5/27/2015

MARKETING
STRATEGY
Ashish Sood
ISB Term 1 2015

Recipes against boredom

The Swiss Potato Board

Agenda
Structuring a Case Analysis
Course Review: Sessions 1-9 + Final Exam
Unilever
Course feedback
Farewell

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STRUCTURING A CASE
ANALYSIS

Structuring a Case Analysis:

Suggested Steps
1. Identify the Problem
2. Analyze the Problem in Pieces
3. Identify and Evaluate Alternatives
4. Recommendations
5. Plan of Action

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Structuring a Case Analysis

1. Identify the Problem
Q: What is the objective? What do you want to
accomplish?
Threat (e.g.. trend, competitor, shift in ..)? Opportunity?
Lurking Difficulty?
Distinguish between problems and symptoms of
problems
Low sales vs. bad pricing
Customer dissatisfaction vs. competitive disadvantage

Structuring a Case Analysis

2. Analyze the Problem in Pieces
Q: What are the subject matter (accounting or finance or
human resources or marketing or strategy) issues which
have a bearing on the problem posed in the problem
statement?
sort out relevant from peripheral information
distinguish between fact and opinion

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Structuring a Case Analysis

3a. Identifying Alternatives
Q: Based on your analysis of the issues, what
alternatives are open to solve the problem?
List all feasible alternatives including taking no action
(maintaining the status quo)

3b. Evaluating Alternatives

Q: What are the pros and cons of each alternative?
- Draw on course concepts

Structuring a Case Analysis

4. Recommendations
Q: What alternative should be chosen to solve the
problem based on your analysis of the issues?
Q: Why is the chosen one best?
Make a decision! Choose a side
Draw on course concepts for justification

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Structuring a Case Analysis

5. Plan of Action
Q: What should be the course of action, given the
alternative chosen?
Q: What are the hurdles in getting there?
constraints?
contingencies?

Some Hints

Dont confuse symptoms with causes.

The data in the case represent the information available
to the decision maker. Step into his/her shoes (and
avoid hindsight).
Back up qualitative arguments with hard data and
analyses wherever possible.
Alternatives have both pros and cons. Recognize both
(others will).

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Preparing a Case
Read once quickly.
Review all tables / figures
Read again for detail. Identify the problem.

Develop the issues.

Develop a set of recommendations and plan of
action.
Meet with your study group to compare your
recommendations with others.
Refine.

What is Marketing?
In essence, marketing is the process by which the
firm
1. Assesses the advantages of different perceptual

positions
2. Selects an optimal position for its business
3. Acquires the selected position
4. Maintains the acquired position

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What is Marketing?

Strategic Marketing Process

Customer

Company

Market
Segmentation

Competitor

Collaborators

Target Market
Selection

Product
&
Service

Place\C
hannels

Promoti
on

Context

Product and
Service Positioning

Pricing

Customer Acquisition
Customer Retention
Profits

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Value Proposition
The promise that differentiates us in the market place

Sustainable Competitive Advantage

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How to create a strong value proposition?

Points-of-Parity: Shared brand associations
Points-of-Difference: Unique brand associations

Point of parity needed

to neutralize competition

mandatory for a brand to be

considered a legitimate competitor in
its specific category

Point of differentiation
needed to stand out

attributes that make your brand

unique

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What determines good Segmentation?

How a firm partitions its market into sub-markets (segments)
such that the response to the marketing mix varies
greatly among segments
little within segments
Effective Segmentation
Do Not Own
Microwave

20%

Ineffective Segmentation

Own
Microwave

Low Education

80%

Likelihood of buying frozen dinner

High Education

30% 40%

Likelihood of buying frozen dinner

How STP Creates Value

Segmentation
Identify segments

Targeting
Select segments

Positioning
Create competitive
advantage

Marketing resources are focused to better meet

customers needs and deliver more value to them
Customers develop preference for brands that better
meet their needs and deliver more value
Customers become brand/supplier loyal, repeat
purchase, communicate favorable experiences
Brand/supplier loyalty leads to increased market share
and creates a barrier to competition
Fewer marketing resources needed over time to
maintain share due to brand or supplier loyalty
Profitability (value to the firm) increases

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Evaluate Segment Attractiveness

Criterion

Examples of Considerations

I. Size and Growth

1. Size
2. Growth

Market potential, current market penetration

Past growth forecasts of technology change

II. Structural Characteristics

3. Competition
Barriers to entry, barriers to exit, position of
competitors, ability to retaliate
4. Segment saturation
Gaps in the market
5. Protectability
Patentability of products, barriers to entry
6. Environmental risk
Economic, political, and technological change
III. Product-Market Fit
7. Fit
8. Relationships with
segments
9. Profitability

Coherence with companys strengths and image

Synergy, cost interactions, image transfers,
cannibalization
Entry costs, margin levels, return on investment

Profitable

Segment profitability =
(Segment Size X Segment Adoption % X Purchase Behavior X Profit Margin %) Fixed Costs

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Evaluate Segment Attractiveness

Segmentation, Targeting & Positioning

Segmentation
Growth %

Targeting
Growth %

D
Revenue $

Who are consumers?

How do they act?
What do they want?

Positioning
Growth %

A
D

Revenue $

Largest market?
Fastest growing?
Most profitable?

Revenue $

How to differentiate?
Feature, benefits?
Brand promise?

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Perceptual Map
Spatial representation of brands
Highlights similarities and differences among competing

brands
Reflects the position of each brand in the mind of the
consumer

Positioning: Perceptual Maps

Pain Reliever

high Strength

Gentleness
high

low

low

Perceptual maps are a tool to view competitive landscape and find white spaces.

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Response Hierarchy Models

Awareness

Attention

Beliefs

Interest

Attitude
(Liking)

Desire

Share of Heart

Behavior

Action

Share of Market

Share of Mind

Adoption of New Products

Knowledge

Person becomes aware of an innovation and

Persuasion

Person forms a favorable or unfavorable

has some idea of how it functions

attitude toward the innovation
Person engages in activities that lead to a

Decision

choice to adopt or reject the innovation

Implementation

Person puts an innovation into use

Confirmation

Person evaluates the results of an

innovation-decision already made

Time

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Characteristics of Adopters
Innovators
venturesome, techies, multiple info sources

Early adopters
social leaders, popular, educated

Early majority
deliberate, many informal social contacts

Late majority
skeptical, traditional, lower socio-economic status

Laggards
neighbors and friends are main info sources, fear of debt

MARKET PIONEERING
How important is it to be the first?

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Benefits of Pioneering
Brand loyalty
Pioneers shape consumers tastes, leading to enduring preferences;

Inertia
Switching cost, Learning time, habit formation, low involvement products

Learning
~ develop standards based on pioneer product and use as reference

Experience curves
Higher cost and learning curves benefits spread over a longer time

Technological leadership
Enables firm to have consistently better products than competitors, Patents

Resource mobilization
Best suppliers, supplies, distributors & preempt scarce assets

Dangers of Pioneering
Free rider effects
Late entrant acquires same technology at lower cost

Shifts in technology
Late entrant benefits from imp. in technology e.g. Sony vs. Ampex

Improper positioning
If ideal point becomes evident only after product is widely available e.g.

netbooks, e-books
Changing resource requirements
If change in required competencies is too fast for firm to absorb

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Combined effects of Market and Technological

Change

Ref: Suarez and Lanzolla 2005

Summary

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Summary

Rogers Diffusion of Innovations Model

Relative advantage
over existing technologies - can be perceived, may be measured in economic

terms, social prestige, convenience and satisfaction.

Compatibility
with existing values, past experiences, needs of potential adopters (and their

social system)
Complexity
degree to which an innovation is perceived as difficult to understand and use

Trial-ability
degree to which an innovation may be experimented with on a limited basis. A

trialable innovation represented less uncertainty to a potential adopter.

Observable benefits
degree to which the results of an innovation are visible to others.

Source: Diffusion of innovations, By Everett M. Rogers

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Functions of a Distribution Channel

Transactional Functions (buyer management)
contacting and communicating with perspective

customers
contract or sale negotiation
account management
Logistical Functions (product management)
assortment building
physical distribution (transportation, inventory)
Facilitating Functions (market management)
research and information gathering
extending credit

1. Conventional Channel
Manufacturer

Retailer

Double Marginalization
Problem
Markup on cost of production
to set wholesale price
Markup on Wholesale
price to set retail price

Customer

Customer

Customer

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2. Common Agent Channel

Upstream Conflicts
Manufacturer A

Manufacturer B

Retailer

Customer

Customer

Customer

3. Dual (Multiple) Channels

Manufacturer

Manufacturer

Direct or
Internet

Retailer 1

Customer

Customer

Customer

Retailer 1

Customer

Retailer 2

Customer

Customer

Conflicts among parallel channels

Minimum retail price maintenance (RPM)

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Push Tools vs.

Push
Deals- Allowances, Price-offs and

Discounts
Dealer Premiums
Samples and Free Goods
Buy-Back Guarantees
Point of Purchase Displays
Cooperative Advertising
Free Advertising Materials
Dealer Meetings and Contests

Pull Supply Chain

Pull
Sampling---in-store, events,

newspaper, in-pack
Cents Off Promotions and

Coupons (-2%)
Loyalty Programs
Point of Purchase Displays
Contests, Games and

Sweepstakes
Rebates and Cash refunds
Advertising Specialty Items
Brand building activities

The 5 Cs of Pricing

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1st C: Company Objectives

2nd C: Customers
Look for Variations in the way Customers Value the
Product

Price Sensitivity Analysis

%% qp qp

p
q

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Elasticity, Total Revenue and Linear Demand

P
100

TR
Unit elastic

Elastic
Unit elastic

80

1200

60
Inelastic

40

800

20

10

20

30

40

50

10

20

Elastic

30

40

50 Q

Inelastic

Demand, Marginal Revenue (MR) and Elasticity

When

P
100

MR > 0, demand is elastic;

MR = 0, demand is unit

Elastic

elastic;

Unit elastic

80

MR < 0, demand is inelastic.

60

Elastic

Inelastic

40

total revenue.

20

Increasing price decreases

Inelastic
Increasing price increases
total revenue.

10

20

40
MR

50

Q
Unitary
At this price, total revenue is
maximized

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3rd C: Costs

Break-even Analysis
Helps answer a number of rudimentary questions:
I.
II.
III.
IV.

Should I be in business?
What are the effects of projected sales increases and
decreases on profitability?
What price should I charge?
How do budget changes affect profitability?

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Concepts to Remember
Total variable cost = VC x Q
Total cost = FC + VC
Total revenue = P x Q
Total contribution = (P - VC) x Q
Unit contribution or contribution margin

UC or CM = (P - VC)
Break-even volume = FC/UC or FC/CM
Total profit = TR - TC

Breakeven Analysis
Recovering Fixed Costs

Changes in Fixed Cost

Changes in Margin per Unit

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4th C: Competition

5th C: Channel Members

Manufacturers,

wholesalers and retailers

can have different
perspectives on pricing
strategies
Manufactures must
protect against gray
market transactions

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Building a brand

Strong Brands
Deliver on promise
- Thus, strong reputation

Holistic
- Consistently defined and expressed
- Inspire employees and customers

Deliver value for company and customers

- Clear and multifaceted value proposition

Distinctly positioned in the consumers mind and in market

Value for company
Value for customers

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House of Brands

Branded House

What is Customer Lifetime Value

(CLV aka LTV)?
Net present value of all future streams of profits that a
customer generates over the life of his/her business with
the firm

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Sources of Customer Value

Psychological

Economic

Functional

Value of Tennis Club Member

You own a tennis club where the annual membership fee
is $300. The average club member spends about $100
dollars a year at the club (in balls, drinks, snacks, etc.).
The annual cost of these miscellaneous goods (the balls,
drinks, snacks, etc.) to you is $40 per player. On average
people who join a tennis club have a playing career of 7
years. Historically, 65% of the members in a given year
rejoin the following year. Investing capital at the going
rate would earn a return of 8% a year.
Based on this information, what is the long-term value of a
customer?

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LTV Calculations
Expected
profit

Expected
discounted
profit

Annual profit

Retention
Probability

Discount
factor

Assumptions

Constant

r = .65

Year (t)

(B)

(C)

(D) = (B) x (C)

(E)

(F) = (D) x (E)

360

1.00

360.00

1.00

360.00

360

0.65

234.00

0.93

216.67

360

0.42

152.10

0.86

130.40

360

0.27

98.87

0.79

78.48

360

0.18

64.26

0.74

47.23

360

0.12

41.77

0.68

28.43

360

0.08

27.15

0.63

17.11

d = .08

1/(1+d)t
What should be the marketing strategy
once you know this?

LTV =

360 + 518.32

Profit and Defection Patterns

Credit Card Industry
120

Profit Pattern

120
100

66

70

96

99

75

Annual Profit

60
42
40
20
0
0

Defection Pattern

100

105

100
Accounts Remaining

86

80

92

82
76

80

70

66
60

60

56
47
40

40

34

20

-20
0

-40
-40
-60

CLV

0
Customer Tenure

Customer Tenure

($42) * (.82) ($66) * (.76)

(m)(r ) (m)(r 2 )

...

.... AC
(1 0.1)
(1 0.1) 2
(1 i ) (1 i ) 2

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Measuring Customer Value

Lifetime value of a customer assuming constant margin, constant retention rate
and infinite horizon:

r
LV m
AC
1 i r
m = margin (revenue cost)
i = discount rate
r = retention rate
AC = acquisition cost
Relaxing assumptions:
Margin

m1

m2

m3

mt

Retention

r1

r1r2

r1r2r3

r1r2r3rt

Number of Customers

n1

n2

n3

nt

AC1

AC2

AC3

AC t

1/(1+i)

1/(1+i)2

1/(1+i)3

1/(1+i)t

Acquisition Cost
Discount

Margin

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Drivers of Profit

Effects of Advertising
Single Exposure
Instantaneous
Carryover
Short
Long

Hysterisis (persistent)
Sleeper

Campaign Effect: how peak effect of

each exposure varies with repetition
Wearin: increasing response with
repetition (buildup)
Wearout: decreasing response with
repetition
Hysterisis: non-decline in response
even if campaign is stopped

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Why Ads May Not Work

High noise levels: ads not even heard

Consumers intentionally screen out ads
Rivals quickly imitate effective appeals, strategies
Competitive ads cancel out
Mature markets consumers well aware of competitive
brands, availability, and prices
Little testing by managers

Why Firms Persist with Ineffective Ads

Lack of testing
Prisoners dilemma at least perceived
Role of agencies
Budgeting process
Indirect effects:
Signal retailers
Motivate field staff
Belief in price support

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Advertising is sometimes powerful!

Many strive, few succeed essence of free

market
Novelty is key
New product
New creative
New segment
New medium
New position

Right appeal for segment, product, context

Testing is essential

Final Exam
Content
Short case analysis similar to those discussed in class
The exam will have qualitative (short answer type) and
quantitative (numerical) questions.
Go through all the handouts (given in class)
No need to remember specific case data

68

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Our paths may cross again

Keep in touch
a1sood@gmail.com
www.ashishsood.net

Good Luck!

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