Marketing 101 - Final Exam

Price: Elasticity

%∆Q / %∆P -If > 1, quantity is changing more than price so demand is elastic -If < 1, quantity is changing less than price so demand is inelastic - and higher prices will result in greater profit

Price: Continuum

(1) Price Ceiling - Customer perception of value (WTP) (2) Price Floor - Product cost *Price will generally fall somewhere BETWEEN the ceiling and the floor, and where it falls exactly is determined by the context

How does the customer help move value down the chain?

-Amazon: The Last Mile. For Amazon, getting the packages to the exact home and specific location is very difficult and expensive. But you come to them and save them their hardest mile, while also getting the product faster and more conveniently on your own schedule. -Self Check Out: Alleviates the problem of training staff and registers and delivers value to the customer because it saves time. -Ikea: You as the customer deliver the furniture to your home and assemble the furniture yourself, so you are fulfilling part of the distribution network.

Retail: Apple

-Apple believed that they had superior products but people didn't have a place to discover them -They were fully prepared to take a loss on retail - this was only meant to be a space to let people discover more about the brand and they will buy later -So they have more sales people and a horizontal layout -Now they get tremendous foot traffic and do a crazy amount of sales / sq ft

Product Life Cycle: Introduction - Rogers Diffusion of Innovation Model

-Break the normal curve of the market into statistical groupings -Innovators -> Early Adopters -> Early Majority -> Late Majority -> Late Mass *You might not be an innovator or early adopter in every category - you might be in one category, but not all

Pull Marketing

-Customers come to the store and ask for the product - they're pulling it through the chain to them

Price: Pricing Strategies - Cost Plus

-Focus on the floor by determining what the costs are (VC + FC) for the product -And then add some % profit margin on top -But this does not account for how competitors are pricing and how consumers would react -Example: Retail operates on 2x model - Cost * 2

Product Life Cycle: Skim Launch Strategy

-Follow the Diffusion S-Curve. Market to innovators and early adopters at a higher price point to extract maximum value from the most interested customers, then reduce prices to move to later adopters. -Big money comes later with the masses.

Marketing Research Methods: Direct Elicitation - Surveys

-Likert Scales - translating an attitude into a number -Multi Attribute Model - (1) what is the typical consideration set (2) who is the typical segment purchasing these TVs (3) collect sample from this segment and using customer survey data to determine what drives their decisions - (a) rate the importance of each attribute from 1 to 7 (b) rate the strength of each brand on this attribute from -3 to 3 (c) attitude to brand = Σ (bi * Ii) (d) people are likely to buy the highest valued product first (write each sub product in parentheses)

Promotion - Advertising Planning - Media

-The US is the largest spender in media advertising, with China not a close second (the same is true for digital ad spending) -There has been very strong and consistent growth in US media spending -Digital is the largest area of spend, followed by television - but remember that this is just television programming shifted to a digital platform, so still TV -Projecting growth in out-of-home advertising - billboard, subways, etc.

Product Life Cycle: Introduction - Diffusion S Curve

-The inflection point is the TIPPING POINT, right before early majority

Typical Channel Representation

-The typical representation of how product gets to consumer is a straight line. This is not realistic - non-straight line paths. -You generally do not choose one direct straight line path, but rather some combination of a more complex path. -Also the paths are always changing, it is not a fixed direct line.

Promotion: Advertising Plan - Metrics

-better metrics and evaluation help marketers make better decisions in the future -metrics should stem from the objective

New Product Development

1. Idea generation 2. Concept development - of the attributes 3. Business analysis - forecast demand 4. Product development - designing and manufacturing the actual product (or prototype) 5. Market testing - of the actual product 6. Business deployment - on a large scale *Knock out unviable ideas at the end of each of these six stages - it's like a funnel (establish hurdles to meet at the end of each stage)

Promotion: Advertising Planning - Motivation

1. Inform - build awareness and help customers understand value 2. Persuade - build preference and motivate customer to take action 3. Reminder - keeping value proposition top of mind and protecting brand decay

Risks in developing a new product

1. Market risks - uncertainty associated with 5Cs defining the market 2. Technological risks - the attributes you want might not be feasible with the existing technology

Channel Functions

1. transactional functions - buying / selling (agents, wholesalers, brokers) 2. logistical functions - transport / store / sort (distributors, wholesalers, retailers) 3. facilitating functions - financing / payment processing / research / shipping / promotion / data analysis (facilitating agents, Google, Alibaba)

Product Life Cycle: How do we know if our category is S-Shaped or Exponential?

ACCORD Model 1. relative Advantage - to what it replaces 2. Compatibility - with current behavior 3. Complexity - of communicating benefits 4. Observability - of the benefits 5. Risk - of product failure 6. Divisibility - if you're all in or not (think about swiffer sweeper vs. botox)

How do we find these customers, the innovators?

Kickstarter campaigns are a marketing device to find the innovators - this who wants to use new, unique, non mainstream products

Retail: Becoming Retailer

(1) the store serves as a 24/7 billboard for the company, serving a marketing / advertising function (2) control over brand message by building brand associations - the location in and of itself serves a huge marketing function leading to business elsewhere, previously retailers were not experts in your brand but now your own retail location would be (3) greater market coverage (4) can sell your full product line (5) reduction in double marginalization - retain all margin that would otherwise be the distributor margin

Marketing Research Methods: Limitations - Art

-A study looked at creating more marketable art, or art that people would like better -They asked a series of survey questions - do you like secular vs. religious paintings, indoors vs. outdoors, etc. -They amalgamated the data and produced an optimized painting which had everything consumers said they wanted in the surveys -The point is that this looks ridiculous (1) sometimes you may not be able to accurately quantify why you like a painting - we may not know why we prefer this over any other, we just do (2) we may not want to share accurately (3) ideal offering is not a simple sum of parts (4) people may not know what they want until you show them

Retailing

-Accounts for $5 trillion per year in the US, and still the vast majority is taking place offline -Consumer spending accounts for 70% of GDP -Retail influences every aspect of business -Walmart accounts for 3% of US GDP - world's largest retail company

Product Life Cycle: Exponential Diffusion Curve

-Adoption follows an exponential pattern -New media categories diffuse in exponential pattern

Advantages and Disadvantages of Digital Media

-Advantages: allows for highly selective targeting (contextually - what you search, behaviorally - what you buy, psychographically - what you like, look alike - can find your highest CLV customers and people who look exactly like them on Facebook); users can be interactive; potential for direct response (easy to know the views, clicks, sales generated) -Disadvantages: fragmented and limited reach (everyone is on different platforms, so you would have to buy ads on each to reach millions); generally there is a low click through rate; difficulty with attribution (did people click on the ad because of your ad or others); limited creativity on mobile; issues with privacy and transparency (how do you know what facebook is giving you is accurate)

Promotion: Amazon

-Amazon's advertising business is rapidly expanding into new areas -Companies currently pay to be listed as a "sponsored product," at the top of a search page -Amazon offers unique targeting data compared to Facebook and Google, because they know what customers buy and can influence customers at point of purchase -Amazon does not provide large brands with advertising teams, unlike Facebook and Google -New advertising opportunities with Amazon include - Amazon ads can also appear on third party sites with behavioral targetting data, scan barcode on bag to check availability of fiber optic service at its address, buy ads on prime TV, buy ads on packaged boxes and bags -Some advertisers are annoyed with the fact that despite paying for advertising, Amazon products are still at the top of the page, but they can't stop selling on Amazon

BBVA

-Bank operating in the Americas (from Spain) and is the 15th largest commercial US bank -People had low confidence in banks after the crash, regulations reduced bank fees, and approval of loans is not as straightforward as before so the number of loans approved was reduced -Customers could acquired through branches in person and online -Offline: build brand awareness but difficult to track and measure, Online: build brand awareness and good metrics -Metrics do not tell the whole story - for offline CPA metrics, capital expenditures (rent, salaries) are not taken into account, and for online metrics, we have difficulty attributing one ad to an action - because it may have been a buildup - calculate how many customers actually make it through the funnel (1 x .80 approved x .67 fund = .536 customer), so then CPA/customer = effective CPA, and calculate CLV with this as the AC -There are synergies among promotional devices, between online and offline ads (there is a conversion in consumer action with exposure to online / offline ad)

Push Marketing

-Company pushing their products onto customers and collaborators -Example: Coca Cola buying refrigerators and pays for marketing of collaborators to push their products onto the customers

Place: Trends - Vertical Integration / Horizontal Integration

-Corporate Vertical Marketing System - combine successive stages of production and distribution under single ownership (example: Luxottica) - they have quality control throughout, keep margins high, high barriers to entry, very capital intensive so lack flexibility to change industry -Administered Vertical Marketing System - no contracts, but channel partners are influenced by the size and power of one partner - Detroit Model: tightly clustered and controlled suppliers (ex: Zara) -Horizontal Integration - acquiring a collaborator at the same level as you

Price: CMI

-Customers are split in high and low WTP - this would save a lot of money for construction companies but leasors want their equipment out in the field longer -To calculate the market size: number of hammers x weeks / year in use x hrs / week in use x ft driven per hour = ft / year. Then, pad is ft driven / pad, so I can divide this to calculate the pads needed / year. -Then, I calculate how much time is saved with this versus the conventional pad. And then I calculate how much total savings there are (don't forget the cost to buy the product) - based on labor and rental cost per hour. And then I calculate the savings / pad. -On the price continuum, the price ceiling is the EVC, while cost-plus is close to the price floor.

Price: Pricing Strategies - Value Based

-Every Day Low Price (EDLP) - Meant to stake out a low price position to capture more value for the company (Example: Walmart - they don't have individual sales, but have one low price category that week - delivers you time and convenience to avoid finding all of these deals on your own, because "we have the lowest prices.") These companies get smoother revenue because people don't stock up one week and not buy the next week. They also get a larger share of each customer's wallet because customers aren't going to one store for one thing and another store for another. -Subscriptions - Pay a flat fee and you get as much as you want. Example: Go to the gym as much as you want, but predicated on the idea that not everyone will utilize it to the full potential. -Economic Value to the Customer (EVC) - Identify the highest perceived value to the customer and price there - you basically charge them for what benefits you are providing them - Example: Lost revenue from canceled appointments to WTP to price

Product Life Cycle: Penetration Launch Strategy

-Follow the Exponential Diffusion Curve. For exponential growth, mass market from the beginning. -Number of new adopters is peaking early. -Requires significant resources but can yield a high return on investment.

Brand Portfolio

-For each of their products (think: laundry detergents and Marriott), packaging is the same and positioning is the same, but they still have different brand managers for each -Why do they do this (1) Creating perception of variety and choice - coverage (2) They're willing to cannibalize themselves to occupy space to block competitive offerings in the shelf - clogging up channels of distribution

Price: Pricing Tactics - Complimentary Pricing

-High cost durable priced below cost, but make money on the add-ons / replacements -Example: Printers and ink -Example: Kuerig and pods

Why we need distributors?

-If each manufacturer was dealing directly with the customers, customers would have to go to all different manufacturers to compare alternatives and shop across. There are many more points of contact. -So we can create an intermediary (a distributor) which creates value for both sides of the market. Manufacturers can sell in bulk to the distributors and can now focus on just making the product rather than the establishing customer contacts. And customers can shop at one store, providing more convenience. There are fewer points of contact. *If the distributor does not create value, they'll be removed as an intermediary (disintermediated).

Why Integrated Marketing Communications?

-If we didn't use an integrated approach, we are likely spending inefficiently so we can improve the overall effectiveness of the marketing tactics and more effectively manage marketing resources -This creates 31% more of sales, especially when you add customization of the message, so we are increasing message relevance

Aqualisa Quartz

-In the United Kingdom, there were issues with the current showers (temperature was unstable and pressure was too low) -There were downsides to each of the existing showers in the market -There were several different customer markets to target (developers - lag in time, do it yourself - associate with discount brand, premium - higher WTP, plumbers - important gatekeepers but loyal to specific brands) -They should target plumbers - determine CLV from plumbers - they install ~45 showers per year, each shower installation has margin to aqualisa, so each plumber is worth x / year, and with a multiplier, find CLV - tactic is price at freemium to communicate value and use push (trade shows)/pull (showrooms)

Product Life Cycle: # of competitors

-In the introductory phase, the number of firms peaks. As soon as the forecasts for the market are coming out (customers, data, sales), then a number of new competitors will jump in the market. They are launching ahead of the peak in profitability in the growth phase. They have second mover-advantage - don't have to spend on building awareness of the category like the first-movers in the early introductory phase. -In the mature phase, we have a smaller number of well-instantiated companies operating.

Kirkland Article

-Kirkland Signature is Costco's own brand -They look for top seller products that can be sold for less without eroding profit or quality -This attracts shoppers because they are offering cheaper products -It also challenges other manufacturers who face more limited shelf space to offer exclusive versions of the product or reduce the price -But they don't just want to sell Kirkland Signature - their product looks better next to a higher price branded version and people want the option of the brand

Luxoticca and Warby Parker

-Luxoticca basically monopolizes the eyewear industry. Operates with a base surge strategy - it uses China which is farther and cheaper as its base supply and Italy which is closer as its surge supply. It sources raw materials and manufactures parts in Italy and China, then it ships these to Atlanta for assembly, then it ships to various retail outlets. They are not pooling inventory. -Warby Parker is a pioneer in direct-to-consumer, selling online It uses a single source strategy - one manufacturer in China. Working directly with suppliers to build their own lens and frames. It sources raw materials from Italy, ships it to China to manufacture frames, ships this to various locations in New York where things are assembled and the type of lens put in depends on consumer demand (so more flexible in late stage of their process). They pool inventory at New York warehouse. Also they have the same sunglass and glass frames, and most frames cross gender. Leads to high inventory turns and low inventory holding costs. -Growth opportunities for Warby Parker: Virtual try-on for more customer data about preferences, in-store optometry

Market and sales forecasts

-Market forecasts are forecasts for the entire market -Sales forecasts are forecasts of sales over a specified time period -Primary data forecasts - expert forecasts (executive, sales force, industry), customer research forecasts (concept testing of a customer response prior to introduction to the market, market testing of a particular market) -Secondary data forecasts - using already existing data - past data on sales of same offering, forecasting by an analogous product, category based forecasting - how it is doing in a particular category, segment or market

Retail: Kahn Retailing Success Matrix

-Most classic frameworks in retail forget two things - customers want to buy something they value (product benefits or customer experience) and retailers must provide some competitive advantage to what is offered by the competition (provide more pleasure / benefits or remove pain / inconvenience) -The Khan Retailing Success Matrix categorizes the most successful brands on these two dimensions - product brand is offering product benefits and increase pleasure (nike), experiential is offering experience and increase pleasure (sephora), low price is offering product benefits and reducing pain points (walmart), frictionless is offering experience and reducing pain points (amazon)

Price

-Most of marketing is seen as a cost center - it's making a lot of costly investments -Price is not costly -Price is the only element of the marketing mix that directly produces revenue -Price is the most flexible marketing element - it is pretty easy to change the price pretty quickly -Price is a top factor in customer choice

Retail: Traditional Metrics - Inventory Turns, Online

-Online, you have much lower turn because you have much higher variety -So online, we can (1) draw customers from anywhere including those who are not physically close (2) we reduce holding costs because inventory is stored in remote warehouses, not in expensive retail location (example: diapers.com) (3) the long tail idea suggests that online, you can carry extreme product variety of low turning items, which offline retail can't do without massive expense

Things to think about when designing products

-Performance - on various dimensions (speed, comfort, acceleration) -Consistency - across different locations (McDonald's) -Reliability - do what it is supposed to without breaking down during its expected life -Durability - how long it lasts -Compatibility - with complimentary products (think Microsoft products) -Ease of use - of the product -Degree of customization -Form - size and shape -Packaging

Price: Pricing Tactics - Psychological

-Price ending effects - The intention to buy is different at $299 versus $300 -Odd / even tier effects - Whole numbers are "even" and suggest higher quality, decimal numbers are "odd" and suggest savings -Price / quantity effects - Consumers are more responsive to price than quantity changes -Reference prices - Huge discount compared to original price OR competitive offering price

Price: Price Wars

-Price wars are more likely when products are undifferentiated -When significant economies of scale suggest that profits are raised if volume is raised -When markets are not growing, and a company needs to steal market share from its competitor (claim value rather than expand pie) -When customers switching costs are low so they're not that loyal to competitors Price wars are detrimental because 1. Could reduce brand image (associated with "cheap" or "low quality") 2. Could shift the reference point down 3. May not be able to recoop loss of price in increase in volume -So instead, we want to take a step back and think about if this is really a credible threat or a miscommunication, how will this affect me (or are my customers really loyal), and what to do then (ignore, reposition my existing product, add new products - downscale extension, while maintaining upscale offering)

Products vs. Services

-Products typically can be separated from the manufacturer (they are distributed to end users through different distribution channels). Durable products are used for an extended period of time and nondurable products are used for a short time. -Services are usually consumed by one end user. And typically not separated from the manufacturer before reaching the end user.

Product Life Cycle: Decline Stage

-Sales (volume) and profitability is declining -Usually due to a dominant replacement technology (new tech is replacing old, and driving out customers) - virtually no new customers -Four different strategies for companies in the face of this (1) withdraw - withdraw / divest from the product, get out (2) harvest - stay in the market as long as possible to reap whatever profits remain (3) niche - focus on niche demand, there is a possibility of pockets of strength in some markets (4) market leadership - bringing declining market back to growth due to changing technology

Problems with the product lifecycle and diffusion frameworks

-Sales data aren't very smooth - we don't know what is noise and it is difficult to determine what stage we're in -Questions about cause and effect - does the product life cycle and diffusion drive strategy, or does strategy drive product life cycle stage -These apply to the category, not specific brands

What are exceptions when a firm would price below cost?

-Selling ad ons - when they're making the money by selling ad-ons and other services in addition to the actual product -Cleaning out inventory - for produce, the price will drop if it will spoil soon so you don't lose 100% of the cost -To get market share or build a larger user base

Price: Pricing Strategies - New Products

-Skimming: Skim off the top of the market, focus on a narrow group of consumers with more WTP potential - high price -Penetrating: Going for a wider group of customers by penetrating the market - low price -Trial OR Freemium: Have people try cheaper service, with intent to raise price later - tends to be effective in getting people on board (Spotify - free with limited service, inducing trial and getting people to upgrade to premium)

Zara - What they do, Stores, Supply Chain, and Why they Fail Less Often

-Sold limited supply (3 sizes and 3 colors) of cheap, but fashionable and on-trend items, imitating the highest and most popular items of high end brands - generated feeling of scarcity - quick turn around with designing and manufacturing -Each store is located in a high foot traffic, privileged area - they are white and modern - communicate brand image -Manufacturers are without contracts in tight cluster in Europe and these are small firms so Zara has power, shipped to Zara distribution center, twice a week each store will order items, products are sorted and transported to each store -Why do they fail less often - they are live time recognizing buying trends and ordering accordingly, they are making limited and short runs so you are more likely to just burn through it (and they don't care if they run out because it generates feelings of scarcity), they only make a percentage of their line at the beginning of the season, buy fabric undyed so not committed to a particular color

Price: Pricing Strategies - Competition Based

-Take the going rate across competitors -Or be a price leader by giving the lowest rate -If more than one company does this, it could lead to pricing wars

Product Life Cycle: Introduction - Psychographic Model of Diffusion

-Technologists -> Visionaries -> Pragmatists -> Conservatives -> Skeptics

Price: "Ideal Price"

-The "ideal price" optimizes the value of the offering to the target customers, company and collaborators -We must consider the 5Cs (the target customers - WTP, the company's resources, the collaborators - and how much power they have, competitors - going rate or leadership, and context) when determining the price that maximizes the value proposition -We must also consider the other 3Ps - place (if they take a high margin, price will go up), promotion (sales promotions and other things will change final price to customer), product (if the product creates lots of value, higher WTP)

Channel

-The path that enables the offering (product / service) to flow from the manufacturer to the end user -They can pass through intermediaries along the way -We can think about the channel as a VALUE DELIVERY NETWORK - the company, suppliers, distributors, and customers are all partnering to add value - deliver product, deliver services (customer service / warranty), deliver brand, deliver prices, deliver incentives (coupons / rebates)

Incentives

-There are both monetary and nonmonetary incentives we can provide to our customers, collaborators, or company employees -Incentives will reduce the cost (monetary) or increase the benefits (nonmonetary) associated with an offering -Consider the 5Cs in designing incentives - the customers needs, the company's resources, the collaborators power, the competitors offering, and the context like adverse economic conditions -There are three reasons why a company would offer promotions - (1) manage purchase timing (2) optimize value of an offering to a specific segment (3) responding to competitors promotion -Incentives are given to collaborators to acquire shelf space for new products, carry higher levels of inventory, incentivize sales people to sell product -Incentives are given to company employees to motivate performance

Promotion - Advertising Planning - Media - Digital Trends

-There are several different avenues for digital media spending - display (pop up windows), search (sponsored links), lead generation (generating customer interest usually through email chains), classified and directories (yelp), direct emails -Facebook and Google generate huge ad revenues - they sell ads on their own platforms but they also put ads on other sites since they are building ad networks - they take targetting data and use ads on other platforms and target you there - Google targets based on what you search, Facebook targets based on what you like, Amazon targets based on what you buy (this is even more accurate)

Marketing Research Methods: Limitations with Surveys

-This relies on the fact that consumers will tell you accurately what their preferences are and what is driving their choices - but they may not know this with any precision -Or if they do, they may be reluctant to share this with you -Customers will not be able to tell you accurately for (1) infrequently made decisions (2) lack of awareness of attribution variation (3) "soft" attributes (4) new attributes

Integrated Marketing Communications

-Traditionally, these functions resided in different parts of the company and their efforts were not coordinated so companies might have been spending inefficiently -Integrated Marketing Communications is to create an integrated communications mix 1. Marketing Plan - a long range strategic plan 2. Promotional Goals - what we are trying to accomplish 3. Promotional Strategy - determine our allocation of marketing dollars for push (with channel or distribution partners) / pull (on end user) 4. Communications Mix - what we say and where 5. Execute and Evaluate

Product Life Cycle: Introduction - Rogers Diffusion of Innovation Model - The Chasm

-Unless a product can diffuse past the chasm, it will peter or die out -Critical people in the early adopter space will communicate the product and their belief in it to the early majority for it to go mainstream -On the left side of the chasm, the motivation is scarcity "new" "unique" -On the right side of the chasm, they want to jump on the bandwagon so social proof is what motivates these people "reviews" "your friends" "opinion leaders"

Product Life Cycle: STEPPS

-Used data on New York Times website usage (reads and shares) to reverse engineer what drives some things to be viral and others to not be to create the STEPPS model -Things viral were strong on a subset of (1) Social currency - if we share this, it is "new" and we are "in the know," so people will impart social credit (2) Triggers - external triggers in the environment (ex: turkey recipes on thanksgiving, "bracket" in March) (3) Emotion - things that spark an emotional reaction (4) Public - things that had visuals or videos (5) Practical value - things that have high practical value for others - people are more motivated to share this (6) Stories - things that conform to a normal or standard story arch (protagonist -> climax -> ending) (ex: extra gum ad)

Marketing Research Methods: Direct Elicitation - Multi Attribution Model - Example

-Using the Multi Attribution Model and the individual subproducts in parentheses, we can determine what to fix to increase an attitude to a brand 1. Product - make larger TVs 2. Price - reduce the price 3. Place - sell in a place to highlight advantages (sound) OR distribute in a way to change the reference point consideration set 4. Promotion - make people care about the competitive advantage feature more by focusing the promotional message on sound *Visa commissioned a multi-attribute model and found that people didn't really care that much about accessibility, but this was their competitive strength. So they decided to make them care about this - tagline became "Visa, everywhere you want to be" - they partnered with the Olympics and said that you could only buy Olympics tickets with Visa cards. This raised the importance of this attribute.

Product Life Cycle: Sales / Volume and Profitability

-We are looking at what the entire category is doing at a particular time (NOT an individual company) -INTRODUCTION: Profitability is negative in the introduction phrase - there are so few sales (increasing) and so many expenses to build the category -GROWTH: More and more users are coming to the market (larger volume), profitability peaks in late growth when prices are the highest and margins -MATURITY: This phase typically lasts the longest - competitors and customers act like it is a mature phase. Sales or volume peaks, so well instantiated competitors are now fighting to maintain market share in a not-growing market, leading to aggressive price pressure downwards, so profitability declines -DECLINE: Customers are leaving the market (decline in volume) and there are still profits to be had, but overall declining

Classifying product and service attributes

-We can classify product and service attributes into three different categories -Search attributes - identifiable before purchase -Experience attributes - identifiable only through consumption -Credence attributes - not revealed until after consumption

Product Life Cycle: Introduction - Bass Diffusion Model

-We know the motivators of people on each side of the chasm -We can look at the proportion of innovators to imitators over time for various coefficients to predict how quickly and widespread diffusion will take place

Product and 5Cs

-When designing a product, we should consider the 5Cs to maximize the value of the offering to the company, collaborators and customers -Customers - what do they want or need -Company - what are the company's resources -Collaborators - distribution locations and space restraints -Competitors - what are other people doing -Context - legal or regulation restraints

Price: Pricing Strategies - Demand-based

-Yield Management - (Hotels/Airlines) Taking historical data about certain time periods to up charge based on demand - Fluctuating prices based on fixed capacity (1) manage capacity (2) maximize profit -Dynamic Pricing - Setting prices based on demand at the moment (Coke Machine - vending machine based on temperature which matches demand) *Most consumers do not like this (Uber - very transparent about this; when unfulfilled requests start to rise, there are two reasons for "surge" pricing (1) entice more drivers to drive - increasing supply (2) temporary reduce demand - so more rides are completed) *Most customers are ok with this because it is transparent -Target Costing - Start with the ideal price that is demanded and design an offering to deliver value at that target price (When the electric toothbrush market was emerging, P&G wants to get in the market but there were two other leaders there - they find a sweet spot for $12-$15 dollars where people were demanding a product and reversed engineered a product at that price)

Collaboration: Overarching, Domains, Advantages/Disadvantages, Categorization

-both the company and the collaborators must work together to create value for the customer, in order to maximize value back to the company and collaborators in return (can be explicit with contracts or implicit with no contracts) -collaboration can occur in three domains (1) value-design collaboration - product and service development (2) value-communication collaboration - PR, advertising, marketing (3) value-delivery collaboration - the actual delivery of products/services -allows collaborators to focus on a particular aspect of the value delivery network, which is more cost efficient (greater economics of scale and expertise) and allows for flexibility -but could lead to loss of control -specialized or broad channels depending on range of product categories carried and limited or extensive based on depth of offerings within a product category

Retail: Online to Offline

-companies that started online are moving offline and opening stores -moving away from traditional stack it high and watch it fly, to show rooming the product (Warby Parker and Apple), becoming a delivery / pick-up point (Amazon), experience (Apple), owning different types of customers

Retail: Alibaba

-connects wholesalers (buyers) with manufacturers (suppliers) around the world -they created a virtual mall -they manage payments and ecommerce for businesses -they don't ever own any goods (no COGS), they simply take fees to connect people

Retail: Walmart

-established in 1962 at one store in Arkansas -now they have over 11,000 stores worldwide, do 500b in revenue, employ 2m employees - if it were a country, it would be the 26th largest economy -#1 in so many product categories by selling more of this than anyone else, giving them immense power over collaborators

What can a company do to minimize channel conflict?

-exclusive offerings at different distribution sites -sell it more expensive (change the price) in direct-to-consumer so we protect our partnership with Macy's (because otherwise no one would buy our shoes at Macy's, so we would lose this partnership and space in the store to someone else)

Promotion - General Advertising Costs

-for search CPC, unbranded (generic) costs more because more brands are bidding on this so it drives the price up -digital is generally cheaper - so if you're a startup, you could spread out your spending more this way -television, new york times are generally more expensive, but it varies per slots - a startup could burn their whole budget this way

Promotion: Attribution

-how do we ascribe the causality of a sale for a particular ad - is it due to the original ad, or other ads built up - weakness of assuming "last click" -we can use unique codes and URLS to track -or we can use interactive cross channel attribution models

Collaboration: Power and Conflict

-power imbalances between collaborators are driven by - size of the collaborator, how strong the brand is, accounts for significant portion of others' profits -vertical conflict - (1) between different levels of the channel in a single channel (2) between different levels of a channel in multiple channels; horizontal conflict - between same level of the channel

Promotion: Rates and Metrics - reach, frequency, CPM, PPC, CTR, CPA

-reach = % of target audience -frequency = # of exposures in 13 week cycle -CPM, cost per thousand impressions = (cost / impressions) * 1000 -PPC / CPC, pay per click OR cost per click = if they click it, I pay what I agreed in my bid - auction based search engine marketing -CTR, click through rate = % of people who click on the link in the ad, average is .06 to .12 -CPA, cost per acquisition = we have to define what the acquisition is (ex: cost per download) *both online and offline sales are lifted upon exposure to online advertising

Li & Fung

-really good at shifting production to other factories, creating flexibility in the supply chain -do not own anything - asset light -dog toy highlights how Li & Fung are experts in working with many different factories - they're able to fulfill all this value between the manufacturer and customer

Retail: Creating Brand

-retailers want to create their own brands (example: amazon basics or nice at walgreens) (1) creates greater profit opportunity through reduction in double marginalization - usually the margin would be split between the retailer and the brand, now they only have one margin) (2) have slotting / placement advantages in the store at prime locations (3) it's only available at one place so people have to go there - creates differentiation across retailers (4) increasing clout with brand suppliers - now that you add your brand in, there is EVEN less space, so it makes remaining brands even MORE competitive for that limited space - so they pay more and are more cooperative

Retail: Traditional Metrics

-total revenue -gross margins (%) -revenue per square foot - the biggest cost of doing business in retail is real estate (the traditional retail is very vertical, which increases rev/sq ft) -inventory turns - (annually) how fast you are moving product through the system - COGS for year / Cost of current inventory - higher churn is not necessarily better because this means you are stocking out, suggesting that you often have empty shelves and you don't want to lose business to alternative replacement products on the shelf or detract purchase at all (you also have no variety and we want variety) - but slower churn is also bad because it means stuff isn't selling fast and you have higher holding costs - need to find balance, generally 7 is the right number

Promotion: Google Auction Process

-variation of second price auction - the second price auction allows each advertiser to bid their true WTP, the variation allows Google to show more useful ads on higher position -each ad is given an ad rank calculated from (1) bid (2) expected click through rate - Google's expectation based on user data (3) landing page experience - relevant and original content, easily navigable, transparent (4) ad relevance in how it relates to user's search (5) ad formats - enhance search ads which give users more information -this ad rank determines the positioning on the page -each advertiser then pays the minimum amount necessary to maintain their rank position - just enough to beat the ad immediately below -advertisers can reduce their price or increase their rank by improving the ad quality or ad formats

Important Business Aspects of Retail

-very low barriers to entry - so it is often the very first business for some people for this reason, you basically just need something to sell -easy to take the value proposition, and replicate and scale it in mass (example: Starbucks - went from just one store in Seattle to...) -it's really important to manage cash flows in retail but margins are really thin in retail so you have to become very good at protecting margins (example: Walmart turns products very quickly and then gives cash back to manufacturer within 90 days, so they hold these huge CFs and continue to grow it to generate additional CFs before they pay it back)

Promotion - Advertising Planning - Message

-we have to use the creative brief to translate the strategy from the entrepreneur to the creative team - this is a summary you give to your creative team or artist 1. key facts about the product / key problem 2. objective - specific customer action that is the goal 3. target audience 4. competitive positioning - parity and superiority 5. key promise - what is the single most important thing to say - the unique selling proposition 6. supporting facts - rational / emotional reasons to believe 7. guide rails - tonality, tag lines

Designing Distribution Channels

-when designing distribution channels, we recognize that we should consider the 5Cs (the company's resources, the company's customers - mass target segment involves intensive coverage and niche target segment involves exclusive coverage), the company's collaborators and power, the company's competitors and where they're offering, the company's context)

Retail: Whole Foods

-while all other stores profits in retail were typically declining, whole foods was growing and had higher gross margins (double the rev/sq ft compared to walmart) -their positioning is different from walmart - they're trying to target affluent, liberal, educated customers so they have a different product assortment (we preselected the whole store to have only organic, wholesome, healthy food) and tend to be located in university towns and urban areas -amazon paid so much to buy it to create 500 new distribution points for Amazon for the last mile and using data to make it more efficient to move more goods through these locations by changing the store layout. amazon also purchased Whole Foods brand "365" because they saw value in Whole Food's brand equity

Promotion - Advertising Planning - Money

1. % of sales - this might be a self-fulfilling prophecy because you might over or underspend, more relevant for benchmarking - it's about 10% for toys and liquor 2. Parity - spend relative to competitors 3. Objective and task - spend to achieve a specific objective (example: we want 100 sales, so we need 2000 clicks to come to the website, so we need 200000 impressions, determine the cost of this)

Where do we use marketing research?

1. Analysis - 5Cs 2. Strategy - Segmentation, Targeting, Positioning 3. Tactical Implementation - 4Ps 4. Metrics *We're using data driven research all throughout this spectrum *Researchers will use multiple marketing research techniques to achieve "convergent validity"

Price: Price Planning Process

1. Develop Pricing Objectives - Examples: maximize profitability, influence positioning, maximize market share, attract new customers 2. Estimate Demand - The price will influence the demand, there is generally an inverse relationship but also determined by elasticity 3. Determine Costs - Fixed and variable costs 4. Evaluate Pricing Environment - PEST (political, economic, social, technological) and competitive environment 5. Choose Pricing Strategy 6. Choose Pricing Tactics

Promotion: Digital Media

1. Display Ads - pop up ads / banner ads - rely on images, audio and video 2. Search Ads - (a) search engine optimization - to influence your site being on the top of a search generated list (b) search engine marketing - paid search advertising that companies bid for (paying per click) *Eye tracking heat maps reveal that the paid search ad is totally worth it (people spend lots of time looking there), and that you don't want to be below the digital fold where you have to scroll down (people spend most time looking at the top of the page)

Marketing Research Methods: Positioning Map

1. First determine the key attributes for the axes 2. Then plot the positions of the brand 3. These are perceived positions of the brands from the customers based on customer data *You don't want to be in the middle of both axes because this means that you were not perceived to be anything - customers have no clear perception so they don't choose you (especially if your ads show no clear message)

Density of Coverage

1. Intensive - high coverage, distributed very widely - important for highly substitutable products - product is available as widely as possible - very convenient for end user - high conflict potential (because conflict among variety of distributors permeates - products being sold at different prices at different places, undercutting sales at one distributor, making distributors mad at each other) 2. Selective - distribution through multiple, but not all reasonable outlets - resellers are competing to carry our product - these distributors are not necessarily loyal to our product 3. Exclusive - through a single wholesaler / retailer - less competition at point of sale - stable level of distribution - high margins throughout the channel - increase efforts of sales people (if there were more than one distributor for cars, it would disincentivize efforts of sales people)

Promotion: Advertising Planning

1. Motivation (Objectives) 2. Money (Budget) 3. Message 4. Media 5. Metrics (Evaluation)

Promotion: Media Landscape

1. Paid - print, TV, magazine, banners 2. Owned - brochures, stores, website apps 3. Earned - word of mouth, social media

Retail: Walmart - how did they get here?

1. geographic segmentation - while target and kmart were focused on large urban areas, walmart focused on small towns that had no competition in those places - the only direct competition was mom and pop stores who were not able to compete on a wide selection, variety, price 2. tight control over distribution channels - they have one of the most technologically advanced distribution systems which allows them to have the lowest cost structure in the industry - they clustered around the first store in Arkansas to limit the costs of transportation from the warehouse to retail (leading to EDLP approach) 3. position themselves as an "agent for customers" - they have huge power over suppliers so they demand low prices from them and paint it as saving money for the end user - they claim to reduce the cost of living for the average American by saving them $3300 / year

Place: Trends

1. more direct to consumer marketing 2. you can disintermediate a distributor that is not adding value 3. omnichannel - delivering through all channels at once (and could happen all at ONE PLACE (example: King of Prussia mall), reaching different segments of customers, increasing convenience for the customer 4. channel conflict (example: Macy's might not only be my collaborator, but my competitor if I'm Nike and have a store) 5. retailers have increasing access to data and own the data on customer purchasing patterns

Communications Mix - Level of Control

Advertising, Sales Promotion, Personal Selling, Public Relations, Word of Mouth

Maloney's 16% Rule

Once you have reached 16% adoption, you must change the message from one of scarcity to one of social proof in order to accelerate through the CHASM to the TIPPING POINT.

Price: Quality

Price is the #1 indicator of quality. -Example: Apple's highly priced phones are a BOON for its bottom line. Higher iPhone pricing is driving revenue growth - positioning product as a niche, luxury brand and the price is sending this signal. -Example: Warby Parker realized that the pricing decision at $45 was bad because customers associated the product with low quality. $95 price point is what drove their revenue because customers think it is higher quality. In order to determine this, they set up a conjoint analysis and found that purchase intent rose to $100, but plateaued after $100.

Skim v. Penetration Tactics

Price: (SKIM) High (PENETRATE) Low Place: (SKIM) Selective (PENETRATE) Extensive Product: (SKIM) Complex ACCORD (PENETRATE) Simple ACCORD Promotion: (SKIM) Selective, focus on education (PENETRATE) Intensive, focus on awareness

Communications Mix - Level of Influence

Word of Mouth, Public Relations, Personal Selling, Sales Promotion, Advertising (there are so many ads we're exposed to every day so there is dilution)