Marketing Strategy

Chapter 6 (Offerings)

Marketing Principle #3
All Competitors React  Managing
Offering-based Sustainable Competitive
Advantage
© Robert Palmatier 1
 Agenda
• Introduction
• Offering and Innovation Strategies
• Developing Innovative Offerings
• Repositioning and Disruptive Innovations
• Conjoint Analysis
• Launching and Diffusing Innovation Strategies
• Psychological, People, and Products Factors
• Bass Diffusion Model
• Managing Offering-Based Sustainable Competitive Advantages
• Steps to Building Offering Equity
• Research Approaches to Designing and Launching New Offerings
• Takeaways
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 Developing an Innovative Offering is Critical
to Many Firms’ SCA
• GE is pursuing 100 “imagination breakthrough” projects to drive growth
• “Innovation is the only way that Microsoft can keep customers happy
and competition at bay” (Ballmer)
• Today, innovation is the number one strategic priority at 40% of
companies versus 19% in 2005 (BCG)
• 86% of senior managers believe that “innovation is more important than
cost reduction for long-term success” (Bain)
• However: short-term business pressures often undermines
innovation
• CEOs want returns from marketing in 6-12 months
• Resources taken from long-term initiatives to hit short-term targets
• Accounting practices for market-based assets impact decisions
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 Innovation Offering
• Innovative new offerings help firms build and maintain SCA
and barriers to the competitive attacks that arise because
competitors continually react to a firm’s success (MP#3)
• Offering is a purposely broad term that captures both
tangible products and intangible services provided by firms
• Most offerings must be augmented by and linked to brands
and relationships to ensure the firm’s SCA, because it
generally is relatively easy for competitors to copy offerings,
given enough time and money

© Palmatier 4
 Example: Dell (US)
• Dell operates in a technology space, but perhaps its most compelling
innovation has been the ordering and logistics processes that it
introduced in the market
• Building-to-order “semi-custom” computer products and selling
them directly to consumers online was radical when it first appeared
• Dell’s SCA did not depend on its design or manufacturing
competencies; Dell even outsourced the manufacturing. Rather, the
SCA came from an offering in which it built computers to order,
sold them online, and significantly cut costs by avoiding the
expenditures associated with maintaining storefronts and inventory
or suffering obsoletion costs
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 What Is Innovation?
• Innovation is the “creation of substantial new value
for customers and the firm by creatively changing
one or more dimensions of the business”
• Key Aspects of Innovation
• Broader than product or technology innovation
See 12
• Must generate new value for customer and seller
Different
• Involves change leading to differentiation and SCA Ways for
Companies
• How did Starbucks, Dell, and IPod create value and SCA? to Innovate

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(Sawhney, Wolcott, and Arroniz)

Many Aspects of the Offering Can be Innovated
• There are many different ways a firm can innovate; it helps define the
innovation space according to what, who, how, and where aspects
• Change what the firm offers, in line with a traditional view of new product or
service innovation
• Changing who the customer is represents another route that involves
innovations related to customers, experiences, and value capture
• Changing how you sell to customers pertains to the processes, organizations,
and supply chains that a firm uses
• Changing where to sell to customers comprises presence, networking, and
brand innovations
• Innovation Rader
• Captures many different ways a firm can innovate; helps define the innovation
space according to what, who, how, and where
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 Innovation Radar
Changing Brand Offering W
where to sell Leverage HA Changing
to customers RE Develop new T what the firm
E the brand products or offers
H into new services Platform
W Networking markets Use
Interconnections
interchangeable
as a strength
designs
Solutions
Presence Provide a total
Change where solution
products are sold

Organization Value capture

Change firm Change how
structure customers pay

Experience
Supply chain Change Changing who
Change supply Customer customer
Changing the customer
chain Processes Change interactions is
how to sell to

HO
H

Change customers to
customers
OW

W
operating target
processes

Adapted from Sawhney, M., Wolcott, R.C., & Arroniz, I. (2006),

“The 12 Different Ways for Companies to Innovate,” MIT
© Palmatier
Sloan Management Review, Vol. 47 (3), p. 75.

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 Starbucks
Offering
Brand
(WHAT) Platform

Networking Solution

Presence Customers
(WHERE) (WHO)

Supply Chain Customer Experience

Organization Value Capture

Process
(HOW)
© Palmatier 9
 Offering
Walmart
(WHAT)
Brand Platform

Networking Solution

Presence Customers
(WHERE) (WHO)

Supply Chain Customer Experience

Organization Value Capture

Process
(HOW)
© Palmatier 10
Innovation Radar Exercise: Take a Few Minutes
and Develop Innovation Ideas
1. Offering: Develop new products or new services
• Team exercise (IPOD)
2. Platform: Design modular platforms and strategic
• Think of one way to control points (Nissan)
3. Solution: Solve end-to-end customer problems
innovate for the assigned (John Deere)
radar dimension 4. Customer: Discover unmet customer needs or
underserved segments (DIY)
• Use one of the 5. Experience: Rethink how customers interface with
you (IKEA)
companies below: 6. Value Capture: Redefine how you get paid
• Your firm (Google)
7. Processes: Innovate in your core operating
• T-Mobile processes (Progressive)
8. Organization: Change form, function or scope
• Microsoft (IBM, Arrow)
9. Supply chain: Rethink sources (Dell)
• Alaska Airlines 10. Presence: Innovative points of presences
• Nordstrom (Starbucks at airport)
11. Networking: Integrated offering, leverage others
© Palmatier
(Otis elevator) 11
12. Brand: Leverage the brand into new domains
(Virgin)
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 Benefits of Innovation and Offering’s Equity

• By building offering equity, an innovative firm can make it more

difficult for competitors to encroach on its business
• Offering equity refers to the core value that the performance of the
product or service offers the customer, absent any brand or
relationship equity effects
• New offerings often motivate customers to switch from competitors
to the innovative firm, to gain access to the new product
• New offerings also can help the firm acquire new customers or enter
new markets when they offer similar performance but at a lower price
• Offering new and innovative products tends to enhance the firm’s
brand, even if customers don’t buy the new offering
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Example: BlueScope (Australia)
• BlueScope is an international supplier of steel products
based in Australia
• Patented groundbreaking Castrip process that produces
70% less greenhouse gas emissions and requires 10% of
the floor space of conventional steel mills
• To protect its offering equity from foreign competitors,
the innovation is patented. The protected innovation is
highly anticipated to enhance BlueScope’s positioning as
a leading global supplier of steel products and solutions.
© Palmatier 13
 Example: TomTom (the
Netherlands)
• Netherlands-based electronics company TomTom launched
its first navigation product in 2002 when there were
relatively few firms focusing on this area
• Through quick innovation and responding to customers’
needs, TomTom was able to stay ahead of its competitors
and build itself into a world-recognized brand that, by 2007,
had more than 50% of the market share in Europe for
navigational devices
• However, GPS-enabled smartphones have now disrupted
TomTom’s once strong position in this application.
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 Agenda
• Introduction
• Offering and Innovation Strategies
• Developing Innovative Offerings
• Repositioning and Disruptive Innovations
• Conjoint Analysis
• Launching and Diffusing Innovation Strategies
• Psychological, People, and Products Factors
• Bass Diffusion Model
• Managing Offering-Based Sustainable Competitive Advantages
• Steps to Building Offering Equity
• Research Approaches to Designing and Launching New Offerings
• Takeaways
© Palmatier 15
 Offering and Innovation Strategies

• Marketing contributes to and defines offering and innovation

strategies in two main ways:
1. It helps the firm develop innovative offerings by collecting customer input and
forecasting customer and market trends, so that the firm can understand the
trade-offs among potential product attributes
2. Marketing is responsible for launching the new offering to customers to
generate sales with acceptable profit levels
• Many good products fail to achieve their set financial objectives due
to poor product launches
• Extensive efforts go in to test marketing and understanding the
factors that will influence whether customers adopt a new offering
and increase the likelihood of a successful launch
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Developing Innovative Offerings
• Most firms rely on a stage-gate development process to
increase the speed of their offering development and enhance
their likelihood of success, while also reducing development
costs
• A stage-gate model divides the development process into a
series of steps or stages
• Each project gets evaluated, on multiple dimensions, by
independent evaluators in each stage
• This method thus helps ensure effective development
approaches through several elements
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 Example: Tata Motors (India)
• Tata Motors innovated the Nano, the cheapest car in the
world, launched in 2009 at a sale price of just $2,000
• Most car manufacturers use a sedan chassis to begin building
new models; Tata challenged the conventional wisdom and
started with a blueprint featuring a scooter’s backbone
• The ultimate product cost less to build and thus was
affordable in the Indian market, but perhaps even more
important, it turned out to be better suited to busy Indian
traffic patterns, which require quick and frequent
maneuvering
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 Conjoint Analysis Helps Make New
Offerings “More” Successful
• Product superiority drives financial success
• Largest predictor of new product success
• Good designs are 5 times more likely to succeed than poor designs
• Product design requires making tradeoff decisions (price,
performance, size, location, features…)
• Conjoint analysis: process for determining the “unit-less”
tradeoff among attributes and set of attributes that maximizes
appeal (sales, share)

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Conjoint Analysis Process
1. Design study
• Select attributes and levels (range and #)
• Develop bundles (< 16 optimal)
2. Collect data from respondents
• Design data collection instrument
• Calculate partworths
3. Evaluate product design options
• Evaluate market simulations
• Evaluate different choice rules
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 Example: Kellogg’s (US)
• Launched Breakfast Mates – a single serving of breakfast cereal,
a spoon, and a serving of pasteurized milk that did not require
refrigeration
• Kellogg’s positioned the innovation as a solution for harried
parents who wanted to give their children breakfast in the
morning but were often rushing out the door to make it to
school on time
• Positioning was ineffective, because Kellogg’s failed to realize
that parents hated the idea of giving their children a product that
would enable them to spill milk all over the back seat of the car

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