Market Based Management, business presentations

Key Words ... Customer Value – Shareholder Value – Market-based-Strategies – Market Potential – Value Creation – Economic Benefits – Market Segmentation – Targeting – Competitive Advantage – Industry Analysis – Prisoners Dilemma – Switch Cost – Pricing – Skimming – Penetration – Channel Management – Push-Pull – Portfolio Analysis – Life Cycle Analysis – Market Performance – Sales Forecast – Four P’s – Competitor Analysis – Transaction Marketing – Consumer Behavior – Mass Customization – Cluster Theory – Value Chain – Marketing Information – Brand Management – AIDA – Marketing Plan – SWOT – New Age Pricing – Producer/Customer Gap – Mass Production

How to Underwhelm Customers and Shareholders Poor Understanding of Customers and Competition High Cost of Customer Retention and Acquisition Sporadic Business Unit Profit Market Share Instability Accounting Maneuvers Drive Financial Results Excessive Customer Turnover Me-Too Customer Value Pressure for Short-Run Results Unfocused Competitive Position Stagnant Shareholder Value

Marketing Knowledge and Market Orientation Bottom High Middle Marketing Knowledge Market Orientation Score (0-100) 60 90 100 70 50 80 Business Profitability Customer Retention Marketing Knowledge Market Orientation

Fundamental Market-Based Strategies and Profitable Growth Strategies to Grow Market Demand Net Marketing Contribution Market Demand Market Share Revenue per Customer Variable Cost per Customer Strategies to Increase Market Share Strategies to Grow Customer Purchases Strategies to Increase Marketing Efficiency Strategies to Enter or Exit Markets Strategies to Lower Variable Cost per Customer Marketing Expenses = X - X -

Sales-Based vs. Market-Based Organizational Structure Mining Marketing Unit Construction Marketing Unit End-User Market Mining Mining Dealers Market-Based Structure Earthmoving Equipment Division Direct Sales Construction Dealers End-User Market Construction Earthmoving Equipment Division Sales-Based Structure Sales Organization Dealer Sales Mining Dealers End-User Market Mining and Construction

Maximum Market Potential and Current Market Demand Maximum Number of Potential Customers Developed Market Current Market Demand Not Affordable Lack Benefits Unable to Use Not Available Not Aware Untapped Market Opportunity

Customer Adoption and Market Development Market Development Gap Late Majority Early Majority Early Adopters Laggards Innovators Early Market Mainstream Market Full Market Development 100% 60% 80% 20% 40% 0%

Economic Benefits and Value Creation Amazon.com lowers purchase price with the on-line purchase of books. Usage Costs Maintenance Costs Ownership Costs Disposal Costs Price Paid Acquisition Costs American Hospital Supply reduces a hospital’s cost with a computerized customer order program. Sealed Air reduces labor cost in packaging with AirCap. Saturn lowers the cost of repair and insurance through module product design. GE Capital works with customers to create affordable ownership. Rohm-Haas’s Kathon MWX cuts cost of disposal of machine fluid waste in half. Total Cost of Purchase

Fundamental Forces That Shape Differences in Customer Needs Consumer Market Customer Needs Demographic Forces Usage Behaviors - Quantity - Time of Use - Personal - Social - Frequency of Use - Age - Income - Marital Status - Education - Occupation Lifestyle Forces - Attitudes - Values - Activities - Interests - Political View

Fundamental Forces That Drive Differences in Business-to-Business Customer Needs Business-to-Business Customer Needs Firmographic Forces Usage Behaviors - Application - Quantity - Time of Purchase - Frequency of Purchase - Users - Number of Employees - Sales Volume - Number of Locations - Years in Business - Financial Situation Business Culture - Business Sophistication - Growth Orientation - Innovativeness - Technology - Decision Making

Market Segmentation of the Small Business Market Growth-Oriented Entrepreneurs Core Business Need Ways to invest and grow Firmographics Medium size More sophisticated Higher in education Ongoing financial plan Purchase Behavior Products that enhance productivity High revenue per customer Willing to buy value-added solutions Value Proposition Solutions that help you grow your business Cost-Focused Sustainers Core Business Need Ways to continue and save Firmographics Small in sales / employees Less sophisticated Lower in education Limited or no financial plan Purchase Behavior Products that lower cost Low revenue per customer Confused by value-added solutions Value Proposition Solutions that saves your business money Growth-Oriented Cost-Focused

Forces That Shape Segment Attractiveness Segment Attractiveness Market Growth Market Access Competitive Intensity - Customer Familiarity - Channel Access - Company Fit - Market Size - Growth Rate - Market Potential - Number Of Companies - Ease of Entry - Substitutes

Segmentation Hierarchy: Mass Market to Mass Customization Strategies Mass Market Approach Small Segment Strategy Large Segment Strategy Adjacent Segment Strategy Niche Segment Strategy Multi-segment Strategy Mass Customization Strategy Segment A Segment C Segment A 1 Segment A 3 Segment A 5 Segment A 2 Segment B 1 Segment A 4 Segment B 2 Segment B 3 Segment C 1 Segment C 2 Segment C 2 Segment A Segment B Segment C Segment A Segment B

Competitive Forces That Shape Competitive Position and Profitability Competitive Position and Profitability Industry Forces Competitive Advantage Competitor Benchmarking - Cost Advantage - Quality Advantage - Marketing Advantage - Market Entry/Exit - Buyer/Supplier Power - Substitutes/Rivalry - Competitor Intelligence - Competitor Analysis - Competitive Benchmarking

Industry Analysis: Industry Forces and Profit Potential Industry Forces Barriers to Entry Barriers to Exit Buyer Power Supplier Power Substitutes Competitive Rivalry Unfavorable Low High High High Many Intense Favorable High Low Low Low None None The more favorable the forces that shape a market’s competitive environment, the greater a business’s profit potential Competitive Environment Competitive Environment More favorable competitive environment Less favorable competitive environment Unfavorable Profit Potential Favorable

Performance Impact of Price Rivalry and Prisoner‘s Dilemma Hold Price Cut Price 5% Hold Price Cut Price 5% Market Share = 10% Volume = 1 million units Price = $100 per unit Margin = $40 per unit Total Cont. = $40 million Market Share = 12% Volume = 1.2 million units Price = $95 per unit Margin = $35 per unit Total Cont. = $42 million Market Share = 10% Volume = 1 million units Price = $95 per unit Margin = $35 per unit Total Cont. = $35 million Market Share = 8% Volume = 800’000 units Price = $100 per unit Margin = $40 per unit Total Cont. = $32 million Business’s Marketing Strategy Competitor’s Marketing Strategy

Major Sources of Competitive Advantage Competitive Advantage Cost Advantage Marketing Advantage Differentiation Advantage - Distribution - Sales Effort - Brand Awareness - Variable Costs - Marketing Expenses - Operating Expenses - Product Differentiation - Service Quality - Brand Reputation

Ignition Switch Cost Advantage Due to Scale and Scope Effects Scale Effect Cost per Unit Production Capacity C 1 C 2 Cost per Unit Scope Effect Auto-mobiles Product Breadth Pumps Snow Blowers Lawn-mowers Motor-cycles

Product-Price Position, Marketing Effort, and Market Share Market Share Marketing Effort Product Position Sales Force Product Breadth Price Physical Distribution Product Differentiation Retailing & Merchandising Customer Support New Products Service Quality Brand Image Media Advertising Sales Promotion = X

Core Elements of Product Management Strategy Product Management Strategies Product Positioning and Differentiation New Product Development Product Line Positioning and Extension Strategies - New Product Sales - New Product Innovation - Development Process - Low Price/Cost of Purchase - Product Differentiation - Service/Brand - Product Line Positioning - Product Line Extensions - Product Bundling

Differentiation and Customer Value I Product Differentiation Product Benefits Service Benefits Brand Benefits Total Benefits Total Cost Customer Value Price Nonprice Costs Service Differentiation Product Benefits Service Benefits Brand Benefits Total Benefits Total Cost Customer Value Price Nonprice Costs Brand Differentiation Product Benefits Service Benefits Brand Benefits Total Benefits Total Cost Customer Value Price Nonprice Costs

Differentiation and Customer Value II Product Benefits Service Benefits Brand Benefits Total Benefits Derived from Product Position Total Cost of Obtaining These Benefits Brand Differentiation Service Differentiation Product Differentiation Customer Value Price Transaction Costs Low-Price Position Lower Transaction Costs

Pricing Differentiation and Customer Value Customers Need / Benefits Price Sensitivity Demand / Growth Positioning Market Share Differentiation Cost / Supply Competitors Number / Entry Positioning Objectives Impacts Customer Value Market Share Profitability Market Situation Market-Based Pricing Economic Value Pricing Perceived Value Pricing Segment Pricing Cost-Based Pricing Commodity Pricing Cost Leader Pricing Competitive Bid Pricing

Market-Based Value Pricing Perceived Value vs. Costs Product Benefits Service Benefits Brand Benefits Relative Benefits Relative Cost Perceived Value Price Nonprice Costs Perception Total Cost of Ownership Competitor’s Product Business’s Product Economic Value Price Cost Use Maintenance Acquisition Acquisition Price Maintenance Use

Price Elasticity and Performance Price Elasticity Unit Volume Decrease Unit Contribution Increase Sales Revenue Increase Unit Margin Increase Decrease Increase Decrease Decrease Decrease Decrease Decrease Increase Increase Increase No change No change No change Inc/Dec* Inc/Dec* Maximum Inelastic (<-1) Elastic (>-1) Unity (=-1) Hold Price Raise Price Lower Price Raise Price Lower Price * The total contribution could increase or decrease, depending on the level of elasticity and unit margin.

Skim Pricing Favorable Conditions Considerable Differentiation Quality-Sensitive Customers Sustainable Advantage Few Competitors Few Substitutes Difficult Competitor Entry Skim Pricing Time Dollars per Unit Price Cost

Penetration Pricing Favorable Conditions No/Limited Differentiation Price-Sensitive Customers No Sustainable Advantage Many Competitors Many Substitutes Easy Competitor Entry Penetration Pricing Time Dollars per Unit Price Cost

Break-Even Volume for a Given Price Strategy Total Revenue Total Costs Fixed Expenses* * Fixed Expenses = Marketing Expenses and Other Direct Expenses $ Millions 15 30 35 20 10 25 5 0 50 150 100 Break-Even Volume (90,000) 200 Units Sold (‘000) Profit Loss

Alternative Channel Systems Direct Channel Systems: Provide alternative direct channel and sales systems that require the business to retain ownership (title) of products sold and responsibility for delivery to customers and value-added functions desired by customers. Indirect Channel Systems: Provide varying degrees of sales and value-added functions while taking ownership and responsibility for delivery to target customers or other intermediaries. Mixed Channel Systems: Provide direct sales contact and technical support while the actual purchase is made at a channel intermediary who has taken title (ownership) of the products being sold. Alternative Channel Systems Direct Channel Systems Indirect Channel Systems Mixed Channel System Channel Intermediaries Target Market Customers

Alternative Customer Channel Systems Manufacturers Direct Channel Systems Indirect Channel Systems Reps/Agents Customer Markets Tele- marketing Direct Marketing Direct Sales On-Line Marketing Reps/ Agents Retailers Wholesalers

Message Reinforcement Strategies 1 Gross Rating Points 50 200 250 100 0 150 Pulsing 5 9 13 17 21 25 29 Weeks Ad Awareness 1 20% 80% 100% 40% 0% 60% 5 9 13 17 21 25 29 Weeks 1 Gross Rating Points 50 200 250 100 0 150 Heavy-Up 5 9 13 17 21 25 29 Weeks Ad Awareness 1 20% 80% 100% 40% 0% 60% 5 9 13 17 21 25 29 Weeks

Push-Pull Communications and Customer Response Communications Mix Advertising Sales Promotions Catalogs Direct Marketing Telemarketing Electronic Marketing Public Relations Customer Response Customer Push Customer Pull Customer Loyalty Commitment Search Effectiveness Customer Preference Awareness Attraction Customer Push Communications Customer Pull Communications Distributor Push Merchandising Marketing Effort Market Coverage Availability Stockouts

Strategic Market Planning Process Business Performance Competitive Advantage Market Attractiveness - Differentiation - Cost - Marketing - Share Position Sales Growth Profitability - Market Forces - Competitive Intensity - Market Access Portfolio Analysis and Strategic Market Plan Tactical Marketing Strategy and Performance Plan

Factors That Shape Market Attractiveness Market Attractiveness Market Forces Market Access Competitive Intensity Customer Familiarity Channel Access - Sales Requirements - Company Fit Market Size Growth Rate Buyer Power Customer Loyalty Number of Competitors Price Rivalry - Ease of Entry - Substitutes

Portfolio Analysis and Strategic Market Plans Protect Invest to protect or hold a competitive advantage. Businesses often fail to invest in hold strategies, and the result is an erosion of competitive advantage. Grow Invest to improve or grow competitive advantage. In an underdeveloped or emerging market, this can also mean to invest in order to grow the market, and hence, its attractiveness. Focus Selectively narrow market focus to profitable segments or niches within a segment in order to capture profits while limiting the resources committed to this market. Harvest Adjust prices and marketing expenses to gradually exit the market while attempting to maximize profits during this gradual exit. Entry Invest to enter an attractive market to establish a desired competitive advantage. This strategy could also require investment to accelerate the growth of a new or underdeveloped market. Divest Quick divestment from a market. When there are no short-term profits to be gained with a harvest strategy, an immediate exit strategy is appropriate. Very Attractive Market Attractiveness Very Unattractive Offensive (Entry) Very Strong Very Weak Competitive Advantage Offensive (Grow) Defensive (Divest or Harvest) Defensive (Protect) Defensive (Protect or Harvest) Defensive (Divest or Harvest) Offensive (Grow) Defensive (Protect / Harvest) Offensive (Grow) Defensive (Protect / Focus) Offensive (Grow) Defensive (Protect / Focus) Offensive (Grow) Defensive (Protect)

Offensive and Defensive Strategic Market Plans Business Performance Share Position Sales Revenue Growth Profit Performance Offensive Strategic Market Plans Defensive Strategic Market Plans Penetrate or Grow Existing Markets Enter or Develop New Markets Protect or Reduce Focus within Existing Markets Harvest or Divest Existing Markets

Product Life Cycle and Offensive and Defensive Marketing Strategies Sales Revenue Early Growth Declining Market Emerging Market Late Growth Mature Market Maturing Market Rapid Growth Offensive Offensive Offensive Offensive / Defensive Offensive / Defensive Defensive Defensive

Offensive Strategic Market Plans Offensive Strategic Market Plans Market Penetration Strategies New Market Entry Strategies Related New Market Entry Diversified New Market Entry Enter New Emerging Market Develop New Market Potential Grow Market Share Grow Customer Purchases Enter New Market Segment Grow Market Demand

Defensive Strategic Market Plans Harvest Price Strategy Harvest Resource Strategy Divest Market Position Defensive Strategic Market Plans Protect Market Position Exit Market Position Protect Market Share Build Customer Retention Reduced Focus

Portfolio Positions and Defensive Strategic Market Plans Very Attractive Market Attractiveness Very Unattractive Very Strong Very Weak Competitive Advantage Harvest or Divest Protect Protect or Harvest Harvest or Divest Protect or Harvest Protect or Focus Protect or Focus Protect

Major Components of a Situation Analysis Situation Analysis Market Demand Market Demand Market Demand Market Demand Market Demand Size and Growth Potential Environment End Users Intermediaries Nonconsumers Market Share Price / Quality Cost / Value Structure Gap Analysis Substitutes Sales Customer satisfaction Margins/Profit

A Customer-Based Model of Net Profits Market Demand (Customers) Market Share (Percent) Revenue per Customer Variable Cost per Customer Marketing Expenses Operating Expenses Net Profits (before taxes) Margin per Customer Customer Volume Total Contribution Net Marketing Contribution

A Customer-Based Model of Return on Assets Accounts Receivable Inventory Cash Plant and Equipment Return on Assets Fixed Expenses Current Assets Total Assets Market Demand (Customers) Market Share (Percent) Revenue per Customer Variable Cost per Customer Marketing Expenses Operating Expenses Net Profits (before taxes) Margin per Customer Customer Volume Total Contribution Net Marketing Contribution

Market, Operational and Profit Performance Market Performance Profit Performance Operational Performance = X Market Metrics Market Share Customer Satisfaction Customer Retention Product Awareness Service Quality Operational Merits Margin (% of sales) Overhead (% of sales) Inventory Turnover Accts. Rec. (days outstanding) Capacity Utilization Profitability Merits Return on Assets Return on Equity Earnings per Share Economic Value Added Price-Earnings Ratio

GE / McKinsey Multifactor Portfolio Matrix INDUSTRY ATTRACTIVENESS BUSINESS STRENGTH Invest Manage Selectively for Earnings Invest Invest Manage Selectively for Earnings Manage Selectively for Earnings Harvest or Divest Harvest or Divest Harvest or Divest

Market Potential, Sales Potential, and Sales Forecast Market Potential Sales Forecast Total Population Sales Potential

The R&D Effort Portfolio MARKET OPPORTUNITY SELECTIVE EMPHASIS LIMITED SUPPORT HEAVY EMPHASIS HEAVY EMPHASIS HEAVY EMPHASIS LIMITED SUPPORT LIMITED SUPPORT SELECTIVE EMPHASIS SELECTIVE EMPHASIS LOW HIGH MODERATE MARKET OPPORTUNITY LOW HIGH MODERATE

When to Use a Penetration or Skimming Strategy for Pricing New Products Penetration Strategy Level of Desire in Market High Skimming Strategy Distinctive Not Important Low Not Easy Similar Important Easy Fast Gradual Importance of Price to Market Ease of Duplicating Product Distinctiveness from Competitive Products Return on Investment Objective Dimension

Strategy Decision Areas Organized by the Four Ps Product Physical good Service Features Quality level Accessories Installation Instructions Warranty Product lines Packaging Branding Place Objectives Channel type Market exposure Kinds of middlemen Kinds and locations of stores How to handle transporting and storing Service levels Recruiting middleman Managing channels Promotion Objectives Promotion blend Sales people, Kind, Number Selection, Training, Motivation Advertising Targets, Kinds of ads, Copy thrust, Prepared by whom Sales promotion Publicity Price Objectives Flexibility Level over product life cycle Geographic terms Discounts Allowances

Strategy Planning for Product Price Brand Type of brand Individual or family Manufacturer or dealer Product Physical good / service Features Quality level Accessories Installation Instructions Warranty Product line Product idea Place Promotion Target market Package Protection Promotion (or both)

Product Classes Consumer products Convenience products Unsought products Specialty products Shopping products Staples Impulse products Emergency products Homogeneous Heterogeneous New unsought Regularly unsought Products Professional services Components Raw materials Accessories Supplies Installations Industrial products Staples Impulse products Emergency products Farm products Natural products Component parts Component materials

New-Product Development Process Idea generation Screening Rough ROI estimate Idea evaluation Concept testing Rough ROI verification Development R&D Build model Test in market ROI estimate Revise product Idea evaluation Finalize product Finalize marketing plan Final ROI estimate Start production and marketing plan

International Marketing Opportunities Product Promotion Same Adaptation New Adaptation Same Basically same needs, but different incomes and / or applications (street vendor with low-cost hamburgers) Different needs and different incomes and / or applications (hand-powered washing machines) Basically same needs and use conditions (McDonald’s strategy with beer in Germany) Different needs and use conditions (clothing) Same needs and use conditions (McDonald’s usual strategy) Different needs but same use conditions (bicycles)

Customer and Competitor Orientations Self-centered Minor Market-driven Customer-oriented Competitor-centered Competitor emphasis Competitor emphasis Major Minor Major

Efficiency vs. Effectiveness Thrive Efficient Die quickly Survive Die slowly Strategic management Operational management Inefficient Effective Ineffective 1 4 3 2

Approaches to Competitor Analysis Desk Research Databases Market Research Internal Information Industry Mapping Building Competitive Advantage Critical Success Factors Special Competitor Studies Value Chain Analysis Industry Analysis Competitor Profiling Benchmarking

Developing the Organization‘s Core Competences Core Competences Existing New Markets Existing New Extending the base What core competences do we need to be developed so that the organization’s current position is best protected and/or extended? Uncharted waters What core competences need to be developed in order to compete in the new and developing markets which offer the greatest future potential? Good housekeeping How can better use be made of the organization’s current core competences? Moving into new areas What new products or services can be developed by rethinking or reallocating the existing core competences?

The Nine Price / Quality Strategies Cheap-value strategy Low Price Product quality High 1 4 3 2 9 8 6 7 5 Premium strategy Overcharging strategy Exploitative strategy Middle-of-the- road strategy Above average value strategy High-value strategy Superb value strategy Out-of-step strategy Medium Low High Medium

Relationship Between Service Levels and Costs $ Total costs Transportation, order processing and inventory carrying costs Level of customer service Cost of lost sales Cost 0 100%

Setting Customer Service Levels $ Revenue from service Distribution costs Service level Increase in costs, sales revenue or profit 0 99 Profit curve Maximum profit contribution 93 %

Marketing Excellence Framework Marketing Strategy Supply Chain Branding Quality Strategy Customer Development Product Innovation Manufacturing Business Performance

Consequences of Strategic and Tactical Implementation Marketing implementation Appropriate Inappropriate Strategy / tactic Proof Excellent Success Possible short-term success – but ultimately failure Trouble or failure Failure

The Transition to RM Emphasis on all six market domains Transaction marketing Relationship marketing Emphasis on customer market domain Functionally based marketing Cross-functionally based marketing

The RM Multiple Markets Model Customer Markets Supplier & Alliance Markets Internal Markets Referral Markets Influencer Markets Recruitment Markets

Types of Consumer Buyer Behavior Complex buyer behaviour Many Habitual buyer behaviour Dissonance-reducing buyer behaviour Variety-seeking buyer behaviour Involvement Differences between brands Few

Appropriate Pricing Strategies Opportunity for value enhancement Low High Skimming strategy Price leadership ‘ Follow my leader’ Penetration strategy Low High Opportunity for cost reduction

The Expanded Marketing Mix Product Price People Processes Place Promotion Customer Service

The Paradigm of Mass Production as a Dynamic System of Reinforcing Factors New Products Mass Production Processes Low-Cost, Consistent Quality, Standardized Products Homogeneous Market Stable Demand Long Product Life Cycles Long Product Development Cycles R

The New Paradigm of Mass Customization as a Dynamic System Feedback Loop New Products Mass Customization Processes Low-Cost, High Quality, Customized Products Heterogeneous Markets Demand Fragmentation Short Product Life Cycles Short Product Development Cycles R Product Technology Process Technology R R

Six Types of Modularity for the Mass Customization of Products and Services Component – Sharing Modularity Component-Swapping Modularity Cut-to-Fit Modularity Mix Modularity Bus Modularity Sectional Modularity

Product-Process Change Matrix PRODUCT CHANGE MASS CUSTOMIZATION INVENTION CONTINUOUS IMPROVEMENT MASS PRODUCTION PROCESS CHANGE STABLE DYNAMIC STABLE DYNAMIC

Product-Process Change Matrix: The Mass Production Axis PROCESS CHANGE STABLE PRODUCT CHANGE DYNAMIC STABLE DYNAMIC MASS CUSTOMIZATION INVENTION CONTINUOUS IMPROVEMENT MASS PRODUCTION

Mass-Customized Products: Stable Processes Producing Dynamic Flow of Products PRODUCT 1 VOLUMES TIME PROCESS CAPABILITIES PRODUCT VOLUMES PRODUCT 3 VOLUMES PRODUCT 2 VOLUMES PROCESS CAPABILITIES

Mass-Customized Products: Shortening Process Life Cycles PROCESS 1 CAPABILITIES TIME PRODUCT VOLUMES PROCESS 3 CAPABILITIES PROCESS 2 CAPABILITIES ENTERPRISE ENTERPRISE CAPABILITIES AND RESOURCES PROCESS CAPABILITIES PRODUCT N VOLUMES

Product-Process Change Matrix: Virtual Enterprise Flow MASS CUSTOMIZATION INVENTION CONTINUOUS IMPROVEMENT MASS PRODUCTION PROCESS CHANGE STABLE PRODUCT CHANGE DYNAMIC STABLE DYNAMIC

Four Stages of National Competitive Development FACTOR DRIVEN INVESTMENT DRIVEN INNOVATION DRIVEN WEALTH DRIVEN Existing basic factors Abundant, cheap and unqualified labour Low investments Building general factors Cheap and qualified labour Heavy basic investments Building advanced factors Costly and highly qualified labour Productivity and innovation investments Acquired advantages Stagnant rate of innovation DECLINE? Relaunched by the stimulation of innovation

Cluster Theory Factor (Input) Conditions Context for Firm Strategy and Rivalry Related and Supporting Industries Presence of capable, locally-based suppliers Presence of competitive related industries A local context that encourages appropriate forms of investment and sustained upgrading Vigorous competition among locally-based rivals Factor quality Factor specialization Demand Conditions Sophisticated and demanding local customer(s) Customer needs that anticipate those elsewhere Unusual local demand in specialized segments that can be served globally natural resources human resources capital resources physical infrastructure information infrastructure scientific and technological infrastructure Factor (input) quantity and cost

Management of Industrial Customer‘s Portfolios I For a continuous supply case Existing customer Prospect Structural Attractiveness Structural Attractiveness Customers to be kept without over investing Customers justifying an overinvestment Customers to be kept with minimum investment Customers to be examined in a selective way Prospects to be cultivated with tenacity while expecting an opening “ hot” prospects justifying a strong investment Prospects not to be worked on intensively “ hot” prospects justifying only a limited investment Development possibilities Penetration possibilities

Management of Industrial Customer‘s Portfolios II Case of discontinued supply Structural Attractiveness To follow up on a major customer if the deal is not too unfavourable Major opportunity justifying a major investment To decline and not to be followed To grasp an excellent deal if the customer is acceptable Transaction attractiveness

The Marketing Exchange Process I Middlemen Wholesalers Retailers Many individual Suppliers (heterogeneous supply) Perform universal marketing functions of buying, selling, transporting, storing, marketing, information, standardization and grading, financing, and risk taking To overcome discrepancies of quantity and assortment, and to overcome separation of space, time, information, values and ownership To create form, time, place, and possession utility and direct the flow of need – satisfying goods and services Too many individual Customers (heterogeneous demand) Facilitators - Ad agencies -Marketing research firms -Product testing labs -Public warehouses -Transportation specialists -Financial institutions

The Marketing Exchange Process II Raw materials End user Components Finished product Retailer Wholesaler Upstream exchange Supplier Customer Downstream exchange

The Producer – Customer Gap Specialization and division of labour result in heterogeneous supply capabilities PRODUCTION SECTOR Heterogeneous demand for form, time, place, possession utility to satisfy needs /wants CONSUMPTION SECTOR Scattered Many locations CUSTOMERS Consumption usually not at time of production (exception: services) Don’t know what is available from whom, where, when, what price Value goods and services in terms of economic utility and ability to pay Want to consume goods which they don’t own Prefer to buy and consume in small quantities Purchase a broad assortment Clustered Few locations PRODUCERS Time required to bring goods to market Don’t know who needs what, where, when, what price Value goods and services in terms of costs and competitive prices Hold title to goods which they don’t consume Prefer to produce and sell in large quantities Produce a narrow assortment SPACE OWNERSHIP TIME VALUES QUANTITY ASSORTMENT INFORMATION Marketing needed to overcome gaps

The Value Chain Value chain of a computer manufacturer Component suppliers Computer manufacturer Retail outlets End users: Individuals, Companies Component Purchasing R & D Marketing Manufac-turing Product Design Make or buy?

Make or Buy Advantages of Making Low costs Better quality Unique characteristics Better time management Control of proprietary information Etc… Risks tied to Outsourcing Size, power of producer Technical capacity of buyer Number of transactions involved Etc... Low Low High High Buy Partnership Make Weak control needed Moderate control needed Strong control needed

Market Structure: Actual / Potential Market Potential market (100%) Accessible market (80%) Qualified market (50%) Serviced market (20%) Total population (100%) Actual market (2%) Potential market (100%)

Market Segmentation Strategies a) Product variety: no segmentation Need Analysis Program A Program B Program C Program for Segment B Program for Segment A Program for Segment B Need Analysis Need Analysis Program for Segment C MARKET FIRM FIRM FIRM c) Multi-segment marketing b) Concentrated marketing Segment B Segment C Segment A Segment C Segment B Segment A

Factors Affecting the Choice of Target Markets Needs / wants of end-users Market size / structure Decision-maker preferences and corporate culture Resources / capabilities of the firm Firm / brand market share, sales projections Competitive activity Political pressures and lobbying Production / marketing, scale economies Choice of target markets

The Use of Marketing Information I Marketing Information System Environment Target markets Distribution channels Competitors People Macro-environment Marketing Manager Analysis Planning Execution Control Data Information Accounting system Market studies and research system Marketing models system Accounting system M. I. S. / M. D. S. S.

The Use of Marketing Information II Evolution of information needs Product orientation Customer orientation 1960 Personalized target communication Mass media advertising General information Specific information Customized marketing Mass marketing Customer equity 1970 1980 1990

The Use of Marketing Information III The Marketing Information Value Chain Data collection and transmission Customer files Diary panels POS scanner Data management Data interpretation = Information Marketing-related models Decision Support Systems E.I.S. DB2 Oracle DB3 Paradox Promoter, ADCAD Conjoint (choice) MDS (position) Expert systems: Salespartner Coverstory Collect Organise Describe Represent Explain Recommend

Approaches to the Study of Customer Behavior HOMO ECONOMICUS Rationality: revenue determines consumption level price determines consumption allocation Unlimited needs: utility and satisfaction maximization Perfect knowledge of needs and of products to satisfy them Deterministic choice Product functionality Objective Subjective Product symbolism Degree of involvement Imperfect knowledge, stochastic choice Limited needs: satisfiers Irrational action: needs / wants / hopes, dreams,… Feelings, emotions / unconscious motivations HOMO PSYCHOLOGICUS

Group Influence on Buyer Appraisal of Product and Brand Group influence on product category Group influence on product brand Strong Weak Strong Weak automobiles cigarettes beer,wine clothes furniture watches cellular phones instant coffee color TV detergent canned food garbage bags

Attitude Based Decision Process: AIDA (Attention, Interest, Desire, Action) Awareness, perception Preference, choice Post-purchase reaction (cognitive dissonance) Desire Action Attention Interest Purchase Yes / No Cognitive Affective Conative

The 6 – Step Marketing Plan 1 2 3 budget allocation: product promotion price distribution 4 5 6 Action plan Forecasts Control quantify: costs sales profits market share organization structure measurement tools check frequency => Corrective actions firm market industry competition environment Situation (SWOT) Objectives Strategy sales market share market expansion leadership satisfaction segment – target price / quality product positioning differentiation diversification Marketing Plan

SWOT Analysis I Market share Key account share Growth rate Supply diversity Influence On market Purchasing / selling deadline New products cycles Negotiation power - firm suppliers - customers STRENGTHS / WEAKNESSES Firm, Organization OPPORTUNITIES / THREATS Environment, Market, Industry Market size Key account size Annual growth rate Market diversity Price sensitivity Seasonality Cycles Negotiation power - suppliers - consumers Competitor types Concentration level Intrants / extrants Market share evolution Vertical / horizontal integration Technology substitution Firm competitivity - Product, service - Profitability, H.R., … Segments invested in Firm’s integration level High-tech vulnerability MARKET COMPETITION

SWOT Analysis II Firm margins Economies of scale Barriers Production capacity level STRENGTHS / WEAKNESSES Firm, Organization OPPORTUNITIES / THREATS Environment, Market, Industry FINANCE / BUSINESS TECHNOLOGY SOCIO - POLITICAL Reactivity / Flexibility level Adaptability Agressiveness Working relationships Attitudes / Social trends Laws and regulations Pressure groups Trade union activities Adaptability to change Expertise / Know-How Patent ownership Production technology Maturity / volatility Complexity Differentiation Patents and copyrights Production technology Global benefits Economies of scale Barriers Production capacity level

Sources of Market Uncertainty What needs might be met by the new technology? Market Uncertainty How large is the potential market? How will needs change in the future? How fast will the innovation spread? Will the market adopt industry standards?

Sources of Technological Uncertainty Will the new product function as promised? Technological Uncertainty Will new technology make ours obsolete? Will the delivery timetable be met? Will there be side effects of the product or service? Will the vendor give high-quality service?

A Taxonomy of Marketing Situations Based on Technological and Market Uncertainty Better Mousetrap Marketing High-Fashion Marketing Low-Tech Marketing High-Tech Marketing Market Uncertainty Technological Uncertainty High Low Low High

New Age Pricing Average Unit Customer Value Amount of Pricing Discretion Average Unit Cost $ Unit Volume

Performance – Based Pricing P-BP provides more customer value through: Goal alignment Overpay Insurance Clearer information on customer needs & objectives. Customer Value Cost P-BP provides lower vendor cost through: Goal alignment Under payment insurance Less wasted effort for things the customer doesn’t value. With Performance – Based Pricing Without Performance – Based Pricing Cost Customer Value

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