Marketing Key Ideas

CHAPTER 1: INTRODUCTION TO MANAGING MARKETING WHAT DOES MARKETING MEAN TODAY? page 5 _______________________

KEY IDEA  Marketing is a guiding philosophy for the firm as a whole.

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KEY IDEA  Marketing is a set of six imperatives — the must dos of marketing.  Four marketing principles guide execution of the six imperatives.

WHAT IS MARKETING? page 8 __________________________________________________________________________________________________

KEY IDEA  The firm’s major task is to attract, retain, and grow customers by developing and delivering valued offers.

KEY IDEA  The firm has two basic functions — marketing and innovation.

KEY IDEA  Marketing is critical for a firm’s success in today’s increasingly complex and fastchanging environment.

 The firm enhances shareholder value by successfully attracting, retaining, and growing customers.

MARKETING AND SHAREHOLDER VALUE page 9 _______________________

KEY IDEA  The shareholder-value perspective is increasingly widespread around the world.

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KEY IDEA  Customers are the sole source of firm revenues, and all firm activities are costs.  Customers are the firm’s core assets, yet they do not appear on the balance sheet.  Some balance-sheet assets act as strategic liabilities.

KEY IDEA  Customers are the critical source of cash inflows.

KEY IDEA  There are two sides to value. When the firm delivers high customer value, it attracts, retains, and grows customers. When the firm attracts, retains, and grows customers, it earns high value for shareholders.

CHAPTER 1



INTRODUCTION TO MANAGING MARKETING

MARKETING AS A PHILOSOPHY: EXTERNAL AND INTERNAL ORIENTATIONS page 11 ______________________

KEY IDEA  External and internal orientations are core concepts for examining the firm’s basic philosophy.

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KEY IDEA  The firm should view marketing expenditures as an investment, not as an expense.

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KEY IDEA  An externally oriented firm goes beyond a customer focus. It works hard to understand competitors, markets, and environmental forces in general.

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KEY IDEA  Long-run success is difficult for internally oriented firms.  Internal orientations often focus on operations, sales, finance, and/or technology.

THE SIX MARKETING IMPERATIVES page 16 ______________________

KEY IDEA  Marketing should identify market opportunities and advise top management on potential strategic actions.

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KEY IDEA The Marketing Mix comprises:  Product  Promotion  Distribution (or Place)

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KEY IDEA  Marketing must identify market segments — groups of customers with similar needs that value similar benefits, with similar priority levels.

KEY IDEA  The firm should target those market segments that best use its strengths and exploit competitors’ weaknesses.

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KEY IDEA  Decisions about the firm’s strategic direction set the stage for designing the marketing offer.

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KEY IDEA  Marketing must keep the firm focused on customers’ needs, regardless of current feasibility.

KEY IDEA

KEY IDEA

 Marketing must exercise leadership to encourage cooperation across multiple functions.

 Marketing must monitor and control the firm’s actions and performance to keep it on track.

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 Service  Price

THE FOUR PRINCIPLES OF MARKETING page 21 ______________________

KEY IDEA  Selectivity focuses on the choice of market or market segment target.  Concentration refers to concentrating resources so as to deliver value to that target.

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KEY IDEA  The firm earns marketplace success by providing value to customers.  The firm develops, produces, and delivers products and services, but customers perceive value only in the benefits these products and services provide.

KEY IDEA  To secure a differential advantage, customers must perceive greater value in the firm’s offer than in competitors’ offers.

KEY IDEA  The firm achieves integration by agreeing on priorities — those involved in designing and implementing the offer must develop close and cooperative working relationships.

CHAPTER 2: THE VALUE OF CUSTOMERS: OPTIMIZING SHAREHOLDER VALUE OPENING CASE: ROYAL BANK OF CANADA page 31 ___________________________________________________________

KEY IDEA  When the firm creates value for customers, it successfully attracts, retains, and grows those customers. By being attracted, retained, and grown, customers create value for the firm and its shareholders.

KEY IDEA  Customer lifetime value (LTV) is the link between delivering value to customers and creating value for shareholders.

CUSTOMER LIFETIME VALUE (LTV) page 32 ______________________

KEY IDEA  Customer lifetime value depends on just three factors — margin, retention rate, and discount rate.

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KEY IDEA  The margin multiple is a handy way to calculate customer lifetime value.  Increasing customer retention rate has greater leverage on customer lifetime value than reducing the discount rate.

INCREASING CUSTOMER LIFETIME VALUE page 36 ______________________

KEY IDEA  The margin the firm earns from a customer tends to increase over time.

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KEY IDEA  Small increases in customer retention can dramatically improve profitability and customer lifetime value.

CHAPTER 2



T H E VA L U E O F C U S T O M E R S : O P T I M I Z I N G S H A R E H O L D E R VA L U E

ACQUIRING NEW CUSTOMERS page 42 ______________________

KEY IDEA  The firm should try to acquire customers if the expected customer lifetime value is greater than the acquisition cost.

ENHANCING CUSTOMER LIFETIME VALUE page 44 ______________________

KEY IDEA  There are three ways to improve customer LTV with current customers — improve customer retention, grow customer margins, and delete customers.

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KEY IDEA  There are three approaches to improving customer LTV with potential customers — retrieve, acquire, and ignore customers.

BEING SELECTIVE ABOUT CUSTOMERS page 45 ______________________

KEY IDEA  The firm should develop systems for measuring customer profitability.

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KEY IDEA  At many firms, 20% of customers provide 80% of revenues and 120% of profits.  At these same firms, 80% of customers provide 20% of revenues and are responsible for 20% of firm losses.

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KEY IDEA  In general, customers are critical firm assets, but some customers may be liabilities and should be fired.  The firm may have to reject some potential customers on the basis of a detailed profitability analysis.

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KEY IDEA  Poor profitability is not the only reason to reject or fire customers.

CHAPTER 3: MARKET INSIGHT page 58 ______________________

KEY IDEA  The firm must secure insight in three broad areas: the market, customers, and competitors, the company, and complementers – the M4Cs.

OPENING CASE: NETFLIX page 61 ___________________________________________________________

KEY IDEA  Market insight comprises four separate aspects — market structure, market and product evolution, industry forces, and environmental forces.

KEY IDEA  When firms secure good market insight, they do a better job of identifying opportunities and gaining competitive advantage.

MARKET STRUCTURE page 62 ______________________

KEY IDEA  Markets consist of people and organizations that require goods and services to satisfy their needs and are able and willing to pay.

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KEY IDEA  We can view any market as being made up of several different areas.  The firm avoids marketing myopia by using a broad market definition.

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KEY IDEA  A useful way of categorizing products in a market is product class, product form, product line, and product item.

CHAPTER 3



MARKET INSIGHT

MARKET AND PRODUCT EVOLUTION page 67 ______________________

KEY IDEA  Critical variables affecting market size include population size, population mix, geographic population shifts, income and income distribution, and age distribution.

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KEY IDEA  Markets and products generally evolve in a consistent manner over time.

KEY IDEA  Product-form life-cycle stages have consistent characteristics across products and services.

 The life-cycle framework is useful for describing market and product evolution.

INDUSTRY FORCES page 72 ___________________________________________________________

KEY IDEA  The firm’s current direct competitors can change via acquisition, merger, and LBOs.

KEY IDEA

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KEY IDEA

 The firm faces many forces — current direct competitors, new direct entrants, indirect competitors, suppliers, and buyers — that can frustrate its ability to make profits and seize new opportunities.

 The firm may face new direct competitors from geographic expansion, start-up entry, new sales and distribution channels, strategic alliances, networks, and the firm’s own employees.

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ENVIRONMENTAL FORCES page 75 ______________________

KEY IDEA  The firm faces a broad set of environmental forces — political, economic, sociocultural, technological, legal/regulatory, and environmental (physical) — PESTLE.

KEY IDEA  Technological innovation can be sustaining (improving performance of established products) or disruptive (offering new value propositions).

KEY IDEA  Environmental forces are constantly in flux; they also interact with each other.

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KEY IDEA  The managerial process environment comprises the intellectual capital for leading and managing a business.

CHAPTER 4: CUSTOMER INSIGHT OPENING CASE: IKEA page 89 ______________________

KEY IDEA  Customer insight requires a deep and unique understanding of customers.  Good customer insight requires answers to three questions: Who are the customers? What do they need and want? How do they buy?

IDENTIFYING CUSTOMERS page 90 ______________________

KEY IDEA  To secure customer insight, the firm must correctly identify customers.

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KEY IDEA  The firm must pay attention to both its current and potential customers.

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KEY IDEA  Macro-level customers are organizations; micro-level customers are individuals.

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KEY IDEA  Indirect customers may be more important than direct customers — they are often final users and ultimately drive product demand.

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KEY IDEA  Purchase decisions involve many customer roles: decision-maker, influencer, spoiler, champion, specifier, gatekeeper, buyer, information provider, and user.

CHAPTER 4



CUSTOMER INSIGHT

CUSTOMER NEEDS, BENEFITS, AND VALUES page 94 ___________________________________________________________

KEY IDEA  To attract, retain, and grow customers, the firm must: • Develop offers of value to satisfy customers’ needs • Communicate the value of those offers to customers. page 99 ______________________

KEY IDEA  EVC is the maximum price customers will pay.  The firm delivers economic value by reducing customers’ costs and/or increasing their revenues.

KEY IDEA  Customers have recognized needs and latent needs. Recognized needs may be expressed or non-expressed.

 Customers receive value from their experiences.

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KEY IDEA  Customers often deviate from rationality in making purchase decisions.

KEY IDEA  Maslow’s approach places a person’s needs in an ordered hierarchy.

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KEY IDEA  The feature/benefit/ value ladder ensures that the firm focuses on providing value to customers, provides options for communication, and broadens the view of competition.

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KEY IDEA  The firm must deliver the right combination of functional, psychological, and economic benefits and values to those customers it wants to attract, retain, and grow.

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KEY IDEA

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KEY IDEA  The firm must learn the customer’s decisionmaking process (DMP).

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KEY IDEA  There are three categories of purchase decision: routinizedresponse behavior, limited problem-solving, and extended problemsolving.

KEY IDEA  To gain greater customer insight, the firm must ask: “What motivates people in customer roles to behave the way they do?”

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KEY IDEA  Membership in the customer’s consideration set is crucial for the firm.

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KEY IDEA  The firm should try to understand customers’ evaluation processes.  The linear-compensatory approach to evaluation and choice balances the firm’s performance on the relevant attributes.

CUSTOMER INSIGHT

INFLUENCES ON CONSUMER PURCHASE PROCESSES page 106_____________________

KEY IDEA  By identifying sources of influence in the consumer decisionmaking process, firms formulate better market strategies.

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KEY IDEA  A variety of environmental factors affect consumers’ purchasing decisions — culture, social class, other people, family, and the situation.

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KEY IDEA  Individual factors that affect purchase decisions include economic resources, time availability, cognitive resources, comfort with technology, life-cycle stage, and lifestyle.  The VALS™2 Lifestyle framework is a useful approach to understanding lifestyles.

INFLUENCES ON ORGANIZATIONAL PURCHASE PROCESSES page 112_____________________

KEY IDEA  Important considerations for the organizational purchase-decision process are increased corporate attention to procurement, changes in the procurement process, reducing the number of suppliers, and evolution in buyerseller relationships.



CHAPTER 4

CHAPTER 5: INSIGHT ABOUT COMPETITORS, COMPANY, AND COMPLEMENTERS

Compe t itor s IDENTIFYING COMPETITORS page 124_____________________

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KEY IDEA

KEY IDEA

 Competitive insight is securing a deep enough understanding of competitors to provide a unique perspective.

 The firm’s most serious competitive threats may be the least obvious.

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KEY IDEA  Be aware of potential competition from within your own firm.  Be prepared to offer multiple products as customer needs evolve.

 Competitive insight is crucial for attracting, retaining, and growing customers.  The firm must act on competitive insight in its own decision-making.

DESCRIBING COMPETITORS page 129_____________________

KEY IDEA  When focusing on competitive data-gathering, the firm should be clear about the level and type of data it requires.

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KEY IDEA  The firm can secure timely competitive information from many internal and external sources.

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KEY IDEA  The firm should not use unethical or illegal processes to collect competitor data.  Leaky organizations help the firm secure competitive data.  Good counterintelligence procedures prevent proprietary data from leaking.

KEY IDEA  The firm should use a rigorous framework to organize its datagathering.

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KEY IDEA  The firm should develop formal processes to secure timely and relevant competitive information.

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KEY IDEA  Organizations do not make decisions — people in organizations make decisions.

I N S I G H T A B O U T C O M P E T I T O R S , C O M PA N Y, A N D C O M P L E M E N T E R S



CHAPTER 5

EVALUATING COMPETITORS

PROJECTING THE ACTIONS OF COMPETITORS

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KEY IDEA  Competitive assessment analysis is a powerful tool for marketers. It maps customer requirements — needs, benefits, and values — into corporate capabilities/resources.

KEY IDEA  Game theory is a structured way of identifying options and evaluating their consequences.

KEY IDEA  A good approach to projecting the competitor’s future actions is to develop a set of robust scenarios that examine the competitor’s strategic options.

MANAGING COMPETITORS page 139_____________________

KEY IDEA  The firm may be able to manage its competitors by sending signals.  The major signals available to the firm are pre-emptive, warning, and tit-for-tat. The firm may also send competitors misleading information.

Comple me nte r s page 141_____________________

KEY IDEA  Independent organizations, including customers and suppliers, can be the firm’s complementers.

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KEY IDEA  Competitors can complement the firm in the marketplace or in the back office. Competitors can also offer weak complementarity.

KEY IDEA  A firm’s complementary product activities may be unwelcome by its competitors.

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KEY IDEA  The firm projects the competitor’s future actions by identifying the most likely scenario from the set of alternative scenarios.

CHAPTER 6: MARKETING RESEARCH THE MARKETING RESEARCH PROCESS

CRITICAL DISTINCTIONS IN MARKETING RESEARCH

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KEY IDEA

KEY IDEA

 The marketing research process contains several well-defined steps that the manager and the researcher should follow.

 Secondary marketing research uses data relevant to your research needs that have already been collected for some other purpose. Primary market research requires you to collect new data.

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KEY IDEA  Qualitative marketing research is not concerned with numbers. Quantitative market research focuses on quantitative analysis.

SECURING QUALITATIVE RESEARCH DATA

SECURING QUANTITATIVE RESEARCH DATA

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KEY IDEA

KEY IDEA

 Focus groups, one-onones, and blogs and wikis are alternative means for collecting qualitative data directly from respondents. Projective techniques, observation, and ethnographic research are indirect qualitative data-gathering approaches.

 When designing a process to collect survey data, the firm must make several important trade-offs, primarily between cost, time, and flexibility.

MARKET AND SALES POTENTIALS, MARKET AND SALES FORECASTS page 163_____________________

KEY IDEA  Market potential is the maximum sales that the firm expects in the market in a given time period. Sales potential is the maximum sales the firm might achieve in a corresponding time period.

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KEY IDEA  There are several approaches to making market forecasts. One of the most popular uses multiple regression analysis.

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KEY IDEA  Many firms develop synthetic sales forecasts, using a combination of topdown and bottom-up approaches.

MARKETING RESEARCH

APPENDIX 6.1: ANALYZING QUANTITATIVE RESEARCH DATA page 171_____________________

KEY IDEA  Cross tabs are a tried and true method for analyzing simple quantitative marketing research data.

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KEY IDEA  Factor analysis helps the researcher reduce an unwieldy number of variables into a manageable set. Cluster analysis helps the researcher to place many respondents into meaningful groups.

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KEY IDEA  Conjoint analysis is a versatile marketing research technique that can provide significant insight into many marketing questions.

KEY IDEA  Multidimensional scaling is a valuable technique for developing market maps, aka perceptual maps.



CHAPTER 6

CHAPTER 7: DETERMINE AND RECOMMEND WHICH MARKETS TO ADDRESS A STRATEGY FOR GROWTH page 186_____________________

KEY IDEA  A strategy for growth has four components: vision, mission, growth path, and timing of entry.

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KEY IDEA  Vision is the description of an ideal future state for a firm or business unit. Vision sets a broad direction for the firm. When developed with employee participation, it can inspire the entire organization for the long run.

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KEY IDEA  The firm’s mission should guide its search for opportunity.  The five approaches to developing mission are: core ingredient or natural resource, technology, product or service, market or market segment, or customer needs.  The firm’s mission can use a single approach or combine approaches.  The firm should proactively revise its mission.

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KEY IDEA  The four fundamental paths to growth are market penetration, product growth, market growth, and product and market diversification. These four paths give rise to nine individual growth paths.

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KEY IDEA  The four timing-of-entry options — pioneer, follow-the-leader, segmenter, and me-too — correspond, respectively, to entry in the introduction, early growth, late growth, and maturity stages of the product life cycle.  The firm must match its capabilities to its timing-of-entry strategy. These capabilities must evolve as its markets evolve.

DETERMINE AND RECOMMEND WHICH MARKETS TO ADDRESS



CHAPTER 7

THE VENTURE PORTFOLIO page 195_____________________

KEY IDEA  A venture portfolio is the set of growth opportunities the firm addresses.  The strategy for growth helps the firm develop its venture portfolio.  The defining characteristics of the venture portfolio are expected financial return, timing of contribution to profits, and risk.

SCREENING CRITERIA: EVALUATING OPPORTUNITIES page 196_____________________

KEY IDEA  The firm should examine each opportunity using four screening criteria: objectives, compatibility (or fit), core competence, and synergy.

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KEY IDEA  In setting objectives, the firm should strike a balance between revenue and profit growth, risk, stability, and flexibility.

IMPLEMENTING GROWTH STRATEGIES page 204_____________________

KEY IDEA  Options for implementing a growth strategy include internal development, insourcing, outsourcing, acquisition, strategic alliance, licensing and technology purchase, and equity investment.

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KEY IDEA  The three important dimensions of compatibility (or fit) are: product-market fit, product-company fit, and company-market fit.

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KEY IDEA  The firm should consider four perspectives when evaluating opportunities: objectives, compatibility, core competence, and synergy.

CHAPTER 8: MARKET SEGMENTATION AND TARGETING THE MARKET SEGMENTATION PROCESS page 213_____________________

KEY IDEA  Market segmentation is a conceptual and analytic process — it is critical for developing and implementing an effective market strategy.

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KEY IDEA  Four categories of candidate descriptor variables or segmentation variables can define market segments: geographic, demographic, behavioral, and socio-psychological.

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KEY IDEA  In any market, customers have different need profiles.  The market segmentation process identifies groups of customers. When segmentation is done well, customers within a segment have similar need profiles. Customers in different segments have different need profiles.

MARKET SEGMENTS page 219_____________________

KEY IDEA  The best approach for forming market segments is to group customers based on their need profiles. The firm should then use descriptor or segmentation variables to identify the different segments.

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KEY IDEA  The market segmentation process can combine creativity and sophisticated data analysis.

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KEY IDEA  B2B firms often treat major customers as individual market segments. In B2C markets, many firms are practicing mass customization.

KEY IDEA  The firm must continually evolve its segmentation, as customers’ need profiles evolve.

M A R K E T S E G M E N TAT I O N A N D TA R G E T I N G

TARGETING MARKET SEGMENTS page 225_____________________

KEY IDEA  For each segment it targets, the firm should develop a unique offer precisely tailored to the need profile of customers in that segment.

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KEY IDEA  In deciding which segments to target, the firm should ask two questions:

 Perceptual maps show how various products serve customers’ or segment needs. They show market segment sizes and customer ideal points in each segment. These data help the firm make targeting decisions.

KEY IDEA

• How attractive is this segment?

 A firm can improve its market segment position by investing in those business strengths that determine success.

• Does the firm have the business strengths to win in this segment?

 A firm may identify more attractive market segments by refining its segmentation approach.

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KEY IDEA

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KEY IDEA  Large firms and small firms each have advantages in targeting market segments. Mis-steps can cause each to lose a strong position.



CHAPTER 8

CHAPTER 9: MARKET STRATEGY – THE INTEGRATOR OPENING CASE: MAYO CLINIC page 237_____________________

KEY IDEA  The goal of market and market-segment strategies is very simple — to attract, retain, and grow customers in the face of competitors trying to do the same thing.  The market strategy is the firm’s game plan for addressing the market. It states what the firm is trying to achieve, what it will do and will not do. Notably, it identifies those segments the firm targets for effort.

THE PURPOSE OF MARKET AND MARKET-SEGMENT STRATEGIES page 238_____________________

KEY IDEA  The market strategy requires decisions about results, resources, and actions.  Well-developed market and market-segment strategies fulfill four purposes for the firm — provide strategic direction in the market, state how to secure differential advantage, guide the effective allocation of scarce resources, and achieve cross-functional coordination.

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KEY IDEA  Effective market and market-segment strategies show how the firm will secure a differential advantage.

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KEY IDEA  An effective market strategy helps the firm allocate its resources. Externally, the firm allocates resources to target market segments, and selects specific resources to secure differential advantage. Internally, the firm allocates resources across internal activities.

M A R K E T S T R AT E G Y – T H E I N T E G R AT O R



CHAPTER 9

ELEMENTS OF THE MARKET-SEGMENT STRATEGY page 240_____________________

KEY IDEA  Inter-functional conflict is endemic. Formulating the market strategy should resolve this conflict and achieve cross-functional coordination.

PERFORMANCE OBJECTIVES page 242_____________________

KEY IDEA  The firm must make trade-offs among the three categories of strategic objectives: growth and market share, profitability, and cash flow.

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KEY IDEA  Priorities for strategic objectives evolve during product life-cycle stages.

KEY IDEA  Operational objectives provide the numbers to attach to the strategic objectives; they specify how much is needed and by when.

KEY IDEA  Managers should explicitly discuss the trade-offs and expectations among strategic objectives before setting operational objectives.

POSITIONING page 251 __________________________________________________________

KEY IDEA  The firm competes for customer targets — decision-makers or influencers.

KEY IDEA  The firm’s competitive target can be current or potential, direct or indirect, or in the supply chain. Sometimes the targeted competitor is not immediately obvious.

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KEY IDEA  The value proposition is the firm’s major competitive weapon for gaining its target customers; it also defines the firm’s implementation focus.  The firm must develop a value proposition for each target customer type.

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KEY IDEA  “Positioning is not what you do to a product: Positioning is what you do to the mind of the prospect.”

CHAPTER 9



M A R K E T S T R AT E G Y – T H E I N T E G R AT O R

IMPLEMENTATION PROGRAMS page 254_____________________

KEY IDEA  The marketing mix and other functional programs implement the market strategy.

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KEY IDEA  Marketing mix programs should support the value proposition, and all elements should support one another.

KEY IDEA  The firm’s functional areas must support the market strategy.

KEY IDEA  Together, individual market segment strategies must form a coherent market strategy. The segment strategies must be distinct, yet the firm should seek out positive synergies in implementation programs.

CHAPTER 10: MANAGING THROUGH THE LIFE CYCLE OPENING CASE: RYANAIR

DEVELOPING COMPETITIVE STRATEGIC OPTIONS

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KEY IDEA

KEY IDEA

 Firms failing to act pre-emptively may face significant opportunity costs.

 Scenarios help the firm generate competitive strategic options.  The main building block for these scenarios is product life-cycle stage.  Successful strategies should have a strong creative element.  Life cycles are shortening for many products.

BUILDING PRODUCT LIFE-CYCLE SCENARIOS page 267 __________________________________________________________

KEY IDEA  Pioneers must be prepared to tap multiple sources to fund losses early in the life cycle.

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KEY IDEA  By the early-growth stage, customers accept the product, and the market leader should be profitable.

KEY IDEA  The most common government-imposed barriers are patents.  Firms sometimes lobby governments to impose regulations on their competitors.

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KEY IDEA  When the firm executes a low-price penetration strategy, it must accept low profit margins for a substantial time period. Continual cost reductions are essential to sustain low prices.

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KEY IDEA

KEY IDEA

 Generally, followers in growth markets are unprofitable and have negative cash flows.

 Imitation means copying the leader but being more effective in execution.

 The follower’s goal is to learn from others and minimize cost and risk.

 Leapfrogging goes one better than the leader by developing innovative and superior products and/or targeting emerging market segments.

KEY IDEA  A pioneer can sustain first-mover advantages by producing highquality products. The firm earns a leading reputation and sets the stage for creating a strong brand.

CHAPTER 10



MANAGING THROUGH THE LIFE CYCLE

BUILDING PRODUCT LIFE-CYCLE SCENARIOS

CONTINUED

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KEY IDEA

KEY IDEA

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KEY IDEA

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KEY IDEA

 By late growth, basic customer benefits and values are still important but may not enter into customers’ choice decisions. Customers are more likely to base their purchase decisions on additional benefits and values.

 In late growth, the firm must decide whether to target many segments or just a few.

 Creative Ways to Drive Growth in the Maturity Stage – Increase customers’ use of the product – Improve the product or service – Improve physical distribution – Reduce price – Reposition the brand – Enter new markets

 Markets that seem mature may have growth potential waiting to be unlocked via creative approaches.

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KEY IDEA  Market leaders in mature, concentrated markets should have low costs, decent profits, and positive cash flows.

KEY IDEA  Market leaders in concentrated markets have two major alternatives — long-run leadership or harvesting.

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KEY IDEA  Firms can make considerable profits in declining markets.

KEY IDEA  In a declining market, the firm’s options depend on market hospitality and its business strengths.

KEY IDEA  Followers in mature concentrated markets typically have higher costs and lower profits and are financially weaker than market leaders. But they may rejuvenate to become a major threat.

KEY IDEA  In mature fragmented markets, no firm has a large market share.

CHAPTER 11: MANAGING BRANDS WHAT IS A BRAND?

BRAND EQUITY AND THE VALUE OF BRANDS

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KEY IDEA

KEY IDEA

 Brand equity reflects the trust established between the brand owner and its customers.

 The brand is a symbol around which the firm and its customers can construct a relationship.

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KEY IDEA  Brand equity generally builds up slowly over time.  A brand can quickly lose value if not managed properly.

MONETIZING BRAND EQUITY

BUILDING AND SUSTAINING A STRONG BRAND

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KEY IDEA  Replacement cost and cash flow methods are two internal approaches for calculating firm brand equity.

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KEY IDEA  The firm earns a contribution to firm brand equity only when a customer purchases the brand.

KEY IDEA

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KEY IDEA

 Carefully chosen brand identity and consistent execution are critical to developing brand loyalty.

 Firm brand equity represents the brand’s balance sheet

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 Brand health checks compare a brand’s strengths against historic trends and benchmark competing brands.

MANAGING BRAND ARCHITECTURE page 305_____________________

KEY IDEA  The firm should carefully manage the evolution of its brand portfolio.  Firms adjust their brand portfolios in response to shifting consumer trends, competitive responses, and mergers and acquisitions.

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KEY IDEA  There are pros and cons for both multibranding and umbrella branding.

KEY IDEA  Increasingly, global firms make branding decisions at headquarters, rather than in individual countries.  Think global, act local! guides many firms.  Multinational firms should consider a brand portfolio that includes global, regional, and national brands. Overtime, the geographic scope of some brands may narrow, and other brands may broaden.

KEY IDEA  Firms that leverage brands secure automatic brand awareness for the new product. They avoid new brand introduction costs and may increase profits for little additional investment.  For an extension to be viable, the brand must have strong positive associations. The difference between these brand associations and the product extension should not be incongruous.

CHAPTER 11



MANAGING BRANDS

MANAGING BRAND ARCHITECTURE page 311_____________________

KEY IDEA  The firm can conserve brand equity by effective brand migration.

CONTINUED

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KEY IDEA  The firm can enhance brand equity by effective strategic alliances.

KEY IDEA  Three ways to reposition a brand are: address new market segments, change brand associations, and alter the brand’s competitive target.  Continuous innovation pre-empts the need to revitalize a brand.

CHAPTER 12: MANAGING THE PRODUCT LINE THE PRODUCT PORTFOLIO CONCEPT page 322_____________________

KEY IDEA  The firm’s products have important resource-related interrelationships.  The firm does not optimize its overall profits by maximizing profits from individual products. It must consider the entire product line.  Firms with imbalanced portfolios are vulnerable to acquisition.

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KEY IDEA  Portfolio analysis is best viewed as an additional tool for setting investment priorities — not as an alternative to financial analysis.

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KEY IDEA  Financial analysis methods rely on forecasts — these can be highly uncertain. Financial analysis does not consider strategic issues.  Too much reliance on financial analysis can lead to misallocation of resources across products.

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KEY IDEA  Portfolio analysis is a systematic, organized, and easily communicated way of assembling, assessing, and integrating important information about product opportunities.

 Financial analysis methods ignore marketing considerations. page 327_____________________

KEY IDEA  Long-run market growth and RMS define the growth-share matrix.  The growth-share matrix can be overused and misinterpreted.

page 328_____________________

KEY IDEA  The firm can use the multifactor matrix (Chapter 8) for resource allocations among products.  The growth-share and multifactor matrices have advantages and disadvantages that impact the viability of strategic recommendations that they generate.

KEY IDEA  Portfolio analysis addresses many problems with financial analysis.

CHAPTER 12



MANAGING THE PRODUCT LINE

OTHER IMPORTANT PRODUCT INTERRELATIONSHIPS page 331 __________________________________________________________

KEY IDEA  Sometimes one product helps another (positive complementarity); sometimes it hurts another (negative complementarity).

KEY IDEA  When making product decisions, the firm should carefully consider current and potential interactions with the firm’s other products.

PRODUCT LINE BREADTH: PROLIFERATION VERSUS SIMPLIFICATION page 332_____________________

page 333_____________________

KEY IDEA  Firms face conflicting pressures for broad versus narrow product lines.  ROS and ROI measure very different things.

KEY IDEA  Firms often differentiate individual products by time availability, product performance, and package quantities.  Implementing a firewall strategy can lead to product proliferation.

page 336 __________________________________________________________

KEY IDEA  A simplified product line can make the firm more competitive. But the firm should use appropriate criteria for its deletion decisions.

KEY IDEA  Sometimes the firm can successfully resurrect deleted products.

OTHER PRODUCT LINE ISSUES page 336_____________________

KEY IDEA  Beware deleting products without considering all relevant issues.

page 334_____________________

KEY IDEA  Product proliferation refers to product variety. Market segmentation explores differences in customer needs.  The firm can develop multiple offers based on a single product, targeted to several segments.

CHAPTER 13: DEVELOPING NEW PRODUCTS OPENING CASE: THOMSON FINANCIAL – BOARDLINK page 347_____________________

KEY IDEA  Successful new products enhance shareholder value.

WHERE AND HOW INNOVATION OCCURS page 348 __________________________________________________________

KEY IDEA  Innovation embraces new products, but also processes and technologies.  Sustaining innovations improve products and processes on existing performance dimensions. Disruptive innovations offer different value propositions.

KEY IDEA  The firm should serve current, especially loyal, customers — it must also create new customers.

 Leading firms often invest in sustaining versus disruptive innovations.

NEW PRODUCT DEVELOPMENT page 352_____________________

KEY IDEA  Product development trade-offs include time, risk, and financial return. Four development approaches are basic technology research, applied technology research, market-focused development, and market tinkering.

page 349_____________________

KEY IDEA  The customerinnovation relationship involves a two-way communication flow.

page 351_____________________

KEY IDEA  Firms can be Isolates, Followers, Shapers, or Interactors, based on their innovation focus and customer focus.

CHAPTER 13



DEVELOPING NEW PRODUCTS

THE STAGE-GATE PROCESS FOR NEW PRODUCT DEVELOPMENT page 354_____________________

KEY IDEA  The firm should develop clear criteria for a project to pass through each gate.

page 355_____________________

KEY IDEA  The stage-gate process is a systematic method for new product development. The stages are idea generation, preliminary screening, concept development, business-case analysis, development, product testing, market-factor testing, test marketing, and commercialization.

page 359_____________________

KEY IDEA  The firm should tap multiple sources for new ideas.  “The best way to get a good idea is to get a lot of ideas.”42

page 360_____________________

KEY IDEA  Preliminary screening aims to form a balanced portfolio of new product ideas.  Different types of new product idea require different screening criteria.

 The firm must manage Type I and Type II errors.  The cost of failure increases at each stage. page 361_____________________

KEY IDEA  The product concept should appeal to customers and guide development.

page 362_____________________

KEY IDEA  Business-case analysis assesses the financial viability of a product concept.  Forecasting sales revenues is the most difficult step in business-case analysis.

page 365_____________________

KEY IDEA  Many firms make very large investments in product development.  Multi-functional teams and customer involvement aid the development process.  Design is an increasingly important part of the development process.

page 366_____________________

KEY IDEA  The House of Quality maps customer needs into product design.

DEVELOPING NEW PRODUCTS

page 367 __________________________________________________________

KEY IDEA  The firm should conduct in-company alpha tests throughout development. It should conduct customer beta tests in the latter phases.  Failure to test products sufficiently can have serious marketing and financial consequences.

PRODUCT ADOPTION page 371_____________________

KEY IDEA  There are several types of new product adopters.  The interplay of several factors determines the speed of new product adoption.

KEY IDEA  Market-factor testing includes simulated environments and virtual testing.  Product testing is insufficient — the firm should test the entire marketing offer.

page 368_____________________

KEY IDEA  In deciding on test marketing, the firm should be aware of several pros and cons.



CHAPTER 13

page 369_____________________

KEY IDEA  Commercialization is often where firms make their biggest bets.

CHAPTER 14: INTEGRATED MARKETING COMMUNICATIONS COMMUNICATIONS: PROCESS AND TOOLS page 380 ________________________________________________________________________________________________

KEY IDEA  In the communications process, senders send information, and receivers receive information.

KEY IDEA  Personal communication is face-to-face with individuals or groups.

KEY IDEA  Non-personal communication occurs without interpersonal contact between sender and receiver.

 Miscommunication arises from problems in encoding, distortion, and decoding. page 381_____________________

KEY IDEA  Quasi-personal communications embrace interaction and feedback without human involvement.

page 382_____________________

KEY IDEA  Word-of-mouth communication occurs among customers and potential customers.

DEVELOPING THE COMMUNICATIONS STRATEGY page 383_____________________

KEY IDEA  The firm has two major types of communications targets: those directly related to the firm’s products and others not directly related.

page 384_____________________

KEY IDEA  Most firms use either push or pull strategies — large firms often use combination push/pull strategies.

INTEGRATING COMMUNICATIONS EFFORTS page 389_____________________

KEY IDEA  Integration ensures maximum communications impact to achieve firm goals.

page 385_____________________

KEY IDEA  Firms have many communications targets other than customers.

page 387_____________________

KEY IDEA  Communications objectives and timelines drive the choice of communication tools.

CHAPTER 15: NON-PERSONAL COMMUNICATION ADVERTISING page 396_____________________

KEY IDEA  Advertising is critical for both market and communications strategies.

page 402_____________________

KEY IDEA  Rational-style advertising includes demonstration, comparative, one- and two-sided appeals, refutational, and primacy or recency.  Emotional-style advertising includes humor, fear, celebrity endorsement, and storytelling.

DIRECT MARKETING page 412_____________________

KEY IDEA

page 397_____________________

KEY IDEA  Hierarchy-of-effects models for high involvement and low involvement products are central to understanding how advertising works.

page 407_____________________

KEY IDEA  In setting media objectives, the firm must consider reach, frequency, and gross rating points.  The advertising message must appear in the right place at the right time.

page 398_____________________

KEY IDEA  There are two types of advertising objectives — output and intermediate.

page 400_____________________

KEY IDEA  Creating advertising is an enigma, more art than science, mysterious and unexplainable.

 Output objectives are what the firm ultimately wants to achieve. Intermediate objectives relate to hierarchy-ofeffects models and include awareness, knowledge, liking or preference, and trial. page 408_____________________

KEY IDEA  The objective and task method, based on marginal analysis, should underpin the budgeting process. Rule-of-thumb methods can lead to unsatisfactory results.

page 410_____________________

KEY IDEA  Evaluating advertising effectiveness is a complex task. The firm must choose among various types of tests and measures.

 Major timing options are continuous, flighting, and pulsing.

PUBLICITY AND PUBLIC RELATIONS page 414_____________________

SALES PROMOTION

THE INTERNET

page 415 ____________________

page 417_____________________

KEY IDEA

KEY IDEA

KEY IDEA  Direct marketing offers advantages over mass advertising: flexibility, action-oriented customer response, better measurement, predictability, better customer knowledge, ability to tailor the offer, and ability to identify prospects.

 Publicity and Public Relations relies on an intermediary, typically the press, to transmit a message to a target audience.

 Sales promotion is a potpourri of techniques, mostly for short-term objectives.  Poorly designed sales promotion programs hurt profits and brand image.

 Only quasi-personal communication taps the web’s true potential.

CHAPTER 16: DIRECTING AND MANAGING THE FIELD SALES EFFORT MARKETING’S ROLE IN THE FIELD SALES EFFORT page 427_____________________

KEY IDEA  Effectively managing the sales/marketing interface is critical for achieving sales excellence.

page 428_____________________

KEY IDEA  Firms often group customers into separate tiers — like Tier I (platinum), Tier II (gold), and Tier III (bronze) — and address each differently.

page 429 __________________________________________________________

KEY IDEA  Some customers purchase small volumes but disproportionately consume the firm’s resources.

KEY IDEA  Tier I customers provide the highest levels of sales and profits.  Strategic account managers are responsible for individual accounts.  Global account managers are responsible for multinational customers that want to make global purchases.

THE TASKS OF SALES FORCE MANAGEMENT page 430 __________________________________________________________

KEY IDEA  Sales objectives are the firm’s desired results. Achieving sales objectives is the sales force’s central task. Sales objectives turned into specific performance requirements are called quotas.

page 432_____________________

KEY IDEA  The firm can set sales objectives related to customer retention, market share, price realization, close rates, and customer satisfaction.

KEY IDEA  Gross sales revenues are the traditional basis for sales objectives. Sometimes firms base objectives on profit or profit contribution.

page 431 __________________________________________________________

KEY IDEA  Sales objectives integrate the firm’s market strategy and sales strategy.

page 435 __________________________________________________________

KEY IDEA  Salespeople conduct several activities. In many firms, they spend less than 20 percent of time face-to-face with customers trying to make sales.

KEY IDEA  Guidelines should specify how salespeople must allocate their time.

KEY IDEA  The firm should break down sales objectives by control unit — sales regions, sales districts, and individual sales territories. It should also calendarize sales objectives — quarterly, monthly, and possibly weekly.

DIRECTING AND MANAGING THE FIELD SALES EFFORT



CHAPTER 16

page 437 ________________________________________________________________________________________________

KEY IDEA  Selling effort guidelines must mirror the structure of sales objectives.  Typically, selling effort is not proportional to sales objectives.

KEY IDEA  The value proposition anchors the sales approach — the central message the salesperson delivers to customers.

KEY IDEA  The firm should tailor the sales message to different customer targets and design a process to explain the firm’s benefits.

 The firm must break down selling effort allocations by individual control units like sales regions, sales districts, and sales territories.  The firm should allocate selling effort by account category. page 439 __________________________________________________________

KEY IDEA  Selling is a system to facilitate customer buying.  Coaching, counseling, and training can improve the selling process.

KEY IDEA  The employee-based or outsourced sales force decision involves control, cost, and flexibility trade-offs.

page 440_____________________

KEY IDEA  Key sales organization design variables are degree of centralization or decentralization, number of management levels, and span of control.  Specialization may lead to higher sales but also higher costs. It may also cause problems when several firm salespeople sell to the same customer.

page 442_____________________

KEY IDEA  The firm should implement sales force reorganizations very carefully.

CHAPTER 16



DIRECTING AND MANAGING THE FIELD SALES EFFORT

THE TASKS OF SALES FORCE MANAGEMENT

CONTINUED

page 443 __________________________________________________________

KEY IDEA

KEY IDEA

 Sales territories should have roughly equal sales potential and workloads.

 The firm should actively engage salespeople in the sales planning process.

page 446_____________________

page 447_____________________

KEY IDEA  The firm’s reward system should motivate salesperson behavior. Primary components are financial incentives, recognition, and promotions.

page 444_____________________

KEY IDEA  A pipeline system continually tracks success at different stages in the selling process. Rigorous pipeline analysis leads to better forecasts.

KEY IDEA  The firm should develop rigorous systems for recruiting, selecting, training, retaining, and replacing salespeople.

 The primary ways to pay salespeople are salary, commission, and bonus.

APPENDIX 16.1: ILLUSTRATION OF SETTING OBJECTIVE BY PRODUCT AND CUSTOMER page 452

KEY IDEA  To simplify translating product and segment objectives into sales objectives, the firm can focus on existing versus new products and existing versus new customers.

CHAPTER 17: DISTRIBUTION DECISIONS DISTRIBUTION SYSTEMS AND THEIR EVOLUTION page 458_____________________

KEY IDEA  A distribution channel comprises many enterprises, their interrelationships, and the functions they perform.  A distribution system’s effectiveness changes over time.  Distribution arrangements are more difficult to change than other marketing implementation elements.

DEVELOPING A DISTRIBUTION STRATEGY page 458_____________________

KEY IDEA  Distribution closes gaps in physical location and time between finished products at the factory and consumers and end-user customers.

page 460 __________________________________________________________

KEY IDEA  Direct distribution methods, combined with database marketing, are powerful alternatives to indirect distribution.

KEY IDEA  Advantages for wholly owned retail distribution are greater operational control and earning the entire retail margin; disadvantages are capital required for growth, and operating risk.

page 461_____________________

KEY IDEA  Direct channels: Supplier firms manage the contact with consumers and end users. Indirect channels: intermediaries like distributors, wholesalers, and retailers play a major role in transferring products from suppliers to consumers and end users.  Intermediaries offer value-added benefits that suppliers cannot. They provide product assortments, shopping experience, market access, and often reduce the costs of conducting various distribution functions.

CHAPTER 17



DISTRIBUTION DECISIONS

DEVELOPING A DISTRIBUTION STRATEGY page 462_____________________

KEY IDEA  For B2B suppliers, conditions typically favor either direct or indirect distribution. In each case, there are several options.

CONTINUED

page 463_____________________

KEY IDEA  Suppliers should select distribution channel(s) that are appropriate for their target segment(s) and perform the required functions.  Providing customer benefits and values, rather than traditional industry practice, should guide the supplier’s distribution choices.

page 464_____________________

KEY IDEA  Critical distribution strategy decisions include identifying the functions to be performed, deciding on direct versus indirect channels and distribution channel breadth, and setting criteria for intermediaries.

MANAGING DISTRIBUTION CHANNELS page 466_____________________

KEY IDEA  A well-designed compensation system can help the supplier direct its distributors’ efforts.

page 468_____________________

KEY IDEA  Intermediaries add value by reducing the number of relationships a supplier and end-user customer must have.

page 469_____________________

KEY IDEA  Distribution channel members have high conflict potential.

 Intermediaries occupy the nexus between suppliers and end-user customers.

page 471_____________________

KEY IDEA  When suppliers attempt to improve their power positions, they should try to anticipate the actions of other distribution channel members.

page 472_____________________

KEY IDEA  The partnership model is an increasingly popular alternative to the power/strategic conflict approach. Channel members jointly set goals and work together for greater efficiency and effectiveness.

LEGAL ISSUES IN DISTRIBUTION page 473_____________________

KEY IDEA  Distribution laws vary by industry and geography. What is illegal in the U.S. may be normal business practice in other countries.  In the U.S., many antitrust lawsuits involve distribution issues.

CHAPTER 18: MANAGING SERVICES, CUSTOMER SERVICE, AND CUSTOMER RELATIONSHIP MANAGEMENT PRODUCTS, SERVICES, AND CUSTOMER SERVICE page 480_____________________

KEY IDEA  Customers buy offers or promises of benefits and values; the key element may be a product or a service.

page 481_____________________

KEY IDEA  A service is: any act or performance that one party can offer another that is essentially intangible and does not result in the ownership of anything.  Customer service enhances value inherent in the core product or service.

CHARACTERISTICS OF SERVICES page 482_____________________

KEY IDEA  Services are over 70 percent of employment and GDP in developed countries.  Factors driving services growth are rising incomes, age-related demographic shifts, outsourcing, leveraging core competence, franchising, customer behavior changes, deregulation, technology, and globalization.

page 483 __________________________________________________________

KEY IDEA  Moments of truth are opportunities for customer satisfaction or dissatisfaction.

KEY IDEA  Customers often focus on tangible aspects of intangible services — service facilities, service equipment, service personnel, and service guarantees.  Service guarantees should be unconditional, painless to invoke, and easy and quick to collect. They should also be simple to understand and communicate and meaningfully related to the service being guaranteed.

CHAPTER 18



M A N A G I N G S E R V I C E S , C U S T O M E R S E R V I C E , A N D C U S T O M E R R E L AT I O N S H I P M A N A G E M E N T

CHARACTERISTICS OF SERVICES

CONTINUED

page 484 __________________________________________________________

KEY IDEA  For services, production and consumption are inseparable.  Since the firm cannot inventory services, it must either increase or decrease supply and/or demand.

KEY IDEA  Reducing variability is more difficult for services than for products.

page 485 __________________________________________________________

KEY IDEA  Service variability can be positive when human service providers tailor their behavior for individual customers.

KEY IDEA  Because they cannot be inventoried, services are perishable.

 The firm can reduce human variability through automation.

page 486 ________________________________________________________________________________________________

KEY IDEA  Services are divisible — the service blueprint is the sequence of activities that make up the service.

KEY IDEA  People do not acquire services in a physical sense.

KEY IDEA  Fellow customers can influence the service experience — the customer is NOT always right.

SERVICE QUALITY page 487_____________________

KEY IDEA  Expectations disconfirmation is perceived quality less expected quality.  SERVQUAL identifies five gaps for diagnosing service quality.

page 488_____________________

KEY IDEA  Variables influencing perceived service quality include responsiveness, reliability, assurance, empathy, and tangibles.  SERVQUAL’s related subscale scores provide actionable items for improving service performance.

page 490 __________________________________________________________

KEY IDEA  High satisfaction no longer guarantees high customer retention. Firms must delight their customers.

page 491_____________________

KEY IDEA  A drive for service efficiency can lead to inflexible systems — they cannot deal with idiosyncratic customer behavior.

KEY IDEA  All firms experience service failures; how they address them is key.

page 492_____________________

KEY IDEA  Few aggrieved customers complain — they just defect. Firms should make complaining easier, then follow up swiftly and aggressively.

M A N A G I N G S E R V I C E S , C U S T O M E R S E R V I C E , A N D C U S T O M E R R E L AT I O N S H I P M A N A G E M E N T



CHAPTER 18

CUSTOMER SERVICE page 493 __________________________________________________________

KEY IDEA  Customer service can be more central than the core product or service.

KEY IDEA  Customer service has eight flower-of-service dimensions.

page 495 __________________________________________________________

KEY IDEA  Customers requiring similar products and services may have differing needs for customer service, and vice versa.

KEY IDEA  Human capital planning requires special attention to recruitment, selection, training and development, appraisal, recognition, reward, and retention of customer service employees.

page 494_____________________

KEY IDEA  Customer service is different before, during, and after the purchase.

page 497_____________________

KEY IDEA  Customer service infrastructure combines the technological and human resources necessary to deliver high-level customer service.

CUSTOMER RELATIONSHIP MANAGEMENT page 497_____________________

KEY IDEA  Customer defection rate is a more valuable performance measure than customer satisfaction. The firm should identify and measure critical elements driving customer satisfaction.

page 498_____________________

KEY IDEA  CRM is a synthesis of marketing, quality management, and customer service to form mutually beneficial relationships with customers.  Technology has an important role in CRM, but CRM is not about technology.

page 499_____________________

KEY IDEA  Superior customer databases are relevant, structured, current, consistent, accurate, accessible, complete, and secure.  The customer database should distinguish among customers — on loyalty and value to the firm.  Customer databases are more valuable when they also contain data about relationships with competitors.

page 502_____________________

KEY IDEA  The firm should examine its privacy policy for the impact on customer relationships.  Customer loyalty programs have many design parameters.

CHAPTER 19: MANAGING PRICE AND VALUE OPENING CASE: SOUTHWEST AIRLINES page 509_____________________

KEY IDEA  Price has a larger impact on profits than any other lever. Price changes affect margins, unit volumes, costs, and customer perceptions.

Par t 1: D e veloping Pr ic ing State g y page 510_____________________

KEY IDEA  In setting prices, the firm should consider perceived customer value, costs, competition, and strategic objectives. Excessive focus on a single element leads to suboptimal pricing decisions.

PERCEIVED CUSTOMER VALUE page 511 __________________________________________________________

KEY IDEA  What seems to be a pricing problem may be a perceived value problem.

KEY IDEA  The firm creates value for customers primarily via non-price elements in its offer — the marketing mix.  Many factors affect the value that customers perceive in the firm’s offer.

page 515 __________________________________________________________

KEY IDEA  Price apportions value — some to the firm, some to customers.

KEY IDEA  Pricing at what the market will bear is not useful advice; the market will bear many prices. page 516_____________________

KEY IDEA  PED helps estimate market demand when price changes.

M A N A G I N G P R I C E A N D VA L U E



CHAPTER 19

COSTS page 517_____________________

KEY IDEA  Critical topics in perceived customer value are creating, measuring, and capturing value. Customers’ price sensitivity is closely related to value.

page 519_____________________

KEY IDEA  Costs have an important price-setting role for birth control, death control, and profit planning.

page 518 __________________________________________________________

KEY IDEA  In cost-plus pricing, the firm identifies its costs and adds a profit margin.  Cost-plus pricing does not consider customer value.

KEY IDEA  Disadvantages of costplus pricing are profit limitations, arbitrary cost measurement, and mismatch with market realities.  Firms often determine fixed costs per unit arbitrarily by assuming some level of sales or production.

page 520_____________________

KEY IDEA  Customers do not care about the firm’s costs; they care only about the value they receive.  The real purpose of price is not to recover costs but to capture value in the customer’s mind.

COMPETITION page 520_____________________

KEY IDEA  The firm should seek offer superiority, not price superiority.

page 521_____________________

KEY IDEA  In high fixed cost/ low variable cost oligopolies, firms often cut prices to gain extra volume. Prices can spiral downward and profits vanish.

page 522_____________________

KEY IDEA  Rampant price-cutting is disastrous for all but the low-cost producer.

page 523_____________________

KEY IDEA  The firm has various price and non-price actions for responding to price competition.

CHAPTER 19



M A N A G I N G P R I C E A N D VA L U E

STRATEGIC OBJECTIVES page 524 __________________________________________________________

KEY IDEA  The firm should link pricing strategy to its strategic objectives.

KEY IDEA  The firm’s major options for strategic objectives are: maximize growth in volume and/or market share, maximize profits, or maximize cash flow.

Par t 2: Se tt ing Pr ices USING PERCEIVED CUSTOMER VALUE, COSTS, COMPETITION, AND STRATEGIC OBJECTIVES page 530_____________________

KEY IDEA  CMU and CMR are critical concepts in price-setting. They allow the firm to calculate breakeven sales volumes for various pricing options.

page 531_____________________

KEY IDEA  Many firms make a fixed offer, then vary the price when under pressure. Firms with a price menu have variable offers with fixed prices.

TACTICAL PRICING page 532_____________________

KEY IDEA  Single product prices are rare in the real world.  Pricing actions vary between highly visible and opaque.

PRICING MANAGEMENT page 533_____________________

KEY IDEA  The firm needs good systems to track elements in the pricing toolkit.  The pricing toolkit produces the pocket price via the price waterfall.  Pricing toolkit elements are differentially important to customers.

page 538_____________________

KEY IDEA  The firm should develop pricing policies at high levels in the firm.  Price-setting can be a strategic capability.

LEGAL AND ETHICAL ISSUES IN PRICING page 539_____________________

KEY IDEA  Many governments scrutinize prices for illegal activity.

CHAPTER 20: ENSURING THE FIRM IMPLEMENTS THE MARKETING OFFER AS PLANNED A MODEL FOR DEVELOPING AN EXTERNAL ORIENTATION: THE VALUES STATEMENT page 552_____________________

KEY IDEA  Organizational values are a common set of beliefs that guide the behavior of the firm’s members. They are often integral to a firm’s success.  Values statements are worthwhile only if the entire firm embraces them.

TRANSFORMING THE ORGANIZATION TO BECOME EXTERNALLY ORIENTED page 554_____________________

KEY IDEA  For organizational transformation, the firm must address organizational structure, systems and processes, and human resource management.

page 555_____________________

KEY IDEA  Functional organizations works best when markets and products are homogeneous.

page 561 ________________________________________________________________________________________________

KEY IDEA  The firm’s organizational structure should support an integrated marketing approach.

KEY IDEA  Systems and processes help produce organizational outputs and provide consistency to customers.

KEY IDEA  Good hard systems improve operational efficiency. They also improve marketing effectiveness and help secure differential advantage.

CHAPTER 20



ENSURING THE FIRM IMPLEMENTS THE MARKETING OFFER AS PLANNED

TRANSFORMING THE ORGANIZATION TO BECOME EXTERNALLY ORIENTED page 562_____________________

KEY IDEA  Soft systems can also help make firms more externally oriented.

page 563_____________________

KEY IDEA  HRM gives the firm many opportunities to focus on the customer.  If the firm hires the right people and develops and manages them appropriately, an external orientation should follow.

page 565 __________________________________________________________

KEY IDEA  Managers at all functions and levels should have consistent and regular contact with customers.

KEY IDEA  Customer-focused measures put teeth into the external orientation effort.

SUSTAINING AN EXTERNAL ORIENTATION page 567_____________________

KEY IDEA  Today’s success sows the seeds of tomorrow’s defeat.

CONTINUED

page 564 __________________________________________________________

KEY IDEA  Hiring experienced marketers, including those at the highest levels, can play a major role in developing an external orientation.  Marketing education can help marketers learn new behaviors that help instill an external perspective.

KEY IDEA  Many firms’ training courses include customer input and/or participation.

CHAPTER 21: MONITORING AND CONTROLLING FIRM PERFORMANCE AND FUNCTIONING KEY PRINCIPLES OF MONITOR-AND-CONTROL PROCESSES page 574_____________________

KEY IDEA  Monitor-and-control processes are the most powerful means of changing individual behavior in firms.

page 575 __________________________________________________________

KEY IDEA

KEY IDEA

 Post-action control means waiting for a preset time before comparing actual results against performance standards.

 Steering control continually compares the firm’s actual results to performance standards and allows it to be more market responsive.

 Monitor-and-control processes focus on the firm’s results: Is the firm achieving its planned results? And on firm functioning: Is the firm functioning well?

 Feedback cycles — the time between the firm’s actions and the results it measures — should not be too short.

page 576 __________________________________________________________

KEY IDEA  The firm should use objective measures for monitor-and-control purposes; if scales are appropriate, these should be validated.

KEY IDEA  The firm should measure performance at multiple organizational levels.  Good performance in a unit or sub-unit can hide poor performance elsewhere. The firm must isolate the problem areas.

MONITORING AND CONTROLLING FIRM PERFORMANCE page 581_____________________

KEY IDEA  The firm should measure both unit sales volume and sales revenues.  The firm must ensure its volume measures are accurate and consistently derived.

page 583_____________________

KEY IDEA  Marketers generally prefer profit contribution and direct product profit measures to bottom-line profit.

page 584 __________________________________________________________

KEY IDEA  Most firms measure product profitability; fewer firms measure customer profitability.

KEY IDEA  Sales volume and profitability measures have serious shortcomings; they don’t show the firm’s performance relative to its competitors.

CHAPTER 21



MONITORING AND CONTROLLING FIRM PERFORMANCE AND FUNCTIONING

MONITORING AND CONTROLLING FIRM PERFORMANCE page 585_____________________

KEY IDEA  Customer satisfaction and attitudes are widely used soft measures.  A well-structured, validated, independently administered customer survey provides the best soft data.

CONTINUED

page 586_____________________

KEY IDEA  Success on intermediate measures does not guarantee the firm’s output performance. But the firm can achieve good output performance only by achieving good intermediate performance.  Intermediate objectives are particularly important in long-cycle sales.

MONITORING AND CONTROLLING FIRM FUNCTIONING page 587_____________________

KEY IDEA  Implementation control: Did the firm implement its planned actions?

page 588_____________________

KEY IDEA  Strategy control: Is the firm’s market strategy well conceived and on target?

page 589 __________________________________________________________

KEY IDEA  Distinguishing between strategy and implementation problems is crucial.

KEY IDEA  Managerial process control: Are the firm’s processes the best they can be?

 Post-action approaches are generally superior for strategy control. page 590_____________________

KEY IDEA  The marketing audit is a comprehensive process for evaluating the firm’s marketing practices.

THE BALANCED SCORECARD page 592_____________________

KEY IDEA  The balanced scorecard reflects a steering control philosophy; it balances output, intermediate, and input marketing measures.

APPENDIX: FINANCIAL ANALYSIS FOR MARKETING DECISIONS SECTION 1: PARTITIONING COSTS FOR MARKETING DECISION-MAKING page A2 _____________________

KEY IDEA

page A5 _____________________

KEY IDEA

 Variable costs increase and decrease as volumes increase and decrease.

 For marketing decisionmaking, the firm should reclassify its costs as variable and fixed.

 Fixed costs do not vary with volume over a reasonable range.

 A contribution magin approach makes it easy to calculate the profit impact of volume changes.

page A7 _____________________

page A8 _____________________

KEY IDEA  Managers can change programmed fixed costs in the short/medium run. Standby fixed costs only change in the long run.

KEY IDEA  The firm can use the breakeven approach to calculate the profit impact of changing programmed fixed costs.

page A6 ___________________________________________________________

KEY IDEA  Contribution margin per unit is contribution on a per unit basis.

KEY IDEA  At the breakeven point contribution margin covers fixed costs and profits are zero.  Profit is a residual. It’s what is left over after contribution margin covers fixed costs.

page A10 __________________________________________________________

KEY IDEA  The difference between a direct cost and an indirect cost is simple to figure out. If the product, sales territory, or function were to go away and the cost would also go away, it is a direct cost. If not, it is an indirect cost.

KEY IDEA  When the firm drops a product, other products must carry its indirect cost allocations.

page A13 ____________________

KEY IDEA  Activity-based costing is useful for converting product income statements into customer income statements.

SECTION 2: MARGINS

SECTION 3: SHAREHOLD VALUE ANALYSIS

page A15 __________________________________________________________

page A17 ____________________

KEY IDEA  Retailers typically express margins as a percentage of their selling price.

KEY IDEA  The term margin means different things to different people. When using the term, take the time to identify the true meaning in the specific situation.

KEY IDEA  Shareholder value analysis should be used with care.