Marketing Q1

Marketing
The art and science of creating value by designing and managing successful exchanges.
Dual Value Creation (view of marketing)
The process by which companies create value for customers and build strong customer relationships in order to capture value from customers in return.
Three types of value of offerings (for customers)
Functional, monetary, psychological
Examples of value for firms
Revenue, profits, customer lifetime value, brand equity
Product Orientation
An approach to marketing prominent from the industrial revolution until the 50s/60s that focuses on the dimensions of price and quality. ie. capturing market share and gaining profit. Declined due to global competition and an incredibly borderless environment, highly informed and empowered customers, and shortening of product lifecycles/quick innovation.
Sales Orientation
The age of “Madmen”. Focus on ad agencies and utilizing mass media.
Demand Orientation
An approach to marketing prominent in the 70s that is thought of as the classic “marketing concept”. Desires of customers should guide the actions of the firm. Criticisms: stifling to innovation, customers don’t know what they want (Steve Jobs), little differentiation b/w products can lead to a “race to the bottom”.
Competitor Orientation
An approach to marketing prominent in the 80s that focused on the competition which led to price wars and utilization of game theory-like tactics. Ultimately failed due to marketing myopia–lost sight of what was important: the customer!
Customer Centric Orientation
An approach to marketing that relies on the idea of customer centricity (and that customers do not buy products, they buy value, and that not all customers are created equally) 4 Pillars: philosophy, business orientation (outside in) organizational structure and focus, leveraging customer relationship management (CRM) data and long term metrics.
Customer Centricity
Aligning your entire company’s development and delivery of products and services with the current and future needs of a select group of customers in order to maximize their long-term financial value to the firm.
Outside-in strategy
A type of business orientation that starts with the customer and works inwards (to the company)
CRM
Customer Relationship Management. A way to create and maintain a relationship with an individual customer to build lifetime value. Requires a company to Identify, Differentiate, Interact, and Customize.
5 C’s of Marketing
What needs to be taken into account when doing strategic analysis: Company, Customers, Collaborators, Competitors, and Context
Company (5 C’s)
Depends on the development of distinctive and hard to imitate resources. Think SWOT: strengths, weaknesses (internal factors), opportunities, threats (external factors)
Customer (5 C’s)
Needs of this group are key decision and value drivers. Can be segmented and targeted, and provide CLV to the company.
Collaborators (5 C’s)
Partners, suppliers, and distributors that leverage strengths to reach common goals.
Competitors (5 C’s)
Take up market space, requires companies to consider/engage in positioning.
Positioning
How a firm’s offerings are perceived relative (in comparison!) to the competitive offerings. Requires you to differentiate your product from the competition via a unique marketing mix. An internal statement outlines the essence of the strategy, uses the marketing mix (4 P’s).
Context (5 C’s)
Consists of market potential and market attractiveness, and Macrotrends known as PEST.
PEST
Macrotrends that include political and legal, economic, social, and technological.
SWOT
Internal and external factors that companies need to take into account: strengths and weaknesses (i) and opportunities and threats (e).
Optimal Value Proposition
The ideal combination/balance of customer, company, and collaborator value. Defines the value that an offering aims to create for the relevant participants in the market (customers and collaborators) in a way that enables the company to achieve its strategic goals. (3 V principle)
4 P’s (marketing mix)
Tactical implementation of the marketing strategy: price, product, promotion, and place.
Marketing Plan
A plan that engages in analysis, strategy, and tactical implementation; including the 5C’s, STP, the 4 P’s, and metrics. Comprised of 4 key components: executive summary, situation analysis, GSTIC action plan, and exhibits.
STP
Segment, Target, & Position
CLV
Customer lifetime value. The monetary value a customer will generate for a firm over their lifetime. Retention rate has the biggest impact on this number.
Ways to increase CLV
Customer acquisition, expansion, and retention
Customer Acquisition
The act of acquiring new customers. Should focus on “best” type of customers in order to justify the acquisition costs.
Customer Expansion
The act of selling new products/different lines to the customers a company already has (cross-selling). This increases margins.
Customer Retention
The act of maintaining customers by increasing satisfaction, reducing churn, and increasing loyalty. The best indicator of long term success
“80/20” Rule
The heuristic that suggests that the best customers account for the most of the revenue. (80% of rev. generated by 20% of customers)
The Essence of good marketing
discrimination (being able to differentiate between consumers, products, markets etc.! tho esp. customers)
Customer Equity
The combination of direct, information, relationship, and communication value a customer provides.
Customer Decision Making Process
need recognition–information search–evaluation of alternatives–purchase decision–postpurchase behavior
Evaluation of Alternatives
Part of the customer journey that is influenced by motivation (high effort vs. low effort) and perceived cost, risk, and personal relevance.
Multi-Attribute Model
A way to measure the attitude towards a brand by summing the strength in the belief in the attribute weighted by the importance of the attribute.
Ab =Σ(Bi * Ii)
Heuristics
Rules of thumb; a method of low effort decision making that is automatic and resource saving.
Post Purchase Processes
Part of the customer journey/loyalty loop that is heavily reliant on customer satisfaction, equity/fairness, and expectations.
Equity
The idea that people evaluate a transaction according to the rewards and costs, which corresponds to the positive and negative derived from the exchange. (subtract costs from rewards, and compares to expectations/alternatives) Asks, was the exchange fair?
Disconfirmation
Satisfaction (or dissatisfaction) occurs when there is a discrepancy (+/-) between expectations and the offering’s actual performance. ie. when expectations are disconfirmed. Can be modeled by the equation Satisfaction=f(perceived performance-expectations)
Mass Marketing
Using the same product and marketing mix for EVERYONE. An undifferentiated, one-for-all strategy that is simple and efficient on the supply side.
Segmentation
The process of dividing markets into distinct subsets of consumers with common needs and characteristics.
Targeting
When you chose one or more specific segments of consumers to direct your attention (target). Must take into account attractiveness, compatibility, and competitors.
Criteria for Effective Segmentation
Relevance, Homogenous within (similarity), Heterogeneous between (exclusivity), Comprehensive, and Operational (measurable, accessible, actionable)
Segmentation Methods
Cluster and factor analysis, and qualitative insight
Micro Segmentation
When you segment so much that you end up moving toward a one-for-each strategy. (segments of one individual–too narrow)
Attractiveness (targeting)
Determined by segment size, growth, value, and stability.
Compatibility (targeting)
Determined by company position within segment (ease of entry and ability to reach/serve customers in the segment)
Competitors (targeting)
The number and strength of these can make entering/serving a particular segment difficult.
Marketing Mix
The 4P’s; tactical implementation of a marketing strategy. Heavily involved in positioning. Can also be expanded to 7 including: product, service, brand, price, incentives, communication, and distribution.
Positioning Statement
Follows the formula: To (target segment and need) our (brand) is the (concept) that (point to difference/reasons to believe)
Brand
A proprietary trademark for a specific product or service. A conceptual “contract” from the company to its customers that promises SPECIFIC benefits, quality, value, and experiences. KEY contributors to a firm’s value. Brand can impact an experience for the customer–dependent on a strong relationship and an emotional connection.
Brand Value
Has both tangible and intangible benefits that creates value for the customer (trust, reduced risk) and for the firm (brand equity, longer revenue streams, longer product life)
Brand Equity
The commercial value that derives from customer perception of the brand name of a particular product or served, rather than from the product or service itself. (strong brands have higher market share, prices, and margins!)
Associations
Dimensions of meaning surrounding a brand that have to do with its image.
Brand Personality
Goes beyond brand image, it is used to personify a brand. 5 dimensions: sincerity, excitement, competence, sophistication, and ruggedness
Brand Keys
Brands create differentiation, and consistency (amongst brand elements, products and services, and associations)
Hierarchy of Brand
Awareness(category identification, recall and recognition)–meaning (brand attributes and personality)–reactions (judgements and feelings)–relationship (loyalty)
Business Models
universal, intangible, and value focused outline of the architecture of value creation that defines the entities, factors, and processes involved in delivering and capturing value in the marketplace. (exs. include razors-and-blades, freemium, bricks-and-clicks, and franchising)
Top-Down Business Model
A model that starts with a broader consideration of the target market and the relevant value exchange. (And then followed with designing a specific offering)
Bottom-Up Business Model
A model that starts with designing the specific aspects of an offering and then followed up by identifying a target market and developing the OVP.
Marketing Myopia
Term used to describe a company’s exclusive focus on product development while losing sight of underlying customer needs.
Strategic Business Unit
An operating company unit with a discrete set of offerings sold to an identifiable group of customers, in competition with a well-defined set of competitors.
G-STIC
Goal-Strategy-Tactics-Implementation-Control Framework for market planning. (S+T=business model, and C=metrics for measuring success)
Goal (GSTIC)
Identifies the ultimate criterion for success that guides all company marketing activities. Defines the focus and benchmarks.
Strategy (GSTIC)
The logic of the value-creation model. Comprised of determining the target market and the value proposition.
Tactics (GSTIC)
The specifics of the marketing offering–the marketing mix (4P’s etc.)
Implementation (GSTIC)
The logistics of developing the offering. Includes organizational infrastructure, business processes, and implementation schedule.
Control (GSTIC)
The process of evaluating goal progress by using metrics to evaluate performance and monitor the environment.
Value-Based Factors
Factors used in segmentation that reflect customers’ needs and their willingness and ability to pay for the company’s offerings.
Profile-Based Factors
Factors used in segmentation that reflects customers’ easily observable characteristics such as age, gender, income, social status, geographic location, and buying behavior.
Strategic Targeting
Targeting that focuses on the value defined by customer needs and the potential to create value for the company. Emphasizes target attractiveness and compatibility.
Tactical Targeting
Targeting that focuses on customer profile to identify effective and cost-efficient ways to reach these customers. Emphasizes behavioral and demographic factors.
MECE Rule
A popular segmentation heuristic stating that segmentation should yield segments that are both Mutually Exclusive and Collectively Exhaustive.
Psychographics
Relatively stable individual characteristics such as personality, moral values, attitudes, interests, and lifestyle.
Loss Aversion
An aspect of the value function that states that people put more weight on losses than gains. A positive discrepancy is not as dramatic as a negative discrepancy b/w expectations and performance.
Point of Parity
Attributes on which an offering’s performance matches that of the competition
Points of Difference
Attributes on which an offering’s performance are different from that of the competition
Strategies for creating superior customer value
Improve performance on a given attribute, add a new attribute on which the offering has an advantage, increase the perceived importance of an attribute on which the offering has an advantage (VISA)
Frame of Reference
Provides customers with a benchmark for assessing the value of the offering. 5 types of frames can be distinguished: need-based, user-based, category-based, competitive, and product-line
Market-Growth Strategy
Aka primary-demand strategy of increasing sales volume involves increasing sales volume by attracting new-to-the-category customers.
Steal-Share Strategy
Strategy of increasing sales volume that involves growing share volume by attracting customers who are already category users and are buying competitor’s offerings.
Market-Penetration Strategy
Strategy of increasing sales volume that involves increasing sales volume by increasing the quantity purchased by the company’s own customers.
Increasing sales revenue
Prevalent approach to achieving long-term profitability. Increasings revenues can be achieved through growing sales volume and optimizing price.
Ethics
Adhering to some agreed upon human values: typically rights, obligation, benefits to society, fairness, and honesty
Unethical marketing practices
Unsafe products, knockoffs, planned obsolescence, mislabeled products, price gouging/fixing, deceptive advertising/sales techniques, puffery
AMA
American Marketing Association
AMA Ethical Norms and Values
Norms: do no harm, foster trust in the marketing system, embrace ethical values.
Values: honesty, responsibility, fairness, respect, transparency, citizenship
CSR
Corporate Social Responsibility. A form of voluntary corporate self-regulation integrated into a business model whereby a company monitors/ensures active compliance with the sport of law, ethical standards, and national/international norms. (SOCIAL GOOD)
Moral Reasoning Model
A series of 7 questions to direct decisions in the marketing world. relevant facts? ethical issues? primary stakeholders? possible alternatives? ethics of the alternatives? practical constraints? actions should be taken?
Unit Contribution
Revenue per unit – variable costs per unit.
(where VC change w/volume of production ie. manufacturing, shipping, sales commissions. FC, on the other hand, stay the same regardless of level of production. i.e.. executive salaries, rent, insurance, other overheads)
Contribution Margin
Unit Contribution / Revenue per Unit (a relative measure of assessing unit contribution compared to a selling price expressed as a percentage %)
Margin Analysis
Requires you to analyze the contribution margins through the value chain.
Break-Even Volume (BEV)
Fixed Costs / Unit Contribution (the number of units you need to sell to cover total fixed costs, is used to make decisions about new investments)
Sales/Revenue Market Share
Firm sales / total market sales (the percentage of sales accounted for by that firm, within the product category)
Volume Market Share
Firm units sold / Total market units sold (the percentage of units accounted for by that firm, within the product category)
Customer Market Share
Firm customers / total customers (the percentage of customers the firm has relative to the total customers)
Profit Impact
[Unit Contribution * Units Sold] – Fixed Costs (impact of a product on company profits–one can also use this expression to compute the number of units that must be made/sold to achieve a specific profit target)
CLV (calculation simplified)
Annual Contribution per Customer*Years as Customer
(Net present value (NPV) of all future streams of profits that a customer generates over the life of their business with the firm) SIMPLIFIED FORMULA
CLV (calculation using margin multiple)
Profit Margin* Margin Multiplier m(r/(1+i-r))-AC
where m=margin, i=discount rate, r=retention rate, AC=acquisition cost
Margin Multiplier
r/(1+i-r)
Sunk Costs
Cost items that are considered unrecoverable when money has already been spent. Expenses that have already occurred in the past. Do not take these into account
Return on Marketing Investment (ROMI)
Incremental Gain from Investment / Cost of Investment
(measure of efficiency of the investment that can be expressed in terms of net income, sales revenue, market share, or contribution margin)
Vertical Brand Extension
Stretching a brand to products/services in a different price tier.
Horizontal Brand Extension
Stretching a brand to different product category, typically in the same price tier.
Brand Essence
The fundamental nature of a brand, also referred to as “brand promise.” Distills the meaning of the brand into one key aspect–the positioning.
Branded House
Term used in reference to the branding strategy in which a company’s brand is used on all of the offerings in its brand portfolio.
House of Brands
Term used in reference to a branding strategy in which a company holds a portfolio of individual and typically unrelated brands.
Adoption Process
Awareness–attractiveness–affordability–availability–purchase
Consumption Variables
satisfaction, usage frequency, usage quantity, replacement frequency, availability. These are the key factors in influencing consumption quantity
Puffery
Suggestive exaggerating in advertising (ex. the best of the best)
Triple bottom line of CSR
1. People (social) 2. Planet (environmental) 3. Profits (economic)
Churn
The replacement of old customers with new ones, without any growth. (Spinning wheels but getting no where)