Marketing Challenges - LBS Associate Professor Oded Koenigsberg
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Transcript of Marketing Challenges - LBS Associate Professor Oded Koenigsberg
1
Marketing Challenges
Oded Koenigsberg Associate Professor of Marketing
Why do firms introduce new products and services? What determines their success or failure? At the very core of business operations, Marketing is the area charged with generating revenue through the provision of real value to customers. That same value must then be recaptured for the firm.
This session will provide a short overview of marketing strategies and decisions by looking at some of the major challenges that marketing managers face. He will also examine the tools and frameworks managers can use to improve decision making.
1
Oded Koenigsberg
Reunion Weekend: Marketing Session
Agenda
Marketing Core: A reminder
Marketing Challenges
2
Class Assignment
Think about a new product or a service
The product can be anything that is new to the market within the last year or so
New to the World…
MODOScooba
Tesla Motors Airless Tires
2
Class Assignment
Think about a new product or a service
The product can be anything that is new to the market within the last year or so
New to the World…
MODOScooba
Tesla Motors Airless Tires
3
New to the World?About 5 - 10% of new products are truly new
Total Total Fresh Stripe2 in 1 toothpaste & mouthwashSparkling White Sensation Whitening Sensitive Maximum StrengthTartar ControlTartar Control Plus WhiteningBaking Soda & Peroxide WhiteningTartar Control with Baking Soda & Peroxide Cavity ProtectionStar WarsBarbie toothpaste Looney Tunes toothpasteMy First Colgate Toothpaste with Barney LuminousClean Mint pasteWhitening Paste and GelAdvanced Fresh2in1WISPSparkling White Fluoride Toothpaste, Mint ZingHerbal
Types of New Products
Newness to
L
Market
M H
L Cost
Reductions Repositioning
Firm M Product line Extensions
H New Product
Lines
New to the World
Marlboro
3
New to the World?About 5 - 10% of new products are truly new
Total Total Fresh Stripe2 in 1 toothpaste & mouthwashSparkling White Sensation Whitening Sensitive Maximum StrengthTartar ControlTartar Control Plus WhiteningBaking Soda & Peroxide WhiteningTartar Control with Baking Soda & Peroxide Cavity ProtectionStar WarsBarbie toothpaste Looney Tunes toothpasteMy First Colgate Toothpaste with Barney LuminousClean Mint pasteWhitening Paste and GelAdvanced Fresh2in1WISPSparkling White Fluoride Toothpaste, Mint ZingHerbal
Types of New Products
Newness to
L
Market
M H
L Cost
Reductions Repositioning
Firm M Product line Extensions
H New Product
Lines
New to the World
Marlboro
4
Discussion
Why do you think the company introduced it?
Whether you think it will be a success or a failure and why?
Discussion
Why do you think the company introduced it?
4
Discussion
Why do you think the company introduced it?
Whether you think it will be a success or a failure and why?
Discussion
Why do you think the company introduced it?
5
Better meet needs of slightly differentsub-segments through differentiation
Better meet needs of slightly different sub-segments through differentiation
Buick Enclave GMC Acadia
Saturn Outlook Chevrolet Traverse
5
Better meet needs of slightly differentsub-segments through differentiation
Better meet needs of slightly different sub-segments through differentiation
Buick Enclave GMC Acadia
Saturn Outlook Chevrolet Traverse
6
Better meet needs of slightly different sub-segments through differentiation
Better meet needs of slightly different sub-segments through differentiation
6
Better meet needs of slightly different sub-segments through differentiation
Better meet needs of slightly different sub-segments through differentiation
7
Better meet needs of slightly different sub-segments through differentiation
Better meet needs of slightly different sub-segments through differentiation
7
Better meet needs of slightly different sub-segments through differentiation
Better meet needs of slightly different sub-segments through differentiation
8
Better meet needs of slightly different sub-segments through differentiation
Dannon - c.1942
Variety seeking
8
Better meet needs of slightly different sub-segments through differentiation
Dannon - c.1942
Variety seeking
9
Address potential emerging segments
Friday, January 2, 2004Breweries rush to quench thirst for low-carb beer
Market for new brew seen as biggest since debut of lightBy JUDY LIN
THE ASSOCIATED PRESS
Address potential emerging segments
9
Address potential emerging segments
Friday, January 2, 2004Breweries rush to quench thirst for low-carb beer
Market for new brew seen as biggest since debut of lightBy JUDY LIN
THE ASSOCIATED PRESS
Address potential emerging segments
10
Friday, February 11, 2006The new emphasis, says Elizabeth Sloan, …is likely to be the reformulation and marketing of products to incorporate the latest nutritional thinking about fats: that there are good and bad fats. By Melanie WarnerNew York Times
Address potential emerging segments
Counter encroachment by new alternatives
10
Friday, February 11, 2006The new emphasis, says Elizabeth Sloan, …is likely to be the reformulation and marketing of products to incorporate the latest nutritional thinking about fats: that there are good and bad fats. By Melanie WarnerNew York Times
Address potential emerging segments
Counter encroachment by new alternatives
11
Facilitate attraction of new users
Alter a brand image
Mercedes C-Class VW Phaeton
11
Facilitate attraction of new users
Alter a brand image
Mercedes C-Class VW Phaeton
12
Discussion
Whether you think it will be a success or a failure and why?
Why Good Ideas Go Bad
Common reasons for product failure Failure to understand
consumers and competitors Too small a target
market KODAK ULTRALIFE
Lithium Power Cells, the world's first 9-volt lithium cells for consumer use
LA beer
1986
1984
12
Discussion
Whether you think it will be a success or a failure and why?
Why Good Ideas Go Bad
Common reasons for product failure Failure to understand
consumers and competitors Too small a target
market KODAK ULTRALIFE
Lithium Power Cells, the world's first 9-volt lithium cells for consumer use
LA beer
1986
1984
13
Problems with product quality or product attributes
Source: http://www.techtv.com/print/story/0,23102,3013675,00.html
2004
NokiaN-Gage
Newton MessagePad - Popular Science, December 1993
Source: http://www.chuma.org/newton/ads/
13
Problems with product quality or product attributes
Source: http://www.techtv.com/print/story/0,23102,3013675,00.html
2004
NokiaN-Gage
Newton MessagePad - Popular Science, December 1993
Source: http://www.chuma.org/newton/ads/
14
http://thebase.weblogger.com/stories/storyReader$7510
Problems with product quality or product attributes
14
http://thebase.weblogger.com/stories/storyReader$7510
Problems with product quality or product attributes
15
Problems with pricing
Problems with distribution
Holly Farms -1988
Acquired by Tyson -1989
15
Problems with pricing
Problems with distribution
Holly Farms -1988
Acquired by Tyson -1989
16
Problems with communication
Marketing Management
Understanding the Customer
Understanding the Company
Understanding the Competition
Business Environment Decisions
Marketing Management Decisions
SegmentationTargetingPositioning
Strategy
16
Problems with communication
Marketing Management
Understanding the Customer
Understanding the Company
Understanding the Competition
Business Environment Decisions
Marketing Management Decisions
SegmentationTargetingPositioning
Strategy
17
Marketing Management
Understanding the Customer
Understanding the Company
Understanding the Competition
Success or Failure: Firm Performance
Product Decisions
Place Decisions
Pricing Decisions
Promotion Decisions
STP
34
Marketing Strategy Framework
Customer Company CompetitionIdentifyMarket
Opportunities
Product Price Promotion Place
SetStrategy
Formulate Marketing
Program (Asim)
Segmentation Targeting Positioning
17
Marketing Management
Understanding the Customer
Understanding the Company
Understanding the Competition
Success or Failure: Firm Performance
Product Decisions
Place Decisions
Pricing Decisions
Promotion Decisions
STP
34
Marketing Strategy Framework
Customer Company CompetitionIdentifyMarket
Opportunities
Product Price Promotion Place
SetStrategy
Formulate Marketing
Program (Asim)
Segmentation Targeting Positioning
18
35
What is Marketing?
To achieve organizational goals by determining the needs and wants of customers and delivering the desired benefits more effectively and efficiently than competitors
“Everything starts with the customer.” Lou Gerstner, CEO of IBM (1993-2002)
“My own biggest mistake in the last 20 years was that sometimes I designed solutions for problems that people didn't yet know they had. That's why some of the things that could've made a difference couldn't find a market.”
Bill Joy, the ‘Edison of the Internet’
36
Why It Matters
“The history of the industry was the better-mousetrap syndrome: You build a faster thing and the world will beat a path to your doorstep. But as the industry matured, that no longer became the best way to look at the problem.”
Paul Otellini, President and CEO, Intel
18
35
What is Marketing?
To achieve organizational goals by determining the needs and wants of customers and delivering the desired benefits more effectively and efficiently than competitors
“Everything starts with the customer.” Lou Gerstner, CEO of IBM (1993-2002)
“My own biggest mistake in the last 20 years was that sometimes I designed solutions for problems that people didn't yet know they had. That's why some of the things that could've made a difference couldn't find a market.”
Bill Joy, the ‘Edison of the Internet’
36
Why It Matters
“The history of the industry was the better-mousetrap syndrome: You build a faster thing and the world will beat a path to your doorstep. But as the industry matured, that no longer became the best way to look at the problem.”
Paul Otellini, President and CEO, Intel
19
37
Marketing and Firm Value
Market Value
Cash Flows
Customers
Company Competitors
38
Customer and Firm Value
CUSTOMERACQUISITION
CUSTOMERRETENTION
CUSTOMEREXPANSION
VALUE OF ACUSTOMER Domain of
Marketing
PROFITS &CASH FLOW
Domain of Finance Linking Customer
and Firm Value
FIRM VALUE
19
37
Marketing and Firm Value
Market Value
Cash Flows
Customers
Company Competitors
38
Customer and Firm Value
CUSTOMERACQUISITION
CUSTOMERRETENTION
CUSTOMEREXPANSION
VALUE OF ACUSTOMER Domain of
Marketing
PROFITS &CASH FLOW
Domain of Finance Linking Customer
and Firm Value
FIRM VALUE
20
Two Sides of Value When firms deliver greater customer value than their
competitors, they are more successful in attracting, retaining, and growing customers
When firms attract, retain, and grow customers, they earn profits and are more likely to survive and grow and enhance shareholder value
“How does this “firm action" provide value to the customer and/or the firm?”
Critical Activities
1. Determine and recommend which markets to address
2. Identify and target market segments
3. Set strategic direction and positioning
4. Design the marketing offer
5. Secure support from other functions
6. Monitor and control execution and performance
The job of putting the marketing philosophy into practice normally falls to people in the firm who have marketing and/or product-management titles
20
Two Sides of Value When firms deliver greater customer value than their
competitors, they are more successful in attracting, retaining, and growing customers
When firms attract, retain, and grow customers, they earn profits and are more likely to survive and grow and enhance shareholder value
“How does this “firm action" provide value to the customer and/or the firm?”
Critical Activities
1. Determine and recommend which markets to address
2. Identify and target market segments
3. Set strategic direction and positioning
4. Design the marketing offer
5. Secure support from other functions
6. Monitor and control execution and performance
The job of putting the marketing philosophy into practice normally falls to people in the firm who have marketing and/or product-management titles
21
What is Customer Lifetime Value (CLV) ?
Customer lifetime value is the present value of the future cash flows generated from a customer over the life of her/his business with the firm
What is Customer Lifetime Value (CLV?)
Customer lifetime value is the present value of the future cash flows generated from a customer over the life of her/his business with the firm
A forward looking concept
Not to be confused with (historic) customer profitability
21
What is Customer Lifetime Value (CLV) ?
Customer lifetime value is the present value of the future cash flows generated from a customer over the life of her/his business with the firm
What is Customer Lifetime Value (CLV?)
Customer lifetime value is the present value of the future cash flows generated from a customer over the life of her/his business with the firm
A forward looking concept
Not to be confused with (historic) customer profitability
22
43
Measuring CLVProfit Pattern
-40
42
66 70 7586 92 96 99105
-60-40-20
020406080
100120
0 1 2 3 4 5 6 7 8 9
Customer Tenure
Ann
ual P
rofi
t
100
8276
7066
6056
4740
34
0
20
40
60
80
100
120
0 1 2 3 4 5 6 7 8 9
Acc
oun
ts R
emai
nin
gCustomer Tenure
Defection Pattern
ACi
rm
i
rmCLV
....
)1(
))((
)1(
))((...
)1.01(
)76.0()66(£
)1.01(
)82.0()42(£40
2
2
2
1
44
Measuring Customer Value
Margin m1 m2 m3 … mt
Retention r1 r1r2 r1r2r3 … r1r2r3…rt
Number of Customers n1 n2 n3 … nt
Acquisition Cost AC1 AC2 AC3 … AC t
Discount 1/(1+i) 1/(1+i)2 1/(1+i)3 … 1/(1+i)t
22
43
Measuring CLVProfit Pattern
-40
42
66 70 7586 92 96 99105
-60-40-20
020406080
100120
0 1 2 3 4 5 6 7 8 9
Customer Tenure
Ann
ual P
rofi
t
100
8276
7066
6056
4740
34
0
20
40
60
80
100
120
0 1 2 3 4 5 6 7 8 9
Acc
oun
ts R
emai
nin
g
Customer Tenure
Defection Pattern
ACi
rm
i
rmCLV
....
)1(
))((
)1(
))((...
)1.01(
)76.0()66(£
)1.01(
)82.0()42(£40
2
2
2
1
44
Measuring Customer Value
Margin m1 m2 m3 … mt
Retention r1 r1r2 r1r2r3 … r1r2r3…rt
Number of Customers n1 n2 n3 … nt
Acquisition Cost AC1 AC2 AC3 … AC t
Discount 1/(1+i) 1/(1+i)2 1/(1+i)3 … 1/(1+i)t
23
45
Measuring Customer Value
Lifetime value of a customer
m = margin (i.e., profit)
i = discount rate
r = retention rate
AC = acquisition cost
ACri
rmCLV
1
46
Margin MultipleConstant Margins
Customer Lifetime Value = Profit Margin * Margin Multiple
RetentionRate 10% 12% 14% 16%
60% 1.20 1.15 1.11 1.0770% 1.75 1.67 1.59 1.5280% 2.67 2.50 2.35 2.2290% 4.50 4.09 3.75 3.46
Discount Rate
Margin Multiple
ri
r
1
23
45
Measuring Customer Value
Lifetime value of a customer
m = margin (i.e., profit)
i = discount rate
r = retention rate
AC = acquisition cost
ACri
rmCLV
1
46
Margin MultipleConstant Margins
Customer Lifetime Value = Profit Margin * Margin Multiple
RetentionRate 10% 12% 14% 16%
60% 1.20 1.15 1.11 1.0770% 1.75 1.67 1.59 1.5280% 2.67 2.50 2.35 2.2290% 4.50 4.09 3.75 3.46
Discount Rate
Margin Multiple
ri
r
1
24
47
Margin MultipleGrowth in Margins
RetentionRate 0% 2% 4% 6% 8%
60% 1.15 1.18 1.21 1.24 1.2770% 1.67 1.72 1.79 1.85 1.9280% 2.50 2.63 2.78 2.94 3.1390% 4.09 4.46 4.89 5.42 6.08
Growth Rate
)1(1 gri
r
48
Increasing value of customers
Customer acquisition (gain new customers)
Customer expansion
Customer retention
ACri
rmLV
1
24
47
Margin MultipleGrowth in Margins
RetentionRate 0% 2% 4% 6% 8%
60% 1.15 1.18 1.21 1.24 1.2770% 1.67 1.72 1.79 1.85 1.9280% 2.50 2.63 2.78 2.94 3.1390% 4.09 4.46 4.89 5.42 6.08
Growth Rate
)1(1 gri
r
48
Increasing value of customers
Customer acquisition (gain new customers)
Customer expansion
Customer retention
ACri
rmLV
1
25
49
Customer expansion: Increasing margin
Your Customer You Your Competition
Your Problem
How to Increase CLV
Reduce acquisition cost (AC)
Reduce customer attrition – Increase retention
Increase net cash-flow per period
Cost of serving customers
“Customer expansion” (pricing strategies, product line, cross-selling, up-selling, and more…)
E[CLV] =∑
25
49
Customer expansion: Increasing margin
Your Customer You Your Competition
Your Problem
How to Increase CLV
Reduce acquisition cost (AC)
Reduce customer attrition – Increase retention
Increase net cash-flow per period
Cost of serving customers
“Customer expansion” (pricing strategies, product line, cross-selling, up-selling, and more…)
E[CLV] =∑
26
Impact of Retention on Firm Value
0.1
0.9
1.1
4.9
0 2 4 6
… creates % improvement infirm value of1% improvement in …
RetentionRate
Margin
DiscountRate
AcquisitionCost
Source: Gupta, Lehmann, and Stuart (2004), “Valuing Customers,” Journal of Marketing Research, 61 (February), 7–18.
52
Customer Retention
34%
60%
72%
Guess who’s gone…?
26
Impact of Retention on Firm Value
0.1
0.9
1.1
4.9
0 2 4 6
… creates % improvement infirm value of1% improvement in …
RetentionRate
Margin
DiscountRate
AcquisitionCost
Source: Gupta, Lehmann, and Stuart (2004), “Valuing Customers,” Journal of Marketing Research, 61 (February), 7–18.
52
Customer Retention
34%
60%
72%
Guess who’s gone…?
27
Issues in Computing CLV
Contractual vs. non-contractual settings.(retention rate ≠ repeat buying rate)
In contractual settings:
Don’t blindly use a formula; write out the “time line”
Monthly vs. quarterly vs. annual retention rates
Can we assume a constant retention rate?
Business Analytics
27
Issues in Computing CLV
Contractual vs. non-contractual settings.(retention rate ≠ repeat buying rate)
In contractual settings:
Don’t blindly use a formula; write out the “time line”
Monthly vs. quarterly vs. annual retention rates
Can we assume a constant retention rate?
Business Analytics
28
Marketing Management Decisions
Decisions
Tools and Methods
Models, Theories,
and Frameworks
Information
Business Analytics
28
Marketing Management Decisions
Decisions
Tools and Methods
Models, Theories,
and Frameworks
Information
Business Analytics