Developments and benefits of relationship marketing.
3 key elements link the
organization to its customers:
IT
designed computer and communication systems to satisfy organizations
information needs.
Marketing Research is the information gathering arm of IT.
IT is the framework for the day-to-day management and structuring of information gathered regularly from sources outside and inside the organization:
Marketing Research is the information gathering arm of IT.
IT is the framework for the day-to-day management and structuring of information gathered regularly from sources outside and inside the organization:
Data Inputs------>Processing-------->Information Outputs
^
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--------------Feedback--------------
DATA----------->PROCESSING--------------->INFORMATION
Difference
between DATA and INFORMATION...Effective IT
Provides
a continuous flow of information, re: prices, advertising expenses, sales,
competition and distribution expenses.
Inputs:
- Accounting records
- Information from 1-800 #s
- Transaction Information
- Frequent User Programs
- Public Information
- Survey Information
Processing-classifying information and developing
categories for meaningful storage and retrieval. Marketers can then determine
which information-the output-is useful for decision making. Feedback
enables adjustments to the input.
- Enabled marketers to effectively
utilize the information they have been storing for years, but have not
been able to use, it was therefore data, not information.
- Processing element of IT has
allowed marketers to merge (essentially) their transactional databases
with their customer profile databases.
- Customer relations,
locate/identify problems more quickly. Identify problem in 10 calls, not
10,000
- Customer service reps on 1-800
lines have computer info
- Customer service major IT expense
- Lower inventory
costs...renegotiate with suppliers etc.
- $1bn spent in 1994 on IT
An
Organizations efforts to collect:
- demographic
- media
- Consumption profiles of
customers.
In
order to target customers more efficiently marketers can use multi variable
segmentation incorporating Buyer Behavior information and Demographic
information.
What people have done in the passed (Purchase) is a better predictor to future behavior than any other characteristic/variable
What people have done in the passed (Purchase) is a better predictor to future behavior than any other characteristic/variable
Media...direct
mail...catalogs
- Relationship Marketing...one-to-one...long-term
Old
model, sell one product to as many customers as possible (target market).
New model, sell as many products to one person, one-to-one
Focus on the life-time value of the customer (LVC) instead of the individual transaction.
Customers always had a 1 2 1 relationship with companies, now companies have the technology to have a 1 2 1 (few) relationship with their customers.
New model, sell as many products to one person, one-to-one
Focus on the life-time value of the customer (LVC) instead of the individual transaction.
Customers always had a 1 2 1 relationship with companies, now companies have the technology to have a 1 2 1 (few) relationship with their customers.
Handout...Bank
Need
continual monitoring of customers.
Relationship marketing and information...key weapons that offer a competitive advantage for those with the technological capabilities.
Customers becoming more demanding...have many alternatives, therefore have high expectations.
Increasing number of communication sources going into home (500 channels cable etc.), fragments audience, therefore must develop customer relations.
Used to be only the small "mom" and "pop" stores had the ability to perform relationship marketing.
Must satisfy customers to keep them...cost to keep vs. cost to recruit!!....Five times as much to market to a new customer than to keep an existing customer satisfied.
Relationship marketing and information...key weapons that offer a competitive advantage for those with the technological capabilities.
Customers becoming more demanding...have many alternatives, therefore have high expectations.
Increasing number of communication sources going into home (500 channels cable etc.), fragments audience, therefore must develop customer relations.
Used to be only the small "mom" and "pop" stores had the ability to perform relationship marketing.
Must satisfy customers to keep them...cost to keep vs. cost to recruit!!....Five times as much to market to a new customer than to keep an existing customer satisfied.
PROBLEM:
"information chernobyl"...all this information on our customers can be of concern to the customer if the information is used inappropriately. American Express debacle...offering 7 yrs of info on many customers as opposed to one months information on a couple of customers.
"information chernobyl"...all this information on our customers can be of concern to the customer if the information is used inappropriately. American Express debacle...offering 7 yrs of info on many customers as opposed to one months information on a couple of customers.
Need to measure the sales
potential of the chosen markets.
Market Potential--Industry wide,
need to specify time frame and level of industry marketing activities.
Sales Potential--Maximum %
of Mkt. potential that a single firm within an industry expects to obtain -
absolute limit.
Breakdown approach:
economic-mkt. potential-sales potential
Buildup approach: # of potential buyers purchases * # buyers in area, same for each area, then add areas to calculate total market potential. Then estimate the proportion for the company.
Buildup approach: # of potential buyers purchases * # buyers in area, same for each area, then add areas to calculate total market potential. Then estimate the proportion for the company.
Sales penetration= Actual
sales/Sales potential
Developing
Sales Forecasts
Sales forecast is the
amount of a product that a company actually expects to sell during a specific
period at a specified level of marketing. Actual instead of potential. Can be
short term, medium term or long term.
Methods: Choice depends on
costs, type of product, characteristics of market, time span of the forecast,
purpose of the forecast, stability of historical data, availability of required
information and forecasters expertise and experience.
- Executive judgement--swayed by
recent experience, based only on passed experience
- Surveys--Customer, good when only
a few customers (business markets), expensive, rely on customer estimates.
Sales forecast surveys, expert forecast surveys
- Time Series Analysis--trend,
cycle, seasonal and random factor
- Correlation method, regression
analysis, indicates association not causal relationships.
- Market tests, actual vs. intended.
Can see changes in MM. Other companies can manipulate, other companies can
see offering.
Marketers will generally
use more than one method.
Future
Marketers
will look at the sales potential of a customer (LCV) for all its products as
opposed to the market of one product with the use of relationship marketing.
Introduction
We are now focusing on the major
elements of the marketing mix, the ingredients of the marketing
mix.
First element...The Product!!Product Planning refers to the systematic decision making related to all aspects of the development and management of a firms products including branding and packaging.
Each product includes a bundle of attributes capable of exchange and use.
Product definition:
A product is a good, service, or idea consisting of a bundle of tangible and intangible attributes that satisfies consumers and is received in exchange for money or some other unit of value.
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Differences
between Goods and Services
Goods are tangible. You can see them, feel them,
touch them etc.
Services are intangible. The result of
human or mechanical efforts to people or objects.
Major distinguishing
characteristics of Services:
- Intangibility-major component of a service is
intangible
- Pershibality-many cannot be stored for future sales
Airline/Amusement ride
Number of hair cut hours in one week: i.e., if Christies employs 3 people, who work forty hours per week, they have potentially 120 hair cut hours to offer. If they do not have any customers at a particular period during the day, they will lose the opportunity to cut hair at that time and therefore the opportunity to generate revenue...the opportunity has perished...they no longer have the ability to earn revenue from 120 hair cut hours that week!! - Inseparability-customer contact is often the integral
part of the service...Legal services/hair dresser, therefore often a
direct channel of distribution.
- Variability-in service quality, lack of
standardization, because services are labor intensive.
Sales of goods and services are frequently
connected, i.e. a product will usually incorporate a tangible component (good)
and an intangible component.
Levels of Product
Levels of Product
There are 3 levels of products
- Core Product- Marketers must first define what the
core BENEFITS the product will provide the customer.
- Actual Product-Marketer must then build the actual
product around the core product. May have as many as five characteristics:
- Quality level
- Features
- Brand name
- Packaging
all combined to carefully deliver
the core benefit(s).
- Augmented Product-offer additional consumer benefits and
services.
- Warranty
- Customer training
EXAMPLE SONY CAMCORDER:
- Core--the ability to take video pictures
conveniently
- Actual--Sony Handycam (brand name),
packaged, convenient design so you can hold it, play back features etc.
that provide the desired benefits, high quality etc.
- Augmented--receive more than just the
camcorder. Give buyers a warranty on parts and workmanship, free lessons
on how to use the camcorder, quick repair service when needed and toll
free telephone number when needed.
Marketers must first identify the
core consumer needs (develop core product), then design the actual
product and find ways to augment it in order to create the bundle of
benefits that will best satisfy the customer.
Classifying Products
Classifying Products
Products can be classified
depending on who the final purchaser is.
Components of the marketing mix will need to be changed depending on who the final purchaser is.
Components of the marketing mix will need to be changed depending on who the final purchaser is.
- Consumer products: destined for the
final consumer for personal, family and household use.
- Business to business products: are to satisfy the goals of
the organization.
The same product can be purchased by both,
for example a computer, for the home or the office.
The following are classifications for consumer
products:
- Convenience: Packaging is important to
sell the product. Consumers will accept a substitute. Marketers focus on intense
distribution, time
utility. Convenience products can be categorized into staple (milk),
impulse (not intended prior to shopping trip).
- Shopping: Consumers expend considerable
effort planning and making purchase decisions. IE appliances, stereos,
cameras. Consumers are not particularly brand loyal. Need producer
intermediary cooperation, high margins, less outlets than convenience
goods. Use of sales personnel, communication of competitive advantage,
branding, advertising, customer service etc. Attribute based (Non Price Competition), product with the best set of
attributes is bought. If product attributes are judged to be similar, then
priced based.
- Specialty: Buyer knows what they want
and will not accept a substitute, IE Mercedes. Do not compare
alternatives. Brand, store and person loyal. Will pay a premium if
necessary. Need reminder advertising.
- Unsought: Sudden problem to resolve,
products to which consumers are unaware, products that people do not
necessary think of purchasing. Umbrellas, Funeral Plots, Encyclopedia!!
The following are classifications for Business
to Business products:
- Production Goods
- Raw Materials:
- Component parts: becomes part of the
physical product
- Process materials: not readily
identifiable part of the production of other products
- Support Goods
- Major Equipment:
- Accessory Equipment: Type writers and
tools
- Consumable Supplies: IE Paper, pencils
or oils
- Business to Business services:
Financial, legal marketing research etc.
Elements of a Product Mix
If an organization is marketing
more than one product it has a product mix.
- Product item--a single product
- Product line--all items of the same type
- Product mix--total group of products
that an organization markets
Depth measures the # of products that are
offered within each product line. Satisfies several consumer segments for the
same product, maximizes shelf space, discourages competitors, covers a range of
prices and sustains dealer support. High cost in inventory etc.
Width measures the # of product lines a company offers. Enables a
firm to diversify products, appeals to different consumer needs and encourages
one stop shopping.Proctor & Gamble example in class.
Why so many different products?
Different needs of different target markets for the same product. Channels of distribution economies etc.
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Product Positioning and
Product Repositioning
Definition:
This refers to a place a product offering occupies in consumers' minds on important attributes, relative to competing offerings.
How new and current items in the
product mix are perceived, in the minds of the consumer, therefore
reemphasizing the importance of perception!!This refers to a place a product offering occupies in consumers' minds on important attributes, relative to competing offerings.
New Product--need to communicate benefits
Established Products--need to reinforce benefits
Ideal Characteristics
Need to introduce products that
possess characteristics that the target market most desires, ideal. Product
positioning is crucial.
Consumers desires refer to the
attributes consumers would like the products to possess--IDEAL POINTS.Whenever a group of consumers has a distinctive "ideal" for a product category they represent a potential target market segment.
A firm does well if its attributes (of the product) are perceived by consumers as being close to their ideal. The objective is to be "more ideal" than the competitors.
Each product must provide some unique combination of new features desired by the target market.
Instead of allowing the customer to position products independently, marketers try to influence and shape consumers concepts and perceptions.
Marketers can use perception maps.
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Existing
Products
Handout...Here Comes the Sun to
Confound Health-Savvy Lotion Makers
^
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Old Position | New Position
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Glamour--------------------------------------------------Health
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Traditional sun tan lotion
positioned as aiding in getting a very glamorous deep tan etc.
Dermatologist reports...skin cancer etc.
Lifestyle needs change, move to more health conscious (previously discussed)
Need to reposition sun tan lotion as a healthy way to be exposed to the sun.
Target market has shifted from the left quartile to the right quartile as far as needs are concerned.
Sun tan marketers need to do same as far as changing consumers perception for the product.
How?
Dermatologist reports...skin cancer etc.
Lifestyle needs change, move to more health conscious (previously discussed)
Need to reposition sun tan lotion as a healthy way to be exposed to the sun.
Target market has shifted from the left quartile to the right quartile as far as needs are concerned.
Sun tan marketers need to do same as far as changing consumers perception for the product.
How?
- Change Promotion: "Tan don't
Burn" The St. Tropez Tan vs. Ultra Sweat Proof Serious tan
for...Be Sun Smart
- Change Product: Sunscreen and sunless
tanning agent.
Handout...BMW Banks on
Affordability...
^
Very Safe
| Lexus/infiniti
| Mercedes
| BMW
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Cheap--------------------------------------------------Expensive
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Very Unsafe
BMW, to reposition up to the left
Due to the exchange rate, Lexus moves to the right
Why did they repositition?Due to the exchange rate, Lexus moves to the right
Safety
Affordability
Competitors include Infiniti, Lexus, Mercedes Benz and Aurora
If you already have a brand in the market, must be sure to avoid cannibalization. Attributes and brand image should give a product distinct appeal.
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New Product
Positioning
When developing a new product, a
company should identify all the features that are offered by all its major
competitors.
Second, identify important
features/benefits used in making purchase decisions.Determine the overall ranking of features by importance and relate the importance of each feature to its "uniqueness".
For example you wouldn't buy a spreadsheet program that if it didn't perform basic math, so basic math is very important.
However since every spreadsheet has that its an "important fundamental feature", instead of an "important differentiating feature".
The flip side would be a spreadsheet that displays all numbers in binary (0-1) instead of "normal" numbers (0-9). This is unique but not important.
The evaluation becomes a 2 x 2 matrix with uniqueness on the X-axis and importance on the Y-axis.
^
X Important to TM (Stockbroker) X
Math functions | Import Data
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----------------------------------------------------------Unique
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| X
Binary Data
If the feature is in the upper
right hand corner then you have probably got a winning feature.
This is known as feature
positioning, as opposed to product positioning. One can then see what type of
customer needs the important (and perhaps unique) features.If your spreadsheet accepts continuous data in real-time (such as stock market data) while Lotus 1-2-3 doesn't, you'd position your spreadsheet as a "real-time spreadsheet with all calculations needed by Wall Street."
Its a claim that tells something unique about your product, who it's for, and by implication, that Lotus 1-2-3 can't do it.
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Developing and Managing Products
To compete effectively and
achieve goals of an organization, the organization must be able to adjust its
product mix.
Need to understand competition
and customer attitudes and preferences.
Handout...At
Timex, They're...
1982, Timex turned down the
opportunity to market "Swatches". Timex was resting on its laurels,
simple low cost watches. Digital revolutionized industry (technological
change), Timex stuck with analog.
DID NOT KEEP UP WITH WATCHES
EVOLUTION FROM A FUNCTIONAL OBJECT TO A FASHION ACCESSORY.Now consumer owns 5 watches up from 1.5 30 years ago (emphasizing fashion need). Timex has acquired Guess and Monet Jewellers (distribution outlets) in an effort respond to change.
Product mix:
Dressy watches to Walt Disney Character watches, Indigo. Now have 1,500 styles, 300 in 1970.
Developing
New Products
Need to develop new products. A
new product can be:
- Continuous Innovation...No new buyer
behavior to learn, i.e. -products not previously marketed by the firm, but
by others
- Dynamic Continuous Innovation...minor
education needed for consumers to adopt product
- Discontinuous Innovation...entirely new
consumption patterns
Handout...In
Battle over Video Disk Standard
What will be the winning format?
New Product (Technology)
Need to appeal to:
New Product (Technology)
Need to appeal to:
- Hollywood
- Ultimate consumers
Battle between:
- Sony and Phillips
- Toshiba, Pioneer and Time Warner
Swing voter...Matsushita Electric
Industry (Toshiba/Pioneer)
DVD could transform movie business (like CDs for music) Movie studios can resell all movies in new format therefore very important to them, also sell through market, video rentals are decreasing, due to competing service.
DVD could transform movie business (like CDs for music) Movie studios can resell all movies in new format therefore very important to them, also sell through market, video rentals are decreasing, due to competing service.
Set of
requirements:
- 135 mins on 1 disc
- quality superior to vhs
- cd quality audio
- able to add multiple languages
- parent lockout system
- iron clad copying protection
Sony announced going ahead
(Vaporware!)
If 2 systems go to market, best system will win, only one technology can survive, WINNER WINS BIG...LOSER LOSES BIG (DUE TO INVESTMENT) VHS vs Betamax
If 2 systems go to market, best system will win, only one technology can survive, WINNER WINS BIG...LOSER LOSES BIG (DUE TO INVESTMENT) VHS vs Betamax
For a new product to succeed it
must have:
- desirable attributes
- be unique
- have its features communicated to the
consumer (mkt support necessary)
Developing new products is expensive and
risky.
Failure not to introduce new products is also risky. IE Timex
Failure not to introduce new products is also risky. IE Timex
Firms develop new products in two
ways:
- By acquisition, i.e. Timex bought Guess
and Monet Jewellers in 1992, bringing in new products to their product
mix.
- Internal development, this is what we
are going to focus on.
17,363 (8,077 food) new items hit supermarket
and drug stores in 1993, according to marketing experts, a 9.3% increase over
1992.
Launching a new product name along with new product is very risky and expensive therefore 75% of new products were brand-extension brands in 1993, up from 68% in 1992 (continuous innovations)
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Launching a new product name along with new product is very risky and expensive therefore 75% of new products were brand-extension brands in 1993, up from 68% in 1992 (continuous innovations)
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Why New Products Fail
- Lack of differentiating advantage
- Poor marketing plan
- Poor timing
- Target market too small
- Poor product quality
- No access to market
Seven phases to new product
development:
1. New Product Strategy Development
Only a few ideas are good enough
to reach commercialization. Ideas can be generated by chance, or by systematic
approach. Need a purposeful, focused effort to identify new ways to serve a
market. New opportunities appear from the changes in the environment.
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2.
Idea Generation
Continuous systematic search for
new product opportunities.
- Marketing oriented sources--identify
opportunities based on consumer needs, lab research is directed to
satisfy that research. 1-800#s, research etc.
- Laboratory oriented sources--identify
opportunities based on pure research or applied research.
- Intrafirm devises--brain storming,
incentives and rewards for ideas. 3Ms Post it, from choir practice.
Hewlett Parkards lab is open 24 hrs. day. Analyzing existing products,
reading trade publications.
Brainstorming for your group project. Ideas should not be criticized, no matter how off-beat they are.
3. Product Screening and Evaluation
New product check list; list new
product attributes considered most important and compare each with these
attributes. Check list is standardized and allows ideas to be compared.
--General characteristics, Marketing Characteristics and Production Characteristics.
--General characteristics, Marketing Characteristics and Production Characteristics.
Ideas with the greatest potential are selected
for further research.
Do they match the organizations goals (DuPont and ICI
have many patents that they have not exploited for this very reason.)
Look at companies ability to produce and market
the product.
Need to look at the nature and wants of the
buyers and possible environmental changes.
Concept Testing
Sample of potential buyers is
presented with the product idea through a written or oral description to
determine the attitudes and initial buying intentions.
This is done before investing considerable sums
of money and resources in Research and Development.
Can better understand product attributes and
the benefits customers feel are most important.
Would you buy the product?
Would you replace your current brand with the new product?
Would this product meet real needs?
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Would you replace your current brand with the new product?
Would this product meet real needs?
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4. Business Analysis
Analyze potential contribution to
sales, costs and profits.
Does the product fit into the current product
mix?
What kind of environmental and competitive changes can be anticipated?
How will these changes effect sales etc.?
Are the internal resources adequate?
Cost and time line of new facilities etc.?
Is financing available?
Synergies with distribution channel etc.
MIS to determine the market potential sales etc.
Patentability should be determined, last 17 years, 14 years for a pharmaceutical product.
Find out if it is technically feasible to produce the new product.
If you can produce the new product at a low enough cost so as to be able to make a profit.
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What kind of environmental and competitive changes can be anticipated?
How will these changes effect sales etc.?
Are the internal resources adequate?
Cost and time line of new facilities etc.?
Is financing available?
Synergies with distribution channel etc.
MIS to determine the market potential sales etc.
Patentability should be determined, last 17 years, 14 years for a pharmaceutical product.
Find out if it is technically feasible to produce the new product.
If you can produce the new product at a low enough cost so as to be able to make a profit.
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5. Product Development
Develop a prototype, working
model, lab test etc.
Attributes that consumers have identified that
they want must be communicated through the design of the product.
6.
Test Marketing
Can observe actual consumer
behavior.
Limited introduction in geographical areas chosen to represent intended market.
Aim is to determine the reaction of probable buyers.
It is the sample launch of the Marketing Mix.
Determine to go ahead, modify product, modify marketing plan or drop the product.
Limited introduction in geographical areas chosen to represent intended market.
Aim is to determine the reaction of probable buyers.
It is the sample launch of the Marketing Mix.
Determine to go ahead, modify product, modify marketing plan or drop the product.
PROS are:
- Lessens the risk of product failure.
- Reduces the risk of loss of credibility
or undercutting a profitable product.
- Can determine the weaknesses in the MM
and make adjustments.
- Can also vary parts of the MM during
the test market.
- Need to select the appropriate MM and
check the validity.
CONS are:
- Test market is expensive.
- Firm's competitors may interfere.
- Competitors may copy the product and
rush it out. IE Clorox detergent with bleach P&G. "In a live
test you've tipped your hand, and believe me, the competition is going to
come after you. Unless you have patented chemistry, they can rip you off
and beat you to a national launch" -Director of Marketing at
Gillette's Personnel division.
Alternatively can use a simulated
test market. Free samples offered in the mall, taken home and interviewed over
the telephone later.
Handout...Miller's
Momemtum....
7. Commercialization
Corresponds to introduction stage
of the Product Life
Cycle.
Plans for full-scale marketing and manufacturing must be refined and settled.
Need to analyze the results of the test market to determine any changes in the marketing mix.
Need to make decisions regarding warranties etc (reduces consumers risk). Warranties can offer a competitive advantage.
Plans for full-scale marketing and manufacturing must be refined and settled.
Need to analyze the results of the test market to determine any changes in the marketing mix.
Need to make decisions regarding warranties etc (reduces consumers risk). Warranties can offer a competitive advantage.
Spend alot of $s on advertising, personnel etc.
Combined with capital expenditure makes commercialization very expensive.
Handout...American Express
To Try a Credit Card...
All stages above are identified
in this article except market testing.
Need to consider:
- the speed of acceptance among consumers
and channel members;
- intensity of distribution,
- production capabilities,
- promotional capabilities,
- prices,
- competition,
- time period to profitability and
commercialization costs.
Buyers' Product Adoption
Process
1.
Awareness
Buyers become aware of the
product
2.
Interest
Buyers seek information and is
receptive to learning about product
3.
Evaluation
Buyers consider product benefits
and determines whether to try it
4.
Trial
Buyers examine, test or try the
product to determine usefulness relative to needs
5.
Adoption
Buyers purchase the product and
can be expected to use it when the need for the general type of product arises.
Rate of adoption depends on
consumer traits as well as the product and the firm's marketing efforts.
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Diffusion Process
The manner in which different
members of the target market often accept and purchase a product (go through
the adoption process)
1.
Innovators
Techno-savvies first customers to
buy a product, 2.5 % of consumers
2.
Early Adopters
Tend to be opinion leaders. Adopt
new products but use discretion, 13.5%
3.
Early Majority
34% of consumers, first part of
the mass market to buy the product
4.
Late Majority
Less cosmopolitan and responsive
to change, 34%
5.
Laggards
Price conscious, suspicious of
change, 16%, do not adopt until the product has reached maturity.
Implications
to marketers, company must promote product to create widespread awareness of
existence and benefits.
Product and physical distribution must be linked to patterns of adoption and repeat purchase.
Product and physical distribution must be linked to patterns of adoption and repeat purchase.
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