Most significant and current marketing fundamentals
This chapter provides an overview of the most significant and current marketing fundamentals recalling relevant theories to lay the foundation of the research and the background of the analysis.
That marketing is everywhere and is part of our daily life is not new. Simply as it may seem, this discipline is changing at the same pace as the society we live in: we are the customers, we are the ones who dictate the rules around which marketing is applied, the focus not being on the product as much as on the customer (Soni & Cohen, 2007).
For a managerial definition, marketing has often been described as "the art of selling products", but selling is actually only "the tip of the marketing iceberg". As advertising is. The aim of marketing is to know and understand the customer so well that the product or service fits him and sells itself. Under this perspective the core of marketing becomes the activity of dealing with customer-value and customer-satisfaction. But this "art" of choosing and delivering value cannot be independent, on the contrary it must go hand in hand with benchmarking competitors' strategies.
This is one of marketing's core concept. Easily enough, we cannot think a marketer is able to satisfy everyone in a market. Why? Because not everyone likes the same soft drink, hotel room, restaurant, university, car and so on. Marketers, therefore, need to go for the adaptive strategy of market segmentation and identify those market segments the organization is interested in. The process of market segmentation can also consist of the selection of those segments for which a firm is particularly well suited to serve thanks t its competitive advantage; in this case, the process will reduce the cost of adaptation and will gain a niche. As Porter highlights, this application of market segmentation serves the purpose of developing competitive scope, which can have a "powerful effect on competitive advantage because it shapes the configuration of the value chain." -> mettere in nota (Porter,1985, p. 53).
Here is a practical example of what market segmentation is. When segmenting the market it should be considered where the company acts best in order to be more successful. The geographic segmentation takes this into consideration for example. A company can choose to narrow the market from being global to Sweden as a country and then choose to concentrate on an even narrower segment like the market of big cities such as Stockholm, Gothenburg and Malmo. To further concentrate the market a company can demographically segment the market by defining sub-segments: age-group, gender, occupation, education and income. Kotler (where? 1999) mentions five criteria for an effective segmentation:
- Measurable: It has to be possible to determine the values of the variables used for segmentation with justifiable efforts. This is important especially for demographic and geographic variables. For an organization with direct sales (without intermediaries), its own customer database could deliver valuable information on buying behavior (frequency, volume, product groups, mode of payment etc)
- Relevant: The size and profit potential of a market segment have to be large enough to economically justify separate marketing activities for this segment
- Accessible: The segment has to be accessible and servable for the organization. That means, for instance, that there are target-group specific advertising media, as magazines or websites the target audience likes to use
- Distinguishable: The market segments have to be that diverse that they show different reactions to different marketing mixes
- Feasible: It has to be possible to approach each segment with a particular marketing program and to draw advantages from that.
So, to sum up, segmenting the market really means to divide the whole market into smaller markets and let the marketer decide which segments (or sub-segments) present the greatest opportunities, which are its target markets.
The market is defined by the economists as a collection of buyers and sellers who transact over a particular product or class of products. Now, as Kotler and Keller (where? 2006) highlight - the target market is a part of this market, it is the available market that the company chooses to pursue, within the chosen segment. As we said before, if customers are the key people to focus on when deciding what to market, defining the target market appropriately is prominent. Marketers have to understand their customers and try to discover their specific needs, qualities and behavioural patterns. If they are successful in this process, they are going to identify a niche market and, more important, they will be able to attract customers and prevent them from reaching out competitors (Kotler & Keller, 2006). The strategy used to define a target market relies upon different levers: geographics, demographics, psychographics and behavioural patterns. Demographics are defined by race, culture, gender, age, education level, income etc., and they usually give you the answer to who needs the product of the company. Geographics are the country, location and the establishments that your target group exists in. Psychography is about emotions, personality, lifestyle, behaviour, social class and so on. Variables like hobbies, buying patterns are explained when researching the psychographics and will unfold the answer to who wants the product of the company. In short, who and why are the two main key questions that needs answering in target marketing and these questions are answered by demographics and psychographics (Fortin, 2007).
Positioning - concept and strategies
All marketing strategy is built on STP - Segmentation, Targeting, and Positioning. So far we spent a few words on the first two aspects. Let's now focus on the third one, i.e. the act of designing the company's offering and image to occupy a distinctive place in the mind of the target market. The end result of positioning is the successful creation of the so-called customer value proposition, a cogent reason why the targer market should buy the product. What the customer believes is going tell the company how to position itself, not vice versa. The consumers will try the product and position it by comparing the product's benefits and advantages compared to competitors' products (Kotler, 1999). The three elements above mentioned, i.e. segmentation, targeting and positioning, work closely together when determining which way to offer a product or a service, in which markets and to which target group.
The next step an organization has to make, once decided which customer groups within which market segments to target, is to determine how to present the product to this target audience. This allows to exactly address the needs and expectations of the target groups with a tangible marketing mix that consists of product characteristics, price, promotional activities and places to present the product (Ralf Leszinski and Michael v. Marn in The McKinsey Quarterly, 1997). According to the latter, these statements about the relation to other elements of the marketing plan point to an important element of positioning: customers' perception. Any offer has to have particular features that set it apart from competition in the eyes of the customers. Since positioning is based on customers' perceptions, it is only partly within the control of marketers. External developments could change or influence the way customers think about a product. In which respect? For instance if we consider changes in price or characteristics of competing products and substitutes, tests by independent magazines and institutions, new legal requirements, or changes in customers' preferences. In this particular phase, it is important to select the competitive advantages that are unique for the product, in order to make the consumers acknowledge the positioning by communicating the chosen position to the market, (Kotler, 1999).
A company can differentiate its physical product. At one extreme, some companies offer highly standardized products that allow little variation as the off-the shelf products. Other companies offer products that can be highly differentiated, such as the highly configurable ones. A firm's competitive advantage and its product's position can be quite different. A competitive advantage is the strength of a company, while a product's position is a prospect's perception of a product (Kotler, 1999). Positions are described by variables and within parameters that are important to the customers. Common examples are price, supporting services, quality, reliability, and value for money. Often, customers position a product in relation to a brand or product that is especially visible to them. Many car buyers will pay a premium for Jaguar cars because of their extraordinary look, even though Jaguar sometimes had a poor reliability record (Kotler, 1999).
When marketers want to identify customers' perceptions towards a product, they count on a number of relevant parameters, which can be described with a two- or three-dimensional matrix. The tool, is to visually depict customers' perceptions of a product and its position is called perceptual mapping (The Manager, 2007).
Normally, most suppliers in a market or in a market segment will be positioned along the diagonal, that is called the Value-Equivalence-Line (VEL), since value and price are balanced there. In this example, product A is positioned unfavorably. It is too expensive for the mass market and its quality is not good enough for the premium segment. In general, there are the following strategies for repositioning; however, their feasibility will depend on the particular situation (The Manager, 2007).
- Change the relation of price and quality for the existing brand; e.g. product re-launch with improved characteristics
- Change the relation of price and quality by introducing a new brand; e.g. introduction of clone under a 'cheap' brand or a retailers own brand
- Alter believes about the brand; e.g. image campaign, creation of a 'hype'
- Alter believes about competitive brands; e.g. comparing advertisements
- Alter customers' rankings of important factors; e.g. focus on additional features and characteristics (example: car manufacturers focus on very different product characteristics in their commercials, for instance security, fuel consumption, image, luxury interior, fun)
- Introduction of new or neglected attributes; e.g. product re-launch with new features that are new for the whole market segment
When planning such activities it is critical to think about possible reactions of competitors. A shift of a product into a more favourable position in the price-quality-map above the diagonal (e.g. into position B) will normally lead to a shift of market shares in favour of this product. Competitors could react with a reduction of general price level, thus moving the VEL to the left. Product B would lose its superior position. Not only. It is advisable to keep in mind that customer and their individual preferences of a price-quality-combination are not distributed equally along the VEL. Two main problems, like:
- Positioning in a segment with very few potential customers (e.g. positioning in a middle-segment in a market where customers prefer either the budget-product or the premium product)
- Positioning in a too low or too high price-value-combination (segments a and b in the example). This product does not appeal to a large proportion of the market, since customers either expect a higher quality (a) or are not willing to pay that high prices (b) could be encountered when customers' distribution is not taken into account appropriately.
Steps for positioning a product
Dibb, Simkin, Pride and Farell (2005) recommend the following steps for determining and implementing the positioning of a product. Although they focus on new product development, these steps are not univoque: they are applicable to a product re-launch with new features or for a repositioning of an existing product too.
- Define the segments in a particular market
- Decide which segments to target
- Understand what the target consumers expect and believe to be the most important considerations when deciding on the purchase
- Develop a product (or products) that cater specifically for these needs and expectations
- Evaluate the positioning and images, as perceived by the target customers, of competing products in the selected market segments
- Select an image that sets the product apart from the competing products, thus ensuring that the chosen image matches the aspirations of the target customers
- Inform target customers about the product (promotion) (Dibb, Simkin, Pride and Farrell)
When planning such activities it is critical to think about possible reactions of competitors and carefully go through the strategies and steps for positioning.
As we said before, at the core of every marketing strategy and process are the customers. Putting them in the core of the model represents the goal that the company wants to reach with its marketing. The model, presents all the aspects that marketing consists of. The marketing mix consists of price, product, place and promotion, which represent the sellers' view of the marketing tools available for influencing buyers. When these variables are used effectively, the result is that companies are really meeting customer needs economically and conveniently, and with effective communication.
As for the marketing strategy, the company has to consider also the impact on its marketing strategy coming from the external environment, which consists of technological-natural environment, political and legal environment, economic-demographic environment and socio-cultural environment (Kotler, 1999).
To conclude, this model summarises the aspects of our field of study very well and is an illustrative way that captures all the important factors that exist in the marketing strategy.
IO QUI INSERIREI il ciclo di vita del prodotto nelle strategie di marketing.
To successfully launch a product one has to consider several factors. As Soni and Cohen (2007) point out, the market share is gained by focusing on developing products to match customer needs and requirements. One of the factors is the marketplace for the product, which needs to be thoroughly examined, in order to put the focus on the customer rather than on the product, and to be 'customer centric' instead of 'product centric'. To be updated with the marketplace you have to be updated with all the aspects that are closely related to customer requirements.
An important factor for the product launch process is also having a smooth organisation with developed processes for communication, product development and launch. In order to improve the product and to prepare it for the launch on the market on time, it is essential that the cross-functional areas cooperate. In addition to this, during the product launch process it is important to review the company's strategy, customer's requirements and all other aspects of the marketplace. Last but not least, it is important to test the product and to have an internal preparation done before launching it.
A key issue when launching a product is finding the right and powerful way to communicate it to customers, after which a post launch review is made to measure and assess the performance of the product in terms of financial, timeline and distribution issues. It is then to be learned what can be improved for future launches and it is important that the whole perspective of the company is captured (Soni & Cohen, 2007).
Product design and development
The whole process of launching a product takes years to develop: from idea to planning, designing, manufacturing etc. A.J. Peters, E.M. Rooney, J.H. Rogerson, R.E. McQuater, M. Spring and B.G. Dale (1999) analyze two stages of product launch more in depth. The two stages are product design and product development. The authors have, through case-studies, found that it is difficult to get formal certification of procedures used within the companies. A weak pillar of the company as lack of time, funding and internal structure makes it difficult to achieve the initial identification of the new product design and development (NPDD) process. According to them, therefore, it is important that the companies write procedures on what is actually happening rather than to write procedures in forehand to state what they think may happen. It is important that managers are aware of processes so that they can come up with improvements of the processes. The authors present three phases of process identification:
- Pre-design and development
The first phase is the phase where the business opportunities are identified. It is then crucial to develop business propositions for the suitable opportunities and decide whether to precede with more detailed feasibility studies or not.
- Design and development
In the second phase a solution is sought to fulfil the internal and external requirements. Production instructions are set and initial testing is made to see if production requirements are being met. Moreover, pre-production validation is important to optimize the method of production. A trial run is made which consists of a trial production and testing of the product.
The last phase is when the production is started and the product is launched and delivered. It is emphasized by the authors that a collection of data concerning the progress of the product and analysis of the data is important for making improvements of the product.
To make the NPDD process smooth, companies should consider: overall strategic direction, effectiveness achieved by accessible information, encouragement of all types of communication, importance information management, review NPDD by checking if the requirements are met and stop the process if they are not (A.J. Peters, E.M. Rooney, J.H. Rogerson, R.E. McQuater, M. Spring & B.G. Dale, 1999).
As this dissertation focus the attention on the critical success factors to position and launch storage volume products in the IT volume marker this literature points out various important stages in the process of product planning on a managerial level. It also outlines other aspects of product launching such as marketing. The three phases, as presented above, to design and develop a new product are a help to clarify activities and develop an understanding of the process. Moreover, it is a help for managers that gain a helicopter view on the process of designing and developing a strong product.
We are now ready to take a look at the product strategy that enables the product to be "strong" enough to be perceived as its customers want to perceive it. Branding: i.e. the art and cornerstone of marketing. What is a brand? It can be defined as a name, term, sign, symbol or design, or a combination of them, intended to identify the goods or services of one group of sellers, and to differentiate them from those of competitors. As Pelsmacker, Geuens and Bergh (2004) point out, a strong brand can provide the consumer with a constant level of quality and enables the consumer to assess value and quality simply by knowing the brand and its image. If the brand's identity is successfully communicated the company attains a position to charge a price-premium for the benefits offered. Furthermore, a well-known brand presents trustworthiness and has the opportunity to develop favourable attitudes for it (Pelsmacker, Geuens & Bergh, 2004).
Barnes (2003) points out that it is of importance to build a strong brand image since this is one of the offerings that go with the product. The brand image is built up by associations in the consumers mind, and he points out that "[t]he extent to which meaning is present in a customer relationship depends entirely on the perceptions of the customer" (Barnes, 2003, p. 179). Creating value for customers is what leads to their satisfaction of the brand and their loyalty towards it. The author furthermore argues that the customer/brand relationship can be investigated by looking into the different aspects of meaning created in the customer mind. In a sense it is a matter of creating a personality of the brand by the creation of brand characteristics and attributes and can lead to an emotion-based relationship with the brand. Secondly, the brand must try to reflect what core values that it stands for and what makes it so special in comparison to other brands. This will help the customers in identifying with the brand. Finally, to come even closer to the customer, a brand can mean something special to a certain customer group. This is enduring customer loyalty and the brand has a lot in common with the customers in things that really matter to them and where it even helps the customer in defining himself (Barnes, 2003).
Aaker (1996) presents, here below, a model for the value proposition that consists of the benefits that a company offers in relation to their price. It is important to propose benefits to the customer that will enable the brand to be highly valued in consumers' minds so that it justifies a price premium.
Barnes (2003) defines the functional benefits as values that are created if the brand is practical and saves the customer time and money. Emotional benefits are values that are created when a company is successful in making customers feel respect, understanding, recognition or special. If a company is successful in creating high levels of functional and emotional value it earns customer loyalty (Barnes, 2003). Self-expressive benefits are about the psychological reward that the consumer obtains when a brand is a symbol for status (Pelsmacker, Geuens & Bergh, 2004).
Building a brand identity means how the company wants the brand to be perceived by the consumers (Aaker, 1996). It is important to construct a message on how to clearly show the identity of the brand to the consumers, and to be able to communicate it to the consumers the brand identity, within the company, must be clear (Kapferer, 1998). Aperia and Back (2004) explain the difference between brand identity and brand image in a concise way "[b]rand identity is thus the sum of signals sent by the company, while brand image is the picture of the brand that emerges in the consumers' minds" (Aperia & Back, 2004). Aaker (1996) explains the brand identity by dividing it into two main areas: core identity and extended identity (Aaker, 1996).
The core identity is the absolute essence of the brand. The brand's uniqueness and value lie within the core identity. The core identity is described by defining value attributes, quality, uses, and service and so on. The extended identity, instead, consists of complements to the core identity and brings completeness in identifying the brand (Aaker, 1996). Aaker and Joachimsthaler (as cited in Aperia & Back, 2004) proposed advantages that extend the identity to be even richer: a detailed brand identity reflects a more reliable brand that makes it easier to communicate a clear message to the consumers. In the end, to think strategically and tactically, symbols that express the brand personality and help in associating to the brand identity for the consumers are an enrichening tool to develop an extended brand identity (Aperia & Back, 2004).
Brand identity versus brand image
As explained above, the brand identity means the perception that the company wants its brand to have in the mind of the consumers while the brand image is what the current and actual perception of the brand is in the consumers' minds. Now, the challenge for brand managers is what tools to use and how to use them in order to enable the brand identity to come as close to the brand image as possible. Kapferer (1998) shows, what happens to a brand identity and what factors act as complements to an incomplete brand identity:
The brand identity is complemented by the company's mimics of some of the popular attributes of the competitor' products. The competition disturbs the message when the company is positioning the brand. Finally, the consumer's interpretation of the message builds the brand image. The most important factor is to have a clear brand identity but it is also important to see what are the factors that blur the message before it is received by the consumers (Kapferer, 1998).
Some economists gave different definitions for corporate branding. Aaker (1996), for example, points out that organizational associations are often connected to corporate brands because of the fact that the corporate brand is very much about the executives and other members of the corporation like designers, marketers etc. The corporate brand - he adds - captures the values of all the product brands altogether. Therefore the corporate brand and the associations connected to it, like for instance quality, can be transferred to the product brand. Hatch and Schultz (2003) and Aaker (1996) all argue that a strong corporate brand creates positive consumer perceptions of practically all products offered by that brand. Kapferer (1998), instead, argues that a corporate brand is the parent brand in the sense that it offers its identity, the core value, to the daughter brand, in other words the brand of the product. Aaker (1996), in the end, also thinks that a positive association of a strong corporate brand has a multiplied effect on product brands within the company. If the corporate brand carries negative associations with it, the scenario will obviously change and it will lead to diseconomies of scale.
Another important theme to focus on is that the brand value is highly dependent on brand loyalty. In other words, a loyal customer base brings down the costs since these are higher to attain new customers than to retain existing customers.
The vision is explained by what the company ambitions are. It is a strategy expressed and designed by the executives of the corporation and is to be integrated with the organisation structure as a whole. The organisation needs to be transparent in the communication to its multiple stakeholders in order to attract attention, interest and support for its vision. The image of the corporation is a tool in the communication to the stakeholders in order to build a long lived relationship, i.e. a strong corporate brand. The authors state that it "is because a successful corporate brand is formed by the interplay between strategic vision, organisational culture and the corporate images held by its stakeholders" (Hatch & Schultz, 2003, p. 5). The second important tool that is useful in building a corporate brand is culture, which consists of the internal values and beliefs that the members of the organisation have. Melewar, T.C. gave a clear definition of what determines culture (as cited in Pelsmacker, Geuens & Bergh, 2004, p.12), the corporate philosophy, values, mission, principles, guidelines, history, the founder of the company and the origin. The organisation is viewed externally, hence the importance of the reflection that it has on its members. The third important tool to builds the corporate brand is the corporate image held by the stakeholders. The image consists of the perceptions altogether held by the customers, the media, the stakeholders and so on. It is furthermore argued that to establish a corporate brand the focus is to create value for the corporation in order to attract the attention of the stakeholders and to position the brand within the chosen segment. The important difference between a corporate brand and a product brand is that a corporate brand is the organisations past, present and the future, which means that it is long-lived, while the product brand is short-lived and needs to be revived to get new strengths in its purpose to attract customers (Hatch & Schultz, 2003).
Reviving a brand
Aaker (1996) mentions several reasons behind a company's decision to bring new life to its corporate brand through a product launch: an attempt to recover from the sufferings that the company has led from the sales being at the rock bottom, to break the downwards going trend in sales, the ageing brand that is in need of rejuvenating etc. (Aaker, 1996). Kapferer (1998), on the other hand points out various effects that a product launch can lead to. A brand can be seen in a new light, communicating a more interesting and younger image. With new benefits added to the product or service, it can be differentiated and positioned in a new segment, to attract a new set of consumers (Kapferer, 1998). Aaker (1996) argues that a strong brand will become reality when the management have applied brand strategies keeping a clear vision and without changing the core identity of the brand (Aaker, 1996).
A very last topic that deserves some attention is competition. There are different strategies companies can use to compete among themselves. Distinguishing oneself from the competition by selling more cheaply can be, for istance, a perfect feasible short-term strategy, but seldom a viable option for companies operating in high cost industrialized countries. They generally have to try to find other things to offer that their competitors cannot (Andersson B., 1994). Or, as Andersson explains, the word compete comes from the Latin verb differe that means to carry apart, and that is what differentiation is all about: developing or highlighting differences. Differentiated strategy is also called product differentiation or brand differentiation. It means that a company changes its product to adapt to the needs of a chosen market segment, in such a way that it clearly and communicably differs from competitor's products (Andersson B., 1994).
It is getting harder to come up with relevant physical differences between products. A company that introduces a new customer benefit cannot hope to keep it exclusive for very long. Previously other companies in the industry could afford to wait and see whether the market would accept the new idea. If so, they eventually followed suit. Now, nobody dares to let a competitor keep a new idea to himself. The others go right ahead and copy it, or find other ways to offer the same benefit. The process which have taken ten years, now only takes months (Andersson B., 1994).
The differences between products in any given category are therefore constantly diminishing. At the same time, innovation has become 'key' to survival. In fact, a company is more likely to be hurt by emerging competitors or new technologies than by current competitors. The result being investing on rapid product development, frequent launches and forceful, consistent marketing.
SWOT - analysis
Once a company identifies its primary competitors, it must investigate their characteristics specifically, their strategies, objectives, strengths and weaknesses. The so-called swot analysis, which gives a summary of the strengths and weaknesses of the company together with the opportunities and threats it faces. It should include costs and other non-marketing variables. The purpose of the analysis is to make the manager anticipate important developments that can have an impact on the firm (Kotler, 1999). Kotler (1999), for example, focuses on the following opportunities:
- Economic climate
- Demographic changes
The threats for a company can be:
- Competitive activity
- Channel pressure
- Demographic changes
Further, the manager should focus on the most probable and harmful threats and prepare plans in advance to meet them. A manager should assess each opportunity according to its potential attractiveness and the company's probability of success and understand how his company can react to competitive assaults.
The strengths and weaknesses in the SWOT analysis is a list of a company's features, but it should only be a list of the features related to the critical success factors1 of the company. If the list of these features is too long it betrays a lack of focus of the company and an inability to discriminate what is important. Having studied the strengths, weaknesses, opportunities