Fall+2008+Section+07-SS+Week+6

=Class Discussion For Week 6=

Note online tools from text book web site. Site is accessible through WISE. Click on site, select the blue text book, select performance based tools. The firm’s Brand may be related to the market it serves, to the benefits it provides, or to its capabilities. The Position Statement is at the company level, //What broad market are we serving? Within that market what benefits are we providing?// (note: benefits are those benefits as perceived by the customers) //Which of these benefits are table stakes and which are differentiating? What set of capabilities do we have that allows our company to deliver thise benefits?// Intel’s broad market is anyone who will buy microchips. The benefits are //reliability, speed, compatibility, and conservation of power.// The capabilities include: //huge chip facilities, research and development facilities, and huge cash flows.// Value Propositions are **SEGMENT SPECIFIC**. Intel may define one segment as PC makers or users. For PC users there is some **subset** of benefits that are significant. (Not table stake benefits) The benefits defined in the Value proposition have to be based on the Position Statement and Brand of the company. The key is to identify which benefits are more significantly valued by which segments of the market you serve, and then identify the capabilities that provide or allow the firm to deliver these benefits. One **brand,** one **position statement,** multiple value propositions based on **market segmentation.** · Benefits here should be what they use to differentiate themselves · Capabilities should be a subset of the ones listed for the flow chart, can be the same if there is only one segment. 1. Position is at the company level and within that position what market 2. In that market what benefits would separate us from the competition 3. Set of capabilities that allow us to fulfill those benefits · Differentiation will occur between the augmented product and the expected product.
 * Example: Intel**
 * Value Prop || Value Prop 2 || Value Prop 3 ||
 * Market Segment 1 || Market Segment 2 || Market segment 3 ||
 * Benefit(s) || Benefit(s) || Benefit(s) ||
 * Capabilities || Capabilities || Capabilities ||

> > · New market · New segment
 * **Core need:** Generally the description of a broad base of need (example in class..."a place to spend the night.")
 * **Basic Product**-what you seek as the minimum expectation of value against your need. (Example in class: "Hotel room") Was someone trying to see if I was paying attention?
 * **Expected product:** Pretty much table stakes. Table stakes keeps raising, always raising the bar.Can you add more than the searching customer can generally expect? (example from class: room with telephone, internet)
 * ** Augmented product ** : Will be different for different segments. You look at the product from the consumer benefits perspective. ** It is what defines the segment. ** Ex: Howard Johnsons' its close to Disney land, Grand Hotel there is a very nice restaurant and nice lobby.
 * ** Potential Product: ** Ex: As Pillow top beds were invented and considered desirable to consumers, at this point in the product lifecycle consumers knew that pillow tops cost more than conventional beds. For this reason they may have presented a potential to lure customers. They became a differentiating attribute for making a choice about how one hotel over another may be considered more attractive. In today's hotel market, pillow top beds are more common and more likely considered an augmented product that will continue to move down to become and expected or basic part of the hotel room product. A Potential product is the next idea that will take off and create a new lifecycle for the segment. Plasma TV's? Cell Phone check in? Room to Airline luggage shuttle?
 * All of these move down because that is just the nature of competition. **
 * Multifaceted product life cycle: Two reasons to start a new product **

*Connectivity: The value of some products goes up exponentially. Ex. Microsoft: everyone is used to interchanging information through Microsoft so they are able to charge a higher amount due to increased benefits, higher switching costs.


 * Traditional View on Pricing**

You want to know what value people are perceiving in order to price optimally. · Your initial cost is not what you price off of (cost plus). · Price below cost for some significant amount of time to gain market share (penetration pricing) for huge economies of scale Actually you don't always price below cost. However, if you believe that huge economy of scale advantages may be obtained and you want to discourage competition you may choose this strategy EM · What you try to do is create big time share in order to bridge the chasm. If you can capture the initial market it can get you past the chasm very quickly and you can block out other companies. The chasm is an entry barrier. o Many small companies are built on not making any money over the first few EM years. One way you can function on cash flow is if you have a capability/benefit that as the market grows your competition can't keep up, or if your fixed costs are low and you are in big competitors' blind spot. Or If you can make it uneconomical for a competitor with their cost structure to compete.EM 1. What my __cost__ is and what it is going to be  2. What my __competitors__ are capable of pricing at: The main reason that people do not price at the top is because competition is so rough ( costs of differentiation are high, big profits invite entrants). 3. What is the assessment of the uniqueness of the product benefits and what __customers'__ view of the product will be value-wise. *If you are between the first two C's you can make a good evaluation of the C's. If you are new and making something that is not copy able then you can move to the third C. *You want to be as high as your differentials can allow you to be, and those differentials are the three C's
 * Strategic view on pricing: **
 * From a strategic perspective you think the three C's: **
 * *You cannot compete on price, you __can__ compete on cost. Price is not a true, sustainable competitive advantage. **

1. Search Costs: Searching for the right person to do what I need them to do 2. Negotiation Costs: They do not work for me so I have to negotiate what to pay in order for them to do what you want them to. 3. Monitoring: You have to make sure that they are doing what they said they would 1. I am a manufacturer and need to get to my customers. If I find a distributor that works with other manufacturers and lower the cost. 2. The distributor can do the things that I am not good at. Ex. Selling, most manufacturers are good at manufacturing whereas the distributor is good at selling. (You could try to develop in-house) a. When is it going to be more advantageous to hire outside instead of developing in house i. One to many or many to one: transaction costs are going to be really high if you do it yourself and distributors can reduce that ii. Expertise that would cost a lot for your company to develop means you're going outside. These would most likely be value-added distributors. 1. Brand control - to retain control of brand associations and touchpoints 2. Relationships - when you are creating value through customer relationships 1. Value added distributors 2. Cost Reduction Distributors 3. Location Distributors
 * Distribution: **
 * If you have the capability to do it in-house you should. If you have to outsource you have to take into account the following costs: **
 * When do I need to do this? **
 * Why do you want to focus inside? **
 * 3 types of distributors: **

IMC: Integrative Marketing Communication: It is budgeted for, what are you going to budget for communications: o Advertising o Communication force o Marketing Before you get to the budgeting you have to understand your position statement. You have to understand what you are emphasizing, your differentiators. o What are your marketing objectives? Leads to communication objectives o Once you understand your communication objectives then you can · Design the message · Choose and schedule the media · Then look at budgeting and metrics for success: You can then see where you went wrong

· Specify the Target Market · Specify the Key Benefit · Specify the Key Support · Introduction · Maintenance · Expansion: This is always a tricky thing.
 * Step 1: Identify the Value Proposition **
 * Step 2: Determine the marketing objective **

· Break through the clutter: Here we do not want to give a whole lot of information we want to get attention · Once through the clutter you may want to increase the __awareness of the brand or you want to build brand knowledge__. Building brand awareness is relatively easy - More of a focus (making the brand focal). Building brand knowledge is much more difficult to accomplish. · Brand Attitudes - Facts/Ideas that support concept, relevant, credible, comprehensive · Purchase Intentions: Very rarely does advertising alone increase purchase intentions. You will want to focus on other things such as promotions, direct mail, sales force, etc. Advertising prepares you to get to purchase intentions. *Because this is all very fuzzy stuff it is very hard to measure. It takes a lot of resources to measure it well so you want to have some very clear targets

Template Example Ninety percent of the people in Oregon will be knowledgeable about our new cookbook by the (A number) (Target)  (Objective)  (Product) fourth quarter of 1999. (Time Frame) Criteria: - Quantified - Realistic - Target Specific - Compatible - Time Period - In writing - Specify objective Issues to consider Everything needs to fit together, ideally. This does not mean that everything needs to be a five but you need to stay out of the 1's and 2's.
 * Step 4: Designing the Message **
 * Consistency with the communication objective:
 * Have to understand your target market: must understand this first before you move on.
 * How much time/effort will our audience devote to our message? How you deliver it and where you deliver it to them.
 * What will make our audiences pay attention to our message? This is about ability, motivation, and opportunity.
 * What is their ability to pay attention?
 * What motivation do they have to pay attention?
 * What opportunity do they have to pay attention?
 * What benefit ideas will create the biggest impression? How can we convey these ideas?
 * Is the audience most interested in the product or the benefits derived from the product?
 * Some audience is more interested in seeing the product and having the benefits in the background. It depends on the audience.
 * Is the audience most likely to be persuaded by facts or emotions?
 * Engineers might be more facts artists may be emotions. **We don't know that We need to test first in order to know our audience. **
 * The Message comes last, if you have not gotten product, placement, price, right then do not start the media message until you do. ** EM

· Issues Related to "Good" Scheduling 1. Top-down: Allocate a predetermined budget across planned programs, Rework programs as necessary to fit budget 2. Bottom-Up · Must Correspond with Communication objectives o Brand Attitude o How would you rank the _ __overall? Single best and so on.__ __ o How does the ___ rate on affordability? worry free? performance? and so on. o Do you like the _ product line? o Purchase/Purchase Intent o If you were going to buy next month, would you buy __?__ __ o Tracking sales, market share, units sold, and other measures o Brand Loyalty · Recommendations __ **BOTTOM LINE** **__** · IMC incorporates advertising but is not solely advertising · Means multiple points of contact with the target market · All points of communication must be focused on the same objectives · Objectives must be specific and measurable · IMC program requires constant reassessment
 * Step 5: Selecting the Communication Vehicles-Media Planning and Scheduling **
 * For each customer segment, which communication vehicle most efficiently and effectively reach the targeted receivers of our messages?
 * Which communication vehicle is most appropriate for our communication objective:
 * Ex. If you are expanding knowledge 15 seconds won't do it
 * How do we assure consistency in message delivery and achieve synergies across vehicles?
 * Action 1: Match Vehicles to Message Receivers
 * For each immediate customer segment, choose the members of the customer decision making unit that should be the target of our communications (ex. Design engineers, purchase agent, product manager)
 * For each target receiver (decision-maker), determine the appropriate communication vehicle
 * Prioritize the chosen vehicles in terms of their potential impact on the target receiver (high, medium, low)
 * Assess the incremental investment to utilize the vehicle
 * Does the scheduling match the communication objectives?
 * You need to understand the decay function of an ad campaign
 * "Right" answers depend on the slope of the decay function
 * Recommend pulsing if buying "season" can be indentified
 * Once exposure within a purchase cycle has little or no effect (within a month)
 * Emphasis: Frequency vs. reach (number of eyes or ears in contact with our message)
 * Research on "brand awareness" suggests that optimal is at least 3 exposures per cycle (usually a month)
 * Step 6: Budgeting and Metrics for IMC Effectiveness **
 * Budgeting: Two Approaches **
 * Metrics for IMC Effectiveness **
 * Must Correspond with Communication objectives
 * Attention
 * Did the communications get through
 * Step 7: Metrics for IMC Effectiveness **
 * __Track multiple "diagnostic" measures__
 * __Keep it simple - see previous pages__
 * __Must track for several purchase cycles (3-4) Tracking over time__
 * __If problem, first check marketing program, then communications plan and finally the media allocation__
 * __If all else fails you may need to reassess the position or the value proposition__

Ex. If you want to have behavioral stuff you need a very customized message, it needs to be very interactive, and it needs to be immediate.

Set up of above Chart: Texas Instruments: considering whether to intro software to replace their calculators. Saw a lot of movement from calculators to internet to computers. They were afraid that their 80% share at the high school level for calculators was going to get sniped. They wanted to come up with software that could be used on computers, calculators and other media. When you looked at the different customers you get parents, students, and teachers. · Students: Style, ease of use · Teachers: Functionality and ease of use. Cross selling (teachers are using 1 TI product and now we are going to intro a new TI product with the same sales force) · Parents: Price and ease of use.

1. Incredible level of detail here. You need a meticulous plan. 2. Simple Tools can help you develop that plan
 * 2 things I am focusing on. **

Case: Talk To Chuck (Charles Schwab)

1997 Position: Low Cost, Self Service, using internet services

2004 (Before Chuck returned) Position: Full service (Full range of services, Market expanded to Mass Affluent (50K to 2M in assets)), Benefits (Capabilities): low cost, self service, and full service, using the internet vehicle (Note the dichotomy of self and full service in the capabilities; this is a clue that Schwab was serving multiple segments. Whenever you have multiple market segments need multiple value propositions. But from their prior branding, “self service at low cost”, Schwab could not see the multiple segments, they were just trying to grow assets under management.)

Note also: from 1997-2004 competitors moved into market segments below and above Charles Schwab on the value curve.

2004- Chuck comes back and cuts costs, lowers prices and competes.

Talk To Chuck Test Market: Sales increased in the 3 test markets, assets went up 105% (exhibit 11). In 2005 assets went up 24.7 billion, the Return on Assets was 42 basis points (0.42% or 0.0042), thus 24.7 billion X 0.0042 = $103,000,000.00 in profit. The trial cost 15 million. Thus earned 103 M on 15M invested. THUS THE TEST MARKET WAS A SUCCESS.

Why was the test market successful? 1) “appealed to people’s pain points” (from the case) 2) Provided benefits of personal connection (chuck to the customer)

So Charles Schwab needs to realize they have a new position. Customers: Mass Affluent (50K to 2 M in investments), Benefits: Low Cost Personal Connection, Internet centric, Personal Brokers

Now with new position can state value propositions for the 4 segments (Self Assured, No My Top Priority, High Touch, and Unsure).

Central question of case = should they have a full blown Talk to Chuck Ad Campaign? Answer: Yes, because it pays, based on success in test market. Further, the ad should be done targeting the segments individually, do some advertising at the overall brand level as well; as this reinforces the personal connection to chuck.

3 Takeaways from this case:(Elliot always has three) 1) You need to understand brands and brand position very well. If you do not reinforce the brand it will fade. Brands are assets and they need maintenance. Also, you need to understand how far you can stretch your brand. 2) Market Research a) When doing market research need to have a control group, otherwise bias is entered in the results. b) need to isolate the variable of interest so only it is different between the groups (whether the group was exposed to the test ads) 3) When you are thinking of your brand and position you have 2 choices: a) if you attempt to stretch your brand understand that you are stretching and develop a clear value proposition for each segment (notice several cases we have done look at growth, starbucks, and when you are growing make sure you are not stretching as well) b) Make sure the customer benefit profile is covered by your capabilities