Chapter 6
Chapter 6
Chapter 6
Tactical Considerations in
Ernest R. Cadotte
University of Tennessee Designing Marketing Strategies
The formula for success in business and How do you create larger sales volumes?
marketing is very simple: Make a lot of peo- Offer a better product at a better price and
ple happy and you can earn a lot of money. tell everyone about it (advertising and sales
Here are the rules: force).
• Find out what people want (market You will always find that someone wants
research). to make money in the same market as you.
• Give them what they want (product Competitors will emerge and try to take
design). your sales and profits. How will they do this?
Smart competitors will study customers’
• Tell them you have what they want
needs and what you have to offer (bench-
(advertising).
mark) and then create and sell something
• Go to where they work and live and per- better. Usually, they find a group (segment)
sonally explain how you have the solution whose needs are not met and develop a supe-
to their needs (distribution). rior strategy targeted at that group.
• Collect the money for a job well done Customers will almost always gravitate
(price). toward the better offer. Your job is never
Sounds easy, right? Of course, there are a done: You must always check your offer
couple of things that get in the way. against the customers’ evolving needs (sat-
First, not all customers are alike. People isfaction level) and competitors’ offerings
have different tastes, preferences, and (benchmark) to make sure you have
needs. One offer will not work for every- the better product, price, promotion, and
one. As a result, many potential customers distribution.
will wait until they find the “right” solution In a nutshell, be the best at creating
for their needs. To paraphrase a famous what customers want, finding the cus-
quote, you can satisfy some of the people all tomers, and telling them how good you are
of the time, but never all of the people all of at meeting their needs. This should create
the time. So, demand may not be as great as many sales, drive down your costs, and thus
you would like. allow you to offer good prices with good
The way around this problem is to discov- profits. Of course, success is not this easy,
er the differences in needs among your but this is the essence of marketing.
customers (market research), break the cus-
tomers down into smaller groups with similar
needs (segmentation), and then develop a CHAPTER OVERVIEW
strategy for each group (target marketing). This chapter offers a set of guidelines for
Another challenge is that everyone making effective tactical decisions as part of
wants more for less. Sure, you would like to an overall marketing strategy. It is assumed
sell for less, but you have to pay your that you already have an organizational
expenses and earn a profit. One solution to strategy (see Chapter 3) and a marketing
this pricing dilemma is larger sales volumes, strategy that flows from it (see Chapter 4).
which result in lower cost per unit. Lower In this chapter, we begin with the imple-
costs will allow you to lower your prices mentation of the tactical details of the
and/or increase your profits. marketing strategy. Once you know what
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few additional sales. The value of better tomers; rather, it actually turned people
Potential Market Response Functions
sound reached a plateau, or a point of off. At the time of our study, machine
We can extrapolate seven response func- diminishing returns. shop operators were very happy with a
tions from the candy bar example (shown Some customers feel this way about precision of one-tenth of an inch. They
in Exhibit 6.3) that should be considered the processing speed of a personal had few requests for anything more.
when designing any new product. computer. If all one is doing is word When offered the potential of one-
1. More of a feature is always better. (See processing, financial spreadsheets, and thousandth precision, they worried that
Exhibit 6.3a.) This is the assumption e-mail, there is little need for all the the higher precision would be more dif-
most engineers and product managers horsepower being built into the state-of- ficult to maintain and would probably
make, and, in a large number of cases, it the-art processors by Intel. In fact, this cost a lot more.
is true. For example, a faster processor on group has been slower in upgrading its The inventors were dumbfounded by
a PC will create increasing excitement computers. our findings. They assumed that the
and product use among calculation- Customers might reach a plateau market was like themselves—more and
and data-intensive end users. More with the number of channels on cable more precision would always be exciting.
miles per gallon, longer battery life, TV, the size of a PC monitor, the 4. A little of a feature is just right; more
more insulating capability, and more cleanliness of a delivery truck, or the only takes away value. (See Exhibit
revolutions per minute (RPM) are the durability of an industrial fabric. It sim- 6.3d.) Some consumers want very sim-
kinds of things that are almost always ply does not pay to pursue more of ple calculators. They do not want
desired. these capabilities. anything more than the basic four func-
But it is wrong to assume that more 3. More of the feature will add value up tions: addition, subtraction, division,
of a feature is always better. Some cus- to a point, and beyond that point and multiplication. Each additional
tomers have different response functions more of the feature will detract from function only adds to confusion and
when more does not add value and may enjoyment. (See Exhibit 6.3c.) For frustration. They would never buy a sci-
even detract from it. Thus, adding more example, romance in a movie can be entific calculator. Ease of use is more
function keys to a keyboard might excite enjoyable, but too much romance can important than having a function for
one segment, add little value for another, be overbearing. Attentive waiters and every possible calculation.
and actually turn another one off. waitresses can be an asset to a restaurant Some older bicycle riders do not see
2. More of the feature will add value up but can quickly become a nuisance to the value of having more than three
to a point but then ceases to add any- customers if they constantly interrupt gears on a bicycle. Most people do not
thing more. (See Exhibit 6.3b.) For the dinner conversation. And the want to deal with any user manual that
example, TV manufacturers found that amount of carbonation, syrup, and is longer than a few pages, even when a
the addition of stereo sound to a TV water in a fountain drink all have tight big manual would help them get more
created much enthusiasm at first. As a tolerances; too much or too little is out of the equipment. And who wants a
result, almost 90 percent of all primary undesirable. lot of seasoning in their food when a lit-
TVs sold today have stereo sound. In a market opportunity analysis tle bit is just right?
However, adding further sound capabil- (MOA) of a metal-turning machine, we 5. Any amount of the feature is bad. (See
ity—adding a broader range of sound discovered that the ability to achieve a Exhibit 6.3e.) As discussed earlier, some
reproduction or more powerful speak- smooth surface to one-thousandth of consumers do not like coconut in a
ers—created no further excitement and an inch did not excite potential cus- candy bar. Other consumers find that
you are the best on the market. elastic, then a small increase in price will Your
Demand
cause demand to drop quickly (notice the
steeply dropping line at the bottom of the
PRICING graph). Conversely, a small decrease in price
{
∆p1
In the marketplace, price is a very impor- should cause a huge increase in demand. Your Price
{
∆p2
tant driver of demand. Pricing is probably There are many different response func-
just as important as product design in tions in the market. You might expect the
80
Cash Bonus
60 emphasis is on creating the right product
Gift (Spiff )
(which can require multiple redesigns), gen-
40 Professional
Training erating awareness of the new solution, and
20 encouraging customers to try it. Product
Demonstration
0 Kit design, advertising, and promotion domi-
0 nate relative to product assortment, prices,
2 4 6
–20 and distribution. Price can be less important
–40 if consumers think a new product can satis-
Duration of Effect (Qtrs) fy some unmet or poorly met need.
In the growth phase, the goal is to maxi-
mize sales volumes via more intensive
short-term spike in demand, often borrow- The goal is to change the way people think distribution, large-scale advertising cam-
ing sales from the future. and, thus, their propensity to buy (assum- paigns, and a broader assortment of
As previously argued, most markets are ing you do have the right product at the products with multiple price points. Mar-
price sensitive. In case after case, we have right price). keters are much more aware of the market’s
seen the demand curve shift upward The important point of this discussion response functions in this phase, and they
dramatically as the overall market price is that there are many options to improve employ many tactics to stimulate growth.
dropped. Henry Ford demonstrated this the balance in the marginal revenue/mar- In the maturity phase, competitive pres-
with the automobile, and we have seen it ginal cost comparison. Improvements on sures play a greater role in shaping demand
with calculators, cell phones, computers, either side of the equation can result in and marketing tactics. Demand is no longer
blood-testing equipment, CAT scanning expanded opportunities for distribution rising, and so there is greater competition
equipment, and computer-aided design and, thus, sales. for available demand. The market is relative-
equipment, to name just a few. Essentially, ly knowledgeable and can readily compare
falling prices put a desired good within the products and prices. To better serve the
MARKETING OVER THE LIFE market, build market share, and fight com-
financial reach of more and more customers.
C YC L E O F A P R O D U C T petitive pressures, suppliers engage in
Being the low-cost provider within a
segment is also one way to shift the demand Where a product is in its life cycle can microsegmentation, yielding a wider assort-
curve upward. Another option is to provide greatly influence the relative efficacy of ment of products and prices. Advertising
a portfolio of products at different price marketing tactics and thus its place in the shifts from building awareness to highlight-
points. Thus, the price-sensitive customer marketing strategy. Philip Kotler has pre- ing the relative advantages of one product
within a segment will be just as likely to pared an excellent summary of product over another or maintaining product recog-
find the desired product as the perfor- life cycle characteristics, objectives, and
mance-driven customer. And, of course,
there are many other pricelike incentives
that stimulate potential customers to buy. Exhibit 6.23: Strategic Focus over Product Life Cycle
Perhaps the most pervasive approach to maturity
shifting the demand curve upward is adver-
tising. Recognizing that it takes time to decline
develop truly new and better products and
that price is not what most suppliers like to
compete on, advertising is an attractive Demand
growth
option to expand the market base by expos-
ing more potential customers to the
want-satisfying characteristics of a product
or service. introduction
The logic is compelling. If there are
potential customers who do not know
about you, are not convinced that you can Time
Strategic Brand Design Distribution Price Pruning
meet their needs, do not know where to
Focus Advertising Advertising Features
buy your products, or simply have forgot-
Assortment Assortment
ten how good you are, then you can move Trade Deals
the demand curve upward by providing
informative and persuasive information.
The route girls helped advertise unproductive time traveling from store to though that cheapens the brand name and
the brand by demonstrating it. More store and most of their time taking care of could result in reduced market penetration.
important, they ensured that the invento- merchandise or working with the retailer. Price control also helped Hanes main-
ry was fresh so that customers would not There was little wasted time. tain its intensive distribution goal. Some
be disappointed because the selection was The “one-size-fits-all” approach also retailers would love to undercut smaller
depleted or the display was disorganized or made the route girl job easier. Consider, for stores in order to attract more customers.
dusty. Hanes knew the stock people in the example, a pantyhose assortment of four As the smaller retailers lost customers,
store would be too busy to provide the sizes and six colors. This would result in 24 they would lose their incentive to carry
level of care that it considered necessary. SKUs (4 3 6). With only one size, there are the brand. As the number of resellers
Another advantage of the route girls only 6 SKUs. Think of the savings in store declined, the convenience of buying
was that they entered unit sales into a inventory, restocking time, and the size of Hanes hosiery would decline, thus dimin-
computerized inventory control system. the delivery vehicles needed to transport ishing an important benefit to the
This system provided the factory with the inventory. consumer.
nearly instant information on which col- “One size fits all” had other advantages. Finally, the premium price did more
ors were selling well and which were not. It reduced the number of options that the than reinforce the brand image and add
The information allowed the factory to consumer had to sort through as well as the profit to the bottom line; it paid for every-
adjust production in line with demand possibility for error when she picked out thing. Hanes spent $15,000,000 on
and keep the levels of unwanted inventory her pantyhose. There were also substantial advertising and coupons. It hired route girls
low and the shelves filled with the right savings in the factory due to fewer and leased delivery trucks. It owned 100
selection. changeovers and lower inventory levels. percent of the inventory, and it was in vir-
Intensive distribution contributed to the Hanes’ pricing strategy also worked to its tually every supermarket, drugstore, and
success of route girls. Hanes wanted its advantage. The tactic of consignment selling convenience store in the market. It bought
pantyhose in virtually every supermarket, provided more than a low price to the retail- a display for every store and promised
drugstore, or convenience store in a market. er. It gave Hanes control over the retail price $1,300 in profits to every store. None of
These stores are so intensely distributed in so that it could not be discounted. When a this would have been possible without high
cities that most of them are only minutes store buys a good, it can set whatever price margins. High margins generated high rev-
apart. As a result, the route girls spent little it chooses. It can discount goods even enues that paid for high levels of product
quality, distribution, and promotion, which retailers have become smarter in merchandis- market. However, this was not true initially.
were needed to create the high demand ing pantyhose and dealing with suppliers Placement in convenience-oriented stores
Hanes was promising and needed—a truly We can look at the Hanes strategy in caused L’eggs to be placed in the evoked set
self-reinforcing strategy. terms of its awareness and application of of other brands sold through this channel.
Clearly, there was much more to the the market’s many response functions. Hanes reduced the initial unfavorable price
Hanes strategy than might meet the eye. Hanes could see that the consumer market comparison by providing a temporary price
Hanes recognized that it had two customers, was elastic with regard to looking good, reduction through couponing. Thus, the
the consumer and the channel. It developed elastic with regard to time, and potentially firm was able to play on the historical price
a marketing strategy for each customer. inelastic with regard to price. If the compa- sensitivity of the channel.
Both strategies were well coordinated. ny could help customers improve their Hanes also found the response functions
It is also clear that Hanes had multiple looks and save time, the market would of the distribution channel. It provided zero
objectives. In addition to delivering a high- allow a premium price. cost, high profit, and little effort to the
quality product that provided “good looks” The promotion campaign employed trade. Hanes came in strong on these tactics
and convenience, it set out to win the chan- many venues and messages, although only in order to counterbalance the historical
nel of distribution over to its way of one major theme, “looking good.” “Look- negative image that hosiery had in the
thinking and marketing. It also had the less ing good” was the hot button that caught channel.
obvious objective of reducing its risks in the consumer’s attention. The messages In conclusion, L’eggs is a great example
dealing with the channel. Hanes sought to were uncluttered in this respect. of a well-thought-out and executed strate-
control shelf location, pricing, and invento- Frequent advertising created tremen- gy. It demonstrates a clear understanding of
ry. This goal helped it to accomplish its dous awareness across the targeted the market’s many response functions and
other marketing goals. segments, but the diversity of media and how to exploit them. Moreover, the strate-
Obviously, the current strategy for market- messages avoided saturation in any single gy was well coordinated over time,
ing L’eggs pantyhose is substantially different outlet, and, thus, the downslope on the self-reinforcing, and clearly designed to
than the initial one. Competitors have advertising effectiveness curve. achieve specific market objectives.
entered the market, emulated the Hanes strat- By creating a strong brand identity,
egy, and improved upon it. The market has Hanes was able to create a little monopoly
changed. Consumer needs have evolved, and for its L’eggs brand and thus price above the