Introductory Material370

PRINCIPLES OF MARKETING
Introduction
Washington University Olin Business School
James Sawhill
AGENDA
• Review Syllabus
• Introduce Marketing –
part Math part Magic!
MKT 370 f2017 (sawhill)

YOU WILL LEARN A LOT ABOUT MARKETING…
• Create a product/brand positioning and value proposition.

• Develop programs to sustain and build brand equity.
• Develop effective customer segmentation approaches and strategies.
• Chose and manage target customer segments.
• Gain familiarity with market research techniques.
• Understand the basic psychological principles that underlie consumer behavior.
• Understand the key differences between marketing to consumers versus marketing to businesses.
• Differentiate products from their competitors.
• Develop, manage and extend product lines.
• Employ alternative pricing strategies and approaches.
• Select and utilize distribution channels in bringing products to market.
• Develop integrated marketing communication plans.
• Analyze the financial impact of marketing programs and justify marketing program expenditures.

REQUIREMENTS
• Midterm and Final Exams
• Group Assignments
• Positioning Statement
• Branding Strategy
• Marketing Simulation
• Individual Case Assignments (4)
• Problem Set
• Class Attendance and Participation
• Research Participation
• Interim Feedback

GRADING WEIGHTS
Case Assignments 20%

Final Exam 25%
Midterm Exam 20%
Positioning Statement Assignment 4%
Branding Assignment 9%
BrandPro Assignment 9%
Individual Case Assignments 20%
Problem Set 5%
Class Participation 2%
Class Attendance 2%
Research Participation 3%
Interim Course Evaluation 1%

PAST GRADE DISTRIBUTION
A+ 1.0%
More than A 22.3% Almost 50%!!
75%!! A- 25.4%
B+ 30.0%
B 10.3%
B- and below 13.0%

GRADING GROUNDRULES
LATE ASSIGNMENTS
• Assignments are to be submitted to Canvas no later than 10:00am on the day they are due.
• Late assignments will not be accepted.
ATTENDANCE
• You may miss 2 classes during the semester for any reason.
• Late arrival, texting, or leaving in the middle of class counts as ½ of a missed class.
• Two missed class are allowed because people get sick. Don’t miss two classes in the
beginning of the semester to attend a wedding and expect to be excused for to go home
early for Thanksgiving.
• Attendance grading
– 0-2 Absences 2
– 3-4 Absences 1
– >4 Absences 0

GRADING GROUNDRULES
RE-GRADING OF ASSIGNMENTS
• Please point out arithmetic errors in tabulating grades; they will be corrected.
• If you feel that an assignment or answer has been misunderstood, you may request a re-
grade in writing no later than 72 hours after the assignment was returned. Please place your
request in Professor Sawhill’s mailbox in Knight Hall 455.
• If you request a re-grade, your entire assignment or exam will be re-graded by Professor
Sawhill.
• Re-grading can result in a decrease in your grade.
• Re-grading decisions are final and are not subject to debate.

GROUPS
• Please form groups now!
• Please use Canvas to get yourself assigned to the right group.
• All group members will receive the same grade for group
assignments.
• Each group member will provide feedback on the other

group members contribution at the end of the semester.
• Group feedback can increase or decrease your overall

course grade by a maximum of 3%.

GROUP ASSIGNMENTS
• Three group assignments

• Positioning Statement
• Branding Strategy
• Marketing Simulation
• Each assignment will require you to put together presentation

slides which you may be called upon to present in class.
• All slides should be created as a Google Doc. Access should

be provided to james.sawhill@gmail.com.

I LOVE TALKING TO STUDENTS!
• Office Hours:
• Tuesday 3-5pm
• Friday 2-4pm
• Sunday Noon-1:30pm
• Please email me if you would like to set up another time.
• I will conduct review sessions for each of the four case

assignments and the problem set.

COURSE DOG
Mollie the Corgi. You will learn that Mollie is a brand element.
Mollie may attend class when we have guest speaker from

Purina on November 20th.
If you are allergic to dogs or have a fear of dogs, please

email Professor Sawhill and Mollie will not come to class.

WHY IS MARKETING IMPORTANT
FOR YOU:
• Marketing concepts can be applied to market yourself regardless of your

goals throughout your career.
• Marketing and sales are the most common way to the top.
S&P 500 CEOS come from:

FUNCTION % of S&P 500 CEOs
Marketing/Sales 42%
Finance 27%
Operations 26%
Other 6%
MKT 370 f2017 (sawhill) Source: Spencer Stuart
MARKETING IS THE WINDOW TO THE CUSTOMER FOR THE ORGANIZATION
Primary Functions
Operations Marketing
Manufacturing Sales Customers
Logistics Service
Support Functions
Technology
Finance
Adopted from Porter’s
Accounting Value Chain
HR
WHY MARKETING IS IMPORTANT
FOR BUSINESSES:
• At the highest level marketing makes the cash register ring.

No marketing = No revenue = No business
• Creating customer value is a lot easier if marketing permeates an

organization (engineering, manufacturing, supply chain, IT, finance).
• Many deals on Wall St are based on marketing synergies

DEALS ON WALL ST JUSTIFIED BASED ON MARKETING SYNERGY
April 20, 2017
Purchases
Danone Raises Guidance After
Closing WhiteWave Buy
Earnings
WhiteWave Brands
Why?
• Production synergies
• Leverage existing retailer
relationships

BAD MARKETING IS HOW TO LOSE $500 MILLION ON WALL ST

• Marketing is too important to be left to the
marketing department
– David Packard Co-Founder HP

THE BUSINESS OBJECTIVES OF MARKETING FOR DUMMIES
• Get more customers
• Keep the customers you have
• Sell existing customers more stuff
It’s as simple that!
We want to understand the economics to the

company of meeting each of these objectives.

THE COCA-COLA MARKETING STRATEGY
Roberto Goizueta
• Get people who drink Pepsi to drink

• Get more customers Coke
• Keep the customers you have • Get people who drink Coke to keep
• Sell existing customers more stuff drinking Coke
• Get people who drink Coke to drink one
more Coke a day

GET MORE CUSTOMERS – CUSTOMER ACQUISITION ECONOMICS

CUSTOMER ACQUISITION COST
Display or Banner Ad Priced either by:
• Cost per view/impression/exposure

Standard abbreviation is CPM.
Cost per 1,000 impressions.
or
• Cost per click.

Standard abbreviation is CPC.
If we know the CPM or CPC, what do we need to know

in order to figure out the cost of acquiring a new customer?
These likelihoods
• The likelihood that an impression turns into a customer. are typically referred to as
• The likelihood that a click turns into a customer. the response rate or the
conversion rate

Suppose Politico prices this

advertising at $5 per click…
…and, 1 out of every 8 people who

click will become customers.
Response Rate = 1/8 = 12.5%
If 8 people click, the cost is $40

and 1 customer is acquired, so the
cost per customer acquired is $40.
The most general formula for acquisition cost is:
Cost per Stimulus $5

Customer Acquisition Cost = = = $40
Response Rate 12.5%
1 Cost per Stimulus

Acq$ = Cost per Stimulus x =
Response Rate Response Rate
Cost to market The number of Cost of acquiring

to one prospect prospects to get 1 customer
1 customer
For purposes of this course, we will refer customer acquisition cost as Acq$.
There are many other abbreviations/acronyms which may get used in practice.

IN ADDITION TO BANNER ADS, WHAT ARE SOME OTHER WAYS TO
STIMULATE PURCHASING
All of the methods below have

a cost per stimulus and a response rate*
Paid Search Advertising
Traditional Media Advertising
Free Samples and Coupons
Demonstrations
Direct Mail (email and snail)
Online Video Advertising
Telemarketing
*This list is not intended to be exhaustive

WHAT ABOUT THIS STIMULUS?

OR THIS STIMULUS?
bird feeders
Perky
Pet
has 3 of
first 4
slots.

HOW MUCH IS RETAIL/ETAIL SHELF SPACE WORTH? A LOT!!
Which search is more likely?

1. Go to Amazon and search for bird feeder
2. Go to Google and search for Perky Pet

HOW DO MANUFACTURERS PAY FOR SHELF SPACE?
• Direct payment
– referred to as slotting allowances or slotting fees.
• Reduced profit per unit

– More profit per feeder selling via perkypet.com v. amazon.com
– But getting people to go to perkypet.com is expensive
• Support retailer with advertising

– Perky Pet available at these fine stores!

THE COST OF CUSTOMER ACQUISITION
Pay for promotion

• Get more customers
Pay retailer for
market access
• Sell existing customers more stuff

Other Ways?
Falls under • Word of mouth/referrals

umbrella • Social influencers
of “promotion” • Public relations
It all costs money either directly or indirectly
There is no such thing as a free lunch

THE ECONOMICS OF CUSTOMER ACQUISITION
• Get more customers It all costs money either directly or indirectly.

We want to make sure we are getting more
• Sell existing customers more stuff money back from customers than we are
spending to get them.
The Magic of Marketing

THE MAGIC OF MARKETING
• One textbook definition of Marketing is:
“Marketing transforms “market offerings” into

tangible benefits for customers which they value.”
Brick

MARKETING -- MKT 370 DEFINITION
• Is about:
– delivering…
– perceived value…
– to target segments…
– profitably.

• Is about:
– delivering…
– profitably.

PERCEIVED VALUE
• Customer’s willingness to pay for your product or service
Economic Psychological
Value + Value

ECONOMIC VALUE
Economic Value = f(Functional Value, Price)
Functional Value is what the product does for me.
• Listen randomly to songs I probably like

• Learns songs I like
• Helps me discover music
• Large library of songs
• $4.99 per month
• Listen to songs I know I like

• Create playlists of songs
• Larger library of songs
• $9.99 per month

FUNCTIONAL MARKETING
Deluth Training Company espouses the functionality of its underwear.
Buck Naked Underwear
In addition to portraying functionality what

else do you notice about this ad.
ECONOMIC VALUE IS SOMETIMES BASED ON LOW PRICE
• Buy our product and you will get your money’s worth
Southwest

ECONOMIC VALUE IS NOT ALWAYS CREATED BY THE LOWEST PRICE
FUNCTIONAL VALUE >>> PRICE STILL CREATES ECONOMIC VALUE
>
Allstate Racoon

PSYCHOLOGICAL VALUE
• Cognitive – Reduces need to think when making decisions

PSYCHOLOGICAL VALUE
• Cognitive – Perception
TIPPI
TIPPI CARDIGAN
CARDIGAN IN COLORBLOCK –
IN COLORBLOCK – MERINO CREWNECK –
$69
Was $95 Now only $69 Was $95 Now only $69
$69

PSYCHOLOGICAL VALUE
• Social – Feel included; Impress Others

PSYCHOLOGICAL VALUE
• Emotion – Attachment; Fear; Humor; Guilt; etc.
We become attached to
brands like Disney characters
FEAR – Buy me or something bad will happen. or the Nike Swoosh.
HUMOR – Buying me is fun – not mundane.
GUILT – You are a horrible person if you don’t buy me.

CREATE VALUE BY MEETING CUSTOMER NEEDS
• Stated needs v. Unstated needs
• Example of unstated need: Cameras on cell phones
Uncover needs through market research

DIAMOND SHREDDIES
BUYER NEEDS OR CUSTOMER NEEDS
CUSTOMER
BUYER

BUYER NEEDS OR CUSTOMER NEEDS

POSITIONING IS A PACKAGE OR MIX OF DIFFERENT TYPES OF VALUE. AKA
THE VALUE PROPOSITION.
Psychological
Value + Economic
Value
POSITIONING AKA VALUE PROPOSITION
Articulates to reason to buy your brand/product.

• Is about:
– delivering…
– profitably.

THE MARKETING MIX (AKA THE 4 P’s) IS THE PROCESS FOR
PACKAGING/DELIVERING VALUE. THE MARKETING MIX POSITIONS THE
BRAND.
Psychological
Value POSITIONING
+ Marketing Mix
Economic • Product
Value • Price
• Promotion
• Place (distribution)
Will be covered in detail

after the midterm.

• Is about:
– delivering…
– profitably.

WHY SEGMENT?
• Simple Reason:
Because people are different with different needs.
• Example: breakfast
– Who eats breakfast?
– Who eats cold cereal for breakfast?
– If you eat cold cereal what’s your favorite?
– What other types of cereal would you consider?
• Example: rental car market

– Vacationers, Business Traveler’s, Stranded People

TO MEET BUSINESS OBJECTIVES, IT MAKES A DIFFERENCE ON WHICH TYPES
OF CUSTOMERS WE HAVE
• Get more customers –

some segments are larger or are growing faster.
• Keep the customers you have –

some segments are more loyal to brands.
• Sell existing customers more stuff –

some segments will consume at a higher rate.

NOT ONLY DO SEGMENTS HAVE DIFFERENT NEEDS, BUT THEY ALSO PROVIDE
DIFFERENT LEVELS OF PROFITABILITY
Regular Chocoholic
Eats 25 chocolate bars/year Eats 100 chocolate bars/year
95% of population 5% of population
Which segment to focus on?

MKT 370 f2017 (sawhill) What information is missing?
Regular Chocoholic
Eats 25 chocolate bars/year Eats 100 chocolate bars/year
95% of population 5% of population
What information is missing?
How much money do we make from 1 chocolate bar?

How much does it cost to acquire each type?
How long will each type remain a customer?
Can you acquire one type without the other?
FIRST CARDINAL RULE OF MARKETING
• Don’t assume everyone is like you
http://www.youtube.com/watch?v=h1Gc7sOdk30

• Is about:
– delivering…
– profitably.

BRINGS US FULL CIRCLE TO THE BUSINESS OBJECTIVES
• Get more customers It all costs money either directly or indirectly.

We want to make sure we are getting more
• Sell existing customers more stuff money back from customers than we are
spending to get them.
The Magic of Marketing causes

customers to happily part with
their money to buy our products.
Ethics of the Magic?

ETHICS OF THE MAGIC
Buyer
Beware Full
Disclosure

GOOD MARKETING PLANS HAVE 4 ELEMENTS
Positioning
AKA Value Proposition
Target Tracking of
Segment(s) MARKETING PLAN Response and
Profitability
Marketing
Mix

DISCUSSION
Deluth Trading Company
• Target Market?
• Value Proposition?
• Price Point?
• Product Features?
• Distribution? Buck Naked Underwear
• Promotion
other than advertising?

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PRINCIPLES OF MARKETING

MKT 370 f2017 (sawhill)

• Create a product/brand positioning and value proposition.

MKT 370 f2017 (sawhill)

• Midterm and Final Exams

• Individual Case Assignments (4)

• Class Attendance and Participation

MKT 370 f2017 (sawhill)

Case Assignments 20%

MKT 370 f2017 (sawhill)

MKT 370 f2017 (sawhill)

MKT 370 f2017 (sawhill)

MKT 370 f2017 (sawhill)

• Please form groups now!

• Please use Canvas to get yourself assigned to the right group.

• Each group member will provide feedback on the other

• Group feedback can increase or decrease your overall

MKT 370 f2017 (sawhill)

• Three group assignments

• Each assignment will require you to put together presentation

• All slides should be created as a Google Doc. Access should

MKT 370 f2017 (sawhill)

• Please email me if you would like to set up another time.

• I will conduct review sessions for each of the four case

MKT 370 f2017 (sawhill)

Mollie may attend class when we have guest speaker from

If you are allergic to dogs or have a fear of dogs, please

MKT 370 f2017 (sawhill)

• Marketing concepts can be applied to market yourself regardless of your

S&P 500 CEOS come from:

• At the highest level marketing makes the cash register ring.

• Creating customer value is a lot easier if marketing permeates an

• Many deals on Wall St are based on marketing synergies

MKT 370 f2017 (sawhill)

April 20, 2017

MKT 370 f2017 (sawhill)

MKT 370 f2017 (sawhill)

– David Packard Co-Founder HP

MKT 370 f2017 (sawhill)

• Get more customers

• Keep the customers you have

• Sell existing customers more stuff

It’s as simple that!

We want to understand the economics to the

MKT 370 f2017 (sawhill)

• Get people who drink Pepsi to drink

MKT 370 f2017 (sawhill)

MKT 370 f2017 (sawhill)

Display or Banner Ad Priced either by:

• Cost per view/impression/exposure

• Cost per click.

If we know the CPM or CPC, what do we need to know

MKT 370 f2017 (sawhill)

Suppose Politico prices this

…and, 1 out of every 8 people who

Response Rate = 1/8 = 12.5%

If 8 people click, the cost is $40

The most general formula for acquisition cost is:

Cost per Stimulus $5

1 Cost per Stimulus

Cost to market The number of Cost of acquiring

MKT 370 f2017 (sawhill)

All of the methods below have

Paid Search Advertising