Marketing Lectures

LECTURE 1: What is Marketing?
Evolution of Marketing:
Product OrientationSalesConsumerCompetitorCRMValue (brand equity)

5 C’s (Strategic)
* Company
* Customers
* Competitors
* Collaborators
* Context

4 P’s (Tactical- “marketing mix”)
* Product
* Promotion
* Price
* Place

LECTURE 2: Customer Behavior

Consumer Decision Making Process:

Adoption Process (of new concepts that do not rely on previous purchases) (textbook): AwarenessInterestEvaluationTrialDecision (purchase)Confirmation (reinforcement)

Basic Consumer Needs
* Esteem
* Control
* Belonging
* Meaningfulness

Book’s Hierarchy of needs: PSSP: physiological, safety, social, personal

Multi-Attribute Model (High Motivation evaluation of alternatives)
* Ab = Σ (bi X Ii)
* Customers rate different product attributes (-3,3)
* Customers rate level of importance for attributes (1,7)
* Focus on improving the important attributes OR Making strongest attributes more important to customers Heuristics (Choice tactics or “rules of thumb”; Low motivation evaluation of alternatives) * Price – Higher price equals higher quality

* Habit – Buy what we always buy
* Normative – Popular products are better
* More is better – More feature equals higher quality

Purchase Decision:
Heuristic (choice tactic)

Choice
Usage (experience)

Outcome: reinforcement, no reinforcement, punishment

Learning

Post-Purchase Decision Making: Satisfaction= f(perceived performance-expectations)

Lecture 3: STP

Market Segmentation involves:
1. Naming—disaggregating, breaking up needs
2. Segmenting—aggregating, clustering people with similar needs Segments need to be:
* Homogenous within
* Heterogeneous between
* Sustainable
* Operational (accessible, measurable, actionable)
* Stable

Segmentation Variables—need to be predictive of consumer behavior
* Geographic
* Demographic
* Psychological
* Psychographic
* Sociocultural
* Use-Related (Splitting up customers by how loyal/long-term)
* Use-Situation (Splitting up customers by how they use products)
* Benefit
* Hybrid

Factor Analysis – Categorizing attributes or traits (Of products) * Example: Exciting and Sporty vs. Comfortable and Luxurious * Example: Reading vs. Talking = Two distinct ways to get information about cars * Makes analyzing survey data much easier – Used for segmentation * Factor analysis shows the relation of different attributes, merging highly correlated variables into smaller dimensions; but doesn’t show where the customers are, how many people are in each segment, and what their preferences are regarding each segment Cluster Analysis – Categorizing people (customers)

* Maximize between-group variances while minimizing the variances within each group * Applied to similar data as factor analysis, but to classify people. (Factor picks the axes, Cluster plots the points on the graph and chooses centers of clusters process) CRM= 1. Identify, 2. Differentiate, 3. Interact, 4. Customize e.g. Amazon customize personal pages with recommendations

Targeting
* Customer – Segment Size, Growth Value, Stability
* Company – Ease of entry (Ability to reach/serve segment) * Competitor – Numbers and strength, their ease of entry * Product Life Cycle – Advertising new product (Need to explain more, ability to influence heavily)

Factor and Cluster Analysis is for Segmenting; Perceptual Maps is for Positioning Positioning—perception of offering/product in comparison to competition
* Target
* Frame of Reference
* Point of Differentiation
* Reason to Believe

Segmenting/Targeting = Strategic, Positioning = Tactical (marketing mix of 4 P’s)

LECTURE 4: Branding and Packaging

Strong Brands have:
–higher market share, higher margins, and higher prices
–customers with positive difference in willingness to pay, satisfaction, and loyalty

Best firms have extreme in 1, parity in the other 2

Brand Relationship: AwarenessAssociationsRelationship

Brands – Five Personality Dimensions
* Sincerity
* Excitement
* Competence
* Sophistication
* Ruggedness

Use dimensions to: 1. Identify, 2.Measure, and 3.Evoke
Brand associations lead to inferences that result in schemas and brand extensions

Brand Name:
* Four Easy “tests”
* say, spell, read, remember
* Four “Fit” tests
* target market, benefits, culture, legal

Packaging reinforces brand and delivers value (to both customers and collaborators)

LECTURE 5: PLC

Practical Problems with PLC
* Sales patterns often aren’t very smooth
* Noisy data
* Sometimes can’t sort out trial vs. repeat
* Hard to know which stage of PLC is in effect
* Conflicting factors make it hard to judge skim vs. penetration
* Questions about cause-and-effect
* Does PLC drive strategy or vice versa?
* Can become a self-fulfilling prophecy
* Level of analysis
* Generally applies for the (sub)category, not specific brands

New Product Development (book):
Idea GenerationScreeningIdea EvaluationDevelopment (product and mix)Commercialization

In Decline, you must: 1. Withdraw, 2.Harvest, 3.Niche, or 4.Market Leadership

Skim versus Penetration
Skim – Sold to smaller group of customers who will pay a high price (Who are already more likely to want the product); low-selling effort, high price

Example: iPad – High price (Narrowing market)
Penetration – Mass market to many customers, sold at a lower price; high selling effort, low price
Example: Swiffer – Inexpensive, widely available, widely used Accord model focuses on Product from the 4 P’s
ACCORDSkimPenetrate
Advantage against replacement:High; Targeted consumer base (Apple)Med; Small advantage over mop Compatibility (With customer’s lives):Low; Only some consumers can be convincedHigh; Many customers would buy Complexity (Of use):High; Grandparents using iPadLow; Easy to learn/use Observability:Low; Hard to understand adv/cmptb/cmplxHigh; Clear benefit (Even if benefit is small) Risk:High; High price but unsure of outcomeLow; Clear benefits + low price Divisibility:Low; Hard to compare iPad w/ other devicesHigh; Clean half w/ mop, half w/ Swiffer *Ford Model T is the ultimate example of low Compatibility from ACCORD. Completely revolutionized lives of consumers -> Skim **Hard to show in a 30-second commercial the full functionality of iPad – More explanation for skim ***Risk: You’re sure horse and buggy will take one week to DC. Model T might take 2 days, but could break down (You don’t know what to expect from the product) ****Divisibility: Easy to compare the ease of cleaning the first half of the floor (W/ a mop) and the second half (W/ Swiffer) | Skim| Penetration|

Price| High| Low|
Place| Selective| Extensive|
Product| Low on ACCORD| High on ACCORD|
Promotion| Low-effort, education| Intensive, awareness|
LECTURE 6: Marketing Research

Textbook Process:
ID ProblemAnalyze SituationGet problem-specific dataInterpret dataSolve

Research Criteria
* Current
* Valid (Actually answering the question we are asking)
* Reliable (Consistent – Ex: Scale showing 150 lbs. Might not be true, but could still be reliable if the scale shows weight gain/loss accurately) * Representative (Testing big enough group to represent the whole population accurately)

Diagnostic analysis – How are we doing now? (current and in past)
* How do customers perceive our offerings?
* How do these perceptions explain current performance?

Diagnostic Protocol
* Availability
* Awareness
* Perception
* History
* Competition

Opportunity analysis – How much better can we do? Where? (forward-looking)
* Does the market present unexploited opportunities for growth?
* How do we exploit these opportunities?

Identifying Opportunities
* Typical applications
* Re-positioning an underperforming brand
* Introducing a new brand
* Need to see through the eyes of the customer
* Direct elicitation (Asking what a customer wants; surveys, L. scales, perceptual maps)
* Indirect elicitation (Inferring what a customer wants from their actions; conjoint)

Perceptual Maps: show relative positioning of 1.competitive and 2.ideal products on pair of dimensions (What they do NOT give us):
* Specific tactical advice about how to succeed in those niches * A forecast of how consumers will respond to new (or modified) offerings that try to exploit these opportunities * Are these the relevant attributes that drive decisions? conjoint tells us this

Market Share = Share of Awareness X Share of Preference X Share of Distribution LECTURE 7: Pricing

Price discrimination is allowed: 1.If there are cost differences and 2.To meet competitors price

Average Cost Pricing doesn’t account for variations as output changes, when economies of scale set in; ignores demand and relies on an estimate, which is risky; ignores competitors prices

Break Even analysis is good for evaluating alternatives but is not a pricing solution—assumes profits growing continuously, but TR curves are not continuous and D is not perfectly horizontal

Marginal Analysis: demand-oriented; views costs, revenues, profits at dif. prices; maximize difference between TR and TC

Price Planning:
ObjectivesEstimate DemandDetermine CostsEvaluate EnvironmentChoose StrategyTactics

Pricing Objectives
* Sales or Market Share
* Profit
* Competitive Effect
* Customer Satisfaction
* Image Enhancement

Pricing Environments
* Economic Factors
* Competitive Factors
* Channel Concerns
* Consumer Trends
* Governmental Concerns

Pricing Strategies
* Cost-plus
* Competition-based (Going rate, Price-leadership)
* Demand-based (Target-costing, Yield-management)
* Value-based (EDLP, EVC)
* New product (Skimming, Penetrating, Trial)

Pricing Tactics
* Individual Products (Two-part pricing, Payment pricing) * Multiple Products (Bundling, Captive pricing)
* Channel-based
* E-Commerce Pricing (Dynamic Pricing, Auction)
* Psychological (Reference prices, Price-Quality inferences, Odd-Even pricing, Price lining, Promotional-cues) Luxury Goods
* Example: High-end fashion (Chanel or Rol-ex)
* Lowering from very-high price to high price will increase demand * However, part of the good’s brand image is its high price. At a certain point, lower price contaminates brand image and lowers demand Reference Prices

* Consumer’s idea of what the price ‘should’ be. (Price of water ~ $1.50) So if someone charges above reference price ($5), you might be alarmed * Marketers can influence this price, especially in goods with a shaky reference price. Example: Home Shopping Network. You don’t know very well what the price of a necklace is, so they present you retail price (Much higher than their offer) * Crossing off old price/showing retail price can influence consumer’s perception of how expensive a product is Captive Price

* Forced to pay a price because you are locked in (Cell phone contract). Buying food on an airplane, while really expensive, is NOT locked in (Not captive price, because you can choose not to buy) Complementary product pricing—razor with expensive razor blades

LECTURE 8: Channels and Distribution

Channel Functions – Value Delivery Network
* Transactional functions – Buying, selling, risk-taking
* Logistical functions – Transporting, storing, sorting (“breaking bulk”) and creating assortments * Facilitating functions – Financing, information/research, promoting, inspecting/testing Intermediaries

* Agent/broker: Negotiates sales without taking title to the goods.
Generally paid by commission or fees. * Wholesaler: Takes title to the goods and resells them. * Retailer: Sells to end user

* Facilitating agency: moves the goods (no title, no negotiating) – postal service, railroad, storage warehouse, payment processors, etc.

Density of Coverage
* Exclusive
* High influence of reseller marketing activities
* High margins throughout the channel
* Stable level of distribution
* Less competition at the point of sale
* Selective
* Resellers compete to carry our product
* Less reseller loyalty
* Intensive
* High coverage
* Convenient for end customers
* High conflict potential

Disintermediation (Ex – selling direct to customers over the internet) * Move toward direct to consumer marketing, Hybrid Systems, E-commerce, Channel Conflict

Integration
* Vertical Integration
* Corporate VMS – Corporate Ownership all along the Channel (Manufacturing, Wholesaling, Retailing) * Administered Integration – Some cooperation among channels, controlled by economic power/leadership (Informal cooperation)

Trends
* Growth of direct marketing
* Major “downstream” power shifts in the channel (from producers and wholesalers to retailers) * Much greater degree of sophistication in
order fulfillment and customer tracking * More companies using hybrid systems to reach different consumers through distinct marketing channels

Li and Fung’s Flat World philosophy of Sourcing, owning nothing, is opposite of VMS -Provide value-added services as you move downstream

Improve profitability by increasing manufacturing/distribution margin. This allows lower sales price (At same profitability), increasing number of consumers willing to buy, increasing profit dramatically * Who gets the $3 difference? How will this money be distributed across: * Manufacturer

* Distributors
* Retailers

LECTURE 9: Retail

Retail :
* Low barrier to entry
* Replication and Scale
* Cash flow – Stock market pressure
* Wheel of Retailing (1960)
Inventory Turn = COGS for year / Current inventory
Why Retailers want to be brands?
* Greater profit opportunity from offering a private label * Unique offering creates differentiation from retail competitors * Increased bargaining clout with national brand suppliers * Reduction in double marginalization

Traditional Model: MRC

Typical New Model: hybrid distribution

Store Brand Strategies
* Inferior Goods Strategy
* Generics – lesser quality at a lower price
* Exploit Installed Base
* Parity Quality at a value price
* “Me-Too’s” that mimic the leading national brands at a 30% savings * Private Label as differentiator
* Exclusive brands offering unique quality as good or better than the category leader at an affordable price * Proprietary brand

Store Brand Architecture
* Umbrella Brands
* Store or Endorsed Brands: where all private label carries the name of the store, e.g., Trader Joe’s, Staples own brands of paper, tape, pens etc. * Group Brands: where all products carry a common non-store name across a wide variety of products, e.g., President’s Choice * Exclusive Brands

* Exclusive, Quasi, or Non-Endorsed Brands: unique private label dedicated to specific product line or category, e.g., (Target’s chocolate), Old Roy Dogfood * Branded variants
* Ryobi drill exclusive for Home Depot, Target CDs

Store Brand:
* Strengths – Creates impression of wide product selection/range, Replacement for secondary and tertiary brands, Exclusive offering reinforces premium products/services, Allows retailer to offer products less compatible with existing brand equity (upscale or outside core competence) * Weaknesses – Consumers do not directly associate brand with store, No existing brand equity or track record of success, Fragmented (Need to launch several own brands to gain sufficient scale)

Private Labels
* A consistent mark reoccurs throughout the store
* Retailer absorbs all marketing and inventory investment * Distribution and good shelf placement is guaranteed
* Private labels get 100% pass-through, few arbitrage possibilities * Adds a competitive edge to the traditional buyer-seller relationship

Brands becoming Retailers
* Use retail stores as a giant advertising billboard
* Greater market coverage
* Control over the brand message
* Education and image
* Allow information free-riding by other retailers
* Ability to offer the full product line
* Reduce wholesale markdowns by selling through own factory locations
* Reduction in double marginalization

LECTURE 10: Promotion and Advertising

1.inform (AI), 2.persuade (D), 3.remind/reinforce (A)

AIDA: Attention, Interest, Desire (USP here), and Action

Strategy: Push (producer supply drives) vs. Pull (customer demand drives)

1.Pioneer advertising—Primary demand (for idea, intro. stage) 2.Competitive advertising—selective demand (preference, growth stage) 3. Reminder advertising—reinforcement

Sales promotion has short-term effects but has more of the budget invested in it than advertising

Objective and Task budgeting is the most strategic and effect way to allocate funds

Integrated Marketing Communications
* Extend the brand relationship
* Improve the overall effectiveness of marketing tactics
* Increase the relevance of the message
* More effectively manage marketing resources
* Drive results and ROI

Metrics
* Reach = % of target market
* Frequency = # of impressions (3-6 optimal)
* GRP = Gross ratings points (mean reach x Freq)
* CPM = Cost per thousand impressions
* ROI = Return on Investment
* ROO = Return on Objective

Media is very fragmented; reach is difficult to get though one media.

Guerilla Marketing
* Field/event marketing
* Taking the message directly to audience
* Getting people directly engaged with brand
* Often unconventional methodology
* Reliance on creativity vs. budget
* Requires time, energy and imagination
* Suited for entrepreneurial companies

Sales Promotion
* Incentives to Channels Push
* Trade Marketing
* Co-op/Market Development Funds
* Buy-in Programs
* Excite Consumers Pull
* Coupons/Rebates
* Sweepstakes
* Cause-related Campaigns

Personal Selling
* Sales Force
* Direct contact with customer
* More people are employed in sales positions than any other marketing-related job (11%)
* High Cost-per-Action (CPA)
* B2B
* Training

Different Types of Promotion
1) Personal Selling
a. High cost, but effective if salespeople do a good job b. Salespeople may be lazy/may not believe in the product, so you need to market to salespeople c. Optimal sales-force compensation plans: Salary versus commission (To align incentives of salespeople with those of company) 2) Public Relations

d. Not paid for -> potentially more believable (Ex – Positive reviews for iPad in newspaper NOT paid for by Apple) e. But no control over content (Bad reviews)
3) Word of Mouth—most influential!
f. Highly influential, personal, and effective
g. But least amount of company control

Marketing Math
* Unit Contribution = Revenue – Variable Costs
* BE Volume = Fixed Costs / Unit Contribution
* Margin = Unit Contribution / Revenue per Unit(Gross Margin Percentage)
* Profit = (Unit Contribution*Units Sold) – Fixed Costs
* Market Share = Firm Sales / Total Market Sales
* CLV = Annual Profit per Customer * Years as Customer
* Final Price * (1-Distribution Margin) = Price set by Manufacturer