Introduction to Marketing

University of Chicago

Marketing Management

Company Orientations Towards the Marketplace

Orientation Description Relative TimeSpan

Basic ManagerialObjective

Production Transition from HomeManufacturing to Factories

IndustrialRevolution

Profit Maximization viaEconomies of Scale

Product &Financial

Focus on Product Development,Performance and Features and

the Growth of Large ScaleIndustrial Empires

Profit MaximizationThrough Superior

Product Performance

Sales Transition from Scarcity ofGoods to Scarcity of Markets;Market Saturation with Basics

Profit Maximization viaDemand Generation

Marketing Transition from Internal(Organization) to External

(Customer) Basis for GuidingMarketing Decisions

1990s Profit Maximization viaMatching of Products to

Customer Wants

The Marketing Concept

A Customer Orientation

Backed By Integrated Marketing

Aimed at Generating CustomerSatisfaction and Repurchase As The Key To

Satisfying the Organizations Goals

The Marketing Concept (Contd..)

Focus Means End

Sales Concept Products Selling &Promotion

Profits ThroughSales Volume

MarketingConcept

Customer Needs IntegratedMarketing

Profits ThroughCustomer

Satisfaction

Stages in Consumer Decision Process

Awareness

Interest

Decision

Satisfaction

Action

Advertising

Channel

Product /Service

Price

Word-of- Mouth

Profits Through Customer Satisfaction (One Customer)

Acquisition Costs

Referrals

Price Premium

Reduced Selling Effort

Increased Usage

Normal Profits

Profit A Customer Generates Over Time

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6-60

-40

-20

0

20

40

60

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6

Credit CardCustomer

Dollars($)

Cost of Losing and Attracting Customers

• Cost of Lost Customers

• # Accounts = 64000

• Loss = 5% for poor service = 3200 accounts

• Loss in Revenue / Account = $40000

• Total Revenue Loss = $ 128 MM

• Margin = 10%

• Loss in Profits = $ 12. 8 MM

• How to Increase Retention Rate?

• Cost of Average Sales Call = $300

• Average # Calls to Convert Customer = 4

• Cost of New Customer = $1200

• Annual Revenue from Customer = $5000

• # Loyal Years = 2

• Profit Margin = 10%

• Lifetime Value = $1000

• Firm is spending more on attracting new customers than they are worth!

Cost of Losing and Attracting Customers

• Cost of attracting a new customer can be upto 5 times the cost of keeping a current one happy

• Cost of Offensive Marketing > Cost of Defensive Marketing

• Some companies have increased profits from 25% to 85% by reducing defections by 5%

Developing An Effective Marketing Plan

• Conduct A Marketing Review

• Build A Marketing Strategy

• Implement Strategy Via Marketing Mix

• Evaluate The Success Of The Marketing Plan

Conduct A Marketing Review (3-C Analysis)

Opportunity Identification

B. Assessment of COMPANY

Capabilities andCurrent Marketing

Position

A. Analysis ofCUSTOMER

Trends, Needs,Perceptions,

Behavior

C. Analysis ofCOMPETITORSCurrent Position,

Capabilities, Actions

Build A Marketing Strategy

Generic Strategies ForDIFFERENTIAL ADVANTAGE

* Product Differentiation* Cost Leadership

* Special Market Focus

Selection of TARGET MARKETand Development of a

POSITIONING STATEMENT

Implementation: The Marketing Mix (Four P’s)

• Product

• Price

• Place

• Promotion

3C - 4P Framework

• Customer

• Company

• Competitor

• Product

• Price

• Promotion

• Place

3C - 4P Framework

• Customer

• Company

• Competitor

• Product

• Price

• Promotion

• Place

ColgateIDSPDA / Infiniti

Sealed-Air

Barco

Nestle

Rohm&Haas

Intel

Dell

BMW

Marketing System

Short Term Controllable Factors

ProductPlace Price

Promotion

Long Term Factors

Technological

Legal

Socio / Cultural

Economic

Recasting the 3C - 4P Framework in Value Terms

• Customer

• Company

• Competitor

• Product

• Price

• Place

• Promotion

Creating Value

Capturing Value

Communicating Value

Mapping Value Migration

Value Inflow Value Stability Value Outflow

MarketValue Revenues

2

1

• Limited competition• High growth• High profitability

• Competitive stability• Stable market share• Stable margins

• Competitive intensity• Declining sales• Low profits

In the outflow stage,talent, resources &customers leave at anaccelerating rate

Capturing Value Growth

1998

2001

1.2.3.

1.2.3.

Map Changing Customer Priorities

.

.

New Entrant

New Entrant

Identify New Business Designs

Old New

Key elements

Assumptions

Compare Business Designs

..

Build New Business Designs to Capture Growth

Value Migration in Coffee

Coffee Shops &Office Coffee

TraditionalGrocery Blend

GourmetCafes

Whole beanGourmet Coffee

1. Price2. Ease of purchase3. Uniform offering

1. Quality2. Freshness3. Close to office

1985

1990

Coffee is Coffee

Aff

orda

ble

Lux

ury

...Folgers

Maxwell HouseNestle .

Chock Full O’ Nuts

.Gloria Jean’s

.Starbucks

..GCAMillstone

Value Inflow Value Stability Value Outflow

StarbucksStarbucks

MillstoneMillstone

FolgersFolgers

Value MigrationPhases

Replaying the Game• P&G: “We sell coffee” vs. “We sell canned coffee of moderate quality in groceries”

• The brand we have built to sell mid-tier coffee will not cater to gourmet coffee position as its made of Robusta rather than Arabica beans. So we need to launch a new brand that preempts the quality position. We may need a new design (DSD), but we’ve done radical stuff before!

• Most restaurants, food chains and institutions sell Coke or Pepsi (branded) but unbranded coffee. Once our gourmet brand is established in grocery stores, we may be able to move into the institutional market (after all, we sell to Wal-Mart!)

• Whole bean provider: Could have built a brand by opening a café division. Took 7 years for Brothers to catch on. By opening the café format, regional whole bean providers could have built brand loyalty. Especially as they do not have P&G’s deep pockets. If the regional whole bean provider launched in 1991, could have built a national brand. By 1994, it was too late.

• Starbucks: May have missed an opportunity by not aggressively expanding via franchising. Region by region rollout gave competitors / imitators time to preempt in certain markets. This way it would have “conquered” the retail business and could have focused more fully on institutional and grocery markets.