Intro-to-marketing-course-notes/Week3.md

title	author	output
Introduction to marketing: Part 3	François Pelletier	pdf_document

Wharton School - Introduction to marketing

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

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

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)

Chris Anderson: Technology's long tail

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

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

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

#McDStories -> Negative stories

Organic celebrity: Ree Drummond, 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 thought:

• Status-quo experience that is broken
• Warby Parker

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

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

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

• Social contagion and trial on the internet: Evidence from online grocery retailing

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:

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

• 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

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

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
• Negotiation / 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