Transcript EAS 522 Chapter 5 - Marketing Management

Marketing Management
Dr. C. M. Chang
Only to be used by instructors who adopt the text:
C. M. Chang, “Engineering Management:
Challenges in the New Millennium,” Pearson
Prentice Hall (2005)
Copyright © 2005 by Dr. Carl Chang
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Chapter Contents
• Introduction
• Marketing Function
• Market Forecast -Four-step Process
• Market
Segmentation
• Product Strategy
• Pricing Strategy 2
Chapter Contents
•
•
•
•
•
Marketing Communications (Promotion)
Distribution (Placement) Strategy
Other Factors Affecting Marketing Success
Summary
Appendices
(1) Product Testing Program,
(2) Market Attractiveness and Marketplace
Acceptance
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Introduction
• Basic functions of an enterprise: Marketing
and Innovation - special roles for engineers!
• Marketing: Provide products/services meeting
the needs and wants of customers, Focusing on
basic marketing concepts and applications
• Innovation: Strengthen the firm’s competitive
marketing position and sustain profitability by
technology, supply chains, product design, etc.
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Marketing Function
Information
(Advertising,
Promotion)
Suppliers
Firm
Customers
Purchase
(Response, Vote, Attitude)
Information
(Market Research,
Wants/needs Preferences)
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Selling Versus Marketing
Production
Capacities
Actual Wants/
Needs of
Potential
Customers
Manufacturing
Products
Aggressive
Sales Efforts
Aim at
Customer
as a Target
Production
Capabilities
Potential
Marketing
Opportunities
Market
Products/
Services
Marketing
Program
Customer
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Marketing Orientation
• Customer Focus - Understand needs, create
value, and serve to assure customer
satisfaction, with inter-functional teamwork
• Competitor Focus - Seek advantages
relative to competitors, monitor behavior and
respond to strategic moves (foes or friends)
• Profit Focus - Manage to assure short- and
long-term profitability
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Marketing Process
Define
Problem
Evaluate
Program
Analyze
Market
(Environment,
Competition,
Strength,
Weakness,
Needs/Interests
of Defining
Segments
Select Segment (s):
Profitability, Fit with
Company/Product/Market
Improve
Program
Develop
Marketing
Program
(Set strategies
for Product,
Pricing,
Promotion and
Distribution)
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Levels of Marketing Strategy
• Corporate Level: Set future direction of what
businesses to pursue (product, service, total
solution, etc.) and what value to be emphasized
• Business Level: Bring products/services to the
marketplace and achieve/maintain competitive
advantages
• Operational Level: Plan marketing program
and implement/control marketing efforts
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Marketing Effectiveness Diagram
Customer Attractiveness
High
Low
Low
Customer Retention
High
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Marketing Effectiveness
• Total Success: High profitability at
maximum possible rate
• Partial Success: New customers replace
lost customers
• Partial Failure: Sales slow or fall due to a
lack of new customers
• Total Failure: Sales fall as customers leave
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Key Elements in Marketing
• Market (size, growth
rate, location)
• Environment
(competition, entry
barriers, constraints)
• Customers (who,
why, when, where
how, what)
• Marketing Mix
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Market Forecast
• Demand forecast is critically important
• Four-step process by Barnett (Source: F. William
Barnett, “Four Steps to Forecast total Market Demand,” Harvard
Business Review, July/August 1988)
• (1) Define the market - Total Sales revenue
per year of all products delivering similar
benefits to customers regardless of physical
and functional features
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Market Forecast
• (2) Segment the market - Subdivide total
market into homogeneous customer
subgroups with similar buying behavior and
preferences
• (3) Determine segment drivers and predict
their changes - key factors affecting the
segment growths
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Market Forecast
• (4) Conduct sensitivity analyses - assess
risks and check assumptions
• Application examples: (a) Industrial
product - Segments based on industries with
individual segment growth rates as drivers,
assuming product demand is proportional to
growth and business levels involved
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Market Forecast
• (b) Electricity - segments of industrial,
commercial and residential; drivers are:
business climate and industrial growth rate
for industrial; Internet sales increase,
consumer confidence, stock market
performance for commercial; new home
sales, change in home size and energy
efficiency of appliances for residential
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Environment
• Market study is needed to assess:
• Competition (market share distribution,
technology, brand strength, marketing
position, customer loyalty, etc.)
• Barriers of entry (capital, technology,
supply chains, distribution channels,
governmental regulations, etc.)
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Customer Orientation
• Define needs through research (real value of a
product to customer - prestige, convenience)
• Define market segments (groups with similar
needs to facilitate product customization)
• Differentiate products and communications
(e.g., “Dude” selling Dell computers)
• Create differentiated advantages for
customers
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Customers
• Who (Profile, who buy from competitors,
who does the buying, for whom is the buying
done)
• Why (Reasons for product preference: price,
product performance, convenience, product
styling, service, packaging)
• What (What for, what value benefit, what
they really want? what needed in the future?)
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Customers
• Where (where to get product information,
where is buying decision made, where to
buy from: Retail store, mail order, via
internet, department store, discount store )
• How (How to decide, how to compare)
• When (When to buy, weekly, monthly,
special occasions, etc.)
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Who Makes What Decisions
for Whom?
Consumer
(End-user)
Buyer
(Purchaser)
Prescriber
(specifier
deciding
on needs
and its
satisfaction)
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Market Segmentation
• Purpose
• Segmentation Steps
• Criteria for Creating
an Effective
Segmentation Strategy
• Pitfalls of Market
Segmentation
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Purpose
• Divide consumers into groups having similar
product/service preferences (divide/conquer)
• Value to Company: (1) Match products/
service better to the groups, (2) Create suitable
channels of distribution to reach them,
(3) Uncover new consumer groups, not being
served sufficiently in the past, (4) Focus on
niches being neglected by competition
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Additional Segmentation
Benefits to Company
•
•
•
•
Develop suitable marketing strategies
Formulate better-fitting marketing programs
Track changes of buying behavior over time
Evaluate company’s competitive position in
these segments
• Achieve improved effectiveness in utilizing
marketing resources
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Pitfalls
• Over-Segmentation (small sizes,
fragmented segments difficult for company
to serve -scale of economy) - Newer supply
chains allows “build-to-order” strategies to
serve smaller segments (Dell, Custom beer,
Chinese foods, etc.)
• Over-concentration (lack of balance
between segments)
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Problem 9.1
• Which are the bases for tradeoffs between
conflicting wants and needs of different
customers with respect to the same
product? How important is it to emphasize
product quality, when a new, unique
product is launched?
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Answer 9.1
• Customers make the following typical
tradeoffs: (1) Quality versus price, (2)
Common features versus customization, (3)
Automated self-service versus personalized
attention, (4) Technical functionality versus
styling and other aesthetic values
• When launching new products, quality is
secondary to time-to-market and price. The
strength of a new product lies in its novelty
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Marketing Mix
Product
Strategy
Pricing
Strategy
Customer
Distribution
Strategy
Promotion
Strategy
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Marketing Mix
• Product Strategy: Functional attributes,
compatibility to customer needs,
distinguishable features over competition,
product-line strategy, product/market fit
• Promotion/Communication Strategy:
How to promote, adopt pull/push, which
media to use, fit promotion to market
segment selected
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Marketing Mix
• Pricing Strategy: Skimming or penetration
based pricing, value-added pricing, target
pricing, pricing fit to market segment
• Placement (Distribution) Strategy:
Intensive, exclusive or selective distribution,
relationship with intermediaries (retailers,
wholesalers), changes in distribution
logistics and technologies
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Product Strategy
• Nature of Products
• Life Cycle of
Products
• New Product
Development Process
• Product Failure
(Rate, Reasons)
• Summary
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Product Positioning
• What product features to include and
emphasize - critically important
• Selection of product features to place new
(or existing) products in a favorable
position with respect to competition customer preferences and gap created by
existing products in marketplace
• Example: Automobiles
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Product Life Cycle
• Every Product goes through a number of
phases: (1) Initiation (product development,
testing, market development, advertising),
(2) Growth (product promotion, market
acceptance, profit growth), (3) Stagnation
(price competition, substitution, new
technologies), (4) Decline (cash cow
strategy, product withdrawal)
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Product Life Cycle
Product Life Cycle
50
40
30
Sales
10
Profit
$
20
0
-10
0
10
20
30
40
50
60
70
80
90
100
-20
Product Life (%)
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Product Supply Curve
• Product supply curve describes the market
behavior of companies -- supplying larger
quantity of products in the product price is
raising to higher levels in search of higher
profits
• Product innovations -- better products or
lower product price, causing demand to
increase and downward shift of supply curve
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Impact of Product Innovation
Downward Shift of Supply Curve
Price ($/Unit)
10
8
Old Suppy
6
Demand
4
New Supply
2
0
10
15
20
25
30
35
Quantity
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Product Portfolio
Market Growth Rate
High
?
Low
High
Low
Market Share
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Products/Brands
• Brand - A Distinct identity that
differentiates a relevant, enduring and
creditable promise of value associated with a
product, service or organization that
indicates the source of that promise. It
represents all images and experience
customers have of and with the
organization.
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Promise of Value Brand Examples
•
•
•
•
IBM - Superior Service and support
Apple - Simple and easy to use
Lucent - Newest technologies
Gateway - Friendly service
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Brand Pyramid
5
4
3
2
1
5 - Personality
4 - Value relevance
3 - Benefits (Emotional
and Psychological)
2 - Benefits (Technical)
1 - Product features and
characteristics
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Problem 9.3
• Is it better to market a new product quickly
and then improve the design later or to
incorporate all design modification/
improvements before launching the
product?
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Answer 9.3
• Marketing product quickly is a superior
strategy for new products, as doing so will
allow (1) Brand name build up, (2) Customer
loyalty creation, (3) Customer retention due to
“switching costs,” and (4) earlier customer
response assessment, (5) Steady product design
improvements, and (6) Larger gross margin for
lack of competition in earlier phase of product
life cycle.
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Answer 9.3
• Waiting to market the new product until all
conceivable design improvements have
been incorporated suffers from two
drawbacks: (1) Not offering what exactly
what the customers want and need (due to a
lack of customer feedback), (2) Loss of a
preemptive marketing advantage
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Problem 9.4
• How can product development costs be
reduced by entering the market late?
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Answer 9.4
• Some companies follows the “best follower”
strategy; Wait until a new product is about to take
off, reverse engineer the competitor’s products,
modify the product features, and enter the market
with imitation products to compete at a slightly
lower price
• In 1985-86, IBM started with the innovative PCs,
followed by many clones thereafter
• Follower realizes smaller gross margin, never a
leader
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Problem 9.5
• For products intended for the global
markets, customers’ wants and needs are
regionally different. How can a centralized
concurrent engineering team develop a
product, which serves as the common
“platform” for the global markets?
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Answer 9.5
• One option is to segregate the mechanical
aspects (functionality) of the products from
their aesthetic aspects (look and feel)
• General Motors is accomplishing this
challenging objective by: (1) Build identical
assembly plants for Buick cars at four global
locations, (2) Outsource major subassemblies
to local industries to reduce import duties and
to satisfy local content laws
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Answer 9.5
• (3) Standardize the technical specifications so
that parts are globally interchangeable for load
balancing (market demands, labor disputes,
regulations, etc.), (4) Allow design changes to
account for local market conditions (cultural
preferences in car names, styling, color), (5)
Retain centralized concurrent engineering
approach to implement global business
strategy and realize scale of economy benefit
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Pricing Strategy
• Pricing Options
• Factors affecting
Price
• Pricing Methods
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Pricing Options
• Skimming Strategy - Set premium price
initially to capture high profitability from
affordable customers and then reduce price in
time to reach additional customers in the
marketplace (e.g., new books, ginger)
• Penetration Strategy - Set price low to
penetrate the market rapidly for setting barrier
of entry to late-coming competitors (e.g.,
Microsoft Office 2000, Japanese motor cycles)
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Pricing Methods
• Cost: Price = Cost + Markup (e.g., 30% of cost)
• Profit: Price = Cost + Profits (e.g., ROI)
• Market: Set price to what the buyers are willing
to pay (imperfect information distribution, the
next best alternative available to buyer)
• Value: Set price in proportion to product’s value
added to buyer (application know-how)
• Competition: Set price at level charged by
competition (Target Pricing)
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Target Pricing
• Set the selling price based on customer inputs
and market survey and determine pertinent
product features
• Add a gross margin that company must have
• Obtain the Cost of Goods Sold (CGS) that
must not be exceed
• Define material/parts, design, product
development, and production method to meet
CGS target
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Internet-Enabled
Communications Options
Virtual Market
Direct
Customers
Manufacturer/
Supplier
B-to-B
Intermediary
B-to-C
Source: “Leverage Web for Corporate Success,”
Business Horizon (1999)
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Internet-Enabled
Communications Options
• Business to Business: Manufacturer’s Intranet
for intermediaries
• Business to Consumer: Web portals of
distributors for selling to consumers
• Direct: Manufacturer’ web sites (Dell, Gateway),
buyer’s portals (Covisint, ChemConnect)
• Virtual Market: Third party search portals
(Yahoo), auction site (e-Bay), e-marketplace
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B-to-B E-Hubs
Manufacturing Inputs
Operational Inputs
Systematic Sourcing
Catalog Hubs
Chemdex
SciQuest.com
PlasticsNet.com
MRO Hubs
Ariba
W.W. Grainger
MRO.com
BixBuyer.com
Spot Sourcing
Exchangers
e-steel
PaperExchange.com
Alta Energy
IMX Exchange
Yield Manager
Employease
Adauction.com
CapacityWeb.com
Source: Steven Kaplan and Mohanbir Sawhney, "E-Hubs: The New B-to-B Marketplaces,"
Harvard Business review, May-June 2000.
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Contextual Marketing
• Bringing marketing messages directly to
customer at the point of need (“hitting the
iron while it is hot”)
• Johnson & Johnson - Banner ads for
Tylenol, when stock market drops more
than 100 points
• Google - List ads ahead of list of hits
• Dell - Product Specs in CNET and ZDNET
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Distribution Strategy
• Channels of Distribution
• Functions of Distribution
Channels
• Type of Distribution
• Organizational Structures
• Impact of E-Commerce
on Distributions
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Other Factors Affecting
Marketing Success
• Alliances &
partnerships
• Customer
Interactions and
Loyalty
• Organizational
effectiveness
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Customer Loyalty
• Five determinants of Customer Loyalty:
(1) Quality customer support, (2) on-time
delivery, (3) compelling product
performance, (4) convenient and reasonable
priced shipping and handling, and
(5) clear and trustworthy privacy policies.
• Dell - Customer Experience Council: Order
fulfillment, product performance, post- sale
service and support.
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Best Practice Examples
• Amazon.com - Tailor product offerings to
individual preference, one-click
convenience, error-free delivery; 59%
business from repeat customers
• EBay - Assure satisfaction of auction,
buyer and seller rate each other, insurance
of firs $200, Money in escrow account until
buyers are satisfied, 50% of customers are
referrals
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Summary
• What Engineering Managers should strive to do?
(1) Understand the very important roles played
by marketing and certain marketing issues
affecting engineering, (2) Become versed in
marketing mix, (3) Recognize the uncertainties
involved in marketing (customer perceptions,
competitive analysis, sales forecasts), (4) Adopt
the customer orientation in all engineering
programs, (5) Provide required supporting
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engineering inputs.
Summary - Engineering Inputs
• Product: Innovative design, product features,
use of technologies, efficient production
systems and processes, reliability, service,
quality, maintenance.
• Price: Cost control, improved cost analysis
(ABC)
• Promotion: Brochures, training, analysis of
feedback
• Distribution: Logistic optimization
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Summary
• Marketing and Innovation are two principal
functions of an enterprise
• Engineers know how to innovate, they also
need to become effective in interacting with
marketing to assure business success of any
enterprise - This combination of capabilities
will enable them to become major contributors
to product-based profit-seeking enterprises
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References
• Philip Kotler, "Marketing Management: Analysis,
Planning,Implementation and Control,” 7th Edition, PrenticeHall (1991)
• William Lazer, “Marketing 2000 and Beyond,” American
Marketing Association (1990)
• Gilbert A. Churchill, Jr.., ad J. Paul Peter, “Marketing:
Creating Value for Customers,” Irwin/McGraw-Hill (1998)
• Houston E. Elam and Norton Paley, “Marketing For NonMarketers: Principles and Tactics that Everyone in Business
Must Know,” AMACOM (1992)
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References
• Robert Hartley, “Marketing Mistakes and Successes,”
John Wiley (1998)
• Edwin W. Cundiff and Mary Tharp Hilger, “Marketing In
the International Environment,” Prentice-Hall (1988)
• Peter K. Francese, “Marketing Know-how: Your Guide to
the Best Marketing Tools and Sources,” American
Demographic Books (1996)
• Don Debelak, “Marketing magic: Innovative and Proven
Ideas for Finding Customers, Making Sales and Growing
Your business,” B. Adam (1994)
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References
• Jan Zimmerman, “Marketing on the Internet,”
Maximum Press (2000)
• Bud E. Smith and Frank Catalano, “Marketing Online
for Dummies,” IDG Books (1998)
• Kevin J. Clancy and Robert S. Schulman, “The
Marketing Revolution: A Radical Manifesto for
Dominating the Marketplace,” HarperBusiness (1991)
• For business cases, articles and selected trade
publications, see the text.
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