The Portable MBA in Marketing
Summary
THE ESSENCE OF MARKETING
The Customer First, Last and Always
A product manager is like the Hub of the wheel, and all the necessary functions form the spokes or “More like a dentist trying to pull teeth”
Market research is done via research firms, the key is to ask the right questions
In the annual strategic plan, the marketing department gives management a detailed analysis by product and market segments and a proposed strategy and budget for each product.
Focussing on how to satisfy customers, has been with us in a formal way only since the 1950s
Trusting the customer is certainly part of the ephemeral essence of marketing: If you can’t trust
them, why should they trust you?
At the roadside vegetable stand, marketing includes a host of decisions concerning location, pricing, the choice of vegetables to grow, and the quantities to offer. It might also include issues such as whether to switch to organic produce, whether and where to post signs or run ads to attract customers, and how to handle complaints and returns. It certainly includes the decision as to whether you can trust your customers, for many farm stands work on an honor system
with an open cash box!
The drive to find new ways to satisfy customers, even if customers have not already envisioned and demanded them
The acid test of a marketing-oriented organization is whether the managers blame their customers or look within their organization for the cause when something goes wrong.
The view that the consumer is the focal point of the firm is the fundamental principle of the marketing concept—captured in the slogan, “The customer is always right.” Here are some other slogans that express this point of view:
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“We Do It All for You.” - McD
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“You’re the Boss.” - United AirL
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“Nobody-Else-Like-You Service.”- Life Ins
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“Chosen #1 in People Pleasin.” - Holiday Inn
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“The Customer Is King.” - Burger King
What do golf balls, polyurethane printer drums, and diesel engines have in common? Not much at first glance. But to the marketer, they share one overwhelmingly important characteristic. None of them will sell unless the customer is happy. A happy customer is a happy customer, regardless of the product or service involved
How do you know if you’ve reached this goal?
By measuring the customer’s attitude toward you. With benchmarks like the ones we suggested to our clients.
Japanese firms’ view of serving the customer has evolved. In the early years of total quality, the focus was on “fitness to standard,” making a product reliably so that it would do what its designers intended it to do and what the firm told its customer it would do. Then came a focus on “fitness to need,” understanding better what the customer wanted and then providing products that reliably met those needs. Today, leading edge firms seek to understand and meet the “latent need” of the customer—what customers might truly value but have never experienced or would never think to ask for.
From fitness to standard, to fitness to need, and now to fitness to latent need, the Japanese version of the marketing concept has proved a moving target for U.S. businesses
You could never produce the Mazda Miata solely from market research. It required a leap of imagination to see what the customer might want.”9 This is why Senge believes that
“Most changes don’t come from listening to the customer. Most major innovations come from some ‘crazy people’ in the organization who have an idea for something that will work and add value.”) Thus, how a company manages innovation and how it manages all its employees
becomes a part of the essence of marketing.
To truly adopt the marketing concept, an organization must go beyond listening to its customers. It must apply its own imagination to what it hears the customers saying.
Program design and implementation are constrained by the tools available to management. These tools are conventionally thought of as including the “four Ps”—product, price, place, and promotion
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Product: The focal point of the marketing mix is the product. A product includes more than a good or service that is designed, produced, and offered for sale. It includes all the planning that precedes actual production; it includes research and development; and it includes all the services that accompany the product, such as installation and maintenance
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Price: Price is the cost, or what the buyer must give up, to receive the product. Although price usually means an amount of money, some exchanges involve the giving of goods and services by both parties. Price is not static.
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Place: Place, or distribution, involves making sure that the product is available where and when it is wanted. Marketers can choose among many ways of moving products to consumers.
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Promotion: Promotion is perhaps the element most visible to consumers. Promotion is the broad term used to describe the entire field of sales communication— advertising, personal selling, sales promotion, and public relations. These activities result in consumer awareness of a product’s existence, as well as knowledge about its unique and desirable features. In short, promotion informs and persuades, and sometimes irritates
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Imagination: This is a vital tool, one that gives the marketer the power to use the other tools effectively. It takes marketing imagination to make the marketing concept work. One often has to innovate and create new ways to retain customers. If the customer doesn’t seem right from a rational perspective, then it takes an act of imagination in order to make the customer right.
Below are the seven elements of the marketing mix, as ranked in Berry’s study from most to least important:
1. Customer sensitivity—Employee attitude, customer treatment, and response to customers.
2. Product—Product quality, reliability, and features.
3. Customer convenience—Availability to the customer, customer convenience, and selling.
4. Service—Postsale service, presale service, and customer convenience in obtaining service.
5. Price—Price charged, pricing terms, and pricing offers.
6. Place—Provider accessibility, provider facilities, pricing terms, and availability to customer.
7. Promotion—Advertising, publicity, selling, presale services, and pricing offers.
The additional items—the two Cs and the S—need to pervade a company’s use of the traditional four Ps in a way that is not traditional in U.S. business. Just as imagination is critical to the effective use of the four Ps, so too is this sensitivity to the customer perspective. Marketing imagination and customer sensitivity are two sides of the same coin.
From a marketing perspective, information gathering, assembling, and disseminating is at the crux of effective marketing. Good marketing begins with knowledge that the marketing function within the organization accumulates and uses information to plan the activities of marketing, the four Ps.
The price is information about the value embedded in the product. Distribution, or place, informs the customer about the availability of the product. And promotion by its very nature is information transferred.
In other words, the price paid by the buyer must be equal to or less than the total satisfaction obtainable from the bundle of benefits received. If the buyer perceives the price to be greater
than the benefits received, the value of those benefits is not “worth” the cost and the exchange will not happen.
Planning
If the purpose of strategy is to gain competitive advantage, then by implication theories of strategy should be continually in flux. Any new insight that obtains wide currency ... loses value in providing additional competitive advantage
Strategy is conventionally thought of as the overall game plan or blueprint that guides the organization toward achieving its objectives. Tactics are the detailed, individual activities that the organization undertakes to carry out the strategy. They specify how the elements of the arketing mix—the four Ps discussed in Chapter 1—will be allocated, and they allocate manufacturing, capital, people, and other resources as needed.
Marketing plays an important role in the firm’s strategic plan by providing specific information about the firm’s current market position and its opportunities for future market positions.
Many firms now employ bottom-up planning, in which plans developed at the lower levels of the organization are blended into a master strategic plan. Such a plan may turn out to be
more marketing oriented than a plan formulated by the top-down method, mostly because it is created by those in daily touch with the customers, the competitors, and the realities of operation.
From the corporate mission, the organization (in conventional planning) is supposed to develop a set of objectives that will direct it over a 3- to 5- year period. These objectives are generally stated in terms of sales growth, market share improvement, profits, innovation, acquisitions, and risk reduction.
It is generally assumed that market share improvement translates into higher sales volume, and higher volume means lower production costs and higher profits. Thus, marketing goals are often expressed in terms of improvement in market share, or the percentage of the total market served by the company. Market share is the chief measure of how well an organization is doing relative to its competitors.
Market Share is the measurement of a customer's PAST purchases not future…
Once the external environment has been analyzed, planners traditionally examine the firm’s resources, both tangible and, often more important, intangible.
The Boston Consulting Group (BCG) portfolio matrix.
he BCG approach focuses on three factors: market growth, the SBU’s relative market share, and cash flow. An SBU’s relative market share is determined by dividing its market share by that of its largest competitor.
1. Stars—These SBUs are in industries with high sales growth rates, and they have a high relative market share. The stars are the leaders in their markets. They need continual inputs of cash to maintain
their high growth rates. Eventually that growth will slow and they will become cash cows.
2. Cash cows—Cash cows are SBUs with a higher market share than competitors in a low-growth market. They have high sales volume and low costs. Thus, they generate more cash than they need; the excess cash can be used to support other SBUs. At Gillette,, the razors-and-blades SBU generated 32 percent of the company’s 1989 sales revenues, but 64 percent of its profits. Profit margins on this SBU were a whopping 34.7 percent, compared with 15.2 percent for stationary products and 6.9 percent for toiletries.25 Domestic beer is a cash cow for Anheuser-Busch, supporting the new product lines discussed earlier.
3. Question marks—These high-growth, low-market-share SBUs are problems for management because their future direction is uncertain. They require a lot of cash simply to maintain their position, let alone increase their market share. Management must decide whether to pour in enough cash to make them into leaders; if not, these SBUs probably will be phased out of the portfolio.
4. Dogs—Dogs are low-growth, low-market-share SBUs. They may provide enough cash to support themselves, but they are not a substantial source of funds. Such SBUs often are in the process of entering a particular market or phasing out of it. Either way, their position is below average.
The portfolio approach aids in the setting of marketing strategies. The following basic strategies are closely related to this approach:
• Build—This strategy is appropriate for question marks if they are to grow into stars. The firm invests heavily to improve product quality, develop promotional campaigns, or subsidize price reductions—all in an effort to beat the competition.
• Hold—This strategy is used to protect cash cows and stars that are strongly entrenched. The market leader simply defends its market share and maintains customer loyalty.
• Harvest—When the future looks dim for a weak cash cow, a dog, or even a question mark, the best strategy may be to harvest as much profit from it as possible before letting it go. Marketing (especially promotion) and research and development expenditures are curtailed; economies of production are emphasized; and customer services are reduced. In short, all costs are lowered as the SBU is “milked” of its cash-generating potential.
• Divest—When a dog or question mark has no future, it is sold off or dropped from the portfolio because the cash needed to fund it can be used better elsewhere.
The solution was to get rid of all line supervisors and quality inspectors, reducing the organizational layers between worker and plant manager from three to one. Everything those middle managers used to handle—vacation scheduling, quality, work rules—be—came the responsibility of the 129 workers on the floor, who are divided into teams of 15 to 20. And what do you know: The more responsibility GE gave its workers, the faster problems got solved and decisions made
As GE’s Roger Schipke puts it, “Now it’s a question of ‘Can they develop a strategy for their business? ’ Some will make that cut, some won’t.”
Benchmarking:
1. Internal benchmarking compares a company’s operations with an internal exemplar, for example, a plant that has innovated successfully in certain areas.
2. Competitive benchmarking makes comparisons with individual competitors; reverse engineering of a competing product is one example.
3. Functional benchmarking is when “we compare function against function across wide sections of different industry types,” as in the L.L. Bean comparison.
4. Generic benchmarking looks at fundamental business processes that tend to be the same in every industry, such as taking orders, servicing customers, and developing strategies. For these generic practices, Xerox “looks at a wide cross-section” from different industries “to make sure that we have in fact identified those industry best practices,” again according to Camp.
The Learning Organization : “I see organizational learning as the principal process by which management innovation occurs. In fact, I would argue that the rate at which individuals and organizations learn may become the only sustainable competitive advantage.”
The Learning Manager
“You know,” he mused, “when you get right down to it, it’s almost impossible to get any real thinking done at work. Not just because of interruptions, but almost more importantly, the whole psychological and physical environment in which managers work tends to discourage contemplation and encourage activity. The higher the level in an organization, the more critical is the role of reflection and the less important that of activity, but so often we’ve become conditioned on the way up through the ranks. How many bosses would give a word of encouragement to a subordinate if they were to come upon him sitting at his desk, chair tipped back, foot resting on an open drawer, and staring into space with an abstract expression on his face? They’d be far more likely to ask him what the hell he’s doing, and if the unfortunate replied, ‘Thinking,’ he’d probably be advised to stop thinking and get back to work.
