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Management Notes > Principles of Marketing (MG314) Notes

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Lecture 1 - Introduction to Marketing 'Marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners and societies at large.' - AMA, 2007 Influence of Marketing Toyota Corolla vs Chevy Prizm - identical make but different strategies led to different response from market (Corolla 10x more sales than Prizm; Prizm eventually discontinued)
Importance of consistent marketing - Toyota used focused marketing methods solely focusing on Corolla being a family car (safe/able to transport a family etc.); Chevy focused on price - rebates - discounts inconsistent with notion of safety Ghana Hand-Washing Campaign - traditional marketing failed to encourage proper use of soap in Ghana leading to up to 85,000 deaths per year
Importance of creating a habit - used ads to encourage sense of disgust after using bathroom to create a habit of proper hand-washing after using bathroom - deaths fell to the 12,000 per year Understanding behaviour - predicting, influencing etc. follows Pioneering Advantage 'It's better to be first, than it is to be better' - theoretically allows for better image and reputations, ease of recall, loyalty, technology leadership etc. however in reality theory does not hold - research shows only 40% pioneers become market leaders; pioneer advantage washed out by cost Blue Ocean Theory Companies succeed not by battling competitors, but by creating "blue oceans" of uncontested market space however conditional probability of finding one is negligible

1 READINGS: A Brief Note on Marketing Frameworks Frameworks important as: (1) Lend structure to situations (2) Helps ensure macro factors (big picture) considered However should be used flexibly and applied naturally - don't stick to one framework The 3Cs, STP & 4Ps Framework - implies 10 critical business strategy questions (1) Opportunity Identification (3Cs initially - extended to 5Cs):
*> Customers: Who are the customers? How do they make decisions? Are there unmet needs/wants? Are there undeserved needs/wants?
*> Company: Strength? Weakness? Good position to serve unmet/undeserved needs?
*> Competition: Who are the competitors? How intense is competition? What factors do they compete on (price/quality etc.)? Source of sustainable competitive advantage?
OT from SWOT analysis; analysed using 5-Forces-Model (Barriers to entry, threat of substitutes, buyer power, supplier power, degree of rivalry)
*> Collaborators
*> Context (Macro trends): STEP - Social, Technological, Economic, Political (2) Setting the Strategy (STP) - Managerial decision process that seeks to:
*> Segment potential market: Helps maximise marketing efficiency
*> Target: Choose target segments - not feasible to target everyone
*> Position: Create desirable positioning within target segment to differentiate self (3) Formulating Marketing Program (4Ps) - Analysing execution of given strategy:
*> Product: What features to include in product? How to differentiate? What brand name? What kind of brand name? Packaging? Will it cannibalise any existing offerings? Warranties/service?
*> Price: How to price? Costs? Margins? Cost structure? Price elasticity? How much people willing to pay? Why?
*> Promotion: How to promote product? 2 ways - (1) communicating value created (2) incentivising customers to buy
*> Place: Which distribution channels? How do channel decisions affect (a) cost (b) time to market (c) reach of product? Do channels add/detract from perceived value of product?
Try not to expand frameworks (e.g. 4Ps - 7Ps); frameworks only a starting point!
CCD Framework - Alternative to 4Ps
*> Creating value: Product, price, incentive of promotion
*> Communicating value: Communication part of promotion
*> Delivering value: Distribution Solving/Diagnosing a Firm's Problems:
*> Generally 'profit' problems arise due to components

(1) Identify component problem areas (2) Apply relevant frameworks (3Cs, STP, 4Ps,5 Forces, STEP, SWOT etc.) 2

Marketing Myopia (Levitt, 1975)

* Decreasing growth in any industry not due market saturation but a result of failure of management - failure of managers to be customer-oriented rather than productoriented (rail industry being railroad-oriented rather than transport-oriented; Hollywood focusing on making movies rather than providing entertainment)
Error of Analysis: Defining an industry, or a product, or a cluster of know-how so narrowly as to guarantee its premature senescence - not a lack of opportunity but lack of managerial imaginativeness and audacity

* No such thing as growth industry - only companies organised and operated to create/
capitalise on growth opportunities; all 'growth' industries show same cycle: (1) Population Myth: Belief growth assured by expanding/more affluent population
- Petroleum Industry: Managers belief market always expanding due to population has led to industry only focusing on improving efficiency of getting/making product not improving generic product or marketing - all major innovations/improvements from outside industry - industry open to threats (2) Idea of Indispensability: No competitive substitute for industry's major product
- Petroleum Industry: Belief no substitute for gasoline however gasoline has gone through cycles of growth, maturity, decay but has been rescued by miraculous escapes by innovation from outside the immediate industry (3) Production Provincialism: Too much faith in mass production/low unit costs - too much focus on production - focus on selling (focus on sellers needs) rather than marketing (focus on consumers needs)
- Automobile Industry: Detroit never researched customers' wants instead only focusing on researching preferences between products they had already decided to offer - product oriented rather than customer oriented; lost sales to small-car manufacturers; products fail to adapt to consumers wants (survival requires change)
- Petroleum Industry: Creative destruction - eventually will need to work on making fuel long-lasting/efficient as customers do not like filling fuel (4) R&D: Preoccupation with product that lends to controlled scientific experimentation, improvement and manufacture cost reduction
- Electronics Industry: Belief that continued growth is a matter of continued product innovation and improvement (strengthened by fact engineers/scientists like controllable environments and focus on making things) - management oriented towards product rather than people who consume it however have been successful due to demand from military (virtually assured markets)
- Petroleum Industry: Gives marketing stepchild status - recognised as existing but not given much thought

* General requirements for building an effective customer-oriented company: (1) Visceral greatness: Not just focused on survival but on entrepreneurial greatness (2) Will to succeed: Vision the can produce eager followers (customers) - corporation viewed as a customer-creating and customer-satisfying organism (3) Focus on buying customers: Rather than on producing goods

* However must be careful not to be over focused on marketing (marketing mania)

3 Class 1 1) Creating a habit - Ghana soap example 2) Perceptions vs reality (ethical) 3) Empirical generalisation (conditions) - competing theories 4) 1st Mover Advantage - successful examples (e.g. uber, amazon) and unsuccessful ones (e.g. myspace - market readiness, adverts) Marketing can be commercial and non-commercial - can be used to change behaviour (government campaigns, NGOs etc.) 'Marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners and societies at large.' - AMA, 2007
- Exchange: Not selling as doesn't require money; one party giving up something for another (e.g. Government presents message - public changes behaviour; Facebook gives free account - individual gives up data + site visits + friends + status updates/
constantly providing information, not static! - all eventually monetised)
- Value: Benefits - Costs - applicable to all stakeholders not just consumers
- Stakeholders: Anyone affected by exchange (investors, consumers, management, regulators, suppliers, distributors Case Study 1: Calyx & Corolla Offer value through maximising benefits (emphasising emotional aspect, offering fresher products, higher customer service - Plant Doctor) and minimising costs (disintermediation - cut out intermediaries) Disintermediation (can get rid of distribution channels but can't get rid of roles they performed - growers take on more functions however get paid more/higher margins - take on more risk):
- Advantages: Faster (freshers flowers), allows offering of cheaper product
- Disadvantages: Can't see the flowers, loses convenience of people able to pick up whilst already out, removed personal factor (advice from florist etc.) Examples: Amazon, Kindle direct publishing

4 Lecture 2 - Consumers Behaviour 1: Established Models & Framework (CDMJ) Firm can give good cross-section description of customer but find it difficult to explain how the chose that customer base Buyer's Black Box Model

* Marketing and other stimuli enter customers "black box" to produce certain responses
Marketing team must work out what goes on in mind of customer - black box

* Buyer's characteristics influence how they perceives stimuli; decision-making process determines what buying behaviour taken

* Factors that determine buyers characteristics: psychological (motivation, belief/attitudes), personal (age, occupation, personality), social (reference groups, family, status), cultural (culture, social class) Model of Consumer Behaviour (1) Problem recognition: Perceives difference between one's ideas and actual situation; difference big enough to trigger decision (selfgenerated or prompted by marketing stimuli)
- One of least researched stages; difficult to research, firms have not really tried (2) Information Search (Long List): Suggests criterion for purchase - yields possible alternatives -
develops value perceptions
- Well researched through digital footprints (e.g. Tesla model - dealerships with only 1 or 2 cars only produce when ordered; located in malls -
easier to get information; own stores reduces noise - similar to Apple) (3) Evaluation of Alternatives (Short list): Evaluation criterion formed - yields shortlist of alternatives (non-compensatory methods used - cutoff values for specific criterion to narrow down even if product fairs well in other criterion)
- Non-Compensatory Rules: " (1) Lexicographic - highest rating on most important attribute " (2) Conjunctive Rule - eliminate alternative if any of its ratings do not meet minimum " (3) Disjunctive Rule - go with alternative that is best on at least one attribute " (4) Affect Referral Rule - go by reputation or some other affect-drive mechanism (4) Purchase Decision: Which alternative to choose from consideration set? When?
- Compensatory models used e.g. Fishbein's MultiAttribute Model - rank attribute for each company typically scale 1 to 7 (bik), assign importance weights that sum to one for each attribute (ei); to calculate one firms attitude score multiple importance weight for each attribute with brand's ranking for the attribute refer to calculations in lecture slides if unclear (5) Post-Purchase Behaviour: Cognitive dissonance - a function of expectation and experience; post-purchase communications (ads, follow-up) 5

Customer/Consumer/Client

* Customer/Consumer: Buys/uses good

* Client: Professional series marketing - requires specific knowledge (qualifications) -
information asymmetry between client/provider (requires trust) Involvement - whether full model of consumer behaviour used depends on perceived risk:

* High: Expensive, longterm - significant amounts of financial risk, physical risk (safety), social risk, psychological risk

* Low: Low levels of risk

6 READINGS: Multi-Attribute Utility Models: A Review of Field and Field-Like Studies (Huber, 1974)

* Additive Models: Data model in which effects of individual factors are differentiated and added together to model the data

* Multiplicative Model: Assumes that as data increases, so does seasonal pattern - trend and seasonal components multiplied and then added to the error component Client-Explicated Parameter Estimates (1) Obtain utility for attribute (qualitative: likert scale, quantitative: visual representation) (2) Check for internal consistency with ratio relationships (3) Obtain relative importance of each attribute (0 - 1.0) (4) Check for internal consistency between values (5) Combine outputs of Step 2 and Step 4 Observer-Derived Parameter Estimates (1) Obtain utility for each level of each attribute (2) Check for internal consistency with ratio relationships (3) Client evaluation of similar items as ones being evaluation (4) Combing outputs of step 2 & 3 Conclusion

* Behavioural science validation of multi-attribute utility functions

* Simple additive model performs as well as more complicated additive and multiplicative models The Consumer Decision Journey (McKinsey Quarterly, 2009)

* Development from tradition funnel approach to more complex consumer decision journey

* Major Changes: (1) Brand Consideration - Less brands considered initially, however brands can be added in the active evaluation stage (2) Empowered Consumers - Outreach of consumers to marketers (WoM, research) more important than marketers' to consumers (traditional advertising, sponsorship); consumers 'pull' information rather than marketers 'pushing' it (3) 2 Types of Loyalty - Post-purchase experience shapes opinions for subsequent decisions i.e. more research conducted after purchase; active (stick with and recommend brand) vs passive loyalists (stay due to laziness, open to change)

* Align Marketing with Consumer Decision Journey
- Prioritise objectives and spending
- Tailor messaging
- Invest in consumer driven marketing
- Win the in-store battle i.e. merchandising and packaging
- Integrating all customer facing activities (PR, loyalty, web sites etc.) 7

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