Mkt 450 exam 1 review

Example: Sears & Roebuck (US)

"Big Book" catalog Once very successful broad line catalog operation, offering "something for everyone" Over time, other firms identified and went after the best and most profitable sub-segments This left Sears with a broad portfolio of diverse customers in less desirable segments that were often slow growing and less profitable, and ultimately, the end of the "Big Book"

Firms are Shifting Toward a Customer-Centric Structure

"So rather than relying on a structure focused on the company's discrete product lines, Intel's reorganization will bring together engineers, software writers, and marketers into five market-focused units: corporate computing, the digital home, mobile computing, health care, and channel products—PCs for small manufacturers." (BusinessWeek).

Building SCAs is Key Since "All Competitors React"

"The art of war teaches us to rely not on the likelihood of the enemy's not coming, but on our own readiness to receive him; not on the chance of his not attacking, but rather on the fact that we have made our position unassailable."

Marketing-Based Sources of Sustainable Competitive Advantage

1. Brands - most effective in large consumer markets and for consumer goods (e.g., Nike) Advertising, PR, sponsors 2. Offerings - new and innovative products and services have the potential to disrupt virtually any market segment (e.g., Tesla) R&D, new products and services, new technologies 3. Relationships - most effective in business-to-business, service, and complex or risky offering settings (e.g., Chase, Aveda) Salespeople, any boundary spanner, online relationships These three sources are additive and often work synergistically to give a firm a strong relative position in the marketplace

Elements Critical to Marketing Strategy

1.Leads to a differential advantages over competitors 2.Sustainability of that advantage 3.Ability to enhance firm performance 4.Customer perspective 5.Guides decisions and actions

Choice Models are Excellent for Determining "Best" AER Strategies

After determining AER positioning for each stage and ranking personas on CLV, then you need to develop effective AER marketing strategies Use database of past marketing actions and demographics linked to actual customer responses (choices - e.g., purchases) in a stage E.g., how does age, kids, credit, marketing communications, etc... impact purchases? E.g., what is the probability of upselling?.... retaining?

Technology and Innovation Example: Creating New Categories

ApplePaypalTesla Amazon?

1. Lifecycle Perspective: "Ok" First Approximation

Assumes "all" customers, markets, products, industries move thru a sequential set of "stages" as they mature Applies a standard set of marketing tactics at each stage (i.e., averages each customer) Pros: -Easy to apply -Makes common sense Cons: -many unique trigger points and migration paths (ignores temporal heterogeneity, i.e., dynamics) ---Assumes average rate of change -Inaccurate and/or ineffective for many firms

NETFLIX CLASS EXAMPLE. TAKE 10 MINUTES TO THINK ABOUT THESE....(WILL DISCUSS AS CLASS)

CLV: Who are Netflix's "BEST" EXISTING customers? Why?CLV: Who are Netflix's "BEST" customers to target for ACQUISITION? Why?CLV: Who are Netflix' "WORST" EXISTING customers? Why?CLV: Who are Netflix's "WORST" customers to target for ACQUSITION? Why?Now what about the "BEST" for REFERRALS?And the "WORST" for REFERRALS?

Example: Cloud Alchemist - Grew CLV value 2x in less than a year

Cloud Alchemist - boutique vapor liquid brand out of Seattle that designs and produces its own products. Personal connections Active in community (online and offline) Transparent, 'personalized' automated emails Handwritten thank you notes with order Customer loyalty program

Customer Equity Perspective

Customer equity = "the total of the discounted lifetime values of all its customers" -Individual-level CLV's added together = Brand Equity (B) + Offering Equity (O) + Relationship Equity (R) -Often is the best barrier (SCA) to competitive assault -AKA BOR Equity Stack What do firms do to increase brand, offering, and relational equities? -Advertises to build strong brands (B) -Makes R&D investments to develop innovative products (O) -Spends to hire and train salespeople who can enter into relationships with clients (R)

Different Lifecycle Approaches

Customer lifecycle attempts to capture how individuals typically change as they age and reach common age-related milestones Product lifecycle proposes that various products go through four typical stages in relation to their acceptance by society: introduction, growth, maturity, and decline Industry lifecycle comprises of five stages: 1.Early establishment of its range and boundaries 2.An innovation stage to set a "dominant design" 3.The shakeout stage, marked by economies of scale, such as that smaller players get forced out 4.Maturity, when firms focus on market share and cash flows 5.The decline stage, when sales decay for the industry as a whole

EXAMPLE ROBOT RUN-Robot-Run Restaurant Eats - San Francisco Closed in 2020 (Trend) -Restaurants in Dallas and Florida using Robots as Servers and Runners (2021)

DALLAS •They compliment diners—sometimes even flirting by telling people they are pretty—as well as sing "Happy Birthday" on appropriate occasions. •"Customers treat them like pets. They hug them, they talk to them," Borga told The Dallas Morning News. •Borga told the newspaper that while he brought the bots into his eatery out of necessity due to workers not returning post-pandemic, he said they also offer savings. Each robot costs him $8 to $10 a day, Borga said. They are used in the place of one hostess and two food runners, which he said he would normally pay at least $10 an hour each. -Short-term fad or long-term phenomena? FLORIDA HAS DIFFERENT TAKE... •Robot (Peanut) greets guest and takes to table.•Human server takes order. •Another robot brings food to table (and ultimately clears dishes).•Can sing Happy Birthday in four languages. •But... "they can get a little annoying sometimes".... "Once Peanut started freaking out when its battery was low. It was saying to us, 'I have to go back! I have to return myself!' and we couldn't find the volume button." -•Short-term fad or long-term phenomena?

RFM Analysis is "Poor Man's" CLV

Direct marketers have been using a simplified version of the CLV for decades, targeting customers to receive expensive catalog mailings. They use three readily available customer behaviors: -Recencyor time elapsed since last purchase -Frequency of purchases in last period -Monetary purchases in last period These RFM (recency, frequency, and monetary) variables put customers in rank-ordered groups, based on their value in the past year (not by modeling but by rank-order sorting) Using the profits generated from a test mailing to a few customers from each group, direct marketers then mail materials only to the groups with an acceptable return on investment

2. Customer Dynamic Segmentation Approach

Evaluates existing customer's behaviors/needs in each AER (acquisition, expansion, retention) stage to understand temporal differences -Customers are "temporally" similar in each stage (assumption) -Matches marketing action domains (i.e., acquisition is often a self-contained marketing domain) Dynamic-based segmentation is sometimes called the Acquisition-Expansion-Retention (AER) model, because it captures customers entering the firm's portfolio and expanding over time, even as other customers slowly leave

Natural Experiments (Data Mining)

Example: -Competitor entered three markets and your sales force has responded differently --matched price --held price -- gave free shipping Use differences in effect on sales to see what is best strategy S-trategies may work better for some customers than others (segment and test)

3. Customer Lifetime Value (CLV) is a Key Analysis Tool for Making AER Decisions

How do you know best customers to acquire/expand/retain? -In many banking initiatives only 1 in 3 "customers" remain after incentive ends -Are all customers worth acquiring or retaining? CLV approach:evaluates a firm's profit as the sum of EACH customer's lifetime discounted cash flows Approach captures "true" contribution of each customer at any stage by accounting for: -Customer heterogeneity and dynamic effects (individual level, uses transition expectations, and discounts future profits) -Tradeoffs among AER strategies (e.g., how acquisition may affect retention) Does NOT assume all customer's have the same financial value!

5 Sources of Customer Heterogeneity

Individual differences -(e.g., favorite color, personality) Life experiences -(e.g., cultural - spicy foods) Functional needs -(e.g., price - income, quality) Self-identity/image -(e.g., leather - motorcyclist)Marketing activities(e.g., BMW -James Bond)

Chapter 3

Marketing Principle #2All Customers Change Managing Customer Dynamics

Offering Equity (Beer itself)

Offering equity: core benefits relative to costs of an offering stripped of any benefits from brands or relationships -Price and performance only -Represents a large portion of total equity for commodity products -Does Wal-Mart have much brand or relationship equity? Less important for: -Services or high involvement products -products that provide meaning or status -Maturing markets/industries

Inputs to the Sustainable Competitive Advantage Framework

Positioning statements - answers three key questions: -Who customers are -What set of needs the product or service fulfills -Why this product/service is the best option to satisfy customer needs (relative to competition) AER strategies - provide key guidance into how a firm should invest to acquire and keep customers Future trends - long-term technology, regulatory, and socioeconomic trends, which clearly can disrupt any organization's SCAs

Who do you think would (potentially) have the highest CLV for Starship Food Delivery Robots?

Undergraduate students?Graduate students?Faculty and staff?

Outputs of the Customer Dynamics Framework

1.A description of the firm's customer personas and expected migrations to understand how they change, including:Critical life event triggersThe products and services they buy at different points in their lifecycle migration When they stop buying and whyHow they feel at different stages in their lifecycleThe CLV of customers in each persona 2.AER Positioning statements - how to best position the firm in each persona/AER stage 3.AER strategies - what marketing strategies work best for each persona/AER stage

Inputs to the Managing Customer Heterogeneity Framework

1.All potential customers -- needs, desires, and preferences across customers in an industry, geographic region, market segment, or product category 2.Your company -- an inventory of the company's strengths, weaknesses, opportunities, and threats (SWOT analysis) 3.Your competitors -- an inventory of your competitor's strengths, weaknesses, opportunities, and threats (SWOT analysis)

Outputs of Managing Customer Heterogeneity Framework

1.Industry Segmentation describes industry segments and includes, for each named segment, salient purchase preferences, demographic variables, and potential demand opportunities How can the marketplace be described using homogenous groups? What does each group of potential customers want?2.Target Segmentation moves from the overall market landscape to the specific segment(s) of interest, such that it extends the first output by providing a very detailed description of each target segment. What set of segments will the firm pursue? How does the firm identify each group of target customers? 3.Positioning Statements encapsulate the three questions into one concise statement that firms use to direct their internal and external marketing activities: who should the firm target, what needs and benefits are being fulfilled, and why does this offering provide a relative advantage over competitive offerings

Evolution of Approaches for Managing Customer Dynamics

1.Lifecycle Approach uses generic stages of growth and their position in the lifecycle to determine customer preferences and associated strategies Speed of response - SLOW; Size of segment - ALL customers 2.Dynamic Customer Segmentationsegments a firm's existing customers on the basis of their similar, expected migration patterns Speed of response - MODERATE; Size of segment - MEDIUM 3.Customer Lifetime Value captures the contribution of each customer according to their expected migration path over the entire lifetime with the firm Speed of response - FAST; Size of segment - NICHE

Why everyone is not included in your target market?

1.Saying that EVERYONE is in your target market implies that your product/service appeals to NO ONE in particular. 2.Attempting to appeal to everyone in one creative piece is a bad idea. 3.Marketing to everyone costs more money. -Average cost per lead using traditional marketing: $41 -Average cost per lead using inbound marketing: $36 What if my product does appeal to everyone??? -Define your buyer personas!!

Inputs to the Customer Dynamics Framework

1.The firm's existing customer portfolio - ideally a firm's CRM system provides detailed customer-level data for the dynamic segmentation analysis 2.Data linking past customer responses with specific marketing programs and the programs' cost 3.The qualitative and quantitative information gleaned from the lost customer analysis, which reveals the causes of customer defection, where they go, and potentially effective recovery strategies

Positioning Statement Must Address Three Key Questions

1.Who are the customers? 2.What is the set of needs that the product or service fulfills? 3.Why is this product/service the best option to satisfy your needs (relative to competition or substitute; support for why)? This statement is the roadmap for a plethora of implementation decisions involved in marketing a product (both inside and outside the company)

Evaluating a Positioning Statement Example: Ace Hotel

1.Who are the customers?. 2.What is the set of needs that the product or service fulfills? 3.Whyis this product/service the best option to satisfy your needs (relative to competition or substitute; support for why)? Does this positioning statement answer these questions?

5 Sources of Customer Dynamics

1Discrete life eventsIndividual, ImmediateE.g., first-time parent 2.Typical lifecycleIndividual, SlowAge-relatedE.g., healthcare, risk 3.Product learning effectsIndividual, MediumE.g., Need immediate shipping© Palmatier, 2017, Marketing Strategy, Palgrave. ISBN: 9781137526236.8 4.Product lifecycleProduct market, MediumE.g., More cost sensitive later on 5.Constantly changing environmental context (economy, government, industry, culture)Environment, Slow to immediateE.g., health food trends - dietary preferences EXAMPLE ROBOT RUN-Robot-Run Restaurant Eats - San Francisco Closed in 2020 (Trend) -Restaurants in Dallas and Florida using Robots as Servers and Runners (2021)

Why is CLV such a big deal?

5% increase in customer satisfaction can increase CLV by 25-95% Costs 6 to 7 x's more to acquire a new customer than keep an existing one Netflix: Average subscriber stays on board for 25 months; Binge-able shows reduced churn to 4% Starbucks: Customer satisfaction as high as 89%, average CLV $14,099 Crocs: Promotions aimed at customers predicted to church; Programs to coordinate a 'no discount' experience across site, email, and display for customers with low price sensitivity huge lift in revenue

Seriously...Customer Referrals

92% of customers trust recommendations from others over all other forms of advertising4x more likely to buy when referred by a friend Key form of customer engagement Incentivized Referral Campaigns: -Maple, on-demand meal delivery service, 'Refer-A-Friend' for $15 credit -Harry's, grooming brand, 10 referrals - free razor, 25- premium shave set; 50 - year's worth of free shaving equipment -Dropbox - 500mb of extra space for 1 new user Influencers' roles? 'Share a Coke' campaign?

Why is Marketing Strategy Key to Long-Term Financial Performance?

>Major impact on financial performance but many don't realize the scope of influences on sales and profits Grow market size (new products and services, lower prices) Grow share (better products and services than competition, higher loyalty to retain, and/or steal customers with acquisition strategies) Better prices and margins (improve loyalty, brand image, relationships, products, targeting of high margin customers) Reduce costs (WOM, brand, relationships, retain with loyalty) ------MARKETING HAS BOTH VISIBLE AND 'INVISIBLE' IMPACTS!

Sustainable Competitive Advantages (SCA)

A firm has an SCA when: -able to generate more customer value than competitive firms in its industry for the same set of products and service categories -other firms are unable to duplicate its effective strategy A good SCA meets three criteria: 1.Customers care about what this SCA offers 2.The firm does it better than competitors, which generates a relative advantage 3.Must be hard to duplicate or substitute, even with significant resources Thus, being first to market with a new idea is NOT sufficient to create a barrier to competitors. -E.g., deep-pocketed market leaders may recognize threat of an innovative new entrant and devote their resources to protect their sales to existing customers -To make an SCA hard to copy, firms often turn to key market-based sources of SCAs

Ace Hotel OLD Mission Statement

Ace Hotel is a collection of individuals - multiple and inclusive, held together by an affinity for the soulful. We are not here to reinvent the hotel, but to readdress its conventions to keep them fresh, energized, human. We accept the hotel as a potential for real, fluid community. We believe that hospitality is compassion, that it is not servility but genuine concern for others' well-being and the ability to live with empathy....We like that stories come with things and think that wherever you are, you should feel like you're there...Work can be a beautiful thing when done beautifully, and it's a lot more fun done together than apart. This, more than anything else, is why people want to sleep with us.

All Customers Change

Another underlying issue that makes marketing decisions difficult - customers change -Customer dynamicsare changes in customer preferences that occur over time Desires/needs change over time or due to specific events -Individual consumer needs change (age, experience, and due to trigger events) -Customers are embedded in industries/markets, which change overtime (PCs 20 years ago and now) So, desires/needs vary not only due to inherent differences in people (heterogeneity) but also as people and markets change (dynamics) Thus, we need to adapt our "static" segmentation of all customers based on "generic" needs (MP#1) by focusing on our existing customers and accounting for their time dependent needs (MP#2)

BOR Equity Stack

BOR equities are similar to tangible assets: -Generate a return on assets (ROA) -Can be built through investments -Depreciate over time if not maintained

CLV Accounts for Varying Profits Across Customers

Beyond 80/20 rule: firms earn 150% of their profits from 30% of their customers CLV captures these difference in your existing customers so you can acquire, expand, and retain the "best customers"

Example: Beer Equity; Experiments

Brand Equity: -Control Group: How much would you pay for a beer? -Treatment Group: How much would you pay for a Heineken beer? Offering Equity: -Blind taste test; How much would you pay for this beer? (May even test different beers to compare offering to competitors) Relationship Equity: -Control Group: How much would you pay for a beer being served by a bartender? -Treatment Group: How much would you pay for a beer being served by your favorite bartender?

Brand Equity (Beer name/label/image)

Brand equity: set of brand assets and liabilities linked to a brand, its name, and symbol, that add to or subtract from the value provided by a firm's offering -Knowledge of the brand differentially affects behavior -Brand equity "lies in the minds of the customer" Key for consumer goods, status-based offerings, and as consumption is more visible Since brand building can be hard to target, brand equity is better for offerings with large homogenous user group Hard to quickly adapt or change brand equity

Example: Brussels Airlines (Belgium)

Brussels Airlines, Belgium's national carrier, emphasizes the importance of adapting its marketing model with the changing technological trends "We have all got to digitally transform to provide the tools to our guests that can help them get through the whole air travel experience. We need to allow them to book online and do everything they need to do from their mobile devices." -Simon Lamkin, CIO

Example: General Motors

Buick: failure to manage customer dynamics -Customers needs changed, customers moved to different suppliers -Left Buick with a smaller portfolio of older customers -Brand became associated with the elderly; sales dropped 50% Acura: success in managing customer dynamics -Honda realized its customers were migrating to more expensive cars -Launched Acura: a higher priced luxury car targeted to those customers -Within a few years, Acura was one of the best-selling luxury brands in the US

Customer-Centric Approach

Company-wide philosophy that places customers' needs at the center of an organization's strategic process and uses the insights to make decisions Successful customer centricity depends on a strong market orientation A marketing orientation comprises three dimensions: 1.Intelligence generation ("We often meet with customers to understand their future needs") 2.Intelligence dissemination ("There is a high level of communication among our employees about customers") 3.Responsiveness ("We respond quickly to customers needs")

Competitive Reaction: A Fundamental Assumption of Marketing Strategy

Competitors can displace firms in many different ways, including: 1.Technological innovations that provide a platform to launch a disruptive offering 2.Exploiting changes in customers' desires due to cultural, environmental, or other factors 3.Individual entrepreneurship that constantly seeks a better way to solve a problem 4."Me-too" copycats that improve the efficiency or effectiveness of an existing execution

Segmenting (Slicing the Pie Into Pieces)

Consists of dividing the market into groups of customers where: Customers within group have very similar needs Customers across groups have different needs Needs: Needs and benefits desired by customers for your offering Segment on needs/benefits not descriptors Uses one of the "Cs" as input: customers Descriptors: Observable customer characteristics that help you find and classify customers (e.g., gender, age, income, size, education, etc.)

Differences Between Corporate Strategy and Marketing Strategy

Corporate Strategy-Decisions and actions focused on building a sustainable differential advantage, relative to competitors, in the minds of customers, to create value for stakeholders. The overall scope and direction of a firm and the way in which its various business operations work together to achieve particular goals. Marketing Strategy-Corporate Strategy Decisions and actions focused on building a sustainable differential advantage, relative to competitors, in the minds of customers, to create value for stakeholders.

Exercise on Customer Heterogeneity

Favorite retailer? -Why? ---Reason #1 --Reason #2 How could this one retailer be the best at satisfying all of you? Target segment?

Customer Heterogeneity: A Fundamental Assumption of Marketing Strategy

Fundamental "problem" that all firms must address !May be 'visible' differences but also can be latent or hidden Customers vary on some underlying preferences, but no firms are supplying offerings that fit their desires, so those preferences are not evident Customers might not even know of their diverse preferences, because they have no options to evaluate Assuming all customers are the same is a recipe for failure, at least in the long term. Competitors will better satisfy subsegments with more aligned offerings, leading to a downward spiral in which the firm has fewer, less profitable customers that are more costly to serve ---Marketing principle #1: all customers differ and an effective marketing strategy must manage ever-present customer heterogeneity

Example: AT&T (US)

In 1984, AT&T lost its U.S. government-granted monopoly, so direct competition began By 1991, the company lost 83% of its sales revenue Deregulation of this market allowed for the entrance of many new competitors, determined to satisfy customer needs better Western Electric (the subsidiary of AT&T) came to an end in 1995

Marketing Principle #1: All Customers Differ Managing Customer Heterogeneity

Inputs (3Cs)- --All Potential Customers-•Needs•Demographics•Size, growth, perceptions --Your Company•Strengths and weaknesses•Opportunities and threats --Your Competitors•Strengths and weaknesses•Opportunities and threats Outputs (STPS) --Industry Segmentation•Customer segments•Needs, demographics, and opportunity of each segment --Target Segment•Detailed needs, demographics, and value of target segment(s)•Discriminant function •Relative perceptions --Positioning Statement•Who (target segments)•What needs/benefits•Why (relative advantage & support)37

Marketing Principle #2: All Customers Change Managing Customer Dynamics

Inputs (CRM Data) -Your Customers•Individual customers' sales, margins, costs•Behaviors/needs over time/events -Past Marketing Programs•Source of customers•Past programs targeted at specific customers -Lost Customers•Cause of defection•Characteristics of lost customers Outputs STP -Segmentation of Customers•Customer personas•Needs and CLV of personas•Why and how they migrate -AER Positioning Statements•How best to position the firm in each persona/AER stage -AER Strategies•What marketing strategies work best for each persona/AER stage

Marketing Principle #3: All Competitors React Managing Sustainable Competitive Advantage

Inputs(Mp#1 & Mp#2) Positioning Statements- •Target (external customers)•AER (internal personas) AER Strategies- •What strategies work best for each persona/AER stageFuture Trends• Technology trends- •Regulatory trends•Socioeconomic trend Outouts (SCA, BOR) SCAs- •Existing SCAs, why you win now•Future SCAs, how you will win in future BOR Strategies- •Brand strategies•Offering/innovation strategies•Relationship marketing strategies

Customer Equity Perspective Offers Many Benefits But It Is Hard to Do

Involves building and maintaining a parallel "customer-centric accounting process," outside the firm's normal financial accounting process Three main arguments for using customer equity accounting and a BOR equity stack 1.BOR equities are often the primary source of a firm's SCA 2.To make optimal decisions, a firm needs a framework that measures, tracks, and reports customer equities 3.Effective customer equity systems represent a SCA in their own right

Evaluating a Positioning Statement

JC Penney: For [Modern Spenders and Starting-outs in mid-income levels who shop for apparel, accessories, and home furnishings] we offer [private-label, supplier exclusive, and national brands] that [deliver greater value than that of our competitors] because of [our unique combination of quality, selection, fashion, service, price, and shopping experience]. 1.Who are the customers? 2.Whatis the set of needs that the product or service fulfills? 3.Whyis this product/service the best option to satisfy your needs (relative to competition or substitute; support for why)?

Latent Customer Heterogeneity

Latent customer heterogeneityis defined as potential differences in desires that are unobserved and have not become manifest in customer purchase preferences or behaviors yet Latent customer heterogeneity can stem from several constraints: -Legal constraints (government regulations, patents) -Economic constraints (prohibitive prices, due to the size of the market or the costs of providing) -Technological constraints (only way known to make something) -Innovative constraints (no firm has yet identified and satisfied the need)

Example: Apple (US)

Launch of Apple's iPhone catalyzed explosive growth of smartphone market Market grew from 109 million units to 486 million in 5 years (2007-2011)... iPhone's market share increased from 3.3% to 18.4% (2007-2011)... Apple maintains premium price but things have changed2019 - Apple 10.1%, Samsung 22.7%, Huawei 17.6%2018 - World's first public company to be worth $1 trillion Marketing strategy's 'invisible' impact: -Brand (Apple & Steve Jobs), Services, Brand Loyalty -Most valuable brand 8 years in a row (2010-2018), valued at $182.8 billion (Forbes list)

Lost Customer Analysis Informs AER Strategies

Lost customers provide extremely valuable information! Contact customers that have migrated away, to identify the cause for this change, then works backward to fix the problem and ensure other customers don't leave for the same reason Takes a significant number of lost customers before a firm recognizes that it isn't just "normal" customer churn but rather an indication of an underlying problem

Why a First Principles Approach to Marketing Strategy?

Managers are being overwhelmed with more and more analysis tools, processes, and research techniques, but hard to know when to apply each one Why not just use "case" examples? -Hard to find a case example for every marketing problem -Often what works for "case firm" will not work for your firm because: --Different customers --Different stage of product or industry lifecycle --Different competitive situationDifferent resources Thus, a key requirement for making good marketing decisions is to identify underlying building blocks on which the decisions depend. First Principles approach argues that marketing strategy is the pursuit of solutions to four fundamental marketing problems and organizes all frameworks, processes, and analyses to solve these problems.

Chapter 4

Marketing Principle #3All Competitors React Managing Sustainable Competitive Advantage

Chapter 1

Marketing Strategy: Based on First Principles and Data Analytics

Chapter 2.

Marketing Strategy: Based on First Principles and Data Analytics

Marketing principle #2

Marketing principle #2: all customers change and an effective marketing strategy must manage customer dynamics

Customer-Centricity is Key to an Effective Marketing Strategy

Marketing strategy consists of decisions and actions focused on building a sustainable differential advantage, relative to competitors, in the minds of customers, to create value for stakeholders. Customer ultimately determines strategy's success or failure

Example: Maruti (India)

Maruti (now Maruti-Suzuki) led India's domestic automobile market for nearly 30 years, largely because of laws that limited the entry of foreign firms (Note: This goes back to class discussions on latent customer differences due to regulatory restrictions) With a liberalized market, new players such as Volkswagen and Ford have increased the competitive pressure on Maruti, which thus far has proven unable to reinvent itself to serve India's younger, more affluent middle class... many upcoming launches.© Palmatier, 2017, Marketing Strategy, Palgrave. ISBN: 9781137526236.12

All Customers Differ

Most basic issue facing marketing managers: all customers differ -Customer heterogeneity is variation among customers in terms of their needs, desires, and subsequent behaviors In response, firms are targeting smaller & smaller segments -Mass marketing → niche marketing → 1 to 1 marketing -Needs of each group are more similar as they get subdivided into smaller units, until focus reaches an individual customer -Competitive race as firms target smaller segments -But, it is hard to effectively compete in all segments

Example from above: Philips (Netherlands)

Netherlands-based technology company Over past 125 years, Philips innovated its marketing strategy many times to remain competitive Company builds a strong presence in each market to understand the local market and customer desires Innovates continually; created "technology incubator" to develop new technologies Customer-centric view --->success

Example: Positioning Without Alienating

Nike: Colin Kaepernick vs. Serena Williams Pepsi: Kendal Jenner vs. Cardi B Chick Fila: LGBTQ+ rights Pepsi Kendal Jenner vs. Heineken Open Your World Social, political marketing - For better or for worse?To take a stance or not?

CLV Accounts for the Time Varying Profits of Your Customers

On average, annual earnings typically increase over a customer's life due to cross/up-sellingBut, some customers are more costly to acquire or retain (lowering prices, high service levels)

What Does it Mean for a Firm to be Customer Centric?

Places customer at center of organization's vision/mission/strategy/structure/culture/metrics Input: uses customers' needs to drive decisions -Customer and channel councils -USAA managers spend a day per month in call center Output: measures success from customer's perspective -Customer satisfaction -Net Promoter Score (NPS), loyalty -**Online engagement Processes: systems to link customer data to all aspects of firm -Compensation (Enterprise car rental) -Scorecards and dashboards

"Customer Equity" a Different Measure of a Firm's Most Important Assets

Premise: Customers are considered a financial asset, which should be measured, managed, and maximized -Treat customers just like other assets even though accountants typically don't treat "customers" as an asset -Customer equity is not captured on a balance sheet: spending on building equity (e.g., brands, R&D, relationships) is treated as an expense Why bother with customer-centric accounting: 1.Primary driver of many firms' sales and profits 2.Brand, offering, and relational equities are a primary source of firm's SCA 3.Captures long-term impact of marketing actions (Coke's brand equity reaches past one year)

Positioning

Process of improving your relative advantage in the minds of your targeted customers -Changing both your actual (e.g., innovation) and perceived offering (e.g., branding, relationships) Uses all three "Cs" as inputs: customer, company, competitors Nearly everything you do impacts your positioning -Channel (place): Samsung dropping Kmart -Price: No discounts at Tiffany -Promotion: Tiger Woods at Nike, Starbucks -Product: Bose, Apple Perceptual maps:analysis tool to aid in positioning decisions Repositioning: process by which a firm shifts its target market

Customer Equity Perspective: Brand, Offering, Relationship Equity Stack

Relationship Equity- A set of relational assets and liabilities linked to boundary-spanning employees and the social network associated with the offering or experience that add to or subtract from the value provided by a firm's offering Brand Equity- A set of brand assets and liabilities linked to a brand, its name, and symbols that add to or subtract from the value provided by a firm's offering Offering Equity- The core benefits relative to costs of an offering, stripped of brands or relationships

Relationship Equity (people serving beer and other customers)

Relationship equity: set of relational assets and liabilities linked to boundary spanning employees and the social network associated with the offering or experience that add to or subtract from the value provided by a firm's offering Relationships affect behavior -Relational-based decision making is ingrained in our psyche (20 to 30% of brain) -Many psychological processes are engaged in relational or pseudo-relational contexts Key for B2B, services, and complex selling cycles Can target and adapt more easily than brands Becoming increasingly important....

Example: RBC (Canada)

Royal Bank of Canada (RBC) Identified medical students as high CLV customers Implemented a program to satisfy their needs early during the progression of their careers: products such as credit cards, help with student loans, and loans to set up new practices. In the first year, RBC's market share in this segment increased from 2% to 18% and average sales were four times higher than average customers.. These customers were also very loyal.

Targeting (Picking the Slice to Eat)

Select segments to target -Market attractiveness(size, growth rate, price sensitivity, etc.) -Competitive strength (captures the relative strength of a firm, versus competitors, at securing and maintaining market share in a given segment) Uses all three "Cs" as input: customer, company, and competitors An ideal target segment should meet six criteria: 1.Based on customer needs (customers care) 2.Different than other segments (little crossover competition) 3.Differences match firm's competences (firm can execute within resource constraints) 4.Sustainable (can keep customers) 5.Customers are identifiable (can find targeted customers) 6.Financially valuable (valuable in the long term) The GE matrixis one analysis tool designed to helps managers visualize and select target segments

Using Experiments to Determine Customer Equity

Simple process 1.Randomly divide customers into groups (2 to 3) 2.Do nothing to one group (control group) 3.Do your test (conditions/treatments) to other group(s), but nothing else (ideally participants involved don't know the difference; "double blind") 4.After period of time test the difference in outcomes across groups and see if it varied significantly Strong test of causality since: -Random assignment of customers -Control of conditions or treatments -Comparison to control groups overtime

Legal Constraints Example: Blocked Sites (China)

Social sites - Facebook, Twitter, Instagram, Pinterest, Snapchat, Wordpress, etc... Apps - Google Play, Whatsapp, etc... Search engines - Google, Ask, Duck Duck Go, Yahoo, etc... Videosharing - Youtube, Vimeo, etc... Media - NYT, WSJ, Washington Post, etc.. .Streaming Platforms - Netflix, Amazon Prime Video, Hulu Spotify, etc... Work tools - Google drive, Gmail, google calendar, slack, Zoom, etc... What if suddenly restrictions were lifted? How would customers needs/ preferences change? How would competition change?

Example: Starbucks (US)

Starbucks has a high-quality brand (valued at $5.4 billion) that customers feel emotionally attached to Distinctive offering of unique coffee-based drinks and store environments Customers develop relationships with the employees in their local stores, who remember their drink orders or recognize them by name These sources of SCAs work together (combo) to increase customers' loyalty, and competitors find it very hard to overcome these barriers. Starbucks continues to innovate its offerings (e.g., Teavana tea products), technology-based services (e.g., acceptable payment methods), and new store formats (e.g., Starbucks Pickup) to maintain its SCA in this category

CLV Approach (Australia and New Zealand CMO Survey)

Survey conducted on 255 CMOs and marketing directors in Australia and New Zealand Those who "always measure the lifetime value of each customer" achieved a 16% average increase in their annual marketing budget as compared to 0% for those who do not measure it . 75% of the marketers are engaged in some level of CLV effort within the organization

How and When Does a Customer-Centric Structure Payoff

The competitive environment will influence how the customer-centric structure impacts customer satisfaction. Customer-centric structure leads to greater customer satisfaction but is more costly....

Framework for Managing Sustainable Competitive Advantage

The organizing framework for managing sustainable competitive advantages (SCA) integrates the preceding approaches and analyses Three key inputs: 1.Positioning statements 2.AER strategies 3.Future trends Two outputs: 1.SCAs ' 2.BOR strategies

Natural Temporal Ordering of the First Principles of Marketing Strategy

The solution to the four principles is hierarchical Solving some principles requires knowledge of the solution to other principles Solutions must address both static and dynamic heterogeneity Firms need an iterative approach to integrate the principles -Sustainable offerings that stand the test of time require a recognition that the firm cannot solve all the First Principles simultaneously, because of their complex and interrelated nature.

All Competitors React

Third challenge = persistent efforts by all firms in the market to copy and innovate; all competitors react!Thus, when managers develop their marketing strategies, they need to: -consider customers heterogeneity and dynamics, but also -anticipate competitors' reactions, NOW and in the FUTURE, Why? To build barriers that hold up against sustained competitive assaults, i.e., sustainable competitive advantages (SCA) Of the four First Principles of marketing, managing SCA may be the most difficult to execute

Lost Customer Analysis Process

Three-step process, which provides insights into both strengths and weaknesses: 1.Firms set regular intervals for contacting lost customers to identify the cause of their transition, where they went, and potential recovery strategies 2.If the lost customer is not in the firm's main target segment, firms could :a.Change their acquisition criteria b.Evaluate an expansion strategy to address a new subsegment of customers 3.If the lost customer is in the firm's target market, firms should :a.Fix the problem b.Implement retention strategies to build brand and relational loyalty

Customer Dynamics: A Fundamental Assumption of Marketing Strategy

Thus, customer dynamics is a fundamental "problem" that all firms must address when developing an effective marketing strategy Customers change; failure to understand and address these dynamics will lead to poor business performance

Segmenting, Targeting, and Positioning (STP) Approach

To better match heterogeneous customer needs, firms must focus their efforts on small "homogenous" customer groups Segmenting: Dividing market into groups of similar customers (slice the pie into pieces) Targeting: Selecting best customer group to sell to (picking the slice to eat) Positioning: Improve your relative advantage in the minds of your targeted customers (also addresses Marketing Principle 3 by building SCA)

Process for Managing Customer Dynamics

To convert CRM, marketing program, and lost customer input data into dynamic segmentation and AER positioning statements and strategies, managers should follow a series of steps: 1.Dynamic segmentation 2.Migration Paths and Triggers 3.Customer Lifetime Value of Segments and Migrations 4.AER positioning statements 5.AER strategies

Process for Managing Customer Heterogeneity

To convert the inputs into outputs, marketers conduct a series of process steps 1.Segmenting - To initiate the segmentation, managers need to identify the key purchase attributes, that is the needs and desires that a potential customer evaluates when making a purchase decision for this category 2.Targeting - The targeting process follows naturally from segmentation, to identify which segments the firm wants to sell to, based on the attractiveness of each segment and the firm's competitive strength in each segment 3.Positioning - The separation between targeting and positioning is often blurry. Many of the factors used to evaluate competitive strengths to select a target segment also impact the difficulty of executing an effective positioning strategy for that segment 4.Building Customer Centricity - Building a customer-centric organization is different from executing an STP process, in that it requires a top-down, enduring commitment from senior leaders to institute a customer-centric philosophy across the firm's entire organization

Other Examples

Trader Joe's: quick response times, open products for sampling Warby Parker: integrated data and unique POS system, so customers don't have to repeat preferences Amazon: 1-day shipping, easy returns, creative physical locations Google: Employees understand all products Apple: Feel, felt, and found; empathize and help customers

Example: Tesco (UK)

UK grocery giant, world's third largest retailer Expanded to other markets, including US, but failed to build an SCA that worked in those markets Introduced large stores with massive assortments, but many US consumers prefer to visit several stores that offer smaller (but deeper) assortments Overestimated consumers' preferences for local brands Exited the US in 2013 Perhaps now this would work with a trend towards greater preferences for local brands in some markets?

Example: Sainsbury's (UK)

UK's second largest supermarket By talking to customers, realized that customers' purchase decisions were based on three key factors: product quality, ease of shopping, and access to multichannel interfaces Invested in R&D, store location, and IT infrastructure

Who do you think would (potentially) have the highest CLV for UK-branded merchandise?

Undergraduate students?Graduate students?Faculty and staff?

Customer Referral Value (CRV)

What is the lifetime value of a customer bringing you another customer? Highest CLV customers do not always generate the highest CRV (weakness of CLV) "Advocates" real value is higher than a CLV would predict so you need to protect these customers (3x more in one study) Identify advocates: protect, enable, expand -Referral programs -How to build advocates (Apple, BMW, not Wal-Mart) -Encourage online engagement

Example: Toys R' Us

What killed Toys R' Us? What Went Wrong?Store atmosphere? Competition? Lower prices Quick shippingProduct variety?Employees?Lack of innovation?

Is it Worth it? Does Marketing Matter?

YES

AKA AER Model

__Acquisition stage Begins with first contact, typically before the first purchase occurs, when prospects and early customers have similar needs Onboarding (planned process of introducing new customers to a firm) is very important! -May continue for around 3 to 6 months for each customer -Lowers costs, enhances cross-selling, and increases retention rates Expansion stage -Firms are trying to upsell or cross-sell to expand their sales and engagement with existing customers Retention stage -Deals with customers who migrate not because of a mismatch in the core offering or a life event but because they have a basic propensity to switch, in pursuit of "greener pastures"

Marketing Principle #3:

all competitors react and an effective marketing strategy must manager the firm's sustainable competitive advantage (SCA)

EXAMPLE AGAIN

kroger HubSpot Customer Code- 1.Earn my attention, don't steal it. 2.Treat me like a person, not a persona. 3.Solve for my success, not your systems. 4.Use my data, but don't abuse it. 5.Ask for feedback and act on it. 6.Own your screw-ups. 7.Help me help you, by helping myself .8.I don't mind paying, but I do mind being played. 9.Don't block the exit. 10.Do the right thing, even when it's hard.

Coca-Cola: The brand as the SCA driver

•Brand consultants provide evidence that it would take $81.5 billionfor another company to replicate Coca-Cola's brand •Pepsi and other colas may win blind taste tests, but more people still buy Coke than other soft drinks .•"If Coca-Cola were to lose all of its production-related assets in a disaster, the company would survive. By contrast, if all consumers were have a sudden lapse of memory and forget everything related to Coca-Cola, the company would go out of business." •Brands operate at subconscious levels, improving the experience beyond what is provided by objective elements, like taste.