MarketingStrategyChapter04

Palmatier,1,MarketingStrategyChapter4,MarketingPrinciple#3AllCompetitorsReactManagingSustainableCompetitiveAdvantage,Agenda,IntroductionApproachesforManagingSustainableCompetitiveAdvantageEvolutionofSustainableCompetitiveAdvantageinMarketingCustomerEquityPerspectiveCustomerExperimentsFrameworkforManagingCompetitiveAdvantageInputstotheSustainableCompetitiveAdvantageFrameworkOutputsoftheSustainableCompetitiveAdvantageFrameworkProcessforManagingSustainableCompetitiveAdvantageTakeawaysCase,2,Palmatier,AllCompetitorsReact,Thepersistenteffortsbyallfirmsinthemarkettocopyandinnovate,suchthatallcompetitorsreact,constitutesathirdchallengethatmanagersconfrontThus,whenmanagersdeveloptheirmarketingstrategies,theyneedtoconsidercustomersheterogeneityanddynamism,butalsoanticipatecompetitorsreactions,nowandinthefuture,tobeabletobuildbarriersthatholdupagainstsustainedcompetitiveassaults,termedsustainablecompetitiveadvantages(SCA)TypicallyafirmmustestablishthesustainablepositionwithatargetedcustomergroupbeforetheycanbuildanSCAaroundthatpositionOfthefourFirstPrinciplesofmarketing,managingSCAmaybethemostdifficulttoexecute,Palmatier,3,BuildingSCAsisKeySince“AllCompetitorsReact”,Palmatier,“Theartofwarteachesustorelynotonthelikelihoodoftheenemysnotcoming,butonourownreadinesstoreceivehim;notonthechanceofhisnotattacking,butratheronthefactthatwehavemadeourpositionunassailable.”SunTzu,4,Example:Tesco(UK),UKgrocerygiant,worldsthirdlargestretailerExpandedtoothermarkets,includingUS,butfailedtobuildanSCAthatworkedinthosemarketsIntroducedlargestoreswithmassiveassortments,butmanyUSconsumersprefertovisitseveralstoresthatoffersmaller(butdeeper)assortmentsOverestimatedconsumerspreferencesforlocalbrandsExitedtheUSin2013,Palmatier,5,SustainableCompetitiveAdvantages(SCA),AfirmhasanSCAwhenitisabletogeneratemorecustomervaluethancompetitivefirmsinitsindustryforthesamesetofproductsandservicecategoriesandwhentheseotherfirmsareunabletoduplicateitseffectivestrategyAgoodSCAmeetsthreecriteria:CustomerscareaboutwhatthisSCAoffersThefirmdoesitbetterthancompetitors,whichgeneratesarelativeadvantageTheSCAmustbehardtoduplicateorsubstitute,evenwithsignificantresourcesThus,beingfirsttomarketwithanewideaisnotsufficienttocreateabarriertocompetitors,especiallyifdeep-pocketedmarketleadersrecognizethethreatofaninnovativenewentrantanddevotetheirresourcestoprotecttheirsalestoexistingcustomersTomakeanSCAhardtocopy,firmsoftenturntokeymarket-basedsourcesofSCAs,6,Palmatier,6,Marketing-BasedSourcesofSustainableCompetitiveAdvantage,Therearethreemarket-basedsourcesofsustainablecompetitiveadvantageBrandsismosteffectiveinlargeconsumermarketsMoreeffectiveforconsumergoodsAdvertising,PR,sponsorsOfferingseffectivebecausenewandinnovativeproductsandserviceshavethepotentialtodisruptvirtuallyanymarketsegmentRtradersonthesilkroutereliedonrelationaltrustwithothertraderstoexchangegoods.,Massproductionprovideseconomiesofscale.Moregeographicallydispersedcustomers.Emergenceofmiddlemen.Largesupplycreatestheneedforaggressivesalespromotions.Examples:OriginalbrandsbuiltonstrongfamilynamessuchasFerrari,J.C.Penney,andGillettetosignalqualityanddifferentiatethemselvesfromcompetitors.,Shiftfromtangibletodigitalandknowledgeproducts.Fasttechnologicalchangeandturbulence.Examples:AppleandGooglewhobothfocusontechnologicalinnovationandhavesurpassedCoca-Colaasthemostvaluablebrands.,Disintermediationremovesthemiddlemanbetweenproducerandconsumer.Economyshiftfromafocusonproductstoservices.Examples:IBMshiftedtosellingbusinesssolutionsratherthanequipment;financialservicefirmssuchasHSBCandWellsFargocontinuetogrow.,Interpersonalrelationshipsarethegreatestbarriertocompetitiveattacks,Brandsareimportanttosignalproductquality,Offeringsandinnovationsbecomekeysourcesofdifferentiation,AllthreeBORstrategiesarecriticaltosuccess,butrelationshipsarebecomingmoreimportantwiththeshifttoaserviceeconomyinmoredevelopedcountries(85%ofU.S.GNP),14,EvolutionofSustainableCompetitiveAdvantageinMarketing,Pre-IndustrialAgeinterpersonalrelationshipswerethegreatestbarriertocompetitiveattacksIndustrialRevolutionbrandsareimportanttosignalproductqualityTechnologyRevolutionofferingsandinnovationsbecomekeysourcesofdifferentiationServicesRevolutionallthreeBORstrategiesarecriticaltosuccess,butrelationshipsarebecomingmoreimportantwiththeshifttoaserviceeconomyinmoredevelopedcountriesSomeresearchersarguethatdevelopedcountiesareundergoingthenextSCArevolution,duetothewidershifttoaserviceeconomyDespitetheshiftingemphasesonthedifferentsourcesofSCA,allthreesources(brands,offerings,andrelationships)buildononeanotherandoftencombinesynergisticallytodetermineafirmsoverallSCA,Palmatier,15,CustomerEquityPerspective,Customerequityforafirmrefersto“thetotalofthediscountedlifetimevaluesofallitscustomers”Whenafirmadvertisestobuildstrongbrands,makesR“doubleblind”)Afterperiodoftimetestthedifferenceinoutcomesacrossgroupsandseeifitvariedsignificantly,23,Palmatier,23,MarketingExperiments,Marketingexperimentstesthowcustomersmightrespondtomarketingdecisions,whilerulingoutconfoundsthatotherwisewouldbepresentwhencomparingatreatmenttoacontrolgroup.,DAT4.1,Description,TodetermineifthereisadirectcausalrelationshipbetweenaspecificBOR(brand/offering/relational)investmentandcustomerorfirmoutcomes.TochooseamongasetofBORinvestmentstrategiesandtactics,accordingtotheirfinancialimpacts(e.g.,liftinsales).,WhentoUse,Anexperimentseekstoestablishacausalrelationshipbetweenanindependentvariable(BORinvestment)andanoutcome.Causalityimplies(1)theindependentvariableandoutcomevariableco-varytogether(e.g.,10%offthepriceonawebsiteandgreateronlinesales),(2)theindependentvariableprecedestheoutcomevariableintime(e.g.,onlinesalesaremeasuredafterthepricepromotionbegins),and(3)alternativeexplanationsforthemeasuredeffectcanberuledout.Toensurecausality,themarketingexperimentneedstobedesignedwell.First,agoodtreatmentgroupneedstobeinplace.AtreatmentreflectstheprecisestatementofthecausalBORrelationshiptobetested(e.g.,howmuchanincreaseinthecommissionpaidtoasalespersonincreasessalesbythissalesperson);atreatmentgroupisthegroupofsubjects(i.e.,salespeople)whoreceivethistreatment.Second,weneedacomparisongroup,inwhichthecausalfactorstaysconstant(e.g.,commissionstoanothergroupofsalespeoplestaythesame).Third,thetreatmentandcontrolgroupsabsolutelymustbesimilarinallotherrespects(e.g.,size,demographicmakeup,sellingmotivation,experience).Toachievethiscriterion,mostexperimentsuserandomassignmentstothetreatmentandcontrolconditions.Witharandomassignment,inaprobabilisticsense,thechancesofsubjectsreceivingthetreatmentareequalacrossthedifferentgroups.Then,inthefollowingequation,=1+,isthedependentvariableofinterestforcustomeri,theindicatorvariableiscoded1ifsubjectIisassignedtothetreatmentgroupand0otherwise,thecoefficient1isthetreatmenteffect,andthevectorcoefficientcapturesanycharacteristicsofthesubjectthatneedtobestatisticallycontrolledfortoestablishthecausaltreatmenteffect,otherthantherandomassignmentofthetreatment.Finally,capturesrandomstatisticalerror.Afterconductingtheexperiment,if1isstatisticallysignificant,thetreatmenteffectislegitimate.Dependingonthegoaloftheanalysis,experimentscanfeaturean“after-only”design,suchthattheymeasuretheeffectofamarketingactiononcustomerbehavioraftercustomershavebeenexposedtomarketingaction,ora“before-and-after”designandmeasuretheeffectofthemarketingactionbothbeforeandaftercustomershavebeenexposedtoit.,24,Palmatier,MarketingExperiments,DAT4.1,Objective,WhentoUs,ThefloraldeliverycompanyDFGbusinesswasinthemidstofitsquarterlymarketingbudgetmeeting.Notingthecompanyspent$250,000inannualadvertising,onemanagerquestionedwhetheritwaswarranted,orifDFGwasoverspending.Intheensuinginternaldiscussion,somemanagersinsistedthatthatlocaltelevisionadvertisingwascrucialtocreatingbrandequityandgeneratingrevenues;othersbelievedthecompanywasheavilyoverspending.Toresolvethepredicament,DFGdecidedtouseacontrolledexperiment.First,toensurecausality,itdefinedthetreatmentasa10%increaseinlocaltelevisionspotsinthenextquarterin50selectedregionalmarkets(treatmentterritories).Asacontrolgroup,itused50territoriesinwhichtheamountoflocaltelevisionspendingremainedthesame.Inaddition,DFGgatheredbrandawareness,brandrecall,andsalesfiguresinthequarterpreceding(T0)andthequarterduring(T1)thetreatment,thencalculatedthedifferencesbetweenT0andT1,acrossthetreatmentandcontrolterritories(i.e.,before-afterdesign).Toensurevalidity,DFGstatisticallycontrolledforthedemographic(income,education,agedistribution,racedistribution,genderdistribution)andeconomic(buyingpower,retailpenetration,Internetpenetration)makeupofboththecontrolandtreatmentterritories.Forthebrandawarenessmeasure,itsequationwas:()=1+,where()isthechangeinT1(overT0)inbrandawarenessinterritoryi,theindicatorvariableiscodedas1iftheterritoryIisassignedtothetreatmentgroupand0otherwise,thecoefficient1isthetreatmenteffect,thevectorcoefficientcapturesanycharacteristicsoftheterritorythatneedtobestatisticallycontrolledfortoestablishthecausaltreatmenteffect,andcapturesrandomstatisticalerror.Thecompanyestimatedthreeregressionequationstoobtainthecoefficient1fromthreedifferentmodels,capturingthestatisticalchangesinbrandawareness,brandrecall,andsales,respectively,duetoincreasesinlocaltelevisionadvertisingrelativetothecontrolcondition.Thetreatmenteffectwassignificantineachregression:Thegrowthofbrandawareness,brandrecall,andsalesinthetreatmentterritorieswere1.5%,3.2%,and3%,respectively,whenDFGincreaseditslocaltelevisionadvertising(cf.thecontrolgroup).DFGearns$25,000,000insalesannually,sotheexperimentgavethedecisionmakersinthecompanyconfidencethatthegrowthinsalesduetolocaltelevisionadvertisingwouldpaidoff.Thus,anexperimenthelpedresolveaninternalconflictwithinDFG.,25,Palmatier,Example:FindBestInternet“Ad”,YouwanttogetpeopletobuysupplementalitemswhenbuyingonlineplaneticketsYouhaveexistingadYourbosswantstouseanewswimsuitadTake5minutesanddesignyourexperimentaltesttomakethedecisionDiscuss:SamplesourceandsizeResearchdesignAnalysisofdataAddressbiasconcerns:timeofyear,day,weather,otherprintadsrunning,other,26,Palmatier,26,ResultsofExperiment(UsingExcel),27,Palmatier,RandomlyassigncustomersAnalysisMeanMedianStd.dev.DifferenceingroupsT-testtodetermineifdifferenceinmeansissignificantExceldoesallofthis,27,NaturalExperiments(DataMining),Notasastrongtestofcausality,butoftenonlychoiceUsenaturalvariationorshocktobusinessExample:Competitorenteredthreemarketsandyoursalesforcehasrespondeddifferently(matchedprice,heldprice,gavefreeshipping).UsedifferencesineffectonsalestoseewhatisbeststrategyBut,whatifterritoriesarenotthesame(size,brandstrength,typesofproductssold)?Youcandothesametestwhile“controlling”fortheseothervariables(comparingmeansorregression)Strategiesmayworkbetterforsomecustomersthanothers(segmentandtest),28,Palmatier,28,CustomerEquityPerspectiveOffersManyBenefitsButItIsHardtoDo,Customerequityperspectiveinvolvesbuildingandmaintainingaparallel“customer-centricaccountingprocess,”outsidethefirmsnormalfinancialaccountingprocessTherearethreemainargumentsforusingcustomerequityaccountingandaBORequitystackBORequitiesareoftentheprimarysourceofafirmsSCATomakeoptimaldecisions,afirmneedsaframeworkthatmeasures,tracks,andreportscustomerequitiesEffectivecustomerequitysystemsrepresentaSCAintheirownrightSuboptimalmarketingdecisionshappeninfirmseveryday,atmanydifferentmanagementlevels,andespeciallyduringeconomicdownturnsManyfirmsprimarySCAresultfromtheirBORinvestmentsandstrategies,butothersourcesofSCAareavailabletoo,includingdeepandlowcostfinancialresources,humanresourcestrategies,andoperationalprocessesTheseaspectsfalloutsideofthescopeofamarketingstrategy,sotheframeworkwepresentinthenextsectionfocusesinsteadonimplementingacustomerequityperspectiveusingaBORequitystack,Palmatier,29,Agenda,IntroductionApproachesforManagingSustainableCompetitiveAdvantageEvolutionofSustainableCompetitiveAdvantageinMarketingCustomerEquityPerspectiveCustomerExperimentsFrameworkforManagingCompetitiveAdvantageInputstotheSustainableCompetitiveAdvantageFrameworkOutputsoftheSustainableCompetitiveAdvantageFrameworkProcessforManagingSustainableCompetitiveAdvantageTakeawaysCase,Palmatier,30,FrameworkforManagingSustainableCompetitiveAdvantage,Theorganizingframeworkformanagingsustainablecompetitiveadvantages(SCA)integratestheprecedingapproachesandanalysesThreekeyinputs:PositioningstatementsAERstrategiesFuturetrendsTwooutputs:SCAsBORstrategies,Palmatier,31,MarketingPrinciple#3:AllCompetitorsReactManagingSustainableCompetitiveAdvantage,Palmatier,ManagingSustainableCompetitiveAdvantage,Approachesthemosteffectivestrategiesacrosstime(accountingforcustomerdynamics)areinthebrand,offering,andrelationshipcategoriesBoththeseoutputs(SCAandBORstrategies)representaggregationsofinsightsgainedfrommorefine-grainedanalyses,combinedandreorganizedtosupporteffectivemacro-leveldecisionmaking,Palmatier,35,ProcessforManagingSustainableCompetitiveAdvantage,Step1:AERStrategyGrideachboxinthisgriddescribesthemosteffectivestrategyforauniquepersonaatasinglepointintimeStep2:KeyTrendsmanagersshouldaccountforkeyenvironmentaltrends(e.g.,long-termtechnologyorregulatorychanges)sothatinvestmentsinBORstrategiesleadtoSCA,nowandlaterStep3:BOREquityGridcompletedtodescribethreekeypiecesofinformationfortheBORstrategiesMarketingobjectivesRelativeadvantagesSourcesofsustainability,Palmatier,36,NaturalSequenceforUsingBrands,Offerings,andRelationshipstoBuildanSCA,Afirmshouldmakebranddecisions,whichareinfluencedbythefirmsoverallpositioningobjectivesfromMP#1andMP#2andlargelydeterminehowthefirmwillbepositionedintheoverallmarketplaceandinexistingcustomersmindsThefirmcanthenfocusonitsofferingdecisions;productandserviceinnovationandRfirmsmustprotectthemfromconstantattacksbycompetitors.AlthoughSCAarecritical,firmsmustfirstestablishtheirdifferentiatedpositionwithatargetedcustomergroupbeforebuildingSCAaroundthisposition.AllSCAmustmeetthreeconditions:(1)customersmustcareaboutwhatitoffers,(2)thefirmmustdoitbetterthancompetitors,and(3)itmustbehardtoduplicate.Inmarketingdomains,theprimarysourcesofSCAarebrands,offerings(innovativeproductsorservices),andrelationships(BOR).ThestrongestSCAuseallthreestrategiesincombinationtoreinforcethedifferentiatedandtargetedappealofafirmtocustomers.,Palmatier,42,Takeaways,ExperimentscanrevealthecausalityofBORinvestments,byrandomlyassigningcustomerstomultiplegroupswithdifferentBORinvestmentlevels/designs,includingbothtreatmentandcontrolgroups,tominimizepotentialconfounds.CompetitorshavemanywaystoundermineafirmsSCA,includingtechnicalinnovations,exploitingcustomerschangeddesires,findingbettersolutionstoaproblem,andintroducing“me-too”offeringswithgreaterefficiency.Acustomerequityperspectiveimpliesthatcustomersshouldbeconsideredassets,managedandtrackedthatway,toimprovefirmperformance.Investmentsinbrands,offerings,andrelationshipsrepresentimportantsourcesofcustomerequity.TherearethreeinputstotheSCAframework:theoutputofMP#1aboutwhatcustomerswantandhowthefirmshouldpositionitself,theoutputofMP#2aboutthemosteffectiveAERstrategiesascustomerschange,andlong-termenvironmentaltrends.,Palmatier,43,Takeaways,ThetwooutputsoftheSCAframeworkare:adescriptionofafirmsSCAnowandinthefutureandadescriptionoftheBORstrategiesneededtoachieveit.Thethree-stepprocessformanagingSCAincludesanAERStrategyGrid,ananalysisofkeyenvironmentaltrends,andaBOREquityGrid.Technology,regulatory,andsocioeconomictrendsconstantlychange;afirmscompetitorsconstantlytrytofindnewwaystosatisfycustomersneedsanddesires.Thesechangesallhaveth