Strategic Marketing Part 2

Montblanc – which over a century built a reputation for producing the finest quality pens-extended its brand to include items such as luxury watches, sunglasses, cufÒinks, wallets, briefcases, and eve fragrances. The primary reason for extending and existing brand is to leverage its equity by applying it to a new offering. There are two types of brand extensions: vertical and horizontal.  - Vertical brand extension stretches the brand to a product or service in different price tier. Two sorts exist: Upscale brand extension Toyota and Volkswagen wanted to enter the luxury segment. Believing that their brand would not convey the luxury image required to enter this segment they adopted two different strategies: Toyota launched a new brand: Lexus Volkswagen launched its upscale extension branded as Volkswagen Phaeton. - Downscale brand extensions Include the BMW 1-series, Porsche’s Boxter, and Armani Exchange  Horizontal brand extensions involve applying the brand to a different product category in the same tier price. For example, Ralph Lauren successfully extended its polo’s brand from clothing to home furnishings like bedding and towels, Timberland extended its brand from boots to outwear and travel gear and Porsche extended its brand from sport cars to utility vehicles. The potential risk is brand dilution, which appears when a brand is extended to diverse categories that are inconsistent with its essence. E. Brand equity The term brand equity refers to the financial value of the brand; it is the net present value of the financial benefits derived from the brand. Brand equity reflects the financial outcome from brand ownership and determines the premium that should be placed on a company’s valuation because of brand ownership. a) Brand equity and brand power A key driver of brand equity is the brand’s power. Brand’s power reflects the brand’s ability to differentiate the offering from the competition and create customer value though meaningful associations. Brand’s power reflects the value created in the minds of customers. Brand equity is a function of brand power as well as a number of additional factors reflecting the utilization of the power of its brand, such as user base, sales volume and pricing. Brand power can be defined as the differential impact of brand knowledge on consumer response to an offering’s marketing effort. To illustrate, one of the benefits of brand power is the price premium customers are willing to pay for the branded product compared to the identical unbranded product. Other dimensions include: - Customer loyalty - Enhanced perception of product performance - Greater licensing - Merchandising, and brand extension opportunities - Less vulnerability to service inconstancies and marketing crisis - More elastic responses to price decreases and more inelastic responses to price and increased channel power b) Measuring brand equity Knowing the monetary value of a company’s brand is essential for company valuation, such as in the cases of mergers and acquisitions, sale of assets, licensing, financing, and estimating benefits from the brand or damages to the brand. Cost-based approach involves calculating brand equity based on the costs involved (eg, marketing research, advertising, and legal costs) if the brand needs to be created from scratch at the time of valuation. Market-based approach involves calculating brand equity based on the difference in the cash-flows generated from the branded products and a functional equivalent but non branded product, adjusted for the cost of creating the brand. The market-based approach can be summarized as follows: Brand equity = sales revenues brand – sales revenues generic - branding Financial approach involves calculating brand equity based on the net present value of the cash flows derived from the brand’s future earnings. This approach typically involves three steps: - Estimating the company’s future cash flows Estimating the contribution of the brand to these cash flows Adjusting these cash flows using a risk factor that reflects the volatility of the earnings attributed to the brand. Brand equity = NPV of future cash flows – brand contribution factor – risk factor Word Beyond Incentive Creating value for company 1. Creating a sustainable competitive advantage Introduction “If you don’t have a competitive advantage, don’t compete” Translate Au delà de Incitation II. II. JACK WELCH, former CEO of General Electric A. Competitive analysis a) Identifying the key competitors Competitors are typically defined based on the industry in which the company operates. Who are competitors to Coca Cola? Because most companies have a variety of offerings targeting multiple segments, competitive analysis is often limited to a given offering rather than to the entire company... Thus, a company’s competitors are business entities with offerings that target the same customers and strive to fulfil the same customer need(s). Pinpointing key competitors involves identifying not only current competitors but potential competitors as well. Potential Competitors are business entities that currently do not target the same customers to fulfil the same needs, but nevertheless have the aspiration and the capability to satisfy the needs of the company’s target customers. In this context, 3 groups of potential competitors exist:  Companies with offerings that aim to satisfy the same needs as the company’s offering but, at present target a different customer segment.  Companies that currently target the same customer segment but aim to satisfy a different need.  Companies that currently satisfy a different set of needs of different customers. Strategic group: competitors that target the same customers and follow the same strategies b) Evaluating the competitive intensify of the Market Competitive analysis supposes evaluating the competitive intensify of the Market, which means the intensity with which companies are trying to steal from one another to ensure growth. Market competitiveness is a function of five factors defined by the 5C framework; customers, competitors, collaborators, company and context. Customers Collaborators Company Competitors Competitive intensify Context Identifying the competitive intensity of the markets: the 5-C Frameworks  Customer factors    Attractiveness of target customers often linked to market size and profit margins. Because large markets have the potential to generate greater revenue streams, they tend to attract companies pursuing a high-volume strategy. Similarly, competition is likely to be more intense for customer segments with greater buying power because of the potential that these customers will generate a greater revenue stream. Market growth has a direct impact on competition: market competitiveness is typically greater when market growth is low. Actually, in this situation, demand is stagnant and companies have to grow sales by stealing shares from one another rather than by attracting new customers. Customer loyalty reflects the degree to which target customers are prone to switch offerings. Competition tends to be greater in markets where customer loyalty is low and where customer can easily be induced to switch.  Competitor factors The competitive intensify of a given market is a function of the diversity of the competitors and the rationality of competitors’ behaviour.   Competitor diversity: Markets in which competitors have similar goals, competencies, and assets tend to be more competitive than markets with diverse competitors because similar companies often belong to the same strategic group and tend to target the same customers. Competitors’ rationality. The degree of competition is also function of psychological factors such as rationality of competitor’s behaviour.  Collaborators factors     Market entry. Collaborators can influence market competitiveness by taking over some or all the functions currently performed by their partners in a way that makes them direct competitors. To illustrate, a retailer may insource the manufacturing, thus becoming manufacturer’s direct competitor. Similarly, a manufacturer may insource the distribution, thereby becoming a retailer’s direct competitor. Market power. Collaborators’ actions can also influence competitors’ profit margins, which, in turn, affect the intensity of the competition. For instance, as retailers become more powerful, they are likely to squeeze manufacturers’ margins, forcing them to complete more fiercely for market share to compensate for the eroding margins.  Company factors The competitive intensity of a given market is also a function of the company’s own activities. For example, a company aggressively entering in a particular market with a low-price strategy is likely to change the competitive dynamics by influencing overall market demand and customer’s price sensitivity, and by potentially provoking price war among the companies currently serving the market. Ex: Free  Context factors Market competitiveness can also be influenced by various economic, technological, sociocultural, regulatory, and physical factors. For example, government regulations such as import quotas; licenses and tax exemptions can influence market competitiveness by favouring a particular company. In the same vein, change in technology may lead to a shift in the strategic assets and core competencies defining the competitive advantage in a given market. PESTEL Model B. Creating a sustainable advantage A company’s ability to create value for its customers, collaborators and stakeholders is determined by its resources, specifically its strategic assets and core competencies. a) Strategic assets  Business infrastructure involves 4 types of assets: (1) Manufacturing infrastructure, comprising the company’s production facilities and equipment; (2) Service infrastructure, such as call-center facilities and customer relationship management solutions; (3) Supply-chain infrastructure, which aim to ensure an effective and efÏcient value-delivery process; and (4) Management infrastructure, which involves the company’s business management culture.  Collaborator networks compromise 2 types of factors: (1) Vertical networks; in which collaborators are located along the supply chain Ex: suppliers and distributors (2) Horizontal network; in which collaborators are not an integral part of the company’s supply chain Ex: research and development, manufacturing and promotion collaborators  Human capital involves the technological, operational, business, and customer expertise of the company’s employees. The key to creating sustainable human capital is delivering superior value to the company’s key employees and building relationship that enhance the loyalty of these employees.  Intellectual property covers the legal entitlement attached to intangible assets. (1) Industrial property, which includes inventions, industrial designs, and identify marks such as trademarks, service marks, commercial names and designations, as well as indications of source and appellations of origin, and (2) Copyrights, which include literally and artistic works such as novels, plays, films, musical works, drawings, paintings, photographs, sculptures, and architectural designs. Brands create competitive advantage in 2 ways: o By identifying the company’s offering o By differentiating it from competition. o The most common brand elements include the brand name, logo, symbol, character, jingle, and slogan, which can be used to create value for customers, the company, and its collaborators.  Existing customer base creates competitive advantage by facilitating the acceptance of a company’s current and new offerings and by impeding the acceptance of competitive products.  Synergistic offerings are a strategic asset to the degree that they facilitate customer acceptance of related company’s offerings. For example, the Windows operating system can be viewed as a strategic asset for Microsoft because it facilitates customer adoption of related software offerings.  Access to scarce resources, such as geographic locations and natural resources, provides the company with a distinct competitive advantage by restricting the strategic options of its competitors.  Access to capital is a strategic asset when it provides the company with a unique competitive advantage. For example, access to capital can influence the resources at a firm’s disposal to carry out its strategy, such as sustaining a price war, developing new products, or implementing a communication campaign. b) Core competencies Core competencies reflect a company’s ability to perform various business tasks in an efÏcient and effective manner in a way that strategically differentiates it from its competitors.  Business management. Competency in business management refers to proficiency in managing business processes such as identifying business goals, designing strategy and tactics to achieve the goals and implementing a company’s business plan. It also involves company’s ability to build the collaborator network required for efÏcient functioning of the business. This competency typically leads to strategic benefit such as business model leadership.  Operations management. Competency in operations management refers to expertise in manufacturing and supply-chain management.  Technology development. Competency in technology development refers to a company’s ability to devise new technological solutions. This competency typically leads to the strategic benefit of technological leadership. Customer value management. Competency in customer value management describes expertise in understanding, creating, and managing customer value.  There are 3 common aspects of competency in customer value management: - Product management: competency in product management describes a company’s ability to develop products that deliver superior customer value. - Service management: competency in service management describes a company’s ability to develop services that deliver superior customer value - Brand management: competency in brand management describes a company’s ability to build strong brands that deliver superior customer value. This property typically leads to brand leadership  The relationship between strategic assets and core competencies is dynamics. Core competencies reflect the company’s expertise in specific functional areas and result from a focused used of strategic assets. At the same time, a company’s asset often stem from its competencies. For example, competency in database software development is likely to result in competencyspecific assets such as business infrastructure, collaborator network, human capital, and intellectual property. C. Relevant framework a) The SWOT The SWOT framework is relatively simple, extremely flexible, and very intuitive approach for evaluating a company’s overall business condition. Strength Weakness Opportunities Threat b) The 5 forces of competition Bargaining = Negotiations Threat of New entrants Bargaining power of Suppliers The five forces infl tion Bargaining power of Buyers Rivalry among existant Competitors Threat of Substitutes umm  Bargaining power of suppliers. As su en few companies dominate the market; the product is differentiated and has diverse applications (ex: across industries) and there is a credible threat of forward integration.  Bargaining power of buyers. A buyer is powerful when it has concentrated, large-volume purchases; the supplied product is undifferentiated and has no switching costs; the product represents a substantial part of buyer costs (hence, encouraging more price shopping); the suppliers’ profit margins are low; the product is not crucial for the buyer; and there is a credible threat of backward integration. • 1. Collaboration as a business process • 1.1. The essence of collaboration Value design (price, brand..) / Value-comm (advertising, PR..) / delivery • 1.2. Pros and cons of collaboration • • • • • Effectiveness / cost-efÏciency / flexibility / Time to market Loss of control / loss of competencies / empowering the competition 1.3. Degree of collaboration Explicit: contracts, joint ventures Implicit: more flexible, lower lvl of commitment 1.4. Alternatives to collaboration Vertical integration / extending ownership upstream,downstream (forward and backward integration) Horizontal integration 2. Managing collaborator relationships • 2.1. Collaborator power offer differentiation / size / strategic importance / switching costs • 2.2. Collaborator conflicts • 2.3. Conflicts in vertical collaboration • 2.4. Conflicts in horizontal collaboration 1. Definition SM 2. What is Strategy? 3. Why do firms behave differently? 4. How is the strategy influenced by the supplyside? 5. How is the strategy influenced by the demandside? 6. 3 cornerstones of SM 7. Strategic segmentation vs marketing segmentation 8. Value propositioning vs positioning 9. Segmentation definition - functions - criteria 10. value based segmentation vs profile based segmentation 11. Targeting: definition - 2 activities 12. Strategic targeting 13. Tactical targeting 14. Three dimensions of customer value 15. Customer value as competitive advantage (2) 16. Positioning: 2 key questions 17. Frame of reference (2) + points 18. Perceptual maps (2) 19. Collaboration in three domains 20. Pro's and cons of collaboration 21. Vertical integration (2) 22. collaborator 23. Competitive analysis: 5C 24. Strategic assets 25. Core competencies 26. Porter 5 forces of competition 27. Marketing Mix 1. Definition SM 2. What is Strategy? 3. Why do firms behave differently? 4. How is the strategy influenced by the supplyside? 5. How is the strategy influenced by the demandside? 6. 3 cornerstones of SM 7. Strategic segmentation vs marketing segmentation 8. Value propositioning vs positioning 9. Segmentation definition - functions - criteria 10. value based segmentation vs profile based segmentation 11. Targeting: definition - 2 activities 12. Strategic targeting 13. Tactical targeting 14. Three dimensions of customer value 15. Customer value as competitive advantage (2) 16. Positioning: 2 key questions 17. Frame of reference (2) + points 18. Perceptual maps (2) 19. Collaboration in three domains 20. Pro's and cons of collaboration 21. Vertical integration (2) 22. collaborator 23. Competitive analysis: 5C 24. Strategic assets 25. Core competencies 26. Porter 5 forces of competition 27. Marketing Mix