Transcript Marketing and Business Models (cont.)

Marketing and Business
Models (cont.)
Lecture 7
Tuesday Jan 27, 2009
Marketing 101
The 4 Ps
What is Marketing?
4 Ps of Marketing
• Product
• Promotion
• Pricing
• Place (or distribution system)
What follows is necessary for Business Plan
but not for Tuesday Homework
Product
• What is your product? Describe in terms of
benefit to the customer
• Product packaging (is this relevant?)
– Discuss form-factor, pricing, look, strategy
– Summarize Cost of Goods and high-level Bill of
Materials
– Shipping issues
– Customs issues
Promotion
• Direct marketing
– Overview of strategy, vehicles & timing
– Overview of response targets, goals & budget
• Third-party marketing
– Co-marketing arrangements with other companies
• Marketing programs
– Other promotional programs
Promotion
• Branding
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Concept of Brand Equity
What value do you get from Branding?
How do you build a brand?
Is it worth it?
Pricing
• Pricing
– Summarize specific pricing or pricing strategies
– Compare to similar products or compare to
doing nothing
• Strategy
– Summarize strategy relevant to understanding
key pricing issues
Placement (Distribution)
• Distribution strategy
• Channels of distribution
– Summarize channels of distribution
• Distribution by channel
– Show plan of what percent share of distribution
will be contributed by each channel -- a pie
chart might be helpful
• Discuss fulfillment issues
Vertical Markets/Segments
• Vertical market opportunities
– Discuss specific market segment opportunities
– Address distribution strategies for those
markets or segments
– Address use of third-party partner role in
distribution to vertical markets
Placement (International)
• International distribution
– Address distribution strategies
– Discuss issues specific to international distribution
• International pricing strategy
• Localization issues
– Highlight requirements for local product variations
Business Models continued
• How do you build a profitable company?
– Make the right strategic Choices
•Solve customer problem
•Differentiation
•Pricing
– Create Value
•Processes
•Resources
– Value Network
•Customer relationships
•Suppliers
•Information Flows
– Capture Value
•Cost
•Profit
•How do you build a profitable company?
Consider Capturing Value- - It is not enough to
bring a terrific product to the market place, that
your customer loves, if he won’t pay enough for
it so that you can make a profit.
- Lesson of e-commerce
- Lesson of third world charities
There are often many ways of making money on the
same product or service. Limited by ingenuity
Some thoughts on how to increase profits
P=SP-C
1. Increase Selling Price
Increase Customer Value
• Put extra features in product which require little marginal cost
• Provide extra service
• Target less competitive segment of the market
• Get to market before competition
• Price at the maximum the customer is willing to pay
Price models should reflect customer value- not cost (except in
government contracts if you wish to avoid jail)
Some thoughts on how to increase profits
P=SP-C
2. Decrease Selling Price
• Why?
Some thoughts on how to increase profits
P=SP-C
3. Decrease Product Development (NRE) and Manufacturing
(RE) costs
• Don’t commit to detailed design until you have customers specs firm
- then don’t change
• Build a manufacturable product. Bring manufacturing in early
• Don’t overload with features that the customer doesn’t want that are
costly to develop
• Manage tightly to schedule with appropriate risk and risk reduction
plans
• Use rigid phase exit criteria
Some thoughts on how to increase profits
P=SP-C
4. Decrease Cycle Time for Product Development
• Effect on product price in being first to market?
• Effect on total revenue of turning out products
faster?
• Effect on Cost?
Increase profits
Consider multiple business models. . .
Suggestions:
Business Models
• The after-market Service Model
Large complex equipment
• Aerospace
• Medical
• Periodic updates (e.g. software “support”)
• Equipment with consumables (the razor
blade model)
• Printers (low margin) coupled with ink (high margin)
• Video Games
• Brokerage
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Intermediary
Market makers
Arbitrage
Ex: Trader Ben
Business Models cont.
•Merchant
•Virtual Merchant e.g., Amazon
•Catalog Merchant -- mail-order business with a
web-based catalog. Combines mail, telephone and
online ordering e.g., Land’s End
•Click and Mortar -- traditional brick-and-mortar
retail establishment with web storefront. Barnes
and Noble
•Bit Vendor –Apple I-tunes (plus I-pod)
Which has the highest Gross Margin?
Business Models cont.
•Distribution
Examples
Business Models cont.
•Services
•Design house
•Software development (not shrinkwrapped)
•Sales including VAR (Value Added
Reseller)
•Outsourcing
•Consultancy
•R&D House (SRI, Battelle, Caltech
research, etc.)
Businesss Models cont.
• Manufacturer- - Make stuff and sell it to another
business
• License - - IP, software or complete business
– Mixed model: Can license to markets you can’t
address
• Community – Build and advertise/subscription
• Pure Subscription
• Advertising
• Clicks
• Can be combined with others
• Infomediary
•Audience Measurement Services
•Incentive Marketing
Businesss Models cont.
• Integrated Information BusinessesOpportunity to “slice and dice”
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Consider NY Times
Print
Web
Reprints
•Articles
•Significant pages (e.g., date of your birth)
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Archival photographs
Classified
Delivery Inserts
News Service
– See Hal Varian “Information Rules”
Knowing your model, you have a decision to make.
Where should you invest?
Investment efficiency
Each of these brings some value to the customer.
Challenge is to decide which one(s) should get your investment
What should you be really good at? What should you outsource?
•Investment decision is based on
Business Model
•Competencies required to
support that model
•Cost of Competency vs cash
generated by Business Model
It gets worse. . .
As Bill Collins discussed
• How will you deliver continuously
increasing value over time?
• Competition doesn’t stand still.
• The bar is raised
Perceived Product Value/Cost increases with
time