Marketing Lecture Revised


Published on

Published in: Business, News & Politics
  • Be the first to comment

  • Be the first to like this

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Marketing Lecture Revised

  1. 1. Marketing
  2. 2. Structure of Lecture 1. Importance of marketing to NPD 2. Strategic marketing frameworks 3. Marketing launch tools: 4Ps
  3. 3. R&D Based Versus Marketing Based Ideas 100% 100% 100% 100% 100% 100% 90% 10% 22% 78% 25% 75% 31% 69% 34% 66% 34% 61% 5% Materials Computers, railway, housing Instruments Winners of the Industrial Research Award British innovators Weapons systems R&D Based Marketing Based Source: Utterbach
  4. 4. NPD Process: Marketing Input Idea Conception Business Plan Design Manufacture Launch Fit with marketing/ corporate strategy Market research Market testing Implement marketing mix Establish marketing mix
  5. 5. Approximate Costs of NPD: % Industrial Chemicals Consumer Goods 100 100 57 79 13 28 2 16 3 2 Stage Opportunity Identification Design Testing Launch Total 100% = $12.6m $4.7m
  6. 6. Marketing Mix: The 4 Ps Place Promotion Product Price The Marketing Mix
  7. 7. Product <ul><li>Definition </li></ul><ul><li>PLC </li></ul><ul><li>Physical products versus services </li></ul>Place Promotion Price The Marketing Mix Product
  8. 8. Consistency in Marketing Mix Premium Product (e.g. Jermyn St shirt) Premium Price (+30% over average) Premium Place (narrow distribution) Premium Promotion (selective advertising)
  9. 9. Importance of 4Ps by Industry – examples of promotions Advertising Sales Promotion Personal Selling PR Advertising Sales Promotion Personal Selling PR Consumer Goods Industrial Goods Importance High Low
  10. 10. Push versus Pull Push Strategy Manufacturer Intermediary End User e.g Lever Brothers Pull Strategy Manufacturer Intermediary End User e.g. P & G Demand Demand Demand Demand
  11. 11. Marketing’s Definition of the Product Any want - satisfying good or service that is considered together with its perceived tangible and intangible benefits
  12. 12. Product from Customer’s Viewpoint A product is a “bundle of satisfactions or benefits” i.e. The nature of the product lies in the consumer’s perception of it This explains marketing’s obsession with the consumer
  13. 13. Product versus Benefit Definitions: Examples Company Product-orientated Benefit-oriented definition definition Lancome We sell cosmetics We sell beauty Xerox We make photocopiers We improve office productivity Disney We make films and We entertain associated products you and provide escapism UCL-NPD We teach you a wide We prepare you for range of skills/frameworks the outside world
  14. 14. SWOT Analysis SWOT Strengths Weaknesses Opportunities Threats Internal External
  15. 15. BCG Growth Share Matrix ? High Dog Cash Cow Low Market Growth Rate Low High Relative Market Share Star 1x 10x 0.1x 10% 0%
  16. 16. Product Life Cycle
  17. 17. Characteristics of “Introduction” Phase of PLC 1. High product failure rate 2. Relatively little competition 3. Limited distribution 4. Frequent product modification 5. Losses associated with the product
  18. 18. Characteristics of “Growth” Phase of PLC 1. More competitors 2. Less product distinctiveness 3. Profitable returns 4. Company or product acquisition by larger companies
  19. 19. Characteristics of ‘Maturity’ Phase of NPD 1. Sales continue to increase but at reduced rate 2. Attempts are made to differentiate or re-differentiate the product 3. Product line may be widened 4. Prices fall as competitiveness increases 5. Profits fall due to “double whammy” of falling price and need to promote the product 6. Brand rationalisation becomes common among retailers/dealers 7. Marginal producers drop out of the industry
  20. 20. Characteristics of “Decline” Phase of NPD 1. Falling sales for total industry 2. Price cutting may intensify 3. Many producers decide to abandon the market
  21. 21. PLC example: audio cassette tapes
  22. 22. Product Life Cycle Traditional With Variations Introduction Growth Maturity Decline Time Sales Growth, Slump, Maturity Cycle recycle Scalloped Fashion Fad Cycle I Cycle II
  23. 23. Using the PLC Framework Pros - Different stages of a product’s life call for explicitly different strategies - The framework prepares management for changes of strategy. (A useful spur given much management inertia) Cons - Time span of the curve varies enormously - Rigid adherence to PLC means management can prematurely end the life of a product - The curve is not always a curve - variations exist Handle with Care! As with all frameworks , use as a guide, not a bible
  24. 24. Strategic marketing -summary <ul><li>Strategic marketing is critical to NPD both prior to embarking on a new project and as an ongoing process, eg </li></ul><ul><li>SWOT analysis </li></ul><ul><li>BCG growth share matrix </li></ul><ul><li>Product life cycle </li></ul><ul><li>(PS Some of these can be quite useful outside the NPD process too!) </li></ul>
  25. 25. Service Products Definition “A service is an intangible product involving a deed, a performance, or an effort that cannot be physically possessed” Examples Education Health care R&D projects Insurance Transport Hairdressing Hotels
  26. 26. Differences Between Physical Products and Services Difference Comment Intangibility Services generally have no “physical” element Inseparability Production and consumption occur simultaneously Variability High ‘human’ contact leads to different service levels Perishability Service products cannot be stored and ‘perish’ instantly No ownership Service is experienced –it can’t be sold on
  27. 27. Implications for Marketing Service Products Characteristic Issue Marketing Implication Difficult for customers to compare services Both provider and client affect quality of relationship ‘ Tangibalise’ the product e.g. appearance of staff, promotional literature, etc Periods of excess supply and demand Difficult to ensure consistent quality Intangibility Perishability Variability Inseparability Manage supply and demand explicitly (e.g. differential pricing, part time personnel) Implement strict quality control. Develop customer care programmes Selection and training of service provider’s personnel
  28. 28. Price <ul><li>Importance of Price </li></ul><ul><li>Influences on Price </li></ul><ul><li>Pricing Strategy </li></ul>Place Promotion Product Price The Marketing Mix
  29. 29. Importance of price-theory S D p q Price Quantity
  30. 30. Importance of Price-Practice “ Which of the following would make you switch supermarket” (% of respondents) Lower price Wider range Closer to home Convenient hours Car parking 75% 66% 60% 45% 44% Source: Questions asked of AGB Superpanel
  31. 31. Effect of 1% Rise on Price on Profits - e.g. Consumer Goods Manufacturing Price rise of 1% Rise in operating profit 10% Phenomenon known as operating leverage
  32. 32. Effect of 1% rise in price - e.g. consumer goods manufacturing Before After Revenue 100 101 1% rise Cost of goods sold 60 60 Gross margin 40 41 Sales and marketing 15 15 R&D 2 2 General & Admin 10 10 Depreciation 3 3 Operating Profit 10 11 10% rise
  33. 33. Inputs to Pricing Decisions <ul><li>Demand </li></ul><ul><li>Costs </li></ul><ul><li>Other factors </li></ul><ul><li>- company and marketing objectives </li></ul><ul><li>- competition/ market structure </li></ul><ul><li>- legal/ social constraints </li></ul>
  34. 34. Demand Demand constrains the upper price limit (i.e. you cannot charge more than the customer will pay) Some people are more price sensitive than others Demand for some products is more price sensitive than for others If you can identify the people and charge them separately, you will increase revenue If you can identify price sensitive products and drop prices, you will increase revenue
  35. 35. Conditions for Price Discrimination 1. The firm can control what is offered to a particular buyer 2. It can prevent the resale of the item by one buyer to another
  36. 36. Industries with Price Discrimination Industry Example Theatres OAPs, students, etc charged less for same seats Food manufacturing Large retailers with huge volumes are given lower prices than small corner shops with low volume Airline transport Business and first class charged more than economy class Private dentistry Many dentists have no ‘schedule of prices’ and will charge patients what they think they can afford
  37. 37. Price Sensitivity Price Elasticity measures Price Sensitivity e = percentage change in quantity demanded percentage change in price Inelastic demand e<1 Elastic demand e>1 P P p 1 p 2 Q Q q 1 q 2 q 1 q 2
  38. 38. Factors Affecting Price Sensitivity Customers are less price sensitive when: 1. The product is unique with few substitutes 2. Comparisons are difficult to make 3. The cost of the product is low relative to total expenditure 4. The product is perceived to be high value or prestigious 5. The product is required for assets previously bought
  39. 39. Cost- based Pricing Price = Full cost of producing the item + x% profit margin Cons 1. Largely arbitrary method, depends how you allocate overhead 2. Prevents full usage of marketing tools as in short run pricing at less than full cost is feasible 3. Can lead to nonsensical vicious circle Pros 1. Simple method 2. Explicitly considers costs therefore unlikely to result in loss 3. Fair and transparent
  40. 40. Vicious Circle of cost based pricing Full cost = Allocated fixed cost + variable cost - sales and marketing - raw materials - R&D - direct energy costs - general overhead - depreciation Demand Fixed cost per unit Price Production
  41. 41. Range of Pricing Discretion Price To increase pricing discretion the firm can: - increase perceived benefits (i.e. demand) - reduce costs Upper level determined by demand Lower level determined by costs
  42. 42. Other Factors Affecting Pricing Area Examples Company and Marketing Objectives - Overall goal (profit maximisation versus accessibility of service) - Target market (mass or niche) - Brand image (exclusive or commodity) - Rest of marketing mix (product, promotion, place) - No of firms (monopoly through to perfect competition) - Degree of differentiation (one-off product through to commodity) - Government legislation (e.g. closely controlled pharmaceutical pricing) - Regulatory bodies (e.g. Oftel with RPI-7.5%) - Social/political pressure (e.g. for bell-weathers of the economy) Competition/ Market Structure Legal/ Social
  43. 43. Popular Pricing Strategies Strategy Description Skimming Start with a high price for early adopters, then reduce the price progressively (good for inelastic demand) Penetration Go for maximum market penetration by adopting a low price strategy to attract the largest number of new buyers early on
  44. 44. Promotion <ul><li>Types of Promotion </li></ul><ul><li>Effects </li></ul><ul><li>Promotion </li></ul><ul><li>strategy </li></ul>Place Promotion Product Price The Marketing Mix
  45. 45. Promotion (Marketing Communication)Types: Sales Promotion Direct Marketing Public Relations Salesforce Advertising
  46. 46. Objectives of Promotions (Marketing Communications) To Customer Raise awareness Inform about new product Correct misconceptions about product Increase frequency of use Present special offers Educate consumers in how to use Build image for brand/company Build customer loyalty To Trade Provide information Inform about promotions Present trade offers Avoid stockpiling Educate the trade Build patronage
  47. 47. Specific Objectives of Sales Promotions For Consumer Announce new product Encourage product trial Stimulate greater use Encourage purchase of larger sizes Attract non-users Encourage brand switching For Trade Encourage stocking Increase inventory levels Encourage off-peak buying Promote related products Offset competitive marketing Open up new outlets Build retailer loyalty
  48. 48. Effect of Sales Promotion on Brand Share 6% 10% 5% 7% Preparation period Promotion period Immediate post-promotion Long-term post-promotion
  49. 49. Direct Marketing Targeting customer directly without an intermediary Examples of Methods Phone Internet Letters Catalogues Direct response radio Direct response TV Loyalty cards
  50. 50. Trends in Direct Marketing Increasingly focused on target group - specific lists - technology advances Used frequently with multiple approaches Changing to long-term “relationship marketing” rather than one-off mail-shots
  51. 51. Direct Marketing: Pros and Cons Pros - Measurable response - Relatively cheap - Communicate directly with customer (67% customers go elsewhere next time as no one keeps in touch) Cons - Can alienate potential customers - Low hit rate if unfocused
  52. 52. Public Relations How Interviews Articles Exhibitions Launches Sponsorships Publications Videos Training Factory visits Press releases Community projects Definition by IPR: “the deliberate, planned and sustained effort to establish and maintain mutual understanding between an organisation and its public” Whom to influence Community Employees Government The City Distributors Consumers Opinion leaders
  53. 53. Advertising Objectives Increases sales and profits through: - Building awareness - Building comprehension - Reminding - Generating leads - Legitimising - Reassuring
  54. 54. Stages in the Adoption Process Awareness Interest Evaluation Trial Adoption Source: K p342
  55. 55. Adopter Categorisation
  56. 56. Characteristics By Adopter Group Group Characteristics Type of individual Innovator Early adopter Early majority Late majority Laggard Willing to try new ideas at some risk Ideas adopted early as sign to others Deliberate steady adoption of new ideas Sceptical: wait to see what world thinks before trying Tradition bound: suspicious of change Techno-freak(?) Youngish Opinion leaders in community Older, Conserv-ative Most of Population
  57. 57. Innovation adoption - examples <ul><li>INNOVATOR </li></ul><ul><li>  Blu-ray </li></ul><ul><li>EARLY ADOPTER </li></ul><ul><li>Mobile TV, (Sky service to deliver broadcasts to mobile phones), video i-pod </li></ul><ul><li>EARLY MAJORITY </li></ul><ul><li>HDTV, Skype, Podcasting; Sky + / PVRs </li></ul><ul><li>  </li></ul><ul><li>LATE MAJORITY </li></ul><ul><li>i-Pod; Broadband </li></ul><ul><li>LAGGARDS </li></ul><ul><li>DVD players, internet shopping, online banking VHS; mobile phones  </li></ul>
  58. 58. Influence of Product Characteristic on Adoption Rate Product Characteristic Description/ Rationale Relative advantage The degree to which it outperforms existing products Compatibility How it matches experiences & values of the target market Complexity How difficult or simple it is to use Divisibility Extent to which it can be tried on a limited basis Communicability How easy it is to describe or communicate the product attributes
  59. 59. Advertising Types - Subliminal - Subtle - Direct - “Knocking copy” Characteristics - Public presentation - Pervasive - Amplified - Impersonal
  60. 60. Advertising Management Set objective Decide budget Choose message Choose media Evaluate effectiveness - Communication objectives - Sales objectives - Affordable approach - % sales - competitive parity - Message generation - Message evaluation - Message execution - Type - Impact - Frequency - Reach - Timing - Communication impact - Sales impact
  61. 61. Place <ul><li>Types of channel </li></ul><ul><li>Value of channel </li></ul><ul><li>Choice of channel </li></ul>Place Promotion Product Price The Marketing Mix
  62. 62. Place Channels Coverage Location Inventory Transport
  63. 63. What do Distribution Channels Do? - Provide information - Promote - Negotiable - Take orders - Hold inventory - Take risk - Assume title - Distribute to final customer
  64. 64. Considerations in Choice of Channel Consideration Example/ Comment Company objectives Maximisation of market share suggests widespread distribution Target customer - numbers High numbers require mass market channels - geographical dispersion Wide dispersion may suggest need for mail order - customer needs Specialist channels if complex needs Product Direct selling if high value complex product Competition How do competitors distribute and do consumers like it? Control How much control is relinquished by choosing a specific channel
  65. 65. Intermediaries: Pros and Cons Pros - Allows manufacturers to “stick to the knitting” - Replaces inefficiency of multiple deliveries - Enables consumers to minimise efforts Cons - Company loses some control - Can add to costs - Company loses touch with end user
  66. 66. PLC Strategies Introduction Growth Maturity Decline Promotion Create product awareness - advertising - personal selling Promote the brand (rather than product awareness) Reinforce the ‘message’ to: - encourage regular repurchase - build loyalty Possibly withdraw promotions or target specific niches Lower price prevents excessive erosion of demand Place Resign yourself to narrow distribution strategy Build the foothold by moving some promotional activity to the channel Key focus on distribution to establish foothold prior to ‘maturity’ Distribution according to pricing strategy Profits peak and start to decline Losses as advertising can exceed revenues Product becomes profitable Profits Price Skimming or penetration Continue existing strategy Price reductions frequent though not necessarily advisable Firm emphasis on cost control to prevent huge fall in profits
  67. 67. Reasons to Understand Marketing 1. Ultimately your research/ new product is to benefit the customer/public (widely defined). Why else are you doing it? 2. Allows you to understand who the customer is and what elements of the product/ research they value 3. If other areas within the organisation can think like marketing (and vice versa) it reduces cultural conflict