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Marketing 101. Cracking the Marketing Code . Training Session Columbia Business School October 29, 2010. Objectives. Look smart and knowledgeable in CPG interviews Actually learn something Basic marketing concepts Some clever tools to crack the code Have a global view.

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Cracking the marketing code

Marketing 101

Cracking the Marketing Code

Training Session

Columbia Business School

October 29, 2010


Objectives
Objectives

  • Look smart and knowledgeable in CPG interviews

  • Actually learn something

    • Basic marketing concepts

    • Some clever tools to crack the code

  • Have a global view



How they relate
How they relate

Corporation

Customer

Segments

Customer

Segments

Target

Customer

Segments

Marketing Mix

4P´s by segment

Competition


A simple example us
A simple example…us

AM Inc.

1st. yr. Columbia MBA´s

Marketing Mix

Product – CPG marketing tutorial

Place – here

Promotion – email invites

Price ???

  • Value proposition – 25% increased chances of getting CPG summer offer

  • How much would you pay?

  • How much should I charge?


Add a competitor
Add a competitor

1st. yr. Columbia MBA´s

AM Inc.

RK Inc.

Offers same product at 20%

discount across the hall

Lower my price ?

Differentiate product and promote it?

Segment and target?

What do I do?


A segmented strategy
A segmented strategy

1st yr. Columbia MBA´s

35% 65%

Analitics

More likely to succeed

Better fit with my capabilities

Leave to RK

AM target

Tailored marketing mix

Product CPG analytical marketing

Pricing premium

Promotion to analytical “elite”

Place here plus “web tutorial”


Basic marketing concepts1
Basic marketing concepts


Customer segmentation
Customer segmentation

What is Segmentation?

Why is Segmentation Useful?

  • “The science of finding, within a heterogeneous customer universe, homogeneous groupings of customers which meet segmentation criteria defined by us”

  • “Segment quality improves dramatically to the extent that we utilize both subjective and objective criteria to define the segments”

  • Allows us to assign people and limited resources more efficiently and effectively

  • Facilitates the uncovering of needs and opportunities not exploited by our current approach

  • Helps orient the design of products and services for specific sub-groupings of customers, shoppers, and consumers

  • Results in significant improvement in the impact of marketing initiatives (programs and promotions) and in-store execution

  • Usually results in better balance between benefits and the costs required to generate them


Segmented value propositions
Segmented value propositions

Customer Requirements and

Satisfaction

  • Service levels

  • Product portfolio

  • Service offering

  • Commercial offering

  • Channels

  • Sales and distribution model

Intensive use of market research tools – e.g., Choice analysis, Conjoint analysis, cluster analysis, etc.

Value Proposition

Cost to Serve

Competing Value Propositions

Economic Benefit to Customers

  • Direct cost to serve – sales, transportation, warehousing, etc.

  • Commercial terms – channel margins, credit terms

  • CTS optimization opportunities must be considered

  • Brand and product portfolio strength

  • Value proposition

  • Client satisfaction with competing value propositions

  • Impact on ROI vs. competition and other product categories

  • Include a holistic assessment including all elements of the value equation


Segmentation and targeting process

19%

Overall Market

Overall Market

Segmentation and targeting process

B

Assess Market Structure & Trends

Define Market

C

A

Target Segments

Set Strategic Objectives

Identify Attractive Market Segments

Define Market

Overall Market

Right

D

Analyze Right-to-win

Select Target Market Segments

Perform Competitor Analysis

F

E


Define market
Define market

B

Market Definition: Aquafina Bottled Water

Example

  • What does PepsiCo aspire to be in long-term?

  • How can the aspiration be translated into a competitive goal for Aquafina?

  • What else can the company potentially sell with its current capabilities?

Options

1

Share of Water

2

Share of Beverage

3

Share of Stomach

  • Substitute products

    • Non-alcoholic beverages

    • Salty snacks

    • Sweet snacks

    • Fruits and vegetables

  • Substitute products

    • Carbonated drinks

    • New age drinks

    • Nectar

    • Coffee and tea

  • Substitute products

    • Other brands of bottled water

    • Tap water

    • Filtered water

Market of snack food and beverage

Market of non-alcoholic beverages

Market of drinking water


Asses market structure and trends

C

Non-alcoholic beverages value added path

CSD

B Brands

CSD

A Brands

Fruit Nectars/Drinks

B brands

Juice B Brands

Fruit Nectars/Drinks

A brands

Juice A Brands

Rural Brazil

Rural China

Rural Brazil

Rural Russia

Rural Russia

Urban China


Identify attractive market segments
Identify attractive market segments

D

Sugar confectionery consumer need diagram

Expressive

ENJOYMENT

Pleasure

Candy

Kick

Sharing

Individual

Social

Pastilles

Conscious

Stimulus

Chewing

gum

Relaxation

Functional

Refreshment

REFRESHMENT

Controlling


Analyze right to win
Analyze “Right to win”

E

Examples of capabilities led extension into adjacencies

Example

Description

Advantaged Distribution

System

  • Built a cost advantaged DSD delivery capability that was initially leveraged with existing products to out-execute competition

  • Further leveraged scale with innovative new products and finally geographic expansion

  • Leveraged R&D technology and consumer insights to introduce “Crest Whitestrips” and now own 70% of that category

  • Leveraged “Crest Whitestrips” technology to create a Joint Venture with Clorox to launch new Glad products

Advantaged Innovation

Level of Confidence Regarding Benefits

  • Leveraged strong consumer insights capability and position in Latin America to create an ethnic marketing capability in the US

    • First used this capability to attract new consumers in key markets (e.g. Miami, Los Angeles)

    • Later adapted the value proposition for these consumers with new products and marketing approaches

Advantaged Ethnic Marketing

Advantaged Customer Capabilities

  • Traditionally had the one of the strongest “in-house” sales organizations

  • Built a comprehensive “retail execution” capability with its sales organization – improving revenue execution through merchandising effectiveness and greatly reducing retail out-of-stocks


Identify attractive market segments1
Identify attractive market segments

F

Emotional

  • "Sportler"

  • "Techniker"

  • "Yuppies"

  • "Sparer"

Price

Top Image

  • "Statusbewußte"

  • "Rationalisten"

Rational


Position with different look and feel
Position with different look and feel

Sextuplets

Piech´s common components strategy:

a few token gimmicks and the same products



Price and product attributes
Price and product attributes

Vegetable oil in China

CONVENIENCE

COST

QUALITY

20% premium

11% premium

24 RMB / 1.8 L

13.33 RMB / L

~50 RMB / 5 L

~10 RMB / L

60 RMB / 5 L

12 RMB / L


Snacks value added path

Extruded B

Extruded A

Chips B

Chips A

Rural Brazil

Urban China

Rural Brazil

Urban Russia


Price points and premiums

Extruded B

Large Size, Small Size

Chips A

Large Size Small Size

Rural

Urban

Chips A, Large

Chips A, Small

Extruded B, Large

Extruded B, Small

21

21

21


Price points…”affordability”


Place retail channels evolve
Place…retail channels evolve

Retail channels evolution

ILLUSTRATIVE

Growing convenience stores &

Discounters for

Low Income Consumers

100 %

Traditional Trade

Small Format Modern Trade

Large Formats stalled

Low penetration among

Low Income Consumers

50 %

Large Format Modern Trade

0 %

India

China

Brazil & Mexico

US & Europe


From traditional to modern trade
From traditional to modern trade

Traditional trade in Anhui

Hypermarket in Shanghai


Go to market model
”Go to Market” model

Guidelines for a Successful Go to Market Model

  • Understand product dynamics and requirements

  • Understand customer requirements/satisfaction

  • Understand competitors offering

  • Segment customers based on needs

Understand Business and Customer Requirements

Successful

Go-to-Market

Model

Upgrade Go-to-Marketand OrganizationalCapabilities

Crack the Economics

to Serve Each Channel

  • Understand cost-to-serve and profitability drivers

  • Understand true cost of indirect channels vs. direct service

  • Balance and control commercial terms and discounts vs. direct service needs

  • Reengineer go-to-market and supporting organization infrastructure to improve cost-to-serve

  • Redefine sales force activities and call standards

  • Improve effectiveness of key processes

    • Market execution/OTC

    • Account planning

    • Business review and control

  • Define optimal sizing, routing, profiles and skills

  • Improve tools

  • Align measurement and rewards

Craft an Optimal Value

Proposition for Each

Channel

  • Define optimal channel mix and number of WH’s/Distributors

  • Define WH/Distributors roles

  • Balance service levels – call content, call frequency, fill rates, leadtimes –vs. cost-to-serve

  • Reengineer commercial terms and service policies


Crack the economics to serve
Crack the economics to serve

“Profit-to-Serve” Equation

  • Volume (reach and lift)

    • Number of accounts reached

    • Shelf and cold space

    • Categories and # of SKUs carried

    • Out of Stocks and Service Levels

  • Net Price Realization

    • Consumer price

    • Trade margins

    • Trading terms

Revenues

Profit to Serve

less

  • Shopper and Customer Marketing

    • In-store advertising

    • Shopper marketing

    • Customer activation

  • Trade Promotion

  • Asset Amortization

  • Working Capital

  • Direct GTM and Sales Costs

    • Sales force

    • Merchandising

    • Sales supervision

    • Delivery/secondary transportation

    • Custom products and packaging

    • Supply chain and DC requirements

Costs


Modern trade economics

36%

37%

29%

25%

24%

26%

22%

22%

21%

22%

18%

15%

19%

17%

15%

“Modern Trade” economics

Route-To-Market – Variability Among Retailers in Cost to Serve

$ Per Stat Case

Customer Costs as a Percent of Sales Dollars

Source: BAH Analyses


Traditional trade economics
“Traditional trade” economics

Varied Customer Contribution

40%

20%

Mean Customer Profitability

0

% Customer Profitability

(-20%)

(40%)

(60%)

(80%)

100

1,000

10,000

100,000

1,000,000

(kg)

Client Size

Channel Categories

Customer 3

Customer 4

Customer 1

Customer 2

Customer 5

Customer 6

Customer 7

Customer 8


Channel definition
Channel definition

Break-Even Point of Direct Service

Additional Go-to-Market Benefits Due to Additional Wholesalers

Leading Products

Complementary Products

New Products

8

7

Benefits of direct service

If a customer buysless than 4 - 5 units, it cost less to use distributors

  • Better coverage of total portfolio

  • Better service levels

6

5

Go-to-Market ($MM)

4

US$ Volume

3

Distributors and WH´s margin

2

1

Direct Service Cost

0

0

1

2

3

4

5

6

7

8

SKUs

Order Size (Units)

Go-to-Market using Current WH´s

Incremental revenues due

To additional customer base

Source: BA&H Analysis

RPMX-JGB-Feb23-06


Value offering by channel
Value offering by channel

Survey / Conjoint Analysis

Value Offering

Product Offering

Segments

Maximize value/

Minimize Cost

Service Levels

Delivery Model

Optimized Cost to Serve

Negotiation Oriented

Finance Oriented

% CTS / Revenue

Segments

Trade Terms/

Support

volume


Promotions roi marketing
Promotions…”ROI Marketing”

Marketing Investments

Market Results

Purchase Behavior

  • Market share

  • Unit sales

  • Price premium

  • Penetration of key segments

  • Etc.

Television

SOM

Brand and Product Awareness

affects …

… which in turnaffects …

Print

Billboards

(OOH)

$ Spend

Consideration

Intent

Consumer

Events

Promotions

Purchase

Loyal-

-ty

RelationshipMarketing

Sponsorships

  • Allocation of funds across marketing levers

  • Optimization of spending within each lever


Allocation across levers
Allocation across levers

EXAMPLE

Effectiveness: Awareness / GRP

– Relative to TV(1)

Media Effectiveness x Efficiency

(Relative to TV – 100%)

1428%

12.9x

1028%

3569%

10.7x

19%

34%

1%

12.9x

3%

100%

25.0x

2.5x

Efficiency: Cost per GRP’s (US$)

69,204

4.4x

41,522

173,010

4.0x

1790

319

40

1.0x

100

682

(1) Relative effectiveness to TV = (Media awareness /Media GRPs) / (TV awareness / TV GRPs)

Source: Economic Model; Booz Allen analysis


Optimization within levers
Optimization within levers

ROI Over All Events and Products

(Four Account Sample)

Sample Trade Promotion Event ROI

Kmart

-63% median event ROI

-63% median event ROI.

-48% average ROI

91% of events yield a negative ROI

Event ROI

Events

Event ROI

Product 1

Event ROI

-43% median event ROI

Events

Events

Notes: (1) Assumptions made on list price, feature cost, and that retailers retain their base margin

(2) ROI=(Revenue-Cost)/Cost

Source: IRI Scanner Data; Manufacturer Cost Data; Booz Allen analysis


Competitive impact

Share of Spend vs. Market Share

(2004 to 2006)

2004 to 2006 Change in Spend vs.

Change in Market Share

LG

Kenmore

Whirlpool

Kenmore

GE

Whirlpool

2004 to 2006 Point Increase in

Share of Media Spend

Share of Media Spend

GE

LG

KitchenAid

Kitchen

Aid

Maytag

Maytag

Share of Market – Value

All Appliances

2004 to 2006 Point Increase in

Share of Market

Source: TNS Data, AHAM, Traqline, Booz Allen Analysis


Scale impact
Scaleimpact

Beer Brands

Marketing investment by hectoliter

25

25

Amstel

Amstel

Light

Light

20

20

Coors

Coors

15

15

USD/HL

Michelob

Michelob

Light

Light

10

10

Heineken

Heineken

2

2

Miller Genuine

Miller Genuine

R

R

= 89%

= 89%

Miller

Miller

Lite

Lite

Draft

Draft

Co ors

Coors

Light

Light

5

5

Corona Extra

Corona Extra

Budweiser

Budweiser

Bud

Bud

Light

Light

-

-

0

0

5

5

10

10

15

15

20

20

25

25

30

30

35

35

40

40

45

45

Millionsof HL/year

Fuente: Morgan Stanley Quarterly Report. Beverages US. Análisis BAH


Consumer purchase funnel

-73%

-44%

Consumer purchase funnel

Brand A

Brand B

Potential Problem

  • Inadequate advertising/PR support?

  • Positioning not unique, meaningful?

99%

99%

Awareness

  • Positioning not unique, meaningful?

  • Product, service offering does not deliver positioning?

27%

55%

Preference

0%

-16%

  • Perceived pricing overrides benefit of positioning?

  • Perceived availability (channels) doesn’t support positioning?

27%

46%

Intent

-30%

-65%

  • Actual price/value is different from perceived price/value?

  • Actual availability (channels) does not support positioning?

  • Not easy to find in channels?

  • Other benefits, products are advertised in channel?

Purchase

19%

16%

Product positioning is not truly differentiated or compelling

Retail outlets steer customers to competitive products on which the outlet earns superior returns

Identified Issue:

Source: Client Data; Booz Allen analysis


Marketing vehicles mix and purpose
Marketing vehicles mix and purpose

Consumer Purchase Funnel

Marketing Vehicles

Conventional

Alternative

Awareness

  • Mass Media

  • Outdoor advertising

  • Product placement

  • Unconventional print

  • Internet marketing

  • Graffiti advertising

Consideration

  • Event marketing

  • Buzz marketing

  • Guerrilla marketing

  • Viral marketing

  • Mass Media

  • Outdoor advertising

Trial

  • Event marketing

  • One-to-one sampling

  • Direct marketing

  • Lifestyle shop placement

  • Switch Selling

  • Broad market sampling

Occasional

Buyer

  • Mass Media

  • Outdoor advertising

  • Promotions

  • Pricing

  • Direct marketing

  • Event marketing

  • Lifestyle shop placement

Regular

Buyer

Retention

Pene

-tration


Search for long term value value
Search for long term value value

EXAMPLE

Incremental Spending on Marketing Levers and Impact on EBITDA, SOM and Enterprise Value

Managing Trade-off’s

  • Marketing investments drive share growth, but profitability tends to decline as incremental share becomes more expensive

  • In the short-term, the right decision is to maximize profits which requires incremental investments until they begin producing negative returns

  • However, in the long-term, the more profitable decision may be to grow share, even at a loss, if this enables superior market power / sustainable competitive advantage

  • However, getting this right is an iterative process and the trade-offs need to be clearly understood and carefully managed

  • This process provides significant insights into the dynamic impact of marketing investments on share and earnings

380

4.5

EBITDA (Annual)

Enterprise Value

375

4.0

370

3.5

365

3.0

360

2.5

EBITDA (US$ MM)

Enterprise Value ($B)

355

2.0

350

1.5

345

1

340

0

0

$10M

$20M

$30M

$45M

$65M

Incre. Spending

0

2%

4%

6%

8%

10%

Incre. Share

Base Vol Trend

0

(2%)

(1%)

0%

1%

2%

Source: Client Data; Booz Allen analysis


In summary
In summary

Grab the big picture

Pick your fights

Strive for top value


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