Cbs competitive strategies - 4 p's
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Marketing strategy and planning Strategies in different market situations Price and promotion Week 40 Jacob Holm [email protected] [email protected] Tlf: 24 42 11 32 www.office2go.dk 1
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Marketing course at Copenhagen Business School
Transcript of Cbs competitive strategies - 4 p's
Marketing strategy and planningStrategies in different market situations
Price and promotion
Week 40
Jacob Holm
Tlf: 24 42 11 32
www.office2go.dk
1
The marketing management processPart 1:Marketing Strategy
• Market –led strategic management – chapter 1
• Strategig marketing plannng
Part 2: Competitive market analysis• The changing market environment – chapter 3
• Customer analysis – chapter 4
• Competitor analysis - chapter5
• Understanding the organizational resource base – chapter 6
• Forecasting future demand and market requirements – chapter 7
Part 3: Identifying current and future competitive positions
• Segmentation and positioning principles – chapter 8
• Segmentation and positioning research – chapter 9
• Selecting target markets– chapter 10Part 4: Competitive position strategies
• Creating sustainable competitive advantages – chapter 11
• Competing through the new marketing mix – chapter 12
• Competing trough innovation– chapter 13
• Competing through superior service and customer relationship – chapter 14
Part 5: Implementing the strategy• Strategic customer management – chapter 15
• Strategic alliances and network – chapter 16
• CSR – chapter 18 www.Office2go.dk
Today subject1. Differentiation - how2. Competitive strategies
1. Offensive competitive strategies2. Defensive strategies3. Market Niche strategies4. Harvesting strategies5. Divestment strategies
3. 4 P’s1. Price2. Promotion3. (Place (distribution))4. (Product)
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Scop
e
Perceived difference No perceived differenceB
road
ta
rget
or
pre
ssen
ce
Narr
ow
-
focu
s
Focus Differentiation
Generic strategies
Focus Cost strategy
Sales curve with a preference!
Sales curve with no preference!
Sugar
Branded categoriesQ Q
PP
Lav elasticitet Høj elasticitetQ Q
PP
Lav elasticitet Høj elasticitetQ Q
PP
Lav elasticitet Høj elasticitetQ Q
PP
Lav elasticitet Høj elasticitet
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Value creation or generic routes to competitive advantage
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Scope
Percieved difference No percieved difference
Bro
ad tar
get
or pre
ssen
ceN
arro
w -
focu
s
Persue Differentiation strategy – why
and how?
Focus Differentiation
3 Generic strategies (not 4)Competitive advantage; Understand market type before forming strategy
Læs nu selv bøgerne og ikke en der har læst en der har læst en, der har læst Porter –teksten er ikke helt korrekt ifht Porter!
Focus Cost strategy
Persue Cost strategy – why
and how?
ROI
PIMS determine profit position”Profit impact on market share”
Market share = Size
Stuck in the middle!
• Actually only one niche strategy -though we often see two focus versions.
• However PIMS is not law!
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Achieving differentiationUniqueness drivers
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Sustaining or building a competitive advantage
How should we attack or defend – are we a pioneer or a follower
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1. Marketing objectives and strategies for New Product Pioneers
or followers.
• Mass market penetration
• Niche penetration
• Skimming – early withdrawal
Introduction stage
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1. Market entry strategiesPioneer or Follower
• Advantages with a pioneer strategy– First choice of market segments and positions– The pioneer defines the rules of the game– Distribution advantages– Economies of scale and experience– High switching cost for early adaptors– Possibility of positive network effects– Possibility of preempting scarce resources and supplies
• Not all potential pioneers win the market.– Failure during introduction stage– Lack of resources– Lack of competencies – Best beats first
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• Advantages with a follower strategy– Ability to take advantage of the pioneer’s positioning mistakes– Ability to take advantage of the pioneer’s product mistake– Ability to take advantage of the pioneer’s marketing mistake– Ability to take advantage of the of the latest technology– Ability to take advantage of the pioneer’s limited resources
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1. Market entry strategiesPioneer or Follower
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1. Marketing strategy elements pursued by successful pioneers, fast followers and late
entrants
• Successful pioneers:– Large entry scale– Broad product line– High product quality– Heavy promotional expenditure
• Successful fast followers– Willingness to go all the way– Larger entry scale than the pioneer– Leapfrogging the pioneer with superior prod. Technology, quality,
service
• Successful late entrants– Focus on peripheral target markets or niches
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1. Marketing objectives and strategies for New Product Pioneers.
• Mass market penetration
• Niche penetration
• Skimming – early withdrawal
Introduction stage
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1. Mass-market penetration
• Objective– Max. numbers of triers and adopters – Awareness
• Market characteristics– Homogeneous customer needs– Customers adapt the product quickly
• Product characteristics– Patentable technology or hard to copy– Limited source of supply– Complex production process
• Competitor characteristics– Few competitors– Potential competitors have limited resources
• Firm characteristics– Strong engineering, marketing and financial resources.
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1. Competitive forces
Bargaining power of suppliers
Threat of new entrants
Rivalry among existing firms
Bargaining power of buyers
Threat of substitute
prod.
Entry is more difficult when:
• Strong economies of scale are present. – Ex. Shipping
• High capital requirements – ex 3G mobile technology
• When product differentiation exists – ex Cirque-Du-Soleil
• When it is difficult gaining distribution – ex Paint market
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1. Niche-market penetrationTypical Small firm with limited resources
• Objective– Max. numbers of triers and adopters – Awareness – in the target
segment• Market characteristics
– Fragmented market– Customers adapt the product quickly
• Product characteristics– Easy to copy– Many sources of supply– Simple production process
• Competitor characteristics– Many competitors– Potential competitors have substantional resources
• Firm characteristics– Limited engineering, marketing and financial resources.
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1. Skimming and early withdrawalall kinds of firms
• Objective– Recoup development and commercialization costs as soon as
possible– Withdrawal from the market when increasing competition puts
pressure on margins• Market characteristics
– Limited potential demand– Early adopters willing to pay a high price – demand is inelastic.
• Product characteristics– Easy to copy– Many sources of supply– Simple production process
• Competitor characteristics– Many competitors– Potential competitors have substantial resources
• Firm characteristics– Strong engineering, marketing and financial resources.
Q Q
PP
Lav elasticitet Høj elasticitetQ Q
PP
Lav elasticitet Høj elasticitet
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Business-level competitive strategy and PLC2. Growth stage
• Market leaders
• Followers
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2. Strategic choice for share leaders in growth markets
Fortress or
position defense strategy
Competitor or potential competitor
Flanking attack
Frontal attack
Which to choose:
1.Market size and customer’ characteristics
2.Number and reletive strenghs of competitiors
3.Own ressources and competencies
Bypass strategy
Encirclement
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2. Growth-market strategies for market leaders
• Fortress or position defense strategy– Works well when:
• homogeneous needs of the customer• Company enjoys a high level of awareness• Competitors have limited ressources
– Objective:• Increase satisfaction, customer loyalty and repeat purchases
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Price
High
Low high
cost - strategy
Differentiation strategy
Niche strategy
2. How do we build a sustainable advantage
Build barriers
FORTRESS
BA
SAS Lufthansa
Ryanair
EasyJet Norwegian
Qu
ality
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2. Growth-market strategies for market leaders
• Fortress or position defense strategy– Works well when:
• homogeneous need of the customer• Company enjoys a high level of awareness
– Objective:• Increase satisfaction, customer loyalty and repeat purchases
• Flanking strategy– One shortcoming of a fortress strategy is that the challenger might
simply choose to bypass the leader’s fortress and try to capture territory where the leader has not yet established a strong presence.
– The leader can develop e second brand to compete against the challenger offering.
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2. Defense against flanking strategiesex: Dyrup
Main brand: Dyrup
Silvan home brand: Silvanol
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2. Growth-market strategies for market leaders
• Fortress or position defense strategy– Works well when:
• homogeneous need of the customer• Company enjoys a high level of awareness
– Objective:• Increase satisfaction, customer loyalty and repeat purchases
• Flanker strategy– One shortcoming of a fortress strategy is that the challenger might
simply choose to bypass the leader’s fortress and try to capture territory where the leader has not yet established a strong presence.
– The leader can develop e second brand to compete against the challenger offering.
• Confrontation strategy– Confrontational battle – on which field?
• What are the combats generic strategy?• How many resources are they willing to through into the battle?
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Price
High
Low high
cost - strategy
Differentiation strategy
Niche strategy
2. How do we build a sustainable advantage
Head on confrontation
BA
SAS Lufthansa
Ryanair
EasyJet
Norwegian
Qu
ality
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2. Growth-market strategies for market leaders
• Guerilla tactics– Here the leader defends its relative market share by expanding
into new market segments.– Ex. Dyrup waterproof series– This is a synthetic rubber material that will prevent moisture from
penetrating the surface
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2. Growth-market strategies for market leaders
• Market contraction strategy– If the leader is unable to defend it self – the oblivious solution is to
withdraw from the market.
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2. Business-level competitive strategy and PLC
Growth stage
• Market leaders
• Followers
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2. Share growth strategies for followers
• Small companies with limited resources and competencies, may simply seek to build small but profitable businesses within a specialized segment.– Ex. Paint market:
• Larger companies who enters the market shortly after the pioneer often seek to displace the leader or at least become a powerful competitor.
ROI
Market share = Size
Stuck in the middle!
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2. Strategic choices for challengers in growth markets
• Frontal attack strategy:– If the product category is relative homogeneous with few untapped
segments and at least one well-established competitor, a follower wanting to capture market share may have to take on the competitor head on.
– Target competitor has relatively limited ressources and competencies
– To successfully implement a frontal attack, a challenger should seek one or more ways to achieve a sustainable advantage over the target competitorPerceived difference No perceived difference
Bro
ad tar
get
or pre
sence
Nar
row
-fo
cus
Focus Differentiation Focus Cost strategy
Differentiation Cost strategy
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Price
Low
Qu
ality
high
cost - strategy
Differentiation strategy
Niche strategy
2. How do we build a sustainable advantage
Frontal attack BA
SAS Lufthansa
Ryanair
EasyJet Cimber/
Sterling
high
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2. Strategic choices for challengers in growth markets
• Frontal attack strategy:– If the product category is relative homogeneous with few untapped
segments and at least one well-established competitor, a follower wanting to capture market share may have to take on the competitor head on.
– Target competitor has relatively limited ressources and competencies
– To successfully implement a frontal attack, a challenger should seek one or more ways to achieve a sustainable advantage over the target competitor
• Problems with this strategy– Challenging basis on low prices can be a problem - Experience
curve– Challenging basis on larger promotional spending– -> find another strategy to fight with – Easyjet, Ryanair
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2. Strategic choices for challengers in growth markets
• Bypass strategy:– A challenger has the best chances of beating the competitor if
they can offer products that are attractively differentiated from the competitors products.
– Ex. Swiss watches and Japanese digital watches in the 70’th
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• Flank attack:– Attack segments that are not the primary segment for the market
leader.– Concentrate on this segment and put all resources into this.– Ex: Japanese cars penetration of the US market
• Encirclement:– Targeting several small untapped or underdeveloped in the market
simultaneously.– Works in fragmented markets
2. Strategic choices for challengers in growth markets
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3. Business-level competitive strategy and PLC
Maturity stage
• Differentiation
• Low cost
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3. Strategic choices in mature markets
• Strategies for maintaining competitive advantages:– At this stage you need to decide what you want to do with
your product:• Try to sustain the competitive advantage• Milk to cow – so to speak• Sell the product
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3. Strategic choices in mature markets
• How to sustain the competitive advantage:– Differentiate, Low cost, Niche
• Methods of differentiation– Product quality– Service quality
• Methods of maintaining a low-cost position– No frills products– Cheaper raw materials– Innovative production processes– Low-cost distribution– Reduction of overhead
• Niche strategy
Perceived difference No perceived difference
Bro
ad tar
get
or pre
sence
Nar
row
-fo
cus
Focus Differentiation Focus Cost strategy
Differentiation Cost strategy
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3. Strategic choices in mature markets
• Strategies for maintaining competitive advantages:– At this stage you need to decide what you want to do with your
product:• Try to sustain the competitive advantage• Milk to cow – so to speak• Sell the product
42 Time
Sales
Expanding: Increase penetration – Extended use – Market expansion
Maintaining: Fortress defense strategy: Loyalty, repeat purchase
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4.Business-level competitive strategy and PLCDeclining stage
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4. Decline stage
– New entrants likely to mean market is ‘flooded’– Necessity to develop new strategies becomes more
pressing:– Searching out new markets:
• Linking to changing fashions• Seeking new or exploiting market segments• Linking to joint ventures – media/music, etc.
– Developing new uses– Focus on adapting the product– Re-packaging or format– Improving the standard or quality– Developing the product range
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4. Strategies for a declining market
• Should we just get out of this market ? – probably not !– Is it a cash cow who can support other products ?– Can we minimize our efforts in marketing, sales, R&D etc.– Low unit costs– Is the sped of decline high or low– Low competition – price stability.
• Exit barriers– The higher the exit barriers -> higher competitive action
• Harvesting strategies– Maximize short-term cash flow – increase margins
• Maintenance strategies– Maintain market share for a period even at the expense of margins
• Survivor strategies– Increase share of the declining market – encourage weaker
competitors to exit.• Niche strategies
– Strengthen share position in one or a few segments with potential for continued profit
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Can we soon go to war?
I know which segment to go for I have targeted my customer I know everything about them I know my enemy ! We have discussed strategy We have positioned our selves
Know we need to find the right tactics to implement our strategy
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Today subject1. Differentiation - how2. Competitive strategies
1. Offensive competitive strategies2. Defensive strategies3. Market Niche strategies4. Harvesting strategies5. Divestment strategies
3. 4 P’s1. Price2. Promotion3. (Place (distribution))4. (Product)
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Pricing
• Penetration pricing• Skimming pricing• Cost plus pricing• Price promotions / Sales• Competitive pricing• Customer oriented pricing
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Strategies when setting pricesMarket introduction stage: • cost high sales volume low • losses • Price strategy – skimming or
penetration• Innovators
Growth stage: • costs reduced due to economies
of scale - sales volume increases significantly
• profitability • prices to maximize market share • Early adaptors and majority
Mature stage: • costs are very low sales volume
peaks • prices tend to drop due to the
proliferation of competing products - very profitable – Comp. pricing
• Late majority – innovators are gone
Decline stage:• sales decline • prices drop (lower prices may
lead to lower value perception). Price promotion/sales
• profits decline
Penetration / Skimming
Max pricing / Survival pricing
Harvesting
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Priselasticitet
Et produkts priselasticitet (prisfølsomhed) er den relative mængdeændring i forhold til den relative prisændring på det
samme produkt
Priselasticitet = ep = relativ mængdeændring = Procentuel mængdeændring
relativ prisændring Procentuel prisændring
=> ∆X/X∆P/P
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Price elasticity of demand
Before deciding on the right price strategy we need to know what the price elasticity of demand is:
Price elasticity of demand (E) = Percent change in quantity demandedPercent change in price
A price elasticity of demand > 1 = Elastic A price elasticity of demand < 1 = Inelastic
This means that the demand for the product is elastic if the relative quantity change is higher than the relative price change and inelastic if the relative quantity change is lover than the relative price change. This is also known as price sensitivity.
Q Q
PP
Inelastic Elastic
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Why is the price elasticity of demand important ?
Q Q
PP
Inelastic Elastic
Penetration pricing
Skimming pricing
Penetration / Skimming
Price war
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Why is the price elasticity of demand important ?
Q Q
PP
Inelastic Elastic
special promotion price ? Where would you place this ?
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Problems with price elasticity
Problems regarding price elasticity:
• Doesn't include response reactions from competitors.
• Price elasticity can differ through the demand curve – see later
• It doesn't take product line considerations – cannibalization effect.
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Competitors reaction patternCan we predict our competitors moves?
• Laid-back competitor: – TDC when Telmore was introduced
• The selective competitor:– Kodak reacted when Fuji Film chance prices but not when digital cameras
where introduced
• The Tiger competition– P&G products
• The Stochastic competitor– Typically small businesses without a formal marketing department
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Approaches to pricing:
• Cost-oriented pricing (cost plus pricing)– Target rate of return
– Return of investment
– Payback method
• Competition-oriented pricing– Penetration/skimming pricing
– Going rate pricing
– Sealed bid
– Competitive reaction
• Customer-oriented pricing– Identifying customer value
– Matching buyer and seller benefits
– Perceived values
75 %
20 %
5 %
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Pricing methods
“The essential purpose of the price level set by the marketing manager, then, should be to enable the firm to capture the value of the product as perceived in the mind of the consumer” Why is it then that almost every marketing manager uses cost-plus pricing maybe combined with one kind of competitor oriented pricing ?
“Remember that one danger of cost-orientated (or even competitor oriented) pricing methods is that it can produce prices that are lower than perceived value, causing the firm to leave money on the table or it can also result in prices that exceed many customers perception of the products value resulting in loss of sales and competitive vulnerability” –
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Approaches to pricing:
• Cost-oriented pricing (cost plus pricing)– Target rate of return
– Return of investment
– Payback method
• Competition-oriented pricing– Going rate pricing
– Sealed bid
– Competitive reaction
• Customer-oriented pricing– Identifying customer value
– Matching buyer and seller benefits
– Perceived values
75 %
20 %
5 %
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Example of how to work with customer oriented pricing
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How to find the optimal price for this product! CHAMBORD Coffeemaker 1,0 L
• price recommendation is kr. 299 at Bahne – promotion price kr. 199 – extra promotion price (without a box) kr. 169
• Is this the optimal price if you compare with the customers perceived value of the coffeemaker?
• How do you in practice work with customer oriented prices and what are the dynamics in pricing.
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Price dynamics
What will happen if we:• Set the price to high / low?
• Raise or reduce the price?
• Use a penetration or a price skimming strategy?
• Know the price elasticity of demand of the product
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Price optimization
Price level is tested
Model invented by Van Westendorp – 4 price questions
You show a photo and describe the product in a internet research
Case:
Spot sample with 500 participants
Target group: women 25-50 years old
Price recommendation kr. 299
Promotion price kr. 199
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Questionnaire – 4 questions on price level
4 questions on price • Highest price which is still cheap [not expensive]• Expensive, but still worth wile a consideration [not
cheap]• To expensive to considerate [to expensive]• To cheap to consider [to cheap]
Newer ask directly on the price level!
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Price analysisVan Westendorp model
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
75 kr 100 kr 125 kr 150 kr 175 kr 200 kr 225 kr 250 kr 275 kr 300 kr 325 kr 350 kr 375 kr 400 kr 425 kr
Not cheap Not expensive To cheap To expensive
price differential
"NORMAL" PRICEkr. 200
PENETRATIONS PRICEKr. 150
MAX. PRICEkr. 270
MIN. PRICEkr. 110
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0
5.000
10.000
15.000
20.000
25.000
75 kr 100 kr 125 kr 150 kr 175 kr 200 kr 225 kr 250 kr 275 kr 300 kr 325 kr 350 kr 375 kr 400 kr
Price
Units
kr 0
kr 500.000
kr 1.000.000
kr 1.500.000
kr 2.000.000
kr 2.500.000
kr 3.000.000
kr 3.500.000
Revenue
Units
Revenue
Estimate on units sold and revenue
Results and simulation of effect
Price. Kr. Est units Revenue Kr.
175 17.200 3.000.000
200 15.400 3.100.000
225250275300
13.00010.0008.8004.200
2.900.0002.450.0002.400.0001.250.000
Precondition:• 80% of the target group is in the market. • The target group stands for 95% of the total sales. • Buying probability is weighted
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How do we calculate price elasticity?
Price elasticity of demand (E) = Percent change in quantity demandedPercent change in price
A price elasticity of demand > 1 = Elastic A price elasticity of demand < 1 = Inelastic
Q Q
PP
Inelastic Elastic
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0
5.000
10.000
15.000
20.000
25.000
75 kr 100 kr 125 kr 150 kr 175 kr 200 kr 225 kr 250 kr 275 kr 300 kr 325 kr 350 kr 375 kr 400 kr
Price
Units
kr 0
kr 500.000
kr 1.000.000
kr 1.500.000
kr 2.000.000
kr 2.500.000
kr 3.000.000
kr 3.500.000
Revenue
Units
Revenue
Calculation of price elasticity
Price. Kr. Est units Revenue Kr.
175 17.200 3.000.000
200 15.400 3.100.000
225250275300
13.00010.0008.8004.200
2.900.0002.450.0002.400.0001.250.000
Price elasticity:
Price: 225/200: 12,5%
Units: 13000/15400: 16%
PE= 1,28 -> elastic www.Office2go.dk
Conclusion:
• Profitability :• 148 % improve profitability if we reduce price from 300 kr to 200 kr.
Profit = 1,850.000 kr.
• Promotion pricing• Price elasticity
• Sales amount in the promotion time and normal price period
• psychological pricing
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Price strategyWhere to set your normal price and promotion price:
It is critical for the choice of strategy how the distribution is between sale in the normal price situation and in the promotion price situation.
80 % sales in the promotion price period – 20 % sales in the normal price period: in this case you should place the promotion price at the optimal price in the Van Westendorp model. The normal price will then be higher than the optimal price, but this relates only to 20 % and it will only have a minor effect on the revenue optimization.
20 % sales in the promotion price period – 80 % sales in the normal price period: In this case the normal price should be the optimal price. The price elasticity determines how far we should place the promotion price from the optimal price.
50 % sales in the promotion price period – 50 % sales in the normal price period: In this case it will be the price elasticity and the psychological pricing that determines which price should be placed by the optimal price.
Psychological price distance:The consumer has a tendency to buy ”the saving” instead of the reel price of the product.
Consumers are triggered by the savings because it gives them a sense of purchase experience and it means that the saving needs to be significant before we can use promotion pricing in a practical way. A good example is wine in the convenience stores.
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Customer oriented pricing:• Price according to what the market can bear: Pricing that examines the
intensity of demand expressed by customers for a given product – reflects the intensity of demand.
• Multidimensional pricing:Perceived value pricing or charging a price that the market will bear is a version of price customization whereby every customer is charged the price he or she is willing to pay based on the value on the product.– Multiple price parameters are a common way: Unit price and a rental element. Mobil
phone companies use this approach to customize price for various user segments.– Multi person pricing: Different prices are charged at different customer groups. One
group pays full price and while other groups receives a discount. - Synoptik– Price bundle: more products sold together gives a rebate – McDonald menu –
Microsoft office package.
• Fixed price list, haggling and auctions:– Fixed price is where the seller sets a price which everybody follows - Dyrup. Works
only with no real access to information about the market – price / quality– Haggling (prutte): A customer and a provider negotiate (unstructured) to discover in
a mutually acceptable price. Works only with limited access to information about the market – price / quality
– Auctions:
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Strategies when setting pricesMarket introduction stage: • cost high sales volume low • losses • Price strategy – skimming or
penetration• Innovators
Growth stage: • costs reduced due to economies
of scale - sales volume increases significantly
• profitability • prices to maximize market share • Early adaptors and majority
Mature stage: • costs are very low sales volume
peaks • prices tend to drop due to the
proliferation of competing products - very profitable – Comp. pricing
• Late majority – innovators are gone
Decline stage:• sales decline • prices drop (lower prices may
lead to lower value perception). Price promotion/sales
• profits decline
Penetration / Skimming
Max pricing / Survival pricing
Harvesting
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Promotion
“In deciding how to best promote their products, marketing managers must decide which promotional tools to use and with whom they wish to communicate”
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Push / Pull Strategies
• Push-strategi er en betegnelse for promotion gennem grossister eller detailhandlere. Virksomheden prøver på den måde at få deres produkt i butikken ved for eksempel at tilbyde grossisten eller detailhandleren lang kredit, gaver eller høj avance.
• Pull-strategi er en betegnelse for promotion, som sker direkte til forbrugeren eller virksomheder. Promotionen sker ved at gøre konsumenten/virks. opmærksom på at virksomhedens produkt(er) findes.Ofte ses denne form for markedsføring ved at der i bunden af reklamen står "Spørg efter den hos din forhandler".På denne måde bliver forhandleren/detailhandleren nødt til at sælge det pågældende produkt, og virksomheden har på den måde opnået en efterspørgsel på produktet.
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Push and pull strategiesChannel control strategies
• Push: Motivate channel members to perform more– Rewards – Bonuses– Acces to new products– Better prices– Exclusivity
• Pull: Building demand an brand loyality– Media advertising– Consumer promotions – Instore promotions– Customer service– Extented warranties– Product improvements
Large and small companies
Typical smaller companies
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Promotion Mix
• Advertising: Print, Radio, Television, Outdoor, Direct mail, Brochures, catalogues, In-store, Web, E-mails. Product placement, Viral marketing
• Personal Selling: Relationship marketing, Sales presentation, Sales Meetings, telemarketing
• Sales promotion: Coupons, Contests, Product samples, rebates, trade shows
• Public relations: Articles in newspapers, TV and radio presentations, Speeches, seminars
• Social Media: Facebook, Twitter, LinkedIn, MySpace, Blogs
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Decision sequence
1. Define audience to be targeted
2. Set the promotional objective
3. Set the promotion budget
4. Design the promotional mix
5. Evaluate the results
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1. Define the audience
27
New building
Renovation
FactsEst.
3% -
162
mkr
.
2% -
108 m
kr.
9,5
% -
513
mkr
.
7% -
378 m
kr.
21,0
% -
1.13
5 m
kr.
6%
-32
4 m
kr.
19%
-1.02
7 m
kr.
13%
-70
3 m
kr.
3,5%
-18
9 m
kr.
32,4%
67,7%
74%26%
56%44%
Market valueTotal value 5.405 mio kr. – 2003 data (Source: Byggemateriale Industrien: BI, maj 2004)
7% -
378 m
kr.
3% -
162
mkr
.
6%
-32
4 m
kr.
Housing association
Large-contractor
Local -Contractor/Carpenter
Prof. /Large housing
association
Private-houses
+(sommerhouses)
Private-industry
Housing association
Large-contractor
Local -Contractor/Carpenter
Prof. /Large housing
association
Private-houses
+(sommerhouses)
Private-industry
• Identify a homogenous segment that differ from other segments and specify criteria that define the segment
• Determine segment size and potential– Financial figures
• Visualize the market for better understanding
• Prioritize the segments• Target the segment or segments
that you want to concur (target marketing)
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2. Promotional objectives
• What do you want to achieve?– Market share– Awareness– Brand building– Sales test
• How do we want to reach the goal– Penetration – saturation - frequency
• In what time frame do you want to achieve this goal?
• Resources – Cost– Manpower
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Product life cycle - PLCMarket introduction stage: • cost high sales volume low • losses • high prices – skimming or
penetration• Innovators
Growth stage: • costs reduced due to economies
of scale - sales volume increases significantly
• profitability • prices to maximize market share • Early adaptors and majority
Mature stage: • costs are very low sales volume
peaks • prices tend to drop due to the
proliferation of competing products - very profitable
• Late majority – innovators are gone
Decline stage:• sales decline • prices drop (lower prices may
lead to lower value perception) • profits decline www.Office2go.dk
Penetration - Frequency – Saturation : What can we do?
• Media marketing - Above the line
• Occasion (activities)• Creative content
• Relationship marketing
• Direct marketing• Loyalty programs
(Belov the line)
• Price offers• Promotion (Below the
line)• Drivers
Penetrated = 85%
U-p
en
etr
ate
d
= 1
5%
0
10
20
30
40
50
1 gang 2 gang 3 gang +4 gang
Frekvensfordeling
0
5
10
15
20
25
30
35
50-100 100-150 150-200 250-300 350-400 400-
Fordeling af spend
Penetration (f(x))• Awareness & trial• Image• Competitors
Frequency (f(x))• Satisfaction • Loyalty• Relevance (offer)
Saturation (f(x))• Offer & mechanisms• Willingness • Relevance
Awr= 1,1
Awr= 10 $
www.Office2go.dk
What is our strategic challenge?
Young adult female
Mothers Hispanic women
Penetration
Frequency
Saturation
Univers 3.500.000 6.500.000
1.600.000
1,1 visit/year 4,8 visit/year 3,1 visit/year
10 $/visit
70% 18%85%
25 $/visit 22 $/visit
African american women
1.400.000
1,5 visit/year
60%
22 $/visit
Universe: 13.000.000 individuals
www.Office2go.dk
Penetration - Frequency – Saturation
Penetrated = 85%
U-p
en
etr
ate
d
= 1
5%
0
10
20
30
40
50
1 gang 2 gang 3 gang +4 gang
Frekvensfordeling
0
5
10
15
20
25
30
35
50-100 100-150 150-200 250-300 350-400 400-
Fordeling af spend
Penetration (f(x))• Awareness & trial• Image• Competitors
Frequency (f(x))• Satisfaction • Loyalty• Relevance (offer)
Saturation (f(x))• Offer & mechanisms• Willingness • Relevance
Is it realistic to achieve a higher
penetration - McDonald
Is it realistic to get the target group to
come more frequently
Is it realistic to get the customer to use more money
Awr= 1,1
Awr= 10 $
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Simulation on target group
What is our strategic challenge in our target group ?
• Understand the proportions in your choice of actions
• Prioritize and focus on the most important issues
• Understand the realistic conditions behind : Saturation - Penetration – Frequency
• What is the cost to gain the objective: GRP – gross rating points
Ex. Young adult females
Base line Sim 1 Sim 2 Sim 3 Sim 4 Sim 5 Sim 6Universe 3.500.0003.500.0003.500.000 3.500.0003.500.000 3.500.0003.500.000
Penetration, % 85% 86% 87% 85% 85% 85% 85%
Frequency, pr. year 1,10 1,10 1,10 1,20 1,30 1,10 1,10
Saturation, $/visit 10 12 14
Rev, mil $ 32,7 33,1 33,5 35,7 38,7 39,3 45,8
Effect, t$. 400 800 3.000 6.000 6.600 13.100
10 10 10 10
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PLC
Revenue
Time
Penetration
Saturation
Pricewar
Frequency
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3. Promotion budget
• Percentage of sales• Competitive parity – promotion spending relative to market share
• Objective and task – which task is in front of you and what dos it cost
• Above and below the line?
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4. Promotion mix
Promotion mix elements
Amount of info. communicated
Credibility
Control over message
Cost to reach consumer
Strategy suitability
Advertising
Personal selling
Sales promotion
PR
Above the line - little
Lots of info
Non
Lots of info
Low
Depends on comp., brand. person
?
High
Good
Poor
Good
Poor
Low
Very high
Low and self liquidating
Very low
Pull strategy
Push strategy
Pull & Push
Pull & Push
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Advertisement
“Everyone can do this, but as everybody knows advertising is nothing more than a waste of money!”
Why has there then been advertised for more than 2 billion Dkr. in the last 12 months in Denmark alone……………
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Today subject1. Differentiation - how2. Competitive strategies
1. Offensive competitive strategies2. Defensive strategies3. Market Niche strategies4. Harvesting strategies5. Divestment strategies
3. 4 P’s1. Price2. Promotion3. (Place (distribution))4. (Product)
90www.Office2go.dk
Jacob Holm
Tlf: 24 42 11 32
www.office2go.dk
Nothing more for today
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