COURSE OVERVIEW

Roy D. Shapiro, Core Reading: Process Analysis, HBP No.

8007 (Boston: Harvard Business School Publishing, 2013).
Marketing Process
CONCEPT MAP-MM1

Profits
CASE METHOD OF LEARNING

Roy D. Shapiro, Core Reading: Process Analysis, HBP No.

8007 (Boston: Harvard Business School Publishing, 2013).
CASE PREPARATION
3-Discussion in classroom

2-Group Preparation

1-Individual Preparation
 CREATING
CUSTOMER VALUE

Types of customer value

• HOW WOULD YOU WIN THIS ORDER FOR PHILIPS?
What would be the basis for winning the order?

• Will you win the order on economic parameters?

• Will you win it on functional parameters?
• Will you win it on relationship and brand credibility?
• Will you win it on any other?
Roy D. Shapiro, Core Reading: Process Analysis, HBP No.
8007 (Boston: Harvard Business School Publishing, 2013).
Why should we pay so much more for a LED
compared to a CFL lamp?

Roy D. Shapiro, Core Reading: Process Analysis, HBP No.

https://www.youtube.com/watch?v=1ey8O_7e00I
8007 (Boston: Harvard Business School Publishing, 2013).
Why do we pay so much more for a hybrid
compared to a regular cars?
Why should we pay so much more for a bowl of pop-
corn at a movie compared to that made at home?
 What is the value proposition here?

https://www.youtube.com/watch?v=5i0pabFdVaY
Four Types of Customer Value
 ECONOMIC VALUE:
What should be the price of an LED lamp?
COST OF OWNING THREE DIFFERENT BULBS LED CFL INCAND

LIFE SPAN 50,000 HRS 10,000 HRS 1,200 HRS

WATTS PER BULB (EQUIV. 60 WATTS) 10 14 60
COST/BULB ? 120 10
KWh ELECTRICITY OVER 50,000 HRS 500 700 3000
COST OF ELECTRICITY (@INR 5/KWh) 2500 3500 15000
BULBS NEEDED FOR 50,000 HRS USE 1 5 42
COST OF BULBS FOR 50,000 HRS ? 600 420
TOTAL COST OF OWNERSHIP 4100 15420
Roy D. Shapiro, Core Reading: Process Analysis, HBP No.
8007 (Boston: Harvard Business School Publishing, 2013).
Value to the Customer versus Value to Seller
Why is the customer ready to pay $1000 for Product-X whereas 1100 for Product-Y?-
CUSTOMER DELIVERED VALUE?
Four Types of Customer Value
CUSTOMER MOTIVATIONS (CUSTOMER VALUE)
 Assignment Question-1

• Calculate the economic value of the X-TREME for a retail

company with 250 machines running under existing virus-
protection software.

Assignment Question-2
• Calculate the economic value of the X-TREME for a BFSI
company with 250 machines running under existing virus-
protection software.

Roy D. Shapiro, Core Reading: Process Analysis, HBP No.

8007 (Boston: Harvard Business School Publishing, 2013).
 Economic Value of X-Treme for a Retail client
License
RETAIL Cost Usage Cost Breakdown Cost TOTAL

With existing virus $80· 250 machines = $20,000 [(8%· 1) + (3%· 2) + (0%· 3)] · $40,000 =
protection $4,500 (update cost) $5,600 $30,100

$50· 250 machines = $12,500

With X-TREME x (startup cost) (2%· 1) · $40,000 = $800 x + $13,300

EVCX-TREME = x = $30,100 − $13,300 = $16,800

Roy D. Shapiro, Core Reading: Process Analysis, HBP No.

8007 (Boston: Harvard Business School Publishing, 2013).
 Economic Value of X-Treme for a BFSI client
License
BFSI Usage Cost Breakdown Cost TOTAL
Cost

With existing virus $80· 250 machines = [(8%· 1) + (3%· 2) + (0%· 3)]·
protection $4,500 $20,000 (update cost) $85,000 = $11,900 $36,400

With X-TREME x $50· 250 machines = (2%· 1) · $85,000 = $1,700 x+

$12,500 (startup cost) $14,200

EVCX-TREME = x = $36,400 − $14,200 = $22,200

Roy D. Shapiro, Core Reading: Process Analysis, HBP No.

8007 (Boston: Harvard Business School Publishing, 2013).
 ATTRIBUTE
BASED
(FUNTIONAL)
VALUE
ASSESSMENT
FUNCTIONAL VALUE:

Which Laptop would you prefer?

 Which is your preferred Cereal?

Cereal Taste Calories Organic Claims Price

Cheerios 10 8 6 8
Post Bran Flakes 8 9 8 3
Kashi 7 Whole Grain 6 8 10 5

ORGANIC
SEGMENT TASTE CALORIES CLAIM PRICE
HAWK 40% 10% 30% 20%

SLIMSY 20% 50% 20% 10%

BALAN 30% 30% 30% 10%

Roy D. Shapiro, Core Reading: Process Analysis, HBP No.

8007 (Boston: Harvard Business School Publishing, 2013).
 Natural/
  Organic Overall Rank
Taste Calories Claims Price Score Order

HAWK: Profile 1
Importance weight 0.4 0.1 0.3 0.2    

Cheerios 10.0 8.0 6.0 8.0 8.2 1

Post Bran Flakes 8.0 9.0 8.0 3.0 7.1 3
Kashi 7 Whole Grain Puffs 6.0 8.0 10.0 5.0 7.2 2

SLIMSY: Profile 2
Importance weight 0.2 0.5 0.2 0.1    
Cheerios 10.0 8.0 6.0 8.0 8.0 1
Post Bran Flakes 8.0 9.0 8.0 3.0 8.0 1
Kashi Whole Grain Puffs 6.0 8.0 10.0 5.0 7.7 3

BALAN: Profile 3
Importance weight 0.3 0.3 0.3 0.1    
Cheerios 10.0 8.0 6.0 8.0 8.0 1
Post Bran Flakes 8.0 9.0 8.0 3.0 7.8 2
Roy D. Shapiro, Core Reading: Process Analysis, HBP No.
Kashi Whole Grain Puffs 6.0 8.0 10.0
8007 (Boston: Harvard Business School Publishing, 2013).
5.0 7.7 3
 SOCIAL VALUE

• Snob Appeal : Ferrari, BMW

• Network Effect : Android users, apple users
• Preference formation : number of views, likes for music/video

SOCIAL VALUE MEASUREMENT

• Market research- Car clinic
• Brand value

Roy D. Shapiro, Core Reading: Process Analysis, HBP No.

8007 (Boston: Harvard Business School Publishing, 2013).
Experiential Value: Unique Design of the
Apple Store
Elegant Interior Designs

Engaging Websites
https://play.barbie.com/en-us/games/barbie-fast-flying-photoshoot-game
CUSTOMER MOTIVATIONS (CUSTOMER VALUE)
Marketing Process
https://www.afaqs.com/creative-showcase/tv/too-hot-to-handle-or-too-cold-to-feel-comf
ortable
CUSTOMER MOTIVATIONS (ELEMENTS OF CUSTOMER VALUE)
 CLV

Measuring Value of Customers

Segments
Profit by segment
Retention Rate
One-time acquisition cost
Time value
CLV
TATA SKY

Onetime Customer
Acquisition Cost 8000 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Rev/month 600 7200 7200 7200 7200 7200 7200 7200 7200 7200 7200
Variable cost/year 600 600 600 600 600 600 600 600 600 600 600
Gross Margin/year 6600 6600 6600 6600 6600 6600 6600 6600 6600 6600
Retention rate 90 6600 5940 5346 4811 4330 3897 3508 3157 2841 2557
NPV (Discount) 10% 6000 4909 4017 3286 2689 2200 1800 1473 1205 986
Cumulative NPV -2000 2909 6926 10212 12901 15101 16900 18373 19578 20564
 Harvard ManageMentor — MARKETING ESSENTIALS TOOLS

Worksheet for Calculating the Lifetime Value of a Customer

Use this worksheet to calculate the Lifetime Value of one of your customers.

Customer name:

Basic Formula

Estimate # of Average price Cost to acquire Lifetime Value of

customer transac- Number of per purchase a customer a Customer
tions in lifetime purchases per visit ($) ($) ($)

X X – =

Projected Formula, 5 Year Period

Revenue Cost Referrals Profit
(Include gross revenue (Calculate costs to service (Add net value of referred ($)
generated) this customer, including accounts)
marketing, and costs of
making and delivering
product or service)

Year 1
– + =
Year 2
– + =
Year 3
– + =
Year 4
– + =
Year 5
– + =
TOTAL:

©Harvard Business School Publishing. All rights reserved.

Sample Problem
Solution
 HubSpot Case

• If you were Halligan and Shah, what would you do? Why?

• Who should HubSpot Target?

 Segment Selection Considerations

• Cost-Benefits analysis: Would the cost of serving diverse customer base justify
the benefits the firm gains in doing so? (are segments equally profitable?)
• Implications for product design: Are the customer segments looking for
different value that will make it difficult for the firm to make one product that
meets these different needs adequately?
• Do the customers share similar value delivery streams from the product or do
they extract differential value from the product making a single pricing
strategy inefficient?
• Would customer retention/defection vary for a single product for all the
segments versus a different product for each?
• By narrowing the segment choice, would the growth targets of HubSpot get
affected?
• Should HubSpot give up on some of the customer prospects and leads?
 Average Churn Rate (from Table A in case)

Subscription (1/churn rate)

Number of Months on Paid

Owner Ollies 4.3% 23 months

Marketer Marys 3.2% 31 months
B2B Customers 3.3% 30 months
B2C Customers 6.0% 17 months
HubSpot
 Marys
Value to customer

Ollie

Value of Product over Time

Measuring Customer Loyalty (NPS)
CUSTOMER SATISFACTION ( CUSTOMER LOYALTY)

NET PROMOTER SCORE (NPS)

NPS
NPS vs. Growth
Customer Delight: Going Beyond Satisfaction

• Research shows that delight is a function of 3

components
– Unexpectedly high levels of performance
– Arousal (e.g., surprise, excitement)
– Positive affect (e.g., pleasure, joy, or happiness)
• Is it possible for customers to be delighted by
very mundane services?

• Progressive Insurance( a case in delight)

 Profitability

• Value Captured- Cost of value creation and delivery

• Estimating Demand
• Breaking Even
Consumer Behavior (Across Motivational Conditions)
Summary of Differences in Purchase Across Core Motivational contexts

PURCHASE A B C

Trigger
Depletion/ situation/
Felt need?

Info Search
How long?
Sources of info?
How intense?

Evaluation of
Alternatives
what criteria?
Weights? How
many alternatives?

Decision Rule
What was the
Primary
consideration for
final purchase?
Summary of Differences in Use Across Core Motivational contexts
USE/ OWNERSHIP A B C
Usage:
Who? When? Where?
How ? How long? How
often? Feelings and
opinions about
consumption
experience?

Relationship:
Good/B/mixed/ love-
hate/ dependency/
friendly?

When went wrong:

Stock-out? No part/no
service?
What went right:
+ve Surprises?
Extraordinary
performance

Strength:
Active/mediocre/weak?
Consequences:
Predisposed to
rebuy/WoM/ Vocal
Exhibit TN-5 Summary of Differences in Purchase and Use Across Core Motivational contexts

 CHOICE DECISION: Means to an End End in itself

  Low Involvement High Involvement Hedonic/Ego Expressive

Decision Sequence Know-Do-(Feel) Know-Feel-Do Feel-Do-(know)

Process Trigger Stock depletion Gap (actual vs. desired state) Impulse

Search/Information Passive Active Bias to confirm

preferences
Gathering

Evaluation of Limited/None Rational Rationalizing

Alternatives

Primary Decision "buy the Familiar" "Buy the Best" "Buy what I like"/ “Go for
something Different"
Rule(s)
USAGE EXPERIENCE:
Satisfaction Model Absence of negatives/ Performance minus brand self-image
expectations as compared to congruency
Inertia model available alternatives

Brand Loyalty Habit Reward for Performance Affective commitment

Pivotal relationship Behavioral Brand partner quality, trust Love & commitment
Facet interdependence

Consequences of Predisposition to buy Repeat intention Repeat intention

consumer-Brand Positive word-of mouth Consumer
Relationship Price premium missionaries
Resistance to
competition
Trial of brand
extensions
Willingness to pay
more
Tolerance,
forgiveness,
accommodation

Continue
MARKETING CONSIDERATIONS

Marketing Role in Product provision of Clear and relevant

Affecting Purchase availability information articulation of brand
image/brand equity

Central Threat to Saliency and Better performing Change in self or

Relationship Continuity interrupts alternative brand image
 Take-aways
• Many CB models exists
• Aspects of such behavior may be useful for
segmentation
• No one dominant model
• Basically there are 3 motivational conditions
underlying consumer behavior (Low-involvement,
hedonic and utilitarian)
• Alternative marketing strategies relevant to different
motivational conditions can be identified
• The motivational category is consumer dependent
rather than just product dependent
Exhibit TN – 6 Core Descriptive Concepts for Analysis of Consumer Behavior

Define the Market

What consumer problems are we trying to solve?
What goals trying to help consumers attain?
What needs, latent or manifest, trying to fill?

Decision – Making Unit

Who uses the product?
Who makes the purchase?
Who approves the purchase?
Who makes the choice?
Who pays?
Who evaluates the outcome of the choice?

Use Frequency
Heavy Users
Light Users

Market Diffusion process

What were consumers doing before product was there?

What will make the product obsolete?

What characteristics of product facilitate the adoption?
What characteristics of consumers facilitate adoption?
Who are the early adopters?
Who are the laggards?
Continue
What Characterizes the ongoing relationship between product and
consumer?
What kinds of things have gone wrong in the relationship?
What kinds of positive surprises have happened?
If characterizing relationship by analogy to human relationships, is it:
- Partnership
-Master/slave
-Best friend
-Casual acquaintance
-True love
-Dependency
-Transitory passion

Decision-Making Process
Type
Utilitarian?
Low involvement?
Ego-expressive?
Hedonic?
Sequence:
What triggered the need?
Is there a search for information on:
How to choose?
Which alternatives to choose among?
What criteria to use?
How each alternative performs on each criterion?
How are alternatives evaluated?
How is subsequent experience fed back into decision?
What would cause the decision to be re-evaluated?
Continue
 Brand Relationship Quality
Compared to other brands, how strong is this brand on
- love - commitment
- trust - interdependence
- intimacy - attachment

Relationship Effects
How likely is consumer to recommend brand to others?
How likely to try an extension of brand?
How inoculated against competition?
How long is the relationship likely to persist?
How large is the set of other brands consumer would consider?
Does the brand command a price premium?

Segmentation
Which aspect of consumer behavior serve as the basis for forming segments, for example:
Benefit segments
Usage frequency segments
Relationship strength (committed, swing vote) or type (friend partner)

Attributes of product/service influencing choice?

How do consumers judge similarity/diference in brands?
Which attributes are determinant in choosing?
What is the relative importance of attributes?

Continue
Attributes of Buying situation inflencing choice?
Why are non-buyers not buying?
What keeps needs latent (not conscious)?
What keeps them passive (low priority)?

How is the product Used?

How much, how often, when, where, with whom?
What would increase amount used, frequency of use?
what aspects of the experience are salient/not
salient?
To what/whom is success credited?
To what/whom is failure blamed?
How is the product stored when not in use?
How is it stored in transit?
How is it applied/dispensed?
What services accompany the use situation?
B2B Buying Behavior
1. Who Influences Buying?

Who makes up the buying group?

How will the parties interact? And Who will dominate?

What are each one’s priorities?

How do they see us (our product and people) ?

B
U
Y
I
N
G

CE
N
TE
R
2. Who is powerful?

Powerful but Invisible

Power # Organizational Rank

Corporate Authority- Persuasion

Exercise status repeatedly

One Dominant power base

B
U
Y
E
R

P
O
W
E
R
 How to locate the powerful?

• Using third party introductions. Food services, maintenance

services
• Building relations with most powerful members
3. What are their motivations?
4. How do the perceive our product and our people?
 6.User

5.Gatekeeper 1. Initiator
Super
Client
4. Buyer 2. Decider

3.Influencer
POWERFULNESS

Reward Power
MOTIVATIONS Coercive Power
Attraction Power
Financial Expert Power
Product/Service Status Power
Social-Political
Personal
 7
Identifying Market
Segments and Targets
 Effective Targeting Requires Marketers to:

• Identify and profile distinct groups of buyers who differ in

their needs and preferences
• Select one or more market segments to enter
• Establish and communicate the distinctive benefits of the
market offering
 What Is a Market Segment?

A market segment consists of a group

of customers who share a similar set
of needs and wants.
Segmenting Consumer Markets

Geographic

Demographic

Psychographic

Behavioral
 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.
SEC Rural Consumers
 Demographic Segmentation

• Age and life cycle

• Life stage
• Gender
• Income
• Generation
• Social class
• Race and Culture
Age and Lifecycle Stage
Gender and Income
SEC Classification: Urban Markets
Psychographic Segmentation
and The VALS Framework
Behavioral Segmentation Based on Needs and
Benefits

Needs and Benefits

Decision Roles
User and Usage
Behavioral Segmentation: Decision Roles

Initiator

Influencer

Decider

Buyer

User
Behavioral Segmentation: Behavioral Variables

• Occasions • Buyer-Readiness
• Benefits • Loyalty Status
• User Status • Attitude
• Usage Rate
Figure 7.2 Example of a Brand Funnel
 Loyalty Status

• Hard-core
• Split loyals
• Shifting loyals
• Switchers
Figure 7.3 Behavioral Segmentation Breakdown
 Segmenting for Business Markets

• Demographic
• Operating variable
• Purchasing approaches
• Situational factors
• Personal characteristics
 Steps in Segmentation Process

• Need-based segmentation
• Segment identification
• Segment attractiveness
• Segment profitability
• Segment positioning
• Segment acid test
• Market mix strategy
 Effective Segmentation Criteria

• Measurable
• Substantial
• Accessible
• Differentiable
• Actionable
 Porter’s Five Forces Model

Threat of Rivalry

Threat of Buyer Threat of Supplier

Bargaining Power Bargaining Power

Threat of Threat of
Substitutes New Entrants
Figure 7.4 Possible Levels
of Segmentation
 For Review

• What are the different levels of market segmentation?

• How can a company divide a market into segments?
• What are the requirements for effective segmentation?
• How should business markets be segmented?
• How should a company choose the most attractive target
markets?