Marketing Lecture Revised

Marketing

Structure of Lecture 1. Importance of marketing to NPD 2. Strategic marketing frameworks 3. Marketing launch tools: 4Ps

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

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

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

Marketing Mix: The 4 Ps Place Promotion Product Price The Marketing Mix

Product
Definition
PLC
Physical products versus services
Place Promotion Price The Marketing Mix Product

Consistency in Marketing Mix Premium Product (e.g. Jermyn St shirt) Premium Price (+30% over average) Premium Place (narrow distribution) Premium Promotion (selective advertising)

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

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

Marketing’s Definition of the Product Any want - satisfying good or service that is considered together with its perceived tangible and intangible benefits

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

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

SWOT Analysis SWOT Strengths Weaknesses Opportunities Threats Internal External

BCG Growth Share Matrix ? High Dog Cash Cow Low Market Growth Rate Low High Relative Market Share Star 1x 10x 0.1x 10% 0%

Product Life Cycle

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

Characteristics of “Growth” Phase of PLC 1. More competitors 2. Less product distinctiveness 3. Profitable returns 4. Company or product acquisition by larger companies

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

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

PLC example: audio cassette tapes

Product Life Cycle Traditional With Variations Introduction Growth Maturity Decline Time Sales Growth, Slump, Maturity Cycle recycle Scalloped Fashion Fad Cycle I Cycle II

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

Strategic marketing -summary
Strategic marketing is critical to NPD both prior to embarking on a new project and as an ongoing process, eg
SWOT analysis
BCG growth share matrix
Product life cycle
(PS Some of these can be quite useful outside the NPD process too!)

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

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

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

Price
Importance of Price
Influences on Price
Pricing Strategy
Place Promotion Product Price The Marketing Mix

Importance of price-theory S D p q Price Quantity

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

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

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

Inputs to Pricing Decisions
Demand
Costs
Other factors
- company and marketing objectives
- competition/ market structure
- legal/ social constraints

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

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

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

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

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

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

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

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

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

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

Promotion
Types of Promotion
Effects
Promotion
strategy

Promotion (Marketing Communication)Types: Sales Promotion Direct Marketing Public Relations Salesforce Advertising

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

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

Effect of Sales Promotion on Brand Share 6% 10% 5% 7% Preparation period Promotion period Immediate post-promotion Long-term post-promotion

Direct Marketing Targeting customer directly without an intermediary Examples of Methods Phone Internet Letters Catalogues Direct response radio Direct response TV Loyalty cards

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

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

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

Advertising Objectives Increases sales and profits through: - Building awareness - Building comprehension - Reminding - Generating leads - Legitimising - Reassuring

Stages in the Adoption Process Awareness Interest Evaluation Trial Adoption Source: K p342

Adopter Categorisation

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

Innovation adoption - examples
INNOVATOR
Blu-ray
EARLY ADOPTER
Mobile TV, (Sky service to deliver broadcasts to mobile phones), video i-pod
EARLY MAJORITY
HDTV, Skype, Podcasting; Sky + / PVRs

LATE MAJORITY
i-Pod; Broadband
LAGGARDS
DVD players, internet shopping, online banking VHS; mobile phones

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

Advertising Types - Subliminal - Subtle - Direct - “Knocking copy” Characteristics - Public presentation - Pervasive - Amplified - Impersonal

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

Place
Types of channel
Value of channel
Choice of channel

Place Channels Coverage Location Inventory Transport

What do Distribution Channels Do? - Provide information - Promote - Negotiable - Take orders - Hold inventory - Take risk - Assume title - Distribute to final customer

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

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

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

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

Marketing Lecture Revised

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