HADM 2410: Prelim 1 Flashcards

marketing

the art and science of creating value by designing and managing successful exchanges

the only business function that takes the perspective of the customer

identifying the needs and wants in the market and creating products that match these needs and wants in a way that satisfies customers better or differently than competitors do

overarching framework

1. analysis: customer, company, competition

2. strategy: segmentation, targeting, positioning

3. tactics: product, price, promotion, place (distribution)

profit equation

= Q x (P-VC) - FC

units sold x what one sale contributes - cost paid regardless

Q = quantity

P = price

VC = variable cost

FC = fixed cost

total revenue

P x Q, the price of the unit times the number of units sold

variable cost

a cost that changes when you product or sell one more unit

measured per unit, tightly correlated to sales

eg: manufacturing inputs, some distribution costs

fixed cost

a cost that does not immediately change when you product or sell one more unit

often recurring annually, happen regardless of actual sales, can be changed in the future

eg: marketing costs, fixed production costs, some labor and distribution costs

total cost

FC + VC x Q

sunk cost

typically happen once toward the beginning, cannot be recouped

eg: research and development

SHOULD NOT AFFECT MARKETING ANALYSIS

break even costs

when total margin covers fixed costs but makes no profit, where profit = 0

break even equation

Q_BE = FC / (P - VC)

contribution margin

P - VC

what an additional unit contributes to the bottom line

percent margin

the percent of the selling price the company keeps

margin % = (P - VC) / P

percent markup

the percent that is added, relative to cost

markup % = (P - VC) / VC

company analysis

economic status

• sales and growth: is the business growing or shrinking?

• margins and costs: does each sale leave enough contribution?

• cash and debt: can the firm fund the strategy?

• market share: how strong is the current position?

resource-based view of the firm

• firm: collection of resources

• account for different types of assets

• identify company competitive advantage

• six factors:

  • financial: cash, financing

  • physical: stores, factories, locations

  • people: skills, teams, know-how

  • technology and data: software, algorithms, customer data

  • brand and IP: reputation, patents, characters

  • relationships: suppliers, creators, partnerships

strengths and weaknesses

• strengths: financial resources, physical resources, intangible assets (eg: patents, reputation), brands

• weaknesses: debt, maintenance costs, legal vulnerability, risk

• both: company size, location, endorsements

• a resource is not automatically a strength

  • resource → what it lets the firm do → effect in the market → advantage

  • cannot just list strengths, have to explain

direct competitor

offers the same type of product to the same customers

indirect competitor

satisfies the same customer need with a different type of product

customer needs view

a competitor who seeks to satisfy the same needs that you do

customer resource view

a competitor who demands the same scare customer resource

onion analysis

the farther out we go, the less obvious the competitor becomes, but the strategic threat can still be real

• same form

• same concrete need

• same abstract need

• same resource

perceptual maps

surveys: how customers see competing brands

a visual representation of how customers perceive competing brands or products relative to one another on a small number of dimensions

• closer together = perceived as more similar

• axes summarize the main dimensions consumers use to distinguish brands

perception does not equal objective reality, but customers buy based off perceptions

two ways to attribute ratings + factor analysis and similarity ratings + MDS

usage:

• evaluating industry structure and positioning

• new product decisions

• image, reputation, and messaging

disadvantages:

• you only discover dimensions among the attributes you measured

• the survey can be repetitive

• perception is not preference

tool to evaluate competition

attribute ratings + factor analysis perceptual map

researcher chooses the set of firms and attributes, which help us interpret the axes

standard graph with 2 specific, opposing consumer attributes on the X and Y axes

customers rank brands on predefined traits using surveys

creating one:

• define list of competitors

• define a list of product characteristics

• run surveys

• visualize the data

similarity ratings + MDS

researcher chooses the set of firms, need to add the names to the axes

customers rate how similar or dissimilar pairs of products are, plotted on a multidimensional space

conjoint analysis

surveys: what customers value

tool to evaluate competition

sales and demand analysis

actual sales data, eg: price cross-elasticity of demand

decision making units

initiator: decides something needs to be purchased

decider: makes the decision about what is purchased

purchaser: pays for it

user: uses the product

roles can overlap, context shapes everything (cultural, legal, technological)

customer journey

how a need becomes a choice

• need arises: something triggers action

• search: where customers look

• evaluate: what criteria matter

• purchase: what friction can stop them

• use: was the promised value delivered

marketing intervenes at every stage

• need arises: promotion

• search: promotion/place

• evaluate: product/price

• purchase: price/place

• use: product experience and service

customers’ wants pyramid

self-expressive benefits: what the product says about you to other people

emotional benefits: how the product makes you feel

functional benefits: what needs the product meets

types of customer evidence

what customers actually do: purchase history, clickstream/app usage, experiments, test markets, retention/churn

what customers say, think, or report: surveys, interviews, focus groups, reviews/open-ended feedback

customer lifetime value

CLV = (M - c) / (1 - r) - AC

• margin, M: margin contribution generated by the customer each period

  • revenue minus variable cost, per customer

• retention spending, c: ongoing spending used to serve or retain existing customers

  • cost of marketing to existing customers, eg: what the firm spends to retain them, per customer and period

• retention, r: probability that an active customer remains for the next period

  • churn = 1 - r

  • DO NOT MANIPULATE R

• acquisition cost, AC: one-time cost of acquiring a new customer

  • the cost of acquiring a new customer, where the most outreach and marketing costs go

  • overall marketing costs / the number of new customers

M, c, and r must use the same time period

useful for:

• comparing segments: who has higher CLV when deciding who to target

• running scenarios: comparing promotion or product ideas by their effect on margin or retention

market sizing

potential market: everyone with the relevant need or possible use

addressable market: customers the firm could realistically serve given geography, technology, regulation, and distribution

target market: the customers the firm chooses to pursue

sizing markets:

• primary demand: demand for the product category

• secondary demand: demand for the specific brand

segmentation

groups customers who are similar in ways that matter for marketing

• within a segment: customers should respond relatively similarly to an offering or marketing action

• across segments: customers should respond differently enough that the firm may want a different marketing strategy

• if groups would receive the same marketing mix, then it is not useful

segment with:

• demographics: “who,” age, income, education, location, etc

• behaviors: “what,” usage, past purchases, loyalty, media consumption

• preferences: “why,” wants, needs, lifestyle, identity, sensitivity to the 4 P’s

pros of segmentation

customer differences

• customers are not all alike

different needs or behavior

• customers care about different outcomes or act differently

different response to the 4 Ps

• product, price, promotion, or place may work differently

better fit

• the firm can tailor its strategy to the group

criteria for a useful market segmentation

large enough

identifiable

accessible

systematic (predictable) behaviors

types of segmentation

descriptive: who? start with customer characteristics and figure out behaviors and needs

benefits: why? start with behaviors and needs and figure out the descriptives

targeting

the process of identifying which segments to serve and which to ignore

• if you try to appeal to everyone, you end up with an average product

• segment the market: identify meaningful groups with different needs or responses

• evaluate the segments; compare opportunity, company fit, and competition

• choose target(s): decide which segments to serve now, and which not to prioritize

target size

the tradeoff between focus and profit

narrow target:

• advantage: better knowledge of customer

• disadvantage: need large market share to break even

wide target:

• advantage: break-even requires less market share

• disadvantage: less opportunity to customize, more competition, less knowledge of customer

the 3 Cs

customer, company, competition

• customer: is the segment worth pursuing

  • strength of need, size or growth, willingness of pay/CLV

• company: are we well suited to serve them

  • product and capability fit, brand fit, resources, access and channels

• competition: can we win

  • strength of alternatives, unmet needs, our relative advantage, likely competitive response

targeting mistakes

1. focusing solely on the customer

2. lack of a good segmentation of all customers

3. not anticipating competitive reaction

positioning

the act of framing the company’s image and offer in the target consumers’ minds, so it occupies a distinct and valued place in relation to competitors

a strong position passes four tests

1. relevant: the target actually cares about the benefit

2. distinctive: competitors do not own the same benefit equally well

3. credible: the product and company can genuinely deliver the claim

4. simple: customers can quickly understand what the brand stands for

positioning statement

for (target market), (brand) is the brand of (reference class) that (value proposition) because (evidence for value)

• the customers who…

• …our product offers…

• …because…

expected value

EV = (outcome value) x (probability of outcome occurring)

brand

a collection of associations in the mind of the consumer (and other stakeholders) resulting from each and every encounter with the brand to identify and differentiate an offering

the brand is part of the product experience, not a label on it

product: tangible, concrete, can be copied and outdated

brand: intangible, abstract, unique, potentially timeless

primacy effect

people remember and give more weight to the first piece of information they encounter in a sequence

recency effect

people remember and recall the most recently presented items or information in a sequence

associative networks

knowledge about a brand is learned over time

nodes and links can be strengthened with experience

these well-learned knowledge structures reflect how customers perceive the brand

create strong connections between our brand and our value proposition

how firms build associations

distinctive assets: names, logos, colors, packaging, characters, sounds, slogans

repeated experiences: product performance, service, retail environment, rituals, usage moments

other people: consumers, competitors, influencers, experts, culture, press

who creates a brand

companies

consumers

competitors

pop culture, movies, tv

influential people: experts, sales reps, specialized magazines

benefits from a brand

to the consumer:

• reduces search costs

• facilitates quick decisions

• assurance of quality and consistency

• means of expressing one’s identity

strategic implications:

• perceptions of quality/convey product benefits

• consumer loyalty

• points of differentiation

• price premium

• barriers to entry

• leverage in distribution channels

• facilitates the launch of new products

brand extensions

seems like a good idea: existing brand has awareness and image associations

• consumers are more willing to try a product from an existing brand

more than 50% of brand extensions fail within 3 years

• create new associations, potentially weaken old ones

positive effects:

• reduce expense of new products

• extend or reinforce the value proposition

• extension enhances the brand name

negative effects:

• brand name fails to help extension

• brand name weakens associations, or the new brand name confuses customers

• cannibalization

creating a new brand instead

• strengths: does not dilute or confuse the brand

• weaknesses: does not capitalize on brand equity

rebranding

requires a coherent message across the entire marketing mix:

• product: packaging, features

• place: selling in an upscale vs mass-market retailer

• price: luxury vs discount prices

product lifecycle

introduction

• low, slow growth, negative profits, few rivals, mostly early adopters

• marketer should create awareness and trial

  • have one basic product

  • price based on target and economics

  • limited/selective place

  • awareness among early adopters and dealers

growth

• rapidly rising growth, rising profits, new entrants, mainstream buyers

• marketer should maximize share, grow the market

  • product extensions, service, warranty

  • adjust price as scale rises and rivals enter

  • more place outlets

  • interest in the mass market

maturity

• peak/slowing sales, high, then under pressure sales, many rivals, price competition, most potential buyers have adopted; repeat and replacement buying

• marketer should maximize profit, defend share

  • diversify brands and items

  • competitive pricing, promos

  • widest place coverage, new channels

  • remind: brand differences in promotion

decline

• declining sales and profit, rivals exit, buyers move to substitutes

• marketer should harvest, keep a niche, or reposition

  • phase out weak models

  • reduce, or hold price for a loyal niche

  • selective with place, drop weak outlets

  • minimal promotion, for loyal customers

innovation diffusion

crossing the chasm between visionaries and pragmatists

visionaries: willing to take risks, help publicize, early adopters

pragmatists: want to be sure the product works first, not willing or able to promote, early majority

ACCORD

Rogers’ five attributes plus perceived risk, from the customer’s point of view

A: relative Advantage: is it better than the customer’s current alternative?

C: Compatibility: does it fit current habits, values, infrastructure, and social norms?

C: Complexity: how had is it to understand and use?

O: Observability: can people see it being used, and see its benefits?

R: Risk: what is the downside (financial, functional, social, privacy) if it goes bad?

D: Divisibility (trialability): can customers try it on a limited basis first?

what analysis tells you:

• if several characteristics are negative, adoption may be slower than average

• negative characteristics show what to change in the marketing mix

  • 30 day free returns, better way for consumers to find the product

  • analysis relates to the adoption of a technology, not a specified product

Bass model

a quantitative tool to approximate the diffusion of an innovation (not a product)

simple differential equation that describes the process of how new innovations get adopted in a population

two types of customers:

• innovators: not influenced by others in the timing of their initial product purchase

• imitators: influenced by the number of previous buyers in the timing of their initial product purchase

innovators matter most for sales at first, but their importance diminishes over time