Assignment On

Marketing Management

Submitted To:
Mohammad Imran
Assistant Professor
Faculty of Business Administration
University of Science & Technology Chittagong.

Submitted By:
Name: Md. Kamran Chowdhury
Id: 1571 Batch: 42nd
Semister: 6th Session: Sept.17
Date of Submission: 20th December,2020.

Topic:
1. Creating Long-term Loyality Relationship.
2. Database and Database Marketing.
3. Creating Band Equity.
4. Crafting the Brand Positioning.
5. Competitive Dynamics.

Faculty of Business Administration (FBA)

University of Science & Technology Chittagong (USTC)
Topic: 1

Creating Long-term Loyality Relationship.

Figure: 5.1

Traditional Organization versus Modern Customer-Oriented Company

Organization.

(a) Traditional Organization Chart

Top
ma
nag
em
nt

Middle
Management

Forntline Management

Customers
 b) Modern Customer-Oriented Organization Chart

Customers
C

U C

S U
Frontline Management
T S

O T

M Middle Management O

E Top M

R Man E

s
age R
men
t s

Managers who believe the customer is the company’s only true “profit center”
consider the traditional organization chart in Figure 5.1(a)—a pyramid with the
president at the top, management in the middle, and frontline people and
customers at the bottom—obsolete.

Successful marketing companies invert the chart as in Figure 5.1(b). At the

top are customers;next in importance are frontline people who meet,
serve, and satisfy customers; under them are the middle managers, whose
job is to support the frontline people so they can serve customers well;
and at the base is top management, whose job is to hire and support good
middle managers. We have added customers along the sides of Figure
5.1(b) to indicate that managers every level must be personally involved in
knowing,meeting, and serving customers.

Some companies have been founded with the customer-on-top business

model and customer advocacy has been their strategy—and competitive
advantage—all along. With the rise of digital technologies such as the
 Internet, increasingly informe consumers today expect companies to do
more than connect with them,more than satisfy them, and even more than
delight them. They expect companies to listen and respond to them.5
When Office Depot added customer reviews to its Web site in 2008,
revenue and sales conversion increased significantly. The company also
incorporated review related terms to its paid search advertising
campaign.As a result of these efforts,Website revenue and the number of
new buyers visiting the site both increased by more
than 150 percent.

Figure: 5.2

Customer Perceived Value

Customer Percived Value

Total Total
Customer Customer
Banifit Cost
Image
Benifit

Product Monetary Service Time Cost Personal Energy

Benifit Cost Benifit Benifit Cost
Physicological
Cost

Customer-perceived value (CPV) is the difference between the prospective

customer’s evaluation of all the benefits and all the costs of an offering and the
perceived alternatives. Total customer benefit is the perceived monetary value of
the bundle of economic, functional, and psychological benefits customers expect
from a given market offering because of the product, service, people, and image.
Total customer cost is the perceived bundle of costs customers expect to incur in
evaluating, obtaining, using and disposing of the given market offering, including
monetary, time, energy, and psychological costs.Customer-perceived value is thus
based on the difference between benefits the customer gets and costs he or she
assumes for different choices. The marketer can increase the value of the
customer offering by raising economic, functional, or emotional benefits and/or
reducing one or more costs.The customer choosing between two value offerings,
V1 and V2, will favor V1 if the ratio V1:V2 is larger than one, favor V2 if the ratio is
smaller than one, and be indifferent if the ratio equals one.

Customer Life time Value

Researchers and practitioners have used many different approaches for

modeling and estimating CLV. Columbia’s Don Lehmann and Harvard’s Sunil
Gupta recommend the following formula to estimate the CLV for a not-yet
acquired customer:

T
( Pt −Ct ) rt
CLV =∑ − AC
t =0 ( 1+i ) t

Where,
pt = price paid by a consumer at time t,
ct = direct cost of servicing the customer at time t,
i = discount rate or cost of capital for the firm,
rt = probability of customer repeat buying or being “alive” at time t,
AC = acquisition cost,
T = time horizon for estimating CLV.

A key decision is what time horizon to use for estimating CLV.

Typically, three to five years is reasonable. With this information
Gupta and Lehmann illustrate their approach by calculating the CLV of
100 customers over a 10-year period (see Table 5.3). In this example,
the firm acquires 100 customers with an acquisition cost per customer of
$40. Therefore, in year 0, it spends $4,000. Some of these customers defect
each year. The present value of the profits from this cohort of customers
over 10 years is $13,286.52. The net CLV (after deducting acquisition costs)
is $9,286.52, or $92.87 per customer.
Using an infinite time horizon avoids having to select an arbitrary time
horizon for calculating CLV. In the case of an infinite time horizon, if margins
(price minus cost) and retention rates stay constant over time, the future CLV
of an existing customer simplifies to the following:

∞
mr t r
CLV =∑ t = m
t =1 (1+ i) (1+i−r )

In other words, CLV simply becomes margin (m) times a margin multiple
[r/(1 + i – r )].Table 5.4 shows the margin multiple for various combinations of r
and i and a simple way to estimate CLV of a customer. When retention rate
is 80 percent and discount rate is 12 percent, the margin multiple is about
two and a half. Therefore, the future CLV of an existing customer in this
scenario is simply his or her annual margin multiplied by 2.5.
Customer Relationship Management
Customer relationship management (CRM) is the process of carefully managing
detailed information about individual customers and all customer “touch points”
to maximize loyalty.A customer touch point is any occasion on which a customer
encounters the brand and productfrom actual experience to personal or mass
communications to casual observation. For a hotel in the touch points include
reservations, check-in and checkout, frequent-stay programs, room service,
business services, exercise facilities, laundry service, restaurants, and bars. The
Four Seasons relies on personal touches, such as a staff that always addresses
guests by name, highpowered employees who understand the needs of
sophisticated business travelers, and at least one best-in-region facility, such as a
premier restaurant or spa. CRM enables companies to provide excellent real-time
customer service through the effective use of individual account information.
Based on what they know about each valued customer,companies can customize
market offerings, services, programs, messages, and media. CRM is important
because a major driver of company profitability is the aggregate value of the
company’s customer base.

Customer Databases and Database Marketing

Marketers must know their customers.92 And in order to know the customer, the
company must collect information and store it in a database from which to
conduct database marketing. A customer database is an organized collection of
comprehensive information about individual customers or prospects that is
current, accessible, and actionable for lead generation, lead qualification,sale of a
product or service, or maintenance of customer relationships.
Database marketing is the process of building,maintaining, and using customer
databases and other databases (products,suppliers, resellers) to contact, transact,
and build customer relationships.
Customer Databases
Many companies confuse a customer mailing list with a customer database. A
customer mailing list is simply a set of names, addresses, and telephone numbers.
A customer database contains much more information, accumulated through
customer transactions, registration information,telephone queries, cookies, and
every customer contact.Ideally, a customer database also contains the
consumer’s past purchases, demographics(age, income, family members,
birthdays), psychographics (activities, interests, and opinions),mediagraphics
(preferred media), and other useful information. The catalog companyFingerhut
possesses some 1,400 pieces of information about each of the 30 million
households in its massive customer database.
Ideally, a business database contains business customers’ past purchases; past
volumes, prices,and profits; buyer team member names (and ages, birthdays,
hobbies, and favorite foods); status ofcurrent contracts; an estimate of the
supplier’s share of the customer’s business; competitive suppliers;assessment of
competitive strengths and weaknesses in selling and servicing the account;
andrelevant customer buying practices, patterns, and policies.
A Latin American unit of the Swiss pharmaceutical firm Novartis keeps data on
100,000 ofArgentina’s farmers, knows their crop protection chemical purchases,
groups them by value, andtreats each group differently.

Data Warehouses and Data Mining

Savvy companies capture information every time a customer comes into contact
with any of their departments, whether it is a customer purchase, a customer-
requested service call, an online query, or a mail-in rebate card.93 Banks and
credit card companies, telephone companies, catalog marketers, and many other
companies have a great deal of information about their customers, including not
only addresses and phone numbers, but also transactions and enhanced data on
age, family size, income, and other demographic information.
Topic: 02
Database and Database Marketing

Segmentation:
Market segmentation divides a market into well-defined slices. A market segment
consists of a group of customers who share a similar set of needs and wants. The
marketer’s task is to identify the appropriate number and nature of market
segments and decide which one(s) to target.We use two broad groups of
variables to segment consumer markets. Some researchers try to define segments
by looking at descriptive characteristics: geographic, demographic, and
psychographic.Then they examine whether these customer segments exhibit
different needs or productresponses. For example, they might examine the
differing attitudes of “professionals,”“blue collars,”and other groups toward, say,
“safety” as a product benefit.

Geographic Segmentation
Geographic segmentation divides the market into geographical units such as
nations, states,regions, counties, cities, or neighborhoods. The company can
operate in one or a few areas, or it can operate in all but pay attention to local
variations. In that way it can tailor marketing programs to the needs and wants of
local customer groups in trading areas, neighborhoods, even individual stores. In
a growing trend called grassroots marketing, such activities concentrate on
getting as close and personally relevant to individual customers as possible.
Much of Nike’s initial success comes from engaging target consumers through
grassroots marketing efforts such as sponsorship of local school teams, expert-
conducted clinics, and provision of shoes, clothing, and equipment. Citibank
provides different mixes of banking services in its branches depending on
neighborhood demographics. Curves, an exercise chain aimed at middleaged
women, places paper bags where consumers can place a form asking for more
information about Curves in local businesses such as ice cream shops, pizza
parlors, and other places where guilt can strike the weight-conscious shopper.
Retail firms such as Starbucks, Costco, Trader Joe’s, and REI have all found great
success emphasizing local marketing initiatives, but other types of firms have also
jumped into action.

Psycograohic Segmatation
Psychographic segmentation has been used in marketing research as a form of
market segmentation which divides consumers into sub-groups based on shared
psychological characteristics, including subconscious or conscious beliefs,
motivations, and priorities to explain and predict consumer behavior.

Demographic Segmentation
In demographic segmentation, we divide the market on variables such as age,
family size, family life cycle, gender, income, occupation, education, religion, race,
generation, nationality, and social class.One reason demographic variables are so
popular with marketers is that they’re often associated with consumer needs and
wants. Another is that they’re easy to measure. Even when we describe the target
market in nondemographic terms (say, by personality type), we may need the link
back to demographic characteristics in order to estimate the size of the market
and the media we should use to reach it efficiently.Here’s how marketers have
used certain demographic variables to segment markets.
Topic: 03
Creating Brand Equity
What Is Brand Equity?
Perhaps the most distinctive skill of professional marketers is their ability to
create, maintain,enhance, and protect brands. Established brands such as
Mercedes, Sony, and Nike have commanded a price premium and elicited deep
customer loyalty through the years. Newer brands such as POM Wonderful,
SanDisk, and Zappos have captured the imagination of consumers and the
interest of the financial community alike.The American Marketing Association
defines a brand as “a name, term, sign, symbol, or design or a combination of
them, intended to identify the goods or services of one seller or group of sellers
and to differentiate them from those of competitors.” A brand is thus a product
or service whose dimensions differentiate it in some way from other products or
services designed to satisfy the same need. These differences may be functional,
rational, or tangible—related to product performance of the brand. They may also
be more symbolic, emotional, or intangible—related to what the brand
represents or means in a more abstract sense.

Customer based brand equity

Customer-based brand equity is thus the differential effect brand knowledge has
on consumer response to the marketing of that brand.A brand has positive
customer-based brand equity when consumers react more favorably to a product
and the way it is marketed when the brand is identified, than when it is not
identified. A brand has negative customer-based brand equity if consumers react
less favorably to marketing activity for the brand under the same circumstances.
There are three key ingredients of customer-based brand equity.
1. Brand equity arises from differences in consumer response. If no differences
occur, the brandname product is essentially a commodity, and competition will
probably be based on price.
2. Differences in response are a result of consumers’ brand knowledge, all the
thoughts, feelings,images, experiences, and beliefs associated with the brand.
Brands must create strong, favourable and unique brand associations with
customers, as have Toyota (reliability), Hallmark (caring)and Amazon.com
(convenience).
3. Brand equity is reflected in perceptions, preferences, and behavior related to
all aspects of the marketing of a brand. Stronger brands lead to greater revenue.

Building Brand Equity

Marketers build brand equity by creating the right brand knowledge structures
with the right consumers.This process depends on all brand-related contacts
whether marketer-initiated or not.
From a marketing management perspective, however, there are three main sets
of brand equity drivers:
1. The initial choices for the brand elements or identities making up the brand
(brand names, URLs, logos, symbols, characters, spokespeople,
slogans,jingles, packages, and signage)—Microsoft chose the name Bing for
its new search engine because it felt it unambiguously conveyed search and
the“aha”moment of finding what a person is looking for. It is also short,
appealing, memorable,active, and effective multiculturally.

2. The product and service and all accompanying marketing activities and
supporting marketing programs—Liz Claiborne’s fastest-growing label is
Juicy Couture, whose edgy, contemporary sportswear and accessories have
a strong lifestyle appeal to women, men, and kids. Positioned as an
affordable luxury, the brand creates its exclusive cachet via limited
distribution and a somewhat risqué
name and rebellious attitude.

3. Other associations indirectly transferred to the brand by linking it to some

other entity (a person, place, or thing)—The brand name of New Zealand
vodka 42BELOW refers to both a latitude that runs through New Zealand
 and the percentage of its alcohol content. The packaging and other visual
cues are designed to leverage the perceived purity of the country to
communicate the positioning for the brand.

BRAND ELEMENT CHOICE CRITERIA

There are six criteria for choosing brand elements. The first three—memorable,
meaningful, and likable—are “brand building.” The latter three—transferable,
adaptable, and protectable—are “defensive” and help leverage and preserve
brand equity against challenges.
1. Memorable—How easily do consumers recall and recognize the brand element,
and when—at both purchase and consumption? Short names such as Tide, Crest,
and Puffs are memorable brand elements.
2. Meaningful—Is the brand element credible? Does it suggest the corresponding
category and a product ingredient or the type of person who might use the
brand? Consider the inherent meaning in names such as DieHard auto batteries,
Mop & Glo floor wax, and Lean Cuisine low-calorie frozen entrees.
3. Likable—How aesthetically appealing is the brand element? A recent trend is
for playful names that also offer a readily available URL, like Flickr photo sharing,
Wakoopa social networking and Motorola’s ROKR and RAZR cell phones.
4. Transferable—Can the brand element introduce new products in the same or
different categories?Does it add to brand equity across geographic boundaries
and market segments? Although initiallyan online book seller,Amazon.com was
smart enough not to call itself “Books ‘R’Us.”The Amazonis famous as the world’s
biggest river, and the name suggests the wide variety of goods that could be
shipped, an important descriptor of the diverse range of products the company
now sells.
5. Adaptable—How adaptable and updatable is the brand element? The face of
Betty Crocker has received more than seven makeovers in 87 years, and she
doesn’t look a day over 35!
6. Protectable—How legally protectable is the brand element? How competitively
protectable?Names that become synonymous with product categories—such as
Kleenex, Kitty Litter, Jell-O,
Scotch Tape,Xerox, and Fiberglass—should retain their trademark rights and not
become generic

Figure: 9.5
Secondary Sources of Brand Knowledge
Internal Branding
Marketers must now “walk the walk” to deliver the brand promise. They must
adopt an internal perspective to be sure employees and marketing partners
appreciate and understand basic branding notions and how they can help—or
hurt—brand equity.Internal branding consists of activities and processes that help
inform and inspire employees about brands.Holistic marketers must go even
further and train and encourage distributors and dealers to serve their customers
well. Poorly trained dealers can ruin the best efforts to build a strong brand
image. Brand bonding occurs when customers experience the company as
delivering on its brand promise. All the customers’ contacts with company
employees and communications must be positive. The brand promise will not be
delivered unless everyone in the company lives the brand. Disney is so successful
at internal branding that it holds seminars on the “Disney Style” for employees
from other companies.
When employees care about and believe in the brand, they’re motivated to work
harder and feel greater loyalty to the firm. Some important principles for internal
branding are:
1. Choose the right moment. Turning points are ideal opportunities to capture
employees’ attention and imagination.After it ran an internal branding campaign
to accompany its external repositioning, “Beyond Petroleum,” BP found most
employees were positive about the new brand and thought the company was
going in the right direction.
2. Link internal and external marketing. Internal and external messages must
match.IBM’s e-business campaign not only helped to change public perceptions of
the company in the marketplace, it also signaled to employees that IBM was
determined to be a leader in the use of Internet technology.
3. Bring the brand alive for employees. Internal communications should be
informative and energizing.Miller Brewing has tapped into its brewing heritage to
generate pride and passion and improve employee morale.
Figure: 9.5
Topic: 04

Crafting the Brand Positioning

Identifying Optimal Points-of-Difference and Points-of-Parity

Once marketers have fixed the competitive frame of reference for positioning by

defining the customer target market and the nature of the competition, they can

define the appropriate points-ofdifference and points-of-parity associations.

POINTS-OF-DIFFERENCE :

Points-of-difference (PODs) are attributes or benefits that consumers strongly

associate with a brand, positively evaluate, and believe they could not find to the

same extent with a competitive brand. Associations that make up points-of

difference may be based on virtually any type of attribute or benefit. Strong

brands may have multiple points-ofdifference.Some examples are Apple (design,

ease-of-use, and irreverent attitude), Nike (performance, innovative technology,

and winning), and Southwest Airlines (value, reliability, and fun personality).

Creating strong, favorable, and unique associations is a real challenge, but an

essential one for competitive brand positioning.

Three criteria determine whether a brand association can truly function as a

point-of-difference: desirability, deliverability, and differentiability.

Some key considerations follow.

• Desirable to consumer. Consumers must see the brand association as personally

relevant to them. The Westin Stamford hotel in Singapore advertised that it was

the world’s tallest hotel, but a hotel’s height is not important to many tourists.

Consumers must also be given a compelling reason to believe and an

understandable rationale for why the brand can deliver the desired benefit.

Mountain Dew may argue that it is more energizing than other soft drinks and

support this claim by noting that it has a higher level of caffeine. Chanel No. 5

perfume may claim to be the quintessentially elegant French perfume and

support this claim by noting the long association between Chanel and haute

couture. Substantiators can also come in the form of patented, branded

ingredients, such as NIVEA Wrinkle Control Crème with Q10 co-enzyme or Herbal

Essences hair conditioner with Hawafena.

• Deliverable by the company. The company must have the internal resources and

commitment to feasibly and profitably create and maintain the brand association

in the minds of consumers.

The product design and marketing offering must support the desired

association.Does communicating the desired association require real changes to

the product itself, or just perceptual shifts in the way the consumer thinks of the

product or brand? Creating the latter is typically easier. General Motors has had

to work to overcome public perceptions that Cadillac is not a youthful, modern

brand and has done so through bold designs and contemporary images.The ideal

brand association is preemptive, defensible, and difficult to attack. It is generally

easier for market leaders such as ADM,Visa, and SAP to sustain their positioning,

based as it is on demonstrable product or service performance, than it is for

market leaders such as Fendi, Prada, and Hermès, whose positioning is based on

fashion and is thus subject to the whims of a more fickle market.

• Differentiating from competitors. Finally, consumers must see the brand

association as distinctive and superior to relevant competitors. Splenda sugar

substitute overtook Equal and Sweet’N Low to become the leader in its category

in 2003 by differentiating it self on its authenticity as a product derived from

sugar, without any of the associated drawbacks.Any attribute or benefit

associated with a product or service can function as a point-of-difference for a

brand as long as it is sufficiently desirable, deliverable, and differentiating.

The brandmust demonstrate clear superiority on an attribute or benefit, however,

for it to function as a true point-of-difference. Consumers must be convinced, for

example, that Louis Vuitton has the most stylish handbags, Energizer is the

longest-lasting battery, and Fidelity Investments offers the best financial advice

and planning.

POINTS-OF-PARITY

Points-of-parity (POPs), on the other hand, are attribute or benefit associations

that are not necessarily unique to the brand but may in fact be shared with other

brands.These types of associations come in two basic forms: category and

competitive.Category points-of-parity are attributes or benefits that consumers

view as essential to a legitimate and credible offering within a certain product or

service category. In other words, they represent necessary—but not sufficient—

conditions for brand choice. Consumers might not consider a travel agency truly a

travel agency unless it is able to make air and hotel reservations, provide advice

about leisure packages, and offer various ticket payment and delivery options.

Category points-ofparity may change over time due to technological advances,

legal developments, or consumer trends, but to use a golfing analogy, they are

the “greens fees” necessary to play the marketing game.

Competitive points-of-parity are associations designed to overcome perceived

weaknesses of the brand. A competitive point-of-parity may be required to either

(1) negate competitors’ perceived points-of-difference or (2) negate a perceived

vulnerability of the brand as a result of its own points-of-difference. The latter

consideration, which we discuss in more detail later in this chapter, arises when

consumers feel that if a brand is good at one thing (easy to use), it must not be

good at something else (having advanced features).

One good way to uncover key competitive points-of-parity is to role-play

competitors’ positioning and infer their intended points-of-difference.

Competitor’s PODs will, in turn, suggest the brand’s POPs. Consumer research

into the trade-offs consumers make in their purchasing decisions can also be

informative.Regardless of the source of perceived weaknesses, if, in the eyes of

consumers, a brand can “break even” in those areas where it appears to be at a

disadvantage and achieve advantages in other areas, the brand should be in a

strong—and perhaps unbeatable—competitive position. Consider the

introduction of Miller Lite beer–the first major light beer in North America.
Topic: 05

Competitive Dynamics

Market Leaders:

A market leader has the largest market share and usually leads in price changes,

new-product introductions,distribution coverage, and promotional intensity.

Some historical market leaders are Microsoft (computer software), Gatorade

(sports drinks), Best Buy (retail electronics),McDonald’s (fast food), Blue Cross

Blue Shield (health insurance), and Visa (credit cards).

Increasing Market Share

No wonder competition has turned fierce in so many markets: one share point

can be worth tens of millions of dollars. Gaining increased share does not

automatically produce higher profits, however especially for labor-intensive

service companies that may not experience many economies of scale.

Much depends on the company’s strategy.

Because the cost of buying higher market share through acquisition may far

exceed its revenue value, a company should consider four factors first:

• The possibility of provoking antitrust action. Frustrated competitors are likely to

cry “monopoly” and seek legal action if a dominant firm makes further inroads.

Microsoft and Intel have had to fend off numerous lawsuits and legal challenges

around the world as a result of what some feel are inappropriate or illegal

business practices and abuse of market power.

• Economic cost: The cost of gaining further market share might exceed the value

if holdout customers dislike the company, are loyal to competitors, have unique

needs, or prefer dealing with smaller firms. And the costs of legal work, public

relations, and lobbying rise with market share. Pushing for higher share is less

justifiable when there are unattractive market segments, buyers who want

multiple sources of supply, high exit barriers, and few scale or experience

economies. Some market leaders have even increased profitability by selectively

decreasing market share in weaker areas.

• The danger of pursuing the wrong marketing activities. Companies successfully

gaining share typically outperform competitors in three areas: new-product

activity, relative product quality, and marketing expenditures.

Companies that attempt to increase market share bycutting prices more deeply

than competitors typically don’t achieve significant gains, because rivals meet the

price cuts or offer other values so buyers don’t switch.

• The effect of increased market share on actual and perceived quality. Too many

customers can put a strain on the firm’s resources, hurting product value and

service delivery.Charlotte-based FairPoint Communications struggled to integrate

the 1.3 million customers it gained in buying Verizon Communications’s New

England franchise. A slow conversion and significant service problems led to

customer dissatisfaction, regulator’s anger, and eventually bankruptcy.

Market-Challenger Strategies

Many market challengers have gained ground or even overtaken the leader.

Toyota today produces more cars than General Motors, Lowe’s is putting pressure

on Home Depot, and AMD has been chipping away at Intel’s market share.

A successful challenger brand in the beverage business is SoBe.

CHOOSING A GENERAL ATTACK STRATEGY

Given clear opponents and objectives,what attack options are available? We can

distinguish five: frontal, flank, encirclement, bypass, and guerilla attacks.

• Frontal Attack. In a pure frontal attack, the attacker matches its opponent’s

product, advertising, price, and distribution. The principle of force says the side

with the greater resources will win. A modified frontal attack, such as cutting

price, can work if the market leader doesn’t retaliate, and if the competitor

convinces the market its product is equal to the leader’s. Helene Curtis is a master

at convincing the market that its brands—such as Suave and Finesse—are equal in

quality but a better value than higher-priced brands.

• Flank Attack. A flanking strategy is another name for identifying shifts that are

causing gaps to develop, then rushing to fill the gaps. Flanking is particularly

attractive to a challenger with fewer resources and can be more likely to succeed

than frontal attacks. In a geographic attack, the challenger spots areas where the

opponent is underperforming. Although the Internet has siphoned newspaper

readers and advertisers away in many markets, Independent News & Media, a

102-year-old Irish media company, sells a majority of its 175 newspaper and

magazine titles where the economy is strong but the Internet is still relatively
weak—countries such as Ireland,South Africa, Australia, New Zealand, and India.

The other flanking strategy is to serve uncovered market needs. Ariat’s cowboy

boots have challenged long-time market leaders Justin Boots and Tony Lama by

making boots that were every bit as ranch-ready, but ergonomically designed to

feel as comfortable as a running shoe—a totally new benefit in the category.

• Encirclement Attack. Encirclement attempts to capture a wide slice of territory

by launching a grand offensive on several fronts. It makes sense when the

challenger commands superior resources.In making a stand against archrival

Microsoft, Sun Microsystems licensed its Java software to hundreds of companies

and thousands of software developers for all sorts of consumer devices. As

consumer electronics products began to go digital, Java started appearing in a

wide range of gadgets.

• Bypass Attack. Bypassing the enemy altogether to attack easier markets instead

offers three lines of approach: diversifying into unrelated products, diversifying

into new geographical markets, and leapfrogging into new technologies. Pepsi has

used a bypass strategy against Coke by rolling out Aquafina bottled water

nationally in 1997 before Coke launched its Dasani brand; purchasing orange

juice giant Tropicana in 1998, when it owned almost twice the market share of
Coca-Cola’s Minute Maid; and purchasing the Quaker Oats Company, owner of

market leader Gatorade sports drink, for $14 billion in 2000. In technological

leapfrogging, the challenger patiently researches and develops the next

technology, shifting the battleground to its own territory where it has an

advantage. Google used technological leapfrogging to overtake Yahoo! and

become the market leader in search.

• Guerrilla Attacks. Guerrilla attacks consist of small, intermittent attacks,

conventional and unconventional, including selective price cuts, intense

promotional blitzes, and occasional legal action, to harass the opponent and

eventually secure permanent footholds. A guerrilla campaign can be expensive,

although less so than a frontal, encirclement, or flank attack,but it typically must

be backed by a stronger attack to beat the opponent.

Market-Follower Strategies

Theodore Levitt argues that a strategy of product imitation might be as profitable

as a strategy of product innovation. In “innovative imitation,”as he calls it, the

innovator bears the expense of developing the new product, getting it into

distribution, and informing and educating the market. The reward for all this work

and risk is normally market leadership. However, another firm can come along

and copy or improve on the new product. Although it probably will not overtake

the leader, the follower can achieve high profits because it did not bear any of the

innovation expense.

Market-Nicher Strategies

An alternative to being a follower in a large market is to be a leader in a small

market, or niche, as we introduced in Chapter 8. Smaller firms normally avoid

competing with larger firms by targeting small markets of little or no interest to

the larger firms. But even large, profitable firms may choose to use niching

strategies for some of their business units or companies.

Product Life Cycles

1. Introduction— A period of slow sales growth as the product is introduced in the

market.Profits are nonexistent because of the heavy expenses of product

introduction.

2. Growth— A period of rapid market acceptance and substantial profit

improvement.

3. Maturity— A slowdown in sales growth because the product has achieved

acceptance by most potential buyers. Profits stabilize or decline because of

increased competition.

4. Decline— Sales show a downward drift and profits erode.

Marketing Strategies: Introduction Stage and the Pioneer Advantage

Because it takes time to roll out a new product,work out the technical problems,

fill dealer pipelines, and gain consumer acceptance, sales growth tends to be slow

in the introduction stage. Profits are negative or low, and promotional

expenditures are at their highest ratio to sales because of the need to inform

potential consumers, induce product trial, and secure distribution in retail outlets.
Firms focus on buyers who are the most ready to buy. Prices tend to be higher

because costs are high.Companies that plan to introduce a new product must

decide when to enter the market. To be first can be rewarding, but risky and

expensive. To come in later makes sense if the firm can bring superior technology,

quality, or brand strength to create a market advantage. Speeding up innovation

time is essential in an age of shortening product life cycles. Being early has been

shown to pay. One study found that products coming out six months late—but on

budget—earned an average of 33 percent less profit in their first five years;

products that came out on time but 50 percent over budget cut their profits by

only 4 percent. Most studies indicate the market pioneer gains the greatest

advantage.Campbell, Coca-Cola, Hallmark, and Amazon.com developed sustained

market dominance.Nineteen of twenty-five market leaders in 1923 were still the

market leaders in 1983, 60 years later. In a sample of industrial-goods businesses,

66 percent of pioneers survived at least 10 years, versus 48 percent of early

followers.What are the sources of the pioneer’s advantage? Early users will recall

the pioneer’s brand name if the product satisfies them. The pioneer’s brand also

establishes the attributes the product class should possess.It normally aims at the

middle of the market and so captures more users.

Customer inertia also plays a role; and there are producer advantages:

economies of scale, technological leadership, patents, ownership of scarce assets,

and other barriers to entry. Pioneers canspend marketing dollars more effectively

and enjoy higher rates of repeat purchases. An alert pioneer can lead indefinitely

by pursuing various strategies. But the advantage is not inevitable.Bowmar (hand

calculators), Apple’s Newton (personal digital assistant),Netscape (Web browser),

Reynolds (ballpoint pens), and Osborne (portable computers) were market

pioneers overtaken by later entrants. First movers also have to watch out for the

“second-mover advantage.” Steven Schnaars studied 28 industries where

imitators surpassed the innovators. He found several weaknesses among the

failing pioneers, including new products that were too crude, were improperly

positioned, or appeared before there was strong demand; product-development

costs that exhausted the innovator’s resources; a lack of resources to compete

against entering larger firms; and managerial incompetence or unhealthy

complacency. Successful imitators thrived by offering lower prices, improving the

product more continuously, or using brute market power to overtake the pioneer.

None of the companies that now dominate in the manufacture of personal

computers—including Dell, HP, and Acer—were first movers.

Peter Golder and Gerald Tellis raise further doubts about the pioneer

advantage.They distinguish between an inventor, first to develop patents in a

new-product category, a product pioneer, first to develop a working model, and a

market pioneer, first to sell in the new-product category.Through countless

variations,Trivial Pursuit has proven to be more than a passing fad. They also

include nonsurviving pioneers in their sample. They conclude that although

pioneers may still have an advantage, a larger number of market pioneers fail

than has been reported, and a larger number of early market leaders (though not

pioneers) succeed. Later entrants overtaking market pioneers include IBM over

Sperry in mainframe computers,Matsushita over Sony in VCRs, and GE over EMI in

CAT scan equipment. Tellis and Golder more recently identified five factors

underpinning long-term market leadership: vision of a mass market, persistence,

relentless innovation, financial commitment, and asset

leverage. Other research has highlighted the importance of the novelty of the

product innovation. When a pioneer starts a market with a really new product,

like the Segway Human Transporter, surviving can be very challenging. In the case

of incremental innovation, like MP3 players with video capabilities, survival rates

are much higher.