What is Marketing?
Marketing is the set of activities that attempt to influence choice, whenever an individual or organization has a choice to make. They are the chances at getting and keeping customers.
Customer Orientation Approach: Customers do not buy products. They buy benefits that the product features provide.
- Understand what benefits customers are seeking, translate them into products, retranslate the physical product or services back into benefit terms that customers can understand, better than competitors in a profitable way (meeting company's objective)
- Make key investment in customers and their long term satisfaction
Risks of being Customer Led and Customer Orientation
Gary Hamel, CK Prahlad: Competing for Future - For a company to dominate in the future, it must lead the customer rather than being customer led. Most of today's business comes from customers who are currently being served by product which are developed based on the needs that be clearly articulated through customer research. Whereas 2/3 of opportunity lies in areas that customers cannot conceptualize well and that are open to competitors with more foresight.
Marketing concept is not limited to current, expressed needs.
Marketing Strategy (Simple framework)
- Where am I today? (Situation analysis)
- Where do I want to go tomorrow? (relatively long term)
- Choice of Market
- Choice of Product
- How do I get there?
IGOR ANSOFF - Growth Option Matrix
There are only 4 ways for companies to grow
- Current Market - Current Product: Grow Share or maintain share in a growing market. Gets harder when you are a market leader. Leave this quadrant only when you are the market leader (no growth) or have no choice of winning
- Current Market - New Product: Develop a new product
- New Market - Same Product: Extend a current product into a new market
- New Market - New Product: Develop a new product for a new market (often hardest)
3Cs - Kenichi Ohmae - Mind of a Strategist
The 3C’s model points out that a strategist should focus on three key factors for success. In the construction of a business strategy, three main players must be taken into account. Only by integrating these three, a sustained competitive advantage can exist.
A balanced product portfolio has a mix of Cash Cows, Stars (future cash cows) and "?" (future stars)
Preferred path: Start as a "?", gain market share to become a "Star", maintain and defend your position as a "Cash Cow" while the market growth slows. And look to constantly divest your dogs. Best scenario, find a cash cow, and use it to fund "?" that becomes a star.
When you are a Cash cow, you have 2 objectives
- Stay and defend your position
- Generate steady cash flow and invest into
- Protecting your "Stars" in high growth, often highly competitive markets
- Developing new and emerging products "?"
Always Prioritize budgets as follows
- First (not most) goes to cash cows to keep them where they are. They are the life source of all other products in your portfolio
- Then Stars. To defend/ grow their share in high growth market
- Then prioritize all the different "?" and invest in them sensibly
- Fix or get rid of (divest) Dogs
Why do we need it?
- Scanning for opportunities and threats
- Risk assessment of future programs
- Monitor current programs
- What decision do we need to make?
- What Information do we need?
- Info you absolutely need to know (Always prioritize here)
- Info that's good to know
- Info that's nice to know . (Least Focus)
- Gather the data
- Primary Research
- Observations - Read Paco Underhill. Doesn't answer Why?
- Focus Groups - Hard to scale but helps answer why
- Experiments- Hypothesis based. test 1 thing.
- Surveys - Keep it short. 1-2 q over several times. 1 to 7 point scale.
- Secondary Research
- Soured from published govt sources (Census, dept of Commerce etc), Consulting firms, research agencies, Competitors (websites, ads, catalogs), Trade Journals etc.
- But always start within the company. Sales, finance, prod dev have wealth of information.
- Primary Research
- Analyze the data
- Make Decisions
Resource Allocation and Budgeting
Marketing Risks (all about Focus) are different to Financial Risks (all about diversification)
- Demand Risks - Hard to control - Macro - currency, politics, regulations
- Market Share Risks - Chances of not getting or losing customers. Impacted directly by firm's decision on 4Ps relative to competitors
Reduce risk through both quality and quantity (resource allocation) of marketing efforts relative to competitors
What is the Value of Market Share (VMS)?
The long run VMS to any company is company specific and is a function of - Size of market, Growth of market and the profit margin on each product (unique to each company).
Example: VMS for Toyota in the car market is 2.5X more than Ford and GM since it generates majority of its margins from the car market. Unlike Ford, GM which value Trucks much more.
VMS Is usually higher for market leader, and differs across industries and time periods
What is the Cost of Market Share (CMS)?
How much are you willing to spend to maintain a certain market share.
According to Cook, In steady state, Market share is proportional to effort (share of marketing investment). If a competitor responds aggressively, CMS increases for everyone in that market. As competition decreases their investment, cost of gaining market share also decreases.
Customer Analysis and Segmentation
Every marketing plan starts with a segmentation. The choice of customer dictates everything that follows. Segmentation is all bout focus and better understanding your customers. It is an artificial construct created by companies to better develop and sell a product.
Customer Analysis adresses 5 questions
- Who are the current and potential customers
- Why do they buy
- How do they make a purchasing decision
- Where do they buy i.e what channels of distribution
- When do they buy - time, occasion
Customer Segmentation - Who are the customers?
Firms segment customers based on Geographic (location, density, climate), Demographic (Age, gender, income, education, race etc), Psychographic (lifestyle, personality). These 3 descriptors can be used to construct Behavior groups (Loyalty, Heavy/Light users, Awareness, Attitude etc)
Loyalty - leads to repeat purchases, referral/ recommendations to others, feedback, less price sensitivity, more tolerant to firms mistakes). Loyalty has to be earned through customer experience and service.
Usage groups - 80/20 Rule - 20% of users consume 80% of products/services. 4Ps should be different for each segment. E.g. volume discounts, larger and easier packaging, mass distribution - grocery stores, home delivery etc for heavy users.
What are the benefits from Customer Segmentation?
Segments are relatively homogenous groups. Enables more focus, better decisions, effective resource allocation, product development, easier to market, gain attention and loyalty, and better understanding of competitors (and their products)
B2B customer segmentation is similar to Retail customers.
Demographic - Public, Private, Industries, firm size,
Psychographic - Risk tolerance, environment sensitivity, Goals - Long term vs short term focus
Behaviors - Just in Time vs. Min/Max inventory stocking
Brand and Brand Positioning
Brand, is a promise for a repeatable experience. Customers value consistency and reliability. Brands help customers recognize and chose where they want to go. Reduces search costs, risks, Creates trust and sets expectations. Informal contract/agreement.
How to Build a Strong Brand
- Create a brand identity. What do you want to mean to your target customer? What differentiates you from competitors?
- Be consistent over time. Avoid confusing the customer on what the brand stands for
- Track the equity over time. Are we making progress on customer awareness. Are the developing brand associations. What's their perception on quality
- Assign responsibility for brand development activities to someone/group
- Continued Investment in brands
Positioning (Read AAker on Branding, Trout and Ries Positioning)
Customer recall Fatigue - People don't remember more than 5+/- 2 brands at the same time.
As a brand you need to be in the Top 3.
TOMA - Top of Mind Awareness - Questions to customers
- When you think of buying something, who do you first remember? (First brand)
- Who else? (competitor set)
- What do you think of, when you think of the first brand e.g. Nike, Just do it
Trout/Ries - You can't outdo someone in brand positioning. You need to know what you stand for
Product Extension vs. Brand Extension
Customer Analysis - Why do they buy and how do they make the purchasing decision
Customer Decision cycle
Less the Need, more time to close the decision
Alternate models - AIDA - Awareness, Interest, Desire, Action
To keep repeating, marketers need to successfully take new customer through the steps at least once.
B2B Behavior is a bit different to retail customer
- Use different terms, vernacular. Often contractual.
- More rational process. Clear benefit expectations - Top line revenue growth or reduce cost
- Solution sell. Highly relationships oriented
- Value elastic (not price)
- Riskier (which is why there is a process, multiple decision makers and professional buyers)
Brands Reduce Risk - B2B side incredibly important.
Product and Market life cycle
Life of a new product - Everett’s diffusion of innovation
Market manager must understand who are the different customers who will buy the product in the introductory phase, and who later as the market matures. Word of mouth and usage by early adopters helps the rest mitigate/lower risk of trying their product themselves.
Innovators (usually 2-3% of users) are quick to try new products because of self perceived status, feeling of being part of an exclusive community, the thrill/bragging rights. Usually useful for identifying bugs and issues with your products.
DO NOT SPEND YOUR MARKETING EFFORTS FOR THIS SEGMENT
Spend you time and focus on Early adopters (13-14%), who are opinion leaders, influencers and can get the rest of the market (early and late majority) excited. They are good at detecting the value of new product and how it would enhance their lives or their business.
Same product can be in different stages across markets. E.g. Connected Thermostat is probably in early majority in the US, while, it is for innovators in India.
Typical flow > Innovators try first and educate the early adopters. Visionaries then identify the benefit/value proposition and influence the early majority. Become profitable by serving the early majority with a high quality product and customer service. Gain late majority by reducing cost and price. Ignore the laggards.
However, quite often, the flow is not smooth. The product could lose momentum in the gaps between the diffusion groups.
To successfully cross the gap, follow the basics. Target the specific segment and develop a clear value proposition. Often times it is solving one highly specialized need for the early adopters, and solving a more broader wide appealing need for the early majority.
Evolution of Market - Entire Industry