A Brief History of Marketing Strategy

1. A Brief History of Marketing Strategy James E. Coleman CPA, CFP®, PhD

2. What this course is about: • Address 3 common expectations of employers of recent MBA’s • Ability to work/manage teams • Ability to evaluate and solve problems • Ability to communicate solutions persuasively • Learn basic tools and techniques for analyzing markets & industries • Understand how to apply the marketing strategy development process across various settings

3. Marketing Strategy Development Process: The Search for Opportunities FOUR P’s F O U R C ‘s (Context) External Market Environment

4. 3rd edition Provides Marketing Strategy Development Practice

5. Overview • You take over marketing management responsibilities for your firm. • Must satisfy customers to sell product and earn profits • Focus is on marketing strategy planning. • Requires integration of all strategy decisions. • Requires attention to competitive environment. • Considers short term and long term perspectives. • Features ongoing, rapid feedback.

6. The Process Analysis of market situation/opportunities Planning and budgeting Make marketing plan DECISIONS!!! Submit plan decisions The marketing game! simulation Company reports returned to firms Next Decision period

7. Industry Environment • Market growth • Traditional PLC applies, but subsidiary to strategy • Technological environment • No major innovations expected • Yearly revision cycle • Competitive environment • Type of competition depends on firms’ decisions

8. High-tech Managers Modern Students Concerned Parents Professional Creators Harried Assistants Home Users Segments have different needs, preferences, situations, sizes, growth rates. Six Key Product-Market Segments

9. Past Sales By Market Segment For Voice Recognition Device

10. High-tech Managers Modern Students Concerned Parents Professional Creators Harried Assistants Home Users Distribution Channels Firm 1 Firm 2 Firm 3 Firm 4 Firms reach customers through full-service dealers and Internet/mail-order discount dealers. Channel 1 Traditional Dealers Channel 2 Discount Dealers Different segments have different shopping preferences.

11. Product 1: Voice Recognition Device (VRD) Number of Special Commands (5-20) Key Product Features Error Protection (1-10) Ability to Customize (1-10)

12. R&D for Product Modifications: Computing Costs Product 2 R&D costs follow the same pattern as Product 1 (shown above) Note: R&D for product changes is more expensive if you have to make big changes in a short period of time…

13. Level 3 Product 2: Digital Vocal Communicator (DVC) Number of Tasks (1-10) Key Product Features Similarity of Commands (1-10) Ease of Learning (1-10) Not necessarily cannibalistic of Product 1, but additional sales support is needed.

14. Types of Advertising • Pioneering • Best for expanding market demand early in PLC • Direct competitive • Best for stimulating current sales (reduced carryover) • Indirect competitive • Best for building brand awareness & improves carryover • Reminder • Improves ad effectiveness if brand awareness is high • Corporate (Institutional) • Creates ‘halo’ effect for the other product (not useful for single product situations)

15. Marketing Responsibilities (Level 3) 2 PRODUCTs Features (and R&D for product modifications) PRICE Wholesale price may differ in each channel and for each product PLACE Distribution intensity by channel, product PROMOTION -Advertising $ Spending for each product Type for each product -Personal selling Number of sales reps in each channel Percent non-selling time in each channel Commission rate -Sales promotion $ Spending per channel, product CUSTOMER SERVICE $ Spending MARKET RESEARCH 7 reports may be purchased Demand forecast/ production order Number of units for each product

16. Production Economies of Scale Unit production costs will decline as cumulative production increases, but this is not reflected in the pro forma estimates

17. Sales Saturation Level Threshold Level Marketing Spending Response Functions and Marketing Spending Spending too little may have little effect, but spending too much just increases costs and reduces profit.

18. Marketing Budget Items (Level 2 and 3) • R&D product modification costs • Sales force salaries and severance pay • NOT commissions (which come out of profits) • Advertising expense • Customer service expense • Sales Promotion Expense • Market research reports expense BUDGET FOR FIRST PERIOD: $984k Use it or lose it!

19. Discretionary Budget $1,500,000 • If you overspend your regular budget it is automatically deducted from this amount. • “When it’s gone, it’s gone.” • If you overspend after it’s gone, it comes out of your advertising budget. • Unspent money carries to future periods and earns interest.

20. Computing Prices Computing Retail Prices from Wholesale Prices: Expected Retail Price = Wholesale price/(1-% Markup) Example: Wholesale price = $105 Channel 1 Retail Price = ($105/(1-.50)) = $210 Channel 2 Retail Price = ($105)/(1-.35) = $161.54 Computing Wholesale Prices from Desired Retail Prices: Wholesale Price = Retail Price * (1 - % Markup) Example: Desired Retail Price = $190 Channel 1 Wholesale Price = $190*(1-.50) = $95.00 Channel 2 Wholesale Price = $190*(1-.35) = $123.50

21. Retail Prices Charged Final Consumers The retail price set by a dealer depends on: • The wholesale price in the dealer’s channel. • The customary markup used in the channel. • The portion of any sales promotion “deals” that the dealer passes along to consumers as a price reduction.

22. A “Good” Wholesale Price • Should cover the unit cost of the product (given its features). • Should result in a retail price that will appeal to target consumers. • Should result in a profit margin that will contribute to other expenses and profit.

23. Competitor Analysis • Review posted reports of industry results. • Analyze past strategies & likely changes. • Evaluate positioning and target segments. Firms 1 2 3 4 1 2 3 4 5 6 X ? X X Segments ? X ?

24. Industry Sales Report (Free)

25. Product Features and Prices Report (Free) Error protect- ion 3 3 3 3 Ease of learning 3 3 3 3 Retail price channel 1 $190.00 $190.00 $190.00 $190.00 Retail price channel 2 $146.15 $146.15 $146.15 $146.15 Brand of VRD Firm 1 Firm 2 Firm 3 Firm 4 Special commands 8 8 8 8

26. Market Activity Report (Free) Adv. Dollars Adv. Type Sales Promotion Channel 1 Channel 2 No. Sales Reps Channel 1 Channel 2 Commission Customer Service Firm 1 $250,000 $0 $0 10 10 5% $92,500 Firm 2 $250,000 $0 $0 10 10 5% $92,500 Firm 3 $250,000 $0 $0 10 10 5% $92,500 Firm 4 $250,000 $0 $0 10 10 5% $92,500

27. Additional Market Research Reports (NOT Free) • 1. Market share by segment (all brands) • 2. Market share by channel (all brands) • 3. Consumer preference study • 4. Marketing effectiveness report • 5. Sales by segment by channel (own brand) • 6. Consumer shopping habits study • 7. Product positioning report Note: separate reports are available for each product, Except for the consumer shopping habits study

28. Market Share by Segment Report ($15,000) Segment 4 0.250 0.250 0.250 0.250 10,240 Brand Firm 1 Firm 2 Firm 3 Firm 4 Total Sales (units) 1 0.250 0.250 0.250 0.250 20,028 2 0.250 0.250 0.250 0.250 15,084 3 0.250 0.250 0.250 0.250 25,104 5 0.250 0.250 0.250 0.250 22,056 6 0.250 0.250 0.250 0.250 8,092 Who’s selling to whom? Who’s buying what? What is each firm achieving? Which segments are buying?

29. Market Share by Channel Report ($12,000) Brand Firm 1 Firm 2 Firm 3 Firm 4 Total Sales (units) Channel 1 0.250 0.250 0.250 0.250 56,296 Channel 2 0.250 0.250 0.250 0.250 44,308 What’s selling where? Who’s buying what?

30. Consumer Preference Study ($30,000) Price Range low low high high high low Special Commands 10-13 7-10 10-13 12-15 13-16 5-8 Error Protection 2-4 2-4 6-8 2-4 6-8 2-4 Ease of Learning 1-3 6-8 6-8 4-6 2-4 7-9 Segment Students Home Assistants Creators Managers Parents What kind of product would a segment prefer? What reference price seems typical for the segment? How are segments similar and different?

31. Competitors with lower Index 0 0 0 0 0 Competitors with equal or higher Index 3 3 3 3 3 Marketing Effectiveness Report ($25,000 or $30,000 for both prod.) Brand Awareness Customer Service Consumer Group Rating Industry Average Rating Channel 1: Sales Rep Workload Dealer Satisfaction Channel Strength (“Push”) Channel 2: Sales Rep Workload Dealer Satisfaction Channel Strength (“Push”) Index 0.550 100% 100% 100% 1.00 .500 100% 1.00 .500

32. Detailed Sales Analysis ($15,000) Segment Firm Channel 1 Channel 2 1 896 5,269 2 1,109 3,337 3 5,602 1,396 4 1,808 1,196 5 4,363 1,865 6 1,086 1,074 Unit sales by segment and channel Are you reaching your target?

33. Customer Shopping Habits ($7,000) Segment Students Home Assistants Creators Managers Parents Percent of Shopping in Channel 2 ? ? ? ? ? ? Percent of Shopping in Channel 1 ? ? ? ? ? ? Who shops where? How do shopping patterns match distribution focus?

34. Product Positioning Report ($30,000) Segment 3 ? ? ? ? 5 ? ? ? ? 6 ? ? ? ? Brand Firm 1 Firm 2 Firm 3 Firm 4 1 ? ? ? ? 2 ? ? ? ? 4 ? ? ? ? Which brands are closest to which segments? Which segments have no close brands?

35. Submitting Marketing Plans • Submitting marketing plans decisions • Submit your decision plan files via email no later than the due date and time per class calendar. • Each firm has a distinct industry and firm identification (e.g., A1, B3, etc.) • Need to keep it straight! • Passwords and the TMGPlan software • Remember password used to create Plan • It is case sensitive (upper and lower case make a difference) • Best to stick to one password!

36. Recommendations • Analyze the reports as you would analyze a case. • Make intentional changes. • Find a balance in marketing research spending. • Be integrative--think carefully about how each decision impacts each of the others. • Have some fun!