Marketing 20lecture 20revised by KQExAc

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									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       R&D Based
                                                                     Marketing Based




   100%        100%         100%          100%           100%          100%
                                                                       5%
   10%         22%          25%           31%             34%
    90%                                                                34%
                78%          75%           69%            66%         61%




Materials   Computers,   Instruments   Winners of       British      Weapons
            railway,                   the Industrial   innovators   systems
            housing                    Research
                                       Award
                                                                               Source:
                                                                               Utterbach
         NPD Process: Marketing Input

 Idea           Business
                              Design     Manufacture   Launch
 Conception     Plan




Fit with      Market       Market      Establish   Implement
marketing/    research     testing     marketing   marketing
corporate                              mix         mix
strategy
                     Approximate Costs of NPD: %

  Stage          Consumer Goods              Industrial Chemicals
Opportunity      2                       2
Identification
Design               3                           28

Testing                  16                           13


Launch                             79                               57


Total                              100                              100


100% =                    $12.6m                 $4.7m
            Marketing Mix: The 4 Ps
                        Place




Promotion         The Marketing Mix   Product




                        Price
                    Product
                                 Place


• Definition
• PLC                           The
                                Marketing
• Physical          Promotion               Product
                                Mix
  products versus
  services

                                 Price
                Consistency in Marketing Mix
                      Premium Product
                      (e.g. Jermyn St shirt)




Premium Place                                    Premium Price
(narrow                                          (+30% over
distribution)                                    average)




                       Premium Promotion
                       (selective advertising)
             Importance of 4Ps by Industry –
                examples of promotions
               Consumer Goods     Industrial Goods
 High
               Advertising        Personal Selling



               Sales Promotion    Sales Promotion

Importance

               Personal Selling   Advertising



               PR                 PR
Low
                    Push versus Pull
                               Demand              Demand


Push Strategy   Manufacturer        Intermediary            End User
                                                            e.g Lever Brothers



                           Demand                  Demand

Pull Strategy   Manufacturer        Intermediary            End User
                                                            e.g. P & G
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
Market          BCG Growth Share Matrix
Growth
Rate

High
                   ?                       Star

  10
  %
                   Dog                  Cash Cow
Lo
w
  0%
         0.1x                                      10x
                    Low         1x         High
                       Relative Market Share
       Product Life Cycle


Introductory   Growth          Maturity
                                          Decline Stage
    Stage      Stage            Stage



                                              Total
                                             Market
                                             Sales


                        Time
     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


                                                   Cassettes Sold 1974 to 2004

                 500
                 450
                 400
 (in millions)




                 350
  Units Sold




                 300
                 250                                                                                                                   units sold
                 200
                 150
                 100
                  50
                   0
                       1974
                              1976
                                     1978
                                            1980
                                                   1982
                                                          1984
                                                                 1986
                                                                        1988
                                                                               1990
                                                                                      1992
                                                                                             1994
                                                                                                    1996
                                                                                                           1998
                                                                                                                  2000
                                                                                                                         2002
                                                                                                                                2004
                                                                        Years
                                     Product Life Cycle
                       Traditional                       With Variations

                                                                                 Growth, Slump,
                                                                                 Maturity
        Introduction     Growth     Maturity   Decline




                                                                                 Cycle recycle
Sales                                                       Cycle I   Cycle II




                                                                                 Scalloped




                                                                                 Fashion
                                  Time


                                                                                 Fad
            Using the PLC Framework
Pros                              Cons
- Different stages of a           - Time span of the curve
product‟s life call for           varies enormously
explicitly different strategies
                                  - Rigid adherence to PLC
- The framework prepares          means management can
management for changes of         prematurely end the life of a
strategy. (A useful spur          product
given much management
                                  - The curve is not always a
inertia)
                                  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
Intangibility  Difficult for customers      „Tangibalise‟ the product e.g.
               to compare services          appearance of staff,
                                            promotional literature, etc

Inseparability   Both provider and          Selection and
                 client affect quality of   training of service
                 relationship               provider‟s personnel

Variability      Difficult to ensure        Implement strict quality
                 consistent quality         control. Develop customer
                                            care programmes
Perishability    Periods of excess          Manage supply and demand
                 supply and                 explicitly (e.g. differential
                 demand                     pricing, part time personnel)
                      Price
                                  Place




• Importance of                  The
  Price              Promotion   Marketing   Product
• Influences on                  Mix
  Price
• Pricing Strategy
                                  Price
            Importance of price-theory


                                   S
Price


        p




                                   D

                      q
                            Quantity
              Importance of Price-Practice
       “Which of the following would make you switch supermarket”
                           (% of respondents)
Lower price                                                      75%

Wider range                                                66%

Closer to home                                         60%


Convenient hours                            45%


Car parking                                 44%




                               Source: Questions asked of AGB Superpanel
Effect of 1% Rise on Price on Profits -
e.g. Consumer Goods Manufacturing


Price rise          Rise in
of 1%               operating                  10%
                    profit


      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          Demand for some products
price sensitive than          is more price sensitive than
others                        for others


If you can identify the       If you can identify price
people and charge             sensitive products and drop
them separately, you          prices, you will increase
will increase revenue         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

P                              P


p1
p2




            q1 q2                        q1   q2
                           Q                          Q
     Inelastic demand              Elastic demand
     e<1                           e>1
 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

Pros                          Cons
1. Simple method              1. Largely arbitrary method,
                              depends how you allocate
2. Explicitly considers costs
                              overhead
therefore unlikely to result
in loss                       2. Prevents full usage of
                              marketing tools as in short run
3. Fair and transparent
                              pricing at less than full cost is
                              feasible
                              3. Can lead to nonsensical
                              vicious circle
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


 Price                          Production


               Fixed cost
               per unit
        Range of Pricing Discretion

             Upper level
             determined by
             demand
                                 To increase pricing
                                 discretion the firm
                                 can:
Price
                                 - increase perceived
                                 benefits (i.e.
                                 demand)
                                 - reduce costs

             Lower level
             determined by
             costs
            Other Factors Affecting Pricing

  Area                      Examples

Company and        - Overall goal (profit maximisation versus accessibility
Marketing          of service)
Objectives         - Target market (mass or niche)
                   - Brand image (exclusive or commodity)
                   - Rest of marketing mix (product, promotion, place)
Competition/       - No of firms (monopoly through to perfect competition)
Market Structure   - Degree of differentiation (one-off product through to
                   commodity)

Legal/ Social      - 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)
              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
                            Place




• Types of                 The
  Promotion    Promotion   Marketing   Product
• Effects                  Mix

• Promotion
  strategy
                            Price
Promotion (Marketing Communication)Types:


         Sales Promotion
         Direct Marketing
         Public Relations
         Salesforce
         Advertising
        Objectives of Promotions (Marketing
                 Communications)
To Customer                       To Trade
Raise awareness                   Provide information
Inform about new product          Inform about promotions
Correct misconceptions about      Present trade offers
product
                                  Avoid stockpiling
Increase frequency of use
                                  Educate the trade
Present special offers
                                  Build patronage
Educate consumers in how to use
Build image for brand/company
Build customer loyalty
          Specific Objectives of Sales
                  Promotions
      For Consumer                   For Trade
Announce new product           Encourage stocking
Encourage product trial        Increase inventory levels
Stimulate greater use          Encourage off-peak buying
Encourage purchase of larger   Promote related products
sizes
                               Offset competitive marketing
Attract non-users
                               Open up new outlets
Encourage brand switching
                               Build retailer loyalty
Effect of Sales Promotion on Brand Share

                    10%



                                            7%

         6%
                                5%




    Preparation Promotion   Immediate   Long-term
    period      period      post-       post-
                            promotion   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                          Cons
- Measurable response         - Can alienate potential
                              customers
- Relatively cheap
                              - Low hit rate if unfocused
- Communicate directly with
customer (67% customers go
elsewhere next time as no
one keeps in touch)
                     Public Relations
Definition by IPR: “the deliberate, planned and sustained effort
                    to establish and maintain mutual understanding
                    between an organisation and its public”


    Whom to influence           How
    Community                   Interviews
    Employees                   Articles
    Government                  Exhibitions
    The City                    Launches
    Distributors                Sponsorships
    Consumers                   Publications
    Opinion leaders             Videos
                                Training
                                Factory visits
                                Press releases
                                Community projects
 Advertising Objectives

Increases sales and profits through:
- Building awareness
- Building comprehension
- Reminding
- Generating leads
- Legitimising
- Reassuring
Stages in the Adoption Process

                                            Adoption




                                    Trial


                       Evaluation
            Interest
Awareness




                              Source: K p342
Adopter Categorisation
               Characteristics By Adopter Group


  Group          Innovator    Early       Early         Late          Laggard
                              adopter     majority      majority



                Willing to   Ideas        Deliberate   Sceptical:    Tradition
                try new      adopted      steady       wait to see   bound:
Characteristics ideas at     early as     adoption     what world    suspicious
                some risk    sign to      of new       thinks        of change
                             others       ideas        before
                                                       trying

                                            Most of Population
                Techno-      Opinion                                 Older,
 Type of                                                             Conserv-
                freak(?)     leaders in
 individual                                                          ative
                Youngish     community
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                         Description/ Rationale
Characteristic


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

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

    Set                Decide        Choose      Choose       Evaluate
    objective          budget        message     media        effectiveness



- Communication - Affordable      - Message    - Type        - Communication
objectives      approach          generation                 impact
                                               - Impact
- Sales objectives - % sales      - Message                  - Sales impact
                                               - Frequency
                                  evaluation
                  - competitive
                                               - Reach
                  parity          - Message
                                  execution    - Timing
                      Place
                                  Place




• Types of channel               The
• Value of channel   Promotion   Marketing   Product
                                 Mix
• Choice of
  channel

                                  Price
 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                         Cons


- Allows manufacturers to    - Company loses some control
“stick to the knitting”      - Can add to costs
- Replaces inefficiency of   - Company loses touch with
multiple deliveries          end user
- Enables consumers to
minimise efforts
                                  PLC Strategies

              Introduction      Growth                 Maturity            Decline


Promotion    Create product     Promote the            Reinforce the     Possibly
             awareness          brand (rather          „message‟ to:     withdraw
             - advertising      than product           - encourage       promotions or
                                awareness)             regular           target specific
             - personal                                repurchase        niches
             selling
                                                       - build loyalty
Price       Skimming or        Continue existing      Price              Lower price
            penetration        strategy               reductions         prevents
                                                      frequent           excessive
                                                      though not         erosion of
                                                      necessarily        demand
                                                      advisable
Place       Distribution       Key focus on          Build the           Resign yourself
            according to       distribution to       foothold by         to narrow
            pricing strategy   establish foothold    moving some         distribution
                               prior to „maturity‟   promotional         strategy
                                                     activity to the
                                                     channel
Profits     Losses as          Product becomes       Profits peak and    Firm emphasis
            advertising can    profitable            start to decline    on cost control
            exceed revenues                                              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

								
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