Marketing strategy

Teacher: Ana Polo

Course: 2010

Lesson 1. Marketing strategy scope

Setting the framework

1. Is Marketing everywhere? Its obvious that people and organitzations
engage in a vast number of activities that we could call marketing. And
its obvious that marketing profoundly affects our daily lives. But, are
there limits? Marketing is everywhere? Where should we set the limits?
Obviously, theres an ethical compound, a boundary that marketing can
not surpass.
2. Second major question: marketing can also be a problem? Marketing
is tricky and it has been the Achilles heel of many formerly prosperous
companies. Large and well-known companies, such Levis, have
confronted many problems because they have failed at their Marketing
strategy.
3. Another question: Philip Kotler used to say that simply giving the
customers what they want isnt enough anymore, Is he right?
Consumers did not know much about cellular phones when they were
first introduced and both Nokia and Eriksson fought hard to shape
consumer perceptions of them. Another example was Tamagotchi.
This is because there are not only stated needs or expressed needs
(needs that the customer express clearly and verbally). There are also
other types of needs:
-

Real needs: what he/she really needs, and can reveal or not. For
example: The customer wants a cheap car (stated need), the
customer wants a car whose operating cost, not its initial price, is
low (real)
Unstated needs: the customers expect good service from the
dealer.

Delight needs: the customer would like the dealer to include an

onboard navigation system.
Secret needs: the customer wants friends to see him a s a savvy
customer.
Latent needs: those that even the customer is not aware himself.

4. Fourth question: Peter Drucker, leading management theorist, said

that the aim of marketing is to make selling superfluous. Was he right?
The traditional view of marketing is that a company makes something
and then sells it. But the really aim of marketing is to know and
understand the customer so well that the product or service fits him
and sells himself. Ideally, marketing should result in a customer who is
ready to buy. The job is not to find the right customers for your
products, but the right products for your customers.
So, marketing means identifying and meeting human and social needs:
-

Choosing target markets that have a need or a talent need.

Offering them a product or service that cover that need.
Getting, keeping and growing customers through creating,
delivering and communicating superior customer value.

5. Fifth statement: Not 4 Ps anymore!

Due to the fact that we must focus all our attention in the customer,
the 4 Ps framework is of questioned usefulness. Because it represents
the sellers view of the marketing tools available for influencing buyers.
Another model that focuses on customers: SIVA:
-

Solution: How can I solve my problem?

Information: Where can I learn more about it?
Value: What is my total sacrifice to get this solution?
Access: Where can I find it?

6. Last statement: David Packard, from Hewlett-Packard, said

Marketing is far too important to leave it to the Marketing Department.
Due to the fact that the focus must be put on the customer, companies
now know that every employee has an impact on the customer and
must see the customer as the source of the companys prosperity. So,
the new mantra is: Love the customer, not the product.
Traditionally, marketing was seen as the function of the CMO, the Chief
Marketing Officer. And everybody described the job as:
-

Strengthening the brands

Measuring marketing effectiveness.
Driving new product development based on customer needs.
Gathering meaningful customer insights.
Utilizing new marketing technology.

But this definition has been broadened, and now everybody has a role
to play in marketing, basically because now we have added a new
function: guarantee customer satisfaction and translate it into customer
devotion.
Obviously the traditional way marketing operates is till useful. And
thats the main reason to keep alive the Marketing Plan. This is the
single central instrument for directing and coordinating the marketing
effort.
And all marketing plan is based on two pillars:
-

The strategic par_ it lays out the target markets and the value
proposition that will be offered, based on an analysis of the best
marketing opportunities.
The tactical part: specifies the marketing tactics, including
product features, promotion, merchandising pricing, sales
channels and service. To make all the of these work, first you
must provide a framework: a reason for existing.
Thats why we must provide a mission, vision, core values and
goals.

Mission, Vision, Core values and Goals

Mission: an organization exists to accomplish something (to make cars,

to lend money) So, What is your business? What is our reason to exist?
The mission is providing a meaning to your business.
Guy Kawasaki recommends that you should only start a business if you
are going to accomplish:
-

Make the world a better place.

Increase the quality of life.
Right a terrible wrong.
Prevent the end of something good.

So, he recommends to describe your mission as the result of the

sentence:
If your organization never existed, the world would be worse off
because
The problem here is that companies often describe their mission
statement in a boring way. For example: Motorolas mission is: We

honorably serve the needs of the community by providing products and

services of superior quality at a fair price to our customers.
Providing a mission statement is not describing the product or service
you provide but giving a good reason to exist, something that really
moves you.
For example, Encyclopedia Britannicas product definition is: We sell
encyclopedias. Its mission is We distribute information.
Also, its important not to confuse a mission statement with tag lines.
Missions are for your employees. Its a guideline for what they do in
their jobs. Tag lines, on the contrary, its for customers. Its a guideline
for how to use your product or service.
Vision: apart from the mission statement, we have the vision. What do
we want to achieve? What should we become in five or ten years?
This is an almost impossible dream that provides direction for the
company. For example, Sonys former President, Akio Morita, wanted
everyone to have access to personal portable sound. So his company
created the Walkman and portable CD player.
But this dream, this direction can not be too much general. Today we
think its better that a vision should include:
-

a quantified success indicator.

A definition of niche: in which sector you would like to play or
specialize.
A time lime to play for execution: we want our vision achieved in a
period of time.

So, visions statements must be not only aspirational and inspirational,

they must be also measurable.
A good example is Toyotas mission and vision:
-

Mission: provide safe and sound journey

Vision: to be the most respected and successful vehicle
enterprise in the next five years with a wide range of products and
solutions in the automobile industry and the best technology.

Core values: Well, apart from the mission and vision, to define what
kind of business we are we have to set up our core values, the
philosophy of a company, the organizational culture:
For example: Stanford values:
-

Believing in the power of ideas and intellect

Striving for excellence in what Stanford does.

Acting with integrity
Exhibiting compassion and respect to others.
Taking ownership of ones actions.

Goals: How to get from the mission to vision? The route is carved out
with the strategic goals.
But remember that all goals must be SMART:
- Specific
- Measurable
- Attainable
- Realistic
- Time-Phased

PESTEL and SWOT

Apart from setting the Mission, Vision, Core values and Goals, We must
also pay attention to the environment we are playing in. PESTEL
scans macro-environmental factors.
PESTEL stands for: Political,
Environmental and Legal.

Economic,

Social,

Technological,

A good PESTEL analysis can enable an organization to anticiape future

business threats and take action to avoid or minimize their impact. It
can enable an organization to spot business opportunities and exploit
them fully.
SWOT, on the contrary, analyzes the market you are playing in. It
stands for: Strengths, Weakeness, Opportunities and Threads.

Lesson 2. Segmenting, Targeting and Positioning

Customers in a market are never homogeneous. A market segment is a

customer group within the market that has special characteristics
which are significant for marketing strategy.

Segmenting

Segmenting is dividing the market so we can find homogenous submarkets. To segment a market we can use different variables:
a) Geographic variables: city, density, climate.
b) Demographic variables: age, sex, family type, legal status, income,
occupation, education, nationality
c) Psycographic variables: social class, lifestyles, personality
d) Behavioral variables: level of use, frequency of use, loyalty level
From all of them, psycographics variables are now more in vogue than
ever because they study a persons pattern of living.
The most famous psycographics types are stored up in SRI Consultings
Values and Lifestyles (VALS) typologies. VALS classifies people
according to how they spend their time and money. It divides
consumers into 8 groups based on 2 major dimensions:
-

primary motivations
resources

Innovators: they are successful, sophisticates, take-charge people with

a lot of self-esteem. The are most resceptive to new ideas and
technologies.
Thinkers: they are motivated by ideals. They are mature and value
order, knowledge and responsibility. They are well educated and seek
out information in the decision-making process. They look for durability,
functionality and value in the products.
Believers: also motivated by ideals. Traditional, their lives are moved by
established codes (family, religion) They choose familiar products and
established brands.
Achievers: they are motivated by the desire of achievement. Deep
commitment to career and family. Image is important to them: they
favor established prestige products and prestige.
Strivers: they are trendy and fun-loving. They are concerned abour the
opinions and approval of others. They are active consumers and are
very impulsive.
Experiencers: they are motivated by self-expression. They are young,
enthusiastic about new possibilities. They seek variety and excitement.
They spend a lot of money on fashion, entertainment and socializing.
Makers: they are practical people who have constructive skills and
value self-sufficiency. They are suspicious of new ideas, they are
unimpressed by material possessions other than those with a practical
or functional purpose. They prefer value to luxury, they buy basic
products.
A variation of the VALS scheme is the technographics. VALS proved to
be great except for technological products. In the techie field is better to
use Forresters Technographics scheme:
Fast forwards: the biggest spenders in technology. They are careefocused, time-strapped, very driven and competitive.
New Age nurturers: also big spenders but focused on technology for
home uses, such as family education and entertainment.
Mouse Potatoes: dedicated to interactive entertainment and willing to
spend for the latest in technotainment.
Techno-strivers: up-amd-coming believers in technology for career
advancement.
Traditionalists: suspicious of technology beyond the basics.

Targeting
Once you have segmented your market, you have to choose that
segment that fits better for you. This process is called targeting. You
find your target, that segment that you want to attract.

Advanced questions in segmenting

Ok. You already know what segmenting and targeting is. Lets face some
questions:
1. What happens if you dont have customers to segment? Well
you have to generate customers, them. And to do so, you have to
change behaviours, attitudes and perceptions in the peoples
minds.
Psychologists have determined that public are generally passive
and you must persuade them to do something. You can persuade
through facts, emotions.
The fact is that people tend to respond more to something that
affects them personally. You must always appeal to the selfinterest.
And the key here is: Sell the benefit!!!!!!
For example: the Got Milk? campaign.
This campaign aimed at educating consumers on the benefit of
mil. The campaign was launched 10 years ago at a time when mil
was considered outdated, only for kids and only good as an
accompaniment for high-fat foods like cookies. In fact, during the
30 years previous to this campaign, milk consumption had
declined sharply. The campaign wanted to target 20-30 years old
women and, thanks to the celebrity moustaches women began
to associate milk with the celebrities endorsing the ads. So they
generate new consumers.
The campaign was so successful that they widened the targets
and aimed to reach men. They use fictional characters like
Superman to portray the image that drinking milk was also
manly.

Another example: Cosmetic targets men.

Another example of generating new customers is cosmetics for
men. In 1991 Carolina Herrera launched the Carolina Herrera for
Men parfum but they were targeting men with a feminine
approach.
Really men cosmetics has been targeting gay public and, more
recently, the metrosexual man. But all these attempts were too
narrow. The main problem was that the vast majority of men
found these products to be extremely feminine. So the cosmetics
firms began to change the strategy and changed the packages to
appear more masculine. In fact, they wanted to generate the idea
that it was not cosmetic, it was something for your health, like
going to the gym. The best at this has been LabSeries.
Now the problem is to reach the aged men. Whereas there are
thousand of antiaging products for women, cosmetics firms have
begun to target men over 45 years old. For example, LOreal is
using James Bond.

Do remember some tips to target difficult targets:

a) Sell the benefit and find something people can be interested in.
b) You must use graphical images as much as possible but
always add a call to action: tell people to do something.
c) Never use too dramatism: people can be scared and avoid
put attention.
d) Use a positive tone.
Also do remember that you have an important problem to
overcome when targeting difficult targets: the cognitive
dissonance (Leon Festinger). We avoid all the information that
opposes our desires and needs. To change the attitude of a
dissonanced person you must use fear. If you want to avoid
this situation, dont do that: for example, traffic deaths.

2. What happens if your segments and your targets change? This

hypothesis always happens. You have to redefine the segments
and the targets.

For example: Cacharel Parfums de lOral

Anas Anas was launched in 1978 to give the new younger
consumer what they wanted. The aim was create a fresh, floral
fragrance for a youth market, a perfume that was tender but sexy.
It was priced 30% below classic brands thereby putting it within
easy reach of the younger consumer. After 2 years on the market,
Anas Anas became the leading perfume in Europe.
But in 1994 the arrival of one particular product began to
challenge Cacharels long-standing status: CKOne. It was aimed
for 15 to 25 years old and portrayed a different kind of young
women: androgynous, uninhibited, with no regard for traditional
glamour.
There had been changes in consumer needs and wants and they
had been unable to understand them. So they had to reshape
their segmenting and targeting strategy. They found four kinds of
consumers among the young women public:
-

The
The
The
The

androgynous one
uninhibited one
innocent one
romantic sensual one.

They decided to target the last two segments and they launched
an ad campaign featuring Kate Moss (who is already very
androgynous) in a very innocent but sensual fashion. The idea:
the uninhibited women also want to be princesses
Another example: Harley-Davidson, which is the classic example
of segmenting. Few brands have such intense loyalty as that
found in the hearts of Harley-Davidson owners. Basically, you
dont see people tattooing Yamaha on their bodies. Harley has the
56% of the heavyweight motorbike market share and partly thats
why Harley-Davidsons marketers spend a great deal of time
thinking about who customers are, what they think and how they
feel, and why they buy a Harley rather than a Yamaha or a
Kawasaki.
They sent 16.000 surveys containing a typical battery of
psychological, sociological and demographic questions and found
that they had seven core customer types:

Adventure-loving traditionalists
Sensitive pragmatists
Stylish status seekers
Laid-Back campers
Classy capitalists
Cool-headed loners
Cocky misfits

Their traditional target was the first one (adventure-loving

traditionalists: the so-called Hells Angelswith black-leatherjackets) but they are moving towards a news breed of riders: the
rubbies (rich urban bikers): they are younger, more affluent,
and better educated.

Positioning
Ok. So we have already understood what segmenting and positioning is.
Now the other part of the marketing strategy: Positioning.
Positioning refers to all the strategies we develop to attract our desire
targets. That means making sure our product or service is visible and
well-considered and also, and foremost, positioning implies dealing with
our competence.
Always remember that our own attractiveness is the result of ourselves
and the attractiveness of our competitor.
Today, competition is not only rife but growing more intense every year.
And because markets have become so competitive, understanding
customers is no longer enough. Companies must start paying attention
to their competitors.
So, the first stage is: Who our competitors are?
It would seem a simple task for a company to identify its competitors.
McDonalds would name Burger King. Perhaps, they would include
Pizza Hut and even supermarkets that have added prepared food.
But remember: a company is more likely to be hurt by emerging
competitors, or new technologies, that by current competitors. For
example, when you can get free news content online, why should you
buy a newspaper?
And also remember that sometimes our competitors seem not to be our
competitors.
Example: Coca Cola

Coca-Cola states that its number one competitor is tap water, not
Pepsi.
So you must be always aware of what is happening in your market
segment. Theres a new kind of marketing called the Guerrilla Marketing
that recommends few pieces of advice:
1. Watch the small companies in your industry and related
industries. True innovation often comes from small companies.
(Ex: Google)
2. Follow patent applications: Not all applications lead to products,
but patent filling indicate a companys direction.
3. Track the job changes and other activities of industry experts.
Who have the competitors hired? If a company hires a marketing
directo with significant experience in Eastern Europe, the
company could be looking toward that market.
4. Be aware of licensing agreements. And monitor the formation of
business contracts and alliances.
And also try to learn what are your competitors doing and what they are
doing better than you. The art of learning from companies that perform
certain tasks better than other companies is called Benchmarking.
Its like spying but with ethics and good purposes.
Ok. We know who our competitors are. What can we do in front of
them? We must position ourselves
The first thing is generate a reason to buy our products and to avoid
people buy our competitors products. This reason is called valued
proposition.
For example. Volvo.
Target customers: safety-conscious upscale families that seek
durability and safety.
Value proposition: The safest, most durable wagon in which your
family can ride.
The objective here is that when people think about Volvo they might
think about safety, durability. In fact, positioning a product is
generating a thought in peoples mind.

Al Ries and Jack Trout are two of the best authors regarding positioning.
They have a good book called Positioning: the battle for your mind
that is worth-reading.
They argue that well-know products generally hold a distinctive
position in consumers minds.
For example: Coca Cola: the worlds largest soft-drink company
Porsche: one of the worlds best sports cars.
And, also, in an overadvertised society, the mind often knows brands in
the form of product ladders, such as:
Coke Pepsi RC Cola
The top firm is remembered best and thats why companies fight for the
number-one position.

So, what can you do to position your product in the top position?
1. Get there the first and remain. In other to be the first, you must
discover something new. This is the easiest thing. But you can
also redesign something that already exists.
Theres a concept called the Blue Ocean Strategy. A blue ocean
denotes all the industries not in existence today (the unknown
market space, untained by competition).
There are two ways to create blue oceans:
a) In a few cases, companies can give rise to completely new
industries, as eBay did with the online action industry.
b) In most cases, a blue ocean is created from within a red ocean
when a company alters the boundaries of an existing industry.
Thats the case of the Cirque de Soleil.
The Cirque de Soleil was founded in 1984 by a group of street
performers but today it has staged dozens of productions seen by
some 40 millon people in 90 cities around the world.
And, more surprisingly, Cirques rapid growth occurred in an
unlikely setting: the circus business was (and still is) in long-term
decline. Alternative forms of entertainment-sporting events, such
as video games are casting a growing shadow. And children, the

mainstay of the circus audience, preferred PlayStations to circus

acts.
What did Cirque du Soleil do? They reinvented the circus. It
created uncontested market space that made competition
irrelevant. It pulled in a whole new group of customers who were
traditionally noncustomers of the industry.

There are three different types of first (due that generally you
can excel at three different levels, the three value disciplines):
a) Product leadership: some customers favor the form that
is advancing on the technological frontier. Google
b) Operational excellence: other customers want highly
realible performance.
Example: Ritz Carlton hotels signal high quality by
training employees to answers calls within 3 rings, to
answer with a genuine smile in their voices, and to be
extremely knowledgeable about all hotel services.
c) Customer intimacy: still other customers want high
responsiveness in meeting their individual needs.
A firm can not normally be best in all three ways, or even in two
ways.
For example. McDonalds excels at operational excellence,
but could not afford to slow down its service to prepare
hamburgers differently for each customer.
So try to become the best at one of the three value disciplines and
achieve an adequate performance level in the other two disciplines.
Get only one good value proposition (people only remember one
thing about you).
Many marketers advocate promoting only one central benefit.
This is called the unique selling proposition and makes for
easier communication to the target market.
Mercedes: promotes its great engineering

Lets have in mind that not everybody agrees on the single-benefit

positioning. For example: today people believe that most cars are
safe and that most cars have pretty good quality.
Volvo: double-positions its automobile as safest and
most durable.

2. Differenciate yourself (competitive advantage)

Add as much possible differences to distinguish your companys
offering from competitors offerings.
Example: IKEA: it is positioned as a company offering good
quality furniture at a low price. But IKEA has spun further
differences to distinguish itself from normal furniture stores. It
operates a restaurant in each store, it offers child care services
while the parents shop
You can differenciate yourself in several points: style, design,
quality
Example: Absolut vodka decided to opt for style, as Montblanc
pens and Apple Computers. Style has the advantatge of creating
distinctiveness that is difficult to copy. Apple computers: iMac
features a sleek, curvy monitor. Braun (division of Gilette) has
elevated design to a high art in its electronic shavers, hair dryers.

Another example : Sephora

Sephora is the hottest beauty retail chain. It opened in France in
1969 (appeared in the US in 1998). The idea: treat you like
Nefertiti, an empress, a goddess. Sephora sells the Sephora
experience with is implied in its beauty statement: Step in and
enter a whole new dimension of shopping for beauty.
They offer attentive (but not stifling) customer service, a generous
sampling program: customers are afforded full license to handle

the goods without the high-pressure sales environment of a

department store.

3. Avoid the common mistakes. Whatever you decide to choose,

you must avoid four major positioning mistakes:
-

underpositioning. Some companies discover that buyers have

only a vague idea of the brand. The brand is seen as just
another entry in a crowded marketplace.
Crystal Pepsi in 1993: People didnt see clarity as an
important benefit in a soft drink.

Overpositioning: a customer might think that diamonds rings

at Tiffany start at $5000, when in fact it has more affordable
rings starting at $1000

Confused positioning: the company is making too many claims

or changing the brands positioning too frequently.

Doubtful positioning: buyers may find it hard to believe the

brand claims in view of the products features, price or
manufacturer.

Lesson 3. Strategies to survive in a market

In the last lesson we have studied how to be the first and how to
differentiate yourself from your competitors. Apart from these
invaluable lessons, you must learn how to survive in a market. Here it
is useful to use the techniques of the Judo Strategy.
The first technique is to survive when you appear in the market. Follow
the rules:
1. Dont invite attack. When you are relative weak, you should avoid
provoking stronger competitors into delivering a potentially fatal
blow. Instead, you need to focus on reducing your rivals
temptation to attack. Its playing the puppy dog syndrome.
Remember Ryanairs initial failures when it failed to play the puppy
dog and attacked the British airways head-on. RyanAir had to
reposition the company to survive.
2. Define the competitive space. Smaller size does not have to be a
disadvantage if you can move quickly to define the competitive
space. Use your freedom to maneuver to drive the competition in a
direction that makes it hard for rivals to do what they do best.
For example: Capital One Financial Corporation targeted specific
customers to offer them special premiums in a moment when
others financial corporations where offering the same services to all
customers despite customers different characteristics.
3. Follow Through Fast. By defining or redefining- the competitive
space, you may secure a lead over potential rivals, but eventually
theyll start to catch on.
Once you have secured an space with this rules, you have already
survived. Now its time to compete through different strategies:
1. Grip your opponent. By partnering with opponents, you can
strengthen you position and limit their room to maneuver while
postponing, diverting, or event preemptive efforts to attack you
head-on.

This is the strategy that e-Bay followed. Through early alliances

with AOl, he was able to face the repeated attacks by Yahoo!,
Amazon and even Microsoft.
2. Avoid Tit-for-That. When competing with stronger players,
meeting force with force is a quick route to defeat. Resisting every
move will wear you down, put you on the defensive, and recast the
competition as a trial of strength the game that you are at least
likely to win. So rather that get dragged into a war of attrition, stay
on the offensive and respond to attackers on your own terms.
3. Push when pulled. If you are up against an irresistible force, first
give way and then harness that force to your own ends. Look for
ways to capture your opponents momentum and ride it where you
want to go. Build on your competitors products, services or
technology and embrace their moves.

Lesson 4. Branding

Ok. Now that we know some of the basics of segmenting, targeting and
positioning, and also about strategy, its time to enter the wonderful
world of brands. Branding is one of the best strategies to position
yourself and you further develop your competitive advantage. But,
at the same time, its the part when most campaigns fail.

1. What is the value of a brand?

While many consumers are happy to shop around, they are unwilling to
risk their money on a product which they fear may not deliver.
Consumers are looking for something to help them decide between an
increasingly bewildering set of alternatives. That is what makes brand a
critical part of all marketing strategy,
People dont drink a sweet-tasting brown liquid: they drink Coca-Cola,
with all the connotations surrounding that Brand.
When we talk about brands, we normally talk about brand equity.
Brand equity is how your customers recognizes why you are different
and better than an alternative.
We have already talked about the value proposition. The value
proposition is something we, as companies, try to sell, try to convey, to
portray. It is how we present ourselves to the customers. The brand
equity is how consumers perceive us and what do they think about us,
and how much importance they put to us. Its the quality that motivates
your customers to recommend their friends or colleagues to you.
Brand equity is not static. Its build on a period of time. You can use
advertisements and publicity to make your brand know. And its also
important to pay great attention to our customers direct experience
with your product or service.
This is extremely important, because from the brand equity depends the
customer loyalty and customer loyalty is what gives us economic
benefits.
So, the value of a brand resides in the minds of those who use them.
They are much more than logos and names. A brand is a mix of
rational, sensual and emotional reward to the customer.

There are rational aspects: What the product does for me? How would I
describe the product? But, foremost, they are emotional aspects: How
the brand makes me feel? How the brand makes me look?
People use brands to make statements about themselves:
Rolex: I am a high achiever
Armani: I am on my way to the top
British Airways: I am a world citizen
Body Shop: I care for the environment.

So the most important part of every brand is the emotional quality.

The Kleenex brand is the perfect example.
Kleenex began its production in 1924 and now it is the number one
tissue name. Kleenex claim that its brand its build around four items:
-

originality

regular innovation

quality control

heavy promotion

But, above all, Kleenex has wanted to explode the emotional approach,
specially through very intelligent ads. Kleenex has positioned itself as
your most valuable asset when having a good time and also at the bad
times.
One of the most classical examples of emotional connection is also
Levis.
Levis was first manufactured for the gold miners in California in the
1850s and quicly established a brand reputation for producing tough,
hard-working miners, and they grow slowly along the American West
Coast throughout the Depression and into the World War II.
But in 1950s there was an explosion of a new generation of people
looking to rebel themselves against convention. Levis then became the
symbol for rebels. It was worn by roch stars, actors and the cool.
It was so much identified as the rebel brand that when they tried to
pursue a brief flirtation with baby clothing in 1970s and 1980s it failed.
So they went back to their origins and they relaunched the 501 jean
(Levis went back on the original values).

But during the last decades, Levis has been forced to rebrand itself to
adapt to a new generation of young people and the modifications in the
market. Thats why they launched the Engineered denim in 2000 and
tried to adapt to the new kind of rebel.
Another classical: Nike. Nike was established in 1960s in Oregon (it
comes form the greek word victory). What is important about Nike is
that it began with very limited resources but unlimited confidence. Nike
has undertaken many failures:
-

failure to recognize the aerobics boom (women- a major target)

they were late in getting onboard with extreme sports

Child labor

But they did one thing very well: they persuaded top athletes to become
their symbol. The classic one: Michael Jordan (Air Jordan).

2. Can everything be branded?

Tipically, it was supposed that commodities could not be branded. A
commodity is a product that is so basic that it cannot be physically
differentiated in the minds of customers (mineral water, potatoes)
But, over the years, a number of products that at one time were seen as
essentially commodities have become highly differentiated as strong
brands have emerged in the category.
Examples: salt, bananas, chickens, pineapple and even water (Perrier).
Typical example: Diamonds (De Beers)
Is it not supposed that all diamonds are equal? The Beers Groups
thinks not. The Beers was founded in 1888 and currently sells about
60% of the worlds rough diamonds. The Beers launched a campaign in
1948 to state that A Diamond is Forever. It aimed to attach more
emotion and symbolic meaning o the purchase of diamond jewelry.
Thanks to this campaign, nearly all women who get engaged receive a
diamond ring and it was supposed this would be the only diamond they
would adquire in their whole life.
But in 2001 De Beers thought it was time to target new customers.
They launched another campaign: For your past, present and future.
The goal was to turn engagement ring buyers into repeat customers:
that sales of rings rose 74% in 2002.

Now De Beers wants customers to start thinking about the right hand,
as well as their left. The company is succeeding in changing the
perception of diamond rings as limited to engagement rings and
wedding bands. Aimed at 30 to 54-years old women with household
incomes of more than $100.000, the right-hand rings are usually
platinum, with multiple diamonds and open space in the design. The
slogan is Your left hand says we; Your right hand says me.

3. Can high-tech products be branded?

Many technology companies see branding as simply naming their
products. They think the importance must be placed in innovation and
technological features. And that is true, as much as they also depend
upon brands, because that speed and brevity of technology product life
cycles causes unique branding challenges: trust is critical, and
customers often buy into companies as much as their products.
This is also the case for online products.
Example: Google.
Founded in 1998 by two Stanford Ph.D. students, Googles stated
mission is To organize the worlds information and make it universally
accessible and useful. Its home page focuses on searches alone and it
is not cluttered with other services, as are many other portals.
Example: Amazon.com
Amazon.com was founded in 1994. Within a year of opening, it offered a
selection of more than one million book titles, which made it the worlds
largest book broker. In addition, it provides a unique shopping
experience and the highest level of customer service. Jeffrey Bezons, the
founder of Amazon, wants his company to be the worlds most
customer-centric company: we want the Amazon.com to be the right
store for you as an individual. If we have 4.5 million customers, we
should have 4.5 million stores.

4. First steps to generate a brand: Key concepts

To create a brand the first thing you have to do is to generate: mental
maps, competitive frames of reference, points of parity and points of
differentiation and core brand values (brand mantra).
-

Brand Concept brands. When consumers think of a brand,

they are likely to bring to mind a set of associations linked to
it. Many methods are available for eliciting brand associations
from consumers. For example, you have free associations.

These are the responses to questions such as: When you

think of Disney, what comes to mind? Free associations allow
us to generate attribute rating scaling.
The problem is that many of this methods dont elicit the
structure of the brand associations: First-order associations
(linked directly to the brand) and second-order associations
(indirectly).
Thus, now is more useful to use a new technique: the Brand
Concept Maps (BCM). The BCM responds to three different
questions: Which brands associations are more or less
important?, Which brands associations are directly linked to
the brand and which indirectly?, How can stronger
associations and inter-connections between associations be
built?
The Brand Concept Maps follow a three-stage process:
4. Elicitation: open-ended responses. We only
retain those stated at least by 50% of
respondents.
5. Mapping: Consumers use a set of brand
associations to make a network map of how they
see the brand.
6. Aggregation: aggregate individual brand maps to
produce a consensus map.
For example: The Mayo Clinic Brand.
A Mayo clinic study was conducted via 1-1 interviews with
both patients (n=90) and non-patients (n=75) in Chicago.
The Elicitation stage got responses as: leader in medical
research, best doctors in the world, known worldwide,
caring and compassionate
One example if the individual mapping was:

The aggregated map was as follows:

Competitive frame of reference. This is a fancy way to

saying the market you compete in. Sometimes is obvious.
But sometimes is not. For example, Starbucks should say that
it competes in the coffee market but Starbucks always says
that is competing to be your third place, after your home and
your work. So it is competing with all sorts of different places
(bookstores, bars, restaurants, parks, libraries)

Points of difference and parity. Points of difference refer to

all those differences that we have in relation to our
competitors. Points of parity are those features in which your
competitors are over you and you need to check. You have to
ensure that you are good enough so you can still win on the
merits of your points of difference.

Brand mantra. Its a 3-5 word shorthand encapsulation of

your brand position. Its not an advertising slogan and it wont
be something you use publicly. Perhaps the most famous
brand mantra is Nikes: Authentic Athletic Performance.
How to generate a good brand mantra?
You must use an emotional modifier
descriptive modifier (athletic) and a
(performance).

(authentic), a
brand function

5. Brand equity
After having in mind these basics issues, you must begin to build a
strong brands. The most important thing here is to create a strong
Brand equity (how you are perceived by people).
Brand equity is the result of four steps, four group of questions that
customers invariably ask themselves about brands, at least implicitly:
-

Who are you? (brand identity)

What are you? (brand meaning)
What do I think or feel about you? (brand responses)
What kind of association and how much of a connection would
I like to have with you? (brand relationships).

To provide some structure to his ladder, lets establish six brand

building blocks with customers that we can assemble in a pyramid.
The brand equity is the result to reaching to the top of the pyramid.

Brand salience: It measures awareness of the brand, for

example, how often and how easily the brand is invoked under
various situations or recognized?

Brand salience is the result of needs satisfied and category

identification.
Needs satisfied: measures the range of purchase and usage
situations in which the brand and product knowledge comes to
mind.
For example: Tropicana wanted its customers to think of them
whenever they think of orange juice. Originally it focused on
breakfast but, afterwards, they wanted to link the product
usage situations beyond the traditional one of breakfast.
Category identification: how product categories are organized
in memory. Marketers assume that products can be organized
in a hierarchical fashion.
The thing is that sometimes, the best route for improving sales
is not improving consumer attitudes towards the brand but,
instead, increasing the breadth of brand awareness ans
situations in which consumers would consider using the
brand.
-

Brand performance. It describes how well the product or

service meets customers more functional needs. How well does
the brand rate on objective assessments of quality? To what
extends does the brand satisfy customer needs and wants in
the product or service category?
Brand performance transcends the products ingredients and
features to include dimensions that differentiate the brand.
Five important types of attributes and benefits often underlie
brand performance:

o
o
o
o
o
-

Primary ingredients and supplementary features.

Product reliability, durability and serviceability.
Service effectiveness, efficiency and empathy.
Style and design.
Price.

Brand imagery. It is the way people think about a brand

abstractly. It refers to more intangible aspects of the brand
(including the ways in which the brand attempts to meet
customers psychological or social needs). The four main

intangibles are: user profiles, purchase and usage situations,

personality and values, history and heritage.
-

Brand judgments. Customers personal opinions about and

evaluations of the brand, which consumers form by putting
together all the different brand performance and imagery
associations.
Four types of judgments are particularly important:
o Judgments about quality: brand attitudes generally
depend on specific attributes and benefits. For example:
Sheraton Hotels stand for location, room comfort,
design, appearance.
o Credibility: whether you can trust them or you like
them.
o Consideration: if they give the brand serious
consideration.
o Superiority: do you view the brand as superior, unique
or better than other brands.

Brand feelings. Are customers emotional responses to the

brand. These feelings can be mild or intense and be positive or
negative. We can undertake transformational advertising to
change consumers perceptions.
For example: Hallmark Brand.

Brand resonance. The nature of this relationship and the

extend to which customers feel that they are in sync with the
brand. Its the intensity of the bond that customers have with
the brand.
How to measure it? We have two methods:
o Behavioral loyalty: repeat purchases and the amount or
share of categories volume attributed to the brand. How
often ho customers purchase a brand and how much do
they purchase?
o Personal attachment: viewing the brand as something
special. Its seeing the brand as a love brand.

5. Brand image

It involves the name, the logo, the packaging

We are going to spend some time studying the brand image.
Tipically, naming has been treated as an afterthought, when in fact is
one of the most important variables. Naming is not only creative, its
strategic.
Some tips to put names to the brands:
1. Begin with a plosive sound (b, c, d, g, k, p, t). It a strong first
sound and it resembles more important. It is believed that
brands whose names begin with one of this sounds are easily
recognized and recalled. But, if you want to portray and image
of romanticism, serenity, charm you better begin with a
sibilant sound (s, soft c). For example: Chanel.
2. Other phonetics devices:
Alliteration: Consonant repetition (Coca-Cola)
Assonance : Vowel repetition (Dodotis)
Slant rhyme : vowels differ or consonants similar, not identical
(Black&Decker)
Unusual or incorrect spellings: Kool Aid
Abbreviations: 7 Up for Seven Up.
Affixations: Jell-O
Appart from names, we must play a lot of attention to URLs (domain
names). Brand recall is critical for URLs because, at least initially,
consumers must remember the URL to be able to get to the site. And, of
course, a lot of importance must be put to logos. Visual elements
tipically also play a typical role in building brand awareness as they
play a central role in ad campaigns and package designs. Some are
animated like Ronald McDonald or the Budweiser frogs.
To create great characters for a logo, always remember:
-

Human traits are appealing. M&Ms characters were given

more human traits to get more brand appeal

Make characters vulnerable. Even superheros have flaws.

Another element is slogans. Short phrases that communicate

descriptive or persuasive information about the brand. They often
appear in advertising but can play an important role on packaging and
in other aspects of the marketing program. They help consumers grasp
the meaning of a brand and help to reinforce the brand positioning and
desired point of difference, as in:

Life Takes Visa

Gillettes. The Best a man Can Get.
De Beers: A Diamond is Forever.
Maybe shes born with it, Maybe its Maybelline.

6. Private labels strategies

Private labels can be defined as products marketed by retailers and
other members of the distribution chain. Although the growth of private
labels has been interpreted by some as a sign of the decline of brands,
the opposite conclusion may in fact be more valid: private label growth
could be seen in some ways as a consequence of cleverly designed
branding strategies:
-

Their key Point of Difference is good value.

To create a Point of Parity, private labels have been improving
quality, and as a result are now aggressively positioning
against manufacturers brands.

How to respond to private labels?

- Procter and Gambles value-pricing program was one strategy
to combat competitive inroads from private labels and other
brands. It cut prices by 12% to 33%, shifting them into the
mid-tier level of pricing.
- Increase R+D expenditures to improve products and identify
new product innovations.

7. Building brands without Mass Media

In the US alone, mass-media advertising has long been the cornerstone
of most brand-building efforts. But fragmentation and rising costs are
already inhibiting marketing through traditional mass media.
The irony lays in the fact that Europe is most advanced than the US in
this field. Many European-based companies have long relied on
alternative communication channels to create product awareness.
For example: Hagen-Dazs.

8. Co-branding

Another way to promote brands is co-branding. It is when an existing

brand can also leverage associations by linking itself to other brands
from the same or different company.
Co-branding is also called brand building or brand alliances.
Advantages:
-

Borrowing needed expertise.

Leveraging equity you dont have
Reducing cost of product introduction.
Expanding brand meaning into related categories,
broadening meaning and increasing access points.

by

Disadvantages:
-

Loss of control
Risking of brand equity dilution.
Lacking of brand focus and clarity.

A good example of co-branding is the Smart Car: Mercedes+Swatch.

An special case of co-branding is ingredient branding, which creates
brand equity for materials, components or parts that are necessarily
contained within other brand products (Dolby noise reduction, Gore-Tex
water-resistant fibers). Ingredient brands attempt to create enough
awareness and preference for their products that consumers will not
buy a host product that does not contain the ingredient.
For example: Singapore Airlines has many ingredients brands that help
to improve passengers in-flight experiences, such as Givenchy-designed
cabins or a World Gourmet Cuisine created by an international panel
of acclaimed chefs.

9. Licensing
Licensing creates contractual arrangements whereby firms can use the
names, logos, characters, and so forth ot other brands to market their

own brands for some fixed fee. Essentially, a firm is renting another
brand to contribute to the brand equity of its own product.
Successful licensors include movie titles and logos like Harry Potter,
Star Wars and Spider-Man.

10.

Branding strategies

Now that we have studied how to promote a brand, how to build it, we
must now understand how to structure different brands. How to
maximize brand equity across all the different brands and products the
firm might sell?
We have to devise a brand architecture. It is a way to tell marketers
which brand names, logos, symbols and so forth to apply to which new
and existing products.
For example, should a firm be employing an umbrella corporate or
family brand for all its products (branded house) or a collection of
individual brands with different names (house of brands).
Which different products should share the same brand name? How
many variations of that brand name should we employ?
One useful tool here is the brand-product matrix. Its a graphical
representation of all the brands and products sold by the firm.

The rows represent the brand extension strategy (how many and
which products are sold under the firms different brands). A brand
line consists of all products sold under a particular brand (it is one row
of the matrix).
The columns represent the product-brand relationships: this is the
brand portfolio, the set of brands and brand lines that a particular
firm offers to sale buyers in a particular category.
Knowing your brand portfolio is highly important to strategize about
your brands, as we studied in class with the case of GAP. You have to
decide appropriate product categories and markets in which to compete,

and then you have to choose the optimal product line strategy: you have
to decide the length of the product line, sometimes by adding new
variants or items typically expands market coverage.
But always keep in mind that, from a branding perspective, longer
product lines may decrease the consistency of the associated brand
image.
Another important question here is: why having multiple brands in the
same product category?
Procter and Gamble is widely recognized as popularising this practive.
For example, it introduced its Cheer detergent brand as an alternative
to its already successful Tide detergent. The reason: market coverage.
Actually, this overlapping resulted in higher combined product category
sales for P&G.
The basic principle is to maximize market coverage so that no potential
customers are being ignored, but minimize brand overlap to that brands
arent competing among themselves to gain the same customers
approval.

11.

Different brands, different importance

When devising your brand portfolio, you must take into account that
not all the brands have the same importance nor relevance withing the
general framework. We can distinguish between:
-

Flankers brands: these are the fighter brands and its

purpose is to create stronger points of parity with competitors
brands so that the more important and the more profitable
flagship brands can retain their desired position.
This is not a very good strategy to implement because they can
become attractive enough to take sales awasy from their
higher-priced comparison brands or referents.

Cash cows brands. Some brands may be kept around despite

low or even dwindling sales because they still manage to hold
on to a sufficient number of customers and maintain their
profitability with virtually no marketing support.

Cash cows generate more than is invested in them. So its main

role is to generate resources that can be invested in other
brands for future growth. The classic example is Nivea.
-

12.

Low-end Entry-level or high-end prestige brands. Many

brands introduce line extensions or brand variants in a certain
product category that vary in price and quality.
o Low-priced brand attracts customers to the brand
franchise.
o High-priced brand adds prestige and credibility to the
entire brand portfolio. For example, Chevrolet
introduced the Corvette.

What name?

Now, we know how to organize our brands, hot to organize a portfolio.

But keep in mind that one of the most important decisions when
branding still remains ahead: how to call the products? Using the same
corporate name? Using different names?
This process is called brand hierarchy and consists in four different
strategies:
-

Corporate brand. The highest level of hierarchy always

consists in one brand, the corporate brand (For example,
General Motors or Hewlett Packard). Here the corporate brand
is virtually the only brand, sot its used as an umbrella brand.
Corporate branding can result in significant economies of
scope since one advertising campaign can be used for several
products. It also facilitates new product acceptance because
potential buyers are already familiar with the brand.
The thing is that using this strategy is only recommended
when the perceived image of the company (its vision, its
organizational culture) is well regarded.

Family Brand Level. It is used in more than one product

category but is not necessarily the same of the company or the
corporation. It is useful to link common associations to

multiple, but distinct products. The cost of introducing a new

product can be lower and the likehood of acceptance is higher.
For example, the Pepsicos Gatorade Sports drinks: its a brand
of flavoured sports drinks intended for consumption during
physically active occasions. For example: Original Gatorade,
Gatorade Rain, Gatorade Am, Gatorade X-Factor, Gatorade
Fierce
-

Individual brand. A brand restricted to essentially one

product category. For example, in the salty snacks products,
Frito-Lay offers Fritos, Doritos, Lays, Ruffles
The main advantage of creating individual brands is that we
can customize the brand and all its supporting marketing
activity to meet the needs of a specific customer group.
Moreover, if the brand runs into difficulty or fails, the risk to
other brands and the company itself is minimal.

13.

Modifier level. Its a means to designate a specific item or

model type or a particular version or configuration of the
product. For example, Yoplait yogurt comes as light,
original.

How to rebrand?

Generating a good brand is a challenge as it is to revitalize it. Even the

most important brands, such as McDonalds, have faced major brand
problems.
Normally you have to embark your company in a brand audit. A
brand audit is a comprehensive examination of a brand to assess its
health, uncover its sources of equity, and suggest ways to improve and
leverage that equity.
For example: The American Army (Promotion and Advertising
case)
For example, McDonalds in 2003 was portrait as a product not to
trust. And only two years after, it increased its sales by 12%. How
did they do that? They revitalize the brand.
For all revitalization strategies you need the 3R process: Restore,
Reinvent, Rebuild.

a. How did McDonalds restore the relevance to the brand?

Its customers just grew up and many grew out of its brand.
Customers had changed but McDonalds had remained the
same.
Some people adviced to go Back to the origins of the
McDonalds Brand (mainly, promoting Happy Meals and
Playplaces). But they instead looked ahead.
They changed the brand personality from the child in every
one of us to the young adult every one of us aspires to be.
Why? Because those who are younger want to be older
and those who are older dont want to be older.
So they changed the brand image sweet sport from 7-years
old to 22-years old. And they defined the essential spirit of
McDonalds Brand as Forever Young. Being Forever Young
is an attitude, it isnt an age. Its being energetic, positive,
hopeful.
They dramatically communicate that they had dramatically
changed. They advertised heavily, and they also re-imaged
their restaurants to communicate a more contemporary
brand image. And also they changed the menu to include
products like salads.
They expressed the new brand attitude with I am loving it
slogan.
Another slogans they mulled over: You deserve a break
today, You, youre the one we love you to smile Wr do it
all for you.
The problem with these slogans is that todays customers
dont believe that big business does it all for you. Before
June 2003, the leading candidate them was: MCDonalds,
we love it when you love it. But focus groups said that it
was just a bunch of we-we,
B) Reinvent
The main idea is that there are not out-of-date brands,
there are only out-of-date ideas.
C) Rebuild trust
In todays uncertain world, truth is a must. Customers are
not only more knowledgeable, more demanding, more

quality conscious, more value conscious they are also

more sckeptical, more questioning, and less trusting.
So McDonalds focused on rebuiling trust. And to deserve
trust, you must be trustworthy. Just saying trust me
doesnt track with todays customers. We need to create a
consistent pattern of trustworthy behaviour.
They for example created the World Childrens Day,
raising millions for childrens charities.
And, above all, they didnt hide the debate: obesity. Obesity
is a major societal priority, The wedge issue is childhood
obesity.
The McDonalds case highlightes one critical issue: trust.
People want to trust in their brands, and they want to trust in their
motives.
But there cases in which trust can be undermined. Unilever is the firm
which has both Dove and Axe products.
Dove launched the Real Beauty campaign in 2005 to challenge women
to stand firm to celebrate their curves by showing 6 women of different
ages, shapes and sizes photographed in their underwear. This campaign
was based in research conducted by Dove in which they have found
that:
-

only 2% of women feel comfortable describing themselves as

beautiful, while 31% describe themselves as natural and 29%
as average. But, women were more willing to rate their looks
higher than their beauty. 79% wished a women could be
considered beautiful if shes not physically perfect.
In 2007 they launched even the onslaught video.

But at the same time, the same company was launching the Axe
campaign Bom Chicka Wah Wah campaign, which was a reference to
a musical sound popular in 1970s pornographic videos. What do you
think? You can trust in Dove again?

Lesson 5. Marketing of services

Until now we have dealt with products and not with services. Services is
the offer one party can give another party. It is intangible, and does not
result in the ownership of anything.
Goods can be differentiated according to search qualities (that is,
characteristics the buyer can evaluate before purchase). But services
can only be differentiated according to experience qualities
characteristics the buyer can evaluate after purchase, eg: vacations,
haircuts) or credence qualities (characteristics the buyer normally
finds hard to evaluate even after consumption: legal services, medical
diagnosis)
Due to this fact, there is more risk in purchase. When purchasing
services customers fear:
a) About reliability and failure frequency
b) Downtime.
c) Out-of-pockets costs.
People try to reduce risk-taking in purchasing a service by:
a) Relying more on word of mouth than advertising.
b) Relying heavily on price, personnel and physical cues to judge quality.
Therefore, the service providers task is to tangibilize the
intangible (demonstrate their service quality through physical
evidence and presentation). For example:
Place: the exterior and interior should have clean lines. Waiting
lines should not get long.
People: personnel should be busy, but there should be a sufficient
number of employees to manage the workload.
Equipment: computers, copying machines and desks should look
like state of the art
Communication
efficiency.

material

(printed

material):

should

suggest

a) Offering loyalty to service providers who really satisfy them.

So, to differentiate services, firms rely heavily on providing value-added
services and excellence customer service. In fact, they want to portray a
service-quality image that is the result of:

1. Reliability. The ability to perform the promised service dependably

and accurately.
2. Responsiveness. The willingness to help customers and to provide
prompt service.
3. Assurance. The knowledge and courtesy of employees and their
ability to convey trust and confidence.
4. Empathy. The provision of caring, individualized attention to
customers.
5. Tangibles. The appearance of physical
personnel, and communication materials.

facilities,

equipment,

Service blueprint
A first step to improve your service is through designing a service
blueprint (that maps out the service process).

Customer satisfaction
Here we must take into account that customer satisfaction has dropped
in recent years: customers complain about inaccurate information;
unresponsive, rude or poorly trained personnel; and long wait times.
Even worse, many customers find their complaints never reached
because of bad phone or online customer service.
In fact, examples of good service are rare. Why?
Customers are not longer the kings! According to the Paretos rule,
80% of profits come from only the 20% of customers. The rest of
your customers can nag you, call you, bother you, but dont add much
revenue. In fact, it has been calculated that the bottom 30% of
customers eats up 50% of the profits the others produce.
Having reckoned this situation, firms have decided to focus on the 20%
of those customers who really suppose benefits and they are trying to
make them loyal to their service. Customers in highprofit tiers get
special discounts, promotional offers, and lots of special service;
customers in lower profit tiers many get more fees, stripped down
service, and voice messages to process their inquiries.
Now, for the first time, companies can truly measure exactly what such
service costs on an individual level and assess the return on each dollar.
They can know exactly how much business someone generates and that
allows them to deliver a level of service based on each persons potential
to produce a profit.
We use the Customer Lifetime Value (CLV) to calculate this potential.
Broadly spoken, the Customer Lifetime Value is the result of:
Customers expected number of visits time x The average amount of
money spent per visit your cost of acquiring and servicing.
We also use the share of customer:
Estimated potential lifetime value / current estimated lifetime value =
percentage
The problem here is that the CLV is only an estimation, and further
elements should be taken into account. For example:

The grumpy customers. Those customers that spend

great amount of money on our service but that are
difficult to please (we must invest a lot of time trying to
please them)

The cost to attract the client for the first time (and,
on the contrary, the no cost of attracting customers due
to the possibility that these customers come to us by
referrals, people who have told them our service is very
good).

The potential economic benefit of each customer is

difficult to seize because we can introduce cross-selling
or up-selling methods. Cross-selling means that we can
sell other products of the same level to this customer.
Up-selling means that we can sell products of a
higher quality (and pricier) to this customer.

Ok, lets imagine we have really decided who are most-profitable

customers are. What should we do with them? The easiest answer is
satisfy them, but always remember: SATISFACTION IS NOT ENOUGH!
According to recent studies to 50 major US firms, 60%-80% of
customers they have lost were actually satisfied with the service. In fact,
only 30% who liked the service were likely to repeat the purchase, but.
90% of those customers who loved the service were likely to repeat.
So, the key here is not trying to satisfy customers but make them
loyal to our services. Thats why many firms are embarked on loyalty
programs for their most profitable customers.

Loyalty schemes

Loyalty programmes or schemes are programmes established by

companies to provide added value to the regular purchaser as opposed
to the irregular consumer. The basis is to build up points or credits for
purchases, which allow consumer to get rewards like discounts off a
series of special products, or announcements about new offerings that
no other receive.
Example: frequent flyer miles programmes for airlines.

Problems with loyalty schemes

1. Are such schemes really about loyalty?
Loyalty is often understood as keeping the customer coming back for
purchase the products or services of the company. In theory, the aim of

a loyalty scheme is to move the consumer from being a supporter to

being an advocate.
2. Is this loyalty scheme better than price cuts or expanded advertising
programmes?
3. People are really loyal?
The fact is that most loyal customers are polygamous. In other words,
they tend to have two or three favourite brands and are rarely focus on
one single brand.
Due to this problems, the best is not carrying out a loyalty scheme
but to embrace the CRM approach.

CRM (Customer Relationship Management)

CRM means gathering information about the wants and needs of your
customers to enable you to adjust your offerings to better fit those
wants and needs. In other words, CRM is learning about your individual
buyers and tailoring your products and services to suit their needs.
CRM recognizes that keeping customers over the long term is the road
to profitability. As Seth Godin (author of Permission Marketing) puts it:
Instead of trying to find new customers for the products youve already
got, you find new products for the customers youve got
So, in this sense, CRM really does represent a break with the past
marketing strategies.
The core of CRM is a four-step process:
1. Identify your customers
2. Differenciate them in both their needs and their value to your
company. You have to know the customer purchase history, the
customer contact histories (records of all customer contacts with
company personnel) and Customer response information (records of
customer reactions and responses to various marketing promotions)
3. Interact with them in ways that improve cost efficiency and the
effectiveness of your interaction.
4. Customize some aspect of the products or services you offer that
customer.

The goal of the CRM: Customer love

CRM strives for customer love: make your most profitable customers
loyals to your company.
To achieve this love you can use the 7 e model:
1. Enlistment: customers care when they share.
2. Engagement: The power of straight talk (customers who have a
problem and complain spend twice as much as customers who have a
problem and do not complain)
3. Enlightement: educating and keeping customers up to date helps to
build their loyalty and commitment.
4. Entrustment: you must be seen as caring for them to get them to
care for you.
5. Empowerment: customer control through consistency (keep the core
offering intact).
6. Enchantment: surprise your customers.
7. Endearment: show generosity to customers.

Can everyone use it? (Who needs CRM?)

The best bets for the CRM are those companies that can accumulate
lots of data on each customers buying patterns in the course of their
business (for example, financial companies and telecommunications
companies).
But, there are also business that may not benefit from the CRM:
a) Monopolies and oligopolies.
b) Business where the lifetime value of customers is low. Business with
huge churn.

Problems with CRM

CRM came in vogue in the mid 1990s. In 1999, Deloitte Consulting
conducted an study with the following results:
28% of respondents said their CRM investments yielded significant
improvements
72% of respondents received little or no benefits from their CRM
initiatives.

What happened? Thanks to other study conducted in 2002 we know

that:
Most CRM plans were highly fragmented and lacked customer focus.
They relied heavily on the technological aspects of CRM and not on the
strategic process.
CRM is a shift from product-focused marketing to a consumer-focused
approach. But many firms only has focused on the computer
implications of CRM. CRM calls for a different mindset!

Lesson 6. New Product Development

One of the most critical steps in a marketing stratgey is launching new

products into the market. The general process is called New product
development.
What are the main challenges here?
-

Only a small percentage of new product development efforts

succeed:
Only 1 in 4000 ideas achieve commercialization.
Only about 4% of new product launches succeed.
An estimated 46% of the resources that companies devote to the
conception, development and launch of new products go to
projects that not succeed.

Why is innovation and change so difficult to achieve?

-

Service organization silos are designed to support operational

efficiency rather than rapid change.
There are many competing agendas within the organization, all
fighting for the same resources.
Lack of consistent team to champion for the long time period
between idea generation and bringing those ideas to market.
Measures of success (and accountability) that are ill-defined.
The fact that change is expensive.

1. Why a new product?

All products have a life and this life follows a cycle. The Kondratieff
cycles show us that all products have a prosperity momentum
followed by a recession, depression and recovery.

The problem now is that product life cycles are shorter. And we have
ans S-curve-concept to complement the Kondratieff cycles:

Also, to draw the product life we use the return map. This is a twodimensional graph displaying time and money.

2. How to assess if a new product is needed?

To assess it, we use the conjoint analysis. This is an statistical

technique used in market research to determine how people value
different features that make up an individual product or service.
For example, to determine a new television, people can say the most
important feature is: screen size, or the screen format, or the brand , or
the overall size Combining these different attributes we can make
permutations and then, we can extract different products types (for
instance, a good screen size with a good brand, or a great screen format
with and overall size)
Making a conjoint analysis is very important, but always remember that
you muct complement this analysis with a good value proposition, a
good value chain and a good strategy to deal with the competence.
A value chain is a concept first described to Michael Porter. It is a chain
of activities that add value to the final product. A value chain in the
New Development Process is also a list of all the major actors involved
in the process: investor, financers, developer, manufacturer, distributor,
seller, servicer, customer The golden rule here is that the product
must provide value and be meaningful to all in the chain.
3. Which kind of products?

Sometimes we launch a product that is completely new and, thus, we

create a market (do you remember the Blue Ocean Strategy?). This is
the case for the Apple iPod.
But apart from creating new markets, we can also:
-

Diversificate (generate new product lines): for example, Microsoft

is a software company, not a video game company. But it entered
the videogaming system with the Xbox.
Modification (we introduce some major improvements): Microsoft
integrated the Netflix streaming service into its Xbox Live network
last November.
Differentiation (we are in the same market, but we generate new
brands and products). For example, Chanel created Bourjois for
the young people.
Market penetrations (we introduce ourselves into new targets
thanks to a cost reduction strategy). For example, Carrefour has
launched a new discount brand.

4.How to create a new product?

There is not a single process to develop an idea. But there are some
steps to take into account:
a) Develop as much insight about the market as possible. Markets
insights must be understood properly. Many firms only take the
customer insights and start brainstorming service solution that
solve only specific issues. This tend to result in incremental
service improvements rather than the more substantial leaps the
team is looking for.
b) Create radical value propositions. You will have to help your
customers recognize the value of trying something new.
c) Create prototype.
Also, in order to get a more detailed view of the first stage (creation) its
also useful the Stage-Gate Process.
It is a road map for moving a new-product project from idea to launch.
It is based on activities (or stages) and decision points (or gates).
This method is very helpful to introduce discipline intro an ordinarily
chaotic process. And also reduces re-work. It is believed that 85% of
leading US companies now use stage-gate process to drive new products
into markets.

As you can imagine, the most critical stage is the business case. This
stage really makes or breaks a project.
A good business case has 3 components:
a) Product and project definition
b) Project justification (and the expected business benefits). Here
you also must talk about options considered, expected costs,
expected risks
c) Project plan.
Also remember that to make a really good business case you must use
the Real/Win/Worth-it framework. This consists on asking three
questions:

a) Is it real? (Is the market real? What is the potential of the

target market? What will the product life cycle be? Is the
product real? Can it be manufactured?)
b) Can we win? (Can our company be competitive? Is our
advantage sustainable?)
c) Is it worth doing? (will it make money? Are ther other benefits?)

5.How does it take to innovation to catch up?

Once we have a product, we have to know that not necessarily people
will fight to buy it at the beginning. Thanks to Everett Rodgerss
model of innovation adoption we know that markets are formed by
different types of people that respond different to the new products, to
the innovation (Rodgers called the categories of innovativeness):

innovators venturesome, educated, multiple info sources,

greater propensity to take risk
early adopters social leaders, popular, educated
early majority deliberate, many informal social contacts
late majority skeptical, traditional, lower socio-economic status
laggards neighbours and friends are main info sources, fear of
debt

Everett Rodgers model has been improved by Greoffrey Moores

recent analysis:

Between the early adopters and the early majority, Moore talked about
the chasm. This is a time of great despair, when the early markets
interest wanes but the mainstream market is still not comfortable with
the immadurity of the solutions available. In order to overcome this
situation, Moore suggested a bowling alley (a period of niche-based
adoption).

6. Why people adopt innovation?

Related to Rodgers and Moores models, there is another question: Why
people adopt innovation? A book of Malcom Gladwell called The
Tipping Point: how little thing can make a big difference talks about
the fact that there are tipping points, levels at which the momentum
for change becomes unstoppable. There are some ideas and products
that spread like viruses do.
To generate these tipping points you need three different agents of
change, three different groups pf people:
a) Connectors. These have social networks of over one hundred
people.

b) Mavens: are information specialists or people we rely upon to

connect us with new information.
c) Salesmen: are persuaders, charismatic people with powerful
negotiation skills.

Lesson 7. Pricing strategies

Price is the only element of the marketing mix that produces revenue;
the other elements only produce costs. Traditionally, price has operated
as the major determinant of buyer choice, but pricing practices have
changed significantly in recent years because Internet is partially
reversing the fixed pricing trend.
Internet has changed the rules, by:
1. Get instant price comparison from thousands of vendors:
2. Name their price and have it met. On Priceline.com, for instance, the
customer states the price he wants to pay for an airline ticket, hotel or
rental car, and Priceline checks whether any seller is willing to meet
that price.
3. Get products free. There are typical manufacturers, as Gillette and
HP, that have built their business model around selling the host
product essentially at cost and making money on the sale of necessary
supplies, such as razor blades and priter ink. Software companies have
adopted similar practices.

1. The freemium strategy

A freemium strategy is offering free online services but gaining money
with the premium component (an up-selling technique)
To have a successful freemium strategy:
1. Have a product or service that truly stands out (should be superior to
those of current offerings).
2. Know your up-selling plan from the beginning. Make sure you have
at least one paid, adding premium service up your sleeve. Better yet,
have more than one.

3. Once you have decided that a product will be given away for free,
dont change your mind. If you make changes, you risk alienating
customers accustomed to getting your product for free.
4. Access to your product should be just one click away.
5. Keep improving the product to give users more reasons to stick with
it.
6. Identify a source of revenue sources.
7. Timing is everything, Make sure that revenue from your premium
service soon covers the cost of your free service.
Example: Ryanair
1. A quarter of Ryanairs seats are free. Passengers pay only taxes and
fees.
2. Passengers pay extra for basically everything eles on the flight:
checked luggage, snacks, and bus or train transportation into town
from the far-flung airports that Ryanair uses.
3. Seats dont decline, window shades and seat pockets have been
removed. Seat-back trays now carry ads.
4. More than 98% of tickets are sold online. The Web site also offers
travel insurance, hotels, ski packages and car rentals.

2. How to price?
To determine a price, we must firstly realize that purchase decisions are
based on how consumers perceive prices and what their consider the
current actual price to be.
People use reference prices (comparison between the observed price
and an internal reference price they remember). There are several
reference prices:
-

Fair price (what the product should cost)

Typical price
Last price paid
Upper-bound price (what most consumers would play)
Lower-bound price (the least consumers would play)
Competitors Prices
Expected future price
Usual discounted price

So, everything is about psychology! Marketers is scarcity and

exclusivity references to put a higher price. And we can also use other
methods, for example the price endings:
- many sellers believe process should end in an odd number (because
customers see an item priced at $299 in the $200 rather than the $300
range). Research hav shown that consumers tend to process prices in a
left to right manner rather than by rounding.

- Prices that end with 0 and 5 are thought to be easier for consumers to
process and retrieve from memory.

3. Setting the price.

a) Selecting the price objective

The company first decides where it wants to position its market offering.
To determine this position, you must have in mind five objectives:
a.1. Survival
a.2. Maximum current profit: many companies try to set a price that
will maximize current profits (they estimate the demand and costs
associated with alternative prices and choose the price that produces
maximum current profit, cash flow or rate of return on investment).
a.3. Maximum market share: some companies set the lowest price
(assuming the market is price sensitive) believing that higher sales
volume will lead to lower unit costs and higher long run profits. This is
called a market penetration pricing strategy.
Example: IKEA in China.
a.4. Maximum Market Skimming: companies unveiling a new
technology favour setting high prices to maximize market skimming.
Example: Sony when launching the first highdefinition television in
Japan ($43.000)
b) Product quality leadership. Many brands strive to be affordable
luxuries (high levels of perceived quality with a price just high enough
not to be out of consumers reach.
c) Other objectives. For example, partial cost recovery in the case of
universities or museums.

3. Determining demand.
Each price will lead to a different level of demand and will therefore
have a different impact on a companys marketing objectives.
Here we have to take into account the price sensitivity and elasticity
in demand.

For example, there will be little price sensitivity if:

- The product is more distinctive
- Buyers is less aware of substitutes
- The product is assumed to have
exclusiveness.

more

quality,

prestige

or

To determine which price sensitivity we are facing we can conduct

surveys, statistical analysis and also price experiments.
Elasticity. How responsive, or elastic, demand would be to a change in
price. If demand hardly changes with a small change in price, we say
the demand is inelastic. If demand changes considerably, demand is
elastic. If demand is elastic, sellers will consider lowering the price.

4. Estimating costs
The company wants to charge a price that covers its cost of producing,
distributing and selling the product and, also, they want to generate
benefits! So, in order to determine a price, its crucially important to
estimate the costs. There are several types of costs:
Fixed costs (also known as overhead) are costs that do not vary with
production levels (the bills the company must pay, the salaries...)
Variable costs: the costs that vary directly with the level of production.
Depending of the total units produced, the variable costs may increase
or not.
Total costs: fixed costs + variable costs.
Average costs: total costs/production level (number of units)
These are all costs associated with manufacturing. But there are also
costs associated with selling, distributing... These are the
Activity based cost (ABC) accounting. ABC accounting tries to
identify the real costs associated with serving each customer. It
allocates indirect costs like clerical costs, office expenses, supplies, and
so on.
Apart from determining the costs, keep always in mind that costs can
be reduced if experience is introduced (for example, if you improve your
production line). The average cost of producing one single unit will
decrease if total production increases (the accumulated production
experience). This decline is called the experience curve or learning
curve.
Some firms invest heavily to gain this experience curve so can decrease
the price. But, keep in mind that experience curve pricing can also
carry risks. Aggressive pricing might give the product a cheap image.
And your competitors can also follow a experience curve pricing.

Currently theres also the fashion of cutting costs or target costing in

order to gain this experience curve pricing.
4. Analyze your competitors costs, prices and offers.
5. Selecting a pricing method
Given the customers demand schedule, the cost function and
competitors prices, the company is now ready to select a price. There
are six price setting methods:
a) Markup pricing. This is the most elementary pricing method. Its
just add a standard markup (expected benefit) to the products
cost.
Markup price: unit cost /(1-desired return on sales)
This only works if the market up price actually brings in the
expected level of sales.
Also, it doesnt take into account the demand.
b) Target-return pricing: The firm determines the price that would
yield its target rate of return on investment (ROI)
You have invested 1 millon in the business and wants to set a
price to earn a 20% ROI (200.000)
Target- return price: unit cost + (desired return x invested
capital)/unit sales = price
The problem here is the unit sales we intend to sale. What if we
expect to sell X but we sell Y units? Here its critical to determine
the break even point or volume:
Break-even volume: fixed cost / (price variable cost) = total
quantity to sell
c) Perceived-value pricing. An increasing number of companies now
base their price on the customers perceived value.
d) Value pricing: setting lower prices without sacrificing quality in
order to attract a large number of value conscious customers.
Examples: IKEA; Target, Southwest Airlines.
An important type of value pricing is everyday low pricing (EDLP),
which takes place at the retail level. You charge a product at a constant
low price with little or no price promotions and special sales.
Another type of value pricing is the high low pricing: the retailer
charges higher prices

on an everyday basis but then runs frequent promotions in which

prices are temporarily lowered below the EDLP level. Recently,
companies tend to adopt an EDLP strategy rather than a high low
pricing strategy because its been shown that constant promotions are
costly and erode consumer confidence in the credibility of everyday shelf
prices.
e) Going rate pricing. The firm bases its price largely on competitors
price, charging the same, more or less than major competitors. This
happens normally in olipolistic industries (the smaller firms follow the
leader)
f) Auction type pricing (e Bay). There are three types:
English auctions (ascending bids): the highest bidder gets the item.
Dutch auctions (descending bids)
Sealed bid auctions (suppliers can submit only one bid and cannot
know the other bids).

6. Selecting the Final Prices.

Pricing methods narrow the range from which the company must select
its final price. But
keep always in mind the impact of other marketing activities (such
advertising). It is
considered that brands with average relative quality but high relative
advertising budgets
were able to charge premium prices.

Lesson 8. Distribution strategies

All marketing mix consists of: product, price, promotion, place (and
people!)
The importance of placement is sometimes undervaluated but the case
of Good Year tires shows that is very important to take care of this
aspect. Good Year has a major problem: it was dealing good with
industrial sales to auto assemblers, but retail sales of replacement tires
was doing poorly. Apart from that, it was facing a growing competition
from Bridgestone and Michelin (both companies were selling at a low
price to increase North America market share). The solution Good Year
found was: Placement! They began selling replacement tires where
people were buying it (like Sears) and they kept on selling higher quality
tire through dealerships so dealers can still bring in high-end
customers.
Thus, distribution and placement are critical in the process, as they get
the product, from where it is made to where the people are going to buy
it. Also, here is very important to notice that you have to deliver at the
right time (time utility) and the right place (place utility).
Also, you must know that all products are different, so different
products classes have different place situations. For example,
convenience products are better sold in small stores and vending
machines. But shopping products are better sold where shoppers go
(malls, superstores) And speciality products are sold where people
want to buy them.
Related to this point, it is worth-noticing that producers of convenience
products and all sorts of common raw materials typically seek intensive
distribution (they stock their products in as many outlets as possible so
they can be available where and when customers want them). On the
other hand, theres the exclusive distribution (ex. Luxury automobiles,
prestiges women clothing). And between them, theres the selective
distribution (the use of more than one, but fewer than all distribution
channels: examples, most television, furniture and home appliances
brands)

7. 1. Distribution and product life cycles

Place must be considered in terms of the product life cycle. At the

growth stage, product must be sold at a certain location and then, in
the maturity and decline stage, you you have to use more localtions to
make it better for customers who are no longer so strongly interested in
buying,

7. 2. How to distribute?
We can have a direct-marketing channel (no intermediary level: the
manufacturer sells directly to customers). This is the case of a factory
outlet store.
Also, this is the case of Dell Computers. The Dell Direct business
model has no inventory, no middlemen to eat into profits, no agenda
other than giving the customer what he or she wants. That is why
operating costs in Dell soaked up just 10% of Dells $35 billion in
revenue in 2007 (compared with 21% of revenue at Hewlett-Packard).
On the other hand, we have an indirect-marketing channel: here we
use intermediaries, typically a retailer. Within the indirect-marketing
channel, we can have a conventional distribution channel or also a
vertical marketing system (VMS).
On the conventional distribution channel, we have one or more
independent producers, wholesalers and retailers. Each is a separate
business seeking to maximize its own profits: no channel member has
much control over the other members.
On the vertical marketing system(VMS) , instead, producers,
wholesalers and retailers act as a unified system. We have two types of
VMS:
a) The corporate VMS: integrates successive stages of production
and distribution under single ownership. This is the case of Zara
(it controls almost every aspect of the supply chain, from design
and production to its own worldwide distribution network).
b) Contractual VMS: independent firms at different levels of
production and distribution who join together through contracts
to obtain more sales impact than each could achieve alone. This
is the form of the franchise organization.