Marketing Management Session 6, Pre- Work

Creating Value
Session 6 will look at how marketers can create value for their customers. By understanding their customers needs and usage behavior marketers should be able to tailor their offering to provide superior value. Learning Objectives How does marketing help create value for the customer? How are product/ service offerings designed? What is the product mix and how can it be managed? What are the stages in new product development? How does the focus of marketing efforts change over a Products Life Cycle?

Pre Class Reading Introduction to the topic- Creating Value (Extracts from HBS Note by Rohit Deshpande) The fundamental objective of marketing is to create value. It does this in two ways, within the organization by making a contribution at different levels of the firm. And outside of the organization by creating value for customers. Marketing plays this role by bringing the voice of the customer into the organization.
Creating Value within the Firm

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Creating Value at the Corporate/Business Unit level

If we begin by thinking at the level of the entire organization, we can see that marketing creates value in terms of corporate culture. Many organizations are concerned about their extent of customer focus. They are trying to instill in the corporation a shared sense of values about the primary importance of the customer relative to other stakeholders. This prioritization of cultural values by putting the customer first clearly involves more than a simple listing of values in a credo. In order for the culture to guide action it must not only be reinforced, it must be measured. Such measurements involve assessments of both employees and customers and come from using a set of tools including consumer and customer research, customer visit programs, and market orientation assessments?1 The common purpose here is to devise mechanisms for bringing the voice of the customer into the organization so that the firm gets closer to its customers (see Figure).

Rohit Deshpande, Developing a Market Orientation, Thousand Oaks, CA: Sage publications, 1999; Edward F. McQuarrie, Customer Visits, Thousand Oaks, CA: Sage Publications, 1998.

THE CONTRIBUTIONS OF MARKETING WITHIN THE FIRM

CORPORATE/BUSINESS UNIT LEVEL

HOW TO DEVELOP A CUSTOMER FOCUS? THE POLICY QUESTION

MARKETINGS ANSWER

BRING THE VOICE OF THE CUSTOMER INTO THE ORGANIZATION MARKET RESEARCH, CUSTOMER VISITS, MARKET ORIENTATION AUDITS

TOOLS ---

PRODUCT LEVEL

HOW TO BEST ADAPT TO THE MARKET? THE POLICY QUESTION DEVELOP A VALUE PROPOSITION AND COMPETITIVE POSITIONING BASED ON CUSTOMER NEEDS CUSTOMER AND COMPETITOR ANALYSIS

MARKETINGS ANSWER

TOOLS ---

EXECUTIONAL LEVEL

THE POLICY QUESTION

HOW TO BEST TAKE THE PRODUCT TO MARKET?

MARKETINGS ANSWER

INTEGRATE THE PRODUCT, PRICING PLACEMENT, AND PROMOTION POLICIES TO DELIVER WHAT THE TARGET MARKET WANTS CONSUMER RESEARCH, PRODUCT TESTING, COMMUNICATIONS RESEARCH, CHANNEL AUDITS ETC.

TOOLS ---

Creating Value at the Product Level The Note on Marketing Strategy (9-598-061) describes the marketing process as beginning with a 5 Cs analysis, i.e., an understanding of customer needs, a company skills, competition, collaborators, and context. This information is essential in trying to answer the policy question of how a product or service should be best adapted to a market. A key role for marketing at this stage is to help shape the value proposition for the product which can then be explicitly described in a positioning statement. The importance of a positioning statement cannot be overstated since it establishes the foundation for the executional level of the marketing mix (described below). A simple form of a positioning statement is: For (Target Market), (Our Product/Brand) is (Single Most Important Claim) among all (Competitive Set) because (Single Most Important Support). A hypothetical example might be: For business people who rent cars, acme is the company that will give you the best service among all rental car companies because the employees own the company. Note that in this example, marketing input is key in understanding both the product benefits desired by the target market as well as how the product is differentiated versus the competition.

Creating Value at the Executional Level As described in Figure 1, the next step for marketing is to detail the tactical elements of the product, its pricing advertising and promotional support, and the distribution channel arrangements. Effective execution involves an integration of these four marketing mix elements so that they flow seamlessly from the positioning. Once again this implies careful assessment through consumer research, product testing, channel audits, on so that each executional element is working both independently and in unison with the others.

Creating Value for Customers ________________________________________________________________

It is obvious that marketing cannot deliver value within the firm if it has not created value for customers. Understanding how marketing does this can be best described within the context of new product development. Market Driven strategies begin with an unmet customer need. An example would be to add internet- enabling technology to a Palm PDA. The traditional new product development process described above is perfectly suited for this kind of situation. Customers are known, they can be easily surveyed, their needs are explicit, and we can

test customer satisfaction with the new product. These types of product innovations are frequently described as being "incremental" (where consumers do not need to be educated about the use and functionality of the new product). The role of marketing is not only to carefully research the unmet customer needs but also to devise a marketing plan that effectively communicates the availability of the incremental innovation at an acceptable price point and at a convenient distribution place. Although this seems quite simple to state, it is much harder in practice as evidenced by Motorola's experience in cellular telephones. By focusing on building the best analog phone in the world and ignoring customer interest in digital technologies, Motorola saw its market share halved in the late 1990s as competitors like Nokia, Ericsson, and Qualcomm entered the market. Market Driving strategies begin with a new technology. An example might be the original Palm PDA. Here we cannot rely on the traditional new product development process. Who are the customers likely to be? A horizontal slice of the general public or a vertical slice of specific professions (e.g., physicians, sales representatives) where a hand-held computing device might be useful? And if we were to simply survey potential customers, how clearly might they be able to articulate their need for a product that they have never seen or considered? These types of product innovations are frequently described as being "breakthrough" (where consumers need to be educated about not only where the product might be purchased but also why they might need such a product). In such situations, the nature of market research tends to be more qualitative than quantitative. A small sample of "lead users"2 (i.e., those who have characteristics of being "Technology Enthusiasts," see Geoffrey Moore, Inside the Tornado, HarperCollins Publishers; 1995) is observed in its-usage of product prototypes in a beta test. Sometimes this involves a cross-functional team of engineers, design experts, and marketing managers visiting such lead user sites to observe the product being used.3Therole of marketing in such a situation is to create customers rather than simply satisfy current customers in order to build an entirely new product category. This can be a very difficult task as evidenced by the failure of the Palm's category predecessor, the Newton PDA developed by Apple, which was eventually taken off the mar- ket only a few years before the Palm's incredible success. It is very important in a Market Driving strategy not to be so technology-obsessed that the flTnl pushes the product at its customers. Such a technology-push is referred to as feeling "superior to the market" and can lead to the dangerous situation of entirely ignoring all customer input (see George Day, The Market Driven Organization, New York, NY: Free Press, 1999, chapter 2).

Eric von Hippel, Lead Users: A Source of Novel Product Concepts,: Management Science 32, no. 7, July 1986, 791-805 3 Edward McQuarrie and Shleby Mcintyre, Implementing the Marketing Concept through a Program of Customer Visits, in Rohit Deshpande, Using Market Knowledge, Thousand Oaks, CA: Sage Publications, 2000.