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Contents vii
Concluding Chapter
9 Marketing Strategy: Implementing Marketing Principles
and Data Analytics 259
Learning Objectives 260
Introduction 261
Trends Increasing the Importance of the First Principles Approach to
Marketing Strategy 263
Overview of the Four Marketing Principles: Problems and Solutions 264
Synergistic Integration of the Four Marketing Principles 267
Building Marketing Analytics Capabilities 270
Executing Marketing Strategies 272
Summary 276
Takeaways 277
References 278
Glossary 279
Index 283
List of Figures ix
List of Figures
1.1 Differences Between Corporate Strategy and Marketing Strategy 6
1.2 Decomposing Sales Revenue and Profit with the Chain Ratio 8
1.3 Four Marketing Principles: Aligning Key Marketing Decisions with the
First Principles of Marketing Strategy 10
1.4 Marketing Principle #1: All Customers Differ ➔ Managing Customer Heterogeneity 12
1.5 Marketing Principle #2: All Customers Change ➔ Managing Customer Dynamics 16
1.6 Marketing Principle #3: All Competitors React ➔ Managing Sustainable
Competitive Advantage 20
1.7 Marketing Principle #4: All Resources Are Limited ➔ Managing Resource Trade-offs 23
1.8 Integrating the Four Marketing Principles 25
2.1 Evolution of Approaches for Managing Customer Heterogeneity 41
2.2 GE Matrix: Analysis Tool for Targeting 50
2.3 Perceptual Map: Analysis Tool for Positioning 51
2.4 Restructuring for Customer Centricity 53
2.5 Marketing Principle #1: All Customers Differ ➔ Managing Customer Heterogeneity 54
2.6 Example of Managing Customer Heterogeneity 61
3.1 Evolution of Approaches for Managing Customer Dynamics 85
3.2 Typical Customer Product Lifecycle 87
3.3 Customer Dynamic Segmentation Approach (AER Model) 88
3.4 Hidden Markov Model Analysis: Relationship States and Migration Paths 90
3.5 Framework for Marketing Principle #2: All Customers Change ➔
Managing Customer Dynamics 98
3.6 Dynamic Segmentation: Hotel Example 103
3.7 Markstrat Simulation: Making Decisions When Dealing with Customer Dynamics 104
4.1 Evolution of Approaches for Managing Sustainable Competitive
Advantage in Marketing 129
4.2 Customer Equity Perspective: Brand, Offering, Relationship Equity Stack 131
4.3 Marketing Principle #3: All Competitors React ➔ Managing
Sustainable Competitive Advantage 136
4.4 AER Strategy and BOR Equity Grids 138
5.1 Ranking of the 10 Most Valuable Global Brands 153
5.2 Associative Network Memory Model of Brand Equity 154
5.3 True Loyalty Matrix 157
5.4 Brand Architecture Spectrum 159
5.5 Three Steps to Building Brand Equity 161
6.1 Innovation Radar: A Multidimensional Approach to Innovation 176
ix
x List of Figures
6.2 The Stage-gate Design Review Process for Effective Product Development 179
6.3 Sustaining vs. Disruptive Technical Innovations 183
7.1 Model of Interpersonal Relationships 199
7.2 Model of Interfirm (B2B) Relationships 200
7.3 Customer Relationship Lifecycle 206
8.1 Evolution of Approaches for Managing Resource Trade-offs 231
8.2 Response Model Shapes: Linear, Concave, and S-shaped 238
8.3 Marketing Principle #4: All Resources Are Limited ➔ Managing Resource Trade-offs 239
8.4 Optimal Resource Allocation (Uphill/Downhill) 245
9.1 Evolution of Marketing Data, Analytic Techniques, and Targeting Approaches 262
9.2 Integrating the Four Marketing Principles 269
List of Tables xi
List of tables
2.1 Sources of Customer Heterogeneity 36
3.1 Sources of Customer Dynamics 82
4.1 Market-based Sources of Sustainable Competitive Advantage 124
6.1 Comparison of Red and Blue Ocean Strategies 181
7.1 Highest Impact Relationship Marketing Activities 202
7.2 Relationship Marketing Best Practices 208
7.3 Key Relationship Dimensions and Example Measures 211
8.1 Sources of Resource Trade-offs 227
8.2 Components of Experimental Attribution 235
8.3 Types of Metrics 243
9.1 Summary of First Principles, Solutions, and Supporting Analytical Techniques 268
9.2 Building Methodological Capabilities across Three Key Purposes 271
xi
xii List of Data Analytics Techniques
xii
Author Biographies xiii
author Biographies
Robert Palmatier is Professor of Marketing and John C. Narver Chair of Busi-
ness Administration at the Foster School at the University of Washington. He
founded and serves as the research director of the Center of Sales and Marketing
Strategy at the University of Washington. He earned his bachelor’s and master’s
degrees in electrical engineering from Georgia Institute of Technology, as well as
an MBA from Georgia State University and a doctoral degree from the Univer-
sity of Missouri, followed by post-doctoral research at Northwestern University’s
Kellogg School of Management. Prior to entering academia, Professor Palmatier
held various industry positions, including president and COO of C&K Compo-
nents (global electronics company) and European general manager and sales
and marketing manager at Tyco-Raychem Corporation. He also served as a US
Navy lieutenant on board nuclear submarines.
Robert’s research interests focus on marketing strategy, relationship marketing, customer loyalty,
marketing channels, and sales management. His research has appeared in Harvard Business Review,
Journal of Marketing, Journal of Academy of Marketing Science, Journal of Marketing Research, Marketing
Science, Journal of Retailing, Journal of Consumer Psychology, Marketing Letters, and International Journal
of Research in Marketing. He has also published the leading textbook Marketing Channel Strategy; a
monograph entitled Relationship Marketing; and chapters in various texts, including Marketing Channel
Relationships, Relationship Marketing, Anti-Relationship Marketing: Understanding Relationship Destroying
Behaviors, and Understanding the Relational Ecosystem in a Connected World. His research has been
featured in the New York Times Magazine, LA Times, Electrical Wholesaling, Agency Sales, and The Repre-
sentor, as well as on NPR and MSNBC.
Robert is the Editor-in-Chief of the Journal of Academy of Marketing Science, which recently ranked
second among all marketing journals in its five-year impact factor. He serves as an area editor for
Journal of Marketing; and also sits on the editorial review boards for Journal of Retailing and Journal of
Business-to-Business Marketing. His publications have received multiple awards, including the Harold
H. Maynard, Sheth Journal of Marketing, Robert D. Buzzell, Lou W. Stern, MSI Young Scholar, Vara-
darajan Award for Early Contribution to Marketing Strategy Research, and the American Marketing
Association Best Services Article awards. He also has won multiple awards as a teacher of advanced
marketing strategy in the doctoral, EMBA, and MBA programs at the University of Washington.
Among the numerous industry and governmental committees on which Robert has served, he
chaired proposal selection committees for the National Research Council (NRC), National Academy
of Sciences (NAS), and the Wright Centers of Innovation, which awarded grants of $20 million for the
development of a new Wright Center of Innovation based on joint academic–industry proposals. He
has served on NASA’s Computing, Information, and Communications Advisory Group, with the
AMES Research Center. This advisory group assesses the current state of technology development
within academia, governmental agencies, and industry related to NASA’s information technology
activities and space exploration requirements; recommends future investment areas; and outlines a
sustainable process to ensure optimal investment strategies and technology portfolios for NASA’s
Space Exploration Enterprise. He also consults and serves as an expert witness for companies
including Alston+Bird, Paul Hastings, Microsoft, Telstra, Starbucks, Emerson, Fifth Third Bank, Wells
Fargo, Genie, Cincom, World Vision, and Belkin.
xiii
xiv Author Biographies
Preface
Aim of the Book
The primary goal of this book is to create a comprehensive, research-based, action-oriented guide for
an international audience of practicing managers and managers-in-training to develop, implement,
and evaluate real-world marketing strategies. Many marketing strategy classes rely almost exclusively
on business cases that may serve as exemplars of marketing strategy but also offer relatively limited
data analytics related to the decision-making process. Thus, students and future managers come away
with little insight into situations that differ from the case examples, as well as few analytical tools or
processes for developing or implementing effective strategies. They also might develop the mistaken
impression that a single firm’s successful solution to a marketing problem is evidence that the solution
will automatically generalize to other firms.
This book addresses these concerns by adopting a different approach that can be used separately or
in conjunction with traditional cases, by:
• Organizing the processes, tools, and chapters around the First Principles of marketing strategy to
give managers a structured framework for developing effective strategies for diverse marketing
problems.
• Integrating state-of-the-art data analytics techniques into all aspects of the strategic planning process
to allow managers to make more effective data-based decisions.
• Introducing the latest marketing research as underpinning for the guidance outlined in this book to
give managers evidence-based insights.
This approach – as captured in the title, Marketing Strategy: Based on First Principles and Data
Analytics – has been applied and refined at multiple universities by multiple professors for undergrad-
uate, MBA, and EMBA students for almost a decade. However, this is the first time the approach has
been summarized and offered in a textbook. Accordingly, this text expressly seeks to enable instructors
to add the First Principles approach, data analytics, and research-based insights to marketing strategy
classes. It also can support classes focused on data analytics as a strategic organizing framework to
tackle the challenges of today’s big data environments.
xv
xvi Preface
Marketing Managing
All customers differ
Principle (#1) customer heterogeneity
Marketing Managing
All customers change
Principle (#2) customer dynamics
Marketing Managing
All competitors react sustainable competitive
Principle (#3) advantage
Marketing Managing
All resources are limited
Principle (#4) resource trade-offs
Each First Principle or underlying assumption, when matched with its associated managerial deci-
sions, is a Marketing Principle (MP). For example, all customers differ, so firms must make strategic
decisions to manage customer heterogeneity, and together these insights constitute MP#1. This First
Principle approach to marketing strategy is unique. Its goal is to align the analysis tools, processes, and
research techniques offered in many consulting books, together with existing frameworks and insights
on the marketing mix (4Ps), competitors, and marketing tasks from traditional textbooks. Their align-
ment suggests tactics for “solving,” or at least addressing, the underlying First Principles. Organizing
the varied discussions around four fundamental principles means that every decision appears within
its meaningful context, which includes its impact on other decisions. This view and context establishes
a guiding purpose for strategic marketing efforts. Thus, it helps answer relevant student questions:
1 What are the real takeaways from a class on marketing strategy?
2 What tools do I have to help me make marketing decisions?
3 When should I use each specific framework or analysis tool?
1.1 Markstrat: A Tool for Practicing the First 3.3 Customer Lifetime Value Analysis
Principle Approach to Marketing Strategy
Diverse Examples
Examples are critical to making complex marketing concepts and arguments comprehensible and
compelling. This book includes more than 250 diverse marketing examples, reflecting 200
different companies, 25 countries, and most industry segments. The examples reveal how the focal
processes, tools, and frameworks apply to various situations. In addition, the international flavor
of the book is consistent with globalization trends in most industries and markets. A comprehen-
sive company, country, and industry example index provides an easy way to locate the diverse
examples.
DecisionPro Cases
2 Pacific Brands Case uses cluster analysis 5 Infiniti G20 Case uses a positioning map to
to identify and define the segments within understand how the market perceives the
the brassiere market and recommend Infiniti brand relative to competitors.
cost-effective advertising and promotional
activities.
2 FLIP Side of Segmentation Case uses cluster 6 Kirin USA Case uses a conjoint model to
analysis to segment and choose target understand what new beer Kirin should
markets. develop to improve their competitive
standing in the US.
2 Addison Wesley Longman Case uses a GE 6 Ford Hybrid Cars Case uses a Bass
matrix to allocate resources and support to forecasting model to understand the sales
each of three potential new offerings. growth of Ford Hybrid Car.
2 Suzlon Case uses a GE matrix to allocate 7 Convergys Case uses segmentation and
resources/support to each of three potential GE models to identify best customers for
new offerings. growing business.
2 ConneCtor PDA 2001 Case uses a perceptual 7 ABB Electric Case uses customer choice
map to help position a product in a key target model to identify which customers
market. should be targeted with a supplementary
marketing campaign.
2 Heineken Case uses a perceptual map to 8 Blue Mountain Coffee Case uses
reposition Heineken’s beer brands in the ADBUDG spreadsheet to determine Blue
Spanish market to increase sales. Mountain’s advertising budget for the
next year.
(Continued )
xx Preface
3 Bookbinders Book Club Case uses a customer 8 Syntex Laboratories (A) Case uses
choice model to evaluate different methods resource allocation model to identify how
(RFM, regression or binary logit) that are many sales reps Syntex should hire over
best for prioritizing customers to target for a the next three years and how the reps
campaign. should be allocated across products and
physician specialty types.
3 Northern Aero Case uses a customer lifetime 8 BrainCell Internet Advertising Case uses
value model, to evaluate the value of a typical Excel Solver to allocate an advertising
customer in each segment. budget to maximize profits.
2.2 Segmentation and Targeting Concept and Demonstration Analytics Technique, MEXL (Dentmax Case) 2
3.2 Positioning Concepts and Demonstration Analytics Technique, MEXL (Infiniti Case) 2
5.2 Choice Models Concept and Demonstration Analytics Technique, MEXL (TKL Case) 3
9.2 Conjoint Concept and Demonstration Analytics Technique, MEXL (Exteriors Case) 6
12.2 Response Models Concept and Demonstration Analytics Technique, MeXL (BRT Tribune 8
Case)
• We use the latest marketing research as underpinning for all our guidance, synthesizing more than 60
years of thought in marketing research in one book.
• We have added numerous analytics techniques to provide details and short examples about the most
popular analytical methods used by marketers, for you to customize your own toolkit from the
book.
• We have ensured that our material is package agnostic, and that it could integrate with several data
analysis (e.g., MEXL, SAS, SPSS) and market simulation (e.g., Markstrat) software packages.
• We have provided solutions to each of our broad cases, allowing you to learn how to apply the learning
from a data analytics problem.
xxiv Overview of First Principles of Marketing Strategy
xxiv
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