Summary MM – Reader & Cases

Based on the old reader, some articles are missing

Table of Contents

LECTURE 1:........................................................................................................................................4

MARKETING MYOPIA........................................................................................................................4

STRATEGIC INSIGHT IN THREE CIRCLES..............................................................................................7

MARKETING STRATEGY – AN OVERVIEW...........................................................................................8

LECTURE 2:......................................................................................................................................13

A NOTE ON CONSUMER MARKET SEGMENTATION.........................................................................13

SEGMENTING THE BASE OF THE PYRAMID......................................................................................15

REDISCOVERING MARKET SEGMENTATION.....................................................................................17

CUSTOMER VALUE PROPOSITIONS IN BUSINESS MARKETS.............................................................21

ANALYZING CONSUMER PERCEPTIONS...........................................................................................23

LECTURE 3:......................................................................................................................................25

THE COHERENCE PREMIUM.............................................................................................................25

ARE YOU IGNORING TRENDS THAT COULD SHAKE UP YOUR BUSINESS?.........................................27

STRATEGIES TO FIGHT LOW-COST RIVALS.......................................................................................29

SHOULD YOU LAUNCH A FIGHTER BRAND?.....................................................................................31

BRANDING IN THE DIGITAL AGE......................................................................................................33

LECTURE 5:......................................................................................................................................36

STRATEGIC BRAND VALUATION: A CROSS-FUNCTIONAL PERSPECTIVE............................................36

STRATEGIC CHANNEL DESIGN..........................................................................................................40

THE FUTURE OF SHOPPING..............................................................................................................44

LECTURE 6:......................................................................................................................................47

THE ONE THING YOU MUST GET RIGHT WHEN BUILDING A BRAND................................................47

FOR MOBILE DEVICES, THINK APPS, NOT ADS.................................................................................49

MARKET TO MILLENNIALS BY GETTING OUT OF THE WAY...............................................................51

PRICING TO CREATE SHARED VALUE...............................................................................................52

PAY-WHAT YOU WANT, IDENTITY, SELF-SIGNALING IN MARKETS...................................................54

CIALIS CASE.....................................................................................................................................56

NIKE FOOTBALL SUMMARY.............................................................................................................60

RENOVA TOILET PAPER...................................................................................................................64

Lecture 1:
Marketing Myopia
 whenever a market slowed in growth, it was due to management failures

Fateful purposes
 the failure is at the top of the organization
o railroads went down because they let others take away customers
o Hollywood almost disappeared because it considered itself to be in movie
business while being in entertainment business
 customer-oriented management can keep growth stable even if obvious growth
opportunities have disappeared
o constant watchfulness for opportunities to apply technical knowledge to
create customer-satisfying products
 error of analysis – industries are defined too narrow so disappearance/maturity is
inevitably happening soonish
o railroads = railroad industry, not transportation industry

Shadow of obsolescence
 examples of industries that dropped out of growth
o dry cleaning – growth declined because of competition through new fibers
o electric utilities – utility companies were certain there could not be
competition  nonutility companies (e.g. solar cell producers) provided ways
to create electricity
o grocery stores – big chains were almost defeated by independent
supermarkets that they ignored
 self-deceiving cycle – there is no such thing as a growth industry!  companies are
organized to exploit growth opportunities
 four conditions guaranteeing cycle
o assumption that growth is assured by expanding
o belief that there is no substitute
o too much faith into mass production & benefits of low cost production
o preoccupation with products linked to scientific experimentation,
improvement, and manufacturing cost reduction

Population Myth
 every industry believes that expanding to new, affluent populations will lead to
growth
 if product’s market is automatically expanding, no attention is paid to possible
problems
 petroleum industry as example of industry that might be declining soon
 characteristics of companies suffering in this regard
o belief into growing market while offering generic product
o no product improvements
 asking for trouble – industry focused on improving efficiency of getting & making
product  attitude led to
 o improvements in gasoline quality originate outside industry
o innovations in fuel marketing come from small players
 oil industry is asking for trouble from outsiders
 idea of indispensability – industry believes that there are no real substitutes 
ignores that fuel consumption is entirely tied to other products/industries
 perils of petroleum – history
o (1) use in kerosene lamps
o (2) Edison invited the lightbulb but oil was starting to be used in space heaters
o (3) two innovations: invention of coal heater & combustion engine
o (4) 1920s: invention of oil heater
o (5) expansion of civil aviation, dieselization of railroads, increasing demand for
trucks
o (6) central oil heating ran into competition from gas  competition from
outsiders even though oil companies PRODUCE the gas  did not want to
cannibalize own market
 uncertain future – petrochemicals can create new demand for oil industry but only
on small scale
 oil industry was always saved by miraculous innovations from outside

Production pressures
 mass production companies work with assumption that driving down unit cost can
increase profit significantly
 problem: all effort is focused on getting rid of product  marketing is ignored
o marketing – satisfying the customer’s needs with the product
o seller needs to take cues from customers
 lag in Detroit – automotive industry is focused on mass production
o Detroit lost a lot of volume to other car makers because they ignored what
customers really wanted
o industry was product oriented
 areas with highest demand are ignored: point of sale & repair/maintenance
o most dealers are independent
o there are very little opportunities for night service
 what ford put first – two factors, one terrible one brilliant
o only selling black car (terrible)
o designed a production system fitting market needs  mass production was
designed because it fit market needs of low prizes
 product provincialism – profit potential of low-cost production is most self-deceiving
act  importance of marketing & customer is forgotten
o eventually leads to decline  industry focuses on product & does not realize
when its obsolete
 oil is running into same problem: focus on improving oil instead of coming up with
bet fuels
o many other firms are working on alternative to combustion engine
o batteries as way to store energy
o solar energy as alternative power source
 creative destruction – customers do not like filling up gas  eliminate gas stations!
o oil companies must destroy their own assets to increase customer satisfaction
Dangers of R&D
 other great danger: management being focused on profit potential of R&D
 marketing shortchanged – tech world: companies might be paying TOO much
attention to R&D
o they seem to hold the assumption that a superior product will sell itself
 factors strengthening assumption:
o management becomes heavy with engineers  focus on making things rather
than satisfying needs
o favor for dealing with controllable variables  product is controllable
 stepchild treatment – oil industry: focus is forever on improving current product
o better advertising, sales promotions
o basic questions about customer never get asked
 literature never talks about downsides & risks for oil industry
 marketing is a stepchild of oil industry
 beginning and end – an industry beings with customers & their needs
o industry develops backwards, from delivery of satisfaction to creating the
things that satisfy, last step is finding raw materials for this
 scientists in top management tend to be not scientific when it comes to defining
customer needs

Conclusion
 building effective customer-oriented company is key to survival
 visceral feel of greatness – company has to do what survival requires
o survival needs to happen gallantly
 leader must have the will to succeed
 company must be seen as customer-generating and –satisfying organism
 self-perception needs to be: the company buys customers & makes people want to
do business with them
 chief executive needs to set direction & has to know where the wants the
organization to be
Strategic Insight in three circles
 managers do not really have understanding of what having a competitive advantage
actually means
 three circles represent strategy
 executives need to think about what customers value & why
 circles
o (1) what is most important to customer & what customer needs
o (2) what team thinks customers’ perceptions of company’s offerings are
o (3) how customers perceive offerings from competitors
 key areas:
o A: our points of differences  what are competitive advantages & how big
are they
o B: efficient delivery in the areas of overlap
o C: how to counter competitors’ advantages
 assumptions should be tested by asking customers
o can lead to insights about white space
o can also point out that value is delivered where customers do not need it
o usually A is much smaller in the eyes of customers

Marketing Strategy – An overview
 strategy – plan of action to achieve certain objectives
o Business: sales volume, growth, …
 strategies are developed at multiple levels (corporate, divisional, business unit,
departmental)
 marketing strategy is at hear of any business plan
o other functions must support the marketing of an organization

Elements of marketing strategy

 (1) product/market selection – which markets to serve with which product lines
 (2) price
 (3) distribution systems – channels through which products move to customer
 (4) market communications – ways of advertising
 additional factors
o product service
o technical service – useful for customers with manufacturing + product
development functions
o plant location – can lead to benefit of being close to customer or having local
market manufacturing
o brand strategy – product-specific of general brand name
 marketing mix – combination of all factors
o varies considerably for products & markets

Product/market selection
 most important choice to be made by organization
 product – total package of attributes a customer obtains when making a purchase
 product benefits
o what product does
o warranties
o repair service
o assistance
o …
 negative factors (e.g. repair intervals, risk of going on vacation, prepayment) can also
play role
 it is important to see difference between perceived value & potential value
o perceived value – what the customer sees in the product
o potential value – what the customer can be educated to see in the product
 market – pocket of latent demand
Market segmentation
 markets can be split into segments
 defining relevant market segments is first step in product/market selection
 possible dimensions
o demography – family income, sex, age, ethnicity, educational background
 industrial markets: size of organization, nature (for profit, NGO, …),
type of industry is demography
 o geography – where is the customer located, what is the economic shipping
distance
o psychographic variables – segment the market according to lifestyles
 senior citizens are different from baby boomers or teenagers
 psychographic background influences preferences of customers
significantly
o product application and use – way how industrial customers use products
might enable to segment
 customer buying tableware for individual use will have different
requirements than industrial customer
 segmentation needs to be continuously evaluated + revised
o changes in markets, new technologies, new channels can render old
segmentation inaccurate
 segmentation is an art not science  very individualistic activity
Product/market selection criteria
 product value – segments that value product the highest should be targeted first
 long-run growth potential – market size & profit potential
 resource commitments – product/market shoices often go hand in hand with R&D
 can these costs be recovered & are the resources available
 competitive positioning – there might be some gaps in the market while other
segments have heavy competition  choose strategically
o new players should bring something new to the table
 company-product/market fit – do the product & market fit with the company’s
brand & reputation

The art of pricing

supply/demand
 extent of supply vs demand is prime determinant of price
 basic production quantities are usually outside control of individuals
 managing excess capacity is key challenge
o OPEC as way to monopolize the oil market
Cost factors
 cost set the price floor
 choice of which costs depends on strategy
o only cover direct costs
o full cost
o markup
 if fixed costs outweigh variable costs, increasing sales volume can be beneficial
 if variable costs are higher, profit margin should be increased
 low-cost producers always have competitive edge
competition
 competition establishes price celing
 three ways to respond to competition
o differentiation – offers freedom in pricing against competitors
o attempting to decrease intrabrand competition among resellers – increases if
number of sellers of similar products is higher in a geographic area
 o exercising price leadership – usually the largest firm with best technology,
strong distribution & low production costs
 sets price  rest of industry might (a) follow or (b) not follow, forcing
leader to go back with decision
 parallelism – is legal as competitors do not communicate directly about their prices
Buyer bargaining power
 buyers can leverage two factors
o if they buy significant share of production
o if they have a lot of choices in terms of products from other competitors
 powerful buyers might force down prices or even demand services that make
business unprofitable
 sellers have negotiation strength if they offer differentiated products
product value
 customer value might vary significantly between segments
 price segmentation enables manufacturer to capture different value perceptions
o short-run: charge different prices at different locations
o long-run: price differentiation has to be based on functional differentiation
 risk of price differentiation: lower priced products might find the way to higher price
segments  black market phenomenon
 skimming vs. penetration pricing
o skimming – put high price to reach segments for which product has highest
value
o penetration – low price in order to achieve large market share before
competitors can do it
o skimming is usually used in early stage of life-cycle to recover costs when
market volume is low
o penetration pricing allows for learning curve effects & larger market share
BUT leads to loss of potential profits
 penetration pricing is more risky, some conditions need to be fulfilled
o products must be free from any errors
o production capacity must be able to fulfill demand
o distribution channels must reach potential buyers
o there must be no lags between product introduction & general market
acceptance

Channels of distribution
 leading firms usually have strongest distribution systems, strong product lines,
constant innovation, and large installed base
o installed base is key driver of replacement sales
Elements in the distribution system
 direct sales reps – employees of firm directly getting in touch with potential clients
 sales agents – independent operators usually carrying multiple lines from different
suppliers
 distributors – usually buy from many suppliers & sell to customers buying relatively
small amounts but need to have them readily available
 retail outlets – supply end-products to consumers & business buyers
o can often be franchised
  internet – provides easy access, can deliver digital products & can be platform for
after-sales service
o drawbacks:
 accessible market is limited  less-educated, older, lower-income
segments might be harder to reach
 security concerns
 channels support – suppliers need to support network through which the product is
brought through the market  assure that
o products are stocked and available at resale level
o resellers actively display the product to consumers
o resale prices & margins do not deteriorate
 suppliers gain strength under multiple conditions
o selective rather than intensive distribution – the fewer intermediaries in a
geographic area, the less incentive they will have to cut down prices
o superior product line & breadth – competitive edge
o high degree of supplier/reseller interdependency – the higher the share of
products sold is, the more power supplier & reseller have over other party
o supplier salesforce presence at resale level – salesforce plays essential role in
training dealers (B2B) and how products are displayed & promoted (B2C)
o end-market demand development – advertising can be key element
 pressures for change – distribution systems are the hardest to build & change
o strong relationships between suppliers & resellers might be in way of change

Market communications
 elements: print media, telemarketing, trade shows, point-of-sale displays, personal
salesforce, third-party influencers
 combination of elements requires understanding of decision making processes (DMP)
and decision-making unit (DMU)
DMP:
 process:
o (1) awareness of need
o (2) search for information
o (3) identification of options
o (4) source qualification & short listing
o (5) selection
o (6) post-purchase affirmation
 communication vehicles can be different at different stages of process  TV creates
awareness, visiting store helps gather information
DMU
 can consist of multiple parties  family decision involves husband, wife, children, …
 participants usually have different perspectives & requirements
 understanding needs of individuals is first step to identify right response  ways of
stimulation usually vary between different members of DMU
Selection of tools
 key factor: cost
 different tools have different purposes
o media advertising as cost effective way to
  provide information
 inform where to buy
 suggest product use ideas
 establish brand
 identify brand with target segment
 develop reseller interest
o personal selling has higher contract cost but can be used to
 identify prospective customers
 develop solutions tailored for buyer needs
 deal with customer problems
 provide market feedback on product
 usually preferable when relevant information is difficult to
communicate
Push vs pull strategies
 pull – create customer end-market demand
 push – offer resellers incentives to promote
 decision usually rests on which strategies will be most effective
 pull marketing is only justified for large potential markets
 some strategies are combination of both elements

model for strategic planning (p.47)

 corporate goals – establish direction & goals at business unit level
 external environment – analysis of external factors
 business unit strengths & weaknesses – assessment of core competencies helps
business unit focus on activities it is really good at
o analysis of weaknesses can help identify limiting commitments (e.g.
investment into manufacturing resources, technology, customer base
 product/market opportunities – arise from exogeneous factors
 market analysis – begins with market segmentation  selected market segments are
screened for actual potential
 ethics analysis – marketing managers need to identify ethical issues that may arise
from marketing operations
o bribery
o false/misleading advertising
o product design (e.g. safety, quality)
 product/market strategies – process ultimately leads to development of strategies 
selection of one based on which seems to be most promising
Lecture 2:
A Note on consumer market segmentation
 goal: segment whole market into smaller groups of consumers based on their
characteristics
 helps marketing in four ways
o helps marketer identify groups that can be more effectively target
o helps prevent trial-and-error strategic formulation methods
o helps with implementation of marketing concept by making marketer
understand needs of certain customer groups
o analysis offers information for long-range planning

Rationale & assumptions underlying segmentation

 segmentation might not always be useful  when all customers have similar needs,
one mass marketing strategy is appropriate
 today, finding entirely homogenous market is hard
o many markets are relatively homogeneous in terms of needs
 in differentiated market, it makes sense for marketer to segment

Assumptions underlying segmentation

 three important assumptions
 (1) consumption is not random  there are groups in markets with different needs
 (2) marketer is willing to identify target segments whose needs should be fulfilled
 (3) if multiple target segments are present, marketer is willing to design different
marketing strategies for these

Criteria for segmentation

 defined segments need to fulfill various requirements
o internally homogeneous
o identifiable (individuals can be placed inside or outside a segment)
o accessible (can be reached by advertising)
o have effective demand (consumer group is large enough & has purchasing
power)

Dimensions on which to segment the market

 segmentation analysis needs to be find characteristics that will be predictive for
purchasing behavior
 two classes: (1) consumers’ background and (2) market history
o background – who consumer is as an individual
o market history – what consumers have done on the market
 segmentation procedure aims to
o define factors that significantly differentiate consumers
o discriminate segments in the market
o choose most promising segment(s)
o detail characteristics of target group
  example of dimensions: P.54
o geography
o demographics
o psychographic
o general life style
o product usage
o product benefit
o decision-process
 usually segmentation is based on two factors, one in product-usage area and one in
consumer background
 two important points to remember
o unless they behave differently, consumers with different characteristics (age,
gender, …) are not different segments
 if different life-styles do not lead to different behaviors, segmentation
along these dimensions is not useful
o segmentation is iterative  has to be repeated when new market data are
available or competitive situation changes
Segmentation analysis + application
 (1) define the purpose + scope of segmentation
o objectives
o looking for new segments or trying to improve service to old ones
o use existing data or generate new?
o level of detail necessary
 (2) analyze total market data
o character of total market
o basic differences between users & non-users
o competitive position at the moment
 (3) develop segment profiles
o which factors clearly differentiate amongst segments
o are segments internally consistent
 (4) evaluate segmentation
o what are differences + similarities amongst segments
o should the number of segments be increased or decreased?
o how sensitive is the segmentation (e.g. to competition changes)
 (5) select target segments
o where are the best opportunities
o what are further details about the segments
o if data is not available, can reasonable assumptions be made?
o is there competition
 (6) designing the marketing strategy for the target segment
o what type of products do the consumers want
o price/place/promotion
o would other segments react positively to similar strategy
 (7) reappraisal of segmentation
o are there enough resources to carry out strategy
o how flexible is the strategy
o if strategy changes, how will it impact target segment
 o does the strategic plan meet firm’s objectives
 segmentation helps reduce risk in two ways
o (1) provides consumer profile  helps customize marketing strategy
o (2) identifies open market segments + potential opportunities

Segmenting the base of the pyramid

 profit focused companies will ignore the BoP  no profit potential
 even if there is also focus on social impact, products failing to deliver value will
eventually be moved to CSR
 BoP can be effective & profitable if company’s profit is linked to consumers’ gains
 companies need to build private + public value to be impactful in the BoP

Segmenting by living standard

 low income - $3-5 a day, 1.4bln people
o typically, some secondary education
o construction workers, drivers, low-level staff at public & commercial
institutions
o live close to the ones having > $5 a day
o transactions in both formal & informal markets
o strive for better education & positive future for their children
 subsistence - $1-3 a day, 1.6bln people
o poorly-educated & low-skilled
o day laborers and temporary workers
o need improved sanitation, health care, education
o live in slums in cities or migrating workers in rural areas
o no access to bank accounts  turn to moneylenders with high rates
 extreme poverty – bottom 1bln
o lack basic necessities: food, water, shelter
o often displaced by catastrophes & war
o forced into transactions even irregular in informal market
o shut out of regular economy

Segmentation by value-creating role

 consumers – companies can directly address needs of individuals
o more indirect way: offer innovation making people spend less resources on
basic activities
o BoP consumers tend to waste money on bad products
o most suitable for individuals in low income segment
 coproducers – company provides individuals with work & income
o enable farmers to have higher yield on their fields
o training can enable BoP to take part in basic production & assembly
o most suitable for subsistence segment  improve the quality of their
consumption
o also useable for low income
o not applicable to extreme poverty segment
 clients – manage resources in their behalf
o individuals need agents taking care of them
 o best for extreme poverty segment

missteps at the base of the pyramid

 companies need to understand importance of supporting success of BoP
communities
 responsibility does not end when product is sold
 failure often leads to criticism for companies
 microfinance institutions are under constant threat  not because of high interest
rates but because they do not realize that clients still fail to achieve higher standard
of living
 when profit potential diminishes, initiatives are often moved to the CSR departments

how to entwine commercial and social value

 innovative business models enable firms to create both types of value
 working model requires operations to be streamlined & appropriate incentives for
people brought into economic ecosystems
low-income segment
 strategies depend on companies’ abilities to provide incentives to small
retailers/doctors/salespeople integral to distribution channels
 Gilead: offering HIV medicine BUT regulations were limiting availability
o made patents available to domestic producers for only royalty fee on sales 
increased reach and broke even
Subsistence segment
 consumers lack awareness of products
 companies must create demand for whole categories of products
 access channels (e.g. channels) must play a role when creating demand & awareness
 Roshan: encouraged afghans to distribute SIM-cards through distribution networks
o involved community leaders and employs up to 30,000 people
extreme-poverty segment
 require heavy investments
 companies have to engage in public-private partnerships
o otherwise there are almost no opportunities for profits
 companies need to provide outstanding value & gain communities’ trust
 teaming up with NGOs can lead to additional benefits
Rediscovering Market Segmentation
 market segmentation has been narrowly focusing on needs of advertising
 in 1964, reliance on demographic factors was questioned
o traditional demographic traits are not enough as basis for marketing strategy
o nondemographic traits are more likely to influence purchases
o marketing strategy requires identifying segments receptive for brands
 today’s segmentations often fail to broaden in order to influence innovation, pricing,
choice of distribution channels, etc.
 segmentation can do more than delivering psychographics  psychographics have
little predictive power
 good segmentation identifies groups worth targeting

Drift into nebulousness

 years after WWII were characterized by groundbreaking innovations  advertising
was not much needed as products were too special & groundbreaking
 in early 1960s, consumers were less predictable
o education changed & different tastes were developed
 product introductions continued but were more and more focused on improving
existing products
 advertising was focused on testimonials & meeting unmet needs
 in mid 1970s, belief in imagery to sell dull products took away pressure to innovate
 two developments supported emphasis on consumer self-perception
o social scientists applying their modes of analysis on business problems
o business executives welcomed methods in order to reduce their confusion by
speed of changing tastes
 1978: values and lifestyles (VALS) program
o commercial research device
o classified individuals according to nine psychological types
o assumed that purchasing behavior can be explained with individual’s
correspondence to one of the groups
 psychographics were powerful at brand reinforcement & positioning
o they can move emotionally but are NOT drivers of commercial activity
o segmentation based on psychographics also fails to inform which segments to
target
 while market segmentation is widely used (59% of firms), only 14% of executives see
real value from it
 the best advertising will not spur sales if based on faulty segmentation

The way back

 meaningful segmentation depends on finding patterns in customers’ purchasing
behavior
o requires extensive data collection
 information is usually collected routinely but can always be collected qualitatively
 segments can be determined that
o reflect company’s strategy
o indicate where sources of profit/revenue lie
 o identify consumers’ values, attitudes & beliefs
o focus on actual consumer behavior
o make sense to top executives
o accommodate & anticipate changes in market/consumer behavior

What are we trying to do?

 new marketing chiefs usually mean new segmentation
 marketing chiefs usually do not know about how segmentation will benefit strategic
decisions

Which customers drive profits?

 segmentation must identify groups that matter to financial performance in order to
be valid
o start: rank customers by profitability
o eventually, company needs to understand why customers are profitable
 bank knew that relationship managers have the most profitable clients but not why
they are profitable  launched market research in three types
o demographics
o behavioral (which services they already used, how many institutions they do
business, how many transactions they perform)
o attitudinal (financial sophistication, time spent on investments, risk tolerance)
o segmentation lead to better understanding of lifetime value of customers &
enabled bank to tailor offers

Which attitudes matter to the buying decision? What are customers actually doing?
 personality traits should be analyzed
 focus on how they relate to the products of the company
 attitudes/values/preferences have limited predictive power
o best way to predict what customer will be doing: lab experiments
 conjoint analysis – present various features & make customers tell how much they
would be willing to pay or whether they would buy product if features are
added/removed

Will the segmentation make sense to senior management?

 marketing is externally focused and might sometimes be misunderstood by senior
management
 if managers cannot understand segmentation or it is not in line with their experience,
they will be less likely to accept it
 use of specialized statistical methods can make it hard for top management to
understand segmentation

Can our segmentation register change?

 effective segmentations need to be dynamic in two ways
o concentrate on consumers’ needs which change quickly
o they are reshaped by market conditions  adjust to new technologies
 BOTH issues need to be focused on
The Gravity of decision spectrum
 most common error: use a segmentation designed to deal with one issue to solve
another issue
 first step for marketers: evaluate the expectations consumers bring to a particular
transaction
o some decisions (e.g. which toilet paper brand) are inconsequential
o some matter a lot (e.g. buying a house)
 at shallow end of spectrum, consumers look for products that save
time/effort/money
o segment based on price sensitivity/habits/impulsiveness
 segmentations for big purchases
o based on quality, design, status product might offer
 deepest end
o investment is great, core values are engaged
o core values are usually not in line with market values  segmentation needs
to expose such issues
The shallow end
 example: men’s shavers  small-ticket item
o can the company introduce a disposable shaver without cannibalizing own
shaving systems
 segmentation prove that there are three segments
o exclusive system buyers
o exclusive disposable buyers
o switchers
 switching segment is relatively small  introduce disposable razor without
cannibalizing systems market
 second segmentation: would disposable users be willing to pay more for higher
quality?
o most were not willing to
o young men going on dates were emotionally committed  willing to pay a bit
more
in the middle
 in 1990s, Toyota introduced prius
 analysis showed that around 10% of buyers value the decreased environmental
impact & accepted performance/design
 focused promotion via the internet rather than wide-range public ads were efficient
Deep end
 continuing care retirement communities (CCRCs) require large payment
residents usually sell their homes in order to get a unit
 fees are gigantic
 two key values characterizing segment
o desire for autonomy – avoid being a burden on loved ones
o willingness to embrace life among strangers
 adding Alzheimer care would add to the segments valuing not being burden on their
loved ones
Summary
 three reasons for failures of segmentation
o focus on identities, distracting from product features that actually matter +
o too little emphasis on actual customer behavior
o missing understanding from chief executives for what marketers do
 organizations able to overcome these weaknesses will be able to respond to markets
more quickly + effectively
Customer Value propositions in business markets
 make customers understand + believe in superior value propositions
 many companies make false claims  customer manager will not promote special
features unless supplier can demonstrate them
 managers tend to not pay enough attention to customer value propositions  do not
realize that they can help them make smart choices

three kinds of value propositions

all benefits
 listing all possible benefits customer can get from product
 requires the least knowledge & least work to set up
 benefit assertion – claim advantages for features not adding value for customer
 most benefits will be points of parity with competing offers
o managers need to clearly identify where points of parity and points of
difference lie
favorable points of difference
 recognizes that customer has an alterative
 why should someone buy this product instead of a competitor’s product
 pitfall of value presumption: assuming that favorable points of difference must be
valuable to the customer
 it can be hard for customer to determine which product is better if there are multiple
points of difference
Resonating focus
 best option
 recognizes that managers are under pressure  want to do business with firms that
grasp their issues
 suppliers can create value by offering a few elements that create superior value for
customers
 differences from favorable points of difference:
o more is not better  resonating focus is based on one or two points of
difference
o resonating focus might contain point of parity  if point of parity is
requirement or if customer needs to understand that there is no point of
difference
 stressing point of parity that might be perceived as point of difference can be crucial

Substantiate Customer value propositions

 many suppliers make false claims
 value word equations enable to show points of difference
o example: p.91

Demonstrate customer value in advance

 customers must be able to see the value they can expect from an offering
 value case – demonstrate cost savings/value added reference customers received
 value calculators – use of spreadsheet or consultants to determine possible
savings/added value
Document customer value
 demonstrating value is not enough
 use value documenters to further improve customer value models
 GEIW&PT – use value generation planning tools to track results of each project
 understanding how offerings deliver value to customers enables suppliers to deliver
superior value

Superior business performance

 well developed customer value propositions can add significantly to business strategy
& performance
 Sonoco: each value proposition must be
o distinctive – superior to competition
o measurable
o sustainable – must be executable for a long time
 suppliers understand that creating superior value propositions is not a one-time thing
 always identify what next value proposition will be
 examples can be found all over the article
Analyzing consumer perceptions
Introduction
 important input into marketing: how do consumer see the product
 is the desired product positioning achieved?  helps assess whether strategy is on
target or there needs to be repositioning
 L’oreal case: management collated data to understand customers’ perception

Section I: data collection & profile analysis

 variety of ways to collect data
 L’oreal used scale from 1-10
 commonly used variant: semantic differential scale
o 5-7 points
o polar adjectives at each end
 perception data is difference than preference data  something might be perceived
as safe from everyone but safety might be valued differently by different individuals
o data can be sub-grouped or be analyzed for whole group of respondents
 snake plots can be used to visualize data (p. 98)
o not desirable if too many brands have to be compared

Section II: perceptual mapping techniques

 when perceptions of multiple competitors need to be compared on multiple
dimensions
 two types of mapping:
Attribute rating method
 example of map: p.99
 uses factor or discriminant analysis
 while many factors are used, maps are often reduced to just two dimensions
 analysis tries to determine which factors are correlated
Overall similarity method
 key limitation of attribute rating method: cannot be used when competition is based
on smell/taste/aesthetics
 other method: determine how similar products are
o rank categories with [(n)(n-1)]/2 ranks
 matrix: p. 103
 map can visualize which offerings are close together & how they lie on multiple
dimensions
 allows to not only map products but also infer attributes to make distinction

Section III: applying the maps in new product development

 three major areas where maps are used
 (1) understanding market structure – understand whether product positioning has
been achieved
o relative position to competitors can be helpful
o holes in the product space point to additional opportunities
o maps indicate how to deal with competitors by showing how customers
perceive them
 (2) perceptions of a product concept – perceptual maps can help analyze whether a
product will be perceived by customers in a desired way
o respondents must be informed about the concept/product
o maps can be split into different zones (p.106)  make customer determine
where product will lie & whether introduction is reasonable
o perception of product: helps determine where product is located in eyes of
customer & whether effort has to be made to adjust this perception
 (3) direction to R&D effort to satisfy customers better
o should be used when more is not necessarily better
o attribute approach: include “ideal” in ranks
o similarity approach: include “Ideal” as one of the objects for similarity ranking
 often, use of perceptual mapping is intended to serve all three areas
 can help see market in new light & change strategy for the better
Lecture 3:

The Coherence Premium

 sustainable returns come to companies that focus on what they do best
o it is rare that companies focus on what they do better than anyone
o most rare: coherent company
 coherent company – aligned internal capabilities with right external market
positioning
o most companies pay too much attention to external positioning & miss out on
internal alignment
 usually, companies do not focus on core competencies enough  even when cost
cutting, core areas are not spared
 companies need to start by defining & developing core competencies  strategy
needs to be built around them
o market rewards these companies with above-average returns = coherence
premium
 Walmart: integrates four capabilities: aggressive vendor management, point-of-sale
data analytics, superior logistics, rigorous working-capital management
o capabilities mutually reinforce each other

Power of coherence
 capability – something you do well & competitors cannot beat
 capabilities can only create coherence premium in system
o company only becomes coherent when system is chosen + implemented to
support strategy
 provides clear answers to following questions:
o how are we going to face the market – how do firms create value for
customers (e.g. being innovator, low-cost provider, …)
o what capabilities do we need? – engine of value creation
o what are we going to sell and to whom – every offering needs to be aligned
with capabilities system

Pfizer: case study

 in 2002, Pfizer aimed to become leader in customer health care
 applied capabilities lens to business
choosing the way to play
 business leaders analyzed market dynamics & determined how the company would
compete
 market: fragmented & low growth
 prescription drugs sold as over-the-counter provided opportunities for growth but
regulation & competition was fierce
 key realization – health benefits mattered more than strength in product category 
superior products win
o e.g. our product is 40% more effective than the competitors’ products
Evaluating capabilities system
 focus on innovation that would enable to generate therapeutic claims & enable to
scale a few brands
 development of six core competencies:
o science-based innovation
o ability to influence regulatory management & policies
o new product development through Rx-OTC switch
o claims based marketing featuring health benefits
o channel management
o focused portfolio management of aggressive + moderate growth brands
 all capabilities are interrelated
Assessing product fit
 choice of capabilities led to some products not being in line with strategy anymore
o personal care, confectionary
 unsuitable categories needed to be divested in order to ensure strategic coherence
 Pfizer divested business units
 Pfizer eventually sold personal health care section for 20.6 times EBITDA

The Payoff
 coherence in capabilities strongly correlates with financial performance
o especially in mature, post-consolidation markets
 coherence creates value in four ways
o strengthens company’s competitive advantage  companies continually
improve capabilities
o coherence focuses strategic investments on what matters  better organic
growth investments
o coherence creates efficiencies of scale  if capabilities are deployed over
whole portfolio, companies can grow more wisely
o coherence creates alignment between strategy & day-to-day actions

the winners
 Coca-Cola – focus on beverage creation, brand proposition, global customer insights
 Wrigley – constant flavor innovation, securing shelf space at checkout counter
the losers
 ConAgra foods – created incoherence through acquisitions
o snacks, processed meat,
 Sara Lee – wide portfolio (shoe cream up to bakery goods)

Journey to coherence
 extraordinary leadership is required to overcome natural tendency to develop
incoherence
 coherence around capabilities not only shapes leadership agenda but also enables
leadership  gives employees tools to make right decisions every day
Are you ignoring trends that could shake up your business?
 most managers can articulate major trends of today
 yet, they do not understand was trends influence customers
o leads to trends being ignored in innovation strategies
 missing out on trends can lead to missing out on profit up to rivals transforming the
industry

gold in trends
 including trends in strategy might seem unreasonable at first
 Nike+: cooperation with Apple  chip in shoe
o significant revenue
o helped Nike become center of runner community
 firms can follow three innovation strategies:
Infuse & augment
 design product that retains currently available features but adds new ones
o augment current product
 Coach: produces premium hand bags
o economic downturn lead to company reconsidering strategy
o managers launched new sub-brand with cheaper bags
o economic downturn had not removed desire for status but just exposed
different layers
 Tesco: introduced greener living program  demonstrates company’s commitment
to protecting the environment
combine & transcend
 more radical
 combine aspects of existing value of product with attributes addressing
aspirations/attitudes/behaviors arising from trend s
 Nike+ provides experience beyond shoes  manage own goals + get closer to
aspiration of being fit
 sitckK.com – sign a contract stating your goas to lose weight
counteract + reaffirm
 allows customers to escape trends they perceive to be negative
 ME2 – toy connecting video games with physical exercise
o makes kids move in order to get better in video games
 Current Card – prepaid debit card to teens
o counters trends of overspending & defeats overconfidence/lack of knowledge
in terms of financial products

Four-step process for addressing trends

 (1) identify trends that matter – at any point, only a handful of trends are capable of
changing consumers’ aspirations, attitudes, behaviors – involves analyzing
o ripple effects – are changes occurring in multiple areas of consumers life
o impact – how profound are the changes
o scope – does the trend encompass a lot of individuals
o endurance – will the changes last
 (2) conduct two separate explorations – two distinct actions
 o (a) what goals/beliefs/perceptions are emerging amongst consumers
o (b) consumers’ perceptions + behaviors related to product category
o should also analyze undesired outcomes + deficiencies related to trend
 (3) compare the results – envision how key aspects of trend will impact consumption
experience in the product category
o congruence/disconnect/conflict between product category and trend
 (4) isolate potential strategies – after understanding how category interacts with
trends, right innovation strategy can be chosen
o if basic value propositions are maintained: infuse-and-augment
o growing disconnect: innovation needs to transcend the category
o clash with trend: counteract changes by reaffirming core values

Why firms fail to leverage trends

 ignoring trends that originate outside their markets – firms fail to recognize needs
that cannot be fulfilled by jus overcoming shortcomings of current products
 responding in a superficial way – response to trends can come too rapidly  deep
understanding is missing & offerings will be ill-defined
 waiting too long – giving competitor lead in experimentation can be risky  fast-
follower strategy might not be the best way
Strategies to fight low-cost rivals
 companies find it easier to battle competitors they know & understand
 focus on traditional enemies has led to blindness towards new enemies
 low-cost firms have different business models + technologies
o offer products at much lower prices
 ignoring low-cost rivals will eventually force companies to abandon whole market
segments
 engaging in price war hurts market leader more than low-cost firm
 differentiation only works under certain conditions

Sustainability of low-cost business

 managers tend to be confident that low-cost players will disappear again
 successful low-cost competitors stay ahead of competition by
o focusing on few customer segments
o delivery of basic product or one benefit better than competition
o back low costs by having super-efficient structures
 low-cost firms have lower gross margins but turn them into higher operational
margins
o based on higher-than-average asset turnover ratios
 low-cost players stay ahead of market because consumer behavior is in their favor
o they do not worry about traditional competitors since they will not offer
lower prices

Futility of price wars

 question when new player enters market: will they target the same customers?
o no  wait-and-watch strategy  most suitable for firms at top of pyramid
 sometimes, entrants will take away customers
 market leaders usually try to match or beat prices of low-cost firms
o forget that low-cost models are aimed to make profit at low prices
 matching structure does not lead to benefits either  interactions between
elements of business is critical
o e.g. internet bookings for airline tickets
 low-cost airlines sell tickets through websites
 traditional airlines have little benefit from setting up website 
business travelers book through agents
 traditional airlines have more complex cabin structures  different
fare classes, seats, …
 private reservation systems take seats away from possible sales
volume
 agents will rebel against shift to internet-based sales
 lowering prices usually leads to lower profits without driving low-cost players out of
business

when differentiation works

 three categories determine efficacy of differentiation
  (1) tactics must not be used in isolation  B&O has not only superior design but also
innovates continually
 (2) companies must persuade consumers to pay price premium – consumer must be
able to perceive the difference to competing offers
o small premium seems to be good defense
 (3) companies must bring costs + benefits in line BEFORE implementation
 unless a lot of consumers demand premium benefits, some market share will be lost

Dealing with dual strategies

 companies often set up own low-cost offerings (e.g. airlines)
 low-cost operations should only be set up if traditional business will become more
competition as result & new business will gain benefits it would not have gotten as
new venture
 successful approach needs clear distinction to main brand
o distinct brand makes clear to customers that they have to expect less
 separate units (location wise) are necessary
o enables firm to develop own structure & makes responsibility clear
 resource allocation is crucial – subsidiaries might have resources under-allocated and
starve
 strategy can only deliver results when launched in order to generate profits  not
just as defense mechanism
 example of Xiameter
o slow delivery
o fees for changes in dates/rush orders
o short supplier credit
o limited currencies (six) are accepted

Switching to conquer
 if there are no synergies between traditional and low-cost businesses
switch to solutions
 offer products + services as integrated solution
 advantages
o large service component  hard to evaluate
o development of deep understanding of customer
o integrates multiple products/services  higher revenue
o low-cost competitors cannot offer solutions due to limited product range
 is not modifying business model  transformation is necessary!
 selling solutions requires to manager customers’ process & increase their
revenues/decrease costs
switch to low-cost model
 theoretically possible
o practically, limitations exist
 Ryanair did the transformation (p.133)
Should you launch a fighter brand?
 managers have been focusing on going up  making product more premium
 economic strains give managers two options
o decrease prices & destroy profits/brand equity
o hold on to prices and lose customers
 third option: launch fighter brand
 fighter brand – designed to combat low-price competition
 usually not very successful – five hazards

Hazard 1 – cannibalization
 fighter brands are designed to win customers back but often steal main brand’s
customers
 dual challenge for manager: make it appealing to low-price segment but not for high-
price segment
o match low price with low perceived quality
 company must deliberately decrease value to prevent cannibalization
o possibly even disable features
 innovating premium brand can also be way to differentiate
 break-even analysis must account for cannibalization as well

Hazard 2 – failure to bury the competition

 organizations often overprotect main brand from cannibalization  reduces
combative potential of brand
 merck: introduced brand to prevent generic competition before patent expired 
price was not low enough to capture market
 Intel made same mistake but could recover  more used to frequent product
launches

Hazard 3 – Financial losses

 GM created Saturn as fighter brand
o sold many cars
o financially miserable  only operating profit once
o GM eventually merged models with their own models  ruined success
 fighter brands also need to achieve profit when battling competition  otherwise
they will fail
 main brand has to alter cost structure in order to combat low-cost competitors

Hazard 4 – missing the mark with customers

 successful brand needs to meet unmet consumer needs  stays focused on target
segment
 fighter brand emerges with competitor  DNA might be flawed
 example: Ted (United Airlines’ budget carrier)
o was only internally benchmarked against united
 focusing on competition can be fatal too  Tesco tried to outmatch Aldi’s prices but
created confusing pricing model
  management needs to pay attention to consumers right away in order not to be
pushed off the market

Hazard 5 – Management Distraction

 organization must divide resources between main & fighter brand
 investment into unsuccessful fighter brands has often had severe impact on
weakened companies (GM, United, Delta)
 opportunity cost of launching/managing/withdrawing fighter brand can be larger
than financial impact  resources could have been used more efficiently
 fighter brand might also cause managers to delay important decisions in main
portfolio of brands

Conclusion
 fighter brands are very tempting but also potentially ruinous for companies
 benefits: competitors can be eliminated & new markets can be opened
 dangers: cannibalization, missing profits, division of resources
Branding in the digital age
 internet has changed way of interacting with consumers
 consumers can easily connect to brands, can easily evaluate them, and may remain
involved after purchase
 touch points have changed  adjustment of marketers is necessary
o touch point – point at which consumer is most open to influence
 consumer decision journey has changed  p. 319

Block that metaphor

 marketers saw decision journey as funnel
o start with wide array of brands and narrow it down until buy decision is
reached
o use of paid-media push marketing to build awareness, drive consideration &
inspire purchase
 new journey consists of your stages
o (1) consider – based on top-of-mind consideration set
 widest array of brands but may already be reduced
o (2) evaluate
 getting input from other side
 add new brands and discard original ones
 outreach for other information is more likely to inspire than
marketers’ push for them to buy
o (3) buy – decision may be put off until store  can easily be influenced there
o (4) enjoy, advocate, bond – deeper connection builds are consumers interact
more with product
 consumers inform themselves more about product AFTER purchase
 disappointed consumers might cut ties or worse
 happy customers might enter enjoy-advocate-buy loop

Journey in practice
 two key implications
 (1) marketers should target stages in circle and not focus on how to allocate spending
across media
o most marketing hits consumers at consider + buy stages
o someone’s advocacy can be most powerful tool
 (2) marketers budgets are constructed to meet outdated strategy needs
o funnel metaphor implied one-way communication & every interaction with
customer had media cost
o marketers now must control own media & earned media (customer-created
channels)

Launching a pilot
 shift to CDJ strategy has three parts
o understanding consumers’ decision journey
o determining which touch points are priorities
o allocating resources accordingly
  case: company pilot CDJ- based approach in single market  insights into TV
consumers
What they do
 (1) company analyzed how shoppers gathe information
 (2) in-depth one-on-one sessions with customers
 new insights
o offline marketing is only effective during consider stage
o at evaluate stage, consumers went to amazon & retail sites to gather reviews
+ more details of product
o less than 10% of shoppers went to manufacturer’s website
o discount adds were only clicked on when close to buy stage + when they
offered a discount
o consumers often engaged after purchases  reviews, discussions online
what they see
 hired shoppers were used to gain further insight
 key take aways
o retail websites were unreliable + reviews missed details
o company’s offer rarely showed up on first page of online search
o inconsistencies between descriptions on different channels
o 1/3 of consumers left stores frustrated because of inconsistencies
 new marketing strategy had to deliver integrated strategy through whole purchase
cycle
what they say
 consumers often gave wrong information online  confusion
 ratings sometimes triggered useful discussions
 negative ratings led to self-reinforcing discussions

Taking action
 spending for pilot was shifted away from paid media
 amazon traffic was improved through better links & content
 positive third-party reviews were encouraged & distributed
 company developed online-community initiatives
 new content-development and –management system to ensure consistency across
all platforms

Customer experience plan

 investigation of journey can lead to plan making consumer journey coherent, possibly
beyong boundaries of brand
 customer experience will vary based on
o products
o target segments
o campaign strategy
o media mix
 consumer’s engagement with brand does not need to end after purchase
o Nike+  created community
 successful companies customize approaches according to category
New roles for marketing
 three new important roles
o orchestrator – channels owned by different parts of company (packaging,
website, …) need to be coordinated to create coherent experience
o publisher & “content supply chain” manager – marketers create huge amount
of content  without coordination, amount will be inefficient
 uncoordinated content can stall decision journey
 marketing needs to take on role of editor in chief
o marketplace intelligence leader – IT often lacks financial/strategic perspective
hat would incline to steer resources towards marketing
 marketing should take control of own data
 marketing must also distribute customer insight all across organization

Starting the journey

 companies with clear line of business or geography should start journey  easy to
understand consumer decision journey
 bottom-up pilot needs to be combined with top-down CMO initiative to address
organizational challenges
 companies must captured processes/successes/failures when launching pilot
o general approach might remain the same, specific aspects might vary

Lecture 5:

Strategic brand valuation: a cross-functional perspective

 information age has increased information available to manager greatly
 collecting & analyzing data is most important for companies where brand (portfolio)
is most crucial competitive advantage
 marketers need to gather information from wide array of sources
 accounting could provide valuable input  accountants need to shift focus on brand
o most efficient way: provide frequent brand valuations
 brand valuation – assigns financial value create by image of brand
o allows to determine efficacy of brand expenditure in financial terms
o one of most efficient ways to combine marketing & accounting
o data can be used to support brand management decisions

Accounting information and marketing decisions

 current financial information often fails to give valuable input to marketers
o data often lacks consumer- or external-orientation
o accounting is looking backwards, marketing looks forward  mismatch
o marketing collects information outside firm, accounting inside the firm
 mismatch lead to flow of information being inhibited
 marketers create their own information systems  duplicates effort and prevents
information sharing further
 origin of problem: lack of cross functional dialogue between marketing & accounting
o accountants need to become aware of the value they can provide with data
o marketers need to recognize that accounting can provide desired data
 costing techniques useful for marketing
o life cycle costing – aggregates costs of product over lifetime  enables
managers to evaluate product over long time horizon
o target costing – also makes cost estimations over long-time horizon
o customer costing – helps firm evaluate which customers are most important
to them
 brand valuation is more comprehensive than traditional costing techniques & allows
to compare brand as an asset to other assets

What is brand valuation

 concept of brand
o brand equity is created through combination of brand loyalty, name
awareness, perceived quality, brand associations, and proprietary factors (e.g.
competitive advantage)
 brand valuation contains subjective factors but can be applied consistently over time
 standardization of technique can lead to greater acceptance amongst managers
 brand valuation allows to create consistent, quantifiable value comparable across
product lines/countries/business units
 also allows to incorporate future benefits
  brand management requires coordination across company  conveying importance
can be difficult
o especially difficult for functional organizations
o more market-oriented firms recognize importance of brand value more
 brand might not be getting the necessary strategic attention from the firm
o CEOs are not very involved into strategies strengthening brand
o strategy focusing on brand valuation helps marketers to alter executives of
critical importance of brand
 comparability of brand value vs. physical assets adds to perception of execs
 information sharing is often problematic
o information = power  managers do not want to diminish their own
performance opportunities
 initial valuation process creates lasting value  valuation needs to be updated
frequently but is not entirely redone
 financial value provides point of references for all parts of organization
 brand valuation also allows to deliver consistent brand image  if company
understands how brand vale is computed, less actions undermining the brand will
take place

Managerial implication of brand valuation

Brand valuation and marketing professionals
 marketers perceive greater levels of benefit from brand valuation than accountants
o marketers might have greater understanding of how brand valuation will help
with external recognition of brand
 involving accountants can provide legitimacy to process
 important implications for marketers: they can prove the impact of the spending they
are responsible for
o positive returns are not only recognized in terms of increasing sales
o especially useful if managers are focused on short-term results
 changes in brand value can be incorporated into performance evaluation system
o long-term focus of brand valuation leads to awareness of impact of actions in
long run
 maximizing brand value can become fundamental goal for organization
 brand value also offers way to hold managers accountable for their actions 
emphasizes long term
 managing complex brands can become easier  holistic view of whole brand is
established & defeats short-term focus
o product managers might be more willing to build value for entire brand if
these benefits can be measured
Brand valuation and accounting professionals
 brand valuation is ideal for bridging gap between internal and external accounting
 makes comparing performance of managers across different products/regions easier
 can also help in budget allocation  marketing budget allocation based on relative
value of the brand in the portfolio
Methods of brand valuation
Cost based approaches
 considers cost involved in building the brand
 complies with standard accounting practices related to valuating assets
 most conservative approach  little forward-looking implications
 problem: all brand-related expenses must be included
o determining what is brand-related expense can be tough
 time horizon over which expenses are collected can be difficult to establish
 some expenditures (e.g. technological expertise) might be hard to value
 decision on discount rates is difficult
Market-based approaches
 more externally focused
 future benefits expected from the brand are included
 determining of value of brand can be difficult  no actual market for brands
 way to calculate:
o separate tangible + intangible assets
o value of intangible assets can be inferred once value of whole firm is known
income-based approaches
 determines future net revenues directly attributable to the brand & discounting
these
 methods
o compare price premium to generic product
o evaluate annual royalties
o compare estimated sales volume to volume of generic brand
o number of sales to consumers vs total sales to supply the product through
retailers
 future revenues are estimated based on previous computation
Formulary approaches
 consider multiple factors for impact into calculation
 Intrabrand approach:
o three-year weighted average of profits after tax as indicator of profitability
o profitability is only calculated considering factors directly related to brand’s
identity
 e.g. brand’s success might be related to distribution system but it
cannot be accounted for if the distribution system is not part of
identity
o brand profitability is increased by multiplier based on various factors
o leadership – ability of brand to function as a market leader
o stability – ability to maintain image over a long time
o market – brands in certain markets are worth more than brands in other
markets
o internationality – international scope gives ability to possibly expand 
higher value
o trend – ability of brand to remain current in consumer’s perception
o support – organizational support makes brands more valuable
o protection – trademarks are more valuable if they are legally protected
 Financial world approach:
 o estimating profit attributable to branded product & comparing it to
unbranded products
o resulting premium is then adjusted for taxes & multiplied with intrabrand
multiplier
 aaker’s brand equity ten – focuses on five categories
o customer focus - price premium, satisfaction/loyalty, perceived quality,
leadership
o many other factors
Capitalization of brand values
 underlying rationale – brand is intangible but leads to additional income
 some countries allow brand value to be put on balance sheet
o US does not allow brand on the balance sheet
 variation in approaches makes US authorities reluctant to inclusion of brand value in
balance sheets  decreases accountants’’ awareness of benefits from the approach

Conclusion
 success of brand valuation depends on ability to generate increased financial
performance
 brand valuation can be good way to increase communication between marketing +
accounting
 brand valuation is powerful way to show importance of brands to managers
Strategic Channel design
 distribution channels are changed through changes in global context
 magnitude of change needs to be on strategic level not just tactical actions
 changes in channels come slowly for various reasons
o strong interconnectedness of channels
o channels are rigid & stable
 nowadays, pressures for change are overcoming inertia
 usually, distribution is appendix of strategy
o this must change: strategic decisions must guide channel decisions

Forces for change

 inertia, tradition, industry practice & lack of alternatives led to inertia
 three forces are pushing for change
Proliferation of customers’ needs
 stable markets lead to companies directly distributing  most control over
distribution
 if markets require variety of related goods  intermediaries because of wide
coverage
 the higher the required investments, the more appropriate direct sales are
 markets become fragmented through mass customization – three contributing
factors
o expanding capabilities for addressability + variety – firms can address
customers individually using database technology & flexible manufacturing
o channel diversity- switch to localized one-at-a-time production & distributors
automatize basic functions (order receipt, stock, …)
o customer expectations – customers have become used to customized
products
Shifts in balance of channel power
 intermediaries are becoming more powerful
o consolidation amongst retailers reduces number of competitors & increases
their bargaining power
 intermediaries are favored by:
o enhanced bargaining power – few customers are making large purchases 
can force down price from suppliers dramatically & demand that suppliers
cater to specific needs of distributors
o more knowledgeable buyers – knowledge is increased of
 suppliers’ costs – because they might be buying private label from
same supplier
 own operations – using data-driven analysis
 customers’ needs
o credible threats of backward integration – suppliers are aware of
intermediaries’ abilities to integrate backwards
Changing strategic priorities
 firms are outsourcing noncritical activities  focus on competitive position
 three guidelines
 o understanding of customers’ real requirements  nonrelated activities can
be abandoned
o willingness to cross artificial boundaries within organization & linking
processes that can add value (e.g. order processing)
o effort to perform activities where they make most sense  non-core activity
can be performed better by others
 firms are also exploring new partnerships  creation of confederation of specialists
o require relationship management skills and careful negotiations
o can lead to mutual benefits

Implications for channels

 three forces for change spur three impactful factors
Shifting patterns of commitment
 many firms dismantle their own distribution and outsourced
 not arm-length transactions but experimentation with new arrangements
o some relationships are so close they resemble strategic alliances
o others have multiple third-party arrangements
 turbulence & uncertainty erodes inertia
Vertical compression
 traditional model: manufacturer  wholesaler  dealer  customer
o customer relies solely on dealer for service etc  others in system only have
support role
o customer fulfills needs only from one source
o small customers might prefer getting information from manufacturer but is
too small
 improved technology changed things
o small customer might not suffer from limited availability of products
 roles of intermediaries are changing
o new direct channels are emerging
o indirect channels are getting shorter
o role of distributor as buffer is challenged
 roles of master distributor/wholesaler is at most risk
o improvements in logistics make direct transport to lower intermediaries
easier
 some industries rely on master dealers  producers do not have sufficient carrying
capacity of product
o companies used to system will have difficulty eliminating master dealer
o new entrants should be able to bypass wholesaler
Horizontal diversity
 channels are drifting out of alignment with supplier + customer needs over time 
conflict
 changes are too rapid to determine whether initial channel design was good  “high
velocity” environment
 effective firms sacrifice planning for experimenting
o pilots
o no time for forecasting & analysis
 placing small bets is first step in strategy of holding options
 o many small options will eventually lead to commitment and learning
 options are best used in highly uncertainy environments
 turbulent environments make prediction of appropriate channel tough
o old system might not be suitable but firm is stuck with it  needs to be slowly
aligned with requirements
 advantage of option approach is obvious: some options can be pursued if efficient,
others will be sold/abandoned
Multiple channels
 multiple channels reflect range of channel options available to buyers + suppliers
 different channels go together with different service levels  should reflect different
needs of buyers
 grouping customers into segments is hard
o movement between categories happens quickly
 options are not perfect solution
o customers can make use of both high service (e.g. gather information) and
low cost (online purchase) options
 companies try to differentiate products between different channels
o sometimes fails  competing channels will offer similar problem-solving
capabilities
 multiple channels are most present in fast-changing environments
o If market is slow, then there is no need for multiple channels  channels
have time to adapt
o dynamic industries require multiple channels
 channel diversity pays off in dynamic environments but only if channels are treated
as options
bundle of options allows firms to move faster & recognize/seize opportunities
 manufacturers should reduce channels once environment becomes more stable
functional decomposition
 specialists have few routines & narrow operations, generalists wider scope
 suitability for high-velocity environments
o specialists are probes of pieces of environment
o generalists can hedge  slack can be redeployed
 distribution channels should contain both specialists + generalists
 population ecology: market will become fragmented
o small pieces will gravitate towards specialists
 once market stabilizes, most generalists & many specialists will be obsolete  having
options is beneficial
 uncertain environments can be handled better by using many specialists  they are
more focused & understand market
 generalists will fail to develop specific knowledge
o deal with many entities
Composite channels
 population ecology explains diversity + increase in composite channels
o physical services for customer are performed by many small specialists
 composite channels – each channel task (demand generation, distribution, service, …)
is fulfilled by another partner
  trend towards specialization is driven by demand to get services/products most
efficiently
 health care & computer industry have many composite channels
 biggest challenge: channel compensation
o all channels must perform appropriately  free-riding is possible
o traditional system: poor channel performance  lower sales  lower
margins
 in low-margin industries, composite channels only work for market leader
o free riders can be punished by routing products through other channels
 weaker suppliers cannot bear costs of maintaining composite channels

Designing the channel strategy

 channel must meet four requirements
 (1) effectiveness – how well addressed are the needs of customers
 (2) coverage – can customers find & value the offerings
 (3) cost-efficiency – can company justify trade cost-efficiency to generate strategic
effectiveness & coverage
 (4) long-run adaptability – can the channel design handle new products
Assessing the company’s situation
 first step in channel design: SWOT analysis
 assess what customers are seeking by asking:
o what service attributes do customers value
o how can we use differences to segment
o how do available channels meet market needs
Selecting alternatives
 reliance on strategic design principles
 (1) align channels with overall competitive strategy by
o designing channels back from market
o creating barriers to competitive responses  build close ties or internalize
o enhancing deliver of superior customer value  does firm compete based on
reliability/pricing/responsiveness/performance?
 (2) decompose and recompose channels – channel functions can be combined to
reduce costs + increase responsiveness
 (3) invest in learning – firms in high-velocity environments should create option
portfolio
 (4) translate strategic choices into programs/projects/plans + establish controls for
monitoring performance

Conclusion
 companies start understanding that channels are important part to strategy
 channel design needs to follow sound design principles
 channel strategy is a series of trade-offs + compromises aligning company resources
with customer needs
The future of shopping
 every 50 years, retailing undergoes disruption
o 150 years ago: department stores
o 100 years: cars enabled malls
o 1960s: supermarket chains
 each wave reshapes landscape & changes customer expectations
 internet had turbulent start  led to dot-com bubble burst of 2000
 nowadays, digital retailing is much more profitable
 definition of e-commerce is difficult
o using IT in store to order missing item?
o seeing item in store & ordering online?
o …
 digital retailing is moving towards omnichannel retailing  merchants need to adopt
new strategies

An industry stuck in analog

 benefits of internet shopping
o great selection
o easy to search
o comparability of prices
o convenience
o deliveries
o reviews
 digital retailers leverage innovation
 traditional retailers struggle with online sales  < 2% of revenue is online
(Walmart/Target)
o IT systems are out of date
 four factors hold traditional retailers back
o retailers were burned by dot-com bubble – they created separate online
organization  overvalued investments failed
o digital retailing threatens existing store economics, measurement systems &
incentives
o retailers tend to focus on the wrong metrics: profit margins – ROI is key value
for investors, not margin  amazon has lower margins but is more efficient
o conventional retailers did not have great experiences with innovation 
more comfortable with slow incremental change
 retailers believe that customers will always be there  wrong
 retailers are facing crisis  need to create omnichannel strategy

Redesign shopping from scratch

 retailers must accept that technologies are changing things
 retailers need to approach selling products as if the retailing environment did not
exist
 customer requirements
o advantages of digital – selection, information, reviews
o advantages of stores – service, ability to touch products
 o different segments value aspects differently but all want integrated
experience
Pathways & pain points
 three traditional principles
o stock products that customers are assumed to want
o create awareness of products
o make it easy to buy once in store
 omnichannel world is more complex
o products can easily be customized
o awareness depends on multiple channels
o shopping experience includes comparison between many vendors
 retailers can use many precision tools
o send personalized discount coupons
o location-based promotions
 using points at each part of pathway, customers can be targeted more easily
 some segments will be served in traditional way, some segments will change
significantly
 retailers will have to deploy resources in order to achieve innovation
The experience of shopping
 cutting costs/labor/service is not right way to deal with decreasing profits  increase
problem
 retailers need to see stores as asset
 visiting a store needs to become exciting, entertaining, engaging
o Jordan’s furniture: combine store with IMAX, laser-light-show, food court etc.
 digital technology can improve instore experience
o visual features (e.g. screens)
o customization of products in-store
o provide customer information to sales associates (e.g. through tablets)
o adjust pricing
o eliminate check-out lines
 innovations need to be used early, frequently & broadly
o adoption three years after development is too late
 implementation will not always succeed  retailers need to try many options

The omnichannel organization

 mobilizing organization to use innovations threatening base business is huge
challenge
o disruptive innovation requires separate teams
 option: create separate organizational structures but coordinate key decisions
o apple established online and offline stores as entirely independent
 beginning: no integration
 later: collaboration between multiple channels
 organizations need to attract innovative people
o retailers must become more attractive
 new technologies (videoconferencing, apps, …) can help integrate employees  they
do not need to come to the HQ
 example: Macy’s online department (p. 247)
 retailers need to watch out for timing
o too slow: lose leadership & scale
o too fast: no time for testing & learning
 retailers need to test & learn quickly but wait with major moves until expectations
are clear
Lecture 6:

The one thing you must get right when building a brand
 marketers make believe that marketing will change entirely  wrong
 social media makes it more urgent that companies deliver on compelling brand
promise
o social media can make shortcomings from companies’ sides extremely
dangerous
 dangers: (a) keep pace or (b) getting distracted by social media
 companies that will succeed are exploiting opportunities of social media while always
keeping eye on brand promise

Leverage social media

 benefits of social media
o tools for engagement + collaboration
o boost brand awareness
o gain rich customer insights
 traditional market research was product-centered  today customer-focused
 P&G experienced how social media can be dangerous:
o introduced new pampers model
o model created rashes  mother set up facebook page
o many ppl joined
o P&G stood ground  used scientific evidence & overcame accusations

Enhance the playbook

 all companies should include social media in their marketing strategy
 great brands share four fundamentals
o offer clear customer promise
o build trust by delivering on promise
o drive market by continually improving promise
o seek advantage by innovating beyond the familiar
 social media can be used to reinforce four fundamentals
 case: Virgin Atlantic Airways
Customer Promise
 VAA promises innovation, fun, informality, value, caring attitude
o emphasized at all touch points
 VAA scans travel websites  usually no correction of wrong info is needed since
users do it themselves
 company uses social media to maintain promises
Trust
 company needs to be able to handle crises appropriately
 website crashed during volcano-ash crisis  use of facebook & twitter for
information
 channels are now integrated  twitter for superficial information, other channels for
more in-depth
Continual improvement
 greatest opportunity: gather insights for continuous improvement
 VAA uses online-community for suggestions regarding improvements
innovation beyond the familiar
 fresh insights from social media reinforce innovative image of VAA
 facebook is used to help customers planning trips
 VAA offers travel advisory platform

Keep your eye on the ball

 key advice
 (1) don’t throw out your playbook – don’t be distracted by social media & focus on
promises
 (2) use social media primarily for insight – do not focus on sales
 (3) strive to go viral but protect the brand – communications need to be authentic 
do not fake to go viral
 (4) engage but follow social rules – company can join conversations of others online
but only if they are welcome
o social media managers need to have deep understanding of social media
For Mobile devices, think apps, not ads
 mobile ads are too small and don’t work
 4/5 people dislike mobile ads
 mobile media consumption is 10%, advertising spending only 1% on mobile
 historically: marketers repurpose ads from one channel for another one  usually
not effective
 apps will be best way for marketers to communicate with consumers
o apps are intuitive & functional
 apps are more cost-efficient  can even create new revenue streams
 mobile phone users spend 82% of mobile time on apps and 18% on web browsers
(outside calling, texting, emailing)
o usually 40 apps on phone, 15 in constant use
 five app categories
o games & entertainment – 42% of time spent
o social networks – 31%
o utilities (maps, clocks, …)
o discovery (tripadvisor, …)
o brands
 challenge: make brand apps one of the 15 used ones
 marketers need to create apps that enhance customer’s life & enhance long-term
engagement
 five strategies to success
add convenience
 airline mobile checkin, banking apps, …
 smartphone apps deliver functions more quickly than websites
 every time app is used, consumer is exposed to brand
 three constraints
o not effective at acquiring new customers
o large brands have advantage of large customer base
o differentiation is becoming harder as many brands do it
offer unique value
 some apps offer features computers do not offer
o scan AR codes
o nike+
provide social value
 social media is hard to make money with
 enhancing connections can lead to value
 social gifting - sending gift cards to others can be valuable business model
offer incentives
 many firms offer discounts for liking page on facebook
 to gain long-term engagement, marketers need to be especially creative
o cocoa cola offered free data in Brazil when users used app in combination
with a coca-cola machine
entertain
 40% of time is spent on gaming  great opportunity for marketers
 Red Bull: create games such as red bull kart fighter, red bull x-fighters
Conclusion
 developing an app might be cheaper & more cost-effective than designing ads
 mobile advertising is not key to success
 designing own app can be path to success for company
Market to millennials by getting out of the way
 success of Nike+:
o not because it let others “like” the runs one did or because of integration of
facebook
o key: enable fans to engage deeper with others
 appeal: giver is empowered by giving item, taker feels thrill for receiving gift
 two key traits of millennials are met by nike app
o sociability – action benefits someone else
o urgency – fans react at specific point of time
 Buzzfeed: key to first attribute
o optimized virality through A/B testing
 next step: keep community engaged & create sense of urgency
o inspire people to share or gift brand without prompting
 engagement will require to build small groups of fans within community  tribes
o tribes share same interests
 fans like engaging with others over common interests
 tribe marketing can empower brand to behave like effortless host at cocktail party
o find attributes visitors need to connect to each other then step away
 brand does not need to communicate frequently but just has to create the platform
for interaction
 three key steps to execution of idea
o (1) collect user data to determine who shares interests
o (2) expose data so users can create tribes
o (3) create experience that allows fans to share or compete  preferably
mobile platform
 most brands are not equipped to do this  big challenge
 many brands user their user data to improve interaction between brand + customer
o little use for interaction between different users
 the stronger a community, the harder for competitor it will be to steal customers
Pricing to create shared value
 companies use pricing to extract as much money from customer as they can
 today’s customers move away from being passive price takers  expose unfair
practices & abandon companies that cross lines
o Bank of America wanted to introduce debit card fee  outcry lead to
abandoning of idea
o Netflix increased prices  800,000 users cancelled subscription
o marks & spencer charged more for bras with larger cups  social media
complaints led to eventual 25% discount on all items
 challenge: customers are rejecting not only prices but ways of making money
o companies perceived market as fixed pie  need to compete with consumers
for this value
 problem: value does not originate or belong solely to firm  without willing
customer, there will be no value
 pie is not fixed  can be increased through collaboration with customer
o well-designed discounts can boost sales & create more brand equity
 firms must take lead when creating shared value
 price is one of most powerful signals to motivate customers
o can be seen as call to action
o send very clear messages to customers

Pricing in practice
 pricing needs to become more social & collaborative
 humanizing pricing processes can create opportunities to create additional value
 example: 2012 Olympic games  goal: make them “everybody’s games”
o tickets from $20 to $2000
 key take aways:
focus on relationships not on transactions
 customers often identify with brands they buy
 pricing often undermines relationship
o move from “we value you as a person” to “we value your wallet”
 takeover of company running ironman cups
o three changes
 more people were allowed to call themselves ironman
 great expansion of licensing agreements
 fee for preferential access to ironman events
o commercialization was rejected by athletes  social media outrage
 counterexample: Hilti – tools as a service
o removed burdensome ownership of tools  enhanced customer productivity
& improved situation for tool users
Be proactive
 managers usually price reactively
 creation of shared value requires proactive pricing
o be guided by knowledge of which customers will be served & how they will
react to pricing schemes
  Airlines – baggage fees lead to short-term gains but make the flying experience less
pleasant for everyone
 Amazon as pro-case: prime encourages customers to purchase more on their
platform
o benefits of free delivery encourage customers to buy more
Put a premium on flexibility
 single inflexible price limits firm’s ability to share value across customers
o customers usually value products differently
 companies should adopt flexible pricing so they can create more overall value
promote transparency
 transparent firm creates trust & goodwill amongst customers
o engaged customers are cheaper to retain, migrate to pricier products &
provide valuable input
 not transparent firm gives customer feeling it has something to hide  creates
distance to customer
o least liked companies usually have most complicated product portfolio &
complex pricing plans
 banks often charge obscure feeds to customers  customers move away to credit
unions
 best-practice: Shenzhen Telecom – company simplified bills to make information
more comprehensible
o cosmetic changes decreased complaints by 50%
o increased customer loyalty + satisfaction
Manage the market’s standards for fairness
 consumers need to perceive pricing fairness
 perception of fair prices spurs purchases + increases acceptance of price premium
o perception does not only depend on actual price but on feeling about how
prices are set
 case: Ticketmaster – fees were not clear and added very late in booking process
 IKEA: offers must suitable products + materials at very low price
o buys in bulk to get better prices

Evolving strategy
 choice: treat customers like partners in value creation or see competitors steal them
away
 J.C.Penney: moved from confusing price structures with tons of promotions to three
prices – everyday/monthlong/promotion
 US airlines offering little amenities for free increased customer satisfaction & loyalty
 shared value concepts are not guaranteed to succeed BUT potential benefits are
large
Pay-what you want, identity, self-signaling in markets
 self-interest is strong motivator in markets
 two questions:
o is nonselfish behavior important in markets
o how does it work
 pay what you want pricing (PWYW) to analyze
 question 1: nonselfish behavior definitely exists
o artists selling music and asking for voluntary contribution
o videogames for “free”
 understanding of why can help understand market dynamics
 reason for nonselfish behavior: people want to maintain sense of being good & fair
o individuals derive utility from paying  people will be judged more positively
by others
 experiment: comparison of normal PWYW vs PWYW with 50% of proceeds to charity
o people pay more for the charity option
o other key findings:
 people are essentially offered better product: same product + utility of
being social
 less people buy the product  they rather forego the opportunity to
buy than paying too little
 people – if buying – paid 5x the amount of normal PWYW
 experiment 2: picture taken during tour boat excursion
o prices: $15, $5, PWYW – announcement that pictures will be $15 but some
were offered cheaper
o demand went up for $5 option
o demand decreased for PWYW
o people rather forego the option of getting the picture if they believe that the
price would be too low  in line with idea of positive self-image
o when company sets price at $5, there is no ambiguity whether price is fair
 experiment 3:
o buffet-style restaurant
o people pay either (a) in an anonymous envelope or (b) directly to the owner
o paying to owner made them feel like payment is not voluntary but they have
to fiar price due to owner being there
 Akerlof & Kranton – introduced concept of identity into economics
o identity influences agent’s utility function
o identity-clash with actions decreases utility
o identity-confirming choices increase utility
o identity = self-image
 monetary incentives are more effective in increasing charity donations in private
settings over public settings

Experiments
theme park experiments
 people were offered picture of rollercoaster ride
 4 treatments, 2 were offered PWYW – 1 normal PWYW, one with charity part
  8% of normal treatment bough, 4% of charity treatment
 averages: $0.92 (normal) $5.33 (charity)
 people perceived the “fair” price for charity picture to be much higher than ordinary
tour boat experiment
 prices: $15, $5 or PWYW
 significantly more people bought priced at $5
 more people bought for $5 than PWYW
Restaurant experiment
 customers could pay either directly to employee or in anonymous envelope
 some were informed about the previous day’s average payment being €6
 people paid approximately same amount in control without a questionnaire
 telling previous payments sets normative anchor  no difference for either group
 anonymous payment increased average by €0.71 without normative anchor

Conclusion
 choosing to pay works to maintain positive self-image
 fairness considerations depend on social norms  tipping in US being high vs. low
tipping in Germany
 people feel bad when violating norms by paying less under PWYW scheme
o can serve as signal to others but also to oneself
 signaling to others crowds out self-image concerns
 social preferences in markets should be taken into account when designing pricing
 people may pay more than lowers price if they like a company under a PWYW
scheme
 PWYW profitability can be sustained in the long run

Cialis Case
Intro
 introduction of competitive product to Viagra
 innovative drug  lasts longer than Viagra
o also better absorption
 plan was to launch January 18, 2002
 Brown & Blum came up with three scenarios
o niche strategy
o compete strategy  head-to-head with Viagra
o beat strategy  differentiate and reach large market

ED – condition
 erectile dysfunction is an issue rarely discussed in public
 usually associated with other diseases, medication, or lifestyle (alcohol, smoking)
 150mln individuals suffering from ED
 Viagra
o 0.5-1 h onset time
o half-life 3-5h
o common side effects
o $10 per pill

Viagra’s launch
 successful launch
 600,000 prescriptions filled in first month
 rapidly accepted as topic in social environments
 0.5 years after launch, sales plummeted  130 deaths of patients taking Viagra,
more than half of them cardiovascular
o study prove that problem is not associated with drug

Developing the next ED drug

 start: ICOS, small biotech startup
o collaboration with Glaxo
 found effective drug but collaboration ended
 after successful phase II trials, ICOS was looking for potential partner with experience
in FDA registration & marketing
Lilly ICOS
 CEO did not want royalties but build up own clinical development & marketing
 found ideal partner: Eli Lilly & Co
 Lilly: strategic capability of building successful partnerships
o aims to constantly create value for partners
 joint venture between both parties
o 8 board members, 4/4 split
o profits would be split 50/50
 immediate challenges:
o phase II trials needed to be completed
o phase III trials had to be designed
 o market research needed to be conducted

Marketing competence at Lilly

 Lilly rethought integration of marketing in product development for multiple reasons
o Lilly was focusing on discovery of new innovative drugs  high-risk high-
returns strategies
o only aiming for drugs with potential to generate > 500mln per year
o industry resources were constantly shifted towards quality-of-life medicines
 usually not covered by insurance  marketing needs to be stronger
o FDA changed rules  advertising directly to consumer became a lot easier
GMSO
 Lilly crated separate marketing body in firm – global marketing sales organization
(GMSO)
 three subfunctions
o global marketing planning (GMP)
o global market research (GMR)
o global marketing sales training (GMST)
 task in initial stage:
o funnel ideas into research gained from insights from doctors
o forecast for drugs with effective phase I + II trials
 promising products:
o full cross-functional team
o completion of phase III trials
o goal: register at FDA
o GMSO acted as consultant for product team by offering market research +
five-year forecasts
Affiliates
 affiliates with regional responsibilities were created
 affiliates met at HQs  present vision, branding of product,
 GMSO prepared sales forecasts & reporting formats
 affiliates handled multiple drugs
 flexibility in managing budget across portfolio of drugs
o still need to carry & sell all products

ED market
 neutral name as first challenge
Physicians
 key factors for success (70%)
o (1) efficacy
o (2) safety
o duration was less than 10%
 PCPs were not comfortable to discuss sexual disorders with patients
o urologists were
Patients
 average patient in the 50s
 80% have sexual partner
 six stages of dealing with conditions  see case
  less than 50% of patients perceiving they had ED seek treatment
o partner is main reason to seek treatment
o younger men in particular were embarrassed
 substantial number of patients was not satisfied with Viagra
 usage + satisfaction insights on p. 8
 patients’ valuing of Cialis
o Viagra dropouts + current users were very interested in trying Cialis
 interviews: ED can lead from simply physical condition to relationship problems and
serious psychological anxiety
Partners
 partners of ED sufferers were interviewed
 common answers
o lack of information on existence of ED
o many women felt that they were cause of problem
o most couples did not discuss ED
o partner knowledge mostly based on media + word of mount  bad image
 women have issues with partners taking pills  p. 9
 women prefer partner taking Viagra over nothing

Recent competitive developments

Pfizer
 large market power  8 products generating $1bln revenue each (2000), constant
increase in R&D spending
 fierce + sustained marketing processes
o hiring of ex-army soldiers  good at convincing doctors
 $108mln spending on Viagra advertising in 2000
o aggressive campaigns
 $1.5b sales of Viagra in 2001, 90% gross margin
 average prescription was refilled every 55 days
 only 25% of patients used drug one year after initial treatment
Levitra from Bayer
 in Nov 2000 phase II trial of new ED drug
 highly effective
 duration roughly same as Viagra
 Bayer considered market launch
 copromotion agreement with Glaxo

Getting ready for the launch

 success of Cialis was important for both companies
o Lilly was straining earnings
o ICOS would have first drug launched
 contributions:
o lilly – experience + resources
o ICSO – nimbleness + sense of urgency
 collaboration was very efficient
o NDA submission was done in record time
 also good collaboration on personal level
 o leading physicians were gathered as advisory team
Challenges ahead
 after FDA application, focus moved to marketing
 key issues
o decide on target market
 Viagra dropouts
 which product benefits to emphasize
o whether to focus on patients or doctors
 doctors need to sign prescriptions
 Cialis as quality-of-life drug  patients need to want it
o competitive pressures  Viagra had proven track-record
 Bayer was expected to go for niche strategy
 additional decisions
o pricing per pill  higher than Viagra to reflect better functionality?
o central theme of TV ads to be placed
Nike Football Summary
Intro
 strategy 2010: deliver high performance shoes
 products are key to customer satisfaction
 Adidas secured all ads during matches
o other platforms could be used
 NF+ might be good way to increase reach to youngsters
 Nike is planning partnership with (RED)  relief for AIDS infected
 revenue growth from $40m to > $1bn

Footbal + fifa world cup

 around 265m people playing sport
 key markets: England, spain, Italy, Germany, France
 32 countries participated in 2010 worldcup

Nike company history

 in 1970s, company moved from distributing to manufacturing shoes
 1972: name change & start of using swoosh
 1979: 50% of US running show market
 expansion to sports outside running (e.g. basketball with Air Jordan)
 exoansion to apparel in 1988
 1990: leader in sport shoes + apparel and multiple other industries
 continuous expansion of portfolio through buying Hurley, Converse & Umbro
 marketing is key capability of nike: $2b budget in 2008

Nike 2009
 world leader in athletic apparel + footwear
 23,000 retail accountes
 690 own stores
Footwear innovation
 continuous great investment + devotion to developing better shoes
 footwear development has four sections
o product development – conceptualize market opportunities
o design team – technical, aesthetical, industrial expertise
o marketing team
o athletes – test & waer products
 collaboration with athletes is key  partnership!
SuStainability
 reputational damage in 1990s led to journey towards sustainability & corporate
responsibility
 first as risk management approach, later sustainability as opportunity for growth
long-term goals are ambitious

Competitors
 Adidas – second largest producer
o strong roots in football
 o sponsors various leagues & events
 Puma & New Balance as other competitors

Nike Football history

 first show with swoosh was football shoe
 knowledge about football was very limited
 1994: football was very small business ($40m)
World cup 1994
 firs US world cup
 nike did not sponsor any teams but individual players in final  public attention
 Nike football department was created with official sponsorship of the Brazilian team
 two key perspectives:
o create culture for sport  create new products in stagnant market
o see world through eyes of 13 year old  build culture with younger people
playing sport
 connecting to younger fans was essential
World cup 1998
 very successful airport ad
 designed new shoe with Ronaldo  Mercurial
World Cup 2002
 powerful secret tournament ad promoted Mercurial Vapor
 nikefootball.com as global website + way to promote nike brand
Touch of digital Gold
 Nike created viral video on youtube
 relationship with youtube as new way of promoting product

World cup 2006 – Germany

 Adidas + Nike had almost even market shares in football market
 Nike sponsored 45 top football clubs, Adidas only 41
 Adidas secured powerful partnership + favorable deals with FIFA
o only Adidas balls
o only Adidas commercials on TV for football apparel
 Adidas also developed new shoe
Joga Bonito
 portugese: play beautifully
 online-platform allowing people passionate about football to collaborate -->
conversations about football
 created community of highly committed users
Product silos
 each silo offered different kind of shoe  unique benefit, unique design innovation,
star player associated with it
On the pitch
 8 teams were sponsored by nike, 6 by Adidas
 Nike boots scored more goals
 12 of 22 players in final wore Nikes
Refocusing on ZA
Target market shift
 refocus from 12-to-14 year old to older (17 years) customers
 football obsessed teens (FOT)
o MORE independent
o more driven by football goals
o can choose own brand
o can form brand loyalty
Silo shift
 power silo was renamed to accuracy silo
 new silo: “control”
Digital shift
 joga bonito was examined carefully
 Nike aimed to be part of daily lives of custoemrs

Bootcamp
 nike football training initative was developed
 football obsessed teens were interested in training to make them better
 bootcamp was created to offer users training programs

Road to south Africa

Nike Mercurial Vapor Superfly II
 product development process is very lengthy
 multiple pro players were involved into development of new shoe
 shoe offered several new features + improvements
2010 Elite series
 colors of orange + purple were used to make shoes stand out
Advertising
 partnership with external advertising agency was kept + used
 nike wants to create dialogue with FOT
Nike Football +
 would enhance products  offer value-added extras such as training trackers,
instructions etc.
 should NF+ promote general fitness or football specific skills?
 who should deliver content
 who should have access
o only purchasers or everyone?
Sustainability + Social Responsibility
 first time sustainability was part of strategy
 produce jerseys out of recycled plastic bottles
 argument: to promote sustainability or take it as given
 consideration of partnering with (RED) foundation  which message to convey &
how to bring it across
Strategy to win the world cup
 key questions:
o how to promote shoe
o hwo to incorporate sustainability
o how to start social media conversation
o was shift of market right?
o how to communicate with 17 year old FOT
o how will the image be affected by world cup
o how to make brand attractive to newcomers & retain old customers
 five strategic pillars
o performance innovation
o enablement innovation
o connection at a deeper level – build strong connection to FOT
o brand + business impact – create message to open dialogue with customer
o timing – see world cup as amplifier not as goal  just a moment in time for
nike football
Renova Toilet Paper
 Renova is strong in home market (Portugal) but faces fierce competition
 private labels start outselling smaller brands
 Renova introduced black toilet paper

Tissue Industry
Industry Overview
Western Europe
 disposable tissue and hygiene is $26bln in Western Europe
o toilet paper ($7.6), kitchen towels 1.6, napkins 1.3b
 Renova has less than 1% market share
 strongest competitors
o P&G - $57bln
o Kimberly-Clark - $16bln
o paper industry
 Georgia Pacific - $21b
 SCA - €13b
o retailers
 Carrefour - €64b
 Lidl - €40b
 Tesco - €37b
o multiple mid-size players
 Sofidel - €800m
 Tronchetti - €200m
 profitability is strongly influenced by
o energy prices  doubled between 2003 and 2005
o cost of paper pulp  remained stable recently
Portugal
 sales of disposable paper: €220m
o €135m from toilet paper
o €37.2m from napkins
o €35m from kitchen rolls
o €12.8m from facial tissues
 market share (Renova): 35%
o 34% toilet paper
o 37.6% napkins
o 29% kitchen rolls
o 29.5% facial tissues
 CAGR has been 1.5% over last three years & is expected to remain stable
 competition:
o mostly similar
o retailers differ
 Sonae Distribucao - €2.2b sales
 Grupo Jeronimo - €1.7b
 Os Mosequereiros - €2b
 Auchan group - €1.8b
  discount retailers
o private labels & Renova have around 1/3 market share
o next strongest competitor: Kimberly-Clark (22%)
 prices are relatively high  due to low share of private labels & power of local
brands
Industry trends
 prices range from €.1 to €.7 per roll
 packages
o mostly packs of 12 or 24 rolls, 6 also common, 48 also possible
o different package sizes allow to hide large price differences per roll
 most important attributes
o 60% price
o 30% quality
 softness, strength, absorbency
o 8% brand
o 2% format
Private labels
 market is experiencing polarization
o strong growth for premium brands
o stagnation for standard + economy brands
o rapid growth for private labels
 private labels are fastest growing category  Superior price/value ratio
o most shoppers believe that private labels perform as well as national brands
 Retailers carry 3-4 brands
o own private label
o leading brand
o additional national brands
 lower market players struggle to find secure distribution & retailers have great power
o retailers increase price gap between private labels and national brands by
charging higher margins
 other hurdles from retail environment:
o disposable paper sections are least differentiated  customers focus on price
o price & sales promotions are heavily used  large part of promotional budget
is used
o population is used to waiting for next deal before buying TP
Premium products
 companies aim to counteract growing popularity of private labels
o innovations in physical attributes: absorbency, strength, softness
 Georgia Pacific launched premium segment in 1981
 right now: premium segment constitutes 15% of all rolls sold & 20% of segment value
(France)
 introduction of 3- or 4-ply papers did not hurt volume sales  Same amount of
papers is used as for less plies
 larger rolls (10 rolls in 4) gave benefits to customers
o not likely to be used in Portugal  pricing is per roll  tendency is to
decrease roll size
 one of most significant innovations: moist toilet paper
 o particularly popular in Germany (8% of sales) and Switzerland (10%)
o only 0.1% of sales in Portugal
 scented TP as other innovation
o important to Renova’s penetration of French market
 not all innovations were successful  combined moist/dry dispenser (K-C) was not
successful
 decorative toilet paper as further way to differentiate
o Christmas & valentine’s day etc. decoration

Renova FPA
History & management
 brand was established in 1818  watermark for paper
 actual firm created in 1939
 switched from office paper to disposable paper in 1961
 Revenue: €104m (2005)
 production capacity: 100,000t paper/year
 sales mix
o 50% toilet paper
o 20% kitchen paper
o 17% napkins
o 10% tissue
 expansion internationally after Portugal joining EU
o Spain (1990)
o France (2002)
 CEO put in place flat & flexible organization to foster creativity
Branding & marketing
 goal of CEO: shift image from disposable paper brand to wellbeing brand
o €1.5m spending annually to link Renova to wellbeing
 advertising became less & less functional + more symbolic
 campaigns were successful  strong brand awareness
o 87% (close to Sony at 88%)
 buyers usually spend more time choosing toilet paper & care more about quality, less
about price

Decisions
 fight private labels directly by reducing price?
 partner with retailers to produce private labels
 accelerate differentiation efforts
 explore black paper as PR coup
 launch black toilet paper as full product & make it immediately available to
customers
 pricing, packaging, communication & distribution need to be considered