Strategic/Product Marketing, Insights, Pricing

Question 1

What is the consumer adoption process?

Answer 1

Consumer-adoption process is the process by which customers learn about new products, try them, and adopt or reject them
It focuses on mental process through which an individual passes from first hearing about an innovation to final adoption

Today many marketers target heavy users and early adopters
> they tend to be opinions leaders and can be reached by specific media

Question 2

What are the stages in the consumer adoption process?

Answer 2

1) Awareness: inform adopters through advertising, publicity, or any other effort
2) Interest: search for information about features, uses, advantages, disadvantages, price, or location
3) Evaluation: evaluating whether new product is worth trying
4) Trial: purchasing small quantity, free sample or demonstration, borrowing product from someone  effective communication is key
5) Adoption: full and regular use of the product

Question 3

What influences the consumer adoption process?

Answer 3

Consumers’ and organisations’ willingness to try new products
> Differentiation between innovators, early adopters, early majority, late majority, laggards

Personal influences:
buying situation and the individual
readiness to accept new products, services, opinions, and ideas

Characteristics of the new product:
relative advantages
compatibility (degree to which innovation matches the values and experiences of the individuals)
complexity (understanding and using)
divisibility (trial)
communicability (observable benefits)

Innovation

Question 4

What is the product lifecycle and what are the major lifecycle stages of a product?

Answer 4

= amount of time a product goes from being introduced into the market until its taken off the shelves

introduction, growth, maturity, and decline

Question 5

Define the introduction stage in the product lifecycle and appropriate strategies in this stage.

Answer 5

marked by slow growth and minimal profits
> inform consumers, induce product trial, secure distribution and retail outlets

Question 6

Define the growth stage in the product lifecycle and appropriate strategies in this stage.

Answer 6

rapid sales growth and increasing profits

> maintain or increase promotional expenditures, educate the market – improve product quality and add new features
add new models and flanker products
enter new market segments; increase distribution coverage and channels
shift to loyalty communications
lower prices to attract price-sensitive buyers

Question 7

Define the maturity stage in the product lifecycle and appropriate strategies.

Answer 7

sales growth slows and profit stabilise

> high volume and low cost strategy
or niche strategy: low volume and high margins

abandon weaker products and concentrate on new ones – market modification
product modification (improve quality, features, or style)
marketing program modification

Question 8

Define the maturity stage in the product lifecycle and appropriate strategies.

Answer 8

sales growth slows and profit stabilise

> high volume and low cost strategy
or niche strategy: low volume and high margins

abandon weaker products and concentrate on new ones – market modification
product modification (improve quality, features, or style)
marketing program modification

Question 9

Define the decline stage in the product lifecycle and appropriate strategies.

Answer 9

low sales growth

> identify the truly weak products, develop a strategy for each, and phase them out in a way that minimises impact on company profits, employees, and customers > depends on industry’s attractiveness and companies competitive strength

Question 10

Define the first mover and second mover advantage.

Answer 10

Being first can be rewarding but risky and expensive
> Come in first makes sense if the firm can bring superior technology, quality or brand strength to create a market advantage
Develop sustained market dominance, become market leaders

Second movers:
Successful imitators thrived by offering lower prices, improving the product more continuously, or using brute market power to overtake the pioneer

Question 11

What are the advantages of tapping first into a market?

Answer 11

First mover advantage:

Pioneer’s product established the attributes the product class should possess
Economies of scale, technological leadership, patents, ownership of scarce assets, and other barriers to entry
firm can bring superior technology, quality or brand strength to create a market advantage
Early users will recall the pioneer’s brand name if the product satisfies them
developing sustainable market dominance

Question 11

What are the advantages of tapping first into a market?

Answer 11

First mover advantage:

Pioneer’s product established the attributes the product class should possess
Economies of scale, technological leadership, patents, ownership of scarce assets, and other barriers to entry
firm can bring superior technology, quality or brand strength to create a market advantage
Early users will recall the pioneer’s brand name if the product satisfies them
developing sustainable market dominance

Question 12

What are the stages in developing new products and services?

Answer 12

1) Idea generation
2) Screening: compatible with company objectives, strategies and resources
3) Concept development and testing
4) Marketing strategy development: cost-effective affordable marketing strategy
5) Business analysis: will the product meet the profit goal?
6) Product development: technically and commercially
7) Market testing
8) Commercialisation

Question 13

How can companies best manage the new-product-development process?

Answer 13

Generate ideas
Interact with others: open innovation, tap external sources for new ideas (customers, employees, scientists, engineers, channel members, marketing agencies, top management, competitors)
Customer-centric approach: needs and wants
Interact with employees
Study competitors
Adopt creativity techniques

Question 14

Explain Porter’s Generic Strategies.

Answer 14

Depend on competitive advantage (Lower cost vs. differentiation) of the company and the scope of the market targeted (broad vs. narrow)

Cost leadership: Target broad audience, price-conscious customers
Quality on par with competitors for a lower price
Example: competitive manufacturing process, cheap raw materials  pens, razors, lighters / IKEA

Differentiation: Broad Target, uniqueness due to quality of products or character of the company
Examples: luxury goods like Louis Vuitton

Focus: either employ low-cost strategy or differentiation
applicable for smaller businesses with less competition
Example: Monster entering energy market with focus on costs and pricing

Question 15

Explain Ansoff’s Growth Matrix.

Answer 15

Product/Market Expansion Grid
Used to manage and evaluate growth initiatives and analyse level of risk; assess attractiveness of growth strategies

Market penetration = existing products in existing market
> least risky; e.g., decrease prices, acquire competitors

Market development = existing products in new market
> relatively low risk; e.g., catering a different customer segment or target demographic, enter new domestic market, enter foreign market

Product development = new products in existing market
> increase share of wallet of customer base (brand loyalty); e.g., invest in R&D, acquire rights, create new offering

Diversification = new product in new market > highest risk

Question 16

Define related and unrelated diversification.

Answer 16

Related diversification: potential synergies that can be realised between existing business and new product/market
e.g., producer of leather shoes produces leather car seats

Unrelated diversification: unlikely that synergies can be realised
e.g., leather shoe business diversify into a packaged goods product

Question 17

Define horizontal diversification and its forms.

Answer 17

= adding parallel products or services to the existing product/service line

Concentric diversification:
= adding new products to existing products to serve similar customers in similar markets through same distribution system
e.g., company selling food products starts selling kitchen ware

= OR add new products to existing products using similar technology
e.g., company selling televisions adds music systems and washing systems

Conglomerate diversification
= unrelated; adding dissimilar products or services to existing products
> diversification into new products, new markets, new technologies or new market function not related to existing business

Question 18

Define vertical diversification and its forms.

Answer 18

= expanding business in forward or backward direction
> add new products complementary to existing products

Backward integration = integrate backwards to produce the inputs or raw materials, rather than buying inputs from the outside

Forward integration = involved entry of a firm into the business of finishing, distributing, or selling some of its present outputs (toward the user)
> maintain direct contact with consumers

Question 19

Define Porter’s five forces.

Answer 19

Competitive rivalry

Threat of new entry

Buyer power

Threat of substitution

Supplier power

Question 20

What is the value chain?

Answer 20

= tool for identifying key activities that create value and costs in specific business

Maximising value exploration by
identifying new customer benefits
company competence space: utilising core competencies from its business domains and managing business partner
becoming sufficient in CRM, internal resource management, and business partnership management

Question 21

What are core competencies?

Answer 21

1) source of competitive advantage and makes a significant contribution to perceived customer benefits
2) has implications in a wide variety of markets
3) is difficult for competitors to imitate

Question 22

What are the steps in developing a corporate strategy?

Answer 22

1) define the corporate mission (long-term, smart goals), mission statement

2) establish strategic business units: think market-oriented instead of product-oriented (not “we sell gasoline”, but “we supply energy”)

3) assign resources to each business unit: portfolio planning (GE/McKinsey Matrix and BCG’s Growth-Share Matric)

4) assess growth opportunities: plan new businesses, downsize, and terminate older businesses (desired sales vs. projected sales)

Question 23

Explain the GE McKinsey Matrix

Answer 23

Portfolio analysis based on industry attractiveness and business unit strength
used to allocate resources to business units

high attractiveness and strength > safe investment and grwoth
low attractiveness and strength > danger zone, harvest and/or divest

medium > selective investment

Question 24

Explain the BCG Growth-Share Matrix

Answer 24

dependend on market share and market growth

Question marks with low market share and high growth: high effort, little profit, investing or eliminating?

Star with high market share and growth: profits, needs investion

Cash cow: high market share but low growth: used to finance other business fields, high cash flow

Poor dogs with low market share and grwoth: consider deinvesting, no profits

Question 25

Define the business unit strategic planning process

Answer 25

1. Business mission
2. Internal and external analysis (SWOT)
3. Goal formulation
4. Strategy formulation (Porter’s Generic strategies)
5. Program formulation
6. Implementation
7. Feedback and control

Question 26

What does a marketing plan include?

Answer 26

Executive summary
internal analysis
external analysis
segmentation and targeting
marketing objectives
marketing strategy
marketing mix
prediciton of results
implementation and control

Question 27

What are the six major environmental forces?

Answer 27

Demographic: worldwide population growth; changing mixes of age; ethnic composition; educational levels; household patterns/rise of non-traditional families; large geographic shifts in population

Economic: income distribution and levels of savings, debt, and credit availability

Social-cultural: understand people’s views of themselves, others, organisations, society, nature, and the universe; market products that correspond to society’s core and secondary values and address the need of different subcultures within a society

Natural: public’s increased concern about the health of the environment; embrace sustainability and green marketing programs

Technological: accelerated pace of technological change, opportunities for innovation, varying R&D budgets, and the increased governmental regulation brought about by technological change

Political-legal: work within the many laws regulating business practices and with various special-interest groups

Question 28

Define customer value, satisfaction and loyalty.

Answer 28

Customers buy from the company perceived to offer the highest customer-delivered value = difference between total customer benefits and customer cost

Buyer’s satisfaction is a function of the product’s perceived performance and the buyer’s expectations

Customer loyalty:
Behavioural Component: a purchase response expressed over time by consumers (repurchase behaviour)
+
Attitudinal Component: a strong liking or preference for a brand over others

Behavioural component: maybe consumer has no alternatives, does not like the product but still buys it

Question 29

What are determinants of customer perceived value?

Answer 29

Benefits: product, service, personal, and image benefit

Cost: monetary, time, energy, psychological cost

Question 30

How can companies deliver customer value by conductin customer value analysis?

Answer 30

1) Identify major attributes and benefits customers value

2) Assess the quantitative importance of the different attributes and benefits

3) Asses the company’s and competitor’s performance on the different customer values against their rated importance

4) Examine how customers in a specific segment rate the company’s performance against a specific major competitor on an individual attribute or benefit basis,

5) Monitor customer values over time

Question 31

How can companies measure customer satisfaction

Answer 31

periodic surveys (measure repurchase intention and likelihood of recommendations)

monitor competitor’s performance (monitor their customer loss rate)

hire mystery shoppers

resolve complaints

ensure quality of products and service

Delighted (above expectations), satisfied (perception=expectations)

Question 32

What is customer lifetime value?

Answer 32

CLV = net present value of the stream of future profits expected over the customer’s lifetime purchases

Profitable customer = yields a revenue stream exceeding by an acceptable amount the company’s cost of attracting, selling, and serving that customer

Customer profitability analysis: represents the profitability of selling that product to that customer

Question 33

How can companies maximise CLV?

Answer 33

• Understand customer needs and behaviours
• Use customer data to analyse behaviour, patterns, preferences, service demands, complaints
• Analytics and loyalty programs
• Improve customer service
• Solve problems, deliver value
• Engage customers
• Manage employee-customer interactions

Question 34

How can companies attract and retain the right customers and cultivate strong relationships?

Answer 34

• Positioning and service strategy: enhance customer retention and satisfaction through hard-to-imitate added value in form of intangibles
• Relationship marketing to improve the probability to retain customers; build bonds, improve feedback, enhance customer loyalty
• Measuring and monitoring customer satisfaction: identify factors important for customers; assess relative importance of the factors and measure customer expectations on those factors; assess performance of the service provider on the important factors; analyse difference between expectations and performance through gap analysis

CRM important to retain customers
> losing profitable customers can affect firm’s profit and cost of attracting new customers is higher than keeping current customer happy
* Customer-centric approach
* Customer loyalty assessed through Net Promoter Score

Question 35

How can companies monitor customer satisfaction?

Answer 35

1) Identify factors important to customers
2) Measure customer expectations and importance
3) Measure performance and service quality
4) Analyse differences through gap analysis

Question 36

Explain the leaky bucket model.

Answer 36

Keeping existing customers is more profitable than attracting new ones

Customer switch to competitors or leave the market while company attracts new customers
> less profitable
> retention rate important

Question 37

What are the product life cycle stages?

Answer 37

Introduction, Growth, Maturity, Decline

Question 38

Define each step in the product lifecycle.

Answer 38

Introduction: marked by slow growth and minimal sales/profits
> inform consumers, induce product trial, secure distribution and retail outlets

Growth: rapid sales growth and increasing profits
> maintain or increase promotional expenditures, educate the market
– improve product quality and add new features; add new models and flanker products; enter new market segments; increase distribution coverage and channels; shift to loyalty communications; lower prices to attract price-sensitive buyers

Maturity: sales growth slows and profit stabilise
> high volume and low cost;
or niche strategy: low volume and high margins;
abandon weaker products and concentrate on new ones – market modification; product modification (improve quality, features, or style); marketing program modification

Decline
> identify the truly weak products, develop a strategy for each, and phase them out in a way that minimises impact on company profits, employees, and customers

> depends on industry’s attractiveness and companies competitive strength

Question 39

What are characteristics of products how do marketers classify them?

Answer 39

Products = anything that can be offers to a market to satisfy a want or need, incl. physical goods, services, experiences, events, persons, places, properties, organisations, information, ideas

Products can be
* Nondurable goods = consumed in one or a few uses, e.g. shampoo or beer
> strategy: make them available in many locations, charge only a small markup, advertise heavily to induce trials and build preference
* Durable goods = service many uses; e.g. refrigerators, clothing, machine tools
> require more personal selling and service, command a higher margin, require more seller guarantees
* Services: intangible, inseparable, variable, and perishable
> require more quality control, supplier credibility, and adaptability; e.g. haircuts, legal advice, appliance reapairs

Question 40

What are the five levels of the product (Kotler/Keller)

Answer 40

• Core benefit = fundamental benefit the consumer buys, e.g. hotel guest buys rest and sleep
• Basic product: e.g. hotel includes a bed, bathroom, towels, desk, dresser, and closet
• Expected product = set of attributes and conditions buyers normally expect when purchasing; e.g. hotel guest expects a clean bed, fresh towels, working lamps, quietness
• Augmented product = exceeds customer expectations
• Potential product = encompasses all the augmentations and transformations the product might undergo; distinguish and satisfy customers

Question 41

On what basis can companies differentiate products?

Answer 41

on the basis of product form, features, customisation, performance, conformance, durability, reliability, repairability, style, and design

And service dimensions as ordering ease, delivery, installation, customer training, customer consulting, and maintenance and repair

Question 42

Define mass customisation of products.

Answer 42

Deliver affordable goods and services with enough variety and custumisation

Econimies of scope and customer integration

customer integrated into the value chain

Question 43

Describe price elasticity.

Answer 43

highly elastic product = change in price > high change in demand

relatively inelastic product = cahnge in price > little change in demand

Question 44

Define break-even point.

Answer 44

The level of output at which the costs of production equal revenue

Break even = (Total fixed costs)/(Revenue per unit-variable cost per unit)

Question 45

Explain economies of scale, scope and density.

Answer 45

= Cost advantages that companies obtain due to their scale of operation and measured by the amount of output produced per unit of time

• Internal = within the company, due to changes in how that company functions or produces goods
  specialisation of labour and more integrated technology boost production volumes; bulk order from suppliers, larger advertising buys, or lower costs of capital; spreading of internal function costs across more units produced and sold
• External: factors affecting entire industry > highly skilled labour, subsidies and/or tax reductions, partnerships and joint ventures

Economies of Scope (=Verbundeffekte)
* Nicht Erhöhung der Produktion, sondern Vergrößerung der Brandbreite  höhere Produktpalette um Absatz zu steigern
* Auch Anpassung bestehender Produkte

Economies of Density (=Dichtevorteil)
* Positive Effekte durch Fixkostendegression: Stückkosten fallen, da die Konzentration der Abnehmer in einem bestimmten geografischen Raum steigt  Logistik und Versorgungsweg sinken und damit auch die Kosten

Question 46

Define threshold pricing.

Answer 46

• Another psychological strategy to design prices > emotional perception of prices to influence consumers

= small price reduction for an article to make the price more attractive

• A product for 10€ is more likely to sell well if it is offered for 9,99€ or 9,95€
• Central idea: the brain perceives price differences; the consciousness does not calculate the deduction/percentages  it only evaluates that the price is lower  limited cognitive resources of the brain – thinking process is affected
• Numbers in the western world are read from left to right, therefore 24,95€ gets related to 24 even though it is near to the 25
• Gives the feeling of saving money
• Only works for uneven numbers

Question 47

Define price differentiation.

Answer 47

Strategy, that charges different segments of customers altered prices for the same products or services

• Effective to target certain customers
• E.g., loyalty schemes where customers get exclusive freebies, discounts, other promotional offers
• E.g., offers for children, students, elderly in amusement parks, restaurants, bulk commodity discounts, etc.
• E.g., train and airline tickets
• Advantages: larger target market; increase in revenue (higher demand > higher price); cost management; less pressure on production
• Risk: customer may feel offended, price discrimination

Question 48

Define value pricing.

Answer 48

= reducing the price of a product due to external factors that can affect the sales of the product for example competition and recession

• E.g., Starbucks: customers buy coffee due to convenience, brand loyalty, flavour, caffeine addiction; huge brand value; perceived as elite brand – not lowering their prices

Question 49

Define market penetration pricing.

Answer 49

= Initial low price at the introduction phase to gain market share, then increase price

• Goal: enter the market and gain market share – to set up their customer base in a particular market
• In a market with numerous similar products and customers sensitive to price > can make a product stand out > motivate customers to switch brands and build demand for your product

Strategy: either provide a few services for free or keep a low price for their products for a limited period that is for a few months

Risk: customers may expect constantly low prices; price-sensitive customer may be disloyal; price war with competitors

Question 50

Define price skimming.

Answer 50

= initial high price and lowering it gradually

• Introduction of new, innovative products that have no competition
• E.g., manufacturer launching a new type of television may set a high price to tap into a market of tech enthusiasts (early adopters)  helps company to recoup some of its development cost
• Market becomes saturated and sales dip > manufacturer lowers price to reach a more price-sensitive segment of the market

Risks: entry of copycat products introduced at lower price; demonstrating the value of the high-priced product to early adopters

Question 51

Name the most common pricing strategies.

Answer 51

Skimming: inital high, then lower

Penetration: initial low, then high

Premium pricing: higher price and quality

Economy/no frill: promotion and marketing effort kept to a minimum

Mark-up pricing/cost-plus pricing

Comptitive pricing: match competitors

Value pricing: consumer perceived value

Price differentiation: segment-based

Question 52

What challenges do companies face when developing new product?
Explain the new product matrix by Booz Allen Hamilton.

Answer 52

• Marketing should participate with other departments in every stage of new-product development
• Successful new-product development requires the company to establish effective organisation for managing the development process
• Innovation imperative: risk-taking; without innovation companies leave products vulnerable to changing customer needs and tastes, new technologies, shortened product life cycles, increased domestic and foreign competition
• New-product successes: design products for the world market to get lower failure rate, higher market share and higher growth
• New-product failure: shortage of important ideas; fragmented markets; social, economic, and governmental constraints; cost of development; capital shortages; shorter required development time; poor launching timing; shorter product life cycles; organisational support

New product matrix:
depend on new for the company or new for the market

companies can introduce new-to-the world products (create entirely new market) or minor improvements or revisions of existing products, as well as additions to existing product lines

also products that are not new to the market but new to the firm > comepetencies

reposition their existing products in the market