Delivering customer value through marketing

1
Delivering customer value through marketing

• Session 2

2
Plan for today

• Revision and consolidation
• Home case analysis
• Marketing audit
• External environment analysis
• Internal environment analysis
• Pricing
• Role of pricing
• Pricing strategies
• Pricing process
• Managing price

3
Revision and consolidation

• You work for a large leisure organisation as a
  Marketing Manager. The organisations portfolio
  of services has not changed for over five years.
  Therefore, you need to consider developing some
  new services.
• 1) With reference to your leisure organisation,
  explain the role of innovation and the new
  product development process for developing new
  services.
• 2) Explain how an effective extended marketing
  mix (7Ps) can improve service quality in relation
  to design and delivery of service encounters.

4
Revision and consolidation

• For a leading supermarket chain of your choice
  explain the role of the supermarkets own brand
  and its impact on the marketing mix decisions
  adopted by the supermarket chain

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Home case

• Brief case summary
• PLC
• BCG matrix
• GE matrix

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The marketing planning process
STAGE 1 ENVIRONMENT ANALYSIS STEP/PEST
STAGE 2 Audit of capability SWOT
STAGE 3 Set of marketing objectives
STAGE 4 Develop marketing strategy/plans
Possible objectives Profitability Survival Growth
Strategy New products New markets Change
directions
Macro analysis Social/cultural Political/legal mic
ro
Micro analysis Internal capability Macro
environment Customer/competition
STAGE 5 Marketing tactics
Marketing mix Product, Price, place, Promotion,
people, Physical evidence
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Marketing audit

• Objective
• Ensure an informed decision-making process
• Ensure a strong position of the organisation
  coming from its knowledge of the market place
• Two key aspects of the marketing environment
• Internal (micro)
• External (macro)

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Macro environment

• PEST or PESTEL
• Political/legal
• Economic factors drivers affecting
  organisations ability to achieve high
  performance and profitability
• Social/cultural issues demographics, population
  trends, birth rates, life expectancy, changing
  life styles, family life cycles, changing role of
  women
• Environmental factors
• Technological advances

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Environmental assessment

• Environmental analysis
• Analysing, assessing and interpreting information
  collected through environmental scanning
• Environmental scanning
• process of collecting information to understand
  organisations influence by external forces and
  drivers within the market place

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Environmental assessment
Identifying early changes to act upon
Step 1 Scanning the environment
Understanding implications of these changes,
identifying threats and opportunities
Step 2 Monitoring
Step 3 Forecasting
Measuring the intensity of change
Assessing the impact of change and assessing
opportunities the change presents
Step 4 Assessment
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Environmental assessment

• Critical areas of external information to be
  considered
• Market intelligence change, potential,
  competitors
• Technical intelligence examination of
  technological developments that would aid to
  improve production, quality and allow innovation
• Political/economic intelligence shifts in the
  external environment
• Mergers/acquisitions potential impact and
  response
• Supply chain intelligence supply of raw
  materials, available resources

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PEST Political

• Impact of politics
• Political initiatives (domestic and
  international)
• Key issues
• Changes in taxation
• Environmental protection
• Employment law
• Health and safety legislation
• Foreign trade agreements
• Political stability

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Political legislation

• Federal legislation is aimed at
• products
• companies
• consumers (consumerism)
• pricing (fixing/unfair/discriminatory)
• distribution (exclusive dealing, requirement
  contracts, exclusive territorial
  distributorships, and typing arrangements)
• Advertising and promotion controls
• self-regulation

14
Economic

• Key measures
• Inflation rate
• Interest rates
• Income level
• GNP
• GDP
• Employment level
• Exchange rate and currency evaluation
• Consumer spending patterns

Business cycle model
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Consumer income

• A consumers ability to buy is related to income,
  which consists of
• gross income the total amount of money made in
  one year by a person, household, or family unit
• disposable income the money a consumer has left
  after paying taxes, to use for food, shelter and
  clothing
• discretionary income the money that remains
  after paying for taxes and necessities.

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Social

• Demography
• Age, sex, class, family cycle, age distribution
• Society
• Religion, culture, family, ethical issues
• Culture
• Language
• Values and attitudes
• Education

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ENVIRONMENTAL

• Growing industrial wastage, discharge of effluent
  emissions, and acid rain
• Organizations such as NIREX are under criticism
  by Greenpeace and the press
• Companies should be increasingly aware of their
  environmental responsibilities

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Technological

• Technology is a major environmental force and
  refers to inventions or innovations from applied
  science or engineering research.
• Some of the most dramatic technological changes
  occurring now are
• the declining cost and size, and increasing
  power, of microprocessors
• the convergence of television, personal computer,
  and telephone technologies
• the pervasive trend toward connectedness
  through the World Wide Web
• the emergence of biotechnology as a key component
  of the economy.

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THE NET GENERATION

• the first group to use it consistently for
• - entertainment - communication
• - education - shopping

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ANALYSIS OF THE MICROENVIRONMENT

• Components of microenvironment
• Sales
• Market share
• Marketing procedures
• Profit margins
• Sales/marketing control
• Marketing mix
• Number of employees
• Financial resources
• Physical resources
• Production (capacity and variety)

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FIVE KEY ELEMENTS OF MICROENVIRONMENT

• Business
• Competitors
• Suppliers
• Customers
• Stakeholders

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COMPETITORS ANALYSIS PORTERS FIVE FORCES MODEL
Potential entrants
Threat of new entrants

• Barriers to entry
• Economies of scale
• Product differentiation
• Capital requirements
• Switching costs
• Access to distribution channels
• Cost disadvantage additional to scale
• Government policy
• Entry-determining price
• Experience

Bargaining power of buyers
Bargaining power of suppliers

• Industry competitors
• Numerous of similar-sized competitors
• Slow industry growth
• High fixed costs
• Lack of differentiation
• Diverse nature of competitors
• High strategic stakes
• High exit barriers
• (Rivalry among existing firms)

Suppliers
Customers

• Powerful if
• Few suppliers
• No substitutes
• Industry not important
• customer of supplier group
• Supplier groups products are
• differentiated
• Threat of forward integration

• Powerful if
• Large proportion of sellers sales
• High proportion of the buyers costs
• Undifferentiated product
• Low buyer switching costs
• Threat of backward integration
• Sellers product not important to
• quality of buyers product

Threat of substitute products or service
Substitutes
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THE THREAT OF COMPETITIVE RIVALRY

• Key factors
• Stage of Product Life Cycle of competing products
• Use of specialized production techniques
• Liquidity of competitor
• Ability to achieve differentiation and brand
  loyalty
• Competitor intentions
• The relative size of competitor
• Barrier of exit from industry

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BARGAINING POWER OF SUPPLIERS

• The strength of the suppliers brand
• The source of supply spans only a small number of
  suppliers
• Switching suppliers
• Substitute products of suppliers

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BARGAINING POWER OF BUYERS

• Few buyers control a large volume of the market
• There are a large number of smaller suppliers
  fighting for a share of the market
• The cost of switching supplier is low
• The suppliers product is a mass-market product
  and not necessarily differentiated
• Strong customer power
• Threat of backward vertical integration

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THE THREAT OF POTENTIAL ENTRANTS

• Economies of scale
• Access of new distribution channels
• Brand loyalty
• Capital investment
• Competitor retaliation
• Regulatory influence

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THREAT OF SUBSTITUTES

• A new product or service equivalent
• A new product replacing an existing product
• Consumer substitution

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SUPPLIERS

• The basis of suppliers relationship
• The supply and demand components of raw materials
• Suppliers innovations
• The relationship suppliers have with competitors
• Supply record (ability to deliver and meet demand
  on an ongoing basis)
• Liquidity and financial stability
• Costs
• Quality
• Warranty provision
• Supply trends
• Any potential change to the supply environment
  new entrants

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CUSTOMERS

• Detailed study of customers (link to market
  research and information, how to use market
  information to support the marketing decision
  making)

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STAKEHOLDERS

• Customers
• Suppliers
• Shareholders
• Employees
• Financiers
• Wider social community (including pressure groups)

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SWOT ANALYSIS

• Strengths/Weaknesses
• Management
• Marketing activities
• Internal sales structure
• Personal
• Technologies
• Product portfolio
• Pricing policy
• Core competitive advantage

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SWOT

• Opportunities/Threats
• PESTEL (macro-environmental analysis)
• What are the market tendencies (demand change)?
• Customer behaviour (habits and traditions, buyer,
  influencer, actual user behavior)
• How can the firm capitalize on this opportunity
  in the short- and long-term?
• Sales structure
• Competitive environment

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Identifying opportunities with Ansoff matrix
Products
New
Existing
Low cost flights
Existing
Markets
Cars rental Internet cafes Hotels
Increase number of airports
New
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SWOT matrix
Internal factors
External factors
Product/ marketing development
Growth strategy
Market development
Decline
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Home case questions

• Analyse, using appropriate marketing tools and
  models, the value that product management can add
  to Innocent in its bid to grow market share and
  profitability.

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(No Transcript)
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Price definition

• Price is the money or other considerations
  (including other goods and services) exchanged
  for the ownership or use of a good or service.

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Role of price in the marketing mix

• hot potato of the marketing mix
• Most changeable element of the mix
• Customer perception of price
• Too low or too high
• Possibility of bargaining
• Price and money spending
• Price and status demonstration
• Constancy of price
• Changing demand and supply
• Price and learning curve
• Price and competition
• Price and product rarity

• Organisational perspective
• ROI
• Profit objectives
• Growth opportunities

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Influences on price
Internal
External
Supply and demand (price elasticity)
Customers
Pricing objectives
Pricing decisions
Marketing mix variables
Organisational objectives
Legal requirements Global factors
Competitors
Channels of distribution
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Practical exercise

• How do external factors influence the price of a
  hotel room

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Value and Value Pricing

• Value - ratio of perceived benefits to price
• Value-pricing is the practice of simultaneously
  increasing product and service benefits and
  maintaining or decreasing price

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Correlating price with value

• Factors that affect perceived value
• Life cycle of the product
• Product benefits and functionality
• Quality
• Prestige and status of the brand
• Ease of use
• Value-added measures
• Differentiation
• Packaging service and technical support
• Competitive alternatives (substitutes)

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Strategic price determinants

• Demand as a determinant
• demand relates to customers actually wanting to
  purchase or even needing to purchase particular
  goods or services
• the higher the demand for the product the lower
  the price, and the lower the demand for the
  product the higher the price
• the higher the demand, the more likely the
  organization is to invoke economies of scale
• the lower the demand the less likely it is that
  economies of scale will be achieved

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Inelastic demand
Price inelastic Demand curve
2.0
Price
1.5
0
Quantity
105
100
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Elastic demand
Elastic demand Percentage change in quantity
demanded is greater than percentage change in
price
Price elastic Demand curve
2.0
Price
1.5
0
Quantity
100
140
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Price sensitivity as a determinant

• Is the market price sensitive? How price
  sensitive is the market?
• Some of the key indicators to observe
• How frequently is the product purchased?
• How essential is the product?
• How much does the product cost?
• What are the competitor alternatives within the
  market?
• What else can the customers money be spent on?
• What is the effect of quality on price?
• What are the issues relating to stock/inventory?

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Competitors as a determinant

• Incentives for price wars
• Customers no longer equate low price with low
  quality
• Saturation of some markets
• Price is a good tool to attack competitor
  weaknesses
• Undercutting the competition is the only way to
  compete successfully and make as impact
• The perception of reduced price and increased
  value is attractive to customers
• Part of the retail sector culture is to implement
  ongoing sales promotions

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Fundamental cost concepts

• Total cost (TC)
• Is the total expense incurred by a firm in
  producing and marketing the product,
  and is the sum of the fixedcost and variable
  cost defined below
• Fixed cost (FC)
• Is the sum of the expenses of the firm that are
  stableand do not change with the quantity of
  product thatis produced and sold
• Variable cost (VC)
• Is the sum of the expenses of the firm that
  varydirectly with the quantity of product that
  isproduced and sold
• Marginal Cost (MC)
• is the change in total cost that results from
  producing and marketing one additional unit

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Marginal Analysis

• Marginal analysis deals with the incremental
  increase in cost and revenue from the last unit
  of production and marketing.
• As long as revenue received from the sale of an
  additional product (marginal revenue) is greater
  than the additional cost of production and
  selling it (marginal cost), a firm will expand
  its output of that product.

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The break-even analysis

• Break-even point fixed costs/(price per unit
  variable costs per unit)

TOTAL REVENUE
Total revenue or total cost
PROFIT
TOTAL COST
FIXED COSTS
LOSS
BREAK EVEN POINT
Quantity
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Pricing objectives and strategies

• Objectives
• To achieve return on investment to cover all
  associated cost bases and to pay back initial
  investment costs
• To maximize profits setting maximum prices
• To maximize sales revenue setting prices to
  maximize sales turnover
• To achieve product quality leadership charging
  more than competitors for the best quality in the
  market
• Strategies
• Skimming setting high prices to attract those
  who are willing to pay more
• Penetration lowest prices to penetrate the
  market

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Practical exercise

• Why is it important that pricing objectives
  reflect marketing objectives and marketing
  strategy?

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Strategic pricing

• Price skimming
• Relatively high price per unit
• It is a good strategy for new products or
  services with little price sensitivity (the
  development stage of PLC)
• Market can be segmented easily
• Profit is made on a per unit bases
• Price penetration
• Low price per unit
• Used when a large volume of the market share is
  involved
• Profit is made through volume sales
• Me too type of products (copies of other market
  leading brands)
• Low price is aided by high promotions

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Demand-Oriented Pricing Approaches

• Demand-Oriented Approaches include
• skimming pricing
• penetration pricing
• prestige pricing
• price lining
• odd-even pricing
• bundle pricing

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Tactical pricing

• Quantity discounts
• Encouraging bulk purchases to fight competition
• Additional benefit for the customers
• Using economies of scale
• Differential pricing
• Depends on the place of buying
• Cost-oriented pricing
• standard markup pricing
• cost-plus pricing
• experience curve pricing
• Competition-oriented pricing
• customary pricing
• above-, at-, or below- the market pricing
• loss leader pricing

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Pricing Constraints Identified

• Pricing constraints are factors that limit the
  latitude of prices a firm may set
• demand for the product class, product, and brand
• newness of the product stage in the product life
  cycle
• single product versus a product line
• cost of producing and marketing the product
• cost of changing prices and time period they
  apply
• competitor prices
• type of competitive markets
• pure monopoly
• oligopoly
• monopolistic competition
• monopoly

57
Pricing policy and pricing methods
Competition oriented At market Above the
market Below the market
Profit oriented Target profit Return on
investments
Costs-oriented Standard mark-up Costs-plus Learnin
g curve
Demand oriented Skimming Penetration Prestige Pric
e line Odd/even pricing Bundle pricing
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Stages of establishing price
Marketing strategy
Value proposition, price/quality
Determining pricing objectives
Customer perception of price Ability to buy
Determining demand Price sensitivity
Pricing policy and method
Costs analysis
Break-even analysis cost/profit relations
Demand-oriented Cost-oriented Profit-oriented Comp
etition oriented
Pricing methods Skimming, penetration, Etc.
Actual price
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Exam practice

• A company based in an Asian country, which
  produces and markets fashion clothing, wants to
  become a truly international company and enter
  the European market.
• Explain how the company needs to adapt its
  pricing when trying to penetrate markets in other
  countries.

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Home assignment

• Examine a product that is marketed both in the
  domestic market and that is also sold in at least
  one market internationally. Chose one
  international market, and
• Evaluate the organisations current pricing
  strategy in the domestic market
• Explain why the organisation has adopted that
  strategy
• Examine the costs that will have been considered
  by the organisation when determining pricing in
  the domestic market
• Analyse the additional factors and influences
  that the organisation would have considered when
  determining the price of the product in the
  chosen international market.
• Ch. 1 - 4 (Section 1) additional reading from
  Marketing Planning
• For the next class ch.5 8 (Section 2)