Overall marketing midterm study guide

Marketing (definition)

The process by which companies engage customers, build strong customer relationships, and create customer value in order to capture value from customers in return.

Main purpose of marketing

Attract new customers by promising superior value, and keep and grow current customers by delivering satisfaction.

Drucker's view of selling

The aim of marketing is to make selling unnecessary. Selling and advertising are only the tip of the marketing iceberg.

Exchange

The act of obtaining a desired object from someone by offering something in return.

5-Step Marketing Process

1) Understand the marketplace and customer needs and wants. 2) Design a customer value-driven marketing strategy. 3) Construct an integrated marketing program that delivers superior value. 4) Engage customers, build profitable relationships, and create customer delight. 5) Capture value from customers to create profits and customer equity.

Which steps create value vs. capture value

Steps 1-4 create value FOR customers. Step 5 captures value FROM customers in return.

Two questions answered in Step 2 of the marketing process

Which customers will we serve? (segmentation and targeting) How will we serve them best? (differentiation and positioning = value proposition)

Step 3 of the marketing process (integrated marketing program)

Turning strategy into action through the 4 Ps: product, price, place, promotion.

Step 4 of the marketing process

Engaging customers and building profitable relationships through customer relationship management (CRM) and partner relationship management with suppliers and distributors.

Step 5 of the marketing process

Capturing value: loyalty, retention, share of customer, customer lifetime value, and customer equity.

5-step process example: Chipotle

1) Saw demand for fresher fast food 2) Targeted young, health-aware eaters; positioned as "fast food with integrity" 3) Custom bowls, premium price, stores + app + Chipotlanes, social media 4) Chipotle Rewards 5) Loyal repeat customers = profits and customer equity.

Needs

States of felt deprivation: physical (food, clothing, warmth, safety), social (belonging, affection), individual (knowledge, self-expression). Marketers do NOT create them.

Wants

The form human needs take as shaped by culture and individual personality. Ex: a hungry American wants a burger and fries; a hungry person in Papua New Guinea wants taro, rice, yams, and pork.

Demands

Wants backed by buying power. Ex: you may want a Rolex, but it is only a demand if you can pay for it.

Need vs. want vs. demand example

Hungry after class (need) → want Sweetgreen (want) → have $16 and it's open (demand).

Marketing myopia

Paying more attention to the specific products a company offers than to the benefits and experiences those products produce. Coined by Theodore Levitt (1960, Harvard Business Review).

Levitt's railroad example

Railroads thought they were in the railroad business instead of the transportation business, so cars, trucks, and planes took their customers.

Quarter-inch drill line

People don't want a quarter-inch drill, they want a quarter-inch hole. Focus on the benefit, not the product.

Marketing myopia modern examples

Kodak (film vs. capturing memories; invented the digital camera in 1975 but sat on it), Blockbuster (video rental vs. home entertainment; passed on Netflix), taxi companies (cab rides vs. convenient transportation; lost to Uber and Lyft).

Cure for marketing myopia

Define your business by the customer need you satisfy, not the product you make.

Mission statement

A statement of the organization's purpose: what it wants to accomplish in the larger environment. The "invisible hand" guiding everyone in the company.

Characteristics of a great mission

1) Market-oriented, not product-oriented 2) Meaningful and specific, yet motivating 3) Not too narrow or too broad 4) Built on the company's distinctive strengths 5) Not stated as "making money" (profits are a reward for creating value).

Product-oriented vs. market-oriented mission (Home Depot)

Product: "We sell tools and home repair and improvement items." Market: "We empower consumers to achieve the homes of their dreams."

Patagonia mission

"We're in business to save our home planet." Market-oriented and motivating.

Tesla mission

"To accelerate the world's transition to sustainable energy." It doesn't say "sell electric cars," which is why Tesla also sells solar panels and Powerwall batteries.

Business portfolio

The collection of businesses and products that make up the company.

Portfolio analysis

Process where management evaluates the company's businesses and products: 1) identify key businesses (SBUs) 2) assess each SBU's attractiveness and decide how much support it deserves.

Strategic Business Unit (SBU)

A unit of the company that has a separate mission and objectives and can be planned independently from other company businesses. Can be a division, a product line, or a single product or brand.

SBU examples

PepsiCo: Frito-Lay (snacks) and beverages (Pepsi, Gatorade) have different competitors, customers, and growth rates. Disney: theme parks, streaming, ESPN.

Why SBUs matter

You can't analyze a giant company as one blob. Identifying SBUs is step one of portfolio analysis and the BCG matrix.

BCG Growth-Share Matrix

Portfolio tool that plots SBUs on market growth rate (vertical axis) and relative market share (horizontal axis). Four types: stars, cash cows, question marks, dogs.

Stars (BCG)

High growth, high share. Need heavy investment to finance growth; eventually become cash cows. Ex: YouTube.

Cash cows (BCG)

Low growth, high share. Established and successful; generate cash to fund other SBUs. Ex: Google Search.

Question marks (BCG)

High growth, low share. Need lots of cash just to hold share; management decides whether to build them into stars or phase them out. Ex: Waymo.

Dogs (BCG)

Low growth, low share. May generate enough cash to maintain themselves but are not promising.

Four strategies for each SBU

Build (invest to grow share), hold (maintain share), harvest (milk short-term cash), divest (sell or phase out).

Limitations of the BCG matrix

Difficult, time-consuming, and expensive to implement; focuses on current businesses and gives little guidance for future planning.

Porter's Five Forces (list)

1) Rivalry among existing competitors 2) Threat of new entrants 3) Bargaining power of suppliers 4) Bargaining power of buyers 5) Threat of substitutes.

Purpose of Porter's Five Forces

Explains how competitive and how profitable an industry is.

Why Porter's Five Forces is important

Shows whether an industry is worth entering and where profit pressure comes from; informs portfolio decisions and where to defend your position (e.g., lock in suppliers, raise buyer switching costs).

Rivalry among existing competitors

How intensely current players fight on price, ads, and features. High when there are many similar-sized competitors, slow growth, or little differentiation.

Threat of new entrants

How easily newcomers can break in. Lowered by barriers like high startup costs, brand loyalty, patents, and economies of scale.

Bargaining power of suppliers

Ability of suppliers to raise prices or reduce quality. High when there are few suppliers or no good alternatives.

Bargaining power of buyers

Ability of customers to push prices down. High when they buy in bulk, can switch easily, or the product is undifferentiated.

Threat of substitutes

Customers meeting the same need a different way (not a direct competitor). Ex: Zoom as a substitute for business air travel.

Five Forces example: airlines

All five forces are brutal: intense rivalry, powerful suppliers (Boeing and Airbus, unions, fuel), powerful buyers comparing fares on Google Flights, substitutes (driving, trains, video calls). Result: thin margins.

Five Forces example: Visa

Network effects block new entrants, few real rivals, high switching costs for merchants. Result: very high margins.

Ansoff Growth Matrix (Product/Market Expansion Grid)

Tool for identifying growth opportunities by crossing products (existing/new) with markets (existing/new). Four strategies: market penetration, market development, product development, diversification.

Market penetration

Existing products, existing markets. Sell more to current customers. Lowest risk. Ex: Starbucks Rewards app, mobile ordering, more stores in existing cities.

Market development

Existing products, new markets (new geographies or demographics). Ex: Starbucks expanding into China.

Product development

New products, existing markets. Ex: Starbucks Refreshers, cold foam drinks, bottled Frappuccinos.

Diversification

New products, new markets. Highest risk because there is no product or customer experience. Ex: Amazon launching AWS.

Ansoff risk order

Risk rises from market penetration (lowest) → market development and product development → diversification (highest).

Four steps of designing a customer value-driven marketing strategy

1) Segmentation 2) Targeting 3) Differentiation 4) Positioning. First two = which customers to serve. Last two = the value proposition (how to serve them).

Market segmentation

Dividing a market into distinct groups of buyers with different needs, characteristics, or behaviors.

Four bases for segmenting consumer markets

Geographic (region, city size, climate), demographic (age, gender, income, life stage; most popular because easy to measure), psychographic (lifestyle, personality, social class), behavioral (occasions, benefits sought, usage rate, loyalty).

Requirements for effective segmentation

Measurable, accessible, substantial, differentiable, actionable.

Market targeting

Evaluating each segment's attractiveness and selecting one or more segments to enter.

Undifferentiated (mass) marketing

One offer for the whole market, ignoring segment differences. Rare today.

Differentiated (segmented) marketing

Separate offers for several segments. Ex: Marriott with Ritz-Carlton (luxury), Courtyard (business travelers), Fairfield (budget).

Concentrated (niche) marketing

Going after a large share of one or a few small segments. Ex: Liquid Death.

Micromarketing

Tailoring products and programs to specific local areas or individuals. Ex: Nike By You custom sneakers.

Differentiation

Actually making the market offering different to create superior customer value. Can be based on product, services, channels, people, or image. Ex: Chick-fil-A differentiates on people.

Positioning

Arranging for a product to occupy a clear, distinctive, and desirable place relative to competing products in the minds of target consumers.

Positioning statement format

To (target segment and need), our (brand) is (concept) that (point of difference).

Five winning value propositions

More for more (Rolex), more for the same (Lexus vs. Mercedes originally), same for less (Costco), less for much less (Dollar General), more for less (hard to sustain).

Porter's three generic competitive strategies

Overall cost leadership, differentiation, focus.

Overall cost leadership

Achieve the lowest production and distribution costs so you can price below competitors and still profit. Ex: Walmart, Costco, Aldi, Southwest. Risk: someone gets even cheaper.

Differentiation (Porter's strategy)

Create a highly differentiated product line and marketing program to become the class leader and charge a premium. Ex: Apple, Nike, Tesla, Dyson.

Focus (Porter's strategy)

Serve a few market segments well rather than chasing the whole market (cost focus or differentiation focus). Ex: Ferrari, Rolls-Royce, Patagonia.

Stuck in the middle

Porter's "middle-of-the-roaders": firms with no clear strategy that try to be good at everything and end up great at nothing. Ex: Sears, JCPenney.

Treacy and Wiersema's value disciplines

Operational excellence (lead on price and convenience, Walmart), customer intimacy (precisely tailored offers, Nordstrom, Ritz-Carlton), product leadership (cutting-edge products, Apple).

Competitive positions by market role

Market leader (Coca-Cola), market challenger (Pepsi), market follower (store brands), market nicher.

Big data

The huge and complex data sets generated by today's sophisticated information generation, collection, storage, and analysis technologies.

The Vs of big data

Volume (massive amounts), velocity (generated in real time), variety (structured and unstructured). Some versions add veracity and value.

Main challenge of big data

Not a shortage of data but too much of it. Big data is only valuable when it is turned into customer insights.

Customer insights

Fresh understandings of customers and the marketplace, derived from marketing information, that become the basis for creating customer value, engagement, and relationships.

Big data examples

Netflix (viewing data drives recommendations and which originals to greenlight), Amazon ("customers who bought this also bought"), Starbucks (app and Rewards data for personalized offers).

Marketing Information System (MIS)

People and procedures dedicated to assessing information needs, developing the needed information, and helping decision makers use the information to generate and validate actionable customer and market insights.

Three jobs of an MIS

1) Assess information needs 2) Develop needed information 3) Analyze, use, and distribute information.

Assessing information needs

Balancing what managers want, what they really need, and what is feasible. Information is only worth gathering if its value exceeds its cost.

Three sources for developing needed information

Internal databases, competitive marketing intelligence, marketing research.

Internal databases

Information already inside the company (sales records, customer service logs, financial data). Fast and cheap, but may be incomplete or in the wrong format.

Competitive marketing intelligence

Systematic monitoring, collection, and analysis of publicly available info about competitors and the environment (websites, earnings calls, job postings, social media, trade shows). Must be legal and ethical.

Analyzing and using information (MIS)

Turning raw data into insights through marketing analytics and CRM, then distributing those insights to the right managers at the right time.

Alternative four-component MIS

Internal records, marketing intelligence, marketing research, marketing decision support/analytics.

Marketing research

The systematic design, collection, analysis, and reporting of data relevant to a specific marketing situation.

True value of research

Reduces uncertainty and risk in decision-making by producing actionable customer insights. The value is the better decisions, not the data itself.

What marketing research helps companies do

Understand customer motivations, purchase behavior, and satisfaction; assess market potential and market share; measure the effectiveness of pricing, product, distribution, and promotion.

New Coke (1985) lesson

About 200,000 taste tests showed people preferred the sweeter formula, but the research missed people's emotional attachment to original Coke. Research is only as good as the problem definition.

Marketing research process (4 steps)

1) Define the problem and research objectives 2) Develop the research plan 3) Implement the plan 4) Interpret and report the findings.

Exploratory vs. descriptive vs. causal research

Exploratory: gather preliminary info to help define problems. Descriptive: describe things like market potential or demographics. Causal: test cause-and-effect relationships.

Secondary vs. primary data

Secondary: already exists, collected for another purpose (cheaper, faster). Primary: collected fresh for the specific purpose at hand.

Primary research approaches

Observational, ethnographic, survey, experimental.

Consumer market

All the individuals and households that buy goods and services for personal consumption.

Business market

Organizations that buy goods and services for use in producing other products and services that are sold, rented, or supplied to others.

Business vs. consumer markets: market structure and demand

Business markets have fewer but larger buyers; demand is derived, more inelastic in the short run, and fluctuates more.

Derived demand

Business demand that ultimately comes from consumer demand. Ex: demand for Intel chips comes from laptop sales; steel from car sales. Why GORE-TEX advertises to consumers.

Fluctuating demand (business markets)

A small increase in consumer demand can cause a large jump in business demand for the equipment and materials to make it.

Inelastic demand (business markets)

Total demand for many business products is not much affected by price changes in the short run.