RSM251 All Article Summaries

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University of Toronto St. George
Rotman Commerce
Claire I.Tsai

Market Strategy – An Overview  Strategy is a plan of action designed to achieve certain defined goals developed at multiple levels [corporate, divisional, business units, departmental] (ex. Sales volume, rate of growth, profit percentages, market share, and return on investment) Elements of Marketing Strategy  Marketing strategy is composed of several interrelated elements  Marketing strategy compose of several interrelated elements: product/market selection, price, distribution, marketing communication, model for strategic planning  Product services = programs products that need repair and maintenance  Technical service = ongoing buyer/seller relationship  Consumer Packaged goods  manufactures advertise extensively to move their products through distribution channels and off supermarket shelves  Private Brand labels  sell same products at much lower prices under their own private brand labels, with little or no advertising  Marketing Mix: product/market selection, pricing, distribution, and market communications Product/market Selection  Product is the total package of attributes the customer obtains when making a purchase  Product benefits might include what product does, warranties, repair services, technical assistance, brand name [in plied quality, reliability, assurance on ongoing product availability]  Product meaning must be defined in terms of the full range of benefits, risk and disadvantages the buyer obtains with purchase and use, including buying experience  Perceived value = customer’s existing perception of the product  Potential value = is accomplished through market communications Market Segmentation = a set of potential customers alike in the way they perceive and value of product, in their buying behaviour, and in the way they use the product  Demography [family income, age, sex, ethnicity, educational background as explanatory variable for difference in taste, buying behaviour, consumption pattern] o Industrial markets, the size of the enterprise, its nature and type of industry are demographic variables, tend to explain patterns of buying behaviour  Geography [ market potential, competitive intensity, product-form preferences, government trade regulations, economical shipping distance]  Psychographic variables o Significant differences in product wants and responsiveness to different buying influences as to comprise different market segments the segmentation variable in industrial sectors might be corporate culture o Some firms focus intensely on price factors in making purchasing choices while others give priority to developing long-term relations with suppliers based on technical and service contributions o Consumer lifestyle: attitudes toward self, work, family, per-group identity o Corporate culture: tolerance for risk-taking, buyer/supplier relationship values  Product Application & Use o Way industrial purchasers use the product and how it fits into their processes and systems may provide the basis for market segmentation o Consumer: purchase purpose o Industrial: application technology 1 | P a g e o One consumer may exhibit different purchasing behaviour in buying comparable products if they are intended for different purpose o Market segmentation scheme appropriate at one stage in the development of a market may become obsolete with market growth and maturation Product/Market Selection Criteria  Product value = segments that value the product most highly, “digging where the dirt is softest” (where product is most highly valued)  Long-run growth potential  market size and profit potential is key  Resources Commitments  Company-product/market fit  new product/market opportunities need to be assessed in the context of existing business operations  In the race to take segment positions, the advantage often lies with the first-mover, the one to get there first, where it has one to develop market recognition, gain access, lead technology, end-product development, and achieve scale economies The Art of Pricing 1. Supply/Demand o Extent of supply relative to demand for a product or service is the most basic determinant of price o Major players will try to influence total supply relative to demand through lobbying government for trade restrictions, closing country’s borders to foreign producers, pressure government o Another way to control supply is by acquiring all sources of supply or forming cartels o Competition signalling can serve, as well, to discourage other companies from building new production capacity 2. Cost Factors o Cost set the floor o Relative levels of fixed and variable costs also affect pricing strategy o Fixed costs as depreciation, R&D, sales volume becomes an important strategic objective in order to spread fixed charges over as many units as possible o Any income represents a contribution to their high overheads o If variable costs are relatively high of the total, maximizing unit margins is critical to profitability o Low-cost producers have substantial competitive edge, not only does low cost mean high profits but survival in price warfare o Efficient manufacturing and distribution processes and the realization of scale economies are often the foundation for market success 3. Competition o If cost factors ultimately set the floor for prices, competition establishes the ceiling o Competitive milieu varies, however, by geographic area and often by stages of market development o Firms may legally respond to competitive price pressures in 3 ways:  [1] by differentiating their product  yields some degrees of freedom in pricing against competitive offerings, translatable into price premiums  [2] attempting to dampen intrabrand competition among their resellers  puts pressure on price levels, generates interbrand competition and market price decline, I. More intense intrabrand competition if number of reseller sin an area is relatively high 2 | P a g e II. Strong field sales forces working with resellers may also monitor resale prices and discourage price cutting III. Field sales personnel have strength in their relations with resellers, firm’s product line represents a significant source of reseller revenue and enjoys strong en-user demand  [3] excising price leadership I. Mantle of price leadership typically falls on the industry’s largest firm, respected for its leading-edge technology, strong distribution, low production cost, seek to set price levels in response to change in demand/supply, product cost factors, perhaps intensification of competition II. Pricing in any industry usually characterized by conscious parallelism, follows market leader 4. Buyer Bargaining Power o Buyers have strength to extent *1+ they account for significant portion of the seller’s sales, [2] have multiple options for meeting their procurement needs o Buyers are in strong negotiating positions, multiple supply sources competing for their business and/or if self-manufacture is an option o Seller’s willingness to offer price reductions rather than lose sales volume o Sellers have negotiating strength to the extent that they offer differentiated products o Switching costs may include obsoleting inventories, reengineering manufactured parts, establishing new personal working relationship 5. Product Value o “ The worth of a thing is the price it will bring o In case of physical good, sellers may attempt, and often successfully, to implement differentiated price strategies through cosmetic difference in the product o In long run, successful price differentiation by market segment has to be based on functional product differentiation o ex. Heavy-duty detergent, the product line might include cleaners of different strengths for different purposes o risk in any differentiation strategy, however low-priced products sold in one market will make their way across segments into markets where higher prices would normally prevail (black market phenomenon) o Skimming  price high to reach those segments for which the product has the greatest value, then bring price down over time to tap other product of demand (ex. Books, computers, etc)  largely used to maximize unit profits in the early stages, gain market experience at low market volume levels, recoup heavy product development costs o Penetration  price low to achieve high market share before competitors can react  Pre-empts competition and allows the firm to gain learning curve, achieve scales economies, market to create demand  Scarifies potential profit  Highly risky strategy, these conditions need to be met: I. Product must be free of any defects that might create consumer dissatisfaction and incur large costs for repair, recall, or retrofitting II. Production capacity must b in place to satisfy anticipated demand III. Distribution channels must be available for reaching potential buyers 3 | P a g e IV. Product adoption does not require long testing periods by potential customers; lags between product introduction and general market acceptance would give competitors time to react o Factors Affecting Firm Price Levels Price Depressors Price Lifters Excess supply relative to demand Controlled Supply Intense brand competition High Product Value Intrabrand competition Product Differentiation High buyer bargaining power High buyer dependency on supplier Penetration Pricing Skimming Black Markets Effective price leadership Channels of Distribution  Distribution system include firm’s personal salesforce, wholesale distributors and retail outlets  Structuring sales channels options: [1] whether the business will sell through a field salesforce direct to its users-customers or rely largely on middlemen [2] if the latter, what kinds of resellers will be needed to reach the firm’s market, *3+ will they be recruited selectively or intensively in any given geographic area Elements in the Distribution System  Primary components: direct sales reps, sales agents, distributors, retail dealers  Direct sales reps  economical, effective in serving accounts that buy in large quantities and need extensive product service, technical support and product customisation  Sales agents are independent operators who generally carry the lines of several suppliers, on commission, represent a variable cots  Agents are channel choice if the firm does not have resources to support in-house sales organization  Distributors buy form many suppliers and have wide product lines, customer who purchase relatively small amount of a number of different items  Distributors are independent business operating as single outlet or chain  Captive branches of a parent organization set up often as vehicles of moving the output of business units in some parent organization buy carry the lines of outside suppliers as well  Ex. Pharmacies, restaurants, gas stations, comprise a vast infrastructure supplying end products and services to both consumers an business buyers  Independent chains ex. Wallmart  Some retail outlets are often franchised o Cost Factors  firms supply sources and resale outlets cutting distribution costs is a high priority b/c any saving goes to bottom line o Channel support  successful distribution depends on efficient channel members  Working with intermediaries: [1] its products are stocked and available at the resale level, [2] resellers actively display, advertise, and promote the product to end-customers  [3] resale price and margins do not deteriorate  Suppliers’’ interest in preserving resale b/c sustaining reseller interest in marketing the product  Intense intrabrand price competition at the resale level, sales volume will increase for aggressive price cutters, leads to waves of interbrand price competition o Selective rather than intensive distribution 4 | P a g e o Superior product line breath and quality o High degree of supplier/reseller interdependency o Supplier sales force presence at the resale level o End-market demand development (push vs. pull strategy) o Pressures for Change Market Communication  Ex. Print media, television, direct mail, telemarketing, trade shows point-of-sale displays, personal sales force, third-party influences  Repeat purchase or new buy decision  awareness of need, search for info, identification of options, source qualification and short listing, selection, post purchase affirmation  Point for marketers is that the communication vehicles needed to influence purchasing decision are likely to be different at different decisions-making stages  Decision making unit different and complete depending on structure of family  Buying influences will shape the market communication strategy  Comparing different communication tools ex. Media Advertising Personal Selling  Provide product and price info  Identify prospective customer  Inform prospective purchases where to  Develop solutions tailored to buyer buy needs  Suggest product-sue ideas  Deal with customer problems such as late deliveries, product failure, and the  Establish brand and package familiarity to facilitate product identification at the need for technical assistance point-of-sale  Provide market feedback on product  Identify the brand with its target market performance, user demand, competitive segment activity  Develop reseller interest and brand support Personal selling is usually preferable to media advertising when relevant information is difficult to communicate through mass media, or when the number of prospective buyers is too few to justify the cost of media advertising  Push vs pull strategies o Product line through hits distribution channels, or offer resellers extensive incentives to promote, such incentives would usually include higher dealer margins, sales aids, cooperative advertising, sales contest o Pull elements in marketing programs are effective if the brand name is meaningful to the buyer and if product benefits can be effectively communicated through mass media o Push elements are needed in a marketing strategy if the way the product is presented at the point-of-sale is important, if sales clerks’ recommendations are meaningful to buyers and if buyers count on resellers after sale service A Model for Strategic Planning  Screening opportunities developing strategies for new product/market ventures and for reviewing and reformulating existing strategies  Corporate goals  firms objectives establish direction and goals for strategic planning at the business unit level, corporate growth and maximization for stockholder value, firms’ strong interest in maintaining employment, providing a safe work environment, serving national interest business unit strengths and weakness 5 | P a g e  External environment  exogenous factors which create a favourable climate for business growth, yield new product/market opportunities  Business unit strength and weaknesses  assessment of SBU’s core competencies  Product/Market Opportunities  arise out of exogenous factors ranging new technology to income growth to shifts in fashion preference  Market Analysis  market segmentation, more attractive segments screened for market potential, competitive intensity, regulatory conditions, essential to understand customer needs/wants  Economic and Risk Analysis  quantify potential revenues and profits and to assess market risk, break-even analysis, contingency analysis, impact analysis  Ethics analysis  misleading advertising, bait-and-switch  Product/Market Strategies  assess feasibility and fit and given limited resources, prioritize new opportunities in terms of long-term revenue and profit potential Perceptual Mapping: A Manager’s Guide  Used for product positioning & market structure  positioning brands against one another  2 assumptions in using the map: [1]1 potential customers use these same 2 dimensions in differentiating brands, [2] placement of a brand on the 2 dimensions reflects the belief of customers  If reliable representation of view of customers then can illuminate discussion in target market selection, product design, product communications strategy 6 | P a g e Developing the Map  Determine 2 most important differentiating characteristics, rate each product on these characteristics  2 major alternatives for constructing map, differing in what is asked of consumers: [1] attribute rating method (AR), [2] overall similarity (OS) o AR method is similar but instead are presented a full list of possible relevant attributes and rate each one o Data collection phase of AR Approach is called “Data Cube”  finds the two axes for the perceptual map o AR hard for categories driven by: tastes, odors, or aesthetics o OS method produces similar map to AR o OS ask respondent to make judgement about the overall similarity of pairs of items o For ‘n’ items, require respondent to rank the *(n)(n-1)]/2 o OS method allows us not only to map products but also infer the attributes used by the respondents in making distinctions  Comparison of AR & OS Methods AR OS Input Data  Brand ratings on attributes  Overall similarity ranking  Attributes prespecified by  Definition of similarity left to analyst respondent Statistical  Factor analysis  Multidimensional scaling Technique  Multiple discriminant analysis (special-purpose software required; however, efficient packages available at low cost) Output  Product positions on axes  Relative product positions; defined as combinations of axes must be interpreted by original variables analyst Best Suited For  Applications with hard  Categories dominated by not attributes which can be easily articulated attributes verbalized o Major difference is input data required o OS require specialized software, number of packages are available at no great cost o OS is inappropriate for applications with less than 8 brands to be mapped o Both should be viewed as complements rather than substitutes Applying the Maps in New Product Development  3 major ways in which perceptual maps are used in the new product development process: 1) To obtain a better understanding of market structure  At idea generation stage of new product  [1] Useful stimulus to find opportunities  “holes” may represent niches of market which current competitors have overlooked or could be developed  [2] Indicate vulnerability of competitors 2) To test where a new product being considered for introduction would be perceived  Once idea selected moves to concept development & testing  ASSESSOR pretest market system regularly uses perceptual mapping to provide diagnostic information to complement its prediction of the market share a proposed new product would attain 7 | P a g e  Provide answers to the advisability of the strategy 3) To provide direction to R&D efforts to satisfy the wants of consumer better  Require formal representation of the “ideal point” of a customer  Figure out if attributes are just ‘more’ not ‘better’ Major Sales – Who Really Does the Buying?  Sales fail: sellers don’t identify the real decisions makers in big-purchases – which often include people with no formal authority, sellers also don’t tailor their presentations to appeal to decision makers’ motivation (appeal to human side of buying) o [Example] purchasers of software were judged on performance based on the amount deducted from price during negotiation not lowest net price  Identify the most powerful buyers, look for high status individuals who: o Receive the most attention and information from others in the organization o Are disliked by those with less power o Send others to critical negotiations instead of attending themselves  Motivations: o Financial, product-or-service related, social/political, personal Getting at the Human Factors  Get higher % complete sales when aware and attentive to human factors in purchasing  Customer look for best deal & company that understand their need  Effective selling requires usefully combining the individual and group dynamics of buying to predict Who’s in the Buying Centre?  Initiator = recognizes that some company problem can be solved or avoided by acquiring a product or service  Gatekeepers = have the title of buyer or purchasing manager usually acts as problem or product expert, may provide an approved vendor list  Influencer = who have a say in whether a purchase is made and about what is bought  Deciders = those who say yes or no to the contemplated purchase, usually senior managers o Usually will contain a ‘champion or advocate’ of the contemplated purchase and move it to competition  Purchaser and user = are those concerned, respectively, with obtaining and consuming the product or service  Typical capital equipment purchases requires 4 departments, 3 levels of management hierarchy, and 7 different people fill the 6 buying roles Who are the Powerful Buyers? – Bases of Power Type of Power Champion Veto Reward = refers to a manger’s ability to encourage purchase by X providing others with monetary, social, political, psychological benefits Coercive = refers to a mangers ability to impose punishment on X others Attraction = refers to a person’s ability to charm or otherwise X X persuade people to go along with his or her preferences Expert = refers to the ability of mangers to get others to go along X with his/her judgement b/c or real or perceived expertise 8 | P a g e Status = comes from having a high position in the corporation (most X restricted)  Difference between reward or coercive 1) Major influence activity of those positions of corporate author is persuasion, not punishment or reward 2) High-status manager can exercise his or her status repeatedly only because subordinates allow  Key to improved selling effectiveness is in observation and investigation to understand prospects’ corporate power culture, sales team must also learn the type of power key managers in the buying company have or aspire to  Discounts or offers of price reductions may not be especially meaningful to a young person  Status and expert power are more often employed by their holders to veto decision with which they do not agree Six Behavioural Clues 1) Through power and formal authority often go together, the correlation
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