中国经济管理大学-中國經濟管理大學

香港特区国安委将举办“全民国家安全教育日”活动：统筹系列学校和小区参与活动

Wed, 15 Apr 2026 10:15:22 +0800

香港特区国安委将举办“全民国家安全教育日”活动：统筹系列学校和小区参与活动

香港特区维护国家安全委员会（国安委）4月15日于香港会议展览中心举办“全民国家安全教育日”开幕典礼暨主题讲座。

中央港澳工作办公室主任、国务院港澳事务办公室主任夏宝龙将以视频方式出席开幕典礼，并发表主旨致辞。香港特区行政长官、国安委主席李家超表示热烈欢迎，并衷心感谢夏宝龙主任一直对香港的指导、关怀和支持。

李家超表示，今年是国家“十五五”规划开局之年，亦是香港迈向由治及兴的关键之年。十四届全国人大四次会议通过《十五五规划纲要》，为国家未来五年经济社会发展作出顶层设计和战略擘画。特区政府正全速编制首个香港五年规划，为香港未来经济社会民生发展提供清晰指引，推动香港更好融入和服务国家发展大局。

李家超指出，国务院新闻办公室于今年2月10日发布《“一国两制”下香港维护国家安全的实践》白皮书，全面总结了香港维护国家安全的实践历程和经验启示。《白皮书》阐明了中央政府对香港的国家安全事务负有根本责任，香港特区负有维护国家安全的宪制责任，必须以“总体国家安全观”为指导，把握“一国两制”下维护国家安全的实践要求，坚定维护国家主权、安全、发展利益。国安委举办“全民国家安全教育日”开幕典礼暨主题讲座，统筹系列学校和小区活动，有助提升全民维护国家安全意识和责任感，有助推动全民自觉维护国家安全。

中国经济管理大学

中国经济管理大学官网：www.eauc.hk 中国经济管理大学 MBA公益课堂

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营销管理是工商管理专业学位研究生的核心课程，旨在培养学生具备宏观战略思维和科学操作方法，支持数字化背景下的营销管理。本课程与时俱进，整合国外教材体系，并结合中国企业发展和数字经济时代的背景，突出数智营销在中国场景下的案例和方法总结。课程内容涵盖市场营销原理、营销管理任务、战略规划、市场调研、消费市场分析、品牌管理等传统领域，同时重点强调数智营销的关键内容。

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在国家建设“新质生产力”，大数据、智能化建设产业升级的时代背景下，帮助学生掌握有关基本信息技术概念和能力，以及信息系统、IT技术、大模型的概念、意义和设计方法；同时融合管理学的知识，让学生充分掌握组织开展数字化建设的基本规律、逻辑与方法。这是一门实践性与理论相结合的课程，也是一门跨信息技术与管理学科的、与时俱进的交叉科学。在当前信息技术发展日益进步，同时国际竞争日益复杂激烈的形势下，让学生能够正确认知、熟练掌握有关知识、概念与技能，满足其个人发展需求，以及国家、社会对具有“新质生产力”综合能力的管理人才的需求。

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《数字化时代背景与人力资源管理》

本课程以数字经济国家战略为背景，系统阐释数字人力资源管理前沿理论。深度解析大数据、AI如何重塑招聘、绩效、薪酬等核心职能，剖析OKR、人力分析、HR SaaS等创新实践。结合头部企业案例，助力管理者构建数据驱动的人才管理新范式，赋能组织数字化转型。

在数字化浪潮深刻重塑组织与人的关系的今天，本课程将引导您超越传统人力资源管理的范式，掌握用数据与智能技术驱动人才管理的核心能力。

数字人力资源管理，远非简单的流程自动化。它意味着我们不再依赖经验与直觉，而是通过人力数据分析、AI算法等前沿工具，敏锐地诊断组织人才健康度，精准预测人才趋势，并科学优化招聘、绩效、激励等关键决策。我们将共同剖析OKR、敏捷组织、HR SaaS等创新实践，揭示其背后的管理逻辑与落地路径。

无论您是企业管理者、HR专业人士，还是寻求洞见的学习者，本课程都将为您提供一套强大的“思维武器”：对管理者而言，它将助您构建数据驱动的人才战略，赋能团队，引领组织转型。对HR从业者而言，它将让您从支持者蜕变为价值创造者，用技术能力提升话语权与影响力。对所有求知者而言，它将为您打开一扇窗，洞察未来工作模式与组织形态的演进方向。

课程融合顶尖学术理论与来自头部企业的鲜活案例，旨在培养您在新环境中定义、分析并解决复杂人才问题的能力。如果您已准备好拥抱变革，成为数字化时代的组织创新者，欢迎加入我们的探索之旅，共同解锁人才管理的未来密码！

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中国经济管理大学
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中国经济管理大学

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中国经济管理大学 MOOC（慕课站）美华管理传播网：www.mhjy.net

Designing and Managing Integrated Marketing Communications

Sat, 11 Apr 2026 13:28:25 +0800

中国经济管理大学 

Designing and Managing Integrated Marketing Communications

中国经济管理大学/中國經濟管理大學

Communications

Marketing communications is one of the four major elements of the company’s marketing mix. Marketers must know how to use advertising, sales promotion, direct marketing, public relations, and personal selling to communicate the product’s existence and value to the target customers.

The communication process itself consists of nine elements: sender, receiver, encoding, decoding, message, media, response, feedback, and noise. Marketers must know how to get through to the target audience in the face of the audience’s tendencies toward selective attention, distortion, and recall.

Developing the promotion program involves eight steps. The communicator must first identify the target audience and its characteristics, including the image it carries of the product. Next, the communicator has to define the communication objective, whether it is to create awareness, knowledge, liking, preference, conviction, or purchase. A message must be designed containing an effective content, structure, format, and source. Then communication channels, both personal and non-personal, are selected. Next, the total promotion budget can be established. Four common methods are the affordable method, the percentage-of-sales method, the competitive-parity method, and the objective-and-task method.

The promotion budget should e divided among the main promotional tools, as affected by such factors as push vs. pull strategy, buyer readiness stage, product life-cycle stage, and company market rank. The marketer should then monitor to see how much of the market becomes aware of the product, tries it, and is satisfied in the process. Finally, all of the communications effort must be managed and coordinated for consistency, good timing, and cost effectiveness.

Advertising—the use of paid media by a seller to communicate persuasive information about its products, services, or organization—is a potent promotional tool. Advertising takes on many forms (national, regional, local, consumer, industrial, retail, product, brand, institutional, etc.) designed to achieve a variety of objectives (awareness, interest, preference, brand recognition, brand insistence).

Advertising decision-making consists of objectives setting, budget decision, message decision, media decision, and ad effectiveness evaluation. Advertisers should establish clear goals as to whether the advertising is supposed to inform, persuade, or remind buyers. The factors to consider when setting the advertising budget are: stage in the product life cycle, market share, competition and clutter, needed frequency, and product substitutability. The advertising budget can be established based on what is affordable, as a percentage budget of sales; based on competitors’ expenditures, or based on objectives and tasks; and based on more advanced decision models that are available.

The message decision calls for generating messages, evaluating and selecting between them, and executing them effectively and responsibly. The media decision calls for: defining the reach, frequency, and impact goals; choosing among major media types; selecting specific media vehicles; deciding on media timing; and geographical allocation of media. Finally, campaign evaluation calls for evaluating the communication and sales effects of advertising, before, during, and after the advertising.

Sales promotion and public relations are two tools of growing importance in marketing planning. Sales promotion covers a wide variety of short-term incentive tools designed to stimulate consumer markets, the trade, and the organization’s own sales force. Sales promotion expenditures now exceed advertising expenditures and are growing at a faster rate. Consumer promotion tools include samples, coupons, cash refund offers, price packs, premiums, prizes, patronage rewards, free trials, product warranties, tie-in promotions, and point-of-purchase displays and demonstrations. Trade promotion tools include price-off, advertising and display allowances, free goods, push money, and specialty-advertising items. Business promotion tools include conventions, trade shows, contests, sweepstakes, and games. Sales promotion planning calls for establishing the sales promotion objectives; selecting the tools; developing, pretesting, and implementing the sales promotion program; and evaluating the results.

Marketing public relations (MPR) is another important communication/promotion tool. Traditionally, it has been the least utilized tool but is now recognized for its ability in building awareness and preference in the marketplace, repositioning products, and defending them. Broadly, MPR is those activities that support the ultimate sale of a product or service. Some of the major marketing public relations tools are news, speeches, events, public service activities, written material, audio-visual material, corporate identity, and telephone information services. MPR planning involves establishing the MPR objectives, choosing the appropriate messages and vehicles, and evaluating the MPR results.

· Learn the roles of Marketing Communications.

· Identify the major steps of developing effective communications.

· Define the communication mix.

· Determine how to set the communication mix.

· Learn the concepts of an integrated marketing communications program.

I. Introduction - This chapter describes how communications work, what marketing communications can do for a company and how holistic marketers combine and integrate marketing communications. An opening vignette describes how Ocean Spray reintroduced its Ocean Spray Cranberry to the market as a “versatile fruit that supplies modern-day benefits.

II. The Role of Marketing Communication - inform, persuade, and remind consumers, directly or indirectly, about the products and brands that they sell. Marketing Communications can also contribute to brand equity by establishing the brand in memory and creating a brand image while it strengthens customer loyalty, driving sales and affecting shareholder value.

A. The Changing Marketing Communications environment

1. Technology advances create extreme dynamics for the optimal communication processes as envisioned by both the organization and the customer and have eroded the effectiveness of mass media methods

2. Commercial clutter is rampant causing consumers to block out communications.

3. Must be creative while avoiding the intrusion of customer’s lives.

4. Refer to “Marketing Insight: Don’t Touch That Remote” for a description of developments in television advertising

B. Marketing Communications, Brand equity, and Sales

1. Eight major modes of communication in marketing communication mix

a) Advertising

b) Sales promotion

c) Events and experiences

d) Public relations and publicity

e) Direct Marketing

f) Interactive marketing

g) Word-of-mouth marketing

h) Personal selling

i) Every brand contact delivers an impression that can strengthen or weaken a customer’s view of the company. Table 15.1 lists common communication platforms used to contribute to brand equity.

C. Communications Process Models

1. Macromodel of the communication process - nine elements (see figure 15.1)

a) Major parties in communication - sender and receiver

b) Major communication tools - message and media

c) Major communication functions - encoding, decoding, response, feedback

d) Noise (random and competing messages that may interfere with intended communication)

2. Micromodel of consumer responses - concentrate on consumer’s specific responses to communications (three different sequences). Figure 15.2 summarizes four classic response hierarchy models.

a) “learn-feel-do” - appropriate when there is high consumer involvement and perceived high product or service differentiation

b) “do-feel-learn” - relevant with high consumer involvement and little or no differentiation

c) “learn-do-feel” - appropriate with low consumer involvement and little or no differentiation

III. Developing Effective Communications (eight steps, first 5 steps are covered under this section III, steps 6 and 7 fall under IV and step eight is outlined in V)

A. Identify the Target Audience

1. Image analysis is a major part of audience analysis that entails assessing the audience’s current image of the company, the products, and the competitors. (Image defined - set of beliefs, ideas, and impressions that a person holds regarding an object)

a) First step is to measure target audience’s knowledge of the subject using a familiarity scale

b) Second step is to determine feelings toward the product using a favorability scale

2. The specific content of a product’s image is best determined with use of semantic differential (relevant dimensions, reducing set of relevant dimensions, administering to a sample, averaging the results, and checking on the image variance)

B. Determine the Communications Objectives (Rossiter and Percy’s four possible objectives)

1. Category need - remove or satisfy perceived discrepancy between current motivational state and a desired emotional state

2. Brand awareness - recall important when removed from brand stimulus whereas recognition important when facing stimulus. Builds brand equity

3. Brand attitude - evaluation of brand’s perceived ability to meet a currently relevant need

4. Brand purchase intention - self-instructions to purchase or take purchase-related action

C. Design the Communications

1. Message strategy - develop appeals, themes, or ideas that tie into positioning and establish points-of-difference or points-of-parity

2. Creative strategy - message translated into specific communication, two methods of classification

a) Informational appeals - elaboration on attributes or benefits

b) Transformational appeals - elaborate on a non-product-related benefit or image (e.g. demonstration of the type of person that uses the brand)

3. Message source – expertise, trustworthiness, and likeability

a) Expertise – specialized knowledge the communicator possesses to

back the claim.

b) Trustworthiness – how objective and honest the source is perceived

to be.

c) Likeability – Source’s attractiveness

d) Principle of congruity implies that communicators can use their good

image to reduce some negative feelings toward a brand but in the

process might lose some esteem with the audience.

D. Select the Communication Channels – channels may be personal and non-personal (refer to “Marketing Skills: Permission Marketing”)

1. Personal Communication Channels - direct (advocate, expert, and social)

a) Advocate channels – consist of company salespeople contacting buyers in the target market

b) Expert channels – consist of independent experts making statements to target buyers

c) Social channels – consist of neighbors, friends, family members, and associates talking to target buyers.

2. Non-personal (Mass) communication channels - directed to more than one person (media, sales promotions, events and experiences, public relations)

3. Integration of communications channels

a) Personal communication more effective than mass communication

b) Mass communication may stimulate personal communication (two-step flow implications)

(1) Mass media mediated by opinion leaders

(2) People’s interactions within their own social groups acquire ideas from opinion leaders

E. Establish the total marketing communication budget

1. Affordable method – setting the communication budget at what managers think the company can afford.

2. Percentage-of-sales method – setting the communication budget at a specified percentage of current or anticipated sales or the sales price

3. Competitive-parity method - achieve share-of-voice parity with competitors

4. Objective-and-task-method – define objectives, determine tasks needed to be performed to achieve objectives and estimate costs of performing tasks.

IV. Deciding on the Marketing Communications Mix

A. Characteristics of the Marketing Communications Mix (eight major modes of communication)

1. Advertising – reach, pervasive, allows for focus on specific aspects of brand and product

2. Sales promotion – draws attention to product, provides incentive to customer, invites customer to engage in the transaction now

3. Public relations and publicity effective when combined with communication mix. Three distinct qualities

a) High credibility

b) Ability to reach hard-to-find buyers

c) Ability to tell the brand or product story

4. Events and experiences – highly relevant actively engaging for customers and indirect soft-sell approach

5. Direct and interactive marketing

a) Customized for addressed individual

b) Able to prepare quickly

c) Can be changed depending on response

6. Word-of-mouth marketing – online of offline and can be influential, timely and personal

7. Personal selling – most effective in later stages in he buying process. Three notable qualities

a) Personal interaction

b) Ability to cultivate relationships

c) Personal choices for response

B. Factors in Setting the Marketing Communications Mix

1. Define the market types, as each requires different allocations. Addresses stages of consumer purchase readiness as promotional tools vary in cost effectiveness at different buyer readiness stages

2. Communication tools vary in cost effectiveness at different stages of the product life cycle. Refer to Figure 15.4 for an example of Cost effectiveness of Three Different Communication Tools at Different Buyer-readiness stages.

3. Communication tools vary in cost effectiveness at different product life-cycle stages

a) Introduction stage – most cost effective are advertising, events and experiences, and publicity followed by personal selling to gain distribution coverage and sales promotion and direct marketing to induce trial

b) Growth stage – demand has its own momentum through word-of-mouth and interactive marketing. Advertising, events and experiences and personal become more important in maturity.

c) Decline stage – sales promotion continues strong, other communication tools are reduced, sales reps give less attention to product

C. Measuring Communication Results

1. Measure impact by measuring target audience recall, impressions or feelings about the message, and previous attitudes versus current attitudes

2. Collect behavioral measures of audience response including transactional data and word-of-mouth

V. Managing the Integrated Marketing Communications (IMC) Process – IMC is a concept of marketing communications planning that recognizes the added value of a comprehensive plan.

A. Coordinating media

1. Combine personal and non-personal communication channels for maximum impact

2. Multiple-vehicle, multiple-stage campaign approach – achieve maximum impact and increase message reach and impact

3. Coordinate online and offline communication efforts

4. Use Facebook and other web sites to drive customers into stores

B. Implementing IMC

1. Unify various brand images and messages

2. Look at whole marketing process

3. Coordinate advertising, direct marketing, public relations, and employee communications

VI. Executive Summary

Communications as the Key Tool in an Uncontrollable Marketing Environment”

This discussion provides focus on the increasing importance of marketing communications, as well as the concept of integrated marketing communications (IMC). Here we will look at the question of “How does interactive marketing fit with existing marketing campaigns?” Interactive marketing involves extending the reach, frequency, and power of the existing communications. With current communications programs, firms likely integrate public relations, print, direct marketing, and perhaps radio, TV, and Internet in some combination. Whether firms add networked media (commercial online services, the Internet, and other stand-alone interactive media to this mix) successful interactive projects work the same way as traditional vehicles: in harmony with the wider communications plan.

To understand how today’s uncontrollable environment has led largely to the increased use of marketing communications.

To consider why integrated marketing communications is a powerful and cost-effective promotional strategy.

To present the advantages of a tool often used in an integrated marketing communications program: a company newsletter.

Integrated Marketing Communications

Not all product concepts are right for all individuals, thus bringing about the notion of market segmentation and targeting. The same holds true for marketing communications. One message does not fit all. Integrated marketing communications (IMC) focuses on discreet customer segments. With IMC, the firm learns to understand that while mass-market promotion appears cost-effective on the front end, brand/product messages are also offered to millions of people who are not interested.

Mass media no longer serves the mass audiences sought by marketers. Individual audiences for each media have decreased, thus indicating a need to ensure that whenever and wherever the prospect is exposed to the message, he or she receives a consistent one. Customers typically do not differentiate between message sources; they only remember the message they received. Considering how many messages consumers are exposed to on a regular basis, mixed messages from the same source are bound to cause confusion and, worse yet, they will be more quickly forgotten.

While understanding the importance of marketing communications is somewhat simple, finding the best means through which to implement a marketing communications program has become increasingly difficult. The buying public has been virtually buried alive in ads. Consumers are bombarded with hundreds of ads and thousands of billboards, packages, and other logo sightings every day.

Old advertising venues are packed to the point of impenetrability as more and more sales messages are jammed in. Supermarkets carry 30,000 different packages (product packages), each of which acts as a mini-billboard, up from 17,500 a decade ago.[1] Networks air 6,000 commercials a week, up 50 percent since 1983.[2] Prime-time TV carries up to 15 minutes of paid advertising every hour, roughly 2 to 4 minutes more than at the start of the 1990s. Add in the promos, and over 15 minutes of every prime-time hour are given over to ads. No wonder viewers zap so many commercials.

The IMC planning process is based on a longitudinal consumer purchase database. Ideally, this database would contain, by household, demographics, psychographics, purchase data, and perhaps some information about how the household feels about or is involved with the product category. In many cases, direct-marketing organizations already have this type of information at their disposal. An IMC program is implemented according to the needs and lifestyles of the selected target markets, thus allowing for customized, yet consistent, message strategies to sell increasingly individualized products.

Sustainable Competitive Advantage

It has been said integrated marketing communications will be the only sustainable competitive advantage for marketers in the near future. The other elements of the marketing mix, product development, pricing, and distribution, can be achieved at a very similar level, and in a similar way, among companies competing in a particular industry. In addition, we know the customer has taken on a completely new, powerful, role in the marketing process. Because it is largely through promotion that a company speaks most directly to its customers, it seems appropriate that a marketer’s promotional strategy must change to reflect the dynamics of today’s marketplace.

Some of these changes include:

Changing technology, which has made it possible for media organizations to identify, segment, select, and attract smaller audiences for their respective vehicles.

The trend toward de-regulation that has allowed for increased competition within many industries, such as air travel, banking, and utilities.

Globalization of the marketplace, which causes promotional efforts, including advertising, sales promotion, public relations, and personal selling, to be implemented throughout a worldwide market. Customization for different cultures is key to competing successfully in this arena.

Changes in the demographic and Psychographic profiles of today’s consumers, that have paved the way for new product category opportunities (such as health care for the aging “baby boomers” and health food/clubs for nutrition conscious consumers).

Money-rich, time-poor consumers are seeking control of their purchases. Consumers have become adept at avoiding marketing communication, through the use of VCRs, remote controls, radio push buttons, etc. When they are listening, the message should be simply stated and easy to understand. Today’s generation is also more visual than verbal, thus they rely on images, symbols, and graphics more than any previous generation.

It is important also to note that a marketer can communicate with customers through means other than formal marketing communications. Every element of a product’s marketing mix helps to position that product in the minds of consumers. The result is that the elements of the promotional mix should all present a consistent theme. The same is true of the other “Ps” of marketing, namely product, price, and place that should support the theme:

Products communicate through size, shape, name, packaging, and various features/benefits.

Price communicates to the consumer that the product is high quality, low quality, prestigious, common, etc.

Retail locations (place) where customers purchase the product will reflect upon the product’s image as well. Stores are considered “high-class”, specialty, discount, etc.

Using Newsletters for Customized Communication

One of the newest and most effective ways to stimulate and maintain positive communication with customers is through newsletters (print and online). Newsletters are useful for many reasons, but one of the best reasons is that they cross the boundary between news and advertising, providing a bit of both. Further, they bring back some much-needed credibility that has been lost with many market segments. The newsletter can be delivered physically, but more likely, it will be made available via the Internet or e-mail. Newsletters not only describe, in detail, a company’s philosophy, goals, and objectives but also enhance its current marketing program. In addition, newsletters can be utilized as communication tools for many other purposes.

Some of the advantages of newsletters include:

Delivering continuous background or educational material to clients in an efficient manner.

Providing highly-targeted distribution through database utilization.

Acting as a form of personal calling, on paper, to prospects and clients.

Proving more economical than other forms of promotion.

Not obvious advertising, if done correctly.

Attention-getting.

Providing the ability to create demand.

Keeping mailing lists (or e-mail lists) accurate.

Possible newsletter content may also include such as items as:

Announcements of new products and services.

Stories of products/services in application (from either the company or its customers).

Answers to commonly asked questions/concerns.

Information on industry trends.

Updates on new or pending legislation.

Personnel changes (but otherwise very little employee communiqué).

Guest articles by prominent figures in the industry.

“Think” pieces—philosophy, ideas, suggestions, techniques, and tactics.

Specialized news.

A newsletter also provides opportunities for customer feedback:

Brings the prospect to the marketer in the form of an inquiry.

May solicit response through use of a formal survey.

Enables experimentation with numerous formats/contents/ promotions through small sample test mailings.

In addition, orienting articles to topics that are on the customer’s minds will guarantee holding their interest.

Bad news should not be ignored. Any problems that are occurring, as well as actions being taken to solve these problems, need to be addressed. After all, relationships will have both ups and downs.

Most important, the primary goal of any newsletter should be to inform and educate readers; it must not become the voice of management and/or marketing alone. To that end, it must be filled with news and not exist solely to sell products/services.

Note to the Instructor: As a final note, you might ask the class to consider whether the newsletter approach has found additional life on the Internet. Many Web sites include elements of the newsletter approach in their operations. Ask the class to investigate some leading Web sites to prove and/or disprove this point.

Communications

Source: Don E. Schultz, “Multichannel: New Term, Old Challenges,” Marketing News, April 29, 2002, p. 10.

As I have traveled the world the last six months or so, one of the hottest topics in Europe, and increasingly in Asia, is that of multichannel marketing. While it does not yet command the highest level of interest in the United States, it probably will in the next year or so.

Multichannel marketing is, it seems, 21st century terminology for how a marketing organization makes its products and services available to customers and prospects: How the marketer determines the best choice of distribution systems and the type of communication programs to use, for example, and how the company will organize those programs and alternatives into a cohesive whole. In the 20th century—at least in the 1990s—we called those efforts integrated marketing or integrated marketing communications. In reviewing what has been written about multichannel marketing and listening to the discussions in seminars and conferences, the questions and answers have an oh-so-familiar ring. For example, the questions about distribution seem to revolve around, How much emphasis or focus should be put on which channels? How much should be invested in traditional retailing? And how much focus and reliance is on the field sales force? Much of the discussion is about the level of effort to make in electronic marketing and how that fits with traditional approaches. Some even wonder if the dotcoms will rise again.

The ample supply of questions and paucity of answers spawn the conferences, seminars and scholarly papers. In the multichannel area of communications, the questions are much the same: How much to invest in advertising? How much above-the-line and how much below it? Where does PR fit? How about events? Sponsorships? Some experts advocate focusing efforts and expenditures on a few areas, while others suggest investment diversity.

To me, about the only thing that has really changed from what we were struggling with 10 years ago is that a much greater variety of alternatives are available now and, as a result, more challenges.

What all this multichannel conversation seems to ignore, however, and what I thought we learned almost a decade ago is that much of the discussion and almost all the planning starts at the wrong end of the question. The process seems to start with what the marketer wants to do, how the seller wants to organize and develop his business.

For any multichannel approach to succeed, the questions have to start with the customers or prospects. What type of distribution system do they want to select from? What type of communications systems do they want to access? What type of business relationship do they want with the seller?

What multichannel marketing and communications advocates seem to ignore is the fact that marketers no longer control the marketplace. They can’t decide what is best for customers and foist it off on the channels and customers, no matter how sophisticated the software or how elegant the marketing models. The customer decides what is best and pursues that course, and woe to the marketer who can’t fit that pattern.

It all comes back to marketplace power. In the traditional 4Ps of marketing, the marketer decided how he wanted to go to market, and channels and customers were simply pawns in the great game of marketing. The organization with the best plans or people—or combination of the two—was sure to win in the long run. That’s what built firms such as P&G, Unilever, Colgate and Nestle.

But over the last decade or so, marketplace power has shifted. Customers are now in control because they have access to incredible amounts of market knowledge, and the traditional restrictions of time and geography have disappeared. With access to a vast array of distribution channels, they can shop and compare products, prices and formats and yes, even marketers, from around the world.

In my view, customers, with their increased access to information, have created an almost-perfect marketplace, at least for them. Customers now know most of the marketing secrets because they have lived through them. It’s increasingly difficult to fool customers any more (Enron and the financial analysts excepted) for any length of time. The marketer who ignores that fact does so at his peril.

Today, it is not a question of how the marketer wants to sell, it is a question of how the customer wants to buy. So, what I hear missing in all these multichannel marketing dialogues is a mention of the customer. That lesson seems to have been lost somewhere over the years.

By relying on software, analysis and market modeling, multichannel advocates believe they can find the optimal approach to the marketplace. But customers decide how they would like to buy, not how the marketer wants to organize and initiate.

Understanding that marketing and marketplace multichannel allocation models must start with customers and prospects is a hard lesson for organizations to learn. But, it’s critical, even in the enlightened 21st century.

Note: Don E. Schultz is a professor of integrated marketing communications at Northwestern University’s Medill School of Journalism, and president of Agora Inc. in Evanston, Ill.

Issue: Careers in IMC

Source: “Integrated Marketing,” Advertising Age, February 25, 2002, p. 22.

The ideal candidate, the marketplace demands a mixed skill-set. Ten Years ago, the graduate-level marketing program at Northwestern University changed its name to Integrated Marketing Communications to serve a marketplace moving toward multidisciplinary marketing tied to corporate strategy and business results rather than merely mass-media creative executions. A decade later, Northwestern’s IMC grads have no trouble finding jobs-at a median starting salary of $70,000 or more. Its members tend to become marketing consultants or client-side marketing strategists as opposed to agency employees (see charts below). There’s no question that agencies, marketers and clients alike are driving toward integration. The challenge is finding the right people to navigate the course.

Keeping Current

“People who were relevant five or ten years ago are not relevant today if they haven’t kept themselves current with all of the technology,” said Daniel Morel, chairman-CEO of WPP Group-owned Young & Rubicam’s Wunderman Worldwide. ‘We’re looking for truly well-rounded, business-minded individuals.”

Digitas, which many industry insiders consider to be one of the few agencies successfully delivering integrated marketing to clients, recruits and develops four categories of employees: marketing technology experts, channel operations specialists, creatives, and relationship managers.

The latter are the most critical and the hardest to find, said David Kenny, chairman-CEO of Digitas. They are “senior people who run each (client) relationship. They have to be general managers and understand the economics of a client’s business-that you have to save money and gain market share simultaneously.”

The link between business strategy and marketing is clear and agencies are fighting to become full partners with their clients. “For agencies to take a step up the food chain, they’re going to have to be able to do a whole set of things that are traditionally consulting-like exercises,” said Chris Lederer, partner at Helios Consulting, adding that simply building consulting departments within agencies is not the answer. “I don’t think agencies should go hire the MBA stereotype-the bean-counter accountant. They need to hire somebody who marries the marketing skill-set with some of the strategic and analytic skill-sets.”

Consultant-turned-agency head Mark Hodes, managing director of WPP’s OgilvyOne, Chicago, agrees that a good job candidate is someone “who understands the key economic metrics that the boardroom looks at, and is able to translate that data into successful marketing programs.”

IMC grads, for one, understand these economics, recognizing that integrated marketing is the “commitment to measurable results,” said John Greening, VP-director of client services at Omnicom Group’s DDB Worldwide, Chicago, and an associate professor at IMC.

Cunard Line, Ltd: Managing Integrated Marketing Communications

HBS Case: 594-046 TN: 595-028

Teaching Perspectives

Cunard, the world’s oldest luxury line company, is confronted with several key issues involving its marketing and marketing communications strategy. One concerns the balance between image/positioning advertising and short-term promotional advertising/communications on behalf of each Cunard ship (i.e., pull vs. push communications). Related to this is the overall mix of marketing communications tools used by Cunard—media advertising, direct marketing, etc.

Many corporations face a similar problem in how to integrate their various marketing communications efforts. In most cases, this takes the form of standardizing messages and creative approaches across different individual advertisements and diverse media. However, in some, such as the Cunard case, the situation is more multi-faceted and difficult. Cunard is trying to integrate marketing communications on several levels:

Between strategic and tactical advertising.

Between a corporate name and subsidiary names.

Across different media.

Across different target markets.

Among different advertisements.

The task is a challenge in terms of not only advertising issues but also the organizational alignment of the firm.

The vice president for corporate and marketing communications at Cunard also faces organizational changes that could undo the careful work accomplished in integrating the firm’s marketing communications. A new layer of management with broad overall marketing responsibilities for particular ship “groups” will be created. The firm appears to be moving toward an organization based on specific market segments rather than one based on the ships themselves. One possible implication of this change is that each of the new groups will want a distinctive marketing communications program. This would tend to seriously dilute the efforts that have been made to integrate the firm’s marketing communications.

The case exhibits visually illustrate the effects of these efforts. The exhibits demonstrate how integrated communication “works” by inspection of the details of the advertisements. While there are obvious differences in the advertisements, they appear to convey the same image. Thus, the case can be used to show the effects of an integrated communications plan that appears to have been well executed. The instructor/class can address how to maintain that integration in light of organizational “realities.”

One of the primary issues is how can one have the same marketing communications for a well-known brand, yet have a very distinctive image and for a brand known to few within the target market. The class discussion that ensues probably will encompass “umbrella brands” versus subsidiary brands as well as the differences between corporate images and individual brand names. It is important to probe deeply on the meanings (to the potential customers) of the names Cunard, QE2, Sagafjord, etc., and how they are or are not related in the public’s mind. In addition, there is a question as to why the company is concerned about having integrated communications among the various ships under the Cunard umbrella.

Questions

1. In light of the difficult economic and competitive conditions, should Cunard use a more “sale-oriented” format with more emphasis on price for its tactical advertising?

2. In better economic times, would your judgment differ regarding question 1?

3. What is your recommendation to Cunard regarding the balance in the focus of marketing communications between the overall Cunard identity and image, and the identity and image of the individual ships?

4. Which marketing communications elements do you believe should receive greater/lesser emphasis? Why? Specifically, what about the role of direct marketing?

5. What effects would you expect the impending organizational change to have on marketing communications at Cunard?

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Managing Retailing, Wholesaling, and Logistics

Sat, 11 Apr 2026 13:27:07 +0800

中国经济管理大学 

Managing Retailing, Wholesaling, and Logistics

中国经济管理大学/中國經濟管理大學

I.

Retailing and wholesaling consists of many organizations designed to bring goods and services from the point of production to the point of use. Retailing includes all the activities involved in selling goods or services directly to final consumers for their personal, non-business use. Retailers can be classified in terms of store retailers, non-store retailing, and retail organizations.

Store retailers include many types, such as specialty stores, department stores, supermarkets, convenience stores, superstores, combination stores, hypermarkets, discount stores, warehouse stores, and catalog showrooms. These store forms have had different longevities and are at different stages of the retail life cycle. Depending on the wheel-of-retailing, some will go out of existence because they cannot compete on a quality, service, or price basis.

Non-store retailing is growing more rapidly than store retailing. It includes direct selling (door-to-door, party selling), direct marketing, automatic vending, and buying services.

Much of retailing is in the hands of large retail organizations such as corporate chains, voluntary chain and retailer cooperatives, consumer cooperatives, franchise organizations, and merchandising conglomerates. More retail chains are now sponsoring diversified retailing lines and forms instead of sticking to one form such as the department store.

Retailers, like manufacturers, must prepare marketing plans that include decisions on target markets, product assortment and services, store atmosphere, pricing, promotion, and place. Retailers are showing strong signs of improving their professional management and their productivity, in the face of such trends as shortening retail life cycles, new retail forms, increasing intertype competition, polarity of retailing, new retail technologies, and many others.

Wholesaling includes all the activities involved in selling goods or services to those who are buying for the purpose of resale or for business use. Wholesalers help manufacturers deliver their products efficiently to the many retailers and industrial users across the nation. Wholesalers perform many functions, including selling and promoting, buying and assortment-building, bulk-breaking, warehousing, transporting, financing, risk bearing, supplying market information, and providing management services and counseling.

Wholesalers fall into four groups. Merchant wholesalers take possession of the goods and include full-service wholesalers (wholesale merchants, industrial distributors) and limited-service wholesalers (cash-and-carry wholesalers, truck wholesalers, drop shippers, rack jobbers, producers’ cooperatives, and mail-order wholesalers). Agents and brokers do not take possession of the goods but are paid a commission for facilitating buying and selling. Manufacturers’ and retailers’ branches and offices are wholesaling operations conducted by nonwholesalers to bypass the wholesalers. Miscellaneous wholesalers include agricultural assemblers, petroleum bulk plants and terminals, and auction companies.

Wholesalers also must make decisions on their target market, product assortment and services, pricing, promotion, and place. Wholesalers who fail to carry adequate assortments and inventory and provide satisfactory service are likely to be bypassed by manufacturers. Progressive wholesalers, on the other hand, adapt marketing concepts and streamline their costs of doing business.

The marketing concept calls for paying increased attention to marketing logistics, an area of potentially high cost savings and improved customer satisfaction. When order processors, warehouse planners, inventory managers, and transportation managers make decisions, they affect each other’s costs and demand-creation capacity. The physical-distribution concept calls for treating all these decisions within a unified framework. The task becomes that of designing physical-distribution arrangements that minimize the total cost of providing a desired level of customer service.

· Learn how to classify marketing intermediaries that occupy this sector.

· Identify the major trends with marketing intermediaries.

· Discover what the future holds for Private Brands

I. Introduction - Considering the strategies of the members of the channels, as viewed by those organizations. Example of Zappos’s focus on superior customer service is the opening discussion of this chapter. Zappos spends half of the new employee interview process determining whether the candidate posses the people skills to deal with customers.

II. Retailing - Includes all the activities involved in selling goods and services directly to consumers for their personal, non-business use

A. Types of Retailers – Refer to Table 14.1 for Major Types of Store Retailers

1. Four Levels of service

a) Self-service: customers perform locate/compare/selection steps

b) Self-selection: customers find their own goods

c) Limited service: more shopping goods and services available and more assistance granted to customer

d) Full service: salesperson performs all customer functions, increase in amount of specialty goods but at high retail cost

2. Non-store Retailing has four main categories and is growing faster than traditional retail

a) Direct selling (e.g. Avon with door to door)

b) Direct Marketing which includes direct-mail, catalog, telemarketing, television direct-response, electronic and wireless shopping

c) Automatic vending

d) Buying service: store-less retailer serving specific customer group such as an organization’s employees via membership

3. Corporate retailing - economies of scale, greater purchasing power, wider brand recognition and better-trained employees (refer to table 14.2 for definitions of the following corporate retail types)

a) Corporate Chain store

b) Voluntary chain

c) Retailer cooperative

d) Consumer cooperative

e) Franchise organization

f) Merchandising conglomerate

B. The New Retail Environment

1. Updated ambiance and product lines

2. Brick and mortar retailers adding online component, in-bound telemarketing for order taking and mail-order catalogs for buying and selling

3. Addition of temporary outlets to serve seasonal needs

4. Supermarkets battling superstores by adding specialty products and consumer focused services

C. Retailer Marketing Decisions

1. Target-market - until the target market is defined, the retailer cannot make consistent decisions on product assortment, store decor, advertising message, and media, price levels, etc. Too many retailers have not defined their target markets

2. Channels – Building on target market analysis from Chapter 13, identify ways to integrate multiple channels.

3. Product Assortment

a) Retailer’s product assortment must match the target market’s shopping expectations in breadth and depth.

b) Develop product differentiation strategy by offering brands not available at competing stores. Main methods include: usage of private brands, distinctive marketing, frequent changes to product assortments and customized experiences.

4. Procurement - Growing use of Direct Product Profitability (DPP) measurement to measure product’s handling costs from the time it leaves the warehouse to customer in-store purchase.

5. Prices

a) Key positioning factor related to the target market, product/service assortment mix and competition

b) Retailers generally fall into one of two groups:

(1) High-markup, lower volume

(2) Low-markup, higher volume

6. Services – retailers must define services mix. Pre-purchase, post purchase and ancillary services

7. Storemosphere - Use creative physical dynamics to help differentiate the store.

8. Store Activities and Experiences - brick and mortar entities creating experiences that cannot be reproduced on the Internet to differentiate themselves from the Internet. Refer to insert “Marketing Skills: Experience Marketing”.

9. Communications –

a) Various tools used to generate traffic and support image positioning

b) Work closely with suppliers to produce P.O.S materials that reflect retailer as well as manufacture’s image

c) Increased use of interactive and social media to convey information and create brand communities.

10. Location - location, location, location - central business district, regional shopping center, community shopping center, shopping strip, or within a larger store.

III. Private Labels (brand developed and owned by resellers, retailer, wholesalers, and distributors). Account for 1 out of 4 items sold. Do not usually exceed 50% due to consumer preferences for national brands.

A. Role of Private Labels

1. More profitable for retailer

2. Marketing mix cost lower

3. Lower price to consumer

4. Generic brand prices even lower

B. Private Label Success Factors

1. Retailers charge slot fee for new national brand requiring new shelf space

2. Retailers display their own brands more prominently than national brands

3. Lower prices appeal to consumer especially when value is close or same as national brand

4. National brands have price constraints as marketing mix costs command a higher margin, which creates higher prices

5. Refer to “Marketing Insight: Manufacturers respond to the Private Label Threat”.

IV. Wholesaling - Includes all activities involved in selling goods or services to those who buy for resale or business use. Major wholesaler types are listed in table 14.3 with respective definitions.

A. Wholesalers differ from retailers in three major ways.

1. They pay less attention to retail functions such as promotion, atmosphere and location as they deal with business rather than consumers

2. They conduct larger transactions with their customers, i.e. retailers, and cover a larger trade area.

3. They comply with different legal regulations and taxes

B. Wholesaler functions

1. Selling and promoting – utilization of their sales force helps manufacturers reach small businesses at a lower cost

2. Buying and assortment building

3. Bulk breaking

4. Warehousing

5. Transportation

6. Financing: finance customers

7. Risk bearing: share risk by taking title and bearing some costs

8. Market information provided for retailers and customers

9. Management services and consulting (e.g. training, planning, technical services)

C. Trends in Wholesaling

1. Wholesalers facing increased pressures from competition, demanding customers, new technology and more direct-buying programs by large buyers

2. Manufacturers pressuring wholesalers to do a better job pushing their products

3. Wholesalers are revisiting 4P decisions, increasing asset productivity by better managing inventory and receivables and investing more in technology and information systems

4. Strengthening Channel Relationships

a) Seek clear agreement with manufacturers about their expected functions in the channel

b) Visit manufacturers’ facilities and attend industry events to gain insights

c) Fulfill requirements reliably and provide customer feedback to manufacturers

d) Offer value-added services to manufacturers

V. Market Logistics - The process of getting goods to customers, use of supply chain management (SCM), demand chain planning and integrated logistics systems. Involves planning, implementing and controlling the physical flows of materials and final goods from points of origin to points of use to meet customer requirements at a profit

A. Market logistics planning steps

1. Decide on value proposition to customers

2. Select best channel design and network strategy for reaching customers

3. Develop operational excellence in sales forecasting, warehouse, transportation and materials management

4. Optimize solution with best IT systems, equipment, policies and procedures

B. Integrated Logistics Systems (ILS)

1. Utilize information technology to enhance efforts in linking materials management, material flow systems, and physical distribution

2. Market logistics increasing in costs which can amount to 30% - 40% of the product’s cost. There is much room for cost reduction efforts

C. Market-logistics objectives –

1. Getting the right goods to the right places at the right time for the least cost.

2. Make decisions on a total-system basis. M =T+FW+VW+S

a) T = total freight cost of proposed system

b) FW = total fixed warehouse cost of proposed system

c) VW = total variable costs (including inventory) of proposed system

d) S = total cost of lost sales due to average delivery delay under proposed system

D. Market-Logistics Decisions

1. Order Processing - goal is to shorten order-to-payment cycle

2. Warehousing - storage of finished goods. Distribution warehouses receive goods from various company plants and suppliers and move them out as soon as possible

3. Inventory - growing interest in “just in time” production to offset the costs of carrying inventory

a) Inventory cost increases at an accelerating rate as the customer-service level approaches 100%

b) Identify optimal level of inventory with promise of faster order fulfillment times. Figure 14.1 is an illustration of Determining Optimal Order Quantity

c) Avoid stock outs by determining when to place new order for more inventory. This stock level called the order or reorder point.

d) Balance order processing costs and inventory-carrying costs

(1) Order-processing costs – setup costs and running costs

(2) Inventory-carrying costs – storage charges, cost-of-capital, taxes and insurance, depreciation and obsolescence

e) Reduce inventory costs by distinguishing between:

(1) Bottleneck items – high-risk, low-opportunity

(2) Critical items – high-risk, high-opportunity

(3) Commodities – low-risk, high-opportunity

4. Transportation - choices affect product pricing, on-time delivery performance, and condition of goods upon arrival

a) Five modes - rail, air, trucks, waterways, and pipelines.

b) Shippers consider speed, frequency, dependability, capability, availability, traceability and cost. For speed, best choices are air, rail and truck. For low cost, best choices are water or pipeline.

c) Combining transportation modes via containerization – goods in boxes or trailers that are easy to transfer between two transportation modes.

(1) Piggyback – use of rail and trucks

(2) Fishyback – use of water and trucks

d) Carrier types:

(1) Private – shipper owns own vehicle of transportation

(2) Contract – independent organization selling transportation services to others on a contract basis

(3) Common – provides services between predetermined points on a scheduled basis and available to al shippers at standard rates

E. Organizational Lessons - experience with market logistics has taught executives many lessons regarding the value of good logistics

1. Must be derived form business strategies rather than solely from cost

2. Must be information-intensive and establish electronic links among all significant parties

3. Set logistic goals to match or exceed competitors’’ service standards and should involve members of all relevant teams in the planning process

VI. Executive Summary

The focus is on retailing strategy in the modern marketing environment. In addition, there is emphasis on the role and value of understanding the history and role of retailing in the larger scheme of the overall marketing process and strategy. It is useful to update the examples so that students will be able to identify readily with this concept based on their general knowledge of the companies and products involved in the lecture / discussion.

Teaching Objectives

· To stimulate students to think about the important retailing issues.

· Points to consider in analyzing the changes in retail pricing strategy.

· Achieving a balanced position in a changing retail environment, especially in terms of the consumer, the competition and the technology driving the changes.

Discussion

Introduction

The key changes in the retailing field are a result of, or a by-product of, the changes in our population, in where and how people live, work, and buy. During the next decades the trends will continue, but most changes will come via the technological revolution (handling information, communication, management, and in serving the needs of customers).

The major retailers must develop responses to include:

· Revive the shrinking profits by improvement of man and machine in store systems.

· Take advantage of the trend to service-oriented society by offering new and more profitable services (the boutique concept, etc.), and also store image management and creativity.

· Department stores will have to face up to the increase in competition from discounters, specialty stores, food and drug chains, and direct marketing (shuffling the merchandise mix).

Economic Forces

Economic forces are changing the way retailers must react. While many retailers expect volume to grow despite the birth rate decline and the fact that the total population will not decline, there are some pros and cons to consider. Real family income is not increasing, but there are trends related to a growing demand for quality, value, and specialty merchandise. Also, despite the self-service and online trends, there are indications of higher demand for increased customer service in certain retail categories.

Interestingly, most retailers are not now planning for future developments. Why? Various studies seem to indicate that there is a general view among many retailers that affluence, education, and aspirations will continue to grow and accordingly will aid in the growth of their area of retailing. This viewpoint indicates the general optimism held by most retailers as sales-oriented marketers.

Social Forces

There is some optimism, a minority view, that there will be a solution to urban ghettos and a revival of the core cities. While this has occurred, to some degree, completion of the process is still some years in the future. Mass transit is in the same category because many retail analysts feel that consumer mobility will change little in the coming years. Obviously, mobility would mean there is more demand for household-type goods to enable mobility to continue to increase (example: household cleaning products, etc.).

Employment Patterns

There is a continuing trend toward a four-day workweek, more part-timers, and 365 day, 24 hour per day openings, but retailers apparently do not see the need to plan for this development. There will be more women in the labor market, more Sunday openings, more late openings, and more convenience store growth. Employee turnover remains a big problem for retailers, but retailers are not ready to pursue actively a course of change. However, the Internet gradually is forcing them to change or lose their customers.

Technological Innovations

Cable TV has had a tremendous impact on non-store promotion and sales methods. The Internet, interactive TV, and broadband will continue to be a wave of the future. Cable opened up the arena of in-home shopping, and in-store computerized information (via scanners, etc.) brought an end to the centralization of decision-making in the large retail chains.

There has been a push to reduce transaction time, consumer anxiety, and customer inconvenience. With the existence of the nationwide centralized credit and banking systems, there is an increased reduction in store and brand loyalty. The rise in the number and sales volume at the so-called wholesale clubs (Sam’s Club, Price Club and BJ’s Wholesale Club) has been both a symptom and a cause in this area. The Internet is bringing the possibility of general buying facilities or cooperatives with central buying capabilities. This could become an important wave of the future.

Store Operations

There is a continuing trend toward shrinking profit margins on most primary or utilitarian retail items. This, in turn, requires tighter internal cost controls, promotion of higher margin products and services, and elimination of unprofitable items. Most retail operations have eliminated free home delivery and ended real estate ownership, leasing instead. At the same time the number of stores is coming down all the time, with the volume for the remaining operations rising.

The question is: Will the changes in the future allow the same volume with 25 percent fewer stores and with a 20 percent decline in the number of items carried. For example, 10 years ago, stores with $25 million in sales averaged over 100,000 items on the shelves. Today, the number of items carried has dropped and is continuing to drop, with just-in-time (effectively 1-2 delay) inventory activities on the rise in many retail categories. Likewise, productivity levels have changed dramatically, requiring even greater flexibility in store layouts. One reason for this is the growth in the number of self-service racks, automatic vending machines, and similar developments.

In the mid 1980s, approximately 50 percent of all department store volume was self-service; it is estimated that currently the number is in excess of 60 percent. This trend will continue. Much of this is due to standardized packaging units in modular form. While this occurred originally to simplify the warehousing, handling, and inventory control, the process has been equally accepted in the retail arena. Despite this, there has been no decrease in specialty and high fashion merchandise volume, only now there is more flexibility in the fashion business, especially within retail chains, both general and specialty operations. With the evolution of more scrambled merchandising and competition, and more geographical spread, suburban discounters and warehouse selling centers, the lines between budget and upscale have become increasingly blurred.

There’s no doubt that retailers need to go through a shakeout before the industry can prosper again. With over 19 square feet of space for every person in the country, more than double the level of 20 years ago, there are simply too many stores. In 1974, each square foot generated an average of $175 a year in sales. Now, each square foot brings in only about $166.

Competitive Trends

With cable TV home shopping networks, catalog stores, direct mail, telemarketing, etc., it does not appear that as much merchandise activity will be in the stores. In 1984, less than one-third of all retail business was conducted outside the retail store; in 2001 it was estimated that in excess of 55 percent of retail business was conducted outside the store. This trend has continued, due to such developments as stronger warranties a rising image of quality, and with many of the non-store online, etc., options. However, there are areas, such as appliances and furniture, where the trend toward non-store growth may not develop in the near future. A similar trend is occurring in the discount area, with discount retailers reaching over 27 percent of total retail volume by 2002. There appears to be an opposite reaction taking place with the department store. In addition, the one-stop shopping orientation continues in the United States and many other developed countries.

The trend to specialization and “category killers” began in the 1980s. Today, following on the precepts of the “Wheel of Retailing,” the general merchandisers continue to develop boutique and specialty shop areas within department stores. Even more important is the trend toward more and more focus and size in specialty categories, ranging from pet products to sports clothing.

Future Strategies

Retailing faces some fundamental problems. This is an industry that has lost touch with its customers. The consumers who made shopping a recreational sport in the 1980s now have less time, less money, and less stomach for the whole experience. With 75 percent of women working full or part time and still shouldering most of the family chores, consumers have become precision shoppers. Over the past 15 years, they have cut down from three mall visits a month to 1.6. And instead of stopping by seven stores at a clip, they’re down to just three. The consumer today is not only tightfisted but also increasingly stressed out and has lower tolerance for all the imperfections found in retailing.

In almost every category, the answer to the question of what the consumer wants is disarmingly simple: more for less. Wal-Mart and Home Depot became national powerhouses based on this simple insight. They did it by relentlessly cutting costs at every stage, from manufacturer to store shelf, and by demanding help from their suppliers who became increasingly dependent on them as they grew in size and clout. Since 1984, Wal-Mart’s expenses have shrunk from 19.1 percent of sales to just above 15.5 percent. With yearly sales well over $100 billion, slated to grow to $200 billion in coming years, those savings add up fast. The contrast between the quick and near dead in retailing is stark indeed. Bankrupt Bradlees, had an expense ratio of 29.4 percent; Caldor Corp., also bankrupt, had a 24.4 percent expense ratio. Likewise Kmart Corp. devoted 22.2 percent of its sales to expenses and went into bankruptcy during January 2002.

There is no one formula for retailing success. Some hyper-efficient operators, such as Wal-Mart Stores Inc. and Home Depot Inc., have expanded their offerings and reduced their prices. Single-minded specialists, meanwhile, dominate narrow categories such as sunglasses or pet specialties with the deepest selections and competitive prices. Still other retailers are staking their claim to convenience, whether it’s McDonald’s Corp., making sure you can buy a Big Mac wherever you happen to be, or other firms that let you shop by phone or Internet for everything from a new car to a vacation. There are even signs of life among department stores, especially those with successful Internet business-to-consumer sites. It appears that for the time being they have pared down their operations and have fought to a standstill with the specialty retailers.

Some other examples include retailers who have never been considered efficient or interesting. Such formats as supermarkets, hardware stores, discount stores, travel agencies and car dealerships are being transformed or superseded. From vast megastores to tiny one-product kiosks, new kinds of outlets are springing up that look nothing like the stores of 10 years ago. The innovative retailers are taking market share from everybody else. Not all of these new formats will succeed, but as retailers grapple with change these innovators point the way to the possible “re-storing” of America.

Even as the number of stores declines, those that remain will get bigger. The “big box” or “category killer” has already made its mark in some segments, such as home-improvement, discounting and toys. Now, the approach of offering mind-boggling assortments of a familiar product at a reasonable price is spreading to some surprising categories. Superstores devoted to single lines, from baby items to books, abound. Where does their market share come from? Their share comes out of the hides of traditional stores that have already ceded entire departments such as appliances, books, and sporting goods. The same thing will happen to other categories.

Online retailing is still impacting retailers, but since the smartest physical retailers have responded to the challenge, it is possible they will remain in the game. The number and dollar-value of products ordered online from home has continued to rise every year and is expected to continue for the indefinite future.

Note to the Instructor: Ask students what they would do to encourage consumers to spend more time in-store shopping.

The focus is on the increasing level of cross-border retailing that is significantly changing the modern marketing environment. There is emphasis also on the role of retailing in the larger scheme of the overall marketing process and strategy. It is useful to update the examples so that students will be able to identify readily with this concept based on their general knowledge of the companies and products involved in the lecture / discussion.

Teaching Objectives

· Stimulate students to think about important international retailing actions that impact society.

· Help students to learn more about the sophisticated techniques and abilities that multinational retailers possess and how they use them to gain competitive advantage.

· Make clear to students the high level of knowledge-intensity required to compete in markets at home and around the globe.

Discussion

Introduction

“I remain adamant that consumers, products, and communication will always be local.” That comment, made by the CEO of Nestle, may seem unusual for the leader of a global giant. But many agree with him.

From one point of view, despite the talk of globalization, there is no such thing as a global consumer. Most large companies are well aware of the necessity to adapt their products to differing regional or national tastes and needs.

However, based on research conducted over the past three years by Ernst & Young with more than 10,000 consumers, there is also a universal desire to be treated with respect, courtesy, and honesty, regardless of the product purchased or the retail channel shopped. It is clear that global retailers understand the need to provide local content in their commercial offerings while at the same time surrounding those offerings with the kind of contextual values desired by consumers.

This formula explains the global success of companies such as Wal-Mart. Consider that in less than a decade since Wal-Mart opened its first store outside the United States, the company has become the world’s largest retailer, with more than 1,100 stores in nine countries in addition to its 3,200-plus units in the United States. There’s little denying that retailing rapidly has become a global business.

Trends

Retailers often are the first to recognize the actual trends among billions of consumers. Wal-Mart and others are building their retail operations beyond their home base. German-based Metro AG, the fifth-largest global retailer, now operates in 20 countries through its Metro Cash & Carry subsidiary, which achieves 75 percent of its sales abroad. Similarly, Cologne-based Rewet Retail Group, No. 11 on the list of leading global retailers, operates in 11 European countries that account for 20 percent of the company’s total sales.

European retail giant SPAR, operating 16,800 stores on five continents, moved into the Russian market in 2001, opening its first store in Moscow. The Home Depot, headquartered in Atlanta, bowed out of Chile and Argentina due to the lingering recession in those nations, but it expanded its operations through its acquisition of Total Home, a Mexico-based home center retailer.

In terms of global ranking, Wal-Mart and French hypermarket operator Carrefour are No. 1 and 2, followed by Kroger and Home Depot. Then there are two big European firms, followed by Kmart, Albertson’s, Sears, and Target (the top 10 in the world). Other significant international retailers include electronics retailer Best Buy, office products retailer Staples, and Swedish-based furniture chain IKEA.

Tech support

What does it take to succeed as a global retailer? Let’s start with technology. Recent retail growth largely reflects the benefits from the introduction of electronic-data interchange, barcode developments, radio-frequency gun screening and improved inventory management. Such developments, together with Information Technology (IT) and, of course, the quality of management, are the keys to raising productivity.

The emergence of virtual business-to-business marketplaces, including CPG Markets, Transora, GlobalNetXchange, and the WorldWide Retail Exchange, are another major development. These e-marketplaces potentially can play a vital role in a global-retailing environment because they also give rise to the need for standards. To maximize the potential of these exchanges, we need to speak one language across our worldwide sector.

Work on such standards predates the B2B exchange. In late 1999, the Global Commerce Initiative (GCI), which consists of representatives from more than 45 retail and manufacturing companies doing business across continents or via global supply chains, was formed. The voluntary body was designed to improve the performance of the international supply chain for consumer goods through the collaborative development and endorsement of recommended standards and key business processes.

The chairman and CEO of U.K.-based Marks & Spencer pointed to the accelerated pace of change in global retailing. Today, with the rapid emergence of the Internet, exchanges, and improved information technology, the pressure to develop a common language of business is more intense and more immediate than anyone imagined just a few years ago.

The search is on for a unifying force to bring manufacturers and retailers together on a worldwide parity basis to simplify global commerce and improve consumer value in the overall retail supply chain. Proponents point out that standardization will not only improve efficiency in the supply chain, but it also will decrease the waste of raw materials and consumer products, through better and faster combinations of supply and demand. These developments will turn many logistical dreams into daily reality: having the right product at the right place at the right time.

After all, should this not be the goal of any global retailer? Regardless of what technology applications retailers are investing in, the critical criterion should be on those systems that support a company’s consumer-centric strategy. Too often, IT applications do not align with a company’s strategic framework, resulting in misdirected investments. This becomes a critical issue as companies face increasing cost pressures in the weakening global economy.

Successful global retailers recognize the need for alignment between their strategy and their technology. Consider The Home Depot, whose business strategy focuses first on product and second on service. The home-improvement giant has staked out its competitive ground by offering a broad assortment of nearly every type of hardware, lumber, and gardening product consumers might need and offering superior service. IT activity clearly is designed to support the service aspect of Home Depot’s strategy. In 2001, for instance, the company introduced a new wireless scanner, called Unleashed. With it Home Depot Associates scan and record the customers’ purchases while they’re in line. Once they get to the checkout counter, the cashier electronically retrieves the purchase record. The customer then pays and is out the door. Nobody likes waiting in line. Anything we can do to expedite this process makes customers happier.

Knowledge and Accountability

Global retailers also are beginning to recognize that their business is more knowledge-intensive than they may previously have thought. This led some operators to embark upon applied knowledge-management projects within their worldwide operations. Analysts estimate that sharing best practices throughout their far-flung organizations can contribute as much as 1 to 2 percent to the bottom line. The challenge comes in determining how to capture the best practices, how to share the information and how to implement it. In fact, implementation and execution remain key challenges in the retail sector, leading some global companies to consider strategic outsourcing relationships for IT knowledge-management applications, as well as other technology systems.

Global retailers also are emphasizing corporate social responsibility and environmental policies and practices. Consumers and consumer groups increasingly make their choices, positively and negatively, based on the social reputations of companies, and governments are acting to hold companies accountable for their behavior everywhere in the world. All of this translates into a need for companies to operate in a more transparent manner and to report on their social and environmental policies and practices. Many believe that retailers should take the lead in demonstrating and reporting on corporate social responsibility. Why? They are closest to consumers.

Research has indicated that executives of global companies confirm that social accountability and corporate responsibility have become increasingly important aspects of business. This is for good reason. These are issues that matter to today’s consumers. Customers are looking for commercial offerings to reflect fundamental human values, such as trust, respect, dignity, and fairness (i.e., the context surrounding a transaction), and not simply the products and services themselves (the content of the transaction). The results of this consumer research formed the foundation for the book The Myth of Excellence, published in July 2001. For more information, visit www.us.cgey.com/consumerelevancy.

An example of the responsibility theme is Stop & Shop. The firm recently opened a new low-energy superstore in Foxboro, MA. The project was the result of three years of research and development aimed at reducing the energy usage of a single store by 30 percent. Energy-saving features include skylights, dimming controls, high-efficiency luminaries, state-of-the-art refrigeration systems, rooftop insulation and reflective paint, and construction materials selected for their environmental performance and recycled content. By using innovative methods to cut energy use, the company argues that it drives significant costs out of the business and at the same time demonstrates a high level of commitment on the issue. Studies indicate that their customers appreciate this.

The increasing consumer focus on value and values in commercial transactions is also one of the drivers behind the growth of the so-called organic-products business. This fact has not been lost on global retailers that have begun to devote more attention to the organic segment. As a sign of its commitment to the organic market, British retailer Tesco recently announced a new program to build its organic business to a level where it would account for at least 5 percent of all food sold at the company’s stores. To reach that goal, the retailer plans to introduce hundreds of new organic products in a wide variety of categories. “Our research has highlighted a demand for change,” said the Tesco CEO when he announced the new program. He went on to say, “Tesco’s success is based on understanding that change and making it happen. They (customers) tell us that the main barriers preventing them from buying more are availability and affordability. We are determined to act on these concerns.”

Food-safety issues also have clearly become top-of-mind in the global economy and are reflected in the planned establishment of expanded food safety controls in the United States and elsewhere. Executives from several European companies have listed food safety as the No. 1 issue facing their business. In the United States, food safety was also among the leading concerns, although executives in the Asia Pacific region did not rank it quite as high on the list.

The emerging food-safety benchmarks provide standard against which existing standards can be checked and validated. The effort involves retailers representing nearly two-thirds of food retail revenue worldwide. The task force appointed by these retailers has identified four goals:

· To have global food-safety standards as a benchmark model everywhere in the world.

· To maintain an early-warning system to avoid spillover into food-safety incidents that could impact the consumer.

· To develop joint food-safety initiatives with governments and organizations, ensuring that safety practices are in place, and that they are properly controlled.

· To inform consumers about food safety.

Key to food-safety initiatives is the growing role played by IT applications. Technology will be a primary enabler of programs that focus on tracking and traceability and early-warning systems, particularly in a global environment where the need to process food-safety information quickly and effectively is crucial. Getting IT systems up to speed to handle these kinds of applications will be of paramount importance.

The Future

Looking ahead, many global retailers anticipate continuing to expand into new international markets and to increase their global sourcing. As the marketplace evolves, one thing is certain: Change will continue to occur at a rapid pace and those retailers that respond to consumers in a fast and relevant fashion stand to succeed in the global economy.

Source: Chain Store Age Executive, December 2001.

: Retailing in the New Economy

Target Corp. wants its “expect more, pay less” message to ring clear across three technology initiatives that are separate but closely linked to each other and the overall Target brand: eTarget—its online selling arm that will soon integrate all Target-owned properties online, the Target Smart Card Visa, and an enhanced category management strategy called Guest

Relationship Management (GRM).

These initiatives support what the president of Target.direct, labels as “Target’s six strategic imperatives”: ascendance of the Target brand, improving the profit formula, consistent guest experience, reinforcing price perception without sacrificing differentiation, sustaining a world class team, and growing through multidimensional integration.

“We must have a vision that reinforces our core strategy,” says the head of the division. “A retailer must achieve and convey a clear understanding of the what, why, and how of each project. No experience is less important than another. This means consistent cross-channel delivery. Technology also requires top management engagement.”

Via e-Target, a business arm that covers B2B, B2C and internal technologies, is spearheading an online, cross-brand effort called Target.common. Each of the corporation’s store chains and other sub-brands will retain its original URL. When a consumer logs on under an individual name, he or she will automatically be linked to all selling channels. When a customer searches for a product, all resources will be scanned. One online shopping basket will collect purchases from multiple online sources. Target wants to create one basket, one search, and one experience, and Channels owned by Target Corp. include Target, Mervyn’s and Marshall Fields, the Clubb Wedd and Lullaby Club girl registries, Target Pharmacy, guest cards as well as catalogs, and selections of books, music, and videos.

The concept reflects “the reality” of the fact that consumers shop multiple channels. While Target’s Web sites use Amazon.com as a platform, target.direct “owns the customer” with regard to collecting data and other initiatives. Created in early 2000, target.direct offers over 15,000 products and services.

With Smart Card, the Minneapolis-based retailer aims to be on the forefront of this burgeoning data collection/consumer payment technology. Participating guests even receive a Smart Card reader for their home computers. By November 2002, every store will also have a Smart Card reader. When consumers use Smart Cards online and in stores, they can receive 10 percent off a purchase of $500 or more. Vendors may partner with Smart Card on special offers. Consumers will be able to access Smart Card accounts via Target’s Web sites.

Launched September 2001, Target’s Smart Card is now the 11^th largest VISA card in the United States and is the country’s first Smart Card, says the executive. The cards are embedded with a special chip that allows both purchasing and consumer data collection. Target must identify, acquire and retain guests while enabling personalized communication.

The Smart Card is becoming part of three-year-old GRM. This company-wide project pulls together all databases, allowing Target to make business decisions and investments based on correlations found across various consumer behaviors. While Target is “already running data,” it will be another two or three years before GRM is implemented into the total store execution plan.

The obvious goal is to drive sales frequency by improving Target’s ability to deliver shopper preferences to vendors. GRM could impact store layouts and the designated customer targets of new products.

IV.

HBS Case: 500-081 TN: 500-106

Teaching Perspectives

The case traces the evolution of RadioShack through each of its strategic transformations— from a connector of things (via its parts and accessories business), to a connector of people (through its telecommunications business), and to a connector of places (with its forthcoming Internet strategy). It also provides insight into the arrival of Len Roberts and the subsequent turnaround of the operations. Further, it describes the unique sales process at play at the RadioShack stores and its importance in the company’s ability to execute its Internet strategy.

Students gain a perspective into the strategic evolution at RadioShack and the progress of the company into a “service model” under Len Roberts’ leadership. They must assess the strategy and RadioShack’s ability to implement it. Further, the case is structured for students to analyze the rollout of the installation business and its positioning as a profit center or a break-even operation used to drive the Internet strategy.

In the winter of 1999, RadioShack’s CEO Len Roberts, provided the outline of a new, five-year strategy for the ubiquitous electronics retailer that had 7,000 outlets in the United States. This new strategy was aimed at providing Internet service for consumers. It offered an integrated approach whereby RadioShack customers could come into a store and select the way that the Internet would come into their homes, choose an Internet service provider (ISP), and have the entire package installed by trained RadioShack personnel. Roberts believed that this integrated approach was critical in the emerging Internet space.

At present, customers didn’t know whether they needed one of the new broadband technologies that allowed faster connection speeds or traditional telephone modem connections. They also didn’t have insight into how to choose among the myriad of ISPs. Then they faced yet another obstacle in getting the whole package up and running. Coming on board in 1993 Len Roberts had successfully re-asserted RadioShack as a leading electronics retailer using the mantra of “You’ve Got Questions, We’ve Got Answers” with the purpose of “demystifying terminology” for the mass market. He had found great success in demystifying the wireless telephone market and believed that it was now time to demystify the Internet. This was especially important with the oncoming of the “everyday web.” That is web users were expected to explode from 20 million to 100 million households by 2005.

RadioShack had already taken preliminary steps to make its strategy a reality. Recognizing a lack of experience in installation, RadioShack had purchased Amerilink an installation company with offices in 23 U.S. cities. Also aware that it would need even more coverage, RadioShack had also considered several alternatives regarding the installation service. One involved the full ownership of the service business (by leasing vans and hiring employees), while the other model was based on the creation of a franchised installation business. Additionally, RadioShack had signed an agreement with Microsoft for the provision of Internet service. However, as indicated in the case, Microsoft later quickly announced a succession of ISP deals with other retailers. On the broadband front, RadioShack had made an investment in Northpoint, a leading DSL provider, but had yet to sign an agreement with a cable modem provider.

Analysis Perspectives

About 95 percent of U.S. consumers live within five minutes of a RadioShack store. Approximately 1 million customers walk through its doors every day—creating a unique retail electronic opportunity.

The company earns 12 percent gross margins, a strong return in the cutthroat electronics retailing environment. This high profitability is achieved mainly through parts and service, both of which fetch a high gross margin. But the consumer is willing to pay the price because “availability” not “price” is the key buying criteria. RadioShack’s market coverage draws the customer in the door and its unique sales process closes the sale.

The company’s reputation has been built on its ability to sell and have in stock a variety of parts and accessories needed to connect electronics equipment. High margin, low turnover, parts and accessories have historically accounted for 30 percent of sales and earned 65 percent gross profit. But having the goods in stock is only one component of the sale. RadioShack also has a well-trained, knowledgeable, and trusted sales force. The consumer comes into the RadioShack store expecting the sales associate to understand what needs to be connected and the parts that are needed to do it. At this point, RadioShack’s sales magic begins to kick in. The first is product training. Sales associates are trained and certified in specific product areas, so that they know what their customers need. This is a key component of demystifying technology for the customer and building trust.

RadioShack is exceptionally effective in helping the customer meet his or her current need, using the visit as an opportunity to sell the customer an additional product or service, and then using the visit as an opportunity to tell the customer about a new RadioShack offering. RadioShack is able to increase the dollar value of the sale by “accessorizing” the sale (selling not only the batteries, but also headphones, and potentially a new Walkman) and/or by selling another item such as a wireless telephone. As stated in the case, about half of the customers that bought a cellular telephone did not walk into a RadioShack store with the intention to buy. This also means that RadioShack’s sales associates are used to spending time with customers who may want to buy a $7 connector cable. They are more than willing to spend even more time with a customer who might be sold on even higher priced and higher absolute margin products.

Questions

1. Assess RadioShack’s five-year strategy of “Connecting Places.”

2. What are the key success factors in making the strategy work?

3. How should RadioShack go about implementing its high bandwidth service installation concept?

4. What is your assessment of the broadband strategy? Will it succeed? If not, what else should Radio Shack do?

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Crafting the Brand Positioning and Competing Effectively

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中国经济管理大学 

Crafting the Brand Positioning and Competing Effectively

中国经济管理大学/中國經濟管理大學

Organizations must evaluate how consumers perceive their product and servicing offerings. This perception is partially formed by the organization’s efforts to position their products and services relative to the competition. Decisions on positioning strategies are a critical component of a marketing strategy. Once they achieve Points-of Parity, companies must then achieve Points-of-Difference

In the marketplace, many companies develop effective products, channels, pricing, and advertising. However, many of these companies lose in the marketplace. There may be many reasons, but a critical variable may be an inability to understand the competitive environment and to gather and utilize data on that environment.

To prepare an effective marketing strategy, a company must consider its competitors as well as its actual and potential customers. This is especially necessary in slow growth markets because firms generally gain sales by wining them away from competitors.

A company’s closest competitors seek to satisfy the same customers and needs and make similar product and service offers. A company should also pay attention to its latent competitors that may offer new and/or different ways to satisfy the same needs. The company should identify its competitors by using both an industry and market-based analysis.

A company should gather information on competitor strategies, objectives, strengths, weaknesses, and reaction patterns. The company should study and understand competitor strategies in order to identify its closest competitors and take appropriate action. The company should know the competitor’s objectives in order to anticipate further moves and reactions. Knowledge of the competitor’s strengths and weaknesses permits the company to refine its own strategy to take advantage of competitor weaknesses while avoiding engagements where the competitor is strong. Understanding typical competitor reaction patterns helps the company choose and time its moves.

The firm should collect, interpret, and disseminate competitive intelligence continuously. Company marketing executives should be able to obtain full and reliable information about any competitor that could have bearing on a decision. As important as a competitive orientation is in today’s markets, companies should not overdo their focus on competitors. Changing consumer needs and latent competitors are more likely to hurt a firm than the existing competitors. Companies that maintain a good balance of consumer and competitor considerations are practicing effective market orientation.

· Stimulate students to recognize and evaluate the critical issues in positioning a product, along with the research and analysis that goes with it.

· Points to consider in proceeding with a positioning strategy - what to stress and not stress.

· Awareness of the need for a positioning policy and strategy.

· Know the difference between the industry and market concepts of competition.

· Understand how to identify competitor strategies.

· Understand how to determine competitor objectives.

· Understand how to estimate competitor reaction patterns.

· Know how to design competitive intelligence systems.

· Know how to select competitors to attack or avoid.

· Understand what it means to balance a customer and competitor orientation.

I. Introduction

II. Developing and Establishing a Brand Positioning

Positioning is the act of designing the company’s offering and image to occupy a distinctive place in the mind of a target market. The result of positioning is the successful creation of a customer-focused value proposition. Table 9.1 shows how three firms have defined their value propositions.

A. Competitive frame of reference –

1. The product or sets of products with which a brand competes with and the competitive analysis focus.

2. Category membership – sets of products with which a brand competes with and which function as close substitutes.

3. Examine competition from both an industry and a market point of view.

a) Industry – group of firms offering a product or class of products that a re close substitutes for one another.

b) Market approach – define competitors, as companies that satisfy the same customer need. Refer to the Marketing Insight: High Growth through Value Innovation.

c) Dynamic markets may require multiple frames of reference

B. Points-of-parity and points-of-difference

1. Points-of-difference (PODs) are attributes or benefits consumers strongly associate with a brand, positively evaluate, and believe that they could not find to the same extent with a competitive brand (e.g., Toyota - reliability, FedEx - guaranteed overnight delivery, Miller Lite Beer - less calories with a great taste)

2. Three criteria determine whether a brand association can function as a point-of-difference

a) Desirable to consumer

b) Deliverable by the company

c) Differentiating from competitors

3. Points-of-Parity (POPs) are associations that are not necessarily unique to the brand but may be shared with other brands

a) Category POPs - associations consumers view as necessary to be a legitimate and credible offering within a certain category but not necessarily sufficient for brand choice. Category POPs are dynamic

b) Competitive POPs - associations designed to negate competitors’ points-of-difference

C. Choosing POPs and PODs

1. Consumers must find POD desirable and perceive the organization to also have the capability to deliver

2. Consumer criteria for POD - relevant, distinct, believable

3. Organization criteria for delivering POD - feasible and capable, communicability, sustainability

4. Perceptual Maps can be used as part of the positioning strategy. Perceptual Maps provide quantitative portrayals of market situations and consumer perceptions along various dimensions. Refer to Figure 9.1 for an example of a Perceptual Map using a hypothetical beverage market.

D. Brand Mantras

1. Articulation of the brand essence and promise, communicating what the brand is and is not in short, three-to-five word phrases.

2. Define the product or benefit space

3. Clarifies what the brand is so employees can act accordingly

4. Good brand mantras communicate the category and clarify the brand’s uniqueness.

E. Establishing Brand Positioning- ensure that consumers understand what the brand offers and what makes it a superior competitive choice. Typical approach is to inform consumers of a brand’s category membership before stating its point-of-difference. Several ways to convey a brand’s category membership:

1. Announce category benefits - define how specific product or service offerings link to benefits perceived by the respective category

2. Comparing to exemplars - associate brand with known brands in category

3. Rely on product descriptor - descriptor that follows a brand’s name can convey category origin (e.g. XM Satellite Radio places XM in category that delivers radio via satellite)

III. Differentiation Strategies – Competitive advantage is a company’s ability to perform in one or more ways that competitors cannot or will not match. A leverageable advantage can be used as a springboard to new advantages. TO be effective positioned, customers must any competitive advantage as a customer advantage.

A. Dimensions of differentiation - products will vary in their ability to be differentiated. They can be differentiated via:

1. Employee differentiation – e.g. better trained employees who provide superior customer service

a) Competence (skill and knowledge)

b) Courtesy (respect and consideration)

c) Credibility (trustworthy)

d) Reliability (consistent and accurate performance). Also note that reliability is probably the number one priority for most consumers

e) Responsiveness (quick to respond)

f) Communication (ability to understand consumer need)

2. Channel differentiation – optimize value chain to maximize value delivered to customer

a) Amount of market coverage

b) Expertise present throughout channel

c) Channel performance as a whole, which requires optimal integration relative to differentiation strategy

3. Image differentiation - appeal to consumer’s social and psychological needs.

4. Services differentiation - deliver more effective and efficient solutions to consumers

a) Ordering ease

b) Delivery - speed, accuracy, and care

c) Installation - making a product operational

d) Customer training - instruction on proper and efficient use

e) Customer consulting - data, information systems, and advising services

f) Maintenance and repair - keeping products in good working order

B. Rational and emotional Components of Differentiation – Brand positioning should have both rational and emotional components with POD’s and POPs that appeal to the head and the heart. Monitor the following:

1. Share of Market – competitor’s share of the target market

2. Share of mind – Percentage of customers who named the competitor in responding to the statement, “Name the first company that comes to mind in this industry”.

3. Share of Heart – Percentage of customers who named the competitor in responding to the statement, “Name the company from which you would prefer to buy the product”.

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IV. Competitive Strategies for Market Leaders – Opening discussion references Figure 9.2, “Hypothetical Market Structure” and demonstrates relationships and strategies for Market Leader, Market Challenger, Market Follower and Market Nichers. This is an opening discussion. This section then contains more detail on Market Leader strategies. The other market positions are discussed in a subsequent section.

A. Expanding the Total Market

1. When the total market expands, the dominant firm usually gains the most.

2. A Market Leader growth may grow by looking for new customers by using different strategies

a) Market-penetration e.g. those in the existing market who might use but do not

b) New-market segment strategy i.e. those who have never used it

c) Geographical-expansion strategy i.e. those who live elsewhere

3. A Market Leader may also try to increase the amount, level, or frequency of product consumption

a) Increase package size generate more consumption

b) Package or product redesign may trigger more impulse purchases

c) To increase frequency

(1) Identify additional opportunities to use the brand in the same way

(2) Identify completely new and different ways to use the brand

B. Protecting Market Share – dominant firm must actively defend its position

1. Position Defense – occupy the most desirable market space in consumer’s minds

2. Flank Defense – erect outposts to protect a weak front or support a possible counter attack

3. Preemptive Defense – attack competitor (s) first, achieve broad market envelopment that signals competitors not to attack

4. Counteroffensive Defense – meet attacker frontally

a) Crush competitor by subsidizing lower prices for the vulnerable product with revenue from more profitable products

b) Preannounce an upgrade to prevent customers from buying competitor product

c) Lobby for political action to inhibit the competition

5. Mobile Defense – stretch into new territories

a) Market Broadening – shifts focus fro the current product to the underlying generic need e.g. petroleum company recasts itself as “energy” company

b) Market Diversification – shift into unrelated industries

6. Contraction Defense – in planned contraction, give up weaker markets and reassign resources to stronger ones

C. Increasing Market Share – Because the cost of buying higher market share may far exceed its revenue value, firms should consider four factors first:

1. The possibility of provoking antitrust action – frustrated competitors are likely to cry “monopoly” and seek legal action

2. Economic cost

a) Cost of gaining further share might exceed the ensuing value

b) Pushing for higher share is less justifiable when there are unattractive segments, buyers who want multiple sources of supply, high exit barriers and few economies of scale

c) Increase profitability by selectively decreasing market share in weaker areas

3. Pursuing the wrong marketing activities

a) Firms that gain share typically outperform competitors in new-product activity, relative product quality and marketing expenditures

b) Cutting prices may not yield significant gains because competitors may match price cuts

4. Effect of increased market share on actual and perceived quality – too many customers increase the risks of strained resources resulting in overall poor product quality and service delivery

V. Other Competitive Strategies - firms trailing market leader can attack the leader in an effort to further market share, i.e. be a market challenger, or settle for being a market follower.

A. Market Challenger Strategies

1. Frontal attack – match opponents marketing mix. Price cuts may work if opponent does not retaliate and if the challenger can convince the market that is mix is equal to the leader’s.

2. Flank attack

a) Identify shifts that are causing gaps the fill gaps

b) Attractive to challenger who is weaker than leader

3. Encirclement attack – launch offensive on multiple fronts

4. Bypass attack –shift battle ground to a place where challenger has advantage

a) Diversify into unrelated products

b) Diversify into new geographical markets\leapfrog into new technologies

5. Guerrilla attack – small intermittent attacks, conventional and unconventional. For example:

a) Selective price cuts

b) Intense promotional blitzes

c) Occasional legal action

B. Market Follower Strategies – not a financially attractive strategy

1. Can be profitable strategy as leader bears expense of developing new product, establishing distribution and informing the market

2. May be attractive strategy when:

a) Few opportunities exist for product and image differentiation

b) Service quality is comparable

c) High price sensitivity exists

3. Counterfeiter strategy – duplicating leader’s product and sell on black market

4. Cloning strategy – emulate leader’s solutions with slight variations

5. Imitating strategy – copy a few things from the leader but maintain differentiation of packaging, advertising, pricing or location

6. Adapter strategy take leader’s products and adapt or improve them for different markets

C. Market-Nicher Strategies (refer to Table 9.2 for Niche specialist roles)

1. Avoid competing with larger firms by targeting small markets of little or no interest to larger rivals

2. Larger firms may use niche strategy for some business units

3. Risks – niche may “dry-up” or be attacked

4. Nichers must create new niches, expand existing niches and protect niches

VI. Executive Summary

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This discussion focuses on the uses of various sources of information for marketing. It is useful to update the examples so that students will be able to identify readily with this concept based on their general knowledge of the techniques, companies, and products involved in the lecture/discussion. There are many different approaches to competitor research. Marketers should consider the process and implications.

· To stimulate students to think about the need for and value of competitive analysis.

· To present points to consider in proceeding with development of a competitive analysis program.

· Recognize some of the better sources of information for various marketing questions.

Introduction

In the textbook and several of the applications exercises, it is clear that segmentation is an important element in managing a new or existing market. Image, perceived rank, customer perception, product features, and competitive advantages are the primary tools for positioning a product in the marketplace. A firm may position its product in numerous ways, by attributes, price, quality, use/application, and type of end user, all with respect to a competitor(s). To turn this into a positioning strategy, it is essential to identify the competitors to assess the customer’s perception of the competitors, identify competitive positions, research and understand the customers, choose the positioning strategy, and monitor the effectiveness of the positioning choice.

There are many examples of positioning strategies that have either succeeded or failed. The business literature is replete with winners and losers, but the process by which the positioning strategy has been implemented proves by far to be the most critical variable for determining success.

In the marketplace, many companies do a first class job of developing a great product, great channels, great pricing, and great advertising. You might say—Wow! That is great. However, many of these companies not only lose in the marketplace, but they lose big. The reasons may be management, financial, etc., but when we get right down to it the answer may be much more interesting. The critical variable may be the competitive intelligence that the firm failed to get at the right time, with the right detail. In this discussion, we will look at some of the issues and questions behind choosing the right sources as well as approaches that might be useful in preparing the competitive intelligence program that will do the job.

First, the Kotler text gives some excellent examples of how to scan the competitive environment. As part of this framework, it also is useful to determine where to get the information, that the analyst is able to determine where and how to use the questions asked, and that the data developed is based on the marketing and strategic plans, not just collected in a random manner. This requires knowledge of a number of variables and then bringing it all together to be utilized in the firm’s marketing positioning effort. Remember, to achieve an effective competitive analysis it is essential to place the process in perspective.

The Positioning Concept

Positioning as a strategy started with positioning the product itself. Positioning refers to efforts to position the product in the mind of the consumer. As Reis and Trout pointed out in the 1960s and 1970s, the United States is very over-advertised, and any firm or product that seeks a more effective market position will have to achieve mental positioning before undertaking further marketing activity. If the position achieved is too general, the resulting image will be of no value to the customer who will not be able to differentiate clearly between the product choices. For example, a shampoo cannot maintain a strong position by claiming as its primary benefit its ability to get the consumer’s hair clean.

Many companies have repositioned, or are attempting to reposition, their products in recent years. A growing number of firms have repositioned based on one or more service variables. This may appear on the surface as incongruous, but when one recognizes the level of competition in the United States and the world today, it makes sense. Declining profit margins and the need to differentiate many products that have become virtual commodities make it easy to see the value of repositioning so that the consumer sees the entire product and service package in the broadest sense. Since a lawyer or hospital, for example, generally is distinguishable on any basis other than service, many providers in these areas today are focusing on a specialty or specific service in their marketing as the means to get the customer mentally repositioned on who and what they are, compared to their competitors.

To conclude, the primary means for promoting differences include focusing on those differences that are important, distinctive, superior, communicable, preemptive, affordable, and profitable.

Note to the Instructor: Break the class into several groups and ask each group to discuss and identify several (four to six) brands and products/services within one or more chosen goods or service industries. The students should then evaluate the positioning activities and/or advertising used to differentiate, position, and reposition these goods and services. What they may find is that virtually everyone will agree on the ways in which the chosen products are positioned, but the larger challenge has to do with how to position or reposition in the future. For example, few would argue that Trix is positioned as a kid cereal or that Colgate fights cavities. Nevertheless, there likely will be disagreement about what Colgate (P&G) is going to do now that it is losing market share, and fighting cavities is a less important position than whiter teeth and other positioning variables used by the competition. This presents an applied example of positioning in action. Some industries to consider are: beverages, toothpaste, retailers, snack chips, entertainers, hospitals, lawyers, and ice cream.

Competitive Analysis

The logical starting point for the strategy analysis is to understand effectively the competitive structure and attractiveness of the industry. It is important to recognize that some industries are and will be more profitable than others. It is important also to know the real strengths of the industry, and the firms within the industry, not only in overall terms but also in specific detail. Many times appearances can be deceiving. Consider, for example, companies that project a great public relations image but in reality are quite the opposite. (Enron could serve well as an example).

A logical overview of this process comes from Porter’s five basic forces of competition:

· Threat of new entrants

· Rivalry among existing competitors

· Bargaining power of suppliers

· Bargaining power of buyers

· Threat of substitutes

What determines the strength of each of these five forces in the industry? The process is shaped by a number of underlying structural determinants. It is important to remember that any of the forces that undermine the structure of an industry likely will cause profitability to decline. A good example is the dot-coms that raced to steal markets from the existing well-organized physical retailers but had little to offer except investor hype. Their inability to show quality and superior results led to investor disenchantment and the loss of confidence that they could produce a profit against the existing competition. This, in turn, led to massive dot-com failures, consolidation in the industry, and finally the successful entrance of many major retailers with name, cash, and ability to stay the course.

To begin this process, the firm should develop a complete evaluation of the competitive framework and the specific competition. This would include a detailed compilation of the competitors, both real and potential, along with their products, marketing capability, service, production strength, financial strength, and management. Next, you must detail where each firm, including your own, fits into the industry in terms of products, marketing capability, service, production strength, financial strength, and management. At this point, you should be able to develop a thorough analysis of the following, for the past, present, and future:

· Degree of industry concentration

· Changes in type and mix of products

· Market “segments” in the firm and industry (and changes)

· Companies that have left and/or entered the industry (and why)

· Industry market share changes (and why – technology, substitution, etc.)

· Company market shares and share changes

· New technology substitution

· Each firm’s vulnerability to new technology

In addition to these specific competitive characteristics, the firm should focus on the various financial, economic, technological, and socio-political factors in the industry environment. This information is available through a variety of sources, including:

· Company Web sites and literature

· Industry trade show observation and contacts

Online databases, including Lexis-Nexis, EBSCO, First Source, PROMPT, Trade & Industry, and Investext, along with various other online sources, such as the TV networks, Hoover, investment houses (Schwab, Merrill Lynch, etc.), The Wall Street Journal (WSJ), BusinessWeek (BW), etc.

It is important to understand each firm’s position within the industry. Companies in large or small industries have varying levels of profitability, and it is important to understand what it takes to be a superior performer in industry. Information that may assist in this process might include some or all of the following:

· How the industry might change, in the short to long term.

· How the competing firms within an industry differ in the way in which the competitive forces influence each of the competitors.

· Identify the companies that have the power to shape the industry. These companies could either make the industry or cause the demise.

· New product development potential within the industry and which firms have the ability to make it happen.

This analysis should first provide a detailed and technical description of the products and services offered, including product mix, depth, and breadth of product line.

This should lead to a clear understanding and listing of market position by product, citing product strengths and weaknesses individually and in the overall product line.

Among the sources for this information are company Web sites, company product literature, WSJ, BW, and online databases including DIALOG, LEXIS-NEXIS, and Hoover.

Another important area is R&D expenditures (industry and by company), analysis of each company’s research and development expenditures and capabilities, along with a run down on technical personnel and expertise. Sources for this information include EBSCO, LEXIS-NEXIS, DIALOG, Hoover, PROMPT, Trade & Industry, and Investext.

Next, it is important to understand clearly who holds which patents (current and pending), the product standards and specifications, including a quality and technical analysis. Some of the better sources for this could include: Claims, World Patent Index, Derwent, and IFI/Plenum Claims. Company Web sites and trade show industry contacts also can provide valuable clues in this part of the effort.

The last piece of information needed in this section of the competitive intelligence analysis includes a new product introductions analysis (past, present, and expected). Some good sources for this information include press releases (company/industry Web sites), Predicast New Product Announcements, and sales force contacts. In addition, EBSCO, LEXIS-NEXIS, DIALOG, and various investor sources can provide valuable insight.

Markets

Often, firms have a good overall understanding of the markets they are in or wish to compete in, but they tend to operate with the same attitude and perspectives that have existed in the company and industry for many years. To truly understand the market, the potential new competitor should have a solid grasp of the factors that make and drive the market for the product or service. For example, the firm should have a detailed compendium of the following, by firm within the industry:

· Market segmentation

· Customer base (markets targeted, regional sales analysis, penetration, importance to each firm)

· Profiles of markets and customers (including product mix and sales data by product line)

· Market growth and potential for future growth

· Market share by product line

· Market and geographic areas targeted for expansion

· Marketing tactics and strategies (4 Ps, especially price and promotion)

· Distribution network/channels of distribution

· Advertising/marketing/sales efforts including budgets and advertising / marketing firms used

Among the sources that could be used on this activity are: PTS MARS, magazine ads, Prompt, Investext, Trade & Industry, SEC reports, Newspapers, Newswires, BW, Fortune, WSJ, company Web sites, etc.

International/Global

Depending on the expected competition and market activity, it is essential that the competitive intelligence effort include a foreign trade analysis. Without access to some expensive databases that provide specific product sales and market share information, it would be best to look at and evaluate recent order information, government contracts, and individual sales forces overseas (performance, experience, compensation, etc.). For U.S. firms, StatUSA provides an excellent data source, along with PIERS Exports & Imports, Commerce Business Daily, Newspapers (especially WSJ, NYT, BW), LEXIS-NEXIS, and DIALOG.

Strategy/Decision Making

Identification of marketing and corporate strategies probably is one of the more important requirements of any competitive analysis. For this, most firms need experienced professional input, along with extensive use of the Internet, DIALOG, and other similar tools noted above. Below, we have established for each firm in the industry several important the intelligence needs, followed by selected sourcing:

· Apparent strategic (long-range) plans, including details of acquisition and divestiture strategy, etc. (SEC filings)

· New products on the horizon—with indications of a new direction for the company. (PROMPT, press releases, newspapers)

· Apparent strategic objectives: corporate/divisional/subsidiary company priorities; business unit/segment goals; basic business philosophy/targets. (Suppliers, employees, wholesalers)

· Analysis of company’s decision-making process. Overall company image and reputation. Company’s ability to change. How will the company look/perform in the future? Anti-takeover measures instituted; the firm’s key success factors? The key objective: Why has the firm been successful, overall? (Shareholder lawsuits pending, LEXIS-NEXIS)

· Corporate attitudes toward risk. (legal databases, employees, suppliers)

· Statements of plans to enter new markets, improve market position, and/or increase market share. (Trade journals, top executive speeches, PROMPT, marketing analysts).

Following this exercise, the analysis should provide a clear understanding of the operation of the industry, and the competing firm should be able to utilize this information to provide an overall planning framework, strategy plan, and marketing plan to take advantage of current and future market opportunities.

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The focus here is on Porter’s framework for preemptive strategy in a marketing setting, and the role and value of this concept in the overall marketing process and strategy for the company. Many students will be able to identify readily with this concept based on their general knowledge of the companies and products involved in the lecture/discussion.

The discussion begins by considering why a leader firm would consider preemptive strategy as a means of maintaining or increasing the firm’s market position. This leads into a discussion of the implications for the introduction of a preemptive strategy for other firms in the industry in the medium and long-term.

· Stimulate students to think about the critical issues, pro and con, for a firm when it moves toward adoption of a preemptive strategy approach.

· To consider how to proceed with a preemptive strategy.

· To discuss the role of preemptive strategies in helping the firm achieve a position in the industry.

Introduction

Preemptive marketing involves many different possibilities for the leader to assume a defensive or offensive position in the market and with competitors. The primary elements for a firm to consider in a preemptive action are that delay and/or position are critical and that nothing is forever. The firm must recognize that eventually it will be essential to conduct some type of preemptive action if it is to maintain control or partial control of the niche or share position.

There are many reasons for a leader to adopt a preemptive strategy approach, but often it is a consequence of product maturity. The leader firm recognizes that another firm(s) has developed a superior capability in product or service. While it is possible for a challenger or other strategic planning firm to develop a preemptive position, the reasons tend to be more to disrupt the course of the industry in order to gain advantage against an entrenched leader.

While this can be a very beneficial move, it has a tendency to convey a message to other firms in the industry that the firm could be posing a serious threat to all others in the industry. Firms that have done this, such as People Express, often find they are able to ride the crest of the wave of success only so far and so long, unable to sustain against the retaliatory moves of the industry in general. The primary preemptive objective of the leader or challenger is to maintain or occupy more of the critical or prime positions in the industry. This could include positioning their company or product in the mind of the consumers or distributors, preemptive control of the physical locations for retail facilities, preemptive control of critical raw materials, and/or preemptive control of other resources critical to success in the industry.

IDENTIFYING PREEMPTIVE OPPORTUNITIES

There are many ways to succeed to achieve a preemptive advantage, but identification of a weak link in the commitment from one or more firms in the industry is a good starting point. Among the various positions that Porter demonstrates is the attempt to secure access to raw materials or components. This ploy has worked primarily in those industries where raw or primary industries are critical to operations or success.

In like manner, programs to preempt production equipment have worked effectively. This situation works best where the production equipment involves proprietary processes or patents. Efforts to dominate supply logistics, such as brokers, transportation, or similar settings, have made an impact. (Note to the Instructor: There are many current examples of these and other preemptive approaches. Current examples, or examples the students may know, will enhance the discussion).

Moving to the various functional area activities, in products and/or services, a number of other preemptive methods are utilized. For example, introducing new product lines and expanding production aggressively, such as IBM and many other firms have done, a competitor attempting to follow the lead of the leader can find it a very expensive and likely losing proposition.

In the area of production systems, there have been in recent years some very good examples of firms able to develop proprietary production methods, expand capacity aggressively, and secure scarce and critical production skills. In addition, in the production systems area, firms that achieve some level of vertical integration with key suppliers can create a considerable barrier for competitors without the same economies of scale.

In the 1980s, IBM, among others, applied the principle that if a firm provides the dominant product design in the industry, it will be able to constantly keep the competitors as followers. Constantly expanding the scope of the product is another variation on this theme. A classic example of this approach is Merrill Lynch with the Cash Management Account of the late 1970s, and many others more recently.

“Positioning” the product more effectively also can be an effective preemptive strategy. This can be an effective and relatively inexpensive strategy, given that there are many different types of positioning in the marketplace, including positioning in the mind of the consumer, distributors, suppliers, and others. (Note to the Instructor: There are and will be many current examples where firms have successfully achieved both challenger and leader positions with various positioning and re-positioning efforts).

Other examples of preemption relate to situations where a firm is able to secure accelerated government agency approval because of strong technical capabilities and/or market recognition. This situation obviously occurs most often in medical and pharmaceutical products or other related areas where there are health and safety concerns.

Keeping the competitors off balance by constantly adding to the market segments in the marketplace is another useful preemptive action. Coke achieved this effectively with New Coke. Even though the company had to return to the earlier formula and publicly back down from the decision, they were able to further fragment the market and take more share from the smaller competitors with fewer resources.

Lastly, it is useful to consider the role of the preemptive in working with distributors. It is appropriate for the leader firm engaging in preemptive marketing to capture key accounts, occupy prime locations, develop preferential access/key distributors, control supply systems and distribution logistics, and insure access to superior service systems. In addition, one of the most important areas for great potential is to engage in educational and promotional activities that are designed to develop the skills of the distributors. This could include a number of activities designed to enhance the capabilities for the distributors to better serve their customers.

Note to the Instructor: In all of these examples there are many firms both winning and losing with this strategy. Clearly among the best examples are firms winning, but there are many situations where those losing can provide an interesting story.

III.

“Oracle vs. IBM,” BusinessWeek, May 28, 2001, p. 65.

Ask Oracle Corp. CEO Lawrence J. Ellison what keeps him up at night, and the answer might surprise you. It’s not his longtime nemesis, Microsoft Corp. It’s not up-and-comer Siebel Systems Inc. It’s IBM, the awakening tech giant that is vying for the No. 1 spot in the corporate-software world. “He has stopped with that ‘Microsoft is the devil’ stuff,” says Steve Mills, IBM’s software head. “He has moved on to us.”

With Good Reason

Whoever wins in this face-off will grab the lion’s share of the $50 billion corporate-software market for years. For every Oracle product, IBM has a counterpunch: Databases, applications, and e-business foundation software. At the same time, the companies’ philosophies are strikingly different. Oracle’s strategy is to offer customers a complete and tightly integrated package of software—everything a company needs to manage its financials, manufacturing, sales force, logistics, e-commerce, and suppliers. In contrast, IBM top management backed a “best-of-breed” approach in which it stitched together a quilt of business software from various companies, including itself.

The outcome of this battle had huge implications for the software industry. If IBM’s partnering strategy carries the day, it means there will be plenty of breathing room for major application makers such as SAP, Siebel, and PeopleSoft, and for countless upstarts that are bringing Internet programs to market. If Oracle gains the upper hand, it will be pushing its own applications, leaving less room for other players.

To get ahead, IBM is targeted what it sees as Oracle’s chief vulnerability: The Silicon Valley company competes in the applications market with the same software makers it relies on to help sell its databases. IBM has an advantage because it doesn’t sell applications of its own. So, by setting itself up as a neutral party, IBM is able to gain those companies as allies. That boosts its database sales, since application companies often recommend to customers which database they think should be used with their software. IBM’s consultants then sew the software together.

Analysts are split on whether the Oracle or IBM strategy will succeed long-term. They expect both companies to remain among the strongest players in the market. But competitive juices are flowing. Ellison has only disdain for the idea of corporations buying major software components from different suppliers and then hooking them together. “You would never buy a car that way,” he says.

Yet IBM’s momentum has been undeniable. Take Oracle’s flagship database business. Oracle is still in the lead in the non-mainframe piece of the market, with a 50 percent share, according to AMR Research. But Oracle’s database sales have stagnated while IBM’s surged. IBM’s sales on high-end computers running the Unix operating system have jumped substantially, while Oracle’s grew approximately 1/6 as much In addition, thanks in part to the $1 billion acquisition of Informix Corp., IBM became the second-largest maker of non-mainframe database software, with a 25 percent share.

Ellison, however, is worried about more than databases. Consider the e-business software dubbed “application servers”—a foundation of e-commerce software that processes transactions and connects to back-end programs such as databases. Because of an early jump in the business, IBM owns about 30 percent of the market—three times Oracle’s share—according to Giga Information Group Inc. “The problem is that we didn’t have a very good product until recently,” concedes Oracle Chief Financial Officer Jeffrey O. Henley.

Way Back

There’s a lot of history between Oracle and IBM. In 1970, IBM researchers wrote the first paper on so-called relational databases, creating a programming language called SQL that, for the first time, allowed people to analyze, rather than just store computer information. IBM applied this research to its then-thriving mainframe-database business. That allowed Ellison, then a young mainframe programmer, to exploit its potential in the emerging market for Unix systems.

In the late 1980s, a new wave of business software companies, led by SAP, helped boost Oracle’s fortunes. They built their software to run on Oracle databases even though Oracle sold its own competing applications software. In the mid-1990s, analysts estimate that those software companies helped drive at least 25 percent of Oracle’s database sales.

IBM’s key move was getting out of the application business in late 1999. That freed Big Blue to focus on providing infrastructure technologies, such as databases, and to partner with companies that were leading players in various application markets such as sales-force automation, or supply-chain management.

The new partnership strategy was like a pincer movement against Oracle. IBM signed also 60 alliances with application makers such as Siebel Systems, Ariba, and PeopleSoft—all Oracle rivals. Many of them, long under Oracle’s thumb, were happy to align with a company they did not compete with, and were rather vocal about their willingness to help IBM. To be sure, Oracle remains an important partner. PeopleSoft and companies like it still sell a majority of their software to run on Oracle’s databases. But IBM began catching up in 2000 when the percentage of Siebel projects that included IBM’s database jumped from 2 percent to 30 percent, while Oracle’s share dropped from 81 percent to 60 percent, according to Siebel.

In May, 2001, IBM announced that its Internet-infrastructure software would soon support Net standards that make it easier to connect disparate computing systems. That meant that customers would not have to rip out old systems to do e-commerce. “IBM clearly jumped on this growing business early and they had a goal to sign up hundreds more Net-infrastructure software partners, many of which would compete against Ellison & Co.

IBM went so far in the fight to rent a billboard near Oracle’s Silicon Valley headquarters declaring a “search for intelligent software,” only to find, a few days later, an Oracle billboard retorting “Then you’ve come to the right place.”

Who’s Cheaper?

The latest fracas is over pricing. Ellison derides IBM software as nothing more than a come-on to sell “services, services, services.” While IBM typically sells its database software at nearly a fifth the price of Oracle’s, Ellison says the consulting work to get it up and running makes IBM products pricier. Some customers beg to differ. Recently, the Toronto Police Service switched from Oracle to IBM database software. A longtime consultant to the police service recommended the switch, noting that Oracle’s database was three to five times as expensive as IBM’s, including IBM’s service fees. The consultant pointed out that: “We could not afford to run Oracle anymore”

To forestall more damage, Ellison introduced the new version of his database, and analysts said the easier-to-use update should cut maintenance costs. However, IBM is, after all, the world’s second-largest software company. And its new partnering strategy could be the beginning of a long nightmare for Ellison.

Tale of the Tape

For years, IBM and Oracle were like two bullies who played in the same sandbox but rarely bumped into each other. Now, they are increasingly butting heads, competing in nearly every part of the e-business software market. Here’s how they stack up:

Databases
IBM owns the mainframe-database business, and Oracle is the heavyweight everywhere else, with a 50 percent share on Unix servers. Now, IBM is coming on strong. Thanks to its acquisition of Informix in 2001, Big Blue held a 25 percent market share. The winner still should be Oracle by a long shot, though IBM is gaining ground.

Internet Infrastructure Software

IBM was one of the first to jump into this nascent market. It is the second-biggest provider of application servers, with market share of about 30 percent. Oracle has a 9 percent share. Winner: IBM hands down. Oracle is going to have a hard time catching up.

Enterprise Applications

Oracle’s new e-commerce applications have had moderate success. Sales of its business software have grown substantially. Big Blue has decided to stay out of the apps biz, instead partnering with Oracle’s rivals. Winner: A draw. Oracle is picking up steam, but IBM has more friends.

B. Source: “Oracle,” New York Times, March 15, 2002.

The first quarter of 2002 was the fifth consecutive quarter that Oracle announced that earnings would not meet its own initial projections. In the previous four quarters, Oracle said that the dot-com collapse was a large factor in the downturn. A company officer acknowledged that Oracle could not continue to use the Internet boom as a basis for comparison. The dot-com comparison went away and Oracle continued the downward trend. The company instead saw “more fall-off” in other sectors, notably telecommunications. “Customers aren’t doing big deals,” he said. “They aren’t sure their businesses are going to grow.”

While it has been a difficult time for the software industry because it has been hit both by a drop in corporate technology investments, spurred by the recession, as well as delays of new software purchases by companies that have found themselves with more software than they need.

Some industry analysts question whether Oracle is feeling acute pressure in its database business because I.B.M. and Microsoft have increased their efforts. Meanwhile, with the applications business maturing, products from various competitors look similar, making it tough for Oracle to differentiate itself.

IV.

“Matching Dell”

HBS Case: 799-158 TN: 700-084

Teaching Perspectives

Dell Computer Corporation has enjoyed enormous success in the structurally unattractive market for personal computers by means of its “Direct Model”: Dell takes PC orders directly from customers, builds PCs to order, and ships machines right to end users. Other PC makers, which have traditionally used distributors, resellers, and retail channels to reach customers, now struggle to match Dell’s performance. The case examines in detail the largely futile attempts of four rivals to catch up with Dell.

The case is designed to serve a variety of purposes in a course on business-unit strategy. In declining order of importance, the case does the following:

· Examines barriers to imitation. Specifically, it illustrates how the corporate fit among numerous activities, such as tradeoffs between positions, historical commitments, and threats of retaliation by other players, can deter imitation. Interestingly, the retaliation threats come from both immediate rivals and downstream “partners.”

· Illustrates different types of imitation attempts: “Straddling” by Compaq and IBM, “repositioning” by Gateway, and potentially new entry by some members of the channel.

· Permits a rich discussion of competitive dynamics. One can see, for instance, how the PC industry gradually became structurally unattractive; how activities that conferred advantage at one point in time became a source of disadvantage later; how Dell “sneaked up on” established PC makers; and how the competitive moves of PC makers spark consolidation in the channel and the possibility of backward integration by channel players.

· Allows students to quantify Dell’s cost advantage and estimate the portion of that advantage which is threatened by the imitation attempts of others.

· Illustrates, with Dell, a highly consistent and richly elaborated set of activities that, together, yield advantage.

The quantitative analysis of competitive advantage in the case is potentially quite involved. To navigate through it smoothly in class, it may be useful to have several student volunteers submit their analyses the evening before class, then select one or two volunteers who have done a decent job on the assignment, copy their analyses onto overhead slides, and ask them to lead the class through that part of the discussion. This approach focuses class time on interpretation of the analysis rather than discussion of mathematical mechanics.

Questions

1. How and why did the personal computer industry come to have such low average profitability?

2. Why has Dell been so successful despite the low average profitability in the PC industry?

3. Prior to the recent efforts by competitors to match Dell (1997-1998), how big was Dell’s competitive advantage? Specifically, calculate Dell’s advantage over the team of Compaq and a reseller in serving a corporate customer.

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Identifying Market Segments and Targets

Sat, 11 Apr 2026 13:24:18 +0800

中国经济管理大学 

Identifying Market Segments and Targets

中国经济管理大学/中國經濟管理大學

Targets

Sellers can take three approaches to a market. Mass marketing is the decision to mass-produce and mass distribute one product and attempt to attract all kinds of buyers. Product-variety marketing attempts to offer a variety of products to broaden the customer base. Target marketing is the decision to distinguish the different groups that make up a market to develop corresponding products and marketing mixes for each target market. Sellers today are moving away from mass marketing and product differentiation and are moving toward target marketing because the latter is more helpful in spotting market opportunities and developing winning product marketing mixes.

The key steps in target marketing are market segmentation, market targeting, and product positioning. Market segmentation is the act of dividing a market into distinct groups of buyers with different needs or responses. The marketer tries different variables to see which reveal the best segmentation opportunities. For each segment, a customer segment profile is developed. Segmentation effectiveness depends upon arriving at segments that are measurable, substantial, accessible, and actionable. The primary steps in target marketing are to identify and profile distinct groups of buyers that may require different products or marketing mixes, selecting one or more market segments to enter, and establish and communicate the key distinctive benefits of the product or service to the target market (positioning).

The seller should target the best market segment(s). The seller must evaluate the potential of each segment, which is a function of segment size and growth, segment attractiveness, and company objectives and resources. Then, the seller should determine how and when it can ignore segment differences (undifferentiated marketing), develop different market offers for several segments (differentiated marketing), or go after one or a more market segments (concentrated marketing). In choosing target segments, marketers need to consider the ethical choice of market targets, segment interrelationships and super segments, and potential segment invasion plans.

· Understand what it means to “segment” a market.

· Know the different levels of market segmentation.

· Understand the bases used to segment consumer and business markets.

· Know how to evaluate and select segments for targeting of marketing programs.

I. Introduction - Target marketing requires the following: identify and profile distinct groups of buyers with distinct needs/preferences, select one or more market segments, establish and communicate distinctive benefits of the market offering to each target segment. Note the Club Med example

II. Basis for Segmenting Consumer Markets

Market segment defined: Consists of a group of customers who share a similar set of needs and wants. Major segmentation Variables are listed in Table 7.1

A. Geographic - nations, states, regions, counties, cities, neighborhoods, and zip codes. Geocluster approach, such as that used by Claritas corporation, combines demographic data with geographic data to create a more accurate profile of specific geographic areas. Multi-attribute segmentation (geoclustering): assumes people who live near each other and exhibit similar traits from all of the above segmentation bases. Geoclustering via PRIZM clusters (American dreams, rural industrial, gray power, country squires) - focus on increasing diversity

B. Demographic - break down consumers based upon one or more variables

1. Age and life cycle stage. Changes in these variables may indicate changes in needs

2. Life-stage - taking care of aging parent, divorce, new home

3. Gender - common definition of attitude, behavior, and needs in many cases

4. Income - may not be the best predictor, must verify disposable income, if combined with occupation may predict future income, must determine if income is inferred by spending (i.e., can be misleading)

5. Generation (see cohorts Table 7.2)

6. Race and Culture – A Multi cultural approach recognizes

different ethnic and cultural segments

C. Psychographic .....................................................................................................

Consumers are divided into different groups on the basis of psychological/personality traits, life style or values VALS^TM (values and lifestyles) system framework classifiesU.S.adult consumers into eight primary groups based upon personality traits and key demographics. Refer to figure 7.1

D. Behavioral - divide consumers into groups on the basis of their knowledge of,

attitude toward, use of, or response to a product

1. Needs and Benefits – widely used because it identifies distinct

segments

2. Decision Roles - People play one of five roles in the buying

decision process: Initiator, Influencer, Decider, Buyer, User

3. User and Usage

a. Occasions when need may develop

b. User status - nonusers, ex-users, potential users, first-time

users, regular users

c. Usage rate - light, medium, heavy

d. Buyer-readiness stage - unaware, aware, informed,

interested, desire, intend to purchase (refer to Figure 7.2

for the Brand funnel Concept)

e. Loyalty status- hard core (never switch), split across

several brands, shifting from one to another brand,

switchers (not loyal to any brand)

f. Attitude - enthusiastic, positive, indifferent, negative,

hostile

III.Bases for segmenting business markets

Business markets can be segmented with some of the same variables used in consumer market segmentation such as geography, benefits sought and usage rate, Other variables are also used such as demographic (industry, company size or location), Operating variables, Purchasing approaches, Situation factors (urgency, size or order, specific application), Personal characteristics (attitudes toward risk, loyalty, buyer-seller similarity). Refer to Table 7.3 for a list of Major segmentation Variables for the Business market.

IV. Market Targeting

Once the market has been divided into segments, an organization must decide to target one or more of the defined segments. (Refer to Table 7.4 for Best’s 7-Step approach to segmentation)

A. Effective segmentation criteria

1. Rating Segments (segments must rate favorably on 5 key

criteria

a. Measurable – must be able to quantify segment characteristics

b. Substantial – must be large and profitable enough to serve

c. Accessible – must be effectively reached

d. Differentiable – must have different needs and respond to

marketing efforts differently

e. Actionable – effective marketing programs can be formulated

2. Long Term Segment attractiveness – Porter’s five forces help

determine long term attractiveness of segments

a. Threat of intense segment rivalry – segment is unattractive if

respective market contains numerous strong or aggressive

competitors

b. Threat of potential entrants – Segment most attractive with high

entry barriers and low exit barriers. Worst scenario exists when

there are low entry barriers and high exit barriers

c. Threat of substitutes – segment unattractive when actual or

potential substitutes exist

d.) Threat of buyer’s growing bargaining power –segment is

unattractive if buyers have power. Fragmented markets lead to less

power and concentrated markets increase power.

e). Threat of suppliers growing bargaining power – suppliers may

have power when they are concentrated and organized, there are

few of them, when they can forward integrate, when there are few

substitutes, when their product/service is critical input to buyer,

when buyer has high switching costs.

B. Evaluating and selecting market segments – organization must look at the

segment’s overall attractiveness and its objectives and resources. It can then

consider five patterns of target market selection (also refer to Figure 7.3):

1. Full market coverage - firm serves all customer groups with products

they might need

a. Undifferentiated marketing - entire market receives the same

program. Usually mass marketing strategies are used

b. Differentiated marketing - different programs for different

segments. Can lead to higher sales but also increases costs

2. Multiple segment specialization

a. Selective specialization - firm selects a number of attractive

and appropriate segments and develops products that appeal to

each segment. Little or no synergy across segments

b. Supersegment – set of segments sharing some exploitable

similarity

1) Product specialization - firm focus is on a product it can sell

to several segments. Risk is product may be supplanted by

new technology

2) Market specialization - firm satisfies multifaceted needs of

one particular group. Risk is customer group may suffer

budget cuts or shrink in size.

3. Single-segment concentration - firm concentrates on one market only

for its one product. Niche is more narrowly defined customer group

seeking a distinctive mix of benefits within a segment. Also refer to

Marketing Insight “Chasing the Long Tail”

4. Individual Marketing –

a) focus is on specific individuals. Also referred to as “segments of

one”, “customized marketing”, “one-to-one marketing”

b) “Customerization” approach combines operationally driven mass

customization with customized marketing in a way that empowers

consumer to contribute to product or service development. Nike’s

online site enables customers to design their own gym shoe.

5. Ethical Choice of Market Targets major area of consideration in today’s

environment is taking unfair advantage of vulnerable groups

a) Marketing to the children market requires adherence to current legal

and ethical guidelines. Refer to FTC.gov/Privacy website for insight

to current and pending legislation

b) Taking unfair advantage of other groups such as poor and

uninformed.

V. Executive Summary

“Understanding Market Segments”

This discussion begins the teaching/learning process where students begin to understand that marketing and marketers cannot be all things to all people, and there is a need for increasing focus and segmentation.

Teaching Objectives

· To appreciate the value of segmenting and targeting markets.

· To comprehend the process through which marketers engage in segmentation.

· To learn about companies/industries making use of segmentation.

Discussion

Understanding the Issue

Market segmentation is a process based on factual information rather than marketer intuition. The value of market segmentation is obvious. Customers are different and are likely to be attracted to different products throughout various stages in their lifetimes. For an illustration of this concept, consider the automobile industry.

Note to the Instructor: To develop this issue, ask students to offer the names of various brands and models (placed on the board). Then, ask them to identify which brands and models are likely to appeal to specific characteristics - age, income, gender, etc. From this illustration, it will become obvious that not all products appeal to everyone on a mass level.

The segmentation process involves dividing a market into distinct groups of buyers who might require separate products or marketing mixes, recognizing that all buyers have unique needs and wants. Still, it is usually possible in consumer markets to identify relatively homogeneous portions or segments of the total market according to shared preferences, attitudes, or behaviors that distinguish them from the rest of the market. These segments may require different products and/or separate mixes, and in the contemporary one-to-one marketing approach segmentation is a critical step.

Targeting and Positioning

Market targeting is the follow-up to the segmentation process and is the process of evaluating each market segment’s attractiveness and selecting one or more segments to enter. Given effective market segmentation, the firm must choose which markets to serve and how to serve them. In targeting markets to serve, the firm must consider its resources and objectives in setting strategy.

Market positioning is the process of formulating competitive positioning for a product and a detailed marketing mix. The firm must have a plan for how to present the product to the consumer, and the product’s position is defined by how consumers view it on important attributes. The text discusses this concept in detail.

The consumer market is often segmented according to variables such as: demographics, psychographics, geographic location, behavior, etc. Major segmentation variables for business markets obviously vary from the consumer market. The important variables here are as follows:

· Demographics. Industry segmentation focuses on which industries buy the product. Company size can be used. Geographic location may be used to group businesses by proximity.

· Operating Variables. Business markets can be segmented by technology (what customer technologies should we focus on?), user/nonuser status (heavy, medium, light), or customer capabilities (those needing many or few services).

· Purchasing Approaches. Five approaches are possible:

o Segment. “Segmentation” can be by purchasing function organization (centralized or decentralized).

o Power structure. Selecting companies controlled by a functional specialty.

o The Nature of Existing Relationships. Current desirable customers or new desirable customers.

o General Purchase Policies. Focus on companies that prefer some arrangements over others such as leasing, related support service contracts, sealed bids.

o Purchasing Criteria. Focus on non-compensatory criteria such as price, service, or quality.

In addition, there can be situational factors that influence the business market segmentation effort. Situational segmentation may be based upon urgency (such as quick delivery needs), specific application (specific uses for the product) or size of order (few large or many small accounts).

personal characteristics

Personal comparisons can lead to segmentation by buyer-seller similarity (companies with similar personnel and values), attitudes toward risk (focus on risk-taking or risk-avoiding companies), or loyalty (focus on companies that show high loyalty to their suppliers).

There are several steps in the segmentation and target marketing process, but first it is necessary to establish that the market can be segmented. As mentioned in the text, some of the questions a company should answer with regard to determining candidates for segmentation are:

· Can the market(s) be identified and measured?

· Is the segment large enough to be profitable? Related issue: Is the segment stable and long-term?

· Is the segment reachable?

· Is the segment responsive?

· Is the segment expected not to change quickly?

· Can the segment be protected (protectability)? In other words, can competitors choose to target this segment easily and with a high level of success

· Interaction with other segments? Meaning: Will the different messages received cause confusion about the product among different segments?

· What is the risk with this segment or segmentation action?

Finding “Healthy” Customers in the Medical Industry

As members of its industry begin to understand the mass-market approach is no longer viable, health care providers are moving from a product orientation to a marketing orientation. Market segmentation has become a tool that is widely used by a financially squeezed health care industry. Aiming their marketing efforts at those segments of the market that are likely to prove most profitable helps to conserve their limited resources. Some of the characteristics health care providers use to choose the proper target markets include underlying needs, demographics, and patterns of behavior.

Because hospitals maintain detailed information on patients, the information necessary to determine the “typical” patient is available. Through medical and business records, health care marketers have access to usage rates for a predetermined number of years, services received, payment (or nonpayment) history, and, at the simplest level, name and address information. The search for data also can extend to external sources, such as state agencies, trade associations, and syndicated sources. Once the marketer has gathered this data, he or she can begin the process of analyzing it to determine market share for the various lines of health care services.

Overlaying demographic with psychographic information allows hospitals to learn about the people who compose the market. By combining this information with its own product line mix, and disease incidence rates, segmentation opportunities become readily apparent. For example, one hospital recently recognized the potential for outpatient substance-abuse counseling services among upscale members of the business community. Although a competitor currently offered an in-patient program, the target group most likely to utilize the service found the in-patient option unappealing for many reasons, one of which was that many potential patients lived in close proximity to the hospital.

Based on an understanding of its target market, the marketing-oriented hospital developed an outpatient program and spoke directly to the target audience via promotional efforts in publications and television. A direct mail effort also targeted the businesses where those upscale patients were likely to be found. As a result, the hospital gained significant market share and won the favor of the community. This was no small feat in today’s competitive health care marketplace.

Senior Citizens Enjoy Surfing…The Internet

Many members of the older generation are out to dispel beliefs that they are resistant to new technology. Internet clubs, consisting of members who are in their later years, have been formed all over the United States. The seniors use the Internet to obtain many types of new information, order products, and meet and/or “chat” with other seniors throughout the country. A number of marriages have evolved out of these connections.

Smart marketers realize that this segment of the market represents a substantial audience for products advertised via the Internet. Why? One reason is the information explosion. Consider the amount of information that is available on the Internet. In today’s society, few of us in the work force have the leisure time available to spend learning about the power of the Internet. We tend to bookmark the information we need on a regular basis but rarely venture out on extensive “surfing” expeditions. Retired persons do have this kind of time, so when they log on to the Internet, they are likely to stay a while. In addition, many of the people in their golden years have physical limitations that may restrict their mobility. The Internet is an ideal way to stay connected to the outside world and beat the loneliness that may ensue from an inability to venture beyond their home.

Note to the Instructor: It is important to note here that when a marketer considers the needs of one segment over all other segments, controversy is likely to ensue. A good way to begin a discussion in this topic area is to ask students for some of the dangers and/or disadvantages that may result from segmenting and targeting markets.

Optional student exercises: Have students segment the market at a macro level and/or micro level. A point to make is that there are a variety of approaches that can be followed. Some of these approaches may include:

Dish detergent

· Hard water use versus softened water (note this precipitates a discussion on the detergent not being the final product as the detergent is mixed with water to form the actual product used

· Industrial use versus consumer home use

· Machine versus hand

· Suds versus no-suds

· Powder versus liquid

Casino Gambling - This can lead to an interesting discussion as students may gravitate to demographic variables such as income and age. Although the former may be a pre-qualifier, it does not indicate a person’s propensity to take a risk that is a psychographic variable. Now the students can be asked how they would identify risk takers. Students may suggest stockbrokers or anyone buts and sells stock frequently. The instructor can suggest finding people who subscribe to Sky Diving Magazine. Small business owners many times take the ultimate risk. Discussions at micro levels can precipitate segments choices such as:

Geographic reach such as in driving versus flying with the latter leading to a discussion of destination objectives
Table play versus slot machine play (behavioral)
Property stay versus walk-in and local resident versus someone from a different geographic area
People who stay on a property but gamble elsewhere versus people who stay elsewhere but gamble in the casino versus people who stay on the property but do not gamble at all
Length of stay and number of annual stays
Average play amounts

III.

“RTD Coffee: The Little Segment That Could - Convenience Corner,” Beverage Aisle, October 15, 2001, p. 48.

Ready-to-drink coffee (RTD), the cold, refreshing, bottled offshoot of America’s classic hot morning beverage, has found a home in the convenience channel. An up-and-coming category, RTD coffee generated less than $50 million at retail in 1996, but soared to over $100 million in 1997, driven by Frappuccino from Starbucks/PepsiCo, which still owns most of the category.

Today, while the bottled variety represents a tiny fraction of the overall coffee category (3 percent of total coffee sold in grocery, drug, and mass merchandisers combined), an analysis of ACNielsen Convenience Track data shows that the product is selling especially well in convenience stores (c-stores). The convenience channel owns 38 percent of the $175 million segment on a four-channel basis. But while the segment is up just 2.5 percent in grocery, 2.3 percent in drug, and down over 16 percent in mass, it’s up 9.4 percent in the convenience channel.

What accounts for that growth? Part of it may be explained by the product’s appeal to teens and young adults, who prefer to get their caffeine from a cold drink. The product comes in sweet flavors such as mocha and caramel. We know that families with teenagers account for 21 percent of the dollars spent on the bottled coffee category across all channels, whereas they account for just 15.3 percent of the population—for a dollar volume index of 137. Because kids are frequent shoppers in c-stores, they may account for some of the c-store volume.

But kids aren’t the only consumer group fueling RTD coffee growth. The product indexes high with households that are affluent (dual-earners, well educated, employed in white-collar professions) and urban, segments that do not traditionally shop in c-stores as much as their counterparts. The result is an opportunity for convenience retailers to attract new customers to their stores at a time when they could certainly use some.

Based on an analysis of ACNielsen Homescan consumer panel data, c-stores have experienced a decline in shopping penetration, sliding from 52 percent of the population in 1998 to 48 percent in 2000. Other channels have been chipping away at the convenience channel’s main selling proposition, with grocers installing gas pumps and drug stores and selling more food (earning the moniker “the convenience store for women”), video stores selling candy and soft drinks, and everyplace, from coffee shops to clothing stores, selling mints.

Perhaps convenience store operators could use the RTD coffee segment to target more affluent consumers. If the strategy succeeds, it won’t be just the consumers who get a boost from the product.

RTD Coffee Sales by Channel $174,617,058 (*)

	Change from One Year Ago (%)
Grocery	+2.5
Convenience	+9.4
Drug	-16.1

(*)Source: ACNielsen Convenience Track, 52 wks ending 8/4/01. Grocery, Drug, Convenience combined.

Eastman Kodak Co., Funtime Film

HBS Case: 594-111 TN: 5-597-080

Teaching Perspectives

This is a rather short case, and the issues are fairly clear, leaving time for students to undertake in-depth analysis. It could also be used in the pricing module of a marketing management course since the issue of whether to take a price cut your flagship brand instead of proliferating the line is important. Because of the magnitude of the market is such that one (1) share point in the market is worth $13 million in gross margin dollars per year to Kodak, it captures student interest. The profitability of the business declined by about $80 million during the last five years. Thus, Kodak must “do something” but figuring out a viable plan for stemming the share loss without loss in profitability is a challenge.

While Eastman Kodak still maintained a dominant position in the U.S. film market in 1993, its share had declined to 70 percent from 76 percent only five years earlier. This erosion was at the hands of Fuji, which held the No. 2 position at 11 percent share, and private label suppliers. Some observers felt the film industry had become more commodity-like as actual performance differences between brands became insignificant. To deal with this eroding share position, Kodak management prepared to launch a “fighting brand” called Funtime to compete with less expensive rivals. Funtime would involve a vertical product line proliferation strategy whereby Kodak would offer a “good, better, best” selection of films for amateur users. The case sets out the market situation and the proposed Funtime strategy. The discussion focuses on diagnosing the source of Kodak’s problems, establishing realistic objectives for the film business going forward, evaluating the Funtime strategy and developing an alternative action plan if the Funtime strategy should fail.

The case is designed to:

· Allow students to ascertain the forces underlying a market’s move to commodity status producing share pressure on the high priced offerings in the market.

· Expose students to the “fighting brand” strategy and more generally the issues involved in managing vertical product line proliferation, e.g. “good, better, best” strategies.

· Provide opportunity for quantitative analysis, such as margin calculations and break-even analysis, in assessing marketing strategy.

· Provide a setting in which to analyze the importance of a “brand name” in consumers’ decision making and how that may vary by customer segment, usage occasion and over time.

Analysis of the case has four major parts:

1. Diagnosis of the reasons for Kodak’s market share loss and assessment of likely development of the market if Kodak maintained the status quo.

2. Specification of what Kodak’s objectives ought to be at this point. This involves possible trade-offs between market share, profitability and brand equity.

3. Evaluation of the general concept of Funtime proposal and its implementation details given consumer behavior.

4. Consideration of other action plan options such as a price cut on the flagship Gold Plus brand.

There are a number of reasons for the market share shift, but they basically all revolve around the idea that the added value that Kodak delivers to consumers, relative to competitors, has declined over time, while Kodak has maintained its 17 percent price premium over Fuji and 30 percent over private label brands. The reasons can be set out along customer, competitor, and company lines. The reason is that customers “tend to view film as a commodity, often buying on price alone. Accordingly, there is a growing body of price-sensitive consumers.”

Evaluating the competition in the film category, the competitors are growing and succeeding. Fuji is growing in reputation and acceptance in the U.S. market and Polaroid, a well-known entrant into the conventional film market, is operating at low prices. In addition, private label film is becoming more acceptable and no longer perceived as low quality .

Questions:

1. Given the urgency of the matter, with every share point costing $13,000,000 in gross margins, and the digital era approaching, what should be the CEO’s objectives for the Funtime Program?

2. What is the potential conflict between share, profits and brand equity?

3. What are some alternatives to the Funtime program?

4. What will be Fuji’s reaction?

5. What will be the ultimate impact of the plan on Kodak?

中国经济管理大学

中国经济管理大学官网：www.eauc.hk 中国经济管理大学 MBA公益课堂

中国经济管理大学 MOOC（慕课站）美华管理传播网：www.mhjy.net

Analyzing Business Markets

Sat, 11 Apr 2026 13:22:55 +0800

中国经济管理大学 

Analyzing Business Markets

中国经济管理大学/中國經濟管理大學

I. Chapter Overview/Objectives/Outline

Business markets consist of individuals and organizations that buy goods for purposes of further production, resale, or redistribution. Businesses (including government and nonprofit organizations) are a market for raw and manufactured materials and parts, installations, accessory equipment, and supplies and services. The variables impacting the business buyer are similar to those of the consumer buyer in some ways but very different in others. In general, the business buyer generally is much more technical, price-oriented, educated for the job, and risk averse than the consumer buyer. In addition, with the business-buying environment, there is more concern for the status and power of potential vendors, and persuasiveness and empathy play relatively lower roles.

The industrial market buys goods and services for the purpose of increasing sales, cutting costs, or meeting social and legal requirements. Compared with the consumer market, the industrial market consists of: fewer buyers, larger buyers, close supplier/customer relationships, geographically concentrated buyers, derived demand that is relatively inelastic and fluctuating, professional purchasing with several more buying influences involved, direct purchasing, reciprocity, and leasing. Industrial buyers make decisions that vary with the buying situation or buyclass. Buyclasses comprise three types: straight rebuys, modified rebuys, and new tasks. The decision-making unit of a buying organization, the buying center, consists of persons who play any of seven roles: initiators, users, influencers, deciders, approvers, buyers, and gatekeepers.

The industrial marketer needs to know: Who are the major participants? In what decisions do they exercise influence? What is their relative degree of influence? In addition, what evaluation criteria does each decision participant use? The industrial marketer also needs to understand the major environmental, organizational, interpersonal, and individual influences operating in the buying process. The buying process itself consists of eight stages called buy phases: problem recognition, general need description, product specification, supplier search, proposal solicitation, supplier selection, order-routine specification, and performance review. As industrial buyers become more sophisticated, industrial marketers must upgrade their marketing capabilities.

The institutional and government market shares many practices with the business market and has some additional characteristics. Institutional buyers are less concerned with profit than with other considerations when they define the products and services to buy for the people under their care. Government buyers tend to require many forms and favor open bidding and their own nationals when they choose their suppliers. Suppliers must be prepared to adapt their offers to the special needs and procedures found in institutional and government markets.

· Understand what a business market is and how it differs from the consumer market.

· Evaluate organization buying situations.

· Identify participants in the business-to-business buying process and how buying decisions are made.

· Discover how companies can build strong relationships with business customers

I. Introduction – Review Oracle example

II. What Is Organizational Buying?

A. The business market versus the consumer market:

1. Fewer buyers, larger buyers, close supplier-customer relationships, geographically concentrated buyers, derived demand, and inelastic demand. (refer to Table 6.1 for a list of the characteristics of business markets)

2. In addition: fluctuating demand, professional purchasing, multiple buying influences, direct purchasing, reciprocity, and leasing

3. Business markets are similar to consumer markets in that they both attempt to produce value for their customers.

4. Key challenges include:

a) Identifying new opportunities for organic growth

b) Improving value management techniques

c) Develop metrics for measuring marketing performance and accountability

B. Institutional and Government Markets

1. The institutional market

a) Institutions tend to have low budgets and captive clienteles

b) Firms that serve this market have developed unique operations to serve this market

c) Objective is not profit

d) Examples: schools, hospitals, nursing homes.

2. The government market - a major buyer of goods and services

a) Decision to purchase usually based on cost

b) Excessive paperwork, but Internet-based changes bringing reform

C. Buying situations

1. Straight re-buy (reorder on a routine basis)

2. Modified re-buy (product specs, prices, delivery requirements, or other terms may be modified)

3. New task (a purchaser buys a product or service for the first time with major sub-decisions involved in the buying decision)

4. Because of complicated selling requirements, some organizations utilize a “missionary sales force” which is made up of their most effective salespeople

D. Systems buying and selling

1. Systems Buying - Purchasers buy a total solution to their problem from one supplier. Effectively provides a turnkey solution

2. Prime Contractors, usually hired by government, are responsible for bidding out and assembling system’s subcomponents from second tier contractors.

3. Systems selling

a) Systems contracting single supplier provides buyer with its entire requirement of MRO (Maintenance, Repair and Operating)

b) Key to building large scale industrial products

III. Participants in the Buying Process

A. Purchasing agents usually influential in straight-rebuy and modified re-buy while new tasks include other personnel from respective disciplines with knowledge required to make purchase decision

B. The buying center

Buying center includes initiators, users, influencers, deciders, approvers, buyers, and gatekeepers

C. Buying Center Influences

1. Important to know the major decision players and their motivations and operations

2. Business function may dictate priority, finance person concerned about ROI, while engineer concerned about quality

3. Organizations are made up of people. People have personal biases, job perceptions, and preferences, which are influenced by their own age, income, education, job position, personality, attitudes toward risk, and culture

D. Targeting Firms and Buying Centers

1. Marketers must determine:

a. Who are the major participants?

b. What decisions do they influence?

c. What is their level of influence?

d. What evaluation criteria do they use?

2. Regarding the effort of targeting segments, business customers usually fall into one of several categories:

a. Price orientated

b. Solution orientated

c. Gold standard

d. Strategic value

3. Small sellers concentrate on reaching the key influencers

4. Larger sellers go for multilevel-in-depth selling to reach as many participants as possible

IV. Stages in the Business Buying Process

Business buying passes through eight stages called “buyphases”as identified by

Johnson and associates in the “buygrid” framework shown in Table 6.2. These

phases can be compressed or bypassed depending on the specific situation

A. Problem Recognition (stage can be triggered by internal or external stimuli)

1. Internally, most common triggers are need for new equipment or inputs to develop new product, mechanical or system flow breakdowns requiring new parts or solution, poor product quality, cost reduction efforts

2. Externally, new ideas precipitated in industry, potential new supplier defines opportunities to reduce cost or purchase better product

B. General Need Description and Product Specification

1. Determine general characteristics and quantity

2. Organization takes on an advisory role with complex solutions

3. Product value analysis (PVA): cost reduction approach to determine products can be redesigned, standardized, or made with a cheaper production method

4. PVA is also used to help organizations win business

C. Supplier search (refer to table 6.3 for examples of electronic marketplaces for businesses)

1. Suppliers can use a variety of ways to find suppliers

a. Vertical hubs focus on industries

b. Functional hubs focus on specific functions

c. Other sources are trade directories, contacts, trade advertisements, trade shows

2. Suppliers need to make themselves visible

d. Get listed in major online catalogs or services, communicate with buyers, build good reputation in marketplace, exposure to agents

e. Develop knowledgeable sales force

D. Proposal solicitation

1. Buyers may invite suppliers to submit proposals. Proposals may be simple or complex

2. Suppliers must be efficient and skilled in writing, submitting, and presenting proposals

E. Supplier selection – Buyer identifies key attributes and rates each supplier on these attributes. Researchers found eight different Customer Value Assessment (CVA) methods

1. Developing a Compelling Value Proposition

a. Learn more about the customer by conducting formal

research methods

b. Specify the customer value proposition

c. Implement value proposition supported by respective

employee training and rewards.

2. Overcoming Price Pressures

a. Need to differentiate from the competition in order to

counter buyer’s request for lower price

b. Lower price but set conditions, i.e. reducing value.

3. Determine How Many suppliers to Use

4. Buyers need to determine number of suppliers to be used. Trend

is for less or single-source suppliers

F. Order-routine specification

1. With MRO items, trend is to use blanket contracts also called

stockless purchase plans and automatic replenishment, which

tends toward using single supplier. This environment also raises

entry barriers for new suppliers

2. There are trends to more vendor-managed inventory systems.

Suppliers have access to buyer inventory levels and have

responsibility for continuous replenishment programs

G. Performance review (three common methods)

1. Buyers solicit internal users of supplier evaluation

2. Buyers rate supplier via weighted core method

3. Buyers aggregate the cost of poor supplier performance to determine adjusted costs of purchase, including price

V. Managing Business-to-Business Customer Relationships

A. The Benefits of Vertical Coordination (refer to “Marketing Insight: establishing

Corporate Trust, Credibility, and Reputation”

1. Basic Buying and Selling – single routine exchanges with moderate levels of

cooperation and information exchange

2. Bare Bones – Require more adaption by the seller and less cooperation and

information exchange

3. Contractual Transaction – Exchanges defined by formal contract and

generally have low levels of trust, cooperation and interaction.

4. Cooperative Systems – Partners ar eunited in operational ways, but neither

demonstrates structural commitment through legal means or adaption.

5. Collaborative – Trust and commitment lead to true partenrship

6. Mutually Adaptive – Buyers and sellers make many relationship-specific

adaptations, but without necessarily achieving strong trust or cooperation..

7. Customer is King – Seller adapts to meet the customer’s needs without

expecting much adaption or change in exchange.

B. Business relationships: Risks and Opportunism

1. Vertical coordination can facilitate stronger buyer-seller ties but

may increase risks for specific investments by both parties

a. Specific investments are those expenditures tailored to a

particular company and value chain partner and can consist

of investments in company-specific training, equipment

and operating procedures or systems

b. Specific investments entail risk to both parties:

investments are sunk and lock parties into the relationship,

sensitive information may be exchanged, presence of

switching costs

2. Opportunism

a. Opportunism can be thought of as “some form of cheating

or undersupply relative to an implicit or explicit contract.” It

is a concern due to the opportunity cost of assigning

resources for control purposes rather than other productive

purposes

VI. Executive Summary

”

This discussion focuses on some of the day-to-day considerations the business marketer faces in organizing and operating in the increasingly complex business-to-business marketing setting. Students may have difficulty identifying with the business marketing process since few have had any direct connection with the process. For this reason, the discussion focuses more on some of the rules or guidelines and allows the instructor an opportunity to add various current examples.

The discussion begins with an overview of the changes in the business-marketing environment and then moves through some of the most important rules for the business marketer. It concludes with a discussion of the implications of some of these concepts in industry.

Teaching Objectives

· To stimulate students to think about the critical issues in business marketing.

· To consider how to proceed with the considerations and strategies related to business marketing.

· To discuss some specific approaches to help the marketer more effectively meet his or her business-to-business marketing objectives.

Introduction

In this era of fast-paced marketing change, mistakes can be and frequently are fatal for the unwary or lackadaisical. This is especially true in the business-marketing arena. In fact, some of the “Must” items can turn into “Never!” depending on the industry, product, service, offer, and positioning in the marketplace.

There are as many or more variables in business marketing than in consumer marketing. Everything depends on the way the product or service is distributed and sold, the seasonality of demand for the product, the length of time that it takes to sell the product, whether the product is sold directly through the mail or leads are created for the sales force, the details of the offer, credit availability, size of the order, and much more.

Rules of Business-to-Business Marketing

The first rule is that the business marketer has to invest considerable time and effort to prepare to deal with customers in the business-to-business marketplace. Within the “B-to-B” arena, it is essential to know what is going on with all the significant players in the industry. It is a well-known rule that professionals ask around in the industry. They take advantage of various business-to-business direct-marketing programs by examining every piece of direct mail received.

Another rule is that if you are likely to be the other firm’s customer, they could be your customer as well. Professional buyers check into all the likely, and unlikely, industry periodicals they can think of. One often finds a competitor has just begun, or just been eliminated, and there is some new sales program worth checking. We can learn from the successes and mistakes.

A good and efficient rule is to check out public information about parallel businesses that have the same or similar customer base but are not competitors. For example, both bath soap and corn flakes are sold to supermarkets across the country, but they are not competitors for the same dollar. What do they have in common? Which bath soap ideas can be used to sell more corn flakes? It is likely that there will be selling parallels that can be carried from industry to industry.

An old adage in business marketing holds that typically about 40 percent of business-to-business direct marketing results will come from the firm’s choice of database or list. Sadly, it is often the case that the amount of time, thought, and energy put into the selection of the list for a direct-marketing effort is far less than 40 percent, and the campaign suffers for it.

Other Considerations

The next 40 percent of the results will be determined by the offer. Business marketers must consider what they are trading with the audience in exchange for their time, commitment, money, or attention. There are many variables such as credit, delivery, bulk pricing, and other similar arrangements. Overall, the primary variable is the degree to which the potential supplier firm is able to differentiate itself and make dealing with the potential customer firm special and better than dealing with any other option.

The remaining 20 percent of the results are determined by the “creative” copy, art direction, headlines, and the overall appearance of the marketing/advertising effort to create a positive attitude with the client/customer about the supplier’s products. However, this is not the only variable, because the best creative in the world is useless if it is not seen by the right people or does not include an offer that provides visible value for the customer.

As in the consumer market, if the business marketer is not really tuned into the business customer, there will be problems. Unless the supplier firm’s products or services are perceived as completely new, the supplier’s sales and marketing staff will have some historical perspective on who buys those products. It is not enough to know that “50 percent of the sales come from SIC (Standard Industrial Classification) code 12345, 30 percent from SIC 98765, and the last 20 percent from a mix of automotive mechanics and university professors.” Rather, it is better to look at the people in the industry as individuals, understand their past buying patterns, their requirements, etc.

The business purchasing process usually has more players involved than the typical consumer purchase effort. The user very often only recommends but does not specify; the user’s supervisor also can recommend and sometimes can specify. Above these strata is the level that specifies; these are the people who control the budget and make approvals. Finally, there is the purchasing agent. Every one of these people has a name, a title, a role, a turf to protect, employees to serve, bosses to manage, quotas to meet, budgets to beat, and a thousand other headaches as well.

It is now widely recognized that the best place to invest marketing and sales efforts is in the current customer base, recalling that it is much harder to gain a new customer than to make an existing customer more satisfied. One way to wed customers to a company and its products or services is to show them that they are so important that the supplier firm takes the trouble to learn as much as possible about the customer firm. Every business marketer should start by knowing names, companies and products, as well as critical buying concerns.

It is useful to keep in mind that the more the business marketer knows about his or her customers at this moment, the better he or she can decide which lists and databases to use when prospecting for new clients. Unless the marketer and company change the product and service mix considerably, future customers are likely to be like the current customers.

A response file is a database of individuals in companies who have responded to a business-to-business direct-marketing message. A list of people in the commercial refrigeration business who accepted an offer for a free book on “Developments in Commercial Refrigeration” would be an example of a response file.

The alternative is a “compiled” file: a database that has been constructed from researched information. For example, a list of purchasing agents, vice presidents of purchasing, and purchasing executives in the umbrella industry compiled from membership rosters in various umbrella and purchasing industry organizations would be a compiled file. There may be a tremendous amount of overlap between a response file and a compiled file.

Why is one type of “file” preferable to the other? The answer is that there is one thing we know for sure about the people in the response file: they have shown that they respond to direct marketing. Individuals on a compiled database may or may not be responder material. Using a response list helps the business marketer to stack the deck in her or his favor.

Other ways of stacking the deck include testing for affiliations and other objective correlatives that mean they are the kind of people you want to hear your business-to-business message. Look for people who attended industry conventions and read industry publications. Among buying professionals these are key contact points.

Up until 1997, the business marketer could use SIC codes to segment the business market. If an organization’s product is used to move liquids from one place to another on dairy farms, then the SIC code is 0241. Anther possible SIC is 2033, Canned Fruits and Vegetables Manufacturing, or SIC 2061, Cane Syrup, Made from Sugar Cane; or even SIC 2013, Canned Meats. All of these options could provide additional business that might use the equipment. Then the marketer could seek out lists of other food or cosmetics producers to see if there is a reasonable fit with the product. As businesses began outsourcing or moving part or all of their operations across borders in North Amercia, it became increasingly difficult to identify which business an organization was in and where they were located. A new business coding methodology, the North American Industrial Classification System (NAICS), was put in place in 1997, when the North American Free Trade Agreement (NAFTA) went into effect. NAICS uses a six-digit coding scheme. The first five digits are standard across North America. The last, sixth digit, is country specific.

Business marketers also improve marketing operations and success by approaching others in the potential customer company. They talk to sales people, staff engineers, etc., to identify the sales process at the customer firm: who to talk to, titles, how long it takes to get an appointment, how many visits over how many months it takes to make a sale, and who the players are in a company, by title, and by function. Organizations are increasingly reliant on software systems to maintain their competitive position in the sales environment. Systems provided by companies such as salesforce.com and Seibel are a critical component of an organization’s competitive toolkit. Real-time access to information on a customer or prospect is almost the norm.

Another approach is to ask company sales people for the names, titles, and addresses of 50 individuals they want to sell to but who are buying from the competition; then market to their hit list.

It also pays to identify the “worst” customers, too. The comparison can be useful in designing a program to migrate the “worst” customers into a better category. A customer who provides a large amount of revenue usually demands more from their business partner and thus may be less profitable especially when opportunity costs are included in the profitability assessment.

Achieving and measuring results is very important in business marketing. An ad for a retail store in the local newspaper can be measured by the number of cars in the parking lot and the amount of cash in the cash register the following morning. It can take a lot longer to fine-tune business-to-business marketing activities into a moneymaking machine.

The buying environment has become more challenging as organizations leverage technology in support of the buying process. Reverse auctions have to a certain extent commoditized some products and services. Marketing databases have become an increasingly important asset as organizations can leverage all relevant data surrounding their relationships with businesses. The request for information (RFI) and the request for proposal (RFP) are now all mechanized, and the speed of creation and dissemination puts more time pressure on potential suppliers. Conversely, technology can also be leveraged in the creation of responses to these vehicles. The end result is that the buying environment is becoming more dynamic and organizations must invest and optimally use these technology enablers.

III.

“Constructing B-to-B Campaigns,” BtoB, April 16, 2001, p. 20.

Solid marketing fundamentals are most important component in building B-to-B campaigns 10 lessons that B-to-B marketers should follow when building ad campaigns are provided includes being clear about the campaign’s objective.

If there is one thing marketers have learned in the past year, it is that nothing replaces solid marketing fundamentals when it comes to constructing B-to-B campaigns.

During the go-go advertising craze in 1999 and early 2000, driven largely by dot-coms looking to drive up their IPO stock prices, marketers spent with an almost reckless abandon. Many neglected their core audience in favor of wide-appeal TV campaigns that would capture interest on Wall Street, while others quickly wore out the novelty of Web banner ads and saw the return on their Internet investments plummet.

Now, in the slow economy, where every ad dollar must be justified, marketers are going back to the principles on which all effective ad campaigns are built.

In talking with a variety of advertisers and agencies for this special report, BtoB identified 10 valuable lessons that B-to-B marketers should follow when constructing ad campaigns:

1... Be clear about your campaign’s objective. Everything during the development of the campaign, from positioning strategy to media placement, should be designed to meet that objective.

“Internally, as a client, you need to be certain about exactly what you want to do, then you need to evangelize the hell out of it,” said the director of worldwide brand management at Seagate Technology Inc.

When developing an integrated campaign for its Barracuda ATA III disk drive, Seagate brought together its product marketing, channel marketing, and branding teams to agree on positioning even before the agencies got involved.

“If the client isn’t sure of what he wants to say, the agencies aren’t going to say it right.”

2... Communicate openly about everything with your agency. In working with outsourced experts, communicate regularly on everything from brand positioning to copy used in creative development. If multiple agencies are involved, the advertiser should have a lead contact person to handle all communication.

“It’s got to start with straight talk with the agency,” said the VP-worldwide marketing, IBM Software Group.

“It’s important to leverage the creative juices of the agency with the business discipline of the advertiser, and together drive those synergies to establish a world-class campaign,” he said.

3... Identify the core influencers. When IBM Corp. was developing its “Codernaut” software campaign, it did extensive research with its agency OgilvyOne to identify the core influences for middleware software. After it learned that these users spend a great deal of time online, IBM doubled its ad budget for Web spending.

4... Use integrated media when possible. An integrated approach usually yields higher results than a single medium, such as TV, print, direct mail, e-mail, or online, particularly if the campaign has multiple objectives.

5... Test the product positioning and creative concept with the target audience. Use focus groups, teleconferencing, online research, and other market research.

When Emerson Electric Co.’s Micro Motion Inc. launched its new R-Series flowmeter, which was the introduction of its first low-cost measuring device, it conducted focus groups with its audience of manufacturing equipment buyers to make sure the positioning was well received.

“To answer the question, ‘How will we build awareness quickly?’ we went straight to the people we were going to sell to,” said the manager of global marketing communications at Micro Motion.

6... Use creative that will stand out with relevant messages. Balance intrusion with information. This is especially important for hard-to-reach target audiences.

When developing the online ads for Seagate’s Barracuda ATA III campaign, Lot21 Interactive Advertising Group Inc. used larger pop-up ads that contained a lot of product information, because the value-added reseller audience tends to respond less to online ads, according to the director of media services at Lot21.

7... Follow up on direct campaigns. It is vital to contact the recipient through telemarketing, sales calls and other sales efforts. The more contact with the target, the better, as long as there is permission given, such as a response to a direct mail or e-mail.

For the direct mail component of its R-Series campaign, which was supported by print, Micro Motion established three points of contact with prospects, including the targeted direct mailing, a follow-up telemarketing call to those who responded, then a sales call if the lead was “hot.” With these efforts, it achieved a 1,477 percent return on investment.

8... Build in metrics to measure the results. If it’s a branding campaign, determine the timeline and measurement system to gauge movement in perceptions and attitudes about the brand and how that may lead to more sales. If it’s a direct response campaign, build in a link to follow, such as leads generated from direct mail or traffic driven to a unique URL from a print campaign.

IBM has a monthly monitoring cycle for all of its campaigns, during which time its market intelligence team contacts tens of thousands of prospects about the effectiveness of its advertising.

9... Don’t be afraid to make changes midstream. This includes pulling ads that are offensive to the audience and changing copy and creative when possible.

Particularly for online executions, offers can be adjusted to take advantage of changing variables such as pricing or inventory levels.

10. Take what you learn from one campaign and build on it. Just because one campaign worked for a specific objective does not mean it will work the next time around. Seagate learned that its VAR audience responded well to the larger online ad units, driving six to seven times the average traffic to its reseller’s site. So, in a campaign launched this month for its Barracuda 180 drive, Seagate is building on its online ads developed by Lot21, including an online product demo in a pop-up ad.

The bottom line of all this? Advertising is a constantly moving target, and campaigns need to reflect that. There’s nothing wrong with trying new techniques, but to forget the fundamentals is just plain foolish.

Arrow Electronics

HBS Case: 598-022 TN: 500-111

Teaching Perspectives

The Arrow/Schweber division of Arrow Electronics, a distributor of semiconductors and other electronics components, must decide whether to sign onto Express Parts’ new Internet broker service. This is the largest division of Arrow Electronics, and the President and CEO of Arrow Electronics wants Arrow to keep its margins above 15 percent so that the parent corporation can continue to meet its financial goals.

The case deals with the issue of cross selling and managing a portfolio of products and services in business markets. Management must decide whether to pursue an opportunity to sell its products through a new ecommerce site, which could threaten the viability of its overall business model.

Due to the structure of manufacturers’ incentives, Arrow/Schweber has developed a selling strategy of subsidizing its value added services to ensure margins obtained from book and ship commodity product (B&S) sales. The Express proposal presents an opportunity to sell commodity products through a new electronic bidding site. It appears that this new channel has the potential to attract incremental sales to new customers that Arrow had never served. However, there is the risk that the new channel can break down Arrow’s current business model by siphoning out the lucrative high margin product sales.

The division president must decide how to respond to these challenges. In the case, students assess how a seller needs to manage a portfolio of products while managing customer relationships, and how the firm needs to change its customer management model in response to changes in the environment.

The case provides an avenue for discussing the role of electronic commerce in a business-marketing firm’s channel strategy. The electronics industry has become accustomed to doing business in a highly structured way, with a careful balance of power between manufacturer and distributor. The emergence of the Internet presents a challenge to Arrow’s value proposition since it is a traditional distributor. Arrow has to decide on how it wants to respond to the Internet-based e-commerce.

This case also deals with the issue of cross selling and managing a portfolio of products and services offered to customers ranging from transactional customers to relationship customers. The firm supplies customers in both market segments with commodity products, and with “value added” (VA) products that include services such as programming, field application engineering, etc. Arrow earns significantly lower margins on its specialty products than on its commodity products. Its suppliers, electronic chip manufacturers, have systems to protect prices in the marketplace. Assured that the margins on the chips will be protected, Arrow literally gives away its specialized value-added engineering and programming services in return for customer commitments to purchase chips. Arrow is thus able to make a reasonable return on the product and service bundle. The Express Parts Internet brokerage service option threatens to undermine this cross-subsidization model by siphoning the high-margin, commodity product sales from relationship purchasing into a competitive Internet-based auction channel.

The case also highlights a variety of innovative channel design issues. Through an ingenuous approach of offering distributors discounts based on the quality of information provided by the distributor, suppliers are able to access critical customer-level information despite using an indirect channel of distribution. Further, they can maintain price levels in the marketplace while employing multiple distributors in the same market.

Questions:

What does Arrow sell to whom, and where does it make money?
How do the Arrow/Schweber (Arrow) salespeople build their relationship with their customers? Specifically, how do they leverage Arrow’s product line B&S versus VA products to add value to their customers?
What is Arrow’s business model? What value does it add for its suppliers? What value does it provide its customers?
How does Express affect Arrow’s business model and its selling effort? Will Arrow be able to keep its margins above 15% - the objective?
Do you think the Internet is a friend or a foe to Arrow? In what ways can Arrow leverage the Internet to facilitate its sales effort?

中国经济管理大学

中国经济管理大学官网：www.eauc.hk 中国经济管理大学 MBA公益课堂

中国经济管理大学 MOOC（慕课站）美华管理传播网：www.mhjy.net

Analyzing Consumer Markets

Sat, 11 Apr 2026 13:19:43 +0800

中国经济管理大学 

Analyzing Consumer Markets

中国经济管理大学/中國經濟管理大學

I.

In addition to a company’s marketing mix and factors present in the external environment, a buyer also is influenced by personal characteristics and the process by which he or she makes decisions. A buyer’s cultural characteristics, including values, perceptions, preferences, and behavior learned through family or other key institutions, is the most fundamental determinant of a person’s wants and behavior. Consumer markets and consumer buying behavior have to be understood before sound marketing plans can be developed.

The consumer market buys goods and services for personal consumption. It is the ultimate market in the organization of economic activities. In analyzing a consumer market, one needs to know the occupants, the objects, and the buyers’ objectives, organization, operations, occasions and outlets.

The buyer’s behavior is influenced by four major factors: cultural (culture, subculture, and social class), social (reference groups, family, and roles and statuses), personal (age and life cycle state, occupation, economic circumstances, lifestyle, and personality and self-concept), and psychological (motivation, perception, learning, and beliefs and attitudes). All of these provide clues as to how to reach and serve buyers more effectively.

Before planning it’s marketing, a company needs to identify its target consumers and their decision processes. Although many buying decisions involve only one decision maker, some decisions may involve several participants, who play such roles as initiator, influencer, decider, buyer, and user. The marketer’s job is to identify the other buying participants, their buying criteria, and their influence on the buyer. The marketing program should be designed to appeal to and reach the other key participants as well as the buyer.

The amount of buying deliberateness and the number of buying participants increase with the complexity of the buying situation. Marketers must plan differently for four types of consumer buying behavior: complex buying behavior, dissonance-reducing buying behavior, habitual buying behavior, and variety-seeking buying behavior. These four types are based on whether the consumer has high or low involvement in the purchase and whether there are many or few significant differences among the brands.

In complex buying behavior, the buyer goes through a decision process consisting of need recognition, information search, evaluation of alternatives, purchase decision, and post purchase behavior. The marketer’s job is to understand the buyer’s behavior at each state and what influences are operating. This understanding allows the marketer to develop an effective and efficient program for the target market.

Opening example of LEGO illustrates how an organization changed its organization to present itself as a lifestyle brand

· Understand the major factors influencing consumer behavior.

· Identify the psychological processes that influence consumer responses to marketing efforts.

· Understand the stages in the buying decision process.

I. Introduction

II. What Influences Consumer Behavior? – Consumer Behavior is the study of how individuals, groups and organizations select, buy, use and dispose of goods and services, ideas or experiences to satisfy needs and wants.

A. Cultural factors

1. Culture - values, perceptions, and preferences that are the most fundamental determinant of a person’s wants and behavior

2. Subcultures - nationalities, religions, racial groups, and geographical regions

3. Social class - hierarchically ordered divisions in a society; members share similar values, interests, and behavior

a) Example of U.S. social class breakdown: lower lowers, upper lowers, working class, middle class, upper middles, lower uppers, upper uppers

b) Social class members can be grouped other ways;

(1) Distinct product and brand preferences

(2) Language differences

B. Social factors

1. Reference groups - all groups that have a direct or indirect influence on a consumer’s attitudes or behavior

a) Membership groups - the most influential primary reference group (family of orientation - parents and siblings, family of procreation - spouse and children). Secondary groups may include religious, professional and trade-unions.

b) Aspirational – person hopes to join

c) Dissociative – values or behavior rejected

2. Family – most influential primary reference group

a) Family of Orientation – parents and siblings

b) Family of Protection – spouse and children

c) New pattern – increase in direct and indirect influence wielded by children and teens on family purchases

3. Roles and Status

a) Role – activities a person is expected to perform

b) Status – affected by role type (e.g. one role may provide the person with a higher status than that of a person in a different role)

C. Personal factors – characteristics that influence a buyer’s decision

1. Age and stage in the life cycle

a) People buy different goods over their lifetime

b) Family life cycle, from independence to retirement and beyond, also shape buying habits

c) Psychological life-cycle stages and transitions (e.g., marriage, college graduation)

d) Adults experience “transformations” as they progress through life

e) Critical Life Events influence behavior (e.g. marriage, childbirth, first job, spousal death, career change)

2. Occupation and economic circumstances

a) Blue collar versus white collar consumption considerations

b) Spending income, savings and assets, debts, borrowing power, and attitude toward spending versus saving all impact product choice

3. Personality and self-concept

a) Personality characteristics that influence buying behavior (self-confidence, sociability, etc., tie to brand personality

b) Development of brand personalities to attract consumers with the same self-concept

(1) actual self-concept – how we view ourselves

(2) ideal self-concept – how we would like to view ourselves

(3) others

4. Lifestyle and values

a) Lifestyle - pattern of living as expressed by activities, interests, opinions. Shaped partly by whether consumer is time or money constrained

b) LOHAS segments – Acronym for lifestyles of health and sustainability. These people worry about the environment, care about sustainability and are very health conscious (e.g. organic foods) refer to table 5.1 for LOHAS segment breakdown

c) Core values – influences by the belief systems that underlie attitudes and behavior

III. Key Psychological Processes

A. Motivation - correlated to the strength of a need (Freud, Maslow, Herzberg)

1. Freud - forces shaping people’s behavior are largely unconscious; they cannot understand their own motivations

2. Maslow - hierarchy of needs

3. Herzberg - two-factor theory that distinguishes satisfiers from dissatisfiers

4. Biogenic needs - arise from physiological states of tension (e.g. hunger, thirst)

5. Psychogenic needs - arise from psychological states of tension (e.g. recognition)

B. Perception - process by which an individual selects, organizes, and interprets information inputs to create a meaningful picture

1. Selective attention - increased amount of stimuli has led to individuals ignoring stimuli unless it appears to relate to a current need or appears to be outside the norm of other stimuli

2. Selective distortion - tendency to modify input information into personal meanings and interpret in a way to fit one’s pre-conceptions

3. Selective retention - retain only that information that supports an attitude or belief

4. Beliefs and attitudes - a belief is a descriptive thought a person holds about something; an attitude is a person’s enduring favorable or unfavorable evaluations, emotional feelings, and action tendencies toward some object or idea

C. Learning - changes in behavior arising from experience

1. Drive - strong internal stimulus that impels action

2. Cues - minor stimuli that determine when, where, and how a person responds

3. Generalization - make assumption and generalize future response to similar stimuli source (e.g. good experience with a Dell computer may lead one to assume that they will have a similar experience with a Dell printer)

4. Discrimination - recognize differences in sets of similar stimuli and adjust responses accordingly

D. Emotions - response may not be rational or cognitive

E. Memory

1. Short term memory (STM) - temporary repository

2. Long term memory (LTM) - more permanent repository. Associative network memory model views LTM as a set of nodes (information) connected by links that vary in strength. Brand information can be in the node. Brand associations consist of all brand-related thoughts, feelings, beliefs, perceptions, images, experiences, attitudes, and so on that become linked to the Brand node. See Dole example of a mental map in figure 5.2

3. Associative Network Memory Model

a. LTM can be viewed as a set of nodes and links. Nodes are stored information connected by links that vary in strength. ,

b. Refer to Figure 5.2 for a Hypothetical Mental Map

4. Memory Processes

a. Encoding – how and where information gets into memory

b. Strength of resulting association depends upon how much of the information is processed at encoding.

5. Memory Retrieval - how information gets out of memory – Three factors impact retrieval

1. Other product information in memory can produce interference effects causing one’s brand information to be overlooked or confusing

2. The longer the time elapsed from encoding to recall, the weaker the association

3. Information may be available in memory but not accessible without cues or reminders

IV. The Buying decision Process: The Five-Stage Model

The five-stage model - the consumer may proceed sequentially through the following stages, skip one or more stage, or move forward and backward depending on the specific situation (refer to Figure 5.3)

A. Problem recognition: internal stimuli (e.g. feeling of hunger or thirst), or external stimuli (e.g. advertisement) trigger need(s) or problem recognition, which starts the buying process

B. Information search

1. Two levels of arousal

a) Heightened attention where consumer is open to

more information

b) Active information search utilizing four areas of

resources: personal (e.g. family, friends,)

commercial variety of channel communications),

public (information and resources in public

domain), experiential (trying the good or service)

2. Steps to gathering more information (see figure 5.4)

a) Total potential brand set

b) Awareness set: consumer becomes aware of some,

not all brands

c) Consideration set: some brands will meet initial

buying criteria

d) Choice set: more information is gathered on brands

under consideration and a priority is set

e) Consumer arrives at a decision on brand

C. Evaluation of alternatives

1. Consumers attempt to satisfy a need or resolve a problem by determining if a brand’s attributes provide the benefit(s) required to fulfill the need or resolve a problem

2. The evaluation process often reflects beliefs and attitudes

a. A belief is a descriptive thought that a person holds about something

b. An attitude is a person’s enduring favorable or un-favorable evaluation, emotional feeling, and action tendencies toward some object or idea

3. Organizations should attempt to match their product or service attributes close to the consumer’s attitudes rather than trying to change the attitudes

4. Consumers attitudes (i.e. judgments and preferences) are derived via an attribution evaluation process

5. An expectancy-value-model can be used to identify the importance a consumer places on each attribute and the respective perception of the benefit of each attribute by brand (good example imbedded in the text in this area)

D. Purchase decision - consumers form preferences among brands in their choice set. Two factors can intervene between purchase intention and decision that reduce the accuracy of identified preferences and purchase intentions

1. Attitudes of others may impact decision depending upon:

a. Intensity of other person’s attitude toward consumer’s preferred alternative

b. Consumer’s motivation to comply with the other person’s wishes

2. Unanticipated situational factors

a. Consumer impacted by uncontrollable forces such as job loss, bad service, or opportunity costs

b. Consumer’s propensity for risk

E. Post-purchase behavior (refer to “Marketing Skills Inert: Dealing with customer defections)

1. Consumers may experience post-purchase dissonance. Organizations must manage this dissonance. This could be something as simple as a phone call to reassure the consumer that his or her decision was a good decision

2. Consumers may be satisfied or dissatisfied with the product or service. Both have an impact on customer loyalty as well as their “word-of-mouth.” Each must be managed appropriately by the organization

3. Marketing skills: Winning back lost customers

a. It costs more to acquire new customers than to retain existing customers or recapture lost customers

b. By applying a profile of lost customers to existing customers, an organization can attempt to prevent attrition

c. Effective post-purchase communications can reduce product returns, speed problem resolution, and better understand product use

V. Behavioral Decision Theory and Behavioral Economics – Behavioral decision Theory (BDT) identifies situations when consumers make irrational choices. Refer to Marketing Insights: Predictably Irrational”.

A. Decision Heuristics – “Mental shortcuts” or “rules-of-thumb”

1. Availabilty Heuristic – how quickly and easily a particular example of an

outcome comes to mind.B. Framing

2. Representative Heuristics – consumers base their predictions on how similar

the outcome is to other examples

3. Anchoring and Adjustment Heuristic – Consumers arrive at an initial

judgement and then adjust it based on additional information. .......

B. Framing

1. Decision framing – manner in which choices are presented to and seen by a

decision maker.

2. Consumers use “mental accounting” when handling their money as a way of

coding and evaluating financial outcomes.

3. Prospect Theory – Consumers fram their decision alternatives in terms of

gains and losses according to a value function. They are loss-averse.

VI. Executive Summary

II.

”

This discussion focuses on a major demographic change in the U.S. and global marketing environment. As a result, there are and will be changes to many business patterns. The discussion will open the door for many current examples of developments that augment this material. Based on this material, students will be able to identify the changes occurring in society as related to their growing knowledge of various marketing management techniques and issues.

Teaching Objectives

· Consider the role of marketing in the societal change and development process.

· Introduce an example of one of the more important contemporary environment issues.

During the 1990s, U.S. household spending patterns changed dramatically. There were some very different demographics facing businesses during those years, and some of the same variables will continue to influence the marketplace into the future.

The U.S. economy grew through the 1990s at a rate not seen since the 1960s, unemployment and inflation were the lowest in decades, and the stock market set records with regularity. Some economists explained the situation by claiming that a new economy was at work, one driven by deficit reduction, low interest rates, and technological advances. Others pointed to the Asian economic bust, the Dot-com stock market collapse in 2000, and began to consider the inevitable limits to the economic and marketing environment. Some analysts felt that many firms would not be able to maintain the pace of the new market environment, and they were correct, as the dot-com bust and the market decline demonstrated.

Even with the 2000-2001 market jitters and the Federal Reserve interest rate responses, many felt that the economy was more stable and long-term than we gave credit because consumer spending, which accounted for two-thirds of the nation’s economic output, continued to roll along at a steady pace. However, the inevitable slowdown in the economy and consumer spending had already begun, and the attacks on the United States in September, 2001, and the Enron/Anderson corruption scandals at the end of 2001 set the groundwork for not just a rethinking of America’s security and growth but also some rethinking about the way we would do business in the future. With this re-evaluation of many issues in the economic, social, and political environments, we find the basis of a new economy and a new marketing environment.

New life Cycle Patterns

One of the more important predictors of the future direction for the new economy is life-cycle stage. Typically, households headed by twenty-somethings spend less than average on most products and services because their households are small and their incomes are low. Spending reaches the maximum in middle age, as family size increases and incomes peak, then falls again in older age as household size and income decline.

These stages, combined with the baby booms and busts of past decades, have made evaluating and forecasting the marketing environment a complex endeavor. Add in a fundamental change that has been taking place in the life-cycle pattern of spending, and marketers are discovering that doing business today is a lot like building a house in an earthquake zone.

Two big quakes in spending patterns have reshaped consumer markets in recent years. One is the dramatic decline in spending by householders aged 35 to 44. This downturn is of significance to business because the 35 to 44 age group accounts for the largest share of American households, over 23 percent, and consequently the largest share of most consumer markets. Ten years ago, this group spent 29 percent more than the average household on goods and services. Today, it spends only 16 percent above the average. Between 1987 and 2001, householders aged 35 to 44 cut their spending 9 percent, after adjusting for inflation.

Their spending once matched that of those in the age group (cohort) 45 to 54, but the recessions of 1991 and 2001 changed that, and the impact on retailers and manufacturers has been significant. While the number of households headed by 35-to-44 year olds increased 31 percent from 1987 to 2000, their aggregate spending rose only 19 percent. By contrast, during the same period, the number of households headed by 45-to-54 year olds rose 44 percent, and their aggregate spending rose an even faster 46 percent. The shift has spelled trouble for toy companies, turmoil among fast-food retailers, and closings and consolidations in the shopping center industry. Even though some of these changes have been beneficial, getting rid of some of the weaker players in these industries, there are some fundamental long-term issues emerging. Depending on your perspective, this can be both good and bad.

What accounted for the younger group’s spending decline? The answer is economic insecurity. In this life-cycle stage, people tend to have growing families and huge debts. The two recessions forced 35-to-44-year-old householders to cut their discretionary spending in order to make ends meet. This is the bad side, from the perspective of some analysts, but others argue that given the huge amount of debt and lack of a savings habit with this younger group, the trend could be good for the future. The “big spender” title has moved on to another age group.

Older Americans account for the second quake in life-cycle spending patterns. Between 1987 and 2001, spending by the 65-plus set rose faster than in any other age group, fueled by a more educated and affluent generation entering senior citizen status. Thus, older Americans’ spending is rising to approach the average, and the trend will only intensify as the hyper-educated boomers hit their sixties in 2006.

Many businesses still haven’t noticed the aging consumer markets. Some are ignoring it entirely. Clearly older consumers are spending money, but they’re spending it on the industries that have been courting them. Here’s a look at some of the winners and losers as the new consumer paradigm takes hold.

§ The Casual Consequence

Between 1987 and 1997, the average American household cut spending on apparel 15 percent, after adjusting for inflation. Spending on women’s clothes fell even more, down 20 percent. Householders aged 35 to 54 made the biggest cut. The average household in this age group spent one-third less on women’s clothes in 1997 than it did in 1987.

No wonder so many clothing retailers are wondering where their customers went. The growing popularity of khakis and polo shirts, less expensive than business suits, explains part of the decline. “There are a lot more wearing occasions for casual apparel due to a lot of companies going casual in the workplace,” explains a Levi Strauss & Co. spokesperson. A 1997 survey commissioned by Levi Strauss found that 53 percent of U.S. workers now dress casually every day of the week, not just on Fridays.

However, more important is the clothing industry’s failure to create products that appeal to middle-aged women. The biggest spenders on women’s clothes are householders aged 45 to 54, followed by those aged 55 to 64. Yet, most clothing is designed and marketed to teens and young adults. With so little to choose from, women aged 35 and older are spending their money elsewhere.

One forward-thinking company that has captured the attention of older women is DM Management in Hingham, Massachusetts, a catalog retailer that targets a neglected category: affluent women over 35 (see “New Look, Better Numbers,” October 1998). Sales through its J. Jill and Nicole Summers catalogs have grown rapidly, up more than 61 percent in 1998-9. Why? Maybe it is because the biggest spenders have nowhere else to shop.

§ Focus on Fun

The entertainment industry continues to boom, not surprisingly. Each year since 1987, Americans have devoted more of their budget to entertainment. In 2000, the average household spent over $1,900 entirely discretionary dollars on good times, up from $1,686 in 1987, after adjusting for inflation—an 8 percent jump. Behind this boom is an affluent population and the growing enthusiasm of older Americans for having fun.

As in almost every other category, the pattern of entertainment spending has shifted markedly. Whereas householders aged 35 to 44 once were the biggest spenders on entertainment, that role has been overtaken, again, by householders aged 45 to 54. Between 1987 and 1997, the average household headed by a 35-to-44 year old cut its entertainment spending 10 percent. Meanwhile, spending by householders aged 45 to 54 surged 16 percent. By 2000 the 45-to-54 group spent 33 percent more on entertainment than the average, pushing 35-to-44 –year olds into second place. Rising to third place were householders aged 55 to 64, displacing the 25-to -34 age group.

Nevertheless, the senior citizens have become America’s true party animals. The average household headed by a 65-to-74 year old spends more on entertainment than does the average household headed by someone under age 25. Even the very oldest householders are in on this revolution: Those aged 75-plus spent 98 percent more on entertainment in 2000 than in 1990, the biggest increase of any age group.

The bottom line is that Americans aged 55 and older account for a larger share of spending on entertainment than those under age 35. Despite this fact, the entertainment industry has done little to serve fun-loving older Americans, with some exceptions. Elderhostel is booming, precisely because it targets older consumers. However, many other businesses have risked bankruptcy rather than change their mind-set. The shopping center industry is a prime example, obsessively pursuing teens and young adults when they could reinvent themselves as entertainment venues for older consumers. Mall visits fell from 2.62 to 1.97 per person per month between 1994 and 1997, according to Maritz Marketing Research polls. “What could possibly lure someone who is 49 or 59 years old?” asks a retail consultant. “If anything, they are repelled by congested aisles and merchandise that is not appropriate.”

§ Stomach Wars

Americans are spending less on food than they once did, and that is a problem for the restaurant industry. Between 1987 and 2000, spending by the average household on food at home fell 3 percent, adjusting for inflation. Spending on food away from home fell a much larger 13 percent. When Americans cut their discretionary spending in the early 1990s, restaurants were hit hard, as people turned to less-expensive take-out food. “Consumers opt for a take-out dinner at home a whopping 61 percent more often than they did 10 years ago, whereas they choose to eat dinner in a restaurant 4 percent less often,” reports Restaurants USA, the trade magazine of the National Restaurant Association.

Younger householders have cut their food spending the most. In 1987, the best customers in the food-away-from-home category were householders aged 35 to 44, but the recession took away their appetites. From 1987 to 1997, they cut their restaurant outlays by an enormous 23 percent, ranking them second to 45-to-54year olds in restaurant spending. Not only that, the average household headed by a 55-to-64yearold now spends more on food away from home than those headed by 25-to-34-yearolds, despite the fact that older households are smaller. Adding insult to injury, householders aged 65 to 74 spent considerably more on food away from home in 1997 than householders under age 25. Good-bye Planet Hollywood, hello early-bird special.

Restaurants will have a difficult time recapturing those lost customers. “The low end of the industry is in for big trouble,” says the editor and publisher of a weekly newsletter for food marketers. “It’s falling behind because so many supermarket chains have made an effort to supplement their sales with home meal replacements.”

Whether they are ready-to-eat or ready-to-heat, home meal replacements are changing the way supermarkets do business. Chefs and nutritionists now create signature menu items that shoppers can buy on the fly-everything from ethnic dishes to all-American comfort foods, and separate checkout counters speed customers on their way. In the battle for share-of-stomach, “supermarkets are winning.” In the future, an analyst predicts, restaurant dining “will be more of an occasion.”

§ Health Care Costs Continue the Spiral Upward

No one escaped the rising costs of medical care in the past decade: The average household spent $1,914 out-of-pocket on health care costs in 1997, a 16 percent increase since 1987, adjusting for inflation. Nearly half that amount was for insurance. But since spending on insurance by the average household grew more than 40 percent across all age groups, the spending pattern did not change significantly. Householders 65 and older spent the most out-of-pocket, 52 percent to 58 percent more than the average. The youngest householders spent the least.

Not surprisingly, health care consumes a sizable share of older householders’ budgets. People aged 65 to 74 devote 10 percent of their annual spending to out-of-pocket health care costs. Those aged 75 or older shell out even more—14 percent of spending overall, or $2,799 in 1997. Despite Medicare coverage, 53 percent of seniors’ health care dollars go to insurance bills. Out-of-pocket Medicare costs, plus the supplemental insurance purchased by many, boosts their spending on health insurance far above that of any other age group.

These facts are of utmost importance to today’s middle-aged adults. Proposals to raise the age of Medicare eligibility could mean boomers would have to devote an even larger share of their retirement income to medical costs. Few boomers are aware of the enormous burden health care costs place on older householders. Their awareness-and their political involvement-is likely to grow as they approach retirement age.

§ Changing Buying Patterns

Perhaps nothing exemplifies the battle for discretionary dollars better than the war between the furniture and computer industries. As spending on computers has surged, spending on furniture has fallen.

By all accounts, these should be golden years for the furniture industry. The economy is up, homeownership is at a record high, and the baby boomers are in their peak furniture-buying years. However, the average household spent 13 percent less on furniture in 1997 than in 1987. In addition, householders aged 35 to 44, traditionally the biggest hearth-and-home spenders, cut their furniture budgets by a stunning 34 percent. By 1997, householders aged 45 to 54 were the biggest furniture buyers, despite the fact that they, too, were spending 8 percent less than a decade ago.

Forget the new sofa: householders want a computer and Web access. In 2000, the average household spent $260 on computer hardware, software, and online services for non-business use. While that may not sound like much, it is an average and includes those who spent something and those who spent nothing. More impressive: if you rank all the products and services people buy for their homes, computers are in fourth place. The only items that account for a greater share of the household operations budget are telephone equipment and services (average, $909); furniture ($387); and day care ($232). The average household spends more on computer technology than on major appliances, lawn and gardening, or housewares.

The biggest computer spenders are aged 45 to 54, and they spent 61 percent more than the average household in 1997. Second are aged 35 to 44. Seniors aged 55 to 64 are third, spending more on computers than householders aged 25 to 34.

With computer spending surging, other discretionary categories have suffered-and a reversal is unlikely as the Internet’s popularity grows.

§ The New Adventurers

Americans spend a lot on travel. In 2000, the average household spent $1,259 on travel-related transportation, food and alcohol, lodging, and entertainment.

The travel market has long been dominated by older Americans, and for good reason: it’s one of the few industries that courted them. “They saw the opportunity. They looked at who had discretionary income and time. The industry has boomed ever since.”

In 1997, the biggest travelers were householders aged 45 to 54, 55 to 64, and 65 to 74-in that order. All other age groups spend less than average on travel. Householders aged 55 to 64 devote the largest share of their spending money to travel, nearly 5 percent. In fact, this age group spends more on travel ($1,706 in 1997, on average) than it does on clothes ($1,656), and almost as much as it spends on furniture, appliances, floor coverings, bed sheets, and bathroom linens combined ($1,728).

Thanks to the aging boomers, the travel industry is likely to experience years of surging growth. When today’s workers, regardless of age, are asked what activity they most look forward to when they retire, travel is mentioned by the largest share-32 percent, according to a Gallup survey. When asked whether there is something workers are waiting to do until they retire, once again travel is the hands-down winner cited by 45 percent of respondents.

The news could not be better for the travel industry, and it could not be worse for other industries that will lose out to wanderlust. Before the losses mount, businesses should follow the money, targeting the growing numbers of affluent, sophisticated, older consumers.

Retail consultants are optimistic. As boomers inflate the ranks of older consumers, businesses may finally begin to get it. “Boomers are actually going to convince us that youth is something to be endured while you wait for your forties, fifties, and sixties.”

Concerns”

The focus is on several major new issues in studies and strategies related to consumer marketing. After considering the privacy issue related to the consumer’s right to privacy, the discussion flows to the different types of consumers and the implications for marketers in the future.

Teaching Objectives

· To stimulate students to think about the privacy issue, pro and con, for a firm when it attempts to achieve a better understanding of its customers.

· To communicate the role of various types of information that help the firm achieve a clearer understanding of its customers and the consumer behavior environment of the present and future.

Discussion

Introduction

Americans today feel more protective of their privacy than they did during most of the 1990s. That is the fundamental conclusion of two surveys on privacy issues. Polls by Yankelovich and Louis Harris & Associates indicate continued high levels of concern over the way business obtains, uses, and disperses consumer information.

The more alarming figures arise from the Yankelovich survey, in which nine out of ten respondents favored legislation to regulate business uses of consumer information. Forty-five percent of those polled strongly feel the need for privacy legislation, up from 23 percent in 1990. According to a Yankelovich partner: “Very seldom do we get 90 percent agreement on anything. That really attests to the fact that this is an enormously important issue to people.”

The Harris study is more reassuring, providing a less negative message. Although 82 percent of the respondents say they are “somewhat” or “very concerned” about threats to their personal privacy, their uneasiness is more focused on the government than business. The majority of respondents (57 percent) think businesses that handle personal information “are paying more attention to privacy issues these days.” An interesting aspect of this poll is, however, that 72 percent of the respondents agreed that “if companies and industry associations adopt good voluntary privacy policies, that would be better than enacting government regulations.”

There are some very consistent messages that have gotten clearer in recent years. They are:

· People regard their transaction information as something they feel they have lost control over, and that concerns them.

· People are different. Some don’t want any direct marketing, some want everything you can give them, and in between there are people who want some say in what gets to them and what doesn’t.

People in the last group (those who want a say in what comes to them) comprise the largest segment of the total (55 percent). This group recognizes the benefits of using personal information for business uses. However, they have to be convinced that the data being sought are relevant and subject to fair information practices. For these people, notice and the ability to opt out are very important. This group “favors voluntary standards,”” but they will back legislation when they think not enough is being done by voluntary means. As it is, over half the respondents (54 percent) do not believe current laws or business practices adequately protect their privacy.

At the same time, the Direct Marketing Association (DMA) reports that consumers purchased over $700 billion through direct marketing channels in 1998. This is not the contradiction it might seem. A 1994 survey regarding interactive services revealed that the respondents who were most interested in subscribing were also the most likely to have made purchases through direct marketing. They were also the most concerned about privacy, and their willingness to release personal information for interactive marketing purposes was contingent on the presence of policies that protected their privacy.

According to various surveys, the best customers for direct marketing are many of the same people who are looking for proper safeguards in the relationship between the marketer, the service provider, and the consumer. The apparent message here is that it would be a mistake for direct marketers to assume that their customers are not interested in privacy. Clearly, they are the people concerned about privacy.

Respondents to one of the surveys actually expressed a desire for better relationships with marketers. The survey indicated the people are tired of having to be vigilant about everything they do, and they would like to be able to trust a little bit again, but still they are looking for protection. The theme seems to be that it will take more than individual effort. A company could be doing everything right, but 10 other companies are doing everything wrong, so in the consumer’s mind all marketers stink. The point is that businesses have to make much more of a concerted effort to show that they really do respect privacy.

From the surveys there are some important conclusions. First, companies cannot brandish the survey data and say they can prove that the industry is rock-solid and forthcoming. Secondly, if one considers the process from a broader point of view, it is clear that the public wants industry to be more forthcoming, and they will listen if the industry responds. If the industry does not respond, there could be potential for more regulation. The number of bills to regulate direct marketing passed and pending in various state legislatures is clear evidence of this point. Legislators are showing that this is an issue that people care about.

Behavioral Analysis

There is a substantial question about how well the American consumer is faring in this era of low inflation, downsizing, and global competition. It can be argued that maybe some of this fits VALS 2, but it is likely that one thing is for sure: Just when we believe that we have a good understanding of the consumer, some movement or person comes along and upsets our theory. We can learn about the consumer by looking at recent surveys. In general, the surveys tell us the consumer is possessive but despite the events of the latter months of 2001 still somewhat passive.

To support this perspective Langer Associates, Inc., conducts an annual survey of American consumers. Langer specializes in qualitative studies of consumer marketing issues. The firm conducted focus groups with thousands of people across the United States and discovered that the following attributes and concerns are widely shared:

· Self-Security. As corporate downsizing continues to make headlines, self-employment is increasingly viewed as the safer option. Educational courses and media focused on starting and running a small business still have widespread appeal, as do ads featuring business owners.

· The “Mine” Generation. Sensing that resources are becoming sparse and stretched, the “Me” Generation is putting more emphasis on preserving what they do have: jobs, family, community, possessions—a change reflected in economics and politics.

· Localization. A new protectiveness following 9/11 has translated into increased interest in issues like school budgets and neighborhood crime. Advertisers can tap into this by localizing their message as well as running national campaigns.

· More Together. Coffee bars and the Internet are becoming increasingly popular in part because they satisfy two conflicting desires:

o Connection with others

o Avoiding intrusive interaction

The message is that stores, restaurants, and clubs similarly can satisfy both needs by building zones of “alone-togetherness” into their layout.

· Topsy-Turvy Retail. Focus group members often give higher marks for customer service to some discounters and off-price stores than the more upscale establishments. Clearly, the higher-price outlets need to work on this, and lower-price stores could promote service along with lower prices.

· Battle of the Superstores. Consumers like the more personal atmosphere of small, independent stores and tend to sympathize more with the owners, but still they spend more at the mega-marts. Although there are signs that the public is beginning to tire of superstores, business remains brisk. Smaller stores will have to maintain excellent personal service, find niches to fill, and do more direct marketing to stay afloat.

· “Woo-Me” Marketing. Customers today will not seek out products or services; they assume that offers will come to them. Therefore, businesses need to be more proactive, approaching consumers with free trials and special offers.

· Yuppies, Gen X Style. Twenty- and thirty-somethings who are settling into careers are spending more, especially the singles. However, they differ from yuppies of the 1980s in that they do not expect to make big money and are less interested in designer labels. Ads that stress value and de-emphasize status as a reason for buying (even if it is the reason) are likely to appeal to this crowd.

· Clothing Cutbacks. Until a new style of dressing renders their current wardrobes obsolete, most consumers feel they already have all the clothing they need. The trend toward more casual dress for work and socializing has added to their resistance, even though there are signs that more formality in clothing and other social matters may be on a comeback. The money that would have gone into the closet is being spent instead on homes, travel, and investments despite national and global economic and political issues.

· High-Tech Polarization. Attitudes toward technology are polarized, with many people still concerned about the impact of computers on employment, the depersonalization of business and personal relationships, and other issues. Possible remedies: Find ways to offer reassurance, and to maintain the “human touch.”

· Data Glut. Complaints about being overwhelmed by information are up sharply, indicating a potential market for those who can help simplify it and screen out extraneous communications.

· Changed Office Structures. Downsizing means more executives doing clerical work themselves, creating a market for foolproof photocopying and computer products. Other growth areas: Outsourcing and products that aid in telecommuting from the home or the road.

· Solitude Time. On-the-job stress is creating the need for quiet time. Products that can be positioned as aids to relaxation include aromas, yoga, and reading materials.

· Working at Relaxing. Nothing is easy; professional/managerial types put a lot of effort into their down time, scheduling massages, gardening, and redecorating their city apartments. Ads can talk about people deserving to relax, and depict the humor inherent in striving for serenity.

These survey results are all very interesting, but the real question here is: What is the meaning of this for the business thinking of changing products or adding to its current offerings? This is an appropriate question to ask the class to stimulate discussion.

C. “Exogenous Variables Related to Consumer Behavior”

The consumer’s ability and willingness to embrace technology advances has created new opportunities as well as challenges for organizations. Organizations have no control over technology advances, and those who do not embrace these new methods will be at a disadvantage as consumers will gravitate to those organizations that do.

Teaching Objectives

· To demonstrate how the Internet and wireless environment has enabled the consumer to become more effective in their information gathering and decision-making process.

Discussion

Organizations, in their efforts to reduce cost, increase their competitivenss, and enhance communication to consumers have greatly enhanced their Web pages with most of the information necessary for consumers to research and purchase their products and services. Additionally, new business entities such as bizrate.com have evolved to provide product and service brand comparison. Comparisons include product and service descriptions, price, and sometimes testimonials from other consumers, which further add credibility to the information. Consumers are becoming acclimated to using the Web for product and service information and have started to expect this from all organizations. Organizations must optimize all consumer touch points with information on where to go on the Web for more information when the consumer is aware of their brand. Organizations must ensure that they have optimized their keywords for search engines when a consumer is searching for information by category and not brand. Consumers who are armed with information acquired on the Web change the sales process. For example, consumers are coming into car dealerships with all relative information on a particular car’s options and what price they are wiling to pay for the car. In some cases the consumer may be more knowledgeable than the sales person. Hence the organization must be better prepared to deal with a more knowledgeable consumer. Consumer “blogs” have also influenced the consumer in both positive and negative ways. A dissatisfied consumer can quickly create their own blog or add his or her experience to an existing blog. In conclusion, technology has provided the consumer with a vehicle to gather and disseminate information relative to his or her product and service purchase. It has provided the organization with a method of efficiently informing the consumer with their relative product and service information. Technology is changing quickly and the rate of change adoption varies by consumer as well as by organization. Therefore, organizations must keep pace with both the technology and consumer technology adoption synamics to remain competitive.

Background Article

Issue: Marketing Shifts with a New Generation of “Senior Citizens”

“Boomer Grandparents A Booming Market,” Kiplinger Report, May 14, 2002.

In the five-and-a-half decades since they first began arriving on the scene, the baby boomers have transformed every American institution with which they’ve come in contact, from popular music to parenthood. Now that the older boomers are in their late 40s and 50s, they’re making their mark on grandparenting.

Just fewer than 20 million, or about 30%, of U.S. grandparents are boomers, born between 1946 and 1964, and their ranks will swell to 32 million by 2007. Boomer grandparents spend roughly 29% of the $50.3 billion doled out annually by U.S. grandparents on products and services for their grandkids, according to data compiled by the Census Bureau and Roper.

Although boomer grandparents are not expected to spend any more on their grandchildren than other grandparents, the sheer number of boomers approaching grandparenthood suggests that it’s wise for retailers and other businesses to pay attention to what they are buying and how they view their grandparenting role.

Researchers believe that baby boomers want to be more of a presence in their grandchildren’s everyday lives than grandparents of earlier generations. This attitude stems partly from the fact that many boomers have the demands of raising children fresh in their minds. Many of them have children from second or third marriages who are almost the same age as grandchildren from their first marriages. Furthermore, remembering the notorious generation gap that colored their own relations with their parents, boomers see helping with grandchildren as one way to keep communication going between them and their own children.

As the ranks of boomer grandparents grow, you will see more taking responsibility for child-care. Grandparents will become more involved in day-to-day purchases of what cereals to serve for breakfast or what to pack for lunch. And since baby boomers tend to be more health conscious than previous generations, they’re likely to seek out health foods and vitamins for kids. Also, boomer grandparents will spend more on transportation than other grandparents, shuttling kids to soccer practice and other activities. They’ll be much more likely than older grandparents to purchase sport-utility vehicles and, to a lesser extent, minivans to make their chauffeur duties easier.

The travel industry will be one of the biggest beneficiaries as boomer grandparents shell out big bucks to vacation with their grandkids, particularly on trips that can broaden their grandchildren’s minds. Eco-friendly cruise packages, river rafting, and other adventure tours will be major attractions. Grandkids will have a major say in how the family’s travel money is spent, ranging from the choice of destination to the purchase of second homes or time-shares.

Grandparents who don’t live near their grandchildren will spend freely on airplane and train tickets and road trips to visit them more frequently than older grandparents. Moreover, they’ll be more likely to sign up for Internet accounts to keep in touch with their grandkids by e-mail or instant messaging.

Then there’s the entertainment market. Having grown up on rock and roll, boomers will be far more likely than their senior parents to share their grandchildren’s musical interests. That means not only that they’ll spend more on compact discs for their grandkids, but also that they’ll be joining them in the stands at rock concerts. Similarly, they’ll be more likely to take them out to restaurants, movies and sporting events.

But education concerns will also shape entertainment purchases. Interactive computer games that teach learning skills, such as those featuring the character Thomas the Tank Engine, will be at a premium. Boomers will also focus on nontraditional gifts, such as museum memberships or even wild animal adoptions through the World Wildlife Fund.

Boomers will continue to spend money on the usual fare, such as toys and clothing, but they will go about it with an eye toward keeping themselves informed. If an educational game is something that grandparents can play with their grandkids, so much the better. Kathy Whitehouse, a senior consultant with SRI Consulting Business Intelligence, says that boomer grandparents will be more likely than their own parents to pay attention to sources such as Consumer Reports, not only to assess a gift’s educational value but also to gauge its usefulness, safety and durability.

Probably the best way to appeal to boomer grandparents is to emphasize two things: education and shared experience. For big-ticket items, a major hook is the desire to give grandkids a wider range of experiences, particularly to things the boomers wish they could have experienced as kids but that their parents couldn’t afford. Adventure travel certainly fits that marketing profile, but so do many other things, such as space camp or computer camp and private lessons in painting, music or other artistic endeavors.

IV.

“TiVo”

HBS Case: 501-038 TN: 5-501-057

Teaching Perspectives

TiVo’s new consumer electronics product has the potential to revolutionize media consumption and the structure of the television industry. The TiVo personal video recorder provides television viewers with a variety of user-friendly features, including the ability to record automatically favorite shows, obtain personalized recommendations, skip commercials, and pause/rewind live television. “Watch what you want to watch when you want to watch it” is TiVo’s promise to the consumer. TiVo is confronted with the difficulty of selling a new and complex electronics product that is intended radically to change consumer habits. Moreover, with an ambiguous future impact on the television and advertising industries, TiVo needs to demonstrate that it can play a constructive role in the future media landscape.

Fourteen months into the launch, sales are very disappointing. The VP of Marketing and Sales, wants to combine a catchy communications campaign, product bundling with satellite television receivers, aggressive pricing, and increased sales support, in order to boost demand for the new category. One important goal is to position TiVo as a strong brand before the entry of big player Microsoft.

This case can be used to discuss classical areas of marketing strategy:

· Launch strategy for a truly new product.

· Preemptive positioning/first mover advantage.

· The role of branding in relation to these issues.

· Integrated communications strategy.

This case also can be used to highlight important issues in consumer behavior:

· Factors that inhibit/facilitate the adoption of a new technological product.

· Framing and reference points in consumer decision-making.

· Habit formation/disruption.

Finally, the case can he used to discuss contemporary issues related to marketing in the information age:

· Empowering consumers with more control over their consumption experiences, in order to enhance targeted marketing.

· Consumer privacy.

· Structural impact of information technologies on the functions and power of the various actors in the entertainment/advertising industry.

The best use of the case may be as a marketing strategy exercise (What is TiVo’s perceived value proposition? What is the situation with television networks and competitors? Whom should TiVo target, and what positioning claim should they make? What is the marketing plan?), allowing the other topics (consumer behavior and marketing issues in the information age) to surface as the discussion progresses. This approach has pluses and minuses. On the minus side, the analyses of these specific topics might remain relatively superficial. On the plus side, this approach highlights the criticality of these topics to the process of building an action plan.

Questions

1. Analyze the situation from the consumer’s standpoint. What is TiVo? What factors facilitate its adoption? What factors make adoption difficult? Who is TiVo best suited for?

2. Now adopt the standpoint of the networks, the advertisers, and the cable/satellite companies: What do they want TiVo to be? Thinking about the competition: What are Microsoft’s potential strengths and weaknesses in this market?

3. How would you describe and characterize TiVo’s action plan as given at the end of the case? How do you evaluate the planned communication campaign? Does your situation analysis suggest an alternative plan?

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Creating Long-term Loyalty Relationships

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中国经济管理大学 

Creating Long-term Loyalty Relationships

中国经济管理大学/中國經濟管理大學

Today’s customers face a growing range of choices in the products and services they can buy. They are making their choice on the basis of their perceptions of quality, service, and value. Companies need to understand the determinants of customer value and satisfaction. Customer delivered value is the difference between total customer value and total customer cost. Customers will normally choose the offer that maximizes the delivered value.

Customer satisfaction is the outcome felt by buyers who have experienced a company performance that has fulfilled expectations. Customers are satisfied when their expectations are met and delighted when their expectations are exceeded. Satisfied customers remain loyal longer, buy more, are less price sensitive, and talk favorably about the company.

A major challenge for high performance companies is that of building and maintaining viable businesses in a rapidly changing marketplace. They must recognize the core elements of the business and how to maintain a viable fit between their stakeholders, processes, resources, and organization capabilities and culture. Typically, high performing businesses develop and emphasize cross-functional skills rather than functional skills (overall project management and results versus functional strengths (best engineers, etc.). They also build their resources into core capabilities that become core competencies, distinctive abilities and competitive advantages. This, along with a corporate culture of shared experiences, stories, beliefs, and norms unique to the organization, are the keys to their success.

To create customer satisfaction, companies must manage their value chain as well as the whole value delivery system in a customer-centered way. The company’s goal is not only to get customers but even more importantly, to retain customers. Customer relationship marketing provides the key to retaining customers and involves providing financial and social benefits as well as structural ties to the customers. Companies must decide how much relationship marketing to invest in different market segments and individual customers, from such levels as basic, reactive, accountable, proactive, to full partnership. Much depends on estimating customer lifetime value against the cost stream required to attract and retain these customers.

Total quality marketing is seen today as a major approach to providing customer satisfaction and company profitability. Companies must understand how their customers perceive quality and how much quality they expect. Companies must then strive to offer relatively higher quality than their competitors. This involves total management and employee commitment as well as measurement and reward systems. Marketers play an especially critical role in their company’s drive toward higher quality.

· Understand what constitutes customer value and satisfaction.

· Know how leading companies organize to produce and deliver high customer value and satisfaction.

· Understand how companies can retain customers as well as attract customers.

· Know how companies can determine customer profitability.

· Understand how companies can practice total quality marketing strategy.

I. Introduction

II. Building Customer Value and Satisfaction

A. Customer perceived value

1. Customer perceived value

a) The difference between total customer value and total customer cost, or “profit” to the customer

b) Total customer benefit is perceived monetary value of benefits

2. Total customer cost: Perceived bundle of costs consumers expect to incur in evaluating, obtaining, and using the product or service

3. Loyalty as defined by Oliver, is “a deeply held commitment to rebuy or repatronize a preferred product or service in the future despite situational influences and marketing efforts having the potential to cause switching behavior”.

4. Value proposition consists of the whole cluster of benefits the company promises to deliver.

5. Company must manage its value delivery system, i.e. all the experiences the customer will have on the way to obtaining and using the offering.

B. Total customer satisfaction

1. Perceived performance and expectations contribute to overall satisfaction or dissatisfaction

2. Satisfaction is a person’s feelings that result from comparing a product or service’s perceived performance or outcome to expectations

3. Companies must be able to manage customer expectations. Raising expectations requires increase in value delivered.

4. Companies may not want to increase customer satisfaction to a level that would not allow them to also sustain optimal relationships with shareholders and other partners.

C. Monitoring satisfaction

1. Satisfaction breeds loyalty but the relationship between the two is not proportional. (e.g. very highly satisfied customers, per Xerox, may be 6x’s ads likely to repurchase and spread positive word-of-mouth over very satisfied customers)

2. Note discussion under “Marketing Skills: Gauging Customer Satisfaction”

D. Product and service quality

1. Quality is the totality of features and characteristics of a product or service that bear on its ability to satisfy stated or implied needs

2. Conformance quality is a delivery of need fulfillment whereas performance quality defines the different degrees of conformance (i.e., assuming two products deliver the same conformance for need fulfillment, one may have a higher level of performance (e.g. Lexus and Hyundai both deliver transportation but Lexus is highly regarded as delivering a more superior transportation experience)

3. Total quality management (TQM) is an organization-wide approach to continuously improving the quality of all of the organization’s processes, products, and services

4. Marketers play six roles in helping their organizations define and deliver high-quality goods and services to target customers:

a) Correctly identify customer needs and requirements

b) Properly communicate customer expectations to product designers

c) Ensure proper product and service fulfillment

d) Verify that customers received proper instructions, training, and technical assistance in use of product or service

e) Maintain post sale contact with customer to sustain satisfaction

f) Gather customer ideas for product or service improvements and convey to respective internal organizational resources for potential development

III. Maximizing Customer Lifetime Value (20 percent of customers generate as much as 80 percent of profits). Extreme cases show 150% - 300% of profits. Least profitable 10% - 20% can reduce profits by 50% - 200%. Fire worst customers.

A. Customer profitability

1. Profitable customers over time yield revenue streams that exceed the costs of serving them. Emphasis here is on the lifetime stream of revenue and cost and not profit from a specific transaction.

2. Customer profitability analysis (CPA) (refer to Figure 4.2) classifies customers into different profit tiers by subtracting all costs associated with serving the customer from all revenues generated from the customer. Use of activity-based costing (ABC) greatly enhances this type of analysis

B. Measuring Customer Lifetime Value (refer to Table 4.1 for a CLTV calculation example)

1. Measuring customer lifetime value - the net present value of the stream of future profits expected over the customer’s lifetime purchases

2. Subtract acquisition costs and “cost-to-serve”

IV. Cultivating Customer Relationships

Customer relationship management (CRM) is the process of managing detailed information about individual customers and carefully managing all customer “touch points” to maximize customer loyalty. A touch point is any occasion on which a customer encounters the brand or product. Peppers and Rogers’s four-step framework for one-to-one marketing, which can be adapted for CRM, is as follows: 1) identify your prospects and customers, 2) differentiate customers in terms of needs and their value to the organization, 3) interact with individual customers to acquire more information as well as sustain the relationship, 4) customize the offerings and communication to each customer

A. Attracting, retaining, and growing customers - becoming harder to please, smarter, more demanding, and less forgiving

1. Suspects - individuals or organizations who may have an interest in purchasing but may not have the means or real intention to buy

2. Customer churn (turnover) reduction strategies include:

a) Erection of higher switching costs (not optimal in some cases as it may breed resentment)

b) Optimal method is to breed high customer satisfaction

3. Customer development process - potentials into first-time customers into repeat customers into clients (specially treated customers) into members (programs) into advocates (become recommenders) and finally into partners. This is illustrated by the concept called “The Marketing Funnel” in figure 4.3

B. Building loyalty - five levels of investing in customer relationship building

1. Interacting with customers – listen to customer and pay attention to customer evangelists who are a referral source to other potential customers

2. Develop Loyalty Programs

a) Frequency programs (FPs) designed to reward customers who buy

frequently and in substantial amounts

b) Club membership programs – open to anyone who wants to

purchase or may involve a nominal fee for the privilege of

purchasing, Long term loyalty builders.

3. Creating Institutional Ties – Creating structural ties raises customer switching costs -

V. Customer Databases and Database Marketing

A. Introduction:

1 A customer database is an organized collection of comprehensive

information about individual customers or prospects that is current,

accessible, and actionable for marketing purposes (e.g. lead generation,

customer relationship maintenance, product selling, cross-selling, and

up-selling)

2. Database marketing is the process of building, maintaining, and using

customer databases along with other databases (e.g. products, suppliers,

resellers) to make contact, facilitate transactions, and build and sustain

customer relationships

3. Customer and prospect databases are used for both consumers and

businesses

B. Data Warehouses and Datamining

1. A data warehouse contains all (including historical) relevant customer

and prospect information, marketing mix information, macro

environmental data for respective timeframes, value chain member

information, and competitor information

2. Datamining is the process of analyzing data. The data can be resident

in a sophisticated repository such as a data warehouse or it may be a

simple set of data present on a report or in a spreadsheet. There is a

variety of software products and statistical methods that perform

DataMining, each having specific capabilities. The analysis can be

simple or complex. Some organizations extract part of the large

volume of data resident in a data warehouse and place it into a smaller

database often referred to as a DataMart

3. Organizations use databases to:

a) Identify the best prospects

b) Match a specific offer with a specific customer to up-sell &

cross-sell to the customer

c) Deepen customer loyalty by using personalization techniques

d) Reactivate customers

e) Avoid mistakes by controlling customer communication

4. The Downside of Database Marketing and CRM

a) Some situations not conducive to investment in database

systems. Infrequently purchased items (durable goods such as

refrigerators) do not create multiple interaction opportunities

and frequency of purchase. However, an opportunity may exist

to sell services surround the product such as warranty and

repair.

b) Large investment required for construction and maintenance of

computer hardware, software, communication capabilities

c) Difficulty of getting all employees to be customer centric and

breaking the paradigm in organizations to move from

traditional transaction marketing to customer-orientated

marketing

d) Customer privacy, ethical practices, and compliance with legal

and social constraints and knowing that not all customers want a

relationship and may resent personal information being

captured and used by organizations for marketing purposes

(refer to Marketing Insight “The Behavioral Targeting

Controversy”)

e) CRM assumptions may not always be valid (organization fails at

CRM execution; CRM cost exceeds benefits - either financial,

strategic, or both.

VI. Executive Summary

II.

A primary marketing focus is on the increasingly powerful role of customers in the marketing process and the need for marketers to provide value that exceeds customer expectations. Within this context is relationship marketing, providing a link with other areas of the text.

Teaching Objectives

· To explain the concepts of product and service quality as they contribute to perceived value for the customer.

· Help students to better understand the changing role of the customer in today’s marketplace.

· To present specific methods whereby marketers can engage in value-creating activities.

Introduction

In the contemporary marketplace it is hard to believe there was ever a time when customers were not treated as an integral part of the exchange process. Prior chapters of the text consider some of the many shifts taking place in today’s marketing environment. Competition in the marketplace, along with advancing technology, affords customers the ability to learn significantly more about the products they will purchase and/or consider for purchase.

The same factors also have created both the need and the opportunity for marketers to know their customers on a more personal level. Ever increasing competition has forced marketers to seek out the information necessary to provide customers with the products and service they truly desire. Technology, when used to create a customer database, is one way marketers are answering to this new trend. Product development will be discussed in a later chapter; for now, we will focus on building satisfaction through customer relationship development activities.

The concept of perceived value is based on Kotler’s explanation of customer delivered value. Customers, like marketers, seek to profit from an exchange. Perceived value is aptly named because it supports the notion that the customer and not the marketer determine value. The marketer’s responsibility is to create value, in both product and service quality that lead to increased satisfaction and encourage a high perceived value.

For example, service excellence is determined by customer perceptions and motivated by customer needs. Ken Blanchard, author of The One Minute Manager, says that the secret to competing successfully in today’s environment is to provide customers with service that is so far above their expectations that it is perceived to be legendary.

Marketers, with both large and small organizations, can engage in activities that exceed expectations and lead to customer delivered value. Marketers with large organizations have the ability to tap into a sophisticated database, utilizing past purchase data to customize marketing programs. These marketers also can become experts at “guerrilla marketing,” or the implementation of local promotions for the purpose of getting closer to customers. Furthermore, large organization marketers also have the ability to create a Web site and store-specific marketing programs that create retailer loyalty, build differentiation, and increase sales in desired market areas.

Small business marketers, however, also have many opportunities to create strong customer relationships. By placing extra focus on what might generally be considered a commodity product, these marketers can stimulate demand and compete with large rivals in the same industry. If a company is small enough, its top executives can serve as the communication link for the company and various external publics, such as customers and retailers. Even internal publics, such as the sales staff, should be encouraged to make suggestions to top management. Finally, database programs are becoming more and more affordable, making direct mail programs a viable option even for smaller firms. This leads to a discussion of an evolving direction for relationship marketing.

Relationship Marketing Expanded

Even though it is becoming increasingly possible, why would any rational customer actually want a “relationship” with the company that makes his or her razor blades, or dishwasher soap, or toilet paper? The answer is that the consumer probably would not necessarily desire a “relationship” with these companies, but the customer will want more spare time. Accordingly, he or she might like to have routine or repeat purchases for soap, paper towels, grocery staples, etc., automated.

What if you could turn on your personal computer or your interactive television set, call up a list of last week’s grocery purchases, make a few changes, and then simply order them delivered to your door? And what if, when you did this, the computer reminded you to order certain items such as toothpaste and paper towels, since you might be running low on those items? What if, to help choose the groceries you wanted for your family, you asked the computer for a week’s worth of dinner menus, specifying recipes and ingredients?

In many product categories, you don’t really care what brand the computer selects, but in some product categories you have a list of “approved” brands, as well as brands you never want to see again. The computer automatically seeks out the least expensive basket of products that meet these criteria. Once you confirm it, your order is paid for via credit card or direct debit. The elapsed time for all this shopping was just seven minutes.

Now, from the marketer’s side of the equation, consider the immense business opportunity in serving customers more thoroughly. Delivering grocery staples is one situation, but what about pharmaceuticals? What about dry cleaning and laundry, ready-made meals, FedEx and other pickups and deliveries? The companies become, in essence, share-of-customer marketers.

A marketer’s primary task in the one-to-one future is not to find customers for the marketer’s products but rather to find more products and services for its customers. Consider that most retail chains have not really tried to figure out how to offer such conveniences as home delivery, because they don’t want to consider this, for various internal reasons. They want customers to need to come into the store (or into the “virtual store”) because they like to have customers walking up and down the aisles (or virtual aisles), making last-minute impulse purchases. For a large part of their business, today’s retailers depend on inconveniencing customers by requiring them to drive to their store (or virtual store) location to do their shopping.

However, consider that marketers today jam twice as many products in the average supermarket as there were just over a decade ago (30,000 products now, compared with 15,000 in 1985). Furthermore, commercial messages abound for these products, the overwhelming majority of which do not now appeal to any particular consumer. Instead, we must all fight our way through the increasing number of advertising messages to pick out the information we need. The same as how we must struggle through the proliferating barrage of products in or out of stores just to select the ones we want to buy. Every shopping trip becomes an increasingly difficult attempt to accomplish the same basic task, thus adding to the increasing use of the Internet.

Having an ability to buy these products more conveniently doesn’t mean people will completely stop going into stores, nor does it mean advertising will cease to exist. But if getting your regularly consumed products could be made nearly as convenient as “pushing a button,” wouldn’t you go into the store less frequently? Wouldn’t you, for the most part, prefer not having to shop for routine things? You could always choose to go out if you wanted to—after all, shopping is often a social experience, as well as a necessity.

As with stores and other enterprises that cater to the interests of the interactive consumer (including information and entertainment providers), the manufacturer will only be able to succeed competitively by relying on individual feedback. For the manufacturer, success in the one-to-one marketing environment will mean soliciting information from consumers, individually, and then using that feedback to customize an offering to each individual customer, one at a time. This is the essence of one-to-one marketing.

B.

Teaching Objectives

· To better understand why and how marketers need constantly to understand the constantly changing determinants behind customer perceptions of quality, service and value .

· How to better understand the critical elements of value chain analysis and the nuances behind the consumer perception of value.

· Understand specific methods whereby marketers can engage in value-creating activities.

Discussion

While customers face a growing range of choices in the products and services they can buy, there remain substantial opportunities for marketing and consumer-oriented firms. Customers continue to make their choice on the basis of their perceptions of quality, service, and value, but companies need to understand the determinants of customer value and satisfaction. Customer delivered value is the difference between total customer value and total customer cost. Customers will normally choose the offer that maximizes the delivered value.

A major challenge for high performance companies is that of building and maintaining viable businesses in a rapidly changing marketplace. They must recognize the core elements of the business and how to maintain a viable fit between their stakeholders, processes, resources and organization capabilities and culture. Typically, high performing businesses develop and emphasize cross-functional skills rather than functional skills (overall project management and results versus functional strengths, best engineers, etc.). They also build their resources into core capabilities that become core competencies, distinctive abilities, and competitive advantages. This, along with a corporate culture of shared experiences, stories, beliefs, and norms unique to the organization, are the keys to their success.

III.

ationship Marketing: A Competitive Advantage For B2C,” Information Today, June 2001, pp. 16-19.

Web-based marketing is changing drastically due to changes in the concept of customer relationship management

The ever-evolving Internet is driving explosive growth in e-commerce, customer service, and other real-time, interactive, transaction-based business activities. According to AMR Research (amrresearch.com), despite the implosion of the dot.coms, Internet retail sales are projected to reach $100 billion by 2003, up from $29 billion over the past four quarters. Web-based marketing, based on a new concept of customer relationship management, is radically changing virtually all of our conventional business models and forcing corporate America to rebuild them from scratch.

Both buyers and sellers are seeing just the tip of the e-commerce iceberg in the form of globalization of markets, a transaction-based economy, marketing-driven business process re-engineering, elimination of conventional middlemen, and mergers and acquisitions in unprecedented volume. “Bricks-and-mortar” is swiftly being replaced by “clicks-and-mortar” as the new, ubiquitous, customer-focused, cyberspace paradigm inexorably takes hold.

The current, multi-channel, e-commerce-driven, customer service climate demands instant gratification, at any time, from any place, in any way, through any medium—interactive Web site, telephone, e-mail, fax, PC, or wireless device. In today’s consumer-centric environment, the rule is that if it takes a customer more than five seconds to get what they want, the company has lost that potential buyer. Failure to deliver personalized, consistent, reliable accessibility to customized service is a distinct competitive disadvantage.

Alternatively, taking advantage of this opportunity entails delivering a rapid but personalized response to the customer wherever—and whenever—he or she chooses to interact with the seller. Web-based, customer-focused marketing enables companies to consistently sell the right product to the right person at the right time at the right price.

Despite all the hype about the Internet, however, the basic rules of business remain the same. The recent failure of numerous dot-com-based businesses demonstrates that in any business environment, companies must adhere to established business practices while they are integrating e-business transactions into their business model. As companies adopt a customer-focused, e-business platform as an essential component of their business process infrastructure, it is imperative that they do not abandon all they have learned to date about what it takes to deliver and maintain customer satisfaction. Just as with the old, traditional business activities, the goal of e-commerce should be to optimize each transaction, so that each one is timely and cost-effective for the customer while at the same time being profitable to the seller.

The Emergence of Relationship Marketing

Many companies spent the better part of 1999 making sure their enterprise systems were Y2K compliant. Now, with both feet firmly planted in the next millennium, information technology personnel are evaluating applications and implementations for the future. More and more companies are discovering the value of relationship marketing (RM) strategies. Convincing evidence can be found in The Cowles Database Marketing Newsletter, which reports that customer relationship programs launched within the past 12 months have increased by 37percent.

In a way, the relationship marketing approach represents a modern way of going “back to the future.” Before the era of mass marketing, customer service was personal and tailored to the individual. Selling and product customizing was done on a one-to-one basis, and the salesperson and customer usually knew each other personally. But, at the same time that automation, computerization, and mass production grew, and as customer support shifted from the storefront to the back office, customer service –became an all increasingly impersonal process. It turns out that the very agent of depersonalization—the computer—also has the power to collect enormous amounts of personal data, to analyze, and synthesize them, and then mine the results to draw valid conclusions based on discovered patterns of individual human behavior. As a result, over a relatively short time, the capabilities of the computer and the Internet have combined to enable present-day managers to dramatically reinvent and personalize the concept of customer service, which for so long has been based on the mass marketing paradigm.

Ideally, contemporary relationship marketing can be defined as a business strategy that proactively builds a bias or preference for an organization with respect to three audiences—its individual employees, its channel partners, and its customers. It accomplishes that task by adopting a high-tech solution that, through enhanced performance, increases retention of those groups. Seen from that perspective, relationship marketing can be described as a set of automated functions that guide customer transactions so that they respond positively to the marketing message and goals of an online business campaign. Along those lines, successful relationship marketing is dependent on not only the ability to smoothly execute certain business and operational tactics, but also the ability to implement it using the right tools and technology as well. The perfect relationship marketing system would be able to handle all customer-marketing interactions in a fully automated way. In the real world, however, a relationship marketing system typically contains a mechanism for identifying questions that need to be referred to a customer service representative.

From a knowledge management standpoint, Internet-centric relationship marketing is a way for a firm to set up its set of user transactions so that—based on historical, contextual information and extrapolations—individual consumer interests and likely buying propensities can be recognized, profiled, and then catered to in a highly individualized way. The optimal solution redefines the customer experience. It eliminates phone conversations with customers, both e-customers and the brick-and-mortar variety. The goal is to guide the customer directly to those products and services that hold the most interest for him or her and to present them in a manner that encourages a positive conclusion to the transaction. In that manner, RM software can be used to create a Web site that can sell both products and services while promoting targeted messages.

Nowadays, sophisticated e-savvy consumers require a lot more than traditional marketing strategies because the marketplace is not the huge but simple setting for which those strategies were originally created. In today’s complex and evolving business environment, a winning e-commerce strategy entails more than executing transactions efficiently. Contemporary customers are essentially selfish: online, looking for even more individual attention, even more responsiveness, and much more customization. For them, state-of-the-art relationship marketing does not boil down to simply implementing tactics from a single specialty area such as branding, customer service, or CRM technology, and then expecting that activity to automatically trigger profitable, long-term relationships. Rather, it means spoiling those customers by delivering them value beyond the immediate transaction—and being able to target those customers to whom it is worth delivering that added value. Relationship marketing software meets this requirement and yields additional profitability for its users by supplying them with the programmatic means for identifying precisely those customers who harbor the most lucrative potential, so they can be selectively cultivated.

Relationship Marketing Equals Competitive Advantage

Today’s emerging Internet paradigm continually challenges a business’ ability to differentiate itself from the competition. In this high-speed, computer-driven business world, customers prefer to deal with those companies that are the most consistently accessible. Ease of customer access to a company’s brand—and subsequent fulfillment of service requests—is fast becoming the most critical element of global business strategy.

Web-based relationship management solutions can be used to create virtual storefronts based on industry knowledge of retailing. The more that Web shopping is made to emulate a normal shopping experience—without the usual hassle—the more likely it is that people will be comfortable in visiting the Web storefront. Relationship marketing can make the virtual store look just exactly the way an individual would like it to appear (for example, the virtual store only carries their sizes and color preferences), as opposed to a real brick-and-mortar store, which offers the same menu and appearance to everyone. The customized, browser-based, GUI is created from not just a general set of characteristics that are demographically driven, but is individually user-driven, based on the specific customer’s profile.

Customization is a particularly powerful factor in relationship marketing when it plays on the law of large numbers by broadcasting a personalized marketing message over the Internet. The accessibility of a vast, electronic, networked, interactive audience is the major factor that makes things so different now from pre-Internet times. High hit rates caused by more intensively focused target marketing, coupled with the vast reach of the World Wide Web, can create a multiplier effect that ends up driving market growth at geometric rates. Amazon.com and eBay.com are but two of the obvious examples that come to mind as examples of the powerful multiplier effect of wholly automated, Web-based relationship marketing.

Relationship marketing is more than another sales tool for increasing sales and market share. It’s a powerful device for retaining key customers as well. For example, it is quickly becoming standard practice for a retailer to track each customer’s transaction history and behavior over their lifetime with that company, then apply a multiple-channel, intelligent profiling system that can forecast when a customer is changing his or her behavior, and act on that prediction.

That allows a company to ratchet up the attention it pays to a client when he or she is considering a change of vendors. The higher the quality of the client, the more mission-critical the situation becomes. Likewise, the more intense and continuous the dialogue between a retailer and a customer is, the more difficult it becomes for the customer to defect. The capability of rescuing potentially “lost” customers and turning them into loyal buyers is clearly a competitive advantage. Examples would include banks and insurance companies that use relationship marketing models that predict when a customer is ready to jump ship.

By using sophisticated and robust relationship marketing software, it is possible to identify customers visiting a company Web site, track their purchases, identify their interests, develop customer profiles, and display custom ads and custom product recommendations based on predefined rules that specifically address various kinds of profiles. This can be accomplished while ensuring that proper security measures are in place to protect the customer’s privacy.

Requirements of a Successful RM Software Solution

Most relationship marketing software functionality is managed with a user-friendly GUI that makes designing campaigns, profiling customers, and applying existing marketing resources intuitive and easy to manage—without the hassle of developing spreadsheets, learning scripting languages, or using command line programming. There are a number of tools and techniques for developing a successful relationship marketing solution.

Web site content supported should include multiple catalogs, FAQs, product descriptions, complex searches, as well as customized views of the products and services being sold. Additionally, there should be support for accessories, substitutions, plus various packaging and bundling options. Content navigation options must incorporate hierarchical browsing in addition to feature-based search and product/price comparisons. Requirements for supported pricing methods include priority pricing, timed promotional pricing and customer group discount pricing, in a manifold of currencies, including Eurodollars.

A good RM software package will include powerful customer data management utilities that allow users to create and continuously update explicit customer profiles for all visitors to the site, and to process and refine implicit behavioral customer data sets. That capability enables a marketing manager or administrator to customize the company’s home page, maintain multiple lists, as well as automatically schedule orders and reschedule reminders. By making use of built-in catalog and rules-based capabilities, it is also possible to provide unique and personalized information to customers on the home page.

Additionally, robust business intelligence capabilities will enable out-of-the-box, multiple types of reports that organize Web site data and customer behavior into formats that include the following categories: revenue, orders, products, customers, page views by region, site overview, product, click paths, and customer search results. The existence of ready-to-use, predefined reports saves companies the time and expense of hiring a report writer to produce scores of different reports.

RM software should provide usage analysis on individual pages, time spent on each page and impressions, and visitor analysis, which would include classifying visitor origins, visitor interests, and visitor navigation behavior. Functions and reports will be primarily focused on site operation analysis (broken-link analysis, performance analysis, browsers used, etc.), while there will be other reports that focus on commerce analysis (campaign and initiative impressions, clicks, business results, sales by category, etc.). Additional business intelligence in the form of data mining can uncover hidden or implicit patterns of consumer purchasing behavior. Analysis results then can be used to create a campaign model, run it against sample data sets, and deploy the optimized campaign.

Relationship management personalization capabilities permit a marketing executive to categorize customer propensities, predict shopper behavior, define campaign parameters, and target specific customer groups by leveraging out-of-the-box components such as customer profiles, product attributes, and shopping carts. Those functions should be implemented with the aid of an easy-to-use GUI that enables and controls a powerful rules engine for creating and managing business rules a runtime engine that executes rules and renders Web pages and development tools for extending various e-commerce business processes beyond the walls of the corporation.

Marketing executives and other non-technical people can implement relationship marketing with browser-based RM software tools that provide four areas of functionality: marketing, merchandising, operations, and customer service. Using those tools, a marketing director can define, personalize, and maintain campaigns and initiatives around the company’s unique requirements with the aid of a set of demographic and profile-oriented templates that together serve as a model for building specific programs. They enable the business manager to control all of the different market segments that are dynamically generated as people go to the company Web site. Once the relationship management functionality is set up and implemented, staff personnel can operate the online store.

Through the use of RM software, a marketing manager can manipulate, customize, and manage the entire life cycle of a relationship marketing campaign on an ongoing basis. The first stage involves creating a model based on the analysis of previous campaign data, which leads to the development and promotion of a variety of relationship marketing elements.

For example, based on an analysis of customer interactions and preferences, the Web site developer would create a series of “e-marketing spots” that are defined by their location coordinates on a series of Web pages that are dedicated to marketing messages and product descriptions—equivalent to the various aisles and counters in a virtual Web store.

Next, business intelligence routines would analyze what is taking place on an ad hoc basis and create a variety of reports—revenue, orders, products, customer search results, etc.—for the marketing executive who is free to adjust the campaign model accordingly.

For example, he or she can change the content of predefined e-marketing spots and populate them on an as-needed basis. Once the refined model is in place, more data can be collected and the cycle can be started over, albeit on a more fine-tuned basis. The result is a continuously running, “closed loop” management model that allows a marketing manager to optimize a company relationship marketing campaign by making incremental adjustments or even by radically reorganizing it, depending on up-to-the-minute feedback.

From Advantage to Necessity

As is so often the case in real life, relationships make the retail world go round. Relationship marketing architecture is like a complex ecosystem, with distinct but interconnected software layers optimized for sales and service, order processing, and decision support, which together essentially mimic all of the functions of an extremely intelligent marketing administrator and a personal sales representative, supported by a smooth-running back office. The decision to adopt a relationship marketing solution is primarily strategic in nature: The goodwill and repeat business generated through improved consumer interactions and increased wallet share should warrant the investment in a closed-loop relationship marketing architecture. Bottom-line benefits include increased customer loyalty and retention, maximization of revenue per customer, and Web site “stickiness.”

For the Web shopper, relationship marketing creates a richer, more consistent, more usable, and happier experience on an e-commerce site. Customers get more information out of their experience with less noise. They will be offered promotions on products that may be of interest, based on their customer profile, what they have placed in their shopping cart already, or other scenario-based criteria. They can more easily find what they want and purchase it. By anticipating their needs, a relationship marketing approach makes them feel special or known. Ultimately, a successful relationship marketing implementation will create for each customer the illusion that each and every one of his or her previous contacts and transactions has been remembered and carefully considered. In doing so, it adds value to the experience and makes each future visit appear as a progressive step in an interactive and growing relationship.

The power of relationship marketing at present is an intriguing but optional capability that gives companies a competitive advantage by personalizing their Web marketing campaigns. But today’s supercharged e-commerce marketplace is fast changing all of that. In the not-too-distant future, owning that marketing power no longer will constitute a competitive advantage, it will be an operational necessity.

Good Relationships Boost Profits

Every account manager knows that the cost of retaining an existing customer is a relatively small fraction of the cost of acquiring a new one. In fact, according to Deloitte & Touche (deloitte.com), it costs five times as much to acquire a new customer as it does to keep an existing one. By creating cross-selling opportunities and by opening new sales possibilities, high-quality customer service improves customer retention even as it increases customer “walletshare.” Indeed, according to “The Loyalty Effect” by Frederick Reichheld, an additional 5 percent retention in customers over their collective lifetimes results in an 85 percent to 125 percent increase in company margin over that same time period. Moreover, according to surveys by the Database Marketing Institute (dbmarketing.com), it is not unusual for the top 16 percent of a company’s customers to account for 105 percent of its profits, while the bottom 28 percent erode its profits by 22 percent. That suggests that developing strong relationships with the elite segment of a firm’s customer base will ensure healthy profits.

A Measure of Delight: The Pursuit of Quality at AT&T Universal Card Services

HBS Case: 694-047, TN 696-073

Teaching Perspectives

As part of its overall strategy for “delighting” customers, Universal Card Services (UCS), a wholly-owned financial services subsidiary of AT&T, created a sophisticated quality measurement and compensation system. Through multiple measures of both internal process performance and external customer satisfaction, and by linking employee compensation to overall organizational performance, UCS attempted to achieve a variety of objectives, including rapid identification of process problems, ongoing assessment of customer satisfaction, and motivation of employees to sustain high levels of customer service.

Despite the company’s success, the management continues to struggle to balance the basic tensions that arise from linking compensation to performance measurement. The case illustrates the need for aligning an organization’s measurement and compensation systems with its overall strategy and marketing strategy. It also encourages students to think about how the costs and benefits of a quality management system should be evaluated.

This case introduces students to the design and implementation of a measurement and compensation system developed by a service company that strives to compete on the basis of both low cost and high quality (as reflected by customer satisfaction). It can be used in marketing courses, including those focused on managing services, quality management, and marketing information systems.

Quality concepts have been incorporated into the organization’s design and management from its inception. UCS’s quality system was based on seven core values: customer delight, continuous improvement, sense of urgency, commitment, trust and integrity, mutual respect, and teamwork. Customer service representatives were carefully selected, extensively trained to provide superior customer service, and supported by a computerized information system (U-WIN) tailored to their needs. To empower employees, the company supported an extensive human resources program, including companywide suggestion, recognition, and reward programs. UCS also provided generous fringe benefits, including an on-site fitness center and extensive support for continuing education.

UCS’s measurement system covered two major areas: external customer satisfaction and internal process performance. To assess how well it served its cardholders, it used two kinds of external surveys. The Customer Satisfier Survey asked customers of both UCS and its competitors to compare different companies’ performance along a specified set of dimensions—including price and customer service—that UCS had identified as “key customer satisfiers.” An outside market research firm conducted the survey, interviewing a random sample of 400 competitors’ customers and 200 Universal Card customers each month. The Customer Satisfier research was supplemented by an internal survey team, which each month polled about 3,000 randomly selected customers who had called or written UCS for a range of reasons during the previous two to three days.

The company also collected and analyzed performance data about a “bucket” of more than 100 internal and supplier processes that management felt had a critical influence on UCS’s overall business performance. Initially, it emphasized processes that directly influenced customers—such as how soon they received their credit cards after applying and whether billing statements were accurate. However, as UCS gained experience, the list expanded to include measures of a number of other service, production, and support processes, many of which were invisible to customers but ultimately contributed to the “service” provided to them.

UCS management set specific performance goals for each process measure and rewarded all employees when those standards were achieved for 96 percent of the entire bucket of measures on any given day. For managers to earn this quality bonus, it was also necessary that UCS suppliers meet the standards for key supplier-controlled processes. These bonuses could amount to more than $500 per quarter (about 12% of base salary) for associates and up to 20 percent of managers’ salaries.

The system was designed to use social pressure to drive high levels of collective performance. If everyone’s bonus depended on the whole group’s performance, then no one wanted to be responsible for sinking the boat. Moreover, it was in the economic interest of all employees to help the weaker performers get better. Support services groups, which often escape the discipline imposed on front-line production and service groups, were forced to provide their internal customers—the telephone associates—with the same level of service as to others.

Questions:

1. Discuss the linkages between measures of internal process performance and customer attitude as measured in customer satisfaction studies.

2. Assess the strengths and weaknesses of UCS’s quality systems.

3. Why does UCS place so much emphasis on measurements of internal process performance?

4. Has UCS created a system that supports continuous improvement or one that simply supports a sustainable level of service?

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中国经济管理大学 

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Designing and Managing Integrated Marketing Communications

Communications

Communications as the Key Tool in an Uncontrollable Marketing Environment”

Communications

Issue: Careers in IMC

Keeping Current

Cunard Line, Ltd: Managing Integrated Marketing Communications

HBS Case: 594-046 TN: 595-028

Teaching Perspectives

Questions

Managing Retailing, Wholesaling, and Logistics

I.

Teaching Objectives

Teaching Objectives

Discussion

: Retailing in the New Economy

IV.

Teaching Perspectives

Analysis Perspectives

Questions

Crafting the Brand Positioning and Competing Effectively

”

Introduction

Competitive Analysis

Markets

International/Global

Strategy/Decision Making

”

III.

“Oracle vs. IBM,” BusinessWeek, May 28, 2001, p. 65.

With Good Reason

IV.

“Matching Dell”

Teaching Perspectives

Recommended Readings

Questions

Identifying Market Segments and Targets

Targets

“Understanding Market Segments”

Teaching Objectives

Discussion

III.

Eastman Kodak Co., Funtime Film

Teaching Perspectives

Analyzing Business Markets

I. Chapter Overview/Objectives/Outline

”

Teaching Objectives

III.

Arrow Electronics

Teaching Perspectives

Analyzing Consumer Markets

I.

II.

”

Teaching Objectives

Concerns”

Teaching Objectives

Discussion

C. “Exogenous Variables Related to Consumer Behavior”

Teaching Objectives

Issue: Marketing Shifts with a New Generation of “Senior Citizens”

IV.

“TiVo”

Teaching Perspectives

Creating Long-term Loyalty Relationships

II.

Teaching Objectives

B.

Teaching Objectives

Discussion

III.

The Emergence of Relationship Marketing

Relationship Marketing Equals Competitive Advantage

Requirements of a Successful RM Software Solution

From Advantage to Necessity

Good Relationships Boost Profits