MBA4644

Customer Focus

Innovation, product, price,

place & promotion
Lecture 3
Roadmap

• 1st Lecture: Marketing environment is

complex. We have various tools that
helps us structure & manage this
complexity
• 2nd Lecture: Product (1st P), Consumer
behaviour & Market segmentation
• 3rd Lecture: Innovation, Price, Place &
Promotion

 Putting it in context

Marketing Inputs Purchase decision

• Product • Product choice
• Place • Location choice
• Promotion • Brand choice
• Price

Psychological
inputs
• Culture
• Attitude
• Learning
• Perception

Buyer Decision Process, Cohen 1991

Marketing Mix – various approaches

4 P’s SIVA 5P/5C 7 P’s

Product Solution Consumer desire

Price Value Cost

Place Access Convenience

Promotion Information Communication

People Customer approach

Process

Physical
evidence
Product & Service offering

Physical The Functional

attributes of
a product

Symbolic

= Unique Selling Proposition (USP)

 Product & Service offering
Customer service
components / after sales Actual product /
service

Personnel Brand name

and image

Packaging Delivery

Core benefit
or Features
service
Installation

Capabilities Quality and

design

Warranty Guarantees
Augmented
product / service
Product line & product mix

Product mix Product line

Toothpaste Shampoo Bar soaps Deodorants

Product line depth

Head & Camay

Gleem Shoulders Old Spice
Zest
Crest Pantene Pro Secret
Safeguard
Product Vidal Sasson
(Oil of) Olay
Sure
item

Product Mix width

Careful product mixing allows a company to assess its strengths and

weaknesses relative to the competition and the requirements of the
marketplace
Segmentation, Targeting &
Positioning

Product / Service Offering

Segment Target Position

•Identify •Evaluate •Identify possible
segmentation attractiveness of positioning concepts
variables and each segment for each target
segment the market segment
•Select the target
•Develop profiles of segment (s) •Select, develop and
resulting segments communicate the
chosen positioning
• concept
•
 Segmenting consumer markets
Consumer segmentation
Behavioral Psychographic Profile

Benefits sought Lifestyle Demographic

Purchase occasion Personality Geographic

Purchase behaviour

Usage

What is a Base for Segmentation?

A variable by which people can be divided into groups of ‘similar
customers’

Source: Jobber, D. (2004); Principles and Practice of Marketing, McGraw-Hill

Choosing a targeting strategy

Segment Product/Market
Attractiveness Maturity

Diversity in Organisational
Buyers’ Targeting Capabilities
Preferences Strategy Resources

Opportunities for
Industry
Competitive
Structure
Advantage
Learning outcomes

• Explain & indentify the

various strategies
for innovation
• To understand the
complex nature of
the marketing mix –
Price, Place &
Promotion
•
What is a new product?
• New products are now
widely defined to
include:
– Innovative products: truly
new products e.g.
Television
– Adaptive/Replacement
products: light
differences from
existing products
– Imitative products:
products that are new
to the company: 'me-
too
What is a new product?
• Booz, Allen & Hamilton (1968) identified 6
categories of new products in terms of their
newness to the company and to the market
place. In practice, new products emerge as
follows:
– New to the world :10%
– New product lines : 20%
– Additions to existing product lines : 26%
– Improvements in/revisions to existing products :
26%
– Repositioning : 7%
– Cost reductions : 11%
Management of Growth & Stability
Innovation / New product development & Growth:


 If a firm operates in a market with good prospects for

growth
 It can grow organically & exploit product market
opportunities
 It can diversify
Innovation / New product development & Stability


 Stability calls for innovation

 Develop new or improved products / services
 Develop new markets to replace those in decline

 Innovation strategies
For innovation to succeed,
it must be:
•Important: customers
•Unique: not available
•Sustainable: not easily copied
•Marketable: company must
have capability to market the
innovation
New Product Development
NPD consists of 8 stages
Idea generation $
Idea screening $
Concept development and testing $ $
Market strategy development $ $ $
Business analysis $ $ $ $
Product development $ $ $ $ $
Market testing $ $ $ $ $ $ $
Commercialisation $ $ $ $ $ $ $ $
The relationship between

cost and product development

Product portfolio & Adoption curve

Early Late
majority majority

34% 34%
Early
adopters Laggards
Innovators 13.5%
16%
2.5%

Intro Growth Maturity Decline

Product
Price These will change over
Place time
Promotion
 Innovation Strategies
Customer-focused innovations
New forms of segmentation, reaching the target market and
positioning
New techniques for creating supplier to customer continuity

New mechanisms for product or service delivery

New ways of increasing customer value

New ways of ensuring operational excellence

New products & service

Innovation Strategies
Customer-focused innovations
Innovation Strategies
External
The acquisition route can take three forms:


• The company can search for and buy other

companies
• The company can buy patents from other companies
• The company can license or franchise from another
company to make that company’s product or
service

In all three cases the company does not develop

new products, but simply acquires the rights to
existing ones
Innovation Strategies
External

What Makes 3Par Worth over $2 Billion?

Innovation Strategies
External

Ferrari
World
Abu Dhabi
Innovation Strategies
Internal
•Employees •Overseas
•Sales force
•R&D

New
Competitors
•Creative Groups •Copying
product
•Attribute listing concept •Learning from
•Syncretics competitors

•Consumers
•Discussion Groups
•Specialist •Activity analysis
•Consultants •Market research
•Agencies techniques
Innovation Strategies
Internal
The Post-it® Note was
invented as a solution without
a problem: Dr. Spencer Silver
developed a unique,
repositionable adhesive, but
the 3M scientist didn’t know
what to do with his discovery.
Then, six years later, a
colleague of Dr. Silver, Art Fry,
remembered the light adhesive
when he was daydreaming
about a bookmark that would
stay put in his church hymnal.
Pricing
• Price is the most studied of the marketing mix variables
• Determining price has lead to marketers borrowing from
the disciplines of:
– Economics - demand and supply
– Accounting – costs
– Behavioural sciences - why people buy
• Price is seen in terms of “sacrifices” to be made by the
consumer and revolves around: value, worth and cost
• Price has also been placed in a triangular relationship:
company, competitor and costs
• Price is problematic to the firm because it tends to be
used both tactically and strategically to achieve the
firm’s goal
Pricing is important..
Pricing Situations
•Only means of income for the •New product pricing
company
•Life cycle pricing
•Determines image of product
•Positioning strategy change
•Major determinant of household •Countering
expenditure and resources competitive threats

•In times of inflation, plays an

adjusting role
•In some markets, may play the role
of segmentation variable
•Plays a part in dissatisfaction
expressed by consumers
•May be used as a differentiating
variable
•Influences new product adoption
How price fits into Positioning
strategy

Target
market and
objectives

Positioning Strategy

Product Value-Chain
strategy strategy

Line or mix of Pricing Intensive versus

products yielding strategy select distribution
revenue channels

Promotion
strategy
Factors influencing pricing
Controllable and uncontrollable factors

Price vs Value Company Demand & Market

added resources price elasticity development

Marketing Channels of Legal &

Competitors
objectives distribution regulatory

Nature of Market Environmental

Costs
product structure pressures

Product /
Organizational Customers &
Industry Market type
objectives consumers
lifecycle
Factors influencing customers price
perception

Function Operatio
al nal
Price
Assessm
ent

Quality Financial

Personal
Methods of Pricing
Market penetration /
Price skimming objectives
discrimination

Cost-plus pricing Going-rate pricing

Price
Strategies
Customer
driven pricing Psychological
pricing

What-the-market- Break-even and

will-bear pricing target-profit pricing
Methods of Pricing
Price setting strategies
Price – Quality Matrix
Product Quality

Low Medium High

Excellent value
Low Economy Value position strategy. Under-
position priced?
Poor value
Price

Medium value Value position

Medium position Over- position Under-priced?
priced?
Poor value
Poor value position Premium
High strategy Over- Unsupported positioning
priced? price premium
Price setting strategies
Price – Quality Matrix
Product Quality

Low Medium High

Low
Price

Medium

High
Price setting strategies
Price vs. Non Price Competition: considerations…
•Price competition
–Price is the key tool
–Low cost producers most effective
–Must be flexible
–Price wars

•Non price competition

–Differences must be easily perceived
–Builds loyalty
–Emphasise everything but the price
B2B Pricing
Discounting
•Trade discounts
•Quantity discounts
•Cash discounts
•Seasonal discounts
•One off quantity discounts
Pricing
•Free on Board (FOB)
•Geographical pricing
•Transfer pricing
•Price discrimination
•Tendering
Place
Where the customer will expect to see
and purchase the product

Direct Indirect Indirect

Retailer Wholesaler

Retailer

Customer
Place
Where the customer will expect to see
and purchase the product

Three main strategies:

•Intensive distribution
•Selective distribution
•Exclusive distribution

Use of
intermediaries
Place
Store retailing: Non - Store retailing
•Discount stores (direct marketing):
•Grocery Supermarkets / •In-home retailing
Superstores / •Telemarketing
Hypermarket Retail Parks
/ Outlet village •Automatic vending
•Speciality shops •Mail order
•Department stores Cash •Internet
and carry wholesalers
•Convenience stores
•Franchise outlets
B2B Place
Supplier Supplier Supplier Supplier

Agents Agents

Specialist Specialist
distributors distributors

Buyers
Place
Functions of an intermediary:
•Research: to facilitate the exchange process
•Promotion: to target segments Therefore, the
•Matching and Sorting of goods overall role
performed by an
•Negotiation: price and other conditions intermediary is
•Physical Handling of products crucial to the
•Financing: payment for goods to manufacturers success or
failure of a new
•Risk-Taking: translating customers' requirements product

Exchanges that are performed include:

•Physical Flow: actual movements of goods
•Title Flow: exchange of ownership
•Payment Flow: from customers to manufacturers
•Information Flow
•Promotion Flow: both to consumers and manufacturers
 Promotion / Promotional Mix
A company has the following promotional tools open to it:

Internet Promotion

Direct Marketing
The Sales Promotion
Promoti
onal
Personal Selling Mix Advertising

Public relations (PR) - Publicity

The choice of promotional tools are influenced by: resource availability and
cost of the promotional tools; market size/concentration; customer information
needs; product characteristics; push versus pull strategies
Push & Pull Promotion

Producer Retailer Customer

Trade
promotions & Push
advertising

Producer Retailer Customer

Pull Advertising &

sales promotions
Promotion / Promotional Mix B2B
Budgets •Brochures, sales
Tactics: literature
•Securing leads •Exhibitions / trade
•Following up shows / demonstrations
Techniques:
•Sales-force
•Public Relations
•Press advertising
•Trade press
•Direct marketing
•Directories