© Kenneth B. Wong (Sept. 2008) Marketing Myths, Mistakes and Mystique BY: Ken Wong Queens University

© Kenneth B. Wong (Sept. 2008) The Great Marketing Myth Marketing Is All About Volume Everything we do is measured against the goal of building top line revenue

© Kenneth B. Wong (Sept. 2008) The REALITY 3 SURVIVAL IN A WORLD FILLED WITH MARGIN-SUCKING MAGGOTS

© Kenneth B. Wong (Sept. 2008) The REAL Objective of Marketing Price Cost Minus Assets Managed Assets Managed Net Income Net Income Divided By Unit Margins Unit Margins Times Unit Volumes Unit Volumes Return On Investment Return On Investment Market Share Market Share Market Size Market Size Times 4

© Kenneth B. Wong (Sept. 2008) Four Fundamental Marketing Questions How marketing can IMPROVE price realization?How marketing can IMPROVE price realization? How marketing can REDUCE costs?How marketing can REDUCE costs? How marketing can BUILD profitable volume?How marketing can BUILD profitable volume? Should marketing be more focused on its price-, cost- or volume-effects?Should marketing be more focused on its price-, cost- or volume-effects?

© Kenneth B. Wong (Sept. 2008) 6 A Comparison of Profit Levers Volume Variable Cost Price 3.3% 7.8% 11.1% A 1% change in... Creates a change in operating profit of... KW-210 (Average economics of 2,463 businesses in Compustat) Fixed Cost 2.3%

© Kenneth B. Wong (Sept. 2008) The Profit Dilemma The Profit Dilemma 1.Nothing impacts on the bottom line more than your ability to maintain your price and your margins 2.Customers are ALWAYS asking for lower prices 3.Marketings pursuit of volume tends to destroy margins 1. SPEND to generate awareness 2. CUT PRICE 3. OFFER TRADE PROMOTIONS 7

© Kenneth B. Wong (Sept. 2008) Keys to Changing the Game Dont Confuse Better Value with Lower PriceDont Confuse Better Value with Lower Price 8

© Kenneth B. Wong (Sept. 2008) Value is a RATIO of Quality to Price Four ways to give better value 1. Retain Quality – Reduce Price 2. Reduce Quality a LITTLE – Reduce Price a LOT 9

© Kenneth B. Wong (Sept. 2008) The Standard Cost-Quality Relationship OUTPUT INPUT 10

© Kenneth B. Wong (Sept. 2008) Value is a RATIO of Quality to Price Four ways to give better value 1. Retain Quality – Reduce Price 2. Reduce Quality a LITTLE – Reduce Price a LOT 3. Improve Quality – Retain Price 4. Improve Quality a LOT – Increase Price a LITTLE 11

© Kenneth B. Wong (Sept. 2008) Why We Prefer Quality-Driven Value Longer Strategic Window Greater Economic Efficiency 12

© Kenneth B. Wong (Sept. 2008) Defining Cost-In-Use Interest expenses Interest expenses Opportunity costs Opportunity costs Storage/handling Storage/handling Installation Installation Quality control (of your product on installation) Quality control (of your product on installation) Tax and insurance Tax and insurance Shrinkage Shrinkage Obsolescence Obsolescence Training Training Users labour costs (especially if re-engineered) Users labour costs (especially if re-engineered) Longevity Longevity Replacement/ repair costs Replacement/ repair costs Disposal costs Disposal costs Regulatory Regulatory Cost-In-Use KW-284 Price Price= Acquisition Costs + PossessionCosts + UsageCosts Paperwork Paperwork Shipping time Shipping time Expediting orders Expediting orders Cost of errors in ordering Cost of errors in ordering Pre-purchase activities Pre-purchase activities Purchase evaluation Purchase evaluation

© Kenneth B. Wong (Sept. 2008) Keys to Changing the Game Dont Confuse Better Value with Lower PriceDont Confuse Better Value with Lower Price Focus on Marketings 5 th P – ProductivityFocus on Marketings 5 th P – Productivity Find ways to increase quality without raising price Find ways to increase quality without raising price Find ways to reduce cost without destroying quality Find ways to reduce cost without destroying quality 14

© Kenneth B. Wong (Sept. 2008) PRODUCTIVITY KEY 1: Better Understanding of the Economics of Branding 15

© Kenneth B. Wong (Sept. 2008) Pick A ONE DIGIT Number from this list…

© Kenneth B. Wong (Sept. 2008)

Pick a Number…

© Kenneth B. Wong (Sept. 2008)

This is the POWER of a great CREATIVE

© Kenneth B. Wong (Sept. 2008)

Now…one last time?

© Kenneth B. Wong (Sept. 2008)

This is GREAT CREATIVE that is ON STRATEGY

© Kenneth B. Wong (Sept. 2008) OR Maybe this is…

© Kenneth B. Wong (Sept. 2008) OR Maybe this is…

© Kenneth B. Wong (Sept. 2008) 27 Productivity Key 1: Branding What if it carried the logo… Would you pay more for FP versus a private label? How much would FP need to spend on EACH product to convince you it had those traits? © Kenneth B. Wong (2005)

© Kenneth B. Wong (Sept. 2008) The Real Measure of A Brand Volume matters BUT Volume matters BUT Great brands enable PREMIUM PRICES Great brands enable PREMIUM PRICES Great brands SPEND LESS Great brands SPEND LESS The Real Measure of a Brand is NOT Awareness but AssociationThe Real Measure of a Brand is NOT Awareness but Association 28

© Kenneth B. Wong (Sept. 2008) PRODUCTIVITY KEY 2 Better Understanding the Economics of Segmentation and how segmentation translates into branding 29

© Kenneth B. Wong (Sept. 2008) Lower Costs Higher Prices and Sales Increase "Value" Reduce "Waste" Add "Good" Costs Reduce "Bad" Costs Productivity Key 2: Focus & Segmentation Total Costs Higher Profits 30

© Kenneth B. Wong (Sept. 2008) Segmentation 1: What Do We (Really) Sell? 31 Viagra Rule Viagra Rule People dont buy products or services – they buy SOLUTIONS to problems People dont buy products or services – they buy SOLUTIONS to problems Price ceilings vary with the importance and complexity of the problem you solve Price ceilings vary with the importance and complexity of the problem you solve

© Kenneth B. Wong (Sept. 2008) How to improve the retail experience (sample advice) Personalize the experience Personalize the experience Help the customer find their way Help the customer find their way Explain product differences Explain product differences Show them you care Show them you care Show them why they "get what they pay for" (i.e. up-sell) Show them why they "get what they pay for" (i.e. up-sell) EDI, E-tailing, etc… EDI, E-tailing, etc… Segmentation 2: Does everyone solve that problem in the same way?

© Kenneth B. Wong (Sept. 2008) Homogenizing Customers Makes It Easier To Find Ways to Create New Value REDUCE What factors should be reduced WELL BELOW the industry standard? ELIMINATE What factors have always been offered but NO LONGER add value? CREATE What factors have NEVER been offered in this industry? RAISE What factors should be raised WELL ABOVE the industry standard? NEW VALUE CURVE KW-367 Source: Kim and Mauborgne, Creating New Market Space, Harvard Business Review, 1999

© Kenneth B. Wong (Sept. 2008) The Bottom Line You dont have to be all things to all people BUT You better be absolutely perfect for someone 34

© Kenneth B. Wong (Sept. 2008) PRODUCTIVITY KEY 2 Better Understanding How to Satisfy Customers 35

© Kenneth B. Wong (Sept. 2008) Step 1: Know What Matters Most A Trip to Disneyland 36

© Kenneth B. Wong (Sept. 2008) Step 2: Know How Customers Measure Quality House of Wong 37

© Kenneth B. Wong (Sept. 2008) 38 Step 3: Walk the Talk The Five Step Profit Chain Profits grow from satisfied customers who receive service value due to satisfied and loyal employees who had proper training, coaching and support Profits grow from satisfied customers who receive service value due to satisfied and loyal employees who had proper training, coaching and supportCOMPANYEMPLOYEES CUSTOMERS Interactive Marketing ExternalMarketingInternalMarketing

© Kenneth B. Wong (Sept. 2008) Becoming De-Myth-ified 1.Know What Drives Your Profitability Dont limit pricing to a tactical tool Dont limit pricing to a tactical tool 2.Dont Confuse Lower Price with Better Value 3.Dont Forget Marketings 5 th P – PRODUCTIVITY 1. Dont Limit Branding to Awareness – Focus on Association 2. Practice Lean Marketing 3. Dont forget the 6 th P - PEOPLE 39

© Kenneth B. Wong (Sept. 2008) 40 FOCUS ON EXECUTION The EXECUTION of MARGIN-SUCKING MAGGOTS

© Kenneth B. Wong (Sept. 2008) 41 Ken Wong c/o Queens School of Business Kingston Ontario K7L 3N6 tel: fax: