Marketing course at Copenhagen Business School

1. Marketing strategy and planning
Strategies in different market situations
Price and promotion
Week 40
Jacob Holm
Jacob.k.holm@gmail.com
hoja@udd.cbs.dk
Tlf: 24 42 11 32
www.office2go.dk
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2. The marketing management process
Part 1:Marketing Strategy
• Market –led strategic management – chapter 1
• Strategig marketing plannng
Part 2: Competitive market analysis
• The changing market environment – chapter 3
• Customer analysis – chapter 4
• Competitor analysis - chapter5
• Understanding the organizational resource base – chapter 6
• Forecasting future demand and market requirements – chapter 7
Part 3: Identifying current and future competitive positions
• Segmentation and positioning principles – chapter 8
• Segmentation and positioning research – chapter 9
• Selecting target markets– chapter 10
Part 4: Competitive position strategies
• Creating sustainable competitive advantages – chapter 11
• Competing through the new marketing mix – chapter 12
•Competing trough innovation– chapter 13
• Competing through superior service and customer relationship – chapter 14
Part 5: Implementing the strategy
• Strategic customer management – chapter 15
• Strategic alliances and network – chapter 16
• CSR – chapter 18 www.Office2go.dk

3. Today subject
1. Differentiation - how
2. Competitive strategies
1. Offensive competitive strategies
2. Defensive strategies
3. Market Niche strategies
4. Harvesting strategies
5. Divestment strategies
3. 4 P’s
1. Price
2. Promotion
3. (Place (distribution))
4. (Product)
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4. How to create a competitive advantage
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5. Is uniqueness imitable
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6. Generic strategies
Perceived difference No perceived difference
Sales curve Sales curve
or pressence
Broad target
with a with no
preference! preference!
Lav elasticitet Branded Lav elasticitet
categories
Q elasticitet
Høj Q
Høj elasticitet
Q Q
Scope
Sugar
P P P P
Narrow -
focus
Focus Differentiation Focus Cost strategy
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7. Value creation or generic routes to
competitive advantage
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8. PIMS determine profit position
”Profit impact on market share”
3 Generic strategies (not 4)
Compet it ive advant age; Underst and market t ype bef ore f orming st rat egy
Percieved difference No percieved difference
ROI
or pressence
Broad target
Persue Persue Cost
Differentiation strategy – w hy
strategy – w hy and how ?
and how ? Stuck in the
Scope
middle!
Narrow -
Focus Focus Cost
focus
Dif f erent iat ion st rat egy
Læs nu selv bøgerne og ikke en der har læst en der har læst en, der har læst Port er –
t ekst en er ikke helt korrekt if ht Port er!
•Actually only one niche
strategy -though we often see
two focus versions.
•However PIMS is not law!
Market share = Size
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9. Cost drivers
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10. Achieving differentiation
Uniqueness drivers
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11. Sustaining or building a competitive advantage
How should we attack or defend – are we a pioneer or a follower
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12. 1. Marketing objectives and strategies for
New Product Pioneers or followers.
Introduction stage
• Mass market penetration
• Niche penetration
• Skimming – early
withdrawal
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13. 1. Market entry strategies
Pioneer or Follower
• Advantages with a pioneer strategy
– First choice of market segments and positions
– The pioneer defines the rules of the game
– Distribution advantages
– Economies of scale and experience
– High switching cost for early adaptors
– Possibility of positive network effects
– Possibility of preempting scarce resources and supplies
• Not all potential pioneers win the market.
– Failure during introduction stage
– Lack of resources
– Lack of competencies
– Best beats first
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14. 1. Market entry strategies
Pioneer or Follower
• Advantages with a follower strategy
– Ability to take advantage of the pioneer‟s positioning mistakes
– Ability to take advantage of the pioneer‟s product mistake
– Ability to take advantage of the pioneer‟s marketing mistake
– Ability to take advantage of the of the latest technology
– Ability to take advantage of the pioneer‟s limited resources
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15. 1. Marketing strategy elements pursued by
successful pioneers, fast followers and late
entrants
• Successful pioneers:
– Large entry scale
– Broad product line
– High product quality
– Heavy promotional expenditure
• Successful fast followers
– Willingness to go all the way
– Larger entry scale than the pioneer
– Leapfrogging the pioneer with superior prod. Technology, quality, service
• Successful late entrants
– Focus on peripheral target markets or niches
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16. 1. Marketing objectives and strategies for
New Product Pioneers.
Introduction stage
• Mass market penetration
• Niche penetration
• Skimming – early
withdrawal
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17. 1. Mass-market penetration
• Objective
– Max. numbers of triers and adopters – Awareness
• Market characteristics
– Homogeneous customer needs
– Customers adapt the product quickly
• Product characteristics
– Patentable technology or hard to copy
– Limited source of supply
– Complex production process
• Competitor characteristics
– Few competitors
– Potential competitors have limited resources
• Firm characteristics
– Strong engineering, marketing and financial resources.
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18. 1. Competitive forces
Threat of new
entrants
Bargaining power Rivalry among Bargaining power
of suppliers existing firms of buyers
Entry is more difficult when:
Threat of
• Strong economies of scale are
substitute prod.
present. – Ex. Shipping
• High capital requirements – ex 3G
mobile technology
• When product differentiation exists –
ex Cirque-Du-Soleil
• When it is difficult gaining distribution
– ex Paint market
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19. 1. Niche-market penetration
Typical Small firm with limited resources
• Objective
– Max. numbers of triers and adopters – Awareness – in the target segment
• Market characteristics
– Fragmented market
– Customers adapt the product quickly
• Product characteristics
– Easy to copy
– Many sources of supply
– Simple production process
• Competitor characteristics
– Many competitors
– Potential competitors have substantional resources
• Firm characteristics
– Limited engineering, marketing and financial resources.
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20. 1. Skimming and early withdrawal
all kinds of firms
• Objective
– Recoup development and commercialization costs as soon as possible
– Withdrawal from the market when increasing competition puts pressure on
margins
• Market characteristics
– Limited potential demand
– Early adopters willing to pay a high price – demand is inelastic.
• Product characteristics
Lav elasticitet
Q Q
– Easy to copy
– Many sources of supply
– Simple production process
• Competitor characteristics P
– Many competitors
– Potential competitors have substantial resources
• Firm characteristics
– Strong engineering, marketing and financial resources.
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21. Business-level competitive strategy and
PLC
2. Growth stage
• Market leaders
• Followers
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22. 2. Strategic choice for share leaders in
growth markets
Flanking attack
Encirclement Competitor Fortress or
or potential Frontal attack position
competitor defense
strategy
Which to choose:
1. Market size and customer‟
Bypass strategy
characteristics
2. Number and reletive strenghs of
competitiors
3. Own ressources and competencies
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23. 2. Growth-market strategies for market
leaders
• Fortress or position defense strategy
– Works well when:
• homogeneous needs of the customer
• Company enjoys a high level of awareness
• Competitors have limited ressources
– Objective:
• Increase satisfaction, customer loyalty and repeat purchases
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24. 2. How do we build a sustainable advantage
High
cost - strategy
Lufthansa
SAS
Differentiation
Build barriers strategy
Quality
FORTRESS
BA
Niche strategy
EasyJet Norwegian
Ryanair
Low high
Price
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25. 2. Growth-market strategies for market
leaders
• Fortress or position defense strategy
– Works well when:
• homogeneous need of the customer
• Company enjoys a high level of awareness
– Objective:
• Increase satisfaction, customer loyalty and repeat purchases
• Flanking strategy
– One shortcoming of a fortress strategy is that the challenger might simply
choose to bypass the leader‟s fortress and try to capture territory where the
leader has not yet established a strong presence.
– The leader can develop e second brand to compete against the challenger
offering.
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26. 2. Defense against flanking strategies
ex: Dyrup
Main brand: Dyrup
Silvan home brand: Silvanol
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27. 2. Growth-market strategies for market
leaders
• Fortress or position defense strategy
– Works well when:
• homogeneous need of the customer
• Company enjoys a high level of awareness
– Objective:
• Increase satisfaction, customer loyalty and repeat purchases
• Flanker strategy
– One shortcoming of a fortress strategy is that the challenger might simply
choose to bypass the leader‟s fortress and try to capture territory where the
leader has not yet established a strong presence.
– The leader can develop e second brand to compete against the challenger
offering.
• Confrontation strategy
– Confrontational battle – on which field?
• What are the combats generic strategy?
• How many resources are they willing to through into the battle?
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28. 2. How do we build a sustainable advantage
High
cost - strategy
Lufthansa
SAS
Differentiation
strategy
Quality
Head on
confrontation
BA
Niche strategy
EasyJet
Ryanair Norwegian
Low high
Price
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29. 2. Growth-market strategies for market
leaders
• Guerilla tactics
– Here the leader defends its relative market share by expanding into new
market segments.
– Ex. Dyrup waterproof series
– This is a synthetic rubber material that will prevent moisture from
penetrating the surface
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30. 2. Growth-market strategies for market
leaders
• Market contraction strategy
– If the leader is unable to defend it self – the oblivious solution is to withdraw
from the market.
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31. Positional strategy – Markops
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32. 2. Business-level competitive strategy and
PLC
Growth stage
• Market leaders
• Followers
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33. 2. Share growth strategies for followers
• Small companies with limited resources and competencies, may
simply seek to build small but profitable businesses within a
specialized segment.
– Ex. Paint market:
• Larger companies who enters the market shortly after the
pioneer often seek to displace the leader or at least become a
powerful competitor.
ROI
St uck in t he
middle!
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M arket share = Size

34. 2. Strategic choices for challengers in
growth markets
• Frontal attack strategy:
– If the product category is relative homogeneous with few untapped
segments and at least one well-established competitor, a follower wanting
to capture market share may have to take on the competitor head on.
– Target competitor has relatively limited ressources and competencies
– To successfully implement a frontal attack, a challenger should seek one or
more ways to achieve a sustainable advantage over the target competitor
Perceived difference No perceived difference
Broad target
or presence
Dif f erent iat ion Cost st rat egy
Narrow -
focus
Focus Dif f erent iat ion Focus Cost st rat egy
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35. 2. How do we build a sustainable advantage
high
cost - strategy
Lufthansa
SAS
Differentiation
strategy
Quality
Frontal attack
BA
Niche strategy
Cimber/
EasyJet
Sterling
Ryanair
Low high
Price
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36. 2. Strategic choices for challengers in
growth markets
• Frontal attack strategy:
– If the product category is relative homogeneous with few untapped
segments and at least one well-established competitor, a follower wanting
to capture market share may have to take on the competitor head on.
– Target competitor has relatively limited ressources and competencies
– To successfully implement a frontal attack, a challenger should seek one or
more ways to achieve a sustainable advantage over the target competitor
• Problems with this strategy
– Challenging basis on low prices can be a problem - Experience curve
– Challenging basis on larger promotional spending
– -> find another strategy to fight with – Easyjet, Ryanair
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37. 2. Strategic choices for challengers in
growth markets
• Bypass strategy:
– A challenger has the best chances of beating the competitor if they can
offer products that are attractively differentiated from the competitors
products.
– Ex. Swiss watches and Japanese digital watches in the 70‟th
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38. 2. Strategic choices for challengers in
growth markets
• Flank attack:
– Attack segments that are not the primary segment for the market leader.
– Concentrate on this segment and put all resources into this.
– Ex: Japanese cars penetration of the US market
• Encirclement:
– Targeting several small untapped or underdeveloped in the market
simultaneously.
– Works in fragmented markets
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39. 3. Business-level competitive strategy and
PLC
Maturity stage
• Differentiation
• Low cost
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40. 3. Strategic choices in mature markets
• Strategies for maintaining competitive advantages:
– At this stage you need to decide what you want to do with your
product:
• Try to sustain the competitive advantage
• Milk to cow – so to speak
• Sell the product
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41. 3. Strategic choices in mature markets
• How to sustain the competitive advantage:
– Differentiate, Low cost, Niche
• Methods of differentiation
– Product quality
– Service quality
• Methods of maintaining a low-cost position
– No frills products
– Cheaper raw materials
– Innovative production processes Perceived difference No perceived difference
– Low-cost distribution
Broad target
or presence
– Reduction of overhead Dif f erent iat ion Cost st rat egy
• Niche strategy
Narrow -
focus
Focus Dif f erent iat ion Focus Cost st rat egy
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42. 3. Strategic choices in mature markets
• Strategies for maintaining competitive advantages:
– At this stage you need to decide what you want to do with your product:
• Try to sustain the competitive advantage
• Milk to cow – so to speak
• Sell the product
Sales
Expanding: Increase
penetration – Extended use –
Market expansion
Maintaining: Fortress defense
strategy: Loyalty, repeat
purchase
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Time
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43. 4.Business-level competitive strategy and
PLC
Declining stage
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44. 4. Decline stage
– New entrants likely to mean market is „flooded‟
– Necessity to develop new strategies becomes more pressing:
– Searching out new markets:
• Linking to changing fashions
• Seeking new or exploiting market segments
• Linking to joint ventures – media/music, etc.
– Developing new uses
– Focus on adapting the product
– Re-packaging or format
– Improving the standard or quality
– Developing the product range
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45. 4. Strategies for a declining market
• Should we just get out of this market ? – probably not !
– Is it a cash cow who can support other products ?
– Can we minimize our efforts in marketing, sales, R&D etc.
– Low unit costs
– Is the sped of decline high or low
– Low competition – price stability.
• Exit barriers
– The higher the exit barriers -> higher competitive action
• Harvesting strategies
– Maximize short-term cash flow – increase margins
• Maintenance strategies
– Maintain market share for a period even at the expense of margins
• Survivor strategies
– Increase share of the declining market – encourage weaker competitors to
exit.
• Niche strategies
– Strengthen share position in one or a few segments with potential for
continued profit
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46. Coffee break
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47. Can we soon go to war?
I know which segment to go for
 I have targeted my customer
 I know everything about them
 I know my enemy !
 We have discussed strategy
 We have positioned our selves
Know we need to find the right
tactics to implement our strategy
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48. Today subject
1. Differentiation - how
2. Competitive strategies
1. Offensive competitive strategies
2. Defensive strategies
3. Market Niche strategies
4. Harvesting strategies
5. Divestment strategies
3. 4 P’s
1. Price
2. Promotion
3. (Place (distribution))
4. (Product)
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49. What dos it cost ?
A film about prices
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50. Pricing
• Penetration pricing
• Skimming pricing
• Cost plus pricing
• Price promotions / Sales
• Competitive pricing
• Customer oriented pricing
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51. Strategies when setting prices
Market introduction stage:
•cost high sales volume low
•losses
•Price strategy – skimming or penetration
•Innovators
Growth stage:
•costs reduced due to economies of
scale - sales volume increases
significantly
•profitability
•prices to maximize market share
•Early adaptors and majority
Mature stage:
•costs are very low sales volume peaks
•prices tend to drop due to the
proliferation of competing products - very
profitable – Comp. pricing
•Late majority – innovators are gone
Penetration / Max pricing / Harvesting
Decline stage: Skimming Survival
pricing
•sales decline
•prices drop (lower prices may lead to
lower value perception). Price
promotion/sales
•profits decline
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52. Priselasticitet
Et produkts priselasticitet (prisfølsomhed) er den relative
mængdeændring i forhold til den relative prisændring på det samme
produkt
Priselasticitet = ep = relativ mængdeændring = Procentuel mængdeændring
relativ prisændring Procentuel prisændring
=> ∆X/X
∆P/P
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53. Price elasticity of demand
Before deciding on the right price strategy we need to know what the price
elasticity of demand is:
Price elasticity of demand (E) = Percent change in quantity demanded
Percent change in price
A price elasticity of demand > 1 = Elastic
A price elasticity of demand < 1 = Inelastic
This means that the demand for the product is elastic if the relative quantity
change is higher than the relative price change and inelastic if the relative
quantity change is lover than the relative price change. This is also known as
price sensitivity.
Inelastic Elastic
Q Q
P P
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54. Why is the price elasticity of demand
important ?
Inelastic Elastic
Q Q
Skimming Penetration
pricing pricing
P P
Penetration / Price war
Skimming
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55. Why is the price elasticity of demand
important ?
Inelastic Elastic
Q Q
P P
special promotion price ? Where would you place this ?
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56. Problems with price elasticity
Problems regarding price elasticity:
• Doesn't include response reactions from competitors.
• Price elasticity can differ through the demand curve – see later
• It doesn't take product line considerations – cannibalization effect.
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57. Approaches to pricing:
• Cost-oriented pricing (cost plus pricing) 75 %
– Target rate of return
– Return of investment
– Payback method
20 %
• Competition-oriented pricing
– Penetration/skimming pricing
– Going rate pricing
– Sealed bid
– Competitive reaction
5%
• Customer-oriented pricing
– Identifying customer value
– Matching buyer and seller benefits
– Perceived values
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58. Pricing methods
“The essential purpose of the price level set by the marketing
manager, then, should be to enable the firm to capture the value
of the product as perceived in the mind of the consumer”
Why is it then that almost every marketing manager uses cost-plus pricing
maybe combined with one kind of competitor oriented pricing ?
“Remember that one danger of cost-orientated (or even competitor
oriented) pricing methods is that it can produce prices that are lower than
perceived value, causing the firm to leave money on the table or it can
also result in prices that exceed many customers perception of the
products value resulting in loss of sales and competitive vulnerability” –
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59. Approaches to pricing:
• Cost-oriented pricing (cost plus pricing) 75 %
– Target rate of return
– Return of investment
– Payback method
20 %
• Competition-oriented pricing
– Going rate pricing
– Sealed bid
– Competitive reaction
• Customer-oriented pricing
5%
– Identifying customer value
– Matching buyer and seller benefits
– Perceived values
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60. Example of how to work with customer
oriented pricing
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61. How to find the optimal price for this product!
CHAMBORD Coffeemaker 1,0 L
• price recommendation is kr. 299 at Bahne – promotion price kr. 199 – extra
promotion price (without a box) kr. 169
• Is this the optimal price if you compare with the customers perceived value of
the coffeemaker?
• How do you in practice work with customer oriented prices and what are the
dynamics in pricing.
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62. Price dynamics
What will happen if we:
• Set the price to high / low?
• Raise or reduce the price?
• Use a penetration or a price skimming strategy?
• Know the price elasticity of demand of the product
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63. Price optimization
 Price level is tested
 Model invented by Van Westendorp – 4 price questions
 You show a photo and describe the product in a internet research
 Case:
Spot sample with 500 participants
Target group: women 25-50 years old
Price recommendation kr. 299
Promotion price kr. 199
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64. Questionnaire - buying probability
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65. Questionnaire – 4 questions on price level
4 questions on price
• Highest price which is still cheap [not expensive]
• Expensive, but still worth wile a consideration [not cheap]
• To expensive to considerate [to expensive]
• To cheap to consider [to cheap]
Newer ask directly on the price level!
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66. Price analysis
Van Westendorp model
price differential
100%
90%
80%
"NORMAL" PRICE
70% kr. 200
60%
50%
MAX. PRICE
kr. 270
40%
MIN. PRICE
30%
kr. 110
20%
PENETRATIONS PRICE
Kr. 150
10%
0%
75 kr 100 kr 125 kr 150 kr 175 kr 200 kr 225 kr 250 kr 275 kr 300 kr 325 kr 350 kr 375 kr 400 kr 425 kr
Not cheap Not expensive To cheap To expensive
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67. Results and simulation of effect
Estimate on units sold and revenue
Price. Kr. Est units Revenue Kr.
175 17.200 3.000.000
200 15.400 3.100.000
225 13.000 2.900.000
250 10.000 2.450.000
275 8.800 2.400.000
300 4.200 1.250.000
25.000 kr 3.500.000
Units
kr 3.000.000
20.000 Revenue
kr 2.500.000
Reven
15.000
Units
kr 2.000.000
ue
10.000 kr 1.500.000
kr 1.000.000
5.000
kr 500.000
0 kr 0
75 kr 100 kr 125 kr 150 kr 175 kr 200 kr 225 kr 250 kr 275 kr 300 kr 325 kr 350 kr 375 kr 400 kr
Precondition: Price
• 80% of the target group is in the market.
• The target group stands for 95% of the total sales.
• Buying probability is weighted
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68. How do we calculate price elasticity?
Price elasticity of demand (E) = Percent change in quantity demanded
Percent change in price
A price elasticity of demand > 1 = Elastic
A price elasticity of demand < 1 = Inelastic
Inelastic Elastic
Q Q
P P
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69. Calculation of price elasticity
Price. Kr. Est units Revenue Kr.
175 17.200 3.000.000
200 15.400 3.100.000
225 13.000 2.900.000
250 10.000 2.450.000
275 8.800 2.400.000
300 4.200 1.250.000
25.000 kr 3.500.000
Units
kr 3.000.000
20.000 Revenue
kr 2.500.000
Reven
15.000
Units
kr 2.000.000
ue
10.000 kr 1.500.000
kr 1.000.000
5.000
kr 500.000
0 kr 0
75 kr 100 kr 125 kr 150 kr 175 kr 200 kr 225 kr 250 kr 275 kr 300 kr 325 kr 350 kr 375 kr 400 kr
Price
Price elasticity:
Price: 225/200: 12,5%
Units: 13000/15400: 16%
PE= 1,28 -> elastic
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70. Conclusion:
•Profitability :
• 148 % improve profitability if we reduce price from 300 kr to 200 kr. Profit =
1,850.000 kr.
• Promotion pricing
• Price elasticity
• Sales amount in the promotion time and normal price period
• psychological pricing
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71. Price strategy
Where to set your normal price and promotion price:
It is critical for the choice of strategy how the distribution is between sale in the normal price situation and in
the promotion price situation.
80 % sales in the promotion price period – 20 % sales in the normal price period: in this case you
should place the promotion price at the optimal price in the Van Westendorp model. The normal price
will then be higher than the optimal price, but this relates only to 20 % and it will only have a minor
effect on the revenue optimization.
20 % sales in the promotion price period – 80 % sales in the normal price period: In this case the
normal price should be the optimal price. The price elasticity determines how far we should place the
promotion price from the optimal price.
50 % sales in the promotion price period – 50 % sales in the normal price period: In this case it will be
the price elasticity and the psychological pricing that determines which price should be placed by the
optimal price.
Psychological price distance:
The consumer has a tendency to buy ”the saving” instead of the reel price of the product. Consumers are
triggered by the savings because it gives them a sense of purchase experience and it means that the
saving needs to be significant before we can use promotion pricing in a practical way. A good example
is wine in the convenience stores.
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72. Customer oriented pricing:
• Price according to what the market can bear: Pricing that examines the intensity of
demand expressed by customers for a given product – reflects the intensity of demand.
• Multidimensional pricing:
Perceived value pricing or charging a price that the market will bear is a version of price
customization whereby every customer is charged the price he or she is willing to pay
based on the value on the product.
– Multiple price parameters are a common way: Unit price and a rental element. Mobil phone
companies use this approach to customize price for various user segments.
– Multi person pricing: Different prices are charged at different customer groups. One group pays
full price and while other groups receives a discount. - Synoptik
– Price bundle: more products sold together gives a rebate – McDonald menu – Microsoft office
package.
• Fixed price list, haggling and auctions:
– Fixed price is where the seller sets a price which everybody follows - Dyrup. Works only with no
real access to information about the market – price / quality
– Haggling (prutte): A customer and a provider negotiate (unstructured) to discover in a mutually
acceptable price. Works only with limited access to information about the market – price / quality
– Auctions:
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73. Strategies when setting prices
Market introduction stage:
•cost high sales volume low
•losses
•Price strategy – skimming or penetration
•Innovators
Growth stage:
•costs reduced due to economies of
scale - sales volume increases
significantly
•profitability
•prices to maximize market share
•Early adaptors and majority
Mature stage:
•costs are very low sales volume peaks
•prices tend to drop due to the
proliferation of competing products - very
profitable – Comp. pricing
•Late majority – innovators are gone
Penetration / Max pricing / Harvesting
Decline stage: Skimming Survival
pricing
•sales decline
•prices drop (lower prices may lead to
lower value perception). Price
promotion/sales
•profits decline
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74. Promotion
“In deciding how to best promote their products, marketing managers
must decide which promotional tools to use and with whom they wish to
communicate”
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75. Push / Pull Strategies
• Push-strategi er en betegnelse for promotion gennem grossister
eller detailhandlere. Virksomheden prøver på den måde at få deres
produkt i butikken ved for eksempel at tilbyde grossisten eller
detailhandleren lang kredit, gaver eller høj avance.
• Pull-strategi er en betegnelse for promotion, som sker direkte til
forbrugeren eller virksomheder. Promotionen sker ved at gøre
konsumenten/virks. opmærksom på at virksomhedens produkt(er)
findes.
Ofte ses denne form for markedsføring ved at der i bunden af
reklamen står "Spørg efter den hos din forhandler".
På denne måde bliver forhandleren/detailhandleren nødt til at sælge
det pågældende produkt, og virksomheden har på den måde opnået
en efterspørgsel på produktet.
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76. Push and pull strategies
Channel control strategies
• Push: Motivate channel members to perform more
– Rewards
– Bonuses
– Acces to new products Typical smaller companies
– Better prices
– Exclusivity
• Pull: Building demand an brand loyality
– Media advertising
– Consumer promotions
– Instore promotions
– Customer service Large and small companies
– Extented warranties
– Product improvements
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77. Promotion Mix
• Advertising: Print, Radio, Television, Outdoor, Direct mail, Brochures, catalogues, In-
store, Web, E-mails. Product placement, Viral marketing
• Personal Selling: Relationship marketing, Sales presentation, Sales Meetings,
telemarketing
• Sales promotion: Coupons, Contests, Product samples, rebates, trade shows
• Public relations: Articles in newspapers, TV and radio presentations, Speeches,
seminars
• Social Media: Facebook, Twitter, LinkedIn, MySpace, Blogs
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78. Decision sequence
1. Define audience to be targeted
2. Set the promotional objective
3. Set the promotion budget
4. Design the promotional mix
5. Evaluate the results
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79. 1. Define the audience
M arket value
Total value 5.405 mio kr. – 2003 data (Source: Byggemateriale Indust rien: BI, maj 2004)
• Identify a homogenous segment that Large-
26%
Local - Private- Prof. /Large
74%
Housing
Private-
houses
contractor Contractor/ industry housing association +(sommer
differ from other segments and Carpenter association houses)
9,5% - 513 mkr.
Renovation
- 189 mkr.
specify criteria that define the
2% - 108 mkr.
7% - 378 mkr.
7% - 378 mkr.
3% - 162 mkr.
32,4%
segment
3,5%
• Determine segment size and
21,0% - 1.135 mkr.
19% - 1.027 mkr.
potential
13% - 703 mkr.
6% - 324 mkr.
6% - 324 mkr.
3% - 162 mkr.
New building
– Financial figures 67,7%
• Visualize the market for better
Fact s
understanding Est .
Large-
contractor
Local -
Contractor/
Private-
industry
Prof. /Large
housing
Housing
association
Private-
houses
•
Carpenter association +(sommer
Prioritize the segments 27
44% 56%
houses)
• Target the segment or segments that
you want to concur (target marketing)
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80. 2. Promotional objectives
• What do you want to achieve?
– Market share
– Awareness
– Brand building
– Sales test
• How do we want to reach the goal
– Penetration – saturation - frequency
• In what time frame do you want to achieve this goal?
• Resources
– Cost
– Manpower
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81. Market introduction stage: Product life cycle - PLC
•cost high sales volume low
•losses
•high prices – skimming or penetration
•Innovators
Growth stage:
•costs reduced due to economies of
scale - sales volume increases
significantly
•profitability
•prices to maximize market share
•Early adaptors and majority
Mature stage:
•costs are very low sales volume peaks
•prices tend to drop due to the
proliferation of competing products - very
profitable
•Late majority – innovators are gone
Decline stage:
•sales decline
•prices drop (lower prices may lead to
lower value perception)
•profits decline
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82. Penetration - Frequency – Saturation :
What can we do?
Penetration (f(x))
U-penetrated
• Media marketing - Above
the line
= 15%
•Awareness & trial
Penetrated = 85% • Occasion (activities)
•Image
• Creative content
•Competitors
Frekvensfordeling
Frequency (f(x)) • Relationship marketing
50
40
Awr= 1,1 •Satisfaction • Direct marketing
• Loyalty programs (Belov
30
20 •Loyalty
10 the line)
0
1 gang 2 gang 3 gang +4 gang
•Relevance (offer)
35
Fordeling af spend
Saturation (f(x)) • Price offers
30
Awr= 10 $ •Offer & mechanisms
25
20
• Promotion (Below the line)
15
10
•Willingness • Drivers
•Relevance
5
0
50-100 100-150 150-200 250-300 350-400 400-
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83. What is our strategic challenge?
Universe: 13.000.000 individuals
Young adult Mothers Hispanic women African american
female women
Univers 3.500.000 6.500.000 1.600.000 1.400.000
85% 70% 18% 60%
Penetration
Frequency 1,1 visit/year 4,8 visit/year 3,1 visit/year 1,5 visit/year
Saturation 10 $/visit 25 $/visit 22 $/visit 22 $/visit
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84. Penetration - Frequency – Saturation
Penetration (f(x))
U-penetrated
Is it realistic to achieve
= 15%
•Awareness & trial
Penetrated = 85% a higher penetration -
•Image
•Competitors McDonald
Frekvensfordeling
Frequency (f(x))
50
Is it realistic to get the
40
Awr= 1,1 •Satisfaction
30
20 •Loyalty
target group to come
10
0 •Relevance (offer) more frequently
1 gang 2 gang 3 gang +4 gang
Fordeling af spend
Saturation (f(x))
35
30
Awr= 10 $ •Offer & mechanisms
Is it realistic to get the
25
20
15 •Willingness customer to use more
10
5
0
50-100 100-150 150-200 250-300 350-400 400-
•Relevance money
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85. Simulation on target group
What is our strategic challenge in our target group ?
Ex. Young adult females
Base line Sim 1 Sim 2 Sim 3 Sim 4 Sim 5 Sim 6
Universe 3.500.000 3.500.000 3.500.000 3.500.000 3.500.000 3.500.000 3.500.000
Penetration, % 85% 86% 87% 85% 85% 85% 85%
Frequency, pr. year 1,10 1,10 1,10 1,20 1,30 1,10 1,10
Saturation, $/visit 10 10 10 10 10 12 14
Rev, mil $ 32,7 33,1 33,5 35,7 38,7 39,3 45,8
Effect, t$. 400 800 3.000 6.000 6.600 13.100
• Understand the proportions in your choice of actions
• Prioritize and focus on the most important issues
• Understand the realistic conditions behind : Saturation - Penetration – Frequency
• What is the cost to gain the objective: GRP – gross rating points
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86. PLC
Revenue
Pricewar
Penetration Frequency Saturation
Time
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87. 3. Promotion budget
• Percentage of sales
• Competitive parity – promotion spending relative to market share
• Objective and task – which task is in front of you and what dos it cost
• Above and below the line?
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88. 4. Promotion mix
Promotion mix Amount of info. Credibility Control over Cost to Strategy
elements communicated message reach suitability
consumer
Advertising Above the Low Good Low Pull strategy
line - little
Personal Lots of info Depends on Poor Very high Push strategy
selling comp., brand.
person
Sales Non ? Good Low and self Pull & Push
promotion liquidating
PR Lots of info High Poor Very low Pull & Push
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89. Advertisement
“Everyone can do this, but as everybody knows advertising is
nothing more than a waste of money!”
Why has there then been
advertised for more than 2 billion
Dkr. in the last 12 months in
Denmark alone……………
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90. Today subject
1. Differentiation - how
2. Competitive strategies
1. Offensive competitive strategies
2. Defensive strategies
3. Market Niche strategies
4. Harvesting strategies
5. Divestment strategies
3. 4 P’s
1. Price
2. Promotion
3. (Place (distribution))
4. (Product)
90
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91. Nothing more for today
Jacob Holm
Jacob.k.holm@gmail.com
hoja@udd.cbs.dk
Tlf: 24 42 11 32
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91