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Customers and Customer Value Essay

•Marketing involves:

1.Managing profitable customer relationships
2.Awareness – attracting/retaining customers
3.Increasing a customer’s willingness to pay

•Breadth and Depth of Marketing

Market: people with desire and ability to buy a specific product All organizations market and people market themselves

•Dating, PEY

oIdeas and values are marketed
Buyers may be different than end customer (B2B, B2C)
Social Marketing: influence behavior of individuals, benefit to individuals or society not marketer •Anti-smoking
•Consumer Behaviour (B2C/B2B)
Heart of marketing satisfying needs and wants of consumers better than competition oValue is only what is perceived by consumer
Customer’s see solutions for delivering customer value, not in terms of attributes •Fundamental Principles of Marketing
oWhat are drivers of customer value? Their benefits/costs
•Consumers
Who are the competitors that satisfy the similar needs
•The competitors
Offer a product/service whose attributes deliver the value as good as or better than the competitors •The Company
•Methods of Discovering customer behavior
Needs: Psychological deprivation (food, shelter)
Wants: Needs shaped by culture and the individual (burger vs. Tofu) oQualitative research
Quantitative Research
Feedback
Competitive intelligence
Socio-economic trends

Consumer purchase decision process

•Buyers may skip a stage depending on how involved they are in the purchase: oHigh involvement if product is:
•Expensive
•Serious personal consequences
•Reflects social image
High involvement results in consideration of
•More brands
•More product attributes
•More information sources
•More time spent searching
High involvement
•Provide education about category and info on product
Low involvement
•Buyers react to price, convenience and familiarity
•The Marketing Process

Identify Consumer Needs & Wants
•Needs: Psychological deprivation (food, shelter, etc.)
•Wants: Needs shaped by culture and the individual (burgers vs. tofu) oSegment, Target and Position (STP)
•Segmentation and Targeting – Who to Serve
•Choose which customers to serve
•Positioning – How to Serve
•Identify key benefits of offering, points of difference with rivals oDevelop and Execute a Marketing program based on the Marketing Mix (4 Ps) •Product
•Features, brand name, packaging, service, warranty
•Place
•Outlets, channels, coverage, transportation
•Price
•List price, rebates, discounts, payment period
•Promotion
•Advertising, sales promotion, merchandising, personal selling, publicity •How to Position yourself with customers
•Market leader
Encourage habitual purchase, keep quality high, reinforcing ads, avoid stock outs •Challengers
Encourage variety seeking
Encourage trial (coupons), try something new ads
Build Profitable Customer Relationships
•Basic Relationships (low-margin customers) vs. Full Relationships (key / dominant customers) •Frequency marketing programs
•Rewards, encourage customers to spend more
•Club marketing programs
•Offer members discounts for being member
•Customer Satisfaction
•Satisfied customers are loyal (migrate rate of 5%)
•Refer company to others (tell average of 3 others)
•Less price sensitive
•Customer Dissatisfaction
•Migrate at 40%
•Don’t complain (96% never report back)
•Tell average of 11 people about problems
oManage Product Portfolio
•Should you keep all your products?
•Should market them all the same way?
•Can you increase the products in your portfolio?
•BCG Growth Share Matrix
•Market Growth Rate (y-axis) vs. Relative Market Share (x-axis) •High – High: Stars
•Low – High: Cash Cows
•High – Low: Question Marks
•Low – Low: Dogs

MarketsProducts
CurrentNew
CurrentMarket Penetration
-Selling more products in existing marketsProduct Development -Selling new products in existing markets
NewMarket Development
-Selling existing products in new markets (geographic or new segments)Diversification -Selling a new product in new markets
How your product portfolio could be expanded
Tim Horton’s:

MarketsProducts
CurrentNew
CurrentMarket Penetration
-High density in geographic area
-Heavy advertising
-High demand to be franchisors
-Regularly upgrades facilitiesProduct Development
-Bagels and cappuccino
-Sandwiches, wraps, soups
NewMarket Development
-Expansion to campuses
-TimShop (online)
-Expansion into U.S.Diversification
-Partnered with U.S.-based Cold Stone Creamery

Lecture 7
•5 steps of STP
oGroup potential buyers into segments
•Geographic, demographic, psychographic, behavioral
•How do organizational buyers differ
•Demand for your product is derived from demand of buyers product •Fate tied to buyers fate
•Common to have
Few dominant customers and long term relationships
Provide competitive bids
Have multiple people involved in the purchase

•To increase likelihood of B2B success
•Understand the purchasing organization’s needs
•Understand the organization buying process
oRight bidding list, who is influential and who to pay attention to oGroup products to be sold into categories
•Multiple products with some common trait (often consumer type) •Useful where multi consumer type, each with own needs, but not one product to meet all needs •Business vs commercial aircraft
Develop Market/product grid and estimate size of market
Select Target Markets
•Expected Financial Performance
•Size and growth, purchasing power, profits
•Competitive Position
•Competitive in segment now and over time
•Accessibility
•Segment can be reached and served at reasonable price
•Fit with the Organization
•You can deliver an effective marketing program
oTake marketing actions to reach target market
•4 P’s
•Product positioning
Head-to-head or Differentiation
•Challenges in repositioning
To change how consumers view an offering relative to competition oHuge advertising costs to change beliefs of people
Consumers may be confused about what your brand stands for oConsumers may not buy your claim
Why reposition
•Reacting to competition
•New Balance vs. Nike
•Reaching new market
•Chocolate milk for adults
•Catching a rising trend
•Health trends
•Changing the value added
•Trade down or up
Lecture 8
•First P in 4 Ps (“Product”)
•Hard to do well
o90% of new products fail in first year
oCommon among successes
•Uniquely, superior point of difference
•Has to work well, has to be valued in the market
Lecture 9 Pricing and Channels
•2 Ps: Price and Place
•Price
The money exchanged for ownership of goods/services
Prices involves perception of value and will vary
•Cheaper price for equivalent quality has higher value
•Higher price can signal quality (watches, cars)
•There is a tradition of getting stuff for free or very cheap over internet that is hard to change (vs. by phone or TV) •Pricing matters a lot
Affects customers’ view
Discussion starts with pricing,
•Goes more generally to marketing than strategy
•Why change your price?
Demand, cost, competition
•How will people react
People place premium on option, if feel getting less, will be dissatisfied and feel violated •Market mix over product life cycle for price (in order of 4 stages) oSkimming penetration, gain market share, defend market, stay profitable •Factors affecting pricing decisions

oInternal Factors
•Marketing objectives
•Marketing mix strategies
•Costs
•Organizational considerations
External Factors
•Demand
•Competition, resellers
•Economy
•Government
•Steps in setting prices
Identify pricing constraints and objectives
•Constraints
•Demand, stage in product life cycle, single vs product line, cost of producing, marketing, changing prices, Competitive market and competitors •Objectives
•Profit or just survival
•Sales and or market share (revenue, unit volume)
•Social responsibility
Estimate demand and revenue
•All else being equal, as price falls, demand increase
•Except for
•Luxury goods
•Demands also affected by
oPrice and availability
Income levels
Changing buyer tastes and preferences
•Marketing Managers want to know “price elasticity” of demand •% change in quantity demanded relative to % change in price oSlope of demand curve
Elastic demand
•Slight decrease in price, steep increase in demand
•Substitutes usually (no alternatives usually non elastic) oEstimate Cost, volume, profit relationships
•Total cost = total fixed cost + total variable costs
•Break-even analysis (sales equal costs):
•Determines profitability at different levels of sales
•BEP = Total fixed cost / (unit price – unit variable cost)

oSelect an approximate price level
•Pricing based on demand
•skimming pricing – high price when hungry initial buyers are not price sensitive •penetration pricing – low price to attract buyers (wii)
•prestige pricing – signal quality with the price
•price lining – set of prices through a product line (ex. bauer 70, 80, 90, apx) •odd-even pricing – prices ending in .99 seem lower
•target pricing – when a specific price to buyer is a goal •bundle pricing – price for a package of multiple products •yield management pricing – match demand and supply dynamically to customize prices •Pricing based on cost

•standard mark-up – add a fixed percentage to the cost of all similar items •cost-plus pricing – add a mark-up to the cost (consulting) •experience curve pricing – lower the price as your own costs come down the learning curve •Pricing based on profit (little role for demand and competition) •target profit pricing

•target return-on-sales pricing
•target return-on-investment pricing
•Pricing based on the competition
•Customary pricing (ie. Swatch, chocolate bars) (all the same) •price above, at or below similar products
•Loss leader pricing – sell something at a discount to get people into your store oSet up the list (quoted) price
•One price for all flexible pricing
•Must be consistent with all products in product line
•Must be legal
•Must be consistent with client perceptions of product
•Needs to avoid price-cutting by competitors
•Price cut only when you can win (rare)
•Have cost or tech advantage over rivals
oMake adjustments to the price
•Discounts
•Quantity, BOGO
•Seasonal
•Functional/Trade
•Cash
•Allowances
•Trade in allowance for buyers
•Promotional allowance
•EDLP (no need to wait for sales)
•Geographical Adjustments
•Transportation/shipping costs and whether buy or seller pays

•Market mix over product life cycle (Place/channels)
Limited, build, selective, more intensive distribution, fewer selective
•Channel
Individuals or firms that help get the product/service to the end user
•B2C directly, or use intermediary, such as future shop (less contacts) oRetailers are channels (but so are distributors and resellers)
•Benefits of direct channels (producer to seller)

Greater control
Lower variable cost
Direct contact
Quicker response to changes
No need to look for middleman
Internet makes direct distribution easy
•Benefits of indirect channels
Fewer contacts to manage
Can match product assortment with customers
Less need for producer to have a sales presence
Allows multiple channels for same product
•Apple through site, apple store, BestBuy
Leverage a channel partner with existing customer relations oLower fixed cost (no sales team)
•Conflicts between channel partners
Vertical conflict
•Issues in chain (producer to retailer)
Horizontal Conflict
•Issues at same level (retailer to retailer)
•Challenges of moving from indirect to direct
May lose distribution (disintermediation)
Buyer loyalty to retailer not product
Extra costs involved (e-tail, shipping, sales, customer services) •Factors in choosing a channel
Business environment
Characteristics of your customers
•Who, what, where
Characteristics of your product (complex or evangelize)
•Ice-cream vs. jets
Characteristics of your company (B2B, global, languages)
What channels and intermediaries are most profitable

Lecture 10
•4th P, Promotions
•The communication process
oSee chart in lecture notes by Chris
•The promotional mix
What communication tools are available
•Advertising
•Vary Expensive (variable_, provides reasons to buy products •Control over channel of message
•Large numbers see message
•Hard to determine response

•Personal selling
•Face-to-face
•Very expensive (fixed cost)
•Control over message (sales people can differ(
•Targeted receivers
•Immediate responses
•Public relations
•Unpaid, non-personal communication, from third party
•Little control over message
•Highly credible, not seen as self-serving
•Hard to know responses
•Sales promotion
•Samples, coupons, rebates
•76% of marketing expenditures for packaged goods
•Short run (decline in advertising efficiency)
•Control over message (not building loyalty)
•Immediate Response
•Direct marketing
•Over phone, or internet
•Mass or micro, becomes annoying (telemarketers)
•Control over message
•Targeted received
•Immediate responses
•Developing the promotional mix
In product life cycle: to inform, to persuade, to remind
Product characteristics
•Level of complexity
•More complex, more personal selling
•Potential Risk (financial, social, physical)
•Greater risk, more personal selling
•Ancillary services (service/ support required post sale) •Advertising establishes reputation
•Direct marketing can describe customization
•Personal selling builds buyer confidence and provides evidence of customer service oKnow your target market
•Who is buyer and what is buying behaviour
•Place of purchase, reason, how big is market (mass or custom, first time or repeat oDecision stage of buyer
•See chart in Chris’ lecture notes
oChannel strategy
•Push (want channel to sell it, target channel not end consumer) •Push product through channel with goal of getting channel members to push it to customers •Direct promotional mix to channel members to gain cooperation •Personal selling and sales promotions play major roles

•Pull (channel users want to get it from you, targeted at end consumer more) •Product is pulled through channels
•Direct promotional mix at ultimate consumers to encourage them to demand product •Mainly advertising and direct marketing to reach end consumers •Developing, executing and evaluating the integrated marketing
communications program oCoordinates all promotional activities to provide a consistent message across all touch points oKnow target audience and how to market to them

oIMC Program 3 stages
•Planning Stage
•Awareness, interest, evaluation, trial
•Set budget based off
o% of sales
Competitive parity
All you can afford
•Design promotion, schedule it
•Implementation
•Execute the promotion plan
•Carry out promotion
•Control
•Post-test the promotion
•Make needed changes
Evaluating IMC
•Important to measure ROI
•How many views, traffic to site, coupon redemption rate
•Can occur during both implementation and control
Lecture 11
•Three options/Modes for exploiting your new product or technology oLicensing
•When to consider
•When you don’t have the resources to bring it to market and don’t want to develop them •When you want to get the technology to market fast (win standards race) •When you want to stop other firms from R&D and patenting •Risks

•Beneficial only while you have technological advantage
Create a standard
Stay at leading edge
•Requires strong IP protection
•Dependent on others for market success
•May lock you into something when market is still emerging oPartnering (selling a component)
•When to consider
•When you don’t have the resources to bring it to market •When you want to get the technology to market fast
•When credible partners can be identified and their endorsement sends a signal •When you are strategically important to partner
•Risks
•Larger, more established firms can take advantage (price/terms) •Partner can deskill you
•Dependent on partner
Market success and access to info and management
•Partner can become disinterested
oDIY (Do it yourself)
•When to consider
•Can bring it to market yourself or want to develop capabilities •When you have resources to do it
•Understand requirements and behaviour of end consumer
•Want to brand it with your name
•You have clout with your ecosystem of players
•Risks
•Bleeding edge- rivals learn from your mistakes
•Effort spent on marketing and distribution makes you lag in R&D •Lose nimbleness and speed
•Understand market (buyers, competition and overall market (size and growth) •Want to devise an entry strategy to leverage advantages
oEmphasize speed for lead time
•Product, technology, people, partners, locations
•Set up intangible entry barriers rather than relying only on proprietary advantage like patents oEmphasize selective focus
•Clearly defined target market
•Clearly defined partners, channels, suppliers
Plus allow for experimentation
•Adaptable and liquid resources & capabilities (rent, borrow or share)
Decision depends on
•Where you see future of company
•Stability of industry
•Value to other players
•Potential for IP protection
•Becoming a platform leader
Industry platform is foundation technology or service that is essential for a broader, interdependent ecosystem of business •Requires innovations to be useful
•No longer under full control of originator, may contain propriety elements oNeed to decide if you are going to purse a product or platform strategy oAchieving platform status requires specific decisions that govern
•Technology evolution

•Product and systems design
•Business relationships within ecosystem
oMany companies don’t succeed as they fail to tackle both: •Technology
•Designing right interfaces, architecture, disclosing IP
•Business
•Making key complements, introducing incentives, defeat competing platforms oPlatform potential
•Must satisfy two prerequisite conditions
•Perform at least one essential function within system of use or solve an essential tech problem in an industry •Should be easy to connect to or build upon to expand system of use as well as allow new or even unintended end users

Google is coring in internet search. Linus in web server operating systems for tipping. •Intellectual Property Protection
Legal right granted by a government that allows inventor to preclude others from using the same invention for a maximum of 20 years oNeed to demonstrate that invention is
•Novel
•Not Obvious
•Useful
•Secret when the patent application is filed

Benefits

•Blocks others from using invention
•Raises the cost of imitation by rivals
•Helps to raise capital by signaling a competitive advantage •Helps in negotiating rights
oLimitations
•Requires disclosure of the invention in all countries
•Monopoly is temporary
•Rivals can often work around
•Long, complex, costly to defend
•Can be irrelevant if technology moves quickly

Lecture 12: Business Start Up

•Entrepreneurship Approaches
•Causal Logic (start with goals expect return)
•Evaluate opportunities on measurable market demand & competition •Select option with highest expected return
•Specify resources needed to get the outcome you want
•Most often used in developed, familiar products/markets
•Means-Based (start with means avoid loss)
•Evaluate alternatives based on given set of means + low cost experiments •Select option based on affordable loss rather than expected return •Obtain pre-commitments with customers, suppliers
•Most often used in uncertain products / markets
•Dealing with Uncertainty
•Entrepreneurs pick a comfortable level of risk and push to increase return oBankers pick a desired level of return and push to reduce risk


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