Strategy Development Utilising the Marketing Mix
Learning Outcomes At the end of this session you should be able to: Apply the marketing mix to develop specific actions to deliver your strategic priorities Critique how product and pricing strategies can be deployed to support strategic marketing activity Plan for the increasing importance of experiential elements in strategic marketing – linking to services marketing and the experience economy
Product Strategies Management of existing range • BCG product portfolio matrix Development and management of brand • Strategies for market share New product development • Modifications to existing product
Understanding the Product
“ Anything that can be offered to the market for attention, acquisition, use or consumption that might satisfy a want to need…products also include services, events, persons, places, organisations and ideas or a mixture of these’ [Kotler and Armstrong, 2018]
Understanding the Product
Core product attributes • Brand name, quality, features Product benefits • ‘Augmented product’, image, performance Marketing support services • After-sales, training, installation support
Understanding the Product
Product Mix • Total sum of all products and variants offered (e.g. all pruducts sold by Cadburys-Shweppes) Product Line • Group of closely related products (e.g. the Cadbury chocolate bars) Product Item • Individual products within the lines (e.g. Flake)
Product v Experience Transformations Guide
Experiences Stage
Services Deliver
Good Make
Commodities Extract
[Source: Pine and Gilmore, 1997]
Understanding the Product Augmented Product
Actual Product
Delivery and Credit
After-Sales Service
Features
Brand Name
Quality Level Product Support
Design
Packaging
Warranty
[Kotler and Armstrong, 2018]
Core Customer Value Core Customer Value
Green Product
Design
Packaging
Quality
Technology
Convenience
Usefulness Value
Green Product
Design
Packaging
Quality
Consumer Values
Convenience
Technology
Usefulness Value [Bhalerao and Deshmukh, 2015]
BCG - Matrix The Internal Environment Portfolio Analysis • Use to examine whole businesses within a group such as the National Trust or individual attractions such as Alton Towers within the Tussauds group • Use to examine business activity in individual products offered by a business, e.g. corporate hospitality or educational services
BCG - Matrix Cash Cows
[Source: Grant, 1995, p. 413]
BCG - Matrix Cash Cows
[Source: Grant, 1995, p. 413]
•
Typical cash cow may be a tourist product that is a leader in a low growth market or mature market
•
Called ‘cash cow’ as the profits from the product can be milked on an ongoing basis
•
Profits can be used to support other products that are in the development phase (e.g. Stars)
•
Cash cows do not have an infinite life and will eventually experience a decline in sales and market share
BCG - Matrix Stars
[Source: Grant, 1995, p. 413]
BCG - Matrix Stars • High share of a rapidly growing market, and rapidly growing sales • Can absorb large amounts of cash, through advertising and product improvements sustain their growth
[Source: Grant, 1995, p. 413]
• Eventually growth will slow and, assuming they maintain market share, will become cash cows
BCG - Matrix Question Marks
[Source: Grant, 1995, p. 413]
BCG - Matrix Question Marks
[Source: Grant, 1995, p. 413]
•
Products that are experiencing rapid growth, but have little market share to fund their growth
•
If the tourist product is growing rapidly, it is producing a great need for funding, but with a low share it has not attained a cost advantage over the competition
•
Evidence of potential, but resources must be devoted to winning market share, which can be problematic as the product may not have large sales
BCG - Matrix Dogs
[Source: Grant, 1995, p. 413]
BCG - Matrix Dogs
[Source: Grant, 1995, p. 413]
•
A product that has a low market share in a low growth market, thereby typically not profitable
•
To increase market share would incur cost and risk, particularly as the market is in a low rate of growth
•
The major decision of then becomes how to divest this tourist product or to drop it from the line
•
Alternatively, opportunities might be found to differentiate the dog and obtain a strong position for it in a niche market
BCG - Matrix The BCG Model and Strategy 혰 Options 혰 Harvesting cash surplus from cash cows 혰 Using the cash generated in maintaining stars and investing in selected question marks 혰 Withdrawal from dogs (if profitable niche markers cannot be established)
BCG - Matrix 혰 Limitations of the BCG Model 혰 Model assumes a competitive market - not always true, as in the case of local authority museums and sports centres 혰 Model assumes that it is possible to measure market share for a particular business or product. This is often difficult or impossible as many markets are often ill-defined and difficult to measure 혰 The model is based on the idea of rational decisionmaking within the context of the private sector where the emphasis is on profit maximisation
BCG - Matrix — Limitations of the BCG Model — Profit maximisation is not always the goal in the private sector and public sector businesses are influenced by political and social goals
BCG - Matrix
Strategic Options
Product Life Cycle The Product Lifecycle Analysis
[Tribe, 1997, p. 98]
Product Life Cycle
[Tribe, 1997, p. 98]
[Tribe, 1997, p. 98]
Product Life Cycle
Product Life Cycle
Increasing Product Sales Market Penetration
Market Expansion • Convert non-users, increase usage Product Development • Extension, innovation, replace Market Development • Promote new users, enter new segments Entry into New Markets • New products or services
[Jobber, 2001]
Increasing Sales Volume
• Win from competitors, buy competitors, discourage entry
Product Range Range extension • Upwards • Downwards • 2-way stretch Range completion • Gap analysis Range depletion • Product Life Cycle
Product Range Range extension • Upwards • Downwards • 2-way stretch Range completion Higher price
quality •Higher Gap analysis Exclusivity Range depletion • Product Life Cycle
Upward Range Extension Introduces products that are of high quality as compared to the normal offerings: •
High quality products often have a higher unit margin and can be quite profitable at a relatively low turnover
•
Offering high-quality products helps position the overall brand towards being a status brand, which often enables price premiums to be charged across the full product line
Product Range
Upward Range Extension Issues:
Range extension • Upwards • Downwards • 2-way stretch Range completion
•
The existing brand equity cannot support the high-quality end of the market
•
Existing competitors may look to defend their position
•
Additional or expanded distribution channels may be required to support high-quality products
•
The level of sales volume may not be sufficient, given that the turnover is generally less at this and the market
• Gap analysis Range depletion • Product Life Cycle
Product Range Range extension • Upwards • Downwards • Competitive 2-way stretch
strategy
Downward Range Extension A firm introduces lower quality products that they are normally associated with: •
To block competitor activities and competitive product offerings
•
To compete in the budget end of the market, particularly if it is a high volume part of the market
•
To help broaden their brand’s positioning to be seen as a more affordable brand overall
Range completion
Own label • Gap analysis manufacturing Range depletion
Different markets • Product Life Cycle
Product Range
Downward Range Extension Issues
Range extension • Upwards • Downwards • 2-way stretch Range completion • Gap analysis Range depletion • Product Life Cycle
•
Product cannibalisation of their higher-margin products
•
Overall deterioration in their brand image
•
Needing to support multiple products in the marketplace, or multiple positionings
Product Range Range extension • Upwards • Downwards • 2-way stretch
2-Way Stretch Where a product line is extended both upwards and downwards: •
Although this is generally rare and more likely in new/growth markets
•
Happens when firms are rapidly expanding their product line to offer a full range of product offerings in order to reduce the incentive for new competitors
•
Intention is to try and own/dominate the product category
Range completion • Gap analysis Range depletion • Product Life Cycle
Product Range Factors Influencing the Product Range PLC management Changing customer needs Redefinition of strategy Identification of different segments Transfer of brand attributes • Brand awareness, meanings, emotions, positioning, attitude, behaviour tendency, relationship
Product Range Factors Influencing the Product Range PLC management Changing customer needs Redefinition of strategy Identification of different segments
What factors would influence your green product range?
Transfer of brand attributes • Brand awareness, meanings, emotions, positioning, attitude, behaviour tendency, relationship
Product Range Range extension • Upwards • Downwards • 2-way stretch Range completion • Gap analysis Range depletion • Product Life Cycle
Range Completion Introduction of new products that are consistent with the brand’s initial positioning: •
Rather than expanding into the higher or lower quality end of the marketplace, the brand simply introduces more variations
•
Common in fast-moving consumer goods e.g. snack foods have a variety of similar products
Product Range Range extension • Upwards • Downwards • 2-way stretch Range completion • Gap analysis Range depletion • Product Life Cycle
Range Extension Introduction of new products that are consistent with the brand’s initial positioning: •
Rather than expanding into the higher or lower quality end of the marketplace, the brand simply introduces more variations
•
Common in fast-moving consumer goods e.g. snack foods have a variety of similar products
Product Range Category Management Introduce the same product in a different form
Mars ice cream bars
Introduce products that contain the brand’s distinctive taste, ingredient or component
Philadelphia cream cheese salad dressing
Introduce companion products for the brand
Doritos salsa dip
Introduce products relevant to the customer franchise of the brand
SAGA travel insurance
Introduce products that capitalise on the firm’s perceived expertise
Honda lawnmowers
Introduce products that reflect the brand’s distinctive benefit, attribute or feature
Dettox house cleaning products
Introduce products that capitalise on the distinctive image of the or prestige of the brand
Porsche sunglasses
Product Range
Range Depletion •
PLC management at ‘decline’ stage
• Upwards • Downwards • 2-way stretch
•
Difficult
•
Emotionally, logistically, strategically
Range completion
•
Phase out
• Gap analysis
•
Run out
•
Drop or divest
Range extension
Range depletion • Product Life Cycle
Present Products
New Products
Existing Markets
Market Penetration
Product Development
New Markets
Ansoff Matrix
Market Development
Diversification
Present Products
New Products
Existing
Product Category
Line Extension
Brand Extension
New
Brand Name
Brand Development
Multibrands
New Brands
New Product Development
Options Innovative products Replacement
products Imitative products
New Product Development
Options Innovative products Replacement
products
What are key areas Imitative products of green product development?
New Product Development
New Product Development
New Product Development
Eco-Innovation
Currently, companies with a focus on eco-innovation are growing at an annual rate of 15% at a time when many competitors remain flat [World Economic Forum, 2017]
New Product Development
New Product Development
New Product Development
New Product Development
Products
Absorption
Entertainment
Educational
Passive Participant
Active Participant Esthetic
Escapist
Immersion
Products Customer Participation
Absorption
Entertainment
Educational
Passive Participant
Active Participant Esthetic
Escapist
Immersion
Products
Absorption
Entertainment
Educational
Passive Participant
Active Participant Esthetic
Escapist
Customer Connection Immersion
Service Profit Chain Increased Revenue and Profit Customer Loyalty Customer satisfaction
External Service Quality
Employee Loyalty
Employee Satisfaction
Internal service quality
Service Marketing Mix
Price
Product
Processes
Place
Physical Evidence
Promotion
People
Service Indicators
Zeithamal (1990): Tangibles: The appearance of physical facilities; equipment and personnel Reliability: Ability to perform the promised service dependably and accurately Responsiveness: Willingness to help customers and provide prompt service Assurance: Knowledge and courtesy of employees and their ability to convey trust and confidence Empathy: Caring, individualised attention the provides its customers
Green Values They Deliver Value • First, they match conventional brands on functional benefits like price, performance and availability. • Consumers–regardless their level of commitment don’t want to compromise on practical benefits
They Demonstrate Values • Sustainable brands have a real point of view • They care about health and safety
They Cultivate Community • Sustainable brands foster meaningful connections with their like-minded, likehearted consumers
• They care about transparency (and actually disclose their ingredients/processes) • They care about a world of stakeholders, not just shareholders
Price Considerations on Price Setting
Product Costs Price Floor No profits below this price
Competition and other External Factors Competitors’ strategies and prices Marketing strategy, objectives and mix Nature of the market and demand
Consumer Perceptions of Value Price ceiling No demand above this price
[Kotler and Armstrong, 2018]
Pricing Strategy Cost-Based Pricing Design a good product
Determine product costs
Set price based on cost
Convince buyer of product's value
Determine costs that can be incurred
Design product to deliver desired value at target price
Value-Based Pricing Assess customer needs and value perceptions
Set target price to match customerperceived value
[Kotler and Armstrong, 2018]
Pricing Strategy
Influences on Price Sensitivity How Green are Your Customers? Deep Green Indicative attributes: Considerable interest in environmental issues; keen to protect wildlife and keep the environment pristine for outdoor recreation; care about air and water quality; interested in ecotourism; willing to pay a premium; keen to support visitor pay-back schemes
Light Green Indicative attributes: Some interest in environmental issues; want to balance the needs of the environment with other needs; understand the need for a reduction in carbon emissions; will recycle items if the process is made easy for them; keen to purchase quality local produce; need convincing to pay a premium or support visitor pay-back schemes
Not Green Indicative attributes: Indifferent or antagonistic to environmental issues; not convinced that to need to reduce carbon emissions; spectical about the benefits of sustainable development; unwilling to pay more to reduce environment impact; suspicious of businesses that promote environmental issues
Pricing & Value
Pricing & Value
Pricing Objectives Commercial survival Return on investment Market stabilisation Maintenance & improvement of market position Matching/following competition Reflect product differentiation Market skimming Market penetration Cash recovery Discouraging market entrants
Pricing Decisions
STRATEGIC OBJECTIVES Cost Leadership
Differentiation
Focus
POSITIONING SOUGHT Influences Volume
PRICING OBJECTIVE Profit Competition
Demand based
Cost-based pricing
Competitive [Lambin, 1997]
Price Quality Matrix
Product quality
LOW
Economy position
MEDIUM
Poor value position.
HIGH
Price
LOW
Overpriced?
Poor value strategy Overpriced?
MEDIUM
Value position
HIGH
Excellent value Strategy Underpriced?
Medium value position
Value position
Poor value position Unsupported price premium
Premium positioning
Underpriced?
Pricing Strategies
Factors Affecting Price Sensitivity Unique-value Substitute awareness Difficult comparison Total expenditure End benefit Price-quality
Pricing Strategies
Competitor Pricing Predatory • Product or service is set at a very low price with the intention to achieve new customers Perceived Value • Use product, promotion to build ‘value’ Skimming/Penetration • Market entry strategies
Pricing Strategies
Successful Pricing Strategies Value-based • What is the value to the customer • May be different for different segments Proactive • Anticipate disruptive events Profit-driven • Consider all production / R&D costs
Learning Outcomes At the end of this session you should be able to: Apply the marketing mix to develop specific actions to deliver your strategic priorities Critique how product and pricing strategies can be deployed to support strategic marketing activity Plan for the increasing importance of experiential elements in strategic marketing – linking to services marketing and the experience economy