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A Brief History of

Marketing Strategy
James E. Coleman
CPA, CFP, PhD

What this course is about:


Address

3 common expectations of
employers of recent MBAs

Ability to work/manage teams


Ability to evaluate and solve problems
Ability to communicate solutions persuasively

Learn

basic tools and techniques for


analyzing markets & industries
Understand how to apply the marketing
strategy development process across various
settings

Marketing Strategy Development Process:


The Search for Opportunities

FOUR Ps
F
O
U
R
C
s
(Context)
External Market Environment

3rd edition

Provides Marketing Strategy


Development Practice

Overview

You take over marketing management responsibilities


for your firm.
Must satisfy customers to sell product and earn profits

Focus is on marketing strategy planning.


Requires integration of all strategy decisions.
Requires attention to competitive environment.
Considers short term and long term perspectives.
Features ongoing, rapid feedback.

The Process
Analysis of market situation/opportunities
Planning and budgeting
Make marketing plan DECISIONS!!!
Next
Decision
period

Submit plan decisions


The marketing game! simulation
Company reports returned to firms

Industry Environment

Market growth

Traditional PLC applies, but subsidiary to strategy

Technological environment
No major innovations expected
Yearly revision cycle

Competitive environment
Type of competition depends on firms decisions

Six Key Product-Market Segments


Concerned
Parents

High-tech Modern
Managers Students Professional
Creators

Harried
Assistants
Segments have different needs, preferences,
situations, sizes, growth rates.

Home
Users

Past Sales By Market Segment


For Voice Recognition Device

Distribution Channels
Firm 1

Firm 2

Firm 3

Channel 1
Traditional
Dealers

High-tech
Managers

Firm 4

Channel 2
Discount
Dealers

Modern
Students

Harried
Assistants

Firms reach customers


through full-service
dealers and
Internet/mail-order
discount dealers.

Concerned
Parents
Professional
Creators
Home
Users

Different segments
have different shopping
preferences.

Product 1: Voice Recognition Device (VRD)

Number of Special Commands (5-20)

Key
Product
Features

Error Protection (1-10)

Ability to Customize (1-10)

R&D for Product Modifications: Computing Costs


Feature (Product 1)

Cost to Decrease

Cost to Increase

Special Commands (5-20)

$0

$8,000*(change)2

Error Protection (1-10)

$0

$5,000*(change)2

Ease of Learning (1-10)

$3,000*change

$3,000*(change)2

Product 2 R&D costs follow the same pattern as Product 1 (shown above)
Example
Last
periods
product

This
periods
product

Change

Cost to Change

Special Commands

+2

$8,000*2*2=$32,000

Error Protection

-1

$0

Ease of Learning

+2

$3,000*2*2=$12,000

Feature

Total modification costs:


Note: R&D for product changes is more expensive
if you have to make big changes in a short period of time

$44,000

Level 3

Product 2: Digital Vocal Communicator (DVC)

Number of Tasks (1-10)

Key
Product
Features

Similarity of Commands (1-10)

Ease of Learning (1-10)


Not necessarily cannibalistic of Product 1,
but additional sales support is needed.

Types of Advertising
Pioneering
Best for expanding market demand early in PLC

Direct competitive
Best for stimulating current sales (reduced carryover)

Indirect competitive
Best for building brand awareness & improves carryover

Reminder
Improves ad effectiveness if brand awareness is high

Corporate (Institutional)
Creates halo effect for the other product (not useful for
single product situations)

Marketing Responsibilities (Level 3)


2 PRODUCTs

Features (and R&D for product modifications)

PRICE

Wholesale price may differ in each channel


and for each product

PLACE

Distribution intensity by channel, product

PROMOTION
-Advertising

$ Spending for each product


Type for each product
-Personal selling
Number of sales reps in each channel
Percent non-selling time in each channel
Commission rate
-Sales promotion
$ Spending per channel, product
CUSTOMER SERVICE $ Spending
MARKET RESEARCH 7 reports may be purchased
Demand forecast/
production order
Number of units for each product

Production Economies of Scale

Unit production costs will decline as cumulative production


increases, but this is not reflected in the pro forma estimates

Response Functions and Marketing Spending


Sales

Saturation
Level

Threshold
Level

Marketing Spending

Spending too little may have little effect, but


spending too much just increases costs
and reduces profit.

Marketing Budget Items (Level 2 and 3)

R&D product modification costs


Sales force salaries and severance pay
NOT commissions (which come out of profits)

Advertising expense
Customer service expense
Sales Promotion Expense
Market research reports expense

BUDGET FOR FIRST PERIOD: $984k


Use it or lose it!

Discretionary Budget

$1,500,000
If you overspend your regular budget it is
automatically deducted from this amount.
When its gone, its gone.
If you overspend after its gone, it comes out
of your advertising budget.
Unspent money carries to future periods and
earns interest.

Computing Prices
Computing Retail Prices from Wholesale Prices:
Expected Retail Price = Wholesale price/(1-% Markup)
Example:
Wholesale price = $105
Channel 1 Retail Price = ($105/(1-.50)) = $210
Channel 2 Retail Price = ($105)/(1-.35) = $161.54

Computing Wholesale Prices from Desired Retail Prices:


Wholesale Price = Retail Price * (1 - % Markup)
Example:
Desired Retail Price = $190
Channel 1 Wholesale Price = $190*(1-.50) = $95.00
Channel 2 Wholesale Price = $190*(1-.35) = $123.50

Retail Prices Charged Final Consumers

The retail price set by a dealer depends on:


The wholesale price in the dealers channel.
The customary markup used in the channel.
The portion of any sales promotion deals that the
dealer passes along to consumers as a price
reduction.

A Good Wholesale Price

Should cover the unit cost of the product


(given its features).
Should result in a retail price that will appeal
to target consumers.
Should result in a profit margin that will
contribute to other expenses and profit.

Competitor Analysis

Review posted reports of industry results.


Analyze past strategies & likely changes.
Evaluate positioning and target segments.
Firms

Segments

1
1

3
4
5
6

X
X

Industry Sales Report (Free)


Brand

Unit Sales Share (units) $ Sales (retail)

Firm 1

25,151

.250

$4,292,964

Firm 2

25,151

.250

$4,292,964

Firm 3

25,151

.250

$4,292,964

Firm 4

25,151

.250

$4,292,964

Total

100,604

Channel

Unit Sales

$17,171,854
Dollars Sales

56,296 $10,696.240

44,308

$6,475,614

Product Features and Prices Report (Free)


Brand
of
VRD
Firm 1
Firm 2
Firm 3
Firm 4

Retail
Retail
Error Ease
price
price
of
channel channel
Special protect1
2
commands ion learning
8
8
8
8

3
3
3
3

3
3
3
3

$190.00
$190.00
$190.00
$190.00

$146.15
$146.15
$146.15
$146.15

Market Activity Report (Free)


Firm 1

Firm 2

Firm 3

Firm 4

$250,000

$250,000

$250,000

$250,000

Sales Promotion
Channel 1
Channel 2

$0
$0

$0
$0

$0
$0

$0
$0

No. Sales Reps


Channel 1
Channel 2
Commission
Customer Service

10
10
5%
$92,500

10
10
5%
$92,500

10
10
5%
$92,500

10
10
5%
$92,500

Adv. Dollars
Adv. Type

Additional Market Research Reports

(NOT Free)

1. Market share by segment (all brands)


2. Market share by channel (all brands)
3. Consumer preference study
4. Marketing effectiveness report
5. Sales by segment by channel (own brand)
6. Consumer shopping habits study
7. Product positioning report

Note: separate reports are available for each product,


Except for the consumer shopping habits study

Market Share by Segment Report ($15,000)


Segment
Brand

Firm 1
Firm 2
Firm 3
Firm 4

0.250
0.250
0.250
0.250

0.250
0.250
0.250
0.250

0.250
0.250
0.250
0.250

0.250
0.250
0.250
0.250

0.250
0.250
0.250
0.250

0.250
0.250
0.250
0.250

Total
Sales
(units)

20,028

15,084

25,104

10,240

22,056

8,092

Whos selling to whom?


Whos buying what?
What is each firm achieving?
Which segments are buying?

Market Share by Channel Report ($12,000)


Brand

Channel 1 Channel 2

Firm 1
Firm 2
Firm 3
Firm 4

0.250
0.250
0.250
0.250

0.250
0.250
0.250
0.250

Total Sales
(units)

56,296

44,308

Whats selling where?


Whos buying what?

Consumer Preference Study ($30,000)

Segment
Students
Home
Assistants
Creators
Managers
Parents

Special
Error
Ease of
Commands Protection Learning
10-13
7-10
10-13
12-15
13-16
5-8

2-4
2-4
6-8
2-4
6-8
2-4

1-3
6-8
6-8
4-6
2-4
7-9

What kind of product would a segment prefer?


What reference price seems typical for the segment?
How are segments similar and different?

Price
Range
low
low
high
high
high
low

Marketing Effectiveness Report


($25,000 or $30,000 for both prod.)Competitors Competitors
with lower
with equal or
Index
Index
higher Index
Brand Awareness
Customer Service
Consumer Group Rating
Industry Average Rating

0.550

100%
100%

Channel 1:
Sales Rep Workload
Dealer Satisfaction
Channel Strength
(Push)

100%
1.00
.500

0
0

3
3

Channel 2:
Sales Rep Workload
Dealer Satisfaction
Channel Strength
(Push)

100%
1.00
.500

0
0

3
3

Detailed Sales Analysis ($15,000)


Segment
1

Channel 1

896

1,109

5,602

1,808

4,363

1,086

Channel 2

5,269

3,337

1,396

1,196

1,865

1,074

Firm

Unit sales by segment and channel


Are you reaching your target?

Customer Shopping Habits ($7,000)

Segment
Students
Home
Assistants
Creators
Managers
Parents

Percent of Shopping

Percent of Shopping

in Channel 1

in Channel 2

?
?
?
?
?
?

?
?
?
?
?
?

Who shops where?


How do shopping patterns match distribution focus?

Product Positioning Report ($30,000)


Segment

Brand

Firm 1
Firm 2
Firm 3
Firm 4

?
?
?
?

?
?
?
?

?
?
?
?

?
?
?
?

?
?
?
?

?
?
?
?

Which brands are closest to which segments?


Which segments have no close brands?

Submitting Marketing Plans

Submitting marketing plans decisions


Submit your decision plan files via email
no later than the due date and time per class calendar.

Each firm has a distinct industry and firm


identification (e.g., A1, B3, etc.)
Need to keep it straight!

Passwords and the TMGPlan software


Remember password used to create Plan
It is case sensitive (upper and lower case make a difference)
Best to stick to one password!

Recommendations

Analyze the reports as you would analyze a


case.
Make intentional changes.
Find a balance in marketing research
spending.
Be integrative--think carefully about how each
decision impacts each of the others.
Have some fun!