MKTG 425: Final Exam
Direct
"Direct" or an internally-delivered sales, distribution and service model is the default and baseline approach. -prospecting, qualifying customers -negotiate and closing contracts -warehouse, inventory and distribution -deliver and install -finance transaction? -service and develop account -repair and maintain equipment Strengths: -customer understanding and control -cross-sell/up-sell opportunity -maximum confidentiality Weaknesses: -high fixed costs -increases operational complexity (sales, logistics, service, etc.) Common Usage: -large B2B/B2G customers (scale) -capital goods, consultative sales -virtual transaction/'bricks' fulfillment (e.g. airlines; this is becoming more common with technological advancements-airlines used to sell through agents)
Exclusivity of Distributors
"Exclusivity" transforms the nature of distributor relationships. Exclusivity builds trust and mutual dependence, and aligns both parties towards customers. EXCLUSIVE (married) Characteristics: -sole representative for territory -lack of direct competition builds distributor margin and focus on customer loyalty -exclusivity enables focus and sharing of expertise (supports distributor investment) -builds alignment (win/win) and trust due to mutual dependence -downside: makes transitions riskier and can develop complacency Common Uses: -technical products -value-add or consultative sales products -works for selling a differentiated product NON-EXCLUSIVE (playing the field) Characteristics: -multiple distributors in each market...distributors carry multiple brands -breadth of suppliers shifts distributor focus towards customer responsiveness -broadens penetration (ease of assess-works when you need to have product everywhere) -downside: non-aligned interests, limited product expertise, need consumer pull for channel power Common Uses: -consumer goods -replenishment products -manufacturing consumables
First Mover Advantage
'Traditional' Innovation thinking is that the First Mover gains a significant and sustainable advantage. Pioneer (innovator) stays ahead even though product, service, price, channels, advertisements and spending is matched. But this is most true for industries with a slow pace of technology chance and with switching barriers.
Take-Aways from Frito-Lay Route-to-Market Change
-A poor channel strategy can do a lot of harm: operation inefficiencies, lower product quality, missed growth opportunities. The existing system was a significant barrier to success and wholly unsuited to company and customer needs. -Innovation is common in channel design. They keys are to identify the best way to meet customer needs, consistent with company objectives, and ensuring that partners are aligned, motivated and capable. Need to be willing to evolve and adapt. -Power can be created via an attractive distributor value proposition. Frito-Lay Turkey was in a weak position since 1991...low sales, poor retail presentation. By engineering a strong distributor ROCE and building commitment through territory exclusivity, Frito-Lay was able to apply very invasive protocol (e.g. inventory management, route plans) to distributors. Frito-Lay's value proposition allowed them to tell distributors how to run their business. Treating distributors fairly and offering them goods returns has allowed Frito-Lay to continue making good partnerships 25 years later. -Channel stewardship can create a sustainable competitive advantage. By managing end-to-end value, Frito-Lay has attracted the best distributors, sustaining the business model and 70%+ market share for 20 years.
Pricing Summary
-price is usually the greater lever for financial performance (holding volume constant) -product design and overall needs fulfillment define TEV...this can be eroded by competition and build through innovation and targeted differentiation. PV reflects customer perceptions due to unawareness of benefits, concern or risk, or inaccessibility -TEV calculations need to consider both productivity and total 'project' cost. PV calculations should be based on customer feedback -Sales and marketing initiatives can close the gap between PV and TEV, building customer awareness of product benefits and reducing perceived risk -aligning pricing strategy with product lifecycle, and use of price customization is critical to maximizing volume and value realization
Idea Generation
A range of opportunity identification techniques can be applied... look for the need-look and listen: -research: ethnography, user groups, trend analysis -dissatisfaction analysis: feedback, lapsed users, heavy users -cross-industry learning (e.g. technology application): brainstorming, structured analysis -customer offer and journey analysis Understand, Explore, Develop
Surcharges and Discounts
A wide range of price adjustments is often available to address customization needs and incentivize certain behavior. -co-op advertising -promotion allowances -credit availability -return policy -credit terms -barter -inventory carrying costs -volume discounts -leasing -slotting fees -upfront money -guarantees and warranties -markdown money -unbundling and bundling -freight -hedging -customer price support -one day delivery -consignment
Creative Development
Across broadcast and digital communications, the keys to success on creative development are: Draft a thoughtful creative strategy. Keep it fresh, use execution-specific briefs for each project. Develop a campaign that has legs (is it going to travel?): -memorable...engaging and reflects desired personality -campaignable (idea extends to multiple executions and can cover breadth of brand range and media type) -benefits are central to creative idea Identify and develop a great agency partner
Planning and Budget Setting
Again, advertising budgets should be set by the communication objective: -response curves will vary by product, message and media type, but can be accurately modeled -reach and frequency targets translate directly into a media plan and budget -use flighting techniques appropriate to message to maximize cost efficiency Do not set budgets on a % sales or match-competition basis: -spend effectiveness and efficiency depends on reaching threshold levels -if budgets are too small, make choice across products or campaigns and scale back targets -if an initiative is considered too risky, conduct a test
Agent/Broker
Agents and brokers sell but do not take product ownership (title). They are usually compensated via commission. They sell on your behalf, but never take title of ownership. Strengths: -low cost prospecting -retain pricing control and on-going customer relationship (the owner sets the price, not the agent/broker) Weaknesses: -often represent many firms (not expert or committed) -limited service or problem-solving capability Common Usage: -insurance -real estate -software licenses -supplement direct sales (prospecting)
Customer Profitability
Assessing customer pocket price against size can highlight restructuring or sales-guidance opportunities.
Common Customization Methods
Availability of Discounts: -discounts offered to selected customers or groups -examples: targeted couponing, location (ski-lift tickets), online cookies Buyer Characteristic Pricing: -demographic or segment-based offers -examples: age/residence pricing for Disney (works well when segments align with TEV or PV profile) Transaction Characteristic Pricing: -transaction-based offers -examples: time-of-day, quantity or method of payment offers (works well when transaction characteristics align with TEV or PV profile) Product Line Structure: -vary features, benefits and price across range to capture range of needs, including price -examples: good/better/best portfolio of Amex cards
Benchmarking
Benchmarking: the process of measuring a business's performance against competitors and industry standards. Understanding the customer journey through lifetime use of product is key to channel design. Especially important when customers cross-use channels (e.g. internet and retail). Benchmarking is critical for identifying improvements and spotting innovation opportunities. Customer feedback can be an effective balanced scorecard measure.
How to Set Budgets
Budgets should be established by translating project goals into required activities and investment levels to achieve those targets. -% sales is not a good way to allocate budgets...it can lead to over/under investment and poor portfolio development -instead, focus on priority products and objectives, ensuring they are funded sufficiently to achieve goals Marketing development targets: what specific improvements are required to deliver product objectives? -awareness -preference -trial/repeat -wholesale listing -share of shelf space -customer penetration Marketing initiatives: given customer challenges and competitive environment, what initiatives are required to achieve development targets? -direct and mass media -customer promotion -public relations -trade promotions -rewards and incentives -price support
Channel Stewardship
Building from the customer foundation, "channel stewards" design and manage their channels in order to... Company: -sustainably deliver business goals -responsibly build and use channel power Channels: -attract/retain best channel partners -enhance value proposition (returns, support, reputation) End Customer: -build customer preference, loyalty and satisfaction -ensure positive customer experience Who can be a steward? -can be at any level in value chain, although the 'brand owner' is most natural leader -channels tend to take stronger leadership roles in more commoditized (less differentiated) industries What does it take? 1. Reasonable market position and channel power -not necessarily #1 player...can be #2 or #3 if lead in a distinctive niche and have end customer power -scale needed to demonstrate stewardship behavior and gain positive customer/channel response 2. Effective, consistent stewardship behavior -sometimes requires sacrificing self-interest in order to support good channel behavior (e.g. discipline pricing that undermines channel margins) -reputation builds trust builds channel power builds effectiveness builds reputation...
Price Position & Strategic Objectives
Business objectives play a key role in establishing a price position for a new product. Strategic Objectives: Right below PV-toe hold...build premium image Above common competitive price-maximize profits...reduce competitive response Below common competitive price-growth and market share...achieve scale economies
Managing Development Risk
Central to Pipeline Management's usefulness is risk management benefits: -as a project passes stage gates, 'facts' replace 'assumptions', allowing increases in project investment while maintaining a reasonable risk profile -common error: acting on 'hunches', teams advance investment commitments ahead of establishing stage gate 'hurdles'...increasing the risk of financial failure and organizational distraction "Gambling" Rules for managing innovation development: -if the uncertainties are high, keep the stakes low -as uncertainty decreases, stakes can be increased -buy information to reduce uncertainty -incrementalize the decision process -identify "bail out" points (i.e. stage gates)
Channel Stewardship
Channel Mapping -customer needs -channel capability and power -competitive strategy -company objectives Channel Design -direct vs. indirect -channel contracts -channel coverage -channel structure Channel Management -channel influence -channel margins and incentives -channel performance -channel conflict
Channel Design
Channel design assesses alternatives and decides strategy. -developing a range of options, both direct and indirect helps ensure the optimal strategy is selected (or trade-offs understood) -key design decisions include scope and coverage of 'territory,' balancing focus/capability and power considerations -multi-channel solutions are common for multi-target strategies, so clear boundaries, aligned incentives and conflict resolution strategies need to be considered upfront
Channel Management
Channel management delivers the results, maximizing company performance and realization of strategy. -performance management including recruitment of new partners -building channel power (key sources: customer demand/differentiation, superior channel returns, demonstrated 'stewardship behavior' and trust)
Channel Mapping
Channel mapping assesses the market similar to the 5Cs analysis in developing a marketing strategy, but channel mapping goes deeper into channels than the 5Cs does: -customer needs assessment underpins everything...particular focus on experiential or channel-delivered methods -much greater focus on channel options, their capability (to deliver your value proposition and satisfy customers) and the relative power balance (who has greater influencer? who needs who more?) -creating channel-related competitive advantages is a key focus, as is avoiding disadvantages situations -business model preferences, offensive/defensive posture and push/pull aspect of overall strategy is frequently the focus company priorities
Channel Power
Channel power: the ability of one channel member to induce another to change its behavior in favor of the first channel member's objectives. "A" has power over "B" to the extent that "A" can get "B" to do something that "B" would not otherwise do. Power comes from dependence. The ability to uniquely assist you achieving your goals (profit, reputation, customer profile, technology access, etc.) How much is your choice/offer better than the next best alternative? The better it is, the more power you have. Power turns into trust once you deliver and continue delivering consistent results.
Direct vs. Indirect Motivations
Choice of "direct" versus any of the "indirect" models is driven by a combination of customer needs and company priorities (both are important) DIRECT Customer Benefits: -lower costs (perceived or real?) -expertise with product Company Benefits: -lower costs (if have achieved scale) -customer intimacy and control -eliminate channel risk -customer preference INDIRECT Customer Benefits: -'one-stop' shop convenience (fewer vendors/deliveries) -service and technical support (speed, integration, and local-usually because of convenience) -logistics and inventory support Company Benefits: -variabilize costs (possibly lower end-to-end (E2E) due to sharing of assets) -simplify organization -customer preference *If customer prefers direct, the company will also prefer direct.
Causes of Failure
Common causes of failure for channel strategy: 1. ignoring end customer buying patterns and needs (building strategy around your own needs) 2. expecting channels to change for you; not understanding and leading value propositions for partners 3. being casual about selecting and evaluating your partners; not building strategically close relationships with partners 4. ignoring or avoiding channel conflict instead of actively managing it 5. not building your importance (power) within the channel 6. not adapting to changes in environment, customer needs or competitive position
Role of Costs
Costs can be misleading in setting prices: -leave money on the table (if undervalue) -fail to sell (if overvalue) -it's 'inside out' thinking, not market-focused -arbitrary overhead allocations not valued by customer DON'T USE cost-plus pricing methodology. Customers don't care about your costs. Costs have 3 legitimate roles in pricing decisions: 1. Birth Control-is there sufficient profit potential to warrant investment and development? Focus on fully-loaded costs and risks to future margin delivery. 2. Euthanasia-does poor value delivery no longer warrant continued production or resource allocation? Focus on variable and directly-linked fixed costs (not overhead allocations). 3. Profit-Planning-what profit is to be expected at different price points? What profit is to be expected for the coming year?
Push-Pull Communications
Customer-directed advertising is Pull-focused...building demand by the end-buyer. Trade-directed advertising is Push-focused...building demand by channels due to channel value proposition. PULL Pull Communications: -media advertising -social media -sales promotions -direct marketing Target Audience: -customers and potential customers Pull Objectives: -build end-customer: awareness, interest, purchase, loyalty PUSH Push Communications: -sales incentives -channel financing -co-op advertising -channel marketing Target Audience: -channel customers and influencers Push Objectives: -build channel: interest, purchase, inventory, marketing efforts *Both Push and Pull elicit a customer response!
Disciplines of Channel Stewardship
Designing and managing a go-to-market strategy involves a discipline (and ideally, a mindset) about business development. Channel Stewardship: 1. inform (mapping the industry channels) 2. design (building and updating the channel value chain) 3. manage (aligning and influencing the channel system)
Bringing It Together: Developing and Comparing Options
Developing and comparing new or alternative models is the creative part of the process. Assessments will normally prompt new ideas. Problem-solve unmet needs, areas of dissatisfaction: -can customer issues be addressed by redefining traditional roles or innovative models? -discuss 'process pinch-points' and technology application with channel thought-leaders Consider models that will build channel value and your power. *a good rule is to identify 2-4 alternatives for comparison to current structure; push the envelope to address key opportunities.
Organization Capability
Developing innovation capability requires a blend of the left and right sides of the brain of the organization...formulating and following a strategy Successful Innovation: Creative (left-side): listening, connecting, applying Disciplined (right-side): stage gate process, clear benchmarks and project targets Keys to Success: -clear and practical strategic and financial objectives -customer understanding drives focus on highest potential 'need areas' -well developed technology sourcing capability (in-house, license, acquire, etc.) -focused and accountable in-house project resourcing -use stage gates as financial control points -visible senior leadership support
Price Sensitivity & Segmentation
Different segments have different needs...different needs reflect different valuations, and thus different price elasticity
Customer Needs and Decision-Making Framework
Different segments will have differing needs and decision-making dynamics. Your channel strategy should flex to best address those factors. NEEDS Core Functional: -benefits of core product/service offer Experiential: -purchase environment -customer care Image: -psychological (what does it say about me?) DECISION TYPES Cognitive, High Involvement (i.e. family car, home): -careful reasoning and comparison to alternatives -information-based choice -high effort, deliberative Cognitive, Low Involvement (i.e. milk, gasoline): -rational, but little effort used to compare alternatives -no strong attachment to choice Emotional, High Involvement (i.e. fashion, sports car, vacation): -choice based on feeling -symbolism, image, personality important Emotional, Low Involvement (i.e. fast food, Starbucks): -limited comparisons, often habit-based choice -reward or feel-good decision
Digital Channels
Digital channel sales (ecommerce) have grown quickly over the past decade...reaching about 12% of all value in 2019. Top Categories Purchased Online: -fashion (61%) -travel (59%) -books and music (49%) -IT and mobile (47%) -event tickets (45%) While technologies and channel applications continue to evolve, a few trends are clear... Digital channels and technologies tend to increase power of brand owner -enables a variety of direct consumer activities (e.g. ordering, offer management, loyalty, service, etc.), circumventing indirect channel partner...disintermediation -supports more compartmentalized channel delivery model, with new 'synthetic' components Customers expect a consistent experience across channels -online account management has become expected; customers will roam across channels based on stage of decision-making and current needs -marketers must coordinate channel partners to share data, support common customers and execute activities in a consistent manner CRM has become critical to both brand owner and channel partners -significant impact on customer value and loyalty -builds power of brand owner over channels
Cost Comparison
Direct sales models need scale to efficiently amortize fixed costs. Significant other costs arise if direct models extend through other activities. Cost of Sales: ABOVE SCALE, DIRECT COSTS LOWER BELOW SCALE, DIRECT COSTS HIGHER Other Costs Inventory: -working capital (goods) -warehousing Distribution: -break bulk -logistics (capital and operations) Credit (if selling directly to consumer, otherwise, bad debt is distributors problem): -working capital (A/R) -bad debt Modification/Support: -in-house modification capability -deployed service capability
Disruption
Disruption: what happens when you're on the wrong side of innovation. Competitors (or substitutes) have created new advantages. -superior customer value proposition: better needs delivery, addressing latent needs, lower customer price -super business model: new scale or capability synergies, improved customer value delivery, lower costs, network effects Business model innovation can be the most disruptive because it's often easier for incumbents to change 'offer' than 'how to operate' Examples of Innovative business models include Salesforce and Uber
Distributors
Distributors resell products to end-users or another channel participant (usually final tier). Distributors come in all shapes and sizes, and are generally good at... -customer development (all sales types) -local responsiveness -offer integration with service (customer solution-focused) Strengths: -flexible-configure around customer needs (specialization/knowledge, one-stop shop, etc.) -entrepreneurial-with effort, firms can assemble a highly motivated and effective customer development network that is able to capture entrepreneurial energy Weaknesses: -high performance networks need strong leadership (power balance, leadership) or channels will capture greater value -relationship structure and management framework is key to success Common Usage: -wide range of B2B and B2C goods, ranging from capital equipment to replenishment (can be good if you need installation or customer follow-up)
Two Part Challenge
Drafting your advertising plan requires working your communication objectives from two ends: 1. Creative development -brief defines target, benefit, advertising objective, etc. -output: ad campaigns and executions 2. Media strategy -brief defines and aligns budget with target reach and frequency -output: media plan
Approaches to Innovation
Each firm should identify their approach to innovation and build an appropriate infrastructure, culture and management process to deliver. "Skunk Works" - "Try lots of things...see which stick" -intensive, lab-focused R&D -less focused on customer insights than actual trial learning -tend to rely on early adopters "Market Maker" - "Make products that will lead the market" -focused big bets: lead new technology, continually refine existing products -strong pipeline management approach: develop or acquire "Follower" - "Copy when an idea looks to be successful" -rely on licensed IP or subcontracting -competitive strategy tends to be based on brand, scale or infrastructure -requires quick response, especially if low switching barriers "Listener" - "Find a need, then make the product" -customer-driven R&D priorities -focused on customer needs -tend to be very competitively
Advertising and Promotion: Objectives and Strategy Setting
Each product should have a customized advertising and promotion plan, one reflecting the role, objectives and challenges of the business: 1. what are your customer objectives? (trial, preference, loyalty) 2. what are your barriers? (awareness, switching costs) 3. are the channels providing enough focus? (space, support) 4. how big a priority is the product? (offense/defense, scale) 5. what is your learning on customer effectiveness and ROI? (research, past results)
Innovation Strategy
Every firm should have an innovation strategy addressing: -role of innovation in competitive strategy (lead/follow, distinct areas of focus) and positioning strategy (product/service differentiation) -aligned areas of investment and organization resourcing (R&D, market research/target marketing, alliances) -expectations regarding future business impact: growth, customer development, financial return Drafting a strategy includes consideration of: -competitive assessment (SWOT, likely moves): Include Substitutes! -Target segment opportunities (unmet needs, segment evolution) -Technology developments (application to your industry and offer)
Price Elasticity
Experimentation or research (e.g. Conjoint) is the best way to quantify and build confidence on important margin decisions, but judgement and experience provides good guidance Price sensitivity is high if... Product: 1. low differentiation of alternatives 2. easy comparability 3. will perform as expected (high level of confidence/not risky) 4. not mission-critical Price: 5. easy comparability 6. high in a relative sense 7. reference prices exist 8. not needed as quality cue Buyer: 9. sophisticated, deliberative 10. bearing costs 11. able to switch easily 12. not motivated by prestige
Pricing Impact on Business
For most business, pricing change has the largest impact on overall profitability. In addition to being the #1 profit driver, price impacts: 1. ability to penetrate and develop target customer segments 2. production efficiencies 3. scale/cost/learning curve across many functions...building competitive advantage 4. brand quality and value perception
Portfolio Pricing Strategies
Razor Blade Pricing: price the core offer low and the replenishment or accessories high (i.e. printer ink, Keurig K-cups) When to use: integrated component categories; strategy of building penetration, then 'locking in' customer loyalty; can trigger customer frustration at business model Price Bundling: bundle offering with other components, prices as a group (i.e. Xfinity Triple Play) When to use: elastic demand; low variable costs, high customer management costs
Franchise
Franchising is a business model granting the franchisee the right to market an offer exclusively within a territory. The franchisee must execute the offer as specified by uniform franchise agreement (can be extremely detailed with a lot of legal detail for protection of franchise). Franchising is good at: -consistent customer experience -rapid expansion capability (because using franchisees money instead of the company's) -maintaining operator entrepreneurialism Strengths: -franchisor has high level of control over customer offer, environment, etc. -ability to replicate offer across markets quickly and without capital requirements Weaknesses: -rigid legal constraints-requirements are in uniform agreement, or franchisor has limited rights or recourse -proven concepts only...franchisees will not take risk with their investment without proven model/performance success Common Usage: -restaurants -hotels -car dealers -health clubs
Media Universe
From a company perspective, there are also 3 forms of media: Earned and Owned are many times critical, but Paid drives $$$ investment. 1. Earned: -public relations -organic social media 2. Owned: -retail sites -fleets -sales 3. Paid Key Trends: -internet spending growth is driving the market -audience fragmentation suppresses rates and business models -that said, traditional TV remains modestly healthy due to position as sole remaining 'mass reach' vehicle -managing 'big data' will become a critical competitive advantage
Key Channel Functions
Go-to-Market Channels perform 5 core functions: 1. Demand Generation (prospecting, selling/contracting, information transfer) 2. Inventory Management (break bulk/lot size, assortment-incorporate multi-vendor integration) 3. Distribution and Delivery (logistics, order fulfillment, customer experience) 4. Credit Management (terms, financing, upfront payments) 5. Product Support and Modification (customization, quality assurance, aftermarket service-warranty) -different channel types provide a different mix of services -over time, channels evolve to best meet customer needs -when multiple channels service an industry, it usually indicates different customer segments
Legal Constraints on Pricing
Important legal and ethical pricing issues include: Anti-competitive pricing, including: -discriminatory pricing (Robinson-Patman) -predatory pricing (Robinson-Patman) -price conspiracies (Sherman, Clayton) Dumping: selling below cost Fairness in consumer pricing, including: -bait and switch -deceptive pricing Many national, state and local governments scrutinize prices for illegal activity.
Channel Stewardship - Broadened
In addition to the process definition (mapping, design and management), 'stewardship' has a mindset meaning as well: Management of channels with the objective of maximizing customer satisfaction, with channel participant engagement and motivation an important enabler. Core Concepts: 1. well-designed channel systems and having the 'best partners' create value by better meeting customer needs 2. attracting and retaining the best channel partners is best accomplished by building a reputation and trust amongst the channel community 3. channel stewards gain derive benefit for this work through customer and channel partner preference End-to-End Management: -manufacturer -distributor -VAR -customer
Managing Price
In large businesses, a strong pricing management system is needed for control and responsiveness. Information systems: -capture competitive price changes -analyze impact, elasticity and response effectiveness -compare results, document best practices Clear decision authority and capability: -responsive...close to the market -well-qualified...understands strategy, financial dynamics and price/non-price tools (usually a professional pricing manager attached to local business unit) A strong pricing management system is especially important in industries with a lot of price changes, and with high price elasticity.
Changing Price
In non-inflationary markets, price changes can trigger unintended reactions -competitive response...potentially a price war or lose-lose result -customer value reassessment and change in loyalty So, careful consideration should be given to price changes 1. Understand expected economic impact 2. Anticipate competitive response and minimizing risk -response will usually be proportionate to risk and perceived motive (core product and share grabs will trigger sharpest retaliation) -bundling or unbundling offers, or configuring product/service/delivery options to deliver more margin or customer value can mask change -position as cost-recovery for increase, and efficiency-pass through for decrease to deflect concerns on perceived motive 3. Assess value reference points and whether pricing strategy/value proposition is still valid for target customer Estimating the impact on the P&L is straightforward before incorporating competitive response. Assessments should include application of elasticity learning and Breakeven Analysis (to consider risk). Competitive response can neutralize gains, especially if you're implementing decreases to build share. This reinforces tendency towards non-price actions and reactions.
How to Improve Power
Increase value (main way) -build differentiation-unique product or channel benefits that improve customer value and/or make dealer switching more difficult -end customer acquisition or development support (e.g. direct communications, OEM, endorsements) -enhance channel value proposition (e.g. channel margin, services, etc.) -tactical incentives such as promotions (limited last impact; very short term) Punish counterproductive behavior -reduce product/geographic scope -downgrade access to high-demand products Create alternatives (second best way) -build direct end customer relationships (e.g. CRM, industry symposium) -maintain direct capability Strengthen trust (about as important as increasing value) -increase mutual dependence -dealer councils -more trust, more willing the distributor will allow you to exercise power over them
Price Waterfall
It's critical to understand how discounts overlap to create a "pocket price." -large invoice-to-pocket spreads can reduce competitive response but also erode clear value perception -similarly, surcharges should be assessed on whether they cover additional costs and/or strategic goals STANDARD LIST PRICE 1. wholesaler discount 2. freight (pick-up) 3. retailer price support 4. special promotion INVOICE PRICE 5. in-store demonstration fees 6. performance incentive 7. cooperative advertising 8. promotion support 9. annual volume rebate 10. store manager spiffs 11. slotting fee POCKET PRICE
Advertising Challenges
John Wanamaker: "Half the money i spend on advertising is wasted; the trouble is I don't know which half." Common challenges to advertising effectiveness: External -competitive claims -channel performance -multiple information sources/clutter -social media Internal -skepticism on returns -personal views on creative or strategy Why does advertising fail? -insufficient funding or campaign life to reach communications objective -creative does not convey benefits in an engaging and 'ownable' manner -inconsistent messages to multiple targets -mismatches message and media
Media Types
Looking at it from a 'viewer' perspective, there are 3 types of media... 1. PERSONAL MEDIA: customized communication to individuals based on their expressed needs or interests examples: direct mail/email, apps/CRM communication, sales calls key measures: click-through rate, offer acceptance, trade-up/development pros: builds affinity, measurability cons: high cost/contact 2. MASS MEDIA: messages and media may be somewhat targeted, but this communications is to large groups examples: broadcast tv, newspapers, websites/Google, retail sites/point of purchase key measures: reach/frequency, awareness/preference, click-through rate, offer acceptance pros: reach new prospects, broad and timely impact cons: indirect measures 3. SOCIAL MEDIA: three-way communications between individuals, others (and, maybe, the company) examples: Twitter/news feeds, Facebook/social networks, interactive blogs key measures: likes/positive comments, re-tweet/buzz, click-through conversion pros: highly targeted with many early adopters and influencers cons: can create or spread reputational issues
Brand Communication Type
MBM distinguishes 3 types of communications, reflecting differing marketing objectives: 1. brand-image communications: designed to trigger an emotional response that builds a strong connection between the brand and the image the company wants to create among its target customers 2. brand-information communications: designed to create interest and offer information in order to achieve high recall among target customers of key product attributes that differentiate the brand 3. brand-action communications: designed to stimulate potential customers to take action, such as contacting the company, visiting the company's website, obtaining a free sample, and trying or buying the company's product
Latent Needs
One can hardly imagine living without an Smartphone today, but they didn't exist until 12 years ago. While the technology didn't exist before, we already had an interest in: -remembering our calendar commitments -being available in an emergency -making a call without finding a payphone -taking a picture without lugging a camera -finding directions to a new place -killing time with a game The innovation was really about meeting all these 'visible but hidden' needs and fitting the solution into your pocket or purse.
Consumer Promotion Types
PRICE FEATURE Objectives: -trial, pantry load (buy 3, get 1) -trade space and adv feature Key Issues/Comments: -attracts switchers, little lasting customer behavior change COUPONS (cents-off, bounceback) Objectives: -trial -repeat Key Issues/Comments: -basket-triggered issuance provides better incrementality PRICE GUARANTEES Objectives: -reduce customer price shopping -reduce price wars Key Issues/Comments: -low-cost means of burnishing price credentials (few people check...SKU fragmentation reduce exposure) REBATES Objectives: -reduce purchase risk -establish contact information Key Issues/Comments: -customer frustration with process, confusion on value perception PREMIUMS Objectives: -trade-up purchase -brand affiliation Key Issues/Comments: -inventory management of premiums can be challenging -bonuses like free shipping become expected GAMING Objectives: -establish contact information -brand affiliation Key Issues/Comments: -effective for some categories, need to keep fresh SAMPLING Objectives: -trial Key Issues/Comments: -can be very effective, but also expensive and logistically challenging Permanent: As permanent feature, should be considered part of offer but is often budgeted in advertising and promotions. -loyalty and trade-up -establish communication channel with most valuable customers -very valuable tool for understanding behavior over time and building key customer relationships -sophisticated CRM management systems can be expensive (or outsourced)
Quantifying Perceived Value
Perceived value calculations should be based on customer feedback: -conjoint analysis (used in segmentation) is also very useful in quantifying perceived value -other methods include the "dollar metric" method-this simple approach uses established product comparisons to identify relative value
Perspectives on Innovation
Peter Drucker: "The purpose of a business is to create a customer...Business only has two functions-marketing and innovation. All the rest are costs." "The best opportunities are visible, but not seen." (There is a need, but no solution has been shown yet). Steve Jobs: "Creativity is just connecting things. When you ask creative people how they did something, they feel guilty because they didn't really do it, they just saw something. It seemed obvious to them after a while. That's because were able to connect experiences they've had and synthesize new things." "Some people say 'Give customers what they want.' But that's not my approach. Our job is to figure out what they're going to want before they do. I think Henry Ford once said, 'If I'd asked customers what they wanted, they would have told me a faster horse!' People don't know what they want until you show them." Professor Boyle: Innovation is a new solution to a need. Innovation is addressing a customer's functional, experiential or image need in a manner superior to existing offers. Sometimes discovering latent customer needs. In a related manner, business model innovation is a new solution to 'how to operate' and these can be among the most disruptive to established firms and industries. Innovating is critical to establishing and maintaining differentiation, and thus competitive advantage, customer preference, pricing leverage, etc. The key is to determine the role, focus and strategy of innovation for your business. If you do not have a pipeline of innovation, then you will be left behind, and lose against your competition.
Cost vs. Pricing
Phil Kotler: "Cost is of no importance in setting the price. It only helps you know whether you should be making the product." Value-based pricing 'discovers' what a product is 'worth' to customers, ensuring that pricing is well-targeted and that you're making conscious decisions about customer incentive and your return Cost-based pricing: -adds 'target margin' to costs -passes-on channel costs -developed without context to market, until customers respond -% margin is more assured but it isn't the optimal result Market-based pricing: -starts with customer -establishes 'value to customer,' including competitive context -retail price is a strategic decision: 'value allocation' between company and customer; product role and life stage -channel margins are a marketing mix decision -profit is what's left over
Channel Strategy and Management
Place (Channel) is often as important as product to success: -channels address many/most experiential needs (it is easier to differentiate on experiential needs than it is on functional needs) -differentiation on channel-delivered needs is often more effective than product differentiation (ease of access/use and after-market support can be among most important consumer needs) -multi-channel strategies needed to reach multiple customer segments (different channel needs; a different segment represents a different set of needs) -"push" or channel-led strategies can be very effective in commodity industries or when facing consumer barriers to trial -channel design is a significant part of business model design (a big component of your competitive, competency and financial strategy-will my channels sell for me?)
Who has Power?
Power can exist at either the supplier or channel level, or both. -supplier power is usually derived from customer pull...end customer demand for your product -channel power is also usually derived from the end customer...from access, relationship or unique service capabilities Supplier: Differentiated customer value proposition -superior technology -strong brand -"own the customer" -superior channel value proposition Channel: customer access or relationship -existing or synergistic offer (e.g. one-stop shop) -unique service capability -"own the customer" -legal protection in some arrangements (e.g. franchise) *Mutual dependence provides some balance.
Price Customization
Price customization supports fuller value capture by varying price to better match customer PV -applying a flat price either leaves value on the table or deleverages scale and market share -structuring price offers to better match customer PV can significantly improve revenue yield
Channel Margin Design
Prices and margins should be structured from the end-customer back, reflecting competitive environment and company objectives and strategies. -channel margins should be set based on NBA +/- principles -margin-based 'push' strategies can be very effective in commodity categories but is easily copied -'adding value' via strong brand and customer support in prospecting, financing and technology can be highly valuable to channel partners and is harder to match (excellent competitive advantage)
Shell Retail Experience
Pricing Environment: -low gross (variable) margin (2-7% of revenue) -very high elasticity (>5x) around competitive price gaps -complex network (43,000 sites in 80 countries, varying location quality, varying business models) -volatile input costs and competitive pricing -high purchase frequency but cognitive/low involvement decision Business Goals: -provide a strong return on capital employed -build Shell brand image for quality fuels and customer service (broaden brand reach and value) Price Positioning: -price at premium consistent with brand equity and leadership -never sell for less than variable cost -only Monolith-to-Monolith comparison valid (below canopy discounts are not price) System capability needed to have fast and intelligent response capability. Fuels Pricing System (decision rules for each site and volume/price delta history): -elasticity and test analysis -site offer and strength -competitive profile and objectives Key Measures: 1. competitive price perception 2. % general price change-up 3. incremental margin versus price-match (important for marketing, aka value of the brand against the next best alternative) 4. volume vs. site target
Promotions
Promotions are a temporary offer to consumers or the trade designed to stimulate a change in behavior -temporary feature serves as call-to-action (and a permanent feature would be a change in the value proposition) -usually price related -short-term nature allows excellent post-audits (but often are not completed due to culture/discipline) -again, digital developments are improving targeting and returns Professor Boyle: "In general, I have found sales promotions to be the poorest performing marketing investment with high variability across campaigns and little lasting benefit (tendency to attract switchers, aka people who are not brand loyal-once the promotion is over, those customers will leave). Nevertheless, aligning incentives is an important component of marketing planning and well-targeted (digital) or high-impact initiatives can provide a big and positive impact. TYPICAL BEHAVIORAL OBJECTIVES Consumer: -trial -stock-up -repeat/loyal (targeted pull levers) Trade: -slotting (placement) -increased space allocation -price feature (targeted push incentives)
Retailers
Retailers sell to end-users, usually offering multiple brands within a category range or format (e.g. Auto, Electronics, Furniture, etc.). Generally, good at (consumer benefits): -convenience (customers want product everywhere) -breadth of range, ease of comparison -customizable service (where appropriate) Strengths: -customer preference for many purchase types due to convenience and range -adaptive format-evolves from niche to big-box back to niche with changing customer preferences -easy to test/pilot new concepts Weaknesses: -price transparency and breadth of availability can lead to frequent channel conflict, especially between mass and specialty retailers -price competition (i.e. Walmart pricing is lower than other retailers)
Advertising and Promotion
Review of 4 Ps Product: defines offer Place (Channel): supplements offer; route-to-market Promotion: create demand Price: capture value The Promotion "P" is focused on creating demand. Advertising: communicating benefits and building preference for offer -awareness -liking -commitment (Sales) Promotion: stimulating behavior change -trial/repeat -transaction size -cross-purchase
Media Assessment
Selection of Media vehicle is driven by: -advertising objective (awareness, knowledge, etc.) -target profile and media habits -message content, format, and timeframe. brand image MEDIA Television pros: sight, sound and motion, broad reach, low cost/viewer, attention-getting cons: clutter, low target selectivity, high absolute costs, short message life Internet pros: measurability, flexible content, targetability cons: traffic generation can be expensive, can be manipulated Newspapers pros: high coverage at low cost, short lead times, coupon capability cons: clutter, low attention-getting, declining user base Outdoor pros: visibility and repetition, location specific cons: short copy only, frequency-generator only Radio pros: flexibility, local and low cost coverage cons: audio only, clutter and low attention-getting Magazines pros: high informational content, longevity/multiple readers cons: long lead time, visual only
Common Execution Styles
Separate from communication objectives, different advertising styles are used for different brands/categories Rational: -comparative (attack) -demonstration -two-sided -primacy or recency -refutational Emotional: -fear -humor -storytelling -endorsement
Pricing Setting
Setting price is an operational decision, allocating value created (PV-COGS) between the customer and the company. There are 3 considerations to setting reference prices (after knowing PV and TEV): 1. Customer price elasticity-sensitivity to changes in relative price 2. Corporate strategy-margin/volume dynamics, strategic importance of share vs. profit 3. Competitive dynamics-rivalry, strategy conflicts, response patterns
Social Media
Social media offers unique opportunities for marketers: -brand building: deepen customer relationships and engage in conversations with the brand community -information exchange: share experiences and exchange information to encourage word-of-mouth and to better understand product usage and benefits -problem solving: gather customer feedback, provide customer service, and resolve customer complaints
True Economic & Perceived Value
TEV often varies across customers due to different needs, risks and alternatives. PV also has customer-specific adjustments for uncertainty/risk, awareness or other barriers.
Value Drivers
TEV: up and down due to changing customer needs; down because of competitive matching (loss of differentiation) PV: down because of reputation issues; up because innovation Selling Price: up due to brand trust and advertising
Channel/Segment 'Fit'
Targeting multiple customer segments will often require a multi-channel route-to-market Example: Home internet routers convenience and comparison segment, best channel is retail. confidence and ease of set-up channel, best channel is value-added reseller price-driven segment, best channel is online
Innovation Pipeline
The "Pipeline" is the key tool for managing innovation: -helping ensure a steady flow of well-targeted ideas -critical to efficient and effective development and resource deployment (placing bets on high potential initiatives and killing/redesigning weak ones) Keys to Success: -clearly define target customer and needs opportunities; scan for external developments, competitor/substitute offers and relevant technology applications -continuously fill front-end with new concepts...target 100:1 ratio -be Darwinian...kill projects early and often...freeing up resources -accelerating development and commercialization for highest potential initiatives Other Notes: -drown your sick puppies -aka, don't be emotional, focus on the big opportunities -pipeline has to be constantly fed, so don't get too focused on one thing/idea
Push/Pull Strategy
The big distinction in demand generation is Push vs. Pull Push (to Market): -channels build demand by preferential treatment (feature, shelf space, support, etc.) -attractive strategy for undifferentiated products, 'commodity categories' or channel-controlled access markets -requires superior channel value proposition (margin, portfolio, tech support, etc.) Pull (to Company): -customer demand 'fuels' channel distribution and support -attractive strategy for established brands or products with meaningful differentiation -requires investment in awareness generation and incentivizing trial
Impact of Margin/Elasticity on Management Decision-Making
The combination of customer price elasticity and internal margin/volume dynamics shape corporate marketing strategy. Low Margin, Elastic: toughest environment -variable cost business models stabilize profitability somewhat -focus on reducing customer switching (product and service differentiation, broaden line to become more 'complete' vendor, extended term contracts (2-5 years), build exit barrier such as billing preference) -dynamic customer pricing models High Margin, Elastic: unusual environment...normally competed away -insulate business...maintain advantages in offer, channel, etc. and respond sharply to competitive threats -stable price management; avoid volatility and signaling opportunity to competition (disciplinarian role) -make sure you've got a good lawyer Low Margin, Inelastic: most opportunity for improvement -you should be making more than you are today: price-up, trade-up or differentiate -build your advantage, either scale (maintain low price) or fuel investment through price increase -business model will depend on market position (scale or subscale) and customer channel preferences High Margin, Inelastic: "Life is Good" -insulate competitive advantages, offer and business model! -focus on growing lifetime customer value (broaden range of products purchased, ensure customer satisfaction through operating excellence and feedback systems, demonstrate value grate for customer) -business model will depend on scale and insulating core competitive advantages (R&D, customer relationships, etc.)
Causes of Low Customer Response
To reach target customers you need to have an understanding of their media habits and understand your 'effective frequency.' low ad exposure: poor media selection and/or limited exposure frequency low ad awareness: insufficient ad frequency and/or ineffective ad content low ad content recall: insufficient ad frequency and/or ineffective ad content low intentions to take action: insufficient ad frequency and/or weak value proposition low levels of desired action: insufficient ad frequency and/or action not clearly specified
Creative Brief
The creative brief summarizes key objectives, communication priorities and environment/constraints for the advertising. 1. Marketing Objectives: what the firms wants to achieve-outcomes (e.g. trial) and intermediate (e.g. preference) objectives 2. Planned Media: what media will the campaign be used in? 3. Customer Insight: critical insight into target market; identifies rational and emotional factors that drive product purchase, use or are key barriers to the intermediate objectives 4. Competitive Context and Insight: informs the creative process, including barriers to achieving firm objectives COPY STRATEGY 5. Target Audience: target viewer for the advertising, usually the product's target customer buy may be influencer, gatekeeper, etc. 6. Key Benefit: core customer value proposition-may focus on functional, experiential or image-related benefit 7. Reasons to Believe: why the target customer should believe firm claims 8. Brand Image and Personality: how the firm wants the target audience to feel about its product; should be important to the audience, deliverable by the firm, and unique to the brand 9. Mandates: elements outside the advertiser's control-must or must not be included, like corporate and/or legal requirements advertising must meet
Pricing Volatility
The extraordinarily high elasticity of retail fuels can drive severe pricing volatility: -implementation of strategy can often require contradictory tactics to provide effective signaling -understanding of site-level elasticity, competitive and customer profile is key to success Denmark hourly volatility within a single day. -by law, prices can be raised only once a day at 11am -firms all raise price to leader's previous level then bleed away with up to 10 reductions -intra-day change of up to 11%, equal to entire gross margin Customers would all play games, and only buy fuel in the evening. Market leader must discipline the market by keeping price consistent.
Pace of Change
The pace of change of innovation has accelerated as technologies build on previous breakthroughs and were fueled by increasing customer wealth and access
Cost of Car Ownership
The price of buying a car is only the tip of the iceberg. What are the ownership costs a buyer should consider in buying a car? The total cost of ownership includes price, acquisition costs, financing costs, holding costs, installation costs, usage costs, repair/maintenance costs, and disposal costs/value. Reducing some of these costs is a way to create value for customers.
Pricing Strategy
The pricing strategy is an important part of the overall business plan and operations. Pricing strategy, key components: -estimated TEV for key customer segments, with rationale for competitive adjustments -estimated PV for key customer segments, linked to sales and marketing gap close plan -role of product within portfolio, positioning, margin/volume dynamics and expected elasticity -business objectives (share/return) and how trade-offs should be made -pricing framework: bundling, tiering, etc. -competitive value references, expected actions and response plan -operational parameters (decision authority, system and control requirements) AFFECT OVERALL BUSINESS PLAN AND OPERATIONS... Pricing Management and Operations: -price setting and change decisions -information systems and control procedures -analysis and performance assessment Financial and Operational Plans: -supply chain, manufacturing and logistics planning -cash flow and earnings forecasts -shareholder communications Marketing Strategy : -product positioning and value proposition -overall marketing mix and investment levels -promotion requirements (temporary price offers)
Broader Impact of Digital Channels
The real impact of digital technology on the market is much broader than online retail...it is enabling new 'synthetic' designs and reshaping many routes-to-market. How are digital innovations impacting channel functions? Demand Generation: -CRM -loyalty systems -predictive analysis -apps Inventory Management: -bespoke production -increased modularity Distribution/Delivery: -downloadable content -growth in package delivery business Finance and Credit Management: -online payment -digital currency -new models (e.g., subscription, in-app purchase) Modification and Support: -order customization -smart equipment These innovations are providing new benefits and services for both existing channel players (e.g. distributors) and stand-alone digital competitors Examples: Netflix, Amazon Echo, Apple Store, Amazon Prime, Paypal
Role of Pricing
The role of pricing is to capture and allocate value: -superior "needs delivery" and differentiation creates value for the customer -pricing strategy recognizes this value, and decides how to allocate it
Different Forms of Pricing
There's a range of pricing mechanism to use. List/posted structures are the most complex and common in B2C, so will be the focus of this discussion. Pricing Format: -negotiated price -list/posted price -competitive bid
Advertising Realities
Things have changed since Wanamaker's time... Results measurement is getting better and more accurate. -digital media is leading the way (nearly built-in tracking) -even broadcast measurement is getting more sophisticated and accurate Media are becoming more targeted. -increasing 'yield' and reducing wasted impressions, however -at a cost of greater planning complexity Despite well-publicized challenges, digital and social media create the opportunity for much more personalized communications...increasing affiliation, loyalty and advocacy. Bottom line, advertising remains the most cost-effective and sustainable means of building demand for a differentiated offer.
Value Pricing "Thermometer"
True Economic Value (TEV): defined by the "cost of the next best alternative +/- value of differences." TEV is based on a fully-informed and confident assessment. It is the upper boundary of pricing,and represents the full potential value if customers were fully aware and confident. Perceived Value (PV): adjusts the TEV for customer's awareness of benefits, trust/confidence in the brand offer (risk), and other barriers to purchase. PV represents the "customer indifference price." Marketing activities seek to raise PV via advertising (communicating value), building brand trust, enhancing access and experience, etc. Lower boundary defined by the firm's willingness to produce (variable cost or minimum return limit) Product price allocated the value-added between producer and buyer to incentivize behavior.
Competitive Dynamics
Understanding of the competitive dynamics and likely competitive responses is key to lasting success (...back to Porter's 5 forces!) Firm Actions Raise Prices: Situations-few competitors and marginal profits, firm is market share leader, market demand inelastic Competitor response-accept the firm's price leadership and also raise prices Lower Prices: Situations-all competitors make similar offers, high fixed costs/low variable costs, no competitor dominant Competitor response-follow suit Key Considerations: -industry rivalry -competitor goals and resources -market and brand elasticity -fixed/variable cost structure -entry and exit barriers Key Strategy Components: 1. Posture: aggressive or low profile 2. Pricing references and positions (overlay to customer insights) 3. internal guidance (customer communications and negotiations) 4. response plan
Creative for Social Media
Unlike other media (including websites), social media is an open dialogue Advantages: customer feedback, ability to build stronger affiliation, rich target, credibility of customer advocates disadvantages: not in control...negatives can spread quickly Authenticity, interactivity, and respect for the open format is key to creative. Reality is that social media dialogue is happening with or without you, so it's better to be an intelligent participant.
Value-Added Reseller
Value-added resellers purchase and use a manufacturer's product as an identified component, adding significant product or service value to customers. VARs are good at: -customized design and start-up of integrated systems Strengths: -simplifies manufacturing scope...allows standardized component production -builds customer trust and satisfaction in solution Weaknesses: -VAR 'owns' customer relationship...manufacturer has low power if secondary component -some vicarious liability risk Common Usage: -ERPs, network systems -home HVAC control systems
Ethnography
What is it? -observational research focused on understanding how people think and behave through an activity (e.g. refuel a car; decide o purchase a new PC) -in-the-moment inquiry by trained observer reveals hidden workarounds, improvement opportunities and customer psychology through the journey -lengthy interview format drives high cost/respondent but method identifies many valuable design insights Where is it used? -new product development -product or process design improvements -retail environment design -website design -customer service process design -understanding of customer journey Strengths: -very powerful design tool for product or process development -frequently identifies new (unconscious) decision factors or product uses Limitations: -highly qualitative: cannot draw any conclusions on frequency of observations; fast prototyping and qualitative usage testing is a common next step -high cost limits breadth or depth of study
Customer Panels
What is it? -qualitative panels are virtual or physical groups of customers recruited to provide firms with feedback on product design, customer service performance or innovation screening -the quantitative version, aka Diary Panels, are usually focused on providing longitudinal behavior data and are usually syndicated to share high costs Where is it used? -qualitative panels are used by a wide range of industries, but they work best with high purchase frequency categories or with high involved customer groups -common uses are innovating ideation or assessment of new products or process/format changes Strengths: -feedback from highly engaged or important target customers -excellent and confidential screening tool prior to broader market testing Limitations: -relationship with firm may influence response -costly to set-up and maintain; need regular pipeline of content or will be uneconomic
Push vs. Pull Strategy
When demand-building is focused on the end consumer, it is a "Pull" strategy; when focused on winning in the channel, it is a "Push" strategy. -Pull strategies should ensure that channel partners are at least indifferent on value proposition (roughly equal to alternatives) or they will experience channel barriers. Pull strategies can rely on advertising and promotion, but promotions tend to provide only short-term demand bursts (so difficult to sustain profitability). -Push strategies can be very effective, especially when reinforced by structural advantages (scale economies) -the most efficient and effective strategies tend to emphasize one lever...to much of both push and pull is inefficient as it costs money to stimulate both levers PUSH pros: faster adoption, squeeze competition cons: lower long-term margins common use: less differentiated products, small scale (unable to afford fixed ad costs), lower involvement categories PULL pros: more channel power, supports differentiation cons: requires strong, continuous customer focus common use: more differentiated products, larger firms or those with marketing capability, higher involvement categories *Pick one as primary strategy. Don't try to do both, otherwise everyone would be getting something, and you wouldn't be optimizing.
Multi-Channel Systems
When you are trying to reach multiple segments, you will usually use multiple different channels. Many firms will use multiple channels to address different customer segments or operate in different business environments. Divergent customer preferences...or divergent regulatory requirements, margin dynamics, competitive objectives, etc. Multi-channel systems drive growth, but create additional challenges and complexity: -'channel conflict' from different systems competing across (intended) boundaries-this is especially common where channel partners take title to goods -pricing tactics can undermine profitability of both producer and their other channels A lot of companies start with one channel and then broaden. Fore example, Starbucks began by selling to consumers solely through their coffee houses, but now they sell through food service distributors, their website, airports, supermarkets and convenience stores.
Channel Performance
While specific metrics will vary by business, these 3 broad areas are an important part of any balanced channel scorecard. Channel Performance: 1. customer reach (volume) 2. operating efficiency (cost to serve) 3. service quality (retention)
Wholesalers
Wholesalers purchase direct from manufacturer and resell to other channel participants (e.g. distributors, retailers: do NOT sell to end users). Wholesalers are good at... -one-stop source (depth of range) -breaking bulk (small lots) -low cost Strengths: -breadth of range, ease of access are key customer benefits -reduces manufacturer order-to-cash complexity (fewer customer) -efficient way to reach broad number of customers Weaknesses: -limited customer support for product education or service -volume/velocity-focused and promotion oriented, not good for brand or loyalty development -no connection with product (just a stop on the train-they add very little value, other than their logistic capabilities) Common Usage: -consumer goods -contractor supplies -replenishment categories
Specialty vs. Mass Retailers
Within retailing, the distinction between specialty and mass sectors is very important to marketers. SPECIALTY RETAILERS (great strategy for a "push" channel strategy) Characteristics: -one-stop shop for given category -sales staff often seen as 'expert reference' for aspiring DIYers -promotional programs can include display and expert advice Common Examples: -auto -electronics -garden supply MASS MERCHANTS (if using price, can create conflict for specialty retailers) Characteristics: -broad, multi-category product offering -lowest price (and convenience of multi-category) are key benefits...no expertise expected -promotional programs usually limited to price feature and display Common Examples: -Walmart -Target -Amazon
Approaches to Innovation
Your strategy should define type(s) of innovation desired, and resource appropriately -sustaining: next year's car with incremental changes -adjacent: electric car, same dealer -disruptive: on-demand, app-based car service
Lead Users
lead users: identify lead users who have extended the use of the product customer experience: study how lead users have extended product usage new benefits: discover how the product could be modified to improve usage product development: develop a more complete customer solution or new product
