Introduction to Marketing

University of Chicago
Marketing Management
 Company Orientations Towards the Marketplace

Orientation Description Relative Time Basic Managerial

Span Objective

Production Transition from Home Industrial Profit Maximization via

Manufacturing to Factories Revolution Economies of Scale

Product & Focus on Product Development, Profit Maximization

Financial Performance and Features and Through Superior
the Growth of Large Scale Product Performance
Industrial Empires

Sales Transition from Scarcity of Profit Maximization via

Goods to Scarcity of Markets; Demand Generation
Market Saturation with Basics

Marketing Transition from Internal 1990s Profit Maximization via

(Organization) to External Matching of Products to
(Customer) Basis for Guiding Customer Wants
Marketing Decisions
 The Marketing Concept

A Customer Orientation

Backed By Integrated Marketing

Aimed at Generating Customer

Satisfaction and Repurchase As The Key To
Satisfying the Organizations Goals
 The Marketing Concept (Contd..)

Focus Means End

Sales Concept Products Selling & Profits Through

Promotion Sales Volume

Marketing Customer Needs Integrated Profits Through

Concept Marketing Customer
Satisfaction
 Stages in Consumer Decision Process
Word-
of- Mouth
Awareness
Advertising

Interest
Channel

Decision
Product /
Service
Action

Price
Satisfaction
 Profits Through Customer Satisfaction (One Customer)

Referrals
Price Premium
Reduced Selling Effort

Increased Usage

Normal Profits

Acquisition Costs
 Profit A Customer Generates Over Time

Dollars($)
60

40

20

0 Credit Card
Customer
-20

-40

-60
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
 Cost of Losing and Attracting Customers
• Cost of Lost Customers
• # Accounts = 64000
• Loss = 5% for poor service =
3200 accounts
• Loss in Revenue / Account =
$40000
• Total Revenue Loss = $ 128
MM
• Margin = 10%
• Loss in Profits = $ 12. 8 MM
• How to Increase Retention
Rate?
• Cost of Average Sales Call =
$300
• Average # Calls to Convert
Customer = 4
• Cost of New Customer = $1200
• Annual Revenue from
Customer = $5000
• # Loyal Years = 2
• Profit Margin = 10%
• Lifetime Value = $1000
• Firm is spending more on
attracting new customers than
they are worth!
 Cost of Losing and Attracting Customers

• Cost of attracting a new customer can be upto 5 times the cost

of keeping a current one happy

• Cost of Offensive Marketing > Cost of Defensive Marketing

• Some companies have increased profits from 25% to 85% by

reducing defections by 5%
 Developing An Effective Marketing Plan

• Conduct A Marketing Review

• Build A Marketing Strategy
• Implement Strategy Via Marketing Mix
• Evaluate The Success Of The Marketing Plan
Conduct A Marketing Review (3-C Analysis)

A. Analysis of B. Assessment of C. Analysis of

CUSTOMER COMPANY COMPETITORS
Trends, Needs, Capabilities and Current Position,
Perceptions, Current Marketing Capabilities,
Behavior Position Actions

Opportunity Identification
 Build A Marketing Strategy

Generic Strategies For

DIFFERENTIAL Selection of
ADVANTAGE TARGET MARKET
* Product Differentiation and Development of a
* Cost Leadership POSITIONING
* Special Market Focus STATEMENT
Implementation: The Marketing Mix (Four P’s)

• Product

• Price

• Place

• Promotion
 3C - 4P Framework

• Product
• Customer
• Price
• Company
• Promotion
• Competitor
• Place
 3C - 4P Framework
BMW

Colgate
IDS • Product Nestle
PDA / • Customer
Infiniti • Price Rohm&Haas
• Company
Sealed-Air Intel
• Promotion
Barco • Competitor
• Place Dell
 Marketing System

Long Term Factors

Technological

Short Term Controllable Factors

Economic Product Legal

Place
Price
Promotion

Socio / Cultural
Recasting the 3C - 4P Framework in Value Terms

Creating
Value
• Product
• Customer
Capturing
• Price
• Company Value
• Place
• Competitor Communicating
• Promotion Value
 Mapping Value Migration

• Limited competition
• High growth
• High profitability In the outflow stage,
talent, resources &
• Competitive stability customers leave at an
• Stable market share accelerating rate
• Stable margins
Market 2
Value ÷
Revenues • Competitive intensity
• Declining sales
1
• Low profits

Value Inflow Value Stability Value Outflow

 Capturing Value Growth
Map Changing Customer Priorities Identify New Business Designs

1998
2001
1.
2.
. New Entrant

3.

.
1.
2. New Entrant
3.

Old New
.
Key elements .
Assumptions

Compare Business Designs Build New Business Designs to Capture Growth

 Value Migration in Coffee 1990

Affordable
1. Quality

Luxury
Coffee Shops & Gourmet
Office Coffee Cafes 1985 2. Freshness
3. Close to office
1. Price
Traditional Whole bean 2. Ease of purchase
Grocery Blend
. Gourmet Coffee

Starbucks
3. Uniform offering Coffee is Coffee

.
.. GCA
Gloria Jean’s
Starbucks
Starbucks
Value Migration
Phases

.. .
Millstone
Folgers
Maxwell House Millstone
Millstone

.
Nestle

Chock Full O’ Nuts

Folgers
Folgers

Value Inflow Value Stability Value Outflow

 Replaying the Game
• P&G: “We sell coffee” vs. “We sell canned coffee of moderate quality in groceries”
• The brand we have built to sell mid-tier coffee will not cater to gourmet coffee
position as its made of Robusta rather than Arabica beans. So we need to launch a
new brand that preempts the quality position. We may need a new design (DSD),
but we’ve done radical stuff before!
• Most restaurants, food chains and institutions sell Coke or Pepsi (branded) but
unbranded coffee. Once our gourmet brand is established in grocery stores, we may
be able to move into the institutional market (after all, we sell to Wal-Mart!)
• Whole bean provider: Could have built a brand by opening a café division. Took 7
years for Brothers to catch on. By opening the café format, regional whole bean
providers could have built brand loyalty. Especially as they do not have P&G’s
deep pockets. If the regional whole bean provider launched in 1991, could have
built a national brand. By 1994, it was too late.
• Starbucks: May have missed an opportunity by not aggressively expanding via
franchising. Region by region rollout gave competitors / imitators time to preempt
in certain markets. This way it would have “conquered” the retail business and
could have focused more fully on institutional and grocery markets.