Long Questions Flashcards
What are the three aspects of the relationship between corporate headquarters and the business unit that determine the SBU’s success in implementing a particular competitive strategy?
three aspects of corporate business unit relationship that can effect an sbu’s success in implementing a particular competitive strategy
- the degree of autonomy provided each business unit manager
- the degree to which the business unit shares functional programmes and facilities with other units
- the manner in which the corporation evaluates and rewards performance of its sbu managers
A few years ago, large manufacturers with well-known brands – General Foods and Procter & Gamble – held substantial power over even the largest retailers in their distribution channels. Today, large retailers such as Tesco have the power to demand more rewards and support from major manufacturers. What has caused this change in the balance of power? What are the bases (or sources) of retailers’ power over their suppliers?
Information and the technology to supply it quickly are the primary reasons for the increased power of retailers. Expert power is supplied by the ability of retailers to have access to up-to-the-minute information on sales of products.
Under what conditions do pioneer and follower strategies each have the greatest probability of long-term success?
A pioneering firm has the best chance for long-term success in market-share leadership and profitability when the new product-market is insulated from the entry of competitors and/or the firm has sufficient size, resources and competencies to take full advantage of its pioneering position and preserve it in the face of later competitive entries. Followers are most likely to succeed when there are few legal, technological or financial barriers to inhibit entry and when it has sufficient re- sources or competencies to overwhelm the pioneer’s early advantage.
Discuss briefly the various ways a firm can maintain a low-cost position.
firm does not necessarily need a large market share (economies of scale) to implement a low cost strategy
other means of doing so are:
- no frills product – pare costs down to the bone, could cause a price war
- innovative product design – e.g. canon designed simpler copiers with less parts
- cheaper raw materials –
- innovative production processes – especially in labor intensive industries
low cost distribution –
reductions in overhead
During the 1980s and into the 1990s, McDonald’s – which had attained several decades of outstanding growth by selling burgers and fries to American families with young children – aggressively sought franchisees in foreign countries, including Russia and China. The firm also introduced a wide variety of new product lines and line extensions (breakfast items like Egg McMuffin and hash brown potatoes, salads, Chicken McNuggets, McChicken sandwiches, etc.). What was the strategic rationale for these moves?
McDonald’s employed a market-expansion strategy to strengthen its domestic position by introducing new product lines and line extensions to its established clientele. These new menu items probably also attracted some new customers. Further, since the new products used essentially the same production and distribu- tion facilities, there was considerable synergy with the other products. Also, by being first in its industry to do so, the company was able to appropriate the benefits which derive from being a pioneer. It also expanded overseas – to countries that included Russia and China. It did so largely via the use of franchisees, which reduced the cost of doing so. Again, the company was a pioneer in this expansion move.
Successful implementation of a given strategy is more likely under what conditions?
Define marketing
Marketing is a social process involving the activities necessary to enable individuals and organisations to obtain what they need and want through exchanges with others and to develop ongoing exchange relationships.
As the small entrepreneurial firm described in Question 2.57 grows larger, its market matures and its industry becomes more competitive, how should its business philosophy or orientation change? Why?
The firm is likely to move from a production to a sales and, perhaps, finally to a market orientation. The first movement results from competitors attracted into the market by growing volume and profits. This is likely to increase competition for product innovation and production process efficiency. At some point, as production capacity is added to the industry and demand increases decline, excess capacity will probably result. The existence of excess capacity will probably focus company attention on moving available stocks (i.e. a sales orientation). If the firm survives the shakeout phase of industry growth, it is likely to move towards a market orientation.
What are the major limitations of the product life-cycle concept?
The product life cycle model makes assumptions about features and characteristics of each stage – it doesn’t take into account that the product life cycle is actually driven by market forces: the market, technical and competition
What is the value to the corporation of ethical guidelines?
- Unethical practices can damage the trust between a firm and its suppliers, customers and employees resulting in losses in profit and sales
- Becomes difficult to maintain them in global markets with different cultures
What additional businesses might a watch company consider if its mission statement was changed from ‘the production and sale of high-quality wristwatches’ to the satisfaction of the need to measure time? In answering this question, do not attempt to evaluate the feasibility of the various businesses you list.
By changing the mission statement from being product oriented, the firm opens up the possibility of considering servicing those industries needing timers, ranging from the simple to the highly complex, for controlling their machines such as major appliances, television sets, CD players, cars and trucks, robots, computers, automated factory machinery, security systems and so on.
What is the difference between primary and secondary data sources?
- primary data – collected from individual research subjects using observations, survey, interviews or whatever
- secondary data already exists – someone has already done the primary data collection and placed the data where others can access it, whether free or at a cost
What are the more common ways of estimating a product’s demand curve?
Problems with using elasticity to set price are
- Failure to consider response of competitors
- May be elastic for a particular large price change but not for a small one
- Doesn’t take into account profits
- Cannibalisation may occur
- Social benefits ignored
Describe the subcategories of new products based on their degree of newness.
six categories of new products:
- new to world (10%)
- new product lines – entering into existing markets (20%)
- additions to existing product lines (26%)
- improvements in or revisions of existing products (26%)
- repositioning’s – existing products targeted at new segments (7%)
- cost reductions – product modifications providing similar performance at lower cost (11%)
What should a firm strive to achieve during the early years of market maturity?
- businesses should strive to maximize the flow of profits over the remaining life of the product market
- thus, the main objective is to maintain and protect market share
- most obvious strategy is fortress strategy –
- increase customer satisfaction and loyalty - e.g. improve quality
- encourage repeat purchasing – e.g. just in time delivery
- add flanker brands as markets fragment
- firms with a small share of market should focus on niche strategy
How would you classify the following products/services in terms of the extent of involvement? How would your ‘classification’ affect your recommendations regarding what pricing, distribution, and promotion decisions to make?
a. Frozen vegetables.
b. Banking services.
c. Tennis racquet.
d. Toothpaste.
e. Colour television sets.
f. Lawn service.
What subjects is advertising decision making concerned with?
Advertising decision making is concerned with setting objectives and budgets, choosing which media types and vehicles to use with what frequency, deciding what the message should be and how to present it, and analysing the effectiveness of the advertising programme.
Growth in the UK cellular phone market seems to be slowing. If you were the marketing manager for a large UK cellular phone company, what would you do to stimulate sales of your brand and position your company for increased competition?
I would attempt to do several things. First, I would try to find ways to differentiate my product in terms of such features as (for voice dialling) size, range, and sound fidelity. I would also increase my line of ‘alternative’ products and rate structures so as to cater to larger audiences. I would both advertise and promote aggressively (special sign-up deals). And I would do all I could to reduce costs without negatively impacting the quality of my service or product.
Define each of the following:
A. Line filling.
B. Line stretching.
C. Line extensions.
Line Filling: This strategy lengthens the product line by adding items within the present range. Its objective is to satisfy more customers, to increase sales and profits, to placate dealers who want a full-line supplier, and to ward off competitors.
Line Strecthing: This strategy involves lengthening the product line beyond its current range of variables, such as size and price. Aircraft manufacturers, such as Boeing and Airbus, have typically expanded the size of their jets. Such product line stretching – literally, in this case – may be up or down or both.
**Line Extentions: **This strategy consists of introducing new products that differ significantly from those in the existing line by more than just size and price.
Describe briefly the various commercialisation strategies.
Number of commercialization strategies
- Forgo market testing and rollout region by region or nationally in one go.
- Use test marketing in different markets – geographic and then rollout in others
A uniform manufacturer in North Carolina operates at a freight-cost disadvantage relative to competitors in the western United States. Which methods of quoting prices could the firm adopt to make it more competitive in the western states? What are the possible disadvantages of each method?
(a) Uniform delivered pricing – The pricing policy uses a standard freight charge equal to the average freight costs across all customers. The disadvantage is that it raises freight costs to customers near the manufacturing facility while lowering
them for customers in the western states.
(b) Zone pricing – The policy divides the country into zones and charges the same price within each zone. The disadvantage is that customers in the west would still pay higher freight costs than customers in the east; however, within a particular area the freight charges would be comparable.
What marketing activities and strategies are needed for a challenger to achieve share growth?
- A challenger with visions of being a leader has two basic strategic options, each involving different objectives and actions
- steal away some of the repeat purchase or replacement demand from the competitors current customers – looking for advantages in a head to head confrontation or leapfrog them in technology. this is used when leader has a substantial lead
- where market is early in growth phase, challenger can focus on attracting a larger share of potential new customers who enter market for first time. Aim is to differentiate. good for fragmented markets
- five strategies are
- frontal attack
- leapfrog
- flanking attack
- encirclement
- guerilla attack
- the suitability of each of the five strategies depends on
- the markets size and customer characteristics
- number and relative strengths of the competitors
What are the characteristics of Miles and Snow’s four business strategies?
Describe what an opportunity/threat matrix is and how it can be used to help management identify, evaluate and respond to environmental events.
The opportunity/threat matrix enables the examination of a large number of events in such a way that management can focus on the most important ones. Thus, events such as number 4 in the exhibit, with a high probability of occurring and having a high impact should be closely monitored. Those with a low probability of occurrence and low impact, such as number 3 in the exhibit, should probably be dropped, at least for the moment. Events with a low probability/high impact (number 1) should be re-examined less frequently to determine whether the impact rating remains basically sound.
What subject areas should be discussed under the analysis of the current situation section of the annual marketing plan?
- manager summarizes his analysis of
- market situation – total size, growth, regional or segment variations, market research info concerning customer preceptaions of brand and buying behaviour trends
- competitive environment – in terms of size, market share, product qualities, marketing approach, vision of future
- macro economic situation – also technology, legal, regulatory
- past product performance – sales volume, margins, marketing expenditures and profit contribution for past several years. measure costs using value chain looking at everything from raw materials to delivery costs that have to be performed for a product
- sales forecast and other key assumptions – estimating future sales figures
What is the rationale for market segmentation?
- Most markets are not homogenous in terms of benefits wanted, purchase rates and price and promotion elasticities, their response rates to products and marketing programs differ
- markets are complex entities that can be defined (segmented) in a variety of ways
- need to find an appropriate segmentation scheme that will facilitate target marketing, product positioning and the formulation of successful marketing strategies and programs
Describe a skimming price policy.
Skimming
- Maximise short run profits by charging a very high price and follow with periodic discounts
- Good for firms following prospector strategy with unique IP
- Good for small market
Some companies are using the Internet to sell their products – both new and old. How could the Internet be used to develop a demand curve for a new product? An estab- lished product?
For a new product the company could use the Internet to auction it off. To do so would require a description of the product, its uses, the benefits it provides, the amount involved, and competitive/substitute products and their prices. Bidders would receive some kind of incentive to enter a bid. The range of bid prices coupled with their frequency could be used as an estimate of the perceived value of the new product.
For an established product consumers could be asked to estimate the per cent increase or decrease in sales resulting from each increment ‘up’ and ‘down.’ The assumption here is that in responding the consumer is actually revealing his/her demand schedule. Again, there would have to be a ‘reward’ for responding. The difficulty would be that the company would
When they saw the result of the sales territory analysis presented in Exhibit 19.9 in the text, the firm’s top managers concluded that Barlow in territory 1 was not devoting sufficient effort to her job, since her performance was more than $32 000 below quota. They have asked you – the firm’s sales manager – to have a talk with Barlow and suggest a way to improve her performance. Do you agree that Barlow’s performance is probably the result of too little effort on her part? Why or why not?
It is difficult without further information to say for certain what is the cause of Barlow not reaching her quota. On her behalf, she is fairly close to reaching her quota (94 per cent). This might suggest that perhaps a little more effort would put her over the top. However, there might be other factors (more training, personal reasons, etc.) at play. It is also possible that her quota was set too high in view of competitive conditions or other uncontrollable factors.
What groups of people are the participants in the buying process?
users
influencers
gatekeepers
buyers
deciders
A camera manufacturer has hired you as a consultant to identify major benefit segments in the camera market. Which major benefit segments do you think might exist in this market, without actually conducting consumer research? What other information would you want to collect about the potential customers in each segment to provide a useful basis for designing camera models and marketing programmes that appeal to each segment?
As a marketing manager for a soft-drink company, you know that such a drink is a low- involvement purchase for most consumers. How might you try to increase consumers’ involvement with your product (brand) to increase their loyalty and reduce brand switching?
Among the options are to:
(a) Draw on a basic social value relating to the consumer’s self-identity (e.g. the ‘Pepsi is the choice of the new generation’ advertisements).
(b) Introduce important new features (e.g. Diet Pepsi, caffeine-free Pepsi).
(c) Tie to a personally involving situation (e.g. caffeine-free Pepsi for an evening beverage when you do not want to lose sleep).
(d) Link to some involving issue (e.g. a percentage of the price of every Pepsi purchased to go to an international famine fund).
In choosing a given position for a given brand, what factors should one consider?
- the final decision about where to position a brand should be based on both the market targeting analysis shown in module 9 and results of market positioning analysis
- the position should reflect
- preferences of a market segment
- current positions of competing brands
- current and future attractiveness of target market – expected growth, size and environment
- relative strengths and weaknesses of competitors
- above info plus analysis of costs required to maintain such a position allows an economic assessment of positioning options
- most products are positioned based on one or, at most, two determinant attributes
- me-too products have no differentiation and hence success is hard to achieve
- normally its good practice to write down what is intended for the product in a positioning statement or a value proposition
What is a market?
A market consists of:
• Individuals and organisations who are…
- …interested and willing to buy a particular product to obtain benefits that will satisfy a specific need or want, and who…
- …have the resources (time, money) to engage in such a transaction
Some markets are sufficiently homogenous that a company can practice a undifferentiated marketing in them. However the target market for a particular product category is often fragmented into several distinct market segments – each containing people who are relatively homogenous in their needs, wants and product benefits they seek.
What is value-based planning?
- Value based planning assesses the shareholder value a given strategy is likely to create
- It provides a basis for comparing the economic returns to be gained from investing in different businesses pursuing different strategies
How can one measure market potential?
6 Methods:
- Statistical and other qualitative methods
- Observation
- Surveys
- Analogy
- Judgement
Your company produces a line of television sets – both colour and black-and-white. It is considering producing a line of digital colour television sets, which will sell at substantially higher prices than your present line of colour sets.
Based on what you know about the diffusion of innovation, what marketing decisions would you recommend your company make with respect to the product and product line, price, channels and promotion if it decides to produce a digital line?
I would make the following marketing decisions:
Product/product line – High quality and as error free as possible. Strong service warranty designed to keep sets working for demonstration purposes by owners. Attractive appearance. Short line.
Price – High skimming price sufficient to provide high margins to channel members.
Channels – Direct to major dealers including those large chains who agree to provide a certain level of display and personal demonstration, installation where necessary (e.g. where special ‘hook ups’ are desired, as with satellite dishes).
Advertising – National and local media – the latter linked with local dealer(s).
Promotions – Special promotions designed to generate store traffic for in-store demonstrations.
What is the difference between a growth-market targeting strategy and a niche targeting strategy? What capabilities or strengths should a business have to implement to conduct a growth-market targeting strategy effectively?
Growth-market strategy, as the name implies, concentrates on identifying fast- growth segments of the market. A niche strategy serves one or more segments, which, while perhaps not the largest, offer the firm a substantial enough number of customers to be successful. In a niche strategy there is no requirement on the growth of a particular niche.
A growth market targeting strategy often is best suited to smaller firms who wish to avoid direct confrontation with larger firms. This strategy requires strong R&D and marketing capabilities to identify and develop products. It also requires the neces- sary financial resources to finance rapid growth.
What are the major types of nonstore retailing?
These institutions fit the definition of a retailer, but we discuss them separately because they don’t have a fixed brick-and-mortar physical location and most do not enable customers to personally inspect the merchandise or take immediate posses- sion. This category includes direct selling (as in the case of door-to-door sales and telemarketing), mail-order catalogues, TV shopping, vending machines, and web- sites. There are several varieties of retail websites, including start-ups (Amazon.com, CDNow) that exist solely on the Web and do not have any physical stores, websites developed by large catalogue retailers (Lands’ End, L.L. Bean) to leverage their direct-delivery operations, and websites developed by established bricks-and-mortar retailers (like Target and Tesco) to leverage their brand names and customer service skills.
How does value pricing differ from traditional pricing? If a firm wanted to adopt a value pricing strategy for its line of packaged consumer household products, how should it proceed to do so? In your answer, be sure to consider the reactions of retailers.
A value-based pricing strategy emphasises the value of a brand to the consumer. It hopes to capture the consumer’s perceived value of the product. To adopt such a strategy, a manufacturer of consumer household products would have to consider how and on what basis its products differed from competing products and use the perception of these differences to set a price relative to the prices being charged by competing products. To exploit these perceived differences as translated into stable, relative price differences (as against the use of frequent promotional deals involving price), the manufacturer would need to abandon its promotional pricing. This would not only stabilise prices over time, but save money, thereby permitting a reduction in price. To ease the pain of accepting value pricing by retailers, a firm should reduce the retailer’s costs of selling the product (e.g. better control over inventories).
Define a marketing channel.
A marketing channel is the set of interdependent organizations involved in the process of making product or service available for consumption or use by consumers
If you had been the top marketing executive at General Motors during the early years of the Japanese invasion of the US car market, which strategy would you have recommended to defend GM’s leading market share against this new competitive threat? Why do you think GM failed to adopt such a strategy at the time?
Major US car makers probably should have pursued a flanker maintenance strategy, designing and producing cars for the segment(s) of the market seeking fuel-efficient, inexpensive, reasonably reliable transportation. There are probably several reasons this approach was not pursued. First, car plant construction, or retooling of existing plants, is expensive and requires a long lead time. US car makers may have avoided the expense until too late, and then the lead time prevented share maintenance. Second, the larger, more expensive models produced by US firms had higher margins, and US car makers were probably reluctant to divert attention from that market (or perhaps to admit it was declining). Third, Japanese production systems are a unique combination of culture and cultivation achieved over a long period. Not all US car makers demonstrated an ability to make cars of such quality.
How do the three levels of strategy differ in terms of the issues on which they focus?
See Exhibit 2.6.
While we have seen that a business may have a number of other strategic options, the conventional wisdom suggests that a declining business should be either divested or harvested for maximum cash flow. Under what kinds of market and competitive conditions do each of these two conventional strategies make good sense? What kinds of marketing actions are typically involved in successfully implementing a harvesting strategy?
Harvesting makes sense when the market is expected to decline at a steady rate, there are few strong competitors, low exit barriers and the firm has a leading share position. When the decline is expected to be relatively rapid, divestment makes sense. Marketing actions consistent with harvesting include: (1) eliminating R&D expendi- tures; (2) reducing marketing expenditures; (3) seeking ways to reduce production costs; and (4) raising prices as needed to maintain margins.
What are the major want–satisfying benefits that customers are likely to receive from the following products?
a. Cars.
b. Motor cycles.
c. Raincoats.
d. Contribution to a local charity.
e. Reading a book about the life of Gandhi.
Taking into account the major forces driving industry competition, what do you think lies ahead for the worldwide automobile industry?
Several things lie ahead for the worldwide automobile industry, including fewer full- line producers, longer product lines, more and more production transferred to developing countries, more world models resulting in fewer basic platforms, and continued efforts to make cars safer, more economical to drive, and more in harmony with the environment. In addition, continued efforts to reduce costs, but still provide a production system which will lend itself to mass customisation.
Suppose executives estimate that the unit variable cost for their firm’s videocassette recorder (VCR) is $100, the fixed cost related to the product is $5 million annually and the company’s estimated sales volume for next year is 100 000 VCRs. The firm has a target rate of return of 20 per cent and it has made capital investments totalling $4 million to produce and distribute its VCRs. What price will the firm have to obtain for each VCR to achieve its target rate of return?
Suppose you are the advertising manager of a large insurance company that has just developed a new policy designed to protect against hurricane losses. You ask your agency to help develop a copy platform for this new policy. What should be included and from what source will the required information come?
The information needed to develop a copy platform for the new hurricane policy and the sources of the needed information are described below:
Sales people from firms that manufacture office equipment often spend a good deal of their time talking with secretaries and office managers in the offices of potential customers. But those employees seldom have the authority to purchase major pieces of equipment. Is this an effective use of the sales person’s time? Why or why not?
This can be an effective use of the salesperson’s time in that the secretary or office manager often functions as a gatekeeper who controls the flow of information to other people in the purchasing process. The organisation decision maker cannot choose the salesperson’s products unless she/he is aware of them and a secretary or office manager often controls access to the decision maker. Also, since secretaries are usually the primary users of such equipment, they may have some influence on the firm’s evaluation criteria and in the final purchase decision.
Suppose you are the product manager for a new aseptic packaging material, which preserves milk and other dairy products without refrigeration. The product is in the introductory stage of its life cycle. What are the implications of this position in the decisions you must make about each of the 4 Ps when designing a strategic marketing programme for this product? When (and if) this product reaches the growth stage, what changes will you have to make in your marketing plan, including its objectives?
Aseptic packages are in the introductory stage of their life cycle, where there are few segments and a small number of competitors. The essential marketing objective is primary demand stimulation (building up a market for the product) rather than secondary demand stimulation (building up a market for the brand). The company should seek quality improvement, keep its product line narrow, price to penetrate the market, use its own salesforce and seek publicity in trade journals. As the market grows, the company should seek to build market share, continue to make quality improvements, widen its product line, reduce its price and build a strong sales service organisation.
A number of years ago General Foods’ Cool Whip frozen dessert topping held nearly a two-thirds share of the market, but it was gradually losing share to low-priced private label competitors in many regional markets. Describe two strategies that General Foods might have adopted to defend its leading share position and the marketing actions necessary to implement them. Which of the two would you recommend and why?
Concerns about the impact of consolidation among already powerful retailers and a string of disappointing earnings announcements have caused US food company stocks to significantly under-perform on the stock market average in the six months to March 200X. Companies such as Heinz, Kraft and Nestle were all reported to be restructuring their activities.
A new chief executive was appointed at the multinational food brands company H.J. Heinz, which is a market leader in the production and marketing of grocery products. As he reviewed the company’s performance over the past years, the new Chief Executive realised that something would need to be done. Heinz’s share price had fallen from a high of $61 two years ago to a low of $51 and had only recently recovered to $56. Total sales across the group remained flat at almost $9 billion. Operating income had fallen sharply to just over $200 million two years ago but last year recovered to $800 million. A more detailed analysis showed that North American sales had stayed flat over the last year at just over £5bn By contrast European sales had shown a modest increase in the last year, from $2 billion to just over $2.2 billion. Sales to Asia/Pacific fell last year to around $1 billion.
Given current trading conditions what options can the new Chief Executive consider in developing a marketing strategy for Heinz?
The aim of the question is to encourage candidates to demonstrate their knowledge of the strategic marketing planning process. Competent candidates should draw on information presented in the case in order to help structure the answer.
Key points to note are that:
Sales and income have been flat recently due to a number of factors.
Heinz is market leader in its field.
The Heinz group have different positions within different markets.
The market is mature in North America and Europe.
Relevant modules are Module 2, which considers the strategic role of marketing, Module 3 Business Strategies and their Marketing Implications, Module 4 on Environmental Analysis, Module 5 on Industry Analysis, finally Module 17 which considers Marketing Strategies for Mature and Declining Markets.
Competent answers will indicate that the new Chief Executive’s first step would be to conduct a marketing audit, including a full external analysis, including PEST, customer and competitor analysis in each principal market. Opportunities and threats should be identified and matched with the firm’s strengths and weaknesses.
Secondly a gap analysis would reveal the difference between aspirations and performance.
Third, the new Chief Executive can now set overall group objectives.
The new Chief Executive’s fourth task is to formulate a strategy for the group which seeks to achieve these objectives. Alternative corporate growth strategies may be explored using Exhibit 2.9 from Module 2. Good candidates will seek to relate information provided in the case to this matrix.
With key markets in maturity and/or decline, the key strategic issue for the new Chief Executive is to sustain Heinz’s competitive position so that if and when there is a ‘shake out’, the group will be in a position to take advantage of this. In considering strategic options the new Chief Executive may opt to pursue an analyser or defender strategy in targeting those segments of the market that are still in growth while defending mature segments. He may opt to build upon a cost or product differentiation advantage and aim to increase volume by promoting new uses for old product. A portfolio model such as that used by the Boston Consultancy Group could be used to determine resource issues. Finally the new Chief Executive would expect that detailed marketing programmes were developed that shape the marketing mix to suit the needs of different target groups.
What are the basic/generic competitive strategies? Describe each briefly.
Overall cost leadership
Differentiation – customer perceptions of superior quality or deign
Focus – focusing on a niche market
Michael Porter distinguishes three strategies – or competitive positions – that businesses pursue to gain and maintain competitive advantages in their various product-markets: (1) overall cost leadership; (2) differentiation – building customer percep- tions of superior product quality, design, or service; and (3) focus, in which the business avoids direct confrontation with its major competitors by concentrating on narrowly defined market niches. Porter describes firms that lack a distinctive strategy as being ‘stuck in the middle’ and predicts that they will perform poorly.
What are the more important characteristics of a market-oriented company?
Marketing oriented organisations tend to operate according to the business philosophy known as the marketing concept, from General Electric
Marketing Concept holds that the planning of all company activities around the primary goal of satisfying customer needs is the most effective means to attain and sustain a competitive advantage and achieve company objectives over time
Guidelines for market oriented management
- Create customer focus throughout the business
- Listen to the customer
- Design and nurture your distinctive competence
- Define marketing as market intelligence
- Mange for profitability, not sales volume
- Make customer value the guiding star
Let the customer define quality
- Measure and manage customer expectations
- Build customer relationships and loyalty
- Design the business as a service business
- Commit to continuous improvement and innovation
- Manage culture along with strategy and structure
- Grow with partners and alliances
- Destroy marketing bureaucracy
The J. B. Kunz corporation, the leading manufacturer of passbooks for financial institutions, saw its market gradually decline during the 1970s and 1980s because the switch to electronic banking was making its product superfluous. Nevertheless, the firm bought up the assets of a number of smaller competitors, greatly increased its market share within its industry and managed to earn a very high return on investment. What kind of strategy was the company pursuing? Why do you think the firm was able to achieve a high ROI in the face of industry decline?
Kunz was pursuing a ‘profitable survivor’ strategy. It held a leading share in a market certain to decline (but at a steady rate), with few strong competitors. It was probably able to acquire remaining firms at a favourable rate, streamline their product lines and improve production and distribution efficiency. There may have been purchasing economies as the firm increased its scale. Further, while advertising was probably necessary, marketing expenses were probably minimal (a reorder situation). With little price competition, and by reducing costs, margins could be maintained or increased.
Describe the four subgroups of consumer goods.
Why are more and more firms using teams to introduce new products?
- In house or sub contract or joint venture
- In house – faster, competitive advantage, ioint venture
- Bureaucratic is better for line extensions and product improvement
- Cross functional required for innovation
The World Wide Web can offer considerable opportunities for manufacturers of farm equipment such as tractors, combines, and harvesters to better serve their customers. Discuss the various ways in which the WWW can help such manufacturers better meet customer needs
The World Wide Web can be helpful in a variety of ways including announcing and detailing all new products, price changes, recalls, special promotions, new uses of existing products, maintenance suggestions, repairs and a place to display its catalogue containing detailed specifications on all products and services.
There is often conflict between manufacturers and the retailers who distribute their products. What are some major causes of such conflicts? What can a manufacturer do to minimise or resolve these conflicts?
Disagreements among channel members centre on incompatible goals (margins, services and costs), unclear rights and responsibilities, poor communications, inconsistent handling by manufacturers of problems (complaints) and mispercep- tions. Firms can help minimise channel conflict by recognising and resolving potential conflicts early, involving channel members in policy decisions, increasing interaction among all levels of personnel, focusing/emphasising common goals and using mediation and arbitration.
Minnetonka, Inc., is a relatively small firm that has pioneered the development of consumer health and beauty products – such as Softsoap and Check-Up plaque-fighting toothpaste – over recent years. What potential advantages does being the pioneer in new product-markets provide a firm like Minnetonka in an industry dominated by giants such as Procter & Gamble and Colgate-Palmolive?
The text now identifies seven possible advantages to the pioneer. The new one is possible network externalities or positive network effects. However, Minnetonka’s products are unlikely to benefit from such effects.
A number of years ago General Foods’ Cool Whip frozen dessert topping held nearly a two-thirds share of the market, but it was gradually losing share to low-priced private label competitors in many regional markets. Describe two strategies that General Foods might have adopted to defend its leading share position and the marketing actions necessary to implement them. Which of the two would you recommend and why?
Fortress
Increase satisfaction, loyalty and repeat purchase by current customers; appeal to late adopters.
Continue quality control.
Continue product modification/improvement.
Use advertisements to stimulate selective demand.
Flanker
Develop a second entry (in this case, perhaps a budget topping).
What are the major limitations of the BCG model?
- Market growth is a proxy for maturity and attractiveness of an industry:
- market growth rate is not an adequate descriptor of overall industry attractiveness – some high growth industries are not profitable due to high barriers of entry
- Relative market share is a proxy for competitive strength.- Market share is an inadequate description of overall competitive strength:
- market share is related to past effort
- It gives no guidance on how to implement investment strategy
- Assumes all business are independent apart from flow of cash – e.g. investing in one business could have an effect on another which is not taken into account
Suppose the marketing manager in the above question decides to consider leasing the company’s robotics to companies around the world. How would such a programme differ from a direct sale programme with respect to its marketing?
Pricing would certainly be different since leasing would have to take into account the cost-of-capital, default by the customer, unplanned obsolescence resulting from new product development by the company, and the cost of service over the lifetime of the lease.
Extensive market segmentation is a relatively recent phenomenon. Until about the middle of the last century many firms offered a single basic product aimed at the entire mass market (such as Coca-Cola or Levi jeans). But in recent years many firms including industrial goods manufacturers and services producers as well as consumer products companies – have begun segmenting their markets and developing different products and marketing programmes targeted at different segments. Which environmental changes have helped spark this increased interest in market segmentation?
Environmental changes that have increased interest in market segmentation include: (1) slowing of population growth and maturing of product-markets (which increase competition among firms within the industry and markets); (2) social and economic forces that have increased the demand for product variety; and (3) segmenting of services by institutions serving consumers (in effect, derived segmentation).
What are the objectives of the market segmentation process?
Objectives of segmentation
- Identify a homogenous segment that differs from other segments – e.g. ones that have similar wants/needs and/or likely responses to different elements of the marketing mix
- Specify criteria that define the segment – segmentation criteria should clearly identify whether a given customer is part of the segment or not, so promotion can be properly targeted
- Determine segment size and potential – for use in which segments to go after
IBM does a substantial amount of television advertising for its various computer products. On the other hand, Cray Research – the most successful builder of the supercomputers used by government agencies, the US Weather Service and large scientific research organisations – does no television advertising. In fact, Cray does very little advertising of any kind. Instead, the firm relies on the efforts of a small salesforce. Why do the two firms pursue such different promotion strategies?
Three factors lead to the different promotion strategies. First, the markets for the types of computers marketed by IBM are much larger than the market for super- computers; consequently, IBM can justify spending large amounts of money on advertising to reach these markets. Second, the markets which IBM targets are quite competitive and while IBM dominates many of them, it must still advertise to maintain its position in those markets. Cray, on the other hand, has so dominated the supercomputer market, especially in the USA, that there is little need to adver- tise. Finally, while all computers are complex and require some personal selling, supercomputers are among the most complex and intricate machines in existence. As a result, advertising can do little to enhance the marketing process, while personal selling is essential so that customers can explain their needs in detail and salespeople can, in turn, respond to their questions.
One of a number of trends affecting wholesalers in the United States, Europe and Japan is just-in-time. Describe what this term means and explain what forces are making it a more and more important business practice. For a wholesaler to adopt this practice, what must it be able to do?
Just-in-time has to do with inventory control. It programmes the delivery of a component by a supplier to a customer at literally the moment when the last component in stock has been used. The objective of a just-in-time system is zero inventory which would imply not only a unique physical logistics system, but products with zero quality defects. In order to be able to make such a system work, a wholesaler must be able to work closely with a client, develop and constantly update a decision-support system and stock error-free products.
What other causes might be responsible for Barlow’s failure to make quota? What additional information or analyses would you seek in order to determine what should be done to improve Barlow’s future performance?
- Customer analysis – An analysis of Barlow’s customers to determine if she is doing a good job of qualifying her customers.
- Product analysis – What is the mix of products she is selling? Perhaps she needs to sell a different mix of product combinations.
- Order size – How big is an average order? Perhaps she needs to work on putting together larger orders.
- Analysis of competitive actions in Barlow’s territories.
What flows are necessary for an exchange transaction to take place?
How can competitors’ costs and prices be estimated?
- to achieve the correct positioning of the product, you need to analyse competitors costs and prices
- for a low cost strategy, you need to ensure that you have lower costs than competitors and that those lower costs are reflected in the products relative price
- competitors costs are harder to get – need to reverse engineer
What are the limitations of a product positioning analysis?
- product positioning analysis as represented by the perceptual map does not tell marketer which attributes are important to customers
- no way of telling if there is a space for a new brand that might locate in a positioning ‘gap’ or whether consumers in other market segments might prefer brands with different attributes and positions – this is called market positioning analysis i.e. step 5 below
The 3M Company’s Industrial Tape SBU pursues a differentiated defender strategy in an industry where both the basic technologies and the customer segments are relatively mature and stable. Is the objective imposed by top management of obtaining 30 per cent of sales from products introduced within the last four years an appropriate objective for such an SBU? What do you think top management hopes to accomplish by imposing such an objective on the Industrial Tape SBU? What are the potential disadvantages or dangers involved in imposing such an objective?
Obtaining 30 per cent of sales from products introduced within the last four years is a particularly challenging goal for a business in a mature and stable industry, but it can be appropriate. By imposing such a goal, top management may seek to compel the business’s managers to develop product modifications in anticipation of competitor moves. While such innovations are unlikely to be radical in a ma- ture/stable industry, they may be substantive from the standpoint of users (indeed, they may be suggested by users). While pressing the management of a business in a mature industry to develop new products presents a challenge, it is the challenge used by companies like Gillette, which is also in a stable/mature industry. Yet Gillette utilises revenues from existing products in the mature shaving-products industry to fund new-product develop- ment and marketing. Thus, products like Trac II funded development of Atra. The disadvantages or dangers in this technique are that: (1) innovations will be developed that were unnecessary, due to lack of competition; (2) innovations may prove to be unsuccessful; and (3) innovations may cannibalise existing products.
Falling birth rates in many communities have caused declining revenues for the paediatric medicine departments of local hospitals. Because most hospitals must offer a full range of services, however, they cannot close their paediatrics departments. If you were a hospital administrator, what alternative strategies might you pursue concerning your paediatrics department?
There are two options here. One is to ‘harvest’ the paediatric service by minimising investment to maximise return on this unit. The other is to utilise the paediatric service to build longer-term relationships with families. This ‘relationship’ strategy is similar to the approach taken by Toys ‘R’ Us, which is said to offer infant supplies (e.g. nappies) at near cost to encourage mothers with young children to shop there and to form a favourable opinion of the store (including its pricing). The hospital could utilise the paediatric unit to position itself with families in the household- formation stage, and could probably utilise the traffic that a paediatric ward draws on the part of middle-aged and elderly relatives to position itself for those in other stages of the family life cycle.
It is also important to note in this case that the hospital administrator’s decision must include the overall mission of the organisation.
Define the following terms:
a. FOB origin pricing.
b. freight absorption pricing.
c. zone pricing.
a. One approach is called FOB origin pricing: The manufacturer places the goods ‘free on board’ a transportation carrier.
b. The opposite alternative is freight absorption pricing. Here the seller picks up all or part of the freight charges
c. Zone pricing is another compromise approach that falls between FOB and uniform delivered pricing. Here the company divides the country into two or more pricing zones. It charges all customers within the same zone the same delivered price, but a higher price is set for distant zones than for those closer to the plant.
With the exception of certain core businesses – such as adhesives and information- storage technology – the 3M Company has often followed a strategy of withdrawing from markets in which it was the pioneer after other competitors enter and profit margins start to decline. It typically does this by licensing products to other firms. Under what kinds of market and competitive situations is such a withdrawal strategy most appropriate? What kinds of products do you think 3M is most likely to license to other firms?
Skimming with early withdrawal is most successful when there is limited potential demand, customers are likely to adopt early and pay a premium and when there is substantial potential competition.
3M is most likely to engage in skimming and spinning off when the product technology cannot be effectively protected, when the resources to produce the product are commonly available and when production is relatively simple.
What are the major steps of the new-product development process?
A European grocery foods firm has developed a new range of convenience products for sale in overseas markets. Compare and contrast the different methods by which the firm may seek to set a price level for these products.
Good answers should address the key differences, benefits and failings of the different approaches. Excellent answers might also go further to explore adapting prices to variations in market circumstances. This area is covered in Module 12.
The different approaches are:
Cost-oriented methods
Competition-oriented methods
Customer-oriented methods
Cost oriented methods are simple to apply which is the reason for their common use especially in the retail and distributive trades. The difficulty with this method is that it ignores the price sensitivity of demand and assumes a level of sales before the price is set. Difficulties can ensue if the price is set on the basis of an over-optimistic sales estimate.
Competition oriented methods such as going rate and competitive parity approaches are common in oligopolistic industries where there is little product differentiation and a few large competitors. Prices tend to be quite stable in such industries until a price leader decides that an increase in industry prices is necessary to meet increased costs and maintain volumes. This approach also tends to ignore the price sensitivity of demand.
In contrast to the other methods, customer oriented methods of setting a price are related to the notion of perceived value. One danger of cost-oriented pricing is that producers risk producing prices which are below perceived value. Perhaps most likely is that such approaches might also result in prices that exceed many customer perceptions of value, resulting in lost sales and competitive vulnerability. One difficulty with the idea of perceived value is that this can vary from customer to customer with the result that in practice an ‘average’ value is calculated.
In considering international variations, marketers might need to consider geographic adjustments such as FOB pricing and Global adjustments such as transfer pricing and countertrade.
What are the limitations of physical positioning?
- does not provide a picture of what’s inside a customers mind
- customers attitude depends on social and psychological factors not amenable to objective comparison
As a consultant to a small chain of supermarkets, you have been asked by the president to list, in outline form, what ethical subject areas the company should discuss internally before writing an ethical manifesto, which would be distributed to suppliers, staff and stockholders
A small chain of supermarkets should consider incorporating the following subjects in its ethical manifesto:
(a) Control over the level of slotting allowances so as not to inhibit the stocking of new products as well as the providing of adequate shelf facings.
(b) Consider locating one or more stores in or near poor neighbourhoods.
(c) Not advertising specially priced merchandise which does not have an adequate retail inventory.
(d) Not using the ‘to meet competition’ argument with a seller to obtain a special concession when such is not the case.
(e) Not discriminating against customers residing in poor neighbourhoods in times of product shortages.
Why has price become a more important part of a firm’s marketing strategy in recent years?
Determining an appropriate price level for a product or service is complicated, and most firms do not charge the same list price to every customer all the time. Instead, they develop a price structure that establishes guidelines for adapting the price to variations in costs and demand across different markets.
Define strategy.
A strategy is a fundamental pattern of present and planned objectives, resource deployments, and interactions of an organisation with markets, competition and other environmental factors – i.e. what [objectives], where [which market segments] and how [resource and activities needed]
Calvin Klein jeans are selectively distributed through a limited number of fashionable department and speciality stores. Is this an appropriate channel design for such a product? Why or why not?
In the case of Calvin Klein jeans this is an appropriate channel design, since the jeans are considered shopping goods that customers buy infrequently and compare on price and product features. It is also appropriate since certain retailers such as mass-merchandisers (Kmart) do not fit the image set by Klein for their jeans.
What are the different types of descriptors used to segment consumer goods markets? Industrial goods markets?
- demographic descriptors – age, education, sex, race, geography, income, occupation – in industrial markets, macro segmentation divides the market according to characteristics of buying organisastion (e.g. firm size,type) while micro segmentation groups customers by characteristics of individual buyers (typical age of purchasing officer)
- geographic descriptors – different location vary in their sales potential, growth rates, customer needs etc. – particularly important in retail and service businesses
- geodemographic descriptors – many segmentation schemes involve both of the above – e.g. retailers target people within 5 miles of a store who have a particular demographic – firms can provide report that assess size and market potential of a segment in a particular area
- behavioral descriptors – no limit to the amount of ways segments can be defined in behavioral terms – e.g. nike targeted long distance runners
- consumer needs – benefits sought from a particular product or service – can define segments in terms of the choice criteria used in the purchase decision – organizational markets consider product performance in different use situations
- product related behavioral descriptors – these are more general and more product related than behavioral descriptors – e.g. product usage, loyalty, purchase influence (e.g. wife buys cleaning stuff)
- general behavioral descriptors – lifestyle: interests and opinions, social class, in orgs: the nature of buying decision
- organizational or firm behaviour descriptors - purchasing structure is how centralized purchasing activity is (more=>less user focused), buying situation includes straight rebuy, modified rebuy and new buying situation
What is price elasticity? Distinguish between price-elastic demand and price-inelastic demand. What are the pricing implications of each type of elasticity?
Price elasticity – A small price increase leads to a relatively large drop in quantity demanded.
Price inelasticity – A small price increase leads to a relatively small decline in quantity demanded.
When the price is elastic the firm may wish to lower the price, while the firm may want to consider raising the price when the price is inelastic.
Describe each of the four alternative industrial goods channels.
four alternative channel designs for industrial goods are
- producer to industrial buyer – more common for complex high value
- producer wholesaler buyer – good for standardized product and low value
- producer agent buyer - small manufacturers
- producer agent wholesaler buyer - small manufacturers
Organisational adaptiveness and innovativeness are enhanced under what conditions?
adaptiveness and innovativeness are enhanced by
- decision making authority is decentralized
- managerial discretion and informal co-ordination mechanisms replace rigid rules
- more specialists are present
Describe the three basic strategies of retail coverage.
Success in mature markets requires two sets of strategic actions. What are they?
success in mature markets requires two sets of strategic actions
- development of well implemented business strategy to sustain a competitive advantage, customer satisfaction and loyalty
- flexible and creative marketing programmes geared to pursue growth or profit opportunities as conditions change in specific product-markets
Assume you are the marketing manager for a cruiseline. For most consumers, taking a cruise represents a high-involvement purchase. What are the implications of high involvement for decisions relating to the product and its features, its price, and its promotion?
Because taking a cruise represents a high involvement purchase, consumers search out information pertaining to the product. They seldom consider all brands; rather they focus on a limited number with which they have some familiarity. Thus, for a brand to be even considered it has to be included in the consumer’s evoked set. Next, each brand is evaluated on a limited number of attributes. They are also judged on the relative importance of these attributes (one of which is price). And finally, consumers sum their ratings of each brand across attributes taking into account their relative importance. These are compared against the consumer’s choice criteria. A cruise line, to be successful, must develop a product which best fits the choice criteria of its target market(s). Promotion must take into account the consumers’ choice criteria and their current rating of various alternatives using these criteria. This can be done using advertising or personal selling in a variety of ways. The firm should be careful not to promote too many features or attributes at the same time to avoid confusing the consumer.
Ford Motor Company offers a number of car models in different price ranges. In addition to the usual cost and demand considerations, what other factors should the company consider when determining the relative prices for various products in its line?
A key factor to consider is the cross-elasticity between models (cannibalisation) which is the percentage change in sales of one product induced by a 1 per cent change in the price of another. This would enable Ford to examine how price increases in one model would affect demand for the other models in its line. In addition, the company must consider the costs and demand for replacement parts and how much of each car model should be composed of parts from other models (e.g. bumpers).
An alternative to the actions described in Question 19.39 would be to increase the advertising promotion budget by $70 000 without making any changes in the salesforce or the logistics system. It is estimated that such an increase in advertising would generate an additional $130 000 in net sales. Which alternative should be adopted?
What are the major forces driving the competitive environment?
- Driving forces are macro-environmental trends that effect not only market but industry as well
- They include:
- changes in long term industry’s growth rate which directly effect investment decisions
- changes in key buyer segments, which affect demand and strategic marketing programs
- diffusion of proprietary knowledge which controls both the rate at which products become more alike and the entry of new firms
- changes in cost and efficiency which could potentially make entry into the industry more difficult
- change in govt regulations
- Gathering information on trends in these areas tell a marketer whether the industry is attractive
Describe each of the four types of purchasing decision.
How does low-involvement purchase behaviour differ from high-involvement purchase behaviour?
What are the dangers involved in using sales force estimates to forecast a product’s future sales? Under which conditions are such estimates most likely to be accurate and useful?
The salesforce estimate may have an upward or downward bias. A downward bias is particularly likely if the sales forecast is tied to quota goals. Further, salespeople are unlikely to know about other marketing efforts (such as planned advertising campaigns) that would affect future sales. However, salesforce estimates are particularly useful for short-term forecasts during especially volatile market.
The J. B. Kunz corporation, the leading manufacturer of passbooks for financial institutions, saw its market gradually decline during the 1970s and 1980s because the switch to electronic banking was making its product superfluous. Nevertheless, the firm bought up the assets of a number of smaller competitors, greatly increased its market share within its industry, and managed to earn a very high return on investment. What kind of strategy was the company pursuing? Why do you think the firm was able to achieve a high ROI in the face of industry decline?
Kunz was pursuing a ‘profitable survivor’ strategy. It held a leading share in a market certain to decline (but at a steady rate), with few strong competitors.
It was probably able to acquire remaining firms at a favourable rate, streamline their product lines, and improve production and distribution efficiency. There may have been purchasing economies as the firm increased its scale. Further, while advertising was probably necessary, marketing expenses were probably minimal (a reorder situation). With little price competition, and by reducing costs, margins could be maintained or increased.
A company making high-speed modems – devices that convert signals from one type of machine (computer) to a form compatible with another (telephone) – was concerned that its latest modem, which had just been introduced to the market in the previous month, would soon be upstaged by a yet faster device produced by a major competitor. Your marketing research company has been hired to provide data about this competitor regarding its objectives (short-term/long-term), its R&D capabilities and the likelihood of its introducing a higher-speed modem than your client’s in the immediate future. Your research firm has been asked to present a plan for obtaining such data.
Outline the major parts of your proposed plan including the data you want and how you will obtain it.
The major parts of the proposed plan, the data wanted and the method of obtaining that data are as follows:
Competitor’s characteristics
- Data include revenues, share growth (trends), profitability, financial resources, new-product trends, strength of R&D resources and relations to parent company (if necessary).
- Sources include industry publications, industry experts, competitor’s past behaviour, own salesforce, former executives of competitor and analysis of educational qualification and job experience of key R&D personnel.
Company objectives
- Market share and revenues, product technology, history of technology successes and failures, prior response to being relegated to lower position on technology rating and weight put behind typical product launch.
- Sources include most of those listed under competitor’s characteristics plus benchmarking present product(s) to determine the feasibility of modifying them to obtain product superiority.
Competitor’s strengths and weaknesses
- Can be largely deduced from information cited under first two headings.
- Many of same sources already cited plus interviews from company’s major accounts.
What are the three sets of factors that help determine the strategic attractiveness of declining product-markets?
three sets of factors help determine the strategic attractiveness of declining product markets
- conditions of demand – rate and certainty of declines in volume – if its slow, capacity will be reduced slowly and competitors will be slower to leave - could be pockets of demand
- exit barriers – ease which weaker competitors can leave the market e.g. lots of specialized assets or shared facilities – harder to leave means more price cutting
- intensity of future competitive rivalry in market – price & profit pressures
Can market segmentation be taken too far? What are the potential disadvantages of oversegmenting a market? What strategy might a firm pursue when it believes that the market has been broken into too many small segments?
The primary disadvantage of oversegmentation is reduced profitability. Changing the product, promotion, pricing and distribution arrangements is expensive. The change in revenue (at the margin) must equal or exceed the costs incurred by segmenting. Other disadvantages of oversegmentation (increased administrative burden, dilution of brand image, cannibalisation of existing brand sales) can be expressed as costs. A firm that believes the market has been broken into too many small segments can attempt to consolidate the market through demand function modification. That is, it can try to bring together the consumers who have drifted into small dispersed segments, by showing how its benefits are superior. For example, Ted Levitt suggests that marketing research inclines managers to be ‘mindlessly accommodat- ing’, making small-segment marketing-mix changes that consumers say they want. Instead, he suggests that they can be led to want more generally appealing features – like economy and durability – associated with market aggregation (instead of segmentation).
You are the marketing manager for an industrial robots company. What challenges would you expect to face in marketing such capital equipment? What parts of the marketing plan will be most critical in determining success?
The challenges in marketing industrial robots (accessory equipment) are:
(a) Identification and prioritising of potential customers.
(b) Demonstrating the benefits of using industrial robots including tailoring their operation to the needs of a particular company. Servicing such equipment to minimise downtime.
The most critical parts of the marketing plan are the product and its servicing (including the availability of spare parts), pricing (both product and software) and personal selling (including the installation and servicing).
The manufacturer of VCRs described in Question 12.53 sells its VCRs through electronics wholesalers, who in turn sell to retail stores. The manufacturer’s trade discount policy is 40/20. What should the suggested retail price for the firm’s VCRs be? How much should the retailer have to pay for each VCR?>
The suggested retail price is $329.15.
The retailer should pay the wholesaler $197.50. The wholesaler should pay the manufacturer $158.00.
Manufacturer A has experienced cost increases for its product in recent months. It would like to initiate a price increase, but only if its major competitors are likely to follow A’s lead with price increases of their own. Which characteristics of Manufacturer A and which market and competitive conditions, are most likely to encourage A’s competitors to follow its lead in increasing prices?
Manufacturer A must: (1) be one of the most efficient producers in the industry; (2) be perceived to have good marketing expertise which will help move the product even with a price increase; or (3) have a history of making price increases stick. It is more than likely that the industry is oligopolistic with little product differentiation and a few large competitors (e.g. steel).
Firms sometimes set a low price in a new product-market (penetration pricing) to discourage potential competitors from entering the market. Can you think of any circumstances where a company might deliberately want to attract competitors to a new market and set a high price to help accomplish such an objective?
A firm wanting to maintain a high-quality image and keep production quantities down may wish to adopt a high price in order to: (1) limit demand among custom- ers; (2) reinforce the quality image of the product; and (3) attract other competitors to help build primary demand. Consequently, the company may want competitors to come in at the other end of the market to satisfy consumer demand for lower-priced products while the company continues to sell its products at the high end. Also, if the pioneer has limited marketing resources, it may want competitors to help build primary demand for the new product.
What is a portfolio model?
One of the most significant developments in strategic management during the 1970s and 1980s was the widespread adoption of portfolio models to help managers allocate corporate resources across multiple businesses. These models enable managers to classify and review their current and prospective businesses by viewing them as portfolios of investment opportunities and then evaluating each business’s competitive strength and the attractiveness of the markets it serves.
Discuss briefly the recent organisational design developments.
- orgs increasingly emphasize the managing of business processes in contrast to functional areas e.g. Roche’s order to fulfillment workflows
- these make org essentially flat and lean versus vertical and hierarchical
- executives will no longer be defined in terms of managing a group of functionally oriented people but in terms of a process that strongly emphasizes the importance of customer satisfaction
- process management is different from function management because
- its uses external objectives – customer satisfaction vs. simple revenues
- work is done in parallel, not in sequence
- information flows directly to where it is used, person to person rather than through bosses
- self managing teams – empowerment – power to do what it takes to please the customer – need to be selected and supported correctly
- collaborative networks and joint ventures
Exactly what is the relationship between segmentation, target marketing, and positioning? What damage will be done to a company’s target market and positioning efforts if markets are incorrectly segmented?
Market segmentation is the process by which the market is divided into distinct subsets of people with similar needs and characteristics which lead them to respond in similar ways to a particular product offering. Target marketing requires that the relative attractiveness of each segment be evaluated from which a decision would be made as to which segment(s) to target. And, finally, product positioning would be undertaken to design the specific product offerings and develop the strategic marketing programmes that collectively create an enduring competitive advantage. If the segmentation is seriously flawed, then the whole ‘system’ is jeopardised not only in terms of inept products and programmes, but in the allocation of funds between segments and elements in the marketing programme.
What are the steps in the positioning process?
How do low-cost defender, differentiated defender, prospector and analyser differ with respect to their scope, cash needs and synergy?
What are the more important ways in which a company can improve customer perceptions of service quality?
- gap between customers perception and marketers perception – need to collect information about what service attributes customers consider important
- gap between management perceptions and service quality specifications – policies may be unclear or poorly communicated to employees
- gap between service quality specifications and service delivery – must be backed by programmes and resources, must be measured and evaluated and rewarded
- gap between service delivery and external communications – unrealistically high demands of the customers
- gap between perceived service and expected service
Use the data presented in Exhibit 19.5 in the text. As new marketing manager, you believe the product’s net sales could be increased by $250 000 by taking the following actions:
(a) increase advertising by $45 000;
(b) add one more salesperson at a total cost of $60 000; and
(c) improve delivery time to customers by spending an additional $25 000 on order processing and warehousing for the product. If the product’s cost of goods sold does not change, what would be the effect of these actions on the product’s contribution margin? What would be the original effect on pretax profits?
Although Levi’s basic blue jeans experienced a period of increased popularity and sales growth a few years ago, the product’s life-cycle curve had undergone several ‘cycle- recycle’ phases throughout its history. Which factors might account for this life-cycle pattern?
As discussed in answer 5.42, jeans are a fashion. Essentially, they are a high- involvement, highly differentiated product class. As such, the product is prone to a sort of ‘social variety seeking’. They continue to grow in sales over time, and then because they have been socially visible for a prolonged period, decline in popularity (i.e. ‘go out of fashion’ ).
Identify the major social influences on consumers’ decision-making processes.
Cultural
- this is a set of beliefs, attitudes, and behavior patterns shared by members of a society and transmitted from one generation to the next
- cultural differences across countries create challenges and opportunities
Social Class
- every society has its status groupings based on similarities in income, education and
- certain reactions to things like advertising can be surmised based on their social class
Reference Groups
- they include a variety of groups that affect the consumer behavior through
- normative compliance – e.g. exclusive club
- value-expressed influence – to gain status in one’s group
- informational influence – involves the use of influential people to help assess the merits of a given product – e.g. asking doctor for advice
The family
- this is a reference group, but its very important because:
- its serves as primary socialization agent – this is where consumers learn how and what to consume
- it especially important for younger consumer
- particular family members specialize in purchasing particular products because or expertise or role structure of family
- the more traditional the society, the more men hold the power
The control system at Walmart is an important reason for their success. Specifically, how has this system helped them become the largest retailer in the world? Walmart’s recent placement of stores in Canada, Mexico, South America and Asia must have posed control problems for higher-level management. Discuss these problems and, in doing so, include your suggestions for ways of solving them.
Walmart’s control system has been a major reason why the company is the low-cost leader in its industry. By being able to convert information into action almost immediately, it can control and automatically replenish its inventories; track sales by stockkeeping unit, product groupings, departments, stores, district and regions; determine whether the seven-second credit card approval system is working properly, distribute messages to the entire system with but a few minutes’ notice, determine whether Walmart continues to be the lowest-priced discounter; and take advantage of new merchandise opportunities. By merging state-of-the-art computer communications technology with hands-on management, Walmart has developed a distribution system which is the envy of the industry. In Canada the company has enough stores to make it economically feasible to set up a control system similar to that of the USA – one which could be accessed by Walmart’s headquarters personnel. Much the same could be said for Mexico. There are fewer stores in South America and Asia and the distances are greater; hence, more control has to be delegated to local country managers. Obviously, the control system used will not be as sophisticated as the one used in the USA.
Describe (using an example) cost-plus or markup pricing, rate-of-return or target return pricing and break-even pricing.
Margin
Rate of return
Break even
What are the steps in the price-setting decision process?
What are the contents of a copy platform?
Compare and contrast the prospector and low-cost defender business strategies discussed in this module on each of the following strategic dimensions:
a. Scope.
b. Objectives.
c. Deployment of resources.
d. Sources of synergy.
Discuss each of the three types of pioneer strategy
Mass market penetration
- ultimate objective of this strategy is to capture and maintain a commanding share of the total market for the new product
- critical marketing task is to convince as many people to try product as quickly as possible so you can drive down unit costs and build loyal customer base before competitors arrive
- usually most successful when there are barriers to market entry or when pioneer has competencies or resources that competitors haven’t got
- smaller pioneers can be successful if there is slow initial growth, as this wont attract competitors
- good strategy when the product category is likely to experience positive network effects
Niche penetration
- even when new product market expands quickly a small firm can still be a successful pioneer by capturing and maintaining market share in a single market segment
- good when
- there is quick growth
- there are a number different benefit segments to appeal to
- few barriers to entry
- pioneer has limited resources
- some pioneers start with a mass market strategy but then end up in niche penetration strategy when the market ends up being more fragmented than they expected
Skimming and early withdrawal
- skimming involves setting a high price and engaging only in limited advertising and promotion to maximize profit
- sometimes firm will use this profit to develop more advanced technology or new uses of existing product
- when competitors enter market and margins fall, firm either moves to new segment or cannibalizes its own product with more advanced one e.g. 3M do this
- for this to work
- critical that company has strong R&D skills
- few barriers to entry
- product is expected to diffuse rapidly
- pioneer lacks capacity or resources to defend share position in the long haul
Describe each of the five alternative consumer goods channels.
five channel designs are commonly used to distribute consumer goods and services
- producer to consumer
- producers to retailers to consumers – when retailers are large enough to act as warehouses or when goods are high value low volume, like watches
- producer to wholesaler to retailer to consumer – low cost fmcg
- producer to agent to wholesaler to retailer to consumer – manufacturer is too small to justify sales force
- producer agents retailer consumer – small producers sell to retailers who are large enough to act as wholesalers
Some men consider a business suit a shopping good, while others view such a product as a speciality good. How are the shopping and purchasing behaviours of the two groups likely to differ? Why?
Under which market and competitive conditions are each of the following pricing objectives most appropriate for a business to consider?
a. Maximise sales growth through penetration pricing.
b. Maximise current profit through skimming pricing.
c. Maximise current profit through harvesting.
(a) Maximise sales growth through penetration pricing – the market is in the introductory or growth stage and the firm is an early entrant to the market. There are few barriers to entry, so other competitors are likely to enter quickly.
(b) Maximise current profit through skimming pricing – the market is in the introductory or growth stage and the firm is the first entrant. There are high barriers to entry, as the firm plans to withdraw after competitors enter.
(c) Maximise current profit through harvesting – the market is in the late maturity or decline stage and the firm is not a dominant player in the market.
Based on the attitudes toward the three different cruises summarised in Exhibit 6.9 and assuming that a major segment of consumers hold attitudes similar to those of Paul MacDonald, what actions could you, as marketing manager for Cruise A, take to improve consumers’ attitudes toward your cruise?
What is the difference between a customer’s need and a customer’s want? State which needs (or benefits) might be met by each of the following:
a. Toujours Moi perfume.
b. A BMW car.
c. A physical examination at a local hospital.
d. A mainframe computer.
A customer’s needs refer to the gap between a person’s actual and desired state, in terms of some physical or psychological condition. Needs are not created by marketers or other social forces; they flow from the basic biological and psychological makeup of human beings.
A customer’s wants refer to a person’s desires or preferences for specific ways of satisfying a basic need; that is, the particular products, brands, or services sought to fulfil an unsatisfied want. Thus, different people may have very different wants to satisfy the same need (e.g., some people may want an electric blanket while others may want a down comforter to satisfy the need for warmth). Needs or benefits that might be met by the following products include:
Toujours Moi perfume
Physical need: to smell good.
Psychological need: self-esteem.
Benefits: physical attractiveness, status, feel good about self.
BMW car
Physical need: transportation for self and others.
Psychological need: self-esteem.
Benefits: transport status, self-esteem, power.
Physical examination
Physical need: reduce fear/anxiety.
Psychological need: security.
Benefits: health maintenance, psychological security.
Mainframe
Psychological need: security, esteem, self-fulfilment.
Benefits (for the organisation): computational ability (i.e. data processing); service.
Benefits (for individual buyer): security in making correct purchasing decision, job enhancement.
Before putting your recommended retention programme in operation, the company asks you to design a marketing research study that will test the effectiveness of your programme.
The programme could be tested by selecting a sample of company users for the prior year and making them a special offer via a discount coupon good for a limited time period. To validate the coupon, the recipients would have to join the compa- ny’s frequent mileage club, whereby they could receive credit for the points earned by using the car rental company’s cars. The effectiveness of the intended pro- gramme would be determined largely by the difference between the usage generated by members of the sample for the previous 12 months and the following 12 months. Also, a tabulation should be make of new customers (those who had not patronised the company during the prior 12 months).
What dimensions do customers use to perceive underlying differences across products in a given category?
to maintain a competitive advantage in product quality, a firm must understand what dimensions customers perceive to underlie differences across products in a given category
dimensions of product quality:
- performance – e.g. german car makers
- durability - Volvo
- conformance with specifications – japanese cars
- features – american car makers
- reliability – consistency of performance
- serviceability – e.g. spare parts
fit and finish – visually appealing
brand name – perception of quality, brand equity built up by promotion
Discuss the three major ways of entering a foreign country.
- exporting – simplest and least expensive, it can be direct or indirect
- contractual entry modes – are non equity arrangement that involve the transfer of technology and/or skills to another country e.g. licensing
- franchising grants the right to use the company’s name, trademarks and technology
- contract manufacturing
- overseas direct investment – joint ventures or sole ownership
Why would an independent hardware store owner agree to become a member of a cooperative chain? What benefits would the store owner receive? How would the development and growth of the cooperative chain affect the balance of power in hardware distribution channels?
A cooperative chain gives the individual retailer greater power in dealing with suppliers, economies of scale in advertising, lower prices and special promotional materials. The benefits are: (1) ability to compete with national chains more effectively; (2) better, more profitable relationship with suppliers. The growth of a cooperative chain would shift power towards the retail end of the channel.
What are the more important sources of new product ideas?
Define objectives – what markets do we wish to grow, what capabilities should product have
Is their a strategic fit?
Lead user researcher – ideas developed by users who are ahead of market trends
These decisions, which were addressed from a strategic perspective in Module 2, provide guidance for idea generation. Typically, a substantial number of new product ideas must be generated to get one successful product. Ideas for new products can come from customers; from the company’s own staff, R&D people, the salesforce, product managers, marketing researchers; from members of its distribution channels; even from competitors.
A few years ago, pet rocks were a fad and basic Levi’s or Wranglers blue jeans were a fashion among younger customers. Graph the life-cycle curves of the two products on the same chart. How do the two curves differ from one another? What are the major marketing implications for each product?
The life cycles of the two products – pet rocks (P) and jeans (J) – might look like this:
The two curves differ in that the fad rises and falls sharply, is less spread out from side to side (i.e. comes and goes in less time) and ends as a product within a brief time period. The fashion rises and falls less sharply (i.e. comes and goes over longer periods of time) and maintains some existence throughout the time period. Among the marketing implications are those relating to profitability, product management and the portfolio mix. Because of its volatility, the fad will only be profitable if it is produced with little or no committed capital. The pet rock was profitable for this reason, but companies producing faddish clothing, toys or games can become vulnerable to commitment of capital to a product whose demand may drop precipitously. Such products must be managed for maximum initial return; thus, a skimming price might be advisable. People purchasing fads are generally price inelastic in the short run. If fads were predictable (i.e. replicable), and if they could be generated to utilise common skills, the marketing manager might assemble a portfolio of fads over time. The more likely portfolio is of fashions, balancing the cycles of one fashion item against another.
What conditions are necessary for an exchange to take place?
- Identifying exchange partners –who Are the CUStoMERS
- What needs and wants do partners try to satisfy through exchange and what is the difference between the two
- What is exchanged – product, SeRvice OR BOTH
- How does the exchange create value? Why is a buyer better off and more satisfied following an exchange
- How do potential exchange partners become a market for a good or service?
What is meant by positioning?
- consumers choose what they buy for two reasons
- what they choose is better
- or its cheaper
- in either case, the good or service they choose is almost always different from others they could have chosen
- a company can outperform its rivals only if it can establish a difference that it can preserve
- Differentiation is what people buy
positioning allows companies to take advantage of the specific needs of a segment and be more responsive to it
differences can be physical or perceptual
creating both is what positioning seeks to accomplish
Describe what should be included in the discussion of a company’s action plan for a given product.
- most crucial part of plan
- specific actions necessary to implement strategy along with
- who’s responsible
- when will it be done
- how much is spent on each action
- actions requiring other functional depts. should be included, but only after the product manager had got their buy in
- gannt charts used to specify milestones and timelines
State the critical issues that should be addressed at each of the following levels:
a. Corporate strategy.
b. Business-level strategy.
c. Marketing strategy.
Describe marketing database systems and how they can be used.
- CRM systems
- Different from internal record systems in that it contains information about individual customers preferences rather than info on product types
- online cookies, personalization, vouchers
- various demographic and lifestyle info can be purchased – data comes from warranty cards and the like
- almost all magazine & credit card company will sell its database
- questions to ask before purchasing a database;
- how and where was the data acquired
- compare costs of database containing names about which more is known (opt in lists)
- data mining technology allows a firm to combine databases
Describe a harvesting price strategy.
Harvesting
- Some product markets decline due to changing customer preferences or new technologies
- If its too late to divest the product and earn a reasonable return
- Harvesting strategy is about maximising short term profits before demand disappears
- Typically this involves cutting costs and keeping price high
What new product opportunities does the changing family structure provide for consumer companies?
The changing family structure provides numerous new product opportunities for consumer companies. It’s impossible to devise an all-inclusive list, but some samples are services to save time for households with two or more working families (shop- ping, dog care, and house maintenance); early childhood development centers which provide a high level of education and care starting early in the morning to late in the evening-and even over weekends; homes specially constructed and equipped with labour-saving devices that minimise maintenance; a range of prepared foods ranging from the ‘basic’ to the ‘fancy’ with different levels of ‘fat’; and compacted literature which provides both entertainment and education with a lower time investment.
Discuss briefly the five criteria consumers use to evaluate service quality.
Describe briefly the five steps consumers go through when purchasing high-involvement products or services.
What are the marketing implications of low-involvement purchasing?
Describe the Fishbein model by using an example.
Describe briefly the organisational purchase decision-making process.
What are the appropriate external environment conditions for a prospector strategy? A defender strategy?
Suppose you have been hired as a marketing consultant by Stouffer’s Foods, the manufacturer of the Lean Cuisine line of low-calorie frozen entrées. How might the demographic trends and the changes in family structure discussed in this module affect each of the 4 Ps in Stouffer’s strategic marketing programme? What adjustments should the company be prepared to make in its marketing programme?
Suppose you are the vice president of marketing for a firm that makes printed circuit boards and other electronic components for manufacturers in a variety of industries. General Motors is about to choose a supplier of printed circuits and wiring assemblies for a new car model they are going to produce for the first time next year. You would like to win the contract to supply those circuits and assemblies. How are each of the following groups of people within GM likely to influence the firm’s purchase decision concerning the new circuits and assemblies? At which stages in the purchasing process is each group likely to be most influential?
a. R&D managers.
b. Product design engineers.
c. Production managers.
d. Purchasing managers.
What are the steps needed to develop a promotion programme?
Suppose you are the marketing manager for Ralph Lauren’s line of designer women’s fashions. You believe that your products are speciality goods in the eyes of most potential customers. What does this fact imply for each of the following areas of your strategic marketing programme?
a. Price policy.
b. Distribution.
c. Promotion
What are the steps in constructing a market-attractiveness/business-position matrix for evaluating potential target markets?
What are the eight dimensions of quality? How do these affect a firm’s quality strategy?
One important dimension on which goods or services are physically differentiated is on the basis of quality – seeking to be better, in some sense, in the customers’ eyes than competing products.
The president of a large manufacturer of household appliances (such as dishwashing machines, refrigerators, washers and dryers that are manufactured and sold in the United States, Japan, Mexico and Europe) has asked you to develop a system for monitoring and evaluating the impact of major environmental trends on his company’s strategies and programmes. Briefly describe your proposed system in terms of how you would organise your scanning activities, identify environmental issues and evaluate the impact of each.
What are the major differences between organisational and consumer markets?
A manufacturer of electrical components for industrial applications has five strategic business units (SBUs), shown in the following table. Using the Boston Consulting Group portfolio model, evaluate the strength of the company’s current and potential future condition. What strategies should it consider to improve its future position?
An approximation of the BCG growth-share matrix in this situation is shown below.
Note that relative market share is determined by dividing company SBU market share by average of top three competitors.
The implication is that funds from the ‘cash cows’ D and C might be used to fund the ‘question mark’ business A, and the borderline ‘question mark’/‘star’ business B.
Because the remaining business (E) is a ‘dog,’ it might be considered for divestment or harvesting. However, this analysis should be supplemented with additional analyses, including perhaps another portfolio and other analyses specific to the situations inherent in each business.
A leading European airline has asked you, a consultant, to suggest areas the company should emphasise to differentiate itself from competing airlines. In so doing, you are told to assume that the airline would continue to be price competitive
Describe the various forms countertrade can take.
Which variables or descriptors might be most appropriate for segmenting the market for the following consumer products and services? Explain your reasoning.
a. Lawn mowers.
b. Frozen entrees or dinners.
c. Breakfast cereals.
d. Financial services.
Which variables or descriptors might be most appropriate for segmenting the markets for the following industrial goods and services? Explain your reasoning.
a. Photocopiers.
b. Floor sweepers.
c. Truck leasing.
What are the major components of an annual marketing plan for a given product?
Exhibit 18.9
Given your answer to Question 16.23, which specific marketing actions would you recommend for accomplishing Stouffer’s objectives? Be specific with regard to each of the 4 Ps in the firm’s marketing programme.
Discuss briefly the various purposes channel incentives are used for.
Doctors, lawyers, and other professionals have become increasingly active in recent years in marketing their services. Which unique characteristics or concerns make such professional services different from tangible products? What are the implications of those differences for the design of effective marketing programmes for professional services?
In view of your answers to Question 7.34, outline the important elements of a marketing programme that would communicate the appropriate information at the appropriate time to each group involved in the purchase decision at GM.
What medium would you recommend using as your primary buy for each of the following situations?
a. A small ice cream retail chain selling premium products.
b. A consumer electronics firm selling sophisticated and relatively expensive equipment.
c. A large home-appliance company selling such major units as refrigerators, stoves, washing machines and dryers.
d. A laundry detergent firm selling several brands of such a product.
Tennant Company manufactures cleaning equipment for commercial applications. Its walk-behind electric floor waxer/buffer is priced at $350. The product’s unit variable cost is $200 and total fixed costs associated with the product are $3 million. How many units must Tennant sell to reach break even? How would the break-even volume change if the firm reduced the price of the product by $50?
Name each step of the marketing research process and explain what could go wrong at each step.
