BUAD 307—MARKETING FUNDAMENTALS MARKETING OVERVIEW

Learning Objectives Identifying The scope and basic objectives of the marketing function Customer value Obstacles to delivering the value to the customer Benefits of and opportunities for relationship marketing

Usage and Reach of Marketing Who markets? Businesses Government units Non-profit organizations Cause related organizations What is marketed? Goods Services Ideas Who buys? Ultimate consumers Organizational buyers For internal use For resale (wholesalers, retailers) Manufacturers (components) Customer benefits? Utility Consumption Convenience

2013 American Marketing Association (AMA) Definition Marketing: “The (1) activity, (2) set of institutions, and (3) processes for (4) creating, (5) capturing, (6) communicating, (7) delivering, (8) and exchanging (9) offerings that have (10) value for (11) customers, (12) clients, (13) partners, and (14) society at large.” (Numbering added.) Definition not needed for the exam!

MARKETING ACTIVITY INSTITUTIONS PROCESSES CREATION COMMUNICATION DELIVERY EXCHANGE CUSTOMERS OFFERINGS VALUE CLIENTS PARTNERS SOCIETY

Marketing As an Exchange Each side receives something more valuable than what it gave up  “win-win” deal and customer value In a free market, for a deal to take place, both sides should prefer the trade. Part of the value may be assurance of continued quality over time (value of the brand) In principle, money does not have to be exchanged. For goods and services, this is usually the most convenient way of trade. For ideas, there may be no monetary exchange as such. E.g., Voting for a candidate Engaging in recycling

Customer Benefits and Value IS THE CUSTOMER BENEFIT RECEIVED GREATER THAN THE SACRIFICE (COST)? YES NO POOR VALUE POTENTIAL GOOD VALUE

Myth vs. Reality Imitating successful competitors is usually NOT an effective strategy Selling things online is usually MORE expensive than selling through conventional retailers Products with high value-to-bulk ratio and high absolute (dollar) margins tend to be better suited for online sale Having a great product does NOT necessarily mean you will be successful—you also need Awareness by customers (that the product exists and what it does) Access to distribution (conveniently located retailers and/or conveniently accessible online ordering)

Sources of Profitability for Amazon Electronic content (e-books, e-periodicals, music, online video content) Brokering of used merchandise (e.g., books, CDs, DVDs) sold by consumers to other consumers Server services (e.g., hosting web sites) Data processing services (e.g., assessing and disbursing sales tax for other online merchants)

Communicating value to customers Customers must know that the product exists Awareness through advertising requires a very elaborate, lengthy, and expensive campaign Social media and “guerilla” marketing Exposure through retail setting Retailers must carry the product—for every new one they take on, they generally must sacrifice an existing one Even if carried, a product may “drown” among the “sea” of other products For some products, the customer must see what the product actually does in order to recognize value (e.g., a Pillow Pet is not just “another stuffed animal.”

Delivering value to the customer in a convenient and cost effective manner Brick-and-mortar stores Existing stores must generally drop an existing product to make room for a new one (and retailers may have relationships with existing brands) Some stores—e.g., convenience stores—have room for few brands in each category. Stores in many foreign countries are smaller than typical U.S. stores The customer must be able to find the product Online Delivery to customer must be cost effective The customer must know where to order (easier if carried at major sites such as Amazon) The product must be findable at the site Showing up in customer search Specific brand (requires awareness) General category Featured product Suggested--e.g., “Customers who bought this also bought…” Individualized recommendation based on prior purchases

Relationship Marketing Selling (selling existing products with whatever methods are necessary) vs. marketing orientation (serving customer needs whether in current or new forms) Maintaining a relationship with the customer over time rather than just focusing on immediate sales Anticipating customer needs Providing solutions Investing in products and services optimized for the customer

Products vs. Solutions NETFLIX STARTED OUT SHIPPING DVDs TO CUSTOMERS ABILITY TO WATCH MOVIES ORIGINAL PRODUCT OFFERING ACTUAL CUSTOMER BENEFIT PRACTIVE OF CUSTOMER RATINGS BROUGHT RECOMMENDATION DATA BASE NOW MOST MOVIES ARE OFFERED THROUGH STREAMING EXISTING CUSTOMER BENEFIT BROUGHT ALONG TO NEW FORM (COMPETITIVE ADVANTAGE) ENHANCED WAY OF PROVIDING THE CUSTOMER BENEFIT (SOLUTION) You will NOT be asked to reproduce this specific model on the exam!

Value Benefits—perceived by the customer (may not be objectively accurate) Convenience In delivery In usage Reliability Durability Performance Style/aesthetics Prestige Service component Sacrifices—examples Money Time Risk

Value: Recap A low quality, low price product represents poor value for many customers A very high benefit product at a high price can represent value for some segments Customer segments differ in what they find valuable

BUAD 307—MARKETING FUNDAMENTALS MARKETING STRATEGY

Learning Objectives Identify Identify firm and/or market business models Organizational missions The scope of strategic decisions Tradeoffs that firms must make in their decisions Cumulative and “spill-over” effects of strategic decisions and the need for consistency The need for industry balance and firm unit cash flow balance

Business Model A representation of how a firm intends to achieve desired objectives (usually eventual profitability) over time E.g., “freemium” products: Some customers get the basic product for free as a means of developing awareness and preference; money is made directly only on those customers who buy a more advanced version E.g., ride sharing (Uber and Lyft): A commission is earned as the firm creates value by connecting customers and service providers

Organizational Mission Brief statement of the “big picture” of what the organization exists to do E.g., for Apple, to produce elegant, user friendly consumer technology Focus on enduring strategy and contributions over time rather than on specific products at specific times Subject to reconsideration over time technology, values, competitors, and customer needs change over time

Strategy Plan To achieve desired objectives (e.g., profit, market share) Based on available resources (e.g., financial, patents, trademarks, people, brand name/ image , distribution channels) Subject to choices made (e.g., willingness to take risk, short run vs. long run goals)

MARKETING STRATEGY STRATEGY RESOURCES ENVIRONMENT PRIORITIES/ OPPORTUNITY COSTS EXPERIMENTATION/ EXPRIENCE

Market Balance A WELL BALANCED GADGET INDUSTRY Different firms should attempt to offer different forms of value, appealing to different customer segments—otherwise, competition is likely to degenerate into price competition EASYTECH, LTD. EASE OF USE TROJAN CREATIONS, INC. PERFORMANCE BRUIN PRIDE, INC. LOW PRICE MICROGEEKS, LTD. SMALL SIZE PATIENCE-IS-STUPID, INC. SPEED

Core Competencies Broad, fundamental capabilities—not readily imitated by competitors— in which an organization excels Deployable across a variety of products and situations E.g., stylish design of electronics (Apple) E.g., economies of scale and broad assortment of online and supermarket merchandise (Amazon)

Examples of Objectives Profit level Profit growth Total unit sales Growth in unit sales Growth in dollar sales Total dollar sales Brand perception by customers Value Quality Innovativeness Reliability Brand name recognition Brand name recognition by product category Product availability Availability across retailers and other distributors Store placement Percentage of products sold at full price Percentage of revenue from new products Affordability of product Elimination of unsafe product ingredients For the exam, you should be able to identify examples of objectives as such—i.e., something that the firm sets out to accomplish, usually within a certain time frame. You do NOT need to memorize this list!

Notes on Objectives Certain objectives must be accomplished (e.g., brand awareness, distribution coverage) before others can be effectively attempted (e.g., profit level) Although a certain level of profit would be an objective for most firms, many firms may not be able to focus on this until they have addressed prerequisite objectives (e.g., brand awareness, sales volumes, perceived brand quality) Objectives are usually sought over a specified time period (e.g., next quarter, year, or ten year period) Plan can specify the amount of time designated for various stages of objectives

An Example of Objectives Over Time ADVERTISING PAID STORE PLACEMENT IN-STORE DEMONSTRATIONS ABILITY TO CHARGE PREMIUM PRICE BRAND AWARENESS WIDER DISTRIBUTION INCREASED VOLUME SALES QUALITY INCREASED PROFITS RESEARCH & DEVELOPMENT INPUTS OBJECTIVES

Strengths, Weaknesses, Opportunities, and Threats (SWOT) Analysis INTERNAL TO FIRM EXTERNAL STRATEGY WEAKNESSES OPPORTUNITIES Note that merely listing each factor has limited use. We need to analyze: How to take advantage of strengths and opportunities How to address weaknesses and threats How to use strengths and opportunities to counter weaknesses and threats THREATS

Compensating for Weaknesses and Threats STRENGTHS Direct effect of weaknesses OPPORTUNITIES Direct effect of strengths and opportunities Using strengths and oppor-tunities to compensate for weaknesses PERFORMANCE STRENGTHS OPPORTUNITIES THREATS

SWOT Deciding where to concentrate resources Taking advantage of strengths and opportunities Addressing weaknesses and threats Using strengths and opportunities to compensate for weaknesses and threats

SWOT—Apple Strengths Weaknesses Opportunities Threats Some vertical integration—content and devices Market leading/dominating position Strong brand name Financial strength Strong R&D Strong demand for iPhone High selling prices across iPhones, iPads, and computers Weaknesses Heavily dependent on the iPhone and iPad lines No major recent new product innovations for several years (and none announced) Dependence on the legacy of Steve Jobs for brand image Opportunities ApplePay Wearable devices Increased global sales of iPhone Wide availability of iPhone X Threats Android devices (free operating system) Counterfeiting and industrial espionage Competition—both on low cost and on innovative features Declining desktop and laptop markets in developed countries Unstable world economy Increased import tariffs Foreign trade barriers placed in retaliation for possible U.S. barriers Source: “Apple,” Global Markets Direct SWOT Reports (from Business Essentials), November, 2017

SWOT—Apple—Applications Using strengths to compensate for weaknesses and threats Use of large cash reserves to develop potential new products Developing “must have” apps only available for iOS (taken advantage of cash reserves and in-house talent) Campaign to “convert” Windows users who own iPhones and/or iPads to Apple computers Using opportunities to compensate for weaknesses and threats: Heavy investments in building retailer infrastructure to use ApplePay Having iPhone X featured in “hot” movies or TV series

THE MARKETING ENVIRONMENT

Learning Objectives Identify forces that are beyond the control of the firm and may require it to adapt its strategies

THE MARKETING ENVIRONMENT Culture (covered under International Marketing) Demographics Social Technology Economic Political and Legal Factors

Some Things That Have Changed In Our Lifetime… Widespread use of high speed, high bandwidth and wi-fi Internet access Online shopping by mainstream consumers and individualized product recommendations Movies streamed online rather than DVDs mailed or rented in stores Spread of digital photography, “selfies” Widespread use of cell phones Smart phones replacing more limited scope cell phones Emergence of social networking sites GPS technology becoming available to consumers Increased concerns about security (since 9/11/2001)

“In 1989, a new Blockbuster was opening every 17 hours.” Washington Post, April 26, 2017.

Japan: Actual and Projected Population Figures

China: Actual and Projected Population Figures

Social Factors Values—tensions Later ages of marriage Value of privacy and security vs. convenience “Green” products vs. Cost Convenience Performance Later ages of marriage

Case: Hostess (Twinkies) In 2011, Hostess, the manufacturer of Twinkies, was unable to negotiate a cost effective deal with its main union This happened on top of a “triple whammy” that had hit packaged goods manufacturers: Costs of ingredients had gone up due to increased costs of petroleum (needed for fertilizer, transportation, and processing) A consolidation in the supermarket industry and the entry of Walmart’s supercenters had put downward pressure on wholesale prices The recession had caused a number of customers who in the past bought national brand items to switch to store brands and lower tier brands. In 2013, Hostess entered bankruptcy. The firm was sold off.

Case: Boeing Boeing 747-8 never got significant orders Modest update from older version could not compete with A380. Very long lead time in developing the next generation of planes Fluctuating World economy can dramatically affect demand for new aircraft with very short notice “Glut” of nearly new planes available during global recessions Long backlog in orders during prosperity Possible increase in trade barriers Political developments affect opportunities to sell to different countries (e.g., Iran) Political changes in export assistance Uncertainty about long term fuel prices Under high fuel prices, the Boeing 787 can reduce costs Under lower fuel costs, the A380 can reduce labor costs

ETHICS AND SOCIAL RESPONSIBILITY

Some Ethical Issues Misleading advertisements and marketing in general Taking advantage of consumer ignorance Marketing of harmful products Physically dangerous Over-consumption; marketing to people living above their means Marketing of products banned or not marketed in the U.S. to other countries

One Approach to Evaluating Ethics of Marketing Activities IS THE ACT DECEPTIVE, MANIPULATIVE OR MISLEADING? IS THERE A SUFFICIENTLY REDEEMING PURPOSE? YES Yes YES NO NO No No MORE LIKELY TO BE ETHICALLY PROBLEMATIC LESS LIKELY TO BE ETHICALLY PROBLEMATIC DOES THE ACT PREY ON PERSONAL INSECURITIES? YES Yes YES Yes NO IS A HARMFUL OR DANGEROUS PRODUCT INVOLVED? DO BENEFITS APPEAR TO OUTWEIGH RISKS TO THE USER? NO YES Yes NO No

“Win-Win” Deals and Social Responsibility By pooling resources, different organizations may each get more than what they put in Firms may be able to contribute not only cash but also relevant expertise Favorable publicity may be worth more than the same amount spent on advertising Charitable groups may provide access to potential customers

Promotional Events A large retail chain might sponsor a concert series by paying all expenses in return for considerable publicity Triple “win-win-win” deal: The charity receives the proceeds without having to pay costs The sponsor receives publicity. Tickets are bought in the store or on its web site. An aging artist—whose fans are now in their prime earning years—gets an opportunity to revive a career or promote a new venture (e.g., movie role)

INFLUENCES ON THE FIRM AND ITS CHOICES CULTURE DEMOGRAPHICS ENVIRONMENT SOCIAL RESOURCES ECONOMIC TECHNOLOGY LEGAL/POLITICAL PROFIT PRESSURE FIRM OPPORTUNITIES SOCIAL RESPONSIBILITY