MKTG 6201 Overview Company & Competition

Glenn Voss

Organizational success depends on alignment… within the internal system and with the external environment. The role of management is to recognize & resolve tensions.

Smith and Lewis 2011

The answer to which strategy is most effective is never…A is more effective than B, but rather…

A is more effective under Conditions C1 & B is more effective under Conditions C2.

The test of a first-rate intelligence is the ability to hold two opposed ideas in the mind at the same time, & still retain the ability to function. F. Scott Fitzgerald 1945

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Case Analysis & Recommendation

In case analysis, you apply frameworks and models to generate insights for solving a real or simulated business problem to achieve organizational success.

You also calculate metrics to assess the likely outcomes associated with various alternatives.

Your recommendation is formulated as a strategy.

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Case Analysis & Recommendation

Models

Frameworks

Metrics

Concepts & Terminology

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• A system of words used to name concepts in a particular discipline.

• Examples:–Objectives, Resources & Capabilities– Segmentation, Targeting & Positioning–Product, Price, Promotion-Communication,

Place-Channel–Customer Relationship Management–Customer Acquisition & Retention–Customer Satisfaction & Value

What is Terminology?

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Terminology

• An objective is defined as: – The criterion by which the success or failure of the

strategy is measured.• Characteristics of well-written objectives:– Lists a quantified standard of performance.– Designates a clear time frame.– States goal in measurable terms.– Should be challenging but realistic.

• Objectives frequently require trade-offs; e.g., increasing market share versus increasing profits; acquiring new customers versus retaining current customers.

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Samsung: 23% market share & 28% share of profitsApple: 9% market share & 72% of profits

Worldwide mobile phones

• Resource: tangible (e.g., equipment, machinery, mail list), intangible (e.g., brand name, customer knowledge), or human asset that the firm currently possesses.

• Capability: the ability to deploy individual resources (e.g., patents, know-how, brand names, equipment) to perform a task or activity to produces a desired end result. What the firm can do (i.e., skills) as a result of teams of resources working together.

Terminology (cont)

We are interested in resources & capabilities that are rare & valuable. 6

Common Job Interview Mistakes

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• A measure for quantitatively assessing a complex process or outcome, along with procedures for carrying out and interpreting the measures.

• Frequently become objectives, for example:–Market share–Revenue or Unit sales volume – Incremental contribution–Customer lifetime value (CLV)–Growth in any of the above (e.g., % change from

last year or quarter)

What is a Metric?

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Common Intermediate Objectives (Metrics)Not as compelling as Volume or Financial Objectives

• Customer satisfaction• Customer loyalty• Customer acquisition & retention• Customer trial & repeat• Brand awareness• Brand preference• Brand loyalty• Brand equity

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• A structured approach to defining, analyzing or communicating the characteristics of a complex system or process.

• Examples:–Comprehensive Metabolic Panel, CBC…–Google’s PageRank Algorithm–Competitive Advantage– SWOT Analysis–Product-Market Growth Strategies

What is an Analytic Framework?

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Competitive Advantage (Framework)

How to create, communicate, capture, and sustain unique value for the customer:• Cost Leadership – Lowest cost structure (large share & low price)• Marketing Differentiation – providing superior perceived

value by developing– Unique image (brand-centric differentiation) achieved through targeting,

positioning & communication capabilities (large share, high advert costs)

– Close relationships with customers (customer-centric differentiation) achieved through CRM capabilities & customization (higher prices & costs)

• Product Differentiation – offering superior economic value by creating superior product/service features & quality through innovation & product development capabilities (small-to-medium share, large profit margins)

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Other Terminology with Similar Meaning

OperationalExcellence

Product or InnovationDifferentiation

Marketing DifferentiationCustomer Responsive

"A great deal""Best price"

"Trouble free basic service"

"Always at cutting edge""High price but worth it""Constantly renewing and creative"

"Really understands me"“Great brand"

“Valuable business partner"

Cost Leadership(Operations & Logistics Driven)

Product Differentiation(R&D, Technology & Sales Driven)

Marketing Differentiation(Brand Advertising or CRM

Driven)

Tata/Dell

Porsche/Apple GM/IBM

See McKinsey’s “Unbundling the corporation 12

Core Strategy Overview

Thrust of strategy

Organization

Core processes

Economic driver

Critical Capabilities

Value Proposition

Marketing Objectives

Implementation

Cost Leadership -Operational Excellence

• Lowest delivered cost• Reliability/efficiency

• Top down – employees directed

• Flat structure

• Standardized• Logistics/fulfillment• manufacturing

• Scale

• Production• Supply chain

• Price, reliability, access…

• Mkt Penetration & exploration

• Price & distribution

Marketing Differentiation – Brand- or Customer-centric

•Complete personalized solution• Infomediary

•Front-line autonomy•Have it your way mindset based on fine-grained information

•Modular operations• Integrated view of customer•Service

•Scope

•Customer/Collaborator relations•Positioning & Communications

•Relationships, customization, full service…

•Customer satisfaction & retention•Product proliferation, promotion & lateral collaborators

Product/ Innovation Differentiation

• Innovative features•Greater functionality

•Decentralized•Team-oriented/ loose-knit•Experimentation

•Product development•Market sensing

•Speed

•Product Innovation•Competitor knowledge

• Innovation, design, features…

•Product & market exploration

•Product innovation & key collaborators at all levels

SWOT Analysis Incorporating the 5 Cs

Company1 StrengthsIdentify valuable & rare

resources & capabilities that the company1 currently possesses.

OpportunitiesRelevant opportunities

w/respect to customers2, collaborators3, competitors4 & the overall socioeconomic, technology, legal context5.

Company1 WeaknessesIdentify valuable & rare

resources & capabilities that the company1 currently lacks.

ThreatsRelevant threats with

respect to customers2, collaborators3, competitors4 & the overall socioeconomic, technology, legal context5.

See the Primer on SWOT Analysis 14

• A hypothetical or simple description of a complex system or process.

• Effective strategies rely on insightful or valid models.

• Examples:–Aristotle’s Geocentric Model– Newton’s Model of Classical Mechanics–Marketing Strategy Formulation & Implementation– Product Life Cycle Model– Demand Elasticity Models

What is a Model?

• accounted for all observations of the movement of the sun and the moon, and the planets, and the stars;

• good predictor of future positions of celestial bodies (i.e., verifiable)

• simplicity (Principle of Parsimony) - as few assumptions or rules as possible & no contradictions.

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Porter’s Value Chain ModelCompetitive Advantage in the Value Chain

Product Differentiation

Marketing Differentiation

Cost Leadership

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Marketing Process Model

Company Customers Competitors Collaborators ContextSWOT Analysis

Product/Service Offering

Promotion/ Communication Pricing

Place/ Channel

Market Segmentation

Selection & Targeting

Product/Service Offering Positioning

CustomerAcquisition

Customer Retention/Expansion

Revenue & Profits

Create Value

Communicate & Capture Value

Sustain Value

Customer Relationship Management

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Marketing Strategy ModelFormulation & Implementation

1. Objective(s)2. Target Customers – Segment, Profile & Target3. Key Competitors – Objectives, target customers,

strategy, strengths & weaknesses4. Core Strategy – Competitive advantage; market

penetration, market development, product development, or diversification; & positioning

5. Marketing Mix ImplementationProduct Strateg

y

Communications Strategy

Pricing Strategy

CRM Strategy

Channel Strategy

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1. Objective(s)2. Target Customers – Segment, Profile & Target

Segmentation & Targeting define product market , competitors & product-market growth strategy.

Segmentation Variable FrameworkDemographic Age Family size Family life cycle Gender Social class

Income Occupation Education

Race Generation

Geographic Country/Region/Culture Urban/rural ClimatePsychological Lifestyle Personality traits Expertise & awareness Attributes/Benefits soughtBehavioral (esp. w/CRM) Usage rate & loyalty Occasions Purchase patterns

For working professionals in North Texas seeking career advancement, the Cox PMBA is a part-time program that… 19

VALS Psychographic Groups (Framework)Use in the Flare Case to Develop Customer Descriptions

Take the VALS survey at: http://www.strategicbusinessinsights.com/vals/presurvey.shtml

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Marketing Strategy ModelFormulation & Implementation

1. Objective(s)2. Target Customers – Segment, Profile & Target3. Key Competitors – Objectives, target customers,

strategy, strengths & weaknesses4. Core Strategy – Competitive advantage; market

penetration, market development, product development, or diversification; & positioning

5. Marketing Mix ImplementationProduct Strateg

y

Communications Strategy

Pricing Strategy

CRM Strategy

Channel Strategy

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Competitor AnalysisSee Market Evolution

The first thing to note about the competitive environment is the number of competitors. As the number of competitors increases (decreases):• Competitive market is more fragmented

(concentrated),• Barriers to entry are lower (higher),• Supply and demand are more heterogeneous

and dynamic,• Competitive advantage focuses more on

product-centric innovation (downstream brand-centric or customer-centric differentiation or cost leadership)• Growth focuses more on revenues (profits) &

customer acquisition (retention).

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Competitor AnalysisSee Product Market Definition

• Philosophywhich is related to

• Objectives

• Strategy

• Strengths & Weaknesses

• Offensive or Defensive• Leader or Follower• Growth (revenue/market

share) or profit related objectives?

• Competitive advantage– Cost leadership – Marketing differentiation– Product differentiation

• Targeted customers• Offering position• Resources & capabilities to:

Develop & produce superior products

Communicate & distribute offeringManage customer relationships

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Marketing Capabilities• Product Management: develop & deliver superior-quality or customized goods & services.• Communications Management and Brand-building: create and manage customer value

perceptions leading to high levels of brand equity, using effective: positioning, advertising message delivery, personalized communications, & integrated marketing communications

• Pricing Management: extract the optimal revenue & profit from customers through price discrimination tactics, e.g., using sophisticated yield management capability; unrelated to charging a high (product or marketing differentiation) or low (cost leadership) price.

• Channel Management: establish and manage channels of distribution that effectively and efficiently deliver value to end-user customers

• Customer Relationship Management: identify profitable customers and prospects and initiate, maintain, and leverage relationships with these customers to create superior customer-level profits. Requires data collection & interpretation for individual customers, individual customer targeting capability, and personalized communications capability.

• Market Sensing & Customer Insights: Ability to learn about customers, competitors, channel members and the broader market to develop actionable market intelligence and customer segmentation and targeting schema

• Marketing Planning & Implementation: conceive and implement marketing strategies that optimize the match between the firm’s resources (including multiple product lines and brands) and the marketplace to achieve superior sales and profits

Marketing Strategy ModelFormulation & Implementation

1. Objective(s)2. Target Customers – Segment, Profile & Target3. Key Competitors – Objectives, target customers,

strategy, strengths & weaknesses4. Core Strategy – Competitive advantage; market

penetration, market development, product development, or diversification; & positioning

5. Marketing Mix ImplementationProduct Strateg

y

Communications Strategy

Pricing Strategy

CRM Strategy

Channel Strategy

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Product-Market Growth Strategy FrameworkK&P pp. 7-12

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ExistingMarkets

New

New

Existing

Offerings

Market Penetration Expand share and/or size of

current customer wallet

Product DevelopmentDevelop new offering

features/attributes

Market DevelopmentAcquire new customer markets

DiversificationDevelop totally new offerings

targeting new markets

Product & Market Exploration Capabilities

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Existing

MarketsNew

New

Existing

Offerings

Exploitation with incremental refinement of

current product & market capabilities

Product explorationCreate new product features &

capabilities that enhance offerings’ appeal to current

markets

Market explorationAdapt current offering to create

new market (& capabilities); e.g., new geographic market or new

therapeutic use for existing drug

Product & Market explorationCreate entirely new product-

market categories & capabilities;

Google’s “cloud services will cost 50% less than competing products.”

Amazon “good at making everything as low-cost as possible.”

Cost Leadership: Google and Amazon mostly compete by building scale to exploit their digitally-delivered data management and search capabilities

Can Google X deliver “world-changing moonshots”?

Can Amazon’s Kindle compete effectively in the tablet market?

Product & Market Exploration Capabilities

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Existing

MarketsNew

New

Existing

Offerings

Exploitation with incremental refinement of current product &

market capabilities

Product explorationCreate new product features &

capabilities that enhance offerings’ appeal to current

markets

Market explorationAdapt current offering to create

new market (& capabilities); e.g., new geographic market or new

therapeutic use for existing drug

Product & Market explorationCreate entirely new product-

market categories & capabilities;

Apple (Jobs): “Consumers don’t know what they want.”iPod, iPhone, iPad…

Samsung: “We get most of our ideas from the market.”

Samsung “built its business around producing & selling components to … Apple, Sony & Hewlett-Packard…” & doubles Apple’s investment in equipment

Samsung has repositioned itself as a competitive consumer

brand, exploiting existing capabilities,

developing new product (features &)

development capabilities, &

spending “$3 billion on ads, compared with Apple’s $933 million and Microsoft’s $1.9

billion.”

Apple’s strength has been in creating or

establishing entirely new product-markets (i.e., radical or disruptive innovation) in rapid

succession (i.e., speed) but has not delivered since Jobs’ departure.

Marketing Strategy ModelFormulation & Implementation

1. Objective(s)2. Target Customers – Segment, Profile & Target3. Key Competitors – Objectives, target customers,

strategy, strengths & weaknesses4. Core Strategy – Competitive advantage; market

penetration, market development, product development, or diversification; & positioning

5. Marketing Mix ImplementationProduct Strateg

y

Communications Strategy

Pricing Strategy

CRM Strategy

Channel Strategy

Internal consistency between objectives, target customers & competitors, core strategy, and marketing mix implementation is the single-most important criterion for grading case recommendations. 29

MKTG 6201 Course Materials

Textbook:• Strategic Marketing Problems–Roger Kerin & Robert Peterson (K&P)

Cases:• Cases in course packet Lectures and Discussions:• In conjunction with cases & handouts of

slides

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At the end of this course, you should be able to:• Understand how company strengths & weaknesses

& external opportunities & threats influence the success of a marketing strategy;

• Develop and communicate marketing action plans that effectively target, attract, and retain profitable customer segments; &

• Conduct basic quantitative analyses to evaluate the outcomes associated with alternative marketing programs.

MKTG 6201 Course Learning Outcomes

Qualitative Analysis

Recommendation

Metrics/Quantitative Analysis

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• Group Homework (5 × 4) 20• Final Examination 20• Total 40

Assessment & Grade Distribution

Cox Recommended Grade DistributionA/A- 40%B/B+ 50%B-… 10%

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Sample Grade Sheet

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Topic Poor Fair Good Excellent

Financial Comparison What assumptions are required to make the next-best alternative better?)

.25 .5 .75 1

Economic Value Analysis and Consistency with price elasticity estimates .25 .5 .75 1

Comparative advantage analysis .25 .5 .75 1

Summary marketing strategy .25 .5 .75 1

TOTAL

• Marketing Pro Formas • Breakeven Analysis• Customer Lifetime Value (CLV)• Sales Forecasts• Economic Value Analysis• Channel Margin Calculus• Demand Elasticity

Financial Analysis in MarketingK&P Chapter 2

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Developing Pro Forma & B/E AnalysesTraditional Line Items

Revenues

Cost of Goods Sold

Gross Margin (Profit)

Operating Expenses (e.g., SG&A)

Operating Margin (Profit)

Dollars

Price * Quantity

COGS/unit * Quantity

GM/unit * Quantity

Variable (VC) & Fixed (FC)

Revenue–COGS–VC–FC

%

100%

COGS%

GM%

Can vary

To conduct breakeven analysis for a proposed change, group variable costs

VC = COGS & Variable Operating Expenses

And then focus on Incremental Fixed Expenses

Net Income Before TaxIncome TaxNet Income After Tax

---

See the South Delaware Coors Pro Forma

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Organizing for Effective B-E AnalysisTraditional Income StatementSales revenue

- Cost of goods sold= Gross margin (profit)

- Selling expenses- Depreciation- Administrative overhead= Operating margin (profit)

- Interest expense= Pretax profit…

Incremental CostingSales revenue

- Incremental, avoidable VC= Total (Gross) contribution ($)

- Incremental, avoidable FC= Net contribution (profit)

- Other fixed or sunk costs= Pretax profit…

Contribution Margin % (CM%) = Total Contribution / Sales revenue

Contribution Margin $ ($CM) = Total Contribution / Sales volumeor $ Contribution per unit 36

Breakeven (BE) Analysis

To calculate Incremental Sales Revenue required to breakeven (BER) for a given level of incremental fixed costs (FC):

VC = Incremental Variable Cost

See also http://harvardbusinessonline.com/flatmm/flashtools/breakeven/

0 = (Q * P) – (Q * VC/unit) – FC Net Contribution = Incremental Revenue – VC – FC

0 = (Q * P) – (Q * VC/unit) – FC = Q (P – VC/unit) + FC+ FC – FC0

FC/(P – VC/unit) = Q required to break even (BEQ)

BER = BEQ * P

Net Contribution = Incremental Revenue – VC – FC

Q = Incremental QuantityP = Incremental PriceCM = P – VC/unit

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Calculate Breakeven for the FollowingOpening a New Office

Variable CostsCOGS 20%Direct Operating Costs 20%Total Variable Costs 40%

Fixed Costs/YearFixed salaries 160,000Depreciation 50,000Utilities & phone 12,000Insurance 10,000Interest 20,000Property Taxes 10,000Maintenance/Janitorial 5,600Miscellaneous 2,400TOTAL $270,000BEQ =

BER =

Selling Price =$25

FC/(P – VC/unit)BEQ =

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• What does organizational success depend on?• What are the 5 Cs and how do they relate to a SWOT

analysis?• What are three approaches to achieving competitive

advantage? Which are most relevant to marketing?• What are some key marketing resources & capabilities?• What are the 5 steps in the marketing strategy formulation

& implementation model?• What are the 4 key growth strategies?• What are the 5 marketing mix elements (4 Ps + 1)?

Review Questions

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Chris Millican, Boston Consulting GroupSouth Delaware Coors Case

This is a practice case that addresses whether an MBA student should invest in a Coors distributorship in South Delaware. The initial decision focuses on which marketing research to purchase in order to assess the viability of the distributorship. You will have ten minutes during class to make that decision as a group. After purchasing the research, you will have 20 minutes to develop a pro forma and recommendations for the Coors distributorship (see the Coors Excel spreadsheet). If you need more background on breakeven analysis, review the Breakeven Tool. To complete the spreadsheet, fill in the key assumptions that are highlighted in yellow. The spreadsheet should fill in as you enter these numbers. Note that constructing spreadsheets in this manner is extremely important because it allows you to conduct “What-if” analyses by simply changing your assumptions. To prepare for class, read the case carefully, review the Coors Excel spreadsheet, and think about the following questions.

Next Week

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