--- title: "Introduction to marketing: Part 3" author: "François Pelletier" output: pdf_document --- #Week 7 : Go to market strategies ## 7.1 Introduction and execution Great idea + Great brand + Target customers = time for execution ## 7.2 Go to market strategies: Introduction 1. Omni-channel strategy and online-offline interaction 2. How to find lead users and facilitate influence and contagion 3. Targeting and messaging, pricing to value, customer access and distribution ### Recap - 5c's (Constraints) + customers (need) + Competitors (Relative strength) + Company (Resources) + Collaborators (Partnership) + Context (Change) - 4P's (Parameters) + Product + Price + Promotion + Place - STP + Segmentation + Targeting + Positioning - The product should: + Deliver exceptional value + Address a large market + Be easy to explain and describe + Require not much capital to test and scale **Execution - The key question:** What is wrong with the status-quo ? ### Marketing math 101 Success = Product x Marketing You have to be good at both, on a scale of 0 to 10: - Have a great product - Have the right customer, brand fit, STP and 4P's ## 7.3 Friction 2 most important frictions - Search frictions: + Where do I buy a TV ? + Who will have the best price and assortment + Search cost to get a better deal - Geographical frictions: + Cost vs benefits + Leave the tyranny of local options ## 7.4 Goods and information Prior to the internet: all markets were local Internet: Allow businesses to pool customers - In smaller markets: get unavailable goods - Get information: How to spend our time (complement) ## 7.5 Academic research Content: - A lot is purely local (services, restaurants, people to date) - Websites: Yelp, OKCupid 1 million population yiends 50-60 websites Product: Farther you live from physical retail location: go virtual else go to nearby store. Online: - Lower prices or lower search costs - Transact with others more efficiently - Better information about local activities - Improved customer convenience ## 7.7 The long tail ![](file:///home/francois/Intro-to-marketing-course-notes/7_7_long_tail.png) Historically: World of hits Now: Infinite slots Long tail exists: - Economics of storage and distribution (supply side) - Endogenous: moreways to discover variety (demand side) Old-new economics: - Pareto: 80%/20% rule - Zipf: 2nd: 1/2 of the first, 3rd = 1/3 of the first Key principles: tyranny of locality - Once upon a time in India Not enough demand for a movie theater but profitable from renting. 1. Q1: range Quality/Satisfaction ? 2. Q2: Implies for filtering ? (more variance in satisfaction) The ratio Niche/Hits is changing Distribution efficiency is amplifying Recommendations and reviews drive sales Collective sales of niche products > Hits ## 7.8 The long tail II Research findings: Disentangling supply side from demand side Study: Data from retailer with two distribution channels: internet and catalog. Differences between 2 channels: - Gini coefficient: G = A/(A+B) - Lorenz curve ![](file:///home/francois/Intro-to-marketing-course-notes/7_8_Economics_Gini_coefficient2.svg) Internet: More evenly distributed sales. differences not attributed to price and availability. More niche products sold. - Directed search - Non directed search - Recommendation systems **Critiques** - Natural monopoly (hits) - Double jeopardy: Unfamiliar are less liked ([Million short](https://millionshort.com/)) [Chris Anderson: Technology's long tail](http://www.ted.com/talks/chris_anderson_of_wired_on_tech_s_long_tail?language=en) ## 7.9 How internet retailing startups grows Data required - Gather sales info - Customer ID / Date / Transaction / Value / Zip code - Geo-demo "real world" data Question: - Why do some locations have more customers than others ? What matters the most in internet retailing: 1. Alter cost-benefit tradeoff: Making things closer sometime at a better price 2. Sales evolution is structured and predictable: sales-time patterns - Customers talking to each others - Observation (packaging is a brand) 3. Good to great - Expansion to niche locations - Spacial structure - Find your doppelganger (similar locations far from each other) - Physical distance vs. social distance - More chances of interactions if customers have similar tastes in different products and services. 2 important patterns: 1. Sales start in larger cities and spread through proximity 2. Sales in smaller areas with "similar" kinds of people (age, education, occupation, ...) Long tail over location ![](file:///home/francois/Intro-to-marketing-course-notes/7_9_long_tail_location.png) ## 7.10 Preference isolation Shelf space allocation: Similar % of shelf space than % of population. In total same shelf space in the market for a same amount of customers but is distributed evenly across different stores, indementently of the size of the market. Preference minority is correlated to internet sales. # Week 8 ## 8.1 Brands and digital marketing Use of connected devices. It is still marketing. 1. Social commerce: reviews, blogs, network of curators 2. Digital ad, behavioral targeting / big data, micro-level targeting 3. Experimentation and testing Intangible assets are 50% of the valuation of a business, against 20% in the 50's A third of the value is attributed to brands. [Stocks for the long run](http://www.amazon.com/Stocks-Long-Run-Definitive-Investment/dp/0071800514) ![Top 20 brands](file:///home/francois/Intro-to-marketing-course-notes/8_1_brandz_100_chart.jpg) Goals and tactics: - Brand goals: + Heart + Mind + Thinking + Feeling - Key tactic: + Real world events - Outstanding value and positioning: + Authenticity and transparency (all stakeholders) + Brand personality and "hjumanization" + "Infinite" life and potential for serendipity (finding valuable or pleasant things that are not looked for) Example: Jetblue - All you can jet (599$ for 30 days) - 10m blog refs - 31m search queries - 700% lift in traffic [29 days until 29](http://www.29daysuntil29.com/) \#McDStories -> Negative stories Organic celebrity: [Ree Drummond](http://thepioneerwoman.com/), one of the larget blogs in the USA ## 8.2 Customers and digital marketing Customer goals: - Attract - Engage - Retain Subject to: 1. Never pay more to acquire than you will recoup (CLV > AV) 2. CLV need to incorporate RLV (referral lifetime value) - 8% of customers are marketing agents - Top 100 will generate 15000 other customers Attractive target customer: - Monologue to conversation with technology - Amplification through virtual and real world synergy - Long tail leverage - Marketing "spend" as an asset Food for thoughht: - Status-quo experience that is broken - [Warby Parker](http://warbyparker.com/) ## 8.3 Reputation and reviews Apparently more than 60% of users read reviews before making a purchase and positive reviews increase conversion rates. One friction of market: we don't want to try new stuff - Many "up" to build a reputation. One "down" to lose reputation (Franklin) - Reputation is got without merit, lost without deserve (Shakespeare) Lots of sites for vacation, restaurants, cars, movies, contractors: - Chris Dixon from Trip Advisor: Startup build from bringing information into market. - More info: Almost always better - Information by firms: might affect behavior as well (better or worse) Data: - Hygiene grades cards shown in window of restaurants (mandatory in LA/NYC) - Impact of demand: - A: increase of 5,7% - B: Increase of 0.7% - C: Decrease of 1% - Objective quality went up: Hospital admission for gfood-borne illnesses down 13% Principles: - Review systems change behavior - Should be objective and verifiable, not actually the case ** Amazon and BN ** Reviews: 5* are frequent, 1* are rare. Average 4.14/4.45 Key findings: - Customer WOM affect sales - Better eviews boost sales - Downside effect of 1* is larger than upside effect of 5* - Text is actually read Might motivate to review their own books. Review writing service/ fake reviews. Real reviewer, more than 25000 reviews. So many reviews does not mean fake reviews. Need algorithms. According to Bing Lui, a data mining expert: - 1/3 reviews are fake - A lot of money is involved in this market [This Man Made $28,000 A Month Writing Fake Book Reviews Online](read.bi/OiuMh0) Difficult for a data mining algorithm because of sarcasm, jokes, ... Summary: Reviews could be helpful but authenticity is a concern. ** Trip Advisor ** Approach and key findings: - Examine distributions of reviews - Net gains should be highest for independent hotels with single-unit owners. - Such hotels have more 5* and neighbors have more 1* ## 8.4 Product life cycle ![Top 20 brands](file:///home/francois/Intro-to-marketing-course-notes/8_4_life_cycle.png) 1. Innovators (Research and Development) 2. Early adopters (Introduction) 3. Early majority (Growth) 4. Late majority (Maturity) 5. Laggards (Decline) Pricing, customers and distribution are different in 5 stages ## 8.5 Influence and how information spreads Obesity: Controversial / Spreads like a virus (video) Network: - Pathways through which information, advice, resources, support flows between people. - Physical or virtual - Homophily: + Characteristics of participants that are similar (cultural, taste, income) - Can be simple (dyad) or complex (hundred, thousand of nodes) - Nodes and connections - Ability to share information and resources - Constraints / geography Participation in a network is a choice. You decide how many contacts you have, how you will be central and how transitive (embedded) you will be. You are being affected ny a network: - Strangers and loose connectinos can affect us - 1 person is 4% of influence - 15 people are 40% of influence Six degrees of separation between you and anyone in the world ## 8.6 Elements of neighborhoods and examples Unit of analysis: Zip code, city blocks First order contiguity ![Matrices](file:///home/francois/Intro-to-marketing-course-notes/8_6_matrices.png) * [Social contagion and trial on the internet: Evidence from online grocery retailing](http://d1c25a6gwz7q5e.cloudfront.net/papers/1283.pdf) Influence parameter is positive and statistically significant after controlling for demographics. ## 8.7 More examples of influence Observations: Connections: - Numerous friends - Few carry a lot of influence Scale: - Inferring who is influencial to whom is difficult First social networks: - Classmates.com - Myspace - Facebook Heterogeneity: Significant variance (to be expected), influence vs susceptibility to influence. Average: 20% of friends have an influence. 1/3 are not influences by anyone. Distriubtion of posteriori mean Regression involving influence parameters: female influience male but not the opposite. Simple metrics: Friend count, profile views are inadequate. Retention: If top user defects then disproportionate negative effect Advantage: Superior identification of best customers. ## 8.8 More examples of influence pt. 2 Helpful to understand network structure as unexpected leaders emerge Contagion was at work and is very important in the diffusion process Social capital: - Ability of individual to secure benefits due to trust, cohesion, reciprocity. - Frequency and quality of informatino in a community High social capital = more efficient transfer of information Example: Bonobos.com - Apparel category has a non digital attribute. Fit and feel is difficult online. - Focus on new trials: incomplete knowledge ex ante. - Socially visible - 50% of trials would not have happened if no additional information about non-digital attributes was transmitted through social learning - Later trials: Driven by better information about non-digital attributes. Through communication with earlier triers - Customer category in product life-cycle - Proxy for offline social capital in target segment ? (20-45 men fashion forward) => Number of bars and liquor stores in area. How could other firms use this idea ? # Week 9: Targeting and Messaging, Pricing to Value, Customer Access and Distribution ## 9.1 Pricing strategies 1: Introduction Overview: - Motivation and puzzles - Inputs to the pricing decision + Floor, ceiling bound to the EVC (Economic value to the customer) metric + 5C's affect the final location of the actual price between floor and ceiling - Getting deeper into customer factors - Price sensitivity: Driver and measurement - Psychological factors **Motivation and puzzles** Pricing have a huge impact on profit but is often neglected. Can't find a private label everywhere else so evaluate the pricing is hard. Trader Joe's: Mainly private brands Price is more than a number: It sends signals to customer (premium/discount) ** Relate 5c's and pricing ** - Company issues - Target margin or IRR (Internal rate of return) - Consistency in the product line: Price of the new Toyota Camry is influenced by proces of the Honda Accord or Ford Taurus but also by the prices of Toyota Corolla and Toyota Avalon - Consistency in image: It's difficult for Neiman Marcus to cut proces in response to competition - Competitor issues - Competitive aggressiveness: Ability of the competitor to sustain a price-based response. Deep pockets / irrational behavior - willingness to respond on price: Direct financial cost to competition - Competitor position: Market leaders will initiate, followers will imitate. - Collaborator issues Incentives: - How hard will he work to push your product - What kind of pull support do they expect - What other fucntions will perform, how much influence do they have. - Also, it's not jsut abour margins: ROA also matters - ROA = Profit/Assets = Profit/Sales * Sales/Assets = Margin * Rotation - Customer issues: - Price sensitivity (elasticity) - What drives it ? - How can we measure it ? - Psychological issues - Odd numbered endings - Mental accounting - Prospect theory - Endowment effect ## 9.2 Pricing strategies 2: customer factors **Price sensitivity is affected by:** - Ease of comparison: - Private next to branded: - \+ ease of comparison - \+ Price sensivity - You want price comparison to be somewhat difficult - Expenditure - Large volume users are more price sensitive - Focal component is large part of total cost: more price sensitive - Shared expenses - Separation between customer and payer: lessen price sensitivity - Feeling the "pain" of payment : more price sensitive - Price quality inferences: - Higher price = higher quality - It lowers the price sensitivity | Var measured | Natural | Experimental | | --- | --- | --- | | Actual purchase | Sales data | Field experiment |Reference / Intention | Surveys | Tradeoff analysis Field experiment: ![fieldexp](file:///home/francois/Intro-to-marketing-course-notes/9_2_field_exp.png) In a grocery in the 1990's Conjoint analysis: - Warby Parker: Demand is highest at 79$ but gets flat before 95$. Sets price at 95$. Survey: - How likely to buy X at Y price. - Calculate elasticity through statistical analysis ** Psychological factors ** 9 endings: "Discount, in western culture" Experiment: Reg: 0,83$, 2817 Sales Disc: 0,63$, + 194% sales Disc: 0,59$, + 406% sales ## 9.3 Pricing strategies 3: Psychological factors **Mental accounting: who's happier ?** A: Won 50$ and 25$ on two tickets B: Won 75$ A: 56, B: 16, No difference: 15 One big box for gifts or several smaller boxes Bad news: Should be aggregated Listing the details: Increase the unhappiness sentiment. Charge more and give a rebate ** Prospect theory ** [Prospect theory](https://en.wikipedia.org/wiki/Prospect_theory) - Internal reference point - Respond differently to deviation from reference point whether negative or positive. (loss aversion) - Drive the reference point down with a rebate - Unhappiness when increased **Summary** 4 inputs to pricing process: - Marginal cost - willingness to pay - Competitive pressure - Distributor margins Consumer price sensitivity: - EVC - Statistical and marketing research methods, regression and conjoint analysis Consider human psychology ## 9.4 Distribution strategies 1: Introduction Overview: - Channel structure (who is doing what) - Channel coordination (who gets compensated) - Place: final frontier - Often the less appreciated of the 4 P's - Managers often underestimate - Sustainable competitive advantage - Increasing return to scale - Source of customer value - Hard good to soft good - Channel structure: Who are the players Direct vs. Indirect ![channels](file:///home/francois/Intro-to-marketing-course-notes/9_4-channels.png) Indirect reduce the amount of transactions Strategic advantage of direct: - erecting barriers to entry - quality of direct marketing feedback - Bundling with high margin products and services Channel flow / functions ![channel-flow](file:///home/francois/Intro-to-marketing-course-notes/9_4-channelflow.png) How it can be disrupted by technology ---- Physical flows: - Breaking bulk - Assorting - Assuring availability (Inventory or BTO) - Customization - Delivery - Installation - Maintenance and repair Information flows: - Identify needs and solutions - Identify customers and suppliers - Matching needs and solutions - Matching customers ans suppliers - Assessing and certifying quality - Negociation / closing the deal - Ordering - Market feedback Tools and framework: Hybrid grid X axis: Activities Y axis: Individuals and entities System optimized / operates efficiently and smoothly Example: Posilac, controversial genetically engineered bovine growth hormone ## 9.5 Distribution strategies II: Channel design Intensive: - Selling support not vital - Minimize cost over customer Selective: - Tradeoff - Both are important Exclusive: - Strongest selling support - Customer cost of obtaining offering not considered vital Implications of functional view: - Function or activities required to succeed depends on the nature of your offering - You can eliminate intermediaries but not functions. Functions are shifted forwards: - Forwards: IKEA (Delivery and installation) - Backwards: Apple store to assure consultative selling - Sideways: Amazon use FedEx/UPS for delivery ### Conflict betwen manufacturers and distributors: Manufacturers: - Carry out full line (no cherry picking) - Need active involvment in selling new products - Know more about "your" customers to make better products - Need to improve sales efforts - Channel margins are too high Distributors: - Who wants the dogs ? - We need exclusive territories - We do not keep any such records - Need more trade promotions and discounts - Your prices are too high Solutions: - Conflict might have some good side - Vertical conflicts vs. horizontal conflicts ### Vertical conflict: Nike <-> Foot locker Managing: - Integrate (flagship stores) - Have franchises (downstream) - Monitor downstream partners (mystery shoppers, surprise visits) - Alter incentives via trade promotion policies ### Horizontal conflicts Problem between retailers **Free riding** - Low price and low service vs. High price and high service (customer gets educated) - Establish boundaries between channels (territories) - Set appropriate level of distribution intensity - As distribution becomes more selective. reseller support and merchandising efforts increase ## 9.6 Horizontal conflict Smartphone to find a better price Buy online, pickup in store (BOPS) Some physical inspection: increase store sales and lowers online sales Research online, purchase offline (ROPO) Mores strategies to manage horizontal conflict: - Boundaries between channels (how many intermediaries) - Length (how many intermediaries) (conflict proportional to length) - Autonomy (conflict proportional to autonomy) - Density (high conflict at average density) - Set appropriate level of distribution intensity - Multiple brands for each retailers ## 9.7 The 7 M's Overview: - Trends and data - "Classic" campaign (Milk) - 7M Framework - Mission and message: rational and emotional appeals ### Classic campaign - California milk processor board - Decrease in consumption - Milk advertising in 1992 (+ indicators) ### The 7M's - Market (target audience) - People who currently drinks milk - Message content (key benefit/positioning) - Make sure you have enough milk (it compliments many other meals) - Mission (Awareness, knowledge, interest, trial) - Increase milk consumption by one glass per week within a year - Message design (creative solution) - Got milk? deprivation campaign - Media strategy (How do I reach them) - TV, print - Money (how much do I need to spend ?) - Measurement (Was it worth it ?) - 60% aided recall in 3 months - 2,67% (30M) increase in annual sales ## 9.8 The mission and message (rational appeals) What are we tying to influence ? Rational appeals - Demonstration (appropriate: key features) - Spokesperson (positive characteristic get transfered to the product) - Testimonial (May end up using a long period of time) - Comparative (Framing, surveys can easily be biased) ## 9.9 The mission and message (emotional appeals) Negative (fear: financial services, public interest) Too much fear is not effective ### Money Methods of setting advertising budget: - Percentage of sales - Match of better competition - Objective and tasks methods Simplified Parfitt-Colling model: - Break even market share: 6% - 30% of awary try the product - 40% of those who try will buy again - aware × try × repeat = market share - 50% must be aware