GYAAN KOSH TERM 4

Marketing Decision Making

This document covers the basic concepts of Marketing

Decision Making covered in Term 4. The document only
summarizes the main concepts and is not intended to be an
instructive material on the subject.
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CONTENTS

1. Go-To-Market Strategies

2. Marketing Research
a. MDS and Semantic Analysis (Perceptual Maps)
b. Conjoint Analysis

3. Sales Force Sizing

4. Resource Allocation

5. Forecasting Product Category Demand (Bass Model)

6. Estimating Maximum Willingness to Pay

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Go-To-Market Strategies

A Go-to-Market Strategy involves designing& managing an efficient& effective portfolio of "go-

to- market" participants that connect a firm with its customers to create sales.

Activities: Customer Attraction& Retention Activities: • Interest creation • Pre-purchase •

Purchase • Post-purchase; Other channel functions: Processing ownership, breaking bulk,
Delivery, Credit& finance.

Participants: Sales Force Options: Direct Sales Force Agents / Distributors / Retailers/Value-
Added Partners.
Non Sales Force: Advertising &/Promotion/Direct Mail/Tele-channels/Internet.

Steps in the Process:

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Marketing Research

Uses of marketing research:

Diagnostic analysis: Nature of the market? What is our current performance?

Opportunity analysis: Opportunities for growth?

Two Key Questions: What attributes does the consumer use in comparing competing
products& how do these characteristics relate to the technical features [Perceptions]. What
is the relative weight assigned to each attribute when deciding which product to buy
[Preference]

MDS and Semantic Analysis (Perceptual Maps)

Uses of Perceptual Maps:

1. Customer Analysis and Competitive Analysis

1. Understand the competitive market structure as perceived by customers.
a. Position relative to competition
b. Select the set of competitors to compete against

2. Represent customers’ perceptions in a manner that

aids communication and discussion within the
organization

2. Product
1. Perceptions of a new product concept in the context of existing brands in the market
2. Find the “gap” in the market to position the product Semantic Analysis

REMEMBER: Semantic Scaling always asks questions about the perceived products along
a number of dimensions.
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MDS Analysis:
REMEMBER: MDS always asks questions about SIMILARITIES and DISSIMILARITIES
between TWO Products on various attributes
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Conjoint Analysis

Steps in Conjoint:
a. Attribute list formation
b. Data collection
c. Utility Calculation
d. Market Simulation

Conjoint (trade-off) analysis has become one of the most widely-used quantitative methods
in Marketing Research. It is used to measure the perceived values of specific product
features, to learn how demand for a particular product or service is related to price, and to
forecast what the likely acceptance of a product would be if brought to market.
In contrast to simpler survey important of each attribute, situations. research methods that
directly ask respondents what they prefer or the survey important of each these
preferences are derived from these relatively realistic tradeoff attribute, situations.
Each profile includes multiple conjoined product features (hence, conjoint analysis), such as:

There are different ways to show product profiles.

Respondents usually complete between 12 to 30 conjoint questions. The questions are

designed carefully, using experimental design principles of independence and balance of the
features. By independently varying the features that are shown to the respondents and
observing the responses to the product profiles, the analyst can statistically deduce what
product features are most desired and which attributes have the most impact on choice.
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The result is usually a full set of preference scores (often called part-worth utilities)
for each attribute level included in the study. (This is obtained by running a
regression)

Summing up the part-worth utilities gives the utility of the particular

profile. Mathematical Representation Example:

Summary Steps of Conjoint Analysis Application:

2. Applying the choice Model (converting utility scores for product alternatives to probabilities
of choice):

a. Maximum utility rule (deterministic)

Pick the Product with the maximum utility score

b. Logit Model (Probabilistic)

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3. Mind Share Indications:

Pros and Cons of Conjoint Analysis:

Pros:
1. Results are easy to interpret& key attributes are easily established. 2. Attributes
can be categorical as well as intervally scaled.

Cons: 1. Relevant attributes& key levels must be known in advance 2. Approach gets messy
with many attributes& levels 3. Market share estimates obtained differ from actual shares.
Some Real-World Applications of Conjoint:
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Sizing the Sales Force

Four-Step Market-Based Process:

1. Customer Understanding: a) Identification b) Needs c) Buying processes

2. Customer Segmentation.

3. Segment Coverage& Assessment of segment value for the firm.

4. Sales Force Sizing.

Approaches to Sales Force Sizing:

1. Financial approaches:
a) Percentage of sales b) Affordability

2. Workload buildup approaches:

Develop the most appropriate workload for each market segment; Add up the effort
required to cover each of the market segments; SFS=SE/SEapp

3. Sales response:

Adbudg:

• Used to measure market response to advertising& sales force

• Uses judgments-structured survey among managers to harvest the collective
wisdom about market responsiveness
•Uses soft data to quantify market responses i.e puts equation to intuition
• Upside– very useful in scenarios with no data– quick–builds consensus–encourages
systematic thinking;
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Implementation:

What do you expect the sales level (relative to current levels) to be in response to
– no sales force
– 50% of current sales force
– 100% of current sales force
– 150% of current sales force
– saturation level sales force

Answering these questions is usually done by forcing a consensus estimate from a team of
managers– all members of the team first answer the questions privately– results are
revealed& discussed– adjustments are made& discussed until a single set of answers to
the 5 questions remains.

After the calculations are made, Sales Response is calculated as:

Sales response = min + (max – min) SFc/ (d + SFC) ; d = Competition Parameter, c = shape
parameter.
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Resource Allocation

Market Share Identity:

From Elasticities to Allocation:

Allocating resources across multiple products within an SBU:

1. Without interdependent demand:

2. With interdependent demand: Interdependent demand Examples: Gillette Sensor and

Gillette Sensor Prestige Detergents (Tide and Cheers) by P&G
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American Express Green, Gold and Platinum cards

Empirical Generalizations on Elasticities:

Allocating Resources across Segments

BCG Matrix Approach:

Classify Product/Business Groups on two dimensions:

– “market/industry attractiveness” [how good is the market]
– “company/business strength” [how strong am I]

Business strength is measured as “Relative Market Share’’

– The larger I am, the greater is the likelihood that I can generate cash

Industry Attractiveness is measured as “% age growth rate of the market”

– Growing industries are more attractive
– Growing industries require cash

Assumptions:
• All managers of various divisions share the same corporate goal
• All managers agree that opportunities vary at any point in time and over time
• There is sufficient information about ajor competitors and market structure
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Strengths
– easy to use
– diverse applications
• Resource allocation• Effect of mergers on strategy

Weaknesses
- Questions about share profitability link
– Assumptions about finite cash flow
– Subject to Moral Hazard
– Often misapplied as they appear to be “easy to use”
– Assumes independence across SBUs.

GE Mckinsey Matrix:

Two Dimensions– Industry Attractiveness– Business Strength • Specify drivers of each

dimension– Identify factors that are important• Weight drivers– Assign relative importance
weights drivers• Score each driver for the SBU• Multiply the weight with the score for each
SBU• View& interpret the graph• Perform sensitivity Analysis• Size of circle is the Market
Size• Size of the pie represents the Market Share of the SBU
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Forecasting Product Category Demand (Bass Model)

Introduction:
The “Bass model” as it has come to be known is undoubtedly one of the most widely used,
frequently referenced and thoroughly researched marketing models in the world. First
published in 1969, the model has withstood the test of time and technician who have added
numerous “bells and whistles” designed to extend it, expand it, add more variables and
more complexity. Yet the basic three parameter model continues to deliver accurate useful
forecasts and insights for executive decision about innovations that are opening new and
emerging markets.
What is so unique about the model? It is amazingly versatile. It can represent distinctly
different patterns of adoption from slow growth “sleepers” to instant hits ‘blockbuster” for
distinctly different products from state of the art consumer electronics to such common
tools as the toaster and the hair dryer. And, distinctly different fields from medical
breakthroughs like artificial insemination and rural innovations as bale hay.
It is a predictive model that allows us to forecast future adoptions, even when no data exists
for our innovation. We can use the parameters from the data base of products that had
similar characteristics when they were adopted.
The Model:
The model is built on two basic assumptions, that potential adopters of an innovation are
influenced by two types of communication channels. Broadcast media and interpersonal
channels. Individuals adopting a new product because of what they see or hear from mass
media advertising messages occur continually, but peak early in the product life cycle. And
individual adopting based on what they see or hear from prior adopters.
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Graphical Representation of New Adopters:

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Estimating Maximum Willingness to Pay

Steps:

1. Calculate the Exchange Rate

2. Using the Regression Data, find the Sum of all Utility From Non-Price Attributes
3. Multiply the Exchange Rate with the sum calculated in step 2 to obtain the

Maximum WTP. Example:

Let us say we now have 2 products with the following attributes:

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2. Sum of Non-Price Attributes can be calculated as below:

3. We get the Maximum WTP by multiplying Exchange Rate in Column 1 with the sum in
Column 8.