is not the same as cash flow. Cash flow is a concept from the profit and loss account: cash flow = benefits + amortizations while liquidity is a concept referring to our treasury In addition to finding the balance in liquidity to be able to make the right decisions, we also have to know what our investment/disinvestment priorities and strategic objectives are. They vary over time depending on our products' and solution's lifecycle Note from the professor: It's important that we highlight the fact that many companies invest a larger part of their budgets on their most successful mature products. They focus their investments on very profitable products, leaving products that are just beginning to grow unfunded. This decision is wrong since they invest in products that already generate positive liquidity. Mature products don't require as much investment to continue working. They need investment to, for example, launch communications campaigns to raise awareness, etc. The main reason behind this poor management is the belief that power is quantified according to the budget one manages. The product manager, in charge of marketing a specific product range, argues that the company has to continue investing in the mature product that has made the company successful, consolidating his/her power within the firm To resolve this inconsistency, we can use the analysis of solution pairs tool in which the company's different solutions are paired together to balance investment and disinvestment depending on liquidity: Important: The solution pairs model is based on balancing a solution which provides resources with another one that consumes them.
Example: Business school. The solutions pairs could be: The undergraduate program is in the mature phase PhD program Language program maturity Executive Education programs Mature Full-time MBA programs Part-time MBA programs If all a company's products are mature due to poor planning, it will need to diversify its portfolio and invest liquidity from mature products to growth If the company has a lot of products in the growth phase, it will need to sell one of them and invest the money in buying residual products to gain some stability Residual products always provide the same benefits since there is no competition in their market and they don't require investment. They offer security and can help the company adjust its profitability/risk binomial because these products compensate for the risk implied by products in the launch phase. Another advantage is that they provide the company access to the end distribution channel Example: Juanola cough drops (1906). They are residual products and enable the company to contact directly with pharmacies and help introduce new products This exchange between products in the growth and residual stages can occur when the company has a product in each phase and both attempt to balance their solution pairs.
These exchanges occur within the same "wallet" because they have to be similar in order to take better advantage of the acquired product We have seen two product portfolio management tools: o The "Clieducts" Model o The Solution Pairs Model which aims to balance liquidity between the matched solutions' lifecycles Which of these two tools is the most appropriate? Deciding where to invest money to maximize business value is a dilemma which affects the entire company As marketing directors, it is important that we find a portfolio management tool that adapts to our company and takes into account the risk we will assume according to the profitability/risk binomial shareholders dictate Can we talk about solution trios instead of pairs? It is possible but very difficult to manage. When a product manager has more than one pair of solutions, they become increasingly difficult to manage He/she has to manage 3 solutions which consist of their own products directed at their own specific segments When using the solution pairs tool, you significantly reduce the risk involved because the space available for you to manoeuvre is fairly well defined But, if the product manager is dealing with 3 solutions, the margin for manoeuvrability increases but so does the risk of making mistakes. For example he/she may inadvertently let star products get away because he/she has to divide up investments among more solutions Can having a product which becomes a "surprise success" (or "sleeper hit" in movie terms) be the result of good management? No. These cases are always due to poor management Unexpected hits are not positive. They imply very high profitability but also very high risks The most common cases in which we see these surprise hits occur is when the government intervenes in the economy to reactivate a given industry with subsidies.
As a result, this quick investment destabilizes the profitability/risk binomial for companies in that industry To avoid this situation, the government needs to coordinate with the different social players implied 8. Internal analysis: Client classification and Internal audit 2.
ABC CLIENTS In this second point, we are going to evaluate and classify the clients in a company's portfolio. For this, we will use the client portfolio analysis matrix (Alfaro) We have chosen this tool because it allows us to not only identify today's good clients but also takes into account our clients' future potential The matrix classifies clients across 3 key dimensions: o Attractiveness o The company's relative position o The client's projection in terms of potential to create value through collaboration We now present the different factors we have to consider to evaluate the 3 dimensions. Their evaluation will vary depending on the industry: o What makes a client attractive? Size Total business size Billing Sales volume Innovative value Innovative capacity Importance of the innovations Growth Change over the last few years Strategic project Defined and concrete Stability Strength and stability Future value Future projection Leadership By shareholders By management Reference value Prestige and visibility Competitive position Leadership in its reference market Note from the professor: If we aim to identify clients whose strategies and needs fit our capacities and resources, we need to use criteria that distinguish between clients in terms of their fit with our business model. We can call these criteria "position" dimensions o What factors define a company's position? Client's importance Relative sales volume compared to our total billing Relationship age Compared to our client portfolio on average Client share Percentage that our sales represent for the client compared to its total purchases Problems Level of conflict and tension in day-to-day reality Profitability Of a specific client compared to the average for all our clients Complementariness In client's view Satisfaction The client's satisfaction Knowledge Information we have on the client's business and industry Reference value Prestige and Visibility Image Our image in the client's eyes Lastly, if we aim to distinguish between clients in terms of the possibility of establishing collaborative initiatives and “partnerships,” we need to focus on criteria that positively distinguish those clients who are willing and have the capacity to manage collaborative relations productively. We call this dimension "projection." o What factors can we use to determine a client's projection? Collaboration Willingness to establish and accept relations Experience In collaborative projects Expectations Clients with reasonable expectations and good human relations Social bonds Positive institutional relations Strategic complementariness How well their capacities and resources fit Non-opportunistic behaviour Short-term objectives and management Attitude towards change Willingness to actively manage change Technical competency To understand and channel collaborative proposals Empowerment Client delegate's decision-making ability and access to key resources Focus on problem solving As a cultural factor How to prepare the matrix: To place our clients on this matrix, we have to: o Identify the factors that best describe each of the three dimensions in our market, appropriately weighing each factor according to its importance. For example: is billing as important as leadership? o Next, we identify a point system for each factor. For example: Using a scale from 1 to 5, we can evaluate and compare the clients analysed so that each client is scored in terms of its attractiveness, position and projection o Lastly, we have to multiply attractiveness and position, obtaining a value that we can use to classify clients compared to others and situate them within the high, medium or low range o Similarly, we can also classify the clients' projection value as: High, Medium or Low o Once we've determined these two values, we can situate each client in the following portfolio analysis matrix: Example: A client with: High position x attractiveness and Low projection The client is attractive and has a good position, but there is little potential for collaboration This is the typical important client due to the income it generates for our company but it is not interested in establishing a collaborative relationship in the future Strategically, we need to ensure that this client is satisfied to retain it, providing ongoing service improvements, reliability, etc.
By contrast, if the matrix reveals that the client's: Position x attractiveness is medium and High projection This client is a good candidate with which to develop collaborative initiatives To have a clear image of our company's internal situation, we need to carry out an: 3. INTERNAL AUDIT An internal audit has to address both communication issues as well as topics related to other company departments which have a direct impact on marketing activity: 1. Communication How has advertising intensity developed? Level of communication expenses: What trends can we see in the share invested in advertising? distribution between sales and advertising How has the media plan been structured? What advertising focuses have we adopted? Have we produced quality creative ads? What impact has our advertising had by type of media? Have our advertising’s communicative efforts been effective (memorization and awareness)? What effects has out publicity had on sales, market share, numerical distribution, referencing, etc.? How big is our sales force? How good is out sales force and their training? How frequently do our sales representatives visit clients? What promotional channels have we used? According to Lambin (1995): publicity and our sales forces are competitive weapons which can make the difference between competitors, particularly in markets where the possibilities of establishing objective differentiation are limited 2. Production Capacity, costs and experience curve R+D: expense level, number of researchers and performance 3. Available resources Human and technical 4. Financial capacity 5. Information system quality SIM and Databases Finally, to help us complete the internal analysis of our firm, there is a value chain tool which we can use to determine our competitive advantage The value chain identifies nine strategic activities through which the company can create value for its clients (Porter) These nine activities are divided into five primary activities: 1. Inbound logistics for raw materials 2. Raw material transformation (operations/production) 3. Outbound logistics 4. Marketing and sales 5. Annex services and four support activities: 1. Planning 2. Technology 3. Human resources 4. Company infrastructure (includes general expenses, financing tasks, accounting, and all legal and administrative topics related to the primary and support activities) Let's look at these different activities using a chart structure The company has to evaluate the cost and performance of each value-creating activity, compare them with those of its competitors and improve them if needed If our company does one activity better than our competitors, we may be able to achieve a competitive advantage Note from the professor: After completing our internal analysis, we recommend gathering all the data from our analyses (both external and internal) and preparing a chart to summarize all the key data we've obtained about our firm through these analyses.
We can also use this chart to compare our firm to our main competitors. This will serve to help us prepare our diagnostics, the following phase in the marketing plan. Below is an example chart detailing the type of information we can include. Obviously, each company can adapt it to include the most important points depending on their industry, structure, etc.
9. Diagnostics The main topics are: o Dynamic SWOT analysis o Success factors and distinctive competencies o Alternative strategy assessment and prioritization After completing our analyses, before making any strategy-related decision, it is imperative that we have a complete diagnosis of our organisation SWOT (Strengths, Weaknesses, Opportunities and Threats) is a method used to study a company's competitive situation, specifically: o In its market (external situation) and o Its internal traits (internal situation) In this diagnostics phase we will determine: o What the company's strong and weak points are o The opportunities and threats which might arise o The key success factors in our reference market o The distinctive competencies we need to have From this we will be able to deduce the company's competitive advantage The traditional SWOT analysis can be defined as a static evaluation of the situation, a photo of a concrete moment: o It doesn't take the time variable into consideration o It's based on subjective criteria to identify the opportunities and threats Note from the professor: To add more objective elements, some companies have attempted to group their executives into pessimists and optimists, believing that the sum of both would lead to an objective decision. The problem is that the sum of subjectivities can never be objective Another problem with the traditional SWOT analysis is that it does not include data, only processed information We have to create a tool in which data stems from the external and ever-changing environment 1. STRENGTHS, WEAKNESSES, OPPORTUNITIES AND THREATS We will base our diagnosis on the dynamic SWOT model The main difference between the traditional and dynamic SWOT analysis is that the dynamic version requires starting from environmental data which we will use to determine the existing threats, opportunities, strengths and weaknesses (which do not have to be balanced): Everything is interrelated and based on environmental data The other difference is that, in the dynamic SWOT model based on the analysis of this environmental data, we have to recommend a given action By carrying out a dynamic SWOT analysis we will obtain a list of actions to evaluate and prioritize, establishing a rank of priorities that will help guide us when choosing our strategies Advantage of this method: beginning with an exhaustive analysis of environmental data will help us avoid any subjectivity Example: The most commonly used general search engine to find data is Google, used by individuals and companies. However, to ensure more effective searches, we should use Copernic, a search engine of search engines which filters and indexes pages. It reduces risks, eliminates irrelevant data, orders data numerically and provides individualized tools to create information The most important thing when carrying out a search are the key words we choose.
We need to ask ourselves: what do we want to know about our environment? 1. The first thing we need to know is the budget item or wallet we aim to capture 2. The next thing is our target macrosegment, the specific group of clients 3. Then we have the technology we use; the lifecycle; the competitors; market tangibles, etc.
The aim is to extract relevant information for our strategic marketing plan The number of environmental data we'll use in our SWOT analysis will depend on our profitability/risk binomial If the binomial is high, we will use fewer data If the binomial is low, we will use much more data When completing a SWOT analysis, all the data is analysed one by one: o With the first data, we carry out the traditional external SWOT analysis: list all the threats and all the opportunities this external data seems to imply o Then we translate all the threats into opportunities, maintaining their respective headings (noun or nominal phrase (NP) Example: if the first environmental data we obtain is that the population pyramid has become inverted, the threat would be that there are fewer students. Translating this into an opportunity means that families are having fewer children and spending more per child. A threat can always be turned into an opportunity: Once we've translated threats into opportunities and vice versa, we can analyse each set one by one From the first threat and the resulting opportunity, we can determine both our strong and weak points: With this analysis, we can now define the action we should take.
When we've completely finished the dynamic SWOT table: o We can count up the repeated actions to then prioritize them o We prepare our subjective and professional strategic plan Note from the professor: The dynamic SWOT analysis tool is applied to each of the data we have identified. As we take the actions specified, we can tick items off the list. The aim is to create tools incorporating the profitability/risk binomial which help us manage our marketing programs Hypothetical situations We have just discussed the theory on dynamic SWOT analysis Many unplanned things can happen in real life, requiring a daily strategy Below we present a few hypothetical cases with three common players LEADER Case 1 Situation: The leader has a 10% market share, the follower 5% and the challenger 2%. The rest of the market is atomized, with very small market shares Question: What does the leader do if the challenger starts a price war? Data required: The leader's profitability/risk binomial Solution: The leader doesn't need to do anything because the differences in market share are too big. If the leader has 5 times more market share than a competitor, the best thing to do is ignore him during every lifecycle phase. However, the challenger can always change this situation if the leader repeatedly makes mistakes. In this case, the challenger will wait for a change in solution and will attack the leader when the accelerated growth phase begins Case 2 Situation: we'll look at a real case: the leader, HP, bought the follower, Compaq (with negative liquidity), and ignored attacks from the challenger, Dell. Up until that time, the computer market had satisfied homogenous needs, without segmenting or differentiating. When the market began decelerating and a new majority of consumers appeared, new channels and new needs arose Question: What to do if Dell enters the market with the intention of lowering prices and segmenting the market? Data required: The leader needs to perceive the threat from Dell Solution: This situation is typical when there's a change in lifecycle but not a change in solution. Changes in solutions don't occur often because they, not only have to change the way consumers buy them, they also have to change how they consume or use that solution. In this case, consumers use a Dell computer just as they use an HP computer FOLLOWER Case 3 Situation: The leader has a 10% market share, the challenger 5% and the follower 2%.
The rest of the market is atomized. The challenger begins a price war to try to capture greater market share Question: What is the key focus of our analysis to ensure we manage the situation well? Data required: The leader has to know what lifecycle the challenger's solution is in Solution: If the leader knows what lifecycle the challenger's lifecycle is in, he will be able to act accordingly Case 4 Situation: The leader has a 10% market share, the challenger 5% and the follower 2%.
The rest of the market is atomized. The challenger launches a price war to capture greater market share. We're in the accelerated growth phase Question: What should the leader do? Data required: The leader has to know the lifecycle the challenger's solution is in Solution: Regardless of market share, the important thing is to expand the market, investing in tangibles and sales Case 5 Situation: The leader has a 10% market share, the challenger 5% and the follower 2%.
The rest of the market is atomized. The challenger begins a price war to capture greater market share. We are in the decelerated growth phase Question: What should the leader do? Data required: In this situation, the leader needs to carry out a market study to determine how segments are delimited and analyse if the challenger is targeting the same segment Solution: If both are targeting the same segments, the leader needs to compete with its intangible attributes Case 6 Situation: The leader has a 10% market share, the challenger 5% and the follower 2%.
The rest of the market is atomized. The challenger begins a price war to capture greater market share. We are in the maturity phase Question: What should the leader do? Data required: None specifically Solution: The leader has to invest in awareness This is the only occasion when investing in publicity is the right choice. Investing in segmented strategies is not worthwhile because the leader already has a loyal market. It's best to make an advertisement suited for all segments (the entire market), to help consumers remember the brand and its intangible traits CHALLENGER Case 7 Situation: In this case, the leader has a 20% market share, the challenger 10% and the follower 40%. The challenger wagers on a different technology. We are in the accelerated growth phase Question: What should the leader do? Data required: The leader shouldn't do anything Solution: Success in this case doesn't depend on market share but on who sets the pace. For example, Toyota is the leading car manufacturer but not because it sells more cars. As a result, the leader doesn't have to do anything because the follower is going to do whatever the leader does; otherwise, the follower would be a challenger Case 8 Situation: In this hypothetical situation, the leader has a 30% market share; the challenger and follower have 15% each. We're in the decelerated growth phase. The challenger decides to lower costs, and this is reflected in its prices Question: What should the leader do? Data required: Data on the follower Solution: The overwhelmingly ideal strategy is for the leader to buy the follower, tripling its market share compared to the challenger's. It's also a credible threat for the challenger, making him understand that it cannot compete in a price war Based on the conclusions of our diagnostics phase, we can identify the key success factors to be able to compete in the corresponding market and the distinctive competencies companies need 2. SUCCESS FACTORS AND DISTINCTIVE COMPETENCIES The key success factors are determined from a market perspective Example: In the construction market, a key success factor for any company wishing to compete is the ability to control prices. While distinctive competencies, in this case, are translating the success factors from an internal perspective. In the construction case, a distinctive competency would be controlling costs After carrying our SWOT analysis and obtaining a list of actions to assess and prioritize and establishing a list of priorities that will help us choose our strategies, we need to know how to identify these strategies and our competitive advantage 3. ALTERNATIVE STRATEGY ASSESSMENT AND PRIORITIZATION To make this choice, another key decision is identifying and choosing our competitive advantage. To define it, we have to use a comparative perspective, focusing on our competitors.
We've seen that one of the most important steps when obtaining competitive advantage is analysing the value chain through an internal audit. In this task, we answered the question: how can companies identify the sources of value that will provide them a competitive advantage? Let's answer two key questions now to finish identifying our competitive advantage: 1. How do clients define value and make their choices? We can answer this first question with a client value analysis The objective is to determine what benefits clients in our target segment want and how they perceive value compared to our competitors' offerings The steps required in the client value analysis are (Kotler): Identify the main attributes consumers value: there can be from ten to twenty components in the final list of attributes that clients value Assess the relative importance of the different components Weigh the company's behaviour and the competitors' with respect to the different values Examine how clients in a specific segment see the company's behaviour compared to that of the most important competitor, attribute by attribute Be aware of clients' opinions over the long term 2. How can a company differentiate its offering from its competitors'? Kotler proposes the following competitive differentiation tools (product, service, personnel, channels and image) that a company can use Differentiation is the action a company takes to design a set of differences in order to distinguish its offering from the competition a. Differentiation through the product: Versions: The majority of products can be differentiated by their version: the product's size, shape or physical structures (example: the car industry) Quality: This refers to how well the product's primary traits work (they can work better or worse) Uniformity: This refers to the degree to which the product's design and functional traits near an average standard of quality Duration: This is the product's life expectancy Reliability: This is the measure of probability that a product will fail or stop working within a specific period of time Reparability: This is the measure of the ease with which the damaged product can be fixed to work again Style: This describes the level to which the product adapts to the purchaser's tastes and aesthetics Note from professor: We can affirm that all the above product traits are design parameters, indicating how difficult this task is given the various results we can obtain. The designer has to define how much to invest in each version to be developed, its quality level, reparability, style, etc. From the company's perspective, a well-designed product has to be easy to manufacture and distribute. From the consumers' perspective, it has to be easy to see, open, install, use and repair.
b. Differentiation through services Delivery: The way in which the product or service is supplied to consumers Installation: Work needed to make the product function in the foreseen place Client training: The training users of the seller's product need in order to use it efficiently Technical services: This refers to data, information systems, consulting services, etc., which the seller offers the buyers Maintenance and repairs: The program adopted by the company to help its clients keep their purchased product in good working order Other services: Guarantees, award programs for most frequent users, etc.
c. Differentiation though personnel Companies can gain a significant competitive advantage with staff that is better prepared than the competitors' The prepared staff need: competence, courtesy, credibility, trust, responsibility, and ease of communication d. Differentiation through image Symbols: A solid image is based on one or more symbols which lead to recognition or awareness for the company or brand. A company's logos or its brand have to be designed so that users can recognise them instantly Written and audio-visual media: The symbols chosen have to be introduced into the publicity, transmitting the company's or brand's personality Atmosphere: Taking advantage of the physical space in which the company produces or delivers its products/services Events: Another means to create image is by sponsoring different events ...